PACIFICAMERICA MONEY CENTER INC
8-K, 1998-07-02
MORTGAGE BANKERS & LOAN CORRESPONDENTS
Previous: CONSOLIDATED GRAPHICS INC /TX/, 8-K, 1998-07-02
Next: BUDGET GROUP INC, 8-K, 1998-07-02



<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                             -----------------------


                                    FORM 8-K


        Current Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

         Date of Report (Date of earliest event reported) June 25, 1998


                        PACIFICAMERICA MONEY CENTER, INC.
             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                   <C>                                 <C>       
           California                          0-20897                        95-4465729
  (State or other jurisdiction        (Commission File Number)               (IRS Employer
       of incorporation)                                                  Identification No.)
</TABLE>


                          Ventura Boulevard, Suite 102
                        Woodland Hills, California 91364
          (Address of principal executive offices, including zip code)


Registrant's telephone number, including area code:  (818) 992-8999


<PAGE>   2
Item 5.  Other Events

               On June 25, 1998, the PacificAmerica Home Equity Loan Trusts
Series 1998-2F and Series 1998-2V (the "Trusts") issued an aggregate of $200
million in securities backed by home equity loans ("Mortgage Loans") originated
by Pacific Thrift and Loan Company ("Pacific Thrift"), a wholly-owned subsidiary
of PacificAmerica Money Center, Inc. (the "Company"). The Trusts were formed
pursuant to Trust Agreements, each dated as of June 1, 1998, between Merrill
Lynch Mortgage Investors, Inc. (the "Depositor") and Wilmington Trust Company,
the Owner Trustee. The Series 1998-2F Trust was formed to hold approximately $62
million of fixed rate loans, and the Series 1998-2V Trust was formed to hold
approximately $138 million of adjustable rate loans. The securities were issued
by the Trusts in the form of notes (the "Notes"), pursuant to the terms of
separate Indentures, each dated as of June 1, 1998, between each of the Trusts
and Bankers Trust Company of California, N.A. (the "Indenture Trustee"). The
Notes are insured under a financial guaranty insurance policy issued by
Financial Security Assurance Inc., and are rated "AAA" by Standard & Poor's
Ratings Services and "Aaa" by Moody's Investors Service, Inc. The offering of
Notes was underwritten by Merrill Lynch, Pierce, Fenner & Smith ("Merrill
Lynch"). The terms of the Notes and a description of the Mortgage Loans sold by
the Company to the Trust are contained in a Prospectus Supplement dated June 22,
1998, to Prospectus dated June 22, 1998, included as part of a registration
statement filed by the Depositor with the Securities and Exchange Commission.

               The Company sold fixed rate Mortgage Loans having an aggregate
principal balance of approximately $46 million to the Series 1998-2F Trust as of
the closing date of the securitization, and may sell up to an additional
approximately $16 million of fixed rate loans to the Series 1998-2F Trust by
August 25, 1998. The Company sold adjustable rate Mortgage Loans having an
aggregate principal balance of approximately $102.5 million to the Series
1998-2V Trust as of the closing date of the securitization, and may sell up to
an additional approximately $35.5 million of adjustable rate loans to the Series
1998-2V Trust by August 25, 1998. The terms of the sale of Mortgage Loans are
contained in two separate Home Equity Loan Purchase Agreements, one for the
fixed rate loans and one for the adjustable rate loans, each dated as of June
22, 1998 (the "Loan Purchase Agreements"), by and among PAMM, the Depositor, the
Trust and the Indenture Trustee. The Loan Purchase Agreements provide, among
other terms, that the sale of the Mortgage Loans is non-recourse except for the
obligation to repurchase or replace Mortgage Loans upon a breach of certain
standard and customary representations and warranties.

               The Company is named as Master Servicer for the Mortgage Loans
under Servicing Agreements dated June 1, 1998 by and among the Company, the
Indenture Trustee and each of the Trusts. Advanta Mortgage Corp. USA
("Advanta"), has been appointed as Sub-Servicer for the Mortgage Loans, and will
provide substantially all servicing related to the Mortgage Loans.

               The Company intends to obtain an advance on the interest-only
strip receivable retained by it in each of the Trusts under the Master
Assignment Agreement, dated as of

                                        2

<PAGE>   3
December 18, 1997 (the "Master Assignment Agreement"), with Merrill Lynch
Mortgage Capital, Inc.("MLMCI").


               Except for historical information contained herein, statements in
this report are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks include, among others, risk of
inability to meet loan production goals; risk of changes in market for loan
securitizations, risk of loss on the interest-only strip receivables resulting
from differences between actual and assumed prepayment or loss experience; risk
of loss of funding sources for loan originations; risk of loss of credit
enhancement; loan delinquencies and defaults; possible decline of collateral
values for loans; fluctuations in interest rates; competition in the lending
industry; and possible regulatory enforcement actions and legislative action.
For more complete information concerning factors which could affect the
Company's financial results, reference is made to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and other reports filed with the
Securities and Exchange Commission.

Item 7.  Financial Statements and Exhibits

               (c) Exhibits. (Each of the documents listed below is for the
Series 1998-2F Trust. Substantially similar documents exist for the Series
1998-2V Trust, but these documents have not been filed, because the terms are
substantially the same, except for provisions relating to the interest rate
terms of the mortgage loans sold, as the documents filed herewith for the Series
1998-2F Trust.

10.1           Home Equity Loan Purchase Agreement, dated as of June 22, 1998,
               by and among the Company, Merrill Lynch Mortgage Investors, Inc.
               ("Depositor"), PacificAmerica Home Equity Loan Trust Series
               1998-2F, as issuer (the "Trust"), and Bankers Trust Company of
               California, N.A. ("Indenture Trustee").

10.2           Indenture, dated as of June 1, 1998, between the Trust and the
               Indenture Trustee.

10.3           Amended and Restated Trust Agreement, dated as of June 1, 1998,
               between the Depositor and Wilmington Trust Company ("Owner
               Trustee").

10.4           Servicing Agreement dated June 1, 1998, by and among the
               Company, the Indenture Trustee and the Trust.

                                        3

<PAGE>   4
                                   SIGNATURES

               Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.


Dated:  July 2, 1998              PACIFICAMERICA MONEY CENTER, INC.



                                    By:/s/JOEL R. SCHULTZ
                                        Joel R. Schultz
                                        President and Chief Executive Officer


                                        4

<PAGE>   5
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
Number            Description
- ------            -----------
<S>            <C>  
10.1           Home Equity Loan Purchase Agreement, dated as of June 22, 1998,
               by and among the Company, Merrill Lynch Mortgage Investors, Inc.
               ("Depositor"), PacificAmerica Home Equity Loan Trust Series
               1998-2F, as issuer (the "Trust"), and Bankers Trust Company of
               California, N.A. ("Indenture Trustee").

10.2           Indenture, dated as of June 1, 1998, between the Trust and the
               Indenture Trustee.

10.3           Amended and Restated Trust Agreement, dated as of June 1, 1998,
               between the Depositor and Wilmington Trust Company ("Owner
               Trustee").

10.4           Servicing Agreement dated June 1, 1998, by and among the Company,
               the Indenture Trustee and the Trust.
</TABLE>



<PAGE>   1
                                                                    EXHIBIT 10.1


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

                     MERRILL LYNCH MORTGAGE INVESTORS, INC.
                                   as Company,


                        PACIFICAMERICA MONEY CENTER, INC.
                                   as Seller,


              PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F
                                   as Issuer,

                                       and

                    BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
                              as Indenture Trustee



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

                       HOME EQUITY LOAN PURCHASE AGREEMENT

                            Dated as of June 22, 1998

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



                            Fixed Rate Mortgage Loans



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


<PAGE>   2
                                TABLE OF CONTENTS

                                    ARTICLE I

                                   DEFINITIONS

<TABLE>
<S>                                                                   <C>
Section 1.1. Definitions ....................................           2

                                   ARTICLE II

                  SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

Section 2.1. Sale of Initial Mortgage Loans .................          16
Section 2.2. Obligations Regarding the Mortgage Loans .......          16
Section 2.3. Conveyance of the Subsequent Mortgage Loans ....          19
Section 2.4. Pre-Funding Account ............................          22
Section 2.5. Interest Coverage Account ......................          23

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES;
                               REMEDIES FOR BREACH
Section 3.1. Seller Representations and Warranties ..........          24
Section 3.2  Company Representations and Warranties .........          38

                                   ARTICLE IV

                               SELLER'S COVENANTS
Section 4.1. Covenants of the Seller ........................          39
Section 4.2. Payment of Expenses ............................          40

                                    ARTICLE V

                  CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE

Section 5.1. Conditions of Company's Obligations ............          41

                                   ARTICLE VI

                      LIMITATION ON LIABILITY OF THE SELLER
                       WITH RESPECT TO THE MORTGAGE LOANS

Section 6.1. Limitation on Liability of the Seller ..........          41
</TABLE>


                                       -i-


<PAGE>   3
<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>

                                   ARTICLE VII

                                   TERMINATION

Section 7.1. Termination ....................................          42
Section 7.2. Optional Redemption ............................          43

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS
Section 8.1. Amendment ......................................          44
Section 8.2. Governing Law ..................................          44
Section 8.3. Notices ........................................          44
Section 8.4. Severability of Provisions .....................          45
Section 8.5. Relationship of Parties ........................          46
Section 8.6. Counterparts ...................................          46
Section 8.7. Further Agreements .............................          46
Section 8.8. Intention of the Parties .......................          46
Section 8.9. Successors and Assigns; Assignment of Purchase Agreement  46
Section 8.10. Survival ......................................          47
Section 8.11. Third Party Beneficiary .......................          47
</TABLE>


                                    Exhibits

Exhibit 1 Mortgage Loan Schedule for Initial Mortgage Loans

Exhibit 2 Subsequent Transfer Instrument


                                      -ii-


<PAGE>   4
                                      -1-


               This HOME EQUITY LOAN PURCHASE AGREEMENT (this "Agreement"),
dated as of June 22, 1998, is made among PacificAmerica Money Center, Inc. (the
"Seller"), Merrill Lynch Mortgage Investors, Inc. (the "Company"),
PacificAmerica Home Equity Loan Trust Series 1998-2F (the "Issuer") and Bankers
Trust Company of California, N.A. (the "Indenture Trustee").

                              W I T N E S S E T H :

               WHEREAS, the Seller owns certain fixed rate Mortgage Loans
indicated on the Mortgage Loan Schedule attached as Exhibit 1 hereto (the
"Initial Mortgage Loans"), including rights to (a) any property acquired by
foreclosure or deed in lieu of foreclosure or otherwise, and (b) the proceeds of
any insurance policies covering the Initial Mortgage Loans;

               WHEREAS, pursuant to the terms of this Home Equity Loan Purchase
Agreement the parties hereto desire that the Seller sell (i) the Initial
Mortgage Loans to the Company on the Closing Date and (ii) the Subsequent
Mortgage Loans to the Issuer on each Subsequent Transfer Date, and that the
Seller make certain representations and warranties on the Closing Date and on
each Subsequent Transfer Date;

               WHEREAS, the Company will sell the Initial Mortgage Loans and
transfer all of its rights under this Home Equity Loan Purchase Agreement to the
Issuer on the Closing Date;

               WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer
will issue and transfer to or at the direction of the Company, the Certificates;

               WHEREAS, pursuant to the terms of the Indenture, the Issuer will
issue and transfer to or at the direction of the Company, the Notes; and

               WHEREAS, pursuant to the terms of the Servicing Agreement, the
Master Servicer will service the Mortgage Loans directly or through one or more
Subservicers;

               NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:


<PAGE>   5
                                      -2-


                                    ARTICLE I

                                   DEFINITIONS

               Section 1.1. Definitions. For all purposes of this Agreement, all
capitalized terms used herein shall have the meanings specified herein.

               Addition Notice: With respect to the transfer of Subsequent
Mortgage Loans to the Trust pursuant to Section 2.3 herein, a notice in
substantially the form set forth in Exhibit 3 to this Agreement given to the
Rating Agencies, the Indenture Trustee, the Note Insurer and the Owner Trustee,
which shall be given not later than seven Business Days prior to the related
Subsequent Transfer Date, of the Seller's designation of Subsequent Mortgage
Loans to be sold to the Issuer and the aggregate principal balance as of the
Subsequent Cut-off Date of such Subsequent Mortgage Loans.

               Appraised Value: The appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property
at such time of origination. With respect to a Mortgage Loan the proceeds of
which were used to refinance an existing mortgage loan, the appraised value of
the Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.

               Assignment of Mortgage: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.

               Bankruptcy Code: The Bankruptcy Code of 1978, as amended.

               Basic Documents: The Trust Agreement, the Certificate of Trust,
the Indenture, this Agreement, the Insurance Agreement, the Indemnification
Agreement, the Servicing Agreement, the Sub-Servicing Agreement and the other
documents and certificates delivered in connection with any of the above.

               Business Day: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
California or in the city in which the corporate trust offices of the Indenture
Trustee or the principal office of the Note Insurer are located, are required or
authorized by law to be closed.


<PAGE>   6
                                       -3-

               Business Trust Statute: Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., as the same may be amended from time to
time.

               Certificate of Trust: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.

               Certificates or Home Equity Loan Asset-Backed Certificates: The
PacificAmerica Home Equity Loan Asset-Backed Certificates, Series 1998-2F,
evidencing the beneficial ownership interest in the Issuer and executed by the
Owner Trustee in substantially the form set forth in Exhibit A to the Trust
Agreement.

               Certificateholder: The Person in whose name a Certificate is
registered in the Certificate Register. Pledgees of Certificates that have been
pledged in good faith may be regarded as Certificateholders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee,
as the case may be, the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Issuer, any other obligor upon the
Certificates or any Affiliate of any of the foregoing Persons.

               Closing Date: June 25, 1998.

               Collection Account: The account or accounts created and
maintained pursuant to the Servicing Agreement. The Collection Account shall be
an Eligible Account.

               Combined Loan-to-Value Ratio: With respect to any Mortgage Loan
which is secured by a second lien on the related Mortgaged Property and any
date, the ratio, expressed as a percentage, the numerator of which is the sum of
(i) the unpaid principal balance of the Mortgage Loan plus (ii) the original
principal balance of any second lien on the related Mortgaged Property as of
such date, and the denominator of which is the lesser of (i) the Appraised Value
of the related Mortgaged Property as of the date of the appraisal used by or on
behalf of the Seller to underwrite such Mortgage Loan or (ii) the sale price of
the related Mortgaged Property if such a sale occurred at origination of the
Mortgage Loan.

               Company: Merrill Lynch Mortgage Investors, Inc., a Delaware
corporation, and its successors and assigns.

               Cut-off Date: June 9, 1998.

               Deficient Valuation: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in



<PAGE>   7
                                       -4-

connection with any scheduled Monthly Payment that constitutes a permanent
forgiveness of principal, which valuation or reduction results from a proceeding
under the Bankruptcy Code.

               Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced
with an Eligible Substitute Mortgage Loan.

               Determination Date: With respect to any Payment Date, the 15th
day of the related month, or if the 15th day of such month is not a Business
Day, the immediately preceding Business Day.

               Due Date: The first day of the month of the related Payment Date.

               Due Period: With respect to any Mortgage Loan and Due Date, the
period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-off Date) and ending on the related Due Date.

               Eligible Account: An account that is either: (A) (1) a segregated
account or accounts maintained with an institution whose deposits are insured by
the FDIC, (2) the unsecured and uncollateralized long term debt obligations of
which institution shall be rated A+ or higher by Standard & Poor's and A1 or
higher by Moody's and the unsecured and uncollateralized short term debt
obligations of which institution shall be rated A-1 or higher by Standard &
Poor's and P-1 or higher by Moody's, and (3) which institution is (i) a federal
savings and loan association duly organized, validly existing and in good
standing under the federal banking laws, (ii) an institution duly organized,
validly existing and in good standing under the applicable banking laws of any
state; (iii) a national banking association duly organized, validly existing and
in good standing under the federal banking laws, (iv) a principal subsidiary of
a bank holding company or (v) approved in writing by the Note Insurer and each
Rating Agency or (B) a segregated trust account or accounts maintained with the
trust department of a federal or state chartered depository institution
acceptable to the Note Insurer and each Rating Agency, having capital and
surplus of not less than $100,000,000, acting in its fiduciary capacity.

               Eligible Investments: One or more of the following:

                (i) direct obligations of, and obligations fully guaranteed by,
        the United States of America, any of the Federal Home Mortgage
        Corporation, the Federal National Mortgage Association, the Federal Home
        Loan Banks or any agency or instrumentality of the United States of
        America the obligations of which are backed by the full faith and credit
        of the United States of America;




<PAGE>   8
                                       -5-

                (ii) (A) demand and time deposits in, certificates of deposit
        of, banker's acceptances issued by or federal funds sold by any
        depository institution or trust company (including the Indenture Trustee
        or its agent acting in their respective commercial capacities)
        incorporated under the laws of the United States of America or any State
        thereof and subject to supervision and examination by federal and/or
        state authorities, so long as at the time of such investment or
        contractual commitment providing for such investment, such depository
        institution or trust company has a short term unsecured debt rating in
        the highest available rating category of each of the Rating Agencies and
        provided that each such investment has an original maturity of no more
        than 365 days, and (B) any other demand or time deposit or deposit which
        is fully insured by the Federal Deposit Insurance Corporation;

                (iii) repurchase obligations with a term not to exceed 30 days
        with respect to any security described in clause (i) above and entered
        into with a depository institution or trust company (acting as a
        principal) rated "A" or higher by Standard & Poor's and A2 or higher by
        Moody's; provided, however, that collateral transferred pursuant to such
        repurchase obligation must (A) be valued daily at current market price
        plus accrued interest, (B) pursuant to such valuation, equal, at all
        times, 105% of the cash transferred by the Indenture Trustee in exchange
        for such collateral and (C) be delivered to the Indenture Trustee or, if
        the Indenture Trustee is supplying the collateral, an agent for the
        Indenture Trustee, in such a manner as to accomplish perfection of a
        security interest in the collateral by possession of certificated
        securities.

                (iv) securities bearing interest or sold at a discount issued by
        any corporation incorporated under the laws of the United States of
        America or any State thereof which has a long term unsecured debt rating
        in the highest available rating category of each of the Rating Agencies
        at the time of such investment;

                (v) commercial paper having an original maturity of less than
        365 days and issued by an institution having a short term unsecured debt
        rating in the highest available rating category of each of the Rating
        Agencies at the time of such investment;

                (vi) a guaranteed investment contract approved by each of the
        Rating Agencies and the Note Insurer and issued by an insurance company
        or other corporation having a long term unsecured debt rating in the
        highest available rating category of each of the Rating Agencies at the
        time of such investment;

                (vii) money market funds having ratings in the highest available
        long-term rating category of each of the Rating Agencies at the time of
        such investment; any such money market funds which provide for demand
        withdrawals being conclusively deemed to satisfy any maturity
        requirement for Eligible Investments set forth in the Indenture; and



<PAGE>   9
                                       -6-


                (viii) any investment approved in writing by each of the Rating
        Agencies and the Note Insurer.

provided, however, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; provided further, however, that each such instrument acquired shall
not be acquired at a price in excess of par.

The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.

               Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by
the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee and the Note Insurer, (i) have an outstanding principal
balance, after deduction of the principal portion of the monthly payment due in
the month of substitution (or in the case of a substitution of more than one
Mortgage Loan for a Deleted Mortgage Loan, an aggregate outstanding principal
balance, after such deduction), not in excess of the outstanding principal
balance of the Deleted Mortgage Loan (the amount of any shortfall to be
deposited by the Seller in the Collection Account in the month of substitution);
(ii) comply in all material respects with each representation and warranty set
forth in clauses (i) through (lxvi) of Section 3.1(b) hereof other than clauses
(iii)-(xiv), (x), (liv) and (lvii); (iii) have a Mortgage Rate (or in the case
of a substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, a
weighted average Mortgage Rate) no lower than no lower than and not more than 1%
per annum higher than the Mortgage Rate of the Deleted Mortgage Loan as of the
date of substitution (and in the case of a substitution of more than one
Mortgage Loan for a deleted Mortgage Loan, each such Mortgage Loan shall have a
Mortgage Rate in excess of [7.40%]) ; (iv) have a Loan-to-Value Ratio and
Combined Loan-to-Value Ratio, if applicable, at the time of substitution no
higher than that of the Deleted Mortgage Loan at the time of substitution; (v)
have a remaining term to stated maturity not greater than (and, unless consented
to by the Note Insurer, not more than one year less than) that of the Deleted
Mortgage Loan; (vi) not be 30 days or more delinquent; (vii) have a property
type, occupancy status, and credit quality based on the applicable underwriting
guidelines that are at least as favorable as those of the Deleted Mortgage Loan
and not provide for a balloon payment; (viii) be a Mortgage Loan having a
Mortgage Rate which is fixed; (x) be acceptable to the Note Insurer, in its sole
discretion and (xi) have a lien priority which is not lower than the lien
priority of the Deleted Mortgage Loan.



<PAGE>   10
                                       -7-

               Funding Period: The period beginning on the Closing Date and
ending on the earlier of the date on which (a) the amount on deposit in the
related Pre-Funding Account (net of any investment earnings thereon) is less
than $10,000 or (b) the close of business on August 25, 1998.

               Home Equity Loan Purchase Agreement: This Agreement, dated June
22, 1998, among the Seller, the Company, the Indenture Trustee and the Issuer.

               Indenture: The indenture relating to the Notes, to be dated as of
June 1, 1998, between the Issuer, as debtor, and the Indenture Trustee, as
Indenture Trustee.

               Indenture Trustee: Bankers Trust Company of California, N.A., a
national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.

               Initial Mortgage Loan: A Mortgage Loan transferred and conveyed
by the Company to the Issuer on the Closing Date, as listed on the Mortgage Loan
Schedule.

               Insurance Agreement: The Insurance and Indemnity Agreement, to be
dated as of June 25, 1998, among the Seller, the Company and the Note Insurer,
including any amendments and supplements thereto.

               Interest Coverage Account: The account established and maintained
pursuant to Section 2.5 of this Agreement.

               Interest Coverage Addition: As to any Payment Date, an amount,
not less than $0.00, equal to the sum of (x) interest accrued for the related
Interest Period on an amount equal to (i) the Original Pre-Funded Amount minus
(ii) the aggregate Principal Balance of any related Subsequent Mortgage Loans
transferred prior to the related Interest Period, calculated at a rate equal to
the Note Interest Rate and (y) the Note Insurance Premium accrued on the excess,
if any, of the Original Pre-Funded Amount over the aggregate Principal Balance
of any related Subsequent Mortgage Loans transferred prior to the related
Interest Period.

               Interest Coverage Amount: The amount to be paid from proceeds
received from the sale of the Notes for deposit into the related Interest
Coverage Account pursuant to Section 2.5 hereof on the Closing Date, which
amount shall be $_____________.

               Interest Payment Amount: With respect to any Payment Date, an
amount equal to the interest accrued during the related Interest Period on the
Note Principal Balances of the Notes at the Note Interest Rate.




<PAGE>   11
                                       -8-

               Interest Period: With respect to any Payment Date on the basis of
a 360-day year consisting of twelve 30-day months, the 30-day month prior to the
month in which the related Payment Date occurs.

               Issuer: PacificAmerica Home Equity Loan Trust Series 1998-2F, a
Delaware business trust, or its successor in interest.

               Lien: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agree ment, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes only)
or comparable law of any jurisdiction to evidence any of the foregoing.

               Loan-to-Value Ratio: With respect to any Mortgage Loan, as of any
date of determination, a fraction expressed as a percentage, the numerator of
which is the then current principal amount of the Mortgage Loan, and the
denominator of which is the lesser of the Purchase Price or the Appraised Value
of the related Mortgaged Property.

               Master Servicer: PacificAmerica Money Center, Inc. a Delaware
corporation, and its successors and assigns.

               Monthly Payment: With respect to any Mortgage Loan (including any
REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Principal Prepayments and for
Deficient Valuations occurring prior to such Due Date but before any adjustment
to such amortization schedule by reason of any bankruptcy, other than a
Deficient Valuation, or similar proceeding or any moratorium or similar waiver
or grace period).

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

               Mortgage File: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to Section 2.2 hereof or the Servicing
Agreement.

               Mortgage Loan: Each of the Mortgage Loans identified in the
Mortgage Loan Schedule.




<PAGE>   12
                                       -9-

               Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans pledged under the Indenture on such date, including, as
applicable, the schedule of Initial Mortgage Loans as of the Cut-off Date set
forth in Exhibit 1 of this Agreement and such schedule, as amended by the Seller
to reflect (i) Eligible Substitute Mortgage Loans and Deleted Mortgage Loans,
and (ii) as of each Subsequent Transfer Date, any Subsequent Mortgage Loans,
which schedules set forth as to each Mortgage Loan

        (i)     the loan number and name of the Mortgagor;

        (ii)    the street address, city, state and zip code of the Mortgaged
                Property;

        (iii)   the Mortgage Rate at origination;

        (iv)    the maturity date;

        (v)     the original principal balance;

        (vi)    the first payment date;

        (vii)   the type of Mortgaged Property;

        (viii)  the Monthly Payment;

        (ix)    the Principal Balance as of the Cut-off Date (with respect to an
                Initial Mortgage Loan) or Subsequent Cut-off Date (with respect
                to a Subsequent Mortgage Loan);

        (x)     the occupancy status;

        (xi)    the purpose of the Mortgage Loan;

        (xii)   the Appraised Value of the Mortgaged Property;

        (xiii)  the original term to maturity;

        (xiv)   the paid-through date of the Mortgage Loan;

        (xv)    the Loan-to-Value Ratio or, with respect to a Mortgage Loan
                secured by a second lien, the combined Loan-to-Value Ratio;

        (xvi)   whether or not the Mortgage Loan was underwritten pursuant to a
                limited documentation program; and



<PAGE>   13
                                      -10-

        (xvii)  whether the Mortgaged Property is subject to a first or second
                lien.

               The Mortgage Loan Schedule shall also set forth the total of the
amounts described under (ix) above for all of the Mortgage Loans.

               Mortgage Loans: At any time, collectively, all Mortgage Loans
that have been sold or otherwise transferred and conveyed by the Seller to the
Company or to the Issuer, as applicable, under this Agreement, in each case
together with the Related Documents, and that remain subject to the terms
thereof. As applicable, Mortgage Loan shall be deemed to refer to the related
REO Property and to Initial Mortgage Loans, Eligible Substitute Mortgage Loans
and Subsequent Mortgage Loans.

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

               Mortgage Rate: With respect to any Mortgage Loan, the annual rate
at which interest accrues on such Mortgage Loan.

               Mortgaged Property: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.

               Mortgagor: The obligor or obligors under a Mortgage Note.

               Note Insurer: Financial Security Assurance Inc., a New York stock
insurance corporation or any successor thereto.

               Note Interest Rate: ____% per annum.

               Note Principal Balance: With respect to any Note, the initial
principal balance thereof as of the Closing Date and reduced by all amounts
distributed in respect of principal with respect to such Note.

               Noteholder or Holder: The Person in whose name a Note is
registered in the Note Register, except that, any Note registered in the name of
the Company, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be a Noteholder or Holder, nor shall any Note so owned be
considered outstanding, for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement, provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee
knows to be so owned shall be so disregarded. Any Notes on which payments are
made under the Note Insurance Policy shall be deemed Outstanding until the Note
Insurer has



<PAGE>   14
                                      -11-

been reimbursed with respect thereto and the Note Insurer shall be deemed the
Noteholder thereof to the extent of such unreimbursed payment.

               Notes: PacificAmerica Home Equity Loan Asset-Backed Notes, Series
1998-2F, designated as the "Notes" in the Indenture.

               Officer's Certificate: With respect to the Master Servicer, a
certificate signed by the President, a Director, a Vice President or an
Assistant Vice President, of the Master Servicer and delivered to the Indenture
Trustee. With respect to the Seller, a certificate signed by the President, a
Director, a Vice President or an Assistant Vice President, of the Seller, under
the circumstances described in, and otherwise complying with, the applicable
requirements of Section 2.03(b)(vi) of this Agreement. With respect to the
Issuer, a certificate signed by any Authorized Officer of the Issuer, under the
circumstances described in, and otherwise complying with, the applicable
requirements of Section 10.01 of the Indenture, and delivered to the Indenture
Trustee.

               Opinion of Counsel: A written opinion of counsel acceptable to
the Note Insurer, who may be in-house counsel for the Master Servicer if
acceptable to the Indenture Trustee, the Note Insurer and the Rating Agencies or
counsel for the Company, as the case may be.

               Original Pool Balance: The sum of (x) the Principal Balance of
the Mortgage Loans as of the Cut-Off Date and (y) the Original Pre-Funded
Amount, which sum equals $62,035,000.

               Original Pre-Funded Amount: The amount deposited (from proceeds)
in the Pre-Funding Account on the Closing Date, which amount is $15,959,777.

               Owner Trustee: Wilmington Trust Company and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.

               Payment Account: The account established by the Indenture Trustee
pursuant to Section 3.01 of the Indenture. The Payment Account shall be an
Eligible Account.

               Payment Date: The 25th day of each month, or if such day is not a
Business Day, then the next Business Day.

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

               Pre-Funded Amount: With respect to any date of determination, the
amount on deposit in the Pre-Funding Account.




<PAGE>   15
                                      -12-

               Pre-Funding Account: The account established and maintained
pursuant to Section 2.4 of this Agreement.

               Principal Balance: With respect to any Mortgage Loan or related
REO Property, at any given time, (i) the Principal Balance of the Mortgage Loan
as of the Cut-off Date or Subsequent Cut-off Date, as applicable, minus (ii) the
sum of (a) the principal portion of the Monthly Payments which were received
with respect to such Mortgage Loan or REO Property during each Due Period ending
prior to the most recent Payment Date, and (b) all Principal Prepayments with
respect to such Mortgage Loan or REO Property, and all Insurance Proceeds,
Liquidation Proceeds and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal in accordance with the Servicing Agreement
with respect to such Mortgage Loan or REO Property, and (c) the principal
portion of any Realized Loss with respect thereto for any previous Payment Date.

               Prospectus: The Prospectus Supplement, together with the attached
Prospectus dated June 22, 1998, with respect to the Notes.

               Prospectus Supplement: The Prospectus Supplement dated June 22,
1998, with respect to the Notes.

               Purchase Price: The meaning specified in Sections 2.1 and 2.3(a)
of this Agreement.

               Related Documents: With respect to each Mortgage Loan, the
documents specified in Section 2.2 of this Agreement and any documents required
to be added to such documents pursuant to this Agreement, the Trust Agreement,
the Indenture or the Servicing Agreement.

               REO Property: A Mortgaged Property that is acquired by the Issuer
by foreclosure or by deed in lieu of foreclosure.

               Repurchase Event: With respect to any Mortgage Loan, either (i) a
discovery that, as of the Closing Date the related Mortgage was not a valid
first or second lien on the related Mortgaged Property or a discovery that a
Mortgage Loan represented as of the Closing Date to be a valid first lien is a
valid second lien, in each case subject only to (A) the lien of real property
taxes and assessments not yet due and payable, (B) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage and such other permissible title
exceptions as are permitted and (C) other matters to which like properties are
commonly subject which do not materially adversely affect the value, use,
enjoyment or marketability of the related Mortgaged Property or (ii) with
respect to any Mortgage Loan as to which the Seller delivers an affidavit
certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof



<PAGE>   16
                                      -13-

or of the related Mortgage is materially and adversely affected by the absence
of such original Mortgage Note.

               Repurchase Price: With respect to any Mortgage Loan required to
be repurchased on any date pursuant to this Agreement or permitted to be
purchased by the Master Servicer pursuant to the Servicing Agreement, an amount
equal to the sum, without duplication, of (i) 100% of the Principal Balance
thereof (without reduction for any amounts charged off) and (ii) unpaid accrued
interest at the Mortgage Rate on the outstanding principal balance thereof from
the Due Date to which interest was last paid by the Mortgagor (or with respect
to which an Advance was last made by the Master Servicer) to the first day of
the month following the month of purchase plus (iii) the amount of any
unreimbursed Servicing Advances or unreimbursed Advances made with respect to
such Mortgage Loan plus (iv) any other amounts owed to the Master Servicer or
the Subservicer pursuant to Section 3.07 of the Servicing Agreement and not
included in clause (iii) of this definition.

               Security: Any of the Certificates or Notes.

               Securityholder or Holder: Any Noteholder or a Certificateholder.

               Seller: PacificAmerica Money Center, Inc. a Delaware corporation,
and its successors and assigns.

               Servicing Advances: All customary, reasonable and necessary "out
of pocket" costs and expenses incurred in connection with a default, delinquency
or other unanticipated event in the performance by the Master Servicer of its
servicing obligations, including, without duplication, but not limited to, the
cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
(iii) the management and liquidation of any REO Property and (iv) compliance
with the obligations under Section 3.13 of the Servicing Agreement.

               Servicing Agreement: The Servicing Agreement relating to the
Series 1998-2F transaction, to be dated as of June 1, 1998, among the Master
Servicer, the Indenture Trustee and the Issuer.

               Servicing Officer: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer or a Subservicer, as such list may be amended from time to time.

               Subsequent Cut-off Date: With respect to those Subsequent
Mortgage Loans which are sold to the Trust pursuant to a Subsequent Transfer
Instrument the date specified in the related Subsequent Transfer Instrument.



<PAGE>   17
                                      -14-

               Subsequent Mortgage Loan: A Mortgage Loan sold by the Seller to
the Issuer pursuant to Section 2.3 of this Agreement, such Mortgage Loan being
identified on the Mortgage Loan Schedule attached to a Subsequent Transfer
Instrument, as set forth in such Subsequent Transfer Instrument.

               Subsequent Transfer Date: With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust.

               Subsequent Transfer Instrument: Each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Seller and the
Issuer substantially in the form of Exhibit 2 to this Agreement, by which
Subsequent Mortgage Loans are sold to the Trust.

               Sub-Servicer: Advantage Mortgage Corp. USA, and its successors
and assigns.

               Sub-Servicing Agreement: The Sub-Servicing Agreement relating to
the 1998-2F transaction, to be dated as of June 1, 1998, between the Master
Servicer and the Sub-Servicer.

               Trust: The PacificAmerica Home Equity Loan Trust Series 1998-2F
to be created pursuant to the Trust Agreement.

               Trust Agreement: The Trust Agreement relating to the Series
1998-2F transaction, to be dated as of June 1, 1998, as amended and restated by
the Amended and Restated Trust Agreement, to be dated as of June 1, 1998,
between the Owner Trustee and the Company.

               Trust Estate: The meaning specified in the Granting Clause of the
Indenture.

               UCC: The Uniform Commercial Code, as amended from time to time,
as in effect in any specified jurisdiction.

               Underwriter: Merrill Lynch, Pierce, Fenner & Smith Incorporated.


                                   ARTICLE II

                  SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

               Section 2.1. Sale of Initial Mortgage Loans.

               The Seller hereby sells, and the Company hereby purchases on the
Closing Date, the Initial Mortgage Loans identified on the Mortgage Loan
Schedule annexed hereto as Exhibit 1. In addition, the Seller shall deposit with
the Indenture Trustee from proceeds of the issuance of the Notes on the Closing
Date (i) the Original Pre-Funded Amount for deposit in the Pre- 



<PAGE>   18
                                      -15-

Funding Account and (ii) the Interest Coverage Amount for deposit in the
Interest Coverage Account. The Initial Mortgage Loans will be fixed rate,
residential first and second lien mortgage loans. The Initial Mortgage Loans
will have a Principal Balance as of the close of business on the Cut-off Date,
after giving effect to any payments received, of approximately $46,076,103. The
sale of the Initial Mortgage Loans will take place on the Closing Date, subject
to and simultaneously with the deposit of the Initial Mortgage Loans and the
amounts in the Pre-Funding Account and the Interest Coverage Account into the
Trust Estate, the issuance of the Securities and the sale of the Notes by the
Issuer pursuant to the Underwriting Agreement. The purchase price (the "Purchase
Price") for the Initial Mortgage Loans to be paid by the Company to the Seller
on the Closing Date shall consist of the following:

                (i) a payment in an amount equal to ____% of the aggregate
        Principal Balance of the Initial Mortgage Loans as of the close of
        business on the Cut-off Date, which payment shall be paid to the Seller
        by wire transfer in immediately available funds on the Closing Date by
        or on behalf of the Company, or as otherwise agreed by the Company; and

                (ii) delivery to the Seller of the Certificates issued by the
        Issuer pursuant to the Trust Agreement.

               Section 2.2. Obligations Regarding the Mortgage Loans. (a) In
connection with the conveyances by the Seller of the Initial Mortgage Loans and
the Subsequent Mortgage Loans, the Seller shall on behalf of and at the
direction of the Company deliver to, and deposit with, the Indenture Trustee, on
or before the Closing Date in the case of an Initial Mortgage Loan, and one
Business Day prior to the related Subsequent Transfer Date in the case of a
Subsequent Mortgage Loan, the following documents or instruments with respect to
each Mortgage Loan (the "Mortgage File"):

                (i) the original Mortgage Note endorsed to the order of "Bankers
        Trust Company of California, N.A., as trustee pursuant to the Indenture
        dated as of June 1, 1998, relating to the PacificAmerica Home Equity
        Loan Asset-Backed Notes, 1998-2F";

                (ii) the original Mortgage with evidence of recording thereon,
        or, if the original Mortgage has not yet been returned from the public
        recording office, a copy of the original Mortgage certified by the
        Seller, its designee or the public recording office in which such
        original Mortgage has been recorded;

                (iii) an original assignment (which may be included in one or
        more blanket assignments if permitted by applicable law) of the Mortgage
        endorsed to "Bankers Trust Company of California, N.A., as trustee
        pursuant to the Indenture dated as of June 1, 1998, relating to the
        PacificAmerica Home Equity Loan Asset-Backed Notes, Series 1998-2F",
        and otherwise in recordable form;


<PAGE>   19
                                      -16-

                (iv) originals of any intervening assignments of the Mortgage,
        with evidence of recording thereon, or, if the original of any such
        intervening assignment has not yet been returned from the public
        recording office, a copy of such original intervening assignment
        certified by the Seller, its designee or the public recording office in
        which such original intervening assignment has been recorded;

                (v) the original policy of title insurance (or a commitment for
        title insurance, if the policy is being held by the title insurance
        company pending recordation of the Mortgage or a binder or preliminary
        title policy if the final title insurance policy is not available);

                (vi) a true and correct copy of each assumption, modification,
        consolidation or substitution agreement, if any, relating to the
        Mortgage Loan.

               If a material defect in any Mortgage File is discovered which may
materially and adversely affect the value of the related Mortgage Loan, or the
interests of the Indenture Trustee (as pledgee of the Mortgage Loans), the
Noteholders, the Certificateholders or the Note Insurer in such Mortgage Loan,
including if any document required to be delivered to the Indenture Trustee has
not been delivered (provided that a Mortgage File will not be deemed to contain
a defect for an unrecorded assignment under clause (iii) above for 180 days
following submission of the assignment if the Seller has submitted such
assignment for recording pursuant to the terms of the following paragraph), the
Seller shall cure such defect, repurchase the related Mortgage Loan at the
Repurchase Price or substitute an Eligible Substitute Mortgage Loan for the
related Mortgage Loan upon the same terms and conditions set forth in Section
3.1 hereof as to the Initial Mortgage Loans and the Subsequent Mortgage Loans
and Section 2.3(c) hereof as to the Subsequent Mortgage Loans.

               Within 30 days after the Closing Date in the case of an Initial
Mortgage Loan or, in the case of a Subsequent Mortgage Loan, promptly after the
Subsequent Transfer Date (or after the date of transfer of any Eligible
Substitute Mortgage Loan), the Seller at its own expense shall complete and
submit for recording in the appropriate public office for real property records
each of the assignments referred to in clause (iii) above, with such assignment
completed in favor of the Indenture Trustee. While such assignment to be
recorded is being recorded, the Indenture Trustee shall retain a photocopy of
such assignment. If any assignment is lost or returned unrecorded to the
Indenture Trustee because of any defect therein, the Seller is required to
prepare a substitute assignment or cure such defect, as the case may be, and the
Seller shall cause such substitute assignment to be recorded in accordance with
this paragraph.

               In instances where an original Mortgage or any original
intervening assignment of Mortgage is not, in accordance with clause (ii) or
(iv) above, delivered by the Seller to the 


<PAGE>   20
                                       -17-

Indenture Trustee prior to or on the Closing Date in the case of an Initial
Mortgage Loan or, in the case of a Subsequent Mortgage Loan, prior to or on the
Subsequent Transfer Date, the Seller will deliver or cause to be delivered the
originals of such documents to the Indenture Trustee promptly upon receipt
thereof.

               Effective on the Closing Date, the Company hereby acknowledges
its acceptance of all right, title and interest to the Initial Mortgage Loans
and other property, existing on the Closing Date and thereafter created,
conveyed to it pursuant to Section 2.1 and this Section 2.2.

               The Indenture Trustee, as assignee or transferee of the Company,
shall be entitled to all principal payments due after the Cut-off Date, all
other payments of principal due and collected after the Cut-off Date, and all
payments of interest on the Initial Mortgage Loans due and collected after June
1, 1998, minus that portion of any such payment which is allocable to the period
prior to June 1, 1998. The Servicing Agreement shall provide that any late
payment charges collected in connection with a Mortgage Loan shall be paid to
the Master Servicer or Sub-Servicer as provided therein.

               (b) The parties hereto intend that the transactions set forth
herein constitute a sale by the Seller to the Company on the Closing Date of all
the Seller's right, title and interest in and to the Initial Mortgage Loans and
other property as and to the extent described above. Notwithstanding the
foregoing, in the event the transactions set forth herein shall be deemed not to
be a sale, the Seller hereby grants to the Company as of the Closing Date a
security interest in all of the Seller's right, title and interest in, to and
under the Initial Mortgage Loans and such other property, to secure all of the
Seller's obligations hereunder, and this Agreement shall constitute a security
agreement under applicable law. The Seller agrees to take or cause to be taken
such actions and to execute such documents, including without limitation the
filing of all necessary UCC-1 financing statements filed in the State of
Delaware and the State of California (which shall be submitted for filing within
10 days after the Closing Date), any continuation statements with respect
thereto and any amendments thereto 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 and protect the interests of the Company and its
assignees in each Initial Mortgage Loan and the proceeds thereof.

               Section 2.3. Conveyance of the Subsequent Mortgage Loans.

               (a) Subject to the conditions set forth in paragraphs (b) and (c)
below in consideration of the Issuer's delivery on the related Subsequent
Transfer Dates of all or a portion of the balance of funds in the Pre-Funding
Account, the Seller shall on any Subsequent Transfer Date sell, transfer,
assign, set over and convey without recourse to the Issuer but subject to the
other terms and provisions of this Agreement all of the right, title and
interest of the Seller in and 



<PAGE>   21
                                      -18-

to (i) the Subsequent Mortgage Loans identified on the related Mortgage Loan
Schedule attached to the related Subsequent Transfer Instrument delivered by the
Seller on such Subsequent Transfer Date, (ii) principal due and interest
accruing on the Subsequent Mortgage Loans after the related Subsequent Cut-off
Date and (iii) all items with respect to such Subsequent Mortgage Loans to be
delivered pursuant to Section 2.2 above and the other items in the related
Mortgage Files; provided, however, that the Seller reserves and retains all
right, title and interest in and to principal received and interest accruing on
the Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The
transfer to the Issuer by the Seller of the Subsequent Mortgage Loans identified
on each Mortgage Loan Schedule attached to the related Subsequent Transfer
Instrument shall be absolute and is intended by the Issuer and the Seller to
constitute and to be treated as a sale of the Subsequent Mortgage Loans by the
Seller to the Issuer. In the event the transactions set forth herein shall be
deemed not to be a sale, the Seller hereby grants to the Issuer as of each
Subsequent Transfer Date a security interest in all of the Seller's right, title
and interest in, to and under the related Subsequent Mortgage Loans and such
other property, to secure all of the Seller's obligations hereunder, and this
Agreement shall constitute a security agreement under applicable law. The Seller
agrees to take or cause to be taken such actions and to execute such documents,
including without limitation the filing of all necessary UCC-1 financing
statements filed in the State of Delaware and the State of California (which
shall be submitted for filing as of the related Subsequent Transfer Date), any
continuation statements with respect thereto and any amendments thereto 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 and protect the
interests of the Issuer and its assignees in each Subsequent Mortgage Loan and
the proceeds thereof.

               The Issuer on each Subsequent Transfer Date shall acknowledge its
acceptance of all right, title and interest to the related Subsequent Mortgage
Loans and other property, existing on the Subsequent Transfer Date and
thereafter created, conveyed to it pursuant to this Section 2.3.

               The Indenture Trustee, as assignee of the Issuer, shall be
entitled to all scheduled principal payments due after each Subsequent Cut-off
Date, all other payments of principal due and collected after each Subsequent
Cut-off Date, and all payments of interest on the Subsequent Mortgage Loans,
minus that portion of any such payment which is allocable to the period prior to
the related Subsequent Cut-off Date. No scheduled payments of principal due on
or before the related Subsequent Cut-off Date and collected after the related
Subsequent Cut-off Date shall belong to the Issuer pursuant to the terms of this
Agreement.

               The Purchase Price paid for any Subsequent Mortgage Loan by the
Indenture Trustee, at the direction of the Issuer, from amounts on deposit in
the Pre-Funding Account shall be one-hundred percent (100%) of the aggregate
Principal Balances of the Subsequent Mortgage 


<PAGE>   22
                                      -19-

Loans so transferred (as identified on the Mortgage Loan Schedule attached to
the related Subsequent Transfer Instrument provided by the Seller).

               (b) The Seller shall transfer to the Issuer the Subsequent
Mortgage Loans and the other property and rights related thereto described in
the first paragraph of Section 2.3 (a) above, and the Issuer shall cause to be
released funds from the related Pre-Funding Account, only upon the satisfaction
of each of the following conditions on or prior to the related Subsequent
Transfer Date:

                (i) the Seller shall have provided the Indenture Trustee and the
        Note Insurer with a timely Addition Notice and shall designate the
        Subsequent Mortgage Loans to be sold to the Issuer and the aggregate
        Principal Balances of such Subsequent Mortgage Loans as of the related
        Subsequent Cut-off Date and any other information reasonably requested
        by the Indenture Trustee or the Note Insurer with respect to the
        Subsequent Mortgage Loans;

                (ii) the Seller shall have delivered to the Indenture Trustee a
        duly executed Subsequent Transfer Instrument substantially in the form
        of Exhibit 2, (A) confirming the satisfaction of each condition
        precedent and representations specified in this Section 2.3(b) and
        Section 2.3(c) following and in the related Subsequent Transfer
        Instrument and (B) including a Subsequent Mortgage Loan Schedule listing
        the Subsequent Mortgage Loans;

                (iii) as of each Subsequent Transfer Date, as evidenced by
        delivery of the Subsequent Transfer Instrument in the form of Exhibit 2,
        the Seller shall not be insolvent nor shall it have been made insolvent
        by such transfer nor shall it be aware of any pending insolvency;

                (iv) such sale and transfer shall not result in a material
        adverse tax consequence to the Issuer or, due to any action or inaction
        on the part of the Seller, to the Securityholders;

                (v) the Funding Period shall not have terminated;

                (vi) the Note Insurer shall have informed the Seller that the
        Subsequent Mortgage Loans are acceptable to the Note Insurer in its sole
        discretion, and the Seller shall have delivered to the Issuer and the
        Indenture Trustee, with a copy to the Note Insurer, an Officer's
        Certificate confirming such approval;

                (vii) the Seller shall have delivered to the Indenture Trustee,
        the Rating Agencies and the Note Insurer Opinions of Counsel addressed
        to the Note Insurer, the Rating Agencies and the Indenture Trustee with
        respect to the transfer of the Subsequent 


<PAGE>   23
                                      -20-

        Mortgage Loans substantially in the form of the Opinions of Counsel
        delivered to the Note Insurer and the Indenture Trustee on the Closing
        Date regarding certain bankruptcy, corporate and tax matters.

               (c) The obligation of the Issuer to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the following
conditions: (1) each such Subsequent Mortgage Loan must satisfy the
representations and warranties specified in the related Subsequent Transfer
Instrument and this Agreement; (2) the Seller will select such Subsequent
Mortgage Loans only in a manner that it reasonably believes is not adverse to
the interests of the Noteholders or the Note Insurer; (3) the Seller will
deliver to the Note Insurer and the Indenture Trustee certain Opinions of
Counsel acceptable to the Note Insurer and the Indenture Trustee with respect to
the validity of the conveyance of such Subsequent Mortgage Loans; and (4) as of
each Subsequent Cut-off Date each Subsequent Mortgage Loan will satisfy the
following criteria: (i) such Subsequent Mortgage Loan may not be 30 or more days
contractually delinquent as of the related Subsequent Cut-off Date; (ii) the
remaining stated term to maturity of such Subsequent Mortgage Loan will not
exceed 360 months; (iii) such Subsequent Mortgage Loan must have an outstanding
Principal Balance of at least $20,000 and no more than $500,000 as of the
Subsequent Cut-off Date; (iv) such Subsequent Mortgage Loan will be underwritten
in accordance with the criteria set forth under "Description of the Home Equity
Loan Pool -- Underwriting" in the Prospectus Supplement; (v) such Subsequent
Mortgage Loan must have a Loan-to-Value Ratio at origination of no more than
90.00% ; and, if applicable, a Combined Loan-to-Value Ratio at origination of no
more than 90.00%; (vi) the stated maturity of such Subsequent Mortgage Loan will
be no later than 360 months; (vii) such Subsequent Mortgage Loan must have a
fixed Mortgage Rate of at least 8.00%; (viii) following the purchase of such
Subsequent Mortgage Loans by the Issuer, the Mortgage Loans included in the
Trust Estate must have a weighted average interest rate, a weighted average
remaining term to maturity and a weighted average Loan-to-Value Ratio at
origination, as of each respective Subsequent Cut-off Date, which does not vary
materially from the Initial Mortgage Loans included in the Trust Estate on the
Closing Date and the percentage of Mortgage Loans included in the Trust Estate
(by aggregate principal balance) that are secured by second liens on the related
Mortgaged Properties shall be no greater than the percentage of Initial Mortgage
Loans included in the Trust Estate on the Closing Date. In addition, the
Indenture Trustee shall not agree to any transfer of Subsequent Mortgage Loans
without a signed certification required pursuant to Section 2.3(b)(vi).
Subsequent Mortgage Loans with characteristics varying from those set forth
above may be purchased by the Issuer and included in the Trust Estate if they
are acceptable to the Note Insurer, in its sole discretion, as evidenced by the
certification required pursuant to Section 2.3(b)(vi); provided, however, that
the addition of such Mortgage Loans will not materially affect the aggregate
characteristics of the entire Mortgage Loans. After receipt of a notice (as set
forth substantially in the form of Exhibit 4) from the Seller that the
Subsequent Mortgage Loans have been approved by the Note Insurer the Issuer
shall cause the Subsequent Transfer Instrument to be executed. Upon the end of
the 


<PAGE>   24
                                      -21-

Funding Period, the Note Insurer may adjust the Required Subordination Amount
(as defined in Appendix A to the Indenture) pursuant to Section 2.3(e) hereof.

               (d) Within five Business Days after each Subsequent Transfer
Date, the Seller shall deliver to the Rating Agencies, the Indenture Trustee and
the Note Insurer a copy of the updated Mortgage Loan Schedule including the
Subsequent Mortgage Loans in electronic format.

               (e) In the event that a mortgage loan is not acceptable to the
Note Insurer as a Subsequent Mortgage Loan pursuant to Section 2.3(b)(vi)
hereof, the Note Insurer and the Seller may mutually agree to the transfer of
such mortgage loan to the Issuer as a Subsequent Mortgage Loan, subject to any
increase in the Required Subordination Amount (as defined in Appendix A to the
Indenture) that may be agreed to by the Seller and the Note Insurer pursuant to
the Indenture, in which event the Seller shall deliver to the Issuer and the
Indenture Trustee, with a copy to the Note Insurer, an Officer's Certificate
confirming the agreement to the transfer of such Subsequent Mortgage Loan and
specifying the amount of such increase in the Required Subordination Amount.

               Section 2.4. Pre-Funding Account.

               (a) No later than the Closing Date, the Indenture Trustee shall
establish and maintain in the name of the Indenture Trustee one or more
segregated trust accounts that are Eligible Accounts, which shall be titled
"Pre-Funding Account, Bankers Trust Company of California, N.A., as indenture
trustee for the registered holders of PacificAmerica Home Equity Loan Asset
Trust Series 1998-2F" (the "Pre-Funding Account"). The Indenture Trustee shall,
promptly upon receipt, deposit in the Pre-Funding Account and retain therein the
Original Pre-Funded Amount remitted on the Closing Date to the Indenture
Trustee by the Issuer from proceeds of the sale of the Notes. Funds deposited in
the Pre-Funding Account shall be held in trust by the Indenture Trustee for the
Holders of the Notes and the Note Insurer for the uses and purposes set forth
herein. If the Indenture Trustee shall not have received an investment direction
from the Issuer, the Indenture Trustee will invest funds deposited in the
Pre-Funding Account in Eligible Investments of the kind described in clause
(vii) of the definition of Eligible Investments with a maturity date no later
than the second Business Day preceding each Payment Date. The Issuer shall be
the owner of the Pre-Funding Account and shall report all items of income,
deduction, gain or loss arising therefrom. All income and gain realized from
investment of funds deposited in the Pre-Funding Account shall be transferred to
the Interest Coverage Account on the Business Day immediately preceding each
Payment Date. The Issuer shall deposit in the Pre-Funding Account the amount of
any net loss incurred in respect of any such Eligible Investment immediately
upon realization of such loss without any right of reimbursement therefor.

               (ii) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Indenture Trustee as follows:


<PAGE>   25
                                      -22-

                (A) On any Subsequent Transfer Date, upon the direction of the
        Issuer, the Indenture Trustee shall withdraw from the Pre-Funding
        Account an amount equal to 100% of the Principal Balances of the
        Subsequent Mortgage Loans transferred and assigned to the Indenture
        Trustee on such Subsequent Transfer Date and pay such amount to or upon
        the order of the Seller upon satisfaction of the conditions set forth in
        Section 2.3 hereof with respect to such transfer and assignment; and

                (B) If the Pre-Funded Amount has not been reduced to zero during
        the Funding Period, on the second Business Day immediately prior to the
        first Payment Date following the end of the Funding Period, the
        Indenture Trustee shall deposit into the Payment Account any amounts
        remaining in the Pre-Funding Account.

               Section 2.5. Interest Coverage Account.

               (a) No later than the Closing Date, the Indenture Trustee shall
establish and maintain on behalf of itself one or more segregated trust
accounts, which shall be Eligible Accounts, titled "Interest Coverage Account,
Bankers Trust Company of California, N.A., as indenture trustee for the
registered holders of PacificAmerica Home Equity Loan Asset Trust Series
1998-2F" (the "Interest Coverage Account"). The Indenture Trustee shall,
promptly upon receipt, deposit in the Interest Coverage Account and retain
therein the Interest Coverage Amount remitted on the Closing Date to the
Indenture Trustee by the Issuer. In addition, the Indenture Trustee shall
deposit into the Interest Coverage Account all income and gain on investments in
the Pre-Funding Account pursuant to Section 2.4. Funds deposited in the Interest
Coverage Account shall be held in trust by the Indenture Trustee for the Holders
of the Notes and the Note Insurer for the uses and purposes set forth herein. If
the Indenture Trustee shall not have received an investment direction from the
Issuer, the Indenture Trustee will invest funds deposited in the Interest
Coverage Account in Eligible Investments of the kind described in clause (vii)
of the definition of Eligible Investments with a maturity date no later than the
second Business Day preceding each Payment Date. The Seller shall deposit in the
Interest Coverage Account the amount of any net loss incurred in respect of any
such Eligible Investment immediately upon realization of such loss without any
right of reimbursement therefor. The Seller shall be the owner of the Interest
Coverage Account and shall report all items of income, deduction, gain or loss
arising therefrom.

               (b) On each Payment Date during the Funding Period and on the
Payment Date immediately after the Funding Period, the Indenture Trustee shall
withdraw from the Interest Coverage Account and deposit in the Payment Account
the Interest Coverage Addition.

               (c) On the Payment Date immediately following the conveyance of a
Subsequent Mortgage Loan to the Indenture Trustee, funds on deposit in the
Interest Coverage Account in an amount equal to 1/360 of the product of (i)(a)
the aggregate principal balance of 


<PAGE>   26
                                      -23-

the Subsequent Mortgage Loans conveyed to the Indenture Trustee and (b) the
weighted average of the Mortgage Rates of the Initial Mortgage Loans as of the
Cut-off Date and (ii) the actual number of days from the Subsequent Cut-off Date
to August 25, 1998 shall be remitted to the Seller.

               (d) Upon the earlier of (i) termination of the Trust Estate in
accordance with Section 8.01 of the Trust Agreement and (ii) the Payment Date
following the end of the Funding Period, any amount remaining on deposit in the
Interest Coverage Account shall be withdrawn by the Indenture Trustee and paid
to the Seller.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES;
                               REMEDIES FOR BREACH

               Section 3.1. Seller Representations and Warranties. The Seller
hereby represents and warrants to the Company, the Indenture Trustee and the
Note Insurer as of the date hereof and as of the Closing Date and as of each
Subsequent Transfer Date (or if otherwise specified below, as of the date so
specified):

        (a) As to the Seller:

                (i) The Seller (i) is a corporation duly organized, validly
        existing and in good standing under the laws of the State of Delaware
        and (ii) is qualified and in good standing as a foreign corporation to
        do business in each jurisdiction where such qualification is necessary,
        except where the failure so to qualify would not have a material adverse
        effect on the Seller's ability to enter into this Agreement and each
        Subsequent Transfer Instrument and to consummate the transactions
        contemplated hereby and thereby;

                (ii) The Seller has the power and authority to make, execute,
        deliver and perform its obligations under this Agreement and each
        Subsequent Transfer Instrument and all of the transactions contemplated
        under this Agreement and each Subsequent Transfer Instrument, and has
        taken all necessary corporate action to authorize the execution,
        delivery and performance of this Agreement and each Subsequent Transfer
        Instrument;

                (iii) The Seller is not required to obtain the consent of any
        other Person or any consent, approval or authorization from, or
        registration or declaration with, any governmental authority, bureau or
        agency in connection with the execution, delivery, performance, validity
        or enforceability of this Agreement or any Subsequent Transfer
        Instrument, except for such consents, approvals or authorization, or
        registration or declaration, as shall have been obtained or filed, as
        the case may be;


<PAGE>   27
                                      -24-

                (iv) The execution and delivery of this Agreement and each
        Subsequent Transfer Instrument and the performance of the transactions
        contemplated hereby by the Seller will not violate any provision of any
        existing law or regulation or any order or decree of any court
        applicable to the Seller or any provision of the certificate of
        incorporation or bylaws of the Seller, or constitute a material breach
        of any mortgage, indenture, contract or other agreement to which the
        Seller is a party or by which the Seller may be bound;

                (v) No litigation or administrative proceeding of or before any
        court, tribunal or governmental body is currently pending, or to the
        knowledge of the Seller threatened, against the Seller or any of its
        properties or with respect to this Agreement or any Subsequent Transfer
        Instrument, the Notes or the Certificates which in the opinion of the
        Seller has a reasonable likelihood of resulting in a material adverse
        effect on the transactions contemplated by this Agreement or any
        Subsequent Transfer Instrument;

                (vi) This Agreement and each Subsequent Transfer Instrument
        constitute the legal, valid and binding obligations of the Seller,
        enforceable against the Seller in accordance with its terms, except as
        enforceability may be limited by applicable bankruptcy, insolvency,
        reorganization, moratorium or other similar laws now or hereafter in
        effect affecting the enforcement of creditors' rights in general and
        except as such enforceability may be limited by general principles of
        equity (whether considered in a proceeding at law or in equity);

                (vii) This Agreement constitutes a valid transfer and assignment
        to the Company of all right, title and interest of the Seller in and to
        the Cut-off Date Principal Balance of the Initial Mortgage Loans, all
        monies due or to become due with respect thereto, and all proceeds of
        such Cut-off Date Principal Balance of the Initial Mortgage Loans and
        this Agreement and the related Subsequent Transfer Instrument constitute
        a valid transfer and assignment to the Issuer of all right, title and
        interest of the Seller in and to the Subsequent Cut-off Date Principal
        Balance of the Subsequent Mortgage Loans, all monies due or to become
        due with respect thereto, and all proceeds of such Subsequent Cut-off
        Date Principal Balance of the Subsequent Mortgage Loans; and

                (viii) The Seller is not in default with respect to any order or
        decree of any court or any order or regulation of any federal, state 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 adversely affect its performance hereunder; and




<PAGE>   28
                                      -25-

        (b) As to each Initial Mortgage Loan as of the Closing Date, and with
respect to each Subsequent Mortgage Loan as of the related Subsequent Transfer
Date, except as otherwise expressly stated:

                (i) The information set forth on the Mortgage Loan Schedule with
        respect to each Mortgage Loan is true and correct in all material
        respects as of the Closing Date, each Subsequent Transfer Date and each
        date of substitution of an Eligible Substitute Mortgage Loan, as
        applicable, and the information regarding the Mortgage Loans on the
        computer diskette or tape delivered to the Note Insurer prior to the
        Closing Date, each Subsequent Transfer Date and each date of
        substitution of an Eligible Substitute Mortgage Loan, is true and
        accurate in all material respects and describes the same Mortgage Loans
        as the Mortgage Loans on the Mortgage Loan Schedule;

                (ii) The Mortgage Loans are not being transferred with any
        intent to hinder, delay or defraud any creditors;

                (iii) No more than 3.20% of the Initial Mortgage Loans (by
        Cut-off Date Principal Balance) were secured by condominium units; no
        more than 4.44% of the Initial Mortgage Loans (by Cut-off Date Principal
        Balance) were secured by attached housing; and no Initial Mortgage Loans
        were secured by properties in planned unit developments;

                (iv) As of the Cut-off Date, the remaining term of each Mortgage
        Loan is not more than 360 months and not less than 118 months;

                (v) No more than 51.21% of the Initial Mortgage Loans (by
        Cut-off Date Principal Balance) have been the subject of cash-out
        refinances;

                (vi) No more than 34.72% of the Initial Mortgage Loans (by
        Cut-off Date Principal Balance) have been the subject of rate and term
        (no cash-out) refinances;

                (vii) No fewer than 14.07% of the Initial Mortgage Loans (by
        Cut-off Date Principal Balance) are purchase money loans;

                (viii) No more than 26.80% of the Initial Mortgage Loans (by
        Cut-off Date Principal Balance) are secured by Mortgaged Properties
        located in the State of California, and no more than 73.28% of the
        Initial Mortgage Loans (by Cut-off Date Principal Balance) are located
        in any other state;

                (ix) The original Principal Balances of the Initial Mortgage
        Loans ranged from $18,090 to $437,500. The average outstanding Principal
        Balance of the Initial Mortgage Loans (by Cut-off Date Principal
        Balance) is approximately $79,441.56;




<PAGE>   29
                                      -26-

                (x) At least 87.54% of the Initial Mortgage Loans (by Cut-off
        Date Principal Balance) were secured by a first or second lien on a
        parcel of real property improved by a single family detached residence;
        no more than 3.64% of the Initial Mortgage Loans (by Cut-off Date
        Principal Balance) were secured by a first or second lien on a parcel of
        real estate improved by a two-to four-unit single family residence; no
        more than 0% of the Initial Mortgage Loans (by Cut-off Date Principal
        Balance) were secured by a first or second lien on a parcel of real
        estate improved by manufactured housing; and no more than 1.18% of the
        Initial Mortgage Loans (by Cut-off Date Principal Balance) were secured
        by a first or second lien on a parcel of real estate improved by a
        townhouse;

                (xi) The earliest year of origination of any Initial Mortgage
        Loan is 1997 and the latest month and year of origination of any Initial
        Mortgage Loan is June, 1998.

