Bodzianowski Case Win Based On SEC Audit by Jeffrey Olson

Securitization Audit prepared for:
The Law Office of:

WOERTHWEIN AND MILLER

Examination Date: 06-23-2011
On behalf of:

KRISTEN M BODZIANOWSKI
HOWARD J BODZIANOWSKI

DISCLAIMER

No information provided in this audit is to be construed as legal advice.
The information contained herein is based solely on the findings of the
audit strictly in regards to information provided to auditor to conduct a
review and generate an audit based upon research and reported findings.

This information is not intended to be all inclusive nor is it intended to
draw any legal conclusions.

The information contained herein is best suited to be used by qualified
legal representatives such as attorneys and the like.

Any other interpretation as to the intent of this document other than as
aforementioned is strictly prohibited and void.

Void where prohibited by Law

Reserving all Rights

Table of Contents

Section 1: Original Parties to Loan Transaction Pg. 4

Section 2: Assignment Agreements Pg. 5

Section 3: MERS-Mortgage Electronic Registration
Systems Information Pg. 6

Section 4: Trust, Securitization, PSA-Pooling &
Servicing Agreement Data Pg. 7

Section 5: UCC Uniform Commercial Code Financing
Statements & Related Public Record
Filings Pg. 10

Section 6: Other Parties, Court Information,
Attorneys, Officers as Authorized Signers,
RoboSigners, Documentation Preparation
Companies Etc. Pg. 11

Section 7: Auditor Notes Pg. 12

Section 8: Auditors Certification Pg. 15

Section 9: Definitions Pg. 16

Section10.Exhibits Pg. 23

Section 1

Original Parties to Loan Transaction

1 Attorney(s) Buyer or Borrower N/A Not Shown on HUD 1
2 Borrower: KRISTEN M BODZIANOWSKI
HOWARD J BODZIANOWSKI

3 Broker: Midwest Funding Bancorp
11 E. Wilson Street
Batavia, IL 60510
Loan Originator: Eddie Wrice
4 Original Lender / Mortgagee Novastar Mortgage, Inc.
25520 Commerce Drive
Lake Forest, CA 92630
5 Servicer of Loan Ocwen Loan Servicing, LLC
West Palm Beach, FL
Phone: (800) 7462936
6 Settlement Agent / Title
Agency:
Commercial Land Title Insurance
Co.
134 North LaSalle, Suite 2000
Chicago, IL 60602

Section 2
Assignment Agreements

1
Assignee #1

Loan #
DEUTSCHE BANK NATIONAL
TRUST COMPANY AS
TRUSTEE NOVASTAR
MORTGAGE FUNDING TRUST,
SERIES 2006-5 NOVASTAR
HOME
EQUITY LOAN ASSET-BACKED
CERTIFICATES, SERIES 1006-5

06-C49561
2
Assignee #2 Not Applicable
3
Mortgage Assignor #1

Executed

Loan #

Loan Type
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS,
INC.

01-20-2011

06-C49561

2 Year/6 Month Libor ARM
4
Mortgage Assignor #2

Executed

Loan #
Loan Type
Not Applicable

Section 3

MERS: Mortgage Electronic Registration
System Information

1 First Mortgage Nominee

Note Date

MIN: Mortgage ID#

Servicer

Investor

MERS Status
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS,
INC.

09/25/2006

1000801-9006003293-5

OCWEN LOAN SERVICING,
LLC

DEUTSCHE BANK NATIONAL
TRUST COMPANY AS
TRUSTEE

Active
2 Second Mortgage Nominee

Note Date

MIN: Mortgage ID#

Servicer

Investor

MERS Status
Not Applicable
3 Loan Modification Info Not Applicable

Section 4

Trust, Securitization & P.S.A. Pooling &
Servicing Agreement Data

1 10 D Disclosure Form for
pending litigation or proceeds
against any transaction parties
None as of filing date of 1/4/07

2 10 K Disclosure Form for
affiliations or relationships
NovaStar Mortgage Funding
Corporation
(Exact name of registrant/depositor
as specified in its charter)
NovaStar Mortgage Inc.
(Exact name of sponsor as specified
in its charter)
3 1119 Parties Unknown
4 Counter Party Name: RBS Financial Markets, Greenwich
Capital Markets, Inc., Wachovia
Bank, N.A., Deutsche Bank AG
5 Custodian U.S. BANK NATIONAL
ASSOCIATION
6 Depositor= Owner of Trust
Fund
NOVASTAR MORTGAGE
FUNDING CORPORATION
7 Depository The initial Depository shall be The
Depository Trust Company, whose
nominee is
Cede & Co., or any other
organization registered as a
clearing agency pursuant to
Section 17A of the
Securities Exchange Act of 1934, as
amended. The Depository shall
initially be the registered Holder of
the
Book-Entry Certificates. The
Depository shall at all times be a
clearing corporation as defined in
Section 8-102(a)(5) of the Uniform
Commercial Code of the State of
New York.
8 Depository Participant A broker, dealer, bank or other
financial institution or other person
for whom from time to time a
Depository effects book-entry
transfers and pledges of securities
deposited with
the Depository.
9 Distribution Account: The trust account or accounts
created and maintained by the
Trustee pursuant to Section 4.02
hereof, which must be an Eligible
Account.
11 Issuer NovaStar Mortgage Funding Trust,
Series 2006-5
12 Master Servicer of Trust
Pooling & Servicing
Agreement
NOVASTAR MORTGAGE, INC
13 Opinion of Counsel (name) Dewey Ballantine LLP
14 Reserve Fund Shall mean the separate trust
account created and maintained by
the Trustee
15 Security Administrator Unknown
16 Seller #1 NovaStar Mortgage Inc.
17 Seller #2 Unknown
20 Separate/ Additional Trusts Unknown
21 Sponsor NovaStar Mortgage Inc.
22 Supplemental Interest Trust Unknown
23 Trust Name

Cut Off Date

Mortgage Purchase & Sale
Date

Trust Closing Date
NovaStar Mortgage Funding Trust,
Series 2006-5

September 1, 2006

September 28, 2006

September 28, 2006
24 Trustee DEUTSCHE BANK NATIONAL
TRUST COMPANY
25 Underwriter (Senior &
Subordinates)
(Senior Underwriter is also the
beneficial owner of the
Reserve fund for Federal Tax
Purposes
Greenwich Capital Markets, Inc.,
Deutsche Bank Securities Inc. and
Wachovia Capital Markets, LLC,
and their successors and assign.

Section 5

UCC Uniform Commercial Code Financing
Statements & Related Public Record Filings

1
UCC-1 Financial Statement
Notice of Lien
None Found Upon a Search of IL &
NY UCC Records
2
UCC-3 Financing Statement
Addendum
None Found Upon a Search of IL &
NY UCC Records
3
UCC-11 Search Results None Found Upon a Search of IL &
NY UCC Records
4

5

6

7

Section 6
Other Parties:
Court Information
Attorneys, Officers, Notaries
Document Preparation Companies Etc.

1 Original Foreclosure
Attorney's for Plaintiff:
DEUTSCHE BANK
NATIONAL
TRUST COMPANY AS
TRUSTEE NOVASTAR
MORTGAGE FUNDING
TRUST, SERIES 2006-5
NOVASTAR HOME
EQUITY LOAN ASSET-
BACKED CERTIFICATES,
SERIES 1006-5
Burke Costanza & Carberry LLP
9191 Broadway
Merrillville, IN 46410
(219) 769-1313
2 Successor Foreclosure
Attorney's for Plaintiff:
DEUTSCHE BANK
NATIONAL
TRUST COMPANY AS
TRUSTEE NOVASTAR
MORTGAGE FUNDING
TRUST, SERIES 2006-5
NOVASTAR HOME
EQUITY LOAN ASSET-
BACKED CERTIFICATES,
SERIES 1006-5

9191 Broadway
(219) 769-1313
3 Original Foreclosure Attorney
for Defendant:
Kristen M. Bodzianowski
Not Applicable
Howard J. Bodzianowski
4 Current Attorney for
Defendant:

Kristen M. Bodzianowski
Howard J. Bodzianowski
Woerthwein and Miller

5 IN THE CIRCUIT COURT
OF WILL COUNTY,
ILLINOIS, COUNTY
DEPARTMENT,
CHANCERY DIVISION
CASE NUMBER: 11- cv-1950
FILED: MARCH 21, 2011
LIS PENDENS NOTICE

Section 7
Auditor Notes

1. Suggest performing a QWR Qualified Written Request to obtain
additional information as to the Owner & Holder of said Mortgage
& Note. Also to determine Loan Service and Investor Information.
SEE EXHIBIT J

2. Based upon the Loan being Registered with MERS- Mortgage
Electronic Registration Systems filed under Mortgage
Identification Number MIN # 1000801-9006003293-5
stating the Servicer as OCWEN LOAN SERVICING, LLC
and the Investor is DEUTSCHE BANK NATIONAL TRUST
COMPANY AS TRUSTEE on a Note dated 09/25/2006
this loan may have been securitized. The MIN status is Active.
SEE EXHIBIT A

3. As stated on an Assignment Signed and Notarized on January 20th,
2011 MORTGAGE ELECTRONIC REGISTRATION SYSTEMS,
INC. transferred the said Mortgage and Note to DEUTSCHE
BANK NATIONAL TRUST COMPANY AS TRUSTEE
NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-5
NOVASTAR HOME EQUITY LOAN ASSET-BACKED
CERTIFICATES, SERIES 1006-5. On said assignment, it states
assignment was entered into on the 6
th
day of May 2010. The
assignment is not notarized until January 20
th
, 2011. There are
initials CC for Christina Carters signature instead of a signature.
There is no MERS Corporate seal. The notary signature is not
readable, it looks like a squiggly line.
This Assignment was prepared by OCWEN LOAN
SERVICING , LLC, 1661 Worthington Road Suite, 100, West Palm
Beach, FL 33409.

4. Said Note and Mortgage were assigned to the Trust on January 20,
2011. The trust cut off date is September 1, 2006 and the trust
closing date is September 28, 2006. It is unclear how said mortgage
and note could be assigned to the Trust approximately 4 years
after the closing date.

5. The last SEC filing for DEUTSCHE BANK NATIONAL TRUST
COMPANY AS TRUSTEE NOVASTAR MORTGAGE FUNDING
TRUST, SERIES 2006-5 NOVASTAR HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES, SERIES 1006-5 was on
03/29/2007 according to the SEC info website. It is unclear if this
trust is still in existence.

IMPORTANT NOTE (to above auditor notes):
This is not a legal determination, ultimately a legal determination made
in this regard will be at the discretion of a qualified Attorney.

Section 8
Auditors Certification and Signature

I Jeffrey V. Olson do hereby state that all
searches have been performed with careful due
diligence in this matter.
The results of this audit are strictly based on
information provided by our customer and as a
result of searches conducted from various
sources.
I have personal and first hand knowledge of the
audit details contained herein and state that the
results are accurate to the extent researched.
But, reserve the right to correct any errors that
may be discovered.
This audit is not all inclusive on the matter at
hand but, it gives the user a tool to better
understand the securitization process as it may
pertain to the audited transaction.

By: /s/ Jeffrey V. Olson Date: 06/23/2011
Title: Auditor

Section 9

Definitions

1. 8-K Filing:
A report of unscheduled material events or
corporate changes at a company that could be of
importance to the shareholders or the Securities
and Exchange Commission.
Examples of events reported on an 8-K include
acquisition, bankruptcy, resignation of directors,
or a change in the fiscal year.

2. 10-K Filing
A comprehensive summary report of a company's
performance that must be submitted annually to
the Securities and Exchange Commission.
Typically, the 10-K contains much more detail
than the annual report. It includes information
such as company history, organizational
structure, equity, holdings, earnings per share,
subsidiaries, etc.

3. Allonge:
A sheet of paper attached to a bill of
exchange for the purpose of documenting
endorsements. The need for an Allonge
arises as a result of a lack of space on the
bill itself.
Because a bill of exchange is transferable
through endorsement, it may be
exchanged among so many parties that
these parties don't all fit on the bill. In
this case, a separate piece of paper - the
Allonge - is attached to the bill, acting as a
legal extension of the document.

4. Amortization:
1. The paying off of debt in regular installments
over a period of time.
2. The deduction of capital expenses over a
specific period of time (usually over the asset's
life). More specifically, this method measures the
consumption of the value of intangible
assets, such as a patent or a copyright.
Example: Suppose XYZ Biotech spent $30 million
dollars on a piece of medical equipment and that
the patent on the equipment lasts 15 years, this
would mean that $2 million would be recorded
each year as an amortization expense.

While amortization and depreciation are often
used interchangeably, technically this is an
incorrect practice because amortization refers to
intangible assets and depreciation refers to
tangible assets.

5. Article 9:
An article under the Uniform Commercial Code
(UCC) that governs secured transactions. Article
9 encompasses a wide variety of possessory liens
and determines the legal right of ownership if a
debtor does not meet his or her obligations.

In 2002, Article 9 was revised to substantially
modernize and expand the scope of what can be
used as collateral to include credit card
receivables, electronic chattel paper, accounts
receivable and business inventory.

6. Asset-Backed Security:
A financial security backed by a loan, lease or
receivables against assets other than real estate
and mortgage-backed securities. For investors,
asset-backed securities are an alternative to
investing in corporate debt.

7. Attorney In Fact:
A person who is authorized to perform business-
related transactions on behalf of someone else
(the principal). In order to become someone's
attorney in fact, a person must have the principal
sign a power of attorney document. This
document designates the person as an agent,
allowing him or her to perform actions on the
principal's behalf.

The extent of the power of attorney document
determines the amount of responsibility that the
attorney in fact possesses. Attorneys in fact
operate under general power of attorneys,
meaning that they are not restricted and can
represent their principals in any transaction. In
the case of a special power of attorney, the
attorney in fact has restricted powers and
can represent the principal in specific situations.

8. Bifurcation:
A term used in finance that refers to a splitting of
something into two separate pieces.

9. CINS Number:
An acronym standing for the "CUSIP
International Numbering System," which
provides identification of international securities.
The CINS numbering system is an extension
of the CUSIP numbering system and follows
a 9-character format similar to CUSIP. CINS can
therefore be used as a bridge to ISIN, as well as
other national security identification numbers.

10. Collateralized Debt Obligation:
An investment-grade security backed by a pool of
bonds, loans and other assets. CDOs do not
specialize in one type of debt but are often non-
mortgage loans or bonds.

11. Collateralized Mortgage Obligation:
A type of mortgage-backed security that creates
separate pools of pass-through rates for
different classes of bondholders with varying
maturities, called tranches. The repayments from
the pool of pass-through securities are used to
retire the bonds in the order specified by the
bonds' prospectus.

12. CUSIP:
An identification number assigned to all stocks
and registered bonds. The Committee on Uniform
Securities Identification Procedures (CUSIP)
oversees the entire CUSIP system.
This system is used in the U.S. and Canada.
Foreign securities have a similar number called
the CINS number

13. Depository Trust Company:
One of the world's largest securities depositories,
it holds in excess of US$10 trillion worth of
securities in custody. The DTC acts like a
clearinghouse to settle trades in corporate and
municipal securities. DTC is owned by many
companies in the financial industry, with the
NYSE being one of its largest shareholders.

14. Endorsement:
A legal term that refers to the signing of a
document which allows for the legal transfer
of a negotiable from one party to another.

15. Mortgage-Backed Security:
A type of asset-backed security that is secured by
a mortgage or collection of mortgages. These
securities must also be grouped in one of the top
two ratings as determined by a accredited credit
rating agency, and usually pay periodic payments
that are similar to coupon payments.
Furthermore, the mortgage must have originated
from a regulated and authorized financial
institution.
Also known as a "mortgage-related security" or a
"mortgage pass through".

16. Securities and Exchange Commission:
A government commission created by Congress to
regulate the securities markets and protect
investors. In addition to regulation and
protection, it also monitors the corporate
takeovers in the U.S. The SEC is composed of five
commissioners appointed by the U.S. President
and approved by the Senate. The statutes
administered by the SEC are designed to promote
full public disclosure and to protect the investing
public against fraudulent and manipulative
practices in the securities markets.
Generally, most issues of securities offered in
interstate commerce, through the mail or on the
internet must be registered with the SEC.

17. Securities Exchange Act Of 1934:
The Securities Exchange Act of 1934 was created
to provide governance of securities transactions
on the secondary market (after issue) and
regulate the exchanges and broker-dealers in
order to protect the investing public.
All companies listed on stock exchanges must
follow the requirements set forth in the Securities
Exchange Act of 1934. Primary requirements
include registration of any securities listed on
stock exchanges, disclosure, proxy solicitations
and margin and audit requirements.
From this act the Securities Exchange
Commission (SEC) was created. The SEC's
responsibility is to enforce securities laws.

18. Securitization:
The process through which an issuer creates a
financial instrument by combining other financial
assets and then marketing different tiers of the
repackaged Instruments to investors.
The process can encompass any type of financial
asset an promotes liquidity in the marketplace.

Section 10

Exhibits

Exhibit A: MERS Results

Exhibit B: 8K Filing

Exhibit C: 10K Filing

Exhibit D: 15 Filing

Exhibit E: Prospectus Form 424(b)(5)

Exhibit F: MISC SEC Results

Exhibit G: Other Web Based Search Results

Exhibit H: Complaint, Notice of Foreclosure, Assignments

Exhibit I: UCC 1- Uniform Commercial Code

Exhibit J: QWR- Qualified Written Request

Exhibit A

1 r ecor d mat ched y our sear ch:

MI N: 1000801- 9006003293- 5 Not e Dat e: 09/ 25/ 2006 MI N St at us: Act i ve
Ser vi cer : Ocwen Loan Ser vi ci ng, LLC Phone: ( 800) 746- 2936
West Pal m Beach, FL
I nvest or : Deut sche Bank Nat i onal Tr ust Company as Tr ust ee Phone: ( 714) 247- 6000
Sant a Ana, CA
Ret urn t o Search
For more informat ion about MERS please go t o www.mersinc.org
Copyright 2006 by MERSCORP, I nc.
1 of 1

Exhibit B

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) October 31, 2007

(Issuing Entity with respect to Certificates)

NOVASTAR MORTGAGE INC.
(Exact name of Sponsor as specified in its charter)

NOVASTAR MORTGAGE FUNDING CORPORATION
(Exact name of Depositor and registrant as specified in its charter)

Delaware

333-134461

48-1195807
(State or Other Jurisdiction of
Incorporation)

(Commission File Number)

(I.R.S. Employer
Identification No.)

NOVASTAR CERTIFICATES FINANCING CORPORATION
(Exact name of co-registrant as specified in its charter)

Delaware

333-134461-01

48-1194616
(State or Other Jurisdiction of
Incorporation)

(Commission File Number)

(I.R.S. Employer
Identification No.)

8140 Ward Parkway, Suite 300
Kansas City, Missouri

64114
(Address of Principal Executive Offices)

(Zip Code)

Registrant's telephone number, including area code

(816) 237-7000

No Change
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

NovaStar Mortgage Funding Corporation registered issuances of up to $17,974,575,431
principal amount of Asset-Backed Certificates on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, as amended (the "Act"), by the Registration Statement on Form S-3
(Registration File No. 333-134461 and No. 333-134461-01) (the "Registration Statement"). Pursuant to the
Registration Statement, NovaStar Mortgage Funding Trust, Series 2006-5, issued on September 28, 2006,
$1,279,850,000 in aggregate principal amount of its Home Equity Loan Asset-Backed Certificates, Series
2006-5, Class A-1A, Class A-2A, Class A-2B, Class A-2C, Class A-2D, Class M-1, Class M-2, Class M-3,
Class M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates (the
"Offered Certificates"). Also issued, but not offered by NovaStar Mortgage Funding Trust, Series 2006-5
were its Home Equity Loan Asset-Backed Certificates, Series 2006-5, Class M-10 DSI, Class M-10N,
Class M-11, Class M-11 DSI, Class M-11N, Class M-12, Class M-12 DSI, Class M-12N, Class CA and
Class CB, Class I and Class R Certificates (and collectively with the Offered Certificates, the
Certificates).

The Pooling and Servicing Agreement, filed in connection with the Certificates is hereby
amended pursuant to the Amendment No. 2 to the Pooling and Servicing Agreement, dated as of October
31, 2007 and attached hereto as Exhibit 4.1, among NovaStar Mortgage Funding Corporation, as depositor
(the "Depositor"), NovaStar Mortgage, Inc., as servicer (the "Servicer") and as sponsor (the "Sponsor"),
U.S. Bank National Association, as custodian (the "Custodian"), and Deutsche National Trust Company, as
trustee (the "Trustee" and together with the Depositor, the Servicer, the Sponsor, the Custodian and the
Trustee, the Parties).

The Pooling and Servicing Agreement, filed in connection with the Certificates is hereby
further amended pursuant to the Amendment to the Pooling and Servicing Agreement, dated as of
November 1, 2007 and attached hereto as Exhibit 4.2, among the Parties.

Item 9.01 - Financial Statements and Exhibits:

(a) Financial Statements of Business Acquired: None

(b) Pro Forma Financial Information: None

(c) Exhibits:

4.1 Amendment No. 2 to the Pooling and Servicing Agreement, dated as of
October 31, 2007, among the Depositor, the Servicer and Sponsor, the
Custodian and the Trustee, and consented to by DB Structured
Products, Inc., Wachovia Bank, N.A., Wachovia Capital Markets, LLC
and Wachovia Investment Holdings, LLC.

4.2 Amendment to the Pooling and Servicing Agreement, dated as of
November 1, 2007, among the Depositor, the Servicer and Sponsor, the
Custodian and the Trustee, and consented to by DB Structured
Products, Inc., Wachovia Bank, N.A., Wachovia Capital Markets, LLC
and Wachovia Investment Holdings, LLC.

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: November 6, 2007

By: __/s/ Matt Kaltenrieder _____________
Matt Kaltenrieder
Vice President

Exhibit Index

Exhibit No. Description

Exhibit 4.1 Amendment No. 2 to the Pooling and Servicing Agreement,
dated as of October 31, 2007, among the Depositor, the
Servicer and Sponsor, the Custodian and the Trustee, and
consented to by DB Structured Products, Inc., Wachovia Bank,
N.A., Wachovia Capital Markets, LLC and Wachovia
Investment Holdings, LLC.

Exhibit 4.2 Amendment to the Pooling and Servicing Agreement, dated as
of November 1, 2007, among the Depositor, the Servicer and
Sponsor, the Custodian and the Trustee, and consented to by
DB Structured Products, Inc., Wachovia Bank, N.A., Wachovia
Capital Markets, LLC and Wachovia Investment Holdings,
LLC.

Exhibit C

________________________________________________________________________________
Source: SEC Info www.secinfo.com Fran Finnegan & Company 1/6
________________________________________________________________________________

NovaStar Mortgage Funding Trust/Series 2006-5 10-K For 3/29/07, On 3/29/07
Document 1 of 9 10-K Annual Report
________________________________________________________________________________

UNITED STATES

FORM 10-K

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

For the fiscal year ended
December 31, 2006

Commission file number: 333-134461-04

NovaStar Mortgage Funding Trust, Series 2006-5
(Exact name of issuing entity as specified in its Charter)

NovaStar Mortgage Funding Corporation
(Exact name of depositor as specified in its Charter)

NovaStar Mortgage Inc.
(Exact name of sponsor as specified in its Charter)

Delaware 48-1195807
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)

Kansas City, Missouri 64114
(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code:
(816) 237-7000

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

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

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No[X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes[ ] No[X]

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

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

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [X]

Indicate by check mark whether the registrant is a shell company (as
defined in rule 12b-2 of the Act). [ ] Yes [X] No

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the of the last business day of
the registrants most recently completed second fiscal quarter.

Not Applicable.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I

ITEM 1. Business.

Not Applicable.

ITEM 1A. Risk Factors.

Not Applicable.

ITEM 1B. Unresolved Staff Comments.

Not Applicable.

ITEM 2. Properties.

Not Applicable.

ITEM 3. Legal Proceedings.

Not Applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders.

Not Applicable.

PART II

ITEM 5. Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.

Not Applicable.

ITEM 6. Selected Financial Data.
________________________________________________________________________________
________________________________________________________________________________

Not Applicable.

ITEM 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.

Not Applicable.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

ITEM 8. Financial Statements and Supplementary Data.

Not Applicable.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not Applicable.

ITEM 9A. Controls and Procedures.

Not Applicable.

ITEM 9B. Other Information.

Not Applicable.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance.

Not Applicable.

ITEM 11. Executive Compensation.

Not Applicable.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.

Not Applicable.

ITEM 13. Certain Relationships and Related Transactions, and
Director Independence.

Not Applicable.

ITEM 14. Principal Accounting Fees and Services.

Not Applicable.

PART IV

Additional Items Required by General Instruction J (2)

Item 1112(b) of Regulation AB, Significant Obligor Financial Information.
None.

________________________________________________________________________________
________________________________________________________________________________
Item 1114(b)(2) and Item 1115(b) of Regulation AB , Significant
Enhancement Provider Information.
None.

Item 1117 of Regulation AB, Legal Proceedings.

In December 2005, a putative class action was filed against NovaStar
Mortgage,Inc.("NMI") in the United States District Court for the Western
District of Washington entitled Pierce et al. v. NovaStar Mortgage, Inc.
Plaintiffs contend that NMI failed to disclose prior to closing that a
broker payment would be made on their loans, which was an unfair and
deceptive practice in violation of the Washington Consumer Protection
Act. Plaintiffs seek excess interest charged, and treble damages as
provided in the Washington Consumer Protection Act and attorneys fees.
On October 31, 2006, the district court granted plaintiffs motion to
certify a Washington state class. NMI sought to appeal the grant of
class certification; however, a panel of the Ninth Circuit Court of
Appeals denied the request for interlocutory appeal so review of the
class certification order must wait until after a final judgment is
entered, if necessary. The case is set for trial on April 23, 2007.
NMI believes that it has valid defenses to plaintiffs claims and it
intends to vigorously defend against them.

In addition, NMI is currently a party to various other legal proceedings
and claims, including, but not limited to, breach of contract claims,
class action or individual claims for violations of the RESPA, FLSA,
federal and state laws prohibiting employment discrimination, federal
and state laws prohibiting discrimination in lending and federal and
state licensing and consumer protection laws.

While management, including internal counsel, currently believes that
the ultimate outcome of all these proceedings and claims will not have
a material adverse effect on NMI financial condition or results of
operations, litigation is subject to inherent uncertainties. If an
unfavorable ruling were to occur, there exists the possibility of a
material adverse impact on NMI financial condition and results of
operations.

Item 1119 of Regulation AB, Affiliations and Certain Relationships and
Related Transactions.
None.

Item 1122 of Regulation AB, Compliance with Applicable Servicing Criteria.
See Item 15, Exhibit 33.

The following parties have reported one or more instances of material
noncompliance with applicable servicing criteria in their reports on
assessments of compliance:

The Servicer has reported material noncompliance with
applicable servicing criteria. The Servicers report on
assessment of compliance is attached as Exhibit 33.1.

Item 1123 of Regulation AB, Servicer Compliance Statement.
See Item 15, Exhibit 35.

ITEM 15. Exhibits, Financial Statement Schedules.

(a) List the following documents filed as a part of the report:

________________________________________________________________________________
________________________________________________________________________________
(1) Not Applicable.

(2) Not Applicable.

(3) [Provide any additional Exhibits as required pursuant
to Regulation S-K]

Exhibit 31 Section 302 Certification.

Exhibit 33.1 Servicers Annual Report on Assessment of
Compliance for Year End December 31, 2006.

Exhibit 33.2 Trustees Annual Report on Assessment of

Exhibit 33.3 Custodians Annual Report on Assessment of

Exhibit 34.1 Servicers Annual Attestation Report on
Assessment of Compliance with Servicing Criteria for Year
End December 31, 2006.

Exhibit 34.2 Trustees Annual Attestation Report on

Exhibit 34.3 Custodians Annual Attestation Report on

Exhibit 35.1 Servicers Annual Statement of Compliance for
Year End December 31, 2006.

(b) See (a) above.

(c) Not Applicable.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

By: NovaStar Mortgage Funding Corporation
as Depositor on behalf of the Registrant

By: /s/: Matt Kaltenrieder
Matt Kaltenrieder
Vice President

Date: March 28, 2007

EXHIBIT INDEX

Exhibit Document

31 Section 302 Certification.

33.1 Servicers Annual Report on Assessment of Compliance for
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

33.2 Trustees Annual Report on Assessment of Compliance for

33.3 Custodians Annual Report on Assessment of Compliance for

34.1 Servicers Annual Attestation Report on Assessment of
Compliance with Servicing Criteria for Year End
December 31, 2006.

34.2 Trustees Annual Attestation Report on Assessment of
Compliance with Servicing Criteria for Year

34.3 Custodians Annual Attestation Report on Assessment of
Compliance with Servicing Criteria for Year End
December 31, 2006.

35.1 Servicers Annual Statement of Compliance for Year End
December 31, 2006.

________________________________________________________________________________
Source: SEC Info www.secinfo.com Fran Finnegan & Company 6/25/11

Exhibit D

________________________________________________________________________________
________________________________________________________________________________

NovaStar Mortgage Funding Trust/Series 2006-5 15-15D Effective 1/17/07, On 1/17/07
Document 1 of 1 15-15D Notice of Suspension of Duty to File Reports
________________________________________________________________________________

UNITED STATES OF AMERICA
Washington D.C. 20549

FORM 15 - Certification and Notice of Termination of Registration
under Section 12(g) of the Securities Exchange Act of 1934 or
Suspension of Duty to File Reports Under Sections 13 and 15(d) of
the Securities Exchange Act of 1934.

Commission File Number: 333-134461-04

Novastar Mortgage Funding Corporation
(Exact name of registrant as specified in its charter)

8140 Ward Parkway, Suite 300 Kansas City, Missouri 64114
(816) 237-7000
(Address, including zip code, and telephone number, including area
code, of registrants principal executive offices)

NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5
(Title of each class of securities covered by this Form)

NONE
(Titles of all other classes of securities for which a
duty to file reports under section 13(a) or 15(d) remains)

Please place an X in the box(es) to designate the
appropriate rule provision(s) relied upon to terminate or
suspend the duty to file reports:

Rule 12g-4(a)(1)(i) [ ] Rule 12h-3(b)(1)(ii) [ ]
Rule 12g-4(a)(1)(ii) [ ] Rule 12h-3(b)(2)(i) [ ]
Rule 12g-4(a)(2)(i) [ ] Rule 12h-3(b)(2)(ii) [ ]
Rule 12g-4(a)(2)(ii) [ ] Rule 15d-6 [X]
Rule 12h-3(b)(1)(i) [X]

Approximate number of holders of record as of the certification
or notice date: Less than 300 holders

Pursuant to the requirements of the Securities Exchange Act of 1934
(Name of registrant as specified in charter) has caused this
certification/notice to be signed on its behalf by the undersigned duly
authorized person.

NovaStar Mortgage, Inc.
(Depositor)

/s/: Matt Kaltenrieder
Name: Matt Kaltenrieder
Title: Vice President

Date: January 16, 2007

NovaStar Mortgage Funding Trust/Series 2006-5 15-15D Effective 1/17/07, On 1/17/07
Document 1 of 1 15-15D Notice of Suspension of Duty to File Reports
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

Exhibit E

Exhibit F

________________________________________________________________________________
________________________________________________________________________________

NovaStar Mortgage Funding Trust/Series 2006-5 10-D For 12/26/06, As Of 1/4/07
Document 1 of 2 10-D Periodic Distribution Report by an Asset-Backed Issuer
________________________________________________________________________________

UNITED STATES

FORM 10-D

ASSET-BACKED ISSUER
DISTRIBUTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the monthly distribution period from
November 28, 2006 to December 26, 2006

Commission File Number of issuing entity: 333-134461-04

(Exact name of issuing entity as specified in its Charter)

Commission File Number of depositor: 333-134461

(Exact name of depositor as specified in its Charter)

(Exact name of sponsor as specified in its Charter)

New York
(State or other jurisdiction of incorporation or organization
of the issuing entity)

48-1195807
(I.R.S. Employer Identification No.)

Care of Deutsche Bank National Trust Company as Trustee
1761 East St. Andrew Place, Santa Ana CA
(Address of principal executive offices of the issuing entity)
92705
(Zip Code)

Registrants Telephone Number, Including Area Code: (816) 237-7000

NONE
(Former name or former address, if changed since last report)

Registered / reporting pursuant to (check one)
Title of Class Section 12(b) Section 12(g) Section 15(d) Name of Exchange
(if Section 12(b))
Class A-1A [ ] [ ] [X] Not Applicable
Class A-2A [ ] [ ] [X] Not Applicable
Class A-2B [ ] [ ] [X] Not Applicable
Class A-2C [ ] [ ] [X] Not Applicable
Class A-2D [ ] [ ] [X] Not Applicable

Class M-1 [ ] [ ] [X] Not Applicable
Class M-10N [ ] [ ] [X] Not Applicable
Class M-10DSI [ ] [ ] [X] Not Applicable

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

PART I DISTRIBUTION INFORMATION

Item 1. Distribution and Pool Performance Information.
On December 26, 2006 a distribution was made to holders of
NovaStar Mortgage Funding Trust, Series 2006-4, NovaStar Home
Equity Loan Asset-Backed Certificates, Series 2006-4

The distribution report is attached Exhibit 99.1 to this Form 10-D.

PART II OTHER INFORMATION

Item 2. Legal Proceedings.
None.

Item 3. Sales of Securities and Use of Proceeds.
None.

Item 4. Defaults Upon Senior Securities.
None.

Item 5. Submission of Matters to a Vote of Security Holders.
None.

Item 6. Significant Obligors of Pool Assets.
None.

Item 7. Significant Enhancement Provider Information.
None.

Item 8. Other Information.
None.

Item 9. Exhibits.
(a) The following is a list of documents filed as part
of this Report on Form 10-D:

Monthly Statement to Noteholders on December 26, 2006 is
Filed as Exhibit 99.1 hereto.

(b) The exhibits required to be filed by the Registrant
pursuant to this Form are listed in the Exhibit Index
that immediately follows the signature page hereof.
________________________________________________________________________________
NovaStar Mortgage Funding Trust/Series 2006-5 10-D For 12/26/06, As Of 1/4/07
Document 1 of 2 10-D Periodic Distribution Report by an Asset-Backed Issuer
________________________________________________________________________________
________________________________________________________________________________

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 thereunto duly authorized.

(Depositor)

/s/: Matt Kaltenrieder

Date: January 3, 2007

EXHIBIT INDEX

Exhibit Number

EX-99.1 Monthly report distributed to holders.

________________________________________________________________________________
EXHIBIT 5.1
September 28, 2006

Re: NovaStar Mortgage Funding Corporation
Registration Statement on Form S-3 (333-134461 and 333-134461-01)
Ladies and Gentlemen:
We have acted as counsel to NovaStar Mortgage Funding Corporation, a Delaware corporation
(the Depositor), in connection with the issuance and sale of the NovaStar Mortgage Funding Trust, Series
2006-5, NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5, Class A-1A, Class A-2A,
Class A-2B, Class A-2C, Class A-2D, Class M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6,
Class M-7, Class M-8, Class M-9, Class M-10, Class M-11, Class M-12, Class M-10 DSI, Class M-11 DSI,
Class M-12 DSI, Class M-10N, Class M-11N, Class M-12N, Class I, Class CA, Class CB and Class R
Certificates (the Certificates). The Depositors Registration Statement on Form S-3, dated June 16, 2006
has been filed with the Securities and Exchange Commission (the Commission) under the Securities Act
of 1933, as amended (the Act). The Certificates were issued pursuant to a Pooling and Servicing
Agreement, dated as of September 1, 2006, among the Depositor, NovaStar Mortgage, Inc., as servicer and
as sponsor, U.S. Bank National Association, as custodian and Deutsche Bank National Trust Company, as
trustee.
As such counsel, we have examined copies of the Articles of Incorporation and Bylaws of the
Depositor, the Registration Statement, the Agreement, and originals or copies of such other corporate
minutes, records, agreements and other instruments of the Depositor, certificates of public officials and
other documents and have made such examinations of law, as we have deemed necessary to form the basis
for the opinion hereinafter expressed. In our examination of such materials, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all copies submitted to us.
We do not express any opinion herein concerning any law other than the federal laws of the United
States of America and the laws of the State of New York and we express no opinion as to the laws of any
other jurisdiction. All opinions expressed herein are based on laws, regulations and policy guidelines
currently in force and may be affected by future regulations.

Based upon and subject to the foregoing, we are of the opinion that:
The Certificates have been duly executed and delivered, authenticated by the Trustee and sold
as described in the Prospectus, and the Certificates are legally issued, fully paid and non-assessable. This
opinion is subject to the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors rights generally and court decisions with respect thereto and we
express no opinion with respect to the application of equitable principles or remedies in any proceeding,
whether at law or in equity.
We hereby consent to the references to this firm under the caption Certain Legal Matters in
the related Prospectus Supplement. In giving such consent, we do not admit hereby that we come within the
category of persons whose consent is required under Section 7 of the Act or the Rules and Regulations of
the Commission thereunder.

Very truly yours,

/s/ Dewey Ballantine LLP

6
Exhibit 10.1
NOVASTAR MORTGAGE, INC. as Sponsor,
as Depositor,
U.S. BANK NATIONAL ASSOCIATION
as Custodian
and
DEUTSCHE BANK NATIONAL TRUST COMPANY
as Trustee
MORTGAGE LOAN PURCHASE AGREEMENT
Dated as of September 1, 2006
Fixed and Adjustable Rate Mortgage Loans
NovaStar Home Equity Loan Asset-Backed Certificate, Series 2006-5

TABLE OF CONTENTS

Page(s)
ARTICLE I DEFINITIONS 1
Section 1.01 Definitions. 1
ARTICLE II SALE OF MORTGAGE LOANS AND RELATED PROVISIONS 2
Section 2.01 Sale of Initial Mortgage Loans and MI Policies. 2
Section 2.02 Conveyance of the Subsequent Mortgage Loans. 5
Section 2.03 Pre-Funding Account. 9
Section 2.04 Interest Coverage Account 10
ARTICLE III REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH 10
Section 3.01 Sponsor Representations and Warranties. 10
Section 3.02 Depositor Representations and Warranties. 29
ARTICLE IV SPONSORS COVENANTS 30
Section 4.01 Covenants of the Sponsor. 30
Section 4.02 Payment of Expenses. 30
ARTICLE V CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE 31
Section 5.01 Conditions of Depositors Obligations. 31
ARTICLE VI INDEMNIFICATION BY THE SPONSOR WITH RESPECT TO THE MORTGAGE
LOANS 32
Section 6.01 Indemnification With Respect to the Mortgage Loans. 32
Section 6.02 Limitation on Liability of the Sponsor. 32
ARTICLE VII TERMINATION 32
Section 7.01 Termination. 32
ARTICLE VIII MISCELLANEOUS PROVISIONS 34
Section 8.01 Amendment. 34
Section 8.02 Governing Law. 34
Section 8.03 Notices. 34
Section 8.04 Severability of Provisions. 35
Section 8.05 Relationship of Parties. 35
Section 8.06 Counterparts. 35
Section 8.07 Further Agreements. 35
Section 8.08 Intention of the Parties. 36
Section 8.09 Successors and Assigns; Assignment of Purchase Agreement. 36
Section 8.10 Survival. 37
Section 8.11 Liability of the Trustee. 37

EXHIBIT 1
Initial Mortgage Loan Schedule
EXHIBIT 2(A)
Sponsors Subsequent Transfer Instrument
EXHIBIT 2(B)
Depositors Subsequent Transfer Instrument

THIS MORTGAGE LOAN PURCHASE AGREEMENT (this Purchase Agreement), dated
as of September 1, 2006, is made among NovaStar Mortgage, Inc. (the Sponsor), NovaStar Mortgage
Funding Corporation (the Depositor), U.S. Bank National Association (the Custodian) and Deutsche
Bank National Trust Company as trustee (the Trustee).
W I T N E S S E T H T H A T:
WHEREAS, pursuant to the terms of this Purchase Agreement, the Sponsor will sell the Initial
Mortgage Loans and the related MI Policies to the Depositor on the Closing Date;
WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Depositor will
transfer the Initial Mortgage Loans and the related MI Policies, and assign all of its rights under the
Purchase Agreement, to the Trustee, without recourse, on the Closing Date;
WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Trustee will
issue the Certificates;
WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Trustee will
transfer the Certificates to the Depositor;
WHEREAS, pursuant to the terms of the Underwriting Agreement, the Depositor will sell the
Offered Certificates to the Underwriters; and
WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the Servicer will
service the Mortgage Loans.
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.
For all purposes of this Purchase 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 Pooling and Servicing
Agreement, dated as of September 1, 2006, among the Custodian, the Trustee, the Depositor and NovaStar
Mortgage, Inc. as sponsor and servicer (the Servicer) which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.

1

ARTICLE II
SALE OF MORTGAGE LOANS AND RELATED PROVISIONS
Section 2.01 Sale of Initial Mortgage Loans and MI Policies.
(a) The Sponsor hereby sells, and the Depositor hereby purchases on the Closing Date the
Initial Mortgage Loans identified (and the related MI Policies) on the Mortgage Loan Schedule annexed
hereto as Exhibit 1, the proceeds thereof and all rights under the Related Documents (including the related
Mortgage Files). The Initial Mortgage Loans consist of a group of conventional, residential first and second
lien mortgage loans with fixed and adjustable interest rates (the Group I Mortgage Loans) and a group of
conventional, residential first and second lien mortgage loans with fixed and adjustable interest rates (the
Group II 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 due on or before such date whether or not
received, of approximately $740,283,081. 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 Original
Pre-Funded Amount and the Interest Coverage Account into the Trust Fund, the authentication of the
Certificates by the Trustee and the sale of the Underwritten Certificates pursuant to the Underwriting
Agreement. The purchase price (the Purchase Price) for the Initial Mortgage Loans to be paid by the
Depositor to the Sponsor on the Closing Date shall consist of the following:
(i) a payment in an amount equal to $1,265,388,806 representing the net
proceeds of the sale of the Underwritten Certificates, which payment shall be paid to the Sponsor by
wire transfer in immediately available funds on the Closing Date by or on behalf of the Depositor, or
as otherwise agreed by the Depositor; and
(ii) the Class M-10 Certificates, the Class M-11 Certificates, the Class M-
12 Certificates, the Class M-10N Certificates, the Class M-11N Certificates, the Class M-12N
Certificates, the Class M-10 DSI Certificates, the Class M-11 DSI Certificates, the Class M-12 DSI
Certificates, the Class CA Certificates and the Class CB Certificates (including the net value
represented by the Class I Certificates) and the Residual Certificates.
(b) [Reserved]
(c) In connection with such conveyances by the Sponsor, the Sponsor shall on behalf of and at
the direction of the Depositor deliver to, and deposit with the Custodian on behalf of the Trustee, on or
before the Closing Date in the case of an Initial Mortgage Loan and four Business Days 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 Deutsche Bank National Trust
Company, as Trustee of the NovaStar Mortgage Funding Trust, Series 2006-5, relating to the
NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5;

2

(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 Sponsor or the public recording office in which such original Mortgage has
been recorded and if the Mortgage Loan is registered on the MERS System, such Mortgage shall
include thereon a statement that it is a MOM Loan and shall include the MIN for such Mortgage
Loan;
(iii) unless the Mortgage Loan is registered on the MERS System, an
original assignment (which may be included in one or more blanket assignments if permitted by
applicable law) of the Mortgage endorsed to Deutsche Bank National Trust Company, as Trustee of
the NovaStar Mortgage Funding Trust, Series 2006-5, relating to the NovaStar Home Equity Loan
Asset-Backed Certificates, Series 2006-5, and otherwise in recordable form;
(iv) originals of any intervening assignments of the Mortgage showing an
unbroken chain of title from the originator thereof to the Person assigning it to the Trustee (or to
MERS, if the Mortgage Loan is registered on the MERS System, and noting the presence of a MIN,
if the Mortgage Loan is registered on the MERS System), 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 Sponsor 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);
(vi) true and correct copy of each assumption, modification, consolidation
or substitution agreement, if any, relating to the Mortgage Loan; and
(vii) an executed copy of the notice of assignment and acknowledgement of
assignment with respect to the Mortgage Loans covered by the MI Policies.
If a 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 Trustee (as pledgee of the Mortgage Loans), or
the Certificateholders in such Mortgage Loan, including if any document required to be delivered to the
Custodian has not been delivered (provided that a Mortgage File will not be deemed to contain a defect for
an unrecorded assignment under clause (i) above for 180 days following submission of the assignment if
the Sponsor has submitted such assignment for recording pursuant to the terms of the following paragraph),
the Sponsor 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 3.01 hereof as to the Initial Mortgage Loans and the Subsequent Mortgage
Loans and Section 2.02(c) hereof as to the Subsequent Mortgage Loans for breaches of representations and
arranties. w

3

Promptly 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 Sponsor 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 Trustee, excluding any Mortgage Loan
that is registered on the MERS System if MERS is identified on the Mortgage or on a properly recorded
assignment of Mortgage as the mortgagee of record. While such assignment to be recorded is being
recorded, the Custodian shall retain a photocopy of such assignment. If any assignment is lost or returned
unrecorded to the Custodian because of any defect therein, the Sponsor is required to prepare a substitute
assignment or cure such defect, as the case may be, and the Sponsor 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 Sponsor to the Custodian, on behalf of the
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 Sponsor will deliver or cause
to be delivered the originals of such documents to the Custodian, on behalf of the Trustee, promptly upon
receipt thereof.
In connection with the assignment of any Initial Mortgage Loan registered on the MERS
System, promptly after the Closing Date, the Sponsor further agrees that it will cause, at the Sponsors own
expense, the MERS System to indicate that such Initial Mortgage Loan has been assigned by the Sponsor to
the Trustee in accordance with this Agreement for the benefit of the Certificateholders by including in such
computer files (a) the applicable Trustee code in the field Trustee which identifies the Trustee and (b) the
code NovaStar 2006-5 (or its equivalent) in the field Pool which identifies the series of the Certificates
issued in connection with such Mortgage Loans. The Custodian will certify in its final certification that the
MERS System shows the Trustee on behalf of the Certificateholders as the beneficial owner of the
Mortgage Loans registered on the MERS System.
Effective on the Closing Date, the Depositor 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 and conveyed to it pursuant to this Section 2.01.
The Trustee, as assignee or transferee of the Depositor, shall be entitled to all scheduled
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. No scheduled payments of
principal due on or before the Cut-off Date and collected after the Cut-off Date shall belong to the
Depositor pursuant to the terms of this Purchase Agreement. The Pooling and Servicing Agreement shall
provide that any late payment charges collected in connection with a Mortgage Loan shall be paid to the
Servicer as provided therein.

4

(d) The parties hereto intend that the transactions set forth herein constitute a sale by the
Sponsor to the Depositor on the Closing Date of all the Sponsors right, title and interest in and to the Initial
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 Sponsor hereby grants to the Depositor as of the Closing
Date a security interest in all of the Sponsors right, title and interest in, to and under the Initial Mortgage
Loans and such other property, to secure all of the Sponsors obligations hereunder and this Purchase
Agreement shall constitute a security agreement under applicable law and in such event, the parties hereto
acknowledge that the Custodian, in addition to holding the Initial Mortgage Loans on behalf of the Trustee
for the benefit of the Certificateholders, holds the Initial Mortgage Loans as designee of the Depositor. The
Sponsor 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 Commonwealth of Virginia
(which shall have been submitted for filing as of the Closing Date and each Subsequent Transfer Date, as
applicable), any continuation statements with respect thereto and any amendments thereto required to
reflect a change in the name or corporate structure of the Sponsor, as are necessary to perfect and protect
the interests of the Depositor and their respective assignees in each Initial Mortgage Loan and the proceeds
thereof and the interests of the Trustee and its assignees in each Subsequent Mortgage Loan and the
proceeds thereof. The Depositor 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, and
continuation statements with respect thereto and any amendments thereto as are necessary to perfect and
protect the interests of the Trustee and its assignees in each Initial Mortgage Loan.
The parties hereto understand and agree that it is not intended that any Mortgage Loan be included in the
Trust Fund that is a High-Cost Home Loan as defined in the New Jersey Home Ownership Act, effective
as of November 27, 2003, the Home Loan Protection Act of New Mexico, effective as of January 1, 2004,
the Massachusetts Predatory Home Loan Practices Act, effective as of November 7, 2004, or the Indiana
Home Loan Practices Act effective January 1st, 2005.
Section 2.02 Conveyance of the Subsequent Mortgage Loans.
(a) Subject to the conditions set forth in paragraph (b) below in consideration of the Trustees
delivery on the related Subsequent Transfer Dates of all or a portion of the balance of funds in the Pre-
Funding Account, the Sponsor shall on any Subsequent Transfer Date sell, transfer, assign, set over and
convey, without recourse, to the Depositor, who shall then sell, transfer, assign, set over and convey,
without recourse, to the Trustee, but subject to the other terms and provisions of this Purchase Agreement
and the Pooling and Servicing Agreement, all of the right, title and interest of the Sponsor in and to (i) the
Subsequent Mortgage Loans (and the related MI Policies) identified on the related Mortgage Loan
Schedule attached to the related Subsequent Transfer Instrument delivered by the Sponsor on such
Subsequent Transfer Date, (ii) principal due and interest accruing on the Subsequent Mortgage Loans after
the related Subsequent Cut-off Date and (i) with respect to such Subsequent Mortgage Loans all items to be
delivered pursuant to Section 2.01(c) above and the other items in the related Mortgage Files; provided,
however, that the Sponsor 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 by the Sponsor to the Depositor, and by the Depositor to the Trustee, of the Subsequent Mortgage
Loans identified on each Mortgage Loan Schedule

5

attached to the related Subsequent Transfer Instrument and the related MI Policies shall be absolute and is
intended by the Trustee, the Depositor and the Sponsor to constitute and to be treated as a sale of the
Subsequent Mortgage Loans by the Sponsor to the Depositor, and a sale of the Subsequent Mortgage Loans
by the Depositor to the Trustee.
The Subsequent Mortgage Loans presented for purchase will be designated as either Group I or
Group II. Of the Original Pre-Funded Amount of $559,716,919, a maximum of $334,968,171will be used
to acquire Subsequent Mortgage Loans for inclusion in Group I and a maximum of $224,748,748 will be
used to acquire Subsequent Mortgage Loans for inclusion in Group II, subject to the satisfaction of the
conditions set forth herein.
In the event such transactions shall be deemed not to be a sale, the Sponsor hereby grants to the
Depositor as of each Subsequent Transfer Date a security interest in all of the Sponsors right, title and
interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of
the Sponsors obligations hereunder, and this Purchase Agreement shall constitute a security agreement
under applicable law, and in such event, the parties hereto acknowledge that the Custodian, in addition to
holding the Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee for the benefit
of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee of
the Depositor. The Sponsor 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
Commonwealth of Virginia (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 Sponsor or the filing of any additional UCC-1 financing
statements due to a change in the state of incorporation of the Sponsor as are necessary to perfect and
protect the interests of the Depositor and its assignees in the Subsequent Mortgage Loans.
In the event such transactions shall be deemed not to be a sale, the Depositor hereby grants to
the Trustee as of each Subsequent Transfer Date a security interest in all of the Depositors right, title and
interest in, to and under the related Subsequent Mortgage Loans and such other property, to secure all of
the Depositors obligations hereunder, and this Purchase Agreement shall constitute a security agreement
under applicable law, and in such event, the parties hereto acknowledge that the Custodian, in addition to
holding the Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee for the benefit
of the Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee of
the Trustee. The Depositor 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 (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 Depositor or the filing of any additional UCC-1 financing statements due to a
change in the state of incorporation of the Depositor as are necessary to perfect and protect the interests of
the Trustee and its assignees in Subsequent Mortgage Loans.
The related Mortgage File for each Subsequent Mortgage Loan shall be delivered to the
Custodian, on behalf of the Trustee, prior to the related Subsequent Transfer Date.

6

The Trustee on each Subsequent Transfer Date shall acknowledge by signing receipt thereof in
the form of Exhibit 2(A), 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 2.02.
The Trustee, as trustee of the Trust Fund, 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 related
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 Trust Fund pursuant to the terms of this
Purchase Agreement.
The purchase price distributed by the Trustee solely from the funds in the Pre-Funding
Account, at the direction of the Servicer, shall be one-hundred percent (100%) of the aggregate Principal
Balances of the Subsequent Mortgage Loans so transferred (as identified on the Mortgage Loan Schedule
attached to the related Subsequent Transfer Instrument provided by the Sponsor).
(b) The Sponsor shall transfer to the Depositor, who shall transfer to the Trustee, the
Subsequent Mortgage Loans and the other property and rights related thereto described in Section 2.02(a)
above, and the Trustee 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 Sponsor shall have provided the Depositor, and the Depositor shall
have provided the Trustee and the Custodian, with a timely Addition Notice, which notice shall be
given no fewer than four Business Days prior to the related Subsequent Transfer Date and shall
designate the Subsequent Mortgage Loans to be sold to the Depositor and then to the Trustee 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 Trustee or the Custodian with respect
to the Subsequent Mortgage Loans;
(ii) the Sponsor shall have executed, and the Depositor shall have executed
and delivered to the Trustee and the Custodian for execution, a Subsequent Transfer Instrument
substantially in the form of Exhibit 2(A) or 2(B), as applicable. Such Subsequent Transfer Instrument
shall include a representation by the Depositor confirming the satisfaction of each condition
precedent and representations specified in this Section 2.02(b), Section 2.02(c) and in the related
Subsequent Transfer Instrument (upon which representations neither the Trustee nor the Custodian
shall have any liability in relying). Such Subsequent Transfer Instrument shall also include a
Mortgage Loan Schedule attached thereto listing the Subsequent Mortgage Loans;
(iii) as of each Subsequent Transfer Date, as evidenced by delivery of the
Sponsors Subsequent Transfer Instrument in the form of Exhibit 2(A) and the Depositors
Subsequent Transfer Instrument is the form of Exhibit 2(B), neither the Sponsor nor the Depositor
shall be insolvent or have been made insolvent by such transfers, nor shall they be aware of any
pending insolvency;

7

(iv) such sale and transfer (i) does not cause any REMIC created under the
Pooling and Servicing Agreement to fail to qualify as a REMIC and (ii) is not a prohibited
transaction within the meaning of Section 860F(a)(2) of the Code or a contribution resulting in a tax
under Section 860G(d) of the Code, both as evidenced by an Opinion of Counsel provided for the
Trustee at the expense of the Sponsor;
(v) the Pre-Funding Period shall not have terminated; and
(vi) the Sponsor shall have delivered to the Custodian, the Trustee, and the
Rating Agencies Opinions of Counsel addressed to the Rating Agencies, the Trustee and the
Custodian with respect to the transfers of the Subsequent Mortgage Loans substantially in the form of
the Opinion of Counsel delivered to the Custodian, the Trustee and the Rating Agencies on the
Closing Date (1) regarding certain corporate matters and (2) confirming the existence of a true sale
which may be contained in such opinion delivered on the Closing Date.
The obligation of the Trustee to distribute funds from the Pre-Funding Account for the
purchase of a Subsequent Mortgage Loan on any Subsequent Transfer Date is subject to the following
conditions: (1) each such Subsequent Mortgage Loan shall satisfy the representations and warranties
specified in the related Subsequent Transfer Instrument and this Purchase Agreement; (2) the Sponsor shall
not select such Subsequent Mortgage Loans in a manner that it reasonably believes is adverse to the
interests of the Majority Certificateholders; (3) the Sponsor shall have delivered certain Opinions of
Counsel required pursuant to Section 2.02(b)(iv) and (vi) hereof; (4) as of the related Subsequent Cut-off
Date, the Subsequent Mortgage Loans shall satisfy the following criteria: (i) each Subsequent Mortgage
Loan shall not be more than 60 days contractually delinquent as of the related Subsequent Cut-off Date;
(ii) the remaining stated term to maturity of each Subsequent Mortgage Loan shall not exceed 360 months;
(iii) no less than approximately 94.50% of the Subsequent Mortgage Loans are secured by first liens on the
related Mortgaged Property; (iv) each Subsequent Mortgage Loan shall have an outstanding Principal
Balance of at least $10,000; (v) each Subsequent Mortgage Loan shall be underwritten in accordance with
the Underwriting Guidelines or shall have been underwritten in accordance with the underwriting
guidelines in place at the time of such Subsequent Mortgage Loans origination; (vi) each Subsequent
Mortgage Loan shall have a Loan-to-Value Ratio or a combined Loan-to-Value Ratio of no more than
100%; (vii) each Subsequent Mortgage Loan shall have a stated maturity of no later than November 1,
2036; (viii) no Subsequent Mortgage Loan shall permit negative amortization; (ix) each Subsequent
Mortgage Loan shall have a Mortgage Rate of at least 4.00%; (x) a minimum of 75% of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have an adjustable Mortgage Rate;
(xi) the weighted average Loan-to-Value Ratio of the Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance) shall be no more than 83.75%; (xii) no less than 59.00% of the Subsequent
Mortgage Loans shall either (A) have a Loan-to Value Ratio of no more than 60% or (B) have a Loan-to-
Value Ratio of greater than 60% and be covered by an MI Policy which will insure losses to the extent that
the uninsured exposure of the related Subsequent Mortgage Loan is reduced to an amount equal to 55%,
50% or 51% of the lesser of the appraised value or

8

purchase price, as the case may be, of the related Mortgaged Property, in each case, at the time of the
effective date of the MI Policy; (xiii) the Subsequent Mortgage Loans (by Subsequent Cut-off Date
Principal Balance) shall have a weighted average coupon of at least 9.18%; (xiv) pursuant to the
Underwriting Guidelines, no fewer than 50% of the Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance) shall be ALT-A and M1 credit risks, no more than 25% of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be M2 credit risks, and no more than
15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be M3 and
M4 credit risks; (xv) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
have a weighted average FICO score issued by a consumer credit rating agency of at least 610; (xvi) at least
85% of such Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be loans
for primary residences; (xvii) no more than 55% of the Subsequent Mortgage Loans (by Subsequent Cut-
off Date Principal Balance) shall have stated loan documentation, and no more than 15% of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance shall have no loan documentation;
(xviii) at least 60% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance)
shall be loans for single family residences; (xix) no more than 70% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall be loans that are the subject of cash-out refinances;
(xx) the Rating Agencies shall have confirmed either in writing or verbally to the transfer of the Subsequent
Mortgage Loans; and (xxi) at least 50% of the Subsequent Mortgage Loans shall have prepayment
penalties.
The sale by the Depositor of the Subsequent Mortgage Loans is subject to the Sponsor
receiving a written or verbal confirmation from each of the Rating Agencies that states that the addition of
such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their ratings on
the Offered Certificates.
Notwithstanding the foregoing, Subsequent Mortgage Loans with characteristics varying from
those set forth above may be purchased funds from the Pre-Funding Account on a Subsequent Transfer
Date, if (i) the Trustee is provided with written confirmation that the aggregate credit risk of such
Subsequent Mortgage Loans is similar to that of the Initial Mortgage Loans and (ii) the Sponsor receives
and provides to the Trustee a written confirmation from each of the Rating Agencies that states that the
addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of their
ratings of the Offered Certificates.
(c) Within five Business Days after the end of the Pre-Funding Period, the Sponsor shall
deliver to the Rating Agencies, the Trustee and the Custodian a copy of the updated Mortgage Loan
Schedule including the Subsequent Mortgage Loans in electronic format.
Section 2.03 Pre-Funding Account.
(a) No later than the Closing Date, the Trustee will establish and maintain the Pre-Funding
Account pursuant to the Pooling and Servicing Agreement. On the Closing Date, the Sponsor will deposit
in the Pre-Funding Account the Original Pre-Funded Amount from the net proceeds of the sale of the
ffered Certificates. O

9

Section 2.04 Interest Coverage Account
(a) If the Interest Coverage Account on the Closing Date is greater than zero on the Closing
Date, the Trustee will establish and maintain, pursuant to the Pooling and Servicing Agreement the Interest
Coverage Account. On the Closing Date, the Sponsor will deposit in the Interest Coverage Account the
Interest Coverage Amount from the net proceeds of the sale of the Underwritten Certificates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES;
REMEDIES FOR BREACH
Section 3.01 Sponsor Representations and Warranties.
The Sponsor hereby represents and warrants to the Depositor and the Trustee as of the date
hereof, as of the Closing Date (or if otherwise specified below, as of the date so specified) and as of each
Subsequent Transfer Date:
(a) As to the Sponsor:
(i) The Sponsor (i) is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia 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 to so qualify would not have a material adverse effect on the
Sponsors ability to enter into this Purchase Agreement and each Sponsors Subsequent Transfer
Instrument and to consummate the transactions contemplated hereby and thereby;
(ii) The Sponsor has the power and authority to make, execute, deliver and
perform its obligations under this Purchase Agreement and each Sponsors Subsequent Transfer
Instrument and all of the transactions contemplated under this Purchase Agreement and each
Sponsors Subsequent Transfer Instrument, and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Purchase Agreement and each Sponsors Subsequent
Transfer Instrument;
(iii) The Sponsor 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 Purchase Agreement or any Sponsors 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;
(iv) The execution and delivery of this Purchase Agreement and each
Sponsors Subsequent Transfer Instrument and the performance of the transactions contemplated
hereby by the Sponsor will not violate any provision of any existing law or regulation or any order or
decree of any court applicable to the Sponsor or any

10

provision of the certificate of incorporation or bylaws of the Sponsor, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the Sponsor is a party or by which
the Sponsor 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 Sponsor threatened,
against the Sponsor or any of its properties or with respect to this Purchase Agreement or any
Sponsors Subsequent Transfer Instrument, the Certificates which in the opinion of the Sponsor has a
reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by
this Purchase Agreement or any Sponsors Subsequent Transfer Instrument;
(vi) This Purchase Agreement and each Sponsors Subsequent Transfer
Instrument constitute the legal, valid and binding obligations of the Sponsor, enforceable against the
Sponsor 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 Purchase Agreement constitutes a valid transfer and assignment
to the Depositor of all right, title and interest of the Sponsor 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 Purchase
Agreement and the Sponsors Subsequent Transfer Instrument constitutes a valid transfer and
assignment to the Trustee of all right, title and interest of the Sponsor 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;
(viii) The Sponsor 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 Sponsor or its properties or might have consequences that would materially
adversely affect its performance hereunder; and
(ix) The Servicer or any Subservicer who will be servicing any Mortgage
Loan pursuant to the Pooling and Servicing Agreement or a Subservicing Agreement is qualified to
do business in all jurisdictions in which its activities as Servicer or Subservicer of the Mortgage
Loans serviced by it require such qualifications except where failure to be so qualified will not have a
material adverse effect on such servicing activities.

11

(b) As to each Initial Mortgage Loan as of the Closing Date and with respect to each
Subsequent Mortgage Loan as of the Subsequent Transfer Date, except as otherwise expressly stated:
(i) The information set forth on the Mortgage Loan Schedule with respect
to each Initial Mortgage Loan is true and correct in all material respects as of the Closing Date, and
with respect to each Subsequent Mortgage Loan is true and correct in all material respects as of the
related Subsequent Transfer Date, and the information regarding the Initial Mortgage Loans and the
Subsequent Mortgage Loans on the computer diskette or tape delivered to the Trustee prior to the
Closing Date or related Subsequent Transfer Date, as applicable, 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 4.83% and 9.24% of the Initial Mortgage Loans in
Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
were secured by condominium units; and no more than 12.29% and 21.66% of the Initial Mortgage
Loans in Group I and the Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal
Balance) were secured by properties in planned unit developments;
(iv) As of the Cut-off Date, the remaining term of each Group I Initial
Mortgage Loan is not more than 360 months and not less than 169 months and the remaining term of
each Group II Initial Mortgage Loan is not more than 360 months and not less than 167 months;
(v) No more than 75.11% and 21.44% of the Initial Mortgage Loans in
Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
have been the subject of cash-out refinances;
(vi) No more than 5.68% and 0.68% of the Initial Mortgage Loans in
Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance),
have been the subject of rate and term (no cash-out) refinances;
(vii) No fewer than 19.22% and 77.87% of the Initial Mortgage Loans in
Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are
purchase money loans;
(viii) No more than 7.05% and 16.35% of the Initial Mortgage Loans in
Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) are
secured by Mortgaged Properties located in the State of California; no more than 21.97% and 25.72%
of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the State of Florida;
no more than 0% and 0% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in

12

Group II (by Cut-off Date Principal Balance) are secured by Mortgaged Properties located in the
State of Virginia; no more than 0% and 0% of the Initial Mortgage Loans in Group I and Initial
Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by Mortgaged
Properties located in the State of New Jersey; no more than 6.09% and 7.07% of the Initial Mortgage
Loans in Group I and Initial Mortgage Loans in Group II (by Cut-off Date Principal Balance) are
secured by Mortgaged Properties located in the State of Maryland; no more than 0% and 5.14% of
the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group II (by Cut-off Date
Principal Balance) are secured by Mortgaged Properties located in the State of New York; no more
than 5.08% and 4.63% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in Group
II, respectively, (by Cut-off Date Principal Balance) are located in any other state;
(ix) The outstanding Principal Balances of the Initial Mortgage Loans in
Group I (by Cut-off Date Principal Balance) ranged from $14,980 to $519,701, the average
outstanding Principal Balance of the Initial Mortgage Loans in Group I is approximately $147,720;
the outstanding Principal Balances of the Initial Mortgage Loans in Group II (by Cut-off Date
Principal Balance) ranged from $14,600 to $1,187,028, the average outstanding Principal Balance of
the Initial Mortgage Loans in Group II is approximately $199,825;
(x) Approximately 0% and 0% of the Initial Mortgage Loans in Group I
and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance) were
secured by a first lien on a parcel of real property improved by a detached single family residence; no
more than 4.28% and 3.86% of the Initial Mortgage Loans in Group I and Initial Mortgage Loans in
Group II, respectively, (by Cut-off Date Principal Balance) were secured by a first lien on a parcel of
real estate improved by a multi-unit residence;
(xi) All points and fees related to each Mortgage Loan were disclosed in
writing to the borrower in accordance with applicable state and federal law and the borrower has
executed a statement to that effect. No borrower was charged points and fees (whether or not
financed) in an amount greater than 5% of the principal amount of any such loan originated by the
Sponsor, such 5% limitation calculated in accordance with the Lender Letter. All fees and charges
(including finance charges) and whether or not financed, assessed, collected or to be collected with
the origination and servicing of each Mortgage Loan has been disclosed in writing to the borrower in
accordance with applicable state and federal law and regulation;
(xii) The Mortgage Rates borne by the adjustable rate Initial Mortgage
Loans in Group I as of the Closing Date range from 6.300% per annum to 13.100% per annum, and
the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the adjustable rate Initial
Mortgage Loans in Group I was 9.362% per annum; the Mortgage Rates borne by fixed rate Initial
Mortgage Loans in Group I as of the Closing Date range from 6.89% per annum to 13.00% per
annum, and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the fixed
rate Initial Mortgage Loans in Group I was 9.195% per annum; the Mortgage Rates borne by

13

adjustable rate Initial Mortgage Loans in Group II as of the Closing Date range from 6.000% per
annum to 13.700% per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the adjustable rate Initial Mortgage Loans in Group II was 9.223% per annum; the
Mortgage Rates borne by fixed rate Initial Mortgage Loans in Group II as of the Closing Date range
from 5.990% per annum to 13.000% per annum, and the weighted average Mortgage Rate (by Cut-
off Date Principal Balance) of the fixed rate Initial Mortgage Loans in Group II was 10.730% per
annum;
(xiii) Approximately 50.48% and 49.68% of the Initial Mortgage Loans in
have a Loan-to-Value Ratio in excess of 80%; no Group I Mortgage Loan or Group II Mortgage
Loan in the Mortgage Pool had a Loan-to-Value Ratio or combined Loan-to-Value Ratio at
origination in excess of 100%; and the weighted average Loan-to-Value Ratio (by Cut-off Date
Principal Balance) of the Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group
II was equal to 83.02% and 93.20%, respectively (by Cut-off Date Principal Balance). For any Group
I Mortgage Loan or Group II Mortgage Loan in the Mortgage Pool, if such loan has had a material
modification since origination, the Loan-to-Value Ratio as of such modification does not exceed
100%, and any Initial Mortgage Loan seasoned more than 12 months does not have a Loan-to-Value
Ratio in excess of 100% as of the Closing Date;
(xiv) Approximately 98.11% and 90.84% of the Initial Mortgage Loans in
Group I and the Initial Mortgage Loans in Group II, respectively (by Cut-off Date Principal Balance),
are secured by first liens on the related Mortgaged Property; and approximately 1.89% and 9.16% (by
Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I and the Initial Mortgage
Loans in Group II are secured by second liens on the related Mortgaged Property;
(xv) As of the Cut-off Date, the weighted average Loan-to-Value Ratio of
the Initial Mortgage Loans secured by first liens in Group I is approximately 80.87%; the weighted
average combined Loan-to-Value Ratio of the Initial Mortgage Loans secured by first and second
liens in Group I is approximately 83.02%; the weighted average Loan-to-Value Ratio of the Initial
Mortgage Loans secured by first liens in Group II is approximately 84.38%; the weighted average
combined Loan-to-Value Ratio of the Initial Mortgage Loans secured by first and second liens in
Group II is approximately 93.20%; the weighted average combined Loan-to-Value Ratio of all of the
Initial Mortgage Loans in Group I and Group II is approximately 87.00%; and the gross weighted
average coupon of the Initial Mortgage Loans is approximately 9.368%;
(xvi) 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
rescission,

14

set-off, recoupment, counterclaim or defense has been asserted with respect thereto. To the best of
Sponsors knowledge, except for approximately 0.09% of the Mortgage Loans, no Mortgagor of the
applicable Mortgage is or since the date of origination has been a debtor in any state or federal
bankruptcy or insolvency proceeding and no Mortgaged Property has been subject to any such
proceeding. With regard to the Mortgage Loans that involve a Mortgagor who is a debtor in a state or
federal bankruptcy or insolvency proceeding, each such Mortgagor is, as of the Cut-Off Date, current
under the related bankruptcy plan;
(xvii) There are no mechanics liens or any similar 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 (xxii) below;
(xviii) As of the Closing Date in the case of an Initial Mortgage Loan or as
of the related Subsequent Transfer 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;
(xix) Each Mortgage is a valid and enforceable first or second lien on the
Mortgaged Property including all improvements 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 PUTDs) 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 lenders 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 Depositor
pursuant to this Purchase Agreement, the Sponsor had full right to sell and assign the same to the
Depositor or the Trustee, as the case may be. Immediately following the sale of such Mortgage Loan
to the Depositor and the Depositors assignment and sale thereof of such Mortgage Loan to the
Trustee in the case of an Initial Mortgage Loan, the Trustee will have good title thereto subject to no
claims or liens, including delinquent tax or assessment liens. Immediately following the sale of such
Mortgage Loan to the Depositor and the Depositors assignment and sale thereof to the Trustee in the
case of a Subsequent Mortgage Loan, the Trustee will have good title thereto subject to no claims or
liens;
(xx) Each Mortgage Loan at origination complied with applicable local,
state and federal laws, including, without limitation, usury, equal credit opportunity, real estate
settlement procedures, the Truth In Lending Act of 1968, as

15

amended, all applicable predatory and abusive lending laws 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 Certificates secured thereby, will not violate any
such laws. Any and all statements or acknowledgments required to be made by the Mortgagor
relating to such requirements are and will remain in the Mortgage File. Each Mortgage Loan is being
serviced in accordance with applicable state and federal laws, including, without limitation, the Truth
In Lending Act of 1968, as amended, and other consumer protection laws, real estate settlement
procedures, usury, equal credit opportunity and disclosure laws and in a prudent and customary
manner;
(xxi) Neither the Sponsor 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 Certificates,
and which has been delivered to the 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;
(xxii) A lenders 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 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 Sponsor and successor owners of
indebtedness secured by the insured Mortgage as to the first priority lien of the Mortgage as
applicable. The Sponsor is, and such successor owners will be, the sole insured under such lenders
title insurance policy; no claims have been made under such mortgage title insurance policy; no prior
holder of the applicable Mortgage, including the Sponsor, 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;
(xxiii) 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;
(xxiv) 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 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

16

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;
(xxv) 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;
(xxvi) 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;
(xxvii) 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 trustees 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
trustees 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;
(xxviii) 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 Certificateholders to the trustee under the deed of trust, except in
connection with a trustees sale after default by the Mortgagor;
(xxix) 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 Sponsor have been
capitalized under the Mortgage or the applicable Mortgage Note;

17

(xxx) The Mortgage Note is not and has not been secured by any collateral,
pledged account or other security other than real estate securing the Mortgagors obligations and no
Mortgage Loan is secured by more than one Mortgaged Property;
(xxxi) 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 FNMA and acceptable to the Sponsor 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 Sponsor or the original holder of the Mortgage, and its successors in interest, as mortgagee, and
the Sponsor 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 Mortgagors
cost and expense, and upon the Mortgagors failure to do so, authorizes the holder of the Mortgage to
obtain and maintain such insurance at the Mortgagors 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;
(xxxii) 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;
(xxxiii) Except for the Mortgage Loans referred to in clause (xlii) as being
delinquent, if any, there is no default, breach, violation or event of acceleration existing under the
Mortgage or the applicable Mortgage Note; and no 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 Sponsor, any of its affiliates nor any 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;
(xxxiv) Each Mortgage Loan is being serviced by the Servicer in
accordance with the terms of the Mortgage Note;

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(xxxv) There is no obligation on the part of the Sponsor 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;
(xxxvi) Any future advances made prior to the Cut-off 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, 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 Servicer to
make future advances to the Mortgagor at the option of the Mortgagor;
(xxxvii) The Sponsor has caused or will cause to be performed any and all
acts required to preserve the rights and remedies of the Depositor and the Trustee 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 Trustee;
(xxxviii) Except as set forth in clause (xlii), 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 payments, neither the
Sponsor nor the Servicer has 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;
(xxxix) 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;
(xl) None of the Mortgage Loans are graduated payment Mortgage Loans
or growth equity Mortgage Loans;
(xli) [Reserved.]
(xlii) (a) Except with respect to no more than 0.80% and 1.20% of the
Initial Mortgage Loans in Group I and the Initial Mortgage Loans in Group II,

19

respectively, none of the payments of principal of or interest on or in respect of any Initial Mortgage
Loans (by Cut-off Date Principal Balance) shall be 30 days or more but less than 60 days past due as
of the Cut-off Date; and 0.03% and 0.16% of the Initial Mortgage Loans in Group I and the Initial
Mortgage Loans in Group II, respectively, was 60 days or more past due as of the Cut-off Date;
(b) 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 (c) to the Sponsors 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;
(xliii) Upon payment of the Purchase Price for the Mortgage Loans by the
Depositor or the Trustee (from the Trust Fund), as applicable, pursuant to this Purchase Agreement,
the Sponsor has transferred to the Depositor good and marketable title to each Mortgage Note and
Mortgage free and clear of any and all liens, 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 Depositor, will own such Mortgage Loan free and clear of any
encumbrance, equity interest, participation interest, lien, pledge, charge, claim or security interest;
(xliv) The Sponsor acquired any right, title and interest in and to the
Mortgage Loans in good faith and without notice of any adverse claim;
(xlv) The Mortgage Note, the Mortgage, the related Assignment of
Mortgage and any other documents required to be delivered by the Sponsor have been delivered to
the Custodian. The Custodian is in possession of a complete, true and accurate Mortgage File in
accordance with Section 2.01 hereof. Substantially all the 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;
(xlvi) Each Mortgage Loan contains a due-on-sale provision, although each
Mortgage Loan may be assumable if permitted by the Servicer under certain circumstances;
(xlvii) 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;
(xlviii) The Mortgagor has not notified the Sponsor, and the Sponsor has
no knowledge of any relief requested or allowed to the Mortgagor under the Servicemembers Civil
Relief Act other than as disclosed pursuant to the Prospectus Supplement;
(xlix) To the best of the Sponsors knowledge, there exists no violation of
any local, state, or federal environmental law, rule or regulation in respect

20

of the Mortgaged Property which violation has or could have a material adverse effect on the market
value of such Mortgaged Property. The Sponsor 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 Sponsors 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;
(l) Each Mortgage Loan conforms, and all such Mortgage Loans in the
aggregate conform, to the description thereof set forth in the Prospectus and Prospectus Supplement
in all material respects;
(li) [Reserved]
(lii) With regard to the Group I Mortgage Loans, no refinance or purchase
money mortgage loan has an APR or total points and fees that exceed the thresholds set by the Home
Ownership and Equity Protection Act of 1994 (HOEPA) and its implementing regulations,
including 12 CFR 226.32(a)(1)(i) and (ii);
(liii) Immediately prior to the transfer to the Depositor or the Trustee, as
applicable, the Sponsor had good and marketable title thereto, and the Sponsor is the sole legal,
equitable owner of beneficial title to and holder of the Mortgage Loan. The Sponsor is conveying the
same to the Depositor or the Trustee, as applicable, free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or security interests of any nature
and has full right and authority to sell and assign the same pursuant to this Purchase Agreement,
except for liens which will be released simultaneously with such conveyance;
(liv) 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;
(lv) The Servicer meets all applicable requirements under the Pooling and
Servicing Agreement, is properly qualified to service each Mortgage Loan and has been servicing
each Mortgage Loan prior to the Cut-off Date or the related Subsequent Cut-off Date, as the case
may be;
(lvi) 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 Trustee;
(lvii) On the basis of a representation by the Mortgagor at the time of
origination of the Mortgage Loans, at least 89.42% and 96.47% of the Initial Mortgage Loans in
Group I and Initial Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
will be secured by Mortgages on owner-occupied primary residence properties;