                (xii) The Mortgage Rates borne by the Initial Mortgage Loans as
        of the Cut-off Date range from 6.99% per annum to 16.79% per annum and
        the weighted average Mortgage Rate (by Cut-off Date Principal Balance)
        of the Initial Mortgage loans was 10.72% per annum;

                (xiii) No Initial Mortgage Loan in the Mortgage Pool had a
        Combined Loan-to-Value Ratio at origination in excess of 95.00%, and
        the weighted average Combined Loan-to-Value Ratio (by Cut-off Date
        Principal Balance) for the Initial Mortgage Loans was equal to or less
        than 76.74%. 33.27% of the Initial Mortgage Loans (by Cut-off Date
        Principal Balance) have a Loan-to-Value Ratio in excess of 80% and none
        were covered by a Primary Insurance Policy.

                (xiv) Approximately 86.33% and 13.67% of the Mortgage Loans are
        secured by first and second liens, respectively, on the related
        Mortgaged Property; with respect to each Mortgage Loan secured by a
        second lien, either (i) no consent for such Mortgage Loan was required
        by the holder of the related prior lien or (ii) such consent has been
        obtained and is contained in the Mortgage File; 20.50% of the Initial
        Mortgage Loans secured by first liens (by Cut-off Date Principal
        Balance) have secondary financing on the related Mortgaged Property,
        which secondary financing is not included in the Trust Estate;

                (xv) To the best of the Seller's knowledge, there is no valid
        offset, right of rescission, defense, claim or counterclaim of any
        obligor under any Mortgage Note or Mortgage, including the obligation of
        the Mortgagor to pay the unpaid principal of or interest on such
        Mortgage Note, and any applicable right of rescission has expired, nor
        will the operation of any of the terms of such Mortgage Note or
        Mortgage, or the exercise of any right thereunder, render either the
        Mortgage Note or the Mortgage unenforceable, in whole or in part, or
        subject to any right of rescission, set-off, recoupment, counterclaim or
        defense, including, without limitation, the defense of usury, and no
        such right of 




<PAGE>   30
                                      -27-

        rescission, set-off, recoupment, counterclaim or defense has been
        asserted with respect thereto, and, to the best of Seller's knowledge,
        no Mortgagor as of the Cut-off Date or as of the Subsequent Cut-off
        Date, as applicable, of the applicable Mortgage was a debtor in any
        state or federal bankruptcy or insolvency proceeding;

                (xvi) To the best of the Seller's knowledge, there are no
        mechanics' liens or claims for work, labor or material affecting any
        Mortgaged Property which are or may be a lien prior to, or equal with,
        the lien of such Mortgage, except those which are insured against by the
        title insurance policy referred to in clause (xix) below;

                (xvii) To the best of the Seller's knowledge, as of the Cut-off
        Date in the case of an Initial Mortgage Loan or as of the related
        Subsequent Cut-off Date in the case of a Subsequent Mortgage Loan, each
        Mortgaged Property is free of material damage and is in good repair and
        there is no proceeding pending or threatened for the total or partial
        condemnation of any Mortgage Property;

                (xviii) Each Mortgage is a valid and enforceable first, or with
        respect to those Mortgage Loans identified on the Mortgage Loan Schedule
        as second liens, second lien on the Mortgaged Property securing the
        related Mortgage Note and each Mortgaged Property is owned by the
        Mortgagor in fee simple (except with respect to common areas in the case
        of condominiums, PUDs and de minimis PUDs) subject only to (1) the lien
        of nondelinquent current real property taxes and assessments, (2)
        covenants, conditions and restrictions, rights of way, easements and
        other matters of public record as of the date of recording of such
        Mortgage, such exceptions appearing of record being acceptable to
        mortgage lending institutions generally or specifically reflected in the
        appraisal made in connection with the origination of the related
        Mortgage Loan or referred to in the lender's title insurance policy
        delivered to the originator of the related Mortgage Loan and (3) other
        matters to which like properties are commonly subject that do not
        materially interfere with the benefits of the security intended to be
        provided by such Mortgage. Immediately prior to the sale of such
        Mortgage Loan to the Company in the case of an Initial Mortgage Loan and
        to the Issuer in the case of a Subsequent Mortgage Loan pursuant to this
        Agreement, the Seller had full right to sell and assign the same to the
        Company or the Issuer, as the case may be. Immediately following the
        sale of such Mortgage Loan to the Company and the Company's assignment
        and sale thereof to the Issuer in the case of an Initial Mortgage Loan
        and immediately following the sale of such Mortgage Loan to the Issuer
        in the case of a Subsequent Mortgage Loan, the Issuer will have good
        title thereto subject to no claims or liens other than the lien of the
        Indenture;

                (xix) To the best of the Seller's knowledge, each Mortgage Loan
        at origination complied in all material respects with applicable state
        and federal laws, including, without limitation, usury, equal credit
        opportunity, real estate settlement procedures, the Federal




<PAGE>   31
                                      -28-

        Truth-In-Lending Act and disclosure laws and consummation of the
        transactions contemplated hereby, including without limitation, the
        receipt of interest by the owner of such Mortgage Loan or the holders of
        Notes secured thereby, will not violate any such laws. Each Mortgage
        Loan is being serviced in all material respects in accordance with
        applicable state and federal laws, including, without limitation, the
        Federal Truth-In-Lending Act and other consumer protection laws, real
        estate settlement procedures, usury, equal credit opportunity and
        disclosure laws;

                (xx) Neither the Seller nor any prior holder of any Mortgage has
        impaired, waived, altered or modified the Mortgage or Mortgage Notes in
        any material respect (except that a Mortgage Loan may have been modified
        by a written instrument which has been recorded, if necessary to protect
        the interests of the owner of such Mortgage Loan or the Notes, and which
        has been delivered to the Indenture Trustee); satisfied, canceled or
        subordinated such Mortgage in whole or in part; released the applicable
        Mortgaged Property in whole or in part from the lien of such Mortgage;
        or executed any instrument of release, cancellation or satisfaction with
        respect thereto;

                (xxi) A lender's policy of title insurance (on an ALTA or CLTA
        form) or binder, or other assurance of title customary in the relevant
        jurisdiction insuring the first or second lien priority of the Mortgage
        Loan in an amount at least equal to the original Principal Balance of
        each such Mortgage Loan or a commitment binder or commitment to issue
        the same was effective on the date of the origination of each Mortgage
        Loan, each such policy is valid and remains in full force and effect,
        and each such policy was issued by a title insurer qualified to do
        business in the jurisdiction where the Mortgaged Property is located,
        which policy insures the Seller and successor owners of indebtedness
        secured by the insured Mortgage as to the first or second priority lien
        of the Mortgage as applicable. The Seller is, and such successor owners
        will be, the sole insured under such lender's title insurance policy; no
        claims have been made under such mortgage title insurance policy; no
        prior holder of the applicable Mortgage, including the Seller, has done,
        by act or omission, anything which would impair the coverage of such
        mortgage title insurance policy; and each such policy, binder or
        assurance contains all applicable endorsements;

                (xxii) All of the improvements which were included for the
        purpose of determining the Appraised Value of the Mortgaged Property lie
        wholly within the boundaries and building restriction lines of such
        property and no improvements on adjoining properties encroach upon the
        Mortgaged Property;

                (xxiii) No improvement located on or being part of the Mortgaged
        Property is in violation of any applicable zoning law or regulation,
        subdivision law or ordinance, except where the failure to comply would
        not have a material adverse effect on the market 




<PAGE>   32
                                      -29-

        value of the Mortgaged Property. All inspections, licenses and
        certificates required to be made or issued with respect to all occupied
        portions of the Mortgaged Property and, with respect to the use and
        occupancy and fire underwriting certificates, have been made or obtained
        from the appropriate authorities and the Mortgaged Property is lawfully
        occupied under applicable law except where the failure to comply would
        not have a material adverse effect on the market value of the Mortgaged
        Property;

                (xxiv) Each Mortgage Note and the applicable Mortgage are
        genuine, and each is the legal, valid and binding obligation of the
        maker thereof, enforceable in accordance with its terms, except as
        limited by bankruptcy, insolvency, reorganization, moratorium,
        receivership and other similar laws relating to creditors' rights
        generally or by equitable principles (regardless of whether such
        enforcement is considered in a proceeding in equity or at law). All
        parties to the Mortgage Note and the Mortgage had legal capacity to
        execute the Mortgage Note and the Mortgage and each Mortgage Note and
        Mortgage has been duly and properly executed by such parties;

                (xxv) The proceeds of the Mortgage Loans have been fully
        disbursed, there is no requirement for future advances thereunder and
        any and all requirements as to completion of any on-site or off-site
        improvements and as to disbursement of any escrow funds therefor have
        been complied with. All costs, fees and expenses incurred in making,
        closing or recording the Mortgage Loans were paid and the Mortgagor is
        not entitled to any refund of amounts paid or due under the Mortgage
        Note;

                (xxvi) Each Mortgage contains customary and enforceable
        provisions that render the rights and remedies of the holder thereof
        adequate for the realization against the Mortgaged Property of the
        benefits of the security, including (i) in the case of a Mortgage
        designated as a deed of trust, by trustee's sale, and (ii) otherwise by
        judicial foreclosure or if applicable, non-judicial foreclosure. Upon
        default by a Mortgagor on a Mortgage Loan and foreclosure on, or
        trustee's sale of, the Mortgaged Property pursuant to the proper
        procedures, the holder of the Mortgage Loan will be able to deliver good
        and merchantable title to the property, subject to any applicable rights
        of redemption;

                (xxvii) With respect to each Mortgage constituting a deed of
        trust, either a trustee, duly qualified under applicable law to serve as
        such, has been properly designated and currently so serves and is named
        in such Mortgage or if no duly qualified trustee has been properly
        designated and so serves, the Mortgage contains satisfactory provisions
        for the appointment of such trustee by the holder of the Mortgage at no
        cost or expense to such holder, and no fees or expenses are or will
        become payable by the Noteholders or the Note Insurer to the trustee
        under the deed of trust, except in connection with a trustee's sale
        after default by the Mortgagor;




<PAGE>   33
                                      -30-

                (xxviii) There exist no deficiencies with respect to escrow
        deposits and payments, if such are required, for which customary
        arrangements for repayment thereof cannot be made, and no escrow
        deficits or payments of other charges or payments due the Seller have
        been capitalized under the Mortgage or the applicable Mortgage Note;

                (xxix) The Mortgage Note is not and has not been secured by any
        collateral, pledged account or other security other than real estate
        securing the Mortgagor's obligations and no Mortgage Loan is secured by
        more than one Mortgaged Property;

                (xxx) To the best of the Seller's knowledge, as of the Closing
        Date in the case of an Initial Mortgage Loan, and as of the related
        Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the
        improvements upon each Mortgaged Property are covered by a valid and
        existing hazard insurance policy substantially acceptable to the Seller
        which policy provides for fire extended coverage and such other hazards
        as are customary in the area where the Mortgaged Property is located
        representing coverage in an amount not less than the lesser of (A) the
        maximum insurable value of the improvements securing such Mortgage Loan
        and (B) the outstanding Principal Balance of the related Mortgage Loan;
        if the improvement on the Mortgaged Property is a condominium unit, it
        is included under the coverage afforded by a blanket policy for the
        condominium project. All individual insurance policies contain a
        standard mortgagee clause naming the Seller or the original holder of
        the Mortgage, and its successors in interest, as mortgagee, and the
        Seller has received no notice that any premiums due and payable thereon
        have not been paid; the Mortgage obligates the Mortgagor thereunder to
        maintain all such insurance at the Mortgagor's cost and expense, and
        upon the Mortgagor's failure to do so, authorizes the holder of the
        Mortgage to obtain and maintain such insurance at the Mortgagor's cost
        and expense and to seek reimbursement therefor from the Mortgagor. There
        has been no act or omission which would impair the coverage of any such
        policy, the benefits of the endorsement provided for herein, or the
        validity and binding effect of either;

                (xxxi) If the Mortgaged Property is in an area identified in the
        Federal Register by the Federal Emergency Management Agency as having
        special flood hazards, a flood insurance policy in a form meeting the
        requirements of the current guidelines of the Flood Insurance
        Administration is in effect with respect to such Mortgaged Property with
        a generally acceptable carrier in an amount representing coverage not
        less than the least of (A) the outstanding Principal Balance of the
        Mortgage Loan, (B) the minimum amount required to compensate for damage
        or loss on a replacement cost basis and (C) the maximum amount of flood
        coverage that is available under federal law;

                (xxxii) Except for the Mortgage Loans referred to in clause
        (xli) as being delinquent, there is no material monetary default,
        breach, violation or event of acceleration 




<PAGE>   34
                                      -31-


        existing under the Mortgage or the applicable Mortgage Note; and no
        material event which, with the passage of time or with notice and the
        expiration of any grace or cure period, would constitute a material
        default, breach, violation or event of acceleration, and neither the
        Seller, any of its affiliates nor any Master Servicer or subservicer of
        any related Mortgage Loan has waived any default, breach, violation or
        event of acceleration; no foreclosure action is threatened or has been
        commenced with respect to the Mortgage Loan;

                (xxxiii) Each Mortgage Loan is being serviced by Advanta
        Mortgage Corp. USA;

                (xxxiv) There is no obligation on the part of the Seller or any
        other party to make any payments with respect to the related Mortgage
        Loan in addition to the Monthly Payments required to be made by the
        applicable Mortgagor;

                (xxxv) Any future advances made prior to the Cut-off Date in the
        case of an Initial Mortgage Loan and as of the related Subsequent
        Cut-off Date in the case of a Subsequent Mortgage Loan, with respect to
        any Mortgage Loan have been consolidated with the outstanding principal
        amount secured by such Mortgage, and the secured principal amount, as
        consolidated, bears a single interest rate and single repayment term
        reflected on the Mortgage Loan Schedule. The consolidated principal
        amount does not exceed the original principal amount of the Mortgage
        Loan. The Mortgage Note with respect to any Mortgage Loan does not
        permit or obligate the Master Servicer to make future advances to the
        Mortgagor at the option of the Mortgagor;

                (xxxvi) The Seller has caused or will cause to be performed any
        and all acts required to preserve the rights and remedies of the Company
        and the Issuer evidencing an interest in the Mortgage Loans in any
        insurance policies applicable to the Mortgage Loans including, without
        limitation, any necessary notifications of insurers, assignments of
        policies or interests therein, and establishments of coinsured, joint
        loss payee and mortgagee rights in favor of the Company or the Issuer,
        as applicable;

                (xxxvii) To the best of the Seller's knowledge, except as set
        forth in clause (xli), there are no defaults by the Mortgagor in
        complying with the terms of any Mortgage, and all taxes, governmental
        assessments, insurance premiums, water, sewer and municipal charges
        which previously became due and owing have been paid, or, if required by
        the terms of the Mortgage Loan, an escrow of funds has been established
        in an amount sufficient to pay for every such item which remains unpaid
        and which has been assessed, but is not yet due and payable. Except for
        (A) payments in the nature of escrow payments and (B) interest accruing
        from the date of the Mortgage Note or date of disbursement of the
        Mortgage proceeds to the day which precedes by one month the Due Date of
        the first installment of principal and interest, including, without
        limitation, taxes and insurance 




<PAGE>   35
                                      -32-

        payments, the Master Servicer has not advanced funds, or induced,
        solicited or knowingly received any advance of funds by a party other
        than the Mortgagor, directly or indirectly, for the payment of any
        amount required by the Mortgage;

                (xxxviii) At the time of origination, each Mortgaged Property
        was the subject of an appraisal which conforms to the underwriting
        requirements of the related originator; and the Mortgage File contains
        an appraisal of the applicable Mortgaged Property;

                (xxxix) None of the Mortgage Loans are graduated payment
        Mortgage Loans or growth equity Mortgage Loans;

                (xl) (a) None of the payments of principal of or interest on or
        in respect of any Initial Mortgage Loan shall be 30 days or more but
        less than 60 days past due as of June 1, 1998; none of the payments of
        principal or interest on or in respect of any Initial Mortgage Loans or
        Subsequent Mortgage Loans shall be 60 days or more past due as of the
        Cut-off Date or Subsequent Cut-off Date, as applicable; (b) except as
        set forth in clause (a) above, no Mortgage Loan has been contractually
        delinquent for more than one monthly installment period during the
        twelve months preceding the Cut-off Date or the Subsequent Cut-off Date,
        as applicable; (c) except as set forth in clause (a) above, all payments
        required to be made by the Mortgagor under the terms of the Mortgage
        Note have been made and credited; and (d) to the Seller's knowledge,
        there was no delinquent recording, tax or assessment lien against the
        property subject to any Mortgage, except where such lien was being
        contested in good faith and a stay had been granted against levying on
        the property;

                (xli) Upon payment of the Purchase Price for the Mortgage Loans
        by the Company or the Issuer, as applicable, pursuant to this Agreement,
        the Seller has transferred to the Company in the case of an Initial
        Mortgage Loan and to the Issuer in the case of a Subsequent Mortgage
        Loan good and marketable title to each Mortgage Note and Mortgage free
        and clear of any and all liens (except the related first lien if such
        Mortgage Loan is secured by a second lien and except as set forth in
        clause (xviii) above), claims, encumbrances, participation interests,
        equities, pledges, charges or security interests of any nature and has
        or had full right and authority, subject to no participation of or
        agreement with any other person, to sell and assign the same, and
        following the sale of each Mortgage Loan, the Company, or the Issuer, as
        applicable, will own such Mortgage Loan free and clear of any
        encumbrance, equity interest, participation interest, lien, pledge,
        charge, claim or security interest;

                (xlii) The Seller acquired any right, title and interest in and
        to the Mortgage Loans in good faith and without notice of any adverse
        claim;




<PAGE>   36
                                      -33-

                (xliii) All of the Initial Mortgage Loans are Mortgage Loans
        having a Mortgage Rate that is fixed;

                (xliv) The Mortgage Note, the Mortgage, the related Assignment
        of Mortgage and any other documents required to be delivered by the
        Seller have been or will be delivered to the Indenture Trustee. The
        Indenture Trustee is in possession of a complete, true and accurate
        Mortgage File in accordance with Section 2.2 hereof. Substantially all
        Mortgage Loans have monthly payments due on the first day of each month
        and each Mortgage Loan had an original term to maturity of no greater
        than 30 years;

                (xlv) All of the Mortgage Loans contain a due-on-sale provision
        except that all of the Mortgage Loans located in Minnesota that are
        purchase money loans are assumable;

                (xlvi) Each of the Mortgage and the Assignment of Mortgage is in
        recordable form and is acceptable for recording under the laws of the
        jurisdiction in which the Mortgaged Property is located;

                (xlvii) The Mortgagor has not notified the Seller, and the
        Seller has no knowledge of any relief requested or allowed to the
        Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940;

                (xlviii) To the best of the Seller's knowledge, there exists no
        violation of any local, state, or federal environmental law, rule or
        regulation in respect of the Mortgaged Property which violation has or
        could have a material adverse effect on the market value of such
        Mortgaged Property. The Seller has no knowledge of any pending action or
        proceeding directly involving the related Mortgaged 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 employment of such
        Mortgaged Property;

                (xlix) Each Mortgage Loan conforms, and all such Mortgage Loans
        in the aggregate conform, to the description thereof set forth in the
        Prospectus Supplement in all material respects;

                (l) Immediately prior to the transfer to the Company or the
        Issuer, as applicable, the Seller had good and marketable title thereto,
        and the Seller is the sole owner of beneficial title to and holder of
        the Mortgage Loan. The Seller is conveying the same to the Company or
        the Issuer, as applicable, free and clear of any and all liens claims,
        encumbrances, participation interests, equities, pledges, charges or
        security 




<PAGE>   37
                                      -34-

        interests of any nature and has full right and authority to sell and
        assign the same pursuant to this Agreement, except for liens which will
        be released simultaneously with such conveyance;

                (li) For each Mortgage Loan, the related Mortgage File contains
        a true, accurate and correct copy of each of the documents and
        instruments required to be included therein;

                (lii) The Seller, in its capacity as Master Servicer, meets all
        applicable requirements under the Servicing Agreement;

                (liii) No instrument of release or waiver has been executed in
        connection with the Mortgage Loans, and no Mortgagor has been released,
        in whole or in part from its obligations in connection with a Mortgage
        Loan except in connection with an assumption agreement which has been
        delivered to the Indenture Trustee;

                (liv) On the basis of a representation by the Mortgagor at the
        time of origination of the Mortgage Loans, at least ___% of the Initial
        Mortgage Loans (by Cut-off Date Principal Balance) will be secured by
        Mortgages on owner-occupied primary residence properties;

                (lv) None of the Initial Mortgage Loans (by Cut-off Date
        Principal Balance) provide for a balloon payment;

                (lvi) No Mortgage Loan was originated based on an appraisal of
        the related Mortgaged Property made prior to completion of construction
        of the improvements thereon;

                (lvii) None of the Mortgage Loans is a "buy down" mortgage loan;

                (lviii) As of the Cut-Off Date, the Mortgage Rate of each
        Initial Mortgage Loan was not more than ____% per annum and not less
        than ___% per annum, and the weighted average Mortgage Rate of the
        Initial Mortgage Loans was approximately ___% per annum;

                (lix) No selection procedure reasonably believed by the Seller
        to be adverse to the interests of the Noteholders or the Note Insurer
        was utilized in selecting the Mortgage Loans;

                (lx) No material misrepresentation, fraud or similar occurrence
        with respect to a Mortgage Loan has taken place on the part of the
        Seller, its affiliates or employees or 




<PAGE>   38
                                      -35-

        to the best of the Seller's knowledge, any other person involved in the
        origination of the Mortgage Loan or in the application for any insurance
        in relation to such Mortgage Loan.

                (lxi) Each Mortgage Loan was originated by a mortgagee approved
        by the Secretary of Housing and Urban Development pursuant to Sections
        203 and 211 of the Act, a savings and loan association, a savings bank,
        a commercial bank, credit union, insurance company or similar
        institution which is supervised and examined by a federal or state
        authority.

                (lxii) With respect to each Mortgage Loan secured by
        manufactured housing, such manufactured housing is permanently affixed
        to a foundation and constitutes real estate under applicable state law.

                (lxiii) No Mortgage Loans are date of payment or simple interest
        loans.

                (lxiv) The sale, transfer, assignment and conveyance of Mortgage
        Loans by the Seller pursuant to this Agreement is not subject to and
        will not result in any tax, fee or governmental charge payable by the
        Company, the Issuer or the Indenture Trustee to any federal, state or
        local government ("Transfer Taxes") other than Transfer Taxes which have
        or will be paid by the Seller as due.

               Upon discovery by the Seller or upon notice from the Company, the
Note Insurer, the Issuer, the Owner Trustee or the Indenture Trustee, as
applicable, of a breach of any representation or warranty in subsection (a) of
this Section which materially and adversely affects the interests of the
Noteholders or the Certificateholders or the Note Insurer, as applicable, the
Seller shall, within 45 days of its discovery or its receipt of notice of such
breach, either (i) cure such breach in all material respects or (ii) to the
extent that such breach is with respect to a Mortgage Loan or a Related
Document, either (A) repurchase such Mortgage Loan from the Issuer at the
Repurchase Price, or (B) substitute one or more Eligible Substitute Mortgage
Loans for such Mortgage Loan, in each case in the manner and subject to the
conditions and limitations set forth below.

               Upon discovery by the Seller or upon notice from the Company, the
Note Insurer, the Issuer, the Owner Trustee or the Indenture Trustee, as
applicable, of a breach of any representation or warranty in this subsection (b)
with respect to any Mortgage Loan or upon the occurrence of a Repurchase Event,
which materially and adversely affects the value of the related Mortgage Loan or
the interests of any Noteholders, Certificateholders or the Note Insurer, as
applicable, or of the Company or the Issuer in such Mortgage Loan (notice of
which shall be given to the Company and the Issuer by the Seller, with a copy to
the Note Insurer, if it discovers the same) the Seller shall, within 90 days
after the earlier of its discovery or receipt of notice thereof, either cure
such breach or Repurchase Event in all material respects or either (i)
repurchase such 




<PAGE>   39
                                      -36-

Mortgage Loan from the Issuer at the Repurchase Price, or (ii) substitute one or
more Eligible Substitute Mortgage Loans for such Mortgage Loan, in each case in
the manner and subject to the conditions set forth below. The Repurchase Price
for any such Mortgage Loan repurchased by the Seller shall be deposited or
caused to be deposited by the Master Servicer in the Collection Account
maintained by it pursuant to Section 3.06 of the Servicing Agreement. With
respect to the representations and warranties contained herein that the Seller
has made to the best of its knowledge, if it is discovered that the substance of
any such representation and warranty was inaccurate as of the date such
representation and warranty was made or deemed to be made, and such inaccuracy
materially and adversely affects the value of the related Mortgage Loan or the
interest therein of the Company or the Note Insurer, then notwithstanding the
lack of knowledge by the Seller with respect to the substance of such
representation and warranty being inaccurate at the time the representation and
warranty was made, the Seller shall take such action described in this paragraph
in respect of such Mortgage Loan.

               In the event that the Seller elects to substitute an Eligible
Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this
Section 3.1, the Seller shall deliver to the Indenture Trustee on behalf of the
Issuer, with respect to such Eligible Substitute Mortgage Loan or Loans, the
original Mortgage Note and all other documents and agreements as are required by
Section 2.2 hereof, with the Mortgage Note endorsed as required by such Section
2.2 hereof. No substitution will be made in any calendar month after the
Determination Date for such month. Monthly Payments due with respect to Eligible
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Estate and will be retained by the Master Servicer and remitted by the
Master Servicer to the Seller on the next succeeding Payment Date. For the month
of substitution, distributions to the Payment Account pursuant to the Servicing
Agreement will include the Monthly Payment due on a Deleted Mortgage Loan for
such month and thereafter the Seller shall be entitled to retain all amounts
received in respect of such Deleted Mortgage Loan. The Seller shall cause the
Master Servicer to amend the Mortgage Loan Schedule to reflect the removal of
such Deleted Mortgage Loan and the substitution of the Eligible Substitute
Mortgage Loan or Loans and to deliver the amended Mortgage Loan Schedule to the
Indenture Trustee. Upon such substitution, the Eligible Substitute Mortgage Loan
or Loans shall be subject to the terms of this Agreement and the Servicing
Agreement in all respects, the Seller shall be deemed to have made the
representations and warranties with respect to the Eligible Substitute Mortgage
Loan contained herein set forth in this Section 3.1(b), to the extent set forth
in the definition of "Eligible Substitute Mortgage Loan", as of the date of
substitution, and the Seller shall be obligated to repurchase or substitute for
any Eligible Substitute Mortgage Loan as to which a Repurchase Event has
occurred as provided herein. In connection with the substitution of one or more
Eligible Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the
Master Servicer will determine the amount (such amount, a "Substitution
Adjustment Amount"), if any, by which the aggregate principal balance of all
such Eligible Substitute Mortgage Loans as of the date of substitution is less
than the aggregate principal balance of all such Deleted Mortgage Loans (after
application of the principal portion of the Monthly Payments due in the month of




<PAGE>   40
                                      -37-

substitution that are to be distributed to the Payment Account in the month of
substitution). The Seller shall pay the amount of such shortfall to the Master
Servicer for deposit into the Collection Account on the day of substitution,
without any reimbursement therefor.

               Upon receipt by the Issuer and the Indenture Trustee of written
notification, signed by a Servicing Officer, of the deposit of such Repurchase
Price or of such substitution of an Eligible Substitute Mortgage Loan and
deposit of any applicable Substitution Adjustment Amount as provided above, the
Indenture Trustee on behalf of the Issuer and the Note Insurer shall release to
the Seller the related Mortgage File for the Mortgage Loan being repurchased or
substituted for and the Issuer shall execute and deliver such instruments of
transfer or assignment prepared by the Master Servicer, in each case without
recourse, as shall be necessary to vest in the Seller or its designee such
Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan shall
not be an asset of the Issuer.

               It is understood and agreed that the obligation of the Seller to
cure any breach with respect to or to repurchase or substitute for, any Mortgage
Loan as to which such a breach has occurred and is continuing shall, except to
the extent provided in Section 5.1 of this Agreement, constitute the sole remedy
respecting such breach available to the Company, the Issuer, the
Certificateholders (or the Owner Trustee on behalf of the Certificateholders)
and the Noteholders (or the Indenture Trustee on behalf of the Noteholders)
against the Seller.

               It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the
respective Mortgage Files to the Issuer.

               Section 3.2 Company Representations and Warranties. The Company
hereby represents and warrants to the Seller, the Indenture Trustee and the Note
Insurer as of the date hereof and as of the Closing Date that:

               (a) The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted.

               (b) The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business shall require such qualifications and in which
the failure to so qualify would have a material adverse effect on the business,
properties, assets or condition (financial or other) of the Company and the
ability of the Company to perform under this Agreement.




<PAGE>   41
                                      -38-

               (c) The Company has the power and authority to execute and
deliver this Agreement and to carry out its terms; the Company has full power
and authority to purchase the property to be purchased from the Seller and the
Company has duly authorized such purchase by all necessary corporate action; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Company by all necessary corporate action.

               (d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time) a default under, the articles of incorporation
or bylaws of the Company, or any indenture, agreement or other instrument to
which the Company is a party or by which it is bound; nor result in the creation
or imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument (other than pursuant to the
Basic Documents); nor violate any law or, to the best of the Company's
knowledge, any order, rule or regulation applicable to the Company of any court
or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Company or its
properties.


                                   ARTICLE IV

                               SELLER'S COVENANTS

               Section 4.1. Covenants of the Seller. The Seller hereby covenants
as of the date hereof and as of the Closing Date and as of each Subsequent
Transfer Date that, except for the transfer hereunder, on and after the Closing
Date, the Seller will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur or assume any Lien on, any Initial Mortgage Loan or
Subsequent Mortgage Loan, whether now existing or hereafter created, or any
interest therein; the Seller will notify the Issuer, on its own behalf and as
assignee of the Company, the Indenture Trustee and the Note Insurer of the
existence of any such Lien on any Mortgage Loan immediately upon discovery
thereof; and the Seller will defend the right, title and interest of the Issuer,
on its own behalf and as assignee of the Company, the Indenture Trustee and the
Note Insurer in, to and under the Mortgage Loans, whether now existing or
hereafter created, against all claims of third parties claiming through or under
the Seller.

               In the event that the Indenture Trustee receives actual notice of
any Transfer Taxes arising out of the transfer, assignment and conveyance of the
Mortgage Loans, on written demand by the Indenture Trustee, or upon the Seller's
otherwise being given notice thereof by the Indenture Trustee, the Seller shall
pay any and all such Transfer Taxes (it being understood that the Holders of the
Notes, the Indenture Trustee and the Note Insurer shall have no obligation to
pay such Transfer Taxes).




<PAGE>   42
                                      -39-

               Section 4.2. Payment of Expenses.

               (a) The Seller will pay on the Closing Date all expenses incident
to the performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the preliminary prospectus, Prospectus
Supplement and Prospectus (including any schedules or exhibits and any document
incorporated therein by reference) originally filed and of each amendment or
supplement thereto, (ii) the preparation, printing and delivery to the
Underwriter of this Agreement, the Indenture and such other documents as may be
required in connection with the offering, purchase, sale and delivery of the
Notes, (iii) the preparation, issuance and delivery of the certificates for the
Notes to the Underwriter, including any charges of DTC in connection therewith;
(iv) the fees and disbursements of the Company's accountants and other advisors,
(v) the qualification of the Notes under securities laws in accordance with the
provisions of Section 3(f) of the Underwriting Agreement, including filing fees
and the reasonable fees and disbursements of counsel for the Underwriter in
connection therewith, (vi) the printing and delivery to the Underwriter of
copies of the Prospectus and any amendments or supplements thereto, (vi) the
fees and expenses of the Indenture Trustee and Owner Trustee, including the fees
and disbursements of counsel for the Indenture Trustee and Owner Trustee in
connection with the Indenture, the Trust Agreement and the Notes and (vii) any
fees payable in connection with the rating of the Notes.

               (b) If the Underwriting Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i)
thereof, the Seller shall reimburse the Underwriter for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriter.


                                    ARTICLE V

                  CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE

               Section 5.1. Conditions of Company's Obligations. The Company's
obligation to purchase the Initial Mortgage Loans which it accepts for purchase
hereunder shall be subject to each of the following conditions:

                        (i)     the Mortgage File for each Initial Mortgage Loan
                                shall have been delivered in accordance with
                                this Agreement and the Trust Agreement;

                        (ii)    the representations and warranties set forth in
                                Section 3.1(b) hereof with respect to each
                                Initial Mortgage Loan shall be true as of the
                                Closing Date;




<PAGE>   43
                                      -40-

                        (iii)   The Underwriter or its affiliates shall have had
                                an opportunity to perform a due diligence review
                                of each Mortgage Loan and shall have arranged
                                for reappraisals of value with respect to each
                                Mortgage Loan if desired by the Underwriter; and

                        (iv)    The Seller shall have provided to the
                                Underwriter or its affiliates such other
                                documents which are then required to have been
                                delivered under this Agreement or which are
                                reasonably requested by the Underwriter or its
                                affiliates, which other documents may include
                                UCC financing statements, a favorable opinion or
                                opinions of counsel with respect to matters
                                which are reasonably requested by the
                                Underwriter, and/or an Officers' Certificate
                                from the Underwriter.


                                   ARTICLE VI

                      LIMITATION ON LIABILITY OF THE SELLER
                       WITH RESPECT TO THE MORTGAGE LOANS

               Section 6.1. Limitation on Liability of the Seller. None of the
directors, officers, employees or agents of the Seller shall be under any
liability to the Company, 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. Except as and to the extent expressly provided
in the Basic Documents, the Seller shall not be under any liability to the
Issuer, the Owner Trust, the Owner Trustee, the Indenture Trustee, the
Noteholders or the Certificateholders. The Seller and any director, officer,
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 VII

                                  TERMINATION

               Section 7.1. Termination.

               (a) Except as provided in Section 7.1(b) hereof, the respective
obligations and responsibilities of the Seller, the Company, the Issuer and the
Indenture Trustee created hereby shall terminate, except for the Seller's
indemnity obligations as provided herein, upon the earlier of (i) the
termination of the Issuer pursuant to the terms of the Trust Agreement and (ii)
the 




<PAGE>   44
                                      -41-

purchase by the Seller from the Issuer of all, but not part, of the Mortgage
Loans and all property acquired, in respect of any Mortgage Loan pursuant to
Section 7.2 hereof.

               (b) The Company may terminate this Agreement, by notice to the
Seller, at any time at or prior to the Closing Date:

                (i) if the Underwriting Agreement is terminated by the
        Underwriter pursuant to the terms of the Underwriting Agreement or if
        there has been, since the time of execution of this Agreement or since
        the respective dates as of which information is given in the Prospectus,
        any material adverse change in the financial condition, earnings,
        business affairs or business prospects of the Seller, whether or not
        arising in the ordinary course of business, or

                (ii) if there has occurred any material adverse change in the
        financial markets in the United States, any outbreak of hostilities or
        escalation thereof or other calamity or crisis or any change or
        development involving a prospective change in national or international
        political, financial or economic conditions, in each case the effect of
        which is such as to make it, in the judgment of the Underwriter,
        impracticable to market the Notes or to enforce contracts for the sale
        of the Notes, or

                (iii) if trading in any securities of the Seller has been
        suspended or limited by the Commission or the New York Stock Exchange,
        or if trading generally on the American Stock Exchange or the New York
        Stock Exchange or in the NASDAQ National Market System has been
        suspended or limited, or minimum or maximum prices for trading have been
        fixed, or maximum ranges for prices have been required, by any of said
        exchanges or by such system or by order of the Commission, the National
        Association of Securities Dealers, Inc. or any other governmental
        authority,

                (iv) if a banking moratorium has been declared by either Federal
        or New York authorities,

                (v) a change in control of the Seller shall have occurred other
        than in connection with and as a result of the issuance and sale by the
        Seller or registered, publicly offered common stock;

                (vi) there is (A) a material breach by the Seller of any
        representation and warranty contained in this Agreement or the
        Underwriting Agreement other than a representation or warranty relating
        to particular Mortgage Loans, and the Underwriter has reason to believe
        in good faith either that such breach is not curable within 2 (two) days
        or that such breach may not have been cured in all material respects at
        the expiration of 2 (two) days following discovery thereof by the Seller
        or (B) a failure by the Seller to make any payment payable by it under
        this Agreement or (C) any other failure by the 




<PAGE>   45
                                      -42-

        Seller to observe and perform in any material respect its material
        covenants, agreements and obligations with the Company, including
        without limitation those contained in this Agreement, and the Company
        has reason to believe in good faith that such failure may not have been
        cured in all material respects at the expiration of 2 (two) days
        following discovery thereof by the Seller, or

                (vii) the Seller fails to provide written notification to the
        Underwriter of any change in its loan origination, acquisition or
        appraisal guidelines or practices, or the Seller, without the prior
        consent of the Underwriter (which shall not be unreasonably withheld),
        amends in any material respect its loan origination, acquisition or
        appraisal guidelines or practices.

               If this Agreement is terminated pursuant to this Section 7.1(b),
such termination shall be without liability of any party to any other party
except as provided in Section 4.2 hereof.

               Section 7.2. Optional Redemption. (a) Subject to the provisions
of clause (b) below, the majority Certificateholder has the right to purchase
the Mortgage Loans in whole, but not in part, on any Payment Date on or after
the Payment Date on which the aggregate Principal Balance of the Mortgage Loans
as of any Payment Date is less than or equal to 10% of the Original Pool
Balance. The purchase price will be equal to 100% of the aggregate outstanding
Note Principal Balance and accrued and unpaid interest thereon at the Note
Interest Rate through the date on which the Notes are redeemed in full together
with all amounts due and owing, including any such amounts due and owing in
connection with such redemption, to the Note Insurer, the Master Servicer and
the Indenture Trustee. If such right is exercised by the majority
Certificateholder, the majority Certificateholder shall deposit the amount
calculated above with the Indenture Trustee pursuant to Section 5.02 of the
Indenture and, upon the receipt of such deposit, the Indenture Trustee shall
release to the majority Certificateholder pursuant to Section 8.07 of the
Indenture the Mortgage Files pertaining to the Mortgage Loans being purchased.

               (b) The majority Certificateholder, at its expense, shall prepare
and deliver to the Indenture Trustee for execution, at the time the Mortgage
Loans are to be released to the majority Certificateholder, appropriate
documents assigning each such Mortgage Loan from the Indenture Trustee or the
Trust to the majority Certificateholder or the appropriate party.




<PAGE>   46
                                      -43-

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

               Section 8.1. Amendment. This Agreement may be amended from time
to time by the Seller, the Indenture Trustee and the Company by written
agreement signed by the Seller, the Indenture Trustee and the Company, with the
prior written consent of the Note Insurer.

               Section 8.2. Governing Law. This 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 8.3. 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:

               (i)           if to the Seller:

                             PacificAmerica Money Center, Inc.
                             21031 Ventura Boulevard
                             Woodland Hills, CA 91364-2210
                             Attention:

or, such other address as may hereafter be furnished to the Company in writing
by the Seller.

               (ii)          if to the Company:

                             Merrill Lynch Mortgage Investors, Inc.
                             North Tower
                             World Financial Center
                             New York, NY 10281-1201
                             Attention: Legal Department

or such other address as may hereafter be furnished to the Seller in writing by
the Company.

               (iii)         if to the Issuer:

                             PacificAmerica Home Equity Loan Trust
                             Series 1998-2F
                             c/o PacificAmerica Money Center, Inc.
                             21031 Ventura Boulevard Woodland Hills, CA
                             91364-2210




<PAGE>   47
                                      -44-

                             Attention:

or such other address as may hereafter be furnished to the Seller in writing by
the Issuer.

               (iv)          if to the Indenture Trustee:

                             Bankers Trust Company of California, N.A.
                             3 Park Plaza, 16th Floor
                             Irvine, California 92614
                             Attention: PacificAmerica Series 1998-2F

or such other address as may hereafter be furnished to the Seller in writing by
the Indenture Trustee.

               (v)           if to the Note Insurer:

                             Financial Security Assurance
                             350 Park Avenue
                             New York, NY 10022
                             Attention: Surveillance Department
                             Re: PacificAmerica Home Equity Loan
                                  Asset-Backed Notes Series 1998-2F

                             Telecopy No.: (212) 339-3518, (212) 359-3529
                             Confirmation: (212) 826-0100

               Section 8.4. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this 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 Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.

               Section 8.5. Relationship of Parties. Nothing herein contained
shall be deemed or construed to create a partnership or joint venture between
the parties hereto, and the services of the Seller shall be rendered as an
independent contractor and not as agent for the Company.

               Section 8.6. Counterparts. This Agreement may be executed in two
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.




<PAGE>   48
                                      -45-

               Section 8.7. Further Agreements. The Company, the Indenture
Trustee and the Seller each agree to execute and deliver to the other such
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Agreement. Each of the Company
and the Seller agrees to use its best reasonable efforts to take all actions
necessary to be taken by it to cause the Notes to be issued and rated in the
highest rating category by each of the Rating Agencies, and each party will
cooperate with the other in connection therewith.

               Section 8.8. Intention of the Parties. It is the intention of the
parties that (i) the Company will be purchasing on the Closing Date, and the
Seller will be selling on the Closing Date, the Initial Mortgage Loans, rather
than the Company providing a loan to the Seller secured by the Initial Mortgage
Loans on the Closing Date, and (ii) the Issuer will be purchasing on each
Subsequent Transfer Date, and the Seller will be selling on each Subsequent
Transfer Date, the related Subsequent Mortgage Loans, rather than the Issuer
providing a loan to the Seller secured by the related Subsequent Mortgage Loans
on each Subsequent Transfer Date. Accordingly, the parties hereto each intend to
treat this transaction with respect to the transaction for federal income tax
purposes as (i) a sale by the Seller, and a purchase by the Company, of the
Initial Mortgage Loans on the Closing Date and (ii) a sale by the Seller, and a
purchase by the Issuer, of the related Subsequent Mortgage Loans on each
Subsequent Transfer Date. The Company and the Issuer will have the right to
review the Mortgage Loans and the Related Documents to determine the
characteristics of the Mortgage Loans which will affect the federal income tax
consequences of owning the Mortgage Loans and the Seller will cooperate with all
reasonable requests made by the Company and/or the Issuer in the course of such
review.

               Section 8.9. Successors and Assigns; Assignment of Purchase
Agreement. This Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the Company, the Issuer, the Indenture Trustee and
the Note Insurer and their respective successors and assigns. The obligations of
the Seller under this Agreement cannot be assigned or delegated to a third party
without the consent of the Company and the Note Insurer, which consent shall be
at the Company's and the Note Insurer's sole discretion. The parties hereto
acknowledge that (i) the Company is acquiring the Initial Mortgage Loans for the
purpose of selling them to the Issuer, who will in turn pledge the Initial
Mortgage Loans to the Indenture Trustee for the benefit of the Noteholders and
the Note Insurer and (ii) the Issuer is acquiring the Subsequent Mortgage Loans
for the purpose of pledging the Subsequent Mortgage Loans to the Indenture
Trustee for the benefit of the Noteholders and the Note Insurer. As an
inducement to the Company and the Issuer to purchase the Mortgage Loans, the
Seller acknowledges and consents to (i) the assignment by the Company to the
Issuer of all of the Company's rights against the Seller pursuant to this
Agreement and to the enforcement or exercise of any right or remedy against the
Seller pursuant to this Agreement and (ii) the assignment by the Issuer to the
Indenture Trustee and the Note Insurer of such rights and to the enforcement or
exercise of any right or remedy against the Seller pursuant to this Agreement.
Such enforcement of a right or remedy by the Issuer, the Owner Trustee, the
Indenture Trustee or the Note Insurer, as applicable, shall have the same force
and 




<PAGE>   49
                                      -46-

effect as if the right or remedy had been enforced or exercised by the Company
or the Issuer directly.

               Section 8.10. Survival. The representations and warranties made
herein by the Seller and the provisions of Article V hereof shall survive the
purchase of the Mortgage Loans hereunder.

               Section 8.11. Third Party Beneficiary. The Note Insurer shall be
a third party beneficiary hereof and shall be entitled to enforce the provisions
of this Agreement as if a party hereto.




<PAGE>   50
               IN WITNESS WHEREOF, the Seller and the Company have caused their
names to be signed to this Home Equity Loan Purchase Agreement by their
respective officers thereunto duly authorized as of the day and year first above
written.


                               MERRILL LYNCH MORTGAGE INVESTORS, INC.
                                   as Company

                               By:___________________________________________
                               Name:
                               Title:


                               PACIFICAMERICA MONEY CENTER, INC.
                                    as Seller

                               By:___________________________________________
                               Name:
                               Title:


                               PACIFICAMERICA HOME EQUITY LOAN
                               TRUST SERIES 1998-2F
                                    as Issuer

                               By: WILMINGTON TRUST COMPANY, not in its
                               individual capacity but solely in its capacity as
                               Owner Trustee

                               By:___________________________________________
                                           Authorized Signatory


                               BANKERS TRUST COMPANY OF CALIFORNIA,
                               N.A.
                                    as Indenture Trustee

                               By:___________________________________________
                               Name:
                               Title:


<PAGE>   51
                                    EXHIBIT 1

                             MORTGAGE LOAN SCHEDULE

                              PROVIDED UPON REQUEST


<PAGE>   52
                                    EXHIBIT 2

                         SUBSEQUENT TRANSFER INSTRUMENT

               Pursuant to this Subsequent Transfer Instrument (the
"Instrument"), dated ___________, 1998, between PacificAmerica Money Center,
Inc. as seller (the "Seller"), and PacificAmerica Home Equity Loan Trust Series
1998-2F as issuer (the "Issuer"), and pursuant to the Home Equity Loan Purchase
Agreement, dated as of June __, 1998, among the Seller, the Issuer, Merrill
Lynch Mortgage Investors, Inc. and Bankers Trust Company of California, N.A.
(the "Home Equity Loan Purchase Agreement"), the Seller and the Issuer agree to
the sale by the Seller and the purchase by the Issuer of the Mortgage Loans
listed on the attached Subsequent Mortgage Loan Schedule (the "Subsequent
Mortgage Loans").

               Capitalized terms used and not defined herein have their
respective meanings as set forth in Section 1.1 of the Home Equity Loan Purchase
Agreement, which meanings are incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.

               Section 1. Conveyance of Subsequent Mortgage Loans.

               (a) The Seller does hereby sell, transfer, assign, set over and
convey to the Issuer, without recourse, all of its right, title and interest in
and to the Subsequent Mortgage Loans, and including all principal received and
interest accruing on the Subsequent Mortgage Loans on and after the related
Subsequent Cut-off Date, and all items with respect to the Subsequent Mortgage
Loans to be delivered pursuant to Section 2.2 of the Home Equity Loan Purchase
Agreement; provided, however, that the Seller reserves and retains all right,
title and interest in and to principal received and interest accruing on the
Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The
Seller, contemporaneously with the delivery of this Agreement, has delivered or
caused to be delivered to the Indenture Trustee each item set forth in Section
2.2 of the Home Equity Loan Purchase Agreement. The transfer to the Issuer by
the Seller of the Subsequent Mortgage Loans identified on the Subsequent
Mortgage Loan Schedule shall be absolute and is intended by the Seller, the
Issuer, the Indenture Trustee and the Noteholders to constitute and to be
treated as a sale by the Seller.

               The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Issuer on the Subsequent Transfer Date of
all the Seller's right, title and interest in and to the Subsequent Mortgage
Loans, and other property as and to the extent described above. In the event the
transactions set forth herein shall be deemed not to be a sale, the Seller
hereby grants to the Issuer as of the Subsequent Transfer Date a security
interest in all of the Seller's right, title and interest in, to and under the
Subsequent Mortgage Loans, and such other property, to secure all of the
Issuer's obligations hereunder, and this Agreement shall constitute a security
agreement under applicable law. The Seller agrees to take or cause to be taken
such actions and to execute such documents, including without limitation the
filing of all necessary UCC-1



<PAGE>   53
financing statements filed in the State of Delaware and the State of California
(which shall be submitted for filing as of the Subsequent Transfer Date), any
continuation statements with respect thereto and any amendments thereto 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 and protect the
Issuer's interests in each Subsequent Mortgage Loan and the proceeds thereof.

               (b) The expenses and costs relating to the delivery of the
Subsequent Mortgage Loans, this Instrument and the Home Equity Loan Purchase
Agreement shall be borne by the Seller.

               (c) Additional terms of the sale are set forth on Attachment A
hereto.

               Section 2. Representations and Warranties; Conditions Precedent.

               (a) The Seller hereby affirms the representations and warranties
set forth in Section 3.1 of the Home Equity Loan Purchase Agreement that relate
to the Seller or the Subsequent Mortgage Loans as of the date hereof. The Seller
hereby confirms that each of the conditions set forth in Section 2.3(b) of the
Home Equity Loan Purchase Agreement are satisfied as of the date hereof and
further represents and warrants that each Subsequent Mortgage Loan complies with
the requirements of this Instrument and Section 2.3(c) of the Home Equity Loan
Purchase Agreement.

               (b) The Seller is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of this Instrument or by the performance of its obligations hereunder
nor is it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Seller prior to the date
hereof;

               (c) All terms and conditions of the Home Equity Loan Purchase
Agreement are hereby ratified and confirmed; provided, however, that in the
event of any conflict the provisions of this Instrument shall control over the
conflicting provisions of the Home Equity Loan Purchase Agreement.

               Section 3. Recordation of Instrument.

               To the extent permitted by applicable law, this Instrument, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the properties
subject to the Mortgages are situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Master
Servicer at the Noteholders' expense on direction of the majority Noteholders or
the Note Insurer, but only when accompanied by an Opinion of Counsel to the
effect that such recordation materially and



<PAGE>   54
beneficially affects the interests of the Noteholders or the Note Insurer or is
necessary for the administration or servicing of the Mortgage Loans.

               Section 4. Governing Law.

               This Instrument 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, without giving
effect to principles of conflicts of law.

               Section 5. Counterparts.

               This Instrument 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; such counterparts, together, shall
constitute one and the same instrument.


               Section 6. Successors and Assigns.

               This Instrument shall inure to the benefit of and be binding upon
the Seller and the Issuer and their respective successors and assigns.


                              PACIFICAMERICA MONEY CENTER, INC.


                              By:___________________________________________
                              Name:_________________________________________
                              Title:________________________________________



                              PACIFICAMERICA HOME EQUITY LOAN
                              TRUST SERIES 1998-2F

                              By: WILMINGTON TRUST COMPANY, not in its
                              individual capacity but solely in its capacity as
                              Owner Trustee


                              By:___________________________________________
                                          Authorized Signatory




<PAGE>   55
Attachments

A.     Additional terms of the sale.
B.     Schedule of Subsequent Mortgage Loans.
C.     Opinions of Seller's counsel (bankruptcy, corporate).
D.     Seller's Officer's Certificate.
E.     Seller's Officer's Certificate (confirmation of Note Insurer approval).



<PAGE>   56
                         PACIFICAMERICA HOME EQUITY LOAN
                                  ASSET-BACKED-
                              NOTES, SERIES 1998-2F
                 ATTACHMENT A TO SUBSEQUENT TRANSFER INSTRUMENT
                                 Series 1998-2F
                                 ________, 1998

A.

   1.     Subsequent Cut-off Date:
   2.     Pricing Date:
   3.     Subsequent Transfer Date:
   4.     Aggregate Principal Balance of the Subsequent Mortgage Loans as of the
          Subsequent Cut-off Date:
   5.     Purchase Price:                                        100.00%

B.

   As to all the Subsequent Mortgage Loans the subject of this Instrument:

   1.     Longest stated term to maturity:                       _____ months
   2.     Minimum Mortgage Rate:                                 _____ %
   3.     Maximum Mortgage Rate:                                 _____ %
   4.     WAC of all Mortgage Loans:                             _____ %
   5.     WAM of all Mortgage Loans:                             _____ %
   6.     Largest Principal Balance:                             $________
   7.     Non-owner occupied Mortgaged Properties:               _____ %
   8.     California zip code concentration:                     _____ %
   9.     Condominiums:                                          _____ %
   10.    Single-family:                                         _____ %
   11.    Weighted average term since origination:
   12.    [May/June/July 1998] first payment date:               _____ %




<PAGE>   57
EXHIBIT 3

                                 ADDITION NOTICE


                                           DATE:

Bankers Trust Company                       Moody's Investor's Service, Inc.
of California, N.A.                         99 Church Street
3 Park Plaza, 16th Floor                    New York, New York 10007
Irvine, California 92614

Financial Security Assurance                Wilmington Trust Company
350 Park Avenue                             1100 North Market Street
New York, New York 10022                    Wilmington, Delaware 19890

Standard & Poor's Ratings Services
26 Broadway
New York, New York 10004-1064

               Re:    Home Equity Loan Purchase Agreement, dated as of June 22,
                      1998 (the "Purchase Agreement"), among PacificAmerica
                      Money Center, Inc. (the "Seller"), PacificAmerica Home
                      Equity Loan Trust Series 1998-2F, a Delaware business
                      trust (the "Issuer"), Bankers Trust Company of California,
                      N.A., as indenture trustee (the "Indenture Trustee") and
                      Merrill Lynch Mortgage Investors, Inc., relating to
                      PacificAmerica Home Equity Loan Asset-Backed Notes and
                      Certificates, Series 1998-2F


Ladies and Gentlemen:

               Pursuant to Section 2.3 of the above-captioned Purchase
Agreement, the Seller has designated the Subsequent Mortgage Loans (see
subsequent mortgage loan schedule attached hereto) to be sold to the Issuer on
_____________, 1998, with an aggregate principal balance of
$_____________________. Capitalized terms not otherwise defined herein have the
meaning set forth in the Purchase Agreement.

               Please acknowledge your receipt of this notice by countersigning
the enclosed copy in the space indicated below and returning it to the attention
of the undersigned.

                                                            Very truly yours,



<PAGE>   58
                                                   PACIFICAMERICA MONEY CENTER,
INC.


                                                   By:_________________________
                                                   Name:
                                                   Title:

ACKNOWLEDGED AND AGREED:

BANKERS TRUST COMPANY
OF CALIFORNIA, N.A.

By:     ___________________________
Name:
Title:



<PAGE>   59
EXHIBIT 4

                   Instruction to Owner Trustee to Execute and
                     Deliver Subsequent Transfer Instrument

                                                               ___________, 1998



Wilmington Trust Company,
 as Owner Trustee
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890

               Re:    Instructions to Owner Trustee: PacificAmerica Home Equity
                      Loan Trust Series 1998-2F :Subsequent Transfer

Dear Sirs:

        Reference is made to the Amended and Restated Trust Agreement, (the
"Trust Agreement"), dated as of June 1, 1998, between Wilmington Trust Company
("WTC"), as Owner Trustee (the "Owner Trustee"), and Merrill Lynch Mortgage
Investors, Inc., a Delaware corporation (the "Depositor"). Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to them
in, or by reference in, the Trust Agreement.

        The Seller, hereby instructs the Owner Trustee to execute and deliver
the Subsequent Transfer Instrument, dated as of _____________ __, 1998 between
PacificAmerica Money Center, Inc., as Seller, and PacificAmerica Home Equity
Loan Trust Series 1998-2F, as Issuer, (attached hereto as Exhibit A).

        The Seller hereby confirms (i) that the Subsequent Mortgage Loan have
been approved by the Note Insurer and (ii) pursuant to the Trust Agreement, that
the indemnification provisions contained in the Trust Agreement apply to the
instructions to the Owner Trustee contained herein.

                                       Very truly yours,

                                       PACIFICAMERICA MONEY CENTER,
                                       INC., as Seller

                                       By:____________________________
                                       Name:__________________________
                                       Title:_________________________




<PAGE>   1
                                                                   EXHIBIT 10.2




                                                                  EXECUTION COPY
================================================================================






              PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F

                                     Issuer

                                      and

                   BANKERS TRUST COMPANY OF CALIFORNIA, N.A.

                               Indenture Trustee

                   _________________________________________



                                   INDENTURE

                            Dated as of June 1, 1998

                   __________________________________________


              PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED NOTES,
                           SERIES 1998-2F, CLASS A-F

                                 _____________



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

<PAGE>   2
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
Section                                                                                                       Page
<S>                                                                                                           <C>
ARTICLE I

         Definitions

         1.01.        Definitions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         1.02.        Incorporation by Reference of Trust Indenture Act   . . . . . . . . . . . . . . . . . .   2
         1.03.        Rules of Construction.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

ARTICLE II

         Original Issuance of Notes

         2.01.        Form  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
         2.02.        Execution, Authentication and Delivery  . . . . . . . . . . . . . . . . . . . . . . . .   4
         2.03.        Acceptance of Mortgage Loans by Indenture Trustee   . . . . . . . . . . . . . . . . . .   4

ARTICLE III

         Covenants

         3.01.        Collection of Payments with respect to the Mortgage Loans   . . . . . . . . . . . . . .   5
         3.02.        Maintenance of Office or Agency   . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
         3.03.        Money for Payments To Be Held in Trust; Paying Agent  . . . . . . . . . . . . . . . . .   6
         3.04.        Existence   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         3.05.        Payment of Principal and Interest   . . . . . . . . . . . . . . . . . . . . . . . . . .   8
         3.06.        Protection of Trust Estate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         3.07.        Opinions as to Trust Estate   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         3.08.        Performance of Obligations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
         3.09.        Negative Covenants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
         3.10.        Annual Statement as to Compliance   . . . . . . . . . . . . . . . . . . . . . . . . . .  12
         3.11.        [Reserved]  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         3.12.        Representations and Warranties Concerning the Mortgage Loans  . . . . . . . . . . . . .  13
         3.13.        Amendments to Servicing Agreement   . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         3.14.        Servicer as Agent and Bailee of the Indenture Trustee   . . . . . . . . . . . . . . . .  13
         3.15.        Investment Company Act  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
         3.16.        Issuer May Consolidate, etc.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         3.17.        Successor or Transferee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         3.18.        No Other Business   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         3.19.        No Borrowing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         3.20.        Guarantees, Loans, Advances and Other Liabilities   . . . . . . . . . . . . . . . . . .  16
         3.21.        Capital Expenditures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         3.22.        Treatment of Notes as Debt for Tax Purposes   . . . . . . . . . . . . . . . . . . . . .  16
</TABLE>
<PAGE>   3

<TABLE>
<S>                                                                                                            <C>
         3.23.        Restricted Payments   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         3.24.        Notice of Events of Default   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         3.25.        Further Instruments and Acts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         3.26.        Statements to Noteholders   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         3.27.        Determination of Note Interest Rate.  . . . . . . . . . . . . . . . . . . . . . . . . .  17
         3.28.        Claims Upon the Policy; Policy Payments Account   . . . . . . . . . . . . . . . . . . .  17

ARTICLE IV

         The Notes; Satisfaction and Discharge of Indenture

         4.01.        The Notes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
         4.02.        Registration of and Limitations on Transfer and Exchange
                                  of Notes; Appointment of Certificate Registrar  . . . . . . . . . . . . . .  19
         4.03.        Mutilated, Destroyed, Lost or Stolen Notes  . . . . . . . . . . . . . . . . . . . . . .  20
         4.04.        Persons Deemed Owners   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
         4.05.        Cancellation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
         4.06.        Book-Entry Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         4.07.        Notices to Depository   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         4.08.        Definitive Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         4.09.        Tax Treatment   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
         4.10.        Satisfaction and Discharge of Indenture   . . . . . . . . . . . . . . . . . . . . . . .  23
         4.11.        Application of Trust Money  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
         4.12.        Subrogation and Cooperation   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
         4.13.        Repayment of Monies Held by Paying Agent  . . . . . . . . . . . . . . . . . . . . . . .  26
         4.14.        Temporary Notes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26

ARTICLE V

         Default and Remedies

         5.01.        Events of Default   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
         5.02.        Acceleration of Maturity; Rescission and Annulment  . . . . . . . . . . . . . . . . . .  27
         5.03.        Collection of Indebtedness and Suits for Enforcement by Indenture
                                  Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
         5.04.        Remedies; Priorities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         5.05.        Optional Preservation of the Trust Estate   . . . . . . . . . . . . . . . . . . . . . .  32
         5.06.        Limitation of Suits   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
         5.07.        Unconditional Rights of Noteholders To Receive Principal and Interest   . . . . . . . .  33
         5.08.        Restoration of Rights and Remedies  . . . . . . . . . . . . . . . . . . . . . . . . . .  33
         5.09.        Rights and Remedies Cumulative  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
         5.10.        Delay or Omission Not a Waiver  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
         5.11.        Control by Note Insurer   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
         5.12.        Waiver of Past Defaults   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         5.13.        Undertaking for Costs   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         5.14.        Waiver of Stay or Extension Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
</TABLE>
<PAGE>   4

<TABLE>
<S>                                                                                                            <C>
         5.15.        Sale of Trust Estate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         5.16.        Action on Notes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
         5.17.        Performance and Enforcement of Certain Obligations  . . . . . . . . . . . . . . . . . .  37

ARTICLE VI

         The Indenture Trustee

         6.01.        Duties of Indenture Trustee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
         6.02.        Rights of Indenture Trustee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
         6.03.        Individual Rights of Indenture Trustee  . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.04.        Indenture Trustee's Disclaimer  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.05.        Notice of Event of Default  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.06.        Tax Administration of the Issuer  . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.07.        Compensation and Indemnity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         6.08.        Replacement of Indenture Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
         6.09.        Successor Indenture Trustee by Merger   . . . . . . . . . . . . . . . . . . . . . . . .  42
         6.10.        Appointment of Co-Indenture Trustee or Separate Indenture Trustee   . . . . . . . . . .  42
         6.11.        Eligibility; Disqualification   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         6.12.        Preferential Collection of Claims Against Issuer  . . . . . . . . . . . . . . . . . . .  44
         6.13.        Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         6.14.        Directions to Indenture Trustee   . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
         6.15.        The Agents  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45

ARTICLE VII

         Noteholders' Lists and Reports

         7.01.        Issuer To Furnish Indenture Trustee Names and Addresses of
                         Noteholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
         7.02.        Preservation of Information; Communications to Noteholders  . . . . . . . . . . . . . .  45
         7.03.        Reports by the Indenture Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
         7.04.        Reports by Indenture Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
         7.05.        Statements to Noteholders   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
         7.06.        Books and Records   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49

ARTICLE VIII

         Accounts, Disbursements and Releases

         8.01.        Collection of Money   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
         8.02.        Trust Accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
         8.03.        Officer's Certificate   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         8.04.        Termination Upon Distribution to Noteholders  . . . . . . . . . . . . . . . . . . . . .  50
         8.05.        Release of Trust Estate   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
         8.06.        Surrender of Notes Upon Final Payment   . . . . . . . . . . . . . . . . . . . . . . . .  51
</TABLE>
<PAGE>   5

<TABLE>
<S>                                                                                                            <C>
         8.07.        Optional Redemption of the Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . .  51

ARTICLE IX

         Supplemental Indentures

         9.01.        Supplemental Indentures Without Consent of Noteholders  . . . . . . . . . . . . . . . .  52
         9.02.        Supplemental Indentures With Consent of Noteholders   . . . . . . . . . . . . . . . . .  53
         9.03.        Execution of Supplemental Indentures  . . . . . . . . . . . . . . . . . . . . . . . . .  55
         9.04.        Effect of Supplemental Indenture  . . . . . . . . . . . . . . . . . . . . . . . . . . .  55
         9.05.        Conformity with Trust Indenture Act   . . . . . . . . . . . . . . . . . . . . . . . . .  55
         9.06.        Reference in Notes to Supplemental Indentures   . . . . . . . . . . . . . . . . . . . .  55

ARTICLE X

         Miscellaneous

         10.01.       Compliance Certificates and Opinions, etc   . . . . . . . . . . . . . . . . . . . . . .  56
         10.02.       Form of Documents Delivered to Indenture Trustee  . . . . . . . . . . . . . . . . . . .  57
         10.03.       Acts of Noteholders   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58
         10.04.       Notices, etc., to Indenture Trustee, Issuer, Note Insurer and Rating
                         Agencies   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59
         10.05.       Notices to Noteholders; Waiver  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60
         10.06.       Conflict with Trust Indenture Act.  . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.07.       Effect of Headings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.08.       Successors and Assigns  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.09.       Separability  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.10.       Benefits of Indenture   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.11.       Legal Holidays  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.12.       GOVERNING LAW   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.13.       Counterparts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61
         10.14.       Recording of Indenture  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         10.15.       Issuer Obligation   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         10.16.       No Petition   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62
         10.17.       Inspection  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62

ARTICLE  XI

         Certain Matters Regarding the Note Insurer

         11.01.       Certain Rights of the Note Insurer  . . . . . . . . . . . . . . . . . . . . . . . . . .  63
         11.02.       Indenture Trustee To Act Solely with Consent of the Note Insurer  . . . . . . . . . . .  63
         11.03.       Trust Estate and Accounts Held for Benefit of the Note Insurer
                         and the Noteholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64
         11.04.       Effect of Payments by the Note Insurer; Subrogation   . . . . . . . . . . . . . . . . .  64
         11.05.       Insolvency Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64
         11.06.       Notices to the Note Insurer   . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  65
</TABLE>
<PAGE>   6


<TABLE>
<S>                                                                                                            <C>
Signatures and Seals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59
Acknowledgments   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60
</TABLE>




<PAGE>   7
EXHIBITS

Exhibit A - Form of Notes
Exhibit B - Trustee's Initial Certification
Exhibit C - Trustee's Final Certification
Exhibit D - Mortgage Loan Schedule

Appendix A  Definitions

<PAGE>   8
                 This Indenture, dated as of June 1, 1998, between
PacificAmerica Home Equity Loan Trust Series 1998-2F, a Delaware business
trust, as Issuer (the "Issuer"), and Bankers Trust Company of California, N.A.,
a national banking association, as Indenture Trustee (the "Indenture Trustee"),

                                WITNESSETH THAT:

                 Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the
PacificAmerica Home Equity Loan Asset-Backed Notes, Series 1998-2F, Class A-F
(the "Notes") and the Note Insurer.