21

(lviii) Approximately 20.36%, and 29.95% of the Initial Mortgage Loans in
provide for a balloon payment and each Mortgage Note with respect to each such Mortgage Loan
requires monthly payments of principal based on either a 40 year or 30 year amortization schedules
and have scheduled maturity dates of 30 years or 15 years, respectively, from the due date of the first
monthly payment;
(lix) No Mortgage Loan was originated based on an appraisal of the related
Mortgaged Property made prior to completion of construction of the improvements thereon;
(lx) None of the Mortgage Loans is a buy down mortgage loan;
(lxi) [Reserved].
(lxii) No Mortgage Loan is a High Cost Home Loan or Covered Loan,
as applicable, (as such terms are defined in the then current Standard & Poors LEVELS
Glossary
which is now Version 5.7 Revised, Appendix E) and no Mortgage Loan is a High Cost Home Loan
as defined in the Georgia Fair Lending Act, as amended (the Georgia Act). No Mortgage Loan that
was originated (or modified) on or after October 1, 2002 and before March 7, 2003, is secured by
property located in the State of Georgia;
(lxiii) None of the Mortgage Loans are covered by the requirements of the
Home Ownership and Equity Protection Act of 1994, as amended, or any comparable state or local
law; none of the Mortgage Loans are section 32 loans or high cost loans as defined by applicable
predatory and abusive lending laws; no proceeds from any Mortgage Loan were used to finance any
single premium credit insurance policies; none of the Mortgage Loans (by Cut-off Date Principal
Balance) require a mortgagor to pay a Prepayment Charge if the mortgagor prepays a Mortgage Loan
more than five years after the date the Mortgage Loan was originated;
(lxiv) No Mortgage Loan is a High-Cost Home Loan as defined in New
York Banking Law 6-1;
(lxv) No Mortgage Loan is a High-Cost Home Loan as defined in the
Arkansas Home Loan Protection Act effective July 16, 2003 (Act 1340 of 2003);
(lxvi) No Mortgage Loan is a High-Cost Home Loan as defined in the
Kentucky high-cost home loan statute effective June 24, 2003 (Ky. Rev. Stat. Section 360.100);
(lxvii) No Mortgage Loan in the trust is a high-cost home, covered
(excluding home loans defined as covered home loans in the New Jersey Home Ownership
Security Act of 2002 that were originated between November 26, 2003 and July 7, 2004), high risk
home or predatory loan under any applicable state, federal or local law (or a similarly classified
loan using different terminology under a law imposing heightened regulatory scrutiny or additional
legal liability for residential mortgage loans having high interest rates, points and/or fees);

22

(lxviii) No Mortgage Loan is a High-Cost Home Loan as defined in the
New Mexico Home Loan Protection Act effective January 1, 2004 (N.M. Stat. Ann. 58-21A-1 et
seq.);
(lxix) No Mortgage Loan is a High-Risk Home Loan as defined in the
Illinois High-Risk Home Loan Act effective January 1, 2004 (815 Ill. Comp. Stat. 137/1 et seq.);
(lxx) No Mortgage Loan is a High-Cost Home Loan as defined in the
Massachusetts Predatory Home Loan Practices Act effective November 7, 2004 (MA House Bill
4880);
(lxxi) No Mortgage Loan is a High-Cost Home Loan as defined in the
Indiana Home Loan Practices Act effective January 1st, 2005 (Indiana Code Ann. 24-9-1 et seq.);
(lxxii) Approximately 62.56% of the Initial Mortgage Loans are subject to
prepayment penalty charges as of the Cut-off Date;
(lxxiii) [Reserved.]
(lxxiv) No borrower was required to purchase any credit life, disability,
accident or health insurance product as a condition of obtaining the extension of credit. No borrower
obtained a prepaid single premium credit life, credit disability, credit unemployment or credit
property insurance policy in connection with the origination of the Mortgage Loan; No proceeds
from any Mortgage Loan were used to purchase single premium credit insurance policies as part of
the origination of, or as a condition to closing, such Mortgage Loan;
(lxxv) With respect to any Group I Mortgage Loan that contains a
provision permitting imposition of a penalty upon a prepayment prior to maturity: (a) the Mortgage
Loan provides some benefit to the borrower (e.g., a rate or fee reduction) in exchange for accepting
such prepayment penalty; (b) the Mortgage Loans originator had a written policy of offering the
borrower, or requiring third-party brokers to offer the borrower, the option of obtaining a Mortgage
Loan that did not require payment of such a penalty; (c) the prepayment penalty was adequately
disclosed to the borrower pursuant to applicable state and federal law; (d) no Mortgage Loan
originated on or after October 1, 2002 will provide for prepayment penalties for a term in excess of
three years and any loans originated prior to such date will not provide for prepayment penalties for a
term in excess of five years; unless the loan was modified to reduce the prepayment period to no
more than three years (in the case of subprime loans) or five years (in the case of non-subprime
loans) from the date of the note and the borrower was notified in writing of such reduction in
prepayment period; and (e) such prepayment penalty shall not be imposed in any instance where the
mortgage loan is accelerated or paid off in connection with the workout of a delinquent mortgage or
due to the borrowers default, notwithstanding that the terms of the Mortgage Loan or state or federal
law might permit the imposition of such penalty;

23

(lxxvi) [Reserved.]
(lxxvii) [Reserved.]
(lxxviii) [Reserved.]
(lxxix) With respect to Mortgaged Properties located in the continental
United States and Puerto Rico, no Group I Mortgage Loan secured by a single-family residence has a
Principal Balance at origination in excess of $417,000; no Group I Mortgage Loan secured by a two-
family residence has a Principal Balance at origination in excess of $524,300; no Group I Mortgage
Loan secured by a three-family residence has a Principal Balance at origination in excess of
$480,000; and no Group I Mortgage Loan secured by a four-family residence has a Principal Balance
at origination in excess of $569,500; with respect to Mortgaged Properties located in Alaska, Guam,
Hawaii and the Virgin Islands, no Group I Mortgage Loan secured by a single-family residence has a
Principal Balance at origination in excess of $625,500; no Group I Mortgage Loan secured by a two-
family residence has a Principal Balance at origination in excess of $800,775; no Group I Mortgage
Loan secured by a three-family residence has a Principal Balance at origination in excess of
$967,950; and no Group I Mortgage Loan secured by a four-family residence has a Principal Balance
at origination in excess of $1,202,925;
(lxxx) No selection procedure reasonably believed by the Sponsor to be
adverse to the interests of the Certificateholders was utilized in selecting the Mortgage Loans;
(lxxxi) The terms of the Mortgage Note related to each adjustable rate
Mortgage Loan provide that, following an initial period of two, three or five years following the
month in which such Mortgage Loan was originated and semiannually or annually thereafter (each
such date, an Adjustment Date), the Mortgage Rate on such Mortgage Loan will be adjusted to
equal the sum of (a) the related Index and (b) a fixed percentage amount specified in the related
Mortgage Note (each, a Gross Margin); provided, however, that the Mortgage Rate generally will
not increase or decrease by the related Periodic Rate Cap, and will not increase above a specified
maximum Mortgage Rate over the life of the Adjustable Rate Mortgage Loan (the Maximum
Mortgage Rate) or decrease below a specified minimum Mortgage Rate over the life of the
Adjustable Rate Mortgage Loan (the Minimum Mortgage Rate);
(lxxxii) None of the Initial Mortgage Loans (by Cut-off Date Principal
Balance) are negative amortization loans, and none of the Subsequent Mortgage Loans shall be
negative amortization loans;
(lxxxiii) No error, omission, negligence, misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of the

24

Sponsor, its affiliates or employees or any other person involved in the origination of the Mortgage
Loan or in the application for any insurance, including, but not limited to the MI Policy, in relation to
such Mortgage Loan;
(lxxxiv) 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;
(lxxxv) 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;
(lxxxvi) No Mortgage Loans are date of payment or simple interest loans;
(lxxxvii) The sale, transfer, assignment and conveyance of Mortgage Loans
by the Sponsor pursuant to this Purchase Agreement is not subject to and will not result in any tax,
fee or governmental charge payable by the Depositor, the Custodian or the Trustee to any federal,
state or local government (Transfer Taxes) other than Transfer Taxes which have or will be paid by
the Sponsor as due;
(lxxxviii) Each Mortgage Loan is a qualified mortgage within
Section 860G(a)(3) of the Code;
(lxxxix) Approximately 55.86% of the Initial Mortgage Loans (by Cut-off
Date Principal Balance) with a Loan-to-Value Ratio greater than 60% are covered by an MI Policy
issued by an MI Insurer;
(xc) Approximately 55.86% of the Initial Mortgage Loans that are
identified on Exhibit 1 hereto are covered by a MI Policy issued by an MI Insurer;
(xci) All requirements for the valid transfer of each MI Policy, including
any assignments or notices required in each MI Policy, have been satisfied;
(xcii) As of the Closing Date with respect to each Initial Mortgage Loan
that is subject to a MI Policy and as of each Subsequent Transfer Date with respect to each
Subsequent Mortgage Loan that is subject to a MI Policy, the Sponsor is unaware of any existing
circumstances which would cause the MI Insurer to deny a claim with respect to such Mortgage
Loan;
(xciii) All appraisals of the Mortgage Loans by the Sponsor are full
URAR/1004 appraisals;
(xciv) All Prepayment Charges are enforceable and were originated in
compliance with all applicable federal, state, and local laws;

25

(xcv) [Reserved.]
(xcvi) With respect to mortgage loans that are more than 59 days
delinquent as of the Cut-off Date, the Sponsor has made a specific review of the Servicers data and
records that reflect mortgagor communications and payment history, and has no actual knowledge of
an event, condition or mortgagor communication which would cause the Sponsor to institute
foreclosure proceedings;
(xcvii) The servicer for each Group I Mortgage Loan has fully furnished
(and will fully furnish), in accordance with the Fair Credit Reporting Act and its implementing
regulations, accurate and complete information (i.e., favorable and unfavorable) on its borrower
credit files to Equifax, Experian, and Trans Union Credit Information Company (three of the credit
repositories), on a monthly basis;
(xcviii) None of the Group I Mortgage Loans are classified as (a) high
cost loans under the Home Ownership and Equity Protection Act of 1994 or (b) high cost,
threshold, covered, predatory or abusive loans under any other applicable state, federal or
local law (including without limitation any regulation or ordinance) (or a similarly classified loan
using different terminology under a law imposing heightened regulatory scrutiny or additional legal
liability for residential mortgage loans having high interest rates, points and/or fees);
(xcix) With respect to any Group I Mortgage Loan originated on or after
August 1, 2004, neither the related mortgage nor the related mortgage note requires the borrower to
submit to arbitration to resolve any dispute arising out of or relating in any way to the mortgage loan
transaction;
(c) With respect to any Group I Mortgage Loan, the borrower was not
encouraged or required to select a mortgage loan product offered by the mortgage loans originator
which is a higher cost product designed for less creditworthy borrowers, taking into account such
facts as, without limitation, the mortgage loans requirements and the borrowers credit history,
income, assets and liabilities. For each Group I Mortgage Loan, with respect to a borrowers seeking
financing through a mortgage loan originators higher-priced subprime lending channel, such
borrower was directed towards or offered the mortgage loan originators standard mortgage line if the
borrower was able to qualify for one of the standard products;
(ci) With respect to any Group I Mortgage Loan, the methodology used in
underwriting the extension of credit for each Group I Mortgage Loan did not rely solely on the extent
of the borrowers equity in the collateral as the principal determining factor in approving such
extension of credit. The methodology employed objective criteria such as the borrowers income,
assets and liabilities, to the proposed mortgage payment and, based on such methodology, the
mortgage loans originator made a reasonable determination that at the time of origination the
borrower had the ability to make timely payments on the mortgage loan;

26

(cii) With respect to any Group I Mortgage Loan, no borrower was charged
points and fees in an amount greater than (a) $1,000 or (b) 5% of the principal amount of such
Mortgage Loan, whichever is greater. For purposes of this representation, points and fees
(x) include origination, underwriting, broker and finders fees and charges that the lender imposed as
a condition of making the mortgage loan, whether they are paid to the lender or a third party; and
(y) exclude bona fide discount points, fees paid for actual services rendered in connection with the
origination of the mortgage (such as attorneys fees, notaries fees and fees paid for property
appraisals, credit reports, surveys, title examinations and extracts, flood and tax certifications, and
home inspections); the cost of mortgage insurance or credit-risk price adjustments; the costs of title,
hazard, and flood insurance policies; state and local transfer taxes or fees; escrow deposits for the
future payment of taxes and insurance premiums; and other miscellaneous fees and charges, which
miscellaneous fees and charges, in total, do not exceed 0.25% of the loan amount;
(ciii) For each Group I Mortgage Loan, with respect to any subordinate lien
Mortgage Loan, such lien is on a one- to four-family residence that is the principal residence of the
borrower;
(civ) For each Group I Mortgage Loan, no subordinate lien Mortgage Loan
has an original principal balance that exceeds one-half of the one-unit limitation for first lien
mortgage loans, i.e., $208,500 (in Alaska, Guam, Hawaii or Virgin Islands: $312,750), without
regard to the number of units;
(cv) For each Group I Mortgage Loan, the original principal balance of the
first lien mortgage loan plus the original principal balance of any subordinate lien mortgage loans
relating to the same mortgaged property does not exceed the applicable loan limit for first lien
mortgage loans for that property type (as set out in clause (lxxix) above);
(cvi) There is no Group I Mortgage Loan that is seasoned, where the date
of the mortgage note is more than 1 year before the date of issuance of the related Certificates.
Upon discovery by the Sponsor or upon notice from the Depositor, the Trustee, or the
Custodian, 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 Certificateholders the Sponsor 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 Trustee 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 Sponsor or upon notice from the Depositor, the Trustee, or the
Custodian, 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

27

materially and adversely affects the value of the related Mortgage Loan or the interests of any
Certificateholders or of the Depositor or the Trustee in such Mortgage Loan (notice of which shall be given
to the Depositor and the Trustee by the Sponsor, if it discovers the same) the Sponsor 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 Mortgage Loan from the Trustee 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; provided, however, that a breach of any of the
representations and warranties found in subsections b(xx), (b)(lii), (b)(lxii), (b)(lxvii), (b)(lxxiv), (b)(lxxv),
(b)(lxxix), (b)(xcvii), (b)(xcviii) and (b)(xcix) shall be deemed to materially and adversely affect the
interest of the Certificateholders. The Repurchase Price for any such Mortgage Loan repurchased by the
Sponsor shall be deposited or caused to be deposited by the Servicer in the Collection Account maintained
by it pursuant to Section 3.06 of the Pooling and Servicing Agreement.
In the event that the Sponsor elects to substitute an Eligible Substitute Mortgage Loan or Loans
for a Deleted Mortgage Loan pursuant to this Section 3.01, the Sponsor shall deliver to the Custodian on
behalf of the Trustee, 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 2.01 hereof, with the
Mortgage Note endorsed as required by such Section 2.01 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 Fund and will
be retained by the Servicer and remitted by the Servicer to the Sponsor on the next succeeding Payment
Date. For the month of substitution, distributions to the Collection Account pursuant to the Pooling and
Servicing Agreement will include the Monthly Payment due on a Deleted Mortgage Loan for such month
and thereafter the Sponsor shall be entitled to retain all amounts received in respect of such Deleted
Mortgage Loan. The Servicer shall amend or cause to be amended 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 the Servicer shall deliver the amended Mortgage Loan Schedule to the Custodian and the
Trustee. Upon such substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to the
terms of this Purchase Agreement and the Pooling and Servicing Agreement in all respects, the Sponsor
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 3.01(b), to the extent set forth in the definition of
Eligible Substitute Mortgage Loan, as of the date of substitution, and the Sponsor 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 Servicer will determine the amount (such
amount, a Substitution Adjustment Amount), if any, by which (i) the Repurchase Price that would
otherwise apply to such Deleted Mortgage Loan, exceeds (ii) the principal balance of the related Eligible
Substitute Mortgage Loan (after application of the principal portion of the Monthly Payments due in the
month of substitution that are to be distributed to the Collection Account in the month of substitution). The
Sponsor shall pay the amount of such shortfall to the Servicer for deposit into the Collection Account on
e day of substitution, without any reimbursement therefor. th

28

Upon receipt by the 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 Custodian shall, on
behalf of the Trustee, cause to be released to the Sponsor the related Mortgage File for the Mortgage Loan
being repurchased or substituted for and the Trustee shall execute and deliver such instruments of transfer
or assignment prepared by the Servicer, in each case without recourse, as shall be necessary to vest in the
Sponsor or its designee such Mortgage Loan released pursuant hereto and thereafter such Mortgage Loan
shall not be an asset of the Trustee.
It is understood and agreed that the obligation of the Sponsor 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 6.01 of this Purchase Agreement, constitute the
sole remedy respecting such breach available to the Depositor, the Trustee, the Certificateholders or the
Custodian against the Sponsor.
It is understood and agreed that the representations and warranties set forth in this Section 3.01
shall survive delivery of the respective Mortgage Files to the Custodian on behalf of the Trustee.
Section 3.02 Depositor Representations and Warranties.
The Depositor hereby represents and warrants to the Sponsor and the Trustee as of the date
hereof and as of the Closing Date that:
(a) The Depositor 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 Depositor 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 Depositor and the ability of the Depositor to perform under this Purchase Agreement.
(c) The Depositor has the power and authority to execute and deliver this Purchase Agreement
and to carry out its terms; the Depositor has full power and authority to purchase the property to be
purchased from the Sponsor and the Depositor has duly authorized such purchase by all necessary
corporate action; and the execution, delivery and performance of this Purchase Agreement have been duly
authorized by the Depositor by all necessary corporate action.
(d) The consummation of the transactions contemplated by this Purchase 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 Depositor, or any indenture,

29

agreement or other instrument to which the Depositor 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 Depositors knowledge, any order, rule or regulation applicable to the Depositor of any court or
of any federal or state regulatory body, administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
(e) The Depositor (A) is a solvent entity and is paying its debts as they become due and
(B) after giving effect to the transfer of the Mortgage Loans, will be a solvent entity and will have
sufficient resources to pay its debts as they become due.
ARTICLE IV
SPONSORS COVENANTS
Section 4.01 Covenants of the Sponsor.
The Sponsor hereby covenants as of the date hereof and as of the Closing Date that, except for
the transfer hereunder, on and after the Closing Date, the Sponsor will not sell, pledge, assign or transfer to
any other Person, or grant, create, incur or assume any Lien on, any Mortgage Loan, whether now existing
or hereafter created, or any interest therein; the Sponsor will notify the Custodian and the Trustee of the
existence of any such Lien on any Mortgage Loan immediately upon discovery thereof; the Sponsor will
defend the right, title and interest of the Trustee, on its own behalf and as assignee of the Depositor, in, to
and under the Mortgage Loans, whether now existing or hereafter created, against all claims of third parties
claiming through or under the Sponsor and the Sponsor will sell sufficient Subsequent Mortgage Loans to
the Depositor so as to use substantially all of the amounts on deposit in the Pre-Funding Account pursuant
to this Purchase Agreement no later than October 31, 2006.
In the event that the Custodian or the 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
Custodian, or upon the Sponsors otherwise being given notice thereof by the Custodian, the Sponsor shall
pay any and all such Transfer Taxes (it being understood that the Holders of the Certificates, the Depositor,
the Custodian and the Trustee shall have no obligation to pay such Transfer Taxes).
Section 4.02 Payment of Expenses.
(a) The Sponsor will pay on the Closing Date all expenses incident to the performance of its
obligations under this Purchase Agreement and the Underwriting 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 Underwriters of this
Purchase Agreement and the Underwriting Agreement, the Pooling and Servicing Agreement and such
other documents as may be required in connection with the offering, purchase, sale and delivery of the
ertificates, C

30

(iii) the preparation, issuance and delivery of the certificates for the Class A Certificates and Mezzanine
Certificates to the Underwriters, including any charges of DTC, Clearstream Luxembourg and the
Euroclear System in connection therewith; (iv) the qualification of the Class A Certificates and Mezzanine
Certificates 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 Underwriters
in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement
thereto for delivery to potential investors, (v) in addition to the initial printing and filing costs under
(i) above, the printing and delivery to the Underwriters of copies of each preliminary prospectus and of the
Prospectus and any amendments or supplements thereto for delivery to potential investors, (vi) the fees and
expenses of the Trustee and the Custodian, including the fees and disbursements of counsel for the Trustee
and the Custodian in connection with the Pooling and Servicing Agreement, the Purchase Agreement and
the Certificates and (vii) any fees payable in connection with the rating of the Certificates.
(b) If the Underwriting Agreement is terminated by the Underwriters in accordance with the
provisions of Section 5 or Section 9(a)(i) thereof, the Sponsor shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the
Underwriters.
ARTICLE V
CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE
Section 5.01 Conditions of Depositors Obligations.
The Depositors obligations to purchase the Initial Mortgage Loans which each 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 Purchase Agreement;
(ii) the representations and warranties set forth in Section 3.01(b) hereof
with respect to each Initial Mortgage Loan shall be true as of the Closing Date;
(iii) the Underwriters or their affiliates shall have had an opportunity to
perform a due diligence review of each Mortgage Loan; and
(iv) the Sponsor shall have provided to the Underwriters or their affiliates
such other documents which are then required to have been delivered under this Purchase Agreement
or which are reasonably requested by the Underwriters or their 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 Underwriters, and/or an Officers Certificate.

31

ARTICLE VI
INDEMNIFICATION BY THE SPONSOR
WITH RESPECT TO THE MORTGAGE LOANS
Section 6.01 Indemnification With Respect to the Mortgage Loans.
The Sponsor shall indemnify and hold harmless the Depositor, Trustee and the Custodian from
and against any loss, liability or expense arising from the breach by the Sponsor of its representations and
warranties in Section 3.01 of this Purchase Agreement which materially and adversely affects the value of
any Mortgage Loan or the Depositors assignees interest in any Mortgage Loan or from the failure by the
Sponsor to perform its obligations under this Purchase Agreement in any material respect.
Section 6.02 Limitation on Liability of the Sponsor.
None of the directors, officers, employees or agents of the Sponsor shall be under any liability
to the Depositor, it being expressly understood that all such liability is expressly waived and released as a
condition of, and as consideration for, the execution of this Purchase Agreement. Except as and to the
extent expressly provided in the Basic Documents, the Sponsor shall not be under any liability to the
Trustee, the Custodian or the Certificateholders. The Sponsor and any director, officer, employee or agent
of the Sponsor 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 7.01 Termination.
(a) Except as provided in Section 7.01(b) hereof, the respective obligations and responsibilities
of the Sponsor, the Depositor, the Trustee and the Custodian created hereby shall terminate, except for the
Sponsors indemnity obligations as provided herein, upon the termination of the Trust Fund pursuant to the
terms of the Pooling and Servicing Agreement.
(b) The Depositor may terminate this Purchase Agreement, by notice to the Sponsor, at any
time at or prior to the Closing Date:
(i) if the Underwriting Agreement is terminated by the Underwriters
pursuant to the terms of the Underwriting Agreement or if there has been, since the time of execution
of this Purchase 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 Sponsor, 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

32

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 Underwriters, impracticable to market the Offered Certificates or to
enforce contracts for the sale of the Offered Certificates, or
(iii) if trading in any securities of the Sponsor 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) either (A) a change in control of the Sponsor shall have occurred other
than in connection with and as a result of the issuance and sale by the Sponsor or registered, publicly
offered common stock; or (B) the Underwriters determine in their sole discretion that any material
adverse change has occurred in the management of the Sponsor,
(vi) there is (A) a material breach by the Sponsor of any representation and
warranty contained in this Purchase Agreement or the Underwriting Agreement other than a
representation or warranty relating to particular Mortgage Loans, and the Underwriters have reason
to believe in good faith either that such breach is not curable within two (2) days or that such breach
may not have been cured in all material respects at the expiration of two (2) days following discovery
thereof by the Sponsor or (B) a failure by the Sponsor to make any payment payable by it under this
Purchase Agreement or (C) any other failure by the Sponsor to observe and perform in any material
respect its material covenants, agreements and obligations with the Depositor, including without
limitation those contained in this Purchase Agreement, and the Depositor has reason to believe in
good faith that such failure may not have been cured in all material respects at the expiration of two
(2) days following discovery thereof by the Sponsor, or
(vii) the Sponsor fails to provide written notification to the Underwriters of
any change in its loan origination, acquisition or appraisal guidelines or practices, or the Sponsor,
without the prior consent of the Underwriters (which shall not be unreasonably withheld), amends in
any material respect its loan origination, acquisition or appraisal guidelines or practices.
If this Purchase Agreement is terminated pursuant to this Section 7.01(b), such termination
all be without liability of any party to any other party except as provided in Section 4.02 hereof. sh

33

ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01 Amendment.
This Purchase Agreement may be amended from time to time by the Sponsor, the Depositor,
the Trustee and the Custodian by written agreement signed by the Sponsor, the Depositor, the Trustee and
the Custodian.
Section 8.02 Governing Law.
This Purchase Agreement shall be governed by and construed in accordance with the laws of
the State of New York and the obligations, rights and remedies of the parties hereunder shall be determined
in accordance with such laws.
Section 8.03 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 registered mail, postage prepaid, addressed as
follows:

(i) if to the Sponsor:
8140 Ward Parkway
Suite 300
Attention: Matt Kaltenrieder
or, such other address as may hereafter be furnished to the Depositor in writing by the Sponsor.

(ii) if to the Depositor:
8140 Ward Parkway
Suite 300
or such other address as may hereafter be furnished to the Sponsor in writing by the Depositor.

(iii) if to the Custodian:
U.S. Bank National Association
4527 Metropolitan Court, Suite C
Frederick, Maryland 21704
Attention: Edward Aquino

34

or such other address as may hereafter be furnished to the Sponsor in writing by the Custodian.

(iv) if to the Trustee:
Deutsche Bank National Trust Company
1761 East St. Andrew Place
Santa Ana, CA 92705
Attention: Trust Administration NS0605
or such other address as may hereafter be furnished to the Sponsor in writing by the Trustee.
Section 8.04 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of this Purchase
Agreement shall be held invalid for any reason whatsoever, then such covenants, agreements, provisions or
terns shall be deemed severable from the remaining covenants, agreements, provisions or terms of this
Purchase Agreement and shall in no way affect the validity or enforceability of the other provisions of this
Purchase Agreement.
Section 8.05 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 Sponsor shall be rendered as an independent contractor
and not as agent for the Depositor.
Section 8.06 Counterparts.
This Purchase 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.
Section 8.07 Further Agreements.
The Depositor and the Sponsor 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
Purchase Agreement. Each of the Depositor and the Sponsor agrees to use its best reasonable efforts to take
all actions necessary to be taken by it to cause the Class A-1A Certificates to be rated Aaa by Moodys
and AAA by S&P, the Class A-2A Certificates to be rated Aaa by Moodys and AAA by S&P, the
Class A-2B Certificates to be rated Aaa by Moodys and AAA by S&P, the Class A-2C Certificates to
be rated Aaa by Moodys and AAA by S&P, the Class A-2D Certificates to be rated Aaa by
Moodys and AAA by S&P, the Class M-1 Certificates to be rated Aa1 by Moodys and AA+ by
S&P, the Class M-2 Certificates to be rated Aa2 by Moodys and AA by S&P, the Class M-3
Certificates to be rated Aa3 by Moodys and AA by S&P, the Class M-4 Certificates to be rated A1
by Moodys and AA- by S&P, the Class M-5 Certificates to be rated A2 by Moodys and A+ by
S&P, the Class M-6 Certificates to be rated A3 by Moodys and A by S&P, the Class M-7 Certificates
to be rated Baa1 by Moodys and A- by S&P, the Class M-8

35

Certificates to be rated Baa2 by Moodys and BBB+ by S&P, the Class M-9 Certificates to be rated
Baa3 by Moodys and BBB by S&P, the Class M-10 Certificates to be not rated by Moodys and
BBB- by S&P, the Class M-11 Certificates to be not rated by Moodys and BB+ by S&P, the Class M-
12 Certificates to be not rated by Moodys and BB by S&P, each party will cooperate with the other in
connection therewith.
Section 8.08 Intention of the Parties.
It is the intention of the parties that (i) the Depositor is purchasing on the Closing Date, and the
Sponsor is selling on the Closing Date, the Initial Mortgage Loans, rather than the Depositor providing to
the Sponsor a loan secured by the Initial Mortgage Loans on the Closing Date, and (ii) the Trustee is
purchasing on the Closing Date, and the Depositor is selling on the Closing Date, the Initial Mortgage
Loans, rather than the Trustee providing to the Depositor a loan secured by the Initial Mortgage Loans, and
(iii) the Depositor will be purchasing on each Subsequent Transfer Date, and the Sponsor will be selling on
each Subsequent Transfer Date, the related Subsequent Mortgage Loans, rather than the Depositor
providing to the Sponsor a loan secured by the related Subsequent Mortgage Loans on each Subsequent
Transfer Date, and (iv) the Trustee will be purchasing on each Subsequent Transfer Date, and the Depositor
will be selling on each Subsequent Transfer Date, the related Subsequent Mortgage Loans, rather than the
Trustee providing to the Depositor a loan secured by the related Subsequent Mortgage Loans on each
Subsequent Transfer Date. Accordingly, the parties hereto each intend to treat these transactions as (i) a
sale by the Sponsor, and a purchase by the Depositor, of the Initial Mortgage Loans on the Closing Date,
and (ii) a sale by the Depositor, and a purchase by the Trustee, of the Initial Mortgage Loans on the Closing
Date, (iii) a sale by the Sponsor, and a purchase by the Depositor, of the related Subsequent Mortgage
Loans on each Subsequent Transfer Date, and (iv) a sale by the Depositor, and a purchase by the Trustee,
of the related Subsequent Mortgage Loans on each Subsequent Transfer Date.
Section 8.09 Successors and Assigns; Assignment of Purchase Agreement.
This Purchase Agreement shall bind and inure to the benefit of and be enforceable by the
Sponsor, the Depositor, the Trustee, the Custodian, and their respective successors and assigns. The
obligations of the Sponsor under this Purchase Agreement cannot be assigned or delegated to a third party
without the consent of the Depositor, which consent shall be at the Depositors discretion. The parties
hereto acknowledge that (i) the Depositor is acquiring the Initial Mortgage Loans for the purpose of selling
them to the Trustee, who will hold the Initial Mortgage Loans in trust for the benefit of the
Certificateholders and (ii) the Depositor is acquiring the Subsequent Mortgage Loans for the purpose of
selling them to the Trustee. who will hold the Subsequent Mortgage Loans for the benefit of the
Certificateholders. As an inducement to the Depositor and the Trustee to purchase the Mortgage Loans, the
Sponsor acknowledges and consents to (i) the assignment by the Depositor to the Trustee of all of the
Depositors rights or remedies against the Sponsor pursuant to this Purchase Agreement and to (ii) the
enforcement or exercise of any rights against the Sponsor pursuant to this Purchase Agreement by the
Depositor and the Trustee. Such enforcement of a right or remedy by the Trustee, shall have the same force
nd effect as if the right or remedy had been enforced or exercised by the Depositor directly. a

36

Section 8.10 Survival.
The representations and warranties made herein by the Sponsor and the provisions of Article V
hereof shall survive the purchase of the Mortgage Loans hereunder.
Section 8.11 Liability of the Trustee.
The Trustee is entering into the Basic Documents to which it is a party solely as Trustee,
hereunder and thereunder, and not in its individual capacity, and all persons having any claim against the
Trustee by reason of the transactions contemplated by this Agreement or any other Basic Document shall
look only to the Trust Fund for payment or satisfaction thereof.
[Signature page to follow]

37

IN WITNESS WHEREOF, the Sponsor, the Depositor, the Custodian and the Trustee have
caused their names to be signed to this Mortgage Loan Purchase Agreement by their respective officers
thereunto duly authorized as of the day and year first above written.

NOVASTAR MORTGAGE, INC.
as Sponsor

By:

/s/ Matt Kaltenrieder

NOVASTAR MORTGAGE FUNDING
CORPORATION
as Depositor

By:


U.S. BANK NATIONAL ASSOCIATION,
as Custodian

By:

/s/ Ronald L. Fisher
Name: Ronald L. Fisher
Title: Authorized Representative

DEUTSCHE BANK NATIONAL TRUST COMPANY,
not in its individual capacity,
but solely as Trustee

By:

/s/ Ronaldo Reyes
Name: Ronaldo Reyes

By:

/s/ Melissa Wilman
Name: Melissa Wilman

38

NOVASTAR FINANCIAL, INC., solely with respect to
Section 3.01(b)

By:

[Signature Page to Mortgage Loan Purchase Agreement (2 of 2)]

39

EXHIBIT 1
INITIAL MORTGAGE LOAN SCHEDULE
[Provided to Depositor and to Trustee at the Closing]

EXHIBIT 2(A)
SPONSORS SUBSEQUENT TRANSFER INSTRUMENT
Pursuant to this Sponsors Subsequent Transfer Instrument (the Sponsors Instrument), dated
as of , 200 , between NovaStar Mortgage, Inc. as sponsor (the Sponsor), and NovaStar
Mortgage Funding Corporation, as depositor (the Depositor), and pursuant to the Mortgage Loan
Purchase Agreement, dated as of September 1, 2006 (the Purchase Agreement), among the Sponsor, the
Depositor, U.S. Bank National Association, as Custodian (the Custodian) and Deutsche Bank National
Trust Company, as Trustee (the Trustee), the Sponsor and the Depositor agree to the sale by the Sponsor
and the purchase by the Depositor of the subsequent Mortgage Loans listed on the attached Mortgage Loan
Schedule (the Subsequent Mortgage Loans) and the related MI Policies.
Capitalized terms used and not defined herein have their respective meanings as set forth in the
definitions contained in the Pooling and Servicing Agreement, dated as of September 1, 2006 (the Pooling
and Servicing Agreement), between the Trustee, the Custodian, the Depositor and the Sponsor/Servicer
which definitions 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 Sponsor does hereby sell, transfer, assign, set over and convey to the Depositor,
without recourse, all of its right, title and interest in and to the Subsequent Mortgage Loans and the related
MI Policies, all scheduled payments of principal and interest on the Subsequent Mortgage Loans due after
the Subsequent Cut-off Date, and all other payments of principal and interest on the Subsequent Mortgage
Loans collected after the Subsequent Cut-off Date (minus that portion of any such payment which is
allocable to the period prior to the Subsequent Cut-off Date); provided, however, that no scheduled
payments of principal and interest due on or before the Subsequent Cut-off Date and collected after the
Subsequent Cut-off Date shall belong to the Depositor pursuant to the terms of this Sponsors Instrument.
The Sponsor, contemporaneously with the delivery of this Sponsors Instrument, has delivered or caused to
be delivered to the Custodian, at the direction of the Depositor, each item set forth in Section 2.02(b) of the
Purchase Agreement with respect to such Subsequent Mortgage Loans and the related MI Policies. The
transfer to the Depositor by the Sponsor of the Subsequent Mortgage Loans identified on the attached
Mortgage Loan Schedule shall be absolute and is intended by the Sponsor, the Depositor, the Custodian,
the Trustee and the Certificateholders to constitute and to be treated as a sale by the Sponsor.
The parties hereto intend that the transactions set forth herein constitute a sale by the Sponsor
to the Depositor on the Subsequent Transfer Date of all the Sponsors right, title and interest in and to the
Subsequent Mortgage Loans and the related MI Policies, 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 Sponsor hereby
grants to the Depositor as of the Subsequent Transfer Date a security interest in all of the Sponsors right,
title and interest in, to and under the Subsequent Mortgage Loans, and such other property, to secure all of
the Sponsors obligations

EX 2(A)-1

hereunder, and this Purchase Agreement shall constitute a security agreement under applicable law, and in
such event, the parties hereto acknowledge that the Custodian, in addition to holding the Subsequent
Mortgage Loans and the related MI Policies on behalf of the Trustee for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee and agent
of the Depositor. The Sponsor 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 Maryland (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 Sponsor or the filing of any additional UCC-1 financing statements due
to the change in the state of incorporation of the Sponsor as are necessary to perfect and protect the
interests of the Depositor and its assignees in each Subsequent Mortgage Loan, the related MI Policies and
the proceeds thereof.
(b) The expenses and costs relating to the delivery of the Subsequent Mortgage Loans, this
Sponsors Instrument and such other items required under the Mortgage Loan Purchase Agreement shall be
borne by the Sponsor.
(c) Additional terms of the sale are set forth on Attachment A hereto.
Section 2. Representations and Warranties; Conditions Precedent.
(a) The Sponsor hereby affirms the representations and warranties set forth in Section 3.01 of
the Purchase Agreement that relate to the Sponsor and the Subsequent Mortgage Loans as of the date
hereof. The Sponsor hereby confirms that each of the conditions set forth in Section 2.02(b) of the 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 Sponsors Instrument and Section 2.02(c) of the
Purchase Agreement.
(b) The Sponsor 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 Sponsors 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 Sponsor prior to the date hereof.
(c) All terms and conditions of the Purchase Agreement are hereby ratified and confirmed;
provided, however, that in the event of any conflict the provisions of this Sponsors Instrument shall
control over the conflicting provisions of the Purchase Agreement.
Section 3. Recordation of the Sponsors Instrument.
To the extent permitted by applicable law, this Sponsors 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 Servicer, but only when accompanied by an Opinion of Counsel to
the effect that such recordation materially and beneficially affects the interests of the Certificateholders or
is necessary for the administration or servicing of the Mortgage Loans.

EX 2(A)-2

Section 4. Governing Law.
This Sponsors 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 Sponsors 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 Sponsors Instrument shall inure to the benefit of and be binding upon the Sponsor and the
Depositor and their respective successors and assigns. The Custodian and the Trustee shall be express third
party beneficiaries hereto.

EX 2(A)-3

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Sponsors
Instrument as of the day and year first written above.

NOVASTAR MORTGAGE, INC.,
as Sponsor

By:

Name:

Title:

CORPORATION,
as Depositor

By:

Name:

Title:

[Signature page to Sponsors Subsequent Transfer Instrument]

EX 2(A)-4

NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2006-5
ATTACHMENT A TO SPONSORS SUBSEQUENT TRANSFER INSTRUMENT
, 200

A. Profile of Subsequent Mortgage Loans:
1. Subsequent Cut-off Date: , 200
2. Subsequent Transfer Date: , 200
3. Aggregate Principal Balance of the Subsequent Mortgage Loans as of the Subsequent Cut-
off Date: $
4. Purchase Price: 100.00%

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

I. Longest stated term to maturity: months
II. Minimum Mortgage Rate: %
III. Maximum Mortgage Rate: %
IV. WAC of all Mortgage Loans: %
V. WAM of all Mortgage Loans: %
VI. Largest Principal Balance: $
VII. Non-owner occupied Mortgaged Properties: %
VIII. California zip code concentration: %
IX. Condominiums: %
X. Single-family: %
XI. Weighted average term since origination: month
XII. Mortgage Loans Covered by MI Policies: %

EX 2(A)-5

EXHIBIT 2(B)
DEPOSITORS SUBSEQUENT TRANSFER INSTRUMENT
Pursuant to this Depositors Subsequent Transfer Instrument (the Depositors Instrument),
dated as of , 200 , between NovaStar Mortgage Funding Corporation, as depositor (the
Depositor) and Deutsche Bank National Trust Company, as trustee (the Trustee), and pursuant to the
Mortgage Loan Purchase Agreement, dated as of September 1, 2006 (the Purchase Agreement), among
NovaStar Mortgage, Inc., as sponsor (the Sponsor), the Depositor, U.S. Bank National Association, as
Custodian (Custodian) and the Trustee, the Depositor and the Trustee agree to the sale by the Depositor
and the purchase by the Trustee of the subsequent Mortgage Loans listed on the attached Mortgage Loan
Schedule (the Subsequent Mortgage Loans) and the related MI Policies, and the pledge of the Subsequent
Mortgage Loans by the Trustee.
Capitalized terms used and not defined herein have their respective meanings as set forth in the
definitions contained in the Pooling and Servicing Agreement, dated as of September 1, 2006 (the Pooling
and Servicing Agreement), between the Custodian, the Trustee, the Depositor and the Servicer which
definitions 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 Depositor does hereby sell, transfer, assign, set over and convey to the Trustee, without
recourse, (i) all of its right, title and interest in and to the Subsequent Mortgage Loans and the related MI
Policies, all scheduled payments of principal and interest on the Subsequent Mortgage Loans due after the
Subsequent Cut-off Date, and all other payments of principal and interest on the Subsequent Mortgage
Loans collected after the Subsequent Cut-off Date (minus that portion of any such payment which is
allocable to the period prior to the Subsequent Cut-off Date); provided, however, that no scheduled
payments of principal and interest due on or before the Subsequent Cut-off Date and collected after the
Subsequent Cut-off Date shall belong to the Trustee pursuant to the terms of this Depositors Instrument
and (ii) all of its right, title and interest in and to the Sponsors Subsequent Transfer Instrument, dated as of
, 200 (the Sponsors Instrument), between the Sponsor and the Depositor. The
Depositor, contemporaneously with the delivery of this Depositors Instrument, has delivered or caused to
be delivered to the Custodian each item set forth in Section 2.02(b) of the Purchase Agreement with respect
to such Subsequent Mortgage Loans. The transfer to the Trustee by the Depositor of the Subsequent
Mortgage Loans identified on the attached Mortgage Loan Schedule and the related MI Policies shall be
absolute and is intended by the Depositor, the Trustee, the Custodian and the Certificateholders to
constitute and to be treated as a sale by the Depositor.
The parties hereto intend that the transactions set forth herein constitute a sale by the Depositor
to the Trustee on the Subsequent Transfer Date of all the Depositors right, title and interest in and to the
Subsequent Mortgage Loans and the related MI Policies, 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 Depositor hereby
grants to the Trustee as of the Subsequent Transfer Date a security interest in all of the Depositors right,
title and interest in, to and under

the Subsequent Mortgage Loans, and such other property, to secure all of the Depositors obligations
hereunder, and this Depositors Instrument shall constitute a security agreement under applicable law, and
in such event, the parties hereto acknowledge that the Custodian on behalf of the Trustee, in addition to
holding the Subsequent Mortgage Loans and the related MI Policies for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI Policies as designee and agent
of the Trustee. The Depositor 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 (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 Depositor or the filing of any additional UCC-1 financing statements due
to the change in the state of incorporation of the Depositor as are necessary to perfect and protect the
interests of the Trustee and its assignees in each Subsequent Mortgage Loan, the related MI Policies and
(b) The expenses and costs relating to the delivery of the Subsequent Mortgage Loans, this
Depositors Instrument and such other items required under the Purchase Agreement shall be borne by the
Depositor.
Section 2. Representations and Warranties; Conditions Precedent.
(a) The Depositor hereby affirms the representations and warranties set forth in Section 3.02 of
the Purchase Agreement that relate to the Depositor as of the date hereof. The Depositor hereby confirms
that each condition precedent and Subsequent Mortgage Loan requirement set forth in Section 2.02(b) and
2.02(c) of the Purchase Agreement and in this Depositor Instrument are satisfied as of the date hereof.
(b) The Depositor 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 Depositors 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 Depositor prior to the date hereof.
(c) All terms and conditions of the Purchase Agreement are hereby ratified and confirmed by
the Depositor; provided, however, that in the event of any conflict the provisions of this Depositors
Instrument shall control over the conflicting provisions of the Mortgage Loan Purchase Agreement.
Section 3. Recordation of Instrument.
To the extent permitted by applicable law, this Depositors 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 Servicer, but only when accompanied by an Opinion of Counsel to
the effect that such recordation materially and beneficially affects the interests of the Certificateholders or
is necessary for the administration or servicing of the Mortgage Loans.

Section 4. Governing Law.
This Depositors 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 Depositors 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 Depositors instrument shall inure to the benefit of and be binding upon the Depositor, the
Custodian and the Trustee and their respective successors and assigns.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Depositors
Instrument as of the day and year first written above.

CORPORATION,
as Depositor

By:

Name:

Title:

DEUTSCHE BANK NATIONAL TRUST
COMPANY, not in its individual capacity
but
solely as Trustee

By:

Name:

Title:

By:

Name:

Title:

U.S. BANK NATIONAL
ASSOCIATION,
as Custodian

By:

Name:

Title:

[Signature page to Depositors Subsequent Transfer Instrument 1 of 2]

Agreed to and Acknowledged by:

as Sponsor

By:

[Signature page to Depositors Subsequent Transfer Instrument 2 of 2]

NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2006-3
ATTACHMENT A TO DEPOSITORS SUBSEQUENT TRANSFER INSTRUMENT
, 200

A. Profile of Subsequent Mortgage Loans:
1. Subsequent Cut-off Date: , 200
2. Subsequent Transfer Date: , 200
3. Aggregate Principal Balance of the Subsequent Mortgage Loans as of the Subsequent Cut-
off Date: $
4. Purchase Price: 100.00%

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

I. Longest stated term to maturity: months
II. Minimum Mortgage Rate: %
III. Maximum Mortgage Rate: %
IV. WAC of all Mortgage Loans: %
V. WAM of all Mortgage Loans: %
VI. Largest Principal Balance: $
VII. Non-owner occupied Mortgaged Properties: %
VIII. California zip code concentration: %
IX. Condominiums: %
X. Single-family: %
XI. Weighted average term since origination: month
XII. Mortgage Loans Covered by MI Policies: %

Exhibit 4.1

NOVASTAR MORTGAGE FUNDING CORPORATION,
as Depositor
as Servicer and as Sponsor
as Custodian
and
as Trustee
POOLING AND SERVICING AGREEMENT


TABLE OF CONTENTS

ARTICLE I DEFINITIONS 1

Section 1.01 Defined Terms. 1
Section 1.02 Accounting. 1
Section 1.03 Allocation of Certain Interest Shortfalls. 2
Section 1.04 Calculation of Interest on Certificates. 2

ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF
CERTIFICATES 2

Section 2.01

Establishment of the Issuing Entity; Conveyance of Mortgage Loans and Other Trust
Assets. 2
Section 2.02 Acceptance of Mortgage Loans by Custodian, on behalf of the Trustee. 5
Section 2.03 Repurchase or Substitution of Mortgage Loans by the Sponsor. 7
Section 2.04 Acknowledgement of Trustee. 9
Section 2.05 Representations, Warranties and Covenants of the Servicer. 9
Section 2.06 Representations and Warranties of the Depositor. 11
Section 2.07 Issuance of Certificates. 11
Section 2.08 Conveyance of the Subsequent Mortgage Loans. 12
Section 2.09 Designation Under REMIC Provisions. 12

ARTICLE III ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS 12

Section 3.01 Servicer to Assure Servicing. 12
Section 3.02 Subservicing Agreements Between Servicer and Subservicers. 13
Section 3.03 Successor Subservicers. 14
Section 3.04 Liability of the Servicer. 15
Section 3.05 Assumption or Termination of Subservicing Agreements by the Trustee. 15
Section 3.06 Collection of Mortgage Loan Payments. 16
Section 3.07 Withdrawals from the Collection Account. 18
Section 3.08 Collection of Taxes, Assessments and Similar Items; Servicing Accounts. 20
Section 3.09 Access to Certain Documentation and Information Regarding the Mortgage Loans. 21
Section 3.10 [Reserved]. 21
Section 3.11 Maintenance of Hazard Insurance and Fidelity Coverage. 21
Section 3.12 Due-on-Sale Clauses; Assumption Agreements. 23
Section 3.13 Realization Upon Defaulted Mortgage Loans. 23
Section 3.14 Custodian to Cooperate; Release of Mortgage Files. 25
Section 3.15 Servicing Compensation. 26
Section 3.16 Annual Statements of Compliance. 27
Section 3.17 Assessments of Compliance and Attestation Reports. 27
Section 3.18 Reports filed with Securities and Exchange Commission. 28

ii

Section 3.19 Optional Purchase of Defaulted Mortgage Loans. 34
Section 3.20

Information Required by the Internal Revenue Service Generally and Reports of
Foreclosures and Abandonments of Mortgaged Property. 34
Section 3.23 Servicing and Administration of the MI Policies. 34
Section 3.24 Determination Date Reports. 35
Section 3.25 Advances. 36
Section 3.26 Compensating Interest Payments. 37
Section 3.27 Advance Facility. 37
Section 3.28 Servicer Rights Facility. 39

ARTICLE IV FLOW OF FUNDS 40

Section 4.01 Distributions. 40
Section 4.02 Distribution Account. 48
Section 4.03 Statements. 49
Section 4.04 Supplemental Interest Trust; Excess Cashflow; Reallocations. 52
Section 4.05 Pre-Funding Account. 55
Section 4.06 Interest Coverage Account 57
Section 4.07 Allocation of Realized Losses. 58

ARTICLE V THE CERTIFICATES 59

Section 5.01 The Certificates. 59
Section 5.02 Registration of Transfer and Exchange of Certificates. 59
Section 5.03 Mutilated, Destroyed, Lost or Stolen Certificates. 64
Section 5.04 Persons Deemed Owners. 65
Section 5.05 Appointment of Paying Agent. 65

ARTICLE VI THE SERVICER AND THE DEPOSITOR 65

Section 6.01 Liability of the Servicer and the Depositor. 65
Section 6.02

Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or the
Depositor. 65
Section 6.03 Limitation on Liability of the Servicer and Others. 66
Section 6.04 Servicer Not to Resign. 66
Section 6.05 Delegation of Duties. 67
Section 6.06 Servicing Rights Owner to Pay Trustees Fees and Expenses; Indemnification. 67

ARTICLE VII DEFAULT 69

Section 7.01 Servicing Default. 69
Section 7.02 Trustee to Act; Appointment of Successor. 71
Section 7.03 Waiver of Defaults. 72
Section 7.04 Notification to Certificateholders. 72
Section 7.05 Survivability of Servicer Liabilities. 73

iii

ARTICLE VIII THE TRUSTEE 73

Section 8.01 Duties of the Trustee. 73
Section 8.02 Rights of Trustee. 75
Section 8.03 Individual Rights of Trustee. 76
Section 8.04 Trustees Disclaimer. 76
Section 8.05 Notice of Servicing Default. 76
Section 8.07 Compensation. 77
Section 8.08 Replacement of Trustee. 77
Section 8.09 Successor Trustee by Merger. 78
Section 8.10 Appointment of Co-Trustee or Separate Trustee. 78
Section 8.11 Eligibility; Disqualification. 79
Section 8.13 Representations and Warranties. 79
Section 8.14 Directions to Trustee. 80
Section 8.15 The Agents. 80
Section 8.16 Issuing Entity Fiscal Year. 80
Section 8.17 Execution of the Novation Agreements and Hedge Agreements. 80

ARTICLE IX [RESERVED] 81

ARTICLE X REMIC ADMINISTRATION 81

Section 10.01 REMIC Administration. 81
Section 10.02 Prohibited Transactions and Activities. 84

ARTICLE XI TERMINATION 84

Section 11.01 Termination. 84
Section 11.02 Additional Termination Requirements. 86

ARTICLE XII MISCELLANEOUS PROVISIONS 87

Section 12.01 Amendment. 87
Section 12.02 Recordation of Agreement; Counterparts. 88
Section 12.03 Limitation on Rights of Certificateholders. 89
Section 12.04 Compliance with Regulation AB. 90
Section 12.05 Governing Law; Jurisdiction. 90
Section 12.06 Notices. 90
Section 12.07 Severability of Provisions. 93
Section 12.08 Article and Section References. 93
Section 12.09 Further Assurances. 93
Section 12.10 Benefits of Agreement. 93
Section 12.11 Acts of Certificateholders. 93
Section 12.12 Confidentiality. 94

APPENDIX A

APPENDIX B

iv

EXHIBITS:

Exhibit A-1 Form of Class A-1A Certificates
Exhibit A-2 Form of Class A-2A Certificates
Exhibit A-3 Form of Class A-2B Certificates
Exhibit A-4 Form of Class A-2C Certificates
Exhibit A-5 Form of Class A-2D Certificates
Exhibit A-6 Form of Class M-1 Certificates
Exhibit A-18 Form of Class I-1 Certificates
Exhibit A-19 Form of Class I-2 Certificates
Exhibit A-20 Form of Class CA Certificates
Exhibit A-21 Form of Class CB Certificates
Exhibit A-22 Form of Class R Certificates
Exhibit A-23 Form of Class M-10 DSI Certificates
Exhibit A-26 Form of Class M-10N Certificates
Exhibit B Mortgage Loan Schedule
Exhibit C Forms of Addition Notice
Exhibit D Form of Subsequent Transfer Instruments
Exhibit E Request for Release
Exhibit F-1 Form of Custodians Initial Certification
Exhibit F-2 Form of Custodians Final Certification
Exhibit G Form of Investment Letter
Exhibit H Form of Residual Certificate Transfer Affidavit
Exhibit I Form of Transferors Certificate
Exhibit J Form of Designation Under REMIC Provisions
Exhibit K Form of Advance Facility Notice
Exhibit L Servicing Criteria to be Addressed in Assessment of Compliance
Exhibit M Form 10-D, Form 8-K and Form 10-K Reporting Responsibility
Exhibit N-1 Form of Certification to Be Provided by the Depositor with Form 10-K
Exhibit N-2 Form of Certification to Be Provided to the Depositor by the Trustee

v

Exhibit O Form of Officers Certificate Regarding Annual Statement of Compliance
Exhibit P Form of Trustee Limited Power of Attorney
Exhibit Q Form of Reallocation Notice

vi

This Pooling and Servicing Agreement is dated as of September 1, 2006 (the Agreement),
among NOVASTAR MORTGAGE FUNDING CORPORATION, as depositor (the Depositor),
NOVASTAR MORTGAGE, INC., as servicer (the Servicer) and as sponsor (the Sponsor), U.S.
BANK NATIONAL ASSOCIATION, as custodian (the Custodian) and DEUTSCHE BANK
NATIONAL TRUST COMPANY, as trustee (the Trustee).
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms.
Whenever used in this Agreement, except as otherwise expressly provided herein or unless the
context otherwise requires, capitalized terms and phrases used herein shall have the meanings assigned to
such terms and phrases in the definitions attached hereto as Appendix A, which is incorporated herein by
reference. Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) 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;
(c) or is not exclusive;
(d) including means including without limitation;
(e) words in the singular include the plural and words in the plural include the singular;
(f) 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; and
(g) references to a Person are also to such Persons permitted successors and assigns.
Section 1.02 Accounting.
Unless otherwise specified herein, for the purpose of any definition or calculation, whenever
amounts are required to be netted, subtracted or added or any distributions are taken into account such
definition or calculation and any related definitions or calculations shall be determined without duplication
of such functions.

1

Section 1.03 Allocation of Certain Interest Shortfalls.
For purposes of calculating the amount of the Monthly Interest Distributable Amount for the
Class A Certificates and the Mezzanine Certificates, for any Distribution Date, (1) the aggregate amount of
any Net Prepayment Interest Shortfalls and any Relief Act Shortfalls incurred in respect of the Mortgage
Loans for any Distribution Date shall be allocated first to the Excess Cashflow, and second, on a pro-rata
basis based on, and to the extent of, the gross Monthly Interest Distributable Amount for each such Class,
among the Class A Certificates and the Mezzanine Certificates and (2) the aggregate amount of any
Available Funds Cap Carryforward Amounts incurred for any Distribution Date shall be allocated to the
Class CA and Class CB Certificates to the extent of the gross Monthly Interest Distributable Amount for
that Class, after deduction of any Net Prepayment Interest Shortfalls and any Relief Act Shortfalls.
All Net Prepayment Interest Shortfalls and Relief Act Shortfalls shall be allocated on each
Distribution Date among the Classes of each of REMIC I, REMIC II, REMIC III, REMIC IV and REMIC
V in the proportion that Net Prepayment Interest Shortfalls and Relief Act Shortfalls are allocated to the
related Master REMIC Regular Interests.
Section 1.04 Calculation of Interest on Certificates.
Unless otherwise specified, all calculations in respect of interest on the Class A Certificates and
the Mezzanine Certificates shall be made on the basis of the actual number of days elapsed in the related
Accrual Period on the basis of a 360-day year and all other calculations of interest described herein shall be
made on the basis of a 360-day year consisting of twelve 30-day months.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.01 Establishment of the Issuing Entity; Conveyance of Mortgage Loans and Other
Trust Assets.
The parties do hereby create and establish a common law trust, pursuant to the laws of the State
of New York and this Agreement, the Issuing Entity, which, for convenience, shall be known as NovaStar
Mortgage Funding Trust, Series 2006-5.
The Depositor, concurrently with the execution and delivery hereof, does hereby transfer,
assign, set over and otherwise convey in trust to the Trustee without recourse for the benefit of the
Certificateholders all the right, title and interest of the Depositor, including any security interest therein for
the benefit of the Depositor, in and to (i) each Mortgage Loan identified on the Mortgage Loan Schedule,
including the related Cut-off Date Principal Balance, all interest accruing thereon on and after the Cut-off
Date and all collections in respect of interest and principal due after the Cut-off Date; (ii) property which
secured each such Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure; (iii) its interest in any insurance policies in respect of the Mortgage Loans; (iv) its interest in
the MI Policies; (v) the rights of the Depositor under the Purchase Agreement; (vi) its interest in the Hedge
Agreements;

2

(vii) all other assets included or to be included in the Trust Fund; and (viii) all proceeds of any of the
foregoing. Such assignment includes all interest and principal due to the Depositor or the Servicer after the
related Cut-off Date with respect to the Mortgage Loans.
In connection with such transfer and assignment, the Sponsor, on behalf of the Depositor, does
hereby deliver to, and deposit with the Custodian, as the designated agent holding on behalf of the Trustee,
the following documents or instruments with respect to each Initial Mortgage Loan so transferred and
assigned and the Sponsor, on behalf of the Depositor, shall, in accordance with Section 2.08, deliver or
cause to be delivered to the Custodian, as the Trustees designated agent, with respect to each Subsequent
Mortgage Loan, the following documents or instruments (with respect to each Mortgage Loan, a Mortgage
File):
(i) the original Mortgage Note endorsed to Deutsche Bank National Trust Company, as
Trustee for the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5 or in
blank;
(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 Sponsor or the public recording office in which such original Mortgage has
been recorded, and if the Mortgage Loan is registered on the MERS System, such Mortgage
shall include thereon a statement that it is a MOM Loan and shall include the MIN for such
Mortgage Loan;
(iii) unless the Mortgage Loan is registered on the MERS System, an original assignment
(which may be included in one or more blanket assignments if permitted by applicable law) of
the Mortgage endorsed to Deutsche Bank National Trust Company, as Trustee for the
NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5, and otherwise in
recordable form;
(iv) originals of any intervening assignments of the Mortgage showing an unbroken
chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS,
if the Mortgage Loan is registered on the MERS System), and noting the presence of a MIN (if
the Mortgage Loan is registered on the MERS System), 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 Sponsor 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); and
(vi) a true and correct copy of each assumption, modification, consolidation or
substitution agreement, if any, relating to the Mortgage Loan.

3

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 Trustee or the Certificateholders in
such Mortgage Loan, including if any document required to be delivered to the Custodian 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 Sponsor has
submitted such assignment for recording pursuant to the terms of the following paragraph), the Sponsor
shall cure such defect or 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 3.01 of the Purchase Agreement as to the Initial Mortgage Loans and the Subsequent
Mortgage Loans and Section 2.02(c) of the Purchase Agreement as to the Subsequent Mortgage Loans for
breaches of representations and warranties.
Promptly after the Closing Date in the case of an Initial Mortgage Loan or, in the case of a
that is registered on the MERS System, if MERS is identified on the Mortgage, or on a properly recorded
Subsequent Mortgage Loan, promptly after the Subsequent Transfer Date, the Sponsor will deliver or cause
receipt thereof.
In connection with the assignment of any Mortgage Loan registered on the MERS System,
promptly after the Closing Date in the case of an Initial Mortgage Loan or, in the case of a Subsequent
Mortgage Loan (or after the date of transfer of any Eligible Substitute Mortgage Loan), the Sponsor further
agrees that it will cause, at the Sponsors own expense, the MERS System to indicate that such Mortgage
Loan has been assigned by the Sponsor to the Trustee in accordance with this Agreement for the benefit of
the Certificateholders by including (or deleting, in the case of Mortgage Loans which are repurchased in
accordance with this Agreement) in its computer files (a) the applicable Trustee code in the field Trustee
which identifies the Trustee and (b) the code NovaStar 2006-5 (or its equivalent) in the field Pool Field
which identifies the series of the Certificates issued in connection with such Mortgage Loans. The Sponsor
further agrees that it will not, and will not permit the Servicer to, and the Servicer agrees that it will not,
alter the codes referenced in this paragraph with respect to any such Mortgage Loan during the term of this
Agreement unless and until such Mortgage Loan is repurchased in accordance with the terms of this
Agreement.

4

Effective on the Closing Date, the Trustee, on behalf of the Certificateholders, hereby
acknowledges its acceptance of all right, title and interest to the Mortgage Loans and other property,
existing on the Closing Date and thereafter created and conveyed to it pursuant to this Section 2.01.
The Trustee, as assignee or transferee of the Depositor, shall be entitled to all scheduled
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 Mortgage Loans. No scheduled payments of principal due
on or before the Cut-off Date and collected after the Cut-off Date shall belong to the Depositor pursuant to
the terms of the Purchase Agreement. Any late payment charges collected in connection with a Mortgage
Loan shall be paid to the Servicer as provided in Section 3.15(b) hereof.
The parties hereto intend that the transactions set forth herein constitute a sale by the Depositor
to the Issuing Entity on the Closing Date of all the Depositors right, title and interest in and to the
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 Depositor hereby grants to the Trustee, on behalf of the
Certificateholders, as of the Closing Date a security interest in all of the Depositors right, title and interest
in, to and under the Mortgage Loans and such other property, to secure all of the Depositors obligations
hereunder and this Agreement shall constitute a security agreement under applicable law and in such event,
the parties hereto acknowledge that the Custodian, in addition to holding the Mortgage Loans on behalf of
the Trustee for the benefit of the Certificateholders, holds the Mortgage Loans as designee of the Depositor.
The Sponsor 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 in the State of Virginia (which
shall have been submitted for filing as of the Closing Date and each Subsequent Transfer Date, as
applicable), any continuation statements with respect thereto and any amendments thereto required to
reflect a change in the name or corporate structure of the Sponsor or the filing of any additional UCC-1
financing statements due to the change in the state of incorporation of the Sponsor, as are necessary to
perfect and protect the interests of the Issuing Entity and its assignees in each Initial Mortgage Loan and
the proceeds thereof and the interests of the Trust and its assignees in each Subsequent Mortgage Loan and
Section 2.02 Acceptance of Mortgage Loans by Custodian, on behalf of the Trustee.
(a) The Custodian, on behalf of the 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 2.01 hereof 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 Fund in trust for the use and benefit of all present and future Certificateholders. 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 Custodian, on behalf of the Trustee, thereof
and, with respect to any documents received beyond 45 days after the Closing Date or each Subsequent
Transfer Date, promptly thereafter), the Custodian agrees, on behalf of the Trustee, for the

5

benefit of the Certificateholders, to review each Mortgage File delivered to it and to execute and deliver, or
cause to be executed and delivered, to the Sponsor, the Depositor and the Trustee an initial certification in
the form annexed hereto as Exhibit F-1. In conducting such review, the Custodian will ascertain whether all
required documents described in Section 2.01 hereof 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 B to this Agreement, as
supplemented (provided, however, that with respect to those documents described in subclause (vii) of such
section, the Custodians obligations shall extend only to documents actually delivered pursuant to such
subclause). In performing any such review, the Custodian 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 Custodian 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 B or in the schedule of
Subsequent Mortgage Loans or to appear to be defective on its face, the Custodian, on behalf of the
Trustee, shall promptly notify the Sponsor and the Trustee of such finding and the Sponsors 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 Custodian, on behalf of the Trustee, will
review, for the benefit of the Certificateholders, the Mortgage Files and will execute and deliver or cause to
be executed and delivered to the Sponsor ,the Depositor and the Trustee, a final certification in the form
annexed hereto as Exhibit F-2. In conducting such review, the Custodian, on behalf of the Trustee, will
ascertain whether an original of each document described in subclauses (ii)-(iv) of Section 2.01 hereof
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 Custodian 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 B or in the schedule of Subsequent Mortgage Loans or to appear defective on its face, the
Custodian, on behalf of the Trustee, shall promptly notify the Sponsor and the Trustee of such finding and
the Sponsors obligation to cure such defect or repurchase or substitute for the related Mortgage Loan.
(c) Upon deposit of the Repurchase Price in the Collection Account and notification of the
Trustee, by a certification signed by a Servicing Officer (which certification shall include a statement to the
effect that the Repurchase Price has been deposited in the Collection Account), upon receipt of a Request
for Release the Custodian shall release to the Sponsor the related Mortgage File and the Trustee shall
execute and deliver all instruments of transfer or assignment, without recourse, furnished to it by the
Sponsor as are necessary to vest in the Sponsor 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 Distribution Account was received by the Trustee. The Custodian, on behalf of the
Trustee, shall amend the applicable Mortgage Loan Schedule to reflect such repurchase and shall forward it
to the Trustee. The Trustee shall promptly notify the Servicer and the Rating Agencies of such amendment.

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Section 2.03 Repurchase or Substitution of Mortgage Loans by the Sponsor.
(a) Upon discovery or receipt of written notice of any materially defective document in, or that
a document is missing from, a Mortgage File or of the breach by the Sponsor of any representation,
warranty or covenant under the Purchase Agreement in respect of any Mortgage Loan which materially
adversely affects the value of such Mortgage Loan or the interest therein of the Certificateholders, the party
making such discovery or receiving such notice shall promptly notify the other parties hereto, and the
Sponsor shall thereupon be required to deliver such missing document or cure such defect or breach no
later than 90 days from the date of the discovery or receipt of written notice of such missing document,
defect or breach, and if the Sponsor does not deliver such missing document or cure such defect or breach
in all material respects during such period, the Custodian shall notify the Trustee and the Trustee shall
enforce the Sponsors obligation under the Purchase Agreement and cause the Sponsor to repurchase such
Mortgage Loan from the Trust Fund at the Repurchase Price on or prior to the Determination Date
following the expiration of such 90 day period.
(b) The Repurchase Price for the repurchased Mortgage Loan shall be deposited in the
Collection Account and the Trustee, shall receive written certification from the Servicer of such deposit and
upon receipt of a Request for Release the Custodian shall release to the Sponsor the related Mortgage File
and the Trustee shall execute and deliver such instruments of transfer or assignment, in each case without
recourse, as the Sponsor shall furnish to it and as shall be necessary to vest in the Sponsor any Mortgage
Loan released pursuant hereto and the Trustee and the Custodian shall have no further responsibility with
regard to such Mortgage File (it being understood that neither the Trustee nor the Custodian shall have any
responsibility for determining the sufficiency of such assignment for its intended purpose). In lieu of
repurchasing any such Mortgage Loan as provided above, the Sponsor may cause such Mortgage Loan to
be removed from the Trust Fund (in which case it shall become a Deleted Mortgage Loan) and substitute
one or more Eligible Substitute Mortgage Loans in the manner and subject to the limitations set forth in
Section 2.03(d). It is understood and agreed that the obligation of the Sponsor to cure or to repurchase (or
to substitute for) any Mortgage Loan as to which a document is missing, a material defect in a constituent
document exists or as to which such a breach has occurred and is continuing shall constitute the sole
remedy against the Sponsor respecting such omission, defect or breach available to the Trustee on behalf of
the Certificateholders.
(c) Within 90 days of the earlier of discovery by the Servicer or receipt of notice by the
Servicer of the breach of any representation, warranty or covenant of the Servicer set forth in Section 2.05
which materially and adversely affects the interests of the Certificateholders in any Mortgage Loan, the
Servicer shall cure such breach in all material respects.
(d) Any substitution of Eligible Substitute Mortgage Loans for Deleted Mortgage Loans made
pursuant to Section 2.03(a) must be effected prior to the last Business Day that is within two years after the
Closing Date. As to any Deleted Mortgage Loan for which the Sponsor substitutes an Eligible Substitute
Mortgage Loan or Loans, such substitution shall be effected by the Sponsor delivering to the Custodian, for
such Eligible Substitute Mortgage Loan or Loans, the Mortgage Note, the Mortgage, the Assignment to the
Trustee, and such other

7

documents and agreements, with all necessary endorsements thereon, as are required by Section 2.01,
together with an Officers Certificate providing that each such Eligible Substitute Mortgage Loan satisfies
the definition thereof and specifying the Substitution Adjustment Amount (as described below), if any, in
connection with such substitution. The Custodian shall acknowledge receipt for such Eligible Substitute
Mortgage Loan or Loans and, within ten Business Days thereafter, shall review such documents as
specified in Section 2.02 and deliver to the Servicer and the Trustee, with respect to such Eligible
Substitute Mortgage Loan or Loans, a certification substantially in the form attached hereto as Exhibit F-1,
with any applicable exceptions noted thereon. Within one year of the date of substitution, the Custodian
shall deliver to the Servicer and the Trustee a certification substantially in the form of Exhibit F-2 hereto
with respect to such Eligible Substitute Mortgage Loan or Loans, with any applicable exceptions noted
thereon. Monthly Payments due with respect to Eligible Substitute Mortgage Loans in the month of
substitution are not part of the Trust Fund and will be retained by the Sponsor. For the month of
substitution, distributions to Certificateholders will reflect the collections and recoveries in respect of such
Deleted Mortgage Loan in the Due Period preceding the month of substitution and the Sponsor shall
thereafter be entitled to retain all amounts subsequently received in respect of such Deleted Mortgage Loan.
The Sponsor shall give or cause to be given written notice to the Certificateholders that such substitution
has taken place, shall amend the Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage
Loan from the terms of this Agreement and the substitution of the Eligible Substitute Mortgage Loan or
Loans and shall deliver a copy of such amended Mortgage Loan Schedule to the Custodian and the Trustee.
Upon such substitution by the Sponsor, such Eligible Substitute Mortgage Loan or Loans shall constitute
part of the Mortgage Pool and shall be subject in all respects to the terms of this Agreement and the
Purchase Agreement, including all applicable representations and warranties thereof included in the
Purchase Agreement as of the date of substitution.
For any month in which the Sponsor substitutes one or more Eligible Substitute Mortgage
Loans for one or more Deleted Mortgage Loans, the Servicer will determine the amount (the Substitution
Adjustment Amount), if any, by which the aggregate Repurchase Price of all such Deleted Mortgage
Loans exceeds the aggregate, as to each such Eligible Substitute Mortgage Loan, of the principal balance
thereof as of the date of substitution, together with one months interest on such principal balance at the
applicable Net Mortgage Rate. On the date of such substitution, the Sponsor will deliver or cause to be
delivered to the Servicer for deposit in the Collection Account an amount equal to the Substitution
Adjustment Amount, if any, and the Custodian, upon receipt of the related Eligible Substitute Mortgage
Loan or Loans and certification by the Servicer of such deposit (which shall be delivered to the Trustee and
the Custodian), shall release to the Sponsor the related Mortgage File or Files and the Trustee shall execute
and deliver such instruments of transfer or assignment, in each case without recourse, as the Sponsor shall
deliver to it and as shall be necessary to vest therein any Deleted Mortgage Loan released pursuant hereto.
In addition, the Sponsor shall obtain at its own expense and deliver to the Trustee an Opinion
of Counsel to the effect that such substitution will not cause (a) any federal tax to be imposed on the
Issuing Entity, including without limitation, any federal tax imposed on prohibited transactions under
Section 860F(a)(l) of the Code or on contributions after the startup date under Section 860G(d)(l) of the
Code, or (b) any REMIC created hereunder to fail to qualify as a REMIC at any time that any Certificate is
outstanding. If such Opinion of Counsel can not be delivered, then such substitution may only be effected
at such time as the required Opinion of Counsel can be given.

8

(e) Upon discovery by the Sponsor, the Servicer, the Custodian or the Trustee that any
Mortgage Loan does not constitute a qualified mortgage within the meaning of Section 860G(a)(3) of the
Code, the party discovering such fact shall within two Business Days give written notice thereof to the
other parties. In connection therewith, the Sponsor or the Depositor, as the case may be, shall repurchase
or, subject to the limitations set forth in Section 2.03(d), substitute one or more Eligible Substitute
Mortgage Loans for the affected Mortgage Loan within 90 days of the earlier of discovery or receipt of
such notice with respect to such affected Mortgage Loan. Such repurchase or substitution shall be made by
the Sponsor. Any such repurchase or substitution shall be made in the same manner as set forth in
Section 2.03(a). The Trustee shall reconvey to the Sponsor, the Mortgage Loan to be released pursuant
hereto in the same manner, and on the same terms and conditions, as it would a Mortgage Loan
repurchased for breach of a representation or warranty.
Section 2.04 Acknowledgement of Trustee.
The Trustee acknowledges that in the event that any of (i) the transfer of the Initial Mortgage
Loans and the MI Policies from the Sponsor to the Depositor, or from the Depositor to the Trustee on
behalf of the Certificateholders, is determined to constitute a financing, or (ii) the transfer of the
Subsequent Mortgage Loans from the Sponsor to the Depositor or from the Depositor to the Trustee on
behalf of the Certificateholders, is determined to constitute a financing, then in each case the Custodian, on
behalf of the Trustee, will hold the Initial Mortgage Loans, the MI Policies and the Subsequent Mortgage
Loans as the designee and bailee of the Depositor subject, however, in each case, to a prior lien in favor of
the Certificateholders pursuant to the terms of this Agreement.
Section 2.05 Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents, warrants and covenants to the Trustee, for the benefit of each
of the Trustee and the Certificateholders, and to the Depositor that as of the Closing Date or as of such date
specifically provided herein:
(i) The Servicer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Virginia and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The 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 Servicer or the validity or
enforceability of the Mortgage Loans;
(ii) The Servicer has the corporate power and authority to make, execute, deliver and
perform this Agreement and all of the transactions contemplated under this Agreement, and has
taken all necessary corporate action

9

to authorize the execution, delivery and performance of this Agreement. When executed and
delivered, this Agreement will constitute the legal, valid and binding obligation of the Servicer
enforceable in accordance with its terms, except as enforcement of such terms may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of creditors rights
generally and by the availability of equitable remedies;
(iii) The 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 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 Agreement and the performance of the
transactions contemplated hereby by the Servicer will not violate any provision of any existing
law or regulation or any order or decree of any court applicable to the Servicer or any provision
of the certificate of incorporation or bylaws of the Servicer, or constitute a material breach of
any mortgage, indenture, contract or other agreement to which the Servicer is a party or by
which the Servicer 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 Servicer threatened,
against the Servicer or any of its properties or with respect to this Agreement or the Certificates
which, to the knowledge of the Servicer, has a reasonable likelihood of resulting in a material
adverse effect on the transactions contemplated by this Agreement;
(vi) The Servicer is a member of MERS in good standing, and will comply in all material
respects with the rules and procedures of MERS in connection with the servicing of the
Mortgage Loans that are registered with MERS; and
(vii) With respect to the Group I Mortgage Loans, the Servicer will accurately and fully
report its borrower credit files to the three largest credit repositories in a timely manner.
The foregoing representations and warranties shall survive any termination of the Servicer
hereunder.

10

Section 2.06 Representations and Warranties of the Depositor.
The Depositor represents and warrants to the Issuing Entity and the Trustee on behalf of the
Certificateholders as follows:
(a) The Depositor 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 Depositor 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 Depositor and the ability of the Depositor to perform hereunder.
(c) The Depositor has the power and authority to execute and deliver this Agreement and to
carry out its terms; the Depositor has full power and authority to purchase the property to be purchased
from the Sponsor and the Depositor 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 Depositor
by all necessary corporate action. When executed and delivered, this Agreement will constitute the legal,
valid and binding obligation of the Depositor enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors rights generally and by the availability of equitable remedies.
(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 Depositor, or any indenture, agreement or other instrument to which the Depositor 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 Depositors knowledge, any order, rule or regulation
applicable to the Depositor of any court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Depositor or its properties.
Section 2.07 Issuance of Certificates.
The Trustee acknowledges the assignment to the Trustee of the Mortgage Loans and the
delivery to the Custodian, on behalf of the Trustee of the Mortgage Files, subject to the provisions of
Sections 2.01 and 2.02, together with the assignment to it of all other assets included in the Trust Fund,
receipt of which is hereby acknowledged. Concurrently with such assignment and delivery and in exchange
therefor, the Trustee, pursuant to the written request of the Depositor executed by an officer of the
Depositor, has executed, and authenticated and delivered to or upon the order of the Depositor, the
Certificates in authorized denominations. The interests evidenced by the Certificates, constitute the entire
beneficial ownership interest in the Trust Fund.

11

The Trustee shall distribute funds from the Pre-Funding Account for the purchase of the
Subsequent Mortgage Loans upon the satisfaction of the conditions set forth in Section 2.02 of the Purchase
Agreement. The Sponsor shall deliver a Mortgage File (as described in Section 2.01) with respect to such
Subsequent Mortgage Loans.
Section 2.09 Designation Under REMIC Provisions.
The Trustee shall comply with the provisions set forth in Exhibit J.
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
Section 3.01 Servicer to Assure Servicing.
(a) The 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 all applicable
requirements of the Servicing Criteria, with this Agreement and with its normal servicing practices, 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 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. Subject to Section 3.06(b), the authority of the Servicer, in its
capacity as 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) approve any recommendation by 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. The authority of the Servicer shall include, in addition, the
power on behalf of the Certificateholders, the Trustee, 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 Mortgages (in the manner provided in this
Agreement) and (iii) collect any Insurance Proceeds and Liquidation Proceeds. Without limiting the
generality of the foregoing, the Servicer and any Subservicer acting on its behalf may, and is hereby
authorized, and empowered by the Trustee when the 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 Certificateholders, the Trustee, 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 Servicer may
exercise this power in its own name or in the name of a Subservicer.

12

The 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 Servicer (and of any successor to the Servicer as servicer under this
Agreement) to the Issuing Entity and the Trustee under this Agreement is intended by the parties to be that
of an independent contractor and not that of a joint venturer, partner or agent.
(b) Notwithstanding the provisions of Subsection 3.01(a), the Servicer shall not take any action
inconsistent with the interests of the Trustee, or the Certificateholders or with the rights and interests of the
Trustee, or the Certificateholders under this Agreement.
(c) The Trustee shall furnish the Servicer with any powers of attorney in the form of Exhibit P
and other documents in form as provided to it necessary or appropriate to enable the Servicer to service and
administer the related Mortgage Loans and REO Property and the Trustee shall not be liable for the actions
of or the use or misuse by the Servicer or any Subservicers under such powers of attorney.
(d) The Servicer further is authorized and empowered by the Trustee, on behalf of the
Certificateholders and the Trustee, when the Servicer believes it is appropriate in its best judgment to
register any Mortgage Loan on the MERS System, or cause the removal from the registration of any
Mortgage Loan on the MERS System, to execute and deliver, on behalf of the Trustee and the
Certificateholders or any of them, any and all instruments of assignment and other comparable instruments
with respect to such assignment or re-recording of a Mortgage in the name of MERS, solely as nominee for
the Trustee and its successors and assigns. Any expenses incurred in connection with the actions described
in the preceding sentence shall be borne by the Servicer with no right of reimbursement; provided, that if,
as a result of MERS discontinuing or becoming unable to continue operations in connection with the
MERS System, it becomes necessary to remove any Mortgage Loan from registration on the MERS System
and to arrange for the assignment of the related Mortgages to the Trustee, then any related expenses shall
be reimbursable to the Servicer by the Issuing Entity.
Section 3.02 Subservicing Agreements Between Servicer and Subservicers.
(a) The 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
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 Servicer shall include the provision that such
Agreement may be immediately terminated (i) (x) with cause and without any termination fee by

13

the Servicer hereunder and/or (y) without cause, in which case the Servicer shall be solely responsible for
any termination fee or penalty resulting therefrom and (ii) at the option of the Trustee upon the termination
or resignation of the Servicer hereunder, in which case the 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 Agreement. The 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 Servicer to a Subservicer of additional duties regarding the administration of the
Mortgage Loans; provided, however, that any such amendments or different forms shall be consistent with
and not violate the provisions of this Agreement, and that no such amendment or different form shall be
made or entered into which could be reasonably expected to be materially adverse to the interests of the
Certificateholders, without the consent of the Certificateholders holding at least 51% of the aggregate
Voting Rights.
(b) As part of its servicing activities hereunder, the Servicer, for the benefit of the Trustee, and
the Certificateholders, 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 Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The 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.
(c) The Servicer shall not permit a Subservicer, subcontractor or Servicing Function Participant
to perform any servicing function hereunder with respect to the Mortgage Loans unless such Servicing
Function Participant first agrees in writing with the Servicer to deliver an Assessment of Compliance and
an Attestation Report in such manner and at such time that permits the Servicer to comply with
Section 3.17 hereof.
Section 3.03 Successor Subservicers.
The 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 Agreement; provided, however, that upon termination, the Servicer shall either act as servicer
of the related Mortgage Loans or enter into an appropriate contract with a successor Subservicer reasonably
acceptable to the Depositor (and with written notice to the Trustee), 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 Loans.

14

Section 3.04 Liability of the Servicer.
(a) Notwithstanding any Subservicing Agreement, any of the provisions of this Agreement
relating to agreements or arrangements between the Servicer and a Subservicer or reference to actions taken
through a Subservicer or otherwise, the Servicer shall under all circumstances remain obligated and
primarily liable to the Trustee and the Certificateholders for the servicing and administering of the
Mortgage Loans and any REO Property in accordance with this Agreement. The obligations and liability of
the Servicer shall not be diminished by virtue of Subservicing Agreements or by virtue of indemnification
of the Servicer by any Subservicer, or any other Person. The obligations and liability of the Servicer shall
remain of the same nature and under the same terms and conditions as if the Servicer alone were servicing
and administering the related Mortgage Loans. The Servicer shall, however, be entitled to enter into
indemnification agreements with any Subservicer or other Person and nothing in this Agreement shall be
deemed to limit or modify such indemnification. For the purposes of this Agreement, the Servicer shall be
deemed to have received any payment on a Mortgage Loan on the date the Subservicer received such
payment.
(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 Servicer alone, and the Custodian, the Trustee and the
Certificateholders 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 Section 3.05.
Section 3.05 Assumption or Termination of Subservicing Agreements by the Trustee.
(a) If the Trustee or its designee as the successor Servicer, shall assume the servicing
obligations of the Servicer in accordance with Section 7.02 below, the Trustee or its designee as the
successor Servicer, to the extent necessary to carry out the provisions of Section 7.02 with respect to the
Mortgage Loans, shall succeed to all of the rights and obligations of the Servicer under each of the
Subservicing Agreements. In such event, the Trustee or its designee as the successor Servicer shall be
deemed to have assumed all of the Servicers rights and obligations therein and to have replaced the
Servicer as a party to such Subservicing Agreements to the same extent as if such Subservicing Agreements
had been assigned to the Trustee or its designee as a successor Servicer, except that the Trustee or its
designee as a successor Servicer shall not be deemed to have assumed any obligations or liabilities of the
Servicer arising prior to such assumption or as a result of the Trustees or its designees terminating any
Subservicer upon the Trustee or its designee becoming successor Servicer and the Servicer shall not
thereby be relieved of any liability or obligations under such Subservicing Agreements arising prior to such
assumption or as a result of the Trustees or its designees terminating any Subservicer upon the Trustee or
its designee becoming successor Servicer.
(b) The Trustee or its designee as the successor Servicer may terminate any Subservicer upon
becoming successor Servicer. Any termination fees will be paid by the terminated Subservicer.

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(c) In the event that the Trustee or its designee as successor Servicer assumes the servicing
obligations of the Servicer under Section 7.02, upon the request of the Trustee or such designee as
successor Servicer, the Servicer shall at its own expense deliver to the Trustee, or at the Trustees 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 Trustee, or at its written request to such
designee, as successor Servicer.
Section 3.06 Collection of Mortgage Loan Payments.
(a) The Servicer will coordinate and monitor remittances by Subservicers to it with respect to
the Mortgage Loans in accordance with this Agreement.
(b) The 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 Agreement. Consistent with the foregoing, the Servicer or the
related Subservicer may in its discretion (i) waive or permit to be waived any late payment charge,
prepayment charge, assumption fee, or any penalty interest in connection with the prepayment of a
Mortgage Loan 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 Servicer or the related Subservicer may permit the
foregoing only if it believes, in good faith, that recoveries of Monthly Payments will be maximized;
provided further, however, with respect to Mortgage Loans insured by an MI Policy, that the Servicer may
not without the prior written consent of the MI Insurer permit any waiver, modification or variance which
would (a) reduce or eliminate the coverage provided under the MI Policy (b) change the loan rate,
(c) forgive any payment of principal or interest, (d) lessen the lien priority or (e) extend the final maturity
date of a Mortgage Loan past 12 months after the original maturity date on such Mortgage Loan. In the
event the Servicer or related Subservicer shall consent to the deferment of the due dates for payments due
on a Mortgage Note, the 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
Servicer or the related Subservicer to make an Advance shall apply only to the extent that the Servicer
believes, in good faith, that such advances are not Nonrecoverable Advances. The Servicer shall pay the
amount of any waived prepayment charge at the time of payoff if such prepayment charge was waived for a
reason other than that specified in this Section 3.06(b).
(c) Within five Business Days after the Servicer has determined that all amounts which it
expects to recover from or on account of a Liquidated Mortgage Loan have been recovered and that no
further Liquidation Proceeds will be received in connection therewith, the Servicer shall provide to the
Trustee a certificate of a Servicing Officer that such Mortgage Loan became a Liquidated Mortgage Loan
as of the date of such determination.

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(d) The Servicer shall establish a segregated account (the Collection Account), which shall
be an Eligible Account, which shall be titled Collection Account, Deutsche Bank National Trust
Company, as Trustee for the registered holders of NovaStar Mortgage Funding Trust 2006-5, Home Equity
Loan Asset-Backed Certificates, Series 2006-5, in which the Servicer shall deposit or cause to be
deposited any amounts representing payments on and any collections in respect of the Mortgage Loans
received by it after the applicable Cut-off Date (other than in respect of the payments referred to in the
following paragraph) 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 or interest on the Mortgage Loans received by the Servicer
directly from Mortgagors or from the respective Subservicer;
(ii) the aggregate Repurchase Price of the Mortgage Loans purchased by the Servicer
pursuant to Section 3.19;
(iii) Net Liquidation Proceeds;
(iv) all proceeds of any Mortgage Loans repurchased by the Sponsor pursuant to the
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
Purchase Agreement;
(v) Insurance Proceeds, other than Net Liquidation Proceeds, and MI Insurance 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 Servicer, including all Foreclosure Profits,
assumption fees, prepayment penalties and any other fees that are required to be deposited in
the Collection Account pursuant to this Agreement;
provided, however, that with respect to each Due Period, the Servicer shall be permitted to retain from
payments actually collected 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 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 Servicer may at any time (prior to being terminated
under this Agreement) withdraw such amount from the Collection Account, any provision herein to the

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contrary notwithstanding. The 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 Trustee, and the Certificateholders, as
their interests may appear.
Funds in the Collection Account may be invested in Eligible Investments with a maturity date
no later than the Business Day immediately preceding the Servicer Remittance Date, but shall not be
commingled with the Servicers own funds or general assets or with funds respecting payments on
mortgage loans or with any other funds not related to the Certificates. All such investments shall be made
in the name of the Trustee for the benefit of the Certificateholders, provided, however, that income earned
on such Eligible Investments shall be for the account of the Servicer. The Servicer shall be obligated to
cover losses on such Eligible Investments.
(e) The Servicer will require each Subservicer to hold all funds constituting collections on the
Mortgage Loans, pending remittance thereof to the Servicer, in one or more accounts in the name of the
Trustee meeting the requirements of an Eligible Account, and such funds shall not be invested. 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 Servicer no later than one Business Day following receipt thereof and the Servicer
shall deposit into the Collection Account any such remittances received from any Subservicer within one
Business Day following receipt by the Servicer.
Section 3.07 Withdrawals from the Collection Account.
(a) The 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 Distribution Account, by the Servicer Remittance Date prior to each
Distribution Date, all collections on the Mortgage Loans required to be distributed from the
Distribution Account on a Distribution Date;
(ii) to the extent deposited to the Collection Account, to reimburse itself or the related
Subservicer for previously unreimbursed 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 expenses were paid, 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);
(iv) to pay to itself or the Sponsor, with respect to any Mortgage Loan or property
acquired in respect thereof that has been purchased by the Sponsor,

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the Servicer or other entity, all amounts received thereon and not required to be distributed to
Certificateholders as of the date on which the related Repurchase Price is determined;
(v) to reimburse the Servicer or any Subservicer for any unreimbursed Advance of its
own funds or any unreimbursed advance of such Subservicers own funds, the right of the
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 Servicer or any Subservicer from Insurance Proceeds or Liquidation
Proceeds relating to a particular Mortgage Loan for amounts expended by the Servicer or such
Subservicer pursuant to Section 3.13: (x) in good faith in connection with the restoration of the
related Mortgaged Property which was damaged by the uninsured cause, (y) in connection with
the liquidation of such Mortgage Loan, or (z) with respect to an MI Claim Payment Advance
made by the Servicer with respect to such Mortgage Loan;
(vii) to reimburse the Servicer or any Subservicer for any unreimbursed Nonrecoverable
Advance previously made, and otherwise not reimbursed pursuant to this Section 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 Servicer for costs associated with the environmental report handling
the presence of any toxic or hazardous substance on a Mortgaged Property as set forth in
Section 3.13(c);
(x) to clear and terminate the Collection Account upon a termination pursuant to
Section 7.08;
(xi) to pay to the Servicer income earned on Eligible Investments in the Collection
Account;
(xii) to pay to the MI Insurer the monthly MI Premiums due under each MI Policy from
payments received (or Advances made) on account of interest due on the related Mortgage
Loan; and
(xiii) to make an Advance with respect to a Mortgage Loan that is Delinquent from funds
held in the Collection Account as contemplated by Section 3.25, provided that the amount
withdrawn for such an Advance is immediately deposited into the Distribution Account.

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Withdrawals made pursuant to clause (xii) shall be made on a first priority basis. In connection with
withdrawals pursuant to clauses (ii), (iii), (iv), (v) and (vi), the Servicers entitlement thereto is limited to
collections or other recoveries on the related Mortgage Loan, and the Servicer shall 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 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 made by such Subservicers.
Section 3.08 Collection of Taxes, Assessments and Similar Items; Servicing Accounts.
(a) The Servicer shall establish and maintain or cause the related Subservicer to establish and
maintain, one or more Servicing Accounts. The 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 Servicer or a
Subservicer (and its successors and assigns) in the name of the Trustee. Such Servicing Accounts shall be
Eligible Accounts and, if permitted by applicable law, invested in Eligible Investments held in trust by the
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, and in no event later than 45 days
after the date of investment; 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
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 Agreement. Amounts received from Mortgagors for deposit into the Servicing Accounts shall be
deposited in the Servicing Accounts by the Servicer within two days of receipt. The Servicer shall advance
from its own funds amounts needed to pay items payable from the Servicing Accounts if the Servicer
reasonably believes that such amounts are recoverable from the related Mortgagor. The Servicer shall
comply with all laws relating to the Servicing Accounts, including laws relating to payment of interest on
the Servicing Accounts. If interest earned by the Servicer on the Servicing Accounts is not sufficient to pay
required interest on the Servicing Accounts, the Servicer shall pay the difference from its own funds. The
Servicing Accounts shall not be the property of the Issuing Entity.

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Section 3.09 Access to Certain Documentation and Information Regarding the Mortgage
Loans.
The Servicer shall provide, and shall cause any Subservicer to provide, to the Trustee, access to
the documentation regarding the related Mortgage Loans and REO Property and to the Certificateholders or
Certificate Owners, the FDIC, and the supervisory agents and examiners of the FDIC (to which the
Custodian and 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 Servicer or the Subservicers that
are designated by these entities (or in the case of the Custodian and the Trustee, during normal business
hours at its designated office); provided, however, that, unless otherwise required by law, the Servicer and
any 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 Trustee shall
coordinate its request for such access so as not to impose an unreasonable burden on, or cause an
unreasonable interruption of, the business of the Servicer or any Subservicer. The Servicer, the
Subservicers, the Trustee and the Custodian 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.
Section 3.10 [Reserved].
Section 3.11 Maintenance of Hazard Insurance and Fidelity Coverage.
(a) The 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. Unless applicable
state law requires a higher deductible, the deductible on such hazard insurance policy may be no more than
$1,500 or 1% of the applicable amount of coverage, whichever is less. In the case of a condominium unit or
a unit in a planned unit development, the required hazard insurance shall take the form of a multi-peril
policy covering the entire condominium project or planned unit development, in an amount equal to at least
100% of the insurable value based on replacement cost. If the Servicer shall obtain and maintain a blanket
policy consistent with its general mortgage servicing activities 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 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 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 servicer of the Mortgage Loans, the Servicer agrees to present, on behalf of itself, the Issuing
Entity, and the Trustee, claims under any such blanket policy.

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(b) Any amounts collected by the 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 Servicers or a Subservicers normal servicing
procedures, the Mortgage Note, the Mortgage or applicable law) shall be deposited in the Collection
Account.
(c) Any cost incurred by a 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 Certificateholders, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs of maintaining individual hazard insurance policies shall be recoverable by the
Servicer or a Subservicer out of related late payments by the Mortgagor or out of Insurance Proceeds or
Liquidation Proceeds or by the 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 Mortgage 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 Servicer shall ensure that, with respect to such Mortgage
Loan or such REO Property, flood insurance is acquired (to the extent available and in accordance with
mortgage servicing industry practice). 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). Unless applicable state law requires a higher deductible, the deductible on such flood insurance
may not exceed $1,500 or 1% of the applicable amount of coverage, whichever is less.
(e) If insurance complying with Subsections 3.11 (a) and (d) has not been maintained and there
shall have been a loss which would have been covered by such insurance had it been maintained, the
Servicer shall pay, or cause the related Subservicer to pay, for any necessary repairs without any right of
reimbursement.
(f) The Servicer shall present, or cause the related Subservicer to present, claims under any
related hazard insurance or flood insurance policy.
(g) The 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 Agreement, a blanket fidelity bond
and an errors and omissions insurance policy covering the Servicers and such Subservicers officers,
employees and other persons acting on its behalf in

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connection with its activities under this Agreement. The amount of coverage shall correspond with the
FNMA/FHMLC levels presently maintained by the Servicer. The Servicer shall promptly notify the Trustee
of any material change in the terms of such bond or policy. The Servicer shall provide annually by
March 31st of each year, to the Trustee a certification stating that such bond and policy are in effect. If any
such bond or policy ceases to be in effect, the Servicer shall, to the extent possible, give the Trustee 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 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
Servicer shall enforce, or shall instruct such Subservicer to enforce, any due-on-sale clause contained in the
related Mortgage to the extent permitted under the terms of the related Mortgage Note and by applicable
law. The Servicer or the related Subservicer may repurchase a Mortgage Loan at the Repurchase Price
when the Servicer requires acceleration of the Mortgage Loan, but only if the Servicer is satisfied, as
evidenced by a certification signed by a Servicing Officer delivered to the Trustee, that such Mortgage
Loan is in default or default is reasonably foreseeable. If the Servicer reasonably believes that such due-on-
sale clause cannot be enforced under applicable law or if the Mortgage Loan does not contain a due-on-sale
clause, the Servicer is authorized, and may authorize any Subservicer, to consent to a conveyance subject to
the lien of the Mortgage, and, with the consent of the MI Insurer, if applicable, 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, 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 Servicer shall notify the Custodian and Trustee, whenever possible, before the
completion of such assumption agreement, and shall forward to the Custodian the original copy of such
assumption agreement, which copy shall be added by the Custodian 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.
(b) Notwithstanding the foregoing paragraph or any other provision of this Agreement, the
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 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 Servicer shall, or shall direct the related Subservicer to, foreclose upon or otherwise
comparably convert the ownership of properties securing any Mortgage Loans

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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 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 Servicer follows the
procedures in Subsection (c) below. In connection with such foreclosure or other conversion, the 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 Certificateholders, 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 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 Certificateholders 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 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 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 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 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 a Mortgage Loan would be properly classified as a Liquidated Mortgage Loan
but for the fact that not all MI Insurance Proceeds claimed under the related MI Policy have been received,
the Servicer may, from its own funds, make an advance (an MI Claim Payment Advance) to the
Collection Account in an amount not to exceed the claimed amount of such MI Insurance Proceeds not yet
received. The Servicer shall not make any MI Claim Payment Advance with respect to a claim under an MI
Policy if an MI Insurer Insolvency Event has occurred and is continuing with respect to the related MI
Insurer. In the event that the MI Claim Payment Advance equals the claimed amount on such MI Policy,
then upon the deposit of such MI Claim Payment Advance into the Collection Account the related
Mortgage Loan shall be considered a Liquidated 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 Trust Fund and held by the Custodian, who
shall hold the same on behalf of Trustee in accordance with the Agreement. 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 Issuing Entity until such time as such property shall be sold.

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(b) The Servicer shall not acquire any real property (or any personal property incident to such
real property) on behalf of the Trust Fund except in connection with a default or reasonably foreseeable
default of a Mortgage Loan. In the event that the Servicer acquires any real property (or personal property
incident to such real property) on behalf of the Trust Fund in connection with a default or imminent default
of a Mortgage Loan, such property shall be disposed of by the Servicer on behalf of the Trust Fund as soon
as reasonably practicable, but in no event later than three years after its acquisition on behalf of the Trust
Fund.
(c) With respect to any Mortgage Loan as to which the 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 Servicer shall promptly notify the Trustee, and shall act in accordance with any such
directions and instructions provided by the Trustee. If the Trustee has not provided directions and
instructions to the Servicer in connection with any such Mortgage Loan within 5 days of a request by the
Servicer for such directions and instructions, then the Servicer shall take such action as it deems to be in the
best economic interest of the Trust Fund (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 Servicer shall not obtain on behalf of the
Trust Fund or the Trustee 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 Trust Fund or the Trustee could 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.
Section 3.14 Custodian to Cooperate; Release of Mortgage Files.
(a) Upon payment in full of any Mortgage Loan, the Servicer will immediately notify the
Custodian and the Trustee by a certification 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 Servicer or
Subservicer, as the case may be, of the Mortgage File. Upon receipt of such certification and Request for
Release, the Custodian, on behalf of the Trustee, shall promptly cause to be released the related Mortgage
File to the Servicer or Subservicer and the Trustee shall execute and deliver to the Servicer, without
recourse, the request for reconveyance, deed of reconveyance or release or satisfaction of mortgage or such
instrument releasing the lien of the Mortgage (furnished by the Servicer), together with the Mortgage Note
with written evidence of cancellation thereon.
(b) From time to time as is appropriate, for the servicing or foreclosure of any Mortgage Loan
or collection under an insurance policy, the Servicer may deliver to the Trustee and the Custodian a
Request for Release signed by a Servicing Officer on behalf of the Servicer in substantially the form
attached as Exhibit E hereto. Upon receipt of the Request for Release, the Custodian, on behalf of the
Trustee, shall deliver the Mortgage File or any document therein to the Servicer or Subservicer, as the case
may be, as bailee for the Trustee.
(c) The Servicer shall cause each Mortgage File or any document therein released pursuant to
Subsection 3.14(b) to be returned to the Custodian when the need therefor

25

no longer exists, and in any event within 21 days of the Servicers receipt thereof, 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 Custodian, the 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 Custodian, on behalf of the 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 Servicer has delivered to the Custodian and the 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 Custodian, on behalf of the Trustee, shall deliver the
Request for Release with respect thereto to the Servicer upon deposit of the related Liquidation Proceeds in
the Collection Account.
(d) Upon receipt of written certification of a Servicing Officer, the Trustee shall execute and
deliver or cause to be executed and delivered to the Servicer any court pleadings, requests for trustees sale
or other documents necessary (i) for the foreclosure or trustees sale with respect to a Mortgaged Property;
(ii) for any legal action brought to obtain judgment against any Mortgagor on the Mortgage Note or
Mortgage; (iii) to obtain a deficiency judgment against the Mortgagor; or (iv) to enforce any other rights or
remedies provided by the Mortgage Note or Mortgage or otherwise available at law or equity. Each such
certification shall include a request that such pleadings or documents be executed by the Trustee and
explain the reasons for which the pleadings or documents are required, and certify that the Trustees
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 Mortgage, except for the termination of
such a lien upon completion of the foreclosure or trustees sale.
Section 3.15 Servicing Compensation.
(a) As compensation for its activities hereunder, the Servicer shall be entitled to receive the
Servicing Fee from full payments of accrued interest on each Mortgage Loan. The Servicer shall be solely
responsible for paying any and all fees with respect to a Subservicer, and the Trustee and the Trust Fund
shall not bear any fees, expenses or other costs directly associated with any Subservicer.
(b) The Servicer may retain additional servicing compensation in the form of late payment
charges, to the extent such charges are collected from the related Mortgagors and investment earnings on
the Collection Account. The Servicer shall be required to pay all expenses it incurs in connection with
servicing activities under this Agreement and shall not be entitled in connection with servicing activities
under this Agreement to reimbursement except as provided in this Agreement. Expenses to be paid by the
Servicer without reimbursement under this Subsection 3.15(b) shall include payment of the expenses of the
accountants retained pursuant to Section 3.17.

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Section 3.16 Annual Statements of Compliance.
Within 75 days after December 31 of each year, beginning in 2007, the Servicer at its own
expense shall deliver to the Trustee, the Depositor and the Rating Agencies, an Officers Certificate of the
Servicer (an Annual Statement of Compliance) stating, as to the signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar year and of performance under this Agreement has
been made under such officers supervision, (ii) to the best of such officers knowledge, based on such
review, the Servicer has fulfilled its obligations under this 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 Servicer to remedy
such default; (iii) a review of the activities of each Subservicer during the Subservicers most recently
ended calendar year and its performance under its Subservicing Agreement has been made under such
officers supervision; and (iv) to the best of the Servicing Officers 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 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 Servicer to the Certificateholders upon request
or by the Trustee at the expense of the Servicer should the Servicer fail to provide such copies. Such
Annual Statement of Compliance shall contain no restrictions or limitations on its use. In the event that the
Servicer has delegated any servicing responsibilities with respect to the Mortgage Loans to a Subservicer or
subcontractor that meets the criteria in Item 1108(a)(2)(i) through (iii) of Regulation AB, the Servicer shall
cause the related Subservicer or subcontractor (as the case may be) to deliver a similar Annual Statement of
Compliance by that Subservicer or subcontractor to the Trustee, the Depositor and the Rating Agencies as
described above as and when required with respect to such servicer. To the extent that the Trustee does not
receive any such similar Annual Statement of Compliance from a Subservicer or subcontractor (as the case
may be), it shall be entitled to assume no such Subservicer or subcontractor has been used by the Servicer.
Section 3.17 Assessments of Compliance and Attestation Reports.
The Servicer shall service and administer the Mortgage Loans in accordance with all applicable
requirements of the Servicing Criteria. Pursuant to Rules 13a-18 and 15d-18 of the Exchange Act and
Item 1122 of Regulation AB, each of the Servicer and the Trustee (each, an Attesting Party) shall deliver
to the Trustee and the Depositor on or before March 15th of each calendar year in which the Issuing Entity
is required to file a Form 10-K beginning in 2007, a report regarding such Attesting Partys assessment of
compliance (an Assessment of Compliance) with the Servicing Criteria during the preceding calendar
year. The Assessment of Compliance, as set forth in Regulation AB, must contain the following:
(a) A statement by such officer of its responsibility for assessing compliance with the Servicing
Criteria applicable to the related Attesting Party;

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(b) A statement by such officer that such Attesting Party used the Servicing Criteria attached as
Exhibit L hereto, and which will also be attached to the Assessment of Compliance, to assess compliance
with the Servicing Criteria applicable to the related Attesting Party;
(c) An assessment by such officer of the related Attesting Partys compliance with the
applicable Servicing Criteria for the period consisting of the preceding calendar year, including disclosure
of any material instance of noncompliance with respect thereto during such period, which assessment shall
be based on the activities such Attesting Party performs with respect to asset-backed securities transactions
taken as a whole involving the Servicer, that are backed by the same asset type as the Mortgage Loans; and
(d) A statement that a registered public accounting firm has issued an attestation report on the
related Attesting Partys Assessment of Compliance for the period consisting of the preceding calendar
year.
Such report at a minimum shall address each of the Servicing Criteria specified on Exhibit L
hereto which are indicated as applicable to the related Attesting Party.
On or before March 15th of each calendar year in which the Issuing Entity is required to file a
Form 10-K beginning in 2007, each Attesting Party specified in this Section shall furnish to the Trustee and
the Depositor a report (an Attestation Report) by a registered public accounting firm that attests to, and
reports on, the Assessment of Compliance made by the Servicer, as required by Rules 13a-18 and 15d-18 of
the Exchange Act and Item 1122(b) of Regulation AB, which Attestation Report must be made in
accordance with standards for attestation reports issued or adopted by the Public Company Accounting
Oversight Board.
The Servicer or the Trustee, as the case may be, shall cause any Subservicer, and each
subcontractor determined by it to be materially participating in the servicing function within the meaning
of Item 1122 of Regulation AB, to deliver to the Trustee and the Depositor an Assessment of Compliance
and Attestation Report as and when provided above along with an indication of what Servicing Criteria are
addressed in such assessment.
Notwithstanding the foregoing, as to any Subservicer or subcontractor, an Assessment of
Compliance is not required to be delivered unless it is required as part of a Form 10-K with respect to the
Issuing Entity.
In addition, the Custodian shall deliver to the Sponsor, the Trustee and the Depositor an
Assessment of Compliance and Attestation Report, as and when provided above, which shall at a minimum
address each of the Servicing Criteria specified on Exhibit L hereto which are indicated as applicable to a
custodian.
Section 3.18 Reports filed with Securities and Exchange Commission.
(a) (i) (A) Within 15 days after each Distribution Date for so long as the Issuing Entity is
subject to the Exchange Act reporting requirements, the Trustee shall, in accordance with industry
standards, file with the Commission via the Electronic Data Gathering and Retrieval System (EDGAR), a
Form 10-D, signed by the Servicer, with a copy of the

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monthly statement to be furnished by the Trustee to the Certificateholders for such Distribution Date;
provided that the Trustee shall have received no later than five (5) calendar days after the related Servicer
Reporting Date, all information required to be provided to the Trustee as described below. Any disclosure
in addition to the monthly statement that is required to be included on Form 10-D (Additional Form 10-D
Disclosure) shall be approved by the Depositor.
Within five (5) calendar days after the related Servicer Reporting Date, (i) the parties set forth in
Exhibit M shall be required to provide, pursuant to section 3.18(a)(iv) below, to the Trustee and the
Depositor, to the extent known, in EDGAR-compatible format at the following email address:
DBSec.Notifications@db.com, (with a copy to the Depositor) or in such other form as otherwise agreed
upon by the Trustee and the Depositor and such party, the form and substance of any Additional Form 10-D
Disclosure, if applicable, and (ii) the Depositor will approve, as to form and substance, or disapprove, as
the case may be, the inclusion of the Additional Form 10-D Disclosure on Form 10-D. The Depositor will
be responsible for any reasonable fees and expenses assessed or incurred by the Trustee in connection with
including any Additional Form 10-D Disclosure on Form 10-D pursuant to this Section.
(B) After preparing the Form 10-D, the Trustee shall forward electronically a draft copy of the Form
10-D to the Depositor and the Servicer for review. No later than two (2) Business Days prior to the 15
th

calendar day after the related Distribution Date, either the Depositor or a senior officer of the Servicer in
charge of the servicing function shall sign the Form 10-D and return an electronic or fax copy of such
signed Form 10-D (with an original executed hard copy to follow by overnight mail) to the Trustee. For
administrative convenience, the Depositor or the Servicer may deliver executed signature pages to the
Trustee to be held by the Trustee in escrow and attached to a Form 10-D only upon such Depositors or
Servicers electronic notification to the Trustee authorizing such attachment. If a Form 10-D cannot be filed
on time or if a previously filed Form 10-D needs to be amended, the Trustee will follow the procedures set
forth in Section 3.18(a)(v). Promptly (but no later than one (1) Business Day) after filing with the
Commission, the Sponsor will make available on its internet website a final executed copy of each Form
10-D. The signing party at the Depositor or the Servicer can be contacted as set forth in Section 12.06. The
parties to this Agreement acknowledge that the performance by the Trustee of its duties under Sections
3.18(a)(i) and (iv) related to the timely preparation and filing of Form 10-D is contingent upon such parties
strictly observing all applicable deadlines in the performance of their duties under such Sections. The
Trustee shall have no liability for any loss, expense, damage, claim arising out of or with respect to any
failure to properly prepare and/or timely file such Form 10-D, where such failure results from the Trustees
inability or failure to receive, on a timely basis, as set forth herein, any information from any other party
hereto needed to prepare, arrange for execution or file such Form 10-D, not resulting from its own
negligence, bad faith or willful misconduct.
(ii) (A) Within four (4) Business Days after the occurrence of an event requiring disclosure on Form
8-K (each such event, a Reportable Event) for so long as the Issuing Entity is subject to the Exchange
Act reporting requirements, the Trustee shall file on behalf of the Issuing Entity any Form 8-K prepared by
the Depositor, as required by the Exchange Act, provided that the Depositor shall file the initial Form 8-K
in connection with the issuance of the Certificates; provided further, that the Trustee shall only be
responsible for filing such Form 8-K

29

if the Trustee has been notified by the Depositor of the necessity therefore and provided with the disclosure
to be included therein. Any disclosure or information related to a Reportable Event or that is otherwise
required to be included on Form 8-K (Form 8-K Disclosure Information) shall be prepared by the
Depositor.
(B) For so long as the Issuing Entity is subject to the Exchange Act reporting requirements, no later
than 12:00 p.m. New York time on the 2nd Business Day after the occurrence of a Reportable Event (i) the
parties set forth in Exhibit M shall be required pursuant to Section 3.18(a)(iv) below to provide to the
Depositor, to the extent known, in EDGAR-compatible format, or in such other form as otherwise agreed
upon by the Depositor and such party, the form and substance of any Form 8-K Disclosure Information, if
applicable, and (ii) the Depositor will approve, as to form and substance, or disapprove, as the case may be,
the inclusion of the Form 8-K Disclosure Information on Form 8-K. The Depositor will be responsible for
any reasonable fees and expenses assessed or incurred by the Trustee in connection with including any
Form 8-K Disclosure Information on Form 8-K pursuant to this Section.
(C) No later than the end of business New York City time on the 3
rd
Business Day after the
Reportable Event, either the Depositor or a senior officer of the Servicer in charge of the servicing function
shall sign the Form 8-K and deliver an electronic or fax copy of such signed Form 8-K in EDGAR-
compatible form (with an original executed hard copy to follow by overnight mail) to the Trustee. If a Form
8-K cannot be filed on time or if a previously filed Form 8-K needs to be amended, the Trustee will follow
the procedures set forth in Section 3.18(a)(v). Promptly (but no later than 1 Business Day) after filing with
the Commission, the Sponsor will, make available on its internet website a final executed copy of each
Form 8-K. The signing party at the Depositor or the Servicer can be contacted as set forth in Section 12.06.
The parties to this Agreement acknowledge that the performance by the Trustee of its duties under this
Section 3.18(a)(ii) related to the timely filing of Form 8-K is contingent upon such parties strictly observing
all applicable deadlines in the performance of their duties under this Section 3.18(a)(ii). The Trustee shall
have no liability for any loss, expense, damage, claim arising out of or with respect to the preparation of the
Form 8-K by the Depositor or for any failure by the Trustee to timely file such Form 8-K, where such
failure results from the Trustees inability or failure to receive, on a timely basis, as set forth herein, any
information from any other party hereto needed to prepare, arrange for execution or file such Form 8-K, not
resulting from its own negligence, bad faith or willful misconduct.
(iii) (A) Within 90 days after the end of each fiscal year of the Issuing Entity or such earlier date as
may be required by the Exchange Act (the 10-K Filing Deadline) (it being understood that the fiscal year
for the Issuing Entity ends on December 31
st
of each year) for so long as the Issuing Entity is subject to the
Exchange Act reporting requirements, commencing in March 2007, the Trustee shall prepare and file on
behalf of the Issuing Entity a Form 10-K, in form and substance as required by the Exchange Act. Each
such Form 10-K shall include the following items, in each case to the extent they have been delivered to the
Trustee within the applicable time frames set forth in this Agreement, (1) an annual compliance statement
of the Servicer and any Subservicer, as described under Section 3.16, the annual reports on assessment of
compliance with Servicing Criteria for the Servicer, each Subservicer and each subcontractor materially
participating in the Servicing Function, each Servicing Function Participant, the

30

Trustee and the Custodian, as described under Section 3.17, (2) the registered public accounting firm
attestation report for the Servicer, each Subservicer and each subcontractor materially participating in the
Servicing Function, each Servicing Function Participant, the Trustee and the Custodian, as described under
Section 3.17, which shall identify any material instance of noncompliance, disclosure identifying such
instance of noncompliance, and (3) a Sarbanes-Oxley Certification as described in this
Section 3.18(a)(iii)(D) below. All such information and data shall be provided to the Trustee in EDGAR-
compatible form and delivered to the email address set forth in Section 12.06. Any disclosure or
information in addition to (1) through (3) above that is required to be included on Form 10-K (Additional
Form 10-K Disclosure) shall be determined and prepared by and approved by the Depositor.
(B) No later than March 5th of each year that the Issuing Entity is subject to the Exchange Act
reporting requirements, commencing in 2007, (1) the parties set forth in Exhibit M shall be required to
provide pursuant to Section 3.18(a)(iv) below to the Trustee and the Depositor, to the extent known, in
EDGAR-compatible format, at the email address set forth in Section 12.06 hereof with respect to the
Trustee, or in such other form as otherwise agreed upon by the Trustee and the Depositor and such party,
the form and substance of any Additional Form 10-K Disclosure, if applicable, and (2) the Depositor will
approve, as to form and substance, or disapprove, as the case may be, the inclusion of the Additional Form
10-K Disclosure on Form 10-K. The Depositor will be responsible for any reasonable fees and expenses
assessed or incurred by the Trustee in connection with including any Additional Form 10-K Disclosure on
Form 10-K pursuant to this Section.
(C) After preparing the Form 10-K, the Trustee shall forward electronically a draft copy of the Form
10-K to the Depositor and the Servicer for review. No later than 12:00 p.m. New York time on the 4th
Business Day prior to the 10-K Filing Deadline, either the Depositor or a senior officer of the Servicer in
charge of the servicing function shall sign the Form 10-K and return an electronic or fax copy of such
signed Form 10-K (with an original executed hard copy to follow by overnight mail) to the Trustee. If a
Form 10-K cannot be filed on time or if a previously filed Form 10-K needs to be amended, the Trustee
will follow the procedures set forth in Section 3.18(a)(v). Promptly (but no later than one (1) Business Day)
after filing with the Commission, the Sponsor will make available on its internet website a final executed
copy of each Form 10-K. The signing party at the Depositor or the Servicer can be contacted as set forth in
Section 12.06. The parties to this Agreement acknowledge that the performance by the Trustee of its duties
under Sections 3.18(a)(iii) and (iv) related to the timely preparation and filing of Form 10-K is contingent
upon such parties strictly observing all applicable deadlines in the performance of their duties under such
Section 3.16 and Section 3.17. The Trustee shall have no liability for any loss, expense, damage, claim
arising out of or with respect to any failure to properly prepare and/or timely file such Form 10-K, where
such failure results from the Trustees inability or failure to receive, on a timely basis, as set forth herein,
any information from any other party hereto needed to prepare, arrange for execution or file such Form 10-
K, not resulting from its own negligence, bad faith or willful misconduct.
(D) Each Form 10-K shall include a certification (the Sarbanes-Oxley Certification), required to be
included therewith pursuant to the Sarbanes-Oxley Act. The Servicer and the Trustee, shall and the Servicer
shall cause any Subservicer or subcontractor engaged by it to, provide to the Person who signs the
Sarbanes-Oxley Certification (the Certifying Person), by

31

March 15 of each year in which the Issuing Entity is subject to the reporting requirements of the Exchange
Act, a certification (each, a Back-Up Certification), in the form attached hereto as Exhibit N-2, upon
which the Certifying Person, the entity for which the Certifying Person acts as an officer, and such entitys
officers, directors and Affiliates (collectively with the Certifying Person, Certification Parties) can
reasonably rely. The senior officer of the Servicer shall serve as the Certifying Person on behalf of the
Issuing Entity. Such officer of the Certifying Person can be contacted as set forth in Section 12.06. In the
event the Trustee is terminated or resigns pursuant to the terms of this Agreement, the Trustee shall provide
a Back-Up Certification to the Certifying Person pursuant to this Section 3.18(a)(iii) with respect to the
period of time it was subject to this Agreement.
(iv) With respect to any Additional Form 10-D Disclosure or Additional From 10-K Disclosure
(collectively, the Additional Disclosure) relating to the Trust Fund, the Trustees obligation to include
such Additional Information in the applicable Exchange Act report is subject to receipt from the entity that
is indicated in Exhibit M as the responsible party for providing that information, if other than the Trustee,
as and when required as described in Section 3.18(a)(i) through (iii) above. Each of the Servicer, Sponsor,
and Depositor hereby agree to notify and provide to the extent known to the Trustee and the Depositor all
Additional Disclosure relating to the Trust Fund, with respect to which such party is indicated in Exhibit M
as the responsible party for providing that information.
(v) With respect to any Form 8-K Disclosure Information (collectively, the 8-K Additional
Disclosure) relating to the Trust Fund, the Depositors obligation to include such 8-K Additional
Information in the applicable Exchange Act report is subject to receipt from the entity that is indicated in
Exhibit M as the responsible party for providing that information, if other than the Depositor, as and when
required as described in Section 3.18(a)(i) through (iii) above. Each of the Trustee, Servicer, Sponsor, and
Depositor hereby agree to notify and provide to the extent known to the Depositor all 8-K Additional
Disclosure relating to the Trust Fund, with respect to which such party is indicated in Exhibit M as the
responsible party for providing that information.
(vi) (A) On or prior to January 30 of the first year in which the Trustee is able to do so under
applicable law, the Trustee shall file a Form 15 relating to the automatic suspension of reporting in respect
of the Issuing Entity under the Exchange Act. The Trustee will promptly notify the Depositor, the Servicer
and the Hedge Counterparties after filing Form 15.
(B) In the event that the Trustee is unable to timely file with the Commission all or any required
portion of any Form 10-D or 10-K required to be filed by this Agreement because required disclosure
information was either not delivered to it or delivered to it after the delivery deadlines set forth in this
Agreement or for any other reason, the Trustee will immediately notify the Depositor and the Servicer. In
the case of Form 10-D and 10-K, the Depositor, Servicer and Trustee will cooperate to prepare and file a
Form 12b-25 and a 10-D/A and 10-K/A as applicable, pursuant to Rule 12b-25 of the Exchange Act. In the
case of Form 8-K, the Depositor will, upon receipt of all required Form 8-K Disclosure Information
provide such Form 8-K Disclosure Information to the Trustee for inclusion on the next Form 10-D. In the
event that any previously filed Form 10-D or 10-K needs to be amended, the Trustee (to the extent of actual
knowledge) will notify the Depositor and the Servicer and such parties will cooperate to prepare

32

any necessary 10-D/A or 10-K/A. Any Form 15, Form 12b-25 or any amendment to Form 8-K, 10-D or 10-
K shall be signed by a senior officer of the Servicer. The Depositor and Servicer acknowledge that the
performance by the Trustee of its duties under this Section 3.18(a)(v) related to the timely preparation and
filing of Form 15, or any amendment to Form 10-D or 10-K, is contingent upon the Servicer and the
Depositor performing their duties under this Section. The Trustee shall have no liability for any loss,
expense, damage, claim arising out of or with respect to any failure to properly prepare and/or timely file
any such Form 15 or any amendments to Forms 10-D or 10-K, where such failure results from the Trustees
inability or failure to receive, on a timely basis, any information from any other party hereto needed to
prepare, arrange for execution or file such Form 15 or any amendments to Forms 8-K, 10-D or 10-K, not
resulting from its own negligence, bad faith or willful misconduct. The Depositor shall be responsible for
preparing and filing any required Form 12b-25 and the Trustee shall have no obligations with respect
thereto.
The Depositor agrees to promptly furnish to the Trustee, from time to time upon request, such further
information, reports and financial statements within its control related to this Agreement, the Mortgage
Loans as is necessary for the preparation and filing of all required reports with the Commission. The
Trustee shall have no responsibility to file any items other than those specified in this Section 3.18;
provided, however, the Trustee will cooperate with the Depositor in connection with any additional filings
with respect to the Issuing Entity as the Depositor deems necessary under the Exchange Act. Copies of all
reports filed by the Trustee under the Exchange Act shall be sent to the Depositor as set forth in
Section 12.06.
(b) In connection with the filing of any 10-K hereunder, the Trustee shall sign a certification (a
Form of Back-Up Certification to Form 10-K Certificate, substantially in the form attached hereto as
Exhibit N-2) for the Depositor regarding certain aspects of the Form 10-K certification signed by the
Depositor, provided, however, that the Trustee shall not be required to undertake an analysis of any
accountants report attached as an exhibit to the Form 10-K.
(c) Notwithstanding anything to the contrary contained in this Agreement, the Servicer shall
indemnify the Depositor and the Trustee and any director, officer, employee or agent of the Depositor or
the Trustee and hold them harmless against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable and necessary legal fees and related costs, judgments, and any other costs, fees and expenses
that any of them may sustain in any way related to any failure by the Servicer or any Subservicer engaged
by the Servicer or any Subcontractor utilized by the Servicer to deliver any information, report, certification
or accountants letter when and as required under this Section, including without limitation any failure by
the Servicer to identify any Subcontractor participating in the servicing function within the meaning of
Item 1122 of Regulation AB. If such indemnification is unavailable or insufficient to hold harmless any
Person entitled to indemnification thereunder, then the Servicer shall contribute to the amount paid or
payable to the Person entitled to indemnification as a result of the losses, claims, damages or liabilities of
such Person in such proportion as is appropriate to reflect the relative fault of such Person on the one hand
and the Servicer, on the other, in connection with the Servicers obligations pursuant to this Section. This
Section shall survive the termination of this Agreement or the earlier resignation or removal of the Servicer.

33

Section 3.19 Optional Purchase of Defaulted Mortgage Loans.
Subject to the limitations set forth in Section 10.02 hereof, the Servicer shall have the right, but
not the obligation, to purchase any Mortgage Loan which becomes 90 days or more delinquent at a
purchase price equal to the Repurchase Price (a) within 29 days after the date the Mortgage Loan becomes
90 days delinquent or (b) on the date the Servicer liquidates the related Mortgaged Property. The procedure
for such purchase shall be the same as for a repurchase made by the Sponsor under the Purchase
Agreement. With respect to any Mortgage Loans being purchased pursuant to this Section 3.19, the
Servicer shall purchase the most delinquent Mortgage Loans before purchasing other less delinquent
Mortgage Loans. The Servicer or the related Subservicer may purchase a Mortgage Loan at the Repurchase
Price when the Servicer requires acceleration of the Mortgage Loan, but only if the Servicer is satisfied, as
evidenced by a certification from a Servicing Officer delivered to the Trustee, that such Mortgage Loan is
in default or default is reasonably foreseeable.
Section 3.20 Information Required by the Internal Revenue Service Generally and Reports of
Foreclosures and Abandonments of Mortgaged Property.
The 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 Servicer or Subservicer shall make reports of
foreclosures and abandonments of any mortgaged property, the Servicer or Subservicer shall file reports
relating to each instance occurring during the previous calendar year in which the 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 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).
Section 3.23 Servicing and Administration of the MI Policies.
(a) The Servicer shall take all such actions on behalf of the Trustee as are necessary to service,
maintain and administer the MI Policies and to perform the Trustees obligations and enforce the Trustees
rights under the MI Policies, which actions shall conform to the standards of an institution prudently
administering MI Policies for its own account. Except as expressly set forth herein, the Servicer shall have
full authority on behalf of the Issuing Entity to do anything it reasonably deems appropriate or desirable in
connection with the servicing, maintenance and administration of the MI Policies. The Servicer shall make
its best reasonable efforts to file all insured claims under the MI Policies and collect from the MI Insurer all
Insurance Proceeds due to the Trustee under the MI Policies. The Servicer shall not take, or permit any
Subservicer to take, any action which would result in non-coverage under any applicable MI Policy of any
loss which, but for the actions of the Servicer or Subservicer, would

34

have been covered thereunder. To the extent coverage is available, the Servicer shall keep or cause to be
kept in full force and effect each such MI Policy for the life of the Mortgage Loan; provided, however, that
if a MI Insurer Insolvency Event has occurred and is continuing, the Servicer may terminate the MI Policy
on any Mortgage Loan that is not then past due. The Servicer shall cooperate with the MI Insurer and shall
use its best efforts to furnish all reasonable aid, evidence and information in the possession of the Servicer
or to which the Servicer has access with respect to any Mortgage Loan.
(b) The Servicer shall deposit into the Collection Account pursuant to Section 3.06(d)(v) hereof
all MI Insurance Proceeds received from the MI Insurer under the terms of the MI Policies. The Servicer
shall withdraw from the Collection Account and pay to the MI Insurer pursuant to Section 3.07(a)(xii)
hereof, the monthly MI Premiums due to the MI Insurer in accordance with the terms of the MI Insurance
Agreements. In the event that the Trustee has actual knowledge that any MI Premiums have in fact not been
paid, the Trustee shall distribute such amounts (in such amounts as specified by the MI Insurer in writing)
to the MI Insurer from the Interest Remittance Amount for the related Mortgage Loans, at the same level of
priority as the Trustee Fee.
(c) Notwithstanding the provisions of Subsection 3.23(a) and (b), the Servicer shall not take
any action in regard to the MI Policies inconsistent with the interests of the Trustee or the
Certificateholders or with the rights and interests of the Trustee or the Certificateholders under this
Agreement; provided, however, that payments of the monthly MI Premiums to the MI Insurer pursuant to
Subsection 3.23(b) above and Section 3.07(a)(xii) hereof shall be deemed not to be inconsistent with such
interests.
(d) The Trustee shall furnish the Servicer with any powers of attorney in the form of Exhibit P
and other documents in form as provided to it necessary or appropriate to enable the Servicer to service and
administer the MI Policies; provided, however, that the Trustee shall not be liable for the actions of, or the
use or misuse by, the Servicer under such powers of attorney.
(e) If at any time during the term of this Agreement, a MI Insurer Insolvency Event has
occurred and is continuing, the Servicer agrees to review, not less often than monthly, the financial
condition of the related MI Insurer with a view towards determining whether recoveries under the MI
Policy are jeopardized for reasons related to the financial condition of the related MI Insurer. In such event,
the Servicer may obtain an additional MI Policy or a replacement MI Policy, the MI Premiums on which
would be paid by the Servicer from the Collection Account pursuant to Section 3.07(a)(xii) hereof.
(f) The Servicer shall comply with all other terms, conditions and obligations set forth in the
MI Policies.
Section 3.24 Determination Date Reports.
On the second Business Day following each Determination Date (the Servicer Reporting
Date), the Servicer shall deliver to the Trustee a report, prepared as of the close of business on the
Determination Date (the Determination Date Report), and shall forward to the

35

Trustee in the form of computer readable electromagnetic tape or disk a copy of such report in a format
acceptable to the Trustee. 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 Servicer and that is required by the Trustee for purposes of making the calculations and providing the
reports referred to in this Agreement, as set forth in written specifications or guidelines issued by the
Trustee from time to time. Such information shall include the aggregate amounts required to be withdrawn
from the Collection Account and deposited into the Distribution Account pursuant to Section 3.07. Such
information shall also include (a) the number of Mortgage Loans that prepaid in the previous month; (b) the
loan balance of each such Mortgage Loan; (c) whether a prepayment penalty was applied to such Mortgage
Loan; and (d) the amount of prepayment penalty with respect to each such Mortgage Loan. The Servicer
agrees to cooperate with the Trustee in providing all information as is reasonably requested by the Trustee
to prepare the reports required under the Agreement.
The determination by the Servicer of such amounts shall, in the absence of obvious error, be
presumptively deemed to be correct for all purposes hereunder and the Trustee shall be fully protected in
relying upon the same without any independent check or verification.
Section 3.25 Advances.
If any Monthly Payment (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 Servicer will deposit in the Collection
Account not later than the Servicer Remittance Date immediately preceding the related Distribution Date
an amount equal to such deficiency net of the related Servicing Fee for such Mortgage Loan, except to the
extent the Servicer determines any such advance to be nonrecoverable from Liquidation Proceeds,
Insurance Proceeds or future payments on such Mortgage Loan. Subject to the foregoing and in the absence
of such a determination, the Servicer shall continue to make such advances through the date that the related
Mortgaged Property has, in the judgment of the Servicer, been completely liquidated.
The Servicer may fund an Advance from its own corporate funds, advances made by any
Subservicer or funds held in the Collection Account for future payment or withdrawal.
Advances made from funds held in the Collection Account may be made by the Servicer from
subsequent collections of principal and interest received on other Mortgage Loans and deposited into the
Collection Account. Advances made from the Collection Account are not limited to subsequent collections
of principal and interest received on the delinquent Mortgage Loan with respect to which an Advance is
made. If on the Servicer Remittance Date prior to any Distribution Date funds in the Collection Account
are less than the amount required to be paid to the Certificateholders on such Distribution Date, then the
Servicer shall deposit its own funds into the Distribution Account in the amount of the lesser of (i) any
unreimbursed Advances previously made by the Servicer with funds held in the Collection Account or
(ii) the shortfall in the Collection Account, provided, however, that in no event shall the Servicer deposit
into the Collection Account an amount that is less than any shortfall in the Collection Account attributable
to delinquent payments on Mortgage Loans which the Servicer deems to be recoverable and which has not
been covered by an Advance from the Servicers own corporate

36

funds or any Subservicers funds. If applicable, on the Servicer Remittance Date preceding each
Distribution Date, the Servicer shall present an Officers Certificate to the Trustee (i) stating that the
Servicer elects not to make an Advance in a stated amount and (ii) detailing the reason it deems the
advance to be nonrecoverable.
Section 3.26 Compensating Interest Payments.
The Servicer shall deposit in the Collection Account not later than the Servicer Remittance
Date preceding the Distribution Date an amount equal to the Compensating Interest related to the related
Determination Date. The Servicer shall not be entitled to any reimbursement of any Compensating Interest
payment.
Section 3.27 Advance Facility.
(a) The Servicer on behalf of the Trust Fund, is hereby authorized to enter into a facility (such
an arrangement, an Advance Facility) with any Person which provides that such Person (an Advancing
Person) may fund Advances and/or Servicing Advances under this Agreement, although no such facility
shall reduce or otherwise affect the Servicers obligation to fund such Advances and/or Servicing
Advances. No consent of the Trustee, Certificateholders or any other party shall be required before the
Servicer may enter into an Advance Facility nor shall the Trustee or the Certificateholders be a third party
beneficiary of any obligation of an Advancing Person to the Servicer. If the Servicer enters into an
Advance Facility, the Servicer and the related Advancing Person shall deliver to the Trustee at the address
set forth in Section 12.06 hereof a written notice (an Advance Facility Notice) (in the form attached
hereto as Exhibit K), stating (a) the identity of the Advancing Person and (b) the identity of the Person (the
Servicers Assignee) that will, subject to Section 3.27(b) hereof, have the right to make withdrawals from
the Collection Account pursuant to Section 3.07 hereof to reimburse previously unreimbursed Advances
and/or Servicing Advances (Advance Reimbursement Amounts). If the Servicer enters into such an
Advance Facility pursuant to this Section 3.27, the Trustee shall execute the acknowledgment of the
Advance Facility Notice, as prepared by the Servicer confirming its receipt of written notice of the
existence of such Advance Facility. To the extent that an Advancing Person purchases or funds any
Advance or any Servicing Advance and provides the Trustee with written notice (in the form attached
hereto as Exhibit K) acknowledged by the Servicer that such Advancing Person is entitled to
reimbursement directly from the Trustee pursuant to the terms of the Advance Facility, such Advancing
Person shall be entitled to receive reimbursement pursuant to this Agreement for such amount to the extent
provided in Section 3.27(b). Such notice from the Advancing Person must specify the amount of the
reimbursement, the Section of this Agreement that permits the applicable Advance or Servicing Advance to
be reimbursed, the section(s) of the Advance Facility that entitle the Advancing Person to request
reimbursement from the Trustee, on behalf of the Trust Fund, rather than the Servicer, the Advancing
Persons wire transfer instructions, and include the Servicers acknowledgment thereto or proof of an Event
of Default under the Advance Facility. The Trustee shall have no duty or liability with respect to any
calculation of any reimbursement to be paid to an Advancing Person and shall be entitled to rely without
independent investigation on the Advancing Persons notice provided pursuant to this Section 3.27. An
Advancing Person whose obligations hereunder are limited to the funding of Advances and/or Servicing
Advances shall not be required to meet the qualifications of a Sub-Servicer pursuant to Section 6.06 hereof.

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(b) Notwithstanding the foregoing, and for the avoidance of doubt, (i) the Servicer and/or the
Servicers Assignee shall only be entitled to reimbursement of Advance reimbursement amounts hereunder
from withdrawals from the Collection Account pursuant to Section 3.07 of this Agreement and shall not
otherwise be entitled to make withdrawals or receive amounts that shall be deposited in the Distribution
Account, and (ii) none of the Trustee or the Certificateholders shall have any right to, or otherwise be
entitled to, receive any Advance reimbursement amounts to which the Servicer or Servicers Assignee, as
applicable, shall be entitled pursuant to Section 3.07 hereof. An Advance Facility may be terminated by the
joint written direction of the Servicer and the related Advancing Person. Written notice of such termination
shall be delivered to the Trustee in the manner set forth in Section 12.06 hereof. None of the Depositor or
the Trustee shall, as a result of the existence of any Advance Facility, have any additional duty or liability
with respect to the calculation or payment of any Advance reimbursement amount, nor, as a result of the
existence of any Advance Facility, shall the Depositor or the Trustee have any additional responsibility to
track or monitor the administration of the Advance Facility or the payment of Advance reimbursement
amounts to the Servicers Assignee. The Servicer shall indemnify the Depositor, the Trustee, any successor
Servicer and the Trust Fund for any claim, loss, liability or damage resulting from any claim by the related
Advancing Person, except to the extent that such claim, loss, liability or damage resulted from or arose out
of negligence, recklessness or willful misconduct on the part of the Depositor, the Trustee or any successor
Servicer, as the case may be, or failure by the successor Servicer or the Trustee, as the case may be, to
remit funds as required by this Agreement or the commission of an act or omission to act by the successor
Servicer or the Trustee, as the case may be, and the passage of any applicable cure or grace period, such
that an Event of Default under this Agreement occurs or such entity is subject to termination for cause
under this Agreement. The Servicer shall maintain and provide to any successor Servicer and, upon request,
the Trustee a detailed accounting on a loan-by-loan basis as to amounts advanced by, pledged or assigned
to, and reimbursed to any Advancing Person. The successor Servicer shall be entitled to rely on any such
information provided by the predecessor Servicer, and the successor Servicer shall not be liable for any
errors in such information.
(c) If an Advancing Person is entitled to reimbursement for any particular Advance or
Servicing Advance as set forth in Section 3.27(a), then the Servicer shall not be permitted to reimburse
itself therefor under Section 3.07, but instead the Servicer shall include such amounts in the applicable
remittance to the Trustee made pursuant to Section 3.06(d) to the extent of amounts on deposit in the
Collection Account on the related Servicer Remittance Date. The Trustee is hereby authorized to pay to an
Advancing Person reimbursements for Advances and Servicing Advances from the Distribution Account to
the same extent the Servicer would have been permitted to reimburse itself for such Advances and/or
Servicing Advances in accordance with Section 3.07, had the Servicer made such Advance or Servicing
Advance.
(d) All Advances and Servicing Advances made pursuant to the terms of this Agreement shall
be deemed made and shall be reimbursed on a first in first out (FIFO) basis. In the event the Servicers
Assignee shall have received some or all of an Advance reimbursement amount related to Advances and/or
Servicing Advances that were made by a Person other than such predecessor Servicer or its related
Advancing Person in error, then such Servicers Assignee shall be required to remit any portion of such
Advance reimbursement amount to each Person entitled to such portion of such Advance reimbursement
amount.

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Without limiting the generality of the foregoing, the Servicer shall remain entitled to be reimbursed
pursuant to Section 3.07 for all Advances and/or Servicing Advances funded by the Servicer to the extent
the related Advance reimbursement amounts have not been assigned, sold or pledged to such Advancing
Person or Servicers Assignee.
(e) In the event the Servicer is terminated pursuant to Section 7.01, the Advancing Person shall
succeed to the terminated Servicers right of reimbursement set forth in Section 7.02 to the extent of such
Advancing Persons financing of Advances or Servicing Advances hereunder then remaining
unreimbursed.
(f) Any amendment to this Section 3.27 or to any other provision of this Agreement that may
be necessary or appropriate to effect the terms of an Advance Facility as described generally in this
Section 3.27, including amendments to add provisions relating to a successor Servicer, may be entered into
by the Trustee, the Depositor and the Servicer without the consent of any Certificateholder, provided such
amendment complies with Section 12.01 hereof. All reasonable costs and expenses (including attorneys
fees) of each party hereto of any such amendment shall be borne solely by the Servicer. The parties hereto
hereby acknowledge and agree that: (a) the Advances and/or Servicing Advances financed by, sold and/or
pledged to an Advancing Person under any Advance Facility are obligations owed to the Servicer payable
only from the cash flows and proceeds received under this Agreement for reimbursement of Advances
and/or Servicing Advances only to the extent provided herein, and the Trustee and the Trust Fund are not,
as a result of the existence of any Advance Facility, obligated or liable to repay any Advances and/or
Servicing Advances financed by the Advancing Person; (b) the Servicer will be responsible for remitting to
the Advancing Person the applicable amounts collected by it as reimbursement for Advances and/or
Servicing Advances purchased or funded by the Advancing Person, subject to the provisions of this
Agreement; and (c) the Trustee shall not have any responsibility to track or monitor the administration of
the financing arrangement between the Servicer and any Advancing Person.
Section 3.28 Servicer Rights Facility.
The Servicing Rights Owner is hereby authorized to finance, pledge and/or assign any or all of
its right, title and interest in, to and under this Agreement to one or more lenders (each, a Servicing Rights
Pledgee) selected by the Servicing Rights Owner. The Trustee and the Depositor hereby (i) consent to any
such financing, pledge and/or assignment (without the need for the delivery of any notice or other
communication to the Trustee or the Depositor, or for the execution by the Trustee or the Depositor of any
agreement or other document or instrument, other than this Agreement), and (ii) agree that upon delivery
by the Servicing Rights Pledgee to the Trustee of a letter signed by the Servicing Rights Pledgee (without
further need for the delivery of any notice or other communication to the Trustee or the Depositor, or for
the execution by the Trustee or the Depositor of any agreement or other document or instrument in addition
to this Agreement), the Trustee shall appoint the Servicing Rights Pledgee or its designee as successor
Servicer upon termination of the Servicer, provided that at the time of such appointment, the Servicing
Rights Pledgee or such designee meets the requirements of a successor Servicer pursuant to Section 7.02
and agrees to be subject to the terms of this Agreement. For the avoidance of doubt, the Servicing Rights
Pledgee or its designee (as the case may be) shall not be otherwise required to satisfy any other eligibility
requirements of a successor Servicer pursuant to Section 6.04.

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ARTICLE IV
FLOW OF FUNDS
Section 4.01 Distributions.
(a) On each Distribution Date, the Trustee, will first distribute the Prepayment Charges
collected on the Group I Mortgage Loans and on the Group II Mortgage Loans during the prior Prepayment
Period to the Holders of the Class CA Certificates. After making that distribution, the Trustee, shall (based
solely on the information provided to the Trustee by the Servicer pursuant to Section 3.24 hereof) withdraw
from the Distribution Account that portion of Available Funds for such Distribution Date consisting of the
Interest Remittance Amount and the Principal Remittance Amount for such Distribution Date, and, subject
to the special rules relating to Reallocations provided in Section 4.04(e) hereof, make the following
disbursements and transfers in the order of priority described below, in each case to the extent of the
Interest Remittance Amount and the Principal Remittance Amount remaining for such Distribution Date:
(i) On each Distribution Date, the Trustee, will distribute, pro-rata from the Group I Interest
Remittance Amount and the Group II Interest Remittance Amount, the Trustee Fee and the Custodian Fee
which are due on that Distribution Date to the Trustee and Custodian respectively. After making that
distribution, the Trustee will then apply the remaining Interest Remittance Amount to the payment of
interest then due on the certificates in the following order of priority:
(A) first, on each Distribution Date on or prior to the Class I Termination Date, payable
(i) from the Group I Interest Remittance Amount to the Supplemental Interest Trust as the Holder of the
Class I Certificates, the product of (x) the sum of (1) the Class I Monthly Interest Distributable Amount and
(2) any unpaid Hedge Termination Payments that are not Defaulted Hedge Termination Payments,
multiplied by (y) the Group I Class I Percentage, (ii) from the Group II Interest Remittance Amount, to the
Supplemental Interest Trust as the Holder of the Class I Certificates, the product of (x) the sum of (1) the
Class I Monthly Interest Distributable Amount and (2) any unpaid Hedge Termination Payments that are
not Defaulted Hedge Termination Payments, multiplied by (y) the Group II Class I Percentage and (iii) if
the amounts in (i) and (ii) above are insufficient to pay to the Supplemental Interest Trust as the Holder of
the Class I Certificates the sum of (1) the Class I Monthly Interest Distributable Amount and (2) any unpaid
Hedge Termination Payments that are not Defaulted Hedge Termination Payments, then such insufficiency
shall be paid pro rata from the Group I Principal Remittance Amount and the Group II Principal Remittance
Amount);
(B) second, concurrently, with equal priority of payment:
(I) payable solely from the Group I Interest Remittance Amount for that
Distribution Date or, to the extent that the Group I Interest Remittance Amount is less
than the related Monthly Interest

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Distributable Amount for the Class A-1A Certificates, also from the Group II Cross
Collateralization Amount for that Distribution Date, to the Holders of the Class A-1A
Certificates, the Monthly Interest Distributable Amount for the Class A-1A Certificates;
(II) payable solely from the Group II Interest Remittance Amount for that
Distribution Date or, to the extent that the Group II Interest Remittance Amount is less
than the related aggregate Monthly Interest Distributable Amount for the Class A-2A,
Class A-2B, Class A-2C and Class A-2D Certificates, also from the Group I Cross
Collateralization Amount for that Distribution Date, concurrently to the Holders of the
Class A-2A, Class A-2B, Class A-2C and Class A-2D Certificates, the related Monthly
Interest Distributable Amount, pro-rata based on the amounts of interest each such
Class is otherwise entitled to receive on such Distribution Date;
(C) third, payable from the remaining Group I Interest Remittance Amount and the remaining
Group II Interest Remittance Amount, to the Holders of the Class M-1 Certificates, the Monthly Interest
Distributable Amount for the Class M-1 Certificates;
(D) fourth, payable from the remaining Group I Interest Remittance Amount and the remaining
(E) fifth, payable from the remaining Group I Interest Remittance Amount and the remaining
(F) sixth, payable from the remaining Group I Interest Remittance Amount and the remaining
(G) seventh, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount, to the Holders of the Class M-5 Certificates, the Monthly
Interest Distributable Amount for the Class M-5 Certificates;
(H) eighth, payable from the remaining Group I Interest Remittance Amount and the remaining
(I) ninth, payable from the remaining Group I Interest Remittance Amount and the remaining
(J) tenth, payable from the remaining Group I Interest Remittance Amount and the remaining

41

(K) eleventh, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount, to the Holders of the Class M-9 Certificates, the Monthly
(L) twelfth, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount, to the Holders of the Class M-10 Certificates, the
Monthly Interest Distributable Amount for the Class M-10 Certificates;
(M) thirteenth, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount to the Holders of the Class M-11 Certificates, the Monthly
(N) fourteenth, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount to the Holders of the Class M-12 Certificates, the Monthly
(O) fifteenth, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount, to the Supplemental Interest Trust, the Excess Cashflow
relating to interest (net of any amounts distributed pursuant to Section 4.04(d)(i)), to be distributed pursuant
to Sections 4.04 (d)(ii); and
(P) sixteenth, payable from the remaining Group I Interest Remittance Amount and the
remaining Group II Interest Remittance Amount, to the Holders of the Class R Certificates, any remainder.
(ii) On each Distribution Date (a) prior to the Crossover Date or (b) on which a Trigger Event
is in effect, the Trustee, shall (based solely on the information provided to the Trustee by the Servicer
pursuant to Section 3.24 hereof) withdraw from the Distribution Account that portion of the Available
Funds relating to principal plus the Extra Principal Distribution Amount (to be distributed pursuant to
Section 4.04 (d)(i)) for such Distribution Date and (after making payments to the Supplemental Interest
Trust as the Holder of the Class I Certificates in respect of any Class I Monthly Interest Distributable
Amount remaining unpaid from the Interest Remittance Amount) make the following disbursements and
transfers in the order of priority described below:
(A) first, concurrently, with equal priority of payment:
(I) payable solely from the Group I Principal Distribution Amount, to the Holders
of the Class A-1A Certificates, the entire amount of the Group I Principal Distribution
Amount, until the Certificate Principal Balance of the Class A-1A Certificates has been
reduced to zero; and
(II) payable solely from the Group II Principal Distribution Amount, to the
Holders of the Group II Certificates (to be distributed among such Certificates pursuant
to Section 4.01(d)), the entire amount of the Group II Principal Distribution Amount,
until the aggregate Certificate Principal Balance of the Group II Certificates has been
reduced to zero;

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(B) second,
(I) if the Certificate Principal Balance of the Class A-1A Certificates has been
reduced to zero, then to the Holders of the Group II Certificates (to be distributed
among such Certificates pursuant to Section 4.01(d)), the amount of any remaining
Group I Principal Distribution Amount, until the aggregate Certificate Principal
Balance of the Group II Certificates has been reduced to zero; or
(II) if the aggregate Certificate Principal Balance of the Group II Certificates has
been reduced to zero, then to the Holders of the Class A-1A Certificates, the amount of
any remaining Group II Principal Distribution Amount, until the Certificate Principal
Balance of the Class A-1A Certificates has been reduced to zero;
(C) third, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, (i) first, to the Holders of the Class M-1 Certificates,
the entire remaining Principal Distribution Amount until the Certificate Principal Balance of the Class M-1
Certificates has been reduced to zero, (ii) second, to the Holders of the Class M-2 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance of the Class M-2
Certificates has been reduced to zero and (iii) third, to the Holders of the Class M-3 Certificates, the entire
Certificates has been reduced to zero;
(D) fourth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Holders of the Class M-4 Certificates, the entire
(E) fifth, payable from the remaining Group I Principal Distribution Amount and the remaining
Group II Principal Distribution Amount, to the Holders of the Class M-5 Certificates, the entire remaining
Principal Distribution Amount until the Certificate Principal Balance of the Class M-5 Certificates has been
reduced to zero;
(F) sixth, payable from the remaining Group I Principal Distribution Amount and the
(G) seventh, payable from the remaining Group I Principal Distribution Amount and the
(H) eighth, payable from the remaining Group I Principal Distribution Amount and the

43

(I) ninth, payable from the remaining Group I Principal Distribution Amount and the remaining
Principal Distribution Amount until the Certificate Principal Balance of the Class M-9 Certificates has been
reduced to zero;
(J) tenth, payable from the remaining Group I Principal Distribution Amount and the remaining
Principal Distribution Amount, until the Certificate Principal Balance of the Class M-10 Certificates has
been reduced to zero;
(K) eleventh, payable from the remaining Group I Principal Distribution Amount and the
remaining Principal Distribution Amount, until the Certificate Principal Balance of the Class M-11
(L) twelfth, payable from the remaining Group I Principal Distribution Amount and the
remaining Principal Distribution Amount, until the Certificate Principal Balance of the Class M-12
(M) thirteenth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Trustee and the Custodian, pro-rata, any amounts
owed to them under the Basic Documents remaining unpaid;
(N) fourteenth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Servicer, the amount of any reimbursement of
indemnification owed to it by the Issuing Entity pursuant to Section 6.03 hereof;
(O) fifteenth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount and any remaining Available Funds relating to principal,
to the Holders of the Class CA Certificates, for the benefit of the Supplemental Interest Trust, the entire
remaining Principal Remittance Amount up to the sum of the Overcollateralization Amount and any
remaining Overcollateralization Release Amount; and
(P) sixteenth, payable from the Group I Principal Distribution Amount and the Group II
Principal Distribution Amount, to the Holders of the Class R Certificates, for the benefit of the
Supplemental Interest Trust, any remainder.
(iii) On each Distribution Date (a) on or after the Crossover Date and (b) on which a Trigger
Event is not in effect, the Trustee, shall (based solely on the information provided to the Trustee by the
Servicer pursuant to Section 3.24 hereof) withdraw from the Distribution Account that portion of the
Available Funds relating to principal plus the Extra Principal Distribution Amount (to be distributed
pursuant to Section 4.04 (d)(i)) for such Distribution Date and (after making payments to the Supplemental
Interest Trust as the Holder of

44

the Class I Certificates in respect of any Class I Monthly Interest Distributable Amount remaining unpaid
from the Interest Remittance Amount) make the following disbursements and transfers in the order of
priority described below:
(A) first, concurrently, with equal priority of payment:
(I) payable solely from the Group I Principal Distribution Amount, to the Holders
of the Class A-1A Certificates, the Group I Certificate Principal Distribution Amount,
until the Certificate Principal Balance of the Class A-1A Certificates has been reduced
to zero; and
(II) payable solely from the Group II Principal Distribution Amount, to the
Holders of the Group II Certificates (to be distributed among such Certificates pursuant
to Section 4.01(d)), the Group II Certificate Principal Distribution Amount, until the
aggregate Certificate Principal Balance of the Group II Certificates has been reduced to
zero;
(B) second, concurrently, with equal priority of payment:
(I) if the Group I Principal Distribution Amount was insufficient to pay the
Group I Certificate Principal Distribution Amount, then payable from the remaining
Group II Principal Distribution Amount, to the Holders of the Class A-1A Certificates,
the unpaid portion of the Group I Certificate Principal Distribution Amount based on
the aggregate unpaid portion of the Class A Principal Distribution Amount; or
(II) if the Group II Principal Distribution Amount was insufficient to pay the
Group II Certificate Principal Distribution Amount, then payable from the remaining
Group I Principal Distribution Amount, to the Holders of the Group II Certificates (to
be distributed among such Certificates pursuant to Section 4.01(d)), the unpaid portion
of the Group II Certificate Principal Distribution Amount based on the aggregate
unpaid portion of the Class A Principal Distribution Amount;
(C) third, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Holders of the Class M-1, Class M-2 and Class
M-3 Certificates, the Class M-1/M-2/M-3 Principal Distribution Amount, allocated (i) first, to the Holders
of the Class M-1 Certificates until the Certificate Principal Balance of the Class M-1 Certificates has been
reduced to zero, (ii) second, to the Holders of the Class M-2 Certificates until the Certificate Principal
Balance of the Class M-2 Certificates has been reduced to zero and (iii) third, to the Holders of the Class
M-3 Certificates until the Certificate Principal Balance of the Class M-3 Certificates has been reduced to
zero;
(D) fourth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Holders of the Class M-4 Certificates, the Class
M-4 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-4 Certificates has

45

(E) fifth, payable from the remaining Group I Principal Distribution Amount and the remaining
Group II Principal Distribution Amount, to the Holders of the Class M-5 Certificates, the Class M-5
(F) sixth, payable from the remaining Group I Principal Distribution Amount and the
(G) seventh, payable from the remaining Group I Principal Distribution Amount and the
(H) eighth, payable from the remaining Group I Principal Distribution Amount and the
(I) ninth, payable from the remaining Group I Principal Distribution Amount and the remaining
(J) tenth, payable from the remaining Group I Principal Distribution Amount and the remaining
(K) eleventh, payable from the remaining Group I Principal Distribution Amount and the
M-11 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-11 Certificates
has been reduced to zero;
(L) twelfth, payable from the remaining Group I Principal Distribution Amount and the
M-12 Principal Distribution Amount, until the Certificate Principal Balance of the Class M-12 Certificates
has been reduced to zero;
(M) thirteenth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Trustee and the Custodian, pro-rata, any amounts
owed to them under the Basic Documents remaining unpaid;
(N) fourteenth, payable from the remaining Group I Principal Distribution Amount and the
remaining Group II Principal Distribution Amount, to the Servicer, the amount of any reimbursement of
indemnification owed to it by the Issuing Entity pursuant to Section 6.03 hereof;

46

(O) fifteenth, payable from the remaining Group I Principal Distribution Amount and the
to the Holders of the Class CA Certificates, for the benefit of the Supplemental Interest Trust, the entire
remaining Principal Remittance Amount up to the extent of the sum of the Overcollateralization Amount
and any remaining Overcollateralization Release Amount; and
(P) sixteenth, payable from the remaining Group I Principal Distribution Amount and the
to the Holders of the Class R Certificates, for the benefit of the Supplemental Interest Trust, any remainder.
(b) Method of Distribution. The Trustee shall make distributions in respect of a Distribution
Date to each Certificateholder of record on the related Record Date (other than as provided in Section 11.01
respecting the final distribution), in the case of Certificateholders of the Regular Certificates, by wire
transfer, or upon written request at least five Business Days prior to the related Distribution Date by check
or money order mailed to such Certificateholder at the address appearing in the Certificate Register.
Distributions among Certificateholders shall be made in proportion to the Percentage Interests evidenced by
the Certificates held by such Certificateholders.
(c) Distributions on Book-Entry Certificates. Each distribution with respect to a Book-Entry
Certificate shall be paid to the Depository, which shall credit the amount of such distribution to the
accounts of its Depository Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the Certificate Owners that it represents
and to each indirect participating brokerage firm (a brokerage firm or indirect participating firm) for
which it acts as agent. Each brokerage firm shall be responsible for disbursing funds to the Certificate
Owners that it represents. All such credits and disbursements with respect to a Book-Entry Certificate are to
be made by the Depository and the Depository Participants in accordance with the provisions of the
Certificates. None of the Custodian, the Trustee, the Depositor, the Servicer or the Sponsor shall have any
responsibility therefor except as otherwise provided by applicable law.
(d) All principal amounts distributed to the Group II Certificates shall be distributed in the
following order:

(i) to the Class A-2A Certificates until its Certificate Principal Balance has been reduced to
zero,

(ii) to the Class A-2B Certificates until its Certificate Principal Balance has been reduced to
zero,

(iii) to the Class A-2C Certificates until its Certificate Principal Balance has been reduced to
zero, and

(iv) to the Class A-2D Certificates until its Certificate Principal Balance has been reduced to
zero.

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However, if the aggregate Certificate Principal Balance of the Mezzanine Certificates and the
Overcollateralization Amount is reduced or written down to zero, the related share of principal amounts
from the Group II Mortgage Loans will be distributed to the Classes of Group II Certificates pro rata, based
on their respective Certificate Principal Balances until their respective Certificate Principal Balances are
paid to zero.
Section 4.02 Distribution Account.
(a) No later than the Closing Date, the Trustee, shall establish and maintain a segregated trust
account that is an Eligible Account, which shall be titled Distribution Account, Deutsche Bank National
Trust Company, as Trustee for the registered holders of NovaStar Mortgage Funding Trust 2006-5, Home
Equity Loan Asset-Backed Certificates, Series 2006-5 (the Distribution Account). The Trustee shall,
promptly upon receipt, deposit in the Distribution Account and retain therein the Interest Remittance
Amount and the Principal Remittance Amount remitted on each Servicer Remittance Date to the Trustee by
the Servicer. Funds deposited in the Distribution Account shall be held in trust by the Trustee for the
Certificateholders for the uses and purposes set forth herein.
(b) The Trustee shall invest funds deposited in the Distribution Account in Eligible Investments
in accordance with the written direction of the Servicer with a maturity date no later than the Business Day
immediately proceeding the date on which such funds are required to be withdrawn from such account
pursuant to this Agreement. All income or other gain from such investments may be released from the
Distribution Account and paid to the Servicer. The Servicer shall be obligated to cover losses on such
Eligible Investments. If the Trustee does not receive such written investment direction it shall retain the
funds uninvested. The Trustee or its Affiliates are permitted to receive additional compensation that could
be deemed to be in the Trustees economic self-interest for (i) serving as investment adviser, administrator,
shareholder, servicing agent, custodian or sub-custodian with respect to certain of the investments,
(ii) using affiliates to effect transactions in certain investments and (iii) effecting transactions in certain
investments. Such compensation is not payable or reimbursable under this Agreement. The Trustee shall
not be liable for the selection of investments or for investment losses incurred thereon.
(c) Amounts on deposit in the Distribution Account shall be withdrawn by the Trustee as
follows:
(i) To fund the distributions described in Section 4.01 hereof;
(ii) To withdraw any amount not required to be deposited in the Distribution Account or
deposited therein in error;
(iii) To clear and terminate the Distribution Account upon the termination of this
Agreement, with any amounts remaining on deposit therein being paid to the Holders of the
Class R Certificates; and
(iv) To distribute any amounts of investment income to the Servicer.