                                GRANTING CLAUSE

                 The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as Indenture Trustee for the benefit of the Holders of the Notes
and the Note Insurer, all of the Issuer's right, title and interest in and to
whether now existing or hereafter created by (a) the Initial Mortgage Loans
(including all principal payments thereon due after the Cut-Off Date, all other
payments of principal thereon due and collected after the Cut-Off Date, and all
payments of interest thereon due and collected on or after June 1, 1998, minus
that portion of any such payment which is allocable to the period prior to June
1, 1998), the Subsequent Mortgage Loans, the Eligible Substitute Mortgage Loans
and the proceeds thereof and all rights under the Related Documents (including
the related Mortgage Files); (b) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (c) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof, including any income on funds
deposited in, or investments made with funds deposited in, the Payment Account,
which income shall belong to, and be for the account of, the Indenture Trustee;
(d) all funds on deposit from time to time in the Interest Coverage Account
(other than any income thereon) and the Pre-Funding Account; (e) all rights
under the (i) Home Equity Loan Purchase Agreement as assigned to the Issuer,
(ii) the Servicing Agreement and any Subservicing Agreements and (iii) any
title and hazard insurance policies with respect to the Mortgaged Properties;
and (f) all present and future claims, demands, causes and choses in action in
respect of any or all of the foregoing and all payments on or under, and all
proceeds of every kind and nature whatsoever in respect of, any or all of the
foregoing and all payments on or under, and all proceeds of every kind and
nature whatsoever in the conversion thereof, voluntary or involuntary, into
cash or other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part of or
are included in the proceeds of any of the foregoing (collectively, the "Trust
Estate" or the "Collateral").

                 The foregoing Grant is made in trust to secure (i) the payment
of principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, (ii) the
payment of all other amounts payable under this Indenture and (iii) compliance
with the provisions of this Indenture, all as provided in this Indenture.
<PAGE>   9
                 The Indenture Trustee, as trustee on behalf of the Holders of
the Notes and the Note Insurer, acknowledges such Grant, accepts the trust
under this Indenture in accordance with the provisions hereof and agrees to
perform its duties as Indenture Trustee as required herein. The Indenture
Trustee agrees that it will hold the Note Insurance Policy in trust and that it
will hold any proceeds of any claim made upon the Note Insurance Policy solely
for the use and benefit of the Holders of the Notes in accordance with the
terms hereof and the terms of the Note Insurance Policy.

                 The Indenture Trustee further acknowledges that in the event
the conveyance of the Mortgage Loans by the Company to the Issuer pursuant to
the Trust Agreement is determined to constitute a financing, the Indenture
Trustee holds the Mortgage Loans as the designee of the Issuer, subject,
however, to a prior lien in favor of the Noteholders and the Note Insurer.

                 The Indenture Trustee further acknowledges that in the event
(i) the transfer of the Initial Mortgage Loans from the Seller to the Company
pursuant to the Home Equity Loan Purchase Agreement is determined to be a
financing; (ii) the transfer of the Initial Mortgage Loans from the Company to
the Issuer pursuant to the Trust Agreement is determined to be a financing,
and/or (iii) the conveyance of the Subsequent Mortgage Loans by the Seller to
the Issuer pursuant to the Home Equity Loan Purchase Agreement is determined to
constitute a financing, then in each case the Indenture Trustee holds the
Mortgage Loans as the designee and bailee of the Company and the Issuer,
respectively, subject however, in each case, to a prior lien in favor of the
Noteholders and the Note Insurer pursuant to the terms of this Indenture.



                                   ARTICLE I

                                  Definitions

         Section 1.01.    Definitions.  For all purposes of this Indenture,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Definitions attached hereto as Appendix
A, which is incorporated by reference herein.  All other capitalized terms used
herein shall have the meanings specified herein.

         Section 1.02.    Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture.  The following TIA terms used in this Indenture have the following
meanings:

                 "Commission" means the Securities and Exchange Commission.

                 "indenture securities" means the Notes.

                 "indenture security holder" means a Noteholder.





                                       2
<PAGE>   10
                 "indenture to be qualified" means this Indenture.

                 "indenture trustee" or "institutional trustee" means the
Indenture Trustee.

                 "obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.

                  All other TIA terms used in this Indenture that are defined
by the TIA, defined by TIA by reference to another statute or defined by
Commission rules, and have the meanings assigned to them by such definitions.

         Section 1.03.    Rules of Construction.  Unless the context otherwise
requires:

                      (i)   a term has the meaning assigned to it;

                      (ii)  an accounting term not otherwise defined has the
         meaning assigned to it in accordance with generally accepted
         accounting principles as in effect from time to time;

                      (iii) "or" is not exclusive;

                      (iv)  "including" means including without limitation;

                      (v)   words in the singular include the plural and words
         in the plural include the singular; and

                      (vi)  any agreement, instrument or statute defined or
         referred to herein or in any instrument or certificate delivered in
         connection herewith means such agreement, instrument or statute as
         from time to time amended, modified or supplemented and includes (in
         the case of agreements or instruments) references to all attachments
         thereto and instruments incorporated therein; references to a Person
         are also to its permitted successors and assigns.


                                   ARTICLE II

                           Original Issuance of Notes

         Section 2.01.    Form.  The Notes, together with the Indenture
Trustee's certificate of authentication, shall be in substantially the form set
forth in Exhibit A, with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture.

                 The Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders).





                                       3
<PAGE>   11

                 The terms of the Notes set forth in Exhibit A are part of the
terms of this Indenture.

         Section 2.02.    Execution, Authentication and Delivery.  The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers.
The signature of any such Authorized Officer on the Notes may be manual or
facsimile.

                 Notes bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.

                 The Indenture Trustee shall upon Issuer Request authenticate
and deliver Notes for original issue in an aggregate initial principal amount
of $62,036,000.

                 The Notes that are authenticated and delivered by the
Indenture Trustee to or upon the order of the Issuer on the Closing Date shall
be dated June 25, 1998.  All other Notes that are authenticated after the
Closing Date shall be dated the date of its authentication.  The Notes shall be
issuable as registered Notes and the Notes shall be issuable in the minimum
initial Note Principal Balances of $25,000 and in integral multiples of $1,000
in excess thereof.

                 No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.

         Section 2.03.    Acceptance of Mortgage Loans by Indenture Trustee.
(a) The Indenture Trustee acknowledges receipt of, subject to the review
described below and any exceptions it notes pursuant to the procedures
described below, the documents (or certified copies thereof) referred to in
Section 2.2 of the Home Equity Loan Purchase Agreement and declares that it
holds and will continue to hold those documents and any amendments,
replacements or supplements thereto and all other assets of the Trust Estate as
Indenture Trustee in trust for the use and benefit of all present and future
Holders of the Notes and the Note Insurer.  No later than 45 days after the
Closing Date and each Subsequent Transfer Date (or, with respect to any
Eligible Substitute Mortgage Loan, within 5 Business Days after the receipt by
the Indenture Trustee thereof and, with respect to any documents received
beyond 45 days after the Closing Date, promptly thereafter), the Indenture
Trustee agrees, for the benefit of the Noteholders and the Note Insurer, to
review each Mortgage File delivered to it and to execute and deliver, or cause
to be executed and delivered, to the Seller and the Note Insurer  an initial
certification in the form annexed hereto as Exhibit B.  In conducting such
review, the Indenture Trustee will ascertain whether all required documents
described in Section 2.2 of the Home Equity Loan Purchase Agreement have been
executed and received and whether those documents relate, determined on the
basis of the Mortgagor name, original principal balance and loan number, to the
Mortgage Loans it has received, as identified in Exhibit D to this Indenture,
as supplemented (provided, however, that





                                       4
<PAGE>   12
with respect to those documents described in subclause (vi) of such section,
the Indenture Trustee's obligations shall extend only to documents actually
delivered pursuant to such subclause).  In performing any such review, the
Indenture Trustee may conclusively rely on the purported due execution and
genuineness of any such document and on the purported genuineness of any
signature thereon.  If the Indenture Trustee finds that any document
constituting part of the Mortgage File not to have been executed or received,
or to be unrelated to the Mortgage Loans identified in Exhibit D or to
Attachment B to Exhibit 2 of the Home Equity Loan Purchase Agreement, the
Indenture Trustee shall promptly notify the Seller and the Note Insurer of such
finding and the Seller's obligation to cure such defect or repurchase or
substitute for the related Mortgage Loan.

                 (b)  No later than 180 days after the Closing Date, the
Indenture Trustee will review, for the benefit of the Noteholders and the Note
Insurer, the Mortgage Files and will execute and deliver or cause to be
executed and delivered to the Seller and the Note Insurer, a final
certification in the form annexed hereto as Exhibit C.  In conducting such
review, the Indenture Trustee will ascertain whether an original of each
document described in subclauses (ii) and (iv) of Section 2.2 of the Home
Equity Loan Purchase Agreement required to be recorded has been returned from
the recording office with evidence of recording thereon or a certified copy has
been obtained from the recording office.  If the Indenture Trustee finds any
document constituting part of the Mortgage File has not been received, or to be
unrelated, determined on the basis of the Mortgagor name, original principal
balance and loan number, to the Mortgage Loans identified in Exhibit D or to
Attachment B to Exhibit 2 of the Home Equity Loan Purchase Agreement, the
Indenture Trustee shall promptly notify the Seller and the Note Insurer of such
finding and the Seller's obligation to cure such defect or repurchase or
substitute for the related Mortgage Loan.

                 (c)  Upon deposit of the Repurchase Price in the Payment
Account and receipt of a Request for Release in the form of Exhibit B to the
Servicing Agreement, the Indenture Trustee shall release to the Seller the
related Mortgage File and shall execute and deliver all instruments of transfer
or assignment, without recourse, furnished to it by the Seller as are necessary
to vest in the Seller title to and rights under the related Mortgage Loan.
Such purchase shall be deemed to have occurred on the date on which
certification of the deposit of the Repurchase Price in the Payment Account was
received by the Indenture Trustee.  The Indenture Trustee shall amend the
applicable Mortgage Loan Schedule to reflect such repurchase and shall promptly
notify the Master Servicer, the related Sub-Servicer, the Note Insurer and the
Rating Agencies of such amendment.


                                  ARTICLE III

                                   Covenants

         Section 3.01.    Collection of Payments with respect to the Mortgage
Loans.  The Indenture Trustee shall establish and maintain an Eligible Account
(the "Payment Account"), held in trust for the benefit of the Noteholders and
the Note Insurer.  The Indenture Trustee shall, subject to the terms of this
paragraph, deposit in the Payment Account, (i) on the date of receipt (if
received





                                       5
<PAGE>   13
prior to 3:00 p.m. Eastern Standard Time, and if not, then on the Business Day
following receipt) from the Master Servicer or any Sub-Servicer, each
remittance received by the Indenture Trustee with respect to the Mortgage Loans
and (ii) amounts transferred from the Pre-Funding Account, the Interest
Coverage Account and the Class A-F Escrow Account.  The Indenture Trustee shall
make all payments of principal of and interest on the Notes, subject to Section
3.03, as provided in Section 3.05 from monies on deposit in the Payment
Account.

         Section 3.02.    Maintenance of Office or Agency.  The Issuer will
maintain within the United States of America, an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served.  The Issuer hereby initially appoints the Indenture Trustee to serve as
its agent for the foregoing purposes.  The Issuer will give notice to the
Indenture Trustee and the Note Insurer of any change in the location of such
office.  If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Indenture Trustee with the address thereof,
such surrenders, notices and demands may be made or served at the Corporate
Trust Office of the Indenture Trustee, and the Issuer hereby appoints the
Indenture Trustee as its agent to receive all such surrenders, notices and
demands.

         Section 3.03.    Money for Payments To Be Held in Trust; Paying Agent.
(a) As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the
Payment Account pursuant to Section 3.01 shall be made on behalf of the Issuer
by the Indenture Trustee or by the Paying Agent, and no amounts so withdrawn
from the Payment Account for payments of Notes shall be paid over to the Issuer
except as provided in this Section 3.03.

                 The Issuer will cause each Paying Agent other than the
Indenture Trustee to execute and deliver to the Indenture Trustee an instrument
in which such Paying Agent shall agree with the Indenture Trustee (and if the
Indenture Trustee acts as Paying Agent it hereby so agrees), subject to the
provisions of this Section 3.03, that such Paying Agent will:

                      (i)   hold all sums held by it for the payment of amounts
         due with respect to the Notes in trust for the benefit of the Persons
         entitled thereto until such sums shall be paid to such Persons or
         otherwise disposed of as herein provided and pay such sums to such
         Persons as herein provided;

                      (ii)  give the Indenture Trustee and the Note Insurer
         notice of any default by the Issuer of which it has actual knowledge
         in the making of any payment required to be made with respect to the
         Notes;

                    (iii)   at any time during the continuance of any such
         default, upon the written request of the Indenture Trustee, forthwith
         pay to the Indenture Trustee all sums so held in trust by such Paying
         Agent;





                                       6
<PAGE>   14

                      (iv)  immediately resign as Paying Agent and forthwith
         pay to the Indenture Trustee all sums held by it in trust for the
         payment of Notes if at any time it ceases to meet the standards
         required to be met by a Paying Agent at the time of its appointment;

                      (v)   comply with all requirements of the Code with
         respect to the withholding from any payments made by it on any Notes
         of any applicable withholding taxes imposed thereon and with respect
         to any applicable reporting requirements in connection therewith; and

                      (vi)  not commence a bankruptcy proceeding against the
Issuer in connection with this Indenture.

                 The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Issuer Request direct any Paying Agent to pay to the Indenture Trustee all sums
held in trust by such Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Indenture
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.

                 Subject to applicable laws with respect to escheat of funds,
any money held by the Indenture Trustee or any Paying Agent in trust for the
payment of any amount due with respect to any Note (other than amounts paid
under the Note Insurance Policy) and remaining unclaimed for one year after
such amount has become due and payable shall be discharged from such trust and
be paid to the Issuer; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof (but
only to the extent of the amounts so paid to the Issuer), and all liability of
the Indenture Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Indenture Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense and direction of the Issuer cause to be published once, in an
Authorized Newspaper, notice that such money remains unclaimed and that, after
a date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
paid to the Issuer.  The Indenture Trustee with the consent of the Note
Insurer, so long as no Note Insurer Default exists, may also adopt and employ,
at the expense and direction of the Issuer, any other reasonable means of
notification of such repayment (including, but not limited to, mailing notice
of such repayment to Holders whose Notes have been called but have not been
surrendered for redemption or whose right to or interest in monies due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).

                 Section 3.04.    Existence.  (a)  The Issuer will keep in full
effect its existence, rights and franchises as a business trust under the laws
of the State of Delaware (unless it becomes, or any successor Issuer hereunder
is or becomes, organized under the laws of any other state or of the United
States of America, in which case the Issuer will keep in full effect its
existence, rights and franchises under the laws of such other jurisdiction) and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary to protect





                                       7
<PAGE>   15
the validity and enforceability of this Indenture, the Notes, the Mortgage
Loans and each other instrument or agreement included in the Trust Estate.

                 (b)      Any successor to the Owner Trustee appointed pursuant
to Section 9.03 of the Trust Agreement shall be the successor Owner Trustee
under this Indenture without the execution or filing of any paper, instrument
or further act to be done on the part of the parties hereto.

                 (c)      Upon any consolidation or merger of or other
succession to the Owner Trustee, the Person succeeding to the Owner Trustee
under the Trust Agreement may exercise every right and power of the Owner
Trustee under this Indenture with the same effect as if such Person had been
named as the Owner Trustee herein.

         Section 3.05.    Payment of Principal and Interest.  (a)  On each
Payment Date from amounts on deposit in the Payment Account in accordance with
Section 8.02 hereof, the Indenture Trustee shall pay to the Noteholders and to
other Persons the amounts to which they are entitled as set forth below;
provided, however, that any amounts representing payments from the Note Insurer
shall be used only to pay interest and principal to the Noteholders pursuant to
clauses (iii) and (iv):

                          (i)  to the Indenture Trustee, the Indenture Trustee
         Fee and, payable on the Payment Date occurring each July commencing in
         July 1998, to the Owner Trustee, the Owner Trustee Fee;

                          (ii)  to the Note Insurer, the Note Insurance
         Premium;

                          (iii)  to the Noteholders, the Interest Payment
         Amount with respect to such Payment Date, less the sum of any
         Prepayment Interest Shortfalls for such Payment Date, to the extent
         not covered by Compensating Interest payments by the Master Servicer,
         and any Relief Act Shortfalls for such Payment Date;

                          (iv)  to the Noteholders, as principal on the Notes,
         the Principal Payment Amount with respect to such Payment Date;

                          (v)  to the Note Insurer, the sum of (a) all amounts
         previously paid by the Note Insurer under the Note Insurance Policy
         which have not previously been reimbursed, (b)  any other amounts due
         to the Note Insurer pursuant to the Insurance Agreement, to the extent
         not previously paid or reimbursed and (c) interest on the foregoing as
         set forth in the Insurance Agreement from the date such amounts become
         due until paid in full;

                          (vi)  to the Class A-V Payment Account, any amounts
         required to pay (x) the amount by which the Class A-V Interest Payment
         Amount (not including any Class A-V Carry-Forward Amount for such
         Payment Date) exceeds the Class A-V Available Funds due to Class A-V
         Realized Losses or the failure of any Mortgagor to make an interest
         payment on or before the date on which it is due and (y) any Class A-V
         Realized Losses relating to the Class A-V Notes on such Class A-V
         Payment Date or any previous Class A-V Payment Date;





                                       8
<PAGE>   16
                          (vii)  to the Note Insurer, the sum of (a) all
         payments previously paid by the Note Insurer under the Class A-V Note
         Insurance Policy which have not previously been reimbursed, (b) any
         other amounts due to the Note Insurer pursuant to the Series 1998- 2V
         Insurance Agreement, to the extent not previously paid or reimbursed
         and (c) interest on the foregoing as set forth in the 1998-2V
         Insurance Agreement from the date such amounts become due until paid
         in full;

                          (viii)  to the Noteholders, as principal on the
         Notes, the Subordination Increase Amount for such Payment Date;

                          (ix)  to the Noteholders, any unpaid Prepayment
         Interest Shortfalls and Relief Act Shortfalls for such Payment Date;

                          (x)  to the Indenture Trustee, any amounts owing to
         the Indenture Trustee under any Basic Documents remaining unpaid;

                          (xi)  to the Master Servicer, any amounts owing to
         the Master Servicer pursuant to Section 5.03 of the Servicing
         Agreement in connection with the indemnity by the Issuer thereunder;
         and

                          (xii)  any remaining amount, to the Certificate
         Paying Agent, on behalf of the Certificateholders; provided, however,
         that if such Payment Date is the final Payment Date with respect to
         the Notes (as a result of the exercise of the redemption or final
         maturity of the Notes) and at such date the Class A-V Subordination
         Amount is less than the Class A-V Required Subordination Amount, such
         remaining amount shall be transferred to the  Escrow Account.

                 The Indenture Trustee shall make claims under the Note
Insurance Policy pursuant to Section 3.28 of this Indenture and in accordance
with the Note Insurance Policy.  The Indenture Trustee shall deposit any
Scheduled Payment received from the Note Insurer in the Policy Payment Account.
All amounts received under the Note Insurance Policy shall be used solely for
the payment to Holders of principal and interest on the Notes pursuant to
Section 3.05 of the Indenture.

                 On each Payment Date, the Certificate Paying Agent shall
deposit in the Certificate Distribution Account all amounts it received
pursuant to this Section 3.05 for the purpose of distributing such funds to the
Certificateholders after payment of trust expenses to the Owner Trustee or the
Indenture Trustee pursuant to the Trust Agreement.

                 Interest will accrue on the Notes during an Interest Period on
the basis of a 360-day year consisting of twelve 30-day months.

                 Any installment of interest or principal, if any, payable on
any Note that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, so long as the Notes are Book-Entry Notes
registered in the name of the Depository or its nominee, be





                                       9
<PAGE>   17
paid by wire transfer to the Depository or its nominee; otherwise if such
Holder shall have so requested of the Indenture Trustee in writing at least
five Business Days prior to the related Record Date and such Holder holds Notes
of an aggregate initial Note Principal Balance of at least $5,000,000, such
installment shall be paid by wire transfer to an account specified by such
Holder, and in all other cases or if no such instructions have been delivered
to the Indenture Trustee, by check to such Noteholder mailed to such Holder's
address as it appears in the Note Register in the amount required to be
distributed to such Holder on such Payment Date; provided, however, that the
Indenture Trustee shall not pay to such Holders any amount required to be
withheld from a payment to such Holder by the Code. The Indenture Trustee may
deduct a reasonable wire transfer fee from any payment made by wire transfer.

                 (b)  The principal of each Note shall be due and payable in
full on the Final Scheduled Payment Date as provided in the form of Note set
forth in Exhibit A.  All principal payments on the Notes shall be made to the
Noteholders entitled thereto in accordance with the Percentage Interests
represented by such Notes.  Upon notice to the Indenture Trustee by the Issuer,
the Indenture Trustee shall notify the Person in whose name a Note is
registered at the close of business on the Record Date preceding the Final
Scheduled Payment Date or other final Payment Date (including any final Payment
Date resulting from any redemption pursuant to Section 8.07 hereof).  Such
notice shall to the extent practicable be mailed no later than five Business
Days prior to such Final Scheduled Payment Date or other final Payment Date and
shall specify that payment of the principal amount and any interest due with
respect to such Note at the Final Scheduled Payment Date or other final Payment
Date will be payable only upon presentation and surrender of such Note and
shall specify the place where such Note may be presented and surrendered for
such final payment.  No interest shall accrue on the Notes on or after the
Final Scheduled Payment Date or any such other final Payment Date.

                 (c)  The Indenture Trustee shall establish and maintain an
Eligible Account (the "Escrow Account"), held in trust for the benefit of the
Class A-V Noteholders and the Note Insurer.  The Indenture Trustee shall
deposit in the Escrow Account amounts received from the Payment Account
pursuant to Section 3.05(a)(xii).  If the Indenture Trustee shall not have
received an investment direction from the holder of a majority of the
Certificates (the "Majority Certificateholder"), the Indenture Trustee will
invest funds deposited in the Escrow Account in Eligible Investments of the
kind described in clause (vii) of the definition of Eligible Investments with a
maturity date no later than the second Business Day preceding each Class A-V
Payment Date.  The Trust shall be the owner of the Escrow Account and shall
report all items of income, deduction, gain or loss arising therefrom.  The
Majority Certificateholder shall deposit in the Escrow Account the amount of
any net loss incurred in respect of any such Eligible Investment immediately
upon realization of such loss without any right of reimbursement therefor.
Amounts on deposit in the Escrow Account shall be withdrawn by the Indenture
Trustee as follows:

                 (A)      On any Class A-V Payment Date, the Indenture Trustee
         shall withdraw from the Escrow Account an amount equal to the Escrow
         Amount and such amount shall be paid to the Class A-V Payment Account
         for payment to the Class A-V Notes in accordance with the Class A-V
         Indenture; and





                                       10
<PAGE>   18

                 (B)      On any Class A-F Payment Date in March of each year,
         the Indenture Trustee shall withdraw from the Escrow account any
         interest income or gain necessary to pay any taxes incurred on such
         income or gain and then release any other amounts attributable to
         income or gain to the Majority Certificateholder.

                 (C)      The Escrow Account shall terminate upon the final
         payment on the Class A-V Notes.

                 Upon termination of the Escrow Account, the Indenture Trustee
shall deposit any remaining funds in the Certificate Distribution Account for
the purpose of distributing such funds to the Certificateholders after payment
of trust expenses to the Owner Trustee or the Indenture Trustee pursuant to the
Trust Agreement.

         Section 3.06.    Protection of Trust Estate.  (a)  The Issuer will
from time to time prepare, execute and deliver all such supplements and
amendments hereto and all such financing statements, continuation statements,
instruments of further assurance and other instruments, and will take such
other action necessary or advisable to:

                      (i)   maintain or preserve the lien and security interest
         (and the priority thereof) of this Indenture or carry out more
         effectively the purposes hereof;

                     (ii)   perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;

                    (iii)   cause the Issuer or the Master Servicer to enforce
any of their rights with respect to the Mortgage Loans; and

                     (iv)   preserve and defend title to the Trust Estate and
         the rights of the Indenture Trustee, the Note Insurer and the
         Noteholders in such Trust Estate against the claims of all persons and
         parties.

                 (b)      Except as otherwise provided in this Indenture, the
Indenture Trustee shall not remove any portion of the Trust Estate that
consists of money or is evidenced by an instrument, certificate or other
writing from the jurisdiction in which it was held at the date of the most
recent Opinion of Counsel delivered pursuant to Section 3.07 hereof, unless the
Indenture Trustee shall have first received an Opinion of Counsel to the effect
that the lien and security interest created by this Indenture with respect to
such property will continue to be maintained after giving effect to such action
or actions.

                 The Issuer hereby designates the Indenture Trustee its agent
and attorney-in-fact to sign any financing statement, continuation statement or
other instrument required to be signed pursuant to this Section 3.06 upon the
Issuer's preparation thereof and delivery to the Indenture Trustee.

         Section 3.07.    Opinions as to Trust Estate.  (a)  On the Closing
Date, the Issuer shall furnish to the Indenture Trustee, the Note Insurer and
the Owner Trustee an Opinion of Counsel





                                       11
<PAGE>   19
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording and filing of this Indenture, any indentures
supplemental hereto, and any other requisite documents, and with respect to the
execution and filing of any financing statements and continuation statements,
as are necessary to perfect and make effective the lien and first priority
security interest in the Collateral and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and first priority security interest effective.

                 (b)  On or before March 1 in each calendar year, beginning in
1999, the Issuer shall furnish to the Indenture Trustee and the Note Insurer an
Opinion of Counsel at the expense of the Issuer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the lien and security interest in the Collateral and
reciting the details of such action or stating that in the opinion of such
counsel no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing,
re- recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest in the
Collateral until December 31 in the following calendar year.

         Section 3.08.    Performance of Obligations.  (a)  The Issuer will
punctually perform and observe all of its obligations and agreements contained
in this Indenture, the Basic Documents and in the instruments and agreements
included in the Trust Estate.

                 (b)  The Issuer, with the consent of the Note Insurer so long
as no Note Insurer Default exists, may contract with other Persons to assist it
in performing its duties under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee in an Officer's
Certificate of the Issuer shall be deemed to be action taken by the Issuer.

                 (c)      The Issuer will not take any action or permit any
action to be taken by others which would release any Person from any of such
Person's covenants or obligations under any of the documents relating to the
Mortgage Loans or under any instrument included in the Trust Estate, or which
would result in the amendment, hypothecation, subordination, termination or
discharge of, or impair the validity or effectiveness of, any of the documents
relating to the Mortgage Loans or any such instrument, except such actions as
the Master Servicer is expressly permitted to take in the Servicing Agreement.
The Indenture Trustee, as pledgee of the Mortgage Loans, shall with the consent
of, or direction of, the Note Insurer, so long as no Note Insurer Default
exists, be able to exercise the rights of the Issuer to direct the actions of
the Master Servicer pursuant to the Servicing Agreement.

         Section 3.09.    Negative Covenants.  So long as any Notes are
Outstanding, the Issuer shall not:





                                       12
<PAGE>   20
                      (i)   except as expressly permitted by this Indenture,
         sell, transfer, exchange or otherwise dispose of the Trust Estate,
         unless directed to do so by the Note Insurer or the Indenture Trustee
         with the consent of the Note Insurer, so long as no Note Insurer
         Default exists;

                      (ii)  claim any credit on, or make any deduction from the
         principal or interest payable in respect of, the Notes (other than
         amounts properly withheld from such payments under the Code) or assert
         any claim against any present or former Noteholder by reason of the
         payment of the taxes levied or assessed upon any part of the Trust
         Estate;

                    (iii)   (A)  permit the validity or effectiveness of this
         Indenture to be impaired, or permit the lien of this Indenture to be
         amended, hypothecated, subordinated, terminated or discharged, or
         permit any Person to be released from any covenants or obligations
         with respect to the Notes under this Indenture except as may be
         expressly permitted hereby, (B) permit any lien, charge, excise,
         claim, security interest, mortgage or other encumbrance (other than
         the lien of this Indenture) to be created on or extend to or otherwise
         arise upon or burden the Trust Estate or any part thereof or any
         interest therein or the proceeds thereof or (C) permit the lien of
         this Indenture not to constitute a valid first priority security
         interest in the Trust Estate;

                      (iv)  waive or impair, or fail to assert rights under,
         the Mortgage Loans, or impair or cause to be impaired the Issuer's
         interest in the Mortgage Loans, the Home Equity Loan Purchase
         Agreement or any other Basic Document, if any such action would
         materially and adversely affect the interests of the Noteholders or
         the Note Insurer; or

                      (v)   issue debt obligations under any other indenture;

                      (vi)  incur or assume any indebtedness or guaranty any
         indebtedness of any Person, except for such indebtedness as may be
         incurred by the Issuer in connection with the issuance of the Notes
         pursuant to this Indenture;

                    (vii)   dissolve or liquidate in whole, or subject to
         Section 3.16, in part or merge or consolidate with any other Person;
         or

                   (viii)   take any other action or fail to take any action
         which may cause the Issuer to be taxable as (a) an association
         pursuant to Section 7701 of the Code and the corresponding regulations
         or (b) as a taxable mortgage pool pursuant to Section 7701(i) of the
         Code and the corresponding regulations.

         Section 3.10.    Annual Statement as to Compliance.  The Issuer will
deliver to the Indenture Trustee and the Note Insurer, within 120 days after
the end of each fiscal year of the Issuer





                                       13
<PAGE>   21
(commencing with the fiscal year 1998), an Officer's Certificate stating, as to
the Authorized Officer signing such Officer's Certificate, that:

                      (i)   a review of the activities of the Issuer during
         such year and of its performance under this Indenture has been made
         under such Authorized Officer's supervision; and

                      (ii)  to the best of such Authorized Officer's knowledge,
         based on such review, the Issuer has complied with all conditions and
         covenants under this Indenture throughout such year, or, if there has
         been a default in its compliance with any such condition or covenant,
         specifying each such default known to such Authorized Officer and the
         nature and status thereof.

         Section 3.11.    [Reserved].

         Section 3.12.    Representations and Warranties Concerning the
Mortgage Loans.  The Indenture Trustee, as pledgee of the Mortgage Loans, has
the benefit of the representations and warranties made by the Seller in the
Home Equity Loan Purchase Agreement concerning the Seller and the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Home Equity Loan Purchase Agreement to the same extent as though such
representations and warranties were made directly to the Indenture Trustee. If
the Indenture Trustee has actual knowledge of any breach of any representation
or warranty made by the Seller in the Home Equity Loan Purchase Agreement, the
Indenture Trustee shall promptly notify the Seller and the Note Insurer of such
finding and the Seller's obligation to cure such breach or repurchase or
substitute for the related Mortgage Loan.

         Section 3.13.    Amendments to Servicing Agreement.  The Issuer
covenants with the Indenture Trustee and the Note Insurer that it will not
enter into any amendment or supplement to the Servicing Agreement without the
prior written consent of the Master Servicer, the Sub-Servicer (provided, that
the consent of the Sub-Servicer shall not be unreasonably withheld), the
Indenture Trustee and the Note Insurer.  The Indenture Trustee, as pledgee of
the Mortgage Loans, may, with the consent of the Note Insurer so long as no
Note Insurer Default exists, decline to enter into or consent to any such
supplement or amendment if the Note Insurer's or Noteholders' rights, duties or
immunities would be materially and adversely affected thereby.  The Indenture
Trustee may, but shall not be obligated to, enter into any amendment or
supplement to the Servicing Agreement that affects the Indenture Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise.

         Section 3.14.    Servicer as Agent and Bailee of the Indenture
Trustee.  Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the
state in which such property is held by the Master Servicer, the Issuer and the
Indenture Trustee hereby acknowledge that the Master Servicer is acting as
agent and bailee of the Indenture Trustee in holding amounts on deposit in the
Collection Account, as well as its agent and bailee in holding any Related
Documents released to the Master Servicer, and any other items constituting a
part of the Trust Estate which from time to time come into the





                                       14
<PAGE>   22
possession of the Master Servicer.  It is intended that, by the Master
Servicer's acceptance of such agency, the Indenture Trustee, as a secured party
of the Mortgage Loans, will be deemed to have possession of such Related
Documents, such monies and such other items for purposes of Section 9-305 of
the Uniform Commercial Code of the state in which such property is held by the
Master Servicer.

         Section 3.15.    Investment Company Act.  The Issuer shall not become
an "investment company" or under the "control" of an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (or
any successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section
3.15 if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.

         Section 3.16.    Issuer May Consolidate, etc.  (a)  The Issuer shall
not consolidate or merge with or into any other Person, unless:

                          (i)  the Person (if other than the Issuer) formed by
         or surviving such consolidation or merger shall be a Person organized
         and existing under the laws of the United States of America or any
         state or the District of Columbia and shall expressly assume, by an
         indenture supplemental hereto, executed and delivered to the Indenture
         Trustee, in form reasonably satisfactory to the Indenture Trustee and
         the Note Insurer, the due and punctual payment of the principal of and
         interest on all Notes and to the Certificate Paying Agent, on behalf
         of the Certificateholders, and the payment of the Note Insurance
         Premium and all other amounts payable to the Note Insurer and the
         performance or observance of every agreement and covenant of this
         Indenture on the part of the Issuer to be performed or observed, all
         as provided herein;

                          (ii)  immediately after giving effect to such
         transaction, no Event of Default shall have occurred and be
         continuing;

                          (iii)  the Rating Agencies shall have notified the
         Issuer that such transaction shall not cause the rating of the Notes,
         without taking into account the Note Insurance Policy, to be reduced,
         suspended or withdrawn or to be considered by either Rating Agency to
         be below investment grade;

                          (iv)  the Issuer and the Note Insurer shall have
         received an Opinion of Counsel (and shall have delivered a copy
         thereof to the Indenture Trustee) to the effect that such transaction
         will not (A) adversely affect the status of the Notes as indebtedness
         for federal income tax purposes, or (B) cause the Trust to be subject
         to an entity level tax for federal income tax purposes;

                          (v)  any action that is necessary to maintain the
         lien and security interest created by this Indenture shall have been
         taken;





                                       15
<PAGE>   23
                          (vi)  the Issuer shall have delivered to the
         Indenture Trustee and the Note Insurer an Officer's Certificate and an
         Opinion of Counsel each stating that such consolidation or merger and
         such supplemental indenture comply with this Article III and that all
         conditions precedent herein provided for relating to such transaction
         have been complied with (including any filing required by the Exchange
         Act); and

                          (vii)  the Note Insurer, so long as no Note Insurer
         Default exists, shall have given its prior written consent.

                 (b)      The Issuer shall not convey or transfer any of its
         properties or assets, including those included in the Trust Estate,
         to any Person, unless:

                      (i)   the Person that acquires by conveyance or transfer
         the properties and assets of the Issuer the conveyance or transfer of
         which is hereby restricted shall (A) be a United States citizen or a
         Person organized and existing under the laws of the United States of
         America or any state, (B) expressly assume, by an indenture
         supplemental hereto, executed and delivered to the Indenture Trustee,
         in form satisfactory to the Indenture Trustee, the due and punctual
         payment of the principal of and interest on all Notes and to the
         Certificate Paying Agent, on behalf of the Certificateholders, and the
         payment of the Note Insurance Premium and all other amounts payable to
         the Note Insurer and the performance or observance of every agreement
         and covenant of this Indenture on the part of the Issuer to be
         performed or observed, all as provided herein, (C) expressly agree by
         means of such supplemental indenture that all right, title and
         interest so conveyed or transferred shall be subject and subordinate
         to the rights of the Holders of the Notes and the Note Insurer, (D)
         unless otherwise provided in such supplemental indenture, expressly
         agree to indemnify, defend and hold harmless the Issuer, the Indenture
         Trustee and the Note Insurer against and from any loss, liability or
         expense arising under or related to this Indenture and the Notes and
         (E) expressly agree by means of such supplemental indenture that such
         Person (or if a group of Persons, then one specified Person) shall
         make all filings with the Commission (and any other appropriate
         Person) required by the Exchange Act in connection with the Notes;

                      (ii)  immediately after giving effect to such
         transaction, no Default or Event of Default shall have occurred and be
         continuing;

                    (iii)   the Rating Agencies shall have notified the Issuer
         that such transaction shall not cause the rating of the Notes or the
         rating of the Notes without taking into account the Note Insurance
         Policy to be reduced, suspended or withdrawn;

                      (iv)  the Issuer and the Note Insurer shall have received
         an Opinion of Counsel (and shall have delivered a copy thereof to the
         Indenture Trustee) to the effect that such transaction will not (A)
         adversely affect the status of the Notes as indebtedness for federal
         income tax purposes, or (B) cause the Trust to be subject to an entity
         level tax for federal income tax purposes;





                                       16
<PAGE>   24
                      (v)   any action that is necessary to maintain the lien
         and security interest created by this Indenture shall have been taken;

                      (vi)  the Issuer shall have delivered to the Indenture
         Trustee and the Note Insurer an Officer's Certificate and an Opinion
         of Counsel each stating that such conveyance or transfer and such
         supplemental indenture comply with this Article III and that all
         conditions precedent herein provided for relating to such transaction
         have been complied with (including any filing required by the Exchange
         Act); and

                    (vii)   the Note Insurer, so long as no Note Insurer
Default exists, shall have given its prior written consent.

         Section 3.17.    Successor or Transferee.  (a)  Upon any consolidation
or merger of the Issuer in accordance with Section 3.16(a), the Person formed
by or surviving such consolidation or merger (if other than the Issuer) shall
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.

                 (b)      Upon a conveyance or transfer of all the assets and
properties of the Issuer pursuant to Section 3.16(b), the Issuer will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes immediately upon
the delivery of written notice to the Indenture Trustee and the Note Insurer of
such conveyance or transfer and approval of such transaction given by the Note
Insurer to the Indenture Trustee.

         Section 3.18.    No Other Business.  The Issuer shall not engage in
any business other than financing, purchasing, owning, selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.

         Section 3.19.    No Borrowing.  The Issuer shall not issue, incur,
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes and amounts due to the Note Insurer under
this Indenture and the Insurance Agreement.

         Section 3.20.    Guarantees, Loans, Advances and Other Liabilities.
Except as contemplated by this Indenture or the Basic Documents, the Issuer
shall not make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing or otherwise),
endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other Person.

         Section 3.21.    Capital Expenditures.  The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).





                                       17
<PAGE>   25
         Section 3.22.    Treatment of Notes as Debt for Tax Purposes.  The
Issuer shall treat the Notes as indebtedness for all federal, state and local
income and franchise tax purposes.

         Section 3.23.    Restricted Payments.  The Issuer shall not, directly
or indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or
security in or of the Issuer, (ii) redeem, purchase, retire or otherwise
acquire for value any such ownership or equity interest or security or (iii)
set aside or otherwise segregate any amounts for any such purpose; provided,
however, that the Issuer may make, or cause to be made, (x) distributions to
the Owner Trustee, the Certificateholders and the Class A-V Indenture Trustee
as contemplated by, and to the extent funds are available for such purpose
under, this Indenture and the Trust Agreement and (y) payments to the Master
Servicer pursuant to the terms of the Servicing Agreement.  The Issuer will
not, directly or indirectly, make payments to or distributions from the
Collection Account except in accordance with this Indenture and the Basic
Documents.

         Section 3.24.    Notice of Events of Default.  The Issuer shall give
the Indenture Trustee, the Note Insurer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.

         Section 3.25.    Further Instruments and Acts.  Upon request of the
Indenture Trustee or the Note Insurer, the Issuer will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.

         Section 3.26.    Statements to Noteholders.  On each Payment Date, the
Indenture Trustee and the Certificate Registrar shall forward by mail to each
Noteholder and Certificateholder, respectively, the statement prepared pursuant
to Section 7.05 of this Indenture.  The Indenture Trustee shall have no
responsibility to (i) verify information provided by the Master Servicer to be
included in such statement or (ii) include any information required to be
included in such statement if the Master Servicer has failed to timely produce
such information to the Indenture Trustee as required pursuant to the Servicing
Agreement.

         Section 3.27.    Claims Upon the Policy; Policy Payments Account.

                 (a)  If, by the close of business on the third Business Day
prior to a Payment Date, the Indenture Trustee determines that a Deficiency
Amount for any Payment Date is greater than zero, then the Indenture Trustee
shall give notice to the Note Insurer by telephone or telecopy of the amount of
such Deficiency Amount.  Such notice of such Deficiency Amount shall be
confirmed in writing in the form set forth as Exhibit A to the Endorsement of
the Policy, to the Note Insurer and the Fiscal Agent (as defined in the
Policy), if any, at or before 10:00 a.m. New York time on the second Business
Day prior to such Payment Date.  Following Receipt (as defined in the Policy)
by the Note Insurer of such notice in such form, the Note Insurer or the Fiscal
Agent will pay any amount payable under the Policy on the later to occur of (i)
12:00 noon New York time





                                       18
<PAGE>   26

on the Payment Date to which such deficiency relates, as provided in the
Endorsement to the Policy.

                 (b)  The Indenture Trustee shall establish a separate special
purpose trust account for the benefit of Noteholders and the Note Insurer
referred to herein as the "Policy Payments Account" over which the Indenture
Trustee shall have exclusive control and sole right of withdrawal.  The
Indenture Trustee shall deposit any amount paid under the Policy in the Policy
Payments Account and distribute such amount only for purposes of payment to the
Noteholders of the Scheduled Payment for which a claim was made, and such
amount may not be applied to satisfy any costs, expenses or liabilities of the
Master Servicer, the Indenture Trustee or the Trust Estate.  Amounts paid under
the Policy shall be transferred to the Payment Account in accordance with the
next succeeding paragraph and disbursed by the Indenture Trustee to the
Noteholder in accordance with Section 3.05.  It shall not be necessary for such
payments to be made by checks or wire transfers separate from the checks or
wire transfers used to pay the Scheduled Payment with other funds available to
make such payment.  However, the amount of any payment of principal of or
interest on the Notes to be paid from funds transferred from the Policy
Payments Account shall be noted as provided in paragraph (c) below in the Note
Register and in the statement to be furnished to Noteholder pursuant to Section
7.05.  Funds held in the Policy Payments Account shall not be invested.

                 On any Payment Date with respect to which a claim has been
made under the Policy, the amount of any funds received by the Indenture
Trustee as a result of any claim under the Policy, to the extent required to
make Scheduled Payment on such Payment Date, shall be withdrawn from the Policy
Payments Account and deposited in the Payment Account and applied by the
Indenture Trustee, together with the other funds to be withdrawn from the
Payment Account pursuant to Section 3.05 directly to the payment in full of the
Scheduled Payment due on the Notes.  Funds received by the Indenture Trustee as
a result of any claim under the Policy shall be deposited by the Indenture
Trustee in the Policy Payments Account and used solely for payment to the
Noteholder and may not be applied to satisfy any costs, expenses or liabilities
of the Master Servicer, the Indenture Trustee or the Trust Estate.  Any funds
remaining in the Policy Payments Account on the first Business Day following a
Payment Date shall be remitted to the Note Insurer, pursuant to the
instructions of the Note Insurer, by the end of such Business Day.

                 (c)  The Indenture Trustee shall keep a complete and accurate
record of the amount of interest and principal paid in respect of any Note from
moneys received under the Policy.  The Note Insurer shall have the right to
inspect such records at reasonable times during normal business hours upon one
Business Day's prior notice to the Indenture Trustee.

                 (d)  The Indenture Trustee shall promptly notify the Note
Insurer and Fiscal Agent of any proceeding or the institution of any action, of
which a Responsible Officer of the Indenture Trustee has actual knowledge,
seeking the avoidance as a preferential transfer under applicable bankruptcy,
insolvency, receivership or similar law (a "Preference Claim") of any Scheduled
Payment made with respect to the Notes.  Each Noteholder, by its purchase of
Notes, the Master Servicer and the Indenture Trustee hereby agree that the Note
Insurer (so long as no Note Insurer Default under clause (a) of the definition
thereof has occurred and is continuing) may at any time





                                       19
<PAGE>   27
during the continuation of any proceeding relating to a Preference Claim direct
all matters relating to such Preference Claim, including, without limitation,
(i) the direction of any appeal of any order relating to such Preference Claims
and (ii) the posting of any surety, supersedes  or performance bond pending any
such appeal.  In addition and without limitation of the foregoing, the Note
Insurer shall be subrogated to the rights of the Master Servicer, the Indenture
Trustee and each Noteholder in the conduct of any such Preference Claim,
including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with any
such Preference Claim.

                                   ARTICLE IV

               The Notes; Satisfaction and Discharge of Indenture

         Section 4.01.    The Notes.  The Notes shall be registered in the name
of a nominee designated by the Depository.  Beneficial Owners will hold
interests in the Notes through the book-entry facilities of the Depository in
minimum initial Note Principal Balances of $25,000 and integral multiples of
$1,000 in excess thereof.

                 Subject to the last sentence of Section 4.12 , the Indenture
Trustee may for all purposes (including the making of payments due on the
Notes) deal with the Depository as the authorized representative of the
Beneficial Owners with respect to the Notes for the purposes of exercising the
rights of Holders of Notes hereunder.  In addition, subject to the last
sentence of Section 4.12, except as provided in the next succeeding paragraph
of this Section 4.01, the rights of Beneficial Owners with respect to the Notes
shall be limited to those established by law and agreements between such
Beneficial Owners and the Depository and Depository Participants.  Except as
provided in Section 4.08 hereof, Beneficial Owners shall not be entitled to
definitive certificates for the Notes as to which they are the Beneficial
Owners.  Requests and directions from, and votes of, the Depository as Holder
of the Notes shall not be deemed inconsistent if they are made with respect to
different Beneficial Owners.  The Indenture Trustee may establish a reasonable
record date in connection with solicitations of consents from or voting by
Noteholders and give notice to the Depository of such record date.  Without the
consent of the Issuer and the Indenture Trustee, no Note may be transferred by
the Depository except to a successor Depository that agrees to hold such Note
for the account of the Beneficial Owners.

                 In the event The Depository Trust Company resigns or is
removed as Depository, the Indenture Trustee with the approval of the Issuer
may appoint a successor Depository.  If no successor Depository has been
appointed within 30 days of the effective date of the Depository's resignation
or removal, each Beneficial Owner shall be entitled to certificates
representing the Notes it beneficially owns in the manner prescribed in Section
4.08.

         Section 4.02.    Registration of and Limitations on Transfer and
Exchange of Notes; Appointment of Certificate Registrar and Note Registrar.
The Issuer shall cause the Indenture Trustee, as Note Registrar, to keep at the
Corporate Trust Office a Note Register in which, subject to such reasonable
regulations as it may prescribe, the Note Registrar shall provide for the
registration of Notes and of transfers and exchanges of Notes as herein
provided.





                                       20
<PAGE>   28
                 Subject to the restrictions and limitations set forth below,
upon surrender for registration of transfer of any Note at the Corporate Trust
Office, the Issuer shall execute and the Indenture Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Notes in authorized initial Note Principal Balances evidencing the
same aggregate Percentage Interests.

                 Subject to the foregoing, at the option of the Noteholders,
Notes may be exchanged for other Notes of like tenor and in authorized initial
Note Principal Balances evidencing the same aggregate Percentage Interests upon
surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar.  Whenever any Notes are so surrendered for exchange, the Issuer
shall execute and the Indenture Trustee shall authenticate and deliver the
Notes which the Noteholder making the exchange is entitled to receive.  Each
Note presented or surrendered for registration of transfer or exchange shall
(if so required by the Note Registrar) be duly endorsed by, or be accompanied
by a written instrument of transfer in form reasonably satisfactory to the Note
Registrar duly executed by the Holder thereof or his attorney duly authorized
in writing with such signature guaranteed by a commercial bank or trust company
located or having a correspondent located in the City of New York or the city
in which any Corporate Trust Office is located.  Notes delivered upon any such
transfer or exchange will evidence the same obligations, and will be entitled
to the same rights and privileges, as the Notes surrendered.

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

                 The Issuer hereby appoints the Indenture Trustee as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar
shall provide for the registration of Certificates and of transfers and
exchanges thereof pursuant to Section 3.05 of the Trust Agreement.  The
Indenture Trustee hereby accepts such appointment.  The Issuer hereby appoints
the Indenture Trustee as Note Registrar.

         Section 4.03.    Mutilated, Destroyed, Lost or Stolen Notes.  If (i)
any mutilated Note is surrendered to the Indenture Trustee, or the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, and (ii) there is delivered to the Indenture Trustee such security
or indemnity as may be required by it to hold the Issuer, the Note Insurer and
the Indenture Trustee harmless, then, in the absence of notice to the Issuer,
the Note Registrar or the Indenture Trustee that such Note has been acquired by
a bona fide purchaser, and provided that the requirements of Section 8-405 of
the UCC are met, the Issuer shall execute, and upon its request the Indenture
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such destroyed, lost or
stolen Note when so due or payable without surrender thereof.  If, after the
delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the





                                       21
<PAGE>   29
proviso to the preceding sentence, a bona fide purchaser of the original Note
in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, the Note Insurer and the Indenture Trustee shall be
entitled to recover such replacement Note (or such payment) from the Person to
whom it was delivered or any Person taking such replacement Note from such
Person to whom such replacement Note was delivered or any assignee of such
Person, except a bona fide purchaser, and shall be entitled to recover upon the
security or indemnity provided therefor to the extent of any loss, damage, cost
or expense incurred by the Issuer, the Note Insurer or the Indenture Trustee in
connection therewith.

                 Upon the issuance of any replacement Note under this Section
4.03, the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.

                 Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute
an original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.

                 The provisions of this Section 4.03 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.

         Section 4.04.    Persons Deemed Owners.  Prior to due presentment for
registration of transfer of any Note, the Issuer, the Note Insurer, the
Indenture Trustee and any agent of the Issuer, the Note Insurer, or the
Indenture Trustee may treat the Person in whose name any Note is registered (as
of the day of determination) as the owner of such Note for the purpose of
receiving payments of principal of and interest, if any, on such Note and for
all other purposes whatsoever, whether or not such Note be overdue, and neither
the Issuer, the Note Insurer, the Indenture Trustee nor any agent of the
Issuer, the Note Insurer or the Indenture Trustee shall be affected by notice
to the contrary.

         Section 4.05.    Cancellation.  All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee.  The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee.  No Notes shall be authenticated in lieu of or in exchange
for any Notes canceled as provided in this Section 4.05, except as expressly
permitted by this Indenture.  All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided, however, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.





                                       22
<PAGE>   30
         Section 4.06.    Book-Entry Notes.  The Notes, upon original issuance,
will be issued in the form of definitive Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company, the initial Depository,
by, or on behalf of, the Issuer.  Such Notes shall initially be registered on
the Note Register in the name of Cede & Co., the nominee of the initial
Depository, and no Beneficial Owner will receive a Definitive Note representing
such Beneficial Owner's interest in such Note, except as provided in Section
4.08.  Unless and until definitive, fully registered Notes (the "Definitive
Notes") have been issued to Beneficial Owners pursuant to Section 4.08:

                      (i)   the provisions of this Section 4.06 shall be in 
         full force and effect;

                      (ii)  the Note Registrar, the Note Insurer and the
         Indenture Trustee shall be entitled to deal with the Depository for
         all purposes of this Indenture (including the payment of principal of
         and interest on the Notes and the giving of instructions or directions
         hereunder) as the sole holder of the Notes, and shall have no
         obligation to the Beneficial Owners of Notes;

                      (iii) to the extent that the provisions of this Section
         4.06 conflict with any other provisions of this Indenture, the
         provisions of this Section 4.06 shall control;

                      (iv)  subject to the last sentence of Section 4.12,  the
         rights of Beneficial Owners shall be exercised only through the
         Depository and shall be limited to those established by law and
         agreements between such Beneficial Owners of Notes and the Depository
         and/or the Depository Participants.  Unless and until Definitive Notes
         are issued pursuant to Section 4.08, the initial Depository will make
         book-entry transfers among the Depository Participants and receive and
         transmit payments of principal of and interest on the Notes to such
         Depository Participants; and

                      (v)   subject to the last sentence of Section 4.12,
         whenever this Indenture requires or permits actions to be taken based
         upon instructions or directions of Holders of Notes evidencing a
         specified percentage of the Note Principal Balances of the Notes, the
         Depository shall be deemed to represent such percentage only to the
         extent that it has received instructions to such effect from
         Beneficial Owners and/or Depository Participants owning or
         representing, respectively, such required percentage of the beneficial
         interest in the Notes and has delivered such instructions to the
         Indenture Trustee.

         Section 4.07.    Notices to Depository.  Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.

         Section 4.08.    Definitive Notes.  If (i) the Indenture Trustee
determines that the Depository is no longer willing or able to properly
discharge its responsibilities with respect to the Notes and the Indenture
Trustee is unable to locate a qualified successor, (ii) the Indenture Trustee
elects to





                                       23
<PAGE>   31
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Beneficial Owners of Notes representing
beneficial interests aggregating at least a majority of the Note Principal
Balances of the Notes advise the Depository in writing that the continuation of
a book-entry system through the Depository is no longer in the best interests
of the Beneficial Owners, then the Depository shall notify all Beneficial
Owners and the Indenture Trustee of the occurrence of any such event and of the
availability of Definitive Notes to Beneficial Owners requesting the same.
Upon surrender to the Indenture Trustee of the typewritten Notes representing
the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository.  None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize
the Holders of the Definitive Notes as Noteholders.  The Indenture Trustee
shall notify the Note Insurer upon the issuance of Definitive Notes.

         Section 4.09.    Tax Treatment.  The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness.  The Issuer, by entering into this Indenture, and
each Noteholder, by its acceptance of its Note (and each Beneficial Owner by
its acceptance of an interest in the applicable Book-Entry Note), agree to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness.

         Section 4.10.    Satisfaction and Discharge of Indenture.   This
Indenture shall cease to be of further effect with respect to the Notes, except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders (and
the Note Insurer, as subrogee of the Noteholders) to receive payments of
principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the
Indenture Trustee hereunder (including the rights of the Indenture Trustee
under Section 6.07 and the obligations of the Indenture Trustee under Section
4.11) and (vi) the rights of Noteholders as beneficiaries hereof with respect
to the property so deposited with the Indenture Trustee payable to all or any
of them, and the Indenture Trustee, on demand of and at the expense of the
Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to the Notes and shall release and
deliver the Collateral to or upon the order of the Issuer, when

                 (A)      either

                 (1)      all Notes theretofore authenticated and delivered
         (other than (i) Notes that have been destroyed, lost or stolen and
         that have been replaced or paid as provided in Section 4.03 hereof and
         (ii) Notes for whose payment money has theretofore been deposited in
         trust or segregated and held in trust by the Issuer and thereafter
         repaid to the Issuer or discharged from such trust, as provided in
         Section 3.03) have been delivered to the Indenture Trustee for
         cancellation; or





                                       24
<PAGE>   32
                 (2)      all Notes not theretofore delivered to the Indenture 
         Trustee for cancellation

                          a.      have become due and payable,

                          b.      will become due and payable at the Final
                 Scheduled Payment Date within one year, or

                          c.      have been declared immediately due and
                 payable pursuant to Section 5.02 hereof,

         and the Issuer, in the case of a. or b. above, has irrevocably
         deposited or caused to be irrevocably deposited with the Indenture
         Trustee cash or direct obligations of or obligations guaranteed by the
         United States of America (which will mature prior to the date such
         amounts are payable), in trust for such purpose, in an amount
         sufficient to pay and discharge the entire indebtedness on such Notes
         then outstanding not theretofore delivered to the Indenture Trustee
         for cancellation when due on the Final Scheduled Payment Date or other
         final Payment Date and has delivered (pursuant to Section 10.01(b)) to
         the Indenture Trustee and the Note Insurer a verification report from
         a nationally recognized accounting firm certifying that the amounts
         deposited with the Indenture Trustee are sufficient to pay and
         discharge the entire indebtedness of such Notes, or, in the case of c.
         above, the Issuer shall have complied with all requirements of Section
         8.07 hereof;

                 (B)      the Issuer has paid or caused to be paid all other
         sums payable hereunder and under the Insurance Agreement by the Issuer
         as evidenced by the notice of the Note Insurer; and

                 (C)      the Issuer has delivered to the Indenture Trustee and
         the Note Insurer an Officer's Certificate and an Opinion of Counsel,
         each meeting the applicable requirements of Section 10.01 hereof, each
         stating that all conditions precedent herein provided for relating to
         the satisfaction and discharge of this Indenture have been complied
         with and, if the Opinion of Counsel relates to a deposit made in
         connection with Section 4.10(A)(2)b. above, such opinion shall further
         be to the effect that such deposit will constitute an "in-substance
         defeasance" within the meaning of Revenue Ruling 85-42, 1985-1 C.B.
         36, and in accordance therewith, the Issuer will be the owner of the
         assets deposited in trust for federal income tax purposes.

         Section 4.11.    Application of Trust Money.  All monies deposited
with the Indenture Trustee pursuant to Section 4.10 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent or
the Issuer, Certificate Paying Agent as designee of the Issuer or the Note
Insurer, as applicable, as the Indenture Trustee may determine, to the Holders
of Notes, of all sums due and to become due thereon for principal and interest
or otherwise; but such monies need not be segregated from other funds except to
the extent required herein or required by law.





                                       25
<PAGE>   33
         Section 4.12.    Subrogation and Cooperation.  (a)  The Issuer and the
Indenture Trustee acknowledge (and each Noteholder by acceptance of its Note
hereby agrees) that (i) to the extent the Note Insurer makes payments under the
Note Insurance Policy on account of principal of or interest on the Notes, the
Note Insurer will be fully subrogated to the rights of such Holders to receive
such principal and interest from the Issuer, and (ii) the Note Insurer shall be
paid such principal and interest but only from the sources and in the manner
provided herein and in the Insurance Agreement for the payment of such
principal and interest.

                 Scheduled Payments disbursed by the Indenture Trustee from
proceeds of the Note Insurance Policy shall not be considered payment by the
Issuer with respect to the Notes, nor shall such disbursement of such Scheduled
Payments discharge the obligations of the Issuer with respect to the amounts
thereof, and the Note Insurer shall become the owner of such amounts as the
deemed subrogee of such Noteholders.

                 The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Note Insurer for action to preserve or enforce the
Note Insurer's rights or interest under this Indenture or the Insurance
Agreement, consistent with this Indenture and without limiting the rights of
the Noteholders as otherwise set forth in the Indenture, including, without
limitation, upon the occurrence and continuance of a default under the
Insurance Agreement, a request to take any one or more of the following
actions:

                      (i)   institute Proceedings for the collection of all
         amounts then payable on the Notes, or under this Indenture in respect
         to the Notes and all amounts payable under the Insurance Agreement,
         enforce any judgment obtained and collect from the Issuer monies
         adjudged due;

                      (ii)  sell the Trust Estate or any portion thereof or
         rights or interest therein, at one or more public or private Sales
         called and conducted in any manner permitted by law;

                    (iii)   file or record all Assignments of Mortgage that
         have not previously been recorded;

                      (iv)  institute Proceedings from time to time for the
         complete or partial foreclosure of this Indenture; and

                      (v)   exercise any remedies of a secured party under the
         UCC and take any other appropriate action to protect and enforce the
         rights and remedies of the Note Insurer hereunder;

provided, however, action shall be taken pursuant to this Section 4.12 by the
Indenture Trustee to preserve the Note Insurer's rights or interest under this
Agreement or the Insurance Agreement only to the extent such action is
available to the Noteholders or the Note Insurer under other provisions of this
Indenture.





                                       26
<PAGE>   34
                 Notwithstanding any provision of this Indenture to the
contrary, so long as no Note Insurer Default exists, the Note Insurer shall at
all times be treated as if it were the exclusive Noteholder for the purposes of
all approvals, consents, waivers and the institution of any action and the
direction of all remedies hereunder, and the Indenture Trustee shall act in
accordance with the directions of the Note Insurer so long as it is indemnified
therefor to its reasonable satisfaction; provided, however, that the provisions
of the first paragraph of Section 5.06 shall not apply to the Note Insurer when
the Note Insurer is exercising the rights of the Noteholders pursuant to this
paragraph.

         Section 4.13.    Repayment of Monies Held by Paying Agent.  In
connection with the satisfaction and discharge of this Indenture with respect
to the Notes, all monies then held by any Person other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes
shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held
and applied according to Section 3.05 and thereupon such Person shall be
released from all further liability with respect to such monies.

         Section 4.14.    Temporary Notes.  Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may reasonably determine, as evidenced by their execution of such Notes.

                 If temporary Notes are issued, the Issuer will cause
Definitive Notes to be prepared without unreasonable delay.  After the
preparation of the Definitive Notes, the temporary Notes shall be exchangeable
for Definitive Notes upon surrender of the temporary Notes at the office or
agency of the Indenture Trustee, without charge to the Holder.  Upon surrender
for cancellation of any one or more temporary Notes, the Issuer shall execute
and the Indenture Trustee shall authenticate and make available for delivery,
in exchange therefor, Definitive Notes of authorized denominations and of like
tenor and aggregate principal amount.  Until so exchanged, such temporary Notes
shall in all respects be entitled to the same benefits under this Indenture as
Definitive Notes.


                                   ARTICLE V

                              Default and Remedies

         Section 5.01.    Events of Default.  The Issuer shall deliver to the
Indenture Trustee and the Note Insurer, within five days after learning of the
occurrence of a Default or an Event of Default, written notice in the form of
an Officer's Certificate of the occurrence of such Default or Event of Default,
its status and what action the Issuer is taking or proposes to take with
respect thereto.





                                       27
<PAGE>   35
         Section 5.02.    Acceleration of Maturity; Rescission and Annulment.
If an Event of Default should occur and be continuing then and in every such
case the Indenture Trustee may (with the prior written consent of the Note
Insurer), and, at the written direction of the Note Insurer, or if a Note
Insurer Default exists, the Holders of Notes representing not less than a
majority of the Note Principal Balances of all Notes, shall, declare the Notes
to be immediately due and payable, by a notice in writing to the Issuer (and to
the Indenture Trustee if given by Noteholders), and upon any such declaration
the unpaid Note Principal Balance of the Notes, together with accrued and
unpaid interest thereon through the date of acceleration, shall become
immediately due and payable.

                 At any time after such declaration of acceleration of maturity
with respect to an Event of Default has been made and before a judgment or
decree for payment of the money due has been obtained by the Indenture Trustee
as hereinafter in this Article V provided, the Note Insurer or, if a Note
Insurer Default exists, the Holders of Notes representing a majority of the
Note Principal Balances of all Notes, by written notice to the Issuer and the
Indenture Trustee, may waive the related Event of Default and rescind and annul
such declaration and its consequences if:

                      (i)   the Issuer or the Note Insurer has paid or
         deposited with the Indenture Trustee a sum sufficient to pay:

                          (A)     all payments of principal of and interest on
                 the Notes and all other amounts that would then be due
                 hereunder or upon the Notes if the Event of Default giving
                 rise to such acceleration had not occurred; and

                          (B)     all sums reasonably paid or advanced by the
                 Indenture Trustee hereunder and the reasonable compensation,
                 expenses, disbursements and advances of the Indenture Trustee
                 and its agents and counsel; and

                      (ii)  all Events of Default, other than the nonpayment of
         the principal of the Notes that has become due solely by such
         acceleration, have been cured or waived as provided in Section 5.12.

provided, however, the Note Insurer, so long as no Note Insurer Default exists,
may waive an Event of Default regardless of Section 5.02(i) or (ii) above.

                 No such rescission shall affect any subsequent default or
impair any right consequent thereto.

         Section 5.03.    Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee.  (a)  The Issuer covenants that if (i) default is made in
the payment of any interest (including the Interest Payment Amount) on any Note
when the same becomes due and payable, and such default continues for a period
of five days, or (ii) default is made in the payment of the principal
(including the Principal Payment Amount and the Subordination Increase Amount)
of or any installment of the principal of any Note when the same becomes due
and payable, the Issuer shall,





                                       28
<PAGE>   36

immediately upon demand of the Indenture Trustee, at the direction of the Note
Insurer, so long as no Note Insurer Default exists, pay to the Indenture
Trustee, for the benefit of the Holders of Notes and of the Note Insurer, the
whole amount then due and payable on the Notes for principal and interest, with
interest at the Note Interest Rate upon the overdue principal, and in addition
thereto such further amount as shall be sufficient to cover the reasonable
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee and its agents
and counsel.

                 (b)  In case the Issuer shall fail forthwith to pay such
amounts upon such demand, the Indenture Trustee, in its own name and as trustee
of an express trust, and at the direction of the Note Insurer, so long as no
Note Insurer Default exists, subject to the provisions of Section 10.16 hereof,
may institute a Proceeding for the collection of the sums so due and unpaid,
and may prosecute such Proceeding to judgment or final decree, and may enforce
the same against the Issuer or other obligor upon the Notes and collect in the
manner provided by law out of the property of the Issuer or other obligor the
Notes, wherever situated, the monies adjudged or decreed to be payable.

                 (c)  If an Event of Default occurs and is continuing, the
Indenture Trustee, at the direction of the Note Insurer, so long as no Note
Insurer Default exists, subject to the provisions of Section 10.16 hereof may,
as more particularly provided in Section 5.04 hereof, in its discretion,
proceed to protect and enforce its rights and the rights of the Noteholders and
the Note Insurer, by such appropriate Proceedings as the Indenture Trustee, at
the direction of the Note Insurer, so long as no Note Insurer Default exists,
shall deem most effective to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy or legal or equitable right vested in the Indenture Trustee by this
Indenture or by law.

                 (d)  In case there shall be pending, relative to the Issuer or
any other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property or such other
obligor or Person, or in case of any other comparable judicial Proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Indenture Trustee, at the
direction of the Note Insurer, so long as no Note Insurer Default exists,
irrespective of whether the principal of any Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Indenture Trustee shall have made any demand pursuant to the
provisions of this Section, shall be entitled and empowered, by intervention in
such Proceedings or otherwise:

                      (i)   to file and prove a claim or claims for the whole
         amount of principal and interest owing and unpaid in respect of the
         Notes and to file such other papers or documents as may be necessary
         or advisable in order to have the claims of the Indenture Trustee
         (including any claim for reasonable compensation to the Indenture
         Trustee and





                                       29
<PAGE>   37

         each predecessor Indenture Trustee, and their respective agents,
         attorneys and counsel, and for reimbursement of all reasonable
         expenses and liabilities incurred, and all advances made, by the
         Indenture Trustee and each predecessor Indenture Trustee, except as a
         result of negligence or bad faith), the Note Insurer and of the
         Noteholders allowed in such Proceedings;

                      (ii)  unless prohibited by applicable law and
         regulations, to vote on behalf of the Holders of Notes in any election
         of a trustee, a standby trustee or Person performing similar functions
         in any such Proceedings;

                    (iii)   to collect and receive any monies or other property
         payable or deliverable on any such claims and to distribute all
         amounts received with respect to the claims of the Noteholders, the
         Note Insurer and of the Indenture Trustee on their behalf; and

                      (iv)  to file such proofs of claim and other papers or
         documents as may be necessary or advisable in order to have the claims
         of the Indenture Trustee, the Note Insurer or the Holders of Notes
         allowed in any judicial proceedings relative to the Issuer, its
         creditors and its property;

and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture
Trustee, with the consent of the Note Insurer, so long as no Note Insurer
Default exists, shall consent to the making of payments directly to such
Noteholders, to pay to the Indenture Trustee such amounts as shall be
sufficient to cover reasonable compensation to the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, all other reasonable expenses and liabilities incurred, all advances
made, by the Indenture Trustee and each predecessor Indenture Trustee, except
as a result of negligence or bad faith, and all amounts due to the Note
Insurer.

                 (e)  Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the
election of a trustee in bankruptcy or similar Person.

                 (f)  All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of
the reasonable expenses, disbursements and compensation of the Indenture
Trustee, each predecessor Indenture Trustee and their respective agents and
attorneys, shall be for the ratable benefit of the Holders of the Notes and the
Note Insurer, subject to Section 5.05 hereof.





                                       30
<PAGE>   38
                 (g)  In any Proceedings brought by the Indenture Trustee with
the consent of the Note Insurer, so long as no Note Insurer Default exists (and
also any Proceedings involving the interpretation of any provision of this
Indenture to which the Indenture Trustee shall be a party), the Indenture
Trustee shall be held to represent all the Holders of the Notes, and it shall
not be necessary to make any Noteholder a party to any such Proceedings.

         Section 5.04.    Remedies; Priorities.  (a)  If an Event of Default
shall have occurred and be continuing and if an acceleration has been declared
and not rescinded pursuant to Section 5.02 hereof, the Indenture Trustee,
subject to the provisions of Section 10.16 hereof and with the consent of the
Note Insurer so long as no Note Insurer Default exists, may and, at the
direction of the Note Insurer so long as no Note Insurer Default exists, shall,
do one or more of the following (subject to Section 5.05 hereof):

                      (i)   institute Proceedings in its own name and as
         trustee of an express trust for the collection of all amounts then
         payable on the Notes or under this Indenture with respect thereto,
         whether by declaration or otherwise, and all amounts payable under the
         Insurance Agreement, enforce any judgment obtained, and collect from
         the Issuer and any other obligor upon such Notes monies adjudged due;

                      (ii)  institute Proceedings from time to time for the
         complete or partial foreclosure of this Indenture with respect to the
         Trust Estate;

                    (iii)   exercise any remedies of a secured party under the
         UCC and take any other appropriate action to protect and enforce the
         rights and remedies of the Indenture Trustee, the Holders of the Notes
         and the Note Insurer; and

                      (iv)  sell the Trust Estate or any portion thereof or
         rights or interest therein, at one or more public or private sales
         called and conducted in any manner permitted by law;

provided, however, that so long as a Note Insurer Default exists, the Indenture
Trustee may not sell or otherwise liquidate the Trust Estate following an Event
of Default, unless (A) the Indenture Trustee obtains the consent of the Holders
of 100% of the aggregate Note Principal Balance, (B) the proceeds of such sale
or liquidation distributable to the Holders of the Notes are sufficient to
discharge in full all amounts then due and unpaid upon the Notes for principal
and interest and to reimburse the Note Insurer for any amounts drawn under the
Note Insurance Policy and any other amounts due to the Note Insurer under the
Insurance Agreement or (C) the Indenture Trustee determines that the Mortgage
Loans will not continue to provide sufficient funds for the payment of
principal of and interest on the Notes as they would have become due if the
Notes had not been declared due and payable, and the Indenture Trustee obtains
the consent of the Holders of a majority of the aggregate Note Principal
Balance.  In determining such sufficiency or insufficiency with respect to
clause (B) and (C), the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an Independent investment banking or accounting firm of
national reputation as to the feasibility of such proposed action and as to the
sufficiency of the Trust Estate for such purpose.





                                       31
<PAGE>   39
                 (b)  If the Indenture Trustee collects any money or property
pursuant to this Article V, it shall pay out the money or property in the
following order; provided, however, that any amounts representing payments from
the Note Insurer shall be used only to pay interest and principal to the
Noteholders pursuant to clauses THIRD and FOURTH below:

                 FIRST:  to the Indenture Trustee for amounts due under Section
                 6.07 hereof;

                 SECOND:  to the Note Insurer, provided no Note Insurer Default
                 exists, with respect to any Premium Amount then due;

                 THIRD:  to the Noteholders for amounts due and unpaid on the
                 Notes with respect to interest, ratably, without preference or
                 priority of any kind, according to the amounts due and payable
                 on the Notes for interest (including the Interest Payment
                 Amount, but not including any unpaid Prepayment Interest
                 Shortfalls, and Relief Act Shortfalls) from amounts available
                 in the Trust Estate for the Noteholders;

                 FOURTH:  to Noteholders for amounts due and unpaid on the
                 Notes with respect to principal (including, but not limited
                 to, any Principal Payment Amount), from amounts available in
                 the Trust Estate for the Noteholders, and to each Noteholder
                 ratably, without preference or priority of any kind, according
                 to the amounts due and payable on the Notes for principal,
                 until the Note Principal Balance is reduced to zero;

                 FIFTH: to the Note Insurer, the sum of (a) all payments
                 previously paid by the Note Insurer under the Note Insurance
                 Policy which have not previously been reimbursed, (b)  any
                 other amounts due to the Note Insurer pursuant to the
                 Insurance Agreement, to the extent not previously paid or
                 reimbursed and (c) interest on the foregoing as set forth in
                 the Insurance Agreement from the date such amounts become due
                 until paid in full (including any Premium Amount not paid
                 pursuant to clause SECOND above);

                 SIXTH:  to the Class A-V Payment Account, any amounts required
                 to pay (x) the amount by which the Class A-V Interest Payment
                 Amount (not including any Class A-V Carry-Forward Amount for
                 such Payment Date) exceeds the Class A-V Available Funds due
                 to Class A-V Realized Losses or the failure of any Mortgagor
                 to make an interest payment on or before the date on which it
                 is due and (y) any Class A-V Realized Losses relating to the
                 Class A-V Notes on such Class A-V Payment Date or any previous
                 Class A-V Payment Date;

                 SEVENTH:  to the Note Insurer, the sum of (a) all payments
                 previously paid by the Note Insurer under the Class A-V Note
                 Insurance Policy which have not previously been reimbursed,
                 (b) any other amounts due to the Note Insurer pursuant to the
                 Series 1998-2V Insurance Agreement, to the extent not
                 previously paid or reimbursed and (c) interest on the
                 foregoing as set forth in the 1998-2V Insurance Agreement from
                 the date such amounts become due until paid in full;





                                       32
<PAGE>   40
                 EIGHTH:  to the Noteholders for amounts due and unpaid on the
                 Notes with respect to any unpaid Prepayment Interest
                 Shortfalls and Relief Act Shortfalls, ratably, without
                 preference or priority of any kind, according to the amounts
                 due and payable on the Notes with respect thereto, from
                 amounts available in the Trust Estate for the Noteholders; and


                 NINTH:  to the payment of the remainder, if any, to the
                 Certificate Paying Agent to be distributed to the
                 Certificateholders or any other person legally entitled
                 thereto; provided, however, that if such Payment Date is the
                 final Payment Date with respect to the Notes (as a result of
                 the exercise of the redemption or final maturity of the Notes)
                 and at such date the Class A-V Subordination Amount is less
                 than the Class A-V Required Subordination Amount, such
                 remaining amount shall be transferred to the  Escrow Account.


                 The Indenture Trustee may fix a Record Date and payment date
for any payment to Noteholders pursuant to this Section 5.04.  With respect to
any acceleration at the direction of the Note Insurer, the first payment date
after the acceleration shall be the first Payment Date after the acceleration.
Promptly after the Indenture Trustee receives such direction, the Indenture
Trustee shall mail to each Noteholder a notice that states the Record Date, the
payment date and the amount to be paid.

         Section 5.05.    Optional Preservation of the Trust Estate.   If the
Notes have been declared to be due and payable under Section 5.02 following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, with the consent of the Note
Insurer, and shall, at the direction of the Note Insurer, so long as no Note
Insurer Default exists, elect to take and maintain possession of the Trust
Estate.  It is the desire of the parties hereto and the Noteholders that there
be at all times sufficient funds for the payment of principal of and interest
on the Notes and other obligations of the Issuer including payment to the Note
Insurer, and the Indenture Trustee shall take such desire into account when
determining whether or not to take and maintain possession of the Trust Estate.
In determining whether to take and maintain possession of the Trust Estate, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.

         Section 5.06.    Limitation of Suits.  No Holder of any Note shall
have any right to institute any Proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless subject to the provisions of Section 10.16
hereof:

                      (i)   such Holder has previously given written notice to
         the Indenture Trustee of a continuing Event of Default;





                                       33
<PAGE>   41
                      (ii)  the Holders of not less than 50% of the Note
         Principal Balances of the Notes have made a written request to the
         Indenture Trustee to institute such Proceeding in respect of such
         Event of Default in its own name as Indenture Trustee hereunder;

                    (iii)   such Holder or Holders have offered to the
         Indenture Trustee reasonable indemnity against the costs, expenses and
         liabilities to be incurred in complying with such request;

                      (iv)  the Indenture Trustee for 60 days after its receipt
         of such notice of request and offer of indemnity has failed to
         institute such Proceedings;

                      (v)   no direction inconsistent with such written request
         has been given to the Indenture Trustee during such 60-day period by
         the Holders of a majority of the Note Principal Balances of the Notes;
         and

                      (vi)  such Holder or Holders have the consent of the Note
         Insurer, unless a Note Insurer Default exists.

It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.

                 Subject to the last paragraph of Section 4.12 herein, in the
event the Indenture Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of Holders of Notes, each representing
less than a majority of the Note Principal Balances of the Notes, the Indenture
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.

         Section 5.07.    Unconditional Rights of Noteholders To Receive
Principal and Interest.  Notwithstanding any other provisions in this
Indenture, the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the respective due dates thereof expressed in such Note
or in this Indenture and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.

         Section 5.08.    Restoration of Rights and Remedies.  If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee, the Note Insurer or to such Noteholder, then and in every such case
the Issuer, the Indenture Trustee, the Note Insurer and the Noteholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Indenture Trustee, the Note Insurer and the Noteholders shall
continue as though no such Proceeding had been instituted.





                                       34
<PAGE>   42
         Section 5.09.    Rights and Remedies Cumulative.  No right or remedy
herein conferred upon or reserved to the Indenture Trustee, to the Note Insurer
or to the Noteholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise.  The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.

         Section 5.10.    Delay or Omission Not a Waiver.  No delay or omission
of the Indenture Trustee, the Note Insurer or any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein.  Every right and remedy given by this Article V or by
law to the Indenture Trustee, the Note Insurer or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Note Insurer or by the Noteholders, as the case may be.

         Section 5.11.    Control by Note Insurer.  The Note Insurer, or if a
Note Insurer Default exists, the Holders of a majority of the Note Principal
Balances of Notes (subject to the provisions of Section 5.06) shall have the
right to direct the time, method and place of conducting any Proceeding for any
remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided
that:

                      (i)   such direction shall not be in conflict with any
         rule of law or with this Indenture;

                      (ii)  if a Note Insurer Default exists, subject to the
         express terms of Section 5.04, any direction to the Indenture Trustee
         to sell or liquidate the Trust Estate shall be by Holders of Notes
         representing 100% of the Note Principal Balances of the Notes;

                    (iii)   if the conditions set forth in Section 5.05 hereof
         have been satisfied and the Indenture Trustee, with the consent of the
         Note Insurer, so long as no Note Insurer Default exists, elects to
         retain the Trust Estate pursuant to such Section, then any direction
         to the Indenture Trustee by Holders of Notes (other than with respect
         to the Note Insurer exercising the rights of Noteholders pursuant to
         the last sentence of Section 4.12) to sell or liquidate the Trust
         Estate shall be of no force and effect; and

                      (iv)  if a Note Insurer Default exists, the Indenture
         Trustee may take any other action deemed proper by the Indenture
         Trustee that is not inconsistent with such direction.

Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or, if a  Note Insurer Default exists, might
materially adversely affect the rights of any Noteholders not consenting to
such action.





                                       35
<PAGE>   43
         Section 5.12.    Waiver of Past Defaults.   Prior to the declaration
of the acceleration of the maturity of the Notes as provided in Section 5.02
hereof, the Note Insurer, or if a Note Insurer Default exists, the Holders of
Notes of not less than a majority of the Note Principal Balances of the Notes,
may waive any past Event of Default and its consequences except an Event of
Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would materially and adversely affect the interests of the Note
Insurer or modify its obligation under the Note Insurance Policy.  In the case
of any such waiver, any Event of Default arising therefrom shall be deemed to
have been cured and not to have occurred, for every purpose of this Indenture
and the Issuer, the Indenture Trustee and the Holders of the Notes shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other Event of Default or impair
any right consequent thereto.

         Section 5.13.    Undertaking for Costs.   All parties to this
Indenture agree, and each Holder of any Note by such Holder's acceptance
thereof shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Indenture Trustee for any action taken,
suffered or omitted by it as Indenture Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 5.13 shall not apply to (a) any
suit instituted by the Indenture Trustee or the Note Insurer, (b) any suit
instituted by any Noteholder, or group of Noteholders, in each case holding in
the aggregate more than 10% of the Note Principal Balances of the Notes or (c)
any suit instituted by any Noteholder for the enforcement of the payment of
principal of or interest on any Note on or after the respective due dates
expressed in such Note and in this Indenture.

         Section 5.14.    Waiver of Stay or Extension Laws.  The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead or in any manner whatsoever, claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance
of this Indenture; and the Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not hinder, delay or impede the execution of any power herein
granted to the Indenture Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

         Section 5.15.    Sale of Trust Estate.  (a)  The power to effect any
sale or other disposition (a "Sale") of any portion of the Trust Estate
pursuant to Section 5.04 hereof is expressly subject to the provisions of
Section 5.05 hereof and this Section 5.15.  The power to effect any such Sale
shall not be exhausted by any one or more Sales as to any portion of the Trust
Estate remaining unsold, but shall continue unimpaired until the entire Trust
Estate shall have been sold or all amounts payable on the Notes and under this
Indenture and under the Insurance Agreement shall have been paid.  The
Indenture Trustee with the consent of the Note Insurer, so long as no Note
Insurer Default exists, may from time to time postpone any public Sale by
public announcement





                                       36
<PAGE>   44

made at the time and place of such Sale.  The Indenture Trustee hereby
expressly waives its right to any amount fixed by law as compensation for any
Sale.

                 (b)  The Indenture Trustee shall not in any private Sale sell
the Trust Estate, or any portion thereof, unless

                 (1)      the Note Insurer or, if a Note Insurer Default
exists, the Holders of all Notes, consent to or direct the Indenture Trustee to
make, such Sale, or

                 (2)      unless the Note Insurer otherwise consents, the
proceeds of such Sale would be not less than the entire amount which would be
payable to the Noteholders under the Notes and the Note Insurer in respect of
amounts drawn under the Note Insurance Policy and any other amounts due to the
Note Insurer under the Insurance Agreement, in full payment thereof in
accordance with Section 5.02 hereof, on the Payment Date next succeeding the
date of such Sale, or

                 (3)      The Indenture Trustee determines with the consent of
the Note Insurer, so long as no Note Insurer Default exists, that the
conditions for retention of the Trust Estate set forth in Section 5.05 hereof
cannot be satisfied (in making any such determination, the Indenture Trustee
may rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05 hereof), and the Note Insurer consents to
such Sale, or if a Note Insurer Default exists, the Holders of Notes
representing at least 66-2/3% of the Note Principal Balances of the Notes
consent to such Sale.

The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).

                 (c)  Unless the Note Insurer or, if a Note Insurer Default
exists, the Holders of Notes representing at least 66-2/3% of the Note
Principal Balances of the Notes have otherwise consented or directed the
Indenture Trustee, at any public Sale of all or any portion of the Trust Estate
at which a minimum bid equal to or greater than the amount described in
paragraph (2) of subsection (b) of this Section 5.15 and no Person bids an
amount equal to or greater than such amount, the Indenture Trustee on behalf of
the Trust shall reject all bids.

                 (d)  In connection with a Sale of all or any portion of the
Trust Estate,

                 (1)      any Holder or Holders of Notes may bid for and with
the consent of the Note Insurer purchase the property offered for Sale, and
upon compliance with the terms of sale may hold, retain and possess and dispose
of such property, without further accountability, and may, in paying the
purchase money therefor, deliver any Notes or claims for interest thereon in
lieu of cash up to the amount which shall, upon distribution of the net
proceeds of such sale, be payable thereon, and such Notes, in case the amounts
so payable thereon shall be less than the amount due thereon, shall be returned
to the Holders thereof after being appropriately stamped to show such partial
payment;





                                       37
<PAGE>   45
                 (2)      the Indenture Trustee, with the consent of the Note
Insurer, so long as no Note Insurer Default exists, may bid for and acquire the
property offered for Sale in connection with any Sale thereof, and, subject to
any requirements of, and to the extent permitted by, applicable law in
connection therewith, may purchase all or any portion of the Trust Estate in a
private sale, and, in lieu of paying cash therefor, may make settlement for the
purchase price by crediting the gross Sale price against the sum of (A) the
amount which would be distributable to the Holders of the Notes and Holders of
Certificates and amounts owing to the Note Insurer as a result of such Sale in
accordance with Section 5.04(b) hereof on the Payment Date next succeeding the
date of such Sale and (B) the reasonable expenses of the Sale and of any
Proceedings in connection therewith which are reimbursable to it, without being
required to produce the Notes in order to complete any such Sale or in order
for the net Sale price to be credited against such Notes, and any property so
acquired by the Indenture Trustee shall be held and dealt with by it in
accordance with the provisions of this Indenture;

                 (3)      the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion
of the Trust Estate in connection with a Sale thereof;

                 (4)      the Indenture Trustee is hereby irrevocably appointed
the agent and attorney-in-fact of the Issuer to transfer and convey its
interest in any portion of the Trust Estate in connection with a Sale thereof,
and to take all action necessary to effect such Sale; and

                 (5)      no purchaser or transferee at such a Sale shall be
bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
monies.

         Section 5.16.    Action on Notes.  The Indenture Trustee's right to
seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture.  Neither the lien of this Indenture nor any
rights or remedies of the Indenture Trustee, the Note Insurer or the
Noteholders shall be impaired by the recovery of any judgment by the Indenture
Trustee against the Issuer or by the levy of any execution under such judgment
upon any portion of the Trust Estate or upon any of the assets of the Issuer.
Any money or property collected by the Indenture Trustee shall be applied in
accordance with Section 5.04(b) hereof.

         Section 5.17.    Performance and Enforcement of Certain Obligations.
(a)  Promptly following a request from the Indenture Trustee or the Note
Insurer to do so, the Issuer, in its capacity as holder of the Mortgage Loans,
shall take all such lawful action as the Indenture Trustee or the Note Insurer
may request to cause the Issuer to compel or secure the performance and
observance by the Seller and the Master Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Home Equity
Loan Purchase Agreement and the Servicing Agreement, and by Pacific of each of
its obligations to the Issuer under or in connection with the Amended and
Restated Trust Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Home Equity Loan Purchase Agreement, the Servicing Agreement and the Amended
and Restated Loan





                                       38
<PAGE>   46
Sale Agreement to the extent and in the manner directed by the Indenture
Trustee, with the consent of the Note Insurer, so long as no Note Insurer
Default exists, as pledgee of the Mortgage Loans, or by the Note Insurer,
including the transmission of notices of default on the part of the Seller,
the Master Servicer or Pacific thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Home
Equity Loan Purchase Agreement and the Servicing Agreement and by Pacific of
each of its obligations to the Issuer under or in connection with the Amended
and Restated Loan Sale Agreement.  So long as no Note Insurer Default exists,
the Note Insurer shall have the right to approve or reject any proposed
successor to the Master Servicer (other than the Indenture Trustee) under the
Servicing Agreement.

                 (b)      The Indenture Trustee, as pledgee of the Mortgage
Loans, subject to the rights of the Note Insurer under this Agreement and the
Servicing Agreement may, and at the direction (which direction shall be in
writing or by telephone (confirmed in writing promptly thereafter)) of the Note
Insurer or, if a Note Insurer Default exists, the Holders of 66-2/3% of the
Note Principal Balances of the Notes, shall exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Seller or the Master
Servicer under or in connection with the Home Equity Loan Purchase Agreement
and the Servicing Agreement or against Pacific under or in connection with the
Amended and Restated Loan Sale Agreement, including the right or power to take
any action to compel or secure performance or observance by the Seller, the
Master Servicer or Pacific, as the case may be, of each of their obligations to
the Issuer thereunder and to give any consent, request, notice, direction,
approval, extension or waiver under the Home Equity Loan Purchase Agreement,
the Servicing Agreement or the Amended and Restated Loan Sale Agreement, as the
case may be, and any right of the Issuer to take such action shall not be
suspended.


                                   ARTICLE VI

                             The Indenture Trustee

         Section 6.01.    Duties of Indenture Trustee.  (a)  If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise
the rights and powers vested in it by this Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.

                 (b)  Except during the continuance of an Event of Default:

                      (i)   the Indenture Trustee undertakes to perform such
         duties and only such duties as are specifically set forth in this
         Indenture and no implied covenants or obligations shall be read into
         this Indenture against the Indenture Trustee; and

                      (ii)  in the absence of bad faith on its part, the
         Indenture Trustee may conclusively rely, as to the truth of the
         statements and the correctness of the opinions expressed therein, upon
         certificates or opinions furnished to the Indenture Trustee and





                                       39
<PAGE>   47

         conforming to the requirements of this Indenture; however, the
         Indenture Trustee shall examine the certificates and opinions to
         determine whether or not they conform to the requirements of this
         Indenture.

                 (c)  The Indenture Trustee may not be relieved from liability
for its own negligent action, its own negligent failure to act or its own
willful misconduct, except that:

                      (i)   this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;

                      (ii)  the Indenture Trustee shall not be liable for any
         error of judgment made in good faith by a Responsible Officer unless
         it is proved that the Indenture Trustee was negligent in ascertaining
         the pertinent facts; and

                    (iii)   the Indenture Trustee shall not be liable with
         respect to any action it takes or omits to take in good faith in
         accordance with a direction received by it (A) pursuant to Sections
         5.11 or 5.15 or (B) from the Note Insurer, which it is entitled to
         give under any of the Basic Documents.

                 (d)  The Indenture Trustee shall not be liable for interest on
any money received by it except as the Indenture Trustee may agree in writing
with the Issuer.

                 (e)  Money held in trust by the Indenture Trustee need not be
segregated from other trust funds except to the extent required by law or the
terms of this Indenture or the Trust Agreement.

                 (f)  No provision of this Indenture shall require the
Indenture Trustee to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if it shall have reasonable grounds to believe
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.

                 (g)  Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.

                 (h)      The Indenture Trustee shall act in accordance with
Sections 6.03 and 6.04 of the Servicing Agreement and shall act as successor to
the Master Servicer in accordance with Section 6.02 of the Servicing Agreement.

                 (i)      For all purposes under this Indenture, the Indenture
Trustee shall not be deemed to have notice or knowledge of any Default or Event
of Default unless a Responsible Officer assigned to and working in the
Indenture Trustee's corporate trust department has actual knowledge thereof or
unless written notice of any event which is in fact such an Event of Default





                                       40
<PAGE>   48
or Default is received by the Indenture Trustee at the Corporate Trust Office,
and such notice references the Notes generally, the Issuer, the Trust Estate or
this Indenture.

         Section 6.02.    Rights of Indenture Trustee.  (a)  The Indenture
Trustee may rely on any document reasonably believed by it to be genuine and to
have been signed or presented by the proper person.  The Indenture Trustee need
not investigate any fact or matter stated in the document.

                 (b)  Before the Indenture Trustee acts or refrains from
acting, it may reasonably require an Officer's Certificate or an Opinion of
Counsel reasonably satisfactory in form and substance to the Indenture Trustee,
which Officer's Certificate or Opinion of Counsel shall not be at the expense
of the Indenture Trustee or the Trust Estate.  The Indenture Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
an Officer's Certificate or Opinion of Counsel.

                 (c)  The Indenture Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee.

                 (d)  The Indenture Trustee shall not be liable for any action
it takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers; provided, however, that the
Indenture Trustee's conduct does not constitute willful misconduct, negligence
or bad faith.

                 (e)  The Indenture Trustee may consult with counsel chosen by
it with due care, and advice or Opinion of Counsel with respect to legal
matters relating to this Indenture and the Notes shall be full and complete
authorization and protection from liability in respect to any action taken,
omitted or suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.

         Section 6.03.    Individual Rights of Indenture Trustee.  The
Indenture Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates
with the same rights it would have if it were not Indenture Trustee.  Any Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Section 6.11 hereof.

         Section 6.04.    Indenture Trustee's Disclaimer.  The Indenture
Trustee shall not be responsible for and makes no representation as to the
validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Indenture Trustee's certificate of authentication.

         Section 6.05.    Notice of Event of Default.  If an Event of Default
occurs and is continuing and if it is known to a Responsible Officer of the
Indenture Trustee, the Indenture Trustee shall





                                       41
<PAGE>   49

promptly give notice thereof to the Note Insurer.  The Trustee shall mail to
each Noteholder notice of the Event of Default within 10 days after a
Responsible Officer has actual knowledge thereof unless such Event of Default
shall have been waived or cured.  Except in the case of an Event of Default in
payment of principal of or interest on any Note, the Indenture Trustee may
withhold the notice to Noteholders if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.

         Section 6.06.    Tax Administration of the Issuer.   The Indenture
Trustee, based solely on information timely provided by the Master Servicer,
shall prepare and file (or cause to be prepared and filed), on behalf of the
Owner Trustee, all tax returns and information reports, tax elections and such
annual or other reports of the Issuer as are necessary for preparation of tax
returns and information reports as provided in Section 5.03 of the Trust
Agreement, including without limitation Form 1099.  All tax returns and
information reports shall be signed by the Owner Trustee as provided in Section
5.03 of the Trust Agreement.

         Section 6.07.    Compensation and Indemnity.  The Indenture Trustee
shall receive on each Payment Date the Indenture Trustee Fee as reasonable
compensation for its services.  The amount of the Indenture Trustee Fee shall
be paid to the Indenture Trustee on each Payment Date pursuant to Section
3.05(a)(i) of this Indenture, and all amounts owing to the Indenture Trustee
hereunder in excess of such amount shall be paid solely as provided in Section
3.05(a)(viii) hereof.  The Indenture Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust.  The
Indenture Trustee shall be reimbursed for all reasonable out-of-pocket expenses
incurred or made by it, including costs of collection, in addition to
compensation for its services, subject to the priorities established by
Sections 3.05(a)(viii) and 5.04(b) of this Indenture.  Such expenses shall
include reasonable compensation and expenses, disbursements and advances of the
Indenture Trustee's agents, counsel, accountants and experts.  The Indenture
Trustee shall be indemnified by the Master Servicer as set forth in Section
5.06(a) of the Servicing Agreement against any and all loss, liability or
expense (including reasonable attorneys' fees) incurred by it in connection
with the administration of this Trust Estate and the performance of its duties
hereunder.  The Indenture Trustee shall notify the Master Servicer and the Note
Insurer promptly of any claim for which it may seek indemnity.  Failure by the
Indenture Trustee to so notify the Master Servicer shall not relieve the Master
Servicer of its obligations hereunder.  The Master Servicer shall defend any
such claim, and the Indenture Trustee may have separate counsel and the Master
Servicer shall pay the reasonable fees and expenses of such counsel.  The
Master Servicer is not obligated to reimburse any expense or indemnify against
any loss, liability or expense incurred by the Indenture Trustee through the
Indenture Trustee's own willful misconduct, negligence or bad faith.  The
indemnification provided by this Section 6.07 shall survive the termination,
satisfaction, discharge, redemption or assignment of this Indenture or the
resignation or removal of the Indenture Trustee hereunder.

                 The Issuer's payment obligations to the Indenture Trustee
pursuant to this Section 6.07 shall survive the discharge of this Indenture.
When the Indenture Trustee incurs expenses after the occurrence of an Event of
Default with respect to the Issuer, the expenses are intended to constitute
expenses of administration under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or similar law.





                                       42
<PAGE>   50
         Section 6.08.    Replacement of Indenture Trustee.  No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08.  The Indenture
Trustee may resign at any time by so notifying the Issuer and the Note Insurer.
The Note Insurer or, if a Note Insurer Default exists, the Holders of a
majority of Note Principal Balances of the Notes may remove the Indenture
Trustee by so notifying the Issuer and the  Indenture Trustee and the Note
Insurer and may appoint a successor Indenture Trustee.  The Issuer shall, with
the consent of the Note Insurer, so long as no Note Insurer Default exists,
remove the Indenture Trustee if:

                      (i)   the Indenture Trustee fails to comply with Section
         6.11 hereof;

                      (ii)  the Indenture Trustee is adjudged a bankrupt or
         insolvent;

                    (iii)   a receiver or other public officer takes charge of
         the Indenture Trustee or its property; or

                      (iv)  the Indenture Trustee otherwise becomes incapable
         of acting.

                 If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of the Indenture Trustee for any reason (the Indenture
Trustee in such event being referred to herein as the retiring Indenture
Trustee), the Issuer shall, with the consent of the Note Insurer, so long as no
Note Insurer Default exists, promptly appoint a successor Indenture Trustee
acceptable to the Note Insurer.

                 A successor Indenture Trustee shall deliver a written
acceptance of its appointment to the retiring Indenture Trustee, the Note
Insurer and to the Issuer.  Thereupon, the resignation or removal of the
retiring Indenture Trustee shall become effective, and the successor Indenture
Trustee shall have all the rights, powers and duties of the Indenture Trustee
under this Indenture.  The successor Indenture Trustee shall mail a notice of
its succession to the Noteholders.  The retiring Indenture Trustee shall
promptly transfer all property held by it as Indenture Trustee to the successor
Indenture Trustee.

                 If a successor Indenture Trustee does not take office within
60 days after the retiring Indenture Trustee resigns or is removed, the
retiring Indenture Trustee, the Issuer, the Note Insurer or the Holders of a
majority of Note Principal Balances of the Notes may petition any court of
competent jurisdiction for the appointment of a successor Indenture Trustee.

                 Notwithstanding the replacement of the Indenture Trustee
pursuant to this Section, the Issuer's obligations under Section 6.07 shall
continue for the benefit of the retiring Indenture Trustee with respect to
services performed and expenses incurred prior to such replacement.

         Section 6.09.    Successor Indenture Trustee by Merger.  If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or





                                       43
<PAGE>   51
transferee corporation, without any further act, shall be the successor
Indenture Trustee; provided, that such corporation or banking association shall
be otherwise qualified and eligible under Section 6.11 hereof.  The Indenture
Trustee shall provide the Issuer, the Rating Agencies and the Note Insurer with
prior written notice of any such transaction.

                 If at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the
trusts created by this Indenture and any of the Notes shall have been
authenticated but not delivered, any such successor to the Indenture Trustee
may adopt the certificate of authentication of any predecessor trustee and
deliver such Notes so authenticated; and if at that time any of the Notes shall
not have been authenticated, any successor to the Indenture Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor to the Indenture Trustee; and in all such cases such
certificates shall have the full force provided in the Notes or in this
Indenture that the certificate of the Indenture Trustee shall have.

         Section 6.10.    Appointment of Co-Indenture Trustee or Separate
Indenture Trustee.  (a)  Notwithstanding any other provisions of this
Indenture, at any time, for the purpose of meeting any legal requirement of any
jurisdiction in which any part of the Trust Estate may at the time be located,
the Indenture Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of
the Trust Estate, and to vest in such Person or Persons, in such capacity and
for the benefit of the Noteholders and the Note Insurer, such title to the
Trust Estate, or any part hereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Indenture
Trustee or the Note Insurer may consider necessary or desirable.  No co-trustee
or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 6.11 hereof and notice to, and
the consent of,  the Note Insurer (but not the Noteholders) of the appointment
of any co-trustee or separate trustee shall be required.

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

                      (i)   all rights, powers, duties and obligations
         conferred or imposed upon the Indenture Trustee shall be conferred or
         imposed upon and exercised or performed by the Indenture Trustee and
         such separate trustee or co-trustee jointly (it being understood that
         such separate trustee or co-trustee is not authorized to act
         separately without the Indenture Trustee joining in such act), except
         to the extent that under any law of any jurisdiction in which any
         particular act or acts are to be performed the Indenture 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 Estate 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
         Indenture Trustee;

                      (ii)  no trustee hereunder shall be personally liable by
         reason of any act or omission of any other trustee hereunder; and





                                       44
<PAGE>   52
                    (iii)   the Indenture Trustee may at any time accept the
         resignation of or remove any separate trustee or co-trustee.

                 (c)  Any notice, request or other writing given to the
Indenture 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 appointing any separate trustee or co- trustee shall refer to
this Agreement and the conditions of this Article VI.  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 Indenture Trustee or separately, as may be provided therein,
subject to all the provisions of this Indenture, specifically including every
provision of this Indenture relating to the conduct of, affecting the liability
of, or affording protection to, the Indenture Trustee.  Every such instrument
shall be filed with the Indenture Trustee.

                 (d)  Any separate trustee or co-trustee may at any time
constitute the Indenture 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 Indenture Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.

         Section 6.11.    Eligibility; Disqualification.  The Indenture Trustee
shall  at all times be acceptable to the Note Insurer and authorized to
exercise corporate trust powers.  The Indenture Trustee shall also satisfy the
requirements of TIA Section 310(a) and  have a combined capital and surplus of
at least $50,000,000 as set forth in its most recent published annual report of
condition and it or its parent shall have a long-term debt rating of Baa3 or
better by Moody's and BBB or better by Standard & Poor's. The Indenture Trustee
shall comply with TIA Section  310(b), including the optional provision
permitted by the second sentence of TIA Section  310(b)(9);  provided, however,
that there shall be excluded from the operation of TIA Section  310(b)(1) any
indenture or indentures under which other securities  of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met.  If at any time the Indenture Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect specified in Section 6.08 hereof.

         Section 6.12.    Preferential Collection of Claims Against Issuer.
The Indenture Trustee shall comply with TIA Section  311(a), excluding any
creditor relationship listed in TIA Section  311(b).  An Indenture Trustee who
has resigned or been removed shall be subject to TIA Section  311(a) to the
extent indicated.

         Section 6.13.    Representations and Warranties.  The Indenture
Trustee hereby represents that:

                    (i)   The Indenture Trustee is duly organized and validly
         existing as a national banking association in good standing under the
         laws of the United States with power and





                                       45
<PAGE>   53
         authority to own its properties and to conduct its business as such
         properties are currently owned and such business is presently
         conducted;

                    (ii)  The Indenture Trustee has the power and authority to
         execute and deliver this Indenture and to carry out its terms; and the
         execution, delivery and performance of this Indenture have been duly
         authorized by the Indenture Trustee by all necessary corporate action;

                   (iii)  The consummation of the transactions contemplated by
         this Indenture and the fulfillment of the terms hereof do not conflict
         with, result in any breach of any of the terms and provisions of, or
         constitute (with or without notice or lapse of time) a default under,
         the articles of organization or bylaws of the Indenture Trustee or any
         agreement or other instrument to which the Indenture Trustee is a
         party or by which it is bound;

                    (iv)  To the Indenture Trustee's best knowledge, there are
         no proceedings or investigations pending or threatened before any
         court, regulatory body, administrative agency or other governmental
         instrumentality having jurisdiction over the Indenture Trustee or its
         properties:  (A) asserting the invalidity of this Indenture, (B)
         seeking to prevent the consummation of any of the transactions
         contemplated by this Indenture or (C) seeking any determination or
         ruling that might materially and adversely affect the performance by
         the Indenture Trustee of its obligations under, or the validity or
         enforceability of, this Indenture; and

                    (v)   This Indenture, when executed by Indenture Trustee,
         will constitute the legal, valid and binding obligation of the
         Indenture Trustee, enforceable in accordance with its terms, except as
         such enforceability may be limited by bankruptcy, insolvency,
         reorganization, moratorium or other similar laws affecting creditors'
         rights generally and general equitable principles.

         Section 6.14.    Directions to Indenture Trustee.  The Indenture
Trustee is hereby directed:

                 (a)  to accept the pledge of the Mortgage Loans and hold the
assets of the Owner Trust Estate in trust for the Noteholders and the Note
Insurer;

                 (b)  to authenticate and deliver the Notes substantially in
the form prescribed by Exhibit A in accordance with the terms of this
Indenture; and

                 (c)  to take all other actions as shall be required to be
taken by the terms of this Indenture.

         Section 6.15.    The Agents.  The provisions of this Indenture
relating to the limitations of the Indenture Trustee's liability and to its
indemnity shall inure also to the Paying Agent, the Note Registrar, the
Certificate Paying Agent and the Certificate Registrar.





                                       46
<PAGE>   54
                                  ARTICLE VII

                         Noteholders' Lists and Reports

         Section 7.01.    Issuer To Furnish Indenture Trustee Names and
Addresses of Noteholders.  The Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not more than five days after each Record Date, a
list, in such form as the Indenture Trustee may reasonably require, of the
names and addresses of the Holders of Notes as of such Record Date, (b) at such
other times as the Indenture Trustee and the Note Insurer may request in
writing, within 30 days after receipt by the Issuer of any such request, a list
of similar form and content as of a date not more than 10 days prior to the
time such list is furnished; provided, however, that so long as the Indenture
Trustee is the Note Registrar, no such list shall be required to be furnished.

         Section 7.02.    Preservation of Information; Communications to
Noteholders.  (a)  The Indenture Trustee shall preserve, in as current a form
as is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as
provided in Section 7.01 hereof and the names and addresses of Holders of Notes
received by the Indenture Trustee in its capacity as Note Registrar.  The
Indenture Trustee may destroy any list furnished to it as provided in such
Section 7.01 upon receipt of a new list so furnished.

                 (b)  Noteholders may communicate pursuant to TIA Section
312(b) with other Noteholders with respect to their rights under this Indenture
or under the Notes.

                 (c)  The Issuer, the Indenture Trustee and the Note Registrar
shall have the protection of TIA Section  312(c).

         Section 7.03.    Reports by the Indenture Trustee.  (a)  The Indenture
Trustee shall:

                      (i)   file with the Company and the Note Insurer, within
         15 days after the Issuer is required to file the same with the
         Commission, copies of the annual reports and of the information,
         documents and other reports (or copies of such portions of any of the
         foregoing as the Commission may from time to time by rules and
         regulations prescribe) that the Issuer may be required to file with
         the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
         Such filings shall be as follows: promptly after each Payment Date,
         the Indenture Trustee shall file with the Commission via the
         Electronic Data Gathering and Retrieval System, a Form 8-K with a copy
         of the statement to Noteholders for such Payment Date as an exhibit
         thereto.  Prior to January 30, 1999, the Indenture Trustee shall file
         a Form 15 Suspension Notification with respect to the Trust Fund, if
         applicable.  Prior to March 31, 1999, the Indenture Trustee shall file
         a Form 10-K, in substance conforming to industry standards, with
         respect to the Trust Fund.  The Company hereby grants to the Indenture
         Trustee a limited power of attorney to execute and file each such
         document on behalf of the Company.  Such power of attorney shall
         continue until the earlier of (i) receipt by the Trustee from the
         Company of written termination of such power of attorney and (ii) the
         termination of the Trust Fund.  At least three Business Days prior to
         filing any





                                       47
<PAGE>   55

         Form 8-K or Form 10-K pursuant to this Section 7.03, the Indenture
         Trustee shall deliver a copy of such Form 8-K or Form 10-K, as the
         case may be, to the Company;

                      (ii)  file with the Company, the Note Insurer and the
         Commission in accordance with rules and regulations prescribed from
         time to time by the Commission such additional information, documents
         and reports with respect to compliance by the Issuer with the
         conditions and covenants of this Indenture as may be required from
         time to time by such rules and regulations; and

                    (iii)   supply to the Company and the Note Insurer (and the
         Indenture Trustee shall transmit by mail to all Noteholders described
         in TIA Section  313(c)) such summaries of any information, documents
         and reports required to be filed by the Issuer pursuant to clauses (i)
         and (ii) of this Section 7.03(a) and by rules and regulations
         prescribed from time to time by the Commission.  For purposes of
         notice under TIA the parties hereto agree that the Statement to
         Noteholders provided in Section 7.05 hereof shall be deemed notice, as
         applicable.

                 (b)  Unless the Issuer otherwise determines, the fiscal year
of the Issuer shall end on December 31 of each year.

                 (c)  The Company and the Issuer hereby agrees to furnish such
information and otherwise cooperate with the Indenture Trustee as necessary for
the Indenture Trustee to perform its duties as provided in this Section 7.03.

         Section 7.04.    Reports by Indenture Trustee.  If required by TIA
Section  313(a), within 60 days after each January 1 beginning with January 1,
1999, the Indenture Trustee shall mail to each Noteholder as required by TIA
Section  313(c) and to the Note Insurer a brief report dated as of such date
that complies with TIA Section  313(a).  The Indenture Trustee also shall
comply with TIA Section  313(b).

                 A copy of each report at the time of its mailing to
Noteholders shall be filed by the Indenture Trustee with the Commission and
each stock exchange, if any, on which the Notes are listed.  The Issuer shall
notify the Indenture Trustee and the Note Insurer if and when the Notes are
listed on any stock exchange.

         Section 7.05.    Statements to Noteholders. (a) Subject to Section
3.26 of this Indenture, with respect to each Payment Date, the Indenture
Trustee shall deliver to each Certificateholder and Noteholder, the Note
Insurer, the Company, the Owner Trustee, the Certificate Paying Agent and each
Rating Agency, a statement setting forth the following information as to the
Notes, to the extent applicable:

                          (i)  the aggregate amount of collections with respect
to the Mortgage Loans with respect to such Payment Date;

                          (ii)  the Interest Payment Amount, Principal Payment
Amount and Subordination Increase Amount payable to the Noteholders for such
Payment Date;





                                       48
<PAGE>   56
                          (iii)  the amount of the aggregate distribution to
the Noteholders for such Payment Date;

                          (iv)  the Scheduled Payments, if any, paid by the
Note Insurer under the Note Insurance Policy for such Payment Date and the
aggregate Scheduled Payments for all prior Payment Dates paid by the Note
Insurer under the Note Insurance Policy and not yet reimbursed;

                          (v)  the aggregate Principal Balance of the Mortgage
Loans as of the end of the preceding Due Period;

                          (vi)  the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Monthly Payment is delinquent for 30-59
days, 60-89 days and 90 or more days (excluding any Mortgage Loans in
foreclosure or that have become REO Property), respectively, (b) in foreclosure
and (c) that have become REO Property, in each case as of the end of the
preceding Due Period; provided, however, that such information will not be
provided on the statements relating to the first Payment Date;

                          (vii)  the Weighted Average Net Mortgage Rate for the
related Payment Date;

                          (viii)  the Required Subordination Amount,
Subordination Amount, Net Monthly Excess Cashflow and Subordination Reduction
Amount for such Payment Date;

                          (ix)  the amount of any Advances and Compensating
Interest for such Payment Date;

                          (x)  the aggregate Realized Losses with respect to
the related Payment Date and cumulative Realized Losses since the Closing Date;

                          (xi)  the amount of any unpaid accrued interest on
the Notes after such Payment Date;

                          (xii)  the aggregate Note Principal Balance of the
Notes after giving effect to the distribution of principal on such Payment
Date;

                          (xiii) the Note Interest Rate for such Payment Date;

                          (xiv)  the number and aggregate Principal Balance of
first lien Mortgage Loans and the number and aggregate Principal Balance of
second lien Mortgage Loans repurchased pursuant to the Home Equity Loan
Purchase Agreement for the related Payment Date and cumulatively since the
Closing Date;

                          (xv)  the Cumulative Loss Percentage, Delinquency
Percentage, Delinquency Amount and Rolling Delinquency Percentage for such
Payment Date;





                                       49
<PAGE>   57
                          (xvi)  the amount of any Prepayment Interest
Shortfalls or Relief Act Shortfalls for such Payment Date;

                          (xvii)  the aggregate Principal Balance of Mortgage
Loans purchased pursuant to Section 3.18 of the Servicing Agreement for the
related Payment Date and cumulatively since the Closing Date; and

                          (xviii)  the amounts paid, if any, with respect to
the Class A-V Notes pursuant to Section 3.05 (a)(vi) or (vii) for such Payment
Date.

                 Items (iii) and (xii) above shall be presented on the basis of
a Note having a $1,000 denomination.  In addition, by January 31 of each
calendar year following any year during which the Notes are outstanding, the
Indenture Trustee shall furnish a report to each Noteholder of record if so
requested in writing at any time during each calendar year as to the aggregate
of amounts reported pursuant to (iii) and (xii) with respect to the Notes for
such calendar year.

                 The Indenture Trustee in the absence of manifest error may
conclusively rely upon the Determination Date Report provided by the Master
Servicer pursuant to Section 4.01 of the Servicing Agreement in its preparation
of its Statement to the Noteholders pursuant to this Section 7.05.

         Section 7.06.    Books and Records.

                 The Issuer hereby covenants with the Indenture Trustee  that,
so long as any of the Notes remain Outstanding, it shall:

                 (a)  at all times cause to be kept proper books of account and
         allow the Indenture Trustee and any person appointed by it, to whom
         the Issuer shall have no reasonable objection, access to the books of
         account of the Issuer at all reasonable times, on reasonable prior
         notice and during normal business hours;

                 (b)  at all times conduct and continue to conduct business in
         its own corporate name;

                 (c)  at all times act and continue to act through its duly
         authorized officers and agents; and

                 (d)  so far as permitted by law, at all times cause to be
         given to the Indenture Trustee such information as it shall reasonably
         require for the purpose of the discharge of the duties, powers,
         trusts, authorities and discretions vested in it by this Indenture or
         by operation of law.

                                  ARTICLE VIII

                      Accounts, Disbursements and Releases





                                       50
<PAGE>   58
         Section 8.01.    Collection of Money.  Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture.  The
Indenture Trustee shall apply all such money received by it as provided in this
Indenture.  Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any agreement
or instrument that is part of the Trust Estate, the Indenture Trustee may take
such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate Proceedings.  Any such
action shall be without prejudice to any right to claim a Default or Event of
Default under this Indenture and any right to proceed thereafter as provided in
Article V.

         Section 8.02.    Trust Accounts.  (a)  On or prior to the Closing
Date, the Issuer shall cause the Indenture Trustee to establish and maintain,
in the name of the Indenture Trustee, for the benefit of the Noteholders and
the Note Insurer, the Payment Account as provided in Section 3.01 hereof.

                 (b)  All monies deposited from time to time in the Payment
Account (other than  investments made with such monies including all income or
other gain from such investments pursuant to this Indenture) and all deposits
therein pursuant to this Indenture are for the benefit of the Noteholders and
the Note Insurer.

                 On each Payment Date, the Indenture Trustee shall distribute
all amounts on deposit in the Payment Account to Noteholders in respect of the
Notes and to such other persons in the order of priority set forth in Section
3.05 hereof (except as otherwise provided in Section 5.04(b) hereof).

                 The Indenture Trustee may invest any funds in the Payment
Account (other than the proceeds of the Note Insurance Policy) in Eligible
Investments, in its discretion, maturing no later than the Business Day
preceding each Payment Date (provided, however, that with respect to Eligible
Investments that consist of obligations of the Indenture Trustee or its
affiliates, such Eligible Investments may mature on the related Payment Date)
and such Eligible Investments shall not be sold or disposed of prior to their
maturity.  All  income or other gain from such investments may be released from
the Payment Account and paid to the Indenture Trustee from time to time as part
of its compensation for acting as Indenture Trustee and any losses on such
investments shall be deposited by the Indenture Trustee into the Payment
Account no later than the Business Day preceding each Payment Date.

         Section 8.03.    Officer's Certificate.  The Indenture Trustee shall
receive at least seven days' notice when requested by the Issuer to take any
action pursuant to Section 8.05(a) hereof, accompanied by copies of any
instruments to be executed, and the Indenture Trustee shall also require, as a
condition to such action, an Officer's Certificate, in form and substance
reasonably satisfactory to the Indenture Trustee, stating the legal effect of
any such action, outlining the steps





                                       51
<PAGE>   59
required to complete such action, and concluding that all conditions precedent
to the taking of such action have been complied with.

         Section 8.04.    Termination Upon Distribution to Noteholders.  This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, the Note Insurer, the Certificate Paying Agent on behalf of the
Certificateholders and the Indenture Trustee of all amounts required to be
distributed pursuant to Article III and Article V and the termination of the
Escrow Account; provided, however, that in no event shall the trust created
hereby continue beyond the expiration of 21 years from the death of the
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James, living on the date hereof.

         Section 8.05.    Release of Trust Estate.  (a)  Subject to the payment
of its reasonable fees and expenses, the Indenture Trustee may, and when
required by the provisions of this Indenture shall, execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are
not inconsistent with the provisions of this Indenture.

                 (b)  The Indenture Trustee shall, at such time as (i) there
are no Notes Outstanding, (ii) all sums due to the Indenture Trustee pursuant
to this Indenture have been paid, and (iii) all sums due to the Note Insurer
have been paid, release any remaining portion of the Trust Estate that secured
the Notes from the lien of this Indenture.

                 (c)  The Indenture Trustee shall release property from the
lien of this Indenture pursuant to this Section 8.05 only upon receipt of a
request from the Issuer accompanied by an Officers' Certificate and an Opinion
of Counsel stating that all applicable requirements have been satisfied, and a
letter from the Note Insurer stating that the Note Insurer has no objection to
such request from the Issuer.

         Section 8.06.    Surrender of Notes Upon Final Payment.  By acceptance
of any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.

         Section 8.07.    Optional Redemption of the Notes.  (a) The holder of
the majority of the Certificates shall have the option to purchase all of the
Home Equity Loans from the Trust and direct the Issuer to redeem the Notes in
whole, but not in part, on any Payment Date on or after the Payment Date on
which the aggregate Principal Balance of the Home Equity Loans is less than or
equal to 10% of the Original Pool Balance.  The aggregate redemption price for
the Notes will be calculated as pursuant to Section 7.2 of the Home Equity Loan
Purchase Agreement.

                 (b)  In order to exercise the foregoing option, the holder of
the majority of the Certificates shall, not less than 15 days prior to the
proposed Payment Date on which such redemption is to be made, deposit the
aggregate redemption price specified in (a) above with the Indenture Trustee
(and the Indenture Trustee shall deposit such funds in the Payment Account),
and shall provide written notice to the Indenture Trustee, the Note Insurer,
the Issuer and the





                                       52
<PAGE>   60
Owner Trustee of its intention to purchase all of the Home Equity Loans from
the Trust and to direct the Issuer to redeem the Notes.  Following receipt of
the notice from the holder of the majority of the Certificates and the
aggregate redemption amount, pursuant to the foregoing, the Indenture Trustee
shall release to the holder of the majority of the Certificates the Mortgage
Files pertaining to the Home Equity Loans being purchased and provide notice to
the Noteholders of the final payment on the Notes and shall apply such funds to
make final payments of principal and interest on the Notes in accordance with
Section 3.05(a) hereof, and this Indenture shall be discharged, subject to the
provisions of Section 4.10 hereof.  If for any reason the amount deposited by
the holder of the majority of the Certificates is not sufficient to make such
redemption or such redemption cannot be completed for any reason, the amount so
deposited with the Indenture Trustee shall be immediately returned to the
holder of the majority of the Certificates in full and shall not be used for
any other purpose or be deemed to be part of the Trust Estate.


                                   ARTICLE IX

                            Supplemental Indentures

         Section 9.01.    Supplemental Indentures Without Consent of
Noteholders.  (a)  Without the consent of the Holders of any Notes but with the
prior written consent of the Note Insurer and the Seller and prior notice to
the Rating Agencies, the Issuer and the Indenture Trustee, when authorized by
an Issuer Request, at any time and from time to time, may enter into one or
more indentures supplemental hereto (which shall conform to the provisions of
the TIA as in force at the date of the execution thereof), in form reasonably
satisfactory to the Indenture Trustee, for any of the following purposes:

                      (i)   to correct or amplify the description of any
         property at any time subject to the lien of this Indenture, or better
         to assure, convey and confirm unto the Indenture Trustee any property
         subject or required to be subjected to the lien of this Indenture, or
         to subject to the lien of this Indenture additional property;

                      (ii)  to evidence the succession, in compliance with the
         applicable provisions hereof, of another person to the Issuer, and the
         assumption by any such successor of the covenants of the Issuer herein
         and in the Notes contained;

                    (iii)   to add to the covenants of the Issuer, for the
         benefit of the Holders of the Notes, or to surrender any right or
         power herein conferred upon the Issuer;

                      (iv)  to convey, transfer, assign, mortgage or pledge any
         property to or with the Indenture Trustee;

                      (v)   to cure any ambiguity or to correct or supplement
         any provision herein or in any supplemental indenture that may be
         inconsistent with any other provision herein or in any supplemental
         indenture;





                                       53
<PAGE>   61
                      (vi)  to make any other provisions with respect to
         matters or questions arising under this Indenture or in any
         supplemental indenture; provided, that such action shall not
         materially and adversely affect the interests of the Holders of the
         Notes;


                    (vii)   to evidence and provide for the acceptance of the
         appointment hereunder by a successor Indenture Trustee with respect to
         the Notes and to add to or change any of the provisions of this
         Indenture as shall be necessary to facilitate the administration of
         the trusts hereunder by more than one trustee, pursuant to the
         requirements of Article VI hereof; or

                   (viii)   to modify, eliminate or add to the provisions of
         this Indenture to such extent as shall be necessary to effect the
         qualification of this Indenture under the TIA or under any similar
         federal statute hereafter enacted and to add to this Indenture such
         other provisions as may be expressly required by the TIA;

provided, however, that no such supplemental indenture shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such supplemental indenture  will not (A) result in a
"substantial modification" of the Notes under Treasury Regulation Section
1.1001.3 or adversely affect the status of the Notes as indebtedness for
federal income tax purposes or (B) cause the Trust to be subject to an entity
level tax.

                 The Indenture Trustee is hereby authorized to join in the
execution of any such supplemental indenture and to make any further
appropriate agreements and stipulations that may be therein contained.

                 (b)  The Issuer and the Indenture Trustee, when authorized by
an Issuer Request, may, also without the consent of any of the Holders of the
Notes but with the prior written consent of the Note Insurer and prior notice
to the Rating Agencies, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner
or eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel (or,
in the alternative, with respect to  clause (i), as evidenced by a rating
letter confirming the existing ratings on the Notes (without taking into
account the Note Insurer Policy)) (i) adversely affect in any material respect
the interests of any Noteholder or (ii) if 100% of the Certificates are not
owned by PacificAmerica Money Center, Inc. or if the Note Insurance Policy is
outstanding, cause the Issuer to be subject to an entity level tax for federal
income tax purposes.

         Section 9.02.    Supplemental Indentures With Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Request,
also may, with prior notice to the Rating Agencies and with the prior written
consent of the Note Insurer and the Seller and the consent of the Holders of
not less than a majority of the Note Principal Balances of the Notes affected
thereby, by Act (as defined in Section 10.03 hereof) of such Holders delivered
to the Issuer and the Indenture Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the





                                       54
<PAGE>   62
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:

                      (i)   change the date of payment of any installment of
         principal of or interest on any Note, or reduce the principal amount
         thereof or the interest rate thereon, change the provisions of this
         Indenture relating to the application of collections on, or the
         proceeds of the sale of, the Trust Estate to payment of principal of
         or interest on the Notes, or change any place of payment where, or the
         coin or currency in which, any Note or the interest thereon is
         payable, or impair the right to institute suit for the enforcement of
         the provisions of this Indenture requiring the application of funds
         available therefor, as provided in Article V, to the payment of any
         such amount due on the Notes on or after the respective due dates
         thereof;

                      (ii)  reduce the percentage of the Note Principal
         Balances of the Notes, the consent of the Holders of which is required
         for any such supplemental indenture, or the consent of the Holders of
         which is required for any waiver of compliance with certain provisions
         of this Indenture or certain defaults hereunder and their consequences
         provided for in this Indenture;

                    (iii)   modify or alter the provisions of the proviso to
         the definition of the term "Outstanding" or modify or alter the
         exception in the definition of the term "Noteholder";

                      (iv)  reduce the percentage of the Note Principal
         Balances of the Notes required to direct the Indenture Trustee to
         direct the Issuer to sell or liquidate the Trust Estate pursuant to
         Section 5.04 hereof;

                      (v)   modify any provision of this Section 9.02 except to
         increase any percentage specified herein or to provide that certain
         additional provisions of this Indenture or the Basic Documents cannot
         be modified or waived without the consent of the Holder of each Note
         affected thereby;

                      (vi)  modify any of the provisions of this Indenture in
         such manner as to affect the calculation of the amount of any payment
         of interest or principal due on any Note on any Payment Date
         (including the calculation of any of the individual components of such
         calculation); or

                    (vii)   permit the creation of any lien ranking prior to or
         on a parity with the lien of this Indenture with respect to any part
         of the Trust Estate or, except as otherwise permitted or contemplated
         herein, terminate the lien of this Indenture on any property at any
         time subject hereto or deprive the Holder of any Note of the security
         provided by the lien of this Indenture; and provided, further, that
         such action shall not, as evidenced by an Opinion of Counsel, cause
         the Issuer to be subject to an entity level tax.





                                       55
<PAGE>   63
                 The Indenture Trustee may, with the consent of the Note
Insurer, so long as no Note Insurer Default exists, in its discretion determine
whether or not any Notes would be affected by any supplemental indenture and
any such determination shall be conclusive upon the Holders of all Notes,
whether theretofore or thereafter authenticated and delivered hereunder.  The
Indenture Trustee shall not be liable for any such determination made in good
faith.

                 It shall not be necessary for any Act of Noteholders under
this Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

                 Promptly after the execution by the Issuer and the Indenture
Trustee of any supplemental indenture pursuant to this Section 9.02, the
Indenture Trustee shall mail to the Holders of the Notes to which such
amendment or supplemental indenture relates a notice setting forth in general
terms the substance of such supplemental indenture.  Any failure of the
Indenture Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.