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(d) On each Distribution Date, the Trustee shall distribute all amounts on deposit in the
Distribution Account (other than investment income) established by it to Certificateholders in respect of the
Certificates and to such other persons in the order of priority set forth in Section 4.01 hereof.
Section 4.03 Statements.
(a) On each Distribution Date, based solely on information provided to it by the Servicer in its
Determination Date Report, the Trustee shall prepare and make available to each Holder of the Regular
Certificates, the Hedge Counterparties, the Servicer and the Rating Agencies, a statement as to the
distributions made on such Distribution Date:
(i) the amount of the distribution made on such Distribution Date to the Holders of each
Class of Regular Certificates, separately identified, allocable to principal and the amount of the
distribution made to the Holders of the Class C Certificates allocable to Prepayment Charges;
(ii) the amount of the distribution made on such Distribution Date to the Holders of each
Class of Regular Certificates allocable to interest, separately identified;
(iii) the Pool Balance of the Group I Mortgage Loans and the Group II Mortgage Loans
at the Close of Business at the end of the related Due Period;
(iv) the number, aggregate principal balance, and weighted average Mortgage Rate of the
Mortgage Loans as of the related Determination Date;
(v) the number and aggregate unpaid principal balance of Mortgage Loans (identified by
Group) that (A) were Delinquent (exclusive of Mortgage Loans in bankruptcy or foreclosure
and REO Properties) (1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days (B) as to
which foreclosure proceedings have been commenced and that (i) are not Delinquent, and
(ii) are Delinquent (1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days, (C) are related
to a REO Property and that (i) are not Delinquent and (ii) are Delinquent (1) 30 to 59 days,
(2) 60 to 89 days and (3) 90 or more days and (D) are related to a Mortgagor that was subject to
a bankruptcy proceeding and that (i) are not Delinquent and (ii) are Delinquent (1) 30 to 59
days, (2) 60 to 89 days and (3) 90 or more days, in each case on a contractual and bankruptcy
legal basis;
(vi) the aggregate amount of Principal Prepayments made during the related Prepayment
Period;
(vii) the aggregate amount of Realized Losses incurred during the related Prepayment
Period and the cumulative amount of Realized Losses;
(viii) the Certificate Principal Balance of each Class of the Class A Certificates and each
Class of the Mezzanine Certificates, after giving effect to the distributions made on such
Distribution Date;

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(ix) the Unpaid Interest Shortfall Amount, if any, with respect to each Class of the
Class A Certificates and each Class of the Mezzanine Certificates for such Distribution Date;
(x) the aggregate amount of any Prepayment Interest Shortfalls for such Distribution
Date, to the extent not covered by payments by the Servicer pursuant to Section 3.26;
(xi) the Credit Enhancement Percentage for such Distribution Date;
(xii) the Available Funds Cap Carryforward Amount for each Class of the Class A
Certificates and each Class of the Mezzanine Certificates (excluding the Class M-10 DSI, Class
M-11 DSI and Class M-12 DSI Certificates) if any, for such Distribution Date and the amount
remaining unpaid after reimbursements therefor on such Distribution Date;
(xiii) the respective Pass-Through Rates applicable to each Class of the Class A
Certificates and each Class of the Mezzanine Certificates for such Distribution Date and the
Pass-Through Rate applicable to each Class of the Class A Certificates and each Class of the
Mezzanine Certificates for the immediately succeeding Distribution Date;
(xiv) the Supplemental Interest Payment for each Class on such Distribution Date;
(xv) the difference between (x) the aggregate notional amount of the Hedge Agreements
and (y) the aggregate Certificate Principal Balance of the Class A Certificates and Mezzanine
Certificates on such Distribution Date;
(xvi) the Required Overcollateralization Amount for such Distribution Date;
(xvii) the Excess Cashflow for such Distribution Date;
(xviii) the aggregate amount of Scheduled Principal Payments made during the related
Due Period;
(xix) the aggregate amount of Principal Prepayments made during the related Due Period
in which the related Mortgagor paid the related Mortgage Loan in full;
(xx) the aggregate amount of Principal Prepayments in part made during the related
Prepayment Period;
(xxi) the number and the aggregate principal balance of all Liquidated Mortgage Loans
for the related Prepayment Period;

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(xxii) the aggregate amount of Net Liquidation Proceeds received during the related
Prepayment Period;
(xxiii) the dollar amount of claims made, amounts paid by the MI Insurer in respect of
claims made, and premiums due and paid under the MI Policy; and
(xxiv) the amount equal to the difference between (x) the Class I Monthly Interest
Distributable Amount and (y) any amounts received by the Supplemental Interest Trust from
the Hedge Counterparties in respect of the Hedge Agreements, respectively; provided,
however, that if the resulting number is a negative number, then the absolute value of such
negative number.
In the case of information furnished pursuant to subclauses (i) and (ii) above, the amounts shall
be expressed in a separate section of the report as a dollar amount for each Class for each $1,000 original
dollar amount as of the Closing Date.
For all purposes of this Agreement, with respect to any Mortgage Loan, delinquencies shall be
determined and reported based on the OTS methodology for determining delinquencies on mortgage
loans similar to the Mortgage Loans as described in the definition of Delinquent.
The Trustee may, in the absence of manifest error, conclusively rely upon the Determination
Date Report of the Servicer in its preparation of the statement to Certificateholders pursuant to this
Section 4.03.
(b) Within a reasonable period of time after the end of each calendar year, the Trustee shall,
upon written request, furnish to each Person who at any time during the calendar year was a
Certificateholder of a Regular Certificate, if requested in writing by such Person, such information as is
reasonably necessary to provide to such Person a statement containing the information set forth in
subclauses (i) and (ii) above, aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be deemed to have been satisfied
to the extent that substantially comparable information shall be prepared and furnished by the Trustee to
Certificateholders pursuant to any requirements of the Code as are in force from time to time.
(c) On each Distribution Date, the Trustee shall make available on its website to the Residual
Certificateholders a copy of the reports forwarded to the Regular Certificateholders in respect of such
Distribution Date with such other information as the Trustee deems necessary or appropriate.
(d) Within a reasonable period of time after the end of each calendar year, the Trustee shall
deliver to each Person who at any time during the calendar year was a Residual Certificateholder, if
requested in writing by such Person, such information as is reasonably necessary to provide to such Person
a statement containing the information provided pursuant to the previous paragraph aggregated for such
calendar year or applicable portion thereof during which such Person was a Residual Certificateholder.
Such obligation of the Trustee shall be deemed to have been satisfied to the extent that substantially
comparable information shall be prepared and furnished to Certificateholders by the Trustee pursuant to
any requirements of the Code as from time to time in force.

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(e) On each Distribution Date, the Trustee shall post on its website at
https://www.tss.db.com/invr, which posting shall be accessible to each Certificateholder and the Hedge
Counterparties, the statement prepared pursuant to paragraph (a) of this Section 4.03. Assistance in using
the website can be obtained by calling the Trustees investor relations desk at 1-800-735-7777. Such parties
that are unable to use the website are entitled to have a paper copy mailed to them via first class mail by
providing a written request of such to the Trustee at its Corporate Trust Office. The Trustee shall have the
right to change the way such statements are distributed in order to make such distribution more convenient
and/or accessible to the above parties and the Trustee shall provide timely and adequate notification to all
above parties regarding any such changes. The Trustee shall not have any responsibility to (i) verify
information provided by the Servicer to be included in such statement or (ii) include any information
required to be included in such statement if the Servicer has failed to timely produce such information to
the Trustee, as required pursuant hereto.
Section 4.04 Supplemental Interest Trust; Excess Cashflow; Reallocations.
(a) (i) The parties do hereby create and establish a sub-trust of the Trust Fund which shall hold
an account, which, no later than the Closing Date, the Trustee shall, at the direction of the Servicer,
establish and maintain, as a segregated trust account that is an Eligible Account, which shall be titled
Supplemental Interest Trust, Deutsche Bank National Trust Company, as Trustee for the registered holders
of NovaStar Mortgage Funding Trust 2006-5, Home Equity Loan Asset-Backed Certificates, Series 2006-
5. The Trustee shall, promptly upon receipt, deposit in the Supplemental Interest Trust amounts of Excess
Cashflow, if any, pursuant to Section 4.01 and each distribution of the Class I Monthly Interest
Distributable Amount pursuant to Section 4.01(a)(i)(A) and amounts from the Interest Coverage Account
pursuant to Section 4.06(c), if any. Funds deposited in the Supplemental Interest Trust shall be held in trust
by the Trustee for the Certificateholders for the uses and purposes set forth herein. Neither the
Supplemental Interest Trust nor the related Supplemental Interest Account shall be an asset of any of the
REMICs created hereunder.
(ii) (a) On each Distribution Date prior to the Class I Termination Date, the funds in the
Supplemental Interest Trust (as reduced from time to time in accordance with this Section 4.04)
will equal the sum of (x) any amounts received under any Hedge Agreement pursuant to
Section 4.04(f), (y) the Class I Monthly Interest Distributable Amount and (z) any amounts of
Excess Cashflow not used to maintain the Required Overcollateralization Amount.
On each Distribution Date commencing in September 2009, the funds in the Supplemental
Interest Trust (as reduced from time to time in accordance with this Section 4.04) will equal any amounts of
Excess Cashflow not used to maintain the Required Overcollateralization Amount.
(b) The Trustee will invest funds deposited in the Supplemental Interest Trust as directed in
writing by the Servicer in Eligible Investments with a maturity date (i) no later

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than the Business Day immediately preceding the date on which such funds are required to be withdrawn
from such account pursuant to this Agreement, if a Person other than the Trustee or an Affiliate manages or
advises such investment, and (ii) no later than the date on which such funds are required to be withdrawn
from such account pursuant to this Agreement, if the Trustee or an Affiliate manages or advises such
investment. If the Trustee does not receive such written investment instructions it shall retain such funds
uninvested. All income and gain realized from investment of funds deposited in the Supplemental Interest
Trust shall be credited to such Account. The Trustee will not be liable for investment losses on investments
selected by the Servicer pursuant to this Section 4.04(b). The Supplemental Interest Trust will not be an
asset of any of the REMICs created hereunder.
(c) On each Distribution Date, the Trustee shall distribute the funds (other than funds relating
to Excess Cashflow and, if such funds are insufficient, any Excess Cashflow remaining after the
distributions set forth in Section 4.04(d)(i)) held in the Supplemental Interest Trust as follows:
(i) first, on each Distribution Date up to and including the Class I Termination Date, to
each Hedge Counterparty, its related Cap Amount for such Distribution Date, and any unpaid
Hedge Termination Payment owed to a Hedge Counterparty that is not a Defaulted Hedge
Termination Payment;
(ii) second, the amount necessary, if any, to eliminate any Overcollateralization
Deficiency, after taking into account any Excess Cashflow previously applied to such purpose
on such Distribution Date;
(iii) third, any remaining amounts to pay, pro-rata based on the Certificate Principal
Balance of each Class of Class A Certificates and Mezzanine Certificates, the Supplemental
Interest Payment for each Class of Class A Certificates and Mezzanine Certificates (in each
case only up to the amount necessary to pay any such Supplemental Interest Payment) and
provided that with respect to all or any portion of a Reallocable Class which has not previously
been the subject of a Reallocation (a) the Supplemental Interest Payment otherwise allocated to
the Class M-10 Certificates shall be distributed to the Class M-10N Certificates and shall be the
Non-Derivative Supplemental Interest Payment for the Class M-10 Certificates, the
Supplemental Interest Payment otherwise allocated to the Class M-11 Certificates shall be
distributed to the Class M-11N Certificates and shall be the Non-Derivative Supplemental
Interest Payment for the Class M-11 Certificates and the Supplemental Interest Payment
otherwise allocated to the Class M-12 Certificates shall be distributed to the Class M-12N
Certificates and shall be the Non-Derivative Supplemental Interest Payment for the Class M-12
Certificates, and (b) the Derivative Supplemental Interest Payment for the Class M-10
Certificates shall be paid to the Holders of the Class M-10 DSI Certificates, the Derivative
Supplemental Interest Payment for the Class M-11 Certificates shall be paid to the Holders of
the Class M-11 DSI Certificates and the Derivative Supplemental Interest Payment for the
Class M-12 Certificates shall be paid to the Holders of the Class M-12 DSI Certificates.

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(iv) fourth, to the Hedge Counterparties to which such amounts are owed, pro rata, any
Defaulted Hedge Termination Payments and any indemnity payments provided for in Part 5 of
the Hedge Agreements; and
(v) fifth, to the Holders of the Class CB Certificates, an amount equal to the Class CB
Interest Distributable Amount for such Distribution Date; and
(vi) sixth, any remaining amounts, to the Holders of the Class CA Certificates.
(d) On each Distribution Date, the Trustee shall distribute the funds relating to Excess
Cashflow as follows:
(i) prior to any deposit to the Supplemental Interest Trust, to the Holders of the Class or
Classes of Certificates then entitled to receive distributions in respect of principal, in an amount
equal to any Extra Principal Distribution Amount, distributable to such holders in the same
order of priority as the Group I Principal Distribution Amount and the Group II Principal
Distribution Amount as described in Section 4.01; and
(ii) to the Supplemental Interest Trust to distribute in accordance with Section 4.04(c).
(e) With respect to each Class of Reallocable Certificates, each Class of Class N Certificates
and each Class of DSI Certificates:
(i) upon receipt by the Trustee from the Depositor of a Reallocation Notice (which
Reallocation Notice must be received by the Trustee at least seven Business Days prior to the
Distribution Date on which the Reallocation is sought to be effective), the Trustee shall
allocate, on all future Distribution Dates, the related Percentage Interests of distributions made
on account of the specified, related Class DSI Certificates and Class N Certificates (which must
be the identical Percentage Interest in each related Class DSI Certificate and Class N
Certificate, e.g., 75% Percentage Interest in Class M-10 DSI and 75% Percentage Interest in
Class M-10N) to the Holders of the related Class of Reallocable Certificates (e.g., following
the prior example, Class M-10); and
(ii) unless subject to a prior Reallocation, all amounts otherwise distributable to each
Reallocable Class (or Percentage Interest therein not previously Reallocated) pursuant to
Section 4.01 hereof shall be distributed instead to the related Class of Class N Certificates.
(f) [reserved]
(g) In the event that a Hedge Counterparty elects to post collateral as provided in the related
Hedge Agreement, the Trustee shall establish and maintain an Eligible Account with respect to the related
Hedge Agreement (each, a Hedge Collateral Account) for the benefit of such Hedge Counterparty, as
applicable, and the Certificateholders, as their interests

54

may appear, into which such collateral shall be deposited. The Trustee may or shall (as indicated) make
withdrawals from the related Hedge Collateral Account for the purposes of (i) entering into a substitute
hedge agreement, (ii) funding the amount of any payment due to be made by such Hedge Counterparty
under the related Hedge Agreement, as applicable, following the failure by such Hedge Counterparty to
make that payment or (iii) as permitted pursuant to the related Hedge Agreement or this Agreement. The
Trustee shall make withdrawals from the related Hedge Collateral Account and transfer the collateral (i) as
required of the Trustee pursuant to the related Hedge Agreement or (ii) to the related Hedge Counterparty if
the circumstances which required the posting of collateral no longer exist; and to the extent necessary to
perform such obligation, the Trustee is required to liquidate any investments held in such Hedge Collateral
Account. In the event that additional collateral is required to be posted by a Hedge Counterparty under the
related Hedge Agreement, as applicable, the Trustee shall promptly make a demand on such Hedge
Counterparty to post such additional collateral. To the extent cash makes up all or any portion of the
collateral in a Hedge Collateral Account, such cash shall be invested in Eligible Investments in accordance
with the related Hedge Agreement. Such funds shall be invested at the written direction of the Servicer, or
if the Servicer does not provide such written instructions such funds shall be retained by the Trustee
uninvested. Any and all interest generated by such investment shall be transferred to the related Hedge
Counterparty as provided in the related Hedge Agreement, as applicable, or where unspecified, on each
Distribution Date. In connection with the maintenance and administration of a Hedge Collateral Account,
the Trustee may request and rely on written instructions from the Servicer, which the Servicer hereby
agrees to provide, with respect to the maintenance and administration of such account. For the avoidance of
doubt, the Trustee shall not have any right to apply any amounts or assets in any Hedge Collateral Account
except in accordance with the enforcement and realization of its security interest pursuant to the related
Hedge Agreement or otherwise in accordance with the related Hedge Agreement.
The Trustee may designate an agent to maintain any Hedge Collateral Account, provided that
the following conditions are satisfied: (i) the agents long-term unsubordinated debt is rated at least
BBB+ by S&P and at least Baa1 by Moodys and (ii) the total assets of the agent shall exceed
$25,000,000. Under such circumstances, all references to the Trustee in this subsection (f) shall be to the
Trustees agent appointed pursuant to this paragraph.
Section 4.05 Pre-Funding Account.
(a) No later than the Closing Date, the Trustee, at the direction of the Servicer, shall establish
and maintain, a segregated trust account that is an Eligible Account, which shall be titled Pre-Funding
Account, Deutsche Bank National Trust Company, as Trustee for the registered holders of NovaStar
Mortgage Funding Trust 2006-5, Home Equity Loan Asset-Backed Certificates, Series 2006-5 (the Pre-
Funding Account). The 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 Trustee by the
Depositor. Funds deposited in the Pre-Funding Account shall be held in trust by the Trustee for the
Certificateholders for the uses and purposes set forth herein.
(b) The Trustee will invest funds deposited in the Pre-Funding Account as directed by the
Servicer in writing in Eligible Investments with a maturity date (i) no later than

55

the Business Day immediately preceding the date on which such funds are required to be withdrawn from
such account pursuant to this Agreement, if a Person other than the Trustee or an Affiliate manages or
advises such investment, and (ii) no later than the date on which such funds are required to be withdrawn
from such account pursuant to this Agreement, if the Trustee or an Affiliate manages or advises such
investment. For federal income tax purposes, the Servicer shall be the owner of the Pre-Funding Account
and shall report all items of income, deduction, gain or loss arising therefrom. If the Trustee does not
receive such written investment instructions it shall retain such funds uninvested. All income and gain
realized from investment of funds deposited in the Pre-Funding Account shall be withdrawn and deposited
in the Interest Coverage Account one day before any Distribution Date before the end of the Pre-Funding
Period. The Trustee shall treat the Pre-Funding Account as an outside reserve fund within the meaning of
Treasury Regulation Section 1.860G-2(h). At no time will the Pre-Funding Account be an asset of any
REMIC created hereunder. The Trustee shall not be liable for investment losses on investments selected by
the Servicer pursuant to this Section 4.05(b).
(c) Amounts on deposit in the Pre-Funding Account shall be withdrawn by the Trustee as
follows:
(i) On any Subsequent Transfer Date, the 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 Trustee for deposit in the Mortgage Pool on such
Subsequent Transfer Date and pay such amount to or upon the order of the Depositor upon
satisfaction of the conditions set forth in Section 2.08 of the Purchase Agreement with respect
to such transfer and assignment. If such Subsequent Mortgage Loan is designated for inclusion
in Group I, such amount shall reduce (but not below zero) the remaining Original Pre-Funded
Amount allocated to Group I and if such Subsequent Mortgage Loan is designated for inclusion
in Group II, such amount shall reduce (but not below zero) the remaining Original Pre-Funded
Amount allocated to Group II;
(ii) If the amount on deposit in the Pre-Funding Account has not been reduced to zero on
the day of the termination of the Pre-Funding Period, the Trustee shall deposit into the
Distribution Account on such day any amounts remaining in the Pre-Funding Account relating
to Group I for inclusion in the Group I Principal Remittance Amount and relating to Group II
for inclusion in the Group II Principal Remittance Amount for distribution in accordance with
the terms hereof;
(iii) To withdraw any amount not required to be deposited in the Pre-Funding Account or
deposited therein in error;
(iv) To clear and terminate the Pre-Funding Account upon the earlier to occur of (A) the
Distribution Date immediately following the end of the Pre-Funding Period but not later than
October 31, 2006 and (B) the termination of this Agreement, with any amounts remaining on
deposit therein being paid to the Holders of the Certificates then entitled to distributions in
respect of principal; and

56

(v) To withdraw investment income for deposit in the Interest Coverage Account.
Withdrawals from the Pre-Funding Account pursuant to clauses (i), (ii) and (iv) shall be treated
as contributions of cash to REMIC I on the date of withdrawal.
Section 4.06 Interest Coverage Account
(a) If the Interest Coverage Amount is greater than zero on the Closing Date, the Trustee, at the
direction of the Servicer, shall establish and maintain, a segregated trust account that is an Eligible
Account, which shall be titled Interest Coverage Account, Deutsche Bank National Trust Company, as
Trustee for the registered holders of NovaStar Mortgage Funding Trust 2006-5, Home Equity Loan Asset-
Backed Certificates, Series 2006-5 (the Interest Coverage Account). The Trustee shall, promptly upon
receipt, deposit in the Interest Coverage Account and retain therein (i) the Interest Coverage Amount
(which amount is $0.00) remitted on the Closing Date to the Trustee by the Depositor and (ii) income and
gain realized from investments in the Pre-Funding Account. Funds deposited in the Interest Coverage
Account shall be held in trust by the Trustee, for the Certificateholders for the uses and purposes set forth
herein.
(b) For federal income tax purposes, the Trustee shall treat the Interest Coverage Account as an
outside reserve fund within the meaning of Treasury Regulation Section 1.860G-2(h). The Servicer shall be
the owner of the Interest Coverage Account and shall report all items of income, deduction, gain or loss
arising therefrom. At no time will the Interest Coverage Account be an asset of any REMIC created
hereunder. All income and gain realized from investment of funds deposited in the Interest Coverage
Account shall be for the sole and exclusive benefit of the Servicer and shall be remitted by the Trustee to
the Servicer no later than the following Distribution Date following receipt of such income and gain by the
Trustee. The Servicer shall deposit in the Interest Coverage Account the amount of any net loss incurred in
respect of any such Permitted Investment immediately upon realization of such loss.
(c) On each Distribution Date during the Pre-Funding Period, if any, and on the Distribution
Date immediately following the termination of the Pre-Funding Period, the Trustee shall withdraw from the
Interest Coverage Account, to the extent funds are available therefore, and deposit in the Supplemental
Interest Trust an amount, as provided in the related Determination Date Report, equal to the lesser of (i) the
amount remaining in the Interest Coverage Account for such Distribution Date and (ii) the amount of any
unpaid Monthly Interest Distributable Amount for the Class A Certificates and the Mezzanine Certificates,
to the extent not paid pursuant to Section 4.01(a)(i).
(d) Upon the earliest of (i) the Distribution Date immediately following the end of the Pre-
Funding Period, (ii) the reduction of the Certificate Principal Balances of the Certificates to zero or (iii) the
termination of this Agreement in accordance with Section 11.01, any amount remaining on deposit in the
Interest Coverage Account after distributions pursuant to paragraph (c) above shall be withdrawn by the
Trustee and remitted to the Servicer or its designee, solely upon the Servicers written direction.

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(e) Amounts in the Interest Coverage Account shall only be invested at the prior written
direction of the Servicer. If no such prior written investment direction has been provided by the Servicer to
the Trustee, the Trustee shall hold such amounts uninvested.
Section 4.07 Allocation of Realized Losses.
All Realized Losses on the Mortgage Loans shall be allocated by the Trustee on each
Distribution Date as follows: first, to amounts of Excess Cashflow, second, to the Overcollateralization
Amount, third, to the Class M-12 Certificates, until the Certificate Principal Balance thereof has been
reduced to zero; fourth, to the Class M-11 Certificates, until the Certificate Principal Balance thereof has
been reduced to zero; fifth, to the Class M-10 Certificates, until the Certificate Principal Balance thereof
has been reduced to zero; sixth, to the Class M-9 Certificates, until the Certificate Principal Balance thereof
has been reduced to zero; seventh, to the Class M-8 Certificates, until the Certificate Principal Balance
thereof has been reduced to zero; eighth, to the Class M-7 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; ninth, to the Class M-6 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; tenth, to the Class M-5 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; eleventh, to the Class M-4 Certificates; twelfth, to the Class M-3
Certificates, until the Certificate Principal Balance of each such Class has been reduced to zero; thirteenth,
to the Class M-2 Certificates, until the Certificate Principal Balance of each such Class has been reduced to
zero; and fourteenth, to the Class M-1 Certificates, until the Certificate Principal Balance of each such
Class has been reduced to zero. All Realized Losses to be allocated to the Certificate Principal Balances of
all Classes on any Distribution Date shall be so allocated after the actual distributions to be made on such
date as provided above. All references above to the Certificate Principal Balance of any Class of
Certificates shall be to the Certificate Principal Balance of such Class immediately prior to the relevant
Distribution Date, before reduction thereof by any Realized Losses, in each case to be allocated to such
Class of Certificates, on such Distribution Date. In no event shall Realized Losses be allocated to the
Class A-1A Certificates, the Group II Certificates or the Class I Certificates.
Any allocation of Realized Losses to a Mezzanine Certificate on any Distribution Date shall be
made by reducing the Certificate Principal Balance thereof by the amount so allocated. Any Subsequent
Recoveries will be allocated to the Overcollateralization Amount and Mezzanine Certificates in the reverse
order of the Realized Loss allocation set forth in the preceding paragraph, to the extent of the Realized Loss
allocated to each related Certificate (or in the case of the Overcollateralization Amount, to the extent of the
Realized Loss allocated to such Overcollateralization Amount).

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ARTICLE V
THE CERTIFICATES
Section 5.01 The Certificates.
Each of the Class A Certificates, the Mezzanine Certificates, the Class DSI Certificates, the
Class C Certificates, the Class I Certificates and the Residual Certificates shall be substantially in the forms
annexed hereto as exhibits, and shall, on original issue, be executed, authenticated and delivered by the
Trustee to or upon the order of the Depositor concurrently with the sale and assignment to the Issuing
Entity of the Trust Fund. The Class A Certificates and Mezzanine Certificates shall be initially evidenced
by one or more Certificates representing a Percentage Interest with a minimum dollar denomination of
$25,000 and integral dollar multiples of $1,000 in excess thereof, with a minimum investment of $100,000
(if the Certificates are Book-Entry Certificates), except that one Certificate of each such Class of
Certificates may be in a different denomination so that the sum of the denominations of all outstanding
Certificates of such Class shall equal the Certificate Principal Balance of such Class on the Closing Date.
The Class DSI Certificates, the Class C Certificates, the Class I Certificates and the Residual Certificates
are issuable in any Percentage Interests; provided, however, that the sum of all such percentages for each
such Class totals 100% and no more than ten Certificates of each Class may be issued.
The Certificates shall be executed on behalf of the Issuing Entity by manual or facsimile
signature on behalf of the Trustee by a Responsible Officer. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures were affixed, authorized to sign on
behalf of the Trustee shall bind the Issuing Entity, notwithstanding that such individuals or any of them
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 such Certificate. No Certificate shall be entitled to any benefit under this
Agreement or be valid for any purpose, unless such Certificate shall have been manually authenticated by
the Trustee substantially in the form provided for herein, and such authentication upon any Certificate shall
be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their authentication. Subject to
Section 5.02(c), the Class A Certificates, the Mezzanine Certificates and the Class DSI Certificates shall be
Book-Entry Certificates. The other Classes of Certificates shall be Definitive Certificates.
Section 5.02 Registration of Transfer and Exchange of Certificates.
(a) The Certificate Registrar shall cause to be kept at the Corporate Trust Office 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.
The Trustee shall initially serve as Certificate Registrar for the purpose of registering Certificates and
transfers and exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at the office designated in the
definition of Corporate Trust Office maintained for such purpose pursuant to

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the foregoing paragraph and, in the case of a Residual Certificate, upon satisfaction of the conditions set
forth below, the Trustee on behalf of the Issuing Entity shall execute, authenticate and deliver, in the name
of the designated transferee or transferees, one or more new Certificates of the same aggregate Percentage
Interest.
At the option of the Certificateholders, Certificates may be exchanged for other Certificates in
authorized denominations and the same aggregate Percentage Interests, upon surrender of the Certificates
to be exchanged at such designated office. Whenever any Certificates are so surrendered for exchange, the
Trustee shall execute on behalf of the Issuing Entity and authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for
registration of transfer or exchange shall (if so required by the Trustee or the Certificate Registrar) be duly
endorsed by, or be accompanied by a written instrument of transfer satisfactory to the Trustee and the
Certificate Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing.
(b) Except as provided in paragraph (c) below, the Book-Entry Certificates shall at all times
remain registered in the name of the Depository or its nominee and at all times: (i) registration of such
Certificates may not be transferred by the Trustee except to another Depository; (ii) the Depository shall
maintain book-entry records with respect to the Certificate Owners and with respect to ownership and
transfers of such Certificates; (iii) ownership and transfers of registration of such Certificates on the books
of the Depository shall be governed by applicable rules established by the Depository; (iv) the Depository
may collect its usual and customary fees, charges and expenses from its Depository Participants; (v) the
Trustee shall for all purposes deal with the Depository as representative of the Certificate Owners of the
Certificates for purposes of exercising the rights of Holders under this Agreement, and requests and
directions for and votes of such representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; (vi) the Trustee may rely and shall be fully protected in relying
upon information furnished by the Depository with respect to its Depository Participants and furnished by
the Depository Participants with respect to indirect participating firms and Persons shown on the books of
such indirect participating firms as direct or indirect Certificate Owners; and (vii) the direct participants of
the Depository shall have no rights under this Agreement under or with respect to any of the Certificates
held on their behalf by the Depository, and the Depository may be treated by the Trustee, the Trustee and
its agents, employees, officers and directors as the absolute owner of the Certificates for all purposes
whatsoever.
All transfers by Certificate Owners of Book-Entry Certificates shall be made in accordance
with the procedures established by the Depository Participant or brokerage firm representing such
Certificate Owners. Each Depository Participant shall only transfer Book-Entry Certificates of Certificate
Owners that it represents or of brokerage firms for which it acts as agent in accordance with the
Depositorys normal procedures. The parties hereto are hereby authorized to execute a Letter of
Representations with the Depository or take such other action as may be necessary or desirable to register a
Book-Entry Certificate to the Depository. In the event of any conflict between the terms of any such Letter
of Representation and this Agreement, the terms of this Agreement shall control.

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(c) If (i)(x) the Depository or the Depositor advises the Trustee in writing that the Depository is
no longer willing or able to discharge properly its responsibilities as Depository and (y) the Depositor is
unable to locate a qualified successor, or (ii) after the occurrence of a Servicing Default, the Certificate
Owners of the Book-Entry Certificates representing not less than 51% of the Voting Rights advise the
Trustee and Depository through the Financial Intermediaries and the Depository Participants in writing that
the continuation of a book-entry system through the Depository to the exclusion of definitive, fully
registered certificates (Definitive Certificates) to Certificate Owners is no longer in the best interests of
the Certificate Owners. Upon surrender to the Certificate Registrar of the Book-Entry Certificates by the
Depository, accompanied by registration instructions from the Depository for registration, the Trustee shall,
at the Sponsors expense, execute on behalf of the Issuing Entity and authenticate the Definitive
Certificates. Neither the Depositor nor the 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 Certificates, the Trustee, the Certificate Registrar, the Servicer, any Paying Agent
and the Depositor shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder.
(d) No transfer, sale, pledge or other disposition of any Class M-10 Certificate, Class M-11
Certificate, Class M-12 Certificate, Class N Certificate, Class DSI Certificate, Class CA Certificate, Class
CB Certificate or Residual Certificate shall be made unless such disposition is exempt from the registration
requirements of the Securities Act of 1933, as amended (the 1933 Act), and any applicable state
securities laws or is made in accordance with the 1933 Act and laws. In the event of any such transfer,
except with respect to transfers of any Class M-10 Certificate, Class M-11 Certificate, Class M-12
Certificate, Class N Certificate, Class DSI Certificate, Class CA Certificate, Class CB Certificate or
Residual Certificates by or to the Depositor by or to NCFLLC by or to NCFC, or by or to NCFC by or to
NCFLLC by or to Greenwich Capital Financial Products, Inc., Wachovia Investment Holdings, LLC, or
Newport Funding Corp., unless (i) such transfer is made in reliance upon Rule 144A under the 1933 Act
and an investment letter, in substantially the form attached hereto as Exhibit G, is delivered by the
Transferee to the Trustee) or (ii) a written Opinion of Counsel (which may be in-house counsel) acceptable
to and in form and substance reasonably satisfactory to the Trustee and the Depositor is delivered to them
stating that such transfer may be made pursuant to (x) the 1933 Act, or an exemption thereto, describing the
applicable provision or exemption and the basis therefore, and (y) the Investment Company Act of 1940, or
an exemption thereto, describing the applicable provision or exemption and the basis therefore, which
Opinion of Counsel shall not be an expense of the Trustee or the Depositor. The Holder of a Class M-10
Certificate, Class M-11 Certificate, Class M-12 Certificate, Class N Certificate, Class DSI Certificate,
Class CA Certificate, Class CB Certificate or Residual Certificate desiring to effect such transfer shall
indemnify and hold harmless the Trustee and the Depositor against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal and state laws.
The Class I Certificates shall be registered in the name of the Supplemental Interest Trust and
shall not be transferable.
No transfer of a Class M-10 Certificate, Class M-11 Certificate, Class M-12 Certificate, Class
N Certificate, Class DSI Certificate, Class CA Certificate, Class CB Certificate

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or Residual Certificate or any interest therein shall be made to any Plan or to any Person acting, directly or
indirectly, on behalf of any such Plan or acquiring such Certificates with plan assets of a Plan within the
meaning of the Department of Labor regulation promulgated at 29 C.F.R. 2510.3-101 or otherwise (Plan
Assets). Each Person who acquires any Ownership Interest in such Classes of Certificates shall be
deemed, by the acceptance or acquisition of such Ownership Interest, to represent that it is not a Plan and is
not acting, directly or indirectly, on behalf of a Plan or acquiring such Ownership Interest with Plan Assets.
The foregoing restrictions shall not apply to the transfer of any Class M-10 Certificate that has been sold
pursuant to a Qualified Underwriting, provided such transfer satisfies the other conditions under an
Underwriter Exemption. The foregoing restrictions shall not apply to the transfer of any Class M-11
Certificate or Class M-12 Certificate that has been sold pursuant to a Qualified Underwriting, provided
such transfer is to an insurance company general account (within the meaning of PTCE 95-60) and the
conditions set forth in Sections I and III of PTCE 95-60 have been satisfied.
Reallocations are not, in and of themselves, transfers, sales, pledges or other dispositions of
the related Classes requiring any action pursuant to this Section 5.02.
The Depositor agrees to provide, upon request of any holder of a private Certificate or of any
prospective purchaser of a private Certificate designated by such holder, at or prior to the time of sale,
reasonably current information concerning the Issuing Entity and the Mortgage Loans, as more specifically
detailed pursuant to Rule 144A(d) under the 1933 Act.
Prior to the expiration of the Pre-Funding Period, no transfer of Class A Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates,
Class M-6 Certificates, Class M-7 Certificates, Class M-8 Certificates or Class M-9 Certificates or any
interest therein shall be made to any Person acquiring such Certificates with Plan Assets. Each Person who
acquires any Ownership Interest in such Class of Certificates prior to the expiration of the Pre-Funding
Period shall be deemed, by the acceptance or acquisition of such Ownership Interest, to represent that it is
not acquiring such Ownership Interest with Plan Assets.
Each Person who has or who acquires any Ownership Interest in a Residual Certificate shall be
deemed by the acceptance or acquisition of such Ownership Interest to have agreed to be bound by the
following provisions and to have irrevocably appointed the Depositor or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under clause (v) below and to execute all instruments of
transfer and to do all other things necessary in connection with any such sale, and the rights of each Person
acquiring any Ownership Interest in a Residual Certificate are expressly subject to the following
provisions:
(i) Each Person holding or acquiring any Ownership Interest in a Residual Certificate
shall be a Permitted Transferee and shall promptly notify the Trustee of any change or
impending change in its status as a Permitted Transferee.
(ii) No Person shall acquire an Ownership Interest in a Residual Certificate unless such
Ownership Interest is a pro-rata undivided interest.

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(iii) In connection with any proposed transfer of any Ownership Interest in a Residual
Certificate, the Trustee shall as a condition to registration of the transfer, require delivery to it,
in form and substance satisfactory to it, of each of the following:
(A) an affidavit in the form of Exhibit H hereto from the proposed transferee to the effect that
such transferee is a Permitted Transferee and that it is not acquiring its Ownership Interest in the Residual
Certificate that is the subject of the proposed transfer as a nominee, Trustee or agent for any Person who is
not a Permitted Transferee; and
(B) an affidavit in the form of Exhibit I hereto from the proposed transferor to the effect that no
purpose of the transfer is to impede the assessment or collection of any tax.
(iv) Any attempted or purported transfer of any Ownership Interest in a Residual
Certificate in violation of the provisions of this Section shall be absolutely null and void and
shall vest no rights in the purported transferee. If any purported transferee shall, in violation of
the provisions of this Section, become a Holder of a Residual Certificate, then the prior Holder
of such Residual Certificate that is a Permitted Transferee shall, upon discovery that the
registration of transfer of such Residual Certificate was not in fact permitted by this Section, be
restored to all rights as Holder thereof retroactive to the date of registration of transfer of such
Residual Certificate. The Trustee shall be under no liability to any Person for any registration
of transfer of a Residual Certificate that is in fact not permitted by this Section or for making
any distributions due on such Residual Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of this Agreement so long as the
Trustee received the documents specified in clause (iii). The Trustee shall be entitled to recover
from any Holder of a Residual Certificate that was in fact not a Permitted Transferee at the
time such distributions were made all distributions made on such Residual Certificate. Any
such distributions so recovered by the Trustee shall be distributed and delivered by the Trustee
to the prior Holder of such Residual Certificate that is a Permitted Transferee.
(v) If any Person other than a Permitted Transferee acquires any Ownership Interest in a
Residual Certificate in violation of the restrictions in this Section, then the Trustee shall have
the right but not the obligation, without notice to the Holder of such Residual Certificate or any
other Person having an Ownership Interest therein, to notify the Depositor to arrange for the
sale of such Residual Certificate. The proceeds of such sale, net of commissions (which may
include commissions payable to the Depositor or its affiliates in connection with such sale),
expenses and taxes due, if any, will be remitted by the Trustee to the previous Holder of such
Residual Certificate that is a Permitted Transferee, except that in the event that the Trustee
determines that the Holder of such Residual Certificate may be liable for any amount due under
this Section or any other provisions of this Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim. The terms and
conditions of any sale under this clause (v) shall be determined in the sole discretion of the
Trustee

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and the Depositor and neither of them shall be liable to any Person having an Ownership
Interest in a Residual Certificate as a result of its exercise of such discretion.
(vi) If any Person other than a Permitted Transferee acquires any Ownership Interest in a
Residual Certificate in violation of the restrictions in this Section, then the Trustee upon receipt
of reasonable compensation will provide to the Internal Revenue Service, and to the persons
specified in Sections 860E(e)(3) and (6) of the Code, information needed to compute the tax
imposed under Section 860E(e) of the Code on transfers of residual interests to disqualified
organizations.
The foregoing provisions of this Section shall cease to apply to transfers occurring on or after
the date on which there shall have been delivered to the Trustee, in form and substance satisfactory to the
Trustee, (i) written notification from each Rating Agency that the removal of the restrictions on Transfer set
forth in this Section will not cause such Rating Agency to downgrade its rating of the Certificates and
(ii) an Opinion of Counsel to the effect that such removal will not cause any REMIC created hereunder to
fail to qualify as a REMIC.
(e) No service charge shall be made for any registration of transfer or exchange of Certificates
of any Class, but 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.
All Certificates surrendered for registration of transfer or exchange shall be cancelled by the
Certificate Registrar and disposed of pursuant to its standard procedures.
Section 5.03 Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Certificate Registrar or the Certificate
Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (ii) there
is delivered to the Trustee, the Depositor and the Certificate Registrar such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice to the Trustee or the
Certificate Registrar that such Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute on behalf of the Issuing Entity, 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 Percentage Interest. Upon
the issuance of any new Certificate under this Section, the Trustee or the Certificate Registrar may require
the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the Trustee and the Certificate
Registrar) in connection therewith. Any duplicate Certificate issued pursuant to this Section, shall
constitute complete and indefeasible evidence of ownership in the Issuing Entity, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any time.

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Section 5.04 Persons Deemed Owners.
The Servicer, the Depositor, the Trustee, the Certificate Registrar, any Paying Agent and any
agent of the Servicer, the Depositor, the Trustee, the Certificate Registrar or any Paying Agent may treat
the Person, including a Depository, in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 4.01 and for all other purposes
whatsoever, and none of the Servicer, the Issuing Entity, the Trustee nor any agent of any of them shall be
affected by notice to the contrary.
Section 5.05 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions to Certificateholders from the Distribution
Account pursuant to Section 4.01 and shall report the amounts of such distributions to the Trustee. The
duties of the Paying Agent may include the obligation to distribute statements prepared by the Trustee
pursuant to Section 4.03 and provide information to Certificateholders as required hereunder. The Paying
Agent hereunder shall at all times be an entity duly incorporated and validly existing under the laws of the
United States of America or any state thereof, authorized under such laws to exercise corporate trust
powers and subject to supervision or examination by federal or state authorities. The Paying Agent shall
initially be the Trustee. The Trustee may appoint a successor to act as Paying Agent, which appointment
shall be reasonably satisfactory to the Depositor.
(b) The Trustee shall cause the Paying Agent (if other than the Trustee) to execute and deliver
to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying
Agent shall hold all sums, if any, held by it for payment to the Certificateholders in trust for the benefit of
the Certificateholders entitled thereto until such sums shall be paid to such Certificateholders and shall
agree that it shall comply with all requirements of the Code regarding the withholding of payments in
respect of Federal income taxes due from Certificate Owners and otherwise comply with the provisions of
this Agreement applicable to it.
ARTICLE VI
THE SERVICER AND THE DEPOSITOR
Section 6.01 Liability of the Servicer and the Depositor.
The Servicer shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by Servicer herein. The Depositor shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and undertaken by the Depositor.
Section 6.02 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or
the Depositor.
Any entity into which the Servicer or Depositor may be merged or consolidated, or any entity
resulting from any merger, conversion or consolidation to which the Servicer or the Depositor shall be a
party, or any corporation succeeding to the business of the Servicer or the Depositor, shall be the successor
of the Servicer or the Depositor, as the case may be, hereunder,

65

without the execution or filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding; provided, however, that the successor Servicer shall satisfy
all the requirements of Section 7.02 with respect to the qualifications of a successor Servicer.
Section 6.03 Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of the directors or officers or employees or agents of the Servicer
shall be under any liability to the Issuing Entity or the Certificateholders for any action taken or for
refraining from the taking of any action by the Servicer in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the 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 duties of the Servicer or by reason of its reckless disregard of its
obligations and duties of the Servicer hereunder.
The Servicer and any director or officer or employee or agent of the 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 Servicer and any director or officer or employee or agent of the Servicer
shall be indemnified by the Issuing Entity and held harmless against any loss, liability or expense incurred
in connection with any legal action relating to this Agreement or the Certificates, including any amount
paid to the Trustee pursuant to Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense incurred by reason of 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 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 Agreement, and which in its opinion may involve it in any expense or liability;
provided, however, that the Servicer may in its sole discretion undertake any such action which it may
deem necessary or desirable in respect of this Agreement, and the rights and duties of the parties hereto and
the interests of the Certificateholders 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 Issuing
Entity, and the Servicer shall be entitled to be reimbursed therefor. The Servicers right to indemnity or
reimbursement pursuant to this Section 6.03 shall survive any resignation or termination of the Servicer
pursuant to Section 6.04 or 7.01 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 Servicer from the Issuing Entity pursuant to
this Section 6.03 shall be payable in the priority set forth in Section 4.01 hereof.
Section 6.04 Servicer Not to Resign.
Subject to the provisions of Section 6.02, the 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

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satisfaction of the following conditions: (a) subject to the rights of a Servicing Rights Pledgee pursuant to
Section 3.28, the Servicer has proposed a successor servicer to the Trustee in writing and such proposed
successor servicer is reasonably acceptable to the Trustee; and (b) each Rating Agency shall have delivered
a letter to the Trustee prior to the appointment of the successor servicer stating that the proposed
appointment of such successor servicer as Servicer hereunder will not result in the reduction or withdrawal
of then current rating of the Certificates; provided, however, that no such resignation by the Servicer shall
become effective until such successor servicer or, in the case of (i) above, the Trustee or its designee as
successor Servicer shall have assumed the Servicers responsibilities and obligations hereunder or shall
have designated a successor servicer in accordance with Section 7.02. Any such resignation shall not
relieve the Servicer of responsibility for any of the obligations specified in Sections 7.01 and 7.02 as
obligations that survive the resignation or termination of the Servicer. The Servicer shall have no claim
(whether by subrogation or otherwise) or other action against any Certificateholder for any amounts paid by
the Servicer pursuant to any provision of this Pooling and Agreement. Any such determination permitting
the resignation of the Servicer under clause (i) above shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee.
Section 6.05 Delegation of Duties.
In the ordinary course of business, the Servicer at any time may 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 Servicer complies pursuant to Section 3.01. Such delegation shall
not relieve the Servicer of its liabilities and responsibilities with respect to such duties and shall not
constitute a resignation within the meaning of Section 6.04.
Section 6.06 Servicing Rights Owner to Pay Trustees Fees and Expenses; Indemnification.
(a) The Servicing Rights Owner covenants and agrees to pay to the Trustee and any co-trustee
of the Trustee from time to time, and the Trustee and any such co-trustee shall be entitled to, reasonable
compensation, including 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) for all services rendered by each of them in
the execution of the trusts created hereunder and in the exercise and performance of any of the powers and
duties and the Servicing Rights Owner will pay or reimburse the Trustee and any co-trustee upon request
for all reasonable expenses, disbursements and advances incurred or made by the Trustee or any co-trustee
of the Trustee in accordance with any of the provisions of this Agreement except any such expense,
disbursement or advance as may arise from its negligence or bad faith.
(b) The Servicing Rights Owner agrees to indemnify the Trustee for, and to defend and hold,
the Trustee harmless against, any claim, tax, penalty, loss, liability or expense of any kind whatsoever,
incurred without gross negligence or willful misconduct on the part of the Trustee as such and/or in its
individual capacity, arising out of, or in connection with, the performance of the Trustees duties under this
Agreement or the other Basic Documents, including the reasonable costs and expenses (including
reasonable legal fees and expenses) of

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defending itself against any claim in connection with the exercise or performance of any of its powers or
duties hereunder, provided that:
(i) with respect to any such claim, the Trustee shall have given the Servicing Rights
Owner written notice thereof promptly after the Trustee shall have actual knowledge thereof,
provided that failure to promptly notify shall not relieve the Servicing Rights Owner of its
liability to indemnify hereunder except to the extent it has been materially prejudiced thereby;
(ii) while maintaining control over its own defense, the Trustee shall cooperate and
consult fully with the Servicing Rights Owner in preparing such defense; and
(iii) notwithstanding anything in this Agreement to the contrary, the Servicing Rights
Owner shall not be liable for settlement of any claim by the Trustee entered into without the
prior consent of the Servicing Rights Owner, which consent shall not be unreasonably
withheld.
No termination of this Agreement and resignation and removal of the Trustee shall affect the
obligations created by this Section 6.06 of the Servicing Rights Owner to indemnify the Trustee under the
conditions and to the extent set forth herein. This section shall survive the termination of this Agreement
and resignation and removal of the Trustee. Any amounts to be paid by the Servicing Rights Owner
pursuant to this Subsection may not be paid from the Trust Fund except as provided in Section 6.03.
Notwithstanding the foregoing, the indemnification provided by the Servicing Rights Owner in
this Section 6.06 shall not pertain to any loss, liability or expense of the Trustee including the costs and
expenses of defending itself against any claim, incurred in connection with any actions taken by the Trustee
at the direction of the Certificateholders, as the case may be, pursuant to the terms of this Agreement.
(c) The Servicer agrees to indemnify the Trust Fund in an amount equal to the amount of any
claim made under a MI Policy for which coverage is denied by the MI Insurer because (and if the MI
Insurers denial of coverage is contested by the Servicing Rights Owner or the Servicer, a court or
arbitrator finally determines that coverage is not available under the MI Policy because) of the Servicers
failure to abide by the terms of the MI Policy or the MI Insurance Agreement or the Servicers failure to
abide by the NFI Underwriting Guidelines or the NFI Servicing Guidelines, as attached to the MI Insurance
Agreement.
(d) In the event the Trustee becomes the Servicer pursuant to Section 7.02 hereof, the Trustee
shall not be obligated, in its individual capacity, to pay any obligation of the Servicer under clause
(c) above or clause (e) below.
(e) To the extent any amounts set forth in clause (a) or (b) above are not paid by the Servicing
Rights Owner for any reason, such amounts shall be paid by the Servicer, except that, if the successor
servicer is the Trustee, then any such amounts shall be paid by NovaStar Mortgage, Inc.

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ARTICLE VII
DEFAULT
Section 7.01 Servicing Default.
(a) If any one of the following events (a Servicing Default) shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the Collection Account or Distribution
Account (A) any Advances and Compensating Interest or (B) any other Deposit required to be
made under the terms of this Agreement, which, in the case of this clause (B), continues
unremedied for a period of three Business Days after the date upon which written notice of
such failure shall have been given to the Servicer by the Trustee or to the Servicer and the
Trustee by the Holders of Certificates evidencing at least 25% of the Voting Rights; or
(ii) Failure on the part of the Servicer duly to observe or perform in any material respect
any other covenants or agreements of the Servicer set forth in this Agreement, which failure, in
each case, materially and adversely affects the interests of Certificateholders or the breach of
any representation or warranty of the Servicer in this Agreement which materially and
adversely affects the interests of the Certificateholders, and which in either case continues
unremedied for a period of 30 days after the date on which written notice of such failure or
breach, requiring the same to be remedied, and stating that such notice is a Notice of Default
hereunder, shall have been given to the Servicer by the Trustee or to the Servicer and the
Trustee by the Holders of Certificates evidencing at least 25% of the Voting Rights; or
(iii) The entry against the Servicer of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshaling 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 Servicer shall voluntarily go into liquidation, consent to the appointment of a
conservator, receiver, liquidator or similar person in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating to the 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, marshaling of
assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Servicer and such decree or order shall have remained in
force undischarged, unbonded or unstayed for a period of

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60 days; or the 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) The Cumulative Loss Percentage exceeds (a) with respect to the first 12 Distribution
Dates, 1.90%, (b) with respect to the next 12 Distribution Dates, 3.00% (c) with respect to the
next 12 Distribution Dates, 4.25%, (d) with respect to the next 12 Distribution Dates, 5.25%,
(e) with respect to the next 12 Distribution Dates, 6.25%, (f) and with respect to all Distribution
Dates thereafter, 7.50%; or
(vi) Realized Losses on the Mortgage Loans over any twelve-month period exceeds
2.70% of the sum of the aggregate Principal Balance of the Initial Mortgage Loans as of the
Cut-off Date and the Original Pre-Funded Amount; or
(vii) The Rolling 90 Day Delinquency Percentage exceeds 22%.
(b) then, and in each and every such case, so long as a Servicing Default shall not have been
remedied within the applicable grace period, (x) with respect solely to clause (a)(i)(A) above, if such
Advance is not made by 5:00 P.M., New York time, on the Business Day immediately following the
Servicer Remittance Date (provided the Trustee shall give the Servicer notice of such failure to advance by
5:00 P.M., New York time, on the Servicer Remittance Date), the Trustee shall terminate all of the rights
and obligations of the Servicer under this Agreement and the Trustee, or a successor servicer appointed in
accordance with Section 7.02, shall assume, pursuant to Section 7.02, the duties of a successor Servicer and
(y) in the case of (a)(i)(B), (a) (ii), (a) (iii), (a) (iv), (a) (v), (a) (vi) and (a) (vii) above, the Trustee shall, at
the direction of the Holders of Certificates evidencing at least 51% of the Voters Rights, by notice then
given in writing to the Servicer (and to the Trustee if given by Holders of Certificates), terminate all of the
rights and obligations of the Servicer as servicer under this Agreement. Any such notice to the Servicer
shall also be given to the Servicing Rights Pledgee, Trustee, each Rating Agency, the Depositor, each
Hedge Counterparty (if prior to the Class I Termination Date) and the Sponsor. On or after the receipt by
the Servicer (and by the Trustee if such notice is given by the Holders) of such written notice, all authority
and power of the Servicer under this Agreement, whether with respect to the Certificates or the Mortgage
Loans or otherwise, shall pass to and be vested in the Trustee or other successor Servicer appointed in
accordance with Section 7.02.
In the event of a Servicing Default, notwithstanding anything to the contrary in this agreement,
the Trustee and the Depositor hereby agree that upon delivery to the Trustee by the Servicing Rights
Pledgee of a letter signed by the Servicing Rights Pledgee within 15 days of when the Servicer provides the
Servicing Rights Pledgee notice of such Servicing Default, the Servicing Rights Pledgee or its designee
shall be appointed as successor Servicer, provided that at the time of such appointment, the Servicing
Rights Pledgee or such designee meets the requirements of a successor Servicer set forth in Section 7.02
below, the Servicing Rights Pledgee or such designee agrees to be subject to the terms of this Agreement
and the Servicing Rights Pledgee or such designee assumes the Advance obligations of the Trustee as
outlined in Section 7.02(a), provided, however, that at such time the Servicing Rights Pledgee will have the
right to reimbursement as outlined in Section 3.07.

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Section 7.02 Trustee to Act; Appointment of Successor.
(a) Within 90 days of the time the Servicer (and the Trustee if notice is sent by the Holders)
receives a notice of termination pursuant to Section 7.01, the Trustee (or such other successor Servicer as is
approved in accordance with this Agreement) shall be the successor in all respects to the Servicer in its
capacity as servicer under this Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms
and provisions hereof arising on and after its succession. Notwithstanding the foregoing, the parties hereto
agree that the Trustee, in its capacity as successor Servicer, immediately will assume all of the obligations
of the Servicer to make Advances; provided however, that the obligation of the Trustee to make Advances
is subject to the standards set forth in Section 3.25 hereof. Notwithstanding the foregoing, the Trustee, in its
capacity as successor Servicer, shall not be responsible for the lack of information and/or documents that it
cannot obtain through reasonable efforts. As compensation therefor, the Trustee (or such other successor
Servicer) shall be entitled to such compensation as the Servicer would have been entitled to hereunder if no
such notice of termination had been given. Notwithstanding the above, (i) if the Trustee is unwilling to act
as successor Servicer or (ii) if the Trustee is legally unable so to act, the Trustee shall appoint or petition a
court of competent jurisdiction to appoint, any established housing and home finance institution, bank or
other mortgage loan or home equity loan servicer having a net worth of not less than $100,000,000 as the
successor to the Servicer hereunder in the assumption of all or any part of the responsibilities, duties or
liabilities of the Servicer hereunder; provided, that the appointment of any such successor Servicer will not
result in the qualification, reduction or withdrawal of the ratings assigned to the Certificates by the Rating
Agencies as evidenced by a letter to such effect from the Rating Agencies. Pending appointment of a
successor to the Servicer hereunder, unless the Trustee is prohibited by law from so acting, the Trustee
shall act in such capacity as hereinabove provided. In connection with such appointment and assumption,
the successor (including the Trustee as successor Servicer) shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the Servicer would otherwise
have received pursuant to Section 3.15 (or such other compensation as the Trustee and such successor shall
agree, not to exceed the Servicing Fee). The appointment of a successor Servicer shall not affect any
liability of the predecessor Servicer which may have arisen under this Agreement prior to its termination as
Servicer to pay any deductible under an insurance policy pursuant to Section 3.11 or to indemnify the
Trustee pursuant to Section 3.06, nor shall any successor Servicer be liable for any acts or omissions of the
predecessor Servicer or for any breach by such Servicer of any of its representations or warranties
contained herein or in any related document or agreement. The Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any such succession. All
Servicing Transfer Costs shall be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs, and if such predecessor Servicer defaults in its obligation to pay such costs,
such costs shall be paid by the successor Servicer (in which case the successor Servicer shall be entitled to
reimbursement therefor from the assets of the Issuing Entity) or if not paid, then by the Trustee from the
Trust Fund.

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(b) Any successor, including the Trustee, to the Servicer as servicer shall during the term of its
service as servicer continue to service and administer the Mortgage Loans for the benefit of
Certificateholders, and maintain in force a policy or policies of insurance covering errors and omissions in
the performance of its obligations as Servicer hereunder and a Fidelity Bond in respect of its officers,
employees and agents to the same extent as the Servicer is so required pursuant to Section 3.11.
(c) In connection with the termination or resignation of the Servicer hereunder, either (i) the
successor Servicer, shall represent and warrant that it is a member of MERS in good standing and shall
agree to comply in all material respects with the rules and procedures of MERS in connection with the
servicing of the Mortgage Loans that are registered with MERS, in which case the predecessor Servicer
shall cooperate with the successor Servicer in causing MERS to revise its records to reflect the transfer of
servicing to the successor Servicer as necessary under MERS rules and regulations, or (ii) the predecessor
Servicer shall cooperate with the successor Servicer in causing MERS to execute and deliver an assignment
of Mortgage in recordable form to transfer the Mortgages from MERS to the Trustee and to execute and
deliver such other notices, documents and other instruments as may be necessary or desirable to effect a
transfer of such Mortgage Loans or servicing of such Mortgage Loan on the MERS System to the successor
Servicer. The predecessor Servicer shall file or cause to be filed any such assignment in the appropriate
recording offices. The predecessor Servicer shall bear any and all fees of MERS, costs of preparing any
assignments of Mortgage, and fees and costs of filing any assignments of Mortgage that may be required
under this subsection (c). The successor Servicer shall cause assignment to be delivered to the Trustee
promptly upon receipt of the original with evidence of recording thereon or a copy certified by the public
recording office in which such assignment was recorded.
Section 7.03 Waiver of Defaults.
The Majority Certificateholders may, on behalf of all Certificateholders, waive any events
permitting removal of the Servicer as servicer pursuant to this Article VII by delivering written notice to
the Trustee, provided, however, that the Majority Certificateholders may not waive a default in making a
required distribution on a Certificate without the consent of the Holder of such Certificate. Upon any
waiver of a past default, such default shall cease to exist and any Servicing Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the extent expressly so waived.
Notice of any such waiver shall be given by the Trustee to the Rating Agencies.
Section 7.04 Notification to Certificateholders.
(a) Upon any termination or appointment of a successor to the Servicer pursuant to this Article
VII, the Trustee shall give prompt written notice thereof to the Hedge Counterparties, if prior to the Class I
Termination Date, to the Certificateholders at their respective addresses appearing in the Certificate
Register and to each Rating Agency.
(b) No later than 60 days after the occurrence of any event which constitutes or which, with
notice or a lapse of time or both, would constitute a Servicing Default for five

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Business Days after a Responsible Officer of the Trustee obtains actual knowledge or written notice of the
occurrence of such an event, the Trustee shall transmit by mail to the Hedge Counterparties, if prior to the
Class I Termination Date, and all Certificateholders notice of such occurrence unless such default or
Servicing Default shall have been waived or cured.
Section 7.05 Survivability of Servicer Liabilities.
Notwithstanding anything herein to the contrary, upon termination of the Servicer hereunder,
any liabilities of the Servicer which accrued prior to such termination shall survive such termination.
ARTICLE VIII
THE TRUSTEE
Section 8.01 Duties of the Trustee.
On the Closing Date, the Trustee will act as paying agent and will distribute the proceeds from
the sale of the Offered Certificates according to the closing settlement statement provided by the Sponsor.
If a Servicing Default has occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Agreement and use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of such persons own affairs.
(a) Except during the continuance of a Servicing Default:
(i) the Trustee undertakes to perform such duties and only such duties as are specifically
set forth in this Agreement with respect to the Trustee and no implied covenants or obligations
shall be read into this Agreement against the Trustee; and
(ii) in the absence of bad faith on its part, the 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 Trustee and conforming to the requirements of this Agreement;
provided, however, that the Trustee shall examine the certificates and opinions delivered to it
to determine whether or not they conform on their face to the requirements of this Agreement.
(b) The 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) the Trustee shall not be liable for interest on any money received by the Trustee;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by its
Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and

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(iii) the 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 from the Majority Certificateholders.
Money held in trust by the Trustee need not be segregated from other trust funds except to the
extent required by law or the terms of this Agreement.
No provision of this Agreement shall require the 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
indemnity satisfactory to it against such risk or liability is not reasonably assured to it.
Subject to the other provisions of this Agreement and without limiting the generality of this
Section 8.01, the Trustee shall have no duty (A) to see to any recording, filing or depositing of this
Agreement or any agreement referred to herein or any financing statement or continuation statement
evidencing a security interest, or to see to the maintenance of any such recording or filing or depositing or
to any rerecording, refiling or redepositing of any thereof, (B) to see to any insurance, (C) to see to the
payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of
any kind owing with respect to, assessed or levied against, any part of the Trust Fund other than from funds
available in the Distribution Account, or (D) to confirm or verify the contents of any reports or certificates
of the Servicer delivered to the Trustee believed by the Trustee to be genuine and to have been signed or
presented by the proper party or parties.
(c) The Trustee shall act as successor to the Servicer to the extent provided in Section 7.02
hereof.
(d) For all purposes under this Agreement, the Trustee shall not be deemed to have notice or
knowledge of any Servicing Default unless a Responsible Officer assigned to and working in the Trustees
corporate trust department has actual knowledge thereof or unless written notice of any event which is in
fact such Servicing Default is received by the Trustee at the Corporate Trust Office, and such notice
references the Certificates generally, the Issuing Entity, or this Agreement.
The Trustee is hereby authorized to execute and shall execute this Agreement and the Purchase
Agreement and shall perform their respective duties and satisfy their respective obligations thereunder.
Every provision of this Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustee shall apply to the Trustees execution of this Agreement and the Purchase
Agreement and the performance of their respective duties and satisfaction of its obligations hereunder and
thereunder.
In order to comply with laws, rules and regulations applicable to banking institutions, including
those relating to the funding of terrorist activities and money laundering, the Trustee is required to obtain,
verify and record certain information relating to individuals and entities which maintain a business
relationship with the Trustee. Accordingly, each of the parties agrees to provide to the Trustee upon its
request from time to time such partys complete name,

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address, tax identification number and such other identifying information together with copies of such
partys constituting documentation, securities disclosure documentation and such other identifying
documentation as may be available for such party.
Section 8.02 Rights of Trustee.
The Trustee may rely and shall be protected in acting or refraining from acting on any
resolution, officers certificate, opinion of counsel, certificate of auditors or other certificate, statement,
instrument, or document believed by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in the document.
Before the Trustee acts or refrains from acting, it may require an Officers Certificate or an
Opinion of Counsel reasonably satisfactory in form and substance to the Trustee which Officers Certificate
or Opinion of Counsel shall not be at the expense of the Trustee or the Trust Fund. The Trustee shall not be
liable for any action either of them takes or omits to take in good faith in reliance on an Officers
Certificate or Opinion of Counsel.
The Trustee may execute any of its trusts or powers hereunder and the Trustee may perform
any of its respective duties hereunder either directly or by or through agents or attorneys or a custodian or
nominee and the Trustee shall have no liability for any misconduct or negligence on the part of such agent,
attorney or custodian appointed by the Trustee with due care; provided, further, that the Trustee shall not be
responsible for any act or omission of the Custodian.
The Trustee shall not be liable for any action either of them takes or omits to take in good faith
which it believes to be authorized or within its rights or powers; provided, however, that the Trustees
conduct does not constitute willful misconduct, negligence or bad faith.
The Trustee may consult with counsel chosen by it with due care, and the advice or opinion of
counsel with respect to legal matters relating to this Agreement and the Certificates shall be full and
complete authorization and protection from liability in respect to any action taken, omitted or suffered by
either of them hereunder in good faith and in accordance with the advice or opinion of such counsel.
The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by
this Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee security or indemnity satisfactory to it
against the costs, expenses and liabilities which may be incurred therein or thereby (which in the case of the
Majority Certificateholders will be deemed to be satisfied by a letter agreement with respect to such costs
from such Majority Certificateholders); nothing contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of a Servicing Default of which a Responsible Officer of the Trustee shall
have actual knowledge (which has not been cured), to exercise such of the rights and powers vested in it by
this Agreement, and to use the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such persons own affairs.

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The Trustee shall not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond
or other paper or document, unless requested in writing to do by the Majority Certificateholders; provided,
however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee
may require indemnity reasonably satisfactory to it against such cost, expense or liability as a condition to
taking any such action. The reasonable expense of every such examination shall be paid by the Servicer or,
if paid by the Trustee, shall be repaid by the Servicer upon demand from the Servicers own funds.
The rights of the Trustee to perform any discretionary act enumerated in this Agreement shall
not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act.
The Trustee shall not be required to give any bond or surety in respect of the execution of the
Trust Fund created hereby or the powers granted hereunder.
Section 8.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of
Certificates and may otherwise deal with the Sponsor or its Affiliates with the same rights it would have if
it were not Trustee. Any Certificates Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Trustee must comply with Section 8.11 hereof.
Section 8.04 Trustees Disclaimer.
The Trustee shall not be responsible for and makes no representation as to the validity or
adequacy of this Agreement or the Certificates, or of any Mortgage Loan or related document, or of MERS
or the MERS System. The Trustee shall not be accountable for the use of the proceeds from the
Certificates, and the Trustee shall not be responsible for any statement of the Issuing Entity in this
Agreement or in any document issued in connection with the sale of the Certificates or in the Certificates
other than the Trustees or the Certificate Registrars certificate of authentication.
Section 8.05 Notice of Servicing Default.
The Trustee shall mail to each Certificateholder notice of the Servicing Default within 10 days
after a Responsible Officer has actual knowledge thereof unless such Servicing Default shall have been
waived or cured. Except in the case of a Servicing Default in payment of principal of or interest on any
Certificate, the Trustee may withhold the notice if and so long as it in good faith determines that
withholding the notice is in the interests of Certificateholders.

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Section 8.07 Compensation.
The amount of the Trustee Fee and Custodian Fee shall be paid to the Trustee and Custodian,
respectively, on each Distribution Date pursuant to Section 4.01(a)(i) of this Agreement, and all amounts
owing to the Trustee hereunder in excess of such amount shall be paid solely as provided in this
Agreement. The Trustees compensation shall not be limited by any law on compensation of a trustee of an
express trust.
Section 8.08 Replacement of Trustee.
No resignation or removal of the Trustee and no appointment of a successor Trustee shall
become effective until the acceptance of appointment by the successor Trustee pursuant to this
Section 8.08. The Trustee may resign at any time by so notifying the Hedge Counterparties, if prior to the
Class I Termination Date, and the Depositor. The Majority Certificateholders may at any time remove the
Trustee by so notifying the Hedge Counterparties, if prior to the Class I Termination Date, the Depositor
and the Trustee, and the Depositor may appoint a successor Trustee. The Depositor shall remove the
Trustee if:
(a) the Trustee fails to comply with Section 8.11 hereof;
(b) the Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Trustee or its respective property; or
(d) the Trustee otherwise becomes incapable of acting as a trustee with trust powers.
If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any
reason (the Trustee in such event being referred to herein as the retiring Trustee), the Depositor shall
promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring
Trustee, the Depositor, the Rating Agencies and the Servicer. Thereupon, the resignation or removal of the
retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee or under this Agreement. The successor Trustee shall mail a notice of its succession to
Hedge Counterparties, if prior to the Class I Termination Date, and the Certificateholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is
removed, the retiring Trustee, the Depositor, the Trustee or the Majority Certificateholders may petition
any court of competent jurisdiction for the appointment of a successor Trustee.

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Section 8.09 Successor Trustee by Merger.
If the 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 transferee corporation, without any further act, shall be the successor Trustee; provided, that such
corporation or banking association shall be otherwise qualified and eligible under Section 8.11 hereof.
If at the time such successor or successors by merger, conversion or consolidation to the
Trustee, shall succeed to the trusts created by this Agreement and any of the Certificates shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee and deliver such Certificates so authenticated; and if at that time
any of the Certificates shall not have been authenticated, any successor to the Trustee may authenticate
such Certificates either in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force as the Certificates or this Agreement
provide that such certificates of the Trustee shall have.
Section 8.10 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the purpose of
meeting any legal requirement of any jurisdiction in which any part of the Trust Fund may at the time be
located, the Trustee shall, at the expense of the Trust Fund, 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 Fund, and to vest in such Person or Persons, in such
capacity and for the benefit of the Certificateholders, such title to the Trust Fund, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties, obligations, rights and trusts as the
Trustee 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 8.11 hereof and notice to, and no
consent of the Certificateholders of the appointment of any co-trustee or separate trustee shall be required.
Every 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 Trustee shall be
conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-
trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately
without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to
the Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed singly by
such separate trustee or co-trustee, but solely at the direction of the Trustee;
(b) no trustee hereunder shall be personally liable by reason of any act or omission of any other
trustee hereunder; and

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(c) the 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 Trustee shall be deemed to have been given to
each of 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
VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this Agreement, specifically
including every provision of this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-
in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts
shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a
new or successor trustee.
Section 8.11 Eligibility; Disqualification.
The Trustee shall be a corporation or association organized and doing business under the laws
of a state of the United States. The Trustee is subject to supervision or examination by federal or state
authority. The Trustee shall at all times be reasonably acceptable to the Depositor and authorized to
exercise corporate trust powers. The Trustee shall 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 Moodys, BBB or better by Standard & Poors and BBB
or F-2 or better by Fitch. The Trustee shall also have a short term rating of A-1 or better by Standard &
Poors.
Section 8.13 Representations and Warranties.
(a) The Trustee hereby represents that:
(i) The 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 authority to own its
properties and to conduct its business as such properties are currently owned and such business
is presently conducted;
(ii) The Trustee has the power and authority to execute and deliver this Agreement and to
carry out its terms; and the execution, delivery and performance of this Agreement have been
duly authorized by the Trustee by all necessary corporate action;

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(iii) 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 organization or bylaws of the Trustee or any agreement or other instrument to which the
Trustee is a party or by which it is bound which would materially adversely affect its ability to
perform hereunder or under the Basic Documents; and
(iv) To the Trustees 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 Trustee or its properties: (A) asserting the
invalidity of this Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or (C) seeking any determination or ruling that
might materially and adversely affect the performance by the Trustee of its obligations under,
or the validity or enforceability of, this Agreement.
Section 8.14 Directions to Trustee.
The Trustee is hereby directed:
(a) to accept the Mortgage Loans and hold the assets of the Trust Fund in trust for the
Certificateholders;
(b) to authenticate and deliver the Certificates of each Class substantially in the forms
prescribed by Exhibits A-1, A-2, A-3, A-4, A-5, A-7, A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-15, A-
16, A-17, A-18, A-19, A-20, A-21, A-22, A-23, A-24, A-25, A-26, A-27 and A-28 in accordance with the
terms of this Agreement;
(c) to execute the Hedge Agreements as trustee on behalf of the Supplemental Interest Trust;
and
(d) to take all other actions as shall be required to be taken by the terms of this Agreement.
Section 8.15 The Agents.
The provisions of this Agreement relating to the limitations of the Trustees liability and to its
indemnity shall inure also to the Paying Agent, and the Certificate Registrar.
Section 8.16 Issuing Entity Fiscal Year.
The fiscal year of the Issuing Entity shall end on December 31 of each year.
Section 8.17 Execution of the Novation Agreements and Hedge Agreements.
The Depositor hereby directs the Trustee to enter into and execute the Novation Agreements
and the Hedge Agreements on the Closing Date on behalf of the Supplemental

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Interest Trust. The Sponsor, the Depositor, the Servicer and the Certificateholders (by their acceptance of
such Certificates) acknowledge that Deutsche Bank National Trust Company is entering into the Hedge
Agreements solely in its capacity as Trustee of the Trust Fund and not in its individual capacity.
If an Early Termination Date is designated as a result of a Termination Event or an Event
of Default (each as defined in the related Hedge Agreement) shall occur and be continuing and any Hedge
Counterparty is the Defaulting Party or the Affected Party (as defined in the related Hedge
Agreement), the Trustee shall, if so directed by the Holders of Certificates evidencing not less than 50% of
the Voting Rights (and if permitted by the related Hedge Agreement), replace the related Hedge
Counterparty with a successor designated by such Holders, provided that such successor must comply with
all the applicable requirements of such Hedge Agreement. The Trustee will deliver any notices and
communications relating to the Hedge Agreements, solely as directed by the Servicer.
ARTICLE IX
[Reserved]
ARTICLE X
REMIC ADMINISTRATION
Section 10.01 REMIC Administration.
(a) [Reserved].
(b) September 28, 2006 is hereby designated as the Startup Day of each REMIC within the
meaning of Section 860G(a)(9) of the Code.
(c) The Servicer shall pay any and all tax related expenses (not including taxes) of each
REMIC, including but not limited to any professional fees or expenses related to audits or any
administrative or judicial proceedings with respect to each REMIC that involve the Internal Revenue
Service or state tax authorities, but only to the extent that (i) such expenses are ordinary or routine
expenses, including expenses of a routine audit but not expenses of litigation (except as described in (ii));
or (ii) such expenses or liabilities (including taxes and penalties) are attributable to the negligence or willful
misconduct of the Servicer in fulfilling its duties hereunder. The Servicer shall be entitled to reimbursement
of expenses to the extent provided in clause (i) above from the Collection Account.
(d) The Trustee shall (a) maintain (or cause to be maintained) the books of the Issuing Entity
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, including the
REMIC Provisions, 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 Issuing Entity as may be required by the Code and applicable Treasury Regulations
(including timely making elections to treat specified assets of the Issuing Entity as one or more REMICs
for federal income tax

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purposes and any other such elections as may from time to time be required or appropriate under any
applicable state or federal statutes, rules or regulations), (d) collect or cause to be collected any required
withholding tax with respect to income or distributions to Certificateholders and prepare or cause to be
prepared the appropriate forms relating thereto and (e) maintain records as required by the REMIC
Provisions.
(e) The Holder of the Residual Certificate at any time holding the largest Percentage Interest
thereof shall be the tax matters person as defined in the REMIC Provisions (the Tax Matters Person)
with respect to each REMIC and shall act as Tax Matters Person for each REMIC. The Trustee, as agent for
the Tax Matters Person, shall perform on behalf of each REMIC all reporting and other tax compliance
duties that are the responsibility of such REMIC under the Code, the REMIC Provisions, or other
compliance guidance issued by the Internal Revenue Service or any state or local taxing authority. Among
its other duties, if required by the Code, the REMIC Provisions, or other such guidance, the Trustee, as
agent for the Tax Matters Person, shall provide (i) to the Treasury or other governmental authority such
information as is necessary for the application of any tax relating to the transfer of a Residual Certificate to
any Disqualified Organization or non-U.S. Person and (ii) to the Certificateholders such information or
reports as are required by the Code or REMIC Provisions.
(f) The Trustee, the Servicer and the Holders of Certificates shall take any action or cause the
REMIC to take any action necessary to create or maintain the status of each REMIC as a REMIC under the
REMIC Provisions and shall assist each other as necessary to create or maintain such status. Neither the
Trustee, the Servicer nor the Holder of any Residual Certificate shall take any action, cause any REMIC
created hereunder to take any action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger the status of such REMIC
as a REMIC or (ii) result in the imposition of a tax upon such REMIC (including but not limited to the tax
on prohibited transactions as defined in Code Section 860F(a)(2) and the tax on prohibited contributions set
forth on Section 860G(d) of the Code) (either such event, an Adverse REMIC Event) unless the Trustee
and the Servicer have received an Opinion of Counsel (at the expense of the party seeking to take such
action) to the effect that the contemplated action will not endanger such status or result in the imposition of
such a tax. In addition, prior to taking any action with respect to any REMIC created hereunder or the
assets therein, or causing such REMIC to take any action, which is not expressly permitted under the terms
of this Agreement, any Holder of a Residual Certificate will consult with the Trustee and the Servicer, or
their respective designees, in writing, with respect to whether such action could cause an Adverse REMIC
Event to occur with respect to any REMIC, and no such Person shall take any such action or cause any
REMIC to take any such action as to which the Trustee or the Servicer has advised it in writing that an
Adverse REMIC Event could occur.
(g) Each Holder of a Residual Certificate shall pay when due any and all taxes imposed on each
REMIC created hereunder by federal or state governmental authorities. To the extent that such Issuing
Entity taxes are not paid by a Residual Certificateholder, the Trustee shall pay any remaining REMIC taxes
out of current or future amounts otherwise distributable to the Holder of the Residual Certificate in the
REMICs or, if no such amounts are available, out of other amounts held in the Distribution Account, and
shall reduce amounts otherwise payable to Holders of regular interests in the related REMIC.

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(h) The Trustee, as agent for the Tax Matters Person, shall, for federal income tax purposes,
maintain books and records with respect to each REMIC created hereunder on a calendar year and on an
accrual basis.
(i) After the Pre-Funding Period, no additional contributions of assets shall be made to any
REMIC created hereunder, except as expressly provided in this Agreement with respect to Qualified
Replacement Mortgages.
(j) Neither of the Trustee nor the Servicer shall enter into any arrangement by which any
REMIC created hereunder will receive a fee or other compensation for services.
(k) The Trustee will apply for an Employee Identification Number from the Internal Revenue
Service via a Form SS-4 or other acceptable method for REMIC I, REMIC II, REMIC III, REMIC IV,
REMIC V and the Master REMIC.
(l) The Trustee shall treat the Supplemental Interest Trust as an outside reserve fund within the
meaning of Treasury Regulation Section 1.860G-2(h) that is owned by the Holders of the Class CA
Certificates and that is not an asset of any REMIC. The Trustee shall treat the rights of the holders of the
Class A and Mezzanine Certificates to receive any interest payments in excess of the REMIC Pass-Through
Rate on the Master REMIC Regular Interest corresponding to such Class of Certificates as rights in an
interest rate cap contract written by the Class CA Certificateholders in favor of the holders of the Class A
and Mezzanine Certificates. Thus, each Class A and Mezzanine Certificate shall be treated as representing
not only ownership of a regular interest in the Master REMIC, but also ownership of an interest in an
interest rate cap contract. Furthermore, the Trustee shall treat the obligation of the Holders of the Class A
and Mezzanine Certificates to make certain payments to the Supplemental Interest Account to the extent
that the payment on the Pass-Through Rate on the Master REMIC Regular Interest exceeds the interest
payment on the corresponding Class of Certificates as an obligation to make payments pursuant to an
interest rate cap contract written by the Holders of the Class A and Mezzanine Certificates in favor of the
Class CA Certificateholder. In no event shall any payments provided for in this subsection be treated as
payments with respect to a regular interest in a REMIC within the meaning of Code Section 860G(a)(1).
The pledge of payments on the Class CB Certificates to the Supplemental Interest Trust will be treated as a
limited guaranty written by the Holder of the Class CB Certificate for the benefit of the Holders of the
Class CA Certificate. Such guaranty is expected to have nominal value. To the extent that the Class CB
Interest Distributable Amount paid to the Supplemental Interest Trust as described in Section 10.01(n) is
not paid in full to the Holders of the Class CB Certificates pursuant to Section 4.04(c)(v), a right of
reimbursement will arise in favor of the Holders of the Class CB Certificates against the Holders of the
Class CA Certificates.
(m) Notwithstanding the priority and sources of payments set forth in Article IV hereof or
otherwise, the Trustee shall account for all distributions on the Certificates as set forth in this section.
(n) For federal income tax purposes, payments pursuant to Section 4.01(a)(i)(O) shall be
treated as having been made to the extent of remaining Interest Remittance Amount (i) first, to the Holders
of the Class CA Certificates, the Class CA Interest Distributable Amount and (ii) second, to the Holders of
the Class CB Certificates, the Class CB Interest Distributable Amount.