         Section 9.03.    Execution of Supplemental Indentures.  In executing,
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture.  The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.

         Section 9.04.    Effect of Supplemental Indenture.  Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the
Notes shall thereafter be determined, exercised and enforced hereunder subject
in all respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be part
of the terms and conditions of this Indenture for any and all purposes.

         Section 9.05.    Conformity with Trust Indenture Act.  Every amendment
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.

         Section 9.06.    Reference in Notes to Supplemental Indentures.  Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee
shall, bear a notation in form approved by the Indenture Trustee as to any
matter provided for in such supplemental indenture.  If the Issuer or the
Indenture Trustee shall so determine, new Notes so modified as to conform, in
the opinion of the





                                       56
<PAGE>   64
Indenture Trustee and the Issuer, to any such supplemental indenture may be
prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.









                                       57
<PAGE>   65
                                   ARTICLE X

                                 Miscellaneous

         Section 10.01.   Compliance Certificates and Opinions, etc.   (a)
Upon any application or request by the Issuer to the Indenture Trustee to take
any action under any provision of this Indenture, the Issuer shall furnish to
the Indenture Trustee and to the Note Insurer (i) an Officer's Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and (ii) an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that, in the case of any
such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.

                 Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

                          (1)   a statement that each signatory of such
         certificate or opinion has read or has caused to be read such covenant
         or condition and the definitions herein relating thereto;

                          (2)   a brief statement as to the nature and scope of
         the examination or investigation upon which the statements or opinions
         contained in such certificate or opinion are based;

                          (3)   a statement that, in the opinion of each such
         signatory, such signatory has made such examination or investigation
         as is necessary to enable such signatory to express an informed
         opinion as to whether or not such covenant or condition has been
         complied with;

                          (4)   a statement as to whether, in the opinion of
         each such signatory, such condition or covenant has been complied
         with; and

                          (5)   if the signatory of such certificate or opinion
         is required to be Independent, the statement required by the
         definition of the term "Independent".

                          (b)  (i) Except with respect to the substitution of
Mortgage Loans pursuant to Section 2.2 of the Home Equity Loan Purchase
Agreement or the addition of Subsequent Mortgage Loans pursuant to Section 2.3
thereof, prior to the deposit of any Collateral or other property or securities
with the Indenture Trustee that is to be made the basis for the release of any
property or securities subject to the lien of this Indenture, the Issuer shall,
in addition to any obligation imposed in Section 10.01(a) or elsewhere in this
Indenture, furnish to the Indenture Trustee and the Note Insurer an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer





                                       58
<PAGE>   66
of the Collateral or other property or securities to be so deposited and a
report from a nationally recognized accounting firm verifying such value.

                         (ii)  Whenever the Issuer is required to furnish to
the Indenture Trustee and the Note Insurer an Officer's Certificate certifying
or stating the opinion of any signer thereof as to the matters described in
clause (i) above, the Issuer shall also deliver to the Indenture Trustee and
the Note Insurer an Independent Certificate from a nationally recognized
accounting firm as to the same matters, if the fair value to the Issuer of the
securities to be so deposited and of all other such securities made the basis
of any such withdrawal or release since the commencement of the then-current
fiscal year of the Issuer, as set forth in the certificates delivered pursuant
to clause (i) above and this clause (ii), is 10% or more of the Note Principal
Balances of the Notes, but such a certificate need not be furnished with
respect to any securities so deposited, if the fair value thereof to the Issuer
as set forth in the related Officer's Certificate is less than $25,000 or less
than one percent of the Note Principal Balances of the Notes.

                        (iii)  Except with respect to the substitution of
Mortgage Loans pursuant to Section 2.2 of the Home Equity Loan Purchase
Agreement or the addition of Subsequent Mortgage Loans pursuant to Section 2.3
thereof, whenever any property or securities are to be released from the lien
of this Indenture, the Issuer shall also furnish to the Indenture Trustee and
the Note Insurer an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.

                         (iv)  Whenever the Issuer is required to furnish to
the Indenture Trustee and the Note Insurer an Officer's Certificate certifying
or stating the opinion of any signer thereof as to the matters described in
clause (iii) above, the Issuer shall also furnish to the Indenture Trustee and
the Note Insurer an Independent Certificate as to the same matters if the fair
value of the property or securities and of all other property, other than
securities released from the lien of this Indenture since the commencement of
the then-current calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals 10% or more of the Note
Principal Balances of the Notes, but such certificate need not be furnished in
the case of any release of property or securities if the fair value thereof as
set forth in the related Officer's Certificate is less than $25,000 or less
than one percent of the then Note Principal Balances of the Notes.

         Section 10.02.   Form of Documents Delivered to Indenture Trustee.  In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.

                 Any certificate or opinion of an Authorized Officer of the
Issuer may be based, insofar as it relates to legal matters, upon a certificate
or opinion of, or representations by,





                                       59
<PAGE>   67
counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous.  Any
such certificate of an Authorized Officer or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Seller or the Issuer, stating
that the information with respect to such factual matters is in the possession
of the Seller or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.

                 Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.

                 Whenever in this Indenture, in connection with any application
or certificate or report to the Indenture Trustee, it is provided that the
Issuer shall deliver any document as a condition of the granting of such
application, or as evidence of the Issuer's compliance with any term hereof, it
is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case
be conditions precedent to the right of the Issuer to have such application
granted or to the sufficiency of such certificate or report.  The foregoing
shall not, however, be construed to affect the Indenture Trustee's right to
rely upon the truth and accuracy of any statement or opinion contained in any
such document as provided in Article VI.

         Section 10.03.   Acts of Noteholders.  (a)  Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer.  Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument
or instruments.  Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 10.03.

                 (b)  The fact and date of the execution by any person of any
such instrument or writing may be proved in any manner that the Indenture
Trustee deems sufficient.

                 (c)  The ownership of Notes shall be proved by the Note
Registrar.

                 (d)  Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Notes shall bind the
Holder of every Note issued upon the registration thereof or in exchange
therefor or in lieu thereof, in respect of anything done, omitted or suffered





                                       60
<PAGE>   68
to be done by the Indenture Trustee or the Issuer in reliance thereon, whether
or not notation of such action is made upon such Note.

         Section 10.04.   Notices, etc., to Indenture Trustee, Issuer, Note
Insurer and Rating Agencies.  Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or Act of Noteholders is to
be made upon, given or furnished to or filed with:

                      (i)   the Indenture Trustee by any Noteholder or by the
         Issuer or the Note Insurer shall be sufficient for every purpose
         hereunder if made, given, furnished or filed in writing to or with the
         Indenture Trustee at the Corporate Trust Office of the Indenture
         Trustee.  The Indenture Trustee shall promptly transmit any notice
         received by it from the Noteholders to the Issuer and the Note
         Insurer; or

                      (ii)  the Issuer by the Indenture Trustee or by any
         Noteholder or the Note Insurer shall be sufficient for every purpose
         hereunder if in writing and mailed first-class, postage prepaid, to
         the Issuer addressed to: PacificAmerica Home Equity Loan Trust Series
         1998-2F, in care of Wilmington Trust Company, Rodney Square North,
         1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
         Corporate Trust Administration (telecopy number (302) 651-1576), or at
         any other address previously furnished in writing to the Indenture
         Trustee by the Issuer.  The Issuer shall promptly transmit any notice
         received by it from the Noteholders to the Indenture Trustee and the
         Note Insurer; or

                    (iii)   the Company by the Indenture Trustee or by any
         Noteholder or the Note Insurer shall be sufficient for every purpose
         hereunder if in writing and mailed first-class, postage prepaid, to
         the Company addressed to: Merrill Lynch Mortgage Investors, Inc., 250
         Vesey Street, World Financial Center/North Tower, 23rd Floor, New
         York, New York 10281, Attention: Legal Department, Michael McGovern
         (telecopy number (212) 449-5559), or at any other address previously
         furnished in writing to the Indenture Trustee by the Company.  The
         Company shall promptly transmit any notice received by it from the
         Noteholders to the Indenture Trustee and the Note Insurer; or

                      (iv)  the Seller by the Indenture Trustee or by any
         Noteholder or the Note Insurer shall be sufficient for every purpose
         hereunder if in writing and mailed first-class, postage prepaid, to
         the Issuer addressed to: PacificAmerica Money Center, Inc., 21031
         Ventura Boulevard, Woodland Hills, California 91364-2210, Attention:
         Chief Financial Officer (telecopy number (818) 598-8298), or at any
         other address previously furnished in writing to the Indenture Trustee
         by the Seller.  The Seller shall promptly transmit any notice received
         by it from the Noteholders to the Indenture Trustee and the Note
         Insurer; or

                      (v)   the Note Insurer by the Issuer, the Indenture
         Trustee or by any Noteholders shall be sufficient for every purpose
         hereunder if in writing and mailed, first-





                                       61
<PAGE>   69
         class, postage pre-paid, or personally delivered or telecopied to:
         Financial Security Assurance Inc., 350 Park Avenue, New York, NY
         10022, Attention: Surveillance Department, Re: Pacific America Home
         Equity Loan Asset-Backed Notes Series 1998-2F, Class A-F (telecopy
         number (212) 339-3518).  In each case in which a notice or other
         communication to the Note Insurer refers to a Servicing Default or a
         claim under the Policy or with respect to which failure on the part of
         the Note Insurer to respond shall be deemed to constitute consent or
         acceptance, then a copy of such notice or other communication shall
         also be sent to the attention of the General Counsel and the
         Head-Financial Guaranty Group and shall be marked to indicate "URGENT
         MATERIAL ENCLOSED."

                 Notices required to be given to the Rating Agencies by the
Issuer, the Indenture Trustee or the Owner Trustee shall be in writing,
personally delivered or mailed first-class postage pre-paid, to (i) in the case
of Moody's, at the following address:  Moody's Investors Service, Inc.,
Residential Mortgage Monitoring Department, 99 Church Street, New York, New
York 10007 and (ii) in the case of Standard & Poor's, at the following address:
Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York, New York
10004, Attention of Asset Backed Surveillance Department; or as to each of the
foregoing, at such other address as shall be designated by written notice to
the other parties.

         Section 10.05.   Notices to Noteholders; Waiver.  Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed first-class, postage prepaid, to each Noteholder affected by such
event, at such Person's address as it appears on the Note Register, not later
than the latest date, and not earlier than the earliest date, prescribed for
the giving of such notice.  In any case where notice to Noteholders is given by
mail, neither the failure to mail such notice nor any defect in any notice so
mailed to any particular Noteholder shall affect the sufficiency of such
notice with respect to other Noteholders, and any notice that is mailed in the
manner herein provided shall conclusively be presumed to have been duly given
regardless of whether such notice is in fact actually received.

                 Where this Indenture provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice.  Waivers of notice by Noteholders shall be filed with the
Indenture Trustee but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such a waiver.

                 In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Indenture Trustee
shall be deemed to be a sufficient giving of such notice.





                                       62
<PAGE>   70
                 Where this Indenture provides for notice  to the Rating
Agencies, failure to give such notice  shall not affect any other rights or
obligations created hereunder, and shall not under any circumstance constitute
an Event of Default.

         Section 10.06.   Conflict with Trust Indenture Act.  If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.

                 The provisions of TIA Sections 310 through 317 that
impose duties on any Person (including the provisions automatically deemed
included herein unless expressly excluded by this Indenture) are a part of and
govern this Indenture, whether or not physically contained herein.

         Section 10.07.   Effect of Headings.  The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.

         Section 10.08.   Successors and Assigns.  All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not.  All agreements of the Indenture Trustee
in this Indenture shall bind its successors, co-trustees and agents.

         Section 10.09.   Separability.  In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

         Section 10.10.   Benefits of Indenture.  The Note Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture.  To the extent that this Indenture confers upon or gives or
grants to the Note Insurer any right, remedy or claim under or by reason of
this Indenture, the Note Insurer may enforce any such right, remedy or claim
conferred, given or granted hereunder.  Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders and the Note
Insurer, any benefit or any legal or equitable right, remedy or claim under
this Indenture.

         Section 10.11.   Legal Holidays.  In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.

         Section 10.12.   GOVERNING LAW.  THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.





                                       63
<PAGE>   71
         Section 10.13.   Counterparts.  This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

         Section 10.14.   Recording of Indenture.  If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer at its expense accompanied by an Opinion of Counsel
at its expense (which may be counsel to the Indenture Trustee or any other
counsel reasonably acceptable to the Indenture Trustee) to the effect that such
recording is necessary either for the protection of the Noteholders or any
other Person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.

         Section 10.15.   Issuer Obligation.  No recourse may be taken,
directly or indirectly, with respect to the obligations of the Issuer, the
Owner Trustee or the Indenture Trustee on the Notes or under this Indenture or
any certificate or other writing delivered in connection herewith or therewith,
against (i) the Indenture Trustee or the Owner Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of the
Indenture Trustee or the Owner Trustee in its individual capacity, any holder
of a beneficial interest in the Issuer, the Owner Trustee or the Indenture
Trustee or of any successor or assign of the Indenture Trustee or the Owner
Trustee in its individual capacity, except as any such Person may have
expressly agreed (it being understood that the Indenture Trustee and the Owner
Trustee have no such obligations in their individual capacity) and except that
any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity.  For all purposes of this Indenture, in the performance of any duties
or obligations of the Issuer hereunder, the Owner Trustee shall be subject to,
and entitled to the benefits of, the terms and provisions of Article VI, VII
and VIII of the Trust Agreement.

         Section 10.16.   No Petition.  The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Company or the
Issuer, or join in any institution against the Company or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents. This Section 10.16 will survive for
one year and one day following the termination of this Indenture.

         Section 10.17.   Inspection.  The Issuer agrees that, on reasonable
prior notice, it shall permit any representative of the Indenture Trustee and
the Note Insurer, during the Issuer's normal business hours, to examine all the
books of account, records, reports and other papers of the Issuer, to make
copies and extracts therefrom, to cause such books to be audited by





                                       64
<PAGE>   72
Independent certified public accountants, and to discuss the Issuer's affairs,
finances and accounts with the Issuer's officers, employees, and Independent
certified public accountants, all at such reasonable times and as often as may
be reasonably requested.  The Indenture Trustee and the Note Insurer shall
cause their representatives to hold in confidence all such information except
to the extent disclosure may be required by law (and all reasonable
applications for confidential treatment are unavailing) and except to the
extent that the Indenture Trustee may reasonably determine that such disclosure
is necessary to perform its obligations hereunder.



                                  ARTICLE  XI

                   Certain Matters Regarding the Note Insurer

         Section 11.01.   Certain Rights of the Note Insurer.  By accepting its
Note, each Noteholder agrees that unless a Note Insurer Default exists, the
Note Insurer shall have the following rights, without any consent of the
Noteholders:

                 (a)  the right to direct foreclosure upon Mortgage Loans upon
failure of the Master Servicer to do so for any reason;

                 (b)  the right to require Pacific or the Seller to repurchase
or substitute for, or to require the Master Servicer to purchase, Mortgage
Loans;

                 (c)  the right to give notice of breach or to terminate the
rights and obligations of the Master Servicer;

                 (d)  the right to direct the actions of the Indenture Trustee
during the continuance of a Servicing Default.

                 In addition, each Noteholder agrees that, unless a Note
Insurer Default exists, the right to remove the Indenture Trustee may be
exercised by the Majority Noteholders only with the prior written consent of
the Note Insurer.

         Section 11.02.   Indenture Trustee To Act Solely with Consent of the
Note Insurer.

                 (a) Unless a Note Insurer Default exists, the Indenture
Trustee shall not;

                          (i)  terminate the rights and obligations of the
Master Servicer or consent to the resignation of the Master Servicer;

                          (ii)  terminate any Sub-Servicing Agreements; or

                          (iii)  assume any Sub-Servicing Agreements;





                                       65
<PAGE>   73
without the prior written consent of the Note Insurer.

                 (b)  Notwithstanding anything herein to the contrary, after
the occurrence of a Servicing Default and until such time as all Servicing
Defaults have been cured, no provision of this Agreement shall require the
Indenture Trustee to take any action or omit to take any action at the request
of the Note Insurer or any Noteholder to the extent the Indenture Trustee
believes in good faith such action or omission would cause the Indenture
Trustee to violate any law or regulation applicable to it or to breach their
respective obligations owed by it to the Noteholders and to the Note Insurer,
pursuant to their Agreement or otherwise.

         Section 11.03.   Trust Estate and Accounts Held for Benefit of the
Note Insurer and the Noteholders.  The Indenture Trustee shall hold the Trust
Estate and the Mortgage Files, and shall maintain the Accounts, for the benefit
of the Noteholders and the Note Insurer and all references in this Agreement
and in the Notes to the benefit of Noteholders shall be deemed to include the
Note Insurer.  The Indenture Trustee shall cooperate in all reasonable respects
with any reasonable requests by the Note Insurer or the Noteholders (when other
than the Seller, the Master Servicer or any affiliate thereof), for action to
preserve or enforce the respective rights and interests of the Note Insurer or
the Noteholders (when other than the Seller, the Master Servicer or any
affiliate thereof) under this Agreement and the Notes.

                 The Master Servicer hereby acknowledges and agrees that it
shall service and administer, or cause a Sub-Servicer to service and
administer, the Mortgage Loans and any REO Properties for the benefit of the
Noteholders and for the benefit of the Note Insurer, and all references in this
Agreement to the benefit of or actions on behalf of the Noteholders shall be
deemed to include the Note Insurer. Unless a Note Insurer Default exists, the
Master Servicer shall not terminate any Sub-Servicing Agreements or undertake
any litigation with respect to the transactions contemplated by the Basic
Documents pursuant to Section 3.02(b) of the Servicing Agreement without the
prior written consent of the Note Insurer.  Unless a Note Insurer Default
exists, the Indenture Trustee shall not undertake any litigation pursuant to
Section 5.03 (other than litigation to enforce their respective rights
hereunder) without the prior written consent of the Note Insurer.

         Section 11.04.   Effect of Payments by the Note Insurer; Subrogation.
Anything herein to the contrary notwithstanding, any payment with respect to
principal of or interest on the Notes which is made with moneys received
pursuant to the terms of the Policy shall not be considered payment of the
Notes from the Trust Estate.  The Indenture Trustee agrees, that without the
need for any further action on the part of the Note Insurer, the Seller, the
Master Servicer or the Indenture Trustee, to the extent the Note Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Notes to the Noteholders, the Note Insurer will be fully subrogated to the
rights of such Noteholders to receive such principal and/or interest from the
Trust Estate.  The Issuer shall not be discharged from its obligations
hereunder upon payment of principal of any interest on the Notes by the Note
Insurer under the Policy.

                 The Indenture Trustee shall reasonably cooperate in all
respects with any reasonable request by the Note Insurer or the Noteholders
(when other than the Seller, the Master Servicer





                                       66
<PAGE>   74
or any affiliate thereof) for action to preserve or enforce the respective
rights or interests of the Note Insurer or the Noteholders under this Agreement
without limiting the rights or affecting the interest of the Noteholders as
otherwise set forth herein.

         Section 11.05.   Insolvency Proceedings.  The Indenture Trustee shall
promptly notify the Note Insurer of either of the following as to which it has
actual knowledge: (i) the commencement of any proceeding by or against the
Issuer commenced under the United States Bankruptcy Code or any other
applicable bankruptcy, insolvency, receivership, rehabilitation or similar law
(an "Insolvency Proceeding") and (ii) the making of any claim in connection
with any Insolvency Proceeding seeking the avoidance as a preferential transfer
(a "Preference Claim") of any payment of principal of, or interest on, the
Notes.  Each Noteholder, by its purchase of Notes, and the Indenture Trustee
hereby agree that the Note Insurer may at any time during the continuation of
an Insolvency Proceeding direct all matters relating to such Insolvency
Proceeding, including, without limitation, (i) all matters relating to any
Preference Claim, (ii) the direction of any appeal of any order relating to any
Preference Claim at the expense of the Note Insurer but subject to
reimbursement as provided in the Insurance Agreement and (iii) the posting of
any surety, supersedeas or performance bond pending any such appeal.  In
addition, and without limitation of the foregoing, as set forth in Section
11.04, the Note Insurer shall be subrogated to, and each Noteholder and the
Indenture Trustee hereby delegate and assign, to the fullest extent permitted
by law the rights of the Indenture Trustee and each Noteholder in the conduct
of any Insolvency Proceeding, including, without limitation, all rights of any
party to an adversary proceeding action with respect to any court order issued
in connection with any such Insolvency Proceeding.

         Section 11.06.   Notices to the Note Insurer.  All notices,
statements, reports, certificates or opinions required by this Agreement to be
sent to any other party hereto or to the Noteholders and, if not otherwise
required to be sent to the Note Insurer, shall also be sent to the Note
Insurer.





                                       67
<PAGE>   75
         IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.

                        PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F,
                        as Issuer

                        By: WILMINGTON TRUST COMPANY, not in its individual
                        capacity but solely as Owner Trustee



                        By:
                           ----------------------------------------------------
                           Name:
                           Title:


                        BANKERS TRUST COMPANY OF CALIFORNIA, N.A., not in its
                        individual capacity but solely as Indenture Trustee and
                        as Note Registrar


                        By:
                           ----------------------------------------------------
                           Name:
                           Title:




BANKERS TRUST COMPANY OF CALIFORNIA, N.A.

hereby accepts the appointment as Certificate
Paying Agent pursuant to Section 3.10 of the
Trust Agreement and as Certificate Registrar
pursuant to Section 4.02 hereof.


By:
   ----------------------------------------------------
   Name:
   Title:





                                       68
<PAGE>   76
STATE OF DELAWARE)
                    ) ss.:
COUNTY OF NEW CASTLE)

         On this __ day of June , before me personally appeared
__________________________, to me known, who being by me duly sworn, did depose
and say, that [s]he is the ____________________________ of the Owner Trustee,
one of the corporations described in and which executed the above instrument;
that [s]he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation; and that [s]he signed his name thereto by
like order.



                                  Notary Public


[NOTARIAL SEAL]





                                       69
<PAGE>   77
STATE OF     NEW YORK     )
                          ) ss.:
COUNTY OF   NEW YORK      )

         On this __day of June , before me personally appeared  Melanie Anbarci,
to me known, who being by me duly sworn, did depose and say, that [s]he is the
Assistant Secretary of Bankers Trust Company of California, N.A., as Indenture
Trustee, a national banking association, which executed the above instrument;
that [s]he knows the seal of said national banking association; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said national banking association; and that
[s]he signed his/her name thereto by like order.


                                  Notary Public


[NOTARIAL SEAL]





                                       70
<PAGE>   78
                                   EXHIBIT A

                                 FORM OF NOTES



UNLESS THIS NOTE 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 NOTE 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.

THIS NOTE IS A NON-RECOURSE OBLIGATION OF THE ISSUER, AND IS LIMITED IN RIGHT
OF PAYMENT TO AMOUNTS AVAILABLE FROM THE TRUST ESTATE AND THE NOTE INSURANCE
POLICY AS PROVIDED IN THE INDENTURE REFERRED TO BELOW.  THE ISSUER IS NOT
OTHERWISE PERSONALLY LIABLE FOR PAYMENTS ON THIS NOTE.

PRINCIPAL OF THIS NOTE IS PAYABLE OVER TIME AS SET FORTH HEREIN.  ACCORDINGLY,
THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.




              PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F
              PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED NOTES,
                                 SERIES 1998-2F


AGGREGATE NOTE PRINCIPAL
BALANCE: $____________

INITIAL NOTE PRINCIPAL
BALANCE OF THIS NOTE:  $_____________                  CUSIP NO.




                                 NOTE NUMBER:   1





                                       71
<PAGE>   79

         PacificAmerica Home Equity Loan Trust Series 1998-2F (the "Issuer"), a
Delaware business trust, for value received, hereby promises to pay to
__________ or registered assigns, the principal sum of
______________________________________ ($___________) in monthly installments
on the twenty-fifth day of each month or, if such day is not a Business Day,
the next succeeding Business Day (each a "Payment Date"), commencing in July
1998 and ending on or before the Payment Date occurring in June 2028 (the
"Stated Maturity") and to pay interest on the Note Principal Balance of this
Note outstanding from time to time as provided below.

         This Note is one of a duly authorized issue of PacificAmerica Home
Equity Loan Asset-Backed Notes, Series 1998-2F, (the "Notes"), issued under an
Indenture, dated as of June 1, 1998 (the "Indenture"), between the Issuer and
Bankers Trust Company of California, N.A., as indenture trustee (the "Indenture
Trustee", which term includes any successor Indenture Trustee under the
Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights thereunder of
the Issuer, the Indenture Trustee, and the Holders of the Notes and the terms
upon which the Notes are to be authenticated and delivered.  All terms used in
this Note which are defined in the Indenture shall have the meanings assigned
to them in the Indenture.

         Payments of principal and interest on the Notes will be made on each
Payment Date to Noteholders of record as of the related Record Date.  On each
Payment Date, Noteholders will be entitled to receive interest payments in an
aggregate amount equal to the Interest Payment Amount for such Payment Date,
together with principal payments in an aggregate amount equal to the Principal
Payment Amount plus the Subordination Increase Amount, if any, for such Payment
Date.  The "Note Principal Balance" of a Note as of any date of determination
is equal to the initial principal balance thereof as of the Closing Date,
reduced by the aggregate of all amounts previously paid with respect to such
Note on account of principal.

         The principal of, and interest on, this Note are due and payable as
described in the Indenture, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts.  All payments made by the Issuer with respect to this Note shall
be equal to this Note's pro rata share of the aggregate payments on all Notes
as described above, and shall be applied as between interest and principal as
provided in the Indenture.

         Financial Security Assurance Inc.  (the "Note Insurer"), in
consideration of the payment of the premium and subject to the terms of the
financial guaranty insurance policy (the "Note Insurance Policy") issued
thereby, has unconditionally and irrevocably guaranteed the payment of the
Scheduled Payment.  The Note Insurance Policy will not cover any Prepayment
Interest Shortfalls or Relief Act Shortfalls.

         All principal and interest accrued on the Notes, if not previously
paid, will become finally due and payable at the Final Scheduled Payment Date.

         The Notes are subject to redemption in whole, but not in part, by the
Seller on any Payment Date on or after the Payment Date on which the aggregate
Principal Balance of the Mortgage Loans is less than or equal to 10% of the
Original Pool Balance.





                                      -72-
<PAGE>   80
         The Issuer shall not be liable upon the indebtedness evidenced by the
Notes except to the extent of amounts available from the Trust Estate which
constitutes security for the payment of the Notes.  The assets included in the
Trust Estate and payments under the Note Insurance Policy will be the sole
source of payments on the Notes, and each Holder hereof, by its acceptance of
this Note, agrees that (i) such Note will be limited in right of payment to
amounts available from the Trust Estate and the Note Insurance Policy as
provided in the Indenture and (ii) such Holder shall have no recourse to the
Issuer, the Owner Trustee, the Indenture Trustee, the Company, the Master
Servicer or any of their respective affiliates, or to the assets of any of the
foregoing entities, except the assets of the Issuer pledged to secure the Notes
pursuant to the Indenture.

         Any payment of principal or interest payable on this Note which is
punctually paid on the applicable Payment Date shall be paid to the Person in
whose name such Note (or one or more predecessor Notes) is registered at the
close of business on the Record Date for such Payment Date by check mailed to
such person's address as it appears in the Note Register on such Record Date,
except for the final installment of principal and interest payable with respect
to such Note, which shall be payable as provided below.  Notwithstanding the
foregoing, upon written request with appropriate instructions by the Holder of
this Note (holding an aggregate initial Note Principal Balance of at least
$5,000,000), any payment of principal or interest, other than the final
installment of principal or interest, shall be made by wire transfer to an
account in the United States designated by such Holder reasonably satisfactory
to the Indenture Trustee.  All reductions in the principal amount of a Note (or
one or more predecessor Notes) effected by payments of principal made on any
Payment Date shall be binding upon all Holders of this Note and of any bond
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, whether or not such payment is noted on such Note.  The final
payment of this Note shall be payable upon presentation and surrender thereof
on or after the Payment Date thereof at the Corporate Trust Office or the
office or agency of the Issuer maintained by it for such purpose pursuant to
Section 3.02 of the Indenture.

         Subject to the foregoing provisions, each Note delivered under the
Indenture, upon registration of transfer of or in exchange for or in lieu of
any other Note, shall carry the rights to unpaid principal and interest that
were carried by such other Note.

         If an Event of Default as defined in the Indenture shall occur and be
continuing with respect to the Notes, the Notes may become or be declared to be
due and payable in the manner and with the effect provided in the Indenture.
If any such acceleration of maturity occurs prior to the payment of the entire
unpaid Note Principal Balance of the Notes, the amount payable to the Holder of
this Note will be equal to the sum of the unpaid Note Principal Balance of the
Notes, together with accrued and unpaid interest thereon as described in the
Indenture.  The Indenture provides that, notwithstanding the acceleration of
the maturity of the Notes, under certain circumstances specified therein, all
amounts collected as proceeds of the Trust Estate securing the Notes or
otherwise shall continue to be applied to payments of principal of and interest
on the Notes as if they had not been declared due and payable.

         The failure to pay any Subordination Increase Amount, any Prepayment
Interest Shortfall, to the extent not covered by Compensating Interest payments
by the Master Servicer or any Relief


                                      -73-
<PAGE>   81
Act Shortfalls at any time when funds are not available to make such payment as
provided in the Indenture shall not constitute an Event of Default under the
Indenture.

         Pursuant to the Indenture, unless a Note Insurer Default  exists (i)
the Note Insurer shall be deemed to be the holder of the Notes for certain
purposes specified in the Indenture (other than with respect to payment on the
Notes), and will be entitled to exercise all rights of the Noteholders
thereunder, including the rights of Noteholders relating to the occurrence of,
and the remedies with respect to, an Event of Default, without the consent of
such Noteholders, and (ii) the Indenture Trustee may take actions which would
otherwise be at its option or within its discretion, including actions relating
to the occurrence of, and the remedies with respect to, an Event of Default,
only at the direction of the Note Insurer.

         As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note may be registered on the Note
Register of the Issuer.  Upon surrender for registration of transfer of, or
presentation of a written instrument of transfer for, this Note at the
Corporate Trust Office, accompanied by proper instruments of assignment in form
satisfactory to the Indenture Trustee, one or more new Notes of any authorized
denominations and of a like aggregate initial Note Principal Balance will be
issued to the designated transferee or transferees.

         Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note is registered as
the owner of such Note (i) on the applicable Record Date for the purpose of
making payments and interest of such Note, and (ii) on any other date for all
other purposes whatsoever, as the owner hereof, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent of
the Issuer or the Indenture Trustee shall be affected by notice to the
contrary.

         The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Note Insurer and the Holders of a
majority of all Notes at the time outstanding.  The Indenture also contains
provisions permitting (i) the Note Insurer or (ii) if a Note Insurer Default
exists, the Holders of Notes representing specified percentages of the
aggregate Note Principal Balance of the Notes on behalf of the Holders of all
the Notes, to waive any past Event of Default under the Indenture and its
consequences.  Any such waiver by the Holder, at the time of the giving
thereof, of this Note (or any one or more predecessor Notes) shall bind the
Holder of every Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof, whether or not notation of such consent or
waiver is made upon such Note.  The Indenture also permits the Issuer and the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of the Holders of the Notes issued
thereunder.

         Initially, the Notes will be represented by one bond registered in the
name of CEDE & Co. as nominee of DTC, acting in its capacity as the Depository
for the Notes.  The Notes will be delivered in denominations as provided in the
Indenture and subject to certain limitations therein





                                      -74-
<PAGE>   82
set forth.  The Notes are exchangeable for a like aggregate initial Note
Principal Balance of Notes of different authorized denominations, as requested
by the Holder surrendering the same.

         Unless the Certificate of Authentication hereon has been executed by
the Indenture Trustee by manual signature, this Note shall not be entitled to
any benefit under the Indenture, or be valid or obligatory for any purpose.

         Each Noteholder, by accepting a Note, hereby covenants and agrees that
such Noteholder will not at any time institute against the Company or the
Issuer, or join in any institution against the Company or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or any of the Basic Documents.

         So long as no Note Insurer Default exists, the Note Insurer shall at
all times be treated as if it were the exclusive Noteholder for the purposes of
all approvals, consents, waivers and the institution of any action and the
direction of all remedies, and the Indenture Trustee shall act in accordance
with the directions of the Note Insurer so long as it is indemnified therefor
to its reasonable satisfaction.

         AS PROVIDED IN THE INDENTURE, THIS NOTE AND THE INDENTURE CREATING
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
THEREIN.





                                      -75-
<PAGE>   83
         IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by Wilmington Trust Company, not in its individual capacity but solely
as Owner Trustee.

Dated:

                        PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F

                        BY: WILMINGTON TRUST COMPANY, not in its individual
                            capacity but solely in its capacity as Owner Trustee



                        By:
                           ----------------------------------------------------
                           Name:
                           Title:



                        By:
                           ----------------------------------------------------
                           Authorized Signatory



                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION


This is one of the Notes referred to in the within-mentioned Indenture.

BANKERS TRUST COMPANY OF CALIFORNIA, N.A., not in its individual
capacity but solely as Indenture Trustee


By:
   ----------------------------------------------------
   Authorized Signatory





                                      -76-
<PAGE>   84
                                 ABBREVIATIONS


         The following abbreviations, when used in the inscription on the face
of the Note, shall be construed as though they were written out in full
according to applicable laws or regulations:

         TEN COM         --      as tenants in common
         TEN ENT         --      as tenants by the entireties
         JT TEN          --      as joint tenants with right of survivorship
                                 and not as tenants in common 
UNIF GIFT MIN ACT        --      ______________ Custodian______________________
                                    (Cust)                      (Minor)
                                 under Uniform Gifts to Minor Act______________
                                                                    (State)

     Additional abbreviations may also be used though not in the above list.

     ______________________________________________________________________

  FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

     PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE:

      _____________________________________________________________________

      _____________________________________________________________________

      _____________________________________________________________________
 (Please print or typewrite name and address, including zip code, of assignee)


________________________________________________________________________________
the within bond and all rights thereunder, hereby irrevocably constitution and
appointing ________ ______________________________ attorney to transfer said
Note on the books of the Issuer, with full power of substitution in the
premises.

Dated:______________________________      _____________________________________


Signature Guaranteed by________________________________________________________

NOTICE:  The signature(s) to this assignment must correspond with the name as
it appears upon the face of the within Note in every particular, without
alteration or enlargement or any change whatsoever.  Signature(s) must be
guaranteed by a commercial bank or by a member firm of the New York Stock
Exchange or another national securities exchange.  Notarized or witnessed
signatures are not acceptable.
<PAGE>   85
                                   EXHIBIT B

                     FORM OF TRUSTEE INITIAL CERTIFICATION


                                 [Closing Date]

[Seller]

[Servicer]

[Note Insurer]

[Company]                
_________________________

               Re:     Indenture, dated as of June  1, 1998 (the "Indenture"),
                       between PacificAmerica Home Equity Loan Trust Series
                       1998-2F and Bankers Trust Company of California, N.A. --
                       PacificAmerica Home Equity Loan Asset-Backed Notes,
                       Series 1998-2F

Gentlemen:

                 In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.2 of the Home Equity Loan Purchase Agreement, dated
June 22, 1998 among PacificAmerica Money Center, Inc., Merrill Lynch Mortgage
Investors, Inc., PacificAmerica Home Equity Loan Trust Series 1998-2F and
Bankers Trust Company of California, N.A. (the "Home Equity Loan Purchase
Agreement"; and together with the Indenture, the "Agreements"), the
undersigned, as Indenture Trustee, hereby certifies that as to each Mortgage
Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or listed on the attachment hereto) it has reviewed the Mortgage File and
the Mortgage Loan Schedule and has determined that: (i) all documents required
to be included in the Mortgage File are in its possession; (ii) such documents
have been reviewed by it and appear regular on their face and relate to such
Mortgage Loan; and (iii) based on examination by it, and only as to such
documents, the information set forth in items (i), (ii), (iii) and (v) of the
definition or description of "Mortgage Loan Schedule" is correct.

                 The Indenture Trustee has made no independent examination of
any documents contained in each Mortgage File beyond the review specifically
required in the above-referenced Agreements.  The Indenture Trustee makes no
representation that any documents specified in clause (vi) of Section 2.2 of
the Home Equity Loan Purchase Agreement should be included in any Mortgage
File.  The Indenture Trustee makes no representations as to and shall not be
responsible to verify: (i) the validity, legality, sufficiency, enforceability,
due authorization, recordability or genuineness of any of the documents
contained in each Mortgage File of any of the Mortgage Loans identified on the
Mortgage Loan Schedule, (ii) the collectability, insurability,





                                      -2-
<PAGE>   86
effectiveness or suitability of any such Mortgage Loan, or (iii) the existence
of any assumption, modification, written assurance or substitution agreement
with respect to any Mortgage File if no such documents appear in the Mortgage
File delivered to the Indenture Trustee.

                 Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Indenture.


                                          BANKERS TRUST COMPANY OF CALIFORNIA,
                                          N.A., not in its individual capacity 
                                          but solely as Indenture Trustee


                                          By:
                                             ----------------------------------
                                             Name:
                                             Title:





                                      -3-
<PAGE>   87
                                   EXHIBIT C

                      FORM OF TRUSTEE FINAL CERTIFICATION


                                                            [date]

[Seller]

[Servicer]

[Note Insurer]

[Company]                 
__________________________
__________________________


                        Re: Indenture, dated as of June 1, 1998 (the
                        "Indenture"), between PacificAmerica Home Equity Loan
                        Trust Series 1998-2F and Bankers Trust Company of
                        California, N.A. -- PacificAmerica Home Equity Loan
                        Asset-Backed Notes, Series 1998-2F

Gentlemen:

                 In accordance with Section 2.03 of the above-captioned
Indenture, and Section 2.2 of the Home Equity Loan Purchase Agreement, dated
June 22, 1998 among PacificAmerica Money Center, Inc., Merrill Lynch Mortgage
Investors, Inc., PacificAmerica Home Equity Loan Trust Series 1998-2F and
Bankers Trust Company of California, N.A. (the "Home Equity Loan Purchase
Agreement"; and together with the Indenture, the "Agreements"), the
undersigned, as Indenture Trustee, hereby certifies that as to each Mortgage
Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or listed on the attachment hereto) it has received the documents set
forth in Section 2.2 of the Home Equity Loan Purchase Agreement.

                 The Indenture Trustee has made no independent examination of
any documents contained in each Mortgage File beyond the review specifically
required in the Agreements.  The Indenture Trustee makes no representation that
any documents specified in clause (vi) of Section 2.2 should be included in any
Mortgage File.  The Indenture Trustee makes no representations as to and shall
not be responsible to verify: (i) the validity, legality, sufficiency,
enforceability, due authorization, recordability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage Loans
identified on the Mortgage Loan Schedule, (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan or (iii)
the existence of any assumption, modification, written assurance or
substitution agreement with respect to any Mortgage File if no such documents
appear in the Mortgage File delivered to the Indenture Trustee.





                                      -4-
<PAGE>   88

                 Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Indenture.


                                          BANKERS TRUST COMPANY OF CALIFORNIA,
                                          N.A., not in its individual capacity 
                                          but solely as Indenture Trustee


                                          By:
                                             ----------------------------------
                                             Name:
                                             Title:





                                      -5-
<PAGE>   89
                                   EXHIBIT D

                             MORTGAGE LOAN SCHEDULE

                             PROVIDED UPON REQUEST





                                      -6-

<PAGE>   1
                                                                   EXHIBIT 10.3



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




                    MERRILL LYNCH MORTGAGE INVESTORS, INC.,

                                   as Company



                                                    and



                           WILMINGTON TRUST COMPANY,

                                as Owner Trustee


                   _________________________________________


                              AMENDED AND RESTATED
                                TRUST AGREEMENT

                            Dated as of June 1, 1998

                   _________________________________________



           PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
                                 SERIES 1998-2F




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


<PAGE>   2
                               Table of Contents


<TABLE>
<CAPTION>
Section                                                                                                       Page
<S>                                                                                                           <C>
ARTICLE I

         Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -1-
         1.01.        Definitions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -1-
         1.02.        Other Definitional Provisions   . . . . . . . . . . . . . . . . . . . . . . . . . . .   -1-

ARTICLE II

         Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -2-
         2.01.        Name  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -2-
         2.02.        Office  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -2-
         2.03.        Purposes and Powers   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -2-
         2.04.        Appointment of Owner Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -3-
         2.05.        Initial Capital Contribution of Owner Trust Estate  . . . . . . . . . . . . . . . . .   -3-
         2.06.        Declaration of Trust  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -3-
         2.07.        Liability of the Holders of the Certificates  . . . . . . . . . . . . . . . . . . . .   -4-
         2.08.        Title to Trust Property   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -4-
         2.09.        Situs of Trust  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -4-
         2.10.        Representations and Warranties of the Company   . . . . . . . . . . . . . . . . . . .   -4-
         2.11.        Payment of Trust Fees   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -5-
         2.12.        Investment Company  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -5-

ARTICLE III

         Conveyance of the Mortgage Loans; Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .   -6-
         3.01.        Conveyance of the Mortgage Loans  . . . . . . . . . . . . . . . . . . . . . . . . . .   -6-
         3.02.        Initial Ownership   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -6-
         3.03.        The Certificates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   -6-
         3.04.        Authentication of Certificates  . . . . . . . . . . . . . . . . . . . . . . . . . . .   -7-
         3.05.        Registration of and Limitations on Transfer and Exchange of Certificates  . . . . . .   -7-
         3.06.        Mutilated, Destroyed, Lost or Stolen Certificates   . . . . . . . . . . . . . . . . .  -10-
         3.07.        Persons Deemed Certificateholders   . . . . . . . . . . . . . . . . . . . . . . . . .  -10-
         3.08.        Access to List of Certificateholders' Names and Addresses   . . . . . . . . . . . . .  -10-
         3.09.        Maintenance of Office or Agency   . . . . . . . . . . . . . . . . . . . . . . . . . .  -10-
         3.10.        Certificate Paying Agent  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -11-

ARTICLE IV

         Authority and Duties of Owner Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -12-
         4.01.        General Authority   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -12-
</TABLE>

<PAGE>   3

<TABLE>
<CAPTION>
Section                                                                                                       Page
<S>                                                                                                           <C>
         4.02.        General Duties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -12-
         4.03.        Action upon Instruction   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -12-
         4.04.        No Duties Except as Specified under Specified Documents or in Instructions  . . . . .  -13-
         4.05.        Restrictions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -14-
         4.06.        Prior Notice to Certificateholders with Respect to Certain Matters  . . . . . . . . .  -14-
         4.07.        Action by Certificateholders with Respect to Certain Matters  . . . . . . . . . . . .  -16-
         4.08.        Action by Certificateholders with Respect to Bankruptcy   . . . . . . . . . . . . . .  -16-
         4.09.        Restrictions on Certificateholders' Power   . . . . . . . . . . . . . . . . . . . . .  -16-
         4.10.        Majority Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -16-

ARTICLE V

         Application of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -17-
         5.01.        Distributions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -17-
         5.02.        Method of Payment   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -17-
         5.03.        Tax Returns   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -18-
         5.04.        Statements to Certificateholders  . . . . . . . . . . . . . . . . . . . . . . . . . .  -18-

ARTICLE VI

         Concerning the Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -18-
         6.01.        Acceptance of Trusts and Duties   . . . . . . . . . . . . . . . . . . . . . . . . . .  -18-
         6.02.        Furnishing of Documents   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -19-
         6.03.        Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . . . . . . .  -19-
         6.04.        Reliance; Advice of Counsel   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -20-
         6.05.        Not Acting in Individual Capacity   . . . . . . . . . . . . . . . . . . . . . . . . .  -21-
         6.06.        Owner Trustee Not Liable for Certificates or Related Documents  . . . . . . . . . . .  -21-
         6.07.        Owner Trustee May Own Certificates and Notes  . . . . . . . . . . . . . . . . . . . .  -21-
         6.08.        Payments from Owner Trust Estate  . . . . . . . . . . . . . . . . . . . . . . . . . .  -21-
         6.09.        Doing Business in Other Jurisdictions   . . . . . . . . . . . . . . . . . . . . . . .  -22-
         6.10.        Liability of Certificate Registrar and Certificate Paying Agent   . . . . . . . . . .  -22-

ARTICLE VII

         Compensation of Owner Trustee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -22-
         7.01.        Owner Trustee's Fees and Expenses   . . . . . . . . . . . . . . . . . . . . . . . . .  -22-
         7.02.        Indemnification   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -22-

ARTICLE VIII

         Termination of Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -23-
         8.01.        Termination of Trust Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . .  -23-
</TABLE>
<PAGE>   4

<TABLE>
<CAPTION>
Section                                                                                                       Page
<S>                                                                                                           <C>
ARTICLE IX

         Successor Owner Trustees and Additional Owner Trustees . . . . . . . . . . . . . . . . . . . . . .  -25-
         9.01.        Eligibility Requirements for Owner Trustee  . . . . . . . . . . . . . . . . . . . . .  -25-
         9.02.        Resignation and Replacement of Owner Trustee  . . . . . . . . . . . . . . . . . . . .  -25-
         9.03.        Successor Owner Trustee   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -26-
         9.04.        Merger or Consolidation of Owner Trustee  . . . . . . . . . . . . . . . . . . . . . .  -26-
         9.05.        Appointment of Co-Trustee or Separate Trustee   . . . . . . . . . . . . . . . . . . .  -26-

ARTICLE X

         Miscellaneous  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -28-
         10.01.       Amendments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -28-
         10.02.       No Legal Title to Owner Trust Estate  . . . . . . . . . . . . . . . . . . . . . . . .  -29-
         10.03.       Limitations on Rights of Others   . . . . . . . . . . . . . . . . . . . . . . . . . .  -30-
         10.04.       Notices   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -30-
         10.05.       Severability  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -30-
         10.06.       Separate Counterparts   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.07.       Successors and Assigns  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.08.       No Petition   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.09.       No Recourse   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.10.       Headings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.11.       GOVERNING LAW   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.12.       Integration   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.13.       Third-Party Beneficiary   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  -31-
         10.14.       Suspension and Termination of Note Insurer's Rights   . . . . . . . . . . . . . . . .  -32-
</TABLE>
<PAGE>   5

<TABLE>
<CAPTION>
Section                                                                                                       Page
<S>                                                                                                           <C>
EXHIBIT

Exhibit A - Form of Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   A-1
Exhibit B - Certificate of Trust of PacificAmerica Home Equity Loan Trust   . . . . . . . . . . . . . . . .   B-1
Exhibit C - Form of Rule 144A Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . .   C-1
Exhibit D - Form of Investor Representation Letter  . . . . . . . . . . . . . . . . . . . . . . . . . . . .   D-1
Exhibit E - Form of Transferor Representation Letter  . . . . . . . . . . . . . . . . . . . . . . . . . . .   E-1
Exhibit F - Form of Certificate of Non-Foreign Status . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-1
Exhibit G - Form of ERISA Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   G-1
Exhibit H - Form of Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   H-1
Exhibit I - Initial Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   I-1
</TABLE>
<PAGE>   6
         This Amended and Restated Trust Agreement (which amends and restates
the Trust Agreement, dated June 18, 1998, between Merrill Lynch Mortgage
Investors, Inc. (the "Company"), and Wilmington Trust Company, a Delaware
banking corporation, as owner trustee (the "Owner Trustee"), which is attached
hereto as Exhibit I), dated as of June 1, 1998 (as amended from time to time,
this "Trust Agreement"), between the Company and the Owner Trustee,


                                WITNESSETH THAT:

         In consideration of the mutual agreements herein contained, the
Company and the Owner Trustee agree as follows:


                                   ARTICLE I

                                  Definitions

         Section 1.01.    Definitions.  For all purposes of this Trust
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in Appendix A to the Indenture, dated June
1, 1998, between PacificAmerica Home Equity Loan Trust Series 1998-2F, as
Issuer, and Bankers Trust Company of California, N.A., as Indenture Trustee,
which is incorporated by referenced herein.  All other capitalized terms used
herein shall have the meanings specified herein.

         Section 1.02.    Other Definitional Provisions.

         (a)All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.

         (b)          As used in this Trust Agreement and in any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Trust Agreement or in any such certificate or other
document, and accounting terms partly defined in this Trust Agreement or in any
such certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles.  To the extent that the definitions of accounting terms in this
Trust Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under generally accepted accounting principles,
the definitions contained in this Trust Agreement or in any such certificate or
other document shall control.

         (c)          The words "hereof," "herein," "hereunder" and words of
similar import when used in this Trust Agreement shall refer to this Trust
Agreement as a whole and not to any particular provision of this Trust
Agreement; Article, Section and Exhibit references contained in this Trust
Agreement are references to Articles, Sections and Exhibits in or to this Trust
Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation".
<PAGE>   7
                                      -2-


         (d)          The definitions contained in this Trust Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.

         (e)          Any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments incorporated
therein; references to a Person are also to its permitted successors and
assigns.


                                   ARTICLE II

                                  Organization

         Section 2.01.    Name.  The trust created hereby (the "Trust") shall
be known as "PacificAmerica Home Equity Loan Trust Series 1998- 2F", in which
name the Owner Trustee may conduct the business of the Trust, make and execute
contracts and other instruments on behalf of the Trust and sue and be sued.

         Section 2.02.    Office.  The office of the Trust shall be in care of
the Owner Trustee at the Corporate Trust Office or at such other address in
Delaware as the Owner Trustee may designate by written notice to the
Certificateholders and the Company.

         Section 2.03.    Purposes and Powers.  The purpose of the Trust is to
engage in the following activities:

                      (i)  to issue the Notes pursuant  to the Indenture and
         the Certificates pursuant to this Trust Agreement and to sell the
         Notes and the Certificates;

                      (ii) with the proceeds of the sale of the Notes and the
         Certificates, to pay the organizational, start-up and transactional
         expenses of the Trust;

                      (iii)  to purchase, hold, assign, grant, transfer, pledge
         and convey the Mortgage Loans pursuant to the Indenture and to hold,
         manage and distribute to the Certificateholders pursuant to Section
         5.01 any portion of the Owner Trust Estate (as defined herein)
         released from the Lien of, and remitted to the Trust pursuant to the
         Indenture;

                      (iv)  to enter into and perform its obligations under the
         Basic Documents to which it is to be a party;

                      (v)  if directed by holders of Certificates representing
         more than 50% of the beneficial interests in the Trust, sell the Trust
         Estate subsequent to the discharge of the Indenture, all for the
         benefit of the holders of the Certificates;
<PAGE>   8
                                      -3-


                      (vi)  to engage in those activities, including entering
         into agreements, that are necessary, suitable or convenient to
         accomplish the foregoing or are incidental thereto or connected
         therewith; and

                      (vii)  subject to compliance with the Basic Documents, to
         engage in such other activities as may be required in connection with
         conservation of the Owner Trust Estate and the making of distributions
         to the Certificateholder and the Noteholders.

The Trust is hereby authorized to engage in the foregoing activities.   The
Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Trust
Agreement or the Basic Documents.

         Section 2.04.    Appointment of Owner Trustee.  The Company hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.

         Section 2.05.    Initial Capital Contribution of Owner Trust Estate.
The Company hereby sells, assigns, transfers, conveys and sets over to the
Trust, as of the date hereof, the sum of $1.  The Owner Trustee hereby
acknowledges receipt in trust from the Company, as of the date hereof, of the
foregoing contribution, which shall constitute the initial corpus of the Trust
and shall be deposited in the Certificate Distribution Account.  The Owner
Trustee also acknowledges on behalf of the Trust the receipt in trust of the
Mortgage Loans and the rights with respect to the representations and
warranties made by the Seller under the Home Equity Loan Purchase Agreement and
all other amounts constituting part of the Trust Estate (such items plus all
other amounts or items included in the Trust Estate from time to time, the
"Owner Trust Estate").

         Section 2.06.    Declaration of Trust.  The Owner Trustee hereby
declares that it shall hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the
Certificateholders, subject to the obligations of the Trust under the Basic
Documents.  It is the intention of the parties hereto that the Trust constitute
a "business trust" under the Business Trust Statute and that this Trust
Agreement constitute the governing instrument of such business trust.  It is
the intention of the parties hereto that, for federal and state income and
state and local franchise tax purposes, the Trust shall not be treated as (i)
an association subject separately to taxation as a corporation, (ii) a
"publicly traded partnership" as defined in Treasury Regulation Section
1.7704-1 or (iii) a "taxable mortgage pool" as defined in Section 7701(i) of
the Code, and that the Notes shall be debt, and the provisions of this Trust
Agreement shall be interpreted to further this intention.  Except as otherwise
provided in this Trust Agreement, the rights of the Certificateholders will be
those of equity owners of the Trust. Effective as of the date hereof, the Owner
Trustee shall have all rights, powers and duties set forth herein and in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.

         Section 2.07.    Liability of the Holders of the Certificates.  The
Holders of the Certificates shall be jointly and severally liable directly to
and shall indemnify the Trust and the Owner Trustee for all losses, claims,
damages, liabilities and expenses of the Trust and the Owner Trustee (includ-
<PAGE>   9
                                      -4-


ing Expenses, to the extent not paid by the  Master Servicer pursuant to
Section 2.11 or out of the Owner Trust Estate); provided, however, that the
Holders of the Certificates shall not be liable for payments required to be
made on the Notes or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a
Noteholder in the capacity of an investor in the Notes.  The Holders of the
Certificates shall be liable for and shall promptly pay any entity level taxes
imposed on the Trust.  In addition, any third party creditors of the Trust,
including the Note Insurer (other than in connection with the obligations
described in the second preceding sentence for which the Holders of the
Certificates shall not be liable) shall be deemed third party beneficiaries of
this paragraph.  The obligations of the Holders of the Certificates under this
paragraph shall be evidenced by the Certificates.

         Section 2.08.    Title to Trust Property.  Except with respect to the
Mortgage Loans, which will be assigned of record to the Indenture Trustee
pursuant to the Indenture, legal title to the Owner Trust Estate shall be
vested at all times in the Trust as a separate legal entity except where
applicable law in any jurisdiction requires title to any part of the Owner
Trust Estate to be vested in a trustee or trustees, in which case title shall
be deemed to be vested in the Owner Trustee, a co-trustee and/or a separate
trustee, as the case may be.

         Section 2.09.    Situs of Trust.  The Trust will be located and
administered in the State of Delaware.  All bank accounts maintained by the
Owner Trustee on behalf of the Trust shall be located in the State of Delaware.
The Trust shall not have any employees in any state other than Delaware;
provided, however, that nothing herein shall restrict or prohibit the Owner
Trustee from having employees within or without the State of Delaware or taking
actions outside the State of Delaware in order to comply with Section 2.03.
Payments will be received by the Trust only in Delaware or New York, and
payments will be made by the Trust only from Delaware or New York.  The only
office of the Trust will be at the Corporate Trust Office in Delaware.

         Section 2.10.    Representations and Warranties of the Company.  The
Company hereby represents and warrants to the Owner Trustee and the Note
Insurer that:

                    (i)   The Company is duly organized and validly existing as
         a corporation in good standing under the laws of the State of
         Delaware, with power and authority to own its properties and to
         conduct its business as such properties are currently owned and such
         business is presently conducted.

                    (ii)  The Company is duly qualified to do business as a
         foreign corporation in good standing and has obtained all necessary
         licenses and approvals in all jurisdictions in which the ownership or
         lease of its property or the conduct of its business shall require
         such qualifications and in which the failure to so qualify would have
         a material adverse effect on the business, properties, assets or
         condition (financial or other) of the Company.

                   (iii)  The Company has the power and authority to execute
         and deliver this Trust Agreement and to carry out its terms; the
         Company has full power and authority to convey and assign the property
         to be conveyed and assigned to and deposited with the Trust as part
<PAGE>   10
                                      -5-


         of the Owner Trust Estate and the Company has duly authorized such
         conveyance and assignment and deposit to the Trust by all necessary
         corporate action; and the execution, delivery and performance of this
         Trust Agreement have been duly authorized by the Company by all
         necessary corporate action.

                    (iv)  The consummation of the transactions contemplated by
         this Trust Agreement and the fulfillment of the terms hereof do not
         conflict with, result in any breach of any of the terms and provisions
         of, or constitute (with or without notice or lapse of time) a default
         under, the articles of incorporation or bylaws of the Company, or any
         indenture, agreement or other instrument to which the Company is a
         party or by which it is bound; nor result in the creation or
         imposition of any Lien upon any of its properties pursuant to the
         terms of any such indenture, agreement or other instrument (other than
         pursuant to the Basic Documents); nor violate any law or, to the best
         of the Company's knowledge, any order, rule or regulation applicable
         to the Company of any court or of any federal or state regulatory
         body, administrative agency or other governmental instrumentality
         having jurisdiction over the Company or its properties.

                      (v)  The Trust is not required to register as an
         investment company under the Investment Company Act and is not under
         the control of a Person required to so register.

                      (vi) There is no action, proceeding or investigation by
         or before any court, governmental or administrative agency or
         arbitrator pending or, to the Company's knowledge, threatened, which
         would prohibit its entering into or performing its obligations under
         this Trust Agreement.

         Section 2.11.    Payment of Trust Fees.   The Owner Trustee Fee shall
be paid pursuant to Section 3.05 of the Indenture.  In addition, the Master
Servicer shall pay the Trust's expenses (including expenses of the Owner
Trustee and the Indenture Trustee) incurred with respect to the performance of
the Trust's duties under the Indenture pursuant to Section 5.06 of the
Servicing Agreement, or, if such amounts are insufficient, the Owner Trustee
shall be paid pursuant to Section 5.01 hereof.

         Section 2.12.    Investment Company.   Neither the Company nor any
holder of a Certificate shall take any action which would cause the Trust to
become an "investment company" which would be required to register under the
Investment Company Act.

         Section 2.13.    Federal Income Tax Allocations.  Net income for the
Trust for any month, as determined for federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation
thereof), shall be allocated to the Certificateholders, pro rata.
<PAGE>   11
                                      -6-


                                  ARTICLE III

                       Conveyance of the Mortgage Loans;
                                  Certificates

         Section 3.01.    Conveyance of the Mortgage Loans.  The Company,
concurrently with the execution and delivery hereof, does hereby Grant to the
Trust, on behalf of the Holders of the Notes and the Certificates and the Note
Insurer, without recourse, all its right, title and interest in and to the
Mortgage Loans, including all interest and principal received on or with
respect to the Mortgage Loans after the Cut-Off Date (other than payments of
principal and interest due on the Mortgage Loans on or before the Cut-Off
Date). In addition, the Company hereby Grants to the Trust all of its right,
title, and interest in, to, and under the Home Equity Loan Purchase Agreement
to the extent of the Mortgage Loans.

         The conveyance of the Mortgage Loans by the Company to the Trust
hereunder is intended to facilitate the simultaneous issuance of the Notes
under the Indenture and issuance of the Certificates hereunder.   The parties
hereto intend that the conveyance of the Mortgage Loans by the Company to the
Trust hereunder constitute a sale by the Company to the Trust of all of the
Company's right, title and interest in and to the Mortgage Loans.  However, if
the transactions contemplated by this Trust Agreement are determined to
constitute a financing, the Company hereby Grants to the Trust a security
interest in the Owner Trust Estate and all distributions thereon and proceeds
thereof, and this Trust Agreement shall constitute a security agreement under
applicable law, and in such event, the parties hereto acknowledge that the
Indenture Trustee, in addition to holding the Mortgage Loans for the benefit of
the Noteholders and the Note Insurer, holds the Mortgage Loans as designee of
the Trust.

         Section 3.02.    Initial Ownership.  Upon the formation of the Trust
by the contribution by the Company pursuant to Section 2.05 and until the
conveyance of the Mortgage Loans pursuant to Section 3.01 and the issuance of
the Certificates, and thereafter except as otherwise permitted hereunder, the
Company shall be the sole Certificateholder.

         Section 3.03.    The Certificates.  The Certificates shall be issued
in the form of one or more Certificates each representing not less than a 10%
Certificate Percentage Interest. The Certificates shall initially be registered
in the name of PacificAmerica Money Center, Inc.  The Certificates shall be
executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee and authenticated in the manner
provided in Section 3.04.  Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly
issued and entitled to the benefit of this Trust Agreement, notwithstanding
that such individuals or any of them shall have ceased to be so authorized
prior to the authentication and delivery of such Certificates or did not hold
such offices at the date of authentication and delivery of such Certificates.
A Person shall become a Certificateholder and shall be entitled to the rights
and subject to the obligations of a Certificateholder hereunder upon such
Person's acceptance of a Certificate duly registered in such Person's name,
pursuant to Section 3.05.
<PAGE>   12
                                      -7-


         A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.

         Section 3.04.    Authentication of Certificates.  The Owner Trustee
shall cause all Certificates issued hereunder to be executed and authenticated
on behalf of the Trust, authenticated and delivered to or upon the written
order of the Company, signed by its chairman of the board, its president or any
vice president, without further corporate action by the Company, in authorized
denominations.  No Certificate shall entitle its holder to any benefit under
this Trust Agreement or be valid for any purpose unless there shall appear on
such Certificate a certificate of authentication substantially in the form set
forth in Exhibit A, executed by the Owner Trustee or the Certificate Registrar
by manual signature; such authentication shall constitute conclusive evidence
that such Certificate shall have been duly authenticated and delivered
hereunder.  All Certificates shall be dated the date of their authentication.

         Section 3.05.    Registration of and Limitations on Transfer and
Exchange of Certificates.  The Certificate Registrar shall keep or cause to be
kept, a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. Bankers Trust Company of California, N.A. shall be the initial
Certificate Registrar.  If the Certificate Registrar resigns or is removed, the
Owner Trustee shall appoint a successor Certificate Registrar.

         Subject to satisfaction of the conditions set forth below with respect
to the Certificate, upon surrender for registration of transfer of any
Certificate at the office or agency maintained pursuant to Section 3.09, the
Owner Trustee or the Certificate Registrar shall execute, authenticate and
deliver in the name of the designated transferee or transferees, one or more
new Certificates in authorized denominations of a like aggregate amount dated
the date of authentication by the Owner Trustee or the Certificate Registrar.
At the option of a Holder, Certificates may be exchanged for other Certificates
of authorized denominations of a like aggregate amount upon surrender of the
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.09.

         Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer
in form satisfactory to the Certificate Registrar duly executed by the Holder
or such Holder's attorney duly authorized in writing.  Each Certificate
surrendered for registration of transfer or exchange shall be canceled and
subsequently disposed of by the Certificate Registrar in accordance with its
customary practice.

         No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar
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.
<PAGE>   13
                                      -8-


         No Person shall become a Certificateholder until it shall establish
its non-foreign status by submitting to the Certificate Paying Agent an IRS
Form W-9 and the Certificate of Non-Foreign Status set forth in Exhibit F
hereto.