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(o) For federal income tax purposes, payments of Excess Cashflow pursuant to
Section 4.04(d)(i) will be treated as having been made (i) first, from Excess Cashflow relating to the Class
CB Interest Distributable Amount and (ii) second, from Excess Cashflow relating to amounts otherwise
distributable on the Class CA Certificates.
(p) None of the Class M-10 DSI Certificates, Class M-11 DSI Certificates or the Class M-12
DSI Certificates will be treated as regular or residual interest in any REMIC created hereunder.
Section 10.02 Prohibited Transactions and Activities.
Except as specifically provided in this Agreement, none of the Depositor, the Servicer nor the
Trustee shall sell, dispose of, or substitute for any of the Mortgage Loans, if such disposition, acquisition,
substitution, or acceptance would (a) affect adversely the status of any REMIC created hereunder as a
REMIC or (b) cause any REMIC created hereunder to be subject to a tax on prohibited transactions or
prohibited contributions pursuant to the REMIC Provisions.
ARTICLE XI
TERMINATION
Section 11.01 Termination.
(a) The respective obligations and responsibilities of the Sponsor, the Servicer, the Depositor
and the Trustee created hereby (other than the obligation of the Trustee to make certain payments to
Certificateholders after the final Distribution Date and the obligation of the Servicer to send certain notices
as hereinafter set forth and the obligation of the Servicer to indemnify the Trustee in accordance with
Section 6.06) shall terminate upon notice to the Trustee upon the earliest of (i) the Distribution Date on
which the Certificate Principal Balances of the Regular Certificates have been reduced to zero, (ii) the final
payment or other liquidation of the last Mortgage Loan held by the Issuing Entity, (iii) the optional
purchase by the Servicer of the Mortgage Loans as described below and (iv) the Assumed Final Maturity
Date. Notwithstanding the foregoing, in no event shall the trust created hereby continue beyond the
expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date hereof.
The Servicer may, at its option, terminate this Agreement on any date on which the aggregate
of the Principal Balances of the Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all of the outstanding
Mortgage Loans and REO Properties at a price equal to the aggregate Principal Balance of the Mortgage
Loans and REO Properties plus accrued and unpaid interest thereon at the weighted average of the
Mortgage Rates through the end of the Due Period preceding the final Distribution Date plus unreimbursed
Servicing Advances,

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Advances, any unpaid Servicing Fees allocable to such Mortgage Loans and REO Properties, any accrued
and unpaid Available Funds Cap Shortfall Amount and Available Funds Cap Carryforward Amount
(without duplication of amounts already paid) and any unpaid amount due the Trustee, the Hedge
Counterparties and the Custodian under this Agreement; provided, however, that in no event shall such
price be less than the amount necessary to pay the sum of (i) 100% of the aggregate Certificate Principal
Balance of each Class of Certificates, (ii) accrued and unpaid interest thereon at the related Pass-Through
Rate (including accrued and unpaid interest at the related REMIC Pass-Through Rate for the Class CA and
Class CB Certificates) through the date on which the trust is terminated, (iii) any unpaid Administrative
Fees and (iv) any unpaid amount due to the Hedge Counterparties (including any Hedge Termination
Payments) (the Termination Price); provided, however, that such option may only be exercised if the
Termination Price is sufficient to pay all interest accrued on, as well as amounts necessary to retire the
principal balance of, each class of net interest margin notes issued pursuant to the Indenture at the time the
option is exercised.
In connection with any such purchase pursuant to and subject to the requirements of the
preceding paragraph, the Servicer shall deposit in the Distribution Account all amounts then on deposit in
the Collection Account, which deposit shall be deemed to have occurred immediately preceding such
purchase, and which amount shall be applied in accordance with the priorities set forth in Article IV hereof.
Any such purchase shall be accomplished by deposit into the Distribution Account on the
Distribution Date of the Termination Price.
The Servicer may assign or pledge to any Person its right to exercise the foregoing option by
giving written notice of the assignment or pledge to the Trustee. Any assignee of such option may further
assign or pledge its interest in such option.
(b) In the event that the Certificate Principal Balances of all of the Class A and Mezzanine have
not been reduced to zero by the Assumed Final Maturity Date, the Trustee, shall (i) sign a plan of complete
liquidation prepared and provided to it by the Servicer of each REMIC created hereunder meeting the
requirements of a Qualified Liquidation under Section 860F of the Code and any regulations thereunder,
(ii) sell all of the assets of the Trust Fund for cash, pursuant to the terms of the plan of complete liquidation,
(iii) distribute the proceeds of the sale to the Certificateholders in accordance with Section 4.01 hereof, and
(iv) terminate the Issuing Entity. By their acceptance of Certificates, the Holders thereof hereby agree to
appoint the Trustee as their attorney in fact to: (i) adopt such a plan of complete liquidation (and the
Certificateholders hereby appoint the Trustee as their attorney in fact to sign such a plan) as appropriate and
(ii) to take such other action in connection therewith as may be reasonably required to carry out such plan
of complete liquidation in accordance with the terms thereof.
(c) Notice of any termination, specifying the Distribution Date (which shall be a date that
would otherwise be a Distribution Date) upon which the Certificateholders may surrender their Certificates
to the Trustee for payment of the final distribution and cancellation, shall be given promptly by the Trustee
upon the Trustee receiving notice of such date from the Servicer, by letter to the Hedge Counterparties (if
prior to the Class I Termination Date) and the Certificateholders mailed not earlier than the 15th day and
not later than the 25th day of the

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month next preceding the month of such final distribution specifying (1) the Distribution Date upon which
final distribution of the Certificates will be made upon presentation and surrender of such Certificates at the
office or agency of the Trustee therein designated, (2) the amount of any such final distribution and (3) that
the Record Date otherwise applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office or agency of the Trustee therein
specified.
(d) Upon presentation and surrender of the Certificates, the Trustee shall cause to be distributed
to the Holders of the Certificates on the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Class and to the extent that funds are available for such purpose, an
amount equal to the amount required to be distributed to such Holders in accordance with the provisions of
Section 4.01 for such Distribution Date.
(e) In the event that all Certificateholders shall not surrender their Certificates for final
payment and cancellation on or before such final Distribution Date, the Trustee shall promptly following
such date cause all funds in the Distribution Account not distributed in final distribution to
Certificateholders to be withdrawn therefrom and credited to the remaining Certificateholders by depositing
such funds in a separate trust account for the benefit of such Certificateholders, which shall be held
uninvested, and the Servicer (if the Servicer has exercised its right to purchase the Mortgage Loans) or the
Trustee (in any other case) shall give a second written notice to the remaining Certificateholders, to
surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within
nine months after the second notice all the Certificates shall not have been surrendered for cancellation, the
Residual Certificateholder shall be entitled to all unclaimed funds and other assets which remain subject
hereto, and the Trustee upon transfer of such funds shall be discharged of any responsibility for such funds,
and the Certificateholders shall look to the Residual Certificateholder for payment.
Section 11.02 Additional Termination Requirements.
(a) In the event that the Servicer exercises its purchase option as provided in Section 11.01 or
the Trustee terminates the Issuing Entity, each REMIC shall be terminated in accordance with the
following additional requirements, unless the Trustee shall have been furnished with an Opinion of Counsel
to the effect that the failure of the Issuing Entity to comply with the requirements of this Section will not
(i) result in the imposition of taxes on prohibited transactions of the Issuing Entity as defined in
Section 860F of the Code or (ii) cause any REMIC constituting part of the Issuing Entity to fail to qualify
as a REMIC at any time that any Certificates are outstanding:
(i) Within 90 days prior to the final Distribution Date, the Servicer shall adopt and
prepare, and the Trustee shall sign, a plan of complete liquidation of each REMIC created
hereunder meeting the requirements of a Qualified Liquidation under Section 860F of the
Code and any regulations thereunder; and
(ii) At or after the time of adoption of such a plan of complete liquidation and at or prior
to the final Distribution Date, the Trustee shall sell all of the assets of the Trust Fund to the
Servicer for cash pursuant to the terms of the plan of complete liquidation.

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(b) By their acceptance of Certificates, the Holders thereof hereby agree to appoint the Trustee
as their attorney in fact to: (i) adopt such a plan of complete liquidation (and the Certificateholders hereby
appoint the Trustee as their attorney in fact to sign such plan) as appropriate and (ii) to take such other
action in connection therewith as may be reasonably required to carry out such plan of complete liquidation
all in accordance with the terms hereof.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Amendment.
This Agreement may be amended from time to time by the parties hereto, and without the
consent of the Certificateholders or the Hedge Counterparties (i) to cure any ambiguity, (ii) to correct or
supplement any provisions herein which may be defective or inconsistent with any other provisions herein
or (iii) to make any other provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; provided that any such amendment
will have no material adverse effect, as evidenced by an Opinion of Counsel as described below, on the
Hedge Counterparties provided, however, that any such action listed in clause (i) through (iii) above shall
be deemed not to adversely affect in any respect the interests of (A) any Certificateholder, if evidenced by
(i) written notice to the Depositor, the Servicer and the Trustee from the Rating Agencies that such action
will not result in the reduction or withdrawal of the rating of any outstanding Class of Certificates with
respect to which it is a Rating Agency or (ii) an Opinion of Counsel delivered to the Servicer, the Depositor
and the Trustee and (B) any Hedge Counterparty, (i) if evidenced by an opinion of counsel from outside
counsel of recognized international reputation in the field of sophisticated financial transactions delivered
to the Servicer, the Depositor, the Trustee, each Hedge Counterparty with a copy to the Rating Agencies
stating that such actions will have no material adverse effect on the Hedge Counterparties or (ii) if the
written consent of the Hedge Counterparties is obtained. This Agreement may be amended by the parties
hereto without the consent of the Hedge Counterparties after the Class I Termination Date.
In addition, this Agreement may be amended from time to time by the parties hereto with the
consent of the Majority Certificateholders for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment or waiver shall (w) reduce in any
manner the amount of, or delay the timing of, payments on the Certificates or distributions which are
required to be made on any Certificate without the consent of the Holder of such Certificate, (x) adversely
affect in any material respect the interests of the Holders of any Class of Certificates in a manner other than
as described in clause (w) above, without the consent of the Holders of Certificates of such Class
evidencing at least a 66% Percentage Interest in such Class, (y) reduce the percentage of Voting Rights
required by clause (x) above without the consent of the Holders of all Certificates of such Class then
outstanding or (z) have a material adverse effect on the interests of the Hedge Counterparties without such
Hedge Counterparties written consent. Upon approval of an amendment, a copy of such amendment shall
be sent to the Rating Agencies.

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Notwithstanding the provisions of this Section 12.01, Sections 3.17 and 3.18 may be amended
as necessary to comply with the provisions of Regulation AB without the consent of the Certificateholders.
The Servicer shall send to the Hedge Counterparties (for so long as the Hedge Agreements are
outstanding) a copy of any executed amendment made pursuant to this Section 12.01. If the consent of the
Hedge Counterparties is required for any amendment, a copy of such proposed amendment shall be sent to
the Hedge Counterparties 10 days (or such shorter time period as shall be agreed to by the parties) prior to
the effective date thereof.
Notwithstanding any provision of this Agreement to the contrary, the Trustee shall not consent
to any amendment to this Agreement unless it shall have first received an Opinion of Counsel, delivered by
(and at the expense of) the Person seeking such Amendment, to the effect that such amendment will not
result in the imposition of taxes on prohibited transactions of the Issuing Entity as defined in
Section 860F of the Code or cause any REMIC constituting part of the Issuing Entity to fail to qualify as a
REMIC at any time that any Certificates are outstanding, and that the amendment is being made in
accordance with the terms hereof. Additionally, prior to entering into any amendment, the Trustee shall be
entitled to receive from the party requesting such amendment an Opinion of Counsel stating that such
amendment is authorized and permitted pursuant to the terms of this Agreement and all conditions
precedent to its execution and delivery have been satisfied.
Promptly after the execution of any such amendment the Trustee shall furnish, at the expense
of the Person that requested the amendment if such Person is the Sponsor or the Servicer (but in no event at
the expense of the Trustee), otherwise at the expense of the Issuing Entity, a copy of such amendment and
the Opinion of Counsel referred to in the immediately preceding paragraph to the Servicer and each Rating
Agency.
It shall not be necessary for the consent of Certificateholders under this Section 12.01 to
approve the particular form of any proposed amendment; instead it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization
of the execution thereof by Certificateholders shall be subject to such reasonable regulations as the Trustee
may prescribe.
The Trustee shall not be obligated to enter into any amendment pursuant to this Section 12.01
that affects its rights, duties and immunities under this Agreement or otherwise.
Section 12.02 Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is subject to recordation in all
appropriate public offices for real property records in all the counties or other comparable jurisdictions in
which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Servicer at the expense of the Issuing
Entity, but only upon direction of Certificateholders accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the Certificateholders.

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For the purpose of facilitating the recordation of this Agreement as herein provided and for
other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of
which counterparts shall be deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
Section 12.03 Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not (i) operate to terminate this
Agreement or the Issuing Entity, (ii) entitle such Certificateholders 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 the Issuing
Entity, or (iii) otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.
Except as expressly provided for herein, no Certificateholder shall have any right to vote or in
any manner otherwise control the operation and management of the Issuing Entity, or the obligations of the
parties hereto, nor shall anything herein set forth or contained in the terms of the Certificates be construed
so as to constitute the Certificateholders from time to time as partners or members of an association; nor
shall any Certificateholder be under any liability to any third person by reason of any action taken by the
parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any provision of this Agreement to
institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice of default and of the
continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates entitled to at least
25% of the Voting Rights shall have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such indemnity as it
may reasonably require against the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee for 15 days after its receipt of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding. It is understood and intended, and expressly
covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or
more Holders of Certificates shall have any right in any manner whatever by virtue of any provision of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates, or to
obtain or seek to obtain priority over or preference to any other such Holder, which priority or preference is
not otherwise provided for herein, or to enforce any right under this Agreement, except in the manner
herein provided and for the equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section 12.03 each and every Certificateholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.

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Section 12.04 Compliance with Regulation AB.
Each of the parties hereto acknowledges and agrees that the purpose of Sections 3.17 and 3.18
of this Agreement is to facilitate compliance by the Sponsor and the Depositor with the provisions of
Regulation AB, as such may be amended or clarified from time to time. Therefore, each of the parties
agrees that (a) the obligations of the parties hereunder shall be interpreted in such a manner as to
accomplish compliance with Regulation AB, (b) the parties obligations hereunder will be supplemented
and modified as necessary to be consistent with any such amendments, interpretive advice or guidance,
convention or consensus among active participants in the asset-backed securities markets, advice of
counsel, or otherwise in respect of the requirements of Regulation AB and (c) the parties shall comply, to
the extent practicable from a timing and information systems perspective, with requests made by the
Sponsor or the Depositor for delivery of additional or different information as the Sponsor or the Depositor
may determine in good faith is necessary to comply with the provisions of Regulation AB.
Section 12.05 Governing Law; Jurisdiction.
This Agreement shall be construed in accordance with the laws of the State of New York, and
the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such
laws. With respect to any claim arising out of this Agreement, each party irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and the United States District Court located in
the Borough of Manhattan in The City of New York, and each party irrevocably waives any objection
which it may have at any time to the laying of venue of any suit, action or proceeding arising out of or
relating hereto brought in any such courts, irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in any inconvenient forum and further irrevocably
waives the right to object, with respect to such claim, suit, action or proceeding brought in any such court,
that such court does not have jurisdiction over such party, provided that service of process has been made
by any lawful means.
Section 12.06 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, or sent
by reputable overnight courier service to:

(a) in the case of the Depositor:
8140 Ward Parkway
Suite 300

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(b) in the case of the Servicer or the Sponsor:
8140 Ward Parkway
Suite 300

(c) in the case of Rating Agencies:
Moodys Investors Service Inc.
99 Church Street
New York, New York 10007
Attention: Rachel Peng
Standard & Poors
26 Broadway
New York, New York 10004-1064
Attention: Daniel Larkin

(d) in the case of the Custodian:
4527 Metropolitan Court
Suite C
Frederick, MD 21704
Attn: Ronald Fisher
Tel: (301) 874-4531
Fax: (301) 874-6055
Attention: Structured Finance Trust Services
(NovaStar Mortgage Funding Trust, Series 2006-5)

(e) in the case of the Trustee:
Santa Ana, CA 92705
provided, however, all reports, statements, certifications and information required to be
provided to the Trustee pursuant to Section 3.18 shall be electronically forwarded to
DBSec.Noficications@db.com

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(f) in the case of The Royal Bank of Scotland plc, as Hedge Counterparty:
c/o RBS Financial Markets
Level 7, 135 Bishopsgate
London, EC2M 3UR
Attention: Financial Markets Legal
Telephone: 44 207 085 5000
Facsimile: 44 207 085 8411
With a copy to:
c/o Greenwich Capital Markets, Inc.
600 Steamboat Road
Greenwich, CT 06830
Attention: Legal Department Derivatives Documentation
Telephone: 203 618-2531/32
Facsimile: 203 618-2533/34

(g) in the case of Wachovia Bank, N.A., as Hedge Counterparty:
Wachovia Bank, N.A.
201 South College Street, 6th Floor
Charlotte, NC 28288-0601
Attention: Collateral Management Group
Tel: (704) 383-1184
Fax: (704) 383-9026

(h) in the case of Deutsche Bank AG, as Hedge Counterparty:
Deutsche Bank AG
Taunusanlage 12
60262 Frankfurt
GERMANY
Attention: Legal Department
Telex No: 411836 or 416731 or 41233
Answerback: DBF-D
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 Certificateholder shall be given by first class
mail, postage prepaid, at the address of such Certificateholder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice. Any notice or other document
required to be delivered or mailed by the Trustee to any Rating Agency shall be given on a reasonable
efforts basis and only as a matter of courtesy and accommodation and the Trustee shall have no liability for
failure to deliver such notice or document to any Rating Agency.

92

Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of this Agreement shall
for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 12.08 Article and Section References.
All article and section references used in this Agreement, unless otherwise provided, are to
articles and sections in this Agreement.
Section 12.09 Further Assurances.
Notwithstanding any other provision of this Agreement, the Trustee shall not have any
obligation to consent to any amendment or modification of this Agreement unless they have been provided
reasonable security or indemnity against their out-of-pocket expenses (including reasonable attorneys fees)
to be incurred in connection therewith.
Section 12.10 Benefits of Agreement.
Nothing in this Agreement or in the Certificates, expressed or implied, shall give to any Person,
other than the Certificateholders, the Hedge Counterparties and the parties hereto and their successors
hereunder, any benefit or any legal or equitable right, remedy or claim under this Agreement. For the
avoidance of doubt, the parties agree that each of the Hedge Counterparties, prior to the Class I
Termination Date, and the Servicing Rights Pledgee are intended and shall have all rights of a third-party
beneficiary of this Agreement.
Section 12.11 Acts of Certificateholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action
provided by this Agreement to be given or taken by the Certificateholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by such Certificateholders in
person or by agent duly appointed in writing, and such action shall become effective when such instrument
or instruments are delivered to the Trustee, the Sponsor and the Servicer. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes referred to as the act of
the Certificateholders 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 Agreement and conclusive
in favor of the Trustee and the Issuing Entity, if made in the manner provided in this Section 12.11.
(b) The fact and date of the execution by any Person of any such instrument or writing may be
proved by the affidavit of a witness of such execution or by the certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Whenever such execution is by a signer acting in a
capacity other than his or her individual capacity, such certificate or affidavit shall also constitute sufficient
proof of his authority.

93

(c) Any request, demand, authorization, direction, notice, consent, waiver or other action by
any Certificateholder shall bind every future Holder of such Certificate and the Holder of every Certificate
issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, omitted or suffered to be done by the Trustee or the Issuing Entity in reliance thereon,
whether or not notation of such action is made upon such Certificate.
Section 12.12 Confidentiality.
The Trustee hereby agrees to hold and treat all Confidential Information (as defined below)
provided to it in connection with the offering of the Certificates in confidence and in accordance with this
Section 12.12, and will implement and maintain safeguards in accordance with the Interagency Guidelines
Establishing Standards for Safeguarding Customer Information as required by Appendix B to 12 CFR,
Chapter I, Part 30, to further assure the confidentiality of such Confidential Information. Such Confidential
Information will not, without the prior written consent of the Servicer, be disclosed or used by the Trustee
or by its subsidiaries or, affiliates, or its or their directors, officers, employees, agents or controlling persons
or agents or advisors (collectively, the Information Recipients) other than for the purposes of
(i) structuring the securitization transaction and the facilitating the issuance of the Certificates, or (ii) in
connection with the performance of its required due diligence on the Mortgage Loans. Disclosure that is not
in violation of the Right to Financial Privacy Act of 1978, as amended, the Gramm-Leach-Bliley Act of
1999, as amended, (the G-L-B Act) or other applicable law by the Trustee of any Confidential
Information at the request of its outside auditors or governmental regulatory authorities in connection with
an examination of the Trustee by any such authority or for the purposes specified in above shall not
constitute a breach of its obligations under this Section 12.12, and shall not require the prior consent of the
Servicer.
As used herein, Confidential Information means non-public personal information (as defined
in the G-L-B Act and its enabling regulations issued by the Federal Trade Commission) regarding obligors
on the Mortgage Loans that is identified as such by the Servicer. Confidential Information shall not include
information which (i) is or becomes generally available to the public other than as a result of disclosure by
the Trustee or any of its Information Recipients; (ii) was available to the Trustee on a non-confidential
basis from a person or entity other than the Servicer; (iii) is requested to be disclosed by a governmental
authority or related governmental, administrative, or regulatory or self-regulatory agencies having or
claiming authority to regulate or oversee any aspect of the Trustees business or that of its affiliates or is
otherwise required by law or by legal or regulatory process to be disclosed; (iv) becomes available to the
Trustee on a non-confidential basis from a person or entity other than the Servicer who, to the best
knowledge of the Trustee, is not otherwise bound by a confidentiality agreement with the Servicer, and is
not otherwise prohibited from transmitting the information to the Trustee; (v) the Servicer provides written
permission to the Trustee to release, (vi) is independently developed by employees of the Trustee who did
not have access to any or all of the otherwise Confidential Information or (vii) is disclosed to the Trustees
auditors or counsel or is required to be disclosed to its lenders or rating agencies, to the extent required for
the purpose of consummating the services it is to provide as set forth herein.

94

IN WITNESS WHEREOF, the Depositor, the Servicer, the Sponsor, Custodian and the 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.

CORPORATION,
as Depositor

By:



By:


U.S. BANK NATIONAL ASSOCIATION,
as Custodian

By:

/s/ Ronald L. Fisher
Name: Ronald L. Fisher
Title: Authorized Representative

COMPANY,
as Trustee and as Trustee to NovaStar Mortgage
Supplemental Interest Trust, Series 2006-5

By:

/s/ Ronaldo Reyes
Name: Ronaldo Reyes

By:

/s/ Melissa Wilman
Name: Melissa Wilman
[Pooling and Servicing Agreement Signature Page]

95

STATE OF MISSOURI
)
) ss.:
COUNTY OF JACKSON
)
On the 26th day of September, 2006 before me, a notary public in and for said State, personally
appeared Matt Kaltenrieder known to me (or proved to me on the basis of satisfactory evidence) to be a
Vice President of NovaStar Mortgage Funding Corporation, a Delaware corporation that executed the
within instrument, and also known to me (or proved to me on the basis of satisfactory evidence) to be the
person who executed it on behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day
and year in this certificate first above written.

/s/ Shawna M. Hart
Seal Notary Public

i

STATE OF MISSOURI
)
) ss.:
COUNTY OF JACKSON
)
appeared Matt Kaltenrieder known to me (or proved to me on the basis of satisfactory evidence) to be a
Vice President of NovaStar Mortgage, Inc., a Virginia corporation that executed the within instrument, and
also known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed it
on behalf of said corporation, and acknowledged to me that such corporation executed the within
instrument.

/s/ Shawna M. Hart
Seal Notary Public

ii

STATE OF MARYLAND
)
) ss.:
COUNTY OF FREDERICK
)
appeared Ronald L. Fisher, known to me (or proved to me on the basis of satisfactory evidence) to be a
Vice President of U.S. Bank National Association, a national banking association that executed the within
instrument, and also known to me (or proved to me on the basis of satisfactory evidence) to be the person
who executed it on behalf of said corporation, and acknowledged to me that such corporation executed the
within instrument.

/s/ Janet L. Munday
Seal Notary Public

iii

STATE OF CALIFORNIA
)
) ss.:
COUNTY OF ORANGE
)
appeared Ronaldo Reyes, known to me (or proved to me on the basis of satisfactory evidence) to be a Vice
President of Deutsche Bank National Trust Company that executed the within instrument, and also known
to me (or proved to me on the basis of satisfactory evidence) to be the person who executed it on behalf of
said association, and acknowledged to me that such corporation executed the within instrument.

/s/ Cindy Lai
Seal Notary Public

iv

Execution Copy
APPENDIX A
DEFINITIONS
1933 Act: The Securities Act of 1933, as amended.
Account: The Collection Account, the Pre-Funding Account, the Interest Coverage Account, the
Supplemental Interest Account, and the Distribution Account.
Accrual Period: With respect to each Distribution Date, the period commencing on the preceding
Distribution Date (or in the case of the first Accrual Period, commencing on the Closing Date) and ending
on the day preceding the applicable Distribution Date.
Addition Notice: With respect to the transfer of Subsequent Mortgage Loans to the Trust Fund
pursuant to Section 2.08, a notice of the Depositors designation of the Subsequent Mortgage Loans to be
sold to the Trust Fund and the aggregate Principal Balance of such Subsequent Mortgage Loans as of the
Subsequent Cut-off Date. The Addition Notice shall be given no later than four Business Days prior to the
related Subsequent Transfer Date and shall be substantially in the form attached hereto as Exhibit C.
Adjustable Rate Mortgage Loan: A Mortgage Loan which provides at any period during the life of
such loan for the adjustment of the Mortgage Rate payable in respect thereto. The Adjustable Rate
Mortgage Loans are identified as such on the Mortgage Loan Schedule.
Adjustment Date: With respect to each Adjustable Rate Mortgage Loan, each adjustment date, on
which the Mortgage Rate of such Mortgage Loan changes pursuant to the related Mortgage Note.
Administrative Fee: With respect to each Distribution Date, the sum of the MI Premium, the
Servicing Fee, the Custodian Fee and the Trustee Fee with respect to such Distribution Date.
Administrative Fee Rate: As to each Distribution Date, the sum of (i) the Trustee Fee Rate, (ii) the
Servicing Fee Rate, (iii) the Custodian Fee Rate and (iv) the total MI Premiums due during the related Due
Period, expressed as an annual percentage rate of the Pool Balance as of the beginning of that Due Period.
Advance: As to any Mortgage Loan, any advance made by the Servicer in respect of any
Distribution Date pursuant to Section 3.25.
Adverse REMIC Event: As defined in Section 10.01(f) hereof.
Affiliate: With respect to any Person, any other Person controlling, controlled by or under common
control with such Person. For purposes of this definition, control means the power to direct the
management and policies of a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and controlling and controlled shall have meanings correlative to
the foregoing.

Agreement: This Pooling and Servicing Agreement and all amendments hereof and supplements
hereto.
Allocated Realized Loss Amount: With respect to any Distribution Date and any Class of
Mezzanine Certificates, the Realized Losses allocated to such Class of Certificates on such Distribution
Date.
Applicable Regulations: As to any Mortgage Loan, all federal and state laws, statutes, rules and
regulations applicable thereto.
Appraised Value: The appraised value of a Mortgaged Property based upon the appraisal made at
the time of the origination of the related Mortgage Loan. 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 with the lowest appraised value (as reviewed and approved by the Sponsor)
obtained within 12 months of 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.
Assumed Final Maturity Date: As to each Class of Certificates, the Distribution Date in November
2036.
Available Funds: As to each Distribution Date, an amount equal to the amount on deposit in the
Distribution Account, representing the sum of (i) the aggregate amount of scheduled payments on the
related Mortgage Loans due on the related Due Date and received on or prior to the related Determination
Date, (ii) miscellaneous fees and collections, including prepayment penalties with respect to the Mortgage
Loans (but excluding late fees), (iii) any unscheduled payments and receipts, including Mortgagor
prepayments on the related Mortgage Loans, received during the related Prepayment Period and proceeds
of repurchases, and adjustments in the case of substitutions and terminations, Net Liquidation Proceeds and
Insurance Proceeds, and Subsequent Recoveries, (iv) all Advances made and Compensating Interest paid
for such Distribution Date in respect of the related Mortgage Loans, (v) on the Distribution Date following
the termination of the Pre-Funding Period, the remaining amount of the Original Pre-Funded Amount on
deposit in the Pre-Funding Account at such time and (vi) on the Distribution Date following the termination
pursuant to Section 11.01 herein, the Termination Price.
Available Funds Cap: For each Distribution Date, the percentage equivalent of a fraction, the
numerator of which is (a) an amount equal to (i) the aggregate Interest Remittance Formula Amount for the
Group I and Group II Mortgage Loans, less (ii) the Administrative Fees, less (iii) the Class I Monthly
Interest Distributable Amount, and less (iv) any unpaid Hedge Termination Payments that are not Defaulted
Hedge Termination Payments, and the denominator of which is (b) the product of (i) the actual number of
days in the related Accrual Period divided by 360 and (ii) the aggregate Principal Balance of the Mortgage
Loans.

Appendix A-2

Available Funds Cap Carryforward Amount: With respect to any Class of Class A Certificates and
Mezzanine Certificates and any Distribution Date, the sum of (i) the positive excess, if any, of (x) the
aggregate cumulative amount of Available Funds Cap Shortfall Amounts for such Class on all prior
Distribution Dates over (y) the aggregate cumulative amount of Supplemental Interest Payments actually
paid to the Holders of that Class on all prior Distribution Dates pursuant to those clauses of Section 4.04(c),
which relate to payments to that Class, plus (ii) interest on the amount described in clause (i) at a rate equal
to the related Formula Rate for such Class and Distribution Date.
Available Funds Cap Shortfall Amount: With respect to any Distribution Date and Class of Class A
Certificates and Mezzanine Certificates the excess, if any, of (1) the interest due on such Class calculated
using the Formula Rate applicable to such Class over (2) the interest due on such Class, calculated using
the Pass-Through Rate applicable to such Class.
Balloon Mortgage Loan: A Mortgage Loan that provides for the payment of the unamortized
principal balance of such Mortgage Loan in a single payment at the maturity of such Mortgage Loan that is
substantially greater than the preceding monthly payment.
Balloon Payment: A payment of the unamortized principal balance of a Mortgage Loan in a single
payment at the maturity of such Mortgage Loan that is substantially greater than the preceding Monthly
Payment.
Bankruptcy Code: The Bankruptcy Reform Act of 1978 (Title 11 of the United States Code), as
amended.
Base Prospectus: The base Prospectus, dated June 16, 2006 with respect to the Offered Certificates.
Basic Documents: This Agreement, the Purchase Agreement, each Subsequent Transfer
Instrument, the Underwriting Agreement, MI Policy, the Trustee Indemnification Agreement, the Hedge
Agreements, the Novation Agreements and the other documents and Certificates delivered in connection
with any of the above.
Book-Entry Certificates: Any of the Certificates that shall be registered in the name of the
Depository or its nominee, the ownership of which is reflected on the books of the Depository or on the
books of a Person maintaining an account with the Depository (directly, as a Depository Participant, or
indirectly, as an indirect participant in accordance with the rules of the Depository and as described in
Section 5.02 hereof). On the Closing Date, the Class A, Class M and Class DSI Certificates shall be Book-
Entry Certificates.
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, or the State of Missouri or in the city in which the Corporate Trust
Office of the Trustee are located, are required or authorized by law to be closed.

Appendix A-3

Cap Agreement: Any of the twelve interest rate cap agreements between the Supplemental Interest
Trust and a Cap Counterparty which are deemed to be assets of the Supplemental Interest Trust and not an
asset of any one of the REMICs created hereunder.
Cap Amount: With regard to each Cap Agreement and each Distribution Date on or prior to the
Class I Termination Date, the product of (i) the related fixed rate of interest, (ii) 30 divided by 360 and
(iii) the related notional amount. The Cap Amount is subject to the verification and confirmation of the Cap
Counterparties who are calculation agents for the Cap Agreements.
Cap Contract Rights and Obligations: The rights of the Class A Certificates and Mezzanine
Certificates to receive interest payments in excess of payments at the REMIC Pass-Through Rate on the
Master REMIC Regular Interest corresponding to such Class of Certificates as set forth in Exhibit J and the
obligations of the Class A Certificates and Mezzanine Certificates to make certain payments to the Holder
of the Class CA Certificates to the extent that the amounts allocated at the REMIC Pass-Through Rate on
the Master REMIC Regular Interest corresponding to such Class of Certificates exceed the amount of
interest distributed on such Certificates.
Cap Interest Rate Schedule: As set forth in Appendix B.
Cap Counterparty: A Hedge Counterparty.
Cap Payment: With regard to each Cap Agreement and each Distribution Date on or prior to the
Class I Termination Date, the excess, if any, of (a) the product of (i) the excess of LIBOR over the strike
rate on the related Cap Agreement, (ii) the actual number of days elapsed in the related Accrual Period
divided by 360 and (iii) the related notional amount over (b) the Cap Amount for the related Cap
Agreement (so long as such calculation results in a positive number). The Cap Payment is subject to the
verification and confirmation of the Cap Counterparties who are calculation agents for the Cap
Agreements.
Cash Liquidation: As to any defaulted Mortgage Loan other than a Mortgage Loan as to which an
REO Acquisition occurred, a determination by the Servicer that it has received all Liquidation Proceeds
and other payments or cash recoveries which the Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
Certificate: Any Regular Certificate, Class DSI Certificate or Class R Certificate.
Certificateholder or Holder: The Person in whose name a Certificate is registered in the
Certificate Register, except that a Disqualified Organization or non-U.S. Person shall not be a Holder of a
Residual Certificate for any purpose hereof.

Appendix A-4

Certificate Margin: With respect to each Class and each Distribution Date prior to the Rate Step-
Up Date:

Class
Rate
A-1A LIBOR plus 0.150%


A-2B LIBOR plus 0.120%

A-2C LIBOR plus 0.170%

A-2D LIBOR plus 0.240%

M-1 LIBOR plus 0.240%









M-10 (and M-10N) LIBOR plus 2.250%


With respect to each Class and each Distribution Date on and after the Rate Step-Up Date:

Class
Rate


A-2B LIBOR plus 0.240%

A-2C LIBOR plus 0.340%

A-2D LIBOR plus 0.480%

Appendix A-5












Certificate Owner: With respect to each Book-Entry Certificate, any beneficial owner thereof.
Certificate Principal Balance: With respect to any Class of Regular Certificates (other than the
Class C Certificates and the Class I Certificates) immediately prior to any Distribution Date, an amount
equal to the Initial Certificate Principal Balance thereof reduced by the sum of all amounts actually
distributed in respect of principal of such Class and, in the case of a Mezzanine Certificate, Allocated
Realized Loss Amounts applied with respect to that Class on all prior Distribution Dates.
With respect to each Class of Reallocable Certificates and its corresponding Class of Class N
Certificates, such Certificate Principal Balance shall be allocated between the two based upon the
Percentage Interests previously subject to Reallocation (with such Certificate Principal Balances initially
allocated entirely to the corresponding Class N Certificates). For all purposes of this Agreement other than
as specifically provided herein or than as deemed necessary by the Trustee in connection with the
Reallocation mechanics (e.g., for purposes of determining the Principal Distribution Amounts, allocations
of Realized Losses, and other rules relating to the calculations of distributions) the distinction between the
Reallocable Certificates and the corresponding Class of Class N Certificates Certificate Principal
Balances shall be disregarded, and they shall be considered to be the same.
The Class C Certificates, Class DSI Certificates and the Class I Certificates will not have a
Certificate Principal Balance.

Appendix A-6

Certificate Register: The register maintained by the Certificate Registrar in which the Certificate
Registrar shall provide for the registration of Certificates and of transfers and exchanges of Certificates.
Certificate Registrar: Initially, the Trustee, in its capacity as Certificate Registrar, or any successor
to the Trustee in such capacity.
Class: Collectively, Certificates which have the same priority of payment and bear the same Class
designation and the form of which is identical except for variation in the Percentage Interest evidenced
thereby.
Class A Certificate: Any Group I Certificate or Group II Certificate.
Class A Principal Distribution Amount: For any Distribution Date, the sum of the Group I
Certificate Principal Distribution Amount and the Group II Certificate Principal Distribution Amount for
such Distribution Date.
Class A-1A Certificate: Any one of the Class A-1A Certificates executed, authenticated and
delivered pursuant to Section 5.01, substantially in the form annexed hereto as Exhibit A-1, representing
the right to distributions as set forth herein and therein and evidencing a regular interest in the Master
REMIC.
Class A-2A Certificate: Any one of the Class A-2A Certificates executed, authenticated and
REMIC.
Class A-2B Certificate: Any one of the Class A-2B Certificates executed, authenticated and
REMIC.
Class A-2C Certificate: Any one of the Class A-2C Certificates executed, authenticated and
REMIC.
Class A-2D Certificate: Any one of the Class A-2D Certificates executed, authenticated and
REMIC.
Class C Certificate: Any Class CA Certificate or Class CB Certificate.
Class CA Certificate: Any one of the Class CA Certificates executed, authenticated and delivered
pursuant to Section 5.01, substantially in the form annexed hereto as Exhibit A-20, representing the right to
distributions as set forth herein and therein and evidencing one or more regular interests in the Master
REMIC.

Appendix A-7

Class CA Interest Distributable Amount: For any Distribution Date, an amount, if any, equal to the
interest payable on the Class CA-1 Master REMIC Regular Interest as described in Appendix J.
Class CB Certificate: Any one of the Class CB Certificates executed, authenticated and delivered
distributions as set forth herein and therein and evidencing one or more regular interests in the Master
REMIC.
Class CB Certificate Schedule: As set forth in Appendix B.
Class CB Interest Distributable Amount: For any Distribution Date, an amount, if any, equal to the
interest payable on the Class CB Master REMIC Regular Interest as described in Appendix J.
Class DSI Certificate: Any Class M-10 DSI Certificate, Class M-11 DSI Certificate or Class M-12
DSI Certificate.
Class I-1 Certificate: Any one of the Class I-1 Certificates executed, authenticated and delivered
distributions as set forth herein and therein and evidencing a regular interest in the Master REMIC.
Class I-2 Certificate: Any one of the Class I-2 Certificates executed, authenticated and delivered
Class I Monthly Interest Distributable Amount: For any Distribution Date, shall mean the sum of
(i) the Class I-1 Monthly Interest Distributable Amount and (ii) the Class I-2 Monthly Interest Distributable
Amount, each for such Distribution Date.
Class I-1 Monthly Interest Distributable Amount: For any Distribution Date commencing on the
first Distribution Date through and including the Distribution Date in July 2008, an amount equal to the
sum of the amounts described in clauses (I) through (V) of the definition of Class I Monthly Interest
Formula Amounts.
For the Distribution Date in August 2008, an amount equal to the sum of the amounts described in
clauses (III) through (V) of the definition of Class I Monthly Interest Formula Amounts.
For the Distribution Date in September 2008 and each Distribution Date thereafter, the Class I-1
Monthly Interest Distributable Amount shall be zero.
Class I-2 Monthly Interest Distributable Amount: For any Distribution Date commencing on the
first Distribution Date through and including the Distribution Date in May 2009, an amount equal to the
sum of the amounts described in clauses (VI) through (XII) of the definition of Class I Monthly Interest
Formula Amounts.

Appendix A-8

For the Distribution Dates in June 2009 and in July 2009, an amount equal to the sum of the amounts
described in clauses (VII) through (XII) of the definition of Class I Monthly Interest Formula Amounts.
For the Distribution Date in August 2009, an amount equal to the sum of the amounts described in
clauses (X) through (XII) of the definition of Class I Monthly Interest Formula Amounts.
For the Distribution Date in September 2009 and each Distribution Date thereafter, the Class I-2
Monthly Interest Distributable Amount shall be zero.
Class I Monthly Interest Formula Amounts: For each Distribution Date up to and including the
Distribution Date in August 2009, the following:
(I) the product of (x) 0.2230% (on a 30/360 basis) and (y) $80,000,000; and
(II) the product of (x) 0.2225% (on a 30/360 basis) and (y) $80,000,000; and
(III) the product of (x) 0.2310% (on a 30/360 basis) and (y) $80,000,000; and
(IV) the product of (x) 0.2450% (on a 30/360 basis) and (y) $80,000,000; and
(V) the product of (x) 0.2080% (on a 30/360 basis) and (y) $160,000,000; and
(VI) the product of (x) 0.3150% (on a 30/360 basis) and (y) $20,000,000; and
(VII) the product of (x) 0.3120% (on a 30/360 basis) and (y) $20,000,000; and
(VIII) the product of (x) 0.3050% (on a 30/360 basis) and (y) $20,000,000; and
(IX) the product of (x) 0.3140% (on a 30/360 basis) and (y) $20,000,000; and
(X) the product of (x) 0.3120% (on a 30/360 basis) and (y) $20,000,000; and
(XI) the product of (x) 0.3310% (on a 30/360 basis) (and (y) $20,000,000; and
(XII) the product of (x) 0.3060% (on a 30/360 basis) and (y) $40,000,000.
Class I Termination Date: The Distribution Date occurring in August 2009.
Class IV-Accrual Interest: As defined in Exhibit J hereof.
Class M Certificate: Any Class M-1 Certificate, Class M-2 Certificate, Class M-3 Certificate, Class
M-4 Certificate, Class M-5 Certificate, Class M-6 Certificate, Class M-7 Certificate, Class M-8 Certificate,
Class M-9 Certificate, Class M-10 (and Class M-10N) Certificate, Class M-11 (and Class M-11N)
Certificate or Class M-12 (and Class M-12N) Certificate.

Appendix A-9

Class M-1 Certificate: Any one of the Class M-1 Certificates executed, authenticated and delivered
Class M-1/M-2/M-3 Principal Distribution Amount: For any Distribution Date, an amount equal to
the excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A Principal Distribution Amount on such Distribution Date)
and (ii) the aggregate Certificate Principal Balance of the Class M-1, Class M-2 and Class M-3 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the product of (i) 81.80% and (ii) the
aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period, to the extent received or
advanced, and unscheduled collections of principal received during the related Prepayment Period) and
(B) the aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related Due Period, to the extent
received or advanced, and unscheduled collections of principal received during the related Prepayment
Period) minus $6,500,000.
Class M-4 Principal Distribution Amount: For any Distribution Date, an amount equal to the
excess of (x) the sum of (i) the aggregate Certificate Principal Balance of the Class A Certificates (after
taking into account the payment of the Class A Principal Distribution Amount on such Distribution Date),
(ii) the aggregate Certificate Principal Balance of the Class M-1, Class M-2 and Class M-3 Certificates
(after taking into account the payment of the Class M-1/M-2/M-3 Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class M-3 Certificates (after taking into
account the payment of the Class M-3 Principal Distribution Amount on such Distribution Date), and
(v) the Certificate Principal Balance of the Class M-4 Certificates immediately prior to such Distribution
Date over (y) the lesser of (A) the product of (i) 84.70% and (ii) the aggregate Principal Balance of the
Mortgage Loans as of the last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) and (B) the

Appendix A-10

advanced, and unscheduled collections of principal received during the related Prepayment Period) minus
$6,500,000.
account the payment of the Class M-4 Principal Distribution Amount on such Distribution Date), (iv) the
Certificate Principal Balance of the Class M-5 Certificates immediately prior to such Distribution Date over
(y) the lesser of (A) the product of (i) 87.60% and (ii) the aggregate Principal Balance of the Mortgage
Loans as of the last day of the related Due Period (after giving effect to scheduled payments of principal
due during the related Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) and (B) the aggregate Principal Balance of the
collections of principal received during the related Prepayment Period) minus $6,500,000.
Certificate Principal Balance of the Class M-5 Certificates (after taking into account the payment of the
Class M-5 Principal Distribution Amount on such Distribution Date), (v) the Certificate Principal Balance
of the Class M-6 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) 89.90% and (ii) the aggregate Principal Balance of the Mortgage Loans as of the last day of
the related Due Period (after giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled

Appendix A-11

collections of principal received during the related Prepayment Period) and (B) the aggregate Principal
Balance of the Mortgage Loans as of the last day of the related Due Period (after giving effect to scheduled
payments of principal due during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment Period) minus $6,500,000.
Class M-7 Principal Distribution Amount: For any Distribution Date, is an amount equal to the
of the Class M-6 Certificates (after taking into account the payment of the Class M-6 Principal Distribution
Amount on such Distribution Date), (vi) the Certificate Principal Balance of the Class M-7 Certificates
immediately prior to that Distribution Date over (y) the lesser of (A) the product of (i) 91.60% and (ii) the
advanced, and unscheduled collections of principal received during the related Prepayment Period) and
(B) the aggregate Principal Balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related Due Period, to the extent
received or advanced, and unscheduled collections of principal received during the related Prepayment
Period) minus $6,500,000.

Appendix A-12

(after taking into account the payment of the Class M-7 Principal Distribution Amount on such Distribution
Date), (vii) the Certificate Principal Balance of the Class M-8 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) 93.00% and (ii) the aggregate Principal
unscheduled collections of principal received during the related Prepayment Period) and (B) the aggregate
Principal Balance of the Mortgage Loans as of the last day of the related Due Period (after giving effect to
scheduled payments of principal due during the related Due Period, to the extent received or advanced, and
Date), (vii) the Certificate Principal Balance of the Class M-8 Certificates (after taking into account the
payment of the Class M-8 Principal Distribution Amount on such Distribution Date), (viii) the Certificate
Principal Balance of the Class M-9 Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) the product of (i) 95.10% and (ii) the aggregate Principal Balance of the Mortgage Loans as of
the last day of the related Due Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled collections of principal received
during the related Prepayment Period) and (B) the aggregate Principal Balance of the Mortgage Loans as of
the last day of the related Due Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled collections of principal received
during the related Prepayment Period) minus $6,500,000.

Appendix A-13

Class M-10 Certificate: Any one of the Class M-10 Certificates executed, authenticated and
REMIC.
Class M-10 DSI Certificates: Any one of the Class M-10 DSI Certificates executed, authenticated
and delivered pursuant to Section 5.01, substantially in the form annexed hereto as Exhibit A-23, which are
notional amount certificates based on the Certificate Principal Balance of the Class M-10N Certificates and
which represent the right to receive certain distributions from the Supplemental Interest Trust.
Class M-10N Certificates: Any one of the Class M-10N Certificates executed, authenticated and
REMIC.
Principal Balance of the Class M-9 Certificates (after taking into account the payment of the Class M-9
Principal Distribution Amount on such Distribution Date, (ix) the Certificate Principal Balance of the Class
M-10 Certificates immediately prior to such Distribution Date over (y) the lesser of (A) the product of
(i) 96.90% and (ii) the aggregate Principal Balance of the Mortgage Loans as of the last day of the related
Due Period (after giving effect to scheduled payments of principal due during the related Due Period, to the
extent received or advanced, and unscheduled collections of principal received during the related
Prepayment Period) and (B) the aggregate Principal Balance of the Mortgage Loans as of the last day of the
related Due Period (after giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of principal received during the
related Prepayment Period) minus $6,500,000.
REMIC.

Appendix A-14

REMIC.
M-10 Certificates (after taking into account the payment of the Class M-10 Principal Distribution Amount
on such Distribution Date, (x) the Certificate Principal Balance of the Class M-11 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i) 97.90% and (ii) the aggregate
REMIC.

Appendix A-15

REMIC.
M-10 Certificates (after taking into account the payment of the Class M-10 Principal Distribution Amount
on such Distribution Date, (x) the Certificate Principal Balance of the Class M-11 Certificates (after taking
into account the payment of the Class M-11 Principal Distribution Amount on such Distribution Date and
(xi) the Certificate Principal Balance of the Class M-12 Certificates immediately prior to such Distribution
Date over (y) the lesser of (A) the product of (i) 98.90% and (ii) the aggregate Principal Balance of the

Appendix A-16

Class N Certificate: Any Class M-10N Certificate, Class M-11N Certificate or Class M-12N
Certificate.
Class R Certificate: Any one of the Class R Certificates executed, authenticated and delivered
distributions as set forth herein, and evidencing the R-I Interest, the R-II Interest, the R-III Interest, the R-
IV Interest, the R-V Interest and the R-VI Interest, each the sole residual interest in REMIC I, REMIC II,
REMIC III, REMIC IV, REMIC V and the Master REMIC, respectively.
Close of Business: As used herein, with respect to any Business Day, 5:00 p.m. (New York time).
Closing Date: September 28, 2006.
Code: The Internal Revenue Code of 1986 as it may be amended from time to time.
Collection Account: The account or accounts created and maintained by the Servicer pursuant to
Section 3.06(d) hereof, which must be an Eligible Account.
Commission: The Securities and Exchange Commission.
Compensating Interest: With respect to any Determination Date, an amount equal to the lesser of
(i) the aggregate amount of Prepayment Interest Shortfalls for the related Prepayment Period and (ii) the
Servicing Fee for the related Distribution Date.
Corporate Trust Office: With respect to the Trustee, the Paying Agent and the Certificate Registrar,
the corporate trust office at which at any particular time its corporation trust business shall be administered,
which office at the date of execution of this Agreement is located at (i) solely for purposes of the transfer,
exchange or surrender of Certificates, c/o DB Services Tennessee, 648 Grassmere Park Road, Nashville,
TN 37211-3658, Attention: Transfer Unit and (ii) for all other purposes, Deutsche Bank National Trust
Company, 1761 East St. Andrew Place, Santa Ana, CA 92705, Attention: Trust Administration NS0605.
Corresponding Class of Master REMIC Certificates: As defined in Exhibit J hereof.
Corresponding Class of REMIC II Regular Interest: As defined in Exhibit J hereof.
Corresponding Class of REMIC V Regular Interests: As defined in Exhibit J hereof.
Corresponding Interest Rate: As set forth in the Cap Interest Rate Schedule.
Corresponding Interest Rate Strip: As set forth in the Class CB Certificate Schedule.
Corresponding Maturity Date: As set forth in the Cap Interest Rate Schedule.
Credit Enhancement Percentage: For any Distribution Date, is equal to (i) the sum of the aggregate
Certificate Principal Balance of the Mezzanine Certificates and the

Appendix A-17

Overcollateralization Amount, divided by (ii) the Pool Balance, in each case calculated prior to taking into
account the distribution of the Principal Distribution Amount to the Holders of the Certificates then entitled
to distributions of principal on such Distribution Date and prior to taking into account distributions of
principal on the Mortgage Loans on such Distribution Date.
Crossover Date: The earlier to occur of (i) the Distribution Date after which the aggregate
Certificate Principal Balance of the Class A Certificates is reduced to zero; and (ii) the later to occur of
(x) the Distribution Date occurring in October 2009 and (y) the first Distribution Date on which the Credit
Enhancement Percentage (calculated for this purpose only after taking into account distributions of
principal on the Mortgage Loans but prior to the principal distributions to the Certificates) is greater than or
equal to 37.80%.
Cumulative Loss Percentage: As to any Distribution Date, the percentage equivalent of the fraction
obtained by dividing (i) the aggregate amount of Realized Losses on the Mortgage Loans from the Cut-off
Date through such Distribution Date by (ii) the sum of the aggregate Principal Balance of the Initial
Mortgage Loans as of the Cut-off Date plus the Original Pre-Funded Amount.
Current Interest: For any Distribution Date and each Class of Class A Certificates and Mezzanine
Certificates the amount of interest accrued during the related Accrual Period at the related Pass-Through
Rate on the Certificate Principal Balance of such Class immediately prior to such Distribution Date, in each
case, reduced by any Net Prepayment Interest Shortfalls and any Relief Act Shortfalls allocated to that
Class (allocated to each Certificate based on its respective entitlements to interest irrespective of any Net
Prepayment Interest Shortfalls or Relief Act Shortfalls for that Distribution Date).
Custodian: U.S. Bank National Association, a national banking association, and any successor
thereto.
Custodian Fee: With respect to each Distribution Date, the product of (i) $0.20 and (ii) the number
of Mortgage Loans.
Custodian Fee Rate: The percentage equivalent of a fraction, the numerator of which is (i) the
product of (a) the Custodian Fee and (b) 12 and the denominator of which is (ii) the aggregate Principal
Balance of the Mortgage Loans as of the beginning of the Due Period.
Cut-off Date: With respect to each Initial Mortgage Loan the later of (i) September 1, 2006 and
(ii) the date of origination of such Initial Mortgage Loan. With respect to each Subsequent Mortgage Loan,
the later of (i) the first day of the month in which such Subsequent Mortgage Loan is acquired by the
Issuing Entity and (ii) the date of origination of such Subsequent Mortgage Loan.
Cut-off Date Aggregate Principal Balance: With respect to the Mortgage Pool, the aggregate of the
Cut-off Date Principal Balances of the Initial Mortgage Loans of $740,283,081 consisting of $451,136,136
related to Group I and $289,146,944 related to Group II.
Cut-off Date Principal Balance: With respect to any Mortgage Loan, the unpaid Principal Balance
thereof as of the Cut-off Date or Subsequent Cut-Off Date, as the case may be (or as of the applicable date
of substitution with respect to an Eligible Substitute Mortgage Loan).

Appendix A-18

Debt Service Reduction: With respect to any Mortgage Loan, a reduction in the scheduled Monthly
Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code, except such a reduction resulting from a Deficient Valuation.
Defaulted Hedge Termination Payment: Any Hedge Termination Payment required to be made by
the Supplemental Interest Trust to a Hedge Counterparty pursuant to a Hedge Agreement as a result of an
Event of Default with respect to which the Hedge Counterparty is the Defaulting Party or a
Termination Event (other than Illegality or Tax Event) (each as defined in the Hedge Agreements)
with respect to which a Hedge Counterparty is the sole Affected Party.
Deficient Valuation: With respect to any Mortgage Loan, a valuation of the related Mortgaged
Property by a court of competent jurisdiction in an amount less than the then outstanding principal balance
of the Mortgage Loan, which valuation results from a proceeding initiated under the Bankruptcy Code.
Definitive Certificates: The Class C, Class I and Class R Certificates, and such other Classes of
Certificates as become Definitive Certificates pursuant to Section 5.02(c) hereof.
Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by one or more Eligible
Substitute Mortgage Loans.
30-Day Delinquency Percentage: As of the last day of any Due Period, the percentage equivalent
of a fraction, (i) the numerator of which equals the aggregate Principal Balance of the Mortgage Loans that
are 30 or more days contractually delinquent, in foreclosure or converted to REO Properties, and (ii) the
denominator of which is the Pool Balance as of the last day of such Due Period.
are 60 or more days contractually delinquent, in foreclosure or converted to REO Properties, and (ii) the
are 90 or more days contractually delinquent, in foreclosure or converted to REO Properties and (ii) the
Delinquent: Any Mortgage Loan, the Monthly Payment due on a Due Date which is not made by
the Close of Business on the next scheduled Due Date for such Mortgage Loan.

Appendix A-19

Depositor: NovaStar Mortgage Funding Corporation, a Delaware corporation, and its successors
and assigns.
Depository: The initial Depository shall be The Depository Trust Company, whose nominee is
Cede & Co., or any other organization registered as a clearing agency pursuant to Section 17A of the
Securities Exchange Act of 1934, as amended. The Depository shall initially be the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a clearing corporation as defined in
Section 8-102(a)(5) of the Uniform Commercial Code of the State of New York.
Depository Participant: A broker, dealer, bank or other financial institution or other person for
whom from time to time a Depository effects book-entry transfers and pledges of securities deposited with
the Depository.
Derivative Supplemental Interest Payment: With respect to each Distribution Date, and the Class
M-10, Class M-11 and Class M-12 Certificates, the dollar amount of the excess of (i) the Supplemental
Interest Payment for the Class M-10, Class M-11 or Class M-12 Certificates, as appropriate, over (ii) the
Non-Derivative Supplemental Interest Payment for the Class M-10, Class M-11 or Class M-12 Certificates,
as appropriate.
Determination Date: With respect to any Distribution Date, the 15th day of the calendar month in
which such Distribution Date occurs or, if such 15th day is not a Business Day, the Business Day
immediately preceding such 15th day.
Determination Date Report: The meaning specified in Section 3.24 hereof.
Disqualified Organization: Disqualified Organization shall have the meaning set forth from time
to time in the definition thereof at Section 860E(e)(5) of the Code and applicable to the Issuing Entity.
Distribution Account: The trust account or accounts created and maintained by the Trustee
pursuant to Section 4.02 hereof, which must be an Eligible Account.
Distribution Date: The 25th day of any calendar month, or if such 25th day is not a Business Day,
the Business Day immediately following such 25th day, commencing in October 2006.
Due Date: For any Distribution Date, the first day of the month of that Distribution 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 Distribution Date and ending on the related Due
Date.
Eligible Account: An account that is either: (A) a segregated account or accounts maintained with
an institution whose deposits are insured by the FDIC, the unsecured and uncollateralized long-term debt
obligations of which institution shall be rated AA or higher by Standard & Poors, Aa2 or higher by
Moodys and AA/F-1+ or higher by Fitch and in the

Appendix A-20

highest short-term rating category by each of the Rating Agencies, and which 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, or (iv) a principal subsidiary of a bank holding company or (B) a segregated trust
account or accounts maintained with the trust department of a federal or state chartered depository
institution acceptable to each Rating Agency, having capital and surplus of not less than $100,000,000,
acting in its fiduciary capacity. All Eligible Accounts held by the Trustee shall be non-interest bearing trust
accounts.
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;
(ii) (A) demand and time deposits in, Certificates of deposit of, bankers acceptances issued by or
federal funds sold by any depository institution or trust company (including the Trustee or its agents 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-1+ or higher by S&P, A2 or higher by Moodys and F-1+ or higher by Fitch; 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 in exchange for such collateral and (C) be delivered 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;

Appendix A-21

(vi) a guaranteed investment contract approved by each of the Rating Agencies 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 Agreement; and
(viii) money market deposit accounts, time deposits or savings deposits, in each case as defined in
Regulation D of the Board of Governors of the Federal Reserve System and issued or offered by, any
domestic office of any commercial bank organized under the laws of the United States of America or any
State thereof which has a combined capital and surplus and undivided profits of not less than $250,000,000
which are fully insured by FDIC, including the Bank Insurance Fund and the Savings Association
Insurance Fund.
provided, however, that each such instrument shall be acquired in an arms-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 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 Sponsor for a Deleted
Mortgage Loan which must, on the date of such substitution, as confirmed in an Officers Certificate
delivered to the Trustee, (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 Sponsor in the Collection Account in the month of substitution);
(ii) comply in all material respects with each representation and warranty set forth in clauses, (ii) through
(xcix) of Section 3.01(b) of the Purchase Agreement other than clauses (iii), (v)-(xiv), (xlii), (lv), (lvi)-
(lviii), (lxxii), (lxxxix) and (xc); (iii) have a Mortgage Rate and, with respect to an Adjustable Rate
Mortgage Loan, a Gross Margin no lower than and not more than 1% per annum higher than the Mortgage
Rate and Gross Margin, respectively, of the Deleted Mortgage Loan as of the date of substitution; (iv) have
a Loan-to-Value Ratio, 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 not more than one
year less than) that of the Deleted Mortgage Loan; (vi) not be 30 days or more delinquent; (vii) not be a
negative amortization loan; (viii) have a lien priority equal to or superior to the lien priority of the Deleted
Mortgage Loan; and (ix) be a Qualified Replacement Mortgage.

Appendix A-22

ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Excess Cashflow: For any Distribution Date, the sum of (i) the Overcollateralization Release
Amount and (ii) the excess of (a) the Interest Remittance Amount over (b) the sum of (x) the Monthly
Interest Distributable Amounts for the Class A Certificates and the Mezzanine Certificates, (y) the Class I
Monthly Interest Distributable Amount and (z) the Administrative Fees, each for such Distribution Date.
Extra Principal Distribution Amount: For any Distribution Date, the lesser of (x) the sum of
(a) Excess Cashflow for such Distribution Date and (b) the amount remaining in the Supplemental Interest
Trust after funding amounts in clause (i) under Section 4.04(c), for such Distribution Date, and (y) the
Overcollateralization Deficiency Amount for such Distribution Date.
Expense Adjusted Mortgage Rate: With respect to any Mortgage Loan, as of any date of
determination, a per annum rate of interest equal to the then applicable Mortgage Rate for such Mortgage
Loan minus the Administrative Fee Rate.
Fannie Mae: Federal National Mortgage Association or any successor thereto.
FDIC: Federal Deposit Insurance Corporation or any successor thereto.
Fitch: Fitch Ratings, or its successors in interest.
Fixed Rate Mortgage Loan: A first-lien or second-lien Mortgage Loan which provides for a fixed
Mortgage Rate payable with respect thereto. The Fixed Rate Mortgage Loans are identified as such on the
Mortgage Loan Schedule.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the amount, if any, by which
(i) the aggregate of its Net Liquidation Proceeds exceeds (ii) the related Principal Balance (plus accrued
and unpaid interest thereon at the applicable Mortgage Rate from the date interest was last paid through the
last day of the month of the date of receipt of the final Liquidation Proceeds) of such Liquidated Mortgage
Loan immediately prior to the final recovery of its Liquidation Proceeds.
Formula Rate: For any Distribution Date and any Class of Class A Certificates and Mezzanine
Certificates the lesser of (i) LIBOR plus the related Certificate Margin and (ii) the applicable Maximum
Rate, if any.
Freddie Mac: The Federal Home Loan Mortgage Corporation, or any successor thereto.
Gross Margin: With respect to each Adjustable Rate Mortgage Loan, the fixed percentage set forth
in the related Mortgage Note that is added to the Index on each Adjustment Date in accordance with the
terms of the related Mortgage Note used to determine the Mortgage Rate for such Mortgage Loan.
Group: Any of the Group I Mortgage Loans and the Group II Mortgage Loans.

Appendix A-23

Group I Allocation Percentage: For any Distribution Date, the percentage equivalent of a fraction,
the numerator of which is (i) the Group I Principal Remittance Amount for such Distribution Date and the
denominator of which is (ii) the Principal Remittance Amount for such Distribution Date.
Group I Basic Principal Distribution Amount: With respect to any Distribution Date the excess of
(i) the Group I Principal Remittance Amount for such Distribution Date over (ii) the Overcollateralization
Release Amount, if any, for such Distribution Date multiplied by the Group I Allocation Percentage.
Group I Certificate: Any Class A-1A Certificate.
Group I Certificate Principal Distribution Amount: For any Distribution Date, an amount equal to
the excess of (x) the Certificate Principal Balance of the Class A-1A Certificates immediately prior to that
Distribution Date over (y) the lesser of (A) the product of (i) 62.20% and (ii) the aggregate Principal
Balance of the Group I Mortgage Loans as of the last day of the related Due Period (after giving effect to
Principal Balance of the Group I Mortgage Loans as of the last day of the related Due Period (after giving
$3,930,522.
Group I Class I Percentage: For any Distribution Date beginning on the first Distribution Date
through and including the Distribution Date in August 2009 the percentage equivalent of the fraction (a) the
numerator of which is the aggregate principal balance of the Group I Loans and (b) the denominator of
which is the aggregate principal balance of the Mortgage Loans. For all Distribution Dates thereafter,
0.00%. The sum of the Group I Class I Percentage plus the Group II Class I Percentage shall equal 100%.
Group I Cross Collateralization Amount: For any Distribution Date, the portion of the Group I
Interest Remittance Amount remaining after payment of (a) the Monthly Interest Distributable Amount on
the Group I Certificates, (b) the Class I Monthly Interest Distributable Amount multiplied by the Group I
Class I Percentage and (c) the related proportional amount of the Administrative Fees.
Group I Interest Remittance Amount: For any Distribution Date, the portion of the Interest
Remittance Amount that was collected or advanced on the Group I Mortgage Loans.
Group I Mortgage Loans: The Mortgage Loans allocated to Group I.
Group I Pool Balance: The Pool Balance relating to the Group I Mortgage Loans.
Group I Principal Distribution Amount: With respect to any Distribution Date is the sum of (i) the
Group I Basic Principal Distribution Amount for such Distribution Date and (ii) the Extra Principal
Distribution Amount for such Distribution Date multiplied by the Group I Allocation Percentage.

Appendix A-24

Group I Principal Remittance Amount: For any Distribution Date, the portion of the Principal
Remittance Amount relating to the Group I Mortgage Loans.
Group II Allocation Percentage: For any Distribution Date, the percentage equivalent of a fraction,
the numerator of which is (i) the Group II Principal Remittance Amount for such Distribution Date and the
denominator of which is (ii) the Principal Remittance Amount for such Distribution Date.
Group II Basic Principal Distribution Amount: With respect to any Distribution Date the excess of
(i) the Group II Principal Remittance Amount for such Distribution Date over (ii) the Overcollateralization
Release Amount, if any, for such Distribution Date multiplied by the Group II Allocation Percentage.
Group II Certificate: Any of the Class A-2A Certificates, Class A-2B Certificates, Class A-2C
Certificates or Class A-2D Certificates.
Group II Certificate Principal Distribution Amount: For any Distribution Date, an amount equal to
the excess of (x) the aggregate Certificate Principal Balance of the Group II Certificates immediately prior
to that Distribution Date over (y) the lesser of (A) the product of (i) 62.20% and (ii) the aggregate Principal
Balance of the Group II Mortgage Loans as of the last day of the related Due Period (after giving effect to
Principal Balance of the Group II Mortgage Loans as of the last day of the related Due Period (after giving
$2,569,478.
Group II Class I Percentage: For any Distribution Date beginning on the first Distribution Date
through and including the Distribution Date in August 2009, the percentage equivalent of the fraction
(a) the numerator of which is the aggregate Principal Balance of the Group II Loans and (b) the
denominator of which is the aggregate Principal Balance of the Mortgage Loans. For all Distribution Dates
thereafter, 0.00%. The sum of the Group I Class I Percentage plus the Group II Class I Percentage shall
equal 100%.
Group II Cross Collateralization Amount: For any Distribution Date, the portion of the Group II
Interest Remittance Amount remaining after payment of (a) the Monthly Interest Distributable Amounts on
the Group II Certificates, (b) the Class I Monthly Distributable Amount multiplied by the Group II Class I
Percentage and (c) the related proportional amount of the Administrative Fees.
Group II Interest Remittance Amount: For any Distribution Date, the portion of the Interest
Remittance Amount that was collected or advanced on the Group II Mortgage Loans.
Group II Mortgage Loans: The Mortgage Loans allocated to Group II.
Group II Principal Distribution Amount: With respect to any Distribution Date is the sum of (i) the
Group II Basic Principal Distribution Amount for such Distribution Date and (ii) the Extra Principal
Distribution Amount for such Distribution Date multiplied by the Group II Allocation Percentage.

Appendix A-25

Group II Principal Remittance Amount: For any Distribution Date, the portion of the Principal
Remittance Amount relating to the Group II Mortgage Loans.
Hedge Agreement: Any Cap Agreement.
Hedge Counterparty: The Royal Bank of Scotland plc, Deutsche Bank AG, New York Branch, or
Wachovia Bank, National Association, as applicable.
Hedge Termination Payment: Upon the designation of an Early Termination Date as defined in
the Hedge Agreements, the payment to be made by the Supplemental Interest Trust to the respective Hedge
Counterparty, or by the respective Hedge Counterparty to the Supplemental Interest Trust, as applicable,
pursuant to the terms of the respective Hedge Agreement.
Holder: See Certificateholder.
Indenture: An indenture relating to the issuance of net interest margin notes secured by the Class C
Certificates.
Independent: When used with respect to any specified Person, any such Person who (a) is in fact
independent of the Depositor, the Servicer and their respective Affiliates, (b) does not have any direct
financial interest in or any material indirect financial interest in the Depositor or the Servicer or any
Affiliate thereof, and (c) is not connected with the Depositor or the Servicer or any Affiliate thereof as an
officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the Depositor or the Servicer or any
Affiliate thereof merely because such Person is the beneficial owner of 1% or less of any Class of securities
issued by the Depositor or the Servicer or any Affiliate thereof, as the case may be.
Index: With respect to each Adjustable Rate Mortgage Loan and with respect to each related
Adjustment Date, the index as specified in the related Mortgage Note.
Initial Certificate Principal Balance: With respect to any Class of Regular Certificate (other than a
Class C Certificate or Class I Certificate), the amount designated Original Principal Balance on the face
thereof.
Initial Mortgage Loan: The Mortgage Loans which are described (with complete statistical
information included) in the Prospectus Supplement and which are included in the Trust Fund on the
Closing Date.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any insurance policy covering a
Mortgage Loan which are required to be remitted to the Servicer, including MI Insurance Proceeds in the
case of Mortgage Loans covered under a MI Policy, or amounts required to be paid by the Servicer
hereunder, net of any component thereof (i) covering any expenses incurred by or on behalf of the Servicer
in connection with obtaining such proceeds, (ii) that is applied to the restoration or repair of the related
Mortgaged Property or (iii) released to the Mortgagor in accordance with the Servicers normal servicing
procedures.

Appendix A-26

Interest Coverage Account: The account established and maintained pursuant to Section 4.06, as
defined therein, which must be an Eligible Account.
Interest Coverage Amount: The amount to be paid by the Depositor to the Trustee for deposit in the
Interest Coverage Account on the Closing Date pursuant to Section 4.06, which amount is $0.00.
Interest Determination Date: With respect to each Accrual Period, the second LIBOR Business
Day preceding the commencement of such Accrual Period.
Interest Remittance Amount: With respect to any Distribution Date, that portion of the Available
Funds for such Distribution Date allocable to interest (excluding Prepayment Charges).
Interest Remittance Formula Amount: As of any Distribution Date and any Group, an amount
equal to (1) the product of (x) 1/12 of the Weighted Average Mortgage Rate of the related Group as of the
beginning of the prior Due Period and (y) the Pool Balance related to that Group as of the beginning of the
prior Due Period minus (2) the aggregate amount of Relief Act Shortfalls and Net Prepayment Interest
Shortfalls for such Group for the prior period.
Issuing Entity: NovaStar Mortgage Funding Trust, Series 2006-5, the New York common law trust
created hereunder.
Lender Letter: The lender letter #LL03-00 dated April 11, 2000 for Fannie Mae Sellers.
LIBOR: With respect to any Accrual Period, the rate determined by the Trustee on the related
Interest Determination Date (provided that, in the case of each interest rate Hedge Agreement, it will be
determined by the applicable Hedge Counterparty) on the basis of the offered rates of the Reference Banks
for one-month United States dollar deposits, as such rates appear on the Telerate Page 3750, as of 11:00
a.m. (London time) on such Interest Determination Date. If such rate does not appear on Telerate Page
3750, the rate for that day will be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on that day to prime
banks in the London interbank market for a period equal to the relevant Accrual Period (commencing on
the first day of such Accrual Period). The Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate for
that day will be the arithmetic mean of the quotations. If fewer than two quotations are provided as
requested, the rate for that day will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the Trustee, at approximately 11:00 a.m., New York City time, on that day for loans in
United States dollars to leading European banks for a period equal to the relevant Accrual Period
(commencing on the first day of such Accrual Period).

Appendix A-27

The establishment of LIBOR on each Interest Determination Date by the Trustee and the Trustees
calculation of the rate of interest applicable to the Certificates for the related Accrual Period shall (in the
absence of manifest error) be final and binding.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day on which
banking institutions in the State of New York or in the city of London, England are required or authorized
by law to be closed.
Lifetime Rate Cap: With respect to each Adjustable Rate Mortgage Loan, the maximum Mortgage
Rate, if any, permitted over the life of such Mortgage Loan under the terms of such Mortgage Note, as set
forth on the Mortgage Loan Schedule.
Liquidated Mortgage Loan: With respect to any Distribution Date, any Mortgage Loan in respect
of which the Servicer has determined, in accordance with the servicing procedures specified in Article III
hereof, as of the end of the related Prepayment Period that substantially all Liquidation Proceeds which it
reasonably expects to recover with respect to the disposition of the related Mortgaged Property or REO
Property have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead) which are incurred by or on
behalf of the Servicer in connection with the liquidation of any Mortgage Loan and not recovered under
any insurance policy, such expenses, including, without limitation, legal fees and expenses, any
unreimbursed amount expended respecting the related Mortgage Loan and any related and unreimbursed
expenditures for real estate property taxes or for property restoration, preservation or insurance against
casualty loss or damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds) received in connection with the
liquidation of any Mortgage Loan or related REO Property.
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.
Loan Year: With respect to any Mortgage Loan, the one year period commencing on the day
succeeding the origination of such Mortgage Loan and ending on the anniversary date of such Mortgage
Loan, and each annual period thereafter.
Majority Certificateholders: The Holders of Certificates evidencing at least 51% of the Voting
Rights. If any matter concerns fewer than all Classes of Certificates (as evidenced by an Opinion of
Counsel) then the Majority Certificateholders shall be considered to be the Holders of Certificates
evidencing at least 51% of each Class of affected Certificates.
Master REMIC: The REMIC established pursuant to Exhibit J hereof. The assets of the Master
REMIC shall be the REMIC IV Regular Interests.
Master REMIC Regular Interests: As defined in Exhibit J hereof.

Appendix A-28

Maximum Collateral Amount: The sum of the aggregate Principal Balance as of the Cut-off Date
of the Initial Mortgage Loans and the Original Pre-Funded Amount.
Maximum Mortgage Rate: With respect to each Adjustable Rate Mortgage Loan, the percentage
set forth in the related Mortgage Note as the maximum Mortgage Rate thereunder.
Maximum Rate: For the Class A-1A Certificates, 10% and for the Class A-2B, Class A-2C,
Class A-2D Certificates and the Mezzanine Certificates is 11%. There is no maximum rate for the Class A-
2A Certificates.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing
under the laws of the State of Delaware, or any successor thereto.
MERS System: The system of recording transfers of Mortgages electronically maintained by
MERS.
Mezzanine Certificate: Any Class M-1 Certificate, Class M-2 Certificate, Class M-3 Certificate,
Class M-4 Certificate, Class M-5 Certificate, Class M-6 Certificate, Class M-7 Certificate, Class M-8
Certificate, Class M-9 Certificate, Class M-10 (and Class M-10N) Certificate, Class M-11 (and Class M-
11N) Certificate or Class M-12 (and Class M-12N) Certificate.
MI Claim Payment Advance: As defined in Section 3.13(a) hereof.
MI Insurance Agreement: A private mortgage insurance agreement issued by the MI Insurer
pursuant to which MI Policies are issued on individual Mortgage Loans.
MI Insurance Proceeds: Proceeds paid by the MI Insurer pursuant to an MI Policy.
MI Insurer: Each of (i) PMI Mortgage Insurance Co., an Arizona mortgage insurance company,
(ii) Radian Guaranty, Inc., a Pennsylvania mortgage insurance corporation and (iii) Mortgage Guaranty
Insurance Corporation, a Wisconsin private mortgage insurance company and their successors and assigns.
MI Insurer Insolvency Event: (A) The determination by the applicable regulatory or supervisory
agency having jurisdiction over the MI Insurer that such MI Insurer is insolvent or unable to pay its
obligations as they mature, (B) following the failure of the MI Insurer to pay under the related MI Policy,
the determination by the Servicer that such MI Insurer is insolvent or unable to pay its obligations as they
become due, (C) the long-term rating on the claims paying ability of the MI Insurer shall be lowered by
Moodys below A-2, if such MI Insurer is then rated by Moodys, or shall be lowered by S&P below AA, if
such MI Insurer is then rated by S&P.
MI Policy: A private mortgage insurance policy underwritten by the MI Insurer with respect to an
individual Mortgage Loan, issued pursuant to the MI Insurance Agreement.

Appendix A-29

MI Premium: The primary mortgage insurance premium for each MI Policy, payable annually to
an MI Insurer, as specified in the MI Insurance Agreement, and with respect to each monthly premium
payment, 1/12 of the annual premium.
MIN: The Mortgage Identification Number for Mortgage Loans registered with MERS on the
MERS System.
Minimum Mortgage Rate: With respect to each Adjustable Rate Mortgage Loan, the percentage set
forth in the related Mortgage Note as the minimum Mortgage Rate thereunder.
MOM Loan: With respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage
Loan, solely as nominee for the originator of such Mortgage Loan and its successors and assigns, at the
origination thereof.
Monthly Interest Distributable Amount: For any Distribution Date and any Class of Class A
Certificates and Mezzanine Certificates, the sum of (1) the Unpaid Interest Shortfall Amount for that Class
and Distribution Date and (2) the Current Interest for that Class and Distribution Date. In the event of a
shortfall in the full amount necessary to pay both the Unpaid Interest Shortfall Amount and the Current
Interest for a Class, the money will first be applied to the Unpaid Interest Shortfall Amount and then to the
Current Interest.
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).
Moodys: Moodys Investors Service, Inc. or its successor in interest.
Mortgage: The mortgage, deed of trust or other instrument creating a first lien on an estate or fee
simple interest in real property securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01 pertaining to a particular Mortgage
Loan and any additional documents required to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule of Mortgage Loans subject to this
Agreement on such date. The schedule of Initial Mortgage Loans as of the Cut-off Date is the schedule set
forth in Exhibit B hereto, and the schedule of Subsequent Mortgage Loans, if any, as of the Subsequent
Cut-off Date, which schedules sets 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;

Appendix A-30

(iv) with respect to an Adjustable Rate Mortgage Loan, the Maximum Rate and the Minimum Rate;
(v) the maturity date;
(vi) the original Principal Balance;
(vii) the first due date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect 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 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);
(xi) with respect to an Adjustable Rate Mortgage Loan, the Index, the Gross Margin; the Lifetime
Rate Cap and the Periodic Rate Cap;
(xii) with respect to an Adjustable Rate Mortgage Loan, the first Adjustment Date and next
Adjustment Date, if any;
(xiii) with respect to an Adjustable Rate Mortgage Loan, the Adjustment Date frequency and
Distribution Date frequency;
(xiv) the occupancy status;
(xv) the purpose of the Mortgage Loan;
(xvi) the Appraised Value of the Mortgaged Property;
(xvii) the original term to maturity;
(xviii) the paid-through date of the Mortgage Loan;
(xix) the Loan-to-Value Ratio;
(xx) whether the Mortgage Loan is an Adjustable Rate Mortgage Loan or a Fixed Rate Mortgage
Loan;
(xxi) whether or not the Mortgage Loan was underwritten pursuant to a limited documentation
program;
(xxii) whether the Mortgage Loan is covered by an MI Policy;
(xxiii) if the Mortgage Loan is registered with MERS on the MERS System, the MIN; and

Appendix A-31

(xxiv) whether the Mortgage Loan is in Group I or Group II.
The Mortgage Loan Schedule shall set forth the total of the amounts described under (x) above for all
of the Mortgage Loans.
Mortgage Loans: At any time, collectively, all Mortgage Loans that have been transferred and
conveyed to the Issuing Entity, in each case together with the Related Documents, and that remain subject
to the terms of the Agreement. As applicable, a Mortgage Loan shall be deemed to refer to the related
REO Property.
Mortgage Note: The original executed note or other evidence of indebtedness evidencing 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.
Mortgage Pool: The pool of Mortgage Loans, identified on Exhibit B from time to time, and any
REO Properties acquired in respect thereof and as supplemented by any Subsequent Mortgage Loans
identified on each schedule of Subsequent Mortgage Loans attached to a Subsequent Transfer Instrument.
Mortgaged Property: The underlying property, including real property and improvements thereon,
securing a Mortgage Loan.
Mortgagor: The obligor on a Mortgage Note.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan, Liquidation Proceeds
net of Liquidation Expenses.
Net Mortgage Rate: With respect to any Mortgage Loan and any day, the related Mortgage Rate
less the Administrative Fee Rate.
Net Prepayment Interest Shortfall: On any Distribution Date, the excess, if any of (i) any
Prepayment Interest Shortfall and (ii) Compensating Interest for such Distribution Date.
Net WAC: With respect to any Distribution Date, the weighted average of the Net Mortgage Rates
on the Mortgage Loans (weighted by the Principal Balances of the Mortgage Loans as of the first day of the
related Due Period (after giving effect to scheduled payments of principal due prior to such date, to the
extent received or advanced, and unscheduled collections of principal received prior to such date)).
NCFC: NovaStar Certificates Financing Corporation, a Delaware corporation, and its successors
and assigns.
NCFLLC: NovaStar Certificates Financing LLC, a Delaware limited liability company, and its
successors and assigns.
NFI: NovaStar Financial, Inc., a Maryland corporation, and its successors and assigns.

Appendix A-32

NIM Note: Any of the notes (i) issued pursuant to a structured net interest margin transaction
sponsored by NovaStar Financial, Inc. or its Affiliates and (ii) evidencing debt of the trust formed pursuant
to such transaction. For the avoidance of doubt, any subordinate equity interests (or subordinate certificates
issued evidencing an equity interest) in such trust shall not be considered NIM Notes.
Non-Derivative Supplemental Interest Payment: With respect to each Distribution Date, and the
Class M-10, Class M-11 and Class M-12 Certificates, the dollar amount of Supplemental Interest Payment
which would be distributed to each such Class on such Distribution Date pursuant to Section 4.04(c)(iii)
hereof if the amount received by the Supplemental Interest Trust from each Cap Counterparty on such
Distribution Date was zero.
Non-REMIC Accounts: The Pre-Funding Account, the Interest Coverage Account and the
Supplemental Interest Account held by the Supplemental Interest Trust.
Nonrecoverable Advance: With respect to any Mortgage Loan:
(x) any Advance (i) which was previously made or is proposed to be made by the Servicer; and
(ii) which, in the good faith judgment of the Servicer, will not or, in the case of a proposed Advance, would
not, be ultimately recoverable by the Servicer from Liquidation Proceeds, Repurchase Price or future
payments on such Mortgage Loan; and
(y) the amount, if any, by which an MI Claim Payment Advance made or to be made by the Servicer
exceeds, or would exceed, the amount actually received, or expected to be received as MI Insurance
Proceeds from the related MI Insurer on account of the related claim; provided, however that if an MI
Insurer Insolvency Event occurs after the MI Claim Payment Advance has been made by the Servicer and
before the full amount thereof has been reimbursed to the Servicer from the related MI Insurance Proceeds,
then any remaining, unreimbursed amount shall be considered a Nonrecoverable Advance as of the date of
the MI Insurer Insolvency Event.
Novation Agreements: The Novation Agreement, dated as of September 28, 2006, among
NovaStar Mortgage, Inc., the Supplemental Interest Trust and Wachovia Bank, National Association, the
Novation Agreement, dated as of September 28, 2006 among The Royal Bank of Scotland plc, the
Supplemental Interest Trust and NovaStar Mortgage, Inc. and the Novation Agreement, dated as of
September 28, 2006 among Deutsche Bank AG, New York Branch, the Supplemental Interest Trust and
Offered Certificates: Collectively, the Class A Certificates and the Class M-1 Certificates, Class
M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6
Certificates, Class M-7 Certificates, Class M-8 Certificates, Class M-9 Certificates and Class M-10
Certificates.
Officers Certificate: A Certificate signed by the Chairman of the Board, the Vice Chairman of the
Board, the President or any vice president (however denominated), and by the Treasurer, the Secretary, or
any assistant treasurer or assistant secretary of the applicable Person.
Opinion of Counsel: A written opinion of counsel, who may, without limitation, be a salaried
counsel for the Depositor or the Servicer, in form and substance acceptable to the

Appendix A-33

Trustee, except that any opinion of counsel relating to (a) the qualification of any REMIC as a REMIC or
(b) compliance with the REMIC Provisions must be an opinion of Independent counsel.
Optional Termination Date: The first Distribution Date on which the Servicer may terminate the
Trust Fund pursuant to Section 11.01.
Original Pre-Funded Amount: The amount deposited by the Depositor in the Pre-Funding Account
on the Closing Date, which amount is $559,716,919, $334,968,171 of which is related to the Group I
Mortgage Loans and $224,748,748 of which is related to the Group II Mortgage Loans.
Original Value: Except in the case of a refinanced Mortgage Loan, the lesser of the Appraised
Value or sales price of the Mortgaged Property at the time a Mortgage Loan is closed, and for a refinanced
Mortgage Loan, the Original Value is the value of such property set forth in an appraisal acceptable to the
Servicer.
Ownership Interest: As to any Certificate, any ownership or security interest in such Certificate,
including any interest in such Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
Overcollateralization Amount: For any Distribution Date, is equal to (a) the sum of (i) the Pool
Balance, after giving effect to distributions of principal on the Mortgage Loans, and (ii) any Pre-Funded
Amount, minus (b) the aggregate Certificate Principal Balance of the Class A Certificates and Mezzanine
Certificates, after giving effect to principal distributions to be made on the Class A Certificates and
Mezzanine Certificates on such Distribution Date.
Overcollateralization Deficiency Amount: With respect to any Distribution Date equals the
amount, if any, by which the Required Overcollateralization Amount exceeds the Overcollateralization
Amount on such Distribution Date (after giving effect to distributions in respect of the Group I Principal
Remittance Amount and the Group II Principal Remittance Amount on such Distribution Date).
Overcollateralization Release Amount: With respect to any Distribution Date, the lesser of (x) the
Principal Remittance Amount for such Distribution Date and (y) the excess, if any, of (i) the
Overcollateralization Amount for such Distribution Date (assuming that 100% of the Principal Remittance
Amount is applied as a principal payment on such Distribution Date) over (ii) the Required
Overcollateralization Amount for such Distribution Date.
Pass-Through Rate: For any Distribution Date and any Class of Class A Certificates and Class M
Certificates, the lesser of (1) the Formula Rate for such Class for such Distribution Date and (2) the related
Available Funds Cap for such Distribution Date.
Paying Agent: Any paying agent appointed pursuant to Section 5.05.
Percentage Interest: With respect to any Class A Certificate or Class M Certificate, a fraction,
expressed as a percentage, the numerator of which is the Initial Certificate Principal Balance represented by
such Certificate and the denominator of which is the Initial Certificate

Appendix A-34

Principal Balance of the related Class. With respect to a Class I Certificate, Class C Certificate, Class DSI
Certificate or Residual Certificate, the portion of the Class evidenced thereby, expressed as a percentage, as
stated on the face of such Certificate; provided, however, that the sum of all such percentages for each such
Class totals 100%.
Periodic Rate Cap: With respect to each Adjustable Rate Mortgage Loan and any Adjustment Date
therefor, the fixed percentage set forth in the related Mortgage Note, which is the maximum amount by
which the Mortgage Rate for such Mortgage Loan may increase or decrease (without regard to the
Maximum Mortgage Rate or the Minimum Mortgage Rate) on such Adjustment Date from the Mortgage
Rate in effect immediately prior to such Adjustment Date.
Permitted Transferee: Any transferee of a Residual Certificate other than a Disqualified
Organization or a non-U.S. Person.
Person: Any individual, corporation, limited liability company, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Plan: Either (i) an employee benefit plan (as defined in section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA or (ii) a plan (as defined in section 4975(e)(1) of the Code) that is subject to
Section 4975 of the Code.
Plan Assets: As defined in Section 5.02(d) hereof.
Pool Balance: As of any date of determination, the aggregate Principal Balance of the related
Mortgage Loans as of such date.
Pre-Funded Amount: With respect to any date of determination, the amount on deposit in the Pre-
Funding Account.
Pre-Funding Account: The account established and maintained pursuant to Section 4.05 and which
must be an Eligible Account.
Pre-Funding Period: The period beginning on the Closing Date and ending on the earlier to occur
of (a) the date upon which the amount on deposit in the Pre-Funding Account is less than $10,000 and
(b) October 31, 2006.
Prepayment Assumption: As defined in the Prospectus Supplement.
Prepayment Charge: With respect to any Mortgage Loan, the charges or premiums, if any, due in
connection with a full or partial Principal Prepayment of such Mortgage Loan in accordance with the terms
thereof.
Prepayment Interest Shortfall: As to any Distribution Date and any Mortgage Loan (other than a
Mortgage Loan relating to an REO Property) that was the subject of (a) a Principal Prepayment in full
during the portion of the related Prepayment Period in the prior calendar month an amount equal to the
excess of interest accrued during the prior calendar month at the

Appendix A-35

Mortgage Rate (net of the Servicing Fee) on the Principal Balance of such Mortgage Loan over the amount
of interest (adjusted to the Mortgage Rate (net of the Servicing Fee)) paid by the Mortgagor for such
Prepayment Period to the date of such Principal Prepayment in full or (b) a partial Principal Prepayment
during the prior calendar month, an amount equal to interest accrued during the related prior calendar
month at the Mortgage Rate (net of the Servicing Fee) on the amount of such partial Principal Prepayment.
Prepayment Period: For any Distribution Date, the period commencing on the day after the
Determination Date in the month preceding the month in which such Distribution Date occurs (or, in the
case of the first Distribution Date, from September 1, 2006) and ending on the Determination Date of the
calendar month in which such Distribution Date occurs.
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 minus (ii) the sum of (a) the principal
portion of the Monthly Payments due with respect to such Mortgage Loan or REO Property during each
Due Period ending prior to the most recent Distribution Date which were received or with respect to which
an Advance was made, 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
Servicer as recoveries of principal in accordance with Section 3.13 hereof with respect to such Mortgage
Loan or REO Property, and (c) the principal portion of any Realized Loss with respect thereto for any
previous Distribution Date.
Principal Prepayment: Any payment of principal made by the Mortgagor on a Mortgage Loan
which is received in advance of its scheduled Due Date and which is not accompanied by an amount of
interest representing the full amount of scheduled interest due on any Due Date in any month or months
subsequent to the month of prepayment.
Principal Remittance Amount: With respect to any Distribution Date, the sum of (i) each scheduled
payment of principal collected or advanced on the Mortgage Loans by the Servicer that were due during the
related Due Period, (ii) the principal portion of all partial and full Principal Prepayments of the Mortgage
Loans applied by the Servicer during the related Prepayment Period, (iii) the principal portion of all related
Net Liquidation Proceeds and Insurance Proceeds received during such Prepayment Period, (iv) that
portion of the Repurchase Price, representing principal of any repurchased Mortgage Loan, deposited to the
Collection Account during such Prepayment Period, (v) the principal portion of any related Substitution
Adjustment Amounts deposited in the Collection Account during such Prepayment Period, (vi) in the case
of the Distribution Date immediately following the end of the Pre-Funding Period, any remaining Pre-
Funded Amount, (vii) on the Distribution Date on which the Trust Fund is to be terminated pursuant to
Section 11.01, that portion of the Termination Price, in respect of principal and (viii) Subsequent
Recoveries to pay certain Certificates amounts in respect of Realized Losses allocated to such Certificates.
Prospectus: The Prospectus Supplement together with the Base Prospectus attached thereto with
respect to the Offered Certificates.

Appendix A-36

Prospectus Supplement: That certain Prospectus Supplement dated September 22, 2006 relating to
the public offering of the Offered Certificates.
PTCE 95-60: U.S. Department of Labor Prohibited Transaction Class Exemption 95-60.
Purchase Agreement: The agreement, dated as of September 1, 2006, between the Sponsor, the
Depositor, the Trustee and the Custodian, regarding the transfer of the Mortgage Loans by the Sponsor to
or at the direction of the Depositor.
Qualified Liquidation: The meaning set forth from time to time in the definition thereof at
Section 860F(a)(4) of the Code and applicable to the Issuing Entity.
Qualified Mortgage: The meaning set forth from time to time in the definition thereof at
Section 860G(a)(3) of the Code and applicable to the Issuing Entity.
Qualified Replacement Mortgage: A Mortgage Loan substituted for another pursuant to
Section 3.01 of the Purchase Agreement and that satisfies all of the criteria set forth from time to time in
the definition thereof at Section 860G(a)(4) of the Code and applicable to the Issuing Entity, all as
evidenced by an Officers Certificate of the Sponsor delivered to the Trustee prior to any such substitution.
Qualified Underwriting: Any public offering or private placement of securities with respect to
which an entity that has received an Underwriter Exemption is (i) the sole underwriter, (ii) the manager or
co-manager of the underwriting syndicate or (iii) a selling or placement agent.
Rate Step-up Date: The first Distribution Date to occur after the Optional Termination Date.
Rating Agency: Any nationally recognized statistical rating organization, or its successor, that
rated the Class A Certificates and Mezzanine Certificates at the request of the Depositor at the time of the
initial issuance of the Class A Certificates and Mezzanine Certificates. Initially such rating agencies shall
consist of Moodys and Standard & Poors. If such organization or a successor is no longer in existence,
Rating Agency shall be such nationally recognized statistical rating organization, or other comparable
Person, designated by the Depositor, notice of which designation shall be given to the Trustee. References
herein to the highest short-term unsecured rating category of a Rating Agency shall mean A-1 or better in
the case of Standard & Poors, P-1 or better in the case of Moodys, F-1+ or better in the case of Fitch
and in the case of any other Rating Agency shall mean such equivalent rating. References herein to the
highest long-term rating category of a Rating Agency shall mean AAA in the case of Standard & Poors,
Aaa in the case of Moodys and AAA in the case of Fitch, and in the case of any other Rating Agency,
such equivalent rating.
Realized Loss: With respect to each Mortgage Loan (or REO Property) as to which a Cash
Liquidation or REO Disposition has occurred, an amount (not less than zero) equal to (i) the Principal
Balance of the Mortgage Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the Due Date as to
which interest was last paid or advanced to

Appendix A-37

Certificateholders up to the last day of the month in which the Cash Liquidation (or REO Disposition)
occurred on the Principal Balance of such Mortgage Loan (or REO Property) outstanding during each Due
Period that such interest was not paid or advanced, minus (iii) Net Liquidation Proceeds, if any, received
with respect to such Cash Liquidation (or REO Disposition), minus the portion thereof reimbursable to the
Servicer or any Subservicer with respect to related Advances or expenses as to which the Servicer or
Subservicer is entitled to reimbursement thereunder but which have not been previously reimbursed. With
respect to each Mortgage Loan which has become the subject of a Deficient Valuation, the difference
between the Principal Balance of the Mortgage Loan outstanding immediately prior to such Deficient
Valuation and the Principal Balance of the Mortgage Loan as reduced by the Deficient Valuation. With
respect to each Mortgage Loan which has become the object of a Debt Service Reduction, the amount of
such Debt Service Reduction.
Reallocable Certificates: The Class M-10, Class M-11 and Class M-12 Certificates.
Reallocate, Reallocation, etc.: The act of reallocating distributions from a Class DSI Certificate
and its corresponding Class N Certificate to the corresponding Class of Reallocable Certificates, as
described in Section 4.04(e) hereof.
Record Date: For as long as there are no definitive certificates, with respect to each Distribution
Date, the Close of Business on the Business Day immediately preceding that Distribution Date. If definitive
certificates have been issued, the Record Date is the last business day of the month prior to the related
Distribution Date.
Reference Banks: Deutsche Bank, Barclays Bank PLC, The Bank of Tokyo-Mitsubishi, LTD. and
National Westminster Bank PLC and their successors in interest; provided that if any of the foregoing
banks are not suitable to serve as a Reference Bank, then any leading banks selected by the Trustee (after
consultation with the Depositor) which are engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in London, (ii) not controlling,
under the control of or under common control with the Sponsor or any Affiliate thereof, (iii) whose
quotations appear on the Reuters Screen LIBOR Page on the relevant Interest Determination Date and
(iv) which have been designated as such by the Trustee.
Regular Certificate: Any of the Class A Certificates, Mezzanine Certificates, Class I Certificates or
Class C Certificates.
Regulation AB: Subpart 229.1100 Asset Backed Securities (Regulation AB), 17 C.F.R.
229.1100-229.1123, as such may be amended from time to time, and subject to such clarification and
interpretation as have been provided by the Commission in the adopting release (Asset-Backed Securities,
Securities Act Release No. 33-8518, 70 Fed. Reg. 1,506, 1,531 (Jan. 7, 2005)) or by the staff of the
Commission, or as may be provided by the Commission or its staff from time to time.
Related Documents: With respect to each Mortgage Loan, the documents specified in Section 2.01
hereof and any documents required to be added to such documents pursuant to this Agreement or the
Purchase Agreement.

Appendix A-38

Relief Act: The Servicemembers Civil Relief Act, as amended.
Relief Act Shortfall: As to any Distribution Date and any Mortgage Loan (other than a Mortgage
Loan relating to an REO Property), any shortfalls relating to the Relief Act or similar legislation or
regulations.
REMIC: A real estate mortgage investment conduit within the meaning of Section 860D of the
Code.
REMIC Available Funds Cap: The weighted average of the pass-through rates on the Class IV-
Accrual, Class IV-A1A, Class IV-A2A, Class IV-A2B, Class IV-A2C, Class IV-A2D, Class IV-M1, Class
IV-M2, Class IV-M3, Class IV-M4, Class IV-M5, Class IV-M6, Class IV-M7, Class IV-M8, Class IV-M9,
Class IV-M10, Class IV-M11, Class IV-M12 and Class IV-CA Interests.
REMIC III Net WAC: The weighted average of the pass-through rates on the Class II-A, Class II-
B, Class II-C, Class II-D, Class II-E, Class II-F, Class II-G, Class II-H, Class II-K, Class II-L, Class II-M,
Class II-O, and Class IIJ Interests.
REMIC Cap Adjustment Amount: An amount equal to the product of (i) the amount of the Original
Pre-Funded Amount not used to purchase Subsequent Mortgage Loans during the Pre-Funding Period and
(ii) the quotient of $280,000,000 divided by the Original Pre-Funded Amount.
REMIC Pass-Through Rate: As defined in Exhibit J hereof.
REMIC I Pass-Through Rate: As to each of the respective REMIC I Regular Interests, the
applicable REMIC I Pass-Through Rate set forth in Exhibit J hereof.
REMIC II Pass-Through Rate: As to each of the respective REMIC II Regular Interests, the
applicable REMIC II Pass-Through Rate set forth in Exhibit J hereof.
REMIC III Pass-Through Rate: As to each of the respective REMIC III Regular Interests, the
applicable REMIC III Pass-Through Rate set forth in Exhibit J hereof.
REMIC IV Pass-Through Rate: As to each of the respective REMIC IV Regular Interests, the
applicable REMIC IV Pass-Through Rate set forth in Exhibit J hereof.
REMIC V Pass-Through Rate: As to each of the respective REMIC V Regular Interests, the
applicable REMIC V Pass-Through Rate set forth in Exhibit J hereof.
REMIC Provisions: Provisions of the federal income tax law relating to real estate mortgage
investment conduits which appear at Section 860A through 860G of Subchapter M of Chapter 1 of the
Code, and related provisions, and regulations and rulings promulgated thereunder, as the foregoing may be
in effect from time to time.
REMIC Regular Interests: The REMIC I Regular Interests, the REMIC II Regular Interests, the
REMIC III Regular Interests, the REMIC IV Regular Interests, the REMIC V Regular Interests and the
Master REMIC Regular Interests.

Appendix A-39

REMIC I Regular Interests: As defined in Exhibit J hereof.
REMIC II Regular Interests: As defined in Exhibit J hereof.
REMIC III Regular Interests: As defined in Exhibit J hereof.
REMIC IV Regular Interests: As defined in Exhibit J hereof.
REMIC V Regular Interests: As defined in Exhibit J hereof.]
REO Acquisition: The acquisition by the Servicer on behalf of the Trustee for the benefit of the
Certificateholders of any REO Property pursuant to Section 3.13 hereof.
REO Disposition: As to any REO Property, a determination by the Servicer that it has received
substantially all Insurance Proceeds, Liquidation Proceeds, REO Proceeds and other payments and
recoveries (including proceeds of a final sale) which the Servicer expects to be finally recoverable from the
sale or other disposition of the REO Property.
REO Imputed Interest: As to any REO Property, for any period, an amount equivalent to interest
(at the Net Mortgage Rate that would have been applicable to the related Mortgage Loan had it been
outstanding) on the unpaid Principal Balance of the Mortgage Loan as of the date of acquisition thereof for
such period as such balance is reduced pursuant to Section 3.13 hereof by any income from the REO
Property treated as a recovery of principal.
REO Proceeds: Proceeds, net of expenses, received in respect of any REO Property (including,
without limitation, proceeds from the rental of the related Mortgaged Property), which proceeds are
required to be deposited into the Collection Account within two days of receipt by the Servicer.
REO Property: A Mortgaged Property that is acquired by the Issuing Entity 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 lien on the related Mortgaged Property 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
Sponsor 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 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 (i) required to be repurchased on any date
by the Sponsor pursuant to the Purchase Agreement or (ii) permitted to be purchased by the Servicer
pursuant to Article III hereof, an amount equal to the sum, without duplication, of (i) 100% of the Principal
Balance thereof (without reduction for any amounts charged off) and

Appendix A-40

(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 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 Servicer or the Subservicer pursuant to Section 3.07 hereof and not
included in clause (iii) of this definition plus (v) any costs and damages incurred by the Trust Fund in
connection with any violation by any Mortgage Loan of any predatory or abusive lending law or breach of
representations and warranties regarding licensing or any predatory or abusive lending law.
Request for Release: A request for release in substantially the form of Exhibit E hereto.
Required Overcollateralization Amount: An amount equal to, for any Distribution Date:
(i) prior to the Crossover Date, 0.55% of the sum of (x) the aggregate Principal Balance of the Initial
Mortgage Loans as of the Cut-off Date and (y) the Original Pre-Funded Amount.
(ii) on or after the Crossover Date, the greater of:
(a) 0.50% of the sum of (x) the aggregate Principal Balance of the Initial Mortgage
Loans as of the related Cut-off Date and (y) the Original Pre-Funded Amount; and
(b) 1.10% of the current aggregate Principal Balance of the Mortgage Loans as of the
end of the related Due Period.
(iii) on which a Trigger Event is in effect, the Required Overcollateralization Amount as of the
preceding Distribution Date.
Residual Certificate: The Class R Certificates representing beneficial ownership of the Class R-I,
Class R-II, Class R-III, Class R-IV and Class R-V Interests.
Residual Interest: The sole Class of residual interests in a REMIC within the meaning of
Section 860G(a)(2) of the Code.
Responsible Officer: With respect to the Trustee, any officer working in the Corporate Trust Office
with direct responsibility for the administration of this Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such officers knowledge of and
familiarity with the particular subject.
Rolling 60-Day Delinquency Percentage: For any Distribution Date, the average of the 60-Day
Delinquency Percentages for the Mortgage Loans as of the last day of each of the three (or 1 and 2 in the
case of the first two Distribution Dates, as applicable) most recently ended Due Periods.

Appendix A-41

Rolling 90-Day Delinquency Percentage: For any Distribution Date, the average of the 90-Day
Delinquency Percentages for the Mortgage Loans as of the last day of each of the three (or 1 and 2 in the
case of the first two Distribution Dates, as applicable) most recently ended Due Periods.
Scheduled Principal Payment: Any scheduled payment of principal made on a scheduled Due Date.
Servicer: NovaStar Mortgage, Inc., a Virginia corporation, and its successors and assigns.
Servicer Remittance Date: The third Business Day prior to each Distribution Date.
Servicer Reporting Date: As defined in Section 3.24 hereof.
Servicing Account: The separate trust account created and maintained by the Servicer or each
Subservicer with respect to the Mortgage Loans or REO Property, which shall be an Eligible Account, for
collection of taxes, assessments, insurance premiums and comparable items as described in Section 3.08
hereof.
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
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,
(iv) compliance with the obligations under Section 3.13 hereof, and (v) expenses incurred in connection
with any Mortgage Loan being registered on the MERS System.
Servicing Criteria: The criteria set forth in paragraph (d) of Item 1122 of Regulation AB, as such
may be amended from time to time.
Servicing Default: The meaning assigned in Section 7.01 hereof.
Servicing Fee: With respect to the Mortgage Loans and any Distribution Date, the product of (i) the
Servicing Fee Rate divided by 12 and (ii) the Pool Balance as of the first day of the related Due Period.
Servicing Fee Rate: With respect to any Mortgage Loan, 0.50% per annum.
Servicing Function Participant: Any sub-servicer, subcontractor or any other Person, other than the
Servicer and the Trustee, that is performing activities addressed by the Servicing Criteria, unless such
Persons activities relate only to 5% or less of the Mortgage Loans.
Servicing Officer: Any officer of the 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 Trustee by the Servicer or a Subservicer, as such list may be amended from time to
time.

Appendix A-42

Servicing Rights Owner: NovaStar Mortgage, Inc., or its transferee or assignee, in its capacity as
owner of the servicing rights with respect to the Mortgage Loans.
Servicing Rights Pledgee: The entity designated by the Servicing Rights Owner pursuant to
Section 3.28.
Servicing Transfer Costs: Reasonable and necessary costs and expenses incurred, by or on behalf
of the Trustee or successor Servicer in connection with the transfer of servicing in the event of termination
of the Servicer as servicer hereunder and the resulting transfer to the successor Servicer.
Sponsor: NovaStar Mortgage, Inc., a Virginia corporation, and its successors and assigns.
Standard & Poors or S&P: Standard & Poors Ratings Services, a division of The McGraw-Hill
Companies, Inc., or its successor in interest.
Startup Day: As defined in Section 10.01(a) hereof.
Subsequent Cut-off Date: With respect to those Subsequent Mortgage Loans which are sold to the
Issuing Entity pursuant to a Subsequent Transfer Instrument, the later of (i) the first day of the month in
which such Subsequent Mortgage Loan was acquired by the Issuing Entity and (ii) the date of origination
of such Subsequent Mortgage Loan.
Subsequent Mortgage Loan: A Mortgage Loan sold by the Depositor to the Trust Fund pursuant to
Section 2.08, such Mortgage Loan being identified on the Mortgage Loan Schedule attached to a
Subsequent Transfer Instrument.
Subsequent Recovery: With respect to any Mortgage Loan that had previously been the subject of a
Realized Loss, any principal amount subsequently received in connection with such Mortgage Loan.
Subsequent Transfer Date: With respect to each Subsequent Transfer Instrument, the date on which
the related Subsequent Mortgage Loans are sold to the Trust Fund.
Subsequent Transfer Instrument: Each Subsequent Transfer Instrument, dated as of a Subsequent
Transfer Date, executed by the Trustee and the Depositor substantially in the form attached hereto as
Exhibit D, by which Subsequent Mortgage Loans are transferred to the Trust Fund.
Subservicer: Any Person with which the Servicer has entered into a Subservicing Agreement and
which meets the qualifications of a Subservicer pursuant to Section 3.02 hereof.
Subservicing Account: An account established by a Subservicer which meets the requirements set
forth in Section 3.06(e) and is otherwise acceptable to the Servicer.

Appendix A-43

Subservicing Agreement: The written contract between the Servicer and a Subservicer relating to
servicing and administration of certain Mortgage Loans as provided in Section 3.02 hereof.
Subservicing Fee: With respect to each Mortgage Loan and any Distribution Date, the portion of
the Servicing Fee paid to a Subservicer.
Substitution Adjustment Amount: As defined in Section 2.03 hereof.
Supplemental Interest Account: An account established by the Trustee pursuant to Section 4.04
hereof, which must be an Eligible Account.
Supplemental Interest Amount Due: With respect to any Class of Class A Certificates and
Mezzanine Certificates and any Distribution Date, the sum of (x) the Available Funds Cap Shortfall
Amount for such Class of Certificates and such Distribution Date and (y) the Available Funds Cap
Carryforward Amount for such Class and Distribution Date.
Supplemental Interest Payment: With respect to any Distribution Date and any Class of Class A or
Mezzanine Certificates, the lesser of (x) the Supplemental Interest Amount Due for that Class and (y) the
amounts on deposit and available for distribution to that Class from the Supplemental Interest Trust on that
Distribution Date.
Supplemental Interest Trust: The supplemental interest trust established and maintained pursuant to
Section 4.04 and designated as such.
Tax Matters Person: The tax matters person appointed pursuant to Section 10.01(e) hereof.
Tax Returns: The federal income tax return on Internal Revenue Service Form 1066, U.S. Real
Estate Mortgage Investment Conduit (REMIC) Income Tax Return, including Schedule Q thereto,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any
successor forms, to be filed by the Trustee, on behalf of each REMIC, together with any and all other
information reports, forms or returns that may be required to be furnished to the Certificateholders or filed
with the Internal Revenue Service or any other governmental taxing authority under any applicable
provisions of federal, state or local tax laws.
Telerate Page 3750: The display page currently so designated on the Moneyline Telerate Service
(or such other page as may replace that page on that service for the purpose of displaying comparable rates
or prices).
Termination Price: As defined in Section 11.01(a) of the Pooling and Servicing Agreement.
Treasury Regulations: Regulations, including proposed or temporary Regulations, promulgated
under the Code. References herein to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury Regulations.

Appendix A-44

Trigger Event: A Trigger Event is in effect with respect to any Distribution Date, on or after the
Crossover Date, if either (i) the Rolling 60-Day Delinquency Percentage (calculated on a contractual basis)
exceeds 44.97% of the current Credit Enhancement Percentage, or (ii) the Cumulative Loss Percentage for
such Distribution Date is greater than the applicable percentage set forth below with respect to such
Distribution Date:

Distribution Date Occurring In:
Percentage (%)
October 2008 1.05%
November 2008 1.15%
December 2008 1.26%
January 2009 1.36%
February 2009 1.47%
March 2009 1.57%
April 2009 1.68%
May 2009 1.78%
June 2009 1.88%
July 2009 1.99%
August 2009 2.09%
September 2009 2.20%
October 2009 2.30%
November 2009 2.41%
December 2009 2.52%
January 2010 2.63%
February 2010 2.73%
March 2010 2.84%
April 2010 2.95%
May 2010 3.06%
June 2010 3.17%
July 2010 3.28%
August 2010 3.38%
October 2010 3.60%
November 2010 3.69%
December 2010 3.78%
January 2011 3.86%
February 2011 3.95%
March 2011 4.04%
April 2011 4.13%
May 2011 4.21%
June 2011 4.30%
July 2011 4.39%
August 2011 4.48%
October 2011 4.65%
November 2011 4.70%
December 2011 4.74%

Appendix A-45

January 2012 4.79%
February 2012 4.83%
March 2012 4.88%
April 2012 4.93%
May 2012 4.97%
June 2012 5.02%
July 2012 5.06%
August 2012 5.11%
October 2012 and thereafter 5.20%
Trust Fund: All of the assets of the Issuing Entity, which is the trust created hereunder consisting
of the REMIC I, REMIC II, REMIC III, REMIC IV, REMIC V, the Master REMIC and the Supplemental
Interest Trust.
Trustee: Deutsche Bank National Trust Company, a national banking association organized under
the laws of the United States, and its successors and assigns or any successor trustee appointed pursuant to
the terms of the Agreement.
Trustee Fee: With respect to each Distribution Date, the product of (i) the Trustee Fee Rate divided
by 12 and (ii) the sum of the Principal Balance of the Mortgage Loans and the Pre-Funded Amount as of
the first day of the related Due Period.
Trustee Fee Rate: 0.0025% per annum.
Trustee Indemnification Agreement: The Indemnification Agreement dated as of September 21,
2006, between the Sponsor and the Trustee.
Underwriter Exemption: An individual prohibited transaction exemption, issued by the U.S.
Department of Labor, which is described in PTE 2000-58, 65 Fed. Reg. 67,765 (Nov. 13, 2000).
Underwriters: Greenwich Capital Markets, Inc., Deutsche Bank Securities Inc. and Wachovia
Capital Markets, LLC, and their successors and assigns.
Underwriting Agreement: The Underwriting Agreement dated September 22, 2006 among the
Underwriters, the Depositor and the Sponsor with respect to the offer and sale of the Underwritten
Certificates, as the same may be amended from time to time.
Underwriting Guidelines: The underwriting guidelines set forth in the Prospectus Supplement
under the heading Description of the Mortgage PoolUnderwriting Standards for Mortgage Loans.
Underwritten Certificates Collectively, the Class A Certificates and the Class M-1 Certificates,
Class M-2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6
Certificates, Class M-7 Certificates, Class M-8 Certificates, and Class M-9 Certificates.

Appendix A-46

United States Person or U.S. Person: A citizen or resident of the United States, a corporation,
partnership or other entity treated as a corporation or partnership for federal income tax purposes (other
than a partnership that is not treated as a U.S. Person pursuant to any applicable Treasury regulations)
created or organized in, or under the laws of, the United States, any state thereof or the District of
Columbia, or an estate the income of which from sources without the United States is includible in gross
income for United States federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United States persons have
authority to control all substantial decisions of the trust.
Unpaid Interest Shortfall Amount: With respect to each Class of Class A Certificates and
Mezzanine Certificates and (i) the first Distribution Date, zero, and (ii) any Distribution Date after the first
Distribution Date, the sum of (a) the Unpaid Interest Shortfall Amount for that Class as of the prior
Distribution Date, (b) the excess of the amount of the Current Interest due with respect to that Class on the
prior Distribution Date over the amount actually distributed to the Holders of that Class on account of the
Current Interest on the prior Distribution Date and (c) interest on the sum of (a) and (b) to the extent
permitted by law, at the Pass-Through Rate for such Class for the related Accrual Period.
Voting Rights: The portion of the voting rights of all of the Certificates which is allocated to any
Certificate. At all times the Class A Certificates and the Mezzanine Certificates shall have 97% of the
Voting Rights (allocated among the Holders of the Class A Certificates and the Mezzanine Certificates in
proportion to the then outstanding Certificate Principal Balances of their respective Certificates), the Class
CA Certificates shall have 1% of the Voting Rights, the Class I Certificates shall have 1% of the Voting
Rights and the Class R Certificates shall have 1% of the Voting Rights. The Voting Rights allocated to any
Class of Certificates (other than the Class CA Certificates, Class I Certificates and the Class R Certificates)
shall be allocated among all Holders of each such Class in proportion to the outstanding Certificate
Principal Balance of such Certificates and the Voting Rights allocated to the Class CA Certificates, Class I
Certificates and the Class R Certificates shall be allocated among all Holders of each such Class in
proportion to such Holders respective Percentage Interest; provided, however that when none of the
Regular Certificates are outstanding, 100% of the Voting Rights shall be allocated among Holders of the
Class R Certificates in accordance with such Holders respective Percentage Interests in the Certificates of
such Class. The Class DSI and Class CB Certificates do not have Voting Rights. The Voting Rights shall
be allocated between each of the Class M-10 and Class M-10N, Class M-11 and Class M-11N and Class
M-12 and Class M-12N Certificates on the basis of their respective Certificate Principal Balances.
Weighted Average Mortgage Rate: With respect to any Distribution Date, the weighted average of
the Mortgage Rates of the Mortgage Loans (weighted by the Principal Balances of the Mortgage Loans as
of the first day of the related Due Period (after giving effect to scheduled payments of principal due prior to
such date, to the extent received or advanced, and unscheduled collections of principal received prior to
such date)).

Appendix A-47

APPENDIX B
Cap Interest Rate Schedule

Corresponding REMIC III
Regular Interest

Corresponding
Interest Rate
Corresponding
Maturity Date
All A Interests 0.2230% July 2008

All B Interests 0.2225% July 2008

All C Interests 0.2310% August 2008

All D Interests 0.2450% August 2008

All E Interests 0.2080% August 2008

All F Interests 0.3150% May 2009

All G Interests 0.3120% July 2009

All H Interests 0.3050% July 2009

All K Interests 0.3140% July 2009

All L Interests 0.3120% August 2009

All M Interests 0.3310% August 2009

All O Interests 0.3060% August 2009

Class CB Certificate Schedule

Distribution Date Corresponding Interest Rate Strip (%)
October 2006 0.00
November 2006 0.00
December 2006 0.00
January 2007 0.00
February 2007 0.00
March 2007 0.00
April 2007 0.00
May 2007 0.00
June 2007 0.00
July 2007 0.00
August 2007 0.00
September 2007 0.00
October 2007 0.08
November 2007 0.09
December 2007 0.10
January 2008 0.12
February 2008 0.13
March 2008 0.14
April 2008 0.16
May 2008 0.17
June 2008 0.17
July 2008 0.19
August 2008 0.20
September 2008 0.20
October 2008 0.21
November 2008 0.22
December 2008 0.25
January 2009 0.25
February 2009 0.26
March 2009 0.27
April 2009 0.27
May 2009 0.27
June 2009 0.29
July 2009 0.28
August 2009 0.30
September 2009 0.30
October 2009 0.30
November 2009 0.30
December 2009 0.32
January 2010 0.32
February 2010 0.36
March 2010 0.33
April 2010 0.33
May 2010 0.34
June 2010 0.48
July 2010 0.37
August 2010 0.33

Appendix B-2

September 2010 0.38
October 2010 0.44
November 2010 0.39
December 2010 0.33
January 2011 0.39
February 2011 0.40
March 2011 0.35
April 2011 0.36
May 2011 0.38
June 2011 0.37
July 2011 0.35
August 2011 0.34
September 2011 0.36
October 2011 0.34
November 2011 0.36
December 2011 0.35
January 2012 0.34
February 2012 0.34
March 2012 0.34
April 2012 0.34
May 2012 0.33
June 2012 0.33
July 2012 0.33
August 2012 0.31
September 2012 0.31
October 2012 0.31
November 2012 0.30
December 2012 0.30
January 2013 0.30
February 2013 0.27
March 2013 0.26
April 2013 0.25
May 2013 0.24
June 2013 0.22
July 2013 0.21
August 2013 0.19
September 2013 0.18
October 2013 0.16
November 2013 0.15
December 2013 0.14
January 2014 0.13
February 2014 0.12
March 2014 0.11
April 2014 0.10
May 2014 0.09
June 2014 0.08
July 2014 0.08
August 2014 0.07
September 2014 0.06
October 2014 0.06
November 2014 0.05
December 2014 0.05
January 2015 0.05

Appendix B-3

February 2015 0.04
March 2015 0.04
April 2015 0.03
May 2015 0.03
June 2015 0.03
July 2015 0.03
August 2015 0.02
September 2015 0.00
October 2015 0.00
November 2015 0.00
December 2015 0.00
January 2016 0.00
February 2016 0.00
March 2016 0.00
April 2016 0.00
May 2016 0.00
June 2016 0.00
July 2016 0.00
August 2016 0.00
September 2016 0.00
October 2016 0.00

Appendix B-4

Execution Copy
Exhibit A-1
Form of Class A-1A Certificate
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-1A CERTIFICATE
Comprised of a Certificate Representing
Certain Interests Relating to a Pool of
Mortgage Loans
The Mortgage Loans are Serviced by
NOVASTAR MORTGAGE, INC., as Servicer
Unless this certificate is presented by an authorized representative of The Depository Trust
Company, a New York corporation (DTC), to the Issuing Entity or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
(This certificate does not represent an interest in, or an obligation of, nor are the underlying
Mortgage Loans insured or guaranteed by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding
Corporation, NovaStar Financial, Inc., NovaStar Capital, Inc., the Trustee or any of their subsidiaries and
affiliates. This certificate is comprised of a Certificate representing a fractional ownership interest in
distributions in certain Accounts created pursuant to the Pooling and Servicing Agreement and certain other
rights relating thereto and is payable only from amounts received by the Trustee relating to the Mortgage
Loans and other assets held in the Trust Fund.)

No.: A-1A Date: September 28, 2006 CUSIP: 66988Y AA 0

Original Principal Balance:
$637,531,000

Registered Owner:
CEDE & CO.

Final Scheduled Distribution
Date: November 25, 2036

Percentage Interest: 100%

Pass-Through Rate:
LIBOR + 0.150%

The registered owner named above is the registered owner of a fractional interest in (i) each
Group I Mortgage Loan identified on the Mortgage Loan Schedule attached as Exhibit B to that certain
Pooling and Servicing Agreement dated as of September 1, 2006 (the Pooling and Servicing Agreement)
by and among NovaStar Mortgage Funding Corporation, as the depositor (the Depositor), Deutsche Bank
National Trust Company, as trustee (the Trustee), U.S. Bank National Association, as the custodian (the
Custodian), and NovaStar Mortgage, Inc. as servicer (the Servicer) and as sponsor (the Sponsor),
including the related

Cut-off Date Principal Balance, all interest accruing thereon on and after the Cut-off Date and all
collections in respect of interest and principal due after the Cut-off Date; (ii) property which secured each
such Mortgage Loan and which has been acquired by foreclosure or deed in lieu of foreclosure; (iii) the
Depositors interest in any insurance policies in respect of such Mortgage Loans; (iv) all proceeds of any of
the foregoing; (v) the rights of the Depositor under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust Fund. Such assignment includes all interest and principal due to the
Depositor or the Servicer after the Cut-off Date with respect to the Mortgage Loans.
The Original Principal Amount set forth above is equal to the product of (i) the Percentage
Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class A-1A
Certificates on September 28, 2006 which aggregate amount was $637,531,000. The owner hereof is
entitled to principal payments on each Distribution Date, which will fully amortize such Original Principal
Amount over the period from the date of initial delivery hereof to the final Distribution Date of the
Class A-1A Certificates. Therefore, the actual outstanding principal amount of this Certificate, on any date
subsequent to October 25, 2006 (the first Distribution Date) will be less than the Original Principal Amount
set forth above.
In order to receive the final distribution hereon, the owner hereof is required to present this
Certificate to the Trustee. The Pooling and Servicing Agreement provides that, in any event, upon the
making of the final distribution due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
AN INTEREST IN A CLASS OF REGULAR INTERESTS IN A REAL ESTATE MORTGAGE
INVESTMENT CONDUIT (REMIC) AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
CODE), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A
THROUGH 860G) OF THE CODE.
THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL
INCOME TAX PURPOSES).
NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT
NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
This Certificate is one of a Class of duly-authorized Certificates designated as NovaStar Home
Equity Loan Asset-Backed Certificates, Series 2006-5, Class A-1A Certificates (the Class A-1A
Certificates) and issued under and subject to the terms, provisions and conditions of the Pooling and
Servicing Agreement, to which the owner of this Certificate, by virtue of acceptance hereof assents, and is
bound. Also issued under the Pooling and Servicing Agreement are the Class A-2A Certificates, Class A-
2B Certificates, Class A-2C Certificates, Class A-2D Certificates, Class M-1 Certificates, Class M-2
Class M-7 Certificates,

A-1-2

Class M-8 Certificates, Class M-9 Certificates, Class M-10 Certificates, Class M-11 Certificates, Class M-
12 Certificates, Class M-10 DSI Certificates, Class M-11 DSI Certificates, Class M-12 DSI Certificates,
Class M-10N Certificates, Class M-11N Certificates, Class M-12N Certificates, Class I-1 Certificates,
Class I-2 Certificates, Class CA Certificates, Class CB Certificates, and Class R Certificates, and all such
Certificates are collectively referred to as the Certificates. Terms capitalized herein and not otherwise
defined herein shall have the respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day, then the next succeeding
Business Day (each such day being a Distribution Date) commencing October 25, 2006, the owners of
the Class A-1A Certificates as of the close of business on the business day immediately preceding such
Distribution Date (the Record Date) will be entitled to the distribution described in Article IV of the
Pooling and Servicing Agreement, relating to such Distribution Date. Distributions will be made in
immediately available funds to such owners, by wire transfer or by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register.
Each owner of record of a Class A-1A Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class A-1A
Certificates. The Percentage Interest of each Class A-1A Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class A-1A
Certificate by $637,531,000.
The Trustee is required to duly and punctually pay distributions with respect to this Certificate
in accordance with the terms hereof and the Pooling and Servicing Agreement. Amounts properly withheld
under the Code or applicable to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.
The Mortgage Loans will be serviced by the Servicer pursuant to the Pooling and Servicing
Agreement. The Pooling and Servicing Agreement permits the Servicer to enter into Sub-Servicing
Agreements with certain institutions eligible for appointment as Sub-Servicers for the servicing and
administration of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the Servicer
from any of its obligations under the Pooling and Servicing Agreement.
This Certificate does not represent a deposit or other obligation of, or an interest in, nor are the
underlying Mortgage Loans insured or guaranteed by, NovaStar Mortgage, Inc., NovaStar Mortgage
Funding Corporation, NovaStar Capital, Inc., NovaStar Financial Inc., the Trustee, or any of their
subsidiaries and affiliates and are not insured or guaranteed by the Federal Deposit Insurance Corporation,
the Government National Mortgage Association, or any other governmental agency. This Certificate is
limited in right of payment to certain collections and recoveries relating to the Mortgage Loans and
amounts on deposit in the Accounts (except as otherwise provided in the Pooling and Servicing Agreement)
all as more specifically set forth hereinabove and in the Pooling and Servicing Agreement.
No owner shall have any right to institute any proceeding, judicial or otherwise, with respect to
the Pooling and Servicing Agreement for the appointment of a receiver or trustee, or for any other remedy
under the Pooling and Servicing Agreement except in compliance with the terms thereof.

A-1-3

Notwithstanding any other provisions in the Pooling and Servicing Agreement, the owner of
any Certificate shall have the right which is absolute and unconditional to receive distributions to the extent
provided in the Pooling and Servicing Agreement with respect to such Certificate or to institute suit for the
enforcement of any such distribution, and such right shall not be impaired without the consent of such
owner.
The Pooling and Servicing Agreement will terminate upon notice to the Trustee upon the
earliest of (i) the Distribution Date on which the Certificate Principal Balances of the Regular Certificates
have been reduced to zero, (ii) the final payment or other liquidation of the last Mortgage Loan held by the
Issuing Entity, (iii) the optional purchase by the Servicer of the Mortgage Loans as described below,
(iv) the Distribution Date in November 2036 and (v) at any time when a Qualified Liquidation of the
Master REMIC and REMIC I, REMIC II, REMIC III, REMIC IV and REMIC V is effected pursuant to the
Pooling and Servicing Agreement. In addition, under certain circumstances relating to the qualification of
either the Master REMIC or any of REMIC I, REMIC II, REMIC III, REMIC IV or REMIC V as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early retirement of the Certificates.
Notwithstanding the foregoing, in no event shall the Issuing Entity hereby continue beyond the expiration
of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date of the Pooling and Servicing
Agreement.
The Servicer may, at its option, terminate the Pooling and Servicing Agreement on any date on
which the aggregate of the Principal Balances of the Mortgage Loans on such date is equal to or less than
10% of the Maximum Collateral Amount, by purchasing, on the next succeeding Distribution Date, all of
the outstanding Mortgage Loans and REO Properties at a price equal to the greater of the Principal Balance
of the Mortgage Loans and REO Properties or the market value of the Mortgage Loans and REO
Properties, in each case plus accrued and unpaid interest thereon at the weighted average of the Mortgage
Rates through the end of the Due Period preceding the final Distribution Date plus unreimbursed Servicing
Advances, Advances, any unpaid Servicing Fees allocable to such Mortgage Loans and REO Properties
and any accrued and unpaid Available Funds Cap Shortfall Amount and Available Funds Cap
Carryforward Amount (without duplication of amounts already paid) and any unpaid amount due the
Trustee, the Hedge Counterparties and the Custodian under the Pooling and Servicing Agreement.
The Trustee shall give written notice of termination of the Pooling and Servicing Agreement to
each owner in the manner set forth therein.
As provided in the Pooling and Servicing Agreement and subject to certain limitations therein
set forth and referred to on the face hereof, the transfer of this Certificate is registerable in the Certificate
Register upon surrender of this Certificate for registration of transfer at the office designated as the location
of the Certificate Register, and thereupon one or more new certificates of like class, tenor and Percentage
Interest will be issued to the designated transferee or transferees.

A-1-4

The Trustee is required to furnish certain information on each Distribution Date to the owner of
this Certificate, as more fully described in the Pooling and Servicing Agreement.
The Class A-1A Certificates are issuable only as registered Certificates in denominations of
$25,000 Original Principal Amount and integral multiples of $1,000. As provided in the Pooling and
Servicing Agreement and subject to certain limitations therein set forth, Class A-1A Certificates are
exchangeable for new Class A-1A Certificates of authorized denominations evidencing the same aggregate
principal amount.
The Trustee and any agent thereof may treat the person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Trustee or any such agent shall be affected
by notice to the contrary.

A-1-5

IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed on
behalf of the Issuing Entity.

COMPANY, not in its individual
capacity, but solely in its capacity as
Trustee

By:

Name:

Title:

Trustee Authentication

Trustee

By:

Name:

Title:

A-1-6

Exhibit A-2
Form of Class A-2A Certificate
CLASS A-2A CERTIFICATE
Mortgage Loans

No.: A-2A Date: September 28, 2006 CUSIP: 66988Y AB 8

$168,800,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.070%

Group II Mortgage Loan identified on the Mortgage Loan Schedule attached as Exhibit B to that certain

Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class A-2A
Class A-2A Certificates. Therefore, the actual outstanding principal amount of this Certificate, on any date
set forth above.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class A-2A Certificates (the Class A-2A
2B Certificates, Class A-2C Certificates, Class A-2D Certificates, Class M-1 Certificates, Class M-2

A-2-2

the Class A-2A Certificates as of the close of business on the business day immediately preceding such
Each owner of record of a Class A-2A Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class A-2A
Certificates. The Percentage Interest of each Class A-2A Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class A-2A

A-2-3

owner.
Agreement.

A-2-4

The Class A-2A Certificates are issuable only as registered Certificates in denominations of
Servicing Agreement and subject to certain limitations therein set forth, Class A-2A Certificates are
exchangeable for new Class A-2A Certificates of authorized denominations evidencing the same aggregate
principal amount.

A-2-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-2-6

Exhibit A-3
Form of Class A-2B Certificate
CLASS A-2B CERTIFICATE
Mortgage Loans

No.: A-2B Date: September 28, 2006 CUSIP: 66988Y AC 6

$120,500,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.120%


Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class A-2B
Class A-2B Certificates. Therefore, the actual outstanding principal amount of this Certificate, on any date
set forth above.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class A-2B Certificates (the Class A-2B
2A Certificates, Class A-2C Certificates, Class A-2D Certificates, Class M-1 Certificates, Class M-2

A-3-2

the Class A-2B Certificates as of the close of business on the business day immediately preceding such
Each owner of record of a Class A-2B Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class A-2B
Certificates. The Percentage Interest of each Class A-2B Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class A-2B

A-3-3

owner.
Agreement.

A-3-4

The Class A-2B Certificates are issuable only as registered Certificates in denominations of
Servicing Agreement and subject to certain limitations therein set forth, Class A-2B Certificates are
exchangeable for new Class A-2B Certificates of authorized denominations evidencing the same aggregate
principal amount.

A-3-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-3-6

Exhibit A-4
Form of Class A-2C Certificate
CLASS A-2C CERTIFICATE
Mortgage Loans
Corporation, NovaStar Financial, Inc., NovaStar Capital, Inc., the Trustee, or any of their subsidiaries and

No.: A-2C Date: September 28, 2006 CUSIP: 66988Y AD 4

$97,300,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.170%


Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class A-2C
Certificates on September 28, 2006 which aggregate amount was $97,300,000. The owner hereof is entitled
to principal payments on each Distribution Date, which will fully amortize such Original Principal Amount
over the period from the date of initial delivery hereof to the final Distribution Date of the Class A-2C
Certificates. Therefore, the actual outstanding principal amount of this Certificate, on any date subsequent
to October 25, 2006 (the first Distribution Date) will be less than the Original Principal Amount set forth
above.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class A-2C Certificates (the Class A-2C
2A Certificates, Class A-2B Certificates, Class A-2D Certificates, Class M-1 Certificates, Class M-2

A-4-2

the Class A-2C Certificates as of the close of business on the business day immediately preceding such
Each owner of record of a Class A-2C Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class A-2C
Certificates. The Percentage Interest of each Class A-2C Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class A-2C

A-4-3

owner.
Agreement.

A-4-4

The Class A-2C Certificates are issuable only as registered Certificates in denominations of
Servicing Agreement and subject to certain limitations therein set forth, Class A-2C Certificates are
exchangeable for new Class A-2C Certificates of authorized denominations evidencing the same aggregate
principal amount.

A-4-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-4-6

Exhibit A-5
Form of Class A-2D Certificate
CLASS A-2D CERTIFICATE
Mortgage Loans

No.: A-2D Date: September 28, 2006 CUSIP: 66988Y AE 2

$30,169,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.240%


Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class A-2D
over the period from the date of initial delivery hereof to the final Distribution Date of the Class A-2D
above.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class A-2D Certificates (the Class A-2D
2A Certificates, Class A-2B Certificates, Class A-2C Certificates, Class M-1 Certificates, Class M-2

A-5-2

the Class A-2D Certificates as of the close of business on the business day immediately preceding such
Each owner of record of a Class A-2D Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class A-2D
Certificates. The Percentage Interest of each Class A-2D Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class A-2D

A-5-3

owner.
Agreement.

A-5-4

The Class A-2D Certificates are issuable only as registered Certificates in denominations of
Servicing Agreement and subject to certain limitations therein set forth, Class A-2D Certificates are
exchangeable for new Class A-2D Certificates of authorized denominations evidencing the same aggregate
principal amount.

A-5-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-5-6

Exhibit A-6
Form of Class M-1 Certificate
CLASS M-1 CERTIFICATE
Mortgage Loans The Mortgage Loans are Serviced by

No.: M-1 Date: September 28, 2006 CUSIP: 66988Y AF 9

$63,050,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.240%

Mortgage Loan identified on the Mortgage Loan Schedule attached as Exhibit B to that certain Pooling and
Servicing Agreement dated as of September 1, 2006 (the Pooling and Servicing Agreement) by and
among NovaStar Mortgage Funding Corporation as the depositor, (the Depositor), Deutsche Bank
including the related Cut-off Date

Principal Balance, all interest accruing thereon on and after the Cut-off Date and all collections in respect
of interest and principal due after the Cut-off Date; (ii) property which secured each such Mortgage Loan
and which has been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Depositors interest in
any insurance policies in respect of the Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the
rights of the Depositor under the Purchase Agreement and (vi) all other assets included or to be included in
the Trust Fund. Such assignment includes all interest and principal due to the Depositor or the Servicer
after the Cut-off Date with respect to the Mortgage Loans.
Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class M-1
to principal payments on each Distribution Date, as hereinafter described, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery hereof to the final Distribution
Date of the Class M-1 Certificates. Therefore, the actual outstanding principal amount of this Certificate,
on any date subsequent to October 25, 2006 (the first Distribution Date) will be less than the Original
Principal Amount set forth above.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class M-1 Certificates (the Class M-1
2A Certificates, Class A-2B Certificates, Class A-2C Certificates, Class A-2D Certificates, Class M-2
Certificates, Class M-3 Certificates,

A-6-2

Certificates, Class M-9 Certificates, Class M-10 Certificates, Class M-11 Certificates, Class M-12
Certificates, Class M-10 DSI Certificates, Class M-11 DSI Certificates, Class M-12 DSI Certificates, Class
M-10N Certificates, Class M-11N Certificates, Class M-12N Certificates, Class I-1 Certificates, Class I-2
Certificates, Class CA Certificates, Class CB Certificates, and Class R Certificates, and all such Certificates
are collectively referred to as the Certificates. Terms capitalized herein and not otherwise defined herein
shall have the respective meanings set forth in the Pooling and Servicing Agreement.
the Class M-1 Certificates as of the close of business on the business day immediately preceding such
Distribution Date (the Record Date) will be entitled to receive the distribution described in Article IV of
the Pooling and Servicing Agreement relating to such Distribution Date. Distributions will be made in
Each owner of record of a Class M-1 Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class M-1
Certificates. The Percentage Interest of each Class M-1 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class M-1

A-6-3

owner.
Agreement.

A-6-4

The Class M-1 Certificates are issuable only as registered Certificates in denominations of
Servicing Agreement and subject to certain limitations therein set forth, Class M-1 Certificates are
exchangeable for new Class M-1 Certificates of authorized denominations evidencing the same aggregate
principal amount.

A-6-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-6-6

Exhibit A-7
Mortgage Loans

No.: M-2 Date: September 28, 2006 CUSIP: 66988Y AG 7

$40,300,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.290%

The registered owner named above is the registered owner of a fractional interest in (I) each
among NovaStar Mortgage Funding Corporation as the depositor (the Depositor), Deutsche Bank


A-7-2


A-7-3

owner.
Agreement.

A-7-4

principal amount.

A-7-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-7-6

Exhibit A-8
Mortgage Loans

No.: M-3 Date: September 28, 2006 CUSIP: 66988Y AH 5

$24,050,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.360%



A-8-2

Certificates, Class CA Certificates, Class CB Certificate, and Class R Certificates, and all such Certificates

A-8-3

owner.
Agreement.

A-8-4

principal amount.

A-8-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-8-6

Exhibit A-9
Mortgage Loans

No.: M-4 Date: September 28, 2006 CUSIP: 66988Y AJ 1

$18,850,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.380%



A-9-2

are collectively referred to as the Certificates.
Terms capitalized herein and not otherwise defined herein shall have the respective meanings
set forth in the Pooling and Servicing Agreement.

A-9-3

owner.
Agreement.

A-9-4

principal amount.

A-9-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-9-6

Exhibit A-10
Mortgage Loans

No.: M-5 Date: September 28, 2006 CUSIP: 66988Y AK 8

$18,850,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.400%



A-10-2

Certificates, Class CA Certificates, Class CB Certificates and Class R Certificates, and all such Certificates

A-10-3

owner.
Agreement.

A-10-4

principal amount.

A-10-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-10-6

Exhibit A-11
Mortgage Loans

No.: M-6 Date: September 28, 2006 CUSIP: 66988Y AL 6

$14,950,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.450%

among NovaStar Mortgage Funding Corporation, as the depositor (the Depositor), Deutsche Bank

any insurance policies in respect of such Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the
over the period from the date of initial delivery hereof to the final Distribution Date of the Class M-6
above.

A-11-2


A-11-3

owner.
Agreement.

A-11-4

principal amount.

A-11-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-11-6

Exhibit A-12
Mortgage Loans

No.: M-7 Date: September 28, 2006 CUSIP: 66988Y AM 4

$11,050,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 0.800%

Custodian), and NovaStar Mortgage, Inc. as

servicer (the Servicer) and as sponsor (the Sponsor), including the related Cut-off Date Principal
Balance, all interest accruing thereon on and after the Cut-off Date and all collections in respect of interest
and principal due after the Cut-off Date; (ii) property which secured each such Mortgage Loan and which
has been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Depositors interest in any
insurance policies in respect of the Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the rights
of the Depositor under the Purchase Agreement and (vi) all other assets included or to be included in the
Trust Fund. Such assignment includes all interest and principal due to the Depositor or the Servicer after
the Cut-off Date with respect to the Mortgage Loans.
2A Certificates, Class A-2B Certificates,

A-12-2

Class A-2C Certificates, Class A-2D Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3
10 DSI Certificates, Class M-11 DSI Certificates, Class M-12 DSI Certificates, Class M-10N Certificates,
Class M-11N Certificates, Class M-12N Certificates, Class I-1 Certificates, Class I-2 Certificates, Class CA
Certificates, Class CB Certificates, and Class R Certificates, and all such Certificates are collectively
referred to as the Certificates. Terms capitalized herein and not otherwise defined herein shall have the
respective meanings set forth in the Pooling and Servicing Agreement.

A-12-3

owner.
Agreement.

A-12-4

principal amount.

A-12-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-12-6

Exhibit A-13
Mortgage Loans

No.: M-8 Date: September 28, 2006 CUSIP: 66988Y AN 2

$9,100,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 1.050%



A-13-2


A-13-3

owner.
Agreement.

A-13-4

principal amount.

A-13-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-13-6

Exhibit A-14
Certain Interests Relating to a Pool of Mortgage Loans

No.: M-9 Date: September 28, 2006 CUSIP: 66988Y AP 7

$13,650,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 1.950%



A-14-2


A-14-3

owner.
Agreement.

A-14-4

The Trustee is required to furnish certain information on each Distribution Date to the owner of this
Certificate, as more fully described in the Pooling and Servicing Agreement.
The Class M-9 Certificates are issuable only as registered Certificates in denominations of $25,000
Original Principal Amount and integral multiples of $1,000. As provided in the Pooling and Servicing
Agreement and subject to certain limitations therein set forth, Class M-9 Certificates are exchangeable for
new Class M-9 Certificates of authorized denominations evidencing the same aggregate principal amount.
The Trustee and any agent thereof may treat the person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of the Trustee or any such agent shall be affected by notice to
the contrary.

A-14-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-14-6

Exhibit A-15
NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST HEREIN MAY BE MADE
TO (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA)) THAT IS SUBJECT
TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN (AS DEFINED IN SECTION 4975(E)(1)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE)) THAT IS SUBJECT
TO SECTION 4975 OF THE CODE OR (III) ANY PERSON ACTING, DIRECTLY OR INDIRECTLY,
ON BEHALF OF ANY PLAN DESCRIBED IN (I) OR (II) OR ACQUIRING THIS CERTIFICATE OR
ANY INTEREST HEREIN WITH THE ASSETS OF ANY SUCH PLAN.

No.: M-10 Date: September 28, 2006 CUSIP: 66988Y AQ 5

Original Principal Balance: Registered Owner: Final Scheduled Distribution
$0 CEDE & CO. Date: November 25, 2036


Pass-Through Rate:
LIBOR + 2.250%

foreclosure; (iii) the Depositors interest in any insurance policies in respect of such Mortgage Loans;
(iv) all proceeds of any of the foregoing; (v) the rights of the Depositor under the Purchase Agreement and
(vi) all other assets included or to be included in the Trust Fund. Such assignment includes all interest and
principal due to the Depositor or the Servicer after the Cut-off Date with respect to the Mortgage Loans.
Certificates on September 28, 2006 which aggregate amount was $0. The Original Principal Amount hereof
may be increased by Reallocations from the Class M-10N Certificates, but will not exceed $11,700,000.
The owner hereof is entitled to principal payments on each Distribution Date, which will fully amortize
such Original Principal Amount over the period from the date of initial delivery hereof to the final
Distribution Date of the Class M-10 Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to October 25, 2006 (the first Distribution Date) will be less than the
Original Principal Amount set forth above.

A-15-2

Certificates, Class M-12 Certificates, Class M-10 DSI Certificates, Class M-11 DSI Certificates, Class M-
12 DSI Certificates, Class M-10N Certificates, Class M-11N Certificates, Class M-12N Certificates, Class
I-1 Certificates, Class I-2 Certificates, Class CA Certificates, Class CB Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the Certificates. Terms capitalized
herein and not otherwise defined herein shall have the respective meanings set forth in the Pooling and
Servicing Agreement.
Certificate by the aggregate Original Principal Balances of all Class M-10 Certificates.

A-15-3

owner.
Agreement.

A-15-4

The Class M-10 Certificates are issuable only as registered Certificates in denominations, post
Reallocation, of $25,000 Original Principal Amount and integral multiples of $1,000. As provided in the
Pooling and Servicing Agreement and subject to certain limitations therein set forth, Class M-10
Certificates are exchangeable for new Class M-10 Certificates of authorized denominations evidencing the
same aggregate principal amount.

A-15-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-15-6

Exhibit A-16
This certificate does not represent an interest in, or an obligation of, nor are the underlying
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE 1933 ACT), OR THE DISPOSITION OF THIS
CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN
A TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION
AND IN ACCORDANCE WITH THE PROVISIONS OF THE POOLING AND SERVICING
AGREEMENT.

No.: M-11 Date: September 28, 2006 CUSIP: 66988Y AR 3

$0

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 2.250%

may be increased by Reallocations form the Class M-11N Certificates, but will not exceed $6,500,000. The
owner hereof is entitled to principal payments on each Distribution Date, which will fully amortize such

A-16-2


A-16-3

owner.
Agreement.
of the Mortgage Loans and REO Properties or

A-16-4

the market value of the Mortgage Loans and REO Properties, in each case plus accrued and unpaid interest
thereon at the weighted average of the Mortgage Rates through the end of the Due Period preceding the
final Distribution Date plus unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees
allocable to such Mortgage Loans and REO Properties and any accrued and unpaid Available Funds Cap
Shortfall Amount and Available Funds Cap Carryforward Amount (without duplication of amounts already
paid) and any unpaid amount due the Trustee, the Hedge Counterparties and the Custodian under the
Pooling and Servicing Agreement.
The Class M-11 Certificates are issuable only as registered Certificates in denominations, post

A-16-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-16-6

Exhibit A-17
AGREEMENT.

No.: M-12 Date: September 28, 2006 CUSIP: 66988Y AS 1

$0

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 2.250%

may be increased by Reallocations from the Class M-12N Certificates, but will not exceed $6,500,000. The
owner hereof is entitled to principal payments on each Distribution Date, which will fully amortize such

A-17-2


A-17-3

owner.
Agreement.
of the Mortgage Loans and REO Properties or

A-17-4

the market value of the Mortgage Loans and REO Properties, in each case plus accrued and unpaid interest
thereon at the weighted average of the Mortgage Rates through the end of the Due Period preceding the
final Distribution Date plus unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees
allocable to such Mortgage Loans and REO Properties and any accrued and unpaid Available Funds Cap
Shortfall Amount and Available Funds Cap Carryforward Amount (without duplication of amounts already
paid) and any unpaid amount due the Trustee, the Hedge Counterparties and the Custodian under the
Pooling and Servicing Agreement.
The Class M-12 Certificates are issuable only as registered Certificates in denominations, post-

A-17-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-17-6

Exhibit A-18
Form of Class I-1 Certificate
CLASS I-1 CERTIFICATE
Mortgage Loans
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE 1933 ACT), OR THE SECURITIES LAW OF ANY STATE.
THIS CERTIFICATE IS NOT TRANSFERABLE.

No.: I-1 Date: September 28, 2006 CUSIP: 66988Y AZ 5


Registered Owner:
NovaStar Mortgage
Supplemental Interest Trust,
Series 2006-5

Date: August 25, 2008
foreclosure; (iii) the Depositors interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Depositor under the Purchase Agreement and (vi) all
other assets included or to be included in the Trust Fund. Such assignment includes all interest and

THIS CERTIFICATE IS AN INTEREST ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF PRINCIPAL WITH
RESPECT TO THE MORTGAGE LOANS.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class I-1 Certificates (the Class I-1 Certificates)
and issued under and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance hereof assents, and is bound.
Also issued under the Pooling and Servicing Agreement are the Class A-1A Certificates, Class A-2A
Certificates, Class A-2B Certificates, Class A-2C Certificates, Class A-2D Certificates, Class M-1
Certificates, Class M-11 Certificates, Class M-12 Certificates, Class M-10 DSI Certificates, Class M-11
DSI Certificates, Class M-12 DSI Certificates, Class M-10N Certificates, Class M-11N Certificates, Class
M-12N Certificates, Class I-2 Certificates, Class CA Certificates, Class CB Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the Certificates.
the Class I-1 Certificates as of the close of business on the business day immediately preceding such

A-18-2

Each owner of record of a Class I-1 Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class I-1
Certificates.
owner.

A-18-3

Agreement.
set forth, Class I-1 Certificates are exchangeable for new Class I-1 Certificates of authorized denominations
evidencing the same aggregate principal amount.

A-18-4


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-18-5

Exhibit A-19
Form of Class I-2 Certificate
CLASS I-2 CERTIFICATE
Mortgage Loans
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE 1933 ACT), OR THE SECURITIES LAW OF ANY STATE.
THIS CERTIFICATE IS NOT TRANSFERABLE.

No.: I-2 Date: September 28, 2006 CUSIP: 66988Y BA 9


Registered Owner:
NovaStar Mortgage
Supplemental Interest Trust,
Series 2006-5

Date: August 25, 2009

THIS CERTIFICATE IS AN INTEREST ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF PRINCIPAL WITH
RESPECT TO THE MORTGAGE LOANS.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class I-2 Certificates (the Class I-2 Certificates)
M-12N Certificates, Class I-1 Certificates, Class CA Certificates, Class CB Certificates, and Class R
the Class I-2 Certificates as of the close of business on the business day immediately preceding such

A-19-2

Each owner of record of a Class I-2 Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class I-2
Certificates.
owner.
Pooling and Servicing Agreement. In

A-19-3

addition, under certain circumstances relating to the qualification of either the Master REMIC or any of
REMIC I, REMIC II, REMIC III, REMIC IV or REMIC V as a REMIC under the Code, the Mortgage
Loans may be sold, thereby affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Issuing Entity hereby continue beyond the expiration of 21 years from the
death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States
to the Court of St. James, living on the date of the Pooling and Servicing Agreement.
set forth, Class I-2 Certificates are exchangeable for new Class I-2 Certificates of authorized denominations

A-19-4


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-19-5

Exhibit A-20
Form of Class CA Certificate
CLASS CA CERTIFICATES
Mortgage Loans
AGREEMENT.

No.: CA Date: September 28, 2006 CUSIP: 66988& BB 7

Notional Amount:
$1,300,000,000

Registered Owner:
Wachovia Investment Holdings,
LLC



Each owner of record of a Class CA Certificate will be entitled to certain distributions, as
described under Article IV of the Pooling and Servicing Agreement.
AN INTEREST IN ONE OR MORE CLASSES OF REGULAR INTERESTS IN A REAL ESTATE
MORTGAGE INVESTMENT CONDUIT (REMIC) AS THOSE TERMS ARE DEFINED,
RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE CODE), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS
(SECTIONS 860A THROUGH 860G) OF THE CODE.
DISTRIBUTIONS ON THIS CERTIFICATE WILL BE MADE TO THE OWNER HEREOF
FOLLOWING THE PRIOR FUNDING OF AMOUNTS OWED TO CERTAIN HEDGE
COUNTERPARTIES, AND FOLLOWING THE FUNDING OF SUPPLEMENTAL INTEREST
PAYMENTS TO CERTAIN OTHER CLASSES OF CERTIFICATES.

A-20-2

Equity Loan Asset-Backed Certificates, Series 2006-5, Class CA Certificates (the Class CA Certificates)
M-12N Certificates, Class I-1 Certificates, Class I-2 Certificates, Class CB Certificates, and Class R
the Class CA Certificates as of the close of business on the business day immediately preceding such
Distribution Date (the Record Date) will be entitled to receive payments in respect of interest, principal,
if any, and the Prepayment Charges relating to such Distribution Date, all as described in Article IV of the
Pooling and Servicing Agreement. Distributions will be made in immediately available funds to such
owners, by wire transfer or by check mailed to the address of the person entitled thereto as it appears on the
Certificate Register.

A-20-3

owner.
Agreement.
set forth and referred to on the face hereof, the transfer of this Certificate is

A-20-4

registerable in the Certificate Register upon surrender of this Certificate for registration of transfer at the
office designated as the location of the Certificate Register, and thereupon one or more new certificates of
like class, tenor and Percentage Interest will be issued to the designated transferee or transferees.
set forth, Class CA Certificates are exchangeable for new Class CA Certificates of authorized
denominations evidencing the same aggregate principal amount.

A-20-5


Trustee

By:

Name:
Title:


capacity, but solely in
its capacity as
Trustee

By:

Name:

Title:

A-20-6

Exhibit A-21
Form of Class CB Certificate
CLASS CB CERTIFICATES
Mortgage Loans
AGREEMENT.

No.: CB Date: September 28, 2006 CUSIP: 66988Y BC 5

Notional Amount:
$1,300,000,000

Registered Owner:
Wachovia Investment
Holdings, LLC



Each owner of record of a Class CB Certificate will be entitled to certain distributions, as
described under Article IV of the Pooling and Servicing Agreement.
DISTRIBUTIONS ON THIS CERTIFICATE WILL BE MADE TO THE OWNER HEREOF
FOLLOWING THE PRIOR FUNDING OF AMOUNTS OWED TO CERTAIN HEDGE
COUNTERPARTIES, AND FOLLOWING THE FUNDING OF SUPPLEMENTAL INTEREST
PAYMENTS TO CERTAIN OTHER CLASSES OF CERTIFICATES.

A-21-2

Equity Loan Asset-Backed Certificates, Series 2006-5, Class CB Certificates (the Class CB Certificates)
M-12N Certificates, Class I-1 Certificates, Class I-2 Certificates, Class CA Certificates, and Class R
the Class CB Certificates as of the close of business on the business day immediately preceding such
Distribution Date (the Record Date) will be entitled to receive payments in respect of interest, principal,
if any, and the Prepayment Charges relating to such Distribution Date, all as described in Article IV of the
Pooling and Servicing Agreement. Distributions will be made in immediately available funds to such
owners, by wire transfer or by check mailed to the address of the person entitled thereto as it appears on the
Certificate Register.

A-21-3

owner.
Agreement.
set forth and referred to on the face hereof, the transfer of this Certificate is

A-21-4

registerable in the Certificate Register upon surrender of this Certificate for registration of transfer at the
office designated as the location of the Certificate Register, and thereupon one or more new certificates of
like class, tenor and Percentage Interest will be issued to the designated transferee or transferees.
set forth, Class CB Certificates are exchangeable for new Class CB Certificates of authorized

A-21-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-21-6

Exhibit A-22
Form of Class R Certificate
CLASS R CERTIFICATES
Mortgage Loans
Loans held in the Trust Fund.)
SECURITIES ACT OF 1933, AS AMENDED (THE 1933 ACT), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE
WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A
TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND
IN ACCORDANCE WITH THE PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

No.: R

Date: September 28, 2006



Registered Owner:
Merrill Lynch, Pierce, Fenner
& Smith Inc.

Each owner of record of a Class R Certificate will be entitled to certain distributions as
described in Exhibit K of the Pooling and Servicing Agreement.
RESIDUAL INTERESTS IN SIX REAL ESTATE MORTGAGE INVESTMENT CONDUITS
(REMICs) AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE
CODE.
TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE
MAY BE MADE TO A DISQUALIFIED ORGANIZATION AS DEFINED IN SECTION 860E(5) OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE). SUCH TERM
INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY
FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR
INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE
INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC
ENERGY OR PROVIDING THEREOF SERVICE TO PERSONS IN RURAL AREAS, OR ANY
ORGANIZATION (OTHER THAN A FARMERS COOPERATIVE) THAT IS EXEMPT FROM
FEDERAL INCOME TAX UNLESS SUCH ORGANIZATION IS SUBJECT TO THE

A-22-2

TAX ON UNRELATED BUSINESS INCOME. NO TRANSFER OF THIS CLASS R CERTIFICATE
WILL BE REGISTERED BY THE TRUSTEE UNLESS THE PROPOSED TRANSFEREE HAS
DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER THINGS, THAT THE PROPOSED
TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS NOT ACQUIRING THE CLASS
R CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED ORGANIZATION. A COPY OF THE
FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED TRANSFEREE IS ON FILE AND
AVAILABLE FROM THE TRUSTEE.
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE
TO A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN
AGENT ACTING FOR THE TRANSFEREE. A PASS-THRU ENTITY THAT HOLDS THIS CLASS R
CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN
ANY TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR
EQUAL TO THE PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO
THE PORTION OF THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY BY
SUCH DISQUALIFIED ORGANIZATION AND (B) THE HIGHEST MARGINAL FEDERAL TAX
RATE ON CORPORATIONS. FOR PURPOSES OF THE PRECEDING SENTENCE, THE TERM
PASS-THRU ENTITY INCLUDES REGULATED INVESTMENT COMPANIES, REAL ESTATE
INVESTMENT TRUSTS, COMMON TRUST FUNDS, PARTNERSHIPS, TRUSTS, ESTATES,
COOPERATIVES TO WHICH PART I OF SUBCHAPTER T, CHAPTER 1 OF THE CODE APPLIES
AND, EXCEPT AS PROVIDED IN REGULATIONS, NOMINEES.
Equity Loan Asset-Backed Certificates, Series 2006-5 Class R Certificates (the Class R Certificates) and
issued under and subject to the terms, provisions and conditions of the Pooling and Servicing Agreement,
to which the owner of this Certificate, by virtue of acceptance hereof assents, and is bound. Also issued
under the Pooling and Servicing Agreement are the Class A-1A Certificates, Class A-2A Certificates,
Class A-2B Certificates, Class A-2C Certificates, Class A-2D Certificates, Class M-1 Certificates, Class M-
2 Certificates, Class M-3 Certificates, Class M-4 Certificates, Class M-5 Certificates, Class M-6
M-12N Certificates, Class I-1 Certificates, Class I-2 Certificates, Class CA Certificates and Class CB

A-22-3

the Class R Certificates as of the close of business on the business day immediately preceding such
owner.
(iv) the Distribution Date in November 2036 and (v) at any

A-22-4

time when a Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III, REMIC IV
and REMIC V is effected pursuant to the Pooling and Servicing Agreement. In addition, under certain
circumstances relating to the qualification of either the Master REMIC or any of REMIC I, REMIC II,
REMIC III, REMIC IV or REMIC V as a REMIC under the Code, the Mortgage Loans may be sold,
thereby affecting the early retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Issuing Entity hereby continue beyond the expiration of 21 years from the death of the last survivor of
the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.
set forth, Class R Certificates are exchangeable for new Class R Certificates of authorized denominations

A-22-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-22-6

Exhibit A-23
Form of Class M-10 DSI Certificate
CLASS M-10 DSI CERTIFICATE
AGREEMENT.

No.: M-10 DSI Date: September 28, 2006 CUSIP: 66988Y AU 6

Notional Amount:
$11,700,000

Registered Owner:
CEDE & CO.



Each owner of record of a Class M-10 DSI Certificate will be entitled to certain distributions,
as described under Article IV of the Pooling and Servicing Agreement.
Equity Loan Asset-Backed Certificates, Series 2006-5, Class M-10 DSI Certificates (the Class M-10 DSI
Servicing Agreement, to which the owner of this

A-23-2

Certificate, by virtue of acceptance hereof assents, and is bound. Also issued under the Pooling and
Servicing Agreement are the Class A-1A Certificates, Class A-2A Certificates, Class A-2B Certificates,
12 Certificates, Class M-11 DSI Certificates, Class M-12 DSI Certificates, Class M-10N Certificates, Class
M-11N Certificates, Class M-12N Certificates, Class I-1 Certificates, Class I-2 Certificates, Class CA
the Class M-10 DSI Certificates as of the close of business on the business day immediately preceding such

A-23-3

owner.
Agreement.

A-23-4

set forth, Class M-10 DSI Certificates are exchangeable for new Class M-10 DSI Certificates of authorized

A-23-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-23-6

Exhibit A-24
AGREEMENT.

No.: M-11 DSI Date: September 28, 2006 CUSIP: 66988Y AW 2

Notional Amount:
$6,500,000

Registered Owner:
CEDE & CO.




A-24-2


A-24-3

owner.
Agreement.

A-24-4


A-24-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-24-6

Exhibit A-25
AGREEMENT.

No.: M-12 DSI Date: September 28, 2006 CUSIP: 66988Y AY 8

Notional Amount:
$6,500,000

Registered Owner:
CEDE & CO.




A-25-2


A-25-3

owner.
Agreement.

A-25-4


A-25-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-25-6

Exhibit A 26
Form of Class M-10N Certificate
CLASS M-10N CERTIFICATE
AGREEMENT.

No.: M-10N Date: September 28, 2006 CUSIP: 66988Y AT 9

$11,700,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 2.250%

Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class M-10N
over the period from the date of initial delivery hereof to the final Distribution Date of the Class M-10N
above.

A-26-2

Equity Loan Asset-Backed Certificates, Series 2006-5, Class M-10N Certificates (the Class M-10N
the Class M-10N Certificates as of the close of business on the business day immediately preceding such
Each owner of record of a Class M-10N Certificate will be entitled to receive such owners
Percentage Interest in the amounts distributed on such Distribution Date to the owners of the Class M-10N
Certificates. The Percentage Interest of each Class M-10N Certificate as of any date of determination will
be equal to the percentage obtained by dividing the Original Principal Amount set forth on such Class M-
10N Certificate by $11,700,000, less any portion thereof previously Reallocated to the Class M-10
Certificates.
Agreement. The Pooling and Servicing Agreement permits the Servicer to enter into

A-26-3

Sub-Servicing Agreements with certain institutions eligible for appointment as Sub-Servicers for the
servicing and administration of certain Mortgage Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing Agreement.
owner.
Agreement.
Rates through the end of the

A-26-4

Due Period preceding the final Distribution Date plus unreimbursed Servicing Advances, Advances, any
unpaid Servicing Fees allocable to such Mortgage Loans and REO Properties and any accrued and unpaid
Available Funds Cap Shortfall Amount and Available Funds Cap Carryforward Amount (without
duplication of amounts already paid) and any unpaid amount due the Trustee, the Hedge Counterparties and
the Custodian under the Pooling and Servicing Agreement.
The Class M-10N Certificates are issuable only as registered Certificates in denominations of
Servicing Agreement and subject to certain limitations therein set forth, Class M-10N Certificates are
exchangeable for new Class M-10N Certificates of authorized denominations evidencing the same
aggregate principal amount.

A-26-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-26-6

Exhibit A-27
AGREEMENT.

No.: M-11N Date: September 28, 2006 CUSIP: 66988Y AV 4

$6,500,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 2.250%

Interest represented by this Certificate and (ii) the aggregate Original Principal Amount of the Class M-11N
over the period from the date of initial delivery hereof to the final Distribution Date of the Class M-11N
above.

A-27-2

Each owner of record of a Class M-11N Certificate will be entitled to receive such owners
Certificates.

A-27-3

owner.
Agreement.

A-27-4


A-27-5


Trustee

By:

Name:

Title:


Trustee

By:

Name:

Title:

A-27-6

Exhibit A-28
AGREEMENT.

No.: M-12N Date: September 28, 2006 CUSIP: 66988Y AX 0

$6,500,000

Registered Owner:
CEDE & CO.



Pass-Through Rate:
LIBOR + 2.250%

over the period from the date of initial delivery hereof to the final Distribution Date of the Class M-12
above.

A-28-2

Certificates.

A-28-3

owner.
Agreement.

A-28-4


A-28-5


Trustee

By:

Name:
Title:


Trustee

By:

Name:

Title:

A-28-6

Exhibit B
Initial Mortgage Loan Schedule
[See Exhibit 1 to the Purchase Agreement]

Exhibit C
Forms of Addition Notice
, 200
ADDITION NOTICE

Re: Mortgage Loan Purchase Agreement, dated as of September 1, 2006 (the Purchase Agreement),
among NovaStar Mortgage, Inc. (the Sponsor), NovaStar Mortgage Funding Corporation (the
Depositor), U.S. Bank National Association, as Custodian (the Custodian) and Detusche Bank
National Trust Company, as trustee (the Trustee) relating to NovaStar Home Equity Loan Asset-
Backed Certificates, Series 2006-5
Pursuant to Section 2.02(b)(i) of the above-captioned Purchase Agreement, the Sponsor has
designated the Subsequent Mortgage Loans (see subsequent mortgage loan schedule attached hereto) to be
sold to the Depositor, and then sold by the Depositor to the Trustee on behalf of the certificateholders, on
, with an aggregate principal balance of $ . Capitalized terms not otherwise defined
herein, have the meaning set forth in the Purchase Agreement.
[Signature Page to Follow]

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,


By:


Acknowledged and agreed:

NOVASTAR MORTGAGE
FUNDING CORPORATION

By:

[Signature Page to Addition Notice #1]

, 200
ADDITION NOTICE
Santa Ana, California 92705
4527 Metropolitan Court, Suite C
Frederick, MD 21704
Attention: Structured Finance Trust Services
(NovaStar Mortgage Funding Trust, Series 2006-5)

Re: Mortgage Loan Purchase Agreement, dated as of September 1, 2006 (the Purchase Agreement),
among NovaStar Mortgage, Inc. (the Sponsor), NovaStar Mortgage Funding Corporation (the
Depositor), U.S. Bank National Association, as Custodian (the Custodian) and Detusche Bank
National Trust Company, as trustee (the Trustee) relating to NovaStar Home Equity Loan Asset-
Pursuant to Section 2.02(b)(i) of the above-captioned Purchase Agreement, the Sponsor has
designated the Subsequent Mortgage Loans (see subsequent mortgage loan schedule attached hereto) to be
sold to the Depositor, and then sold by the Depositor to the Trustee on behalf of the certificateholders, on
on , with an aggregate principal balance of $ . Capitalized terms not otherwise
defined herein have the meaning set forth in the Purchase Agreement.
[Signature Page to Follow]

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,

CORPORATION

By:

Acknowledged and agreed:
solely in its capacity as Custodian

By:

Name:

Title:

,
not in its individual capacity but
solely in its capacity as Trustee

By:

Name:

Title:

[Signature Page to Addition Notice #2]

Exhibit D
Forms of Subsequent Transfer Instrument
[See Exhibits 2(A) and 2(B) to the Purchase Agreement]

Exhibit E
Request for Release
[date]

To: U.S. Bank National Association, as Custodian
and Deutsche Bank National Trust Company,
as Trustee

Re: Pooling and Servicing Agreement, dated as of September 1, 2006
In connection with the administration of the pool of Mortgage Loans held by you as Custodian,
we request the release, and acknowledge receipt, of the (Mortgage File/[specify document]) for the
Mortgage Loan described below, for the reason indicated.
Mortgagors Name, Address & Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)

1.

Mortgage Loan Paid in Full
(Servicer hereby certifies that all amounts received in connection therewith have been credited to the
Collection Account and remitted to the Trustee for deposit into the Distribution Account pursuant to
the Pooling and Servicing Agreement.)

2.

Mortgage Loan Liquidated
(Servicer hereby certifies that all proceeds of foreclosure, insurance or other liquidation have been
finally received and credited to the Collection Account and remitted to the Trustee for deposit into
the Distribution Account pursuant to the Pooling and Servicing Agreement.)

3. Mortgage Loan in Foreclosure

4.
Mortgage Loan Purchased Pursuant to Section 11.01 of the Pooling and Servicing
Agreement.

5.

Mortgage Loan Repurchased or Substituted pursuant to Article II or III of the Pooling
and Servicing Agreement (Sponsor hereby certifies that the repurchase price or Substitution
Adjustment has been credited to the Collection Account and that the substituted mortgage loan is a
Qualified Substitute Mortgage Loan.)

Other

6. (explain) ___________________________________________________

If box 1 or 2 above is checked, and if all or part of the Mortgage File was previously released
to us, please release to us our previous receipt on file with you, as well as any additional documents in your
possession relating to the above specified Mortgage Loan.
If box 3, 4, 5 or 6 above is checked, upon our return of all of the above documents to you as
Custodian, please acknowledge your receipt by signing in the space indicated below, and returning this
form.

NovaStar Mortgage, Inc.,
as [Servicer][Sponsor]

By:

Name:

Title:

Documents returned to Custodian:

U.S. Bank National Association,
as Custodian

By:

Name:

Title:

Date:

E-2

Exhibit F-1
Form of Initial Certification
[Date]
Attention: Chris Miller, Senior Vice President

Re: Pooling and Servicing Agreement, dated as of September 1, 2006 (the Agreement), among
NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, U.S. Bank National
Association (the Custodian)and Deutsche Bank National Trust Company (the Trustee),
relating to the NovaStar Mortgage Funding Trust, Series 2006-5 Home Equity Loan Asset-Backed
Certificates
Gentlemen:
In accordance with Section 2.02 of the above-captioned Agreement, and Section 2.01(c) of the
Mortgage Loan Purchase Agreement, dated as of September 1, 2006 (the Purchase Agreement and,
together with the Agreement, the Agreements), among NovaStar Mortgage, Inc., NovaStar Mortgage
Funding Corporation, the Custodian, the Trustee and U.S. Bank National Association, the undersigned, as
Custodian, on behalf of the 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)(vii) of the definition or
description of Mortgage Loan Schedule is correct.
The Custodian, on behalf of the 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 Custodian, on behalf of the Trustee, makes no representation that any
documents specified in clause (vi) of Section 2.01(c) of the Purchase Agreement should be included in any
Mortgage File. The Custodian, on behalf of the 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 Custodian, on behalf of the Trustee.
Capitalized words and phrases used herein shall have the respective meanings assigned to them
in the above-captioned Agreement.

U.S. BANK NATIONAL
ASSOCIATION, not in
its individual capacity but solely as
Custodian

By:

Name:

Title:

F-1-2

Exhibit F-2
Form of Final Certification
[Date]

Re: Pooling and Servicing Agreement, dated as of September 1, 2006 (the Agreement), among
NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, U.S. Bank National
Association (the Custodian) and Deutsche Bank National Trust Company (the Trustee)
relating to the NovaStar Mortgage Funding Trust, Series 2006-5 Home Equity Loan Asset-Backed
Certificates
Gentlemen:
In accordance with Section 2.03 of the above-captioned Agreement, and Section 2.01(c) of the
Mortgage Loan Purchase Agreement, dated as of September 1, 2006 (the Purchase Agreement and,
together with the Agreement, the Agreements), among NovaStar Mortgage, Inc., NovaStar Mortgage
Funding Corporation, the Custodian and the Trustee, the undersigned, as Custodian, on behalf of the
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 2.01(c) of the Purchase Agreement.
The Custodian, on behalf of the Trustee, has made no independent examination of any
documents contained in each Mortgage File beyond the review specifically required in the Agreements.
The Custodian, on behalf of the Trustee, makes no representation that any documents specified in clause
(vi) of Section 2.01(c) should be included in any Mortgage File. The Custodian, on behalf of the 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 Custodian, on behalf of the Trustee.


U.S. BANK NATIONAL
ASSOCIATION, not in
its individual capacity but solely as
Custodian

By:

Name:

Title:

F-2-2

Exhibit G
Form of Investment Letter
c/o DB Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211-3658
Attention: Transfer Unit
The undersigned (the Transferee) has agreed to purchase from (the
Transferor) the following certificates:

Class Number

I. The Transferee is (check one):

(i) An insurance company, as defined in Section 2(13) of the Securities Act of 1933, as
amended (the Securities Act), (ii) an investment company registered under the Investment Company
Act of 1940, as amended (the Investment Company Act), (iii) a business development company as
defined in Section 2(a)(48) of the Securities Act, (iv) 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, as amended, (v) a plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of
its employees, (vi) a business development company as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940, as amended, (vii) an organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation (other than a bank as defined in Section 3(a)(2) of the Securities Act or a
savings and loan association or other institution referenced in Section 3(a)(2) of the Securities Act or a
foreign bank or savings and loan association or equivalent

institution), partnership, or Massachusetts or similar business trust; or (viii) an investment advisor
registered under the Investment Advisors Act of 1940, as amended, which, for each of (i) through
(viii), owns and invests on a discretionary basis at least $100 million in securities other than
securities of issuers affiliated with the Transferee, securities issued or guaranteed by the United
States or a person controlled or supervised by and acting as an instrumentality of the government of
the United States pursuant to authority granted by the Congress of the United States, bank deposit
notes and certificates of deposit, loan participations, repurchase agreements, securities owned but
subject to a repurchase agreement, and currency, interest rate and commodity swaps (collectively,
Excluded Securities);

a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as
amended (the Exchange Act) that in the aggregate owns and invests on a discretionary basis at least
$10 million of securities other than Excluded Securities and securities constituting the whole or part
of an unsold allotment to, or subscription by, Transferee as a participant in a public offering;

an investment company registered under the Investment Company Act that is part of a
family of investment companies (as defined in Rule 144A of the Securities and Exchange
Commission) which own in the aggregate at least $100 million in securities other than Excluded
Securities and securities of issuers that are part of such family of investment companies;

an entity, all of the equity owners of which are entities described in this Paragraph A(I);

a bank as defined in Section 3(a)(2) of the Securities Act, any savings and loan
association or other institution as referenced in Section 3(a)(5)(A) of the Securities Act, or any
foreign bank or savings and loan association or equivalent institution that in the aggregate owns and
invests on a discretionary basis at least $100 million in securities other than Excluded Securities and
has an audited net worth of at least $25 million as demonstrated in its latest annual financial
statements, as of a date not more than 16 months preceding the date of transfer of the Certificates to
the Transferee in the case of a U.S. Bank or savings and loan association, and not more than 18
months preceding such date in the case of a foreign bank or savings association or equivalent
institution.
II. The Transferee is acquiring such Certificates solely for its own account, for the account of
one or more others, all of which are Qualified Institutional Buyers within the meaning of Rule 144A, or
in its capacity as a dealer registered pursuant to Section 15 of the

G-2

Exchange Act acting in a riskless principal transaction on behalf of a Qualified Institutional Buyer. The
Transferee is not acquiring such Certificates with a view to or for the resale, distribution, subdivision or
fractionalization thereof which would require registration of the Certificates under the Securities Act.
III. The Transferee represents that it is not (i) an employee benefit plan (as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA)) that is subject to
the provisions of Title I of ERISA, or (ii) a plan (as defined in section 4975(e)(1) of the Internal Revenue
Code of 1986, as amended (the Code)) that is subject to Section 4975 of the Code, and is not acting,
directly or indirectly, on behalf of a plan described in (i) or (ii) or acquiring the Certificates with assets of
any such plan.

Very truly yours,

By:

Title:

Dated:

G-3

Exhibit H
Form of Residual Certificate Transfer Affidavit
AFFIDAVIT PURSUANT TO SECTION 860E OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the Investor), a [savings institution]
[corporation] duly organized and existing under the laws of [the State of ] [the United States], on
behalf of which he makes this affidavit and agreement.
2. That the Investor (i) is not and will not be a disqualified organization as of [date of
transfer] within the meaning of Section 860E(e)(5) of the Internal Revenue Code of 1986 (the Code), (ii)
will endeavor to remain other than a disqualified organization for so long as it retains its ownership interest
in the Class R Certificates, and (iii) is acquiring the Class R Certificates for its own account or for the
account of another investor from which it has received an affidavit and agreement in substantially the same
form as this affidavit and agreement. For this purpose, a disqualified organization means the United
States, any state or political subdivision thereof, any agency or instrumentality of any of the foregoing
(other than an instrumentality all of the activities of which are subject to tax and, except for the Federal
Home Loan Mortgage Corporation, a majority of whose board of directors is not selected by any such
governmental entity) or any foreign government, international organization or any agency or
instrumentality of such foreign government or organization, any rural electric or telephone cooperative, or
any organization (other than certain farmers cooperatives) that generally is exempt from federal income
tax unless such organization is subject to the tax on unrelated business taxable income.
3. That the Investor has historically paid its debts as they came due and will continue to pay its
debts as they come due in the future.
4. That the Investor has no present knowledge or expectation that it will be unable to pay any
United States taxes owed by it or that it will become insolvent or subject to a bankruptcy proceeding for so
long as any of the Class R Certificates remain outstanding.
5. That the Investor has been advised of, and understands that as the holder of a noneconomic
residual interest it may incur tax liabilities in excess of any cash flows generated by the interest. That the
Investor intends to pay such taxes associated with holding the Class R Certificates as they become due.
6. That the Investor will not cause income from the Class R Certificates to be attributable to a
foreign permanent establishment or fixed base (within the meaning of an applicable income tax treaty) of
the Investor or another U.S. taxpayer.

7.
1
[A. Formula Test] That the Investor agrees that the present value of the anticipated tax
liabilities associated with holding the Class R Certificates does not exceed the sum of the present value of
any consideration given to the Investor to acquire the Class R Certificates, the present value of the expected
future distributions on the Class R Certificates, and the present value of the anticipated tax savings
associated with holding the interest as the REMIC generates losses. That the Investor agrees that it
complied with U.S. Treasury Regulations Section 1.860E-1(c)(8) in making such representation.
That the Investor agrees that it is not a foreign permanent establishment or fixed base (within
the meaning of an applicable income tax treaty) of the Transferor or another U.S. taxpayer.
[B. Asset Test] That the Investor, at the time of the transfer, and at the close of the Investors
two fiscal years preceding the year of the transfer, had gross assets for financial reporting purposes in
excess of $100 million and net assets in excess of $10 million (excluding any obligation of a person related
to the Investor within the meaning of U.S. Treasury Regulations Section 1.860E-1(c)(6)(ii) or any other
asset if a principle purpose for holding or acquiring the other asset was to permit the Investor to satisfy the
above stated minimum asset requirements).
That the Investor is an eligible corporation, as defined in U.S. Treasury Regulations Section
1.860E-1(c)(6)(i). That the Investor agrees, in connection with any subsequent transfer of its ownership
interest in the Class R Certificates, to transfer its ownership interest only to another eligible corporation,
as defined in U.S. Treasury Regulations Section 1.860E-1(c)(6)(i), and to honor the restrictions on
subsequent transfers of the Class R Certificates by transferring its ownership interest only in a transaction
that satisfies the requirements of U.S. Treasury Regulations Section 1.860E-1(c)(4)(i), (ii) (iii) and U.S.
Treasury Regulations Section 1.860E-1(c)(5).
That the Investor determined the consideration paid to it to acquire the Class R Certificates in
good faith and based on reasonable market assumptions (including, but not limited to, borrowing and
investment rates, prepayment and loss assumptions, expense and reinvestment assumptions, tax rates and
other factors specific to the Investor).
8. That the Investor is a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in, or under the laws of, the United States or any political subdivision
thereof, or an estate or trust whose income from sources without the United States is includable in gross
income for United States federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States.
9. That the Investors Taxpayer Identification Number is .
10. That the Investor has reviewed the restrictions set forth on the face of the Class R
Certificates and the provisions of Section 5.02(d) of the Pooling and Servicing

1

Insert either section 7A or 7B.

H-2

Agreement under which the Class R Certificates were issued, which authorize the Trustee to deliver
payments to a person other than the Investor and negotiate a mandatory sale by the Trustee in the event that
the Investor holds such Certificates in violation of Section 5.02(d). That the Investor expressly agrees to be
bound by and to comply with all the provisions of Section 5.02(d) of the Pooling and Servicing Agreement
and the restrictions on the face of the Class R Certificates.
11. That the Investor will, in connection with any transfer that it makes of the Class R
Certificates, deliver to the Trustee a certificate, in form and substance satisfactory to the Trustee, that is in
substantially the same form as Exhibit I attached to the Pooling and Servicing Agreement and that contains
the same representations set forth therein.
12. That the Investor will not transfer any of its interest in the Class R Certificates unless (i) it
has received from any subsequent transferee an affidavit in substantially the same form as this affidavit
containing the same representations set forth herein, and (ii) as of the time of the transfer, it does not have
actual knowledge that such affidavit is false. That the Investor will cause such affidavit to be delivered to
the Trustee upon receipt. That the Investor is aware that the Trustee will not register the transfer of any
Class R Certificates unless and until such affidavit is received.
13. That the Investor consents to any additional restrictions or arrangements that shall be
deemed necessary upon advice of counsel to constitute a reasonable arrangement to ensure that the Class R
Certificates will only be owned, directly or indirectly, by an investor that is not a disqualified organization.
14. That the Investor understands and agrees that any breach of any of the representations
included herein shall render the transfer to the Investor contemplated hereby null and void.

H-3

IN WITNESS WHEREOF, the Investor has caused this instrument to be executed on its behalf,
pursuant to the authority of its Board of Directors, by its [Title of Officer] and its corporate seal to be
hereunto attached, attested by its [Assistant] Secretary, this day of .

[NAME OF INVESTOR]

By:

[Name of Officer]

[Title of Officer]

[Corporate Seal]

ATTEST:

[Assistant] Secretary

Personally appeared before me the above named [Name of Officer], known or proved to me to
be the same person who executed the foregoing instrument and to be the [Title of Officer] of the Investor,
and acknowledged to me that he executed the same as his free act and deed and the free act and deed of the
Investor.

H-4

Exhibit I
Transferors Certificate

To: Deutsche Bank National Trust Company
c/o DB Services Tennessee
648 Grassmere Park Road
Nashville, Tennessee 37211-3658
Attention: Transfer Unit
Re: The Pooling and Servicing Agreement, dated as of September 1, 2006, among NovaStar
Mortgage Funding Corporation, as Depositor, NovaStar Mortgage, Inc., as Servicer and as Sponsor, U.S.
Bank National Association, as Custodian, Deutsche Bank National Trust Company, as trustee
This letter is delivered to you in connection with the transfer by NovaStar Mortgage, Inc. (the
Sponsor) to (the Purchaser) of a % Percentage Interest of
NovaStar Mortgage Funding Trust, Series 2006-5, NovaStar Home Equity Loan Asset-Backed Certificates,
Series 2006-5, Class R (the Certificates), pursuant to Section 5.02(d) of the Pooling and Servicing
Agreement (the Pooling and Servicing Agreement), dated as of September 1, 2006 among NovaStar
Mortgage Funding Corporation, as Depositor (the Depositor), NovaStar Mortgage, Inc., as Servicer and
Sponsor (the Servicer and Sponsor), U.S. Bank National Association, as Custodian (the Custodian),
Deutsche Bank National Trust Company, as trustee (the Trustee). All terms used herein and not
otherwise defined shall have the meanings set forth in the Pooling and Servicing Agreement. The Sponsor
hereby certifies, represents and warrants to, and covenants with, the Depositor and the Trustee that:
1. No purpose of the Sponsor relating to the transfer of the Certificates by the Sponsor to the
Purchaser is or will be to impede the assessment or collection of any tax.
2. The Sponsor has conducted a reasonable investigation of the financial condition of the
Purchaser and, as a result of such investigation, has concluded that the Purchaser has historically paid its
debts as they came due and will continue to pay its debts as they come due in the future.
3. The Sponsor has received, and understands that the Purchaser has delivered to the Trustee
and the Depositor, a Residual Certificate Transfer Affidavit in the form attached to the Pooling and
Servicing Agreement as Exhibit H. The Sponsor does not know or believe that any representation contained
therein is false.
4. The Sponsor does not know or have reason to know that the Purchaser (i) will be unwilling
or unable to pay taxes due on its share of the Certificates or (ii) will not honor the restrictions on
subsequent transfers of the Certificates set forth in section 5.02(d) of the Pooling and Servicing Agreement
and in the Residual Certificate Transfer Affidavit.

5. The Sponsor has no actual knowledge that the proposed Transferee is not both a United
States Person and a Permitted Transferee.

Very truly yours,

(Sponsor)

By:

Name:

Title:

I-2

Exhibit J
Designation Under REMIC Provisions
(a) The Trustee shall elect that each of REMIC I, REMIC II, REMIC III, REMIC IV, REMIC V and
the Master REMIC be treated as a REMIC under Section 860D of the Code. Any inconsistencies or
ambiguities in this Agreement or in the administration of this Agreement shall be resolved in a manner that
preserves the validity of such REMIC elections.
(b) The designation of REMIC interests shall be as follows:
(i) REMIC I will consist of all of the assets of the Trust (other than the Pre-Funding Account,
the Supplemental Interest Account, the Interest Coverage Account, the Swap Agreements, the Cap
Agreements, the Novation Agreements and the Supplemental Interest Trust), including the Mortgage
Loans, the Accounts, any REO Property and any proceeds of the foregoing. REMIC I will be
evidenced by the REMIC I Regular Interests as set forth in (c) below, which will be uncertificated
and will represent the regular interests in REMIC I. The Class R-I Interest will represent the sole
class of residual interest in REMIC I;
(ii) REMIC II will consist of the REMIC I Regular Interests and will be evidenced by the
REMIC II Regular Interests as set forth in (d) below, which will be uncertificated and will
represent the regular interests in REMIC II. The Class R-II Interest will represent the sole class of
residual interest in REMIC II;
(iii) REMIC III will consist of the REMIC II Regular Interests and will be evidenced by the
REMIC III Regular Interests as set forth in (e) below, which will be uncertificated and will
represent the regular interests in REMIC III. The Class R-III Interest will represent the sole class of
residual interest in REMIC III;
(iv) REMIC IV will consist of the REMIC III Regular Interests and will be evidenced by the
REMIC IV Regular Interests as set forth in (f) below, which will be uncertificated and will
represent the regular interests in REMIC IV. The Class R-IV Interest will represent the sole class
of residual interest in REMIC IV; and
(v) REMIC V will consist of the REMIC IV Regular Interests and will be evidenced by the
REMIC V Regular Interests as set forth in (f) below, which will be uncertificated and will
represent the regular interests in REMIC V. The Class R-V Interest will represent the sole class of
residual interest in REMIC V; and
(vi) The Master REMIC will consist of the REMIC V Regular Interests and will be evidenced,
as set forth in (g) below, by (i) the following Certificates, in each case, other than its respective Cap
Contract Rights and Obligations: the Class A-1A, the Class A-2A, the Class A-2B, the Class A-2C,
the

Class A-2D, the Class M-1, the Class M-2, the Class M-3, the Class M-4, the Class M-5, the Class
M-6, the Class M-7, the Class M-8, the Class M-9, the Class M-10 and the Class M-11 Certificates
and (ii) the following Certificates: the Class I-1, the Class I-2, the Class CA and the Class CB
Certificates which, in the case of each Class referenced in (i) and (ii), will represent one or more
regular interests in the Master REMIC. The Class R-VI Interest will represent the sole class of
residual interest in the Master REMIC.
(vi) The Class R Certificates will represent the beneficial ownership of the Class R-I, Class R-
II, Class R-III, Class R-IV, Class R-V and Class R-VI Interests. The Class R Certificates will not
have a principal balance and will not bear interest.
(vii) The Trustee will hold the REMIC I Regular Interests, REMIC II Regular Interests,
REMIC III Regular Interests, REMIC IV Regular Interests and REMIC V Regular Interests.
(c) The REMIC I Regular Interests shall have the following principal balances and REMIC I Pass-
Through Rates as set forth in the table below:

REMIC I Interest
Initial Principal Balance REMIC I Pass-Through Rate
I-J $740,283,080.75 (1)
I-N (2) (3)
I-PO1 $559,716,919.24 (4)
I-P $100 (5)

(1) The pass-through rate for the Class I-J Interest will be as follows: (i) commencing on the first
Distribution Date through and including the Distribution Date in November 2006, Net WAC,
computed solely with respect to the Initial Mortgage Loans and (ii) for all Distribution Dates
thereafter, Net WAC of the Mortgage Loans.

(2) The Class I-N Interest will have a notional principal balance equal to $559,716,919.24.

(3) The pass-through rate for the Class I-N Interest for each Distribution Date will be as follows:
(i) commencing on the first Distribution Date through and including the Distribution Date in
November 2006, all interest on the Subsequent Mortgage Loans for such Distribution Date divided
by $559,716,919.24 and (ii) for all Distribution Dates thereafter, 0.00%.

(4) The pass-through rate for the Class I-PO1 Interest will be as follows: (i) commencing on the first
Distribution Date through and including the Distribution Date in November 2006, 0.00% and
(ii) for all Distribution Dates thereafter, Net WAC of the Mortgage Loans.

(5) The Class I-P Interest shall bear interest at the same rate as the Class I-J Interest. In addition, the Class
I-P Interest is entitled to distributions of all Prepayment Charges.
Commencing on the first Distribution Date through and including the Distribution Date in November
2006, all Realized Losses, prepayments and payments of scheduled principal generated with respect to the
Initial Mortgage Loans shall be allocated pro rata to the Class I-J and Class I-P Interests. All Realized
Losses, prepayments and payments of scheduled principal generated with respect to the Subsequent
Mortgage Loans and any related amounts transferred from the Pre-Funding Account to REMIC I shall be
allocated to the Class I-PO1 Interest.
On each Distribution Date occurring after the Distribution Date in November 2006, all Realized
Losses, prepayments and payments of scheduled principal generated with respect to the Mortgage Loans
shall be allocated pro rata, to the Class I-J, I-PO1 and I-P Interests, until such classes are paid in full or
eliminated by such losses.
(d) The REMIC II Regular Interests shall have the following principal balances and REMIC II Pass-
Through Rates set forth in the table below:

REMIC II Interests
Initial
Principal Balances
REMIC II
Pass-Through Rates
II-A $80,000,000 (1)
II-B $80,000,000 (1)
II-C $80,000,000 (1)
II-D $80,000,000 (1)
II-E $160,000,000 (1)
II-F $20,000,000 (1)
II-G $20,000,000 (1)
II-H $20,000,000 (1)
II-K $20,000,000 (1)
II-L $20,000,000 (1)
II-M $20,000,000 (1)
II-O $40,000,000 (1)
II-J $659,999,900 (1)
II-N (2) (3)
II-P $100 (4)

(1) The pass-through rate for these REMIC II Regular Interests will be the weighted average of the pass-
through rates on the Class I-J and Class I-PO1 Interests.

(2) The Class II-N Interest will have a notional principal balance equal to the notional principal balance of
the Class I-N Interest.

(3) The Class II-N Interest is entitled to all distributions on the Class I-N Interest.

(4) The Class II-P Interest is entitled to all distributions on the Class I-P Interest.

Any amounts transferred from the Pre-Funding Account to REMIC I shall be allocated in the
following manner: The REMIC Cap Adjustment Amount will be allocated in the following order: (i) first,
to the Class II-D Interest until such class is paid in full; (ii) second, to the Class II-E Interest until such
class is paid in full; and (iii) fourth, to the Class II-O Interest until such class is paid in full. The remaining
amounts transferred from the Pre-Funding Account to REMIC I shall be allocated to the Class II-J Interest
until such class is paid in full.
On each Distribution Date (after amounts, if any, allocated pursuant to the preceding paragraph), all
Realized Losses, prepayments and payments of scheduled principal with respect to the Mortgage Loans
shall be allocated in the following order: (i) first, to the Class II-J Interest until such class is paid in full or
eliminated by such losses; (ii) second, to the Class II-A Interest until such class is paid in full or eliminated
by such losses; (iii) third, to the Class II-B Interest until such class is paid in full or eliminated by such
losses; (iv) fourth, to the Class II-C Interest until such class is paid in full or eliminated by such losses;
(v) fifth, to the Class II-D Interest until such class is paid in full or eliminated by such losses; (vi) sixth, to
the Class II-E Interest until such class is paid in full or eliminated by such losses; (vii) seventh, to the Class
II-F Interest until such class is paid in full or eliminated by such losses; (viii) eighth, to the Class II-G
Interest until such class is paid in full or eliminated by such losses; (ix) ninth, to the Class II-H Interest until
such class is paid in full or eliminated by such losses; (x) tenth, to the Class II-K Interest until such class is
paid in full or eliminated by such losses; (xi) eleventh, to the Class II-L Interest until such class is paid in
full or eliminated by such losses; (xii) twelfth, to the Class II-M Interest until such class is paid in full or
eliminated by such losses; (xiii) thirteenth, to the Class II-O Interest until such class is paid in full or
eliminated by such losses; and (xiv) fourteenth, to the Class II-P Interest until such class is paid in full or
(e) The REMIC III Regular Interests shall have the following principal balances and REMIC III Pass-
Through Rates set forth in the table below:

REMIC III Interests
Corresponding Class of
REMIC II Regular Interest
(respectively)
Initial
Principal Balances
REMIC III
Pass-
Through Rates
III-A1 II-A (1) (2)
III-A2 II-A (3) (4)
III-A3 II-A (5) (6)
III-B1 II-B (1) (2)
III-B2 II-B (3) (4)
III-B3 II-B (5) (6)
III-C1 II-C (1) (2)
III-C2 II-C (3) (4)
III-C3 II-C (5) (6)
III-D1 II-D (7) (8)

REMIC III Interests

REMIC II Regular Interest
(respectively)
Initial
Principal
Balance
REMIC III
Pass-
Through
Rates
III-D2 II-D (3) (4)
III-D3 II-D (5) (9)
III-E1 II-E (7) (8)
III-E2 II-E (3) (4)
III-E3 II-E (5) (9)
III-F1 II-F (7) (8)
III-F2 II-F (3) (4)
III-F3 II-F (5) (9)
III-G1 II-G (7) (8)
III-G2 II-G (3) (4)
III-G3 II-G (5) (9)
III-H1 II-H (7) (8)
III-H2 II-H (3) (4)
III-H3 II-H (5) (9)
III-K1 II-K (7) (8)
III-K2 II-K (3) (4)
III-K3 II-K (5) (9)
III-L1 II-L (1) (2)
III-L2 II-L (3) (4)
III-L3 II-L (5) (6)
III-M1 II-M (7) (8)
III-M2 II-M (3) (4)
III-M3 II-M (5) (9)
III-O1 II-O (7) (8)
III-O2 II-O (3) (4)
III-O3 II-O (5) (9)
III-J II-J (7) (10)
III-N II-N (11) (12)
III-P II-P $100 (13)

(1) These REMIC III Regular Interests will have an initial principal balance equal to the product of
(i) the initial principal balance of the Corresponding Class of REMIC II Regular Interest and
(ii) two divided by three.

(2) The pass-through rate for these REMIC III Regular Interests will be as follows: (i) commencing on
the first Distribution Date through and including the Corresponding Maturity Date from the
Swap/Cap Interest Rate Schedule, 1.5 multiplied by (REMIC III Net WAC minus the
Corresponding Interest Rate from the Swap/Cap Interest Rate Schedule) and (ii) for all
Distribution Dates thereafter, REMIC III Net WAC.

(3) These REMIC III Regular Interests will have an initial principal balance equal to the initial principal
balance of the Corresponding Class of REMIC II Regular Interest divided by three.

the first Distribution Date through and including the Corresponding Maturity Date from the Swap/Cap
Interest Rate Schedule, 3 multiplied by 1-month LIBOR, subject to a cap of 3 multiplied by the
Corresponding Interest Rate from the Swap/Cap Interest Rate Schedule and (ii) for all Distribution
Dates thereafter, REMIC III Net WAC.

(5) These REMIC III Regular Interests will have a notional principal balance equal to the principal
balance of the Corresponding Class of REMIC II Regular Interest.

Interest Rate Schedule, the Corresponding Interest Rate from the Swap/Cap Interest Rate Schedule
minus 1-Month LIBOR, subject to a floor of zero and (ii) for all Distribution Dates thereafter, zero.

(7) These REMIC III Regular Interests will have a principal balance equal to the principal balance of the
Corresponding Class of REMIC II Regular Interest.

Interest Rate Schedule, the REMIC III Net WAC minus the Corresponding Interest Rate from the
Swap/Cap Interest Rate Schedule and (ii) for all Distribution Dates thereafter, REMIC III Net WAC.

Interest Rate Schedule, the Corresponding Interest Rate from the Swap/Cap Interest Rate and (ii) for
all Distribution Dates thereafter, zero.

(10) The pass-through rate for this REMIC III Regular Interest will be equal to the REMIC III Net WAC.

(11) The Class III-N Interest will have a notional principal balance equal to the notional principal balance
of the Class II-N Interest.

(12) The Class III-N Interest is entitled to all distributions on the Class II-N Interest.

(13) The Class III-P Interest is entitled to all distributions on the Class II-P Interest.

Any amounts transferred from the Pre-Funding Account to REMIC I shall be allocated in the
following manner: The REMIC Cap Adjustment Amount will be allocated in the following order: (i) first,
to the Class III-D1 Interest until such class is paid in full; (ii) second, to the Class III-E1 Interest until such
class is paid in full; and (iii) fourth, to the Class III-O1 Interest until such class is paid in full. The
remaining amounts transferred from the Pre-Funding Account to REMIC I shall be allocated to the Class
III-J Interest until such class is paid in full.
On each Distribution Date, all Realized Losses, prepayments and payments of scheduled principal
generated with respect to the Mortgage Loans shall be allocated in the following order: (i) first, to the Class
III-J Interest until such class is paid in full or eliminated by such losses; (ii) second, pro rata, to the Class
III-A1 and Class III-A2 Interests, until such classes are paid in full or eliminated by such losses; (iii) third,
pro rata, to the Class III-B1 and Class III-B2 Interests, until such classes are paid in full or eliminated by
such losses; (iv) fourth, pro rata, to the Class III-C1 and Class III-C2 Interests, until such classes are paid in
full or eliminated by such losses; (v) fifth, to the Class III-D1 Interest, until such class is paid in full or
eliminated by such losses; (vi) sixth, to the Class III-E1 Interest, until such class is paid in full or eliminated
by such losses; (vii) seventh, to the Class III-F1 Interest, until such class is paid in full or eliminated by
such losses; (viii) eighth, to the Class III-G1 Interest, until such class is paid in full or eliminated by such
losses; (ix) ninth, to the Class III-H1 Interest, until such class is paid in full or eliminated by such losses;
(x) tenth, to the Class III-K1 Interest, until such class is paid in full or eliminated by such losses;
(xi) eleventh, pro rata, to the Class III-L1 and Class III-L2 Interests, until such classes are paid in full or
eliminated by such losses; (xii) twelfth, to the Class III-M1 Interest, until such class is paid in full or
eliminated by such losses; (xiii) thirteenth, to the Class III-O1 Interest, until such class is paid in full or
eliminated by such losses; and (xiv) fourteenth, to the Class III-P Interest until such class is paid in full or
(f) The REMIC IV Regular Interests shall have the following principal balances, REMIC IV Pass-
Through Rates and Corresponding Classes of Master REMIC Certificates, as set forth in the table below:

REMIC IV
Interest

Initial Principal
Balance
REMIC IV Pass-
Through Rate
REMIC V Regular Interest
IV-Accrual

50% of the sum of the
Pool Balance and the
Pre-Funded Amount

(1)

N/A
IV-A1A

50% of the
Corresponding Class
Balance

(1)

V-A1A
IV-A2A

50% of the
Corresponding
Class Balance

(1)

V-A2A

IV-A2B

50% of the
Corresponding Class
Balance

(1)

V-A2B
IV-A2C

50% of the
Corresponding Class
Balance

(1)

V-A2C
IV-A2D

50% of the
Corresponding Class
Balance

(1)

V-A2D
IV-M1

50% of the
Corresponding Class
Balance

(1)

V-M1
IV-M2

50% of the
Corresponding Class
Balance

(1)

V-M2
IV-M3

50% of the
Corresponding Class
(1)

V-M3
Balance
IV-M4

50% of the
Corresponding Class
Balance

(1)

V-M4
IV-M5

50% of the
Corresponding Class
Balance

(1)

V-M5
IV-M6

50% of the
Corresponding Class
Balance

(1)

V-M6
IV-M7

50% of the
Corresponding Class
Balance

(1)

V-M7
IV-M8

50% of the
Corresponding Class
Balance

(1)

V-M8
IV-M9

50% of the
Corresponding Class
Balance

(1)

V-M9
IV-M10

50% of the
Corresponding Class
Balance

(1)

V-M10
IV-M11

50% of the
Corresponding Class
Balance

(1)

V-M11
IV-M12

50% of the
Corresponding Class
Balance

(1)

V-M12

IV-CA

50% of the
Corresponding Class
Balance
(Overcollateralization
Amount)
(1)

V-CA2/
Overcollateralization
Amount
IV-N (2) (3) V-CA4
IV-P $100 (4) V-CA3
IV-I1 (5) (5) V-I1
IV-I2 (6) (6) V-I2

(1) The pass-through rate for these REMIC IV Regular Interests will be the weighted average of the
pass-through rates of the Class III-A1, Class III-A2, Class III-B1, Class III-B2, Class III-C1, Class
III-C2, Class III-D1, Class III-E1, Class III-F1, Class III-G1, Class III-H1, Class III-K1, Class III-
L1, Class III-L2, Class III-M1, Class III-O1 and Class III-J Interests.

(2) The Class IV-N Interest will have a notional principal balance equal to the notional principal
balance of the Class III-N Interest.

(3) The Class IV-N Interest is entitled to all distributions on the Class III-N Interest.

(4) The Class IV-P Interest is entitled to all distributions on the Class III-P Interest.

(5) The Class IV-I1 Interest will be an interest only regular interest and will be entitled to receive on
each Distribution Date the sum of the amounts distributable on the Class III-A3, Class III-B3,
Class III-C3, Class III-D3, Class III-E3, Class III-F3, Class III-G3, Class III-H3 and Class III-K3
Interests on such Distribution Date.

(6) The Class IV-I2 Interest will be an interest only regular interest and will be entitled to receive on
each Distribution Date the sum of the amounts distributable on the Class III-L3, Class III-M3,
Class IV-M12 and Class III-O3 Interests on such Distribution Date.
On each Distribution Date, 50% of the increase in the Over-collateralization Amount will be payable
as a reduction of the principal balances of the Class IV-A1A, Class IV-A2A, Class IV-A2B, Class IV-A2C,
Class IV-A2D, Class IV-M1, Class IV-M2, Class IV-M3, Class IV-M4, Class IV-M5, Class IV-M6, Class
IV-M7, Class IV-M8, Class IV-M9, Class IV-M10, Class IV-M11, Class IV-M12 and Class IV-CA
Interests (in the order and relative amount of such reduction to the principal balance of each classs
Corresponding Class of Master REMIC Certificates) and will be accrued and added to the principal
balances of the Class IV-Accrual Interest. On each Distribution Date, the increase in the principal balance
of the Class IV-Accrual Interest may not exceed interest accruals for such Distribution Date for the
respective Class IV-Accrual Interests. In the event that (i) 50% of the increase in the related
Overcollateralization Amount exceeds (ii) interest accruals on the related Class IV-Accrual Interest for
such Distribution Date, the excess for such Distribution Date

(accumulated with all such excesses for all prior Distribution Dates) will be added to any increase in the
Overcollateralization Amount for purposes of determining the amount of interest accrual on the related
Class IV-Accrual Interest payable as principal on the related Class IV-Accrual Interest on the next
Distribution Date pursuant to the first sentence of this paragraph.
All payments of scheduled principal and prepayments of principal and any amounts transferred from
the Pre-Funding Account to REMIC I shall be allocated as follows: (i) first, 50% to the Class IV-Accrual
Interest and (ii) second, 50% to the Class IV-A1A, Class IV-A2A, Class IV-A2B, Class IV-A2C, Class IV-
A2D, Class IV-M1, Class IV-M2, Class IV-M3, Class IV-M4, Class IV-M5, Class IV-M6, Class IV-M7,
Class IV-M8, Class IV-M9, Class IV-M10, Class IV-M11, Class IV-M12 and Class IV-CA Interests (to
each such Class in an amount equal to 1/2 of the principal paid in reduction of the principal balance of the
Corresponding Class of Master REMIC Certificates) until paid in full. Notwithstanding the above, principal
payments allocated to the Class CA Certificates that result in the reduction of the Overcollateralization
Amount shall be allocated 50% to the Class IV-Accrual Interest and 50% to the Class IV-CA Interest until
such classes are paid in full. Realized Losses shall be applied so that after all distributions have been made
on each Distribution Date the principal balances of the Class IV-A1A, Class IV-A2A, Class IV-A2B, Class
IV-A2C, Class IV-A2D, Class IV-M1, Class IV-M2, Class IV-M3, Class IV-M4, Class IV-M5, Class IV-
M6, Class IV-M7, Class IV-M8, Class IV-M9, Class IV-M10, Class IV-M11 and Class IV-M12 Interests
are each equal to 50% of the principal balance of its Corresponding Class of Master REMIC Certificates
and the Class IV-Accrual Interest is equal to 50% of the sum of the Pool Balance and the Pre-Funded
Amount.
(g) The REMIC V Regular Interests shall have the following principal balances, REMIC V Pass-
Through Rates and Corresponding Classes of Master REMIC Certificates, as set forth in the table below:

REMIC V
Interest

Initial
Principal
Balance
REMIC V
Pass-Through
Rate
Master REMIC Certificates
V-A1A

$637,531,000

the lesser of (i) 10% and (ii)
LIBOR + Certificate Margin (1)
A-1A
V-A2A $168,800,000 LIBOR + Certificate Margin (1) A-2A
V-A2B

$120,500,000

A-2B
V-A2C

$97,300,000

A-2C
V-A2D

$30,169,000

A-2D
V-M1

$63,050,000

M-1
V-M2

$40,300,000

M-2

V-M3

$24,050,000

the lesser of (i) 11% and
(ii) LIBOR + Certificate
Margin (1)
M-3
V-M4

$18,850,000

Margin (1)
M-4
V-M5

$18,850,000

Margin (1)
M-5
V-M6

$14,950,000

Margin (1)
M-6
V-M7

$11,050,000

Margin (1)
M-7
V-M8

$9,100,000

Margin (1)
M-8
V-M9

$13,650,000

Margin (1)
M-9
V-M10

$11,700,000

Margin (1)
M-10
V-M11

$6,500,000

Margin (1)
M-11
V-M12

$6,500,000

Margin (1)
M-12
V-CA1 (2) (2) CA and CB
V-CA2

(3)

(3)

CA (Overcollateralization
Amount)
V-CA3 $100 (4) CA
V-I1 (5) (5) I-1
V I2 (6) (6) I-2
V-N (7) (8) CA

(7) Subject to the REMIC Available Funds Cap.

(8) The Class V-CA1 Interest will be an interest only regular interest. The Class V-CA1 Interest will
bear interest on its notional principal balance. The Class V-CA1 Interest will have a notional
principal balance equal to the sum of (i) the Pool Balance and (ii) any amounts remaining in the
Pre-Funding Account. The REMIC V Pass-Through Rate for the Class V-CA1 Interest will be the
excess of: (I) the weighted average of the pass-through rates on the REMIC IV Regular Interests
(other than the Class IV-I1 and Class IV-I2 Interests) over (II) the product of: (A) two and (B) the
weighted average pass-through rate of the REMIC IV Regular Interests (other than the Class IV-I1
and Class IV-I2 Interests) where the Class IV-Accrual Interests and the Class IV-CA Interest are
subject to a cap equal to zero, and the remaining classes are subject to a cap equal to the REMIC V
Pass-Through Rates on their respective Corresponding Class of REMIC V Regular Interests.

(9) The Class V-CA2 Interest will have an initial principal balance equal to $7,150,000. The Class V-
CA2 Interest will not be entitled to any payments of interest.

(10) The Class V-CA3 Interest is entitled to all distributions on the Class IV-P Interest.

(11) The Class V-I1 Interest will be an interest only regular interest and will be entitled to receive on each
Distribution Date all distributions on the Class IV-I1 Interest.

(12) The Class V-I2 Interest will be an interest only regular interest and will be entitled to receive on each
Distribution Date all distributions on the Class IV-I2 Interest.

(13) The Class V-N Interest will have a notional principal balance equal to the notional principal balance
of the Class IV-N Interest.

(14) The Class V-N Interest is entitled to all distributions on the Class IV-N Interest.
On each Distribution Date, all Realized Losses, prepayments and payments of scheduled principal
generated with respect to the Mortgage Loans shall be allocated to each REMIC V Regular Interest and
reduce the principal balance thereof in the order and relative amount of such reduction to the principal
balance of each classs Corresponding Class of Master REMIC Certificates.
(i) The following table sets forth characteristics of the Certificates, each of which (other than the
Class R Certificates and, with respect to the Class A Certificates and Class M Certificates, other than its
corresponding Cap Contract Rights) is hereby designated as a regular interest in the Master REMIC:

Class of Certificates
Initial
Certificate
Principal
Balance
REMIC
Pass-
Through
Rate
Corresponding
Class of
REMIC V
Regular
Interest
Class A-1A $637,531,000 (1) V-A1A
Class A-2A $168,800,000 (1) V-A2A
Class A-2B $120,500,000 (1) V-A2B
Class A-2C $97,300,000 (1) V-A2C
Class A-2D $30,169,000 (1) V-A2D
Class M-1 $63,050,000 (1) V-M1
Class M-2 $40,300,000 (1) V-M2
Class M-3 $24,050,000 (1) V-M3
Class M-4 $18,850,000 (1) V-M4
Class M-5 $18,850,000 (1) V-M5
Class M-6 $14,950,000 (1) V-M6
Class M-7 $11,050,000 (1) V-M7
Class M-8 $9,100,000 (1) V-M8
Class M-9 $13,650,000 (1) V-M9
Class M-10(2) $11,700,000 (1) V-M10
Class M-11(2) $6,500,000 (1) V-M11

Class M-12(2)
$6,500,000 (1)
V-
M12
Class CA-1 (3)
(4) (5)
V-
CA1
Class CA-2 (3)
(6) (1)
V-
CA2
Class CA-3 (3)
$100 (1)
V-
CA3
Class CA-4 (3) (7) (8) V-N
Class CB
(4) (9)
V-
CA1
Class I-1 (10) (10) V-I1
Class I-2 (11) (11) V-I2
Class R
(12) (12)

(1) These Master REMIC Regular Interests are entitled to all distributions on their respective
Corresponding Class of REMIC V Regular Interest.

(2) The Class M-10 DSI Certificates, the Class M-11 DSI Certificates and the Class M-12 DSI
Certificates do not represent regular interests in the Master REMIC or any other REMIC created
under the Pooling and Servicing Agreement.

(3) The Class CA Certificates will represent three regular interests in the Master REMIC, the Class CA-1,
Class CA-2, Class CA-3 and Class CA-4 Interest.

(4) These Master REMIC Regular Interests will have a notional principal balance equal to the notional
principal balance on their respective Corresponding Class of REMIC V Regular Interest.

(5) For each Distribution Date, the REMIC Pass-Through Rate for Class CA-1 Interest will equal the
excess, if any, of (i) the REMIC V Pass-Through Rate on the Class V-CA1 Interest over (ii) the
Corresponding Interest Rate Strip from the Class CB Certificate Schedule.

(6) The Class CA-2 Interest will have a principal balance equal to the principal balance on its
Corresponding Class of REMIC V Regular Interest.

(7) The Class CA-4 Interest will have a notional principal balance equal to the notional principal balance
of the Class V-N Interest.

(8) The Class CA-4 Interest is entitled to all distributions on the Class V-N Interest.

(9) For each Distribution Date, the REMIC Pass-Through Rate for the Class CB Certificate will equal the
lesser of (i) the REMIC V Pass-Through Rate on the Class V-CA1 Interest and (ii) the Corresponding
Interest Rate Strip from the Class CB Certificate Schedule.

(10) The Class I-1 Certificates will be an interest only regular interest and will be entitled to receive on
each Distribution Date all distributions on the Class V-I1 Interest.

(11) The Class I-2 Certificates will be an interest only regular interest and will be entitled to receive on
each Distribution Date all distributions on the Class V-I2 Interest.

(12) The Class R Certificates will represent the beneficial ownership of the R-I, R-II, R-III, R-IV, R-V and
R-VI Interests. On each Distribution Date, available funds, if any, remaining in any of the REMICs
after payments of interest and principal, as designated above, will be distributed to the Class R
Certificate. It is expected that there shall not be any distributions on the Class R Certificate.
(i) For federal income tax purposes, the latest possible maturity date for each of the REMIC I
Regular Interests, REMIC II Regular Interests, REMIC III Regular Interests, REMIC IV Regular Interests
(other than the Class IV-I1 and Class IV-I2 Interests), REMIC V Regular Interests (other than the Class V-
I1 and Class V-I2 Interests) and Master REMIC Regular Interests (other than the Class I1 and Class I2
Certificates) is hereby set to be the Distribution Date of November 25, 2036. The latest possible maturity
date for the Class IV-I1 Interest, the Class V-I1 Interest and the Class I1 Certificates is hereby set to be the
Distribution Date of August 2008. The latest possible maturity date for the Class IV-I2 Interest, the Class
V-I2 Interest and the Class I2 Certificates is hereby set to be the Distribution Date of August 2009.
(j) NovaStar Financial Inc. (NFI) is hereby designated as the Tax Interests Registrar for the
purposes of maintaining a register of the tax ownership of all uncertificated Master REMIC Regular
Interests. NFI, in such capacity, shall maintain a book-entry register reflecting such tax ownership and shall
transfer tax ownership of such uncertificated Master REMIC Regular Interests at the request of the then-
registered owner. The Tax Interests Registrar shall request such documentation in connection with any such
transfer as it shall deem appropriate.

Exhibit K
Form of Advance Facility Notice
[date]

Re: Pooling and Servicing Agreement, dated as of September 1, 2006, by and among NovaStar
Mortgage Funding Corporation (the Depositor), NovaStar Mortgage, Inc., as sponsor and
servicer (the Sponsor or Servicer), U.S. Bank National Association, as custodian (the
Custodian) and Deutsche Bank National Trust Company, as trustee (the Trustee) (the
Agreement)
In accordance with Section 3.26(a) of the above-captioned Agreement, the undersigned hereby
notifies the Trustee of the following information:
The Servicer has entered into an Advance Facility.
The Advancing Person is [ ].
[ ], as the Servicers Assignee, has the right to make withdrawals from the
Collection Account subject to Section 3.26(b) of the Agreement to reimburse previously unreimbursed
Advances and/or Servicing Advances pursuant to Section 3.07 of the Agreement.
[Remainder of Page Intentionally Left Blank]


NOVASTAR MORTGAGE INC.
as Servicer

By:

Name:

Title:

[ ]
as Advancing Person

By:

Name:

Title:

The undersigned hereby acknowledges receipt of this notice pursuant to Section 3.27(a) of the Agreement.

COMPANY, not in its individual capacity
but solely as Trustee

By:

Name:

Title:

EXHIBIT L
SERVICING CRITERIA TO BE ADDRESSED IN
ASSESSMENT OF COMPLIANCE
Where there are multiple checks for criteria the attesting party will identify in their management assertion
that they are attesting only to the portion of the payment chain they are responsible for in the related
transaction agreements.
Key: X obligation

Reg AB
Reference
Servicing Criteria Servicer Trustee Custodian

General Servicing Considerations

1122(d)(1)(i)
Policies and procedures are instituted to monitor any
performance or other triggers and events of default in
accordance with the transaction agreements.
X

X

1122(d)(1)(ii)
If any material servicing activities are outsourced to
third parties, policies and procedures are instituted to
monitor the third partys performance and compliance
with such servicing activities.
If applicable

1122(d)(1)(iii)
Any requirements in the transaction agreements to
maintain a back-up servicer for the Pool Assets are
maintained.
If become
contractually
obligated

1122(d)(1)(iv)
A fidelity bond and errors and omissions policy is in
effect on the party participating in the servicing
function throughout the reporting period in the amount
of coverage required by and otherwise in accordance
with the terms of the transaction agreements.
X

Cash Collection and Administration

1122(d)(2)(i)
Payments on pool assets are deposited into the
appropriate custodial bank accounts and related bank
clearing accounts no more than two business days
following receipt, or such other number of days
specified in the transaction agreements.
X

1122(d)(2)(ii)
Disbursements made via wire transfer on behalf of an
obligor or to an investor are made only by authorized
personnel
X

X

1122(d)(2)(iii)
Advances of funds or guarantees regarding collections,
cash flows or payments, and any interest or other fees
charged for such advances, are made, reviewed and
approved as specified in the transaction agreements.
X

Reg AB
Reference
1122(d)(2)(iv)
The related accounts for the transaction, such as cash reserve
accounts or accounts established as a form of over
collateralization, are separately maintained (e.g., with respect
to commingling of cash) as set forth in the transaction
agreements.
X

X

1122(d)(2)(v)
Each custodial account is maintained at a federally insured
depository institution as set forth in the transaction
agreements. For purposes of this criterion, federally insured
X

X*

depository institution with respect to a foreign financial
institution means a foreign financial institution that meets the
requirements of Rule 13k-1(b)(1) of the Securities Exchange
Act.

1122(d)(2)(vi)
Unissued checks are safeguarded so as to prevent
unauthorized access
X

1122(d)(2)(vii)
Reconciliations are prepared on a monthly basis for all asset-
backed securities related bank accounts, including custodial
accounts and related bank clearing accounts. These
reconciliations are (A) mathematically accurate; (B) prepared
within 30 calendar days after the bank statement cutoff date,
or such other number of days specified in the transaction
agreements; (C) reviewed and approved by someone other
than the person who prepared the reconciliation; and (D)
contain explanations for reconciling items. These reconciling
items are resolved within 90 calendar days of their original
identification, or such other number of days specified in the
X

X

* The Trustee need only provide if it is determined that any account maintained by the Trustee is a
custodial account for purposes of the Servicing Criteria. This item is subject to further clarification from
the SEC.

L-2

Reg AB
Reference
Investor Remittances and Reporting
1122(d)(3)(i)
Reports to investors, including those to be filed with the
Commission, are maintained in accordance with the
transaction agreements and applicable Commission
requirements. Specifically, such reports (A) are prepared in
accordance with timeframes and other terms set forth in the
transaction agreements; (B) provide information calculated in
accordance with the terms specified in the transaction
agreements; (C) are filed with the Commission as required by
its rules and regulations; and (D) agree with investors or the
trustees records as to the total unpaid principal balance and
number of Pool Assets serviced by the Servicer.
X

X

1122(d)(3)(ii)
Amounts due to investors are allocated and remitted in
accordance with timeframes, payment priority and other terms
set forth in the transaction agreements.
X

X

1122(d)(3)(iii)
Disbursements made to an investor are posted within two
business days to the Servicers investor records, or such other
number of days specified in the transaction agreements.
X

X

1122(d)(3)(iv)
Amounts remitted to investors per the investor reports agree
with cancelled checks, or other form of payment, or custodial
bank statements.
X

X

Pool Asset Administration

1122(d)(4)(i) Collateral or security on pool assets is maintained as required
X

X
by the transaction agreements or related pool asset
documents.

1122(d)(4)(ii)
Pool assets and related documents are safeguarded as required
by the transaction agreements

X

1122(d)(4)(iii)
Any additions, removals or substitutions to the asset pool are
made, reviewed and approved in accordance with any
conditions or requirements in the transaction agreements.
X

X

1122(d)(4)(iv)
Payments on pool assets, including any payoffs, made in
accordance with the related pool asset documents are posted
to the Servicers obligor records maintained no more than two
business days after receipt, or such other number of days
specified in the transaction agreements, and allocated to
principal, interest or other items (e.g., escrow) in accordance
with the related pool asset documents.
X

L-3

Reg AB
Reference
1122(d)(4)(v)
The Servicers records regarding the pool assets agree
with the Servicers records with respect to an obligors
unpaid principal balance.
X

1122(d)(4)(vi)
Changes with respect to the terms or status of an obligors
pool assets (e.g., loan modifications or reagings) are
made, reviewed and approved by authorized personnel in
accordance with the transaction agreements and related
pool asset documents.
X

1122(d)(4)(vii)
Loss mitigation or recovery actions (e.g., forbearance
plans, modifications and deeds in lieu of foreclosure,
foreclosures and repossessions, as applicable) are
initiated, conducted and concluded in accordance with the
timeframes or other requirements established by the
X

1122(d)(4)(viii)
Records documenting collection efforts are maintained
during the period a pool asset is delinquent in accordance
with the transaction agreements. Such records are
maintained on at least a monthly basis, or such other
period specified in the transaction agreements, and
describe the entitys activities in monitoring delinquent
pool assets including, for example, phone calls, letters and
payment rescheduling plans in cases where delinquency is
deemed temporary (e.g., illness or unemployment).
X

1122(d)(4)(ix)
Adjustments to interest rates or rates of return for pool
assets with variable rates are computed based on the
related pool asset documents.
X

1122(d)(4)(x)
Regarding any funds held in trust for an obligor (such as
escrow accounts): (A) such funds are analyzed, in
accordance with the obligors pool asset documents, on at
least an annual basis, or such other period specified in the
transaction agreements; (B) interest on such funds is paid,
X

or credited, to obligors in accordance with applicable pool
asset documents and state laws; and (C) such funds are
returned to the obligor within 30 calendar days of full
repayment of the related pool assets, or such other number
of days specified in the transaction agreements.

L-4

Reg AB
Reference
1122(d)(4)(xi)
Payments made on behalf of an obligor (such as tax or
insurance payments) are made on or before the related
penalty or expiration dates, as indicated on the
appropriate bills or notices for such payments, provided
that such support has been received by the servicer at least
30 calendar days prior to these dates, or such other
number of days specified in the transaction agreements.
X

1122(d)(4)(xii)
Any late payment penalties in connection with any
payment to be made on behalf of an obligor are paid from
the Servicers funds and not charged to the obligor, unless
the late payment was due to the obligors error or
omission.
X

1122(d)(4)(xiii)
Disbursements made on behalf of an obligor are posted
within two business days to the obligors records
maintained by the servicer, or such other number of days
specified in the transaction agreements.
X

1122(d)(4)(xiv)
Delinquencies, charge-offs and uncollectible accounts are
recognized and recorded in accordance with the
X

1122(d)(4)(xv)
Any external enhancement or other support, identified in
Item 1114(a)(1) through (3) or Item 1115 of Regulation
AB, is maintained as set forth in the transaction
agreements.
X

L-5

EXHIBIT M
FORM 10-D, FORM 8-K AND FORM 10-K
REPORTING RESPONSIBILITY
As to each item described below, the entity indicated as the Responsible Party shall be primarily
responsible for reporting the information to the party identified as responsible for preparing the Securities
Exchange Act Reports pursuant to Section 3.18 of the Pooling and Servicing Agreement.
Under Item 1 of Form 10-D: a) items marked 4.03 statement are required to be included in the periodic
reports prepared by the Trustee under Section 4.03 of the Pooling and Servicing Agreement, provided by
the Trustee based on information received from the Servicer; and b) items marked Form 10-D report are
required to be in the Form 10-D report but not the 4.03 statement, provided by the party indicated.
Information under all other Items of Form 10-D is to be included in the Form 10-D report. All such
information and any other Items of Form 8-K and Form 10-K set forth in this exhibit shall be sent to the
Trustee and the Depositor.

Form Item Description Servicer Trustee Depositor Sponsor Custodian
10-D

Must be filed within 15 days of the payment date for the asset-backed
securities.

1

Payment and Pool Performance
Information

Item 1121(a) payment and Pool
Performance Information

(1) Any applicable record dates, accrual
dates, determination dates for calculating
payments and actual payment dates for the
payment period.

X

(4.03
Statement)

(2) Cash flows received and the sources
thereof for payments, fees and expenses.

X

X

(4.03
Statement)

Form
Item Description Servicer Trustee Depositor Sponsor Custodian

(3) Calculated amounts and payment of
the flow of funds for the period itemized
by type and priority of payment,
including:
X

X

(4.03
Statement)

(i) Fees or expenses accrued and
paid, with an identification of the general
purpose of such fees and the party
receiving such fees or expenses.
X

X

(4.03
Statement)

(ii) Payments accrued or paid with
respect to enhancement or other support
identified in Item 1114 of Regulation AB
(such as insurance premiums or other
enhancement maintenance fees), with an
identification of the general purpose of
such payments and the party receiving
such payments.
X

X

(4.03
Statement)

M-2

Form

(iii) Principal, interest and other
payments accrued and paid on the asset-
backed securities by type and by class or
series and any principal or interest
shortfalls or carryovers.

X

(4.03
Statement)

(iv) The amount of excess cash
flow or excess spread and the disposition
of excess cash flow.

X

(4.03
Statement)

(4) Beginning and ending principal
balances of the asset-backed securities.

X

(4.03
Statement)

(5) Interest rates applicable to the pool
assets and the asset-backed securities, as
applicable. Consider providing interest
rate information for pool assets in
appropriate distributional groups or
incremental ranges.
X

X

(4.03
Statement)

M-3


(6) Beginning and ending balances of
transaction accounts, such as reserve
accounts, and material account activity
during the period.
X

X

(4.03
Statement)

(7) Any amounts drawn on any credit
enhancement or other support
identified in Item 1114 of Regulation
AB, as applicable, and the amount of
coverage remaining under any such
enhancement, if known and applicable.

X

(4.03
Statement)

(8) Number and amount of pool assets
at the beginning and ending of each
period, and updated pool composition
information, such as weighted average
coupon, weighted average remaining
term, pool factors and prepayment
amounts.

X

X

(4.03
Statement)

Updated
pool
composition
information
fields to be
as specified
by
Depositor
from time
to time

M-4


(9) Delinquency and loss information for
the period.

X

X

(4.03
Statement)

In addition, describe any material changes
to the information specified in Item
1100(b)(5) of Regulation AB regarding the
pool assets. (methodology)
X

(10) Information on the amount, terms and
general purpose of any advances made or
reimbursed during the period, including the
general use of funds advanced and the
general source of funds for reimbursements.
X

X

(4.03
Statement)

(11) Any material modifications, extensions
or waivers to pool asset terms, fees,
penalties or payments during the payment
period or that have cumulatively become
X

X

X

material over time.

M-5

Form

(12) Material breaches of pool asset
representations or warranties or
transaction covenants.
X

X

X

(13) Information on ratio, coverage or
other tests used for determining any
early amortization, liquidation or other
performance trigger and whether the
trigger was met.
X

X

(4.03
Statement)

(14) Information regarding any new
issuance of asset-backed securities
backed by the same asset pool,

X

X

M-6


Information regarding any pool asset
changes (other than in connection with a
pool asset converting into cash in
accordance with its terms), such as
additions or removals in connection
with a prefunding or revolving period
and pool asset substitutions and
repurchases (and purchase rates, if
applicable), and cash flows available for
future purchases, such as the balances of
any prefunding or revolving accounts, if
applicable.
X

X

Disclose any material changes in the
solicitation, credit-granting,
underwriting, origination, acquisition or
pool selection criteria or procedures, as
applicable, used to originate, acquire or
select the new pool assets.

X

X

M-7

Form

Item 1121(b) Pre-Funding or Revolving
Period Information

Updated pool information as required under
Item 1121(b).

X

2

Legal Proceedings

Item 1117 Legal proceedings pending
against the following entities, or their

respective property, that is material to
Certificateholders, including proceedings
known to be contemplated by governmental
authorities:

Sponsor

X

Depositor

X

Issuing entity

X

Servicer, other Servicer servicing 20% or
more of pool assets at time of report, other
material servicers
X

Trustee

X

Custodian

X

M-8

Form

3

Sales of Securities and Use of Proceeds

Information from Item 2(a) of Part II of
Form 10-Q:

With respect to any sale of securities by
the sponsor, depositor or issuing entity,
that are backed by the same asset pool or
are otherwise issued by the issuing entity,
whether or not registered, provide the
sales and use of proceeds information in
Item 701 of Regulation S-K. Pricing
information can be omitted if securities
were not registered.

X

4

Defaults Upon

Senior Securities

M-9

Form

Information from Item 3 of Part
II of Form 10-Q:

Report the occurrence of any
Event of Default (after
expiration of any grace period
and provision of any required
notice)

X

X

5

Submission of Matters to a
Vote of Certificateholders

Information from Item 4 of Part
II of Form 10-Q
X (to the
extent
X (to the
extent
X (to the
extent
X (to the
extent

initiated
by the
Servicer)
initiated
by the
Trustee)
initiated
by the
Depositor)
initiated
by the
Sponsor)

6

Significant Obligors of Pool
Assets

Item 1112(b) Significant
Obligor Financial
Information*

X

* This information need only
be reported on the Form 10-
D for the payment period in
which updated information
is required pursuant to the
Item.

7

Significant Enhancement
Provider Information

M-10

Form

Item 1114(b)(2) Credit Enhancement
Provider Financial Information*

Determining applicable disclosure
threshold

X

Requesting required financial
information or effecting
incorporation by reference

X

Item 1115(b) Derivative Counterparty
Financial Information*

Determining current maximum
probable exposure

X

Determining current significance
percentage

X


X

M-11

Form

* This information need only be reported on
the Form 10-D for the payment period in
which updated information is required
pursuant to the Items.

8

Other Information

Disclose any information required to be

The Responsible Party for the applicable
reported on Form 8-K during the period
covered by the Form 10-D but not reported
Form
8-K item as indicated below.

9

Exhibits

Payment Report

X

Exhibits required by Item 601 of Regulation
S-K, such as material agreements

X

8-K

Must be filed within four business days of an event reportable on
Form 8-K.

1.01

Entry into a Material Definitive Agreement

M-12

Form

Disclosure is required regarding entry
into or amendment of any definitive
agreement that is material to the
securitization, even if depositor is not a
party.

Examples: servicing agreement,
custodial agreement.

Note: disclosure not required as to
definitive agreements that are fully
disclosed in the prospectus

X

X (as
applicable,
if known)

X

X

1.02

Termination of a Material Definitive
Agreement

M-13

Form

Disclosure is required regarding termination
of any definitive agreement that is material to
the securitization (other than expiration in
accordance with its terms), even if depositor
is not a party.

Examples: servicing agreement, custodial
agreement.

X

X

X

1.03

Bankruptcy or Receivership

M-14

Form

Disclosure is required regarding the
bankruptcy or receivership, if known to the
Depositor, Trustee, Sponsor or Servicer, with
respect to any of the following:

Sponsor, Depositor, Servicer, affiliated
X

X

X

X

Servicer, other Servicer servicing 20% or
more of pool assets at time of report, other
material servicers, Trustee, Trustee,
significant obligor, credit enhancer (10% or
more), derivatives counterparty, custodian

2.04

Triggering Events that Accelerate or
Increase a Direct Financial Obligation or
an Obligation under an Off-Balance Sheet
Arrangement

M-15

Form

Includes an early amortization, performance
trigger or other event, including event of default,
that would materially alter the payment
priority/payment of cash flows/amortization
schedule.

Disclosure will be made of events other than
waterfall triggers which are disclosed in the 4.03
statement

N/A

N/A

N/A

N/A

N/A

N/A

3.03

Material Modification to Rights of
Certificateholders

Disclosure is required of any material
modification to documents defining the rights of
Certificateholders, including the Pooling and
Servicing Agreement
X

X (if
known)

X

X

5.03

Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year

M-16

Form

Disclosure is required of any amendment to the
governing documents of the issuing entity

X

Change in Shell Company Status

5.06

[Not applicable to ABS issuers]

X

ABS Informational and Computational Material

6.01

[Not included in reports to be filed under Section
3.19]

X

Change of Servicer or Trustee

Requires disclosure of any removal, replacement,
substitution or addition of any servicer, affiliated
servicer, other servicer servicing 10% or more of
pool assets at time of report, other material servicers,
or trustee.
X

X

6.02

Reg AB disclosure about any new servicer is also
required.
X

M-17

Form

Reg AB disclosure about any new trustee
is also required.

X (by new
trustee)

6.03

Change in Credit Enhancement or
Other External Support

Covers termination of any enhancement in
manner other than by its terms, the
addition of an enhancement, or a material
change in the enhancement provided.
Applies to external credit enhancements as
well as derivatives.

X

X

Reg AB disclosure about any new
enhancement provider is also required.

X

6.04

Failure to Make a Required Payment

X

6.05

Securities Act Updating Disclosure

M-18

Form

If any material pool characteristic differs by
5% or more at the time of issuance of the
securities from the description in the final
prospectus, provide updated Reg AB
disclosure about the actual asset pool.

X

If there are any new servicers or originators
required to be disclosed under Regulation AB
as a result of the foregoing, provide the
information called for in Items 1108 and
1110 respectively.

X

7.01

7.01 Regulation FD Disclosure

X

X

X

Other Events

8.01

Any event, with respect to which information
is not otherwise called for in Form 8-K, that
the registrant deems of importance to
Certificateholders.

X

X

9.01

Financial Statements and Exhibits

The Responsible Party applicable
to
reportable event.

10-K

Must be filed within 90 days of the fiscal year end for the registrant.

M-19

Form

9B

Other Information

Disclose any information required to be
reported on Form 8-K during the fourth
quarter covered by the Form 10-K but not
reported
The Responsible Party for the
applicable Form 8-K Item as
indicated
above.

15

Exhibits and Financial Statement Schedules

Item 1112(b) Significant Obligor Financial
Information

X

Item 1114(b)(2) Credit Enhancement
Provider Financial Information

Determining applicable disclosure
threshold

X

information or effecting incorporation
by reference

X

Item 1115(b) Derivative Counterparty
Financial Information

M-20

Form

Determining current maximum
probable exposure

X

Determining current significance
percentage

X


X

Item 1117 Legal proceedings pending
against the following entities, or their
respective property, that is material to
Certificateholders, including
proceedings known to be contemplated
by governmental authorities:

Sponsor

X

Depositor

X

Issuing entity

X

Servicer, affiliated Servicer, other
Servicer servicing 20% or more of pool
assets at time of report, other material
servicers
X

M-21

Form

Trustee

X

Custodian

X

Item 1119 Affiliations and relationships
between the following entities, or their
respective affiliates, that are material to
Certificateholders:

Sponsor

X

Depositor

X

Servicer, affiliated Servicer, other Servicer
servicing 20% or more of pool assets at time
of report, other material servicers
X

Trustee

X (as to
affiliations
only)

Custodian

X (as to
affiliations
only)

Credit Enhancer/Support Provider

X

Significant Obligor

X

Item 1122 Assessment of Compliance with
Servicing Criteria
X

X

Item 1123 Servicer Compliance Statement

X

M-22

EXHIBIT N-1
FORM OF CERTIFICATION TO BE PROVIDED
BY THE DEPOSITOR WITH FORM 10-K
Re: NovaStar Mortgage Funding Trust, Series 2006-5 (the Issuing Entity) Asset-
I, [identify the certifying individual], certify, that:

1. I have reviewed this report on Form 10-K, and all reports on Form 10-D required to be filed in
respect of the period covered by this report on Form 10-K of NovaStar Mortgage Funding Trust,
Series 2006-5, Asset Backed Certificates, Series 2006-5 (the Exchange Act periodic reports);

2. Based on my knowledge, the Exchange Act periodic reports, taken as a whole, do not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;

3. Based on my knowledge, all of the payment, servicing and other information required to be
provided under Form 10-D for the period covered by this report is included in the Exchange Act
periodic reports;

4. Based on my knowledge and the servicer compliance statement required in this report under Item
1123 of Regulation AB, and except as disclosed in the Exchange Act periodic reports, the servicer
has fulfilled its obligations under the pooling and servicing agreement; and

5. All of the reports on assessment of compliance with servicing criteria for asset-backed securities
and their related attestation reports on assessment of compliance with servicing criteria for asset-
backed securities required to be included in this report in accordance with Item 1122 of Regulation
AB and Exchange Act Rules 13a-18 and 15d-18 have been included as an exhibit to this report,
except as otherwise disclosed in this report. Any material instances of noncompliance described in
such reports have been disclosed in this report on From 10-K.
In giving the certifications above, I have reasonably relied on information provided to me by the following
unaffiliated parties: [ ].

CORPORATION

By:

Name:

Title:

Date:

EXHIBIT N-2
FORM OF CERTIFICATION TO BE PROVIDED TO THE
DEPOSITOR BY THE [TRUSTEE][SERVICER]
Re: NovaStar Mortgage Funding Trust, Series 2006-5 (the Issuing Entity) Asset-Backed Certificates,
Series 2006-5
Reference is made to the Pooling and Servicing Agreement, dated as of September 1, 2006 (the Servicer
Agreement), by and among Deutsche Bank National Trust Company (the Trustee), NovaStar Mortgage
Funding Corporation, as depositor (the Depositor), NovaStar Mortgage, Inc., as sponsor and servicer (the
Sponsor and the Servicer, respectively) and U.S. Bank National Association, as custodian (the
Custodian). The [Trustee][Servicer] hereby certifies to the Depositor and its officers, directors and
affiliates, and with the knowledge and intent that they will rely upon this certification, that:

(i) The [Trustee][Servicer] has reviewed the annual report on Form 10-K for the fiscal year [ ],
and all reports on Form 10-D containing distribution reports filed in respect of periods included in
the year covered by that annual report, relating to the above-referenced issuing entity;

(ii) Subject to paragraph (iv), the distribution information [prepared and provided by the Trustee, as to
the Trustee] in the distribution reports contained in all monthly Form 10-Ds included in the year
covered by the annual report on Form 10-K for the calendar year [ ], taken as a whole, does
not contain any untrue statement of a material fact or omit to state a material fact required by the
Servicing Agreement to be included therein and necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading as of the last day of the
period covered by that annual report;

(iii) The distribution information required to be provided by the [Trustee][Servicer] under the Servicing
Agreement is included in these reports; and

(iv) In compiling the distribution information and making the foregoing certifications, the Trustee has
relied upon information furnished to it by the Servicer under the Servicing Agreement or any
Subservicer or subcontractor. The Trustee shall have no responsibility or liability for any
inaccuracy in such reports resulting from information so provided by the Servicer or any
Subservicer or subcontractor.