         No transfer, sale, pledge or other disposition of a Certificate shall
be made unless such transfer, sale, pledge or other disposition is exempt from
the registration requirements of the Securities Act and any applicable state
securities laws or is made in accordance with said Act and laws.  In the event
of any such transfer, the Certificate Registrar or the Company shall prior to
such transfer require the transferee to execute (a) either (i)  an investment
letter in substantially the form attached hereto as Exhibit C (or in such form
and substance reasonably satisfactory to the Certificate Registrar and the
Company) which investment letter shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar, the Master Servicer, the Note Insurer
or the Company and which investment letter states that, among other things,
such transferee (A) is a "qualified institutional buyer" as defined under Rule
144A, acting for its own account or the accounts of other "qualified
institutional buyers" as defined under Rule 144A and (B) is aware that the
proposed transferor intends to rely on the exemption from registration
requirements under the Securities Act of 1933, as amended, provided by Rule
144A or (ii) (A) a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Certificate Registrar, the Company and the Note
Insurer 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 Trust, the Owner Trustee, the Certificate Registrar, the Master
Servicer, the Note Insurer or the Company and (B) the transferee executes a
representation letter, substantially in the form of Exhibit D hereto, and the
transferor executes a representation letter, substantially in the form of
Exhibit E hereto, each acceptable to and in form and substance satisfactory to
the Certificate Registrar and the Company certifying the facts surrounding such
transfer, which representation letters shall not be an expense of the Trust,
the Owner Trustee, the Certificate Registrar, the Master Servicer, the Note
Insurer or the Company and (b) the Certificate of Non-Foreign Status (in
substantially the form attached hereto as Exhibit F) acceptable to and in form
and substance reasonably satisfactory to the Certificate Registrar and the
Company, which certificate shall not be an expense of the Trust, the Owner
Trustee, the Certificate Registrar, the Master Servicer, the  Note Insurer or
the Company.  If the Certificateholder is unable to provide a Certificate of
Non-Foreign Status, the Certificateholder must provide an Opinion of Counsel as
described above in this paragraph.  The Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the Trust, the Owner
Trustee, the Certificate Registrar, the Master Servicer, the Note Insurer and
the Company 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.  Neither
an Opinion of Counsel nor a certification set forth in clause (a) of this
paragraph will be required in connection with the initial transfer of any such
Certificate by the Company to PacificAmerica Money Center, Inc.  or by the
pledge of any such Certificate by PacificAmerica Money Center, Inc. to Merrill
Lynch Mortgage Capital, Inc. ("MLMCI") and the certification set forth in
clause (b) of this paragraph will not be required in connection with the pledge
of any such Certificate by PacificAmerica Money Center, Inc. to MLMCI.
<PAGE>   14
                                      -9-


          No transfer of a Certificate or any interest therein shall be made to
any employee benefit plan or certain other retirement plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and bank
collective investment funds and insurance company general or separate accounts
in which such plans, accounts or arrangements are invested, that are subject to
ERISA, or Section 4975 of the Code (collectively, "Plan"), any Person acting,
directly or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with "plan assets" of a Plan within the meaning of the Department
of Labor regulation promulgated at 29 C.F.R. Section 2510.3-101 ("Plan Assets")
unless the Company, the Owner Trustee, the Certificate Registrar and the Master
Servicer are provided with an Opinion of Counsel which establishes to the
satisfaction of the Company, the Owner Trustee, the Certificate Registrar and
the Master Servicer that the purchase of Certificates is permissible under
applicable law, will not constitute or result in any prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Company, the
Owner Trustee, the Certificate Registrar or the Master Servicer to any
obligation or liability (including obligations or liabilities under ERISA or
Section 4975 of the Code) in addition to those undertaken in this Trust
Agreement, which Opinion of Counsel shall not be an expense of the Company, the
Owner Trustee, the Certificate Registrar, the Note Insurer or the Master
Servicer.  In lieu of such Opinion of Counsel, a Plan, any Person acting,
directly or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with Plan Assets of a Plan may provide a certification in the form
of Exhibit G to this Trust Agreement, which the Company, the Owner Trustee, the
Certificate Registrar and the Master Servicer may rely upon without further
inquiry or investigation.  Neither an Opinion of Counsel nor a certification
will be required in connection with the initial transfer or pledge of any such
Certificate by the Company to an affiliate of the Company (in which case, the
Company or any affiliate thereof shall have deemed to have represented that
such affiliate is not a Plan or a Person investing Plan Assets of any Plan) and
the Owner Trustee shall be entitled to conclusively rely upon a representation
(which, upon the request of the Owner Trustee, shall be a written
representation) from the Company of the status of such transferee as an
affiliate of the Company.

         In addition, no transfer, sale, assignment, pledge or other
disposition of a Certificate shall be made unless the proposed transferee
executes a representation letter substantially in the form of Exhibit D, or
substantially in the form of Exhibit H hereto, that (1) the transferee is
acquiring the Certificate for its own behalf and is not acting as agent or
custodian for any other person or entity in connection with such acquisition
and (2) if the transferee is a partnership, grantor trust or S corporation for
federal income tax purposes, the Certificates are not more than 50% of the
assets of the partnership, grantor trust or S corporation.

         No offer, sale, transfer, pledge, hypothecation or other disposition
(including any pledge, sale or transfer under a repurchase transaction or
securities loan) of any Certificate shall be made to any transferee unless,
prior to such disposition, the proposed transferor delivers to the Owner
Trustee an Opinion of Counsel, rendered by a law firm generally recognized to
be qualified to opine concerning the tax aspects of asset securitization, to
the effect that such transfer (including any disposition permitted following
any default under any pledge or repurchase transaction) will not cause the
Trust to be (i) treated as an association taxable as a corporation for federal
income tax purposes, (ii) taxable as a taxable mortgage pool as defined in
Section 7701(i) of the Code or
<PAGE>   15
                                      -10-



(iii) taxable as a "publicly traded partnership" as defined in Treasury
Regulation section 1.7704-1. Notwithstanding the foregoing, the provisions of
this paragraph shall not apply to the initial transfer of the Certificates by
the Company to PacificAmerica Money Center, Inc.

         Section 3.06.    Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Certificate and (b) there
shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice to the Certificate Registrar or the Owner Trustee
that such Certificate has been acquired by a bona fide purchaser, the Owner
Trustee or the Certificate Registrar shall execute on behalf of the Trust and
the Owner Trustee or the Certificate Registrar, shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and denomination.  In connection
with the issuance of any new Certificate under this Section 3.06, the Owner
Trustee or the Certificate Registrar may require the payment of a sum
sufficient to cover any expenses of the Owner Trustee or the Certificate
Registrar (including fees and expenses of counsel) and any tax or other
governmental charge that may be imposed in connection therewith.  Any duplicate
Certificate issued pursuant to this Section 3.06 shall constitute conclusive
evidence of ownership in the Trust, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.

         Section 3.07.    Persons Deemed Certificateholders.  Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant
to Section 5.02 and for all other purposes whatsoever, and none of the Trust,
the Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound
by any notice to the contrary.

         Section 3.08.    Access to List of Certificateholders' Names and
Addresses.  The Certificate Registrar shall furnish or cause to be furnished to
the Company or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Company or the
Owner Trustee, a list, in such form as the Company or the Owner Trustee, as the
case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date.  Each Holder, by
receiving and holding a Certificate, shall be deemed to have agreed not to hold
any of the Trust, the Company, the Certificate Registrar or the Owner Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.

         Section 3.09.    Maintenance of Office or Agency.  The Owner Trustee
on behalf of the Trust, shall maintain in Wilmington, Delaware, an office or
offices or agency or agencies where Certificates may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Owner Trustee in respect of the Certificates and the Basic Documents may be
served.  The Owner Trustee initially designates the Corporate Trust Office as
its office for such
<PAGE>   16
                                      -11-



purposes.  The Owner Trustee shall give prompt written notice to the Company
and the Certificateholders of any change in the location of the Certificate
Register or any such office or agency.

         Section 3.10.    Certificate Paying Agent.         (a)     The
Certificate Paying Agent shall make distributions to Certificateholders from
the Certificate Distribution Account on behalf of the Trust in accordance with
the provisions of the Certificates and Section 5.01 hereof from payments
remitted to the Certificate Paying Agent by the Indenture Trustee pursuant to
Section 3.05 of the Indenture.  The Trust hereby appoints Bankers Trust Company
of California, N.A.  as Certificate Paying Agent and Bankers Trust Company of
California, N.A. hereby accepts such appointment and further agrees that it
will be bound by the provisions of this Trust Agreement relating to the
Certificate Paying Agent and shall:

                      (i)   hold all sums held by it for the payment of amounts
         due with respect to the Certificates in trust for the benefit of the
         Persons entitled thereto until such sums shall be paid to such Persons
         or otherwise disposed of as herein provided;

                      (ii)  give the Owner Trustee notice of any default by the
         Trust of which it has actual knowledge in the making of any payment
         required to be made with respect to the Certificates;

                    (iii)   at any time during the continuance of any such
         default, upon the written request of the Owner Trustee forthwith pay
         to the Owner Trustee on behalf of the Trust all sums so held in Trust
         by such Certificate Paying Agent;

                      (iv)  immediately resign as Certificate Paying Agent and
         forthwith pay to the Owner Trustee on behalf of the Trust all sums
         held by it in trust for the payment of Certificates if at any time it
         ceases to meet the standards under this Section 3.10 required to be
         met by the Certificate Paying Agent at the time of its appointment;

                      (v)   comply with all requirements of the Code with
         respect to the withholding from any payments made by it on any
         Certificates of any applicable withholding taxes imposed thereon and
         with respect to any applicable reporting requirements in connection
         therewith;

                      (vi)  deliver to the Owner Trustee a copy of the report
         to Certificateholders; and

                    (vii)   not institute bankruptcy proceedings against the
         Issuer in connection with this Trust Agreement.

         (b)          The Trust may revoke such power and remove the
Certificate Paying Agent if it determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under
this Trust Agreement in any material respect.  Bankers Trust Company of
California,
<PAGE>   17
                                      -12-



N.A. shall be permitted to resign as Certificate Paying Agent upon 30 days
written notice to the Owner Trustee and the Note Insurer; provided Bankers
Trust Company of California, N.A. is also resigning as Paying Agent under the
Indenture at such time.  In the event that Bankers Trust Company of California,
N.A. shall no longer be the Certificate Paying Agent under this Trust Agreement
and Paying Agent under the Indenture, the Owner Trustee shall appoint a
successor to act as Certificate Paying Agent (which shall be a bank or trust
company) and which shall also be the successor Paying Agent under the
Indenture.  The Owner Trustee shall cause such successor Certificate Paying
Agent or any additional Certificate Paying Agent appointed by the Owner Trustee
to execute and deliver to the Owner Trustee an instrument accepting the terms
of this Section 3.10 as it relates to the Certificate Paying Agent.  The
Certificate Paying Agent shall return all unclaimed funds to the Trust and upon
removal of a Certificate Paying Agent such Certificate Paying Agent shall also
return all funds in its possession to the Trust.  The provisions of Sections
6.01, 6.03, 6.04 and 7.01 shall apply to the Certificate Paying Agent to the
extent applicable.  Any reference in this Trust Agreement to the Certificate
Paying Agent shall include any co-paying agent unless the context requires
otherwise.

         (c)          The Certificate Paying Agent shall establish and maintain
with itself a trust account (the "Certificate Distribution Account") in which
the Certificate Paying Agent shall deposit, on the same day as it is received
from the Indenture Trustee, each remittance received by the Certificate Paying
Agent with respect to payments made pursuant to the Indenture.  The Certificate
Paying Agent shall make all distributions to Certificates, from moneys on
deposit in the Certificate Distribution Account.


                                   ARTICLE IV

                     Authority and Duties of Owner Trustee

         Section 4.01.    General Authority.  The Owner Trustee is authorized
and directed to execute and deliver the Basic Documents to which the Trust is
to be a party and each certificate or other document attached as an exhibit to
or contemplated by the Basic Documents to which the Trust is to be a party and
any amendment or other agreement or instrument described herein, as evidenced
conclusively by the Owner Trustee's execution thereof.  In addition to the
foregoing, the Owner Trustee is authorized, but shall not be obligated, except
as otherwise provided in this Trust Agreement, to take all actions required of
the Trust pursuant to the Basic Documents.

         Section 4.02.    General Duties.  It shall be the duty of the Owner
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Trust Agreement and the Basic Documents to which
the Trust is a party and to administer the Trust in the interest of the
Certificateholders, subject to the Basic Documents and in accordance with the
provisions of this Trust Agreement.

         Section 4.03.    Action upon Instruction.  (a)  Subject to this
Article IV and in accordance with the terms of the Basic Documents, the
Certificateholders may by written instruction direct the Owner Trustee in the
management of the Trust.  Such direction may be exercised at any time by
written instruction of the Certificateholders pursuant to this Article IV.
<PAGE>   18
                                      -13-


         (b)          Notwithstanding the foregoing, the Owner Trustee shall
not be required to take any action hereunder or under any Basic Document if the
Owner Trustee shall have reasonably determined, or shall have been advised by
counsel, that such action is likely to result in liability on the part of the
Owner Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.

         (c)          Whenever the Owner Trustee is required to decide between
alternative courses of action permitted or required by the terms of this Trust
Agreement or under any Basic Document, or in the event that the Owner Trustee
is unsure as to the application of any provision of this Trust Agreement or any
Basic Document or any such provision is ambiguous as to its application, or is,
or appears to be, in conflict with any other applicable provision, or in the
event that this Trust Agreement permits any determination by the Owner Trustee
or is silent or is incomplete as to the course of action that the Owner Trustee
is required to take with respect to a particular set of facts, the Owner
Trustee shall promptly give notice (in such form as shall be appropriate under
the circumstances) to the Certificateholders (with a copy to the Note Insurer)
requesting instruction as to the course of action to be adopted, and to the
extent the Owner Trustee acts in good faith in accordance with any written
instruction of the Certificateholders (with the consent of the Note Insurer),
the Owner Trustee shall not be liable on account of such action to any Person.
If the Owner Trustee shall not have received appropriate instruction within 10
days of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action not
inconsistent with this Trust Agreement or the Basic Documents, as it shall deem
to be in the best interests of the Certificateholders, the Noteholders and the
Note Insurer, and the Owner Trustee shall have no liability to any Person for
such action or inaction.

         Section 4.04.    No Duties Except as Specified under Specified
Documents or in Instructions.  The Owner Trustee shall not have any duty or
obligation to manage, make any payment with respect to, register, record, sell,
dispose of, or otherwise deal with the Owner Trust Estate, or to otherwise take
or refrain from taking any action under, or in connection with, any document
contemplated hereby to which the Owner Trustee is a party, except as expressly
provided (a) in accordance with the powers granted to and the authority
conferred upon the Owner Trustee pursuant to this Trust Agreement, (b) in
accordance with the Basic Documents and (c) in accordance with any document or
instruction delivered to the Owner Trustee pursuant to Section 4.03; and no
implied duties or obligations shall be read into this Trust Agreement or any
Basic Document against the Owner Trustee.  The Owner Trustee shall have no
responsibility (i) to file any financing or continuation statement in any
public office at any time, (ii) to otherwise perfect or maintain the perfection
of any security interest or lien granted to it hereunder, (iii) to record this
Trust Agreement or any Basic Document or (iv) to prepare or file any Securities
and Exchange Commission filing for the Trust, provided, that if necessary, the
Owner Trustee will execute any documents required to effectuate such filings.
The Owner Trustee nevertheless agrees that it will, at its own cost and
expense, promptly take all action as may be necessary to discharge any liens on
any part of the Owner Trust Estate that result from actions by, or claims
against, the Owner Trustee that are not related to the ownership or the
administration of the Owner Trust Estate.
<PAGE>   19
                                      -14-


         Section 4.05.    Restrictions.  (a)  The Owner Trustee or the Company
(or an Affiliate thereof) shall not take any action (i) that is inconsistent
with the purposes of the Trust set forth in Section 2.03 or (ii) that, to the
actual knowledge of the Owner Trustee based on an Opinion of Counsel rendered
by a law firm generally recognized to be qualified to opine concerning the tax
aspects of asset securitization, would result in the Trust becoming taxable as
a corporation for federal income tax purposes or (iii) would result in the
amendment or modification of the Basic Documents or this Trust Agreement
without the prior written consent of the Note Insurer.  The Certificateholders
shall not direct the Owner Trustee to take action that would violate the
provisions of this Section 4.05.

         (b)          The Owner Trustee shall not convey or transfer any of the
Trust's properties or assets, including those included in the Trust Estate, to
any person unless (i) it shall have received an Opinion of Counsel rendered by
a law firm generally recognized to be qualified to opine concerning the tax
aspects of asset securitization to the effect that such transaction will not
have any material adverse tax consequence to the Trust or any Certificateholder
and (ii) such conveyance or transfer shall not violate the provisions of
Section 3.16(b) of the Indenture.

         (c)          The Trust shall not commingle its assets with those of
any other entity.  The Trust shall maintain its financial and accounting books
and records separate from those of any other entity.  Except as expressly set
forth herein, the Trust shall pay its indebtedness, operating expenses and
liabilities from its own funds, and the Trust shall not pay the indebtedness,
operating expenses and liabilities of any other entity.  The Trust shall
maintain appropriate minutes or other records of all appropriate actions and
shall maintain its office separate from the offices of the Company.

         Section 4.06.    Prior Notice to Certificateholders with Respect to
Certain Matters.  With respect to the following matters, the Owner Trustee
shall not take action unless at least 30 days before the taking of such action,
the Owner Trustee shall have notified the Certificateholders and the Note
Insurer in writing of the proposed action and the Certificateholders and the
Note Insurer shall not have notified the Owner Trustee in writing prior to the
30th day after such notice is given that such Certificateholders and the Note
Insurer have withheld consent or provided alternative direction (provided,
however, that any direction by the Certificateholders shall require the prior
consent of the Note Insurer):

         (a)          the initiation of any claim or lawsuit by the Trust
(except claims or lawsuits brought in connection with the collection of cash
distributions due and owing under the Mortgage Loans) and the compromise of any
action, claim or lawsuit brought by or against the Trust (except with respect
to the aforementioned claims or lawsuits for collection of cash distributions
due and owing under the Mortgage Loans);

         (b)          the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under the
Business Trust Statute);
<PAGE>   20
                                      -15-


         (c)          the amendment or other change to this Trust Agreement or
any Basic Document in circumstances where the consent of any Noteholder or the
Note Insurer is required;

         (d)          the amendment or other change to this Trust Agreement or
any Basic Document  in circumstances where the consent of any Noteholder or the
Note Insurer is not required and such amendment materially adversely affects
the interest of the Certificateholders;

         (e)          the appointment pursuant to the Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee or, pursuant to this Trust
Agreement, of a successor Certificate Registrar or Certificate Paying Agent or
the consent to the assignment by the Note Registrar, Paying Agent, Indenture
Trustee, Certificate Registrar or Certificate Paying Agent of its obligations
under the Indenture or this Trust Agreement, as applicable;

         (f)          the consent to the calling or waiver of any default under
any Basic Document;

         (g)          the consent to the assignment by the Indenture Trustee or
Master Servicer of their respective obligations under any Basic Document;

         (h)          except as provided in Article VIII hereof, dissolve,
terminate or liquidate the Trust in whole or in part;

         (i)          merge or consolidate the Trust with or into any other
entity, or convey or transfer all or substantially all of the Trust's assets to
any other entity;

         (j)          cause the Trust to incur, assume or guaranty any
indebtedness other than as set forth in this Trust Agreement;

         (k)          perform any act that conflicts with any other Basic
Document;

         (l)          perform any act which would make it impossible to carry
on the ordinary business of the Trust as described in Section 2.03 hereof;

         (m)          confess a judgment against the Trust;

         (n)          possess Trust assets or assign the Trust's right to
property for other than a Trust purpose;

         (o)          cause the Trust to lend any funds to any entity; or

         (p)          change the Trust's purpose and powers from those
enumerated in this Trust Agreement.

         In addition the Trust shall not commingle its assets with those of any
other entity.  The Trust shall maintain its financial and accounting books and
records separate from those of any other 
<PAGE>   21
                                      -16-


entity.  Except as expressly set forth herein, the Trust shall pay its
indebtedness and any operating expenses from its own funds, and the Trust shall
not pay the indebtedness, operating expenses or liabilities of any other entity.
The Trust shall maintain appropriate minutes or other records of all appropriate
actions and shall maintain its office separate from the offices of the Seller
and the Master Servicer.

         Section 4.07.    Action by Certificateholders with Respect to Certain
Matters.  The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, and with the consent of the Note Insurer, to (a)
remove or replace the Master Servicer under the Servicing Agreement pursuant to
Sections 6.01 and 6.02 thereof or to remove or replace the Indenture Trustee
under the Indenture pursuant to Section 6.08 thereof, (b) except as expressly
provided in the Basic Documents, sell the Mortgage Loans after the termination
of the Indenture, (c) institute proceedings to have the Trust declared or
adjudicated to be bankrupt or insolvent, (d) consent to the institution of
bankruptcy or insolvency proceedings against the Trust, (e) file a petition or
consent to a petition seeking reorganization or relief on behalf of the Trust
under any applicable federal or state law relating to bankruptcy, (f) consent
to the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or any similar official) of the Trust or a substantial portion of the property
of the Trust, (g) make any assignment for the benefit of the Trust's creditors,
(h) cause the Trust to admit in writing its inability to pay its debts
generally as they become due, (i) take any action or cause the Trust to take
any action, in furtherance of any of the foregoing clauses (c) through (i) (any
of such clauses, a "Bankruptcy Action").  So long as the Indenture and the
Insurance Agreement remain in effect and no Note Insurer Default exists, no
Certificateholder shall have the power to take, and shall not take, any
Bankruptcy Action with respect to the Trust or the Company or direct the Owner
Trustee to take any Bankruptcy Action with respect to the Trust or the Company.
The Owner Trustee shall take the actions referred to in the preceding sentence
only upon written instructions signed by the Certificateholders and with the
consent of the Note Insurer.

         Section 4.08.    Action by Certificateholders with Respect to
Bankruptcy.  The Owner Trustee shall not have the power to commence a voluntary
proceeding in bankruptcy relating to the Trust without the unanimous prior
approval of all Certificateholders and the consent of the Note Insurer, the
Noteholders and the Owner Trustee and the delivery to the Owner Trustee by each
such Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent. This paragraph shall survive
for one year and one day following termination of this Trust Agreement.

         Section 4.09.    Restrictions on Certificateholders' Power.  The
Certificateholders shall not direct the Owner Trustee to take or to refrain
from taking any action if such action or inaction would be contrary to any
obligation of the Trust or the Owner Trustee under this Trust Agreement or any
of the Basic Documents or would be contrary to Section 2.03, nor shall the
Owner Trustee be obligated to follow any such direction, if given.

         Section 4.10.    Majority Control.  Except as expressly provided
herein, any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than
a majority of the outstanding Certificate Percentage Interests
<PAGE>   22
                                      -17-



of the Certificates.  Except as expressly provided herein, any written notice
of the Certificateholders delivered pursuant to this Trust Agreement shall be
effective if signed by Holders of Certificates evidencing not less than a
majority of the outstanding Certificate Principal Balance of the Certificates
at the time of the delivery of such notice.


                                   ARTICLE V

                           Application of Trust Funds

         Section 5.01.    Distributions.  (a)  On each Payment Date, the
Certificate Paying Agent shall distribute to the Certificateholders, on a pro
rata basis based on the Certificate Percentage Interests thereof, all funds on
deposit in the Certificate Distribution Account and available therefor (as
provided in Section 3.05 of the Indenture) for such Payment Date as reduced by
any amount owing to the Owner Trustee hereunder and any Expenses of the Trust
remaining unpaid as evidenced by written notice thereof delivered to the
Indenture Trustee prior to the Determination Date.

         (b)          In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to such Certificateholder in
accordance with this Section 5.01.  The Certificate Paying Agent is hereby
authorized and directed to retain or cause to be retained from amounts
otherwise distributable to the Certificateholders sufficient funds for the
payment of any tax that is legally owed by the Trust (but such authorization
shall not prevent the Owner Trustee from contesting any such tax in appropriate
proceedings, and withholding payment of such tax, if permitted by law, pending
the outcome of such proceedings).  The amount of any withholding tax imposed
with respect to a Certificateholder shall be treated as cash distributed to
such Certificateholder at the time it is withheld by the Certificate Paying
Agent and remitted to the appropriate taxing authority.  If there is a
possibility that withholding tax is payable with respect to a distribution
(such as a distribution to a non-U.S. Certificateholder), the Certificate
Paying Agent may in its sole discretion withhold such amounts in accordance
with this paragraph (b).

         (c)          Distributions to Certificateholders shall be subordinated
to the creditors of the Trust, including the Noteholders and the Note Insurer.

         Section 5.02.    Method of Payment.  Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder
owning Certificates having a Certificate Percentage Interest of 100%, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Record Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
<PAGE>   23
                                      -18-


         Section 5.03.    Tax Returns.  The Indenture Trustee shall (a)
maintain (or cause to be maintained) the books of the Trust on a calendar year
basis using the accrual method of accounting, (b) deliver (or cause to be
delivered) to each Certificateholder as may be required by the Code and
applicable Treasury Regulations, such information as may be required to enable
each Certificateholder to prepare its federal and state income tax returns, (c)
prepare and file or cause to be prepared and filed such tax returns relating to
the Trust as may be required by the Code and applicable Treasury Regulations
(making such elections as may from time to time be required or appropriate
under any applicable state or federal statutes, rules or regulations) and (d)
collect or cause to be collected any withholding tax as described in and in
accordance with Section 5.01 of this Trust Agreement with respect to income or
distributions to Certificateholders and prepare or cause to be prepared the
appropriate forms relating thereto.

         Section 5.04.    Statements to Certificateholders.  On each Payment
Date, the Certificate Paying Agent shall send to each Certificateholder the
statement or statements provided to the Owner Trustee and the Certificate
Paying Agent by the Indenture Trustee pursuant to Section 7.05 of the Indenture
with respect to such Payment Date.


                                   ARTICLE VI

                          Concerning the Owner Trustee

         Section 6.01.    Acceptance of Trusts and Duties.  The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement.
Each of the Owner Trustee and the Certificate Paying Agent also agrees to
disburse all moneys actually received by it constituting part of the Owner
Trust Estate upon the terms of the Basic Documents and this Trust Agreement.
The Owner Trustee shall not be answerable or accountable hereunder or under any
Basic Document under any circumstances, except (i) for its own willful
misconduct, gross negligence or bad faith or grossly negligent failure to act
or (ii) in the case of the inaccuracy of any representation or warranty
contained in Section 6.03 expressly made by the Owner Trustee.  In particular,
but not by way of limitation (and subject to the exceptions set forth in the
preceding sentence):

         (a)          The Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the instructions
of the Certificateholders permitted under this Trust Agreement;

         (b)          No provision of this Trust Agreement or any Basic
Document shall require the Owner Trustee to expend or risk funds or otherwise
incur any financial liability in the performance of any of its rights, duties
or powers hereunder or under any Basic Document if the Owner Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or provided
to it;
<PAGE>   24
                                      -19-


         (c)          Under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes;

         (d)          The Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Trust Agreement or for the due
execution hereof by the Company or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate, or for or in
respect of the validity or sufficiency of the Basic Documents, the Notes, the
Certificates, other than the certificate of authentication on the Certificates,
if executed by the Owner Trustee and the Owner Trustee shall in no event assume
or incur any liability, duty, or obligation to any Noteholder or to any
Certificateholder, other than as expressly provided for herein or expressly
agreed to in the Basic Documents;

         (e)          The Owner Trustee shall not be liable for the default or
misconduct of the Company, Indenture Trustee, Certificate Registrar or the
Master Servicer under any of the Basic Documents or otherwise and the Owner
Trustee shall have no obligation or liability to perform the obligations of the
Trust under this Trust Agreement or the Basic Documents that are required to be
performed by the Indenture Trustee under the Indenture or the Seller under the
Home Equity Loan Purchase Agreement; and

         (f)          The Owner Trustee shall be under no obligation to
exercise any of the rights or powers vested in it or duties imposed by this
Trust Agreement, or to institute, conduct or defend any litigation under this
Trust Agreement or otherwise or in relation to this Trust Agreement or any
Basic Document, at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Owner Trustee therein or thereby.
The right of the Owner Trustee to perform any discretionary act enumerated in
this Trust Agreement or in any Basic Document shall not be construed as a duty.

         Section 6.02.    Furnishing of Documents.  The Owner Trustee shall
furnish to the Securityholders promptly upon receipt of a written reasonable
request therefor, duplicates or copies of all reports, notices, requests,
demands, certificates, financial statements and any other instruments furnished
to the Trust under the Basic Documents.

         Section 6.03.    Representations and Warranties.  The Owner Trustee,
in its individual capacity,  hereby represents and warrants to the Company, for
the benefit of the Certificateholders   and the Note Insurer that:

         (a)          It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware.  It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Trust Agreement;

         (b)          It has taken all corporate action necessary to authorize
the execution and delivery by it of this Trust Agreement, and this Trust
Agreement will be executed and delivered
<PAGE>   25
                                      -20-




by one of its officers who is duly authorized to execute and deliver this Trust
Agreement on its behalf;

         (c)          The execution, delivery, authentication and performance
by it of this Trust Agreement will not require the authorization, consent or
approval of, the giving of notice to, the filing or registration with, or the
taking of any other action with respect to, any governmental authority or
agency;

         (d)          Neither the execution nor the delivery by it of this
Trust Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any federal or Delaware law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment or
order binding on it, or constitute any default under its charter documents or
bylaws or any indenture, mortgage, contract, agreement or instrument to which
it is a party or by which any of its properties may be bound;

         (e)          This Trust Agreement, assuming due authorization,
execution and delivery by the Owner Trustee and the Company, constitutes a
valid, legal and binding obligation of the Owner Trustee, enforceable against
it in accordance with the terms hereof subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the enforcement
of creditors' rights generally and to general principles of equity, regardless
of whether such enforcement is considered in a proceeding in equity or at law;

         (f)          The Owner Trustee 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 Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder; and

         (g)          No litigation is pending or, to the best of the Owner
Trustee's knowledge, threatened against the Owner Trustee which would prohibit
its entering into this Trust Agreement or performing its obligations under this
Trust Agreement.

         Section 6.04.    Reliance; Advice of Counsel.  (a)  The Owner Trustee
shall incur no liability to anyone in acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, report, opinion,
Note, or other document or paper believed by it to be genuine and believed by
it to be signed by the proper party or parties. The Owner Trustee may accept a
certified copy of a resolution of the board of directors or other governing
body of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and effect.
As to any fact or matter the method of determination of which is not
specifically prescribed herein, the Owner Trustee may for all purposes hereof
rely on a certificate, signed by the president or any vice president or by the
treasurer or other authorized officers of the relevant party, as to such fact
or matter and such certificate shall constitute full protection to the Owner
Trustee for any action taken or omitted to be taken by it in good faith in
reliance thereon.
<PAGE>   26
                                      -21-


         (b)          In the exercise or administration of the Trust hereunder
and in the performance of its duties and obligations under this Trust Agreement
or the Basic Documents, the Owner Trustee (i) may act directly or through its
agents, attorneys, custodians or nominees (including persons acting under a
power of attorney) pursuant to agreements entered into with any of them, and
the Owner Trustee shall not be liable for the conduct or misconduct of such
agents, attorneys, custodians or nominees (including persons acting under a
power of attorney) if such persons have been selected by the Owner Trustee with
reasonable care and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it.  The
Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.

         Section 6.05.    Not Acting in Individual Capacity.  Except as
provided in this Article VI, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its individual
capacity, and all Persons having any claim against the Owner Trustee by reason
of the transactions contemplated by this Trust Agreement or any Basic Document
shall look only to the Owner Trust Estate for payment or satisfaction thereof.

         Section 6.06.    Owner Trustee Not Liable for Certificates or Related
Documents.  The recitals contained herein and in the Certificates (other than
the signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Company, and the Owner Trustee assumes no responsibility for
the correctness thereof.  The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of
the Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Notes, or of any Related Documents.  The Owner Trustee
shall at no time have any responsibility or liability with respect to the
sufficiency of the Owner Trust Estate or its ability to generate the payments
to be distributed to Certificateholders under this Trust Agreement or the
Noteholders under the Indenture, including compliance by the Company or the
Seller with any warranty or representation made under any Basic Document or in
any related document or the accuracy of any such warranty or representation, or
any action of the Certificate Paying Agent, the Certificate Registrar or the
Indenture Trustee taken in the name of the Owner Trustee.

         Section 6.07.    Owner Trustee May Own Certificates and Notes.  The
Owner Trustee in its individual or any other capacity may, subject to Section
3.05, become the owner or pledgee of Certificates or Notes and may deal with
the Company, the Seller, the Certificate Paying Agent, the Certificate
Registrar and the Indenture Trustee in transactions with the same rights as it
would have if it were not Owner Trustee.

         Section 6.08.    Payments from Owner Trust Estate.  All payments to be
made by the Owner Trustee under this Trust Agreement or any of the Basic
Documents to which the Owner Trustee is a party shall be made only from the
income and proceeds of the Owner Trust Estate or from other amounts required to
be provided by the Certificateholders and only to the extent that the Owner
Trust shall have received income or proceeds from the Owner Trust Estate or the
Certificateholders to make such payments in accordance with the terms hereof.
Wilmington Trust
<PAGE>   27
                                      -22-


Company, in its individual capacity, shall not be liable for any amounts
payable under this Trust Agreement or any of the Basic Documents to which the
Owner Trustee is a party.

         Section 6.09.    Doing Business in Other Jurisdictions.
Notwithstanding anything contained herein to the contrary, neither Wilmington
Trust Company nor the Owner Trustee shall be required to take any action in any
jurisdiction other than in the State of Delaware if the taking of such action
will, even after the appointment of a co-trustee or separate trustee in
accordance with Section 9.05 hereof, (i) require the consent or approval or
authorization or order of or the giving of notice to, or the registration with
or the taking of any other action in respect of, any state or other
governmental authority or agency of any jurisdiction other than the State of
Delaware; (ii) result in any fee, tax or other governmental charge under the
laws of the State of Delaware becoming payable by Wilmington Trust Company; or
(iii) subject Wilmington Trust Company to personal jurisdiction in any
jurisdiction other than the State of Delaware for causes of action arising from
acts unrelated to the consummation of the transactions by Wilmington Trust
Company or the Owner Trustee, as the case may be, contemplated hereby.

         Section 6.10.    Liability of Certificate Registrar and Certificate
Paying Agent. All provisions of this Trust Agreement affording protection to or
limiting the liability of the Owner Trustee shall inure as well to the
Certificate Registrar and Certificate Paying Agent.  Such protection shall
survive the termination of this Trust Agreement and the resignation or removal
of either the Certificate Registrar or Certificate Paying Agent.


                                  ARTICLE VII

                         Compensation of Owner Trustee

         Section 7.01.    Owner Trustee's Fees and Expenses.  The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof and as set forth in Appendix A to
the Indenture, and the Owner Trustee shall be reimbursed by the Trust Estate
pursuant to Section 3.05(a) of the Indenture for its reasonable expenses
hereunder and under the Basic Documents, including the reasonable compensation,
expenses and disbursements of such agents, representatives, experts and counsel
as the Owner Trustee may reasonably employ in connection with the exercise and
performance of its rights and its duties hereunder and under the Basic
Documents. The amount of the Owner Trustee Fee shall be paid to the Owner
Trustee pursuant to Section 3.05 of the Indenture.

         Section 7.02.    Indemnification.  The Master Servicer shall
indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature
whatsoever (collectively, "Expenses") which may at any time be imposed on,
incurred by, or asserted against the Owner Trustee or any Indemnified Party in
any way relating to or arising out of this Trust Agreement, the Basic
<PAGE>   28
                                      -23-


Documents, the Owner Trust Estate, the administration of the Owner Trust Estate
or the action or inaction of the Owner Trustee hereunder, provided, that:

                      (i)   the Master Servicer shall not be liable for or
         required to indemnify an Indemnified Party from and against Expenses
         arising or resulting from the Owner Trustee's willful misconduct,
         gross negligence or bad faith or as a result of any inaccuracy of a
         representation or warranty contained in Section 6.03 expressly made by
         the Owner Trustee;

                      (ii)  with respect to any such claim, the Indemnified
         Party shall have given the Master Servicer written notice thereof
         promptly after the Indemnified Party shall have actual knowledge
         thereof;

                    (iii)   while maintaining control over its own defense, the
         Master Servicer shall consult with the Indemnified Party in preparing
         such defense; and

                      (iv)  notwithstanding anything in this Trust Agreement to
         the contrary, the Master Servicer shall not be liable for settlement
         of any claim by an Indemnified Party entered into without the prior
         consent of the Master Servicer which consent shall not be unreasonably
         withheld.

         The indemnities contained in this Section shall survive the
resignation or termination of the Owner Trustee or the termination of this
Trust Agreement.  In the event of any claim, action or proceeding for which
indemnity will be sought pursuant to this Section 7.02, the Owner Trustee's
choice of legal counsel, if other than the legal counsel retained by the Owner
Trustee in connection with the execution and delivery of this Trust Agreement,
shall be subject to the approval of the Master Servicer, which approval shall
not be unreasonably withheld.  In addition, upon written notice to the Owner
Trustee and with the consent of the Owner Trustee which consent shall not be
unreasonably withheld, the Master Servicer has the right to assume the defense
of any claim, action or proceeding against the Owner Trustee.


                                  ARTICLE VIII

                         Termination of Trust Agreement

         Section 8.01.    Termination of Trust Agreement.  (a)  This Trust
Agreement (other than Article VII) and the Trust shall terminate and be of no
further force or effect upon the earliest of (i) the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in June 2028, or (iii) the distribution of all of the assets of the Owner Trust
Estate, in accordance with written instructions provided to the Owner Trustee
by the Seller, following the optional redemption of the Notes by the Seller
pursuant to Section 8.07 of the Indenture; provided in each case that all
amounts owing to the Noteholders and the Note Insurer to the extent payable
from the Owner Trust Estate or proceeds thereof have been paid in full and that
all obligations under the Indenture have
<PAGE>   29
                                      -24-



been discharged.  The bankruptcy, liquidation, dissolution, death or incapacity
of any Certificateholder shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.

         (b)          Except as provided in Section 8.01(a), neither the
Company nor any  Certificateholder shall be entitled to revoke or terminate the
Trust.

         (c)          Notice of any termination of the Trust, specifying the
Payment Date upon which Certificateholders shall surrender their Certificates
to the Certificate Paying Agent for payment of the final distribution and
cancellation, shall be given by the Certificate Paying Agent by letter to
Certificateholders and the Note Insurer mailed within five Business Days of
receipt of notice of the final payment on the Notes from the Indenture Trustee,
stating (i) the Payment Date upon or with respect to which final payment of the
Certificates shall be made upon presentation and surrender of the Certificates
at the office of the Certificate Paying Agent therein designated, (ii) the
amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Payment Date is not applicable, payments being made only
upon presentation and surrender of the Certificates at the office of the
Certificate Payment Agent therein specified.  The Certificate Paying Agent
shall give such notice to the Owner Trustee and the Certificate Registrar at
the time such notice is given to Certificateholders.  Upon presentation and
surrender of the Certificates, the Certificate Paying Agent shall cause to be
distributed to Certificateholders amounts distributable on such Payment Date
pursuant to Section 5.01.

         In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give
a second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto.  Subject to applicable laws with respect to escheat of funds, if
within one year following the Payment Date on which final payment of the
Certificates was to have been made pursuant to Section 3.05 of the Indenture,
all the Certificates shall not have been surrendered for cancellation, the
Certificate Paying Agent may take appropriate steps, or may appoint an agent to
take appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certificates, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Trust Agreement.  Any
funds remaining in the Certificate Distribution Account after exhaustion of
such remedies shall be distributed by the Certificate Paying Agent to the
Holder of the Certificate.

         (d)          Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(d) of the Business Trust Statute.
<PAGE>   30
                                      -25-



                                   ARTICLE IX

             Successor Owner Trustees and Additional Owner Trustees

         Section 9.01.    Eligibility Requirements for Owner Trustee.  The
Owner Trustee shall at all times be a corporation reasonably acceptable to the
Note Insurer and satisfying the provisions of Section 3807(a) of the Business
Trust Statute; authorized to exercise corporate trust powers; having a combined
capital and surplus of at least $50,000,000 and subject to supervision or
examination by federal or state authorities; and having (or having a parent
that has) a rating of at least Baa3 or is otherwise acceptable to the Note
Insurer, Moody's and Standard & Poor's.  If such corporation shall publish
reports of condition at least annually pursuant to law  or to the requirements
of the aforesaid supervising or examining authority, then for the purpose of
this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published.  In case at any time the Owner Trustee shall
cease to be eligible in accordance with the provisions of this Section 9.01,
the Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 9.02.

         Section 9.02.    Resignation and Replacement of Owner Trustee.  The
Owner Trustee may at any time resign and be discharged from the trusts hereby
created by giving 30 days prior written notice thereof to the Note Insurer and
the Company.  Upon receiving such notice of resignation, the Company shall
promptly appoint a successor Owner Trustee with the consent of the Note Insurer
which will not be unreasonably withheld, by written instrument, in duplicate,
one copy of which instrument shall be delivered to the resigning Owner Trustee
and to the successor Owner Trustee.  If no successor Owner Trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Owner Trustee may petition any
court of competent jurisdiction for the appointment of a successor Owner
Trustee reasonably acceptable to the Certificateholders and the Note Insurer.

         If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Company or the Note Insurer, or if at any time
the Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt
or insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Company may remove the Owner Trustee with
the consent of the Note Insurer and shall remove the Owner Trustee at the
direction of the Note Insurer.

         Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee.  The Master Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies and
the Note Insurer.
<PAGE>   31
                                      -26-


         Section 9.03.    Successor Owner Trustee.  Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to
the Indenture Trustee and to its predecessor Owner Trustee an instrument
accepting such appointment under this Trust Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective,
and such successor Owner Trustee, without any further act, deed or conveyance,
shall become fully vested with all the rights, powers, duties and obligations
of its predecessor under this Trust Agreement, with like effect as if
originally named as Owner Trustee.  The predecessor Owner Trustee shall upon
payment of its fees and expenses deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Trust Agreement; and
the predecessor Owner Trustee shall execute and deliver such instruments and do
such other things as may reasonably be required for fully and certainly vesting
and confirming in the successor Owner Trustee all such rights, powers, duties
and obligations.

         No successor Owner Trustee shall accept appointment as provided in
this Section 9.03 unless at the time of such acceptance such successor Owner
Trustee shall be eligible pursuant to Section 9.01.

         Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section 9.03, the Owner Trustee shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders, the Note Insurer
and the Rating Agencies.

         Section 9.04.    Merger or Consolidation of Owner Trustee.  Any Person
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies and the Note Insurer.

         Section 9.05.    Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Owner Trustee
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons to act as co- trustee, jointly with the Owner Trustee, or
as separate trustee or trustees, of all or any part of the Owner Trust Estate,
and to vest in such Person, in such capacity, such title to the Trust or any
part thereof and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Owner Trustee or the Note Insurer
may consider necessary or desirable.  No co-trustee or separate trustee under
this Trust Agreement shall be required to meet the terms of eligibility as a
successor Owner Trustee pursuant to Section 9.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 9.03, except that notice to, and the consent of, the Note Insurer shall
be required for appointment of a co-trustee.
<PAGE>   32
                                      -27-


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

         (a)          All rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not authorized
to act separately without the Owner Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act or
acts are to be performed, the Owner 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 Owner Trust Estate 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 Owner Trustee;

         (b)          No trustee under this Trust Agreement shall be personally
liable by reason of any act or omission of any other trustee under this Trust
Agreement; and

         (c)          The Owner Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.

         Any notice, request or other writing given to the Owner 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
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article IX.  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 Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee.  Each such
instrument shall be filed with the Owner Trustee.

         Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as 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
Trust 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 Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.


                                   ARTICLE X

                                 Miscellaneous

         Section 10.01.     Amendments.  (a)  This Trust Agreement may be
amended from time to time by the parties hereto (with the prior written consent
of the Note Insurer and the Seller and
<PAGE>   33
                                      -28-



with prior notice to the Rating Agencies) as specified in this Section,
provided that any amendment, except as provided in subparagraph (e) below,
shall be accompanied by an Opinion of Counsel addressed to the Owner Trustee
and obtained by the party seeking such amendment to the effect that such
amendment (i) complies with the provisions of this Section and (ii) would not
cause the Trust (if PacificAmerica Money Center, Inc. was not the Holder of
100% of the Certificates or if the Note Insurance Policy is outstanding) to be
subject to an entity level tax for federal income tax purposes.

         (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 Holders), it shall not be
necessary to obtain the consent of any Holders, but the Owner Trustee shall be
furnished with (i) a letter from each of the Rating Agencies that the amendment
will not result in the downgrading or withdrawal of the rating then assigned to
any Note or the rating then assigned to any Note without taking into account
the Note Insurance Policy or (ii) an Opinion of Counsel obtained by the Master
Servicer to the effect that such action will not adversely affect in any
material respect the interests of any Holders or the Note Insurer, and the
consent of the Note Insurer shall be obtained.

         (c)          If the purpose of the amendment is to prevent the
imposition of any federal or state taxes at any time that any Security is
outstanding, it shall not be necessary to obtain the consent of any Holder, but
the Owner Trustee and the Note Insurer shall be furnished with an Opinion of
Counsel obtained by the Master Servicer that such amendment is necessary or
helpful to prevent the imposition of such taxes and is not materially adverse
to any Holder or the Note Insurer and the consent of the Note Insurer shall be
obtained.

         (d)          If the purpose of the amendment is to add or eliminate or
change any provision of the Trust Agreement other than as contemplated in (b)
and (c) above, the amendment shall require (i) an Opinion of Counsel obtained
by the party seeking such amendment to the effect that such action will not
adversely affect in any material respect the interests of any Holders or the
Note Insurer, (ii) the consent of the Note Insurer and (iii) either (A) a
letter from each of the Rating Agencies that the amendment will not result in
the downgrading or withdrawal of the rating then assigned to any Note or the
rating then assigned to any Note without taking into account the Note Insurance
Policy or (B) the consent of the Indenture Trustee and the Holders of
Certificates evidencing a majority of the Certificate Principal Balance of the
Certificates; provided, however, that no such amendment shall (1) 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 and the Note Insurer, or (2) 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)          If the purpose of the amendment is to provide for the
holding of any of the Certificates in book-entry form, it shall require the
consent of Holders of all such Certificates then
<PAGE>   34
                                      -29-


outstanding; provided, that the Opinion of Counsel specified in subparagraph
(a) above shall not be required.

         (f)          If the purpose of the amendment is to provide for the
issuance of additional certificates representing an interest in the Trust, it
shall not be necessary to obtain the consent of any Holder, but the Owner
Trustee shall be furnished with (i) an Opinion of Counsel obtained by the party
seeking such amendment to the effect that such action will not adversely affect
in any material respect the interests of any Holders or the Note Insurer and
(ii) a letter from the each of the Rating Agencies that the amendment will not
result in the downgrading or withdrawal of the rating then assigned to any
Notes or the rating then assigned to the Notes without taking into account the
Note Insurance Policy and the consent of the Note Insurer shall be obtained.

         (g)          Promptly after the execution of any such amendment or
consent, the Master Servicer shall furnish written notification of the
substance of such amendment or consent to each Certificateholder, the Indenture
Trustee, the Note Insurer and each of the Rating Agencies.  It shall not be
necessary for the consent of Certificateholders or the Indenture Trustee
pursuant to this Section 10.01 to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof.  The manner of obtaining such consents (and any other
consents of Certificateholders provided for in this Trust Agreement or in any
other Basic Document) and of evidencing the authorization of the execution
thereof by Certificateholders shall be subject to such reasonable requirements
as the Owner Trustee may prescribe.

         (h)          In connection with the execution of any amendment to any
agreement to which the Trust is a party, other than this Trust Agreement, the
Owner Trustee shall be entitled to receive and conclusively rely upon an
Opinion of Counsel to the effect that such amendment is authorized or permitted
by the documents subject to such amendment and that all conditions precedent in
the Basic Documents for the execution and delivery thereof by the Trust or the
Owner Trustee, as the case may be, have been satisfied.

         Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.

         Section 10.02.     No Legal Title to Owner Trust Estate.  The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate solely by virtue of their status as Certificateholders.  The
Certificateholders shall be entitled to receive distributions with respect to
their undivided beneficial interests therein only in accordance with Articles V
and VIII.  No transfer, by operation of law or otherwise, of any right, title
or interest of the Certificateholders to and in their ownership interest in the
Owner Trust Estate shall operate to terminate this Trust Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate
<PAGE>   35
                                      -30-


         Section 10.03.     Limitations on Rights of Others.  Except for
Section 2.07, the provisions of this Trust Agreement are solely for the benefit
of the Owner Trustee, the Company, the Certificateholders, the Note Insurer
and, to the extent expressly provided herein, the Indenture Trustee and the
Noteholders, and nothing in this Trust Agreement (other than Section 2.07),
whether express or implied, shall be construed to give to any other Person any
legal or equitable right, remedy or claim in the Owner Trust Estate or under or
in respect of this Trust Agreement or any covenants, conditions or provisions
contained herein.

         Section 10.04.     Notices.  (a)  Unless otherwise expressly specified
or permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt, to the Owner Trustee at:  Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware  19890;
Attention:  Corporate Trust Administration; to the Company at: Merrill Lynch
Mortgage Investors, Inc., 250 Vesey Street, World Financial Center/North Tower,
23rd Floor,  New York, New York 10281, Attention: Mike McGovern, Legal
Department; to the Indenture Trustee at: Bankers Trust Company of California,
N.A., 3 Park Plaza, 16th Floor, Irvine, California  92614; Attention: Corporate
Trust Department - PacificAmerica Home Equity Loan Trust Series 1998-2F, to the
Note Insurer at: Financial Security Assurance Inc., 350 Park Avenue, New York,
NY  10022, Attention: Surveillance Department (telecopy number: (212)
339-3518); to Moody's at: 99 Church Street, New York, New York 10007;
Attention:  Residential Mortgage Monitoring Unit; to Standard & Poor's at 26
Broadway, 15th Floor, New York, New York 10004; Attention: Asset Backed
Surveillance Group or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.

         (b)          Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register.  Any notice so
mailed within the time prescribed in this Trust Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.

         (c)          A copy of any notice delivered to the Owner Trustee or
the Trust shall also be delivered to the Company.

         Section 10.05.     Severability.  Any provision of this Trust
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

         Section 10.06.     Separate Counterparts.  This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.

         Section 10.07.     Successors and Assigns.  All representations,
warranties, covenants and agreements contained herein shall be binding upon,
and inure to the benefit of, each of the
<PAGE>   36
                                      -31-



Company, the Note Insurer, the Owner Trustee and its successors and each
Certificateholder and its successors and permitted assigns, all as herein
provided.  Any request, notice, direction, consent, waiver or other instrument
or action by a Certificateholder shall bind the successors and assigns of such
Certificateholder.

         Section 10.08.     No Petition.  The Owner Trustee, by entering into
this Trust Agreement and each Certificateholder, by accepting a Certificate,
hereby covenant and agree that they will not at any time institute against the
Company or the Trust, or join in any institution against the Company or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Notes, this Trust Agreement or any of the Basic Documents.
This Section shall survive for one year following the termination of this Trust
Agreement.

         Section 10.09.     No Recourse.  Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Company, the Seller, the Owner Trustee, the Indenture
Trustee or any Affiliate thereof and no recourse may be had against such
parties or their assets, except as may be expressly set forth or contemplated
in this Trust Agreement, the Certificates or the Basic Documents.

         Section 10.10.     Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

         Section 10.11.     GOVERNING LAW.  THIS TRUST AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.

         Section 10.12.     Integration.  This Trust Agreement constitutes the
entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements and understanding pertaining
thereto.

         Section 10.13.     Third-Party Beneficiary. The Note Insurer shall be
a third party beneficiary hereof and shall be entitled to enforce the
provisions hereof as if a party hereto. This provision shall not be construed
to limit or modify in any way the fiduciary obligation of the Owner Trustee to
the beneficial owners of the Trust or to create a fiduciary obligation to any
person other than the beneficial owners of the Trust.

         Section 10.14.     Suspension and Termination of Note Insurer's
Rights.  During the continuation of a Note Insurer Default, rights granted or
reserved to the Note Insurer hereunder shall vest instead in the
Certificateholders; provided that the Note Insurer shall be entitled to any
distributions in reimbursement in accordance with the Indenture.
<PAGE>   37
                                      -32-


         At such time as either (i) the Note Principal Balance has been reduced
to zero or (ii) the Note Insurance Policy has been terminated and in either
case of (i) or (ii) the Note Insurer has been reimbursed for all Scheduled
Payments and any other amounts owed under the Note Insurance Policy and the
Insurance Agreement (and the Note Insurer no longer has any obligation under
the Note Insurance Policy, except for breach thereof by the Note Insurer), then
the rights and benefits granted or reserved to the Note Insurer hereunder
(including the rights to direct certain actions and receive certain notices)
shall terminate and the Certificateholders shall be entitled to the exercise of
such rights and to receive such benefits of the Note Insurer following such
termination to the extent that such rights and benefits are applicable to the
Certificateholders.






<PAGE>   38
                                      -33-

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



                                        MERRILL LYNCH MORTGAGE
                                        INVESTORS, INC., as Company,

                                        By:
                                           -----------------------------------
                                           Name:
                                                ------------------------------
                                           Title:
                                                 -----------------------------

                                        WILMINGTON TRUST COMPANY, as
                                        Owner Trustee,

                                        By:
                                           -----------------------------------
                                           Name:
                                                ------------------------------
                                           Title:
                                                 -----------------------------



Acknowledged and Agreed:


BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
     as Certificate Registrar
     and Certificate Paying Agent



By:
   -----------------------------------
   Name:
        ------------------------------
   Title:
         -----------------------------

<PAGE>   39
                                   EXHIBIT A

                             [Form of Certificate]

                                     [Face]


THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.

NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT 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 PERSON
ACTING ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II)
IF THIS CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT
TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE
CODE (OR COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF
ANY SUCH PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO
EFFECT SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE
OR HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE COMPANY TO ANY OBLIGATION OR
LIABILITY.

NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS CERTIFYING AS TO THE
TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER U.S. LAW.

THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE COMPANY, THE MASTER SERVICER, THE INDENTURE
<PAGE>   40
                                      A-2


TRUSTEE, OR THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS
EXPRESSLY PROVIDED IN THE TRUST AGREEMENT OR THE BASIC DOCUMENTS.
<PAGE>   41

                                      A-3

                           Certificate No.

                           Certificate Percentage Interest of
                           this Certificate:  _______%

                           Cut-off Date: June 1, 1998

                           First Payment Date
                           July 27, 1998


              PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F
           PACIFICAMERICA HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
                                 SERIES 1998-2F

         Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Loans in
PacificAmerica Home Equity Loan Trust Series 1998-2F (the "Trust"), a Delaware
business trust formed by

      MERRILL LYNCH MORTGAGE INVESTORS, INC., as Company, pursuant to the
                       Trust Agreement referred to below.

         This certifies that [name of Holder] is the registered owner of the
Certificate Percentage Interest represented hereby.

         The Trust was created pursuant to a Trust Agreement, dated June 22,
1998, as amended and restated by the Amended and Restated Trust Agreement,
dated as of June 1, 1998 (as amended and supplemented from time to time, the
"Trust Agreement"), between the Company and Wilmington Trust Company, as owner
trustee (as amended and supplemented from time to time, the "Owner Trustee",
which term includes any successor entity under the Trust Agreement), a summary
of certain of the pertinent provisions of which is set forth hereinafter.  This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement, to which Trust Agreement the Holder of this
Certificate by virtue of the acceptance hereof assents and by which such Holder
is bound.

         This Certificate is one of a duly authorized issue of PacificAmerica
Home Equity Loan Asset-Backed Certificates, Series 1998-2F (herein called the
"Certificates") issued under the Trust Agreement to which reference is hereby
made for a statement of the respective rights thereunder of the Company, the
Owner Trustee and the Holders of the Certificates and the terms upon which the
Certificates are executed and delivered.  All terms used in this Certificate
which are defined in the Trust Agreement shall have the meanings assigned to
them in the Trust Agreement.  The Owner Trust Estate primarily consists of the
Mortgage Loans in the PacificAmerica Home Equity Loan Trust Series 1998-2F and
a Note Insurance Policy.  The rights of the Holders of the Certificates are
subordinated to the rights of the Holders of the Notes, as set forth in the
Indenture.
<PAGE>   42
                                      A-4


         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 (each, a "Payment Date"),
commencing in July 1998, to the Person in whose name this Certificate is
registered (i) with respect to the first Payment Date, on the Closing Date and
(ii) with respect to every other Payment Date, at the close of business on the
last Business Day of the month preceding the month of such Payment Date (the
"Record Date"), such Certificateholder's Certificate Percentage Interest in the
amount to be distributed to Certificateholders on such Payment Date.

         The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and
that neither the Owner Trustee in its individual capacity nor the Company is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the
Trust Agreement, subject to any liability under the Trust Agreement.

         The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of (i) the Noteholders as described in the Indenture, dated as of June
1, 1998 (the "Indenture"), between the Trust and Bankers Trust Company of
California, N.A., as Indenture Trustee and (ii) the Class A-V Notes; as
described in an indenture, dated as of June 1, 1998 between Pacific America
Home Equity Loan Asset-Backed Trust, Series 1998-2V and the Indenture Trustee.

         The Company and each Certificateholder, by acceptance of a
Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Certificates for federal, state and local income tax purposes
as an equity interest in the Trust.

         Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Company, or join in any institution against the Company or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Notes, the Trust Agreement or any of the Basic Documents.

         Distributions on this Certificate will be made as provided in the
Trust Agreement by the Certificate Paying Agent by wire transfer or check
mailed to the Certificateholder of record in the Certificate Register without
the presentation or surrender of this Certificate or the making of any notation
hereon.  Except as otherwise provided in the Trust Agreement and
notwithstanding the above, the final distribution on this Certificate will be
made after due notice by the Certificate Paying Agent of the pendency of such
distribution and only upon presentation and  surrender of this Certificate at
the office or agency maintained by the Certificate Registrar for that purpose
by the Trust in the Borough of Manhattan, The City of New York.
<PAGE>   43
                                      A-5


         Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.

         Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.

         THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH  THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
<PAGE>   44
                                      A-6


         IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.

                                     WILMINGTON TRUST COMPANY, not in its 
                                     individual capacity but solely as Owner
                                     Trustee


Dated:                               By:
                                        ------------------------------------
                                        Authorized Signatory



                         CERTIFICATE OF AUTHENTICATION

         This is one of the Certificates referred to in the within-mentioned
Trust Agreement.

                                     [WILMINGTON TRUST COMPANY, not in its
                                     individual capacity but solely as Owner
                                     Trustee

Dated:                               By:
                                        ------------------------------------
                                        Authorized Signatory

                                     or
                                        ------------------------------------
                                        As Authenticating Agent of the Trustee

                                     By:                                    ]
                                        ------------------------------------
                                        Authorized Signatory


                                     [BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
                                     not in its individual capacity but solely
                                     as Owner Trustee

                                     By:
                                        ------------------------------------
                                        Authorized Signatory

                                     or
                                        ------------------------------------
                                        As Authenticating Agent of the Trustee

                                     By:                                    ]
                                        ------------------------------------
                                        Authorized Signatory
<PAGE>   45
                                      A-7



                            [REVERSE OF CERTIFICATE]


         The Certificates do not represent an obligation of, or an interest in,
the Company, the Seller, the Master Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against
such parties or their assets, except as expressly set forth or contemplated
herein or in the Trust Agreement or the Basic Documents.  In addition, this
Certificate is not guaranteed by any governmental agency or instrumentality and
is limited in right of payment to certain collections and recoveries with
respect to the Mortgage Loans, all as more specifically set forth herein and in
the Trust Agreement.  A copy of the Trust Agreement may be examined by any
Certificateholder upon written request during normal business hours at the
principal office of the Company and at such other places, if any, designated by
the Company.

         The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Note Insurer
and an Opinion of Counsel to the Owner Trustee to the effect that such
amendment complies with the provisions of the Trust Agreement and, if
PacificAmerica Money Center, Inc. was not the Holder of 100% of the
Certificates, would not cause the Trust to be subject to an entity level tax.
If the purpose of the amendment is to correct any mistake, eliminate any
inconsistency, cure any ambiguity or deal with any matter not covered, it shall
not be necessary to obtain the consent of any Holder, but the Owner Trustee
shall be furnished with (A) a letter from each of the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Note or the rating then assigned to any Note without taking
into account the Note Insurance Policy or (B) an Opinion of Counsel to the
effect that such action will not adversely affect in any material respect the
interests of any Holders, and the consent of the Note Insurer shall be
obtained.  If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding, it shall
not be necessary to obtain the consent of the any Holder, but the Owner 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 Holder and the consent of the Note Insurer shall be obtained.
If the purpose of the amendment is to add or eliminate or change any provision
of the Trust Agreement, other than as specified in the preceding two sentences,
the amendment shall require (A) an Opinion of Counsel to the effect that such
action will not adversely affect in any material respect the interests of any
Holders, (B) the consent of the Note Insurer and (C) either (a) a letter from
each of the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Note or the rating
then assigned to any Note without taking into account the Note Insurance Policy
or (b) the consent of the Indenture Trustee and the Holders of the Certificates
evidencing a majority of the Certificate Principal Balance of  the
Certificates; 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 and the Note Insurer, 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.
<PAGE>   46
                                      A-8


         As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to 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 initial Certificate Registrar
appointed under the Trust Agreement is Bankers Trust Company of California,
N.A..

         Except as provided in the Trust Agreement, the Certificates are
issuable only in a minimum Certificate Percentage Interest of 10%.  As provided
in the Trust Agreement and subject to certain limitations therein set forth,
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 Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.

         The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate
is registered as the owner hereof for all purposes, and none of the Owner
Trustee, the Certificate Paying Agent, the Certificate Registrar or any such
agent shall be affected by any notice to the contrary.

         The obligations and responsibilities created by the Trust Agreement
and the Trust created thereby shall terminate as and when provided in
accordance with the terms of the Trust Agreement.
<PAGE>   47
                                      A-9

                                   ASSIGNMENT


     FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto

PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE



________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)


________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing


________________________________________________________________________________
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.


Dated:

                                   ___________________________________________*/
                                             Signature Guaranteed:


                                       ____________________________*/


_________________

*/  NOTICE:  The signature to this assignment must correspond with the name as
it appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever.  Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
<PAGE>   48
                                      A-10


                           DISTRIBUTION INSTRUCTIONS


         The assignee should include the following for the information of the
Certificate Paying Agent:

         Distribution shall be made by wire transfer in immediately available
funds to ______________________________________________ for the account of
________________________________________, account number ______________, or, if
mailed by check, to ______________.

         Applicable statements should be mailed to__________________.


                                         ______________________________________
                                         Signature of assignee or agent
                                         (for authorization of wire
                                         transfer only)
<PAGE>   49
                                                                       EXHIBIT B
                                                          TO THE TRUST AGREEMENT

                            CERTIFICATE OF TRUST OF
              PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F


         THIS Certificate of Trust of PacificAmerica Home Equity Loan Trust
Series 1998-2F (the "Trust"), dated ____________, 1998, is being duly executed
and filed by ______________________, a Delaware banking corporation, as trustee,
to form a business trust under the Delaware Business Trust Act (12 Del. Code,
Section 3801 et seq.).

         1. Name. The name of the business trust formed hereby is PacificAmerica
Home Equity Loan Trust Series 1998-2F.

         2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.

         IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.


                                    ______________________________,
                                    not in its individual capacity but solely as
                                    owner trustee under a Trust Agreement dated
                                    as of ____________, 1998

                                    By:


                                         ______________________________________
                                         Name:
                                         Title:
<PAGE>   50
                                   EXHIBIT C

                 [FORM OF RULE 144A INVESTMENT REPRESENTATION]


            Description of Rule 144A Securities, including numbers:
            _______________________________________________________
            _______________________________________________________
            _______________________________________________________
            _______________________________________________________


                 The undersigned  seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").

                 1.  In connection with such transfer and in accordance with
the agreements pursuant to which the Rule 144A Securities were issued, the
Seller hereby certifies the following facts:  Neither the Seller nor anyone
acting on its behalf has offered, transferred, pledged, sold or otherwise
disposed of the Rule 144A Securities, any interest in the Rule 144A Securities
or any other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any interest
in the Rule 144A Securities or any other similar security from, or otherwise
approached or negotiated with respect to the Rule 144A Securities, any interest
in the Rule 144A Securities or any other similar security with, any person in
any manner, or made any general solicitation by means of general advertising or
in any other manner, or taken any other action, that would constitute a
distribution of the Rule 144A Securities under the Securities Act of 1933, as
amended (the "1933 Act"), or that would render the disposition of the Rule 144A
Securities a violation of Section 5 of the 1933 Act or require registration
pursuant thereto, and that the Seller has not offered the Rule 144A Securities
to any person other than the Buyer or another "qualified institutional buyer"
as defined in Rule 144A under the 1933 Act.