[DEUTSCHE BANK NATIONAL
TRUST COMPANY, not in its individual
capacity but solely as
Trustee][NOVASTAR MORTGAGE,
INC., as Servicer]

By:

Name:

Title:

m-3

EXHIBIT O
OFFICERS CERTIFICATE REGARDING
ANNUAL STATEMENT OF COMPLIANCE
Asset-Backed Certificates, Series 2006-5
I, , hereby certify that I am a duly appointed
of NovaStar Mortgage, Inc. (the Servicer), and further certify as follows:

1. This certification is being made pursuant to the terms of the Pooling and Servicing Agreement,
dated as of September 1, 2006 (the Servicing Agreement), by and among Deutsche Bank
National Trust Company (the Trustee), NovaStar Mortgage Funding Corporation, as depositor
(the Depositor), NovaStar Mortgage, Inc., as sponsor and servicer (the Sponsor and the
Servicer, respectively) and U.S. Bank National Association, as custodian (the Custodian).

2. I have reviewed the activities of the Servicer during the preceding calendar year and the Servicers
performance under the Servicing Agreement has been made under my supervision and to the best
of my knowledge, based on such review, the Servicer has fulfilled all of its obligations under the
Servicing Agreement in all material respects throughout the year.
Capitalized terms not otherwise defined herein have the meanings set forth in the Servicing Agreement.

Date:

Name:
Title:

EXHIBIT P
FORM OF LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Deutsche Bank National Trust Company, a national
banking association organized and existing under the laws of the United States, having its principal place of
business at 1761 East St. Andrew Place, Santa Ana, California, 92705, as Trustee (the Trustee) pursuant
to that Pooling and Servicing Agreement dated as of September 1, 2006 (the Agreement) among
NovaStar Mortgage Funding Corporation, as depositor, NovaStar Mortgage, Inc., as servicer and sponsor,
U.S. Bank National Association, as custodian and Deutsche Bank National Trust Company, as trustee,
hereby constitutes and appoints the Servicer, by and through the Servicers officers, the Trustees true and
lawful Attorney-in-Fact, in the Trustees name, place and stead and for the Trustees benefit, in connection
with all mortgage loans serviced by the Servicer pursuant to the Agreement solely for the purpose of
performing such acts and executing such documents in the name of the Trustee necessary and appropriate
to effectuate the following enumerated transactions in respect of any of the mortgages or deeds of trust (the
Mortgages and the Deeds of Trust respectively) and promissory notes secured thereby (the Mortgage
Notes) for which the undersigned is acting as Trustee for various certificateholders (whether the
undersigned is named therein as mortgagee or beneficiary or has become mortgagee by virtue of
endorsement of the Mortgage Note secured by any such Mortgage or Deed of Trust) and for which
NovaStar Mortgage, Inc. is acting as the Servicer.
This Appointment shall apply only to the following enumerated transactions and nothing herein or in the
Agreement shall be construed to the contrary:

1. The modification or re-recording of a Mortgage or Deed of Trust, where said modification or re-
recording is solely for the purpose of correcting the Mortgage or Deed of Trust to conform same to the
original intent of the parties thereto or to correct title errors discovered after such title insurance was
issued; provided that (i) said modification or re-recording, in either instance, does not adversely affect
the lien of the Mortgage or Deed of Trust as insured and (ii) otherwise conforms to the provisions of
the Agreement.

2. The subordination of the lien of a Mortgage or Deed of Trust to an easement in favor of a public utility
company of a government agency or unit with powers of eminent domain; this section shall include,
without limitation, the execution of partial satisfactions/releases, partial reconveyances or the execution
or requests to trustees to accomplish same.

3. The conveyance of the properties to the mortgage insurer, or the closing of the title to the property to
be acquired as real estate owned, or conveyance of title to real estate owned.

4. The completion of loan assumption agreements.

5. The full satisfaction/release of a Mortgage or Deed of Trust or full conveyance upon payment and
discharge of all sums secured thereby, including, without limitation, cancellation of the related
Mortgage Note.

6. The assignment of any Mortgage or Deed of Trust and the related Mortgage Note, in connection with
the repurchase of the mortgage loan secured and evidenced thereby.

7. The full assignment of a Mortgage or Deed of Trust upon payment and discharge of all sums secured
thereby in conjunction with the refinancing thereof, including, without limitation, the assignment of the
related Mortgage Note.

8. With respect to a Mortgage or Deed of Trust, the foreclosure, the taking of a deed in lieu of
foreclosure, or the completion of judicial or non-judicial foreclosure or termination, cancellation or
rescission of any such foreclosure, including, without limitation, any and all of the following acts:

a. the substitution of trustee(s) serving under a Deed of Trust, in accordance with state law and
the Deed of Trust;

b. the preparation and issuance of statements of breach or non-performance;

c. the preparation and filing of notices of default and/or notices of sale;

d. the cancellation/rescission of notices of default and/or notices of sale;

e. the taking of deed in lieu of foreclosure; and

f. the preparation and execution of such other documents and performance of such other actions
as may be necessary under the terms of the Mortgage, Deed of Trust or state law to
expeditiously complete said transactions in paragraphs 8.a. through 8.e. above.

9. With respect to the sale of property acquired through a foreclosure or deed-in lieu of foreclosure,
including, without limitation, the execution of the following documentation:

a. listing agreements;

b. purchase and sale agreements;

c. grant/warranty/quit claim deeds or any other deed causing the transfer of title of the property
to a party contracted to purchase same;

d. escrow instructions; and

e. any and all documents necessary to effect the transfer of property.

10. The modification or amendment of escrow agreements established for repairs to the mortgaged
property or reserves for replacement of personal property.
The undersigned gives said Attorney-in-Fact full power and authority to execute such instruments and to do
and perform all and every act and thing necessary and proper to carry into effect the power or powers
granted by or under this Limited Power of Attorney as fully as the undersigned might or could do, and
hereby does ratify and confirm to all that said Attorney-in-Fact shall be effective as of September 28, 2006.

This appointment is to be construed and interpreted as a limited power of attorney. The enumeration of
specific items, rights, acts or powers herein is not intended to, nor does it give rise to, and it is not to be
construed as a general power of attorney.
Nothing contained herein shall (i) limit in any manner any indemnification provided by the Servicer to the
Trustee under the Agreement, or (ii) be construed to grant the Servicer the power to initiate or defend any
suit, litigation or proceeding in the name of Deutsche Bank National Trust Company except as specifically
provided for herein. If the Servicer receives any notice of suit, litigation or proceeding in the name of
Deutsche Bank National Trust Company, then the Servicer shall promptly forward a copy of same to the
Trustee.
This limited power of attorney is not intended to extend the powers granted to the Servicer under the
Agreement or to allow the Servicer to take any action with respect to Mortgages, Deeds of Trust or
Mortgage Notes not authorized by the Agreement.
The Servicer hereby agrees to indemnify and hold the Trustee and its directors, officers, employees and
agents harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever incurred by reason or
result of or in connection with the exercise by the Servicer of the powers granted to it hereunder. The
foregoing indemnity shall survive the termination of this Limited Power of Attorney and the Agreement or
the earlier resignation or removal of the Trustee under the Agreement.
This Limited Power of Attorney is entered into and shall be governed by the laws of the State of New York,
without regard to conflicts of law principles of such state.
Third parties without actual notice may rely upon the exercise of the power granted under this Limited
Power of Attorney; and may be satisfied that this Limited Power of Attorney shall continue in full force
and effect and has not been revoked unless an instrument of revocation has been made in writing by the
undersigned.
IN WITNESS WHEREOF, Deutsche Bank National Trust Company, as Trustee has caused its corporate
seal to be hereto affixed and these presents to be signed and acknowledged in its name and behalf by a duly
elected and authorized signatory this 28th day of September 2006.

Deutsche Bank National Trust Company,
as Trustee

By:

Name:

Title:

Acknowledged and Agreed
NovaStar Mortgage, Inc., as Servicer

By:

Name:

Title:

STATE OF CALIFORNIA
COUNTY OF
On , , before me, the undersigned, a Notary Public in and for said state,
personally appeared of Deutsche Bank National Trust Company, as
Trustee, personally known to me to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed that same in his/her authorized capacity, and that by his/her
signature on the instrument the entity upon behalf of which the person acted and executed the instrument.
WITNESS my hand and official seal.
(SEAL)

Notary Public, State of California

EXHIBIT Q
FORM OF REALLOCATION NOTICE

To: Deutsche Bank National Trust Company
NovaStar Mortgage Funding Corporation, as depositor (the Depositor) under the Pooling and
Servicing Agreement, dated as of September 1 2006 (the Pooling and Servicing Agreement) by and
among the Depositor, NovaStar Mortgage, Inc., as Servicer and as Sponsor, U.S. Bank National
Association, as Custodian and Deutsche Bank National Trust Company, as Trustee, relating to NovaStar
Mortgage Funding Trust, Series 2006-5 (the Trust) does hereby:

certify that it and/or its Affiliates (as identified to the Trustee) is the beneficial owner of at
least % Percentage Interest in each of the Class DSI Certificates and Class N Certificates
relating to the following Class: [M-10, M-11 or M-12]; and

direct the Trustee to allocate all future distributions on % Percentage Interest of such
Class DSI and Class N Certificates relating to the following Class: [M-10, M-11 or M-12] to
the Class.
The Depositor hereby indemnifies the Trustee for any losses to which the Trustee may be
exposed as a result of following the directions of the Depositor set forth herein.
Capitalized terms used herein and not otherwise defined herein have the meanings set forth in
the Pooling and Servicing Agreement.

CORPORATION

By:

Name:

Title:

Date:

Exhibit G

Exhibit H

Prepared by: Cory Messer
OcWCIl Loan Servicing, LLC
1661 Worthington Road, Suite 100
West Palm Beach, Florida. 33409
Phone Number: 561-682-8835
737197592409
Attorney Code: 14946
ASSIGNMENT OF MORTGAGE
ILLINOIS
R2011014590_2
This ASSIGNMENT OF MORTGAGE is made and entered into as of the 06TH day of MAY, 2010, from MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS, INC., as nominee for NOVASTAR MORTGAGE, INC., whose address is 1901 E
Voorhees Street, Suite C. Danville. IL 61834. its successors and assigns, ("Assignor) to DEUTSCHE BANK NATIONAL
TRUST COMPANY AS TRUSTEE NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-5 NOVASTAR HOME
EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 1006-5, whose address is clo Ocwen Loan Servicing, LLC, 1661
Worthington Road, Suite 100, West Palm Beach, Florida, 33409. an its rights, title and interest in and to a certain mortgage duly recorded
in the Office of the County Recorder of WILL County, State of ILLINOIS, as follows:
Mortgagor: HOWARD J. BODZIANOWSKI AND KRISTEN M.BODZIANOWSKI
Mortgagee: MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. ACTING SOLELY AS NOMINEE FOR NOVASTAR
MORTGAGE,INC.
Amount: $165,000.00
Document Date: SEPTEMBER 25, 2006 Date Recorded: NOVEMBER 22, 2006
DocumentlInstrumentiEntry Number: R2006194666
PIN: 03-24-405-025-0000
Property Address: 3314 CONCORD COURT, LOCKPORT, IL
Property more fully described as:
LEGAL DESCRIPTION:
LOT 48 IN HERITAGE LAKE eSTATES UNIT THREE, A SUBDIVISJON OF THE SOUTH HALF OF THE
SOUTHEAST QUARTER OF SECTION 24, TOWNSHIP 36 NORTH, RANGE 9, EAST OF THE THIRD
PRINCIPAl MERIDjAN
t
ACCORDING TO THE PLAT THEReOF RECORDED MARCH 27, 1997, AS
DOCUMENTNO R97-2S051.IN WilL COUNTV, ILLINOIS
This Assignment is made without recourse, representation or wammty. IN WITNESS WHEREOF, the undersigned has executed
this Assignment ofMongage at West Pulm Beach, Florida, this 20TH day of JANUARY, 2011.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.
ACTING SOLELY AS NOVASTAR MORTGAGE, INC.
BY: )
NAME: Christina Carter
TITLE: Vice President
STATE OF FLORIDA, COUNTY OF PALM BEACH )SS.
The foregoing instrument was acknowledged before me this 20TH day of JANUARY, 2011. by Christina Carter, the Vice
President at MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. ACTING SOLELY AS NOMINEE FOR NOVASTAR
MORTGAGE, INC., on behalf of the bank. He/She is personally known to me.
Notary Signat6ie
MIN: 100080190060032935 MERS Ph.#: (888) 679 - 6377
R2011041622_2
TIDS IS AN ATTEMPT TO COLLECT A DEBT.
ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DMSION
COMPANY AS TRUSTEE NOVASTAR
MORTGAGE FUNDING mUST, SERIES 2006-5 CASE NUMBER:ll-cv-1950
NOVASTAR HOlvffi EQUITY LOAN ASSET-
BACKED CERTIFICATES) SERIES 2006-5
PLAINTIFF
VS.
HOWARD J. BODZIANOWSKI,
KRISTEN M. BODZIANOWSKI,
DEFENDANT(S).
DISTRICT JUDGE: Rebecca R. Pallmeyer
MAGISTRATE JUDGE: Hon. Susan E. Cox
NOTICE OF FORECLOSURE - LIS PENDENS
It the undersigned, certify that the Plaintiff, by its Attorneys, Burke Costanza & Carberry LLP,
filed the above captioned Mortgage Foreclosure in the UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION on 03/2112011, and that the
matter is now pending.
1. The Names of all Plaintiffs in the case and the case number are listed in the caption above.
2. The Names of all title holders of record are as follows:
1
1
R2011041622_3
Howard J. Bodzianowski, Kristen M. Bodzianowski
3. The legal description of the real estate sufficient to identify it with reasonable certainty:
Property Description .
LOT 48 IN HERITAGE LAKE ESTATES UNIT THREE, A SUBDIVISION OF THE SOUTH
HALF OF THE SOUTHEAST QUA RTER OF SECTION 24, TOWNSHIP 36 NORTH,
RANGE 9, EAST OF THE THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT
THEREOF RECORDED MARCH 27, 1997, AS DOCUMENT NO. R97-2S0S1, IN WILL
COUNTY, ILLINOIS.
PIN # 03-24-405-025-0000
4. A common address or description of the location of the real estate:
More Commonly Known As: 3314 Concord Court
Lockport, IL 60441
5. Identification of the Mortgage to be foreclosed:
a) Nature of instrument: Mortgage
b) Date of mortgage: 09/25/2006
c) Name of mortgagor: Howard J. Bodzianowski, Kristen M. Bodzianowski
d) Name of mortgagee: Novastar Mortgage, Inc.
e) Date and place of recording:
11/22/2006, Will Recorder's Office
f) Identification of recording:
DocumentlInstrument No. R2006194666
Dated: March 21, 2011
JAMES NICK PAPPAS #6291873
9191 Broadway
(219) 769-1313
~ ; r s ~
One of Plaintifl's Attorneys
2
R2011041622_4
RBTURNTO:
PLEASE RETURN TO THE FIRM LISlED ABOVE
3
R2011041622_5
TInS IS AN ATTEMPT TO COLLECT A DEBT.
ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE
FOR TIlE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
COIvIPANY AS TRUSTEE NOVASTAR
MORTGAGE FUNDING TRUST, SERIES 2006-5 CASE NUMBER: 11-cv-1950
NOVASTAR HOME EQUITY LOAN ASSET-
BACKED CERTIFICATES, SERIES 2006-5
PLAINTIFF
VS. DISTRICT runGE: Rebecca R. Pallmeyer
HOWARD J. BODZIANOWSKI , KRISTEN M. MAGISTRATE JUDGE: Hon. Susan E. Cox
BODZIANOWSKI,
DEFENDANT(S).
CERTIFICATE OF SERVICE
The undersigned, being first duly sworn on oath, deposes and stats that a copy of the Notiee of
Foreclosure.. Lis Pendens has been delivered to:
City of Lockport
Alice Matteucci, City Clerk
222 East Ninth Street
Lockpor4IL 60441
1
R2011041622_6
The Illinois Department of Financial and Professional Regulation Division of Banking
l\TIN: HB 4050 PILOT PROGRAM
122 S. Michigan Avenue
19th Floor'
Chicago, IL 60603
Dated: March 21, 2011
JAMES NICK PAPPAS #6291873
Attorneys for Plaintiff
9191 Broadway
(219) 769-1313
Respectfully S U ~
~ 71--
One of Plaintiffs Attorneys
2
lo

Exhibit I

SERVICES PROGRAMS PRESS PUBLICATIONS DEPARTMENTS CONTACT
UCC Search
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New York State Department of State
Uniform Commercial Code
Debtor Names
The following list includes the names that were found based on your search inputs. Each name listed has at least
one filing history that meets your search criteria. Click on the Name to display filing histories for this name or
check the desired names and click on the Get History Button. If the name you are searching for is not listed or
your search returns more than the 1000 name limit, click the Back Button and revise your search criteria.
Name of Debtor Individual Searched :
CONTAINS BODZIANOWSKI HOWARD J *All Filings
LOCKPORT IL
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SERVICES PROGRAMS PRESS PUBLICATIONS DEPARTMENTS CONTACT
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Debtor Names
The following list includes the names that were found based on your search inputs. Each name listed has at least
one filing history that meets your search criteria. Click on the Name to display filing histories for this name or
check the desired names and click on the Get History Button. If the name you are searching for is not listed or
your search returns more than the 1000 name limit, click the Back Button and revise your search criteria.
Name of Debtor Individual Searched :
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Exhibit J
OrderFor,tozoos, Case: 1:11-cv-01950 Document #: 21 Filed: 10/11/11 Page 1 of 1 PagelD #:104
United States District Court, Northern District of Illinois
Name of Assigned Judge
or Magistrate Judge
Rebecca R. PallmeyeT ^
Sitting Judge if Other
than Assigned Judge
CASE NUMBER
11 C 1950
I
DAT E 10/11/2011
CASE
Deutsche Bank National T rust Company vs. Howard J and Kristen. Bodzianowski
T IT LE
DOCKET ENT RY T EXT
Ruling held. Defendant's motion to dismiss for lack of standing [ 16] granted. Case is dismissed with
prejudice as to Plaintiff Deutsche Bank and without prejudice as to any other Plaintiff who may have proper
standing.
Notices mailed by Judicial staff.
v.v1
Courtroom Deputy
ET V
Initials:
1 I
C 1950 Deutsche Bank National T rust Company vs. Howard J. Bodzianowski, et al
Page 1 of I
Case: 1:11-cv-01950 Document #: 20 Filed: 10/04/11 Page 2 of 8 PagelD #:90
THE BLANK ENDORSEMENT ON THE NOTE DOES NOT COMPLY WITH THE PSA
2. Plaintiff even recites a portion of Section 2.01 of the PSA in its Response.
Plaintiff emphasizes Section 2.01(i), which describes the language of the endorsement.
Defendant, however, did not attack the language of the endorsement but who performed the
endorsing.
Section 2.01, prior to the portion emphasized by Plaintiff's Response, provides the
Depositor Novastar Mortgage Funding Corporation (emphasis added) "does hereby transfer,
assign, set over, and otherwise convey in trust to the Trustee...all right, title and interest of the
Depositor" in and to each identified Mortgage Loan. The endorsement described in Section
2.01(i) must be from the Depositor.
However, there is no endorsement from Novastar Mortgage Funding Corporation to the
Trust or blank. Instead the undated, not notarized endorsement is directly from the original
lender, Novastar Mortgage, Inc., to the Trust.
As Defendants argued in their Motion, there are no provisions for direct deposit from the
original lender to the trust. Plaintiff's Response does not point to any provisions in the PSA
which provide for such a transfer. If the Note was not transferred to the Trust according to the
Trust's terms, then the transfer never happened and the Trust cannot be the holder of the Note. A
trust does not have free will. A trust cannot act contrary to its own governing documents.
If the transfer did not take place according to the Trust's own terms, the transfer is void. NY CLS
EPTL 7-2.4; Wells Fargo Bank, N.A. v. Farmer, 2008 NY Slip Op 51133U, 6 (N.Y. Sup. Ct.
2008).
3. Plaintiff argues that an assignment under Illinois common law requires no
2
UNITED STATES DISTRICT COURT
For the Northern District of Illinois
Eastern Division
DEUSTCHE BANK NATIONAL TRUST
COMPANY as Trustee
Plaintiff
V . No. 01 Cv 1950
KRISTEN & HOWARD
BODZIANOWSKI Honorable Rebecca Pallmeyer
Defendant Magistrate Judge Cox
DEFENDANT'S REPLY IN SUPPORT OF THEIR
MOTION TO DISMISS FOR LACK OF STANDING
Defendants Kristen Bodszianowski and Howard Bodzianowski by and through their
attorneys Woerthwein & Miller reply in support of their motion to dismiss the foreclosure
complaint brought by Deutsche Bank National Trust Company as Trustee pursuant to Rule
12(b)(1) of the Federal Rules of Civil Procedure for lack of standing as follows:
Defendants brought their Motion to Dismiss attacking standing based on the
premise that the Plaintiff could not be the assignee and owner of the Note and the Mortgage
under the governing documents creating the Plaintiff Trust.
Plaintiff has not contested that it was created pursuant to the Purchase and Sale
Agreement ("PSA"), available at http://www.secinfo.com/dl4D5a.v66Nn.c.htm# I stPage)
relevant portions of which were attached to Defendant's Motion. Plaintiff has argued: 1) the
endorsement on the Note attached to the Complaint complies with the PSA; and 2) that
Defendants lack standing to contest the validity of the assignment
particular language, just a manifestation of intent, citing Community Bank v. Carter, 283 Ill.
App. 3d 505 (Ill. App. Ct. 1st Dist. 1996). Of course, in this case, the assignment is not governed
by Illinois common law, but the law of New York (PSA, 12.05). Plaintiff then goes on to argue
that mere possession is sufficient under the UCC to enforce the note.
Both propositions would be true in a typical UCC transaction involving negotiable
instruments where the holder needs simply to show up with possession of a note endorsed in
blank. However, the UCC ( 810 ILCS 5/1-302 in Illinois), permits parties to agree to a more
exacting method of transferring the notes to the trust, and in this case the parties did so. The PSA
in Section 2.01 sets forth a specific method of transferring this Note to this Trust that goes
beyond what is required by the UCC or common law. Plaintiff failed to comply with those
provisions.
4. Plaintiff makes no response to the argument that it also does not possess the
mortgage. Here, the Mortgage is not assigned to the Trustee until five years after the closing date
of the Trust. In creating a securitization trust, both the notes and mortgages need to be properly
transferred to a trust that will pay for them by issuing securities to investors. The PSA is for a
secured loan; the Trust cannot take the loans without their mortgages nor the mortgages without
their loans. The trust gets the whole loan or nothing because it can only take the kind of property
the PSA says it can, the way the PSA says it can. That was not done with either the Note or the
Mortgage.
DEFENDANTS HAVE STANDING TO RAISE THE ISSUE OF STANDING
5. Plaintiff argues that Defendants as alleged debtors lack standing to question the
assignment of the debt. However, all of Plaintiff's cases and illustrations concern debtors who
3
were questioning assignments based on the assignments negative effect on third parties. In this
case, Defendants have their own interest in enforcing standing. Breaches of the PSA are
evidence that the loan was not transferred to the Trust. The PSA is being invoked because it is
the document that purports to transfer the Note and Mortgage to the Trust. Adherence to the
PSA determines whether there was a transfer effected or not because under New York (and
Illinois) trust law, a transfer not in compliance with a trust's documents is void. If there isn't a
valid transfer, there's no standing. This is simply a factual question--does the Trust own the loan
or not? If not, then the Trust lacks standing to foreclosure.
6. Standing is important to the Defendants for at least three reasons:
A. First, when a Trust is the one seeking foreclosure, not the original lender, the
holder-in-due course rule prevents the Defendants from asserting certain defenses to foreclosure
and counterclaims based on wrongdoing at origination. This means Defendants can lose their
homes even if their loans were procured through most types of fraud. The holder-in-due course
rule also hamstrings Defendants' ability to pursue affirmative predatory lending claims against
Trusts. Finally, TILA imposes limitations on the kind of claims that can be brought against most
assignees. 15 U.S.C. 1641(a). Jackson v. S. Holland Dodge, 197 Ill. 2d 39, 50; 755 N.E.2d 462
(Ill. 2001), for instance, held lack of assignee liability under TILA was a defense to an Illinois
consumer fraud claim. The securitized trusts are not only set up to be bankruptcy remote, but to
be remote from the retail fraud that was feeding mortgages into the securitization process.
B. Second, the Defendants have a real interest in dealing with the right plaintiff
because different plaintiffs have different incentives and ability to settle. Trustees have very
different incentives and ability to settle than banks that hold loans in portfolio. PSA terms,
4
Michigan court applying New York trust law recently reached the same decision being urged by
Defendants upon this court, and a copy of that decision is attached hereto as Exhibit 1.
WHEREFORE, the Court should dismiss this action with prejudice on the ground that the
plaintiff, Deutsche Bank National Trust Company as Trustee as aforesaid, lacks standing to sue.
Respectfully submitted,
By: /s/Theodore A. Woerthwein
One of the Attorneys for the Defendants
Theodore Woerthwein
Woerthwein & Miller
225 West Washington Street
Suite 2200
Chicago, Illinois 60606
(312) 654-0001
0
liquidity, capital requirements, credit risk exposure, and compensation differ between
services/trustees and portfolio lenders.
C. Defendants have the right to be litigating with the real party in interest.
Defendants have a vested interest in determining that the one and only entity entitled to foreclose
gets the property. Plaintiff is correct that it is the only one presently trying to collect. However,
if the loan wasn't properly securitized, then the depositor or seller or their trustees in bankruptcy
could claim the loan as its property. If the loans weren't properly transferred via the
securitization, then they are still held in portfolio by someone. A future trustee could try to claw
this loan back into the Bank's estate.
Therefore Defendants have real legal interests at stake in litigating against the right party.
7. Plaintiff's cases are not on point. In In Byczek v. Boelter Cos., 230 F. Supp. 2d
843 (N.D. Ill. 2002), the defendant was arguing the assignment was invalid based on a conflict of
interest between the assignee and the assignor's creditors. The Court ruled that only the creditors
could make that argument. Similarly, in Plaintiff's older case of Blackford v. Westchester F. Ins.
Co., 101 F. 90 (8th Cir. Indian Terr. 1900), a debtor was arguing an assignment was invalid
because it was voidable by creditors. As argued above, in this matter Defendants raise the
standing argument in support of their own interests, not someone else's. Plaintiff's quotation
from Corpus Juris Secondum is also premised upon what interest the debtor may have in
questioning the assignment. In this case, the alleged debtors are arguing on behalf of their own
interest.
8. Plaintiff mentions that it relies upon decisions from Michigan and Illinois. The
Trust is governed by New York law and Plaintiff never mentions New York law. However, a
5
Eastern Division
COMPANY as Trustee
Plaintiff
V . No. 1:11-cv-01950
KRISTEN & HOWARD
BODZIANOWSKI Honorable Rebecca Pallmeyer
Defendant Magistrate Judge Cox
NOTICE OF FILING
TO: Counsel on the attached Certificate of Service
PLEASE TAKE NOTICE that on this 4th day of October, 2011, the undersigned
counsel filed with the Clerk of the United States District Court for the Northern District of
Illinois, Eastern Division, Defendants Kristen Bodszianowski and Howard Bodzianowski Motion
to Dismiss, a copy of which is hereby served upon you.
Dated: October 4, 2011 Respectfully submitted,
Theodore A. Woerthwein
Woerthwein & Miller
Suite 2200
(312) 654-0001
7
I, Theodore A. Woerthwein, an attorney, certify that on October 4, 2011, I caused a copy
of the foregoing Defendants Kristen Bodszianowski and Howard Bodzianowski Motion to
Dismiss to be served upon the persons listed below by the specified method.
By electronic transmission using the Court's electronic case filing system:
James Nick Pappas pappas@bcclegal.com
/s/Theodore A. Woerthwein
Case: 1:1 1-cv-01950 Document #: 20-1 Filed: 10/04/11 Page 1 of 7 PagelD #:97
M
STATE OF MICHIGAN
WASHTENAW COUNTY TRIAL COURT
JAMES HENDRICKS, et al., Case No. 10-849-CH
Plaintiffs, Hon. Archie C. Brown
V.
US BANK NATIONAL ASSOCIATION
AS SUCCESSOR TRUSTEE TO BANK
OF AMERICA, et al.,
Defendants.
James Fraser (P57297)
Attorney for Plaintiffs
W. Jeffrey Barnes
Co-Counsel for Plaintiffs, Pro Hac Vice
William G. Asimakis, Jr. (P46155)
Matthew R. Rechtien (P71271)
Attorneys for Defendants
OPINION AND ORDER DENYING IN PART AND GRANTING IN PART
DEFENDANT'S MOTION FOR SUMMARY DISPOSITION AND
GRANTING PLAINTIFF'S MOTION FOR SUMMARY DISPOSITION
Held in Ann Arbor, Michigan on
June 6, 2011
After review of the pleadings and argument in Court by counsel for the parties, and
review of supplemental pleadings filed by the Plaintiff, the Court grants the Plaintiffs' Motion
and denies the Defendants' Motion for the reasons set forth below.
Plaintiffs executed an Adjustable Rate Note and Mortgage on October 30, 2006 in favor
of Defendant First Franklin, as Lender, and to Mortgage Electronic Recording Systems, Inc.
("MERS"),as Mortgagee, as to their real property commonly known as 5888 Par View Drive,
Ypsilanti Township, Michigan.
On or about December 15, 2009, Plaintiffs received a letter from counsel representing
Home Loan Services, Inc ("HLS"), claiming to be the servicer of the loan, and that the mortgage
loan was in default as of September 1, 2009.
Case: 1:11-cv-01950 Document #: 20-1 Filed: 10/04/11 Page 2 of 7 PagelD #:98
On or about December 22, 2009, in response to a letter sent by Plaintiffs, First Franklin
sent a letter to Plaintiffs saying that Plaintiffs inquiry had been received and they would receive
an answer shortly.
On or about December 30, 2009 Plaintiffs received a letter from counsel representing
First Franklin Loan Services of Pittsburgh, Pennsylvania, claiming to be the servicer of the loan,
information inconsistent with the earlier December 15, 2009 letter from HLS.
First Franklin Loan Services claimed that it assigned, through an assignment document,
the mortgage loan to Defendant, U.S. Bank, N.A ("USB"). The assignment document stated that
MERS assigned the Mortgage and Promissory Note to USB on October 30, 2006, however, it
was recorded with the Register of Deeds on December 30, 2009.
Subsequently on January 21, 2010, counsel for HLS wrote another letter to Plaintiffs
again claiming to be the servicer of the loan.
USB proceeded to foreclose on the Plaintiffs' property, and USB purchased the property
at the Sheriff's sale on February 1, 2010.
The Court in Residential Funding Co., LLC. V Gerald Saurman, NW. 2d, 2011 PE,
1516819, Mich.App., April 21, 2011 (NO. 290248, 291443)("RFC") was decided by a 2-1
majority and is binding precedent on this Court at this point in time.
MERS
The RFC Court explained that MERS was developed as a mechanism to provide for the
faster and lower cost buying and selling of mortgage debt. By operating through MERS, these
financial entities could buy and sell loans without having to record a mortgage transfer for each
transaction because the named mortgagee would never change; it would always be MERS even
though the loans were changing hands. MERS would purportedly track the mortgage sales
internally so as to know for which entity it was holding the mortgage at any given time and, if
foreclosure was necessary, after foreclosing on the property, would quit claim the property to
whatever lender owned the loan at the time of foreclosure.
As described by the Court of Appeals of New York, in MERSCORP, Inc v. Romaine. 8
NY3d 90, 96; 861 N.E.2d 81(2006):
In 1993, the MERS system was created by several large participants in the real estate
mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and
other entities, known as MERS members, subscribe to the MERS system and pay annual fees for
the electronic processing and tracking of ownership and transfers of mortgages. Members
contractually agree to appoint MERS to act as their common agent on all mortgages they register
in the MERS system.
The initial MERS mortgage is recorded in the County Clerk's office with "Mortgage
Electronic Registration Systems, Inc." named as the lender's nominee or mortgagee of record on
2
the instrument. During the lifetime of the mortgage, the beneficial ownership interest or
servicing rights may be transferred among MERS members (MERS assignments), but these
assignments are not publicly recorded; instead they are tracked electronically in MERS's private
system. In the MERS system, the mortgagor is notified of transfers of servicing rights pursuant
to the Truth in Lending Act, but not necessarily of assignments of the beneficial interest in the
mortgage. [Footnotes omitted.]
The sole issue in RFC was whether MERS, as mortgagee, but not noteholder, could
exercise its contractual right to foreclose by means of advertisement.
Foreclosure by advertisement is governed by MCL 600.3204(1)(d), which provides, in
pertinent part:
[A] party may foreclose a mortgage by advertisement if all of the following circumstances exist:
***
(d) The party foreclosing the mortgage is either the owner of the indebtedness or of an interest in
the indebtedness secured by the mortgage or the servicing agent of the mortgage.
The parties in RFC agreed that MERS was neither the owner of the indebtedness, nor the
servicing agent of the mortgage. Therefore, MERS lacked the authority to foreclose by
advertisement on defendants' properties unless it was "the owner ... of an interest in the
indebtedness secured by the mortgage."
The question, then, was what being the "owner ... of an interest in the indebtedness
secured by the mortgage" requires.
In RFC the defendants' indebtedness was solely based upon the notes because defendants
owed monies pursuant to the terms of the notes. Consequently, in order for a party to own an
interest in the indebtedness, it must have a legal share, title, or right in the note.
The court in RFC determined that Plaintiffs' suggestion that an "interest in the mortgage"
is sufficient under MCL 600.3204(d)(l) is without merit. This is necessarily so, as the
indebtedness, i.e., the note, and the mortgage are two different legal transactions providing two
different sets of rights, even though they are typically employed together. A "mortgage" is "[a]
conveyance of title to property that is given as security for the payment of a debt or the
performance of a duty and that will become void upon payment or performance according to the
stipulated terms." The mortgagee has an interest in the property. The mortgagor covenants,
pursuant to the mortgage, that if the money borrowed under the note is not repaid, the mortgagee
will retain an interest in the property. Thus, unlike a note, which evidences a debt and represents
the obligation to repay, a mortgage represents an interest in real property contingent on the
failure of the borrower to repay the lender. The indebtedness, i.e., the note, and the mortgage are
two different things.
As the Court determined in RFC, this Court finds that MERS did not have the authority
to foreclose by advertisement on Plaintiffs' property. Pursuant to the mortgages, Plaintiffs were
the mortgagors and MERS was the mortgagee. However, it was the Defendant lenders that lent
Plaintiffs money pursuant to the terms of the notes. MERS, as mortgagee, only held an interest in
the property as security for the note, not an interest in the note itself. MERS could not attempt to
enforce the notes nor could it obtain any payment on the loans on its own behalf or on behalf of
the lender. Moreover, the mortgage specifically clarified that, although MERS was the
mortgagee, MERS held "only legal title to the interest granted" by defendants in the mortgage.
Consequently, the interest in the mortgage represented, at most, an interest in Plaintiffs'
property. MERS was not referred to in any way in the notes. The record evidence establishes that
MERS owned neither the notes, nor an interest, legal share, or right in the notes. The only
interest MERS possessed was in the property through the mortgage. Given that the notes and
mortgages are separate documents, evidencing separate obligations and interests, MERS' interest
in the mortgage did not give it an interest in the debt.
The Court in RFC further held that MERS analysis ignores the fact that the statute does
not merely require an "interest" in the debt, but rather that the foreclosing party own that interest.
As noted above, to own means "to have good legal title; to hold as property; to have a legal or
rightful title to." This Court adopts the RFC analysis that none of these terms describes MERS'
relationship to the note. Defendants' claim that MERS was a contractual owner of an interest in
the notes based on the agreement between MERS and the lenders misstates the interests created
by that agreement. Although MERS stood to benefit if the debt was not paidit stood to become
the owner of the propertyit received no benefit if the debt was paid. MERS had no right to
possess the debt, or the money paid on it. Likewise, it had no right to use or convey the note. Its
only "right to possess" was to possess the property if and when foreclosure occurred. Had the
lender decided to forgive the debt in the note, MERS would have had no recourse; it could not
have sued the lender for some financial loss. Accordingly, it owned no financial interest in the
notes. Indeed, it is uncontested that MERS is wholly without legal or rightful title to the debt and
that there are no circumstances under which it is entitled to receive any payments on the notes.
Finally, Defendants' cannot grant MERS the authority to take action where the statute prohibits
it. Regardless of whether Defendants would like MERS to be able to take such action, it can only
grant MERS the authority to take actions that our Legislature has statutorily permitted. Where
the Legislature has limited the availability to take action to a specified group of individuals,
parties cannot grant an entity that falls outside that group the authority to take such actions. Here,
the Legislature specifically requires ownership of an interest in the note before permitting
foreclosure by advertisement.
The contention that the contract between MERS and First Franklin provided MERS with
an ownership interest in the note, as the court in RFC held, stretches the concept of legal
ownership past the breaking point. The Legislature used the word "owner" because it meant to
invoke a legal or equitable right of ownership. Viewed in that context, although MERS owns the
mortgage, it owns neither the debt nor an interest in any portion of the debt, and is not a
secondary beneficiary of the payment of the debt.
Plaintiffs in RFC also argued that MERS had the authority to foreclose by advertisement as the
agent or nominee for the Lender, who held the note and an equitable interest in the mortgage.
The court in RFC disagreed, holding that it failed under the statute because the statute explicitly
requires that, in order to foreclose by advertisement, the foreclosing party must possess an
interest in the indebtedness. MCL 600.3204(1)(d). Thus, the Legislature's choice to permit only
servicing agents and not all agents to foreclose by advertisement must be given effect.
4
Case: 1:11-cv-01950 Document #: 20-1 Filed: 10/04/11 Page 5 of 7 PagelD#:101
This case, as in RFC, involves a situation where the noteholder and mortgage holder are
separate entities, the general proposition set forth in Davenport v HSBC Bank USA, 275 Mich
App 344 (2007) does not apply. There is nothing in Davenport holding that a party that owns
only the mortgage and not the note has an ownership interest in the debt.
The court in RFC opined that the separation of the note from the mortgage in order to
speed the sale of mortgage debt without having to deal with all the "paper work" of mortgage
transfers appears to be the sole reason for MERS' existence. The flip side of separating the note
from the mortgage is that it can slow the mechanism of foreclosure by requiring judicial action
rather than allowing foreclosure by advertisement. To the degree there were expediencies and
potential economic benefits in separating the mortgagee from the noteholder so as to speed the
sale of mortgage-based debt, those lenders that participated were entitled to reap those benefits.
However, it is no less true that, to the degree that this separation created risks and potential costs,
those same lenders must be responsible for absorbing the costs.
US BANK
Defendants argue that RFC is not on point because First Franklin pooled and transferred
its interest in the Ioan, the Mortgage and Note, into a securitized trust over which USB became
the trustee. First Franklin endorsed the Note to the order of First Franklin Financial Corporation,
which thereafter endorsed the Note in blank, transferring it to USB and/or USB's agents. Exhibit
A to Plaintiffs Brief.
Defendants further argue that MERS, as First Franklin's nominee, drafted a recordable
Assignment of Mortgage assigning the Mortgage together with the Note and all other obligations
secured by said Mortgage to USB, as trustee, dated December 17, 2009.
Defendants conclude by stating that on December 30, 2009, the Assignment was recorded
in the Washtenaw County Register of Deeds, and therefore, as a result of all of these actions,
USB was the record owner of both the Mortgage and the Note in advance of any foreclosure.
Plaintiffs, in response, request that this Court declare that USB, successor trustee to the
First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Securities, Series 2006-FF1 8
has no interest in the mortgage loan that is the subject matter of this action and cannot foreclose,
judicially or otherwise, that loan.
Plaintiffs' contend that USB never actually received ownership of the Plaintiffs'
mortgage loan because the loan was not ever properly transferred to USB according to the terns
of the First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Certificates, Series
The Court finds that the "Assignment", recorded on December 30, 2009 in the
Washtenaw County Register of Deeds, serves to transfer nothing. The alleged conveyance failed
to comply with the terms and conditions of the PSA and New York Trust law which governs the
PSA. The alleged conveyance stated that MERS assigned the Mortgage and Promissory Note to
USB, however, there has been no evidence presented to support the chain of the required
assignments and endorsements of the mortgage and note as required by the terms and conditions
of the PSA.
Other than First Franklin, a division of National City Bank, none of the Defendants
owned the indebtedness, owned an interest in the indebtedness secured by the mortgage, or
serviced the mortgage.
Therefore, the purported transfers, endorsements or assignments are void ab initio or
never properly transferred into the Trust. The only Defendant with standing to proceed is First
Franklin, the originator and original Lender of the Note and Mortgage.
The Court grants summary disposition to Plaintiffs on their request for declaratory and
injunctive relief contained in their Complaint finding that Defendants do not have a valid defense
to Plaintiffs' claims pursuant to MCR 2.116(C)(9) and there are no genuine issues of material
fact pursuant to MCR .2.116(C)(10). The Court declares that the foreclosure sale that occurred
on February 11, 2010 concerning Plaintiffs' real property is void ab initio pursuant to MCR
2.116 (C)(8), as Defendant, U.S. Bank, N.A. was not entitled to foreclose on Plaintiffs' property
under Michigan's Foreclosure by Advertisement statute, MCL 600.3201, et seq.
The Court grants in part and denies in part summary disposition to Defendants. The court
denies Defendants Motion to dismiss Plaintiffs Complaint, finding the Complaint states a claim,
and is not barred by the Statute of Frauds. The Court grants Defendants' Motion for ajudgment
of foreclosure, in favor of First Franklin, on their judicial foreclosure-counterclaim finding that
there are no genuine issues of material fact and that Defendant, First Franklin, is entitled to
judgment as a matter of law. Defendants request for costs and attorney fees are limited solely to
those costs and attorney fees associated with the judicial foreclosure counterclaim. Any request
for costs and attorney fees association with the foreclosure by advertisement is denied.
IT IS SO ORDERED.
Honorable Archie C. Brown,
Trial Court Judge
7
2006-FF18's Pooling and Service Agreement ("PSA"), and the assignments that occurred in this
case did not follow the law of trusts in the State of New York to validly transfer the trust to USB.
The Court was provided a copy of the PSA at an earlier hearing for its review. The Court
finds, upon reviewing the PSA, that the trust was created on December 1, 2006 and had a closing
date of December 28, 2006. PSA pages 36-37. The closing date establishes when the trust assets
musts be transferred to the trust.
Merrill Lynch Mortgage Investors, Inc., is the depositor. PSA p. 38. Pursuant to Section
2.01(A), the depositor has to deliver the mortgage loan to the trustee, in this case USB. Plaintiff
contends that there should be an endorsement from First Franklin Financial Corp to Merrill
Lynch, and an endorsement from Merrily Lynch to the trustee (originally LaSalle Bank National
Association) or, at least an endorsement in blank by Merrill Lynch. The Court finds that there is
only an endorsement from First Franklin, a division of National City Bank, to First Franklin
Financial Corp, then an endorsement by First Franklin Financial Corp in blank. Plaintiffs'
Exhibit B. PSA Sec. 201(A) requires that the Mortgage Note shall include all intervening
endorsements showing a complete chain of title. Plaintiffs' Exhibit A. Since the Note never
passed to Merrill Lynch the trust could not have validly received it.
PSA Sec. 201(E) requires the depositor to deliver originals of any intervening
assignments of the Mortgage, with evidence of recording thereon. Plaintiffs' Exhibit A. The
record before the Court is that the only assignment of the mortgage that was recorded was the
assignment from MERS to USB, as trustee. Plaintiffs' Exhibit C. However, it is clear from the
record that the mortgage note was actually transferred from the originator of the loan, First
Franklin, a division of National City Bank, to First Franklin Financial Corp.
. The Court finds that the transfer of the mortgage note from First Franklin to First
Franklin Financial Corp also transferred the underlying mortgage. However, this transfer was
never reduced to a mortgage assignment that was recorded with the Washtenaw County Register
of Deeds, presumably because MERS purportedly held legal title to the mortgage itself but had
nothing to do with this particular transfer. The Court further finds that PSA Sec. 201(E) was not
complied with because the transfer from First Franklin to First Franklin Financial Corp. was
never recorded.
Defendants' failure to strictly comply with the terms of the PSA means that the loan at
issue was never properly transferred to the trust. Any transfer of mortgage loans, such as
Plaintiffs, was mandated to comply with New York Trust law and the terms and conditions of the
PSA governing conveyance of mortgage loans into the Trust. PSA pp 155 and 36. This the
Defendants did not do.
6
Eastern Division
COMPANY as Trustee
Plaintiff
v.
KRISTEN & HOWARD
BODZIANOWSKI
Defendant
No. 01 Cv 1950
Honorable Rebecca Pallmeyer
Magistrate Judge Cox
DEFENDANT'S MOTION TO DISMISS FOR LACK OF STANDING
Defendants Kristen Bodszianowski and Howard Bodzianowski by and through their
attorneys Woerthwein & Miller move to dismiss the foreclosure complaint brought by Deutsche
Bank National Trust Company as Trustee pursuant to Rule 12(b)(1) of the Federal Rules of Civil
Procedure for lack of standing as follows:
1.
Defendants bring this Motion to Dismiss attacking standing. Plaintiff was not the
assignee and owner of the Note and the Mortgage under 735 ILCS 5/15-1208 when it filed suit.
It has long been the law in Illinois that a plaintiff in a mortgage foreclosure action must have a
beneficial interest in the mortgage. Winkelman v. Kiser, 27 Ill. 20, 21, 27 Ill. 21 (1861). a
complaint must be dismissed if the plaintiff cannot prove that it owned the note and mortgage on
the date the complaint was filed.
Deutsche Bank Nat'l Trust Co. v. Steele, 2008 U. S. Dist.
LEXIS 4937 (S. D. Ohio Jan. 8, 2008). Standing is the threshold question in every federal case.
Warth v. Seldin,
422 U. S. 490, 498, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975). Standing "is to be
assessed under the facts existing when the complaint is filed. "
Lujan v. Defenders of Wildlife,
1
Eastern Division
COMPANY as Trustee
Plaintiff
v No. 01 Cv 1950
KRISTEN & HOWARD
BODZIANOWSKI
Honorable Rebecca Pallmeyer
Defendant
Magistrate Judge Cox
NOTICE OF FILING
TO:
Counsel on the attached Certificate of Service
PLEASE TAKE NOTICE that on this 12th day of August, 2011, the undersigned
counsel filed with the Clerk of the United States District Court for the Northern District of
Illinois, Eastern Division, Defendants Kristen Bodszianowski and Howard Bodzianowski Motion
to Dismiss, a copy of which is hereby served upon you.
Dated: August 12, 2011
Woerthwein & Miller
Suite 2200
(312) 654-0001
8
504 U. S. 555, 570 n. 4, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992). A party seeking to bring a
case into federal court bears the burden of demonstrating standing and must plead its components
with specificity. Valley Forge Christian College v. Americans United for Separation of Church
and State, Inc. , 454 U. S. 464, 472; 102 S. Ct. 752, 70 L. Ed. 2d 700 (1982). Plaintiff has the
burden of establishing its standing. See DaimlerChrysler Corp. v. Cuno, 547 U. S. 332, 342, 126
S. Ct. 1854, 164 L. Ed. 2d 589 (2006).
2.
Defendants' Motion is based upon the documents attached to Plaintiffs
Complaint, which form part of the Complaint, and public records. This is not a 12(b)(6) motion
and thus not converted into a motion for summary judgement.
English v. Cowell, 10 F. 3d 434,
437 (7th Cir. Ill. 1993). Moreover, documents outside the Complaint are all admissible as public
records filed with the Securities and Exchange Commission ("SEC").
Henson v. CSC Credit
Services,
29 F. 3d 280, 284 (7th Cir. 1994). See also F. R. E. 201 ("A court shall take judicial
notice if requested by a party and supplied with the necessary information. ") A district court may
consider relevant documents required by the securities laws to be filed with the Securities and
Exchange Commission ("SEC") in determining a motion to dismiss . . . "
Kramer v. Time
Warner, Inc. ,
937 F. 2d 767, 769 (2d Cir. N. Y. 1991).
3.
Plaintiff is not the original lender. Plaintiff seeks to establish standing by
attaching to the Complaint a copy of a mortgage note bearing an undated, not notarized,
endorsement to Plaintiff from the original lender and an assignment of mortgage from MERS to
Plaintiff date January 20, 2011. These assignments and endorsements are insufficient to transfer
a mortgage to a New York REMIC ("Real Estate Mortgage Investment Conduit") Trust like
Plaintiff under the terms of the Trust.
2
4. In this matter Deutsche Bank is suing as Trustee for a specific Trust. Pursuant
735 ILCS 5/15-1504A of the foreclosure statute, the Plaintiff Trust pleads in paragraph 10(n) that
the capacity under which it is suing is as the legal holder of the indebtedness and owner of the
mortgage. A trust is an artificial entity and can only do those acts which it is permitted to do
under the documents creating the trust and the law of the state that governs the trust. For
instance, see 760 ILCS 5/3 regarding Illinois trusts, stating that the instrument governs.
Moreover, since the objective was to create a trust to serve as a conduit for securitized mortgages
passing income through to investors, the documents creating the trust were filed with the SEC as
a Form 8-K pursuant to the Securities and Exchange Act of 1934. The document is available on
Edgar'. These documents filed with the SEC should be telling the truth. However, as
demonstrated in detail in the following paragraphs, under the terms of the instrument creating the
Trust, the Plaintiff is not the legal holder of the Mortgage or the Note.
5.
Section 2. 01 of the Pooling and Servicing Agreement (PSA) creates the Plaintiff
Trust as a New York common law trust. The relevant portions of the PSA are attached hereto as
Exhibit A. New York trust law and the PSA govern the acquisition of mortgage loans by the
Trust. This basic fact issue is one that the trustee has agreed should be decided by New York
trust law. The trust's beneficiaries have every expectation when they purchase the trust's
certificates that the trustee will promote a uniform interpretation of the trust's terms no matter
where the forum. The Trust is created to exchange the Trust Fund for certificates The assets
' EDGAR, the Electronic Data-
Gathering, Analysis, and Retrieval system,
performs automated collection, validation, indexing, acceptance, and forwarding of submissions
by companies and others who are required by law to file forms with the U. S. Securities and
Exchange Commission (the "SEC"). The database is freely available to the public via the Internet
described as being conveyed under Section 2. 01 of the PSA are the Mortgage Loans and this
Plaintiff pleads that it is the legal holder of the Mortgage and the Note.
6. As detailed below, the Trust does not own the Note and Mortgage because the
transfer alleged in the Complaint could not have taken place according to the terms creating the
Trust (the PSA) and New York trust law.
7.
The Trust seeking to foreclose upon Defendants has included in the PSA, which is
its trust agreement, the specific time, manner, and method of funding the Trust with the
Mortgage Loans. In this case, the trust documents establish only one was to transfer assets to the
Trust, which is set forth in Section 2. 01 of the PSA. A trust can only act in accordance with tis
governing documents.
8.
Section 2. 01 of the PSA provides the Depositor Novastar Mortgage Funding
Corporation "does hereby transfer, assign, set over, and otherwise convey in trust to the
Trustee. . . all right, title and interest of the Depositor" in and to each identified Mortgage Loan.
Novastar Mortgage Funding Corporation must the endorse the notes over to the Trust or in black.
However, the Note is not endorsed over to Novastar Mortgage Funding Corporation. There is no
endorsement from Novastar Mortgage Funding Corporation to the Trust or blank. Instead there
is an undated, not notarized endorsement directly from the original lender to the Trust stamped
onto the last page (5) of the Note. There are no intervening endorsements to the Depositor.
There are no provisions for direct deposit from the original lender to the trust. Accordingly, the
endorsement presented by the Plaintiff does not comply with the terms required by the PSA to
transfer the Note to the Trust. Therefore, there is no effective transfer of the Note to the Trust,
and the Trust acquires no rights in the Note.
Sussman v. Sussman, 61 A. D. 2d 838 (N. Y. App.
4
Div. 2d Dep't 1978). Rather, the type of haste indicated here is that an endorsement was created
in order to facilitate a foreclosure action rather than a proper endorsement to the Trust in
accordance with the Trust's terms.
9.
There is no document transferring the Note to the Trust in accordance with its
terms. Under New York law, the trustee under a corporate indenture . . . has his [or her] rights
and duties defined, not by the fiduciary relationship, but exclusively by the terms of the
agreement. AG Capital Funding Partners, L. P. v. State St. Bank & Trust Co. , 2008 N. Y. Slip
Op. 5766, 7 (N. Y. 2008). This would also be the law in Illinois under 760 ILCS 5/3. A trustee
has only the authority granted by the instrument under which he holds.
Allison & Ver Valen Co.
v. McNee,
170 Misc. 144, 146 (N. Y. Sup. Ct. 1939). New York Estates Powers and Trusts Law
Section 7-2. 1(c) authorizes a trustee to acquire property "in the name of the trust as such name is
designated in the instrument creating said trust property. " For the transfer of property to the trust
to be effective, the transfer must be done under the terms of the instrument creating the trust and
the transfer must designate the particular trust and the beneficiary. Without that, the assignment
of the Mortgage Note is without merit.
Wells Fargo Bank, N. A. v. Farmer, 2008 NY Slip Op
51133U, 6 (N. Y. Sup. Ct. 2008).
10.
Under New York law, there are four essential elements for a trust of personal
property: (1) A designated beneficiary; (2) a designated trustee, who must not be the beneficiary;
(3) a fund or other property sufficiently designated or identified to enable title thereto to pass to
the trustee; and (4) the actual delivery of the fund or other property, or of a legal assignment
thereof to the trustee, with the intention of passing legal title thereto to him as trustee.
Brown v.
Spohr,
180 N. Y. 201, 209-210 (N. Y. 1904). There is no trust until there is a valid delivery of the
5
asset in question to the Trust. If the Trust fails to acquire the property, then there is no trust over
that property which may be enforced. Kermani v. Liberty Mut. Ins. Co. , 4 A. D. 2d 603
(N. App. Div. 3d Dep't 1957).
11.
In this transaction as described by the Complaint, the Note was not transferred
according to the terms of the Trust. New York's Estates Powers and Trust Law Section 7-2. 4
states:
7-2. 4 Act of trustee in contravention of trust. If the trust is expressed in the
instrument creating the estate of the trustee, every sale, conveyance or other act of the
trustee in contravention of the trust, except as authorized by this article and by any
other provision of law, is void.
Thus The Trust never possessed the Mortgage Note per the terms of the PSA.
12.
Additionally, the assignment of the mortgage attached to the Complaint appears to
be an exercise in Robo-signing. The assignment from MERS to the Trust is dated January 20,
2011. An Assignment at that late date is not in compliance with the Trust's governing
documents. The cut-off date for the Trust is September 1, 2006, and the closing date is
September 28, 2006. Therefore, the Mortgage is not assigned to the Trustee until five years after
the closing date of the Trust. This assignment is likely a document created out of air to facilitate
a foreclosure, and there are no provisions in the PSA for the mortgage to be assigned in this
manner.
13.
According to the PSA, all mortgages were transferred to the Trust in 2006 and the
mortgages were transferred to the Trust by the Depositer. If the subject mortgage was to be
assigned to the Trust consistent with the PSA and the Trust's REMIC tax status, then all
assignments were done in 2006. An assignment in 2011 would not be consistent with the
requirements of the PSA or the Trust's tax status no matter who did the assignment.
6
14. An assignment to the Trust that is inconsistent with the dates for funding the Trust
as set forth in the PSA would have adverse tax consequences for the Trust. This is a pass-thru
REMIC trust. The Internal Revenue Codes provides in 26 U. S. C. 860G(d)(1) that except as
provided in section 860G(d)(2), "if any amount is contributed to a REMIC after the startup day,
there is hereby imposed a tax for the taxable year of the REMIC in which the contribution is
received equal to 100 percent of the amount of such contribution. " Pursuant to Section 10. 02 of
the PSA the Trust and the Servicer are prohibited from any act that would adversely effect the
Trust's REMIC status.
15.
With respect to the Note, the undated, not notarized endorsement from the
original lender does not inform the Court that even this transfer took place within the time
periods mandated by the PSA. See
In re Foreclosure Cases ,
2007 U. S. Dist. LEXIS 95673 (S. D.
Ohio Dec. 27, 2007).
WHEREFORE, the Court should dismiss this action with prejudice on the ground that the
plaintiff, Deutsche Bank National Trust Company as Trustee as aforesaid, lacks standing to sue.
Theodore Woerthwein
225 W Washington
22nd Floor
Chicago, IL 60606
(312) 654-0001
7
I, Theodore A. Woerthwein, an attorney, certify that on August 12, 2011, I caused a copy
of the foregoing Defendants Kristen Bodszianowski and Howard Bodzianowski Motion to
Dismiss to be served upon the persons listed below by the specified method.
By electronic transmission using the Court's electronic case filing system:
James Nick Pappas pappas@bcclegal. com
/s/Theodore A. Woerthwein
Exhibit A
Exhibit 4.1
NOVASTAR MORTGAGE FUNDING CORPORATION,
as Depositor
NOVASTAR MORTGAGE, INC. ,
U. S. BANK NATIONAL ASSOCIATION
as Custodian
and
as Trustee
POOLING AND SERVICING AGREEMENT
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
1
Section 1.01 Defined Terms.
1
Section 1.02 Accounting.
Section 1.03 Allocation of Certain Interest Shortfalls.
2
2
ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF
CERTIFICATES
2
Section 2.01
Establishment of the Issuing Entity; Conveyance of Mortgage Loans and Other Trust
Assets.
2
Section 2. 02 Acceptance of Mortgage Loans by Custodian, on behalf of the Trustee.
5
Section 2.03 Repurchase or Substitution of Mortgage Loans by the Sponsor.
7
Section 2.04 Acknowledgement of Trustee.
9
Section 2.05 Representations, Warranties and Covenants of the Servicer.
9
Section 2.06 Representations and Warranties of the Depositor.
11
Section 2.07 Issuance of Certificates.
1 I
12
Section 2.09 Designation Under REMIC Provisions.
12
ARTICLE III ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
12
Section 3.01 Servicer to Assure Servicing.
12
Section 3.02 Subservicing Agreements Between Servicer and Subservicers.
13
Section 3.03 Successor Subservicers.
14
Section 3.04 Liability of the Servicer.
15
M-10 Certificates (after taking into account the payment of the Class M- 10 Principal Distribution Amount
on such Distribution Date, (x) the Certificate Principal Balance of the Class M-11 Certificates (after taking
into account the payment of the Class M-1 I Principal Distribution Amount on such Distribution Date and
(xi) the Certificate Principal Balance of the Class M-12 Certificates immediately prior to such Distribution
Date over (y) the lesser of (A) the product of (i) 98. 90% and (ii) the aggregate Principal Balance of the
Appendix A- 16
"Class N Certificate": Any Class M-1ON Certificate, Class M-11N Certificate or Class M-12N
Certificate.
"Class R Certificate": Any one of the Class R Certificates executed, authenticated and delivered
pursuant to Section 5. 01, substantially in the form annexed hereto as Exhibit A-22, representing the right to
distributions as set forth herein, and evidencing the R-I Interest, the R-II Interest, the R-III Interest, the R-
IV Interest, the R-V Interest and the R-VI Interest, each the sole "residual interest" in REMIC I, REMIC II,
REMIC III, REMIC IV, REMIC V and the Master REMIC, respectively.
"Close of Business": As used herein, with respect to any Business Day, 5:00 p. m. (New York time).
"Closing Date": September 28, 2006.
"Code": The Internal Revenue Code of 1986 as it may be amended from time to time.
"Collection Account": The account or accounts created and maintained by the Servicer pursuant to
Section 3. 06(d) hereof, which must be an Eligible Account.
"Commission": The Securities and Exchange Commission.
"Compensating Interest ": With respect to any Determination Date, an amount equal to the lesser of
(i) the aggregate amount of Prepayment Interest Shortfalls for the related Prepayment Period and (ii) the
Servicing Fee for the related Distribution Date.
"Corporate Trust Office": With respect to the Trustee, the Paying Agent and the Certificate Registrar,
the corporate trust office at which at any particular time its corporation trust business shall be administered,
which office at the date of execution of this Agreement is located at (i) solely for purposes of the transfer,
exchange or surrender of Certificates, c/o DB Services Tennessee, 648 Grassmere Park Road, Nashville,
TN 37211-3658, Attention: Transfer Unit and (ii) for all other purposes, Deutsche Bank National Trust
Company, 1761 East St. Andrew Place, Santa Ana, CA 92705, Attention: Trust Administration NS0605.
"Corresponding Class of Master REMIC Certificates": As defined in Exhibit J hereof.
"Corresponding Class of REMIC II Regular Interest": As defined in Exhibit J hereof.
"Corresponding Class of REMIC V Regular Interests": As defined in Exhibit J hereof.
"Corresponding Interest Rate": As set forth in the Cap Interest Rate Schedule.
"Corresponding Interest Rate Strip": As set forth in the Class CB Certificate Schedule.
"Corresponding Maturity Date": As set forth in the Cap Interest Rate Schedule.
"Credit Enhancement Percentage": For any Distribution Date, is equal to (i) the sum of the aggregate
Certificate Principal Balance of the Mezzanine Certificates and the
Appendix A-17
Overcollateralization Amount, divided by (ii) the Pool Balance, in each case calculated prior to taking into
account the distribution of the Principal Distribution Amount to the Holders of the Certificates then entitled
to distributions of principal on such Distribution Date and prior to taking into account distributions of
principal on the Mortgage Loans on such Distribution Date.
"Crossover Date": The earlier to occur of (i) the Distribution Date after which the aggregate
Certificate Principal Balance of the Class A Certificates is reduced to zero; and (ii) the later to occur of
(x) the Distribution Date occurring in October 2009 and (y) the first Distribution Date on which the Credit
Enhancement Percentage (calculated for this purpose only after taking into account distributions of
principal on the Mortgage Loans but prior to the principal distributions to the Certificates) is greater than or
equal to 37. 80%.
"Cumulative Loss Percentage": As to any Distribution Date, the percentage equivalent of the fraction
obtained by dividing (i) the aggregate amount of Realized Losses on the Mortgage Loans from the Cut-off
Date through such Distribution Date by (ii) the sum of the aggregate Principal Balance of the Initial
Mortgage Loans as of the Cut-off Date plus the Original Pre-Funded Amount.
"Current Interest": For any Distribution Date and each Class of Class A Certificates and Mezzanine
Certificates the amount of interest accrued during the related Accrual Period at the related Pass-Through
Rate on the Certificate Principal Balance of such Class immediately prior to such Distribution Date, in each
case, reduced by any Net Prepayment Interest Shortfalls and any Relief Act Shortfalls allocated to that
Class (allocated to each Certificate based on its respective entitlements to interest irrespective of any Net
Prepayment Interest Shortfalls or Relief Act Shortfalls for that Distribution Date).
"Custodian": U. S. Bank National Association, a national banking association, and any successor
thereto.
"Custodian Fee": With respect to each Distribution Date, the product of (i) $0. 20 and (ii) the number
of Mortgage Loans.
"Custodian Fee Rate": The percentage equivalent of a fraction, the numerator of which is (i) the
product of (a) the Custodian Fee and (b) 12 and the denominator of which is (ii) the aggregate Principal
Balance of the Mortgage Loans as of the beginning of the Due Period.
"Cut-off Date": With respect to each Initial Mortgage Loan the later of (i) September 1, 2006 and
(ii) the date of origination of such Initial Mortgage Loan. With respect to each Subsequent Mortgage Loan,
the later of (i) the first day of the month in which such Subsequent Mortgage Loan is acquired by the
Issuing Entity and (ii) the date of origination of such Subsequent Mortgage Loan.
"Cut-off Date Aggregate Principal Balance": With respect to the Mortgage Pool, the aggregate of the
Cut-off Date Principal Balances of the Initial Mortgage Loans of $740,283,081 consisting of $451,136,136
related to Group I and $289,146,944 related to Group II.
"Cut-off Date Principal Balance": With respect to any Mortgage Loan, the unpaid Principal Balance
thereof as of the Cut-off Date or Subsequent Cut-Off Date, as the case may be (or as of the applicable date
of substitution with respect to an Eligible Substitute Mortgage Loan).
Appendix A-18
"Debt Service Reduction": With respect to any Mortgage Loan, a reduction in the scheduled Monthly
Payment for such Mortgage Loan by a court of competent jurisdiction in a proceeding under the
Bankruptcy Code, except such a reduction resulting from a Deficient Valuation.
"Defaulted Hedge Termination Payment": Any Hedge Termination Payment required to be made by
the Supplemental Interest Trust to a Hedge Counterparty pursuant to a Hedge Agreement as a result of an
All Net Prepayment Interest Shortfalls and Relief Act Shortfalls shall be allocated on each
Distribution Date among the Classes of each of REMIC I, REMIC II, REMIC III, REMIC IV and REMIC
V in the proportion that Net Prepayment Interest Shortfalls and Relief Act Shortfalls are allocated to the
related Master REMIC Regular Interests.
Unless otherwise specified, all calculations in respect of interest on the Class A Certificates and
the Mezzanine Certificates shall be made on the basis of the actual number of days elapsed in the related
Accrual Period on the basis of a 360-day year and all other calculations of interest described herein shall be
made on the basis of a 360-day year consisting of twelve 30-day months.
ARTICLE II
Section 2.01 Establishment of the Issuing Entity; Conve
y
ance of Mortgage Loans and Other
Trust Assets.
The parties do hereby create and establish a common law trust, pursuant to the laws of the State
of New York and this Agreement, the Issuing Entity, which, for convenience, shall be known as "NovaStar
Mortgage Funding Trust, Series 2006-5. "
The Depositor, concurrently with the execution and delivery hereof, does hereby transfer,
assign, set over and otherwise convey in trust to the Trustee without recourse for the benefit of the
Certificateholders all the right, title and interest of the Depositor, including any security interest therein for
the benefit of the Depositor, in and to (i) each Mortgage Loan identified on the Mortgage Loan Schedule,
including the related Cut-off Date. Principal Balance, all interest accruing thereon on and after the Cut-off
foreclosure; (iii) its interest in any insurance policies in respect of the Mortgage Loans; (iv) its interest in
the MI Policies; (v) the rights of the Depositor under the Purchase Agreement; (vi) its interest in the Hedge
Agreements;
2
(vii) all other assets included or to be included in the Trust Fund; and (viii) all proceeds of any of the
foregoing. Such assignment includes all interest and principal due to the Depositor or the Servicer after the
related Cut-off Date with respect to the Mortgage Loans.
In connection with such transfer and assignment, the Sponsor, on behalf of the Depositor, does
hereby deliver to, and deposit with the Custodian, as the designated agent holding on behalf of the Trustee,
the following documents or instruments with respect to each Initial Mortgage Loan so transferred and
assigned and the Sponsor, on behalf of the Depositor, shall, in accordance with Section 2. 08, deliver or
cause to be delivered to the Custodian, as the Trustee's designated agent, with respect to each Subsequent
Mortgage Loan, the following documents or instruments (with respect to each Mortgage Loan, a "Mortgage
File"):
(i) the original Mortgage Note endorsed to "Deutsche Bank National Trust Company, as
Trustee for the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5" or in
blank;
(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 Sponsor or the public recording office in which such original Mortgage has
been recorded, and if the Mortgage Loan is registered on the MERS System, such Mortgage
shall include thereon a statement that it is a MOM Loan and shall include the MIN for such
Mortgage Loan;
(iii) unless the Mortgage Loan is registered on the MERS System, an original assignment
(which may be included in one or more blanket assignments if permitted by applicable law) of
the Mortgage endorsed to "Deutsche Bank National Trust Company, as Trustee for the
NovaStar Home Equity Loan Asset-Backed Certificates, Series 2006-5", and otherwise in
recordable form;
(iv) originals of any intervening assignments of the Mortgage showing an unbroken
chain of title from the originator thereof to the Person assigning it to the Trustee (or to MERS,
if the Mortgage Loan is registered on the MERS System), and noting the presence of a MIN (if
the Mortgage Loan is registered on the MERS System), 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 Sponsor 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); and
(vi) a true and correct copy of each assumption, modification, consolidation or
substitution agreement, if any, relating to the Mortgage Loan.
3
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 Trustee or the Certificateholders in
such Mortgage Loan, including if any document required to be delivered to the Custodian 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 Sponsor has
submitted such assignment for recording pursuant to the terms of the following paragraph), the Sponsor
shall cure such defect or 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. 01 of the Purchase Agreement as to the Initial Mortgage Loans and the Subsequent
Mortgage Loans and Section 2. 02(c) of the Purchase Agreement as to the Subsequent Mortgage Loans for
breaches of representations and warranties.
Promptly after the Closing Date in the case of an Initial Mortgage Loan or, in the case of a
that is registered on the MERS System, if MERS is identified on the Mortgage, or on a properly recorded
Subsequent Mortgage Loan, promptly after the Subsequent Transfer Date, the Sponsor will deliver or cause
receipt thereof.
In connection with the assignment of any Mortgage Loan registered on the MERS System,
promptly after the Closing Date in the case of an Initial Mortgage Loan or, in the case of a Subsequent
Mortgage Loan (or after the date of transfer of any Eligible Substitute Mortgage Loan), the Sponsor further
Case: 1:11-cv-01950 Document#: 19 Filed: 09/27/11 Page 1 of 6 PagelD #:83
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Deutsche Bank National Trust Company as Trustee
NovaStar Mortgage Funding Trust, Series 2006-5 CASE NUMBER: 1:11-cv-1950
NovaStar Home Equity Loan Asset-Backed
Certificates, Series 2006-5
PLAINTIFF
VS. DISTRICT JUDGE: Rebecca R. Pallmeyer
Kristen M. Bodzianowski, Howard J. MAGISTRATE JUDGE: Susan E. Cox
Bodzianowski,
DEFENDANT(S).
PLAINTIFF'S RESPONSE TO DEFENDANTS' MOTION TO DISMISS
FOR LACK OF STANDING
Now Comes, Plaintiff, Deutsche Bank National Trust Company, as Trustee Novastar
Mortgage Funding Trust, Series 2006-5 NovaStar Home Equity Loan Asset Backed Certificates,
Series 2006-5, (hereinafter referred to as "Deutsche Bank")and through its attorneys Burke,
Costanza & Carberry, LLP, and responds to the Defendants' Kristen and Howard Bodzianowski
(hereinafter referred to as "The Bodzianowskis") Motion to Dismiss for Lack of Standing. In
support thereof, Deutsche Bank states as follows:
I. The Assignment is Valid
Defendants assert that the assignment of the mortgage and the endorsement of the note
are insufficient and therefore, Plaintiff is not the holder of the note and mortgage. (See
Defendants' Motion to Dismiss 3, incorporated by reference). The Defendants insist that the
PSA governs the transfer of the note. 2.01 of the PSA states:
1
Section 2.01 Establishment of the Issuing Entity; Conveyance
of Mortgage Loans and Other Trust Assets.
The parties do hereby create and establish a common law
trust, pursuant to the laws of the State of New York and this
Agreement, the Issuing Entity, which, for convenience, shall be
known as "NovaStar Mortgage Funding Trust, Series 2006-5."
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise
convey in trust to the Trustee without recourse for the benefit of
the Certificate holders all the right, title and interest of the
Depositor, including any security interest therein for the benefit of
the Depositor, in and to (i) each Mortgage Loan identified on the
Mortgage Loan Schedule, including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the
Cut-off Date and all collections in respect of interest and principal
due after the Cut-off Date; (ii) property which secured each such
Mortgage Loan and which has been acquired by foreclosure or
deed in lieu of foreclosure; (iii) its interest in any insurance
policies in respect of the Mortgage Loans; (iv) its interest in the
MI Policies; (v) the rights of the Depositor under the Purchase
Agreement; (vi) its interest in the Hedge Agreements;
(vii) all other assets included or to be included in the Trust Fund;
and (viii) all proceeds of any of the foregoing. Such assignment
includes all interest and principal due to the Depositor or the
Servicer after the related Cut-off Date with respect to the
Mortgage Loans.
In connection with such transfer and assignment, the Sponsor, on
behalf of the Depositor, does hereby deliver to, and deposit with
the Custodian, as the designated agent holding on behalf of the
Trustee, the following documents or instruments with respect to
each Initial Mortgage Loan so transferred and assigned and the
Sponsor, on behalf of the Depositor, shall, in accordance with
Section 2.08, deliver or cause to be delivered to the Custodian, as
the Trustee's designated agent, with respect to each Subsequent
Mortgage Loan, the following documents or instruments (with
respect to each Mortgage Loan, a "Mortgage File"):
2
Case: 1:11-cv-01950 Document #: 19 Filed: 09/27/11 Page 3 of 6 Page ID #:85
(i) the original Mortgage Note endorsed to "Deutsche Bank
National Trust Company, as Trustee for the NovaStar Home
Equity Loan Asset-Backed Certificates, Series 2006-5" or in
blank; (emphasis added)
(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 Sponsor or the public recording office in which
such original Mortgage has been recorded, and if the Mortgage
Loan is registered on the MERS System, such Mortgage shall
include thereon a statement that it is a MOM Loan and shall
include the MIN for such Mortgage Loan;
(iii) unless the Mortgage Loan is registered on the MERS
System, an original assignment (which may be included in one or
more blanket assignments if permitted by applicable law) of the
Mortgage endorsed to "Deutsche Bank National Trust Company,
as Trustee for the NovaStar Home Equity Loan Asset-Backed
Certificates, Series 2006-5", and otherwise in recordable form;
(iv) originals of any intervening assignments of the
Mortgage showing an unbroken chain of title from the originator
thereof to the Person assigning it to the Trustee (or to MERS, if
the Mortgage Loan is registered on the MERS System), and
noting the presence of a MIN (if the Mortgage Loan is registered
on the MERS System), 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 Sponsor 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); and
(vi) a true and correct copy of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loan.
The Note that was attached the Plaintiff's Complaint has the endorsement: "Deutsche
Bank National Trust Company as Trustee for the NovaStar Home Equity Loan Asset Backed
Certificates, Series 2006-5". This endorsement is executed in exactly the manner which is
required in 2.01(vii)(i) above.
"Under Illinois law, the well-established rule is that no particular words are required to
create a valid assignment so long as the intent to transfer is evident. The assignment operates to
transfer to the assignee all of the assignor's right, title or interest in the thing assigned."
Community Bank of Greater Peoria v. Carter, 283 Ill. App. 3d 505, 508 (1st Dist. 1996). There is
no rule or regulation that requires that the endorsement of the Note be notarized. Therefore, the
assignment of the mortgage and endorsement of the note are valid. The endorsement and
assignment were made in the manner required by the Trust's PSA, as it was the intent of the
parties to transfer the assignee's rights under the mortgage and the note to the Trust.
H. Deutsche Bank has Standing to Bring this Action
The Defendants allege that Deutsche Bank does not have standing to bring this action.
The Note, because it is a negotiable instrument, is governed by the Uniform Commercial Code.
A negotiable instrument is an unconditional promise to pay a fixed amount of money with or
without interest to order on demand. 810 ILCS 5/3-104. Pursuant to the UCC, the holder of a
negotiable instrument is entitled to enforce that instrument. 5/3-301. An entity becomes the
holder through negotiation. 5/3-201. When the instrument is indorsed in blank, it is negotiated by
transfer of possession alone. 5/3-205(b). Transfer is effectuated through "delivery by a person
other than its issuer for the purpose of giving to the person receiving delivery the right to enforce
4
Case: 1:11-cv-01950 Document#: 19 Filed: 09/27/11 Page 5 of 6 PagelD #:87
the instrument." 5/3-203(a). The Plaintiff is in possession of the original Note. The fact that the
endorsement is not notarized is not relevant, nor is it a requirement under the PSA or by law.
The Defendants actually lack the standing to attack the validity of the assignment. This
issue is addressed by Michigan and Illinois courts. "Borrower certainly has an interest in
avoiding foreclosure. But the validity of the assignments does not affect whether Borrower owes
its obligations, but only to whom Borrower is obligated. Although a debtor may assert certain
defenses that render an assignment absolutely invalid (such as nonassignability of the right
assigned), he generally may not assert any ground which may render the assignment voidable
because the only interest or right which an obligor of a claim has in the instrument of assignment
is to insure him or herself that he or she will not have to pay the same claim twice." 6A C.J.S.
Assignments 132 . A debtor, for example, cannot raise alleged acts of fraud, or question the
motive or purpose underlying an assignment. Id. "As long as no creditor of the assignor
questions the validity of the assignment, a debtor of the assignment cannot do so." Blackford v.
Westchester Fire Ins. Co ., 101 F. 90 (8
1h
Cir. 1900), see also Byczek v. Boelter Cos ., 230
F.Supp.2d 843 (N.D.I112002). In this situation, no other corporation or trust is alleging that it
owns this mortgage. No other corporation is foreclosing on this property. Only Deutsche Bank
has asserted this right. It is entitled to do so since it is holding both the note and the mortgage.
Therefore, all issues raised by the defendant regarding the manner of the transfer of the loan
documents are irrelevant and are presented to distract attention from the fact that the Defendants
are in default and have not been making mortgage payments to anyone.
Conclusion
The Defendants are alleging that the Plaintiff is not the holder of the Note and Mortgage.
Not only is the Plaintiff the physical holder of the note and mortgage, the Plaintiff is the only one
trying to enforce the note and mortgage. The endorsements on the Note and the assignments of
Mortgage clearly indicate that it was the intent of the parties to transfer ownership of these
interests to the Plaintiff. No other entity has attempted to foreclose on the Defendants' property.
Finally, the Defendants have failed assert a defense which would explain why the Defendants
should be able to maintain their property without making payment to anyone for over a year. The
Defendants have failed to meet their burden to establish that the Plaintiff lacks standing to bring
this action, and therefore, the Defendants' Motion to Dismiss for Lack of Standing should be
denied.
By: /s/ James N. Pappas
James N. Pappas #6291873
Attorneys for Plaintiff
9191 Broadway
(219) 769-1313
I hereby certify that on September 27, 2011, a copy of the foregoing was electronically
filed with the Clerk of the court using the CM/ECF system which sent notification of such filing
to the following:
/s/ James N. Pappas
6

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