                 2.  The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Company (each as defined in the Amended and Restated
Trust Agreement (the "Agreement"), dated as of June 1, 1998, between Merrill
Lynch Mortgage Investors, Inc., as Company, and Wilmington Trust Company, as
Owner Trustee) pursuant to Section 3.05 of the Agreement and Bankers Trust
Company of California, N.A. as indenture trustee, as follows:

                          a.  The Buyer understands that the Rule 144A
         Securities have not been registered under the 1933 Act or the
         securities laws of any state.

                          b.  The Buyer considers itself a substantial,
         sophisticated institutional investor having such knowledge and
         experience in financial and business matters that it is capable of
         evaluating the merits and risks of investment in the Rule 144A
         Securities.
<PAGE>   51
                                      C-2

                          c.  The Buyer has been furnished with all information
         regarding the Rule 144A Securities that it has requested from the
         Seller, the Indenture Trustee, the Owner Trustee or the Master
         Servicer.

                          d.  Neither the Buyer nor anyone acting on its behalf
         has offered, transferred, pledged, sold or otherwise disposed of the
         Rule 144A Securities, any interest in the Rule 144A Securities or any
         other similar security to, or solicited any offer to buy or accept a
         transfer, pledge or other disposition of the Rule 144A Securities, any
         interest in the Rule 144A Securities or any other similar security
         from, or otherwise approached or negotiated with respect to the Rule
         144A Securities, any interest in the Rule 144A Securities or any other
         similar security with, any person in any manner, or made any general
         solicitation by means of general advertising or in any other manner,
         or taken any other action, that would constitute a distribution of the
         Rule 144A Securities under the 1933 Act or that would render the
         disposition of the Rule 144A Securities a violation of Section 5 of
         the 1933 Act or require registration pursuant thereto, nor will it
         act, nor has it authorized or will it authorize any person to act, in
         such manner with respect to the Rule 144A Securities.

                          e.  The Buyer is a "qualified institutional buyer" as
         that term is defined in Rule 144A under the 1933 Act and has completed
         either of the forms of certification to that effect attached hereto as
         Annex 1 or Annex 2.  The Buyer is aware that the sale to it is being
         made in reliance on Rule 144A.  The Buyer is acquiring the Rule 144A
         Securities for its own account or the accounts of other qualified
         institutional buyers, understands that such Rule 144A Securities may
         be resold, pledged or transferred only (i) to a person reasonably
         believed to be a qualified institutional buyer that purchases for its
         own account or for the account of a qualified institutional buyer to
         whom notice is given that the resale, pledge or transfer is being made
         in reliance on Rule 144A, or (ii) pursuant to another exemption from
         registration under the 1933 Act.

                 [3.  The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Master Servicer and the
Company that either (1) the Buyer is (A) 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 Internal Revenue Code of 1986 ("Code")), which (in either
case) is subject to ERISA or Section 4975 of the Code (both a "Plan"), and (B)
is not directly or indirectly purchasing the Rule 144A Securities on behalf of,
as investment manager of, as named fiduciary of, as trustee of, or with "plan
assets" of a Plan, or (2) the Buyer understands that registration of transfer
of any Rule 144A Securities to any Plan, or to any Person acting on behalf of
any Plan, will not be made unless such Plan delivers an opinion of its counsel,
addressed and satisfactory to the Certificate Registrar and the Company, to the
effect that the purchase and holding of the Rule 144A Securities by, on behalf
of or with "plan assets" of any Plan would not constitute or result in a
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code,
and would not subject the Company, the Master Servicer, the Indenture Trustee
or the Trust to any obligation or liability
<PAGE>   52
                                      C-3


(including liabilities under ERISA or Section 4975 of the Code) in addition to
those undertaken in the Agreement or any other liability.]

                 4.  This document 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; such counterparts,
together, shall constitute one and the same document.

                 Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to them in the Agreement.

                 IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.


- -------------------------------                -------------------------------
Print Name of Seller                           Print Name of Buyer

By:                                            By:
   ----------------------------                   ----------------------------
Name:                                          Name:
Title:                                         Title:

Taxpayer Identification:                       Taxpayer Identification:

No.                                            No.
   ----------------------------                   ----------------------------

Date:                                          Date:
     --------------------------                     --------------------------



<PAGE>   53
                                      C-4

                                                            ANNEX 1 TO EXHIBIT C


            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

            [For Buyers Other Than Registered Investment Companies]

           The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:

            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.

    ___     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.
<PAGE>   54
                                      C-5


    ___     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.

    ___     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 or 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 Adviser.   The Buyer is an investment adviser registered
            under the Investment Advisers Act of 1940.

    ___     SBIC.  The 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.  The Buyer is a business development
            company as defined in Section 202(a)(22) of the Investment Advisers
            Act of 1940.

    ___     Trust Fund.  The Buyer is a trust fund whose trustee is a bank or
            trust company and whose participants are exclusively (a) plans
            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, or (b) employee
            benefit plans within the meaning of Title I of the Employee
            Retirement Income Security Act of 1974, but is not a trust fund
            that includes as participants individual retirement accounts or
            H.R. 10 plans.

            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
<PAGE>   55
                                      C-6


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.  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.

  ___        ___          Will the Buyer be purchasing the Rule 144A
  Yes        No           Securities only for the Buyer's own account?

            6.   If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer
for the account of a third party (including any separate account) in reliance
on Rule 144A, the Buyer will only purchase for the account of a third party
that at the time is a "qualified institutional buyer" within the meaning of
Rule 144A.  In addition, the Buyer agrees that the Buyer will not purchase
securities for a third party unless the Buyer has obtained a current
representation letter from such third party or taken other appropriate steps
contemplated by Rule 144A to conclude that such third party independently meets
the definition of "qualified institutional buyer" set forth in Rule 144A.

            7.   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.

                                        -------------------------------------
                                        Print Name of Buyer

                                        By:
                                          -----------------------------------
                                          Name:
                                          Title:

                                        Date:
                                             --------------------------------
<PAGE>   56
                                      C-7

                                                            ANNEX 2 TO EXHIBIT C


            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

             [For Buyers That Are Registered Investment Companies]


                 The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is
attached:

                  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.

____             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).

                 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.
<PAGE>   57
                                      C-8


                 5.       The Buyer is familiar with Rule 144A and understands
that each of the parties to which this certification is made 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.       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, 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


                                        By:
                                           -----------------------------------
                                           Name:
                                                ------------------------------
                                           Title:
                                                 -----------------------------


                                        IF AN ADVISER:


                                        --------------------------------------
                                        Print Name of Buyer


                                        Date:
                                             ---------------------------------




<PAGE>   58
                                   EXHIBIT D

                     FORM OF INVESTOR REPRESENTATION LETTER


                                                      , 19


Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281

Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California  92614

Attention:  Corporate Trust Administration

                  Re:      PacificAmerica Home Equity Loan Trust Series 1998-2F
                           PacificAmerica Home Equity Loan Asset-Backed
                           Certificates, Series 1998-2F (the "Certificates")
                           -------------------------------------------------


Ladies and Gentlemen:

                                        (the "Purchaser") intends to purchase
from                    (the "Seller") $           of the above - captioned
Certificates, issued pursuant to the Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of June 1, 1998, between Merrill Lynch Mortgage
Investors, Inc., as company (the "Company") and Wilmington Trust Company, as
owner trustee (the "Owner Trustee"), as acknowledged and agreed by Bankers
Trust Company of California, N.A., as Certificate Registrar.  All terms used
herein and not otherwise defined shall have the meanings set forth in the Trust
Agreement.  The Purchaser hereby certifies, represents and warrants to, and
covenants with, the Company and the Certificate Registrar that:

                          1.      The Purchaser understands that (a) the
                 Certificates have not been and will not be registered or
                 qualified under the Securities Act of 1933, as amended (the
                 "Act") or any state securities law, (b) the Company is not
                 required to so register or qualify the Certificates, (c) the
                 Certificates may be resold only if registered and qualified
                 pursuant to the provisions of the Act or any state securities
                 law, or if an exemption from such registration and
                 qualification is available, (d) the Trust Agreement contains
                 restrictions regarding the transfer of the Certificates and
                 (e) the Certificates will bear a legend to the foregoing
                 effect.
<PAGE>   59
                                      D-2

                          2.      The Purchaser is acquiring the Certificates
                 for its own account for investment only and not with a view to
                 or for sale in connection with any distribution thereof in any
                 manner that would violate the Act or any applicable state
                 securities laws.

                          3.      The Purchaser is (a) a substantial,
                 sophisticated institutional investor having such knowledge and
                 experience in financial and business matters, and, in
                 particular, in such matters related to securities similar to
                 the Certificates, such that it is capable of evaluating the
                 merits and risks of investment in the Certificates, (b) able
                 to bear the economic risks of such an investment and (c) an
                 "accredited investor" within the meaning of Rule 501(a)
                 promulgated pursuant to the Act.

                          4.      The Purchaser has been furnished with, and
                 has had an opportunity to review (a) a copy of the Trust
                 Agreement and (b) such other information concerning the
                 Certificates, the Mortgage Loans and the Company as has been
                 requested by the Purchaser from the Company or the Seller and
                 is relevant to the Purchaser's decision to purchase the
                 Certificates.  The Purchaser has had any questions arising
                 from such review answered by the Company or the Seller to the
                 satisfaction of the Purchaser.

                          5.  The Purchaser has not and will not nor has it
                 authorized or will it authorize any person to (a) offer,
                 pledge, sell, dispose of or otherwise transfer any
                 Certificate, any interest in any Certificate or any other
                 similar security to any person in any manner, (b) solicit any
                 offer to buy or to accept a pledge, disposition of other
                 transfer of any Certificate, any interest in any Certificate
                 or any other similar security from any person in any manner,
                 (c) otherwise approach or negotiate with respect to any
                 Certificate, any interest in any Certificate or any other
                 similar security with any person in any manner, (d) make any
                 general solicitation by means of general advertising or in any
                 other manner or (e) take any other action, that (as to any of
                 (a) through (e) above) would constitute a distribution of any
                 Certificate under the Act, that would render the disposition
                 of any Certificate a violation of Section 5 of the Act or any
                 state securities law, or that would require registration or
                 qualification pursuant thereto.  The Purchaser will not sell
                 or otherwise transfer any of the Certificates, except in
                 compliance with the provisions of the Trust Agreement.

                          6.  The Purchaser represents:

         (i) that either (a) or (b) is satisfied, as marked below:

                          ____    a.       The Purchaser is not any employee
         benefit plan subject to the Employee Retirement Income Security Act of
         1974, as amended ("ERISA"), or the Internal Revenue Code of 1986 (the
         "Code"), a Person acting, directly or indirectly, on behalf of any
         such plan or any Person acquiring such Certificates with "plan assets"
         of a Plan within
<PAGE>   60
                                      D-3



         the meaning of the Department of Labor regulation promulgated at 29
         C.F.R. Section 2510.3-101; or

                          ____    b.       The Purchaser will provide the
         Company, the Owner Trustee, the Certificate Registrar and the Master
         Servicer with either: (x) an opinion of counsel, satisfactory to the
         Company, the Owner Trustee, the Certificate Registrar and the Master
         Servicer, to the effect that the purchase and holding of a Certificate
         by or on behalf of the Purchaser is permissible under applicable law,
         will not constitute or result in a prohibited transaction under
         Section 406 of ERISA or Section 4975 of the Code (or comparable
         provisions of any subsequent enactments) and will not subject the
         Company, the Owner Trustee, the Trust, the Certificate Registrar or
         the Master Servicer to any obligation or liability (including
         liabilities under ERISA or Section 4975 of the Code) in addition to
         those undertaken in the Trust Agreement, which opinion of counsel
         shall not be an expense of the Company, the Owner Trustee, the Trust,
         the Certificate Registrar or the Master Servicer; or (y) in lieu of
         such opinion of counsel, a certification in the form of Exhibit G to
         the Trust Agreement; and

         (ii)    the Purchaser is familiar with the prohibited transaction
         restrictions and fiduciary responsibility requirements of Sections 406
         and 407 of ERISA and Section 4975 of the Code and understands that
         each of the parties to which this certification is made is relying and
         will continue to rely on the statements made in this paragraph 6.

                          7.  The Purchaser is not a non-United States person.


                                           Very truly yours,

                                           By:
                                           Name:
                                           Title:
<PAGE>   61
                                   EXHIBIT E

                    FORM OF TRANSFEROR REPRESENTATION LETTER




                                                    , 19


Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281

Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, California  92614

Attention:  Corporate Trust Administration

                  Re:      PacificAmerica Home Equity Loan Trust Series 1998-2F
                           PacificAmerica Home Equity Loan Asset-Backed
                           Certificates, Series 1998-2F (the "Certificates")
                           -------------------------------------------------

Ladies and Gentlemen:

                 (the "Purchaser") intends to purchase from (the "Seller") a
___% Certificate Percentage Interest of PacificAmerica Home Equity Loan
Asset-Backed Certificates, Series 1998-2F (the "Certificates"), issued pursuant
to the Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of
June 1, 1998 between Merrill Lynch Mortgage Investors, Inc., as company (the
"Company"), and Wilmington Trust Company, as owner trustee (the "Owner
Trustee"), as acknowledged and agreed by Bankers Trust Company of California,
N.A., as Certificate Registrar. All terms used herein and not otherwise defined
shall have the meanings set forth in the Trust Agreement. The Seller hereby
certifies, represents and warrants to, and covenants with, the Company and the
Certificate Registrar that:

                 Neither the Seller nor anyone acting on its behalf has (a)
offered, pledged, sold, disposed of or otherwise transferred any Certificate,
any interest in any Certificate or any other similar security to any person in
any manner, (b) has solicited any offer to buy or to accept a pledge,
disposition or other transfer of any Certificate, any interest in any
Certificate or any other similar security from any person in any manner, (c)
has otherwise approached or negotiated with respect to any Certificate, any
interest in any Certificate or any other similar security with any person in
any manner, (d) has made any general solicitation by means of general
advertising or in any other manner, or (e) has taken any other action, that (as
to any of (a) through (e) above) would constitute a distribution of the
Certificates under the Securities Act of 1933 (the "Act"), that would
<PAGE>   62
                                      E-2



render the disposition of any Certificate a violation of Section 5 of the Act
or any state securities law, or that would require registration or
qualification pursuant thereto.  The Seller will not act, in any manner set
forth in the foregoing sentence with respect to any Certificate.  The Seller
has not and will not sell or otherwise transfer any of the Certificates, except
in compliance with the provisions of the Trust Agreement.


                                               Very truly yours,


                                               (Seller)



                                               By:
                                               Name:
                                               Title:
<PAGE>   63


                                   EXHIBIT F

                       CERTIFICATE OF NON-FOREIGN STATUS

         This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.05 of the Amended and Restated Trust Agreement, dated as
of June 1, 1998 (the "Trust Agreement"), between Merrill Lynch Mortgage
Investors, Inc., as Company and Wilmington Trust Company, as Owner Trustee, in
connection with the acquisition of, transfer to or possession by the
undersigned, whether as beneficial owner (the "Beneficial Owner"), or nominee
on behalf of the Beneficial Owner of the PacificAmerica Home Equity Loan
Asset-Backed Certificates, Series 1998-2F (the "Certificate").  Capitalized
terms used but not defined in this certificate have the respective meanings
given them in the Trust Agreement.

Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III.

In addition, each holder shall submit with the Certificate an IRS Form W-9
relating to such holder.

To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:

Part I -                  Complete Either A or B

                 A.       Individual as Beneficial Owner

                          1.      I am (The Beneficial Owner is ) not a
                                  non-resident alien for purposes of U.S.
                                  income taxation;

                          2.      My (The Beneficial Owner's) name and home
                                  address are:


                                              ; and

                          3.      My (The Beneficial Owner's) U.S. taxpayer
                                  identification number (Social Security
                                  Number) is .

                 B.       Corporate, Partnership or Other Entity as Beneficial
                          Owner

                          1.      (Name of the Beneficial Owner) is not a
                                  foreign corporation, foreign partnership,
                                  foreign trust or foreign estate (as those
                                  terms are defined in the Code and Treasury
                                  Regulations;

                          2.      The Beneficial Owner's office address and
                                  place of incorporation (if applicable) is


                                           ; and


<PAGE>   64
                                      F-2


                          3.      The Beneficial Owner's U.S. employer
                                  identification number is
                                  .


Part II -                 Nominees

         If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:

                        an IRS Form W-9

                        a form such as this or substantially similar

provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.

Part III -       Declaration

         The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial
Owner becomes a foreign person.  The undersigned understands that this
certificate may be disclosed to the Internal Revenue Service by the Trust and
any false statement contained therein could be punishable by fines,
imprisonment or both.
<PAGE>   65
                                      F-3

         Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.



              Name


      Title (if applicable)


     Signature and Date




*NOTE:  If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
<PAGE>   66


                                   EXHIBIT G

                      FORM OF ERISA REPRESENTATION LETTER


                              _____________, 199__

Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281

Wilmington Trust Company, as Owner Trustee
11 North Market Street
Rodney Square North
Wilmington, Delaware 19890

Bankers Trust Company of California, N.A., as Certificate Registrar
3 Park Plaza, 16th Floor
Irvine, California  92614

                  Re:      PacificAmerica Home Equity Loan Trust Series 1998-2F
                           PacificAmerica Home Equity Loan Asset-Backed
                           Certificates, Series 1998-2F
                           ----------------------------------------------------

Dear Sirs:

                 __________________________________ (the "Transferee") intends
to acquire from _____________________ (the "Transferor") a ____% Certificate
Percentage Interest of PacificAmerica. Home Equity Loan Asset-Backed
Certificates, Series 1998-2F (the "Certificates"), issued pursuant to an
Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of June
1, 1998, between Merrill Lynch Mortgage Investors, Inc., as company (the
"Company") and Wilmington Trust Company, as trustee (the "Owner Trustee").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Trust Agreement.

         The Transferee hereby certifies, represents and warrants to, and
covenants with, the Company, the Owner Trustee, the Certificate Registrar and
the Master Servicer that either:

                 (1)      The Certificates (i) are not being acquired by, and
         will not be transferred to, any employee benefit plan within the
         meaning of section 3(3) of the Employee Retirement Income Security Act
         of 1974, as amended ("ERISA") or other retirement arrangement,
         including individual retirement accounts and annuities, Keogh plans
         and bank collective investment funds and insurance company general or
         separate accounts in which such plans, accounts or arrangements are
         invested, that is subject to Section 406 of ERISA or Section 4975 of
         the Internal Revenue Code of 1986 (the "Code") (any of the foregoing,
         a "Plan"),
<PAGE>   67

                                      G-2


         (ii) are not being acquired with "plan assets" of a Plan within the
         meaning of the Department of Labor ("DOL") regulation, 29 C.F.R.
         Section  2510.3-101, and (iii) will not be transferred to any entity
         that is deemed to be investing in plan assets within the meaning of
         the DOL regulation, 29 C.F.R. Section  2510.3-101; or

                 (2)      The purchase of the Certificates is permissible under
         applicable law, will not constitute or result in any prohibited
         transaction under ERISA or Section 4975 of the Code, will not subject
         the Company or the Trustee to any obligation in addition to those
         undertaken in the Trust Agreement and, with respect to each source of
         funds being used by the Transferee to acquire the Certificates (each
         being referred to as a "Source") and the following statements in
         either (a) or (b):

                          (a)     the Transferee is an insurance company and
                 (i) the Source is assets of its "general account," (ii) the
                 conditions set forth in PTCE 95-60 issued by the DOL have been
                 satisfied and the purchase and holding of Certificates by or
                 on behalf of the Transferee are exempt under PTCE 95-60 and
                 (iii) the amount of reserves and liabilities for such general
                 account contracts held by or on behalf of any Plan do not
                 exceed 10% of the total reserves and liabilities of such
                 general account plus surplus as of the date hereof (for
                 purposes of this clause, all Plans maintained by the same
                 employer (or affiliate thereof) or employee organization are
                 deemed to be a single Plan) in connection with its purchase
                 and holding of such Certificates; or

                          (b)     the Transferee is an insurance company and
                 (i) the Source is assets of its "general account," (ii) the
                 requirements of Section 401(c) of ERISA and the DOL
                 regulations to be promulgated thereunder ("401(c)
                 Regulations") have been satisfied and will continue to be
                 satisfied and (iii) the Transferee represents that it
                 understands that the operation of the general account after
                 December 31, 1998 may affect its ability to continue to hold
                 the Certificates after the date which is 18 months after the
                 401(c) Regulations become final and unless a class exemption
                 issued by the DOL or an exception under Section 401(c) of
                 ERISA is then available for the continued holding of
                 Certificates, if the assets of the general account constitute
                 Plan Assets, it will dispose of the Certificates prior to the
                 date which is 18 months after the 401(c) Regulations become
                 final.
<PAGE>   68
                                      G-3



                 (3)      The Transferee is familiar with the prohibited
         transaction restrictions and fiduciary responsibility requirements of
         Sections 406 and 407 of ERISA and Section 4975 of the Code and
         understands that each of the parties to which this certification is
         made is relying and will continue to rely on the statements made
         herein.

                                            Very truly yours,

                                            By:
                                            Name:
                                            Title:






<PAGE>   69
                                   EXHIBIT H

                         FORM OF REPRESENTATION LETTER


                              _____________, 199__


Merrill Lynch Mortgage Investors, Inc.
250 Vesey Street
World Financial Center/North Tower
New York, New York 10281

Wilmington Trust Company, as Owner Trustee
11 North Market Street
Rodney Square North
Wilmington, Delaware 19890

Bankers Trust Company of California, N.A., as Certificate Registrar
3 Park Plaza, 16th Floor
Irvine, California  92614

                  Re:      PacificAmerica Home Equity Loan Trust Series 1998-2F
                           PacificAmerica Home Equity Loan Asset-Backed
                           Certificates, Series 1998-2F
                           ----------------------------------------------------


Dear Sirs:

                 __________________________________ (the "Transferee") intends
to acquire from _____________________ (the "Transferor") a ___% Certificate
Percentage Interest of PacificAmerica Home Equity Loan Asset-Backed
Certificates, Series 1998-2F (the "Certificates"), issued pursuant to an
Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of June
1, 1998 among Merrill Lynch Mortgage Investors, Inc., as company (the
"Company") and Wilmington Trust Company, as trustee (the "Owner Trustee").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Trust Agreement.

                 The Transferee hereby certifies, represents and warrants to,
and covenants with, the Company, the Owner Trustee, the Certificate Registrar
and the Master Servicer that:

                 (1)      the Transferee is acquiring the Certificate for its
         own behalf and is not acting as agent or custodian for any other
         person or entity in connection with such acquisition; and

                 (2)      the Transferee is not a partnership, grantor trust or
         S corporation for federal income tax purposes, or, if the Transferee
         is a partnership, grantor trust or S corporation
<PAGE>   70
                                      H-2

for federal income tax purposes, the Certificates are not more than 50% of the
assets of the partnership, grantor trust or S corporation.

                                            Very truly yours,



                                            By:
                                            Name:
                                            Title:






<PAGE>   71
                                   EXHIBIT I


                            INITIAL TRUST AGREEMENT




<PAGE>   1

                                                                    EXHIBIT 10.4




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





                       PACIFICAMERICA MONEY CENTER, INC.,
                              as Master Servicer,


                   BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
                             as Indenture Trustee,


                                      and


             PACIFICAMERICA HOME EQUITY LOAN TRUST SERIES 1998-2F,
                                   as Issuer




                            ________________________

                              SERVICING AGREEMENT

                            Dated as of June 1, 1998

                            ________________________






                          Fixed Rate Home Equity Loans

       PacificAmerica Home Equity Loan Asset-Backed Notes, Series 1998-2F

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






<PAGE>   2
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                             Page
<S>              <C>                                                                                         <C>
                                                    ARTICLE I

                                                   Definitions
                                                        1
Section 1.01.    Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
Section 1.02.    Other Definitional Provisions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
Section 1.03.    Interest Calculations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2

                                                   ARTICLE II

                                         Representations and Warranties
                                                        3
Section 2.01.    Representations and Warranties Regarding the Master Servicer . . . . . . . . . . . . . . .   3
Section 2.02.    Existence  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
Section 2.03.    Enforcement of Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . .   4

                                                   ARTICLE III

                                 Administration and Servicing of Mortgage Loans
                                                        6
Section 3.01.    Servicer to Assure Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
Section 3.02.    Subservicing Agreements Between Master Servicer and Subservicers . . . . . . . . . . . . .   7
Section 3.03.    Successor Subservicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   8
Section 3.04.    Liability of the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   8
Section 3.05.    Assumption or Termination of Subservicing Agreements by Indenture Trustee  . . . . . . . .   9
Section 3.06.    Collection of Mortgage Loan Payments; Collection Account . . . . . . . . . . . . . . . . .   9
Section 3.07.    Withdrawals from the Collection Account  . . . . . . . . . . . . . . . . . . . . . . . . .  12
Section 3.08.    Collection of Taxes, Assessments and Similar Items; Servicing Accounts . . . . . . . . . .  13
Section 3.09.    Access to Certain Documentation and Information Regarding the Mortgage Loans . . . . . . .  14
Section 3.10.    Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
Section 3.11.    Maintenance of Hazard Insurance and Fidelity Coverage  . . . . . . . . . . . . . . . . . .  14
Section 3.12.    Due-on-Sale Clauses; Assumption Agreements . . . . . . . . . . . . . . . . . . . . . . . .  16
Section 3.13.    Realization Upon Defaulted Mortgage Loans  . . . . . . . . . . . . . . . . . . . . . . . .  17
Section 3.14.    Indenture Trustee to Cooperate; Release of Mortgage Files. . . . . . . . . . . . . . . . .  19
Section 3.15.    Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
Section 3.16.    Annual Statements of Compliance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
Section 3.17.    Annual Independent Public Accountants' Servicing Report  . . . . . . . . . . . . . . . . .  21
Section 3.18.    Optional Purchase of Defaulted Mortgage Loans  . . . . . . . . . . . . . . . . . . . . . .  22
</TABLE>





                                                        i
<PAGE>   3
<TABLE>
<CAPTION>
                                                                                                             Page
<S>              <C>                                                                                         <C>

Section 3.19.    Information Required by the Internal Revenue Service Generally and Reports of
                 Foreclosures and Abandonments of Mortgaged Property. . . . . . . . . . . . . . . . . . . .  22
Section 3.20.    Master Servicer to Act as Agent and Bailee of the Indenture Trustee  . . . . . . . . . . .  22

                                                   ARTICLE IV

                                               Remittance Reports
                                                       23
Section 4.01.    Remittance Reports.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
Section 4.02.    Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
Section 4.03.    Compensating Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23

                                                    ARTICLE V

                                               The Master Servicer
                                                       24
Section 5.01.    Liability of the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
Section 5.02.    Merger or Consolidation of, or Assumption of the Obligations of, the Master Servicer . . .  24
Section 5.03.    Limitation on Liability of the Master Servicer and Others  . . . . . . . . . . . . . . . .  24
Section 5.04.    Master Servicer Not to Resign  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
Section 5.05.    Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
Section 5.06.    Master Servicer to Pay Indenture Trustee's and Owner Trustee's Expenses; Indemnification .  26
Section 5.07.    Assignment of Servicing Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27

                                                   ARTICLE VI

                                                     Default
                                                       27
Section 6.01.    Servicing Default  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
Section 6.02.    Indenture Trustee to Act; Appointment of Successor . . . . . . . . . . . . . . . . . . . .  30
Section 6.03.    Notification to Noteholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
Section 6.04.    Waiver of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32

                                                   ARTICLE VII

                                            Miscellaneous Provisions
                                                       33
Section 7.01.    Amendment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
Section 7.02.    GOVERNING LAW  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
Section 7.03.    Notices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
Section 7.04.    Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
</TABLE>




                                                       ii

<PAGE>   4

<TABLE>
<S>                                                                                                         <C>
Section 7.05.    Third-Party Beneficiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
Section 7.06.    Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
Section 7.07.    Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . .  35
Section 7.08.    Termination Upon Purchase by the Master Servicer . . . . . . . . . . . . . . . . . . . . .  35
Section 7.09.    No Petition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
Section 7.10.    No Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

                                                  ARTICLE VIII

                                  Administrative Duties of the Master Servicer
                                                       36
Section 8.01.    Administrative Duties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
Section 8.02.    Records  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
Section 8.03.    Additional Information to be Furnished . . . . . . . . . . . . . . . . . . . . . . . . . .  37
EXHIBIT A - MORTGAGE LOAN SCHEDULE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B - FORM OF REQUEST FOR RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C - FORM OF LIQUIDATION REPORT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>





                                                      iii
<PAGE>   5
                 This Servicing Agreement, dated as of June 1, 1998, among
PacificAmerica Money Center, Inc., as Master Servicer (in such capacity, the
"Master Servicer"), Bankers Trust Company of California, N.A., as Indenture
Trustee, and PacificAmerica Home Equity Loan Trust Series 1998-2F, as Issuer
(the "Issuer").


                         W I T N E S S E T H  T H A T:

                 WHEREAS, pursuant to the terms of the Home Equity Loan
Purchase Agreement, the Seller will sell (i) the Initial Mortgage Loans to the
Company on the Closing Date and (ii) the Subsequent Mortgage Loans to the
Issuer on each Subsequent Transfer Date ;

                 WHEREAS, the Company will sell the Initial Mortgage Loans and
transfer all of its rights under the Home Equity Loan Purchase Agreement to the
Issuer on the Closing Date;

                 WHEREAS, pursuant to the terms of the Trust Agreement, the
Issuer will issue the Certificates;

                 WHEREAS, pursuant to the terms of the Indenture, the Issuer
will issue and transfer to or at the direction of the Company, the Notes; and

                 WHEREAS, pursuant to the terms of this Servicing Agreement,
the Master Servicer will service the Mortgage Loans directly or through one or
more Subservicers;

                 NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

         Section 1.01.    Definitions.  For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture dated as of June 1, 1998 (the "Indenture") between the Issuer
and the Indenture Trustee, which Definitions are incorporated by reference
herein.  All other capitalized terms used herein shall have the meanings
specified herein.

         Section 1.02.    Other Definitional Provisions.  (a)  All terms
defined in this Servicing Agreement shall have the defined meanings when used
in any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.

         (b)     As used in this Servicing Agreement and in any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
not defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the
<PAGE>   6
respective meanings given to them under generally accepted accounting
principles.  To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted
accounting principles, the definitions contained in this Servicing Agreement or
in any such certificate or other document shall control.

         (c)     The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement
unless otherwise specified; and the term "including" shall mean "including
without limitation".

         (d)     The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.

         (e)     Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments incorporated
therein; references to a Person are also to its permitted successors and
assigns.

         Section 1.03.    Interest Calculations.  All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made in accordance with the terms of the related Mortgage Note and
Mortgage.  The calculation of the Servicing Fee shall be made on the basis of a
360-day year consisting o f twelve 30-day months.  All dollar amounts
calculated hereunder shall be rounded to the nearest penny with one-half of one
penny being rounded up.





                                      -2-
<PAGE>   7
                                   ARTICLE II

                         Representations and Warranties

         Section 2.01.    Representations and Warranties Regarding the Master
Servicer.  The Master Servicer represents and warrants to the Issuer and for
the benefit of the Indenture Trustee, as pledgee of the Mortgage Loans, the
Note Insurer and the Noteholders, as of the Closing Date, that:

                      (i)         The Master Servicer is a corporation duly
         organized, validly existing and in good standing under the laws of the
         State of Delaware and has the corporate power to own its assets and to
         transact the business in which it is currently engaged.  The Master
         Servicer is duly qualified to do business as a foreign corporation and
         is in good standing in each jurisdiction in which the character of the
         business transacted by it or properties owned or leased by it requires
         such qualification and in which the failure to so qualify would have a
         material adverse effect on the business, properties, assets, or
         condition (financial or other) of the Master Servicer or the validity
         or enforceability of the Mortgage Loans; provided that the Master
         Servicer is not qualified as a servicer in any jurisdiction as of the
         date hereof;

                      (ii)        The Master Servicer has the corporate power
         and authority to make, execute, deliver and perform this Servicing
         Agreement and all of the transactions contemplated under this
         Servicing Agreement, and has taken all necessary corporate action to
         authorize the execution, delivery and performance of this Servicing
         Agreement.  When executed and delivered, this Servicing Agreement will
         constitute the legal, valid and binding obligation of the Master
         Servicer enforceable in accordance with its terms, except as
         enforcement of such terms may be limited by bankruptcy, insolvency,
         reorganization, moratorium or similar laws now or hereafter in effect,
         affecting the enforcement of creditors' rights generally and by the
         availability of equitable remedies (whether at law or in equity);

                    (iii)         The Master Servicer is not required to obtain
         the consent of any other Person or any consent, license, approval or
         authorization from, or registration or declaration with, any
         governmental authority, bureau or agency in connection with the
         execution, delivery, performance, validity or enforceability of this
         Servicing Agreement, except for such consent, license, approval or
         authorization, or registration or declaration, as shall have been
         obtained or filed, as the case may be;

                      (iv)        The execution and delivery of this Servicing
         Agreement and the performance of the transactions contemplated hereby
         by the Master Servicer will not violate any provision of any existing
         law or regulation or any order or decree of any court applicable to
         the Master Servicer or any provision of the certificate of
         incorporation or bylaws of the Master Servicer, or constitute a
         material breach of any mortgage, indenture, contract or other
         agreement to which the Master Servicer is a party or by which the
         Master Servicer may be bound, nor, to the Master Servicer's knowledge,
         will any such mortgage,





                                      -3-
<PAGE>   8
         indenture, contract or other agreement materially affect in the future
         the ability of the Master Servicer to perform its obligations under
         this Agreement or its business, properties, assets, or condition
         (financial or other); and

                      (v)         No litigation or administrative proceeding of
         or before any court, tribunal or governmental body is currently
         pending, or to the knowledge of the Master Servicer threatened,
         against the Master Servicer or any of its properties or with respect
         to this Servicing Agreement or the Notes or the Certificates which, to
         the knowledge of the Master Servicer, has a reasonable likelihood of
         resulting in a material adverse effect on the transactions
         contemplated by this Servicing Agreement.

         The foregoing representations and warranties shall survive any
termination of the Master Servicer hereunder.

         Section 2.02.    Existence.  The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the
State of Delaware and will obtain and preserve its qualification to do business
in each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Servicing Agreement.

         Section 2.03.    Enforcement of Representations and Warranties.  The
Master Servicer, on behalf of and subject to the direction of the Note Insurer
or, if a Note Insurer Default exists, the Indenture Trustee, as pledgee of the
Mortgage Loans, or the Note Insurer, shall enforce the representations and
warranties and related obligations for breaches thereof of the Seller pursuant
to the Home Equity Loan Purchase Agreement upon notice of breach of such
representations and warranties from the Indenture Trustee, the Issuer, the
Owner Trustee, the Seller, the Note Insurer or the Company.  Upon the discovery
by the Seller, the Master Servicer, the Indenture Trustee, the Issuer, the
Owner Trustee, the Note Insurer or the Company of a breach of any of the
representations and warranties made in the Home Equity Loan Purchase Agreement,
in respect of any Mortgage Loan which materially and adversely affects the
value of the related Mortgage Loan or the interests of the Noteholders or the
Certificateholders or the Note Insurer, the party discovering such breach shall
give prompt written notice to the other parties.  The Note Insurer or the
Indenture Trustee may, and the Master Servicer shall, request that (or if the
Seller is the Master Servicer, the Seller shall) pursuant to the terms of the
Home Equity Loan Purchase Agreement, either (i) cure such breach in all
material respects or (ii) purchase such Mortgage Loan, in each instance in
accordance with the Home Equity Loan Purchase Agreement; provided that the
Seller shall, subject to the conditions set forth in the Home Equity Loan
Purchase Agreement, have the option to substitute an Eligible Substitute
Mortgage Loan or Eligible Substitute Mortgage Loans for such Mortgage Loan.
Monthly Payments due with respect to Eligible Substitute Mortgage Loans in the
month of substitution shall not be part of the Trust Estate and will be
retained by the Master Servicer and remitted by the Master Servicer to the
Seller on the next succeeding Payment Date.  For the month of substitution,
distributions to the Payment Account pursuant to the Servicing Agreement will
include the Monthly Payment due on a Deleted Mortgage Loan for such month and
thereafter the Seller shall be entitled to retain all amounts received in
respect of such Deleted Mortgage Loan.  The Master Servicer shall amend or
cause to be amended the Mortgage Loan Schedule to reflect the removal of such
Mortgage





                                      -4-
<PAGE>   9

Loan and the substitution of the Eligible Substitute Mortgage Loans and the
Master Servicer shall promptly deliver the amended Mortgage Loan Schedule to
the related Subservicer, if any, the Note Insurer, the Owner Trustee and the
Indenture Trustee.

         In connection with the substitution of one or more Eligible Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will
determine the amount (such amount, a "Substitution Adjustment Amount"), if any,
by which the aggregate principal balance of all such Eligible Substitute
Mortgage Loans as of the date of substitution is less than the aggregate
principal balance of all such Deleted Mortgage Loans (after application of the
principal portion of the Monthly Payments due in the month of substitution that
are to be distributed to the Payment Account in the month of substitution).
The Seller shall pay the Substitution Adjustment Amount to the Master Servicer
and the Master Servicer shall deposit such Substitution Adjustment Amount into
the Collection Account upon receipt.

         It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Issuer and the Indenture Trustee, as
pledgee of the Mortgage Loans, against the Seller.  In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the
Issuer shall assign to the Seller all of its right, title and interest in
respect of the Home Equity Loan Purchase Agreement applicable to such Mortgage
Loan.  Upon receipt of the Repurchase Price, or upon completion of such
substitution, the Master Servicer shall notify the Indenture Trustee by
delivering a request for Release in the form of Exhibit B hereto, and then the
Indenture Trustee shall deliver the Mortgage Files relating to such Mortgage
Loan to the Master Servicer, together with all relevant endorsements and
assignments prepared by the Master Servicer which the Indenture Trustee shall
execute.





                                      -5-
<PAGE>   10
                                  ARTICLE III

                 Administration and Servicing of Mortgage Loans

         Section 3.01.    Servicer to Assure Servicing.  (a)  The Master
Servicer shall supervise, or take such actions as are necessary to ensure, the
servicing and administration of the Mortgage Loans and any REO Property in
accordance with this Servicing Agreement and Accepted Servicing Procedures,
which generally shall conform to the standards of an institution prudently
servicing mortgage loans for its own account and shall have full authority to
do anything it reasonably deems appropriate or desirable in connection with
such servicing and administration.  The Master Servicer may perform its
responsibilities relating to servicing through other agents or independent
contractors, but shall not thereby be released from any of its responsibilities
as hereinafter set forth.  The authority of the Master Servicer, in its
capacity as Master Servicer, and any Subservicer acting on its behalf, shall
include, without limitation, the power to (i) consult with and advise any
Subservicer regarding administration of a related Mortgage Loan, (ii) direct a
Subservicer to foreclose on a related Mortgage Loan, (iii) supervise the filing
and collection of insurance claims and take or cause to be taken such actions
on behalf of the insured Person thereunder as shall be reasonably necessary to
prevent the denial of coverage thereunder, and (iv) effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing a related
Mortgage Loan, including the employment of attorneys, the institution of legal
proceedings, the collection of deficiency judgments, the acceptance of
compromise proposals and any other matter pertaining to a delinquent Mortgage
Loan; provided, however, with respect to clause (ii) above, the Subservicer
shall follow such procedures as set forth in the Sub-Servicing Agreement.  The
authority of the Master Servicer shall include, in addition, the power on
behalf of the Noteholders, the Indenture Trustee, the Note Insurer or any of
them to (i) execute and deliver customary consents or waivers and other
instruments and documents, (ii) consent to transfer of any related Mortgaged
Property and assumptions of the related Mortgage Notes and Security Instruments
(pursuant to the provisions of this Servicing Agreement) and (iii) collect any
Insurance Proceeds and Liquidation Proceeds.  Without limiting the generality
of the foregoing, the Master Servicer and any Subservicer acting on its behalf
may, and is hereby authorized, and empowered by the Indenture Trustee when the
Master Servicer believes it is reasonably necessary in its best judgment in
order to comply with its servicing duties hereunder, to execute and deliver, on
behalf of itself, the Noteholders, the Indenture Trustee, the Note Insurer or
any of them, any instruments of satisfaction, cancellation, partial or full
release, discharge and all other comparable instruments, with respect to the
related Mortgage Loans, the Insurance Policies and the accounts related
thereto, and the Mortgaged Properties.  The Master Servicer may exercise this
power in its own name or through the appointment of a Subservicer.

         The Master Servicer, in such capacity, may not consent to the placing
of a lien senior to that of the Mortgage on the related Mortgaged Property.

         The relationship of the Master Servicer (and of any successor to the
Master Servicer as Master Servicer under this Servicing Agreement) to the
Issuer and the Indenture Trustee under this Servicing Agreement is intended by
the parties to be that of an independent contractor and not that of a joint
venturer, partner or agent.





                                      -6-
<PAGE>   11
         (b)     Notwithstanding the provisions of Subsection 3.01(a), the
Master Servicer shall not take any action inconsistent with the interests of
the Indenture Trustee, the Note Insurer or the Noteholders or with the rights
and interests of the Indenture Trustee, the Note Insurer or the Noteholders
under this Servicing Agreement; provided, however, that in the event the
interests of the parties conflict, the Master Servicer shall act to maximize
the value to the Trust Estate.

         (c)     The Indenture Trustee shall furnish the Master Servicer with
any powers of attorney and other documents in form as provided to it necessary
or appropriate to enable the Master Servicer to service and administer the
related Mortgage Loans and REO Property and the Indenture Trustee shall not be
liable for the actions of the Master Servicer or any Subservicers under such
powers of attorney.

         Section 3.02.    Subservicing Agreements Between Master Servicer and
Subservicers.  (a)  With the consent of the Note Insurer, the Master Servicer
may enter into Subservicing Agreements with Subservicers for the servicing and
administration of the Mortgage Loans and for the performance of any and all
other activities of the Master Servicer hereunder.  Each Subservicer shall be
either (i) an institution the accounts of which are insured by the FDIC or (ii)
another entity that engages in the business of originating or servicing
mortgage loans comparable to the Mortgage Loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Subservicer to perform its obligations
hereunder and under the Subservicing Agreement.  Any Subservicing Agreement
entered into by the Master Servicer shall include the provision that such
Agreement may be immediately terminated (i) (x) with cause and without any
termination fee by the Note Insurer or the Master Servicer hereunder and/or (y)
without cause by the Master Servicer (with the consent of the Note Insurer,
which consent shall not be unreasonably withheld), in which case the Master
Servicer shall be solely responsible for any termination fee or penalty
resulting therefrom (which shall not be the responsibility of the Indenture
Trustee) and (ii) at the option of the Note Insurer upon the termination or
resignation of the Master Servicer hereunder, in which case the Master Servicer
shall be solely responsible for any termination fee or penalty resulting
therefrom.  In addition, each Subservicing Agreement shall provide for
servicing of the Mortgage Loans consistent with the terms of this Servicing
Agreement and shall provide, in the event of termination or resignation of the
Master Servicer, that (i) the Subservicer thereunder may become the successor
Master Servicer, with the approval of the Note Insurer, and (ii) if the
Subservicer does not elect to become the Master Servicer or is not approved as
the successor Master Servicer by the Note Insurer, the Note Insurer may
terminate the Subservicer without any termination fee; provided, however, the
Master Servicer shall be responsible for any such termination fee.  With the
consent of the Note Insurer, the Master Servicer and the Subservicers may enter
into Subservicing Agreements and make amendments to the Subservicing Agreements
or enter into different forms of Subservicing Agreements providing for, among
other things, the delegation by the Master Servicer to a Subservicer of
additional duties regarding the administration of the Mortgage Loans.

         As of the date hereof, the Master Servicer has entered into the
Sub-Servicing Agreement with the Sub-Servicer for the servicing and
administration of the Mortgage Loans and, with the consent of the Note Insurer,
may enter into additional subservicing agreements with subservicers





                                      -7-
<PAGE>   12
acceptable to the Indenture Trustee and the Note Insurer for the servicing and
administration of certain of the Mortgage Loans.

         (b)     As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Indenture Trustee, the Note Insurer and the
Noteholders, shall enforce the obligations of each Subservicer under the
related Subservicing Agreement.  Such enforcement, including, without
limitation, the legal prosecution of claims, termination of Subservicing
Agreements and the pursuit of other appropriate remedies, shall be in such form
and carried out to such an extent and at such time as the Master Servicer, in
its good faith business judgment, would require were it the owner of the
related Mortgage Loans.  The Master Servicer shall pay the costs of such
enforcement at its own expense, but shall be reimbursed therefor only (i) from
a general recovery resulting from such enforcement only to the extent, if any,
that such recovery exceeds all amounts due in respect of the related Mortgage
Loan or (ii) from a specific recovery of costs, expenses or attorneys' fees
against the party against whom such enforcement is directed.

         Section 3.03.    Successor Subservicers.  The Master Servicer shall be
entitled to terminate any Subservicing Agreement that may exist in accordance
with the terms and conditions of such Subservicing Agreement and without any
limitation by virtue of this Servicing Agreement, but only with the written
consent of the Note Insurer; provided, however, that upon termination, the
Master Servicer shall either act as Master Servicer of the related Mortgage
Loans or enter into an appropriate contract with a successor Subservicer
reasonably  acceptable to the Indenture Trustee and the Note Insurer, pursuant
to which such successor Subservicer will be bound by all relevant terms of the
related Subservicing Agreement pertaining to the servicing of such Mortgage
Loan, which Subservicing Agreement shall be acceptable to and acknowledged by
the Note Insurer and acknowledged by the Indenture Trustee.

         Section 3.04.    Liability of the Master Servicer.  (a)
Notwithstanding any Subservicing Agreement, any of the provisions of this
Servicing Agreement relating to agreements or arrangements between the Master
Servicer and a Subservicer or reference to actions taken through a Subservicer
or otherwise, the Master Servicer shall under all circumstances remain
obligated and primarily liable to the Indenture Trustee, the Noteholders and
the Note Insurer for the servicing and administering of the Mortgage Loans and
any REO Property in accordance with this Servicing Agreement.  The obligations
and liability of the Master Servicer shall not be diminished by virtue of
Subservicing Agreements or by virtue of indemnification of the Master Servicer
by any Subservicer, or any other Person.  The obligations and liability of the
Master Servicer shall remain of the same nature and under the same terms and
conditions as if the Master Servicer alone were servicing and administering the
related Mortgage Loans.  The Master Servicer shall, however, be entitled to
enter into indemnification agreements with any Subservicer or other Person and
nothing in this Servicing Agreement shall be deemed to limit or modify such
indemnification.  For the purposes of this Servicing Agreement, the Master
Servicer shall be deemed to have received any payment on a Mortgage Loan on the
date the Subservicer received such payment; provided, however, that this
sentence shall not apply to the Indenture Trustee acting as the Master
Servicer; provided, further, however, that the foregoing provision shall not
affect the obligation of the Master Servicer if it is also the Indenture
Trustee to advance amounts which are not Nonrecoverable Advances.





                                      -8-
<PAGE>   13
         (b)     Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Master Servicer alone, and the Indenture Trustee, the
Note Insurer and the Noteholders shall not be deemed parties thereto and shall
have no claims, rights, obligations, duties or liabilities with respect to the
Subservicer except as set forth in Sections 3.05 and 7.05.

         Section 3.05.    Assumption or Termination of Subservicing Agreements
by Indenture Trustee.  (a) If the Indenture Trustee or its designee shall
assume the servicing obligations of the Master Servicer in accordance with
Section 6.02 below, the Indenture Trustee, to the extent necessary to permit
the Indenture Trustee to carry out the provisions of Section 6.02 with respect
to the Mortgage Loans, shall succeed to all of the rights and obligations of
the Master Servicer under each of the Subservicing Agreements and each
Subservicing Agreement shall provide for such successor.  In such event, the
Indenture Trustee or its designee as the successor Master Servicer shall be
deemed to have assumed all of the Master Servicer's rights and obligations
therein and to have replaced the Master Servicer as a party to such
Subservicing Agreements to the same extent as if such Subservicing Agreements
had been assigned to the Indenture Trustee or its designee as a successor
Master Servicer, except that the Indenture Trustee or its designee as a
successor Master Servicer shall not be deemed to have assumed any obligations
or liabilities of the Master Servicer arising prior to such assumption and the
Master Servicer shall not thereby be relieved  of any liability or obligations
under such Subservicing Agreements arising prior to such assumption; provided,
however, that if the Master Servicer resigns or is terminated due to an Event
of Default not caused by the Subservicer, the Subservicer shall have the option
if it so chooses, with the consent of the Note Insurer, to become the successor
Master Servicer in which event the Indenture Trustee shall name the Subservicer
as the successor Master Servicer.  Nothing in the foregoing shall be deemed to
entitle the Indenture Trustee or its designee as a successor Master Servicer at
any time to receive any portion of the servicing compensation provided under
Section 3.17 except for such portion as the Master Servicer would be entitled
to receive.

         (b)     In the event that the Indenture Trustee or its designee as
successor Master Servicer for the Indenture Trustee assumes the servicing
obligations of the Master Servicer under Section 6.02, upon the request of the
Indenture Trustee or such designee as successor Master Servicer, the Master
Servicer shall at its own expense deliver to the Indenture Trustee, or at its
written request to such designee, originals or, if originals are not available,
photocopies of all documents, files and records, electronic or otherwise,
relating to the Subservicing Agreements and the related Mortgage Loans or REO
Property then being serviced and an accounting of amounts collected and held by
it, if any, and will otherwise cooperate and use its reasonable efforts to
effect the orderly and efficient transfer of the Subservicing Agreements, or
responsibilities hereunder to the Indenture Trustee, or at its written request
to such designee as successor Master Servicer.

         Section 3.06.    Collection of Mortgage Loan Payments; Collection
Account.  (a) The Master Servicer will coordinate and monitor remittances by
Subservicers with respect to the Mortgage Loans in accordance with this
Servicing Agreement.





                                      -9-
<PAGE>   14
         (b)     The Master Servicer shall make its best reasonable efforts to
collect or cause to be collected all payments required under the terms and
provisions of the Mortgage Loans and shall follow, and use its best reasonable
efforts to cause Subservicers to follow, collection procedures comparable to
the collection procedures of prudent mortgage lenders servicing mortgage loans
for their own account to the extent such procedures shall be consistent with
this Servicing Agreement. Consistent with the foregoing, the Master Servicer or
the related Subservicer may in its discretion (i) waive or permit to be waived
any late payment charge or assumption fee, and (ii) suspend or reduce or permit
to be suspended or reduced regular monthly payments for a period of up to six
months, or arrange or permit an arrangement with a Mortgagor for a scheduled
liquidation of delinquencies; provided, however, that the Master Servicer or
the related Subservicer may permit the foregoing only if it believes, in its
good faith business judgment, that recoveries of Monthly Payments will be
maximized as a result of such actions; provided further, however, that the
Master Servicer shall not permit any waiver, modification or variance which
would (a) change the loan rate, (b) forgive any payment of principal or
interest, (c) lessen the lien priority or (d) extend the final maturity date of
a Mortgage Loan past 12 months after to the final maturity date on the Notes;
provided, however, that the Master Servicer may approve (x)(a) through (d) if
it believes it is in the best interests of the Noteholders and the Note Insurer
and (y)(a) or (d) if the Mortgagor requests such modification and the Note
Insurer consents thereto (such consent shall be deemed not given if the Note
Insurer does not approve within 5 Business Days after written notice of such
proposed modification is provided, but if the Note Insurer gives such consent
after five Business Days then the Note Insurer's consent shall be deemed
given); provided further, however, with respect to clause (y) in no event shall
the Master Servicer modify such Mortgage Loan if at the time the aggregate
amount of all such modified Mortgage Loans equals or exceeds 5% of the Original
Pool Balance.  In the event the Master Servicer or related Subservicer shall
consent to the deferment of the due dates for payments due on a Mortgage Note,
the Master Servicer shall nonetheless make an Advance or shall cause the
related Subservicer to make an advance to the same extent as if such
installment were due, owing and delinquent and had not been deferred through
liquidation of the Mortgaged Property; provided, however, that the obligation
of the Master Servicer or the related Subservicer to make an Advance shall
apply only to the extent that the Master Servicer believes, in its good faith
business judgment, that such advances are not Nonrecoverable Advances.

         (c)     Promptly after the Master Servicer has determined that all
amounts which it expects to recover from or on account of a Mortgage Loan have
been recovered and that no further Liquidation Proceeds will be received in
connection therewith, the Master Servicer shall provide to (i) the Indenture
Trustee a certificate of a Servicing Officer that such Mortgage Loan became a
Liquidated Mortgage Loan as of the date of such determination and (ii) the Note
Insurer and the Indenture Trustee a Liquidation Report in the form attached
hereto as Exhibit C.

         (d)     The Master Servicer shall establish a segregated account in
the name of the Indenture Trustee (the "Collection Account"), which shall be an
Eligible Account, in which the Master Servicer shall deposit or cause to be
deposited any amounts representing payments on and any collections in respect
of the Initial Mortgage Loans received by it after the Cut-Off Date or, with
respect to the Subsequent Mortgage Loans, the Subsequent Cut-off Date (other
than in respect of the payments described in the proviso immediately following
item (vii) of this





                                      -10-
<PAGE>   15

subsection (d)) within two Business Days following receipt thereof, including
the following payments and collections received or made by it (without
duplication):

                      (i)         all payments of principal of or interest on
         the Mortgage Loans received by the Master Servicer after the Cut- off
         Date or the Subsequent Cut-off Date directly from Mortgagors or from
         the respective Subservicer;

                      (ii)        the aggregate Repurchase Price of the
         Mortgage Loans purchased by the Master Servicer pursuant to Section
         3.18;

                    (iii)         Net Liquidation Proceeds;

                      (iv)        all proceeds of any Mortgage Loans
         repurchased by the Seller pursuant to the Home Equity Loan Purchase
         Agreement, and all Substitution Adjustment Amounts required to be
         deposited in connection with the substitution of an Eligible
         Substitute Mortgage Loan pursuant to the Home Equity Loan Purchase
         Agreement;

                      (v)         Insurance Proceeds, other than Net
         Liquidation Proceeds, resulting from any insurance policy maintained
         on a Mortgaged Property;

                      (vi)        any Advance and any Compensating Interest
         payments; and

                    (vii)         any other amounts received by the Master
         Servicer, including any other fees that are required to be deposited
         in the Collection Account pursuant to this Servicing Agreement.

provided, however, that with respect to each Due Period, the Master Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee, for such Due Period.  The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Master Servicer need not deposit in the Collection Account late payment charges
payable by Mortgagors, as further described in Section 3.15, or amounts
received by the Subservicer for the accounts of Mortgagors for application
towards the payment of taxes, insurance premiums, assessments and similar
items.  In the event any amount not required to be deposited in the Collection
Account is so deposited, the Master Servicer may at any time (prior to being
terminated under this Agreement) withdraw such amount from the Collection
Account, any provision herein to the contrary notwithstanding.  The Master
Servicer shall keep records that accurately reflect the funds on deposit in the
Collection Account that have been identified by it as being attributable to the
Mortgage Loans and shall hold all collections in the Collection Account for the
benefit of the Owner Trustee, the Indenture Trustee, the Noteholders and the
Note Insurer, as their interests may appear.

         (e)     Funds in the Collection Account may be invested in Eligible
Investments, but shall not be commingled with the Master Servicer's own funds
or general assets or with funds





                                      -11-
<PAGE>   16

respecting payments on mortgage loans or with any other funds not related to
the Notes.  Income earned on such Eligible Investments shall be for the account
of the Master Servicer.

         (f)     Payments in the nature of prepayment penalties received on the
Mortgage Loans or Foreclosure Profits shall not be deposited in the Collection
Account, but rather shall be received and held by the Master Servicer (or the
Subservicer) solely for the benefit of and at the direction of the Seller.
Such amounts shall not be applied or made available by the Master Servicer (or
the Subservicer) for any other purpose.

         (g)     The Master Servicer will require each Subservicer to hold all
funds constituting collections on the Mortgage Loans, pending remittance
thereof to the Master Servicer, in one or more accounts in the name of the
Indenture Trustee meeting the requirements of an Eligible Account.  The
Subservicer shall segregate and hold all funds collected and received pursuant
to each Mortgage Loan separate and apart from any of its own funds and general
assets and any other funds. Each Subservicer shall make remittances to the
Master Servicer no later than  one Business Day following receipt thereof and
the Master Servicer shall deposit any such remittances received from any
Subservicer within two Business Days following receipt by the Master Servicer.

         Section 3.07.    Withdrawals from the Collection Account.  (a) The
Master Servicer shall, from time to time as provided herein, make withdrawals
from the Collection Account of amounts on deposit therein pursuant to Section
3.06 that are attributable to the Mortgage Loans for the following purposes
(without duplication):

                      (i)         to deposit in the Payment Account, by the
         fifth Business Day prior to each Payment Date, all collections on the
         Mortgage Loans required to be distributed from the Payment Account on
         a Payment Date;

                      (ii)        to the extent deposited to the Collection
         Account, to reimburse itself or the related Subservicer for previously
         unreimbursed Servicing Advances, expenses incurred in maintaining
         individual insurance policies pursuant to Section 3.11, or Liquidation
         Expenses, paid pursuant to Section 3.13, such withdrawal right being
         limited to amounts received on particular Mortgage Loans (other than
         any Repurchase Price in respect thereof) which represent late
         recoveries of the payments for which such advances were made, or from
         related Liquidation Proceeds;

                    (iii)         to pay to itself out of each payment received
         on account of interest on a Mortgage Loan as contemplated by Section
         3.15, an amount equal to the related Servicing Fee (to the extent not
         retained pursuant to Section 3.06), net of any amount retained by the
         Subservicer in respect of the Subservicing Fee pursuant to Section
         3.07(b);

                      (iv)        to pay to itself or the Seller, with respect
         to any Mortgage Loan or property acquired in respect thereof that has
         been purchased by the Seller, the Master Servicer or other entity, all
         amounts received thereon and not required to be distributed to
         Noteholders as of the date on which the related Repurchase Price is
         determined;





                                      -12-
<PAGE>   17
                      (v)         to reimburse the Master Servicer or any
         Subservicer for any unreimbursed Advance of its own funds or any
         unreimbursed advance of such Subservicer's own funds, the right of the
         Master Servicer or a Subservicer to reimbursement pursuant to this
         subclause (v) being limited to amounts received on a particular
         Mortgage Loan (including, for this purpose, the Repurchase Price
         therefor, Insurance Proceeds and Liquidation Proceeds)  which
         represent late payments or recoveries of the principal of or interest
         on such Mortgage Loan respecting which such Advance or advance was
         made;

                      (vi)        to reimburse the Master Servicer or any
         Subservicer from Insurance Proceeds or Liquidation Proceeds relating
         to a particular Mortgage Loan for amounts expended by the Master
         Servicer or such Subservicer pursuant to Section 3.13 in good faith in
         connection with the restoration of the related Mortgage Property which
         was damaged by the uninsured cause or in connection with the
         liquidation of such Mortgage Loan;

                    (vii)         to reimburse the Master Servicer or any
         Subservicer for any unreimbursed Nonrecoverable Advance previously
         made, and otherwise not reimbursed pursuant to this Subsection
         3.07(a);

                   (viii)         to withdraw any other amount deposited in the
         Collection Account that was not required to be deposited therein
         pursuant to Section 3.06;

                      (ix)        to reimburse the Master Servicer for costs
         associated with any environmental report specified in Section 3.13(c);

                      (x)         to clear and terminate the Collection Account
         upon a termination pursuant to Section 7.08; and

                      (xi)        to pay to the Master Servicer or any
         Subservicer income earned on Eligible Investments in the Collection
         Account.

In connection with withdrawals pursuant to clauses (ii), (iii), (iv), (v) and
(vi), the Master Servicer's entitlement thereto is limited to collections or
other recoveries on the related Mortgage Loan, and the Master Servicer shall
keep or cause the Subservicer to keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to such clauses.

         (b)     Notwithstanding the provisions of this Section 3.07, the
Master Servicer may, but is not required to, allow the Subservicers to deduct
from amounts received by them or from the related account maintained by a
Subservicer, prior to deposit in the Collection Account, any portion to which
such Subservicers are entitled as reimbursement of any reimbursable Advances,
Servicing Advances and Nonrecoverable Advances made by such Subservicers or the
Sub-Servicing Fee; provided that any amount so retained in respect of the
Subservicing Fee shall be deemed to have been received by the Master Servicer
in respect of the Servicing Fee.





                                      -13-
<PAGE>   18
         Section 3.08.    Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.

         (a)     The Master Servicer shall establish and maintain or cause the
related Subservicer to establish and maintain, one or more Servicing Accounts.
The Master Servicer or a Subservicer will deposit and retain therein all
collections from the Mortgagors for the payment of taxes, assessments,
insurance premiums, or comparable items as agent of the Mortgagors.

         (b)     The deposits in the Servicing Accounts shall be held in trust
by the Master Servicer or a Subservicer (and its successors and assigns) in the
name of the Indenture Trustee.  Such Servicing Accounts shall be Eligible
Accounts and, if permitted by applicable law, invested in Eligible Investments
held in trust by the Master Servicer or a Subservicer as described above and
maturing, or be subject to redemption or withdrawal, no later than the date on
which such funds are required to be withdrawn; withdrawals of amounts from the
Servicing Accounts may be made only to effect timely payment of taxes,
assessments, insurance premiums, or comparable items, to reimburse the Master
Servicer or a Subservicer for any advances made with respect to such items, to
refund to any Mortgagors any sums as may be determined to be overages, to pay
interest, if required, to Mortgagors on balances in the Servicing Accounts or
to clear and terminate the Servicing Accounts at or any time after the
termination of this Servicing Agreement.  Amounts received from Mortgagors for
deposit into the Servicing Accounts shall be deposited in the Servicing
Accounts by the Master Servicer within two days of receipt.  The Master
Servicer shall advance from its own funds amounts needed to pay items payable
from the Servicing Accounts if the Master Servicer reasonably believes that
such amounts are recoverable from the related Mortgagor.  The Master Servicer
shall comply with all laws relating to the Servicing Accounts, including laws
relating to payment of interest on the Servicing Accounts.  The Master Servicer
agrees to abide by applicable law with respect to the payment of interest on
escrow accounts to Mortgagors.  The Servicing Accounts shall not be the
property of the Issuer, the Note Insurer or the Noteholders.

         Section 3.09.    Access to Certain Documentation and Information
Regarding the Mortgage Loans.  The Master Servicer or the Seller shall provide,
and shall cause any Subservicer to provide, to the Indenture Trustee and the
Note Insurer access to the documentation regarding the related Mortgage Loans
and REO Property and to the Noteholders, the FDIC, and the supervisory agents
and examiners of the FDIC (to which the Indenture Trustee shall also provide)
access to the documentation regarding the related Mortgage Loans required by
applicable regulations, such access being afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Master Servicer or the Subservicers that are designated by these entities;
provided, however, that, unless otherwise required by law, the Master Servicer,
the Seller or the Subservicer shall not be required to provide access to such
documentation if the provision thereof would violate the legal right to privacy
of any Mortgagor; provided, further, however, that the Indenture Trustee and
the Note Insurer shall coordinate their requests for such access so as not to
impose an unreasonable burden on, or cause an unreasonable interruption of, the
business of the Master Servicer, the Seller or any Subservicer. The Master
Servicer, the Seller and the Subservicers shall allow representatives of the
above entities to photocopy any of the documentation and shall provide
equipment for that purpose at a charge that covers their own actual
out-of-pocket costs.





                                      -14-
<PAGE>   19
         Section 3.10.    Reserved.

         Section 3.11.    Maintenance of Hazard Insurance and Fidelity
Coverage.  (a) The Master Servicer shall maintain and keep, or cause each
Subservicer to maintain and keep, with respect to each Mortgage Loan and each
REO Property, in full force and effect hazard insurance (fire insurance with
extended coverage) equal to at least the lesser of the Principal Balance of the
Mortgage Loan or the current replacement cost of the Mortgaged Property, and
containing a standard mortgagee clause, provided, however, that the amount of
hazard insurance may not be less than the amount necessary to prevent loss due
to the application of any co-insurance provision of the related policy.  If the
Master Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities from an insurer insuring against hazard
losses on all of the Mortgage Loans, it shall conclusively be deemed to have
satisfied its obligations as set forth in this Section 3.11(a), it being
understood and agreed that such policy may contain a deductible clause, in
which case the Master Servicer shall, in the event that there shall not have
been maintained on the related Mortgaged Property a policy complying with  this
Section 3.11(a) and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause without any
right of reimbursement.  Any such deposit by the Master Servicer shall be made
on the last Business Day of the Due Period in the month in which payments under
any such policy would have been deposited in the Collection Account.  In
connection with its activities as Master Servicer of the Mortgage Loans, the
Master Servicer agrees to present, on behalf of itself, the Issuer, the Note
Insurer and the Indenture Trustee, claims under any such blanket policy.

         (b)     Any amounts collected by the Master Servicer or a Subservicer
under any such hazard insurance policy (other than amounts to be applied to the
restoration or repair of the Mortgaged Property or amounts released to the
Mortgagor in accordance with the Master Servicer's or a Subservicer's normal
servicing procedures, the Mortgage Note, the Security Instrument or applicable
law) shall be deposited in the Collection Account.

         (c)     Any cost incurred by a Master Servicer or a Subservicer in
maintaining any such individual hazard insurance policies shall not be added to
the amount owing under the Mortgage Loan for the purpose of calculating monthly
distributions to Noteholders, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs of maintaining individual hazard insurance policies
shall be recoverable by the Master Servicer or a Subservicer out of related
late payments by the Mortgagor or out of Insurance Proceeds or Liquidation
Proceeds or by the Master Servicer from the Repurchase Price, to the extent
permitted by Section 3.07.

         (d)     No earthquake or other additional insurance is to be required
of any Mortgagor or maintained on property acquired with respect to a Security
Instrument other than pursuant to such applicable laws and regulations as shall
at any time be in force and shall require such additional insurance. When, at
the time of origination of the Mortgage Loan or at any subsequent time, the
Mortgaged Property is located in a federally designated special flood hazard
area, the Master Servicer shall use its best reasonable efforts to cause with
respect to the Mortgage Loans and each REO Property flood insurance (to the
extent available and in accordance with mortgage servicing





                                      -15-
<PAGE>   20
industry practice) to be maintained.  Such flood insurance shall cover the
Mortgaged Property, including all items taken into account in arriving at the
Appraised Value on which the Mortgage Loan was based, and shall be in an amount
equal to the lesser of (i) the Principal Balance of the related Mortgage Loan
and (ii) the minimum amount required under the terms of coverage to compensate
for any damage or loss on a replacement cost basis, but not more than the
maximum amount of such insurance available for the related Mortgaged Property
under either the regular or emergency programs of the National Flood Insurance
Program (assuming that the area in which such Mortgaged Property is located is
participating in such program).

         (e)     If insurance has not been maintained complying with
Subsections 3.11 (a) and (d) and there shall have been a loss which would have
been covered by such insurance had it been maintained, the Master Servicer
shall pay, or cause the related Subservicer to pay, for any necessary repairs
without any right of reimbursement.

         (f)     The Master Servicer shall present, or cause the related
Subservicer to present, claims under any related hazard insurance or flood
insurance policy.

         (g)     The Master Servicer shall obtain and maintain at its own
expense, and shall cause each Subservicer to obtain and maintain at its own
expense, and for the duration of this Servicing Agreement, a blanket fidelity
bond and an errors and omissions insurance policy covering the Master
Servicer's and such Subservicer's officers, employees and other persons acting
on its behalf in connection with its activities under this Servicing Agreement.
The amount of coverage shall be consistent with industry standards.  The Master
Servicer shall promptly notify the Indenture Trustee and the Note Insurer of
any material change in the terms of such bond or policy.  To the extent
requested, the Master Servicer shall provide to the Indenture Trustee and the
Note Insurer a certificate of insurance that such bond and policy are in
effect. If any such bond or policy ceases to be in effect, the Master Servicer
shall, to the extent possible, give the Indenture Trustee and the Note Insurer
ten days' notice prior to any such cessation and shall use its reasonable best
efforts to obtain a comparable replacement bond or policy, as the case may be.
Any amounts relating to the Mortgage Loans collected under such bond or policy
shall be deposited in the Collection Account.

         Section 3.12.    Due-on-Sale Clauses; Assumption Agreements.  (a) In
any case in which the Master Servicer is notified by any Mortgagor or
Subservicer that a Mortgaged Property relating to a Mortgage Loan has been or
is about to be conveyed by the Mortgagor, the Master Servicer shall enforce, or
shall instruct such Subservicer to enforce, any due-on-sale clause contained in
the related Security Instrument to the extent permitted under the terms of the
related Mortgage Note and by applicable law. The Master Servicer or the related
Subservicer may repurchase a Mortgage Loan at the Repurchase Price when the
Master Servicer requires acceleration of the Mortgage Loan, but only if the
Master Servicer is satisfied, as evidenced by an Officer's Certificate
delivered to the Indenture Trustee and the Note Insurer, that such Mortgage
Loan is in default or default is reasonably foreseeable. If the Master Servicer
reasonably believes that such due-on-sale clause cannot be enforced under
applicable law, that enforcement thereof is not in the best interests of the
Noteholders and the Note Insurer or, if a Note Insurer Default exists, of the
Noteholders or if the Mortgage Loan does not contain a due-on-sale clause,





                                      -16-
<PAGE>   21

the Master Servicer is authorized, and may authorize any Subservicer, to
consent to a conveyance subject to the lien of the Mortgage, and to take or
enter into an assumption agreement from or with the Person to whom such
property has been or is about to be conveyed, pursuant to which such Person
becomes liable under the related Mortgage Note and unless prohibited by
applicable state law, such Mortgagor remains liable thereon, on condition,
however, that the related Mortgage Loan shall continue to be covered by a
hazard policy. In connection with any such assumption, no material term of the
related Mortgage Note may be changed. The Master Servicer shall notify the
Indenture Trustee and the Note Insurer, whenever possible, before the
completion of such assumption agreement, and shall forward to the Indenture
Trustee the original copy of such assumption agreement, which copy shall be
added by the Indenture Trustee to the related Mortgage File and which shall,
for all purposes, be considered a part of such Mortgage File to the same extent
as all other documents and instruments constituting a part thereof.  Upon the
instruction of the Master Servicer, the Indenture Trustee shall execute all
agreements relating to the foregoing.

         (b)     Notwithstanding the foregoing paragraph or any other provision
of this Servicing Agreement, the Master Servicer shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reason
of any assumption of a Mortgage Loan by operation of law or any conveyance by
the Mortgagor of the related Mortgaged Property or assumption of a Mortgage
Loan which the Master Servicer reasonably believes it may be restricted by law
from preventing, for any reason whatsoever or if the exercise of such right
would impair or threaten to impair any recovery under any applicable insurance
policy.

         Section 3.13.    Realization Upon Defaulted Mortgage Loans.  (a) The
Master Servicer shall, or shall direct the related Subservicer to, foreclose
upon or otherwise comparably convert the ownership of properties securing any
Mortgage Loans that come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.06, except that the Master Servicer shall not, and shall
not direct the related Subservicer to, foreclose upon or otherwise comparably
convert a Mortgaged Property if there is evidence of toxic waste or other
environmental hazards thereon unless the Master Servicer follows the procedures
in Subsection (c) below. In connection with such foreclosure or other
conversion, the Master Servicer in conjunction with the related Subservicer, if
any, shall use its best reasonable efforts to preserve REO Property and to
realize upon defaulted Mortgage Loans in such manner as to maximize the receipt
of principal and interest by the Noteholders, taking into account, among other
things, the timing of foreclosure and the considerations set forth in
Subsection 3.13(b). The foregoing is subject to the proviso that the Master
Servicer shall not be required to expend its own funds in connection with any
foreclosure or towards the restoration of any property unless it determines in
good faith (i) that such restoration or foreclosure will increase the proceeds
of liquidation of the Mortgage Loan to Noteholders after reimbursement to
itself for such expenses and (ii) that such expenses will be recoverable to it
either through Liquidation Proceeds (respecting which it shall have priority
for purposes of reimbursements from the Collection Account pursuant to Section
3.07) or through Insurance Proceeds (respecting which it shall have similar
priority). The Master Servicer shall be responsible for all costs and expenses
constituting Liquidation Expenses incurred by it in any such proceedings;
provided, however, that it shall be entitled to reimbursement thereof (as well
as its normal servicing compensation) as set





                                      -17-
<PAGE>   22

forth in Section 3.07.  Any income from or other funds (net of any income
taxes) generated by REO Property shall be deemed for purposes of this Servicing
Agreement to be Liquidation Proceeds.

         Any subsequent collections with respect to any Liquidated Mortgage
Loan shall be deposited to the Collection Account.  For purposes of determining
the amount of any Liquidation Proceeds or Insurance Proceeds, or other
unscheduled collections, the Master Servicer may take into account any
estimated additional Liquidation Expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.

         In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Indenture Trustee, who shall hold the same on behalf of
the Issuer in accordance with the Indenture.  Notwithstanding any such
acquisition of title and cancellation of the related Mortgage Loan, such
Mortgaged Property shall (except as otherwise expressly provided herein) be
considered to be an outstanding Mortgage Loan held as an asset of the Issuer
until such time as such property shall be sold.

         (b)     The Master Servicer shall not acquire any real property (or
any personal property incident to such real property) on behalf of the Issuer
except in connection with a default or reasonably foreseeable default of a
Mortgage Loan. In the event that the Master Servicer acquires any real property
(or personal property incident to such real property) on behalf of the Trust
Estate in connection with a default or imminent default of a Mortgage Loan,
such property shall be disposed of by the Master Servicer on behalf of the
Issuer within two years after its acquisition on behalf of the Trust Estate.

         (c)     With respect to any Mortgage Loan as to which the Master
Servicer or a Subservicer has received notice of, or has actual knowledge of,
the presence of any toxic or hazardous substance on the Mortgaged Property, the
Master Servicer shall promptly notify the Indenture Trustee, the Owner Trustee
and the Note Insurer and shall act in accordance with any such directions and
instructions provided by the Note Insurer, or if a Note Insurer Default exists,
by the Issuer.  Notwithstanding the preceding sentence of this Section 3.13(c),
with respect to any Mortgage Loan described by such sentence, the Master
Servicer shall, if requested by the Note Insurer, obtain and deliver to the
Issuer, the Indenture Trustee and the Note Insurer an environmental audit
report prepared by a Person who regularly conducts environmental audits using
customary industry standards.  The Master Servicer shall be entitled to
reimbursement for such report pursuant to Section 3.07.  If the Note Insurer
has not provided directions and instructions to the Master Servicer in
connection with any such Mortgage Loan within 30 days of a request by the
Master Servicer for such directions and instructions, then the Master Servicer
shall take such action as it deems to be in the best economic interest of the
Trust Estate (other than proceeding against the Mortgaged Property) and is
hereby authorized at such time as it deems appropriate to release such
Mortgaged Property from the lien of the related Mortgage.  The parties hereto
acknowledge that the Master Servicer shall not obtain on behalf of the Issuer a
deed as a result or in lieu of foreclosure, and shall not otherwise acquire
possession of or title to, or commence any proceedings to acquire possession of
or title to, or take any other action with respect to, any Mortgaged Property,
if the Owner Trustee or the Indenture Trustee could





                                      -18-
<PAGE>   23
reasonably be considered to be a responsible party for any liability arising
from the presence of any toxic or hazardous substance on the Mortgaged
Property, unless the Owner Trustee or the Indenture Trustee has been
indemnified by the Trust Fund to its reasonable satisfaction against such
liability.

         Section 3.14.    Indenture Trustee to Cooperate; Release of Mortgage
Files.  (a) Upon payment in full of any Mortgage Loan or the realization of all
amounts expected to be collected thereon (including the repurchase or
liquidation through foreclosure or otherwise), the Master Servicer will
immediately deliver to the Indenture Trustee a Request for Release in the form
of Exhibit B hereto signed by a Servicing Officer (which certification shall
include a statement to the effect that all amounts received in connection with
such payment which are required to be deposited in the Collection Account have
been so deposited) and shall request delivery to the Master Servicer or
Subservicer, as the case may be, of the Mortgage File. Upon receipt of such
certification and request, the Indenture Trustee shall promptly release the
related Mortgage File to the Master Servicer or Subservicer and execute and
deliver to the Master Servicer, without recourse, the request for reconveyance,
deed of reconveyance or release or satisfaction of mortgage or such instrument
releasing the lien of the Security Instrument (furnished by the Master
Servicer), together with the Mortgage Note with written evidence of
cancellation thereon.

         (b)     Each Request for Release may be delivered to the Indenture
Trustee (i) via mail or courier, (ii) via facsimile or (iii) by such other
means, including, without limitation, electronic or computer readable medium,
as the Master Servicer and the Indenture Trustee shall mutually agree.  The
Indenture Trustee shall promptly release the related Mortgage File(s) within
seven (7) Business Days of receipt of a properly completed Request for Release
pursuant to clause (i), (ii) or (iii) above, which shall be authorization to
the Indenture Trustee to release such Mortgage Files, provided the Indenture
Trustee has determined that such Request for Release has been executed, with
respect to clause (i) or (ii) above, or approved, with respect to clause (iii)
above, by an authorized Servicing Officer of the Master Servicer, and so long
as the Indenture Trustee complies with its duties and obligations under this
Agreement.  If the Indenture Trustee is unable to release the Mortgage Files
within the time frames previously specified, the Indenture Trustee shall
immediately notify the Master Servicer indicating the reason for such delay,
but in no event shall such notification be later than five Business Days after
receipt of a Request for Release.  If the Master Servicer is required to pay
penalties or damages due the Indenture Trustee's negligent failure to release
the related Mortgage File or the Indenture Trustee's negligent failure to
execute and release documents in a timely manner, the Indenture Trustee shall
be liable for such penalties or damages.

         On each day that the Master Servicer remits to the Indenture Trustee
Requests for Releases  pursuant to clauses (ii) or (iii) above, the Master
Servicer shall also submit to the Indenture Trustee a summary of the total
amount of such Requests for Releases requested on such day by the same method
as described in such clauses (ii) and (iii) above.

         (c)     From time to time as is appropriate, for the servicing or
foreclosure of any Mortgage Loan or collection under an insurance policy, the
Master Servicer may deliver to the Indenture Trustee a Request for Release
signed by a Servicing Officer on behalf of the Master





                                      -19-
<PAGE>   24
Servicer in substantially the form attached as Exhibit B hereto. Upon receipt
of the Request for Release, the Indenture Trustee shall deliver the Mortgage
File or any document therein to the Master Servicer or Subservicer, as the case
may be, as bailee for the Indenture Trustee.

         (d)     The Master Servicer shall cause each Mortgage File or any
document therein released pursuant to Subsection 3.14(c) to be returned to the
Indenture Trustee when the need therefor no longer exists, unless the Mortgage
Loan has become a Liquidated Mortgage Loan and the Liquidation Proceeds
relating to the Mortgage Loan have been deposited in the Collection Account or
such Mortgage File is being used to pursue foreclosure or other legal
proceedings. Prior to return of a Mortgage File or any document to the
Indenture Trustee, the Master Servicer, the related insurer or Subservicer to
whom such file or document was delivered shall retain such file or document in
its respective control as bailee for the Indenture Trustee unless the Mortgage
File or such document has been delivered to an attorney, or to a public trustee
or other public official as required by law, to initiate or pursue legal action
or other proceedings for the foreclosure of the Mortgaged Property either
judicially or non-judicially, and the Master Servicer has delivered to the
Indenture Trustee a certificate of a Servicing Officer certifying as to the
name and address of the Person to which such Mortgage File or such document was
delivered and the purpose or purposes of such delivery. If a Mortgage Loan
becomes a Liquidated Mortgage Loan, the Indenture Trustee shall deliver a copy
of the Request for Release with respect thereto to the Master Servicer upon
deposit of the related Liquidation Proceeds in the Collection Account.

         (e)     The Indenture Trustee shall execute and deliver to the Master
Servicer any court pleadings, requests for trustee's sale or other documents
necessary to (i) the foreclosure or trustee's sale with respect to a Mortgaged
Property; (ii) any legal action brought to obtain judgment against any
Mortgagor on the Mortgage Note or Security Instrument; (iii) obtain a
deficiency judgment against the Mortgagor; or (iv) enforce any other rights or
remedies provided by the Mortgage Note or Security Instrument or otherwise
available at law or equity.  Together with such documents or pleadings the
Master Servicer shall deliver to the Indenture Trustee a certificate of a
Servicing Officer in which it requests the Indenture Trustee to execute the
pleadings or documents. The certificate shall certify and explain the reasons
for which the pleadings or documents are required. It shall further certify
that the Indenture Trustee's execution and delivery of the pleadings or
documents will not invalidate any insurance coverage under the insurance
policies or invalidate or otherwise affect the lien of the Security Instrument,
except for the termination of such a lien upon completion of the foreclosure or
trustee's sale.

         Section 3.15.    Servicing Compensation.  (a)  As compensation for its
activities hereunder, the Master Servicer shall be entitled to receive the
Servicing Fee from payments of accrued interest on each Mortgage Loan. The
Master Servicer shall be solely responsible for paying any and all fees with
respect to a Subservicer and the Trust Estate shall not bear any fees, expenses
or other costs directly associated with any Subservicer.

         (b)     The Master Servicer may retain additional servicing
compensation in the form of late payment charges, release fees, bad check
charges, assumption fees and any other servicing-related fees, to the extent
such charges are collected from the related Mortgagors, and investment earnings
on the Collection Account.  The Master Servicer shall be required to pay all
expenses





                                      -20-
<PAGE>   25

it incurs in connection with servicing activities under this Servicing
Agreement and shall not be entitled in connection with servicing activities
under this Servicing Agreement to reimbursement except as provided in this
Servicing Agreement. Expenses to be paid by the Master Servicer without
reimbursement under this Subsection 3.15(b) shall include payment of the
expenses of the accountants retained pursuant to Section 3.17.

         Section 3.16.    Annual Statements of Compliance.  Within 120 days
after December 31 of each year, beginning with December 31, 1998, the Master
Servicer at its own expense shall deliver to the Indenture Trustee, with a copy
to the Note Insurer and the Rating Agencies, an Officer's Certificate stating,
as to the signer thereof, that (i) a review of the activities of the Master
Servicer during the preceding calendar year and of performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Master Servicer has
fulfilled its obligations under this Servicing Agreement in all material
respects for such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof including the steps being taken by the Master
Servicer to remedy such default; (iii) a review of the activities of each
Subservicer during the Subservicer's most recently ended calendar year and its
performance under its Subservicing Agreement has been made under such officer's
supervision; and (iv) to the best of the Servicing Officer's knowledge, based
on his review and the certification of an officer of the Subservicer (unless
the Servicing Officer has reason to believe that reliance on such certification
is not justified), either each Subservicer has performed and fulfilled its
duties, responsibilities and obligations under this Servicing Agreement and its
Subservicing Agreement in all material respects throughout the year, or, if
there has been a default in performance or fulfillment of any such duties,
responsibilities or obligations, specifying the nature and status of each such
default known to the Servicing Officer. Copies of such statements shall be
provided by the Master Servicer to the Noteholders upon request or by the
Indenture Trustee at the expense of the Master Servicer should the Master
Servicer fail to provide such copies.

         Section 3.17.    Annual Independent Public Accountants' Servicing
Report.  (a) Within 120 days after December 31 of each year, beginning with
December 31, 1998, the Master Servicer, at its expense, shall cause a firm of
Independent nationally-recognized certified public accountants who are members
of the American Institute of Certified Public Accountants and who are
acceptable to the Note Insurer to furnish a statement to the Master Servicer,
which will be provided to the Indenture Trustee, the Note Insurer and the
Rating Agencies, to the effect that, in connection with the firm's examination
of the Master Servicer's financial statements as of the end of such calendar
year, nothing came to their attention that indicated that the Master Servicer
was not in compliance with Sections 3.06, 3.07 and 3.08 except for (i) such
exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement; provided, however, that for
purposes of complying with this Section such a statement furnished to a
Subservicer otherwise satisfying the requirements of this Section shall be
deemed to satisfy the obligations of the Master Servicer.

                 (b)      Within 120 days after December 31 of each year,
beginning with December 31, 1998, the Master Servicer, at its expense, shall,
and shall cause each Subservicer to cause,





                                      -21-
<PAGE>   26

a nationally recognized firm of independent certified public accountants to
furnish to the Master Servicer or such Subservicer, as the case may be, a
report stating that (i) it has obtained a letter of representation regarding
certain matters from the management of the Master Servicer or such Subservicer,
as the case may be, which includes an assertion that the Master Servicer or
such Subservicer, as the case may be, has complied with certain minimum
mortgage loan servicing standards identified in the Uniform Single Attestation
Program for Mortgage Bankers established by the Mortgage Bankers Association of
America with respect to the servicing of first and second lien single family
mortgage loans during the most recently completed calendar year and (ii) on the
basis of an examination conducted by such firm in accordance with standards
established by the American Institute of Certified Public Accountants, such
representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that may be appropriate. Immediately upon
receipt of such report, the Master Servicer shall or shall cause each
Subservicer to furnish a copy of such report to the Indenture Trustee, the
Rating Agencies and the Note Insurer.

         Section 3.18.    Optional Purchase of Defaulted Mortgage Loans.  The
Master Servicer may repurchase any Mortgage Loan delinquent in payment for a
period of 90 days or longer for a price equal to the Repurchase Price;
provided, however, that whenever the Master Servicer repurchases any such
Mortgage Loan on the basis of delinquency it shall purchase the most delinquent
Mortgage Loan first (unless otherwise agreed to by the Note Insurer).  Prior to
such repurchase the Master Servicer shall deliver a notice to the Note Insurer
(a) indicating its intent to repurchase a Mortgage Loan (b) specifying the date
of such repurchase, and (c) confirming that such Mortgage Loan is the greatest
number of days delinquent of all delinquent Mortgage Loans. The procedure for
such repurchase shall be the same as for repurchase by the Seller under the
Home Equity Loan Purchase Agreement.  Notwithstanding the foregoing, the
Indenture Trustee, whether acting as Indenture Trustee or in the capacity of
successor Master Servicer, shall have no obligation to repurchase any Mortgage
Loan.

         Section 3.19.    Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Master Servicer shall prepare and deliver all federal and state information
reports when and as required by all applicable state and federal income tax
laws.  In particular, with respect to the requirement under Section 6050J of
the Code to the effect that the Master Servicer or Subservicer shall make
reports of foreclosures and abandonments of any mortgaged property for each
year beginning in 1998, the Master Servicer or Subservicer shall file reports
relating to each instance occurring during the previous calendar year in which
the Master Servicer (i) acquires an interest in any Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of a
Mortgage Loan, or (ii) knows or has reason to know that any Mortgaged Property
has been abandoned.  The reports from the Master Servicer or Subservicer shall
be in form and substance sufficient to meet the reporting requirements imposed
by Section 6050J, Section 6050H (reports relating to mortgage interest
received) and Section 6050P of the Code (reports relating to cancellation of
indebtedness).





                                      -22-
<PAGE>   27
         Section 3.20.    Master Servicer to Act as Agent and Bailee of the
Indenture Trustee.  The Master Servicer hereby agrees to act as agent and
bailee of the Indenture Trustee for the purposes set forth in Section 3.14 of
the Indenture.





                                      -23-
<PAGE>   28
                                   ARTICLE IV

                               Remittance Reports

         Section 4.01.    Remittance Reports.  On the second Business Day
following each Determination Date, the Master Servicer shall deliver or cause
the Subservicer to deliver to the Indenture Trustee a report, prepared as of
the close of business on such Determination Date (the "Determination Date
Report"), and shall forward to the Indenture Trustee  in the form of computer
readable electromagnetic tape or disk of such report.  The Determination Date
Report and any written information supplemental thereto shall include such
information with respect to the Mortgage Loans that is reasonably available to
the Master Servicer and that is required by the Indenture Trustee for purposes
of making the calculations and providing the reports referred to in the
Indenture, as set forth in written specifications or guidelines issued by the
Indenture Trustee from time to time and agreed to by the Master Servicer.  Such
information shall include the aggregate amounts required to be withdrawn from
the Collection Account and deposited into the Payment Account pursuant to
Section 3.07.  The Master Servicer agrees to cooperate with the Indenture
Trustee in providing all information as is reasonably requested by the
Indenture Trustee to prepare the reports required under the Indenture.  The
Master Servicer shall deliver the Determination Date Report to the Note
Insurer.

         The determination by the Master Servicer of such amounts shall, in the
absence of obvious error, be presumptively deemed to be correct for all
purposes hereunder and the Owner Trustee and Indenture Trustee shall be
protected in relying upon the same without any independent check or
verification.

         Section 4.02.  Advances.  If any portion of a Monthly Payment relating
to interest payments (together with any advances from the Subservicers) on a
Mortgage Loan that was due on the immediately preceding Due Date and delinquent
on the Determination Date is delinquent other than as a result of application
of the Relief Act, the Master Servicer will deposit or cause the Subservicer to
deposit in the Collection Account not later than the fourth Business Day
immediately preceding the related Payment Date an amount equal to such
deficiency net of the related Servicing Fee for such Mortgage Loan, except to
the extent the Master Servicer determines any such advance to be a
Nonrecoverable Advance.  Subject to the foregoing and in the absence of such a
determination, the Master Servicer shall continue to make such advances through
the date that the related Mortgaged Property has, in the judgment of the Master
Servicer, been completely liquidated.  If applicable, on the fourth Business
Day immediately preceding the related Payment Date, the Master Servicer shall
present an Officer's Certificate to the Indenture Trustee and the Note Insurer
(i) stating that the Master Servicer elects not to make an Advance in a stated
amount and (ii) detailing the reason it deems the advance to be a
Nonrecoverable Advance. Such advances may be made in whole or in part from
funds in the Collection Account being held for future distributions or
withdrawal on or in connection with Payment Dates in subsequent months.  Any
funds being held for future distributions shall be replaced by the Master
Servicer from its own funds by deposit in the Collection Account on or before
the fifth Business Day preceding any Payment Date on which there would
otherwise be insufficient funds in the





                                      -24-
<PAGE>   29
Collection Account, for transfer to the Payment Account, to permit payment of
all amounts required to be paid pursuant to Section 3.05 of the Indenture.

         Section 4.03.  Compensating Interest Payments. The Master Servicer
shall deposit or cause the Subservicer to deposit in the Collection Account not
later than the fourth Business Day immediately preceding the Payment Date an
amount equal to the Compensating Interest related to the related Determination
Date.  The Master Servicer shall not be entitled to any reimbursement of any
Compensating Interest payment.





                                      -25-
<PAGE>   30
                                   ARTICLE V

                              The Master Servicer

         Section 5.01.    Liability of the Master Servicer.  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.

         Section 5.02.    Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer.  Any corporation into which the Master
Servicer may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Master Servicer shall be a party, or any corporation succeeding to the
business of the Master Servicer, shall be, with the consent of the Note
Insurer, the successor of the Master Servicer, 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.

         The Master Servicer may fully assign all of its rights and delegate
its duties and obligations under this Servicing Agreement; provided, that the
Person accepting such assignment or delegation shall be a Person which is
reasonably satisfactory to the Indenture Trustee (as pledgee of the Mortgage
Loans) and the Company and satisfactory to the Note Insurer (in its sole
discretion), is willing to service the Mortgage Loans and executes and delivers
to the Indenture Trustee and the Issuer an agreement, in form and substance
reasonably satisfactory to the Note Insurer, the Indenture Trustee and the
Issuer, which contains an assumption by such Person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Master Servicer under this Servicing Agreement; provided,
further, that each Rating Agency's rating of the Notes that would be in effect
immediately prior to such assignment and delegation, without taking into
account the Note Insurance Policy, would not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency).

         Section 5.03.    Limitation on Liability of the Master Servicer and
Others.  Neither the Master Servicer nor any of the directors or officers or
employees or agents of the Master Servicer shall be under any liability to the
Issuer, the Owner Trustee, the Indenture Trustee, the Note Insurer or the
Noteholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Servicing Agreement, provided, however,
that this provision shall not protect the Master Servicer or any such Person
against any liability which would otherwise be imposed by reason of its willful
misfeasance, bad faith or negligence in the performance of its duties hereunder
or by reason of its reckless disregard of its obligations and duties hereunder.
The Master Servicer and any director or officer or employee or agent of the
Master Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder.  The Master Servicer and any director or officer or employee or
agent of the Master Servicer shall be indemnified by the Issuer and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Servicing Agreement or the Notes, including any
amount paid to the Owner Trustee or the Indenture Trustee pursuant to Section
5.06(b), other than any loss, liability or expense related to





                                      -26-
<PAGE>   31
any specific Mortgage Loan or Mortgage Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this Servicing
Agreement) and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or negligence in the performance of its duties hereunder
or by reason of its reckless disregard of its obligations and duties hereunder.
The Master Servicer shall not be under any obligation to appear in, prosecute
or defend any legal action which is not incidental to its duties to service the
Mortgage Loans in accordance with this Servicing Agreement, and which in its
opinion may involve it in any expense or liability; provided, however, that the
Master Servicer may in its sole discretion undertake any such action which it
may deem necessary or desirable in respect of this Servicing Agreement, and the
rights and duties of the parties hereto and the interests of the Noteholders
hereunder.  In such event, the reasonable legal expenses and costs of such
action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Issuer, and the Master Servicer shall be entitled to be
reimbursed therefor.  The Master Servicer's right to indemnity or reimbursement
pursuant to this Section 5.03 shall survive any resignation or termination of
the Master Servicer pursuant to Section 5.04 or 6.01 with respect to any
losses, expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination).  Any reimbursements or indemnification to the Master Servicer
from the Issuer pursuant to this Section 5.03 shall be payable in the priority
set forth in Section 3.05(a)(ix) of the Indenture.

         Section 5.04.    Master Servicer Not to Resign.  Subject to the
provisions of Section 5.02, the Master Servicer shall not resign from the
obligations and duties hereby imposed on it except (i) upon determination that
the performance of its obligations or duties hereunder are no longer
permissible under applicable law or (ii) upon satisfaction of the following
conditions:  (a) the Master Servicer has proposed a successor Master Servicer
to the Issuer, the Note Insurer and the Indenture Trustee in writing and such
proposed successor Master Servicer is reasonably acceptable to the Issuer and
the Indenture Trustee; (b) each Rating Agency shall have delivered a letter to
the Issuer, the Note Insurer and the Indenture Trustee prior to the appointment
of the successor Master Servicer stating that the proposed appointment of such
successor Master Servicer as Master Servicer hereunder will not result in the
reduction or withdrawal of the then current rating of the Notes or the rating
of the Notes that would be in effect without taking into account the Note
Insurance Policy; and (c) such proposed successor Master Servicer is acceptable
to the Note Insurer, as evidenced by a letter to the Issuer, the Master
Servicer and the Indenture Trustee; provided, however, that no such resignation
by the Master Servicer shall become effective until such successor Master
Servicer or, in the case of (i) above, the Indenture Trustee, as pledgee of the
Mortgage Loans, shall have assumed the Master Servicer's responsibilities and
obligations hereunder or the Indenture Trustee, as pledgee of the Mortgage
Loans, shall have designated a successor Master Servicer in accordance with
Section 6.02; provided, however, if the Master Servicer resigns, Advanta
Mortgage Corp. USA ("Advanta"), if it so chooses and it is acceptable to the
Note Insurer, shall be the successor Master Servicer.  Any such resignation
shall not relieve the Master Servicer of responsibility for any of the
obligations specified in Sections 6.01 and 6.02 as obligations that survive the
resignation or termination of the Master Servicer.  The Master Servicer shall
have no claim (whether by subrogation or otherwise) or other action against any
Noteholder or the Note Insurer for any amounts paid by the Master Servicer
pursuant to any provision of this Servicing Agreement.  Any such determination
permitting the resignation of the





                                      -27-
<PAGE>   32
Master Servicer shall be evidenced by an Opinion of Counsel to such effect
delivered to the Indenture Trustee and the Note Insurer.

         Section 5.05.    Delegation of Duties.  In the ordinary course of
business, the Master Servicer at any time may, with the consent of the Note
Insurer, delegate any of its duties hereunder to any Person, including any of
its Affiliates, who agrees to conduct such duties in accordance with the same
standards with which the Master Servicer complies pursuant to Section 3.01.
Such delegation shall not relieve the Master Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 5.04.

         Section 5.06.    Master Servicer to Pay Indenture Trustee's and Owner
Trustee's Expenses; Indemnification.  (a)  The Master Servicer covenants and
agrees to pay to the Owner Trustee and the Indenture Trustee all
indemnification payments (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) in connection with
the exercise and performance of any of the powers and duties pursuant to
Section 7.02 of the Trust Agreement or Section 6.07 of the Indenture, as the
case may be.

                 (b)      The Master Servicer agrees to indemnify the Indenture
Trustee and the Owner Trustee for, and to hold the Indenture Trustee and the
Owner Trustee, as the case may be, harmless against, any claim, tax, penalty,
loss, liability or expense of any kind whatsoever, incurred without negligence
(or gross negligence on the part of the Owner Trustee) or willful misconduct on
its part, arising out of, or in connection with, the failure by the Master
Servicer to perform its duties in compliance with this Servicing Agreement,
including the reasonable costs and expenses (including reasonable legal fees
and expenses) of defending itself against any claim in connection with the
exercise or performance of any of its powers or duties under any Basic
Document, provided that:

                      (i)         with respect to any such claim, the Indenture
         Trustee or Owner Trustee, as the case may be, shall have given the
         Master Servicer written notice thereof promptly after the Indenture
         Trustee or Owner Trustee, as the case may be, shall have actual
         knowledge thereof;

                      (ii)        while maintaining control over its own
         defense, the Indenture Trustee or Owner Trustee, as the case may be,
         shall cooperate and consult fully with the Master Servicer in
         preparing such defense; and

                    (iii)         notwithstanding anything in this Servicing
         Agreement to the contrary, the Master Servicer shall not be liable for
         settlement of any claim by the Indenture Trustee or the Owner Trustee,
         as the case may be, entered into without the prior consent of the
         Master Servicer.

No termination of this Servicing Agreement shall affect the obligations created
by this Section 5.06 of the Master Servicer to indemnify the Indenture Trustee
and the Owner Trustee under the conditions and to the extent set forth herein.
This section shall survive the termination or





                                      -28-
<PAGE>   33
assignment of this Servicing Agreement and the resignation or removal of the
Indenture Trustee.  Any amounts to be paid by the Master Servicer pursuant to
this Subsection may not be paid from the Trust Estate.

         Notwithstanding the foregoing, the indemnification provided by the
Master Servicer in this Section 5.06 shall not pertain to any loss, liability
or expense of the Indenture Trustee or the Owner Trustee, including the costs
and expenses of defending itself against any claim, incurred in connection with
any actions taken by the Indenture Trustee or the Owner Trustee at the
direction of the Securityholders, as the case may be, pursuant to the terms of
this Servicing Agreement.

         Section 5.07.    Assignment of Servicing Agreement.  This Agreement
shall bind and inure to the benefit of and be enforceable by the Master
Servicer, the Issuer and the Indenture Trustee and their respective successors
and assigns.  The obligations of the Master Servicer may be assigned or
delegated only to affiliates of the Master Servicer.


                                   ARTICLE VI

                                    Default

         Section 6.01.    Servicing Default.  If any one of the following
events (a "Servicing Default") shall occur and be continuing:

                      (i)         Any failure by the Master Servicer to deposit
         in the Collection Account or Payment Account any deposit required to
         be made under the terms of this Servicing Agreement, including any
         Advances (other than Servicing Advances) and Compensating Interest,
         which continues unremedied for a period of two Business Days after the
         date upon which such payment was required; or

                      (ii)        Failure on the part of the Master Servicer
         duly to observe or perform in any material respect any other covenants
         or agreements of the Master Servicer set forth in this Servicing
         Agreement, which failure, in each case, materially and adversely
         affects the interests of Noteholders or the Note Insurer or the breach
         of any representation or warranty of the Master Servicer in this
         Servicing Agreement or in the Insurance Agreement which materially and
         adversely affects the interests of the Noteholders or the Note
         Insurer, and which in either case continues unremedied for a period of
         60 days after the date on which written notice of such failure,
         requiring the same to be remedied, and stating that such notice is a
         "Notice of Default" hereunder, shall have been given to the Master
         Servicer by the Company, the Issuer or the Indenture Trustee, with a
         copy to the Note Insurer, or to the Master Servicer, the Company, the
         Issuer and the Indenture Trustee by the Note Insurer; or

                    (iii)         The entry against the Master Servicer of a
         decree or order by a court or agency or supervisory authority having
         jurisdiction in the premises for the appointment





                                      -29-
<PAGE>   34

         of a trustee, conservator, receiver or liquidator in any insolvency,
         conservatorship, receivership, readjustment of debt, marshalling of
         assets and liabilities or similar proceedings, or for the winding up
         or liquidation of its affairs, and the continuance of any such decree
         or order unstayed and in effect for a period of 60 consecutive days;
         or

                      (iv)        The Master Servicer shall voluntarily go into
         liquidation, consent to the appointment of a conservator, receiver,
         liquidator or similar person in any insolvency, readjustment of debt,
         marshalling of assets and liabilities or similar proceedings of or
         relating to the Master Servicer or of or relating to all or
         substantially all of its property, or a decree or order of a court,
         agency or supervisory authority having jurisdiction in the premises
         for the appointment of a conservator, receiver, liquidator or similar
         person in any insolvency, readjustment of debt, marshalling of assets
         and liabilities or similar proceedings, or for the winding-up or
         liquidation of its affairs, shall have been entered against the Master
         Servicer and such decree or order shall have remained in force
         undischarged, unbonded or unstayed for a period of 60 days; or the
         Master Servicer shall admit in writing its inability to pay its debts
         generally as they become due, file a petition to take advantage of any
         applicable insolvency or reorganization statute, make an assignment
         for the benefit of its creditors or voluntarily suspend payment of its
         obligations; or

                      (v)         Any "Event of Default" under Section 5.01 of
         the Insurance Agreement or  "Event of Default" under Section 5.01 of
         the Series 1998-2F Insurance Agreement;

                      (vi)        So long as the Seller is the Master Servicer
         or is an affiliate, the parent of or under the common control with,
         the Master Servicer, any failure of the Seller to repurchase any
         Mortgage Loan required to be repurchased, or to pay any amount due,
         pursuant to the Home Equity Loan Purchase Agreement or to pay any
         amount due, pursuant to the Series 1998-2F Home Equity Loan Purchase
         Agreement; or

                    (vii)         The occurrence of a Performance Test
         Violation;
     
then, (a) and in every such case, other than that set forth in (v) or (vi)
hereof, so long as a Servicing Default shall not have been remedied by the
Master Servicer, either the Issuer, subject to the direction of the Indenture
Trustee as pledgee of the Mortgage Loans, with the consent of the Note Insurer,
or the Note Insurer, or if a Note Insurer Default exists, the holders of at
least 51% of the aggregate Note Principal Balance of the Notes, by notice then
given in writing to the Master Servicer (and to the Indenture Trustee and the
Issuer if given by the Note Insurer or the Noteholders in the case of a Note
Insurer Default) or (b) in the case of the events set forth in (v) or (vi)
hereof, the Note Insurer or, if a Note Insurer Default exists, the holders of
at least 51% of the aggregate Note Principal Balance of the Notes, may, by
notice to the Master Servicer, terminate all of the rights and obligations of
the Master Servicer as Master Servicer under this Servicing Agreement other
than its right to receive servicing compensation and expenses for servicing the
Mortgage Loans hereunder during any period prior to the date of such
termination and the Issuer, subject to the direction of the Indenture Trustee
as pledgee of the Mortgage Loans, with the consent of the Note Insurer, or the
Note Insurer may exercise any and all other remedies





                                      -30-
<PAGE>   35
available at law or equity.  Any such notice to the Master Servicer shall also
be given to each Rating Agency, the Note Insurer, the Indenture Trustee  and
the Issuer.  On or after the receipt by the Master Servicer of such written
notice, all authority and power of the Master Servicer under this Servicing
Agreement, whether with respect to the Notes or the Mortgage Loans or
otherwise, shall pass to and be vested in the Indenture Trustee, pursuant to
and under this Section 6.01; and, without limitation, the Indenture Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the Master
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of each Mortgage Loan and related
documents, or otherwise.  The Master Servicer agrees to cooperate with the
Indenture Trustee in effecting the termination of the responsibilities and
rights of the Master Servicer hereunder, including, without limitation, the
transfer within one Business Day to the Indenture Trustee for the
administration by it of all cash amounts relating to the Mortgage Loans that
shall at the time be held by the Master Servicer and to be deposited by it in
the Collection Account, or that have been deposited by the Master Servicer in
the Collection Account or thereafter received by the Master Servicer with
respect to the Mortgage Loans.  In addition, the Master Servicer agrees
promptly to provide the Indenture Trustee with all documents and records
requested by it to enable it to assume the Master Servicer's functions under
this Agreement.  All reasonable costs and expenses (including, but not limited
to, attorneys' fees) incurred in connection with amending this Servicing
Agreement to reflect such succession as Master Servicer pursuant to this
Section 6.01 shall be paid by the predecessor Master Servicer (or if the
predecessor Master Servicer is the Indenture Trustee, the Master Servicer
succeeded by the Indenture Trustee) upon presentation of reasonable
documentation of such costs and expenses. For purposes of this Section 6.01,
the Indenture Trustee shall not be deemed to have knowledge of a Master
Servicer Default unless a Responsible Officer of the Indenture Trustee assigned
to and working in the Indenture Trustee's Corporate Trust Office has actual
knowledge thereof or unless written notice of any event which is in fact such a
Servicing Default is received by the Indenture Trustee and such notice
references the Notes or this Agreement.

         Notwithstanding any termination of the activities of the Master
Servicer hereunder, the Master Servicer shall be entitled to receive, out of
any late collection of a payment on a Mortgage Loan which was due prior to the
notice terminating the Master Servicer's rights and obligations hereunder and
received after such notice, that portion to which the Master Servicer would
have been entitled pursuant to Sections 3.07 and 3.15 as well as its Servicing
Fee in respect thereof, and any other amounts payable to the Master Servicer
hereunder the entitlement to which arose prior to the termination of its
activities hereunder.

         Upon the occurrence of a Servicing Default, if not terminated pursuant
to this Section 6.01, the Master Servicer shall continue to act as Master
Servicer under this Agreement, subject to the continuing right of removal
pursuant to this Section 6.01, for an initial term, commencing on the date
which such Servicing Default occurred and ending on the last day of the
calendar quarter in which such Servicing Default occurred, which period may be
extended by the Note Insurer, in its sole discretion, for successive terms of
three calendar months thereafter, until the satisfaction and discharge of the
Indenture under Section 4.10 thereof.  Each such notice of extension (a "Master
Servicer Extension Notice") shall be delivered by the Note Insurer to the





                                      -31-
<PAGE>   36
Indenture Trustee and the Master Servicer.  The Master Servicer hereby agrees
that, upon its receipt of any such Master Servicer Extension Notice, the Master
Servicer shall become bound for the duration of the term covered by such Master
Servicer Extension Notice to continue as the Master Servicer subject to and in
accordance with the other provisions of this Agreement; provided, that nothing
herein shall prohibit the Note Insurer or the Indenture Trustee from thereafter
removing the Master Servicer pursuant to this Section 6.01 or any other
provision of this Agreement.  The Indenture Trustee agrees that if as of the
fifteenth (15) day prior to the last day of any term of the Master Servicer the
Indenture Trustee shall not have received any Master Servicer Extension Notice
from the Note Insurer, the Indenture Trustee will within five (5) days
thereafter, give written notice of such non-receipt to the Note Insurer and the
Master Servicer.  The failure of the Note Insurer to deliver a Master Servicer
Extension Notice by the end of a calendar term shall result in the termination
of the Master Servicer.  The foregoing provisions of this paragraph shall not
apply to the Indenture Trustee in the event the Indenture Trustee succeeds to
the rights and obligations of the Master Servicer and the Indenture Trustee
shall continue in such capacity until the earlier of the termination of this
Agreement pursuant to Section 7.08 or the appointment of a successor master
servicer.

         The Master Servicer shall immediately notify the Indenture Trustee,
the Note Insurer and the Owner Trustee in writing of any Servicing Default.

         Section 6.02.    Indenture Trustee to Act; Appointment of Successor.
(a)  On and after the time the Master Servicer receives a notice of termination
pursuant to Section 6.01, sends a notice pursuant to Section 5.04, or its term
expires and is not renewed pursuant to the penultimate paragraph of Section
6.01, the Indenture Trustee on behalf of the Noteholders and the Note Insurer
shall be the successor in all respects to the Master Servicer in its capacity
as Master Servicer under this Servicing Agreement and the transactions set
forth or provided for herein and shall be subject to all the responsibilities,
duties and liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof, including but not limited to the provisions of
Article VIII.  Nothing in this Servicing Agreement shall be construed to permit
or require the Indenture Trustee to (i) be responsible or accountable for any
act or omission of the Master Servicer prior to the issuance of a notice of
termination hereunder, (ii) require or obligate the Indenture Trustee, in its
capacity as successor Master Servicer, to purchase, repurchase or substitute
any Mortgage Loan, (iii) fund any losses on any Eligible Investment directed by
any other Master Servicer, or (iv) be responsible for the representations and
warranties of the Master Servicer; provided, however, that the Indenture
Trustee, as successor Master Servicer, shall be required to make any required
Advances to the extent that the Master Servicer failed to make such Advances.
As compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Master Servicer would have been entitled to hereunder if no
such notice of termination had been given.  Notwithstanding the above, (i) if
the Indenture Trustee is unwilling to act as successor Master Servicer, or (ii)
if the Indenture Trustee is legally unable so to act, the Indenture Trustee
shall so notify the Note Insurer, and the Note Insurer may appoint a successor
Master Servicer if no Note Insurer Default exists and, if it does not do so
within 30 days after receipt of such notice, the Indenture Trustee may (in the
situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint or petition a court of competent jurisdiction to appoint
any established housing and home finance institution, bank or other mortgage
loan Master Servicer





                                      -32-
<PAGE>   37
having a net worth of not less than $10,000,000 as the successor to the Master
Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Master Servicer hereunder;
provided, that any such successor Master Servicer shall be acceptable to the
Note Insurer, as evidenced by the Note Insurer's prior written consent (which
consent shall not be unreasonably withheld) and provided further that the
appointment of any such successor Master Servicer will not result in the
qualification, reduction or withdrawal of the ratings assigned to the Notes by
the Rating Agencies or the ratings assigned to the Notes without taking into
account the Note Insurance Policy; provided, however, Advanta shall become the
successor Master Servicer if the Master Servicer was terminated for reasons
other than due to any action or inaction on the part of Advanta.  Pending
appointment of a successor to the Master Servicer hereunder, unless the
Indenture Trustee is prohibited by law from so acting, the Indenture Trustee
shall act in such capacity as hereinabove provided.  In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Mortgage Loans in an amount equal to the
compensation which the Master Servicer would otherwise have received pursuant
to Section 3.15 (or such lesser compensation as the Indenture Trustee and such
successor shall agree).  The appointment of a successor Master Servicer shall
not affect any liability of the predecessor Master Servicer which may have
arisen under this Servicing Agreement prior to its termination as Master
Servicer (including, without limitation, the obligation to purchase Mortgage
Loans pursuant to Section 3.01, to pay any deductible under an insurance policy
pursuant to Section 3.11 or to indemnify the Indenture Trustee pursuant to
Section 5.06), nor shall any successor Master Servicer be liable for any acts
or omissions of the predecessor Master Servicer or for any breach by such
Master Servicer of any of its representations or warranties contained herein or
in any related document or agreement.  The Indenture Trustee and such successor
shall take such action, consistent with this Servicing Agreement, as shall be
necessary to effectuate any such succession.

         (b)     Any successor, including the Indenture Trustee on behalf of
the Noteholders, to the Master Servicer as Master Servicer shall during the
term of its service as Master Servicer (i) continue to service and administer
the Mortgage Loans for the benefit of the Noteholders and the Note Insurer,
(ii) maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Master Servicer hereunder
and a fidelity bond in respect of its officers, employees and agents to the
same extent as the Master Servicer is so required pursuant to Section 3.11.

         (c)     Any successor Master Servicer, including the Indenture Trustee
on behalf of the Noteholders and the Note Insurer, shall not be deemed to be in
default or to have breached its duties hereunder if the predecessor Master
Servicer shall fail to deliver any required deposit to the Collection Account
or otherwise cooperate with any required servicing transfer or succession
hereunder.

         Section 6.03.    Notification to Noteholders.  Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VI
or Section 5.04, the Indenture Trustee shall give prompt written notice thereof
to the Noteholders, the Note Insurer, the Owner Trustee, the Company, the
Issuer and each Rating Agency.





                                      -33-
<PAGE>   38
         Section 6.04.    Waiver of Defaults.  The Indenture Trustee shall
transmit by mail to all Noteholders and the Note Insurer, within 5 days after
the occurrence of any Servicing Default known to the Indenture Trustee, unless
such Servicing Default shall have been cured, notice of each such Servicing
Default hereunder known to the Indenture Trustee.  The Note Insurer or, if a
Note Insurer Default exists, the holders of at least 51% of the aggregate Note
Principal Balance of the Notes may waive any default by the Master Servicer in
the performance of its obligations hereunder and the consequences thereof,
except a default in the making of or the causing to be made any required
distribution on the Notes or, in the case of Noteholders, payment of the Note
Insurance Premium.  No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon except to the extent expressly
so waived.  The Master Servicer shall give notice of any such waiver to the
Rating Agencies.





                                      -34-
<PAGE>   39
                                  ARTICLE VII

                            Miscellaneous Provisions

         Section 7.01.    Amendment.  This Servicing Agreement may be amended
from time to time by the parties hereto with the prior written consent of the
Note Insurer, and of the Subservicer (which consent of the Subservicer shall
not be unreasonably withheld), provided that any amendment be accompanied by a
letter from the Rating Agencies to the effect that the amendment will not
result in the downgrading or withdrawal of the rating then assigned to the
Notes or the rating that would then be assigned to the Notes without taking
into account the Note Insurance Policy.

         Section 7.02.    GOVERNING LAW.  THIS SERVICING 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 7.03.    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 certified mail, return receipt requested,
to:

(a) in the case of the Master Servicer:  PacificAmerica Money Center, Inc.
                                         21031 Ventura Boulevard
                                         Woodland Hills, CA 91364-2210
                                         Attention: Chief Financial Officer

(b) in the case of the Note Insurer:     Financial Security Assurance
                                         350 Park Avenue
                                         New York, New York  10022
                                         Attention: Surveillance Department
                                         Re:  (PacificAmerica Home Equity Loan
                                         Asset-Backed Notes, Series 1998-2F)
                                         Telecopy: (212) 339-3518
                                         (212) 339-3529

     In each case in which a notice or other communication to the Note Insurer
refers to a Master Servicer Event of Default or a claim on the Note Insurance
Policy or with respect to which failure on the part of the Note Insurer to
respond be deemed to constitute consent or acceptance, then a copy of such
notice or other communication should also be sent to the attention of the
General Counsel and the Head Financial Guaranty Group and shall be marked to
indicate "URGENT MATERIAL ENCLOSED."

     (c) in the case of Rating Agencies: Moody's Investors Service, Inc.
                                         4th Floor
                                         99 Church Street





                                      -35-
<PAGE>   40
                                         New York, NY 10007
                                         Attention:  Residential Mortgage
                                         Monitoring Department

                                         Standard & Poor's Rating Services
                                         26 Broadway
                                         15th Floor
                                         New York, NY 10004
                                         Attention: Asset Backed Surveillance
                                         Group

     (d) in the case of the Owner Trustee,
     the Corporate Trust Office:         Wilmington Trust Company
                                         Rodney Square North
                                         1100 North Market Street
                                         Wilmington, Delaware 19890
                                         Attention: Corporate Trust
                                         Administration

     (e) in the case of the Issuer,
     to the Owner Trustee:               Wilmington Trust Company
                                         Rodney Square North
                                         1100 North Market Street
                                         Wilmington, Delaware 19890
                                         Attention: Corporate Trust
                                         Administration

     (f) in the case of the Indenture
     Trustee:                            Bankers Trust Company of California,
                                         N.A.
                                         3 Park Plaza, 16th Floor
                                         Irvine, CA  92614
                                         Fax No.: (714) 253-7577
                                         Attention:  Corporate Trust Department
                                         PacificAmerica Home Equity Loan Trust
                                         Series 1998-2F


or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.  Any notice required or
permitted to be mailed to a Noteholder shall be given by first class mail,
postage prepaid, at the address of such Noteholder as shown in the Certificate
Register.  Any notice so mailed within the time prescribed in this Servicing
Agreement shall be conclusively presumed to have been duly given, whether or
not the Noteholder receives such notice.  Any notice or other document required
to be delivered or mailed by the Indenture Trustee to any Rating Agency shall
be given on a reasonable efforts basis and only as a matter of courtesy





                                      -36-
<PAGE>   41
and accommodation and the Indenture Trustee shall have no liability for failure
to deliver such notice or document to any Rating Agency.

         Section 7.04.    Severability of Provisions.  If any one or more of
the covenants, agreements, provisions or terms of this Servicing Agreement
shall be for any reason whatsoever held invalid, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Servicing Agreement and
shall in no way affect the validity or enforceability of the other provisions
of this Servicing Agreement or of the Notes or the rights of the Noteholders
thereof.

         Section 7.05.    Third-Party Beneficiaries.  This Servicing Agreement
will inure to the benefit of and be binding upon the parties hereto, the
Noteholders, the Note Insurer, the Owner Trustee, the Indenture Trustee and
their respective successors and permitted assigns.  Except as otherwise
provided in this Servicing Agreement, no other Person will have any right or
obligation hereunder.  The Indenture Trustee shall have the right to exercise
all rights of the Issuer under this Agreement.

         Section 7.06.    Counterparts.  This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

         Section 7.07.    Effect of Headings and Table of Contents.  The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

         Section 7.08.    Termination Upon Purchase by the Master Servicer.
Except with respect to obligations of the Master Servicer relating to any
representations and warranties or indemnities made by it in this Agreement, the
respective obligations and responsibilities of the Master Servicer and the
Issuer created hereby shall terminate upon the satisfaction and discharge of
the Indenture pursuant to Section 4.10 thereof.

         Section 7.09.    No Petition.  The Master Servicer, by entering into
this Servicing Agreement, hereby covenants and agrees that it will not at any
time institute against the Issuer, or join in any institution against the
Issuer, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations of the Issuer.
This section shall survive the termination of this Servicing Agreement by one
year.

         Section 7.10.    No Recourse.  The Master Servicer acknowledges that
no recourse may be had against the Issuer, except as may be expressly set forth
in this Servicing Agreement.





                                      -37-
<PAGE>   42
                                  ARTICLE VIII

                  Administrative Duties of the Master Servicer

                 Section 8.01.    Administrative Duties.  (a) Duties with
Respect to the Indenture.  The Master Servicer shall perform all its duties and
the duties of the Issuer under the Indenture.  In addition, the Master Servicer
shall consult with the Owner Trustee as the Master Servicer deems appropriate
regarding the duties of the Issuer under the Indenture.  The Master Servicer
shall monitor the performance of the Issuer and shall advise the Owner Trustee
when action is necessary to comply with the Issuer's duties under the
Indenture.  The Master Servicer shall prepare for execution by the Issuer or
shall cause the preparation by other appropriate Persons of all such documents,
reports, filings, instruments, certificates and opinions as it shall be the
duty of the Issuer to prepare, file or deliver pursuant to the Indenture.  In
furtherance of the foregoing, the Master Servicer shall take all necessary
action that is the duty of the Issuer to take pursuant to the Indenture.

                 (b)      Duties with Respect to the Issuer.

                          (i)     In addition to the duties of the Master
Servicer set forth in this Servicing Agreement or any of the Basic Documents,
the Master Servicer shall perform such calculations and shall prepare for
execution by the Issuer or the Owner Trustee or shall cause the preparation by
other appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the Owner
Trustee to prepare, file or deliver pursuant to this Servicing Agreement or any
of the Basic Documents or under state and federal tax and securities laws, and
at the request of the Owner Trustee or the Note Insurer shall take all
appropriate action that it is the duty of the Issuer to take pursuant to this
Servicing Agreement or any of the Basic Documents.  In accordance with the
directions of the Issuer, the Note Insurer or the Owner Trustee, the Master
Servicer shall administer, perform or supervise the performance of such other
activities in connection with the Notes (including the Basic Documents) as are
not covered by any of the foregoing provisions and as are expressly requested
by the Issuer, the Note Insurer or the Owner Trustee and are reasonably within
the capability of the Master Servicer.

                          (ii)    Notwithstanding anything in this Servicing
Agreement or any of the Basic Documents to the contrary, the Master Servicer
shall be responsible for, upon learning of such event, promptly notifying the
Owner Trustee, the Indenture Trustee and the Note Insurer in the event that any
withholding tax is imposed on the Issuer's payments (or allocations of income)
to an Owner (as defined in the Trust Agreement) as contemplated in Section
5.01(b) of the Trust Agreement.  Any such notice shall be in writing and
specify the amount of any withholding tax required to be withheld by the Owner
Trustee pursuant to such provision.

                          (iii)   In carrying out the foregoing duties or any
of its other obligations under this Servicing Agreement, the Master Servicer
may enter into transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or dealings shall be
in accordance with any directions received from the Issuer and shall be, in the





                                      -38-
<PAGE>   43
Master Servicer's opinion, no less favorable to the Issuer in any material
respect than with terms made available to unrelated third-parties.

                 (c)      Tax Matters.  The Master Servicer shall provide such
services as are reasonably necessary to assist the Issuer, the Indenture
Trustee or the Owner Trustee, as applicable, in the preparation of tax returns
and information reports as provided in Section 5.03 of the Trust Agreement.

                 (d)      Non-Ministerial Matters.  With respect to matters
that in the reasonable judgment of the Master Servicer are non-ministerial,
the Master Servicer shall not take any action pursuant to this Article VIII
unless within a reasonable time before the taking of such action, the Master
Servicer shall have notified the Owner Trustee, the Note Insurer and the
Indenture Trustee of the proposed action and the Owner Trustee, the Note
Insurer and, with respect to items (A), (B), (C) and (D) below, the Indenture
Trustee shall not have withheld consent or provided an alternative direction.
For the purpose of the preceding sentence, "non-ministerial matters" shall
include:

                          (A)     the amendment of or any supplement to the
                 Indenture; provided that the Issuer cannot agree to any
                 amendment or supplement to the Indenture without the approval
                 of the Master Servicer, which consent shall not be
                 unreasonably withheld;

                          (B)     the initiation of any claim or lawsuit by the
                 Issuer and the compromise of any action, claim or lawsuit
                 brought by or against the Issuer (other than in connection
                 with the collection of the Mortgage Loans);

                          (C)     the amendment, change or modification of this
                 Agreement or any of the Basic Documents;

                          (D)     the appointment of successor Certificate
                 Paying Agents and successor Indenture Trustees pursuant to the
                 Indenture or the appointment of successor Master Servicers or
                 the consent to the assignment by the Certificate Registrar,
                 Paying Agent or Trustee of its obligations under the
                 Indenture; and

                          (E)     the removal of the Indenture Trustee.

                 Section 8.02.    Records.  The Master Servicer shall maintain
appropriate books of account and records relating to services performed under
this Servicing Agreement, which books of account and records shall be
accessible for inspection by the Issuer, the Indenture Trustee  and the Note
Insurer upon reasonable request and at any time during normal business hours.

                 Section 8.03.    Additional Information to be Furnished.  The
Master Servicer shall furnish to the Issuer, the Indenture Trustee and the Note
Insurer from time to time such additional information regarding the Notes as
the Issuer or the Note Insurer shall reasonably request.





                                      -39-
<PAGE>   44
         IN WITNESS WHEREOF, the Master Servicer, the Indenture Trustee and the
Issuer have caused this Servicing Agreement to be duly executed by their
respective officers or representatives all as of the day and year first above
written.


                                       PACIFICAMERICA MONEY CENTER, INC.,
                                       as Master Servicer


                                       By
                                         --------------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------

                                       PACIFICAMERICA HOME EQUITY LOAN TRUST
                                       SERIES 1998-2F, as Issuer


                                       By Wilmington Trust Company, not in its
                                       individual capacity but solely as Owner
                                       Trustee


                                       By
                                         --------------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------


                                       BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
                                       not in its individual capacity but solely
                                       as Indenture  Trustee

                                       By
                                         --------------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------
<PAGE>   45
                                   EXHIBIT A
                             MORTGAGE LOAN SCHEDULE

                                   SEE TAB 12
<PAGE>   46
                                   EXHIBIT B
                          FORM OF REQUEST FOR RELEASE

DATE:

TO:

RE:  REQUEST FOR RELEASE OF DOCUMENTS

In connection with your administration of the Mortgage Loans, we request the
release of the Mortgage File described below.

Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one)          Mortgage Loan
Prepaid in Full
                                                       Mortgage Loan Repurchased

"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."

_____________________________________  [Send Files To:
[Name of Master Servicer]                        _____________________________
Authorized Signature                             _____________________________
                                                 _____________________________

                                       Attention:_____________________________
******************************************************************
TO CUSTODIAN/Indenture Trustee:  Please acknowledge this request, and check off
documents being enclosed with a copy of this form.  You should retain this form
for your files in accordance with the terms of the Servicing Agreement.

         Enclosed Documents:    [  ]    Promissory Note
                                [  ]    Mortgage or Deed of Trust
                                [  ]    Assignment(s) of Mortgage or
                                        Deed of Trust
                                [  ]    Title Insurance Policy
                                [  ]    Other:  ___________________________

________________________________
Name
________________________________
Title
________________________________
Date


                                       B-1
<PAGE>   47
                                   EXHIBIT C
                           FORM OF LIQUIDATION REPORT



Customer Name:
Account Number:
Original Principal Balance:

1.       Type of Liquidation (REO disposition/charge-off/short pay-off)

         Date last paid
         Date of foreclosure
         Date of REO
         Date of REO Disposition
         Property Sale Price/Estimated Market Value at disposition

2.       Liquidation Proceeds

         Principal Prepayment                                    $____________
         Property Sale Proceeds                                   ____________
         Insurance Proceeds                                       ____________
         Other (itemize)                                          ____________

         Total Proceeds                                          $____________

3.       Liquidation Expenses

         Servicing Advances                                       ____________
         Delinquency Advances                                     ____________
         Monthly Advances                                         ____________
         Servicing Fees                                           ____________
         Other Servicing Compensation                             ____________

         Total Advances                                          $____________

4.       Net Liquidation Proceeds                                $____________
         (Item 2 minus Item 3)

5.       Principal Balance of Mortgage Loan                      $____________

6.       Loss, if any (Item 5 minus Item 4)                      $____________



                         ________________________________
                         Name
                         ________________________________
                         Title
                         ________________________________
                         Date


                                      C-1


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission