10-Q

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                            to

Commission file number: 001-34416

PennyMac Mortgage Investment Trust
(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)	27-0186273 (IRS Employer Identification No.)
27001 Agoura Road, Calabasas, California (Address of principal executive offices)	91301 (Zip Code)

(818) 224-7442
(Registrant's telephone number, including area code)

        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 ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

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

Large accelerated filer o Accelerated filer ý Non-accelerated filer o
(Do not check if a
smaller reporting company) Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o    No ý

        Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

Class	Outstanding at November 5, 2010
Common Shares of Beneficial Interest, $.01 par value	16,832,343

PENNYMAC MORTGAGE INVESTMENT TRUST
FORM 10-Q
September 30, 2010

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Changes in Shareholders' Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Overview	27
	Observations on Current Market Opportunities	28
	Results of Operations for the Quarter Ended September 30, 2010	29
	Results of Operations for the Nine Months Ended September 30, 2010	34
	Investment Portfolio Composition	37
	Cash Flows	41
	Liquidity and Capital Resources	41
	Off-Balance Sheet Arrangements and Aggregate Contractual Obligations	43
	Quantitative and Qualitative Disclosures About Market Risk	43
	Accounting Developments	45
	Factors That May Affect Our Future Results	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II. OTHER INFORMATION		48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	[Reserved]	51
Item 5.	Other Information	51
Item 6.	Exhibits	54

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

		September 30, 2010		December 31, 2009
ASSETS
Cash		$	25,061	$	54
Short-term investment			—		213,628
Mortgage-backed securities at fair value			137,049		83,771
Mortgage loans at fair value			244,912		26,046
Real estate acquired in settlement of loans			26,112		—
Principal and interest collections receivable			16,110		—
Accrued interest			755		492
Due from affiliates			55		—
Other assets			3,917		455
	Total assets	$	453,971	$	324,446
LIABILITIES
Accounts payable and accrued liabilities		$	782	$	527
Securities sold under agreements to repurchase			116,139		—
Contingent underwriting fees payable			5,883		5,883
Payable to affiliates			4,687		4,238
	Total liabilities		127,491		10,648
Commitments and contingencies			—		—
SHAREHOLDERS' EQUITY
Common shares of beneficial interest—authorized, 500,000,000 shares of $0.01 par value; issued and outstanding, 16,832,343 and 16,735,317 shares, respectively			168		167
Additional paid-in capital			316,952		315,514
Retained earnings (accumulated deficit)			9,360		(1,883	)
	Total shareholders' equity		326,480		313,798
	Total liabilities and shareholders' equity	$	453,971	$	324,446

The accompanying notes are an integral part of these consolidated financial statements.

1

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

(Unaudited)

			Quarter ended September 30, 2010			Period from August 4, 2009 (commencement of operations) to September 30, 2009			Nine months ended September 30, 2010
Investment Income
	Gains on investments:
		Mortgage loans	$	7,578		$	—		$	18,697
		Mortgage-backed securities		596			267			446
				8,174			267			19,143
	Interest income:
		Mortgage loans		2,607			—			6,445
		Mortgage-backed securities		1,229			449			3,780
		Short-term investment		10			100			77
				3,846			549			10,302
	Loss on sale of correspondent lending mortgage loans			(17	)		—			(9	)
	Results of real estate acquired in settlement of loans			637			—			972
	Other income			16			—			17
		Net investment income		12,656			816			30,425
Expenses
	Management fees			1,237			812			3,650
	Compensation			573			483			2,212
	Loan servicing fees			885			—			1,561
	Professional services			628			72			1,121
	Interest			251			—			251
	Insurance			191			131			588
	Other			801			48			1,508
		Total expenses		4,566			1,546			10,891
Income (loss) before provision for income taxes				8,090			(730	)		19,534
Provision for income taxes				361			—			2,400
Net income (loss)			$	7,729			(730	)	$	17,134
Earnings (loss) per share
	Basic		$	0.46		$	(0.04	)	$	1.02
	Diluted		$	0.45		$	(0.04	)	$	1.01
Weighted average shares outstanding
	Basic			16,796,487			16,735,317			16,755,931
	Diluted			17,069,471			16,735,317			17,028,915

The accompanying notes are an integral part of these consolidated financial statements.

2

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)

		Number of Shares		Par Value		Additional Paid-in Capital			Retained earnings (accumulated deficit)			Total
Balance at August 4, 2009 (commencement of operations)			—	$	—	$	1		$	—		$	1
	Net loss		—		—		—			(730	)		(730	)
	Proceeds from share offerings		16,735,317		167		334,540			—			334,707
	Underwriting and offering costs		—		—		(19,983	)		—			(19,983	)
	Share-based compensation		—		—		345			—			345
Balance at September 30, 2009			16,735,317	$	167	$	314,903		$	(730	)	$	314,340
Balance at December 31, 2009			16,735,317	$	167	$	315,514		$	(1,883	)	$	313,798
	Net income		—		—		—			17,134			17,134
	Distributions		—		—		—			(5,891	)		(5,891	)
	Share-based compensation		97,026		1		1,588			—			1,589
	Share issuance costs		—		—		(150	)		—			(150	)
Balance at September 30, 2010			16,832,343	$	168	$	316,952		$	9,360		$	326,480

The accompanying notes are an integral part of these consolidated financial statements.

3

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

				Nine months ended September 30, 2010			Period from August 4, 2009 (commencement of operations) to September 30, 2009
Cash flows from operating activities:
	Net income (loss)			$	17,134		$	(730	)
		Adjustments to reconcile net income (loss) to net cash used by operating activities:
			Gains on mortgage-backed securities		(446	)		(267	)
			Gains on mortgage loans		(18,697	)		—
			Accrual of unearned discounts on mortgage-backed securities		(2,318	)		(218	)
			Loss on sale of correspondent lending mortgage loans acquired		9			—
			Results of real estate acquired in settlement of loans		(972	)		—
			Share-based compensation expense		1,589			345
	Purchases of mortgage loans acquired for sale				(27,696	)		—
	Sales of mortgage loans acquired for sale				22,984			—
	Increase in principal and interest collections receivable				(16,077	)		—
	Increase in accrued interest				(337	)		(213	)
	Increase in due from affiliates				(100	)		—
	Increase in other assets				(3,462	)		(650	)
	Increase in accounts payable and accrued liabilities				255			150
	Increase in payable to affiliates				449			873
		Net cash used by operating activities			(27,685	)		(710	)
Cash flows from investing activities:
	Net decrease (increase) in short-term investment				213,628			(253,065	)
	Purchases of mortgage-backed securities				(89,217	)		(69,453	)
	Repayments of mortgage-backed securities				38,703			1,879
	Purchases of mortgage loans				(270,757	)		—
	Repayments of mortgage loans				40,797			—
	Sales of mortgage loans				2,851			—
	Purchases of real estate acquired in settlement of loans				(1,238	)		—
	Sales of real estate acquired in settlement of loans				7,827			—
		Net cash used by investing activities			(57,406	)		(320,639	)
Cash flows from financing activities:
	Sale of securities under agreements to repurchase				241,948			—
	Repurchase of securities sold under agreements to repurchase				(125,809	)		—
	Proceeds from issuance of common shares				—			334,706
	Payment of share issuance costs				(150	)		(11,158	)
	Payment of share distributions				(5,891	)		—
		Net cash provided by financing activities			110,098			323,548
Net increase in cash					25,007			2,199
Cash at beginning of period					54			1
		Cash at end of period		$	25,061		$	2,200
Supplemental Cash Flow Information:
		Income taxes paid		$	2,521		$	—
		Interest paid			123			—
		Non cash investing activities:
			Transfer of mortgage loans to real estate acquired in settlement of loans		31,762			—
			Addition of unpaid interest to mortgage loan balances in loan modifications		74			—
		Non cash financing activities—recognition of contingently payable offering costs to:
			Underwriters		—			5,883
			PNMAC Capital Management, LLC		—			2,941

The accompanying notes are an integral part of these consolidated financial statements.

4

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Organization and Basis of Presentation

        PennyMac Mortgage Investment Trust ("PMT" or the "Company") was organized in Maryland on May 18, 2009, and began operations on August 4, 2009, when it completed its initial offerings of common shares of beneficial interest ("shares"). The Company is a specialty finance company, which, through its subsidiaries (all of which are wholly-owned), invests primarily in residential mortgage loans and mortgage-related assets.

        The Company's primary investment objective is to maximize the value of the mortgage loans that it acquires, a substantial portion of which may be distressed and acquired at discounts to their unpaid principal balances, either through loan modification programs, special servicing and other initiatives focused on keeping borrowers in their homes, or, when necessary, through timely acquisition and liquidation of the property securing the loan. Accordingly, management has concluded that the Company operates as a single segment.

        The Company believes that it qualifies, and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), beginning with its taxable period ended on December 31, 2009. To maintain its tax status as a REIT, the Company plans to distribute at least 90% of its taxable income in the form of qualifying distributions to shareholders.

        The Company is externally managed by an affiliate, PNMAC Capital Management, LLC ("PCM" or the "Manager"), an investment adviser registered with the Securities and Exchange Commission ("SEC") that specializes in and focuses on residential mortgage loans. Under the terms of a management agreement, PCM is paid a management fee with a base component and a performance incentive component.

        The Company conducts substantially all of its operations, and makes substantially all of its investments, through PennyMac Operating Partnership, L.P. ("Operating Partnership") and its subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner of the Operating Partnership and the Company is the sole limited partner.

        The accompanying consolidated financial statements have been prepared in compliance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the SEC's instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements and notes do not include all of the information required by U.S. GAAP for complete financial statements.

        Preparation of financial statements in compliance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results will likely differ from those estimates.

        In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods ended September 30, 2010 are not necessarily indicative of the results for the year ending December 31, 2010.

5

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2—Concentration of Risks

        PMT's operations and investing activities are centered in residential real estate-related assets, a substantial portion of which are distressed at acquisition. Because of the Company's investment strategy, many of the mortgage loans in its targeted asset class are purchased at discounts reflecting their distressed state or perceived higher risk of default, as well as a greater likelihood of collateral documentation deficiencies. PCM validates key information provided by the sellers that is necessary to determine the value of the acquired asset. Most of the nonperforming loans purchased by the Company have been acquired from one major financial institution.

        Through its management agreement with PCM and, where applicable, the loan servicing agreement between its Operating Partnership and an affiliated company, PennyMac Loan Services, LLC ("PLS"), PMT will work with borrowers to perform loss mitigation activities. Such activities include the use of federally sponsored loan modification programs (such as the U.S. Department of Housing and Urban Development's Home Affordable Modification Program, or HAMP) and workout options that PCM believes have the highest probability of successful resolution for both borrowers and PMT. Loan modification or resolution may include PMT accepting a writedown of the principal balances of certain mortgage loans in its investment portfolio. When loan modifications and other efforts are unable to cure distressed loans, the Company's objective is to effect timely acquisition and liquidation of the property securing the mortgage loan.

        Because of the Company's investment focus, PMT is exposed, to a greater extent than traditional mortgage investors, to the risks that more borrowers than anticipated default on their mortgage loans and to the effects of fluctuations in the residential real estate market on the performance of its investments. Factors influencing these risks include, but are not limited to:

•

changes in the overall economy, unemployment and residential real estate values in the markets where the Company's mortgage loans are secured;

•

PCM's ability to identify and PLS's ability to execute optimal resolutions of problem mortgage loans;

•

the accuracy of borrower representations and PLS's ability to validate borrower capacity to meet the terms of workout agreements;

•

PCM's ability to effectively model, and develop, appropriate model assumptions that properly anticipate future outcomes;

•

the level of government support for problem loan resolution and the effect of current and future proposed and enacted legislative and regulatory changes on the Company's ability to effect cures to distressed loans; and

•

regulatory and legislative support of the foreclosure process, and the resulting impact on the Company's ability to acquire and liquidate the real estate securing its portfolio of distressed mortgage loans in a timely manner or at all.

        Due to these uncertainties, there can be no assurance that risk management activities identified and executed on PMT's behalf will prevent significant losses arising from the Company's investments in real estate-related assets.

6

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2—Concentration of Risks (Continued)

        As discussed in Note 3—Transactions with Related Parties, the Company's short-term investment is made in an uninsured institutional money market fund that is managed by a strategic investor in the parent company of PCM and PLS. The fund invests exclusively in first-tier securities as rated by a nationally recognized statistical rating organization. The fund's investments are comprised primarily of domestic commercial paper, securities issued or guaranteed by the United States Government or its agencies, obligations of foreign banks with operations in the United States, fully collateralized repurchase agreements and variable and floating rate demand notes.

Note 3—Transactions with Related Parties

        The Company is managed externally by PCM under the terms of a management agreement that expires on August 4, 2012 and will be automatically renewed for a one-year term each anniversary date thereafter unless previously terminated. If the Company terminates the management agreement without cause, or PCM terminates the management agreement upon a default in the Company's performance of any material term in the management agreement, PMT will be obligated to pay a termination fee to PCM. PMT pays PCM a base management fee and may pay a performance incentive fee, both payable quarterly and in arrears. Both the management and termination fees are more fully described in Note 4—Transactions with Related Parties to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 ("Annual Report").

        Following is a summary of management fee expense and its related liability recorded by the Company for the periods presented:

	Quarter ended September 30, 2010			Period from August 4, 2009 (commencement of operations) to September 30, 2009		Nine months ended September 30, 2010
	(in thousands)
Base management fee	$	1,237		$	812	$	3,650
Performance incentive fee		—			—		—
Total incurred during the period		1,237			812		3,650
Fee paid during the period		(2,413	)		—		(3,582	)
Fee outstanding at beginning of period		2,413			—		1,169
Fee outstanding at end of period	$	1,237		$	812	$	1,237

        The Company, through its Operating Partnership, also has a loan servicing agreement with PLS. Servicing fee rates are based on the risk characteristics of the mortgage loans serviced and total servicing compensation is established at levels that management believes are competitive with those charged by other specialty servicers. Servicing fee rates are expected to range between 30 and 100 basis points per annum on the unpaid principal balance of the mortgage loans serviced on the Company's behalf.

        Under the loan servicing agreement, PLS is also entitled to certain customary market-based fees and charges, including boarding and de-boarding fees, disposition fees, assumption, modification and origination fees and late charges, as well as interest on funds on deposit in custodial or escrow accounts. In the event PLS either effects a refinancing of a loan on the Company's behalf and not

7

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3—Transactions with Related Parties (Continued)

through a third party lender and the resulting loan is readily saleable, or originates a loan to facilitate the disposition of real estate that the Company has acquired in settlement of a loan, PLS is entitled to receive from the Company an origination fee of 1.0% of the unpaid principal balance of the loan plus $750.

        The Company currently participates in HAMP (and other similar mortgage loan modification programs), which establishes standard loan modification guidelines for "at risk" homeowners and provides incentive payments to certain participants, including loan servicers, for achieving modifications and successfully remaining in the program. The loan servicing agreement entitles PLS to retain any incentive payments made to it and to which it is entitled under HAMP; provided, however, that with respect to any such incentive payments paid to PLS in connection with a mortgage loan modification for which the Company previously paid PLS a modification fee, PLS shall reimburse the Company an amount equal to the lesser of such modification fee or such incentive payments.

        In connection with the Company's correspondent lending business, PLS also provides certain mortgage banking services, including fulfillment and disposition-related services, to the Company for a fulfillment fee based on a percentage of the unpaid principal balance of the mortgage loans. The fulfillment fee for such services is currently 50 basis points. Commencing November 1, 2010, the Company has begun collecting interest income and a sourcing fee of 3 basis points for each mortgage loan it purchases from a correspondent and sells to PLS for ultimate disposition to a third party where the Company is not approved or licensed to sell to such third party. During the quarter and nine months ended September 30, 2010, the Company recorded fulfillment fees totaling $38,000.

        The Company paid servicing fees to PLS as described above and as provided in its loan servicing agreement, and recorded other expenses, including common overhead expenses incurred on its behalf by PCM and its affiliates in accordance with the terms of its management agreement. Following is a summary of those expenses for the periods presented:

		Quarter ended September 30, 2010		Period from August 4, 2009 (commencement of operations) to September 30, 2009		Nine months ended September 30, 2010
		(in thousands)
Loan servicing and fulfillment fees payable to PLS		$	644	$	—	$	1,267
Reimbursement of expenses incurred on PMT's behalf:
	Compensation		101		60		307
	Other		157		—		506
			258		60		813
Reimbursement of common overhead incurred by PCM and its affiliates			497		—		978
		$	1,399	$	60	$	3,058
Payments made during the period		$	2,432	$	—	$	2,680

8

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3—Transactions with Related Parties (Continued)

        During the Company's startup period and through the quarter ended March 31, 2010, PCM and its affiliates did not charge the Company for its proportionate share of common overhead expenses. For the quarter ended March 31, 2010, such expenses totaled approximately $500,000. No other charges were waived by PCM during the Company's startup period and through the quarter ended March 31, 2010.

        As more fully described in the Company's Annual Report, certain of the underwriting costs incurred in the Company's initial public offering ("IPO") were paid on PMT's behalf by PCM and a portion of the underwriting discount was deferred by agreement with the underwriters of the offering.

        Amounts due to affiliates are summarized below as of the dates presented:

	September 30, 2010		December 31, 2009
	(in thousands)
Contingent offering costs	$	2,941	$	2,941
Management fee		1,237		1,169
Expenses		509		128
	$	4,687	$	4,238

        Amounts due from affiliates at September 30, 2010, totaled $55,000 and represent reimbursements of common expenses paid on their behalf by the Company.

        The Company's short-term investment represents an investment in a liquidity management fund that is managed by its strategic investor in the parent company of PCM and PLS.

Note 4—Earnings (Loss) Per Share

        Basic earnings per share is determined using net earnings divided by the weighted-average shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings available to common shareholders by the weighted-average shares outstanding, assuming all potentially dilutive common shares were issued. In periods in which the Company records a loss, potentially dilutive shares are excluded from the diluted loss per share calculation as their effect on loss per share is anti-dilutive.

9

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4—Earnings (Loss) Per Share (Continued)

        The following table summarizes the basic and diluted earnings per share calculations for the periods presented:

	Quarter ended September 30, 2010		Period from August 4, 2009 (commencement of operations) to September 30, 2009			Nine months ended September 30, 2010
	(in thousands, except per share data)
Basic earnings (loss) per common share:
Net income (loss)	$	7,729	$	(730	)	$	17,134
Average shares outstanding		16,796		16,735			16,756
Basic earnings (loss) per common share	$	0.46	$	(0.04	)	$	1.02
Diluted earnings (loss) per common share:
Net income (loss)	$	7,729	$	(730	)	$	17,134
Average shares outstanding		16,796		16,735			16,756
Dilutive potential common shares—shares issuable under share-based compensation plan		273		—			273
		17,069		16,735			17,029
Diluted earnings (loss) per common share	$	0.45	$	(0.04	)	$	1.01

        During the period from August 4, 2009 (commencement of operations) to September 30, 2009, 375,330 restricted share units were outstanding but not included in the computation of diluted loss per share because they were anti-dilutive.

Note 5—Fair Value

        The Company's financial statements include assets and liabilities that are measured based on their estimated fair values. The application of fair value estimates may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether management has elected to carry the item at its estimated fair value as discussed in the following paragraphs.

Fair Value Accounting Elections

        Management identified all of its financial instruments, including the short-term investment, mortgage-backed securities ("MBS"), mortgage loans and securities sold under agreements to repurchase to be accounted for at estimated fair value so such changes in fair value will be reflected in results of operations as they occur and more timely reflect the results of the Company's investment performance.

10

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

Fair Value Measurements

        For the quarter and nine months ended September 30, 2010, the Company recorded in its net investment income $7,578,000 and $18,697,000 of realized and unrealized gains on mortgage loans and $596,000 and $446,000 of realized and unrealized losses on MBS, respectively, under the fair value option. For the period from August 4, 2009 (commencement of operations) to September 30, 2009, the Company recorded unrealized gains on MBS totaling $267,000. Changes in the estimated fair value of mortgage loans and MBS are included in gains (losses) on investments and, with respect to MBS, in interest income.

        The following financial statement items are measured at estimated fair value on a recurring basis as of the dates presented:

		September 30, 2010
		Level 1		Level 2		Level 3		Total
		(in thousands)
Assets:
	Mortgage-backed securities	$	—	$	—	$	137,049	$	137,049
	Mortgage loans		—		4,748		240,164		244,912
		$	—	$	4,748	$	377,213	$	381,961
Liabilities:
	Securities sold under agreements to repurchase	$	—	$	—	$	116,139	$	116,139
		$	—	$	—	$	116,139	$	116,139

		December 31, 2009
		Level 1		Level 2		Level 3		Total
		(in thousands)
Assets:
	Short-term investment	$	213,628	$	—	$	—	$	213,628
	Mortgage-backed securities		—		—		83,771		83,771
	Mortgage loans		—		—		26,046		26,046
		$	213,628	$	—	$	109,817	$	323,445

11

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

        The Company's mortgage loans, excluding its correspondent lending loans, MBS and securities sold under agreements to repurchase were measured using Level 3 inputs. The following is a summary of changes in items measured using Level 3 inputs on a recurring basis for the periods presented:

		Quarter ended September 30, 2010
		Mortgage-backed securities			Mortgage loans			Total
		(in thousands)
Assets:
Balance, June 30, 2010		$	103,164		$	197,216		$	300,380
Purchases			52,319			72,675			124,994
Repayments			(19,787	)		(16,940	)		(36,727	)
Transfers of mortgage loans to real estate acquired in settlement of loans			—			(18,460	)		(18,460	)
Sales			—			(1,960	)		(1,960	)
Accrual of unearned discounts			757			—			757
Addition of unpaid interest to mortgage loan balances in loan modifications			—			55			55
Changes in fair value included in results of operations arising from:
	Changes in credit quality		—			2,408			2,408
	Other factors		596			5,170			5,766
			596			7,578			8,174
Balance, September 30, 2010		$	137,049		$	240,164		$	377,213
Changes in fair value recognized during the period relating to assets still held at September 30, 2010		$	596		$	3,842		$	4,438

	Securities sold under agreements to repurchase
Liabilities:
Balance, June 30, 2010	$	31,362
Changes in fair value included in results of operations		—
Sales of securities under agreements to repurchase		210,586
Repurchases		(125,809	)
Balance, September 30, 2010	$	116,139
Changes in fair value recognized during the period relating to liabilities still outstanding at September 30, 2010	$	—

12

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

		Period from August 4, 2009 (commencement of operations) to September 30, 2009
		Mortgage-backed securities
		(in thousands)
Balance, August 4, 2009		$	—
Purchases			69,453
Repayments			(1,879	)
Sales			—
Accrual of unearned discounts			218
Changes in fair value included in results of operations arising from:
	Changes in credit quality		—
	Other factors		267
			267
Balance, September 30, 2009		$	68,059
Changes in fair value recognized during the period relating to assets still held at September 30, 2009		$	267

		Nine months ended September 30, 2010
		Mortgage backed securities			Mortgage loans			Total
		(in thousands)
Assets:
Balance, December 31, 2009		$	83,771		$	26,046		$	109,817
Purchases			89,217			270,757			359,974
Repayments			(38,703	)		(40,797	)		(79,500	)
Transfers of mortgage loans to real estate acquired in settlement of loans			—			(31,762	)		(31,762	)
Sales			—			(2,851	)		(2,851	)
Addition of unpaid interest to mortgage loan balances in loan modifications			—			74			74
Accrual of unearned discounts			2,318			—			2,318
Changes in fair value included in results of operations arising from:
	Changes in credit quality		—			3,190			3,190
	Other factors		446			15,507			15,953
			446			18,697			19,143
Balance, September 30, 2010		$	137,049		$	240,164		$	377,123
Changes in gains relating to assets still held at September 30, 2010		$	446		$	9,153		$	9,599

13

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

	Securities sold under agreements to repurchase
Liabilities:
Balance, December 31, 2009	$	—
Changes in fair value included in results of operations		—
Sales of securities under agreements to repurchase		241,948
Repurchases		(125,809	)
Balance, September 30, 2010	$	116,139
Changes in gains relating to liabilities still outstanding at September 30, 2010	$	—

        Following are the fair values and related principal amounts due upon maturity of mortgage loans accounted for under the fair value option as of the dates presented:

	September 30, 2010
	Fair value		Unpaid principal balance		Fair value over (under) unpaid principal balance
	(in thousands)
Current through 89 days delinquent	$	58,217	$	90,203	$	(31,986	)
90 or more days delinquent(1)		181,947		344,511		(162,564	)
	$	240,164	$	434,714	$	(194,550	)

	December 31, 2009
	Fair Value		Unpaid principal balance		Fair value over (under) unpaid principal balance
	(in thousands)
Current through 89 days delinquent	$	26,046	$	40,071	$	(14,025	)
90 or more days delinquent(1)		—		—		—
	$	26,046	$	40,071	$	(14,025	)

(1)

Loans delinquent 90 or more days are placed on nonaccrual status and previously accrued interest is reversed.

14

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

        Following are the changes in fair value included in current period results of operations by consolidated statement of operations line item:

		Changes in fair value included in current period results of operations
		Quarter ended September 30, 2010						Period from August 4, 2009 (commencement of operations) to September 30, 2009
		Interest income		Gains on investments		Total		Interest income		Gains on investments		Total
		(in thousands)
Assets:
	Short-term investment	$	—	$	—	$	—	$	—	$	—	$	—
	Mortgage-backed securities		757		596		1,353		218		267		485
	Mortgage loans		—		7,578		7,578		—		—		—
		$	757	$	8,174	$	8,931		218		267		485
Liabilities:
	Securities sold under agreements to repurchase		—		—		—		—		—		—
			—		—		—		—		—		—
		$	757	$	8,174	$	8,931	$	218	$	267	$	485

		Changes in fair value included in current period results of operations
		Nine months ended September 30, 2010
		Interest income		Gains (losses) on investments		Total
		(in thousands)
Assets:
	Short-term investment	$	—	$	—	$	—
	Mortgage-backed securities		2,318		446		2,764
	Mortgage loans		—		18,697		18,697
		$	2,318		19,143		21,461
Liabilities:
	Securities sold under agreements to repurchase		—		—		—
			—		—		—
		$	2,318	$	19,143	$	21,461

        The Company measures its investment in real estate acquired in settlement of loans at management's estimates of the respective properties' fair values less cost to sell on a nonrecurring basis. Such assets are measured at management's estimates of fair values less cost to sell upon initial recognition and when management's subsequent estimates of fair value estimates less costs to sell are

15

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

less than the value recorded upon initial recognition. At September 30, 2010, the Company carried $26,112,000 of real estate acquired in settlement of loans on its consolidated balance sheet. There was no real estate acquired in settlement of loans at December 31, 2009.

        During the quarter and nine months ended September 30, 2010, mortgage loans with fair values of $18,460,000 and $31,762,000, respectively, were transferred to real estate acquired in settlement of loans. The fair value of the real estate acquired in settlement of loans is initially established as the fair value of the real estate less estimated costs to sell as of the date of transfer. Any ensuing change in fair value to a level that is less than or equal to the value at which the property was initially recorded is recognized in results of real estate acquired in settlement of loans. Real estate acquired in settlement of loans with fair values of $2,994,000 and $3,059,000 were remeasured at fair value less estimated costs to sell, and losses totaling $562,000 and $766,000 were recognized in results of real estate acquired in settlement of loans for the quarter and nine months ended September 30, 2010, respectively.

Valuation Techniques

        The following describes the methods used in estimating the fair values of Level 2 and Level 3 financial statement items:

Mortgage-Backed Securities

        Non-Agency MBS are categorized as "Level 3" financial statement items. Fair value of non-Agency MBS is estimated using broker indications of value. Agency MBS refers to securities issued by the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") (Freddie Mac and Fannie Mae are each referred to as an "Agency" and, collectively, as the "Agencies"). For indications of value received as of September 30, 2010, PCM's Capital Markets staff reviewed, and its senior management Valuation Committee reviewed and approved, the securities' values. PCM's review is for the purpose of evaluating the reasonableness of the broker's indication of value and may result in the broker modifying its indications of value. PCM does not intend to adjust its fair value estimates to amounts different from the broker's indications of value.

        Interest income on MBS is recognized over the life of the security using the interest method and is included in the consolidated statement of operations under the caption Interest income—Mortgage-backed securities. Changes in fair value arising from amortization of purchase premiums and accrual of unearned discounts are recognized as a component of interest income.

Mortgage Loans

        Fair value of mortgage loans is estimated based on whether the mortgage loans are saleable into active markets with established counterparties and transparent pricing. Loans that are not saleable into active markets are categorized as "Level 3" financial statement items, and their fair values are estimated using a discounted cash flow valuation model. Inputs to the model include current interest rates, loan amount, payment status and property type, and forecasts of future interest rates, home prices, prepayment speeds, defaults and loss severities. Mortgage loans that are saleable into active markets are categorized as "Level 2" financial statement items and their fair values are estimated using their quoted market price or market price equivalent.

16

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Fair Value (Continued)

        Management incorporates lack of liquidity into its fair value estimates based on the type of asset or liability measured and the valuation method used. For example, for mortgage loans where the significant inputs have become unobservable due to illiquidity in the markets for distressed mortgage loans or non-Agency, non-conforming mortgage loans, PMT uses a discounted cash flow technique to estimate fair value. This technique incorporates forecasting of expected cash flows discounted at an appropriate market discount rate that is intended to reflect the lack of liquidity in the market.

        Interest income on loans is recognized over the life of the loan using its contractual interest rate and is included in the consolidated statement of operations under the caption Interest income—Mortgage loans. Accrual of interest earned but not yet collected is suspended and all previously accrued interest is reversed for loans when they become 90 days delinquent, or when, in management's opinion, a full recovery of income and principal becomes doubtful. Accrual of interest is resumed when the loan becomes contractually current. At September 30, 2010, the Company had suspended accrual of interest relating to approximately 76% of its investment in mortgage loans, as measured by their estimated fair values, due to delinquency.

Real Estate Acquired in Settlement of Loans

        Real estate acquired in settlement of loans is measured based on its fair value on a nonrecurring basis and is categorized as a "Level 3" financial statement item. Fair value of real estate acquired in settlement of loans is determined by management based on a current estimate of value that is based on a broker's price opinion or a full appraisal. Changes in fair value of real estate acquired in settlement of loans is recognized in the consolidated statement of operations under the caption Results of real estate acquired in settlement of loans.

Securities Sold Under Agreements to Repurchase

        Fair value of securities sold under agreements to repurchase is based on the accrued cost of the agreements, which approximates fair value, due to the agreements' short maturities.

Note 6—Mortgage-Backed Securities at Fair Value

        Investments in MBS were as follows for the dates presented:

		September 30, 2010
				Credit rating
		Total		AAA		AA		A		BBB		Non-investment grade		Not rated		Yield
		(in thousands)
Security collateral type:
	Non-Agency subprime	$	106,501	$	503	$	6,134	$	2,474	$	3,524	$	89,518	$	4,348		4.92	%
	Non-Agency Alt-A		18,476		687		7,169		—		289		10,331		—		9.17	%
	Non-Agency prime jumbo		12,072		—		11,689		—		—		383		—		3.55	%
		$	137,049	$	1,190	$	24,992	$	2,474	$	3,813	$	100,232	$	4,348		5.38	%

17

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6—Mortgage-Backed Securities at Fair Value (Continued)

		December 31, 2009
				Credit rating
		Total		AAA		AA		A		BBB		Non-investment grade		Not rated		Yield
		(in thousands)
Security collateral type:
	Non-Agency subprime	$	39,522	$	1,910	$	8,085	$	8,704	$	3,151	$	12,620	$	5,052		9.08	%
	Non-Agency Alt-A		27,060		9,022		—		—		1,071		16,967		—		9.08	%
	Non-Agency prime jumbo		17,189		—		14,737		—		—		2,452		—		4.34	%
		$	83,771	$	10,932	$	22,822	$	8,704	$	4,222	$	32,039	$	5,052		8.11	%

        All of the Company's mortgage-backed securities had remaining contractual maturities of more than ten years at September 30, 2010 and December 30, 2009. At September 30, 2010, the Company had pledged all of its MBS to secure agreements to repurchase. No securities were pledged at December 31, 2009.

Note 7—Mortgage Loans at Fair Value

        The Company's mortgage loans at fair value include recently-funded loans purchased from other financial institutions which management intends to resell, as well as other mortgage loans. Most of the loans acquired for sale are referred to as "correspondent lending loans." Following is a summary of the distribution of the Company's mortgage loans at fair value as of the dates presented:

			September 30, 2010								December 31, 2009
Loan Type			Fair value		% total			Average note rate			Fair value		% total			Average note rate
			(dollars in thousands)
Correspondent lending loans:
	Government insured or guaranteed		$	3,867		2	%		4.61	%	$	—
	Fixed-rate Agency-eligible:
		30 year		783		0	%		5.04	%		—
		15 year		98		0	%		4.50	%		—
				4,748		2	%		4.68	%		—		0	%
Other mortgage loans:
	Nonperforming loans		$	181,947		74	%		6.60	%		—		0	%
	Performing loans:
		Fixed		38,777		16	%		7.05	%		24,533		94	%		8.15	%
		ARM/Hybrid		17,731		7	%		4.64	%		1,454		6	%		7.89	%
		Interest rate step-up		1,646		1	%		2.55	%		—		0	%
		Balloon		63		0	%		9.94	%		59		0	%		9.94	%
				240,164		98	%		6.50	%		26,046		100	%		8.14	%
			$	244,912		100	%		6.47	%	$	26,046		100	%		8.14	%

18

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7—Mortgage Loans at Fair Value (Continued)

        At September 30, 2010, approximately 50% of the non correspondent lending mortgage loan portfolio consisted of mortgage loans that were originated between 2005 and 2007, and 79% of the loans are secured by owner-occupied properties. Over 63% of the estimated fair value of the mortgage loans in this portfolio is comprised of loans with loan-to value ratios in excess of 100% at September 30, 2010. The non correspondent lending mortgage loan portfolio consists of mortgage loans originated throughout the United States with loans secured by California real estate comprising approximately 25% of the loan portfolio's estimated fair value at September 30, 2010. The non correspondent lending mortgage loan portfolio contains loans from Florida, Illinois and New York, that each represent more than 5% of the portfolio's estimated fair value at September 30, 2010. At December 31, 2009, approximately 98% of the non correspondent lending mortgage loan portfolio consisted of loans originated between 2006 and 2008 and approximately 84% of the loans were secured by owner-occupied properties. Approximately 65% of the estimated fair value of the non correspondent lending mortgage loans were comprised of loans with loan-to value ratios in excess of 100%. The non correspondent lending mortgage loan portfolio consisted of mortgage loans originated throughout the United States with no single state having a concentration of 10% or more of the loan portfolio's estimated fair value at December 31, 2009. This mortgage loan portfolio contained loans from Illinois, California, Arizona, Texas, Maryland and Florida, that each represented more than 5% of the portfolio's estimated fair value at December 31, 2009. At December 31, 2009 none of the loans in this portfolio were 90 days or more delinquent and there were no loans on non-accrual status.

Note 8—Real Estate Acquired in Settlement of Loans

        Following is a summary of the activity in real estate acquired in settlement of loans for the periods presented:

	Quarter ended September 30, 2010			Period from August 4, 2009 (commencement of operations) to September 30, 2009		Nine months ended September 30, 2010
	(in thousands)
Balance at beginning of period	$	13,241		$	—	$	—
Purchases		—			—		1,238
Transfers from mortgage loans		18,460			—		31,762
Valuation adjustments		604			—		939
Sales		(6,193	)		—		(7,827	)
Balance at period end	$	26,112		$	—	$	26,112

Note 9—Securities Sold Under Agreements to Repurchase

        On September 30, 2010, the Company had a financing arrangement to sell securities under agreements to repurchase. The repurchase agreements are collateralized by MBS and have terms of three weeks and three months. All securities underlying repurchase agreements are held by the buyer. The repurchase agreements bear interest at the one-month London Inter-Bank Offered Rate plus 75 basis points. All agreements are to repurchase the same or substantially identical securities.

19

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9—Securities Sold Under Agreements to Repurchase (Continued)

        Financial data pertaining to securities sold under agreements to repurchase were as follows:

	Quarter ended September 30, 2010			Period from August 4, 2009 (commencement of operations) to September 30, 2009		Nine months ended September 30, 2010
	(dollar amounts in thousands)
Weighted-average interest rate at end of period		1.36	%				1.36	%
Weighted-average interest rate during the period		1.45	%				1.45	%
Average balance of securities sold under agreements to repurchase	$	67,642		$	—	$	22,795
Maximum daily amount outstanding	$	121,047		$	—	$	121,047
Total interest expense	$	251		$	—	$	251
Fair value of MBS securing agreements to repurchase at period-end	$	137,049		$	—	$	137,049

Note 10—Shareholders' Equity

        As more fully described in the Company's Annual Report, certain of the underwriting costs incurred in the IPO were paid on PMT's behalf by PCM and a portion of the underwriting discount was deferred by agreement with the underwriters of the offering. Reimbursement to PCM and payment to the underwriters of the deferred underwriting discount are both contingent on PMT's performance during the 24 full calendar quarters after the date of the completion of its IPO, August 4, 2009. If PMT meets the specified performance levels during the 24-quarter period, the Company will reimburse PCM approximately $2.9 million of underwriting costs paid by PCM on the offering date and pay the underwriters approximately $5.9 million in deferred underwriting discount. If this requirement is not satisfied by the end of such 24-quarter period, the Company's obligation to reimburse PCM and make the conditional payment of the underwriting discount will terminate. Management has concluded that this contingency is probable of being met during the 24-quarter period and has recognized a liability for reimbursement to PCM and payment of the contingent underwriting discount as a reduction of additional paid-in capital.

Note 11—Share-Based Compensation Plan

        The Company's equity incentive plan allows for grants of equity-based awards up to an aggregate of 8% of PMT's issued and outstanding shares on a diluted basis at the time of the award. Restricted share units have been awarded to trustees and officers of the Company and to employees of PCM and PLS at no cost to the grantees. Such awards generally vest over a one- to four-year period. Expense relating to awards is recorded in compensation.

20

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11—Share-Based Compensation Plan (Continued)

        The table below summarizes restricted share unit activity and compensation expense for the periods presented:

		Quarter ended September 30, 2010			Period from August 4, 2009 (commencement of operations) to September 30, 2009		Nine months ended September 30, 2010
		(In thousands, except share data)
Number of shares:
	Outstanding at beginning of period		371,210			—		374,810
	Granted		—			375,330		23,600
	Vested		(97,026	)		—		(97,026	)
	Canceled		(1,200	)		—		(28,400	)
	Outstanding at end of period		272,984			375,330		272,984
Expense recorded during the period		$	368		$	345	$	1,589
At September 30, 2010:
	Weighted average grant date fair value per share	$	9.22
	Shares available for future awards(1)		1,095,442

(1)

Based on shares outstanding as of September 30, 2010. Total shares available for future awards may be adjusted in accordance with the equity incentive plan based on future issuances of PMT's shares as described above.

Note 12—Income Taxes

        Management believes that the Company qualifies to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code. Therefore, PMT generally will not be subject to corporate federal or state income tax to the extent that qualifying distributions are made to shareholders and the Company meets REIT requirements including certain asset, income, distribution and share ownership tests.

        The Company has elected to treat one of its subsidiaries as a taxable REIT subsidiary ("TRS"). In general, a TRS of the Company may engage in any real estate or non-real estate related business (except for the operation or management of health care facilities or lodging facilities or the provision to any person, under a franchise, license or otherwise, of rights to any brand name under which any lodging facility or health care facility is operated). A TRS is subject to corporate federal and state income tax. Accordingly, a provision for income taxes for the TRS is included in the accompanying consolidated results of operations.

        The Company currently operates in a manner that allows it to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. If the Company

21

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12—Income Taxes (Continued)

were to fail to meet these requirements, the Company could be subject to federal and state income tax on some or all of its consolidated income.

        At December 31, 2009, the Company's TRS had net operating loss carry forwards of approximately $106,000, expiring in 2029. The Company ascribed a full valuation allowance to its net deferred tax assets due to the uncertainty in forecasting future TRS taxable income. As the projected income for 2010 indicated the loss carryover would be utilized in 2010, the valuation allowance was reversed during the nine months ended September 30, 2010.

        Following is a summary of income tax expense for the periods presented:

	Quarter ended September 30, 2010		Period from August 4, 2009 (commencement of operations) to September 30, 2009		Nine months ended September 30, 2010
	(in thousands)
Current expense	$	361	$	—	$	2,445
Deferred expense		—		—		—
Reversal of valuation allowance		—		—		(45	)
	$	361	$	—	$	2,400

        Following is a reconciliation of income tax expense at statutory rates to the income tax expense at the Company's effective rate:

	Quarter ended September 30, 2010						Period from August 4, 2009 (commencement of operations) to September 30, 2009					Nine months ended September 30, 2010
	Amount			Rate			Amount		Rate			Amount			Rate
	(in thousands)
Federal income tax expense at statutory tax rate	$	2,831			35.0	%	$	—		—	%	$	6,837			35.0	%
Effect of non-taxable REIT income		(2,460	)		(19.9	)%		—		—	%		(4,800	)		(24.6	)%
State income taxes, net of federal benefit		61			3.2	%		—		—	%		410			2.1	%
Other		(71	)		0.7	%		—		—	%		(2	)		(0.0	)%
Reversal of valuation allowance		—			0.0	%		—		—	%		(45	)		(0.2	)%
Provision for income taxes and effective tax rate	$	361			19.0	%	$	—		—	%	$	2,400			12.3	%

Note 13—Recently Issued Accounting Pronouncements

        In January 2010, the FASB issued an Accounting Standards Update ("ASU"), ASU 2010-06 to the Fair Value Measurements and Disclosure topic of the Accounting Standards Codification. The ASU requires additional disclosures about the transfers of classifications among the fair value classification

22

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 13—Recently Issued Accounting Pronouncements (Continued)

levels and the reasons for those changes and separate presentation of purchases, sales, issuances and settlements in the presentation of the roll forward of Level 3 assets and liabilities. The ASU also clarifies disclosure requirements relating to the level of disaggregation of disclosures relating to classes of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value estimates for Level 2 or Level 3 assets and liabilities.

        The requirements of the ASU are effective for interim and annual disclosures for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value estimates. Those disclosures are effective for interim and annual reporting periods for fiscal years beginning after December 15, 2010. The adoption of this ASU did not have a material effect on the Company's financial statements.

Note 14—Commitments and Contingencies

        From time to time, the Company may be involved in various proceedings, claims and legal actions arising in the ordinary course of business. As of September 30, 2010, the Company was not involved in any such proceedings, claims or legal actions that would have a material adverse effect on the Company.

Note 15—Regulatory Net Worth Requirement

        On September 23, 2010, PennyMac Corp., the Company's TRS, received conditional approval as a seller-servicer for Fannie Mae. Fannie Mae's conditional approval required PennyMac Corp. to deposit, for a period of 12 months, $5.0 million in a pledged cash account to secure its performance under its master agreement with Fannie Mae. PennyMac Corp. established the pledged cash account after September 30, 2010.

        To retain its status as an approved seller-servicer, PennyMac Corp. is required to meet Fannie Mae's capital standards, which require PennyMac Corp. to maintain a minimum net worth of $2.5 million. Management believes PennyMac Corp. complies with Fannie Mae's net worth requirement as of September 30, 2010.

Note 16—Subsequent Events

        After September 30, 2010, the Company placed $5.0 million into a pledged cash account to comply with the conditions for approval of PennyMac Corp as an approved seller-servicer for FannieMae.

        After September 30, 2010, through November 4, 2010, PCM committed the Company to acquire mortgage loans with an estimated fair value of $222.0 million. The pending transaction is subject to changes in the loans allocated to the Company by PCM, continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition. There can be no assurance that the committed amounts will ultimately be acquired or that the transaction will be completed at all.

23

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 16—Subsequent Events (Continued)

        On November 2, 2010, the Company's Board of Trustees declared a cash distribution of $0.42 per share payable on November 30, 2010 to holders of record of the Company's shares as of November 19, 2010.

        On November 2, 2010, the Company entered into a master repurchase agreement with Wells Fargo Bank, N.A. ("WFB"), pursuant to which two of PMT's wholly-owned subsidiaries may sell, and later repurchase, certain distressed assets in an aggregate principal amount of up to $100 million (the "NPL Facility"). The NPL Facility is committed for a period of 364 days and the obligations of these subsidiaries are fully guaranteed by PMT.

        Under the terms of the NPL Facility, (i) PennyMac Mortgage Investment Trust Holdings I, LLC ("PMITH"), a qualified REIT subsidiary, may sell to WFB eligible nonperforming mortgage loans and participation interests in certificated real estate mortgage investment conduits that hold nonperforming mortgage loans ("Participations"), and (ii) PennyMac Corp., the Company's taxable REIT subsidiary, may sell to WFB eligible nonperforming mortgage loans and equity interests (the "SPE Entity Interest") in a special purpose entity that owns real property acquired upon settlement of mortgage loans ("REO Property"). The principal amount paid by WFB is based on a percentage of the market value of the mortgage loans, the mortgage loans underlying the Participations, or the REO Property underlying the SPE Entity Interest (each, a "Facility Asset"), as applicable. The mortgage loans and real property are serviced by PLS pursuant to the terms of the NPL Facility.

        Upon the repurchase, or the sale, securitization or liquidation, of a Facility Asset, PennyMac Corp. is required to repay WFB the principal amount related to such Facility Asset plus accrued interest (at a rate reflective of the current market and based on LIBOR plus a margin) to the date of such repurchase, sale, securitization or liquidation. The Company is also required to pay WFB a fee for the structuring of the NPL Facility, as well as certain other administrative costs and expenses in connection with WFB's structuring, management and ongoing administration of the NPL Facility.

        The NPL Facility contains margin call provisions that provide WFB with certain rights where there has been both (a) the occurrence of one or more trigger events, which are based on aging timelines, repurchase volume, sale and disposition volume, and other criteria, and (b) a decline in the market value of the purchased mortgage loans and Participations. Under these circumstances, WFB may require PMITH and/or PMC to transfer cash or additional eligible mortgage loans or Participations with an aggregate market value in an amount sufficient to eliminate any margin deficit resulting from such a decline.

        The NPL Facility and the related guaranty require PMT to maintain various financial and other covenants, which include maintaining (i) a minimum tangible net worth of $265 million, plus 75% of the aggregate net proceeds received by it in connection with future equity issuances, (ii) a minimum of $5 million in unrestricted cash and cash equivalents, and (iii) a maximum ratio of total liabilities to tangible net worth of less than 3:1. The NPL Facility also requires PLS to maintain certain financial covenants.

        In addition, the NPL Facility contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, servicer termination events, guarantor defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such

24

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 16—Subsequent Events (Continued)

events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the NPL Facility and the liquidation by WFB of the Facility Assets then subject to the NPL Facility.

        The foregoing description of the NPL Facility does not purport to be complete and is qualified in its entirety by reference to the full text of the master repurchase agreement and the related guaranty, which have been filed with this Report as Exhibits 10.11 and 10.12, respectively.

        On November 2, 2010, the Company entered into a master repurchase agreement with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"), pursuant to which PMC may sell, and later repurchase, newly originated mortgage loans in an aggregate principal amount of up to $75 million (the "Loan Repo Facility"). The Loan Repo Facility will be used to fund newly originated mortgage loans that are purchased from correspondent lenders by PMC and held for sale and/or securitization. The Loan Repo Facility is committed for a period of 364 days and the obligations of PMC are fully guaranteed by PMT and the Operating Partnership.

        The principal amount paid by CSFB for each eligible mortgage loan is based on a percentage of the lesser of the market value or the unpaid principal balance of such mortgage loans. Upon PennyMac Corp.'s repurchase of a mortgage loan, it is required to repay CSFB the principal amount related to such mortgage loan plus accrued interest (at a rate reflective of the current market and based on CSFB's cost of funds plus a margin) to the date of such repurchase. PennyMac Corp. is also required to pay CSFB a commitment for the Loan Repo Facility, as well as certain other administrative costs and expenses in connection with CSFB's structuring, management and ongoing administration of the Loan Repo Facility.

        The Loan Repo Facility contains margin call provisions that provide CSFB with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, CSFB may require PMC to transfer cash or additional eligible mortgage loans with an aggregate market value in an amount sufficient to eliminate any margin deficit resulting from such a decline.

        The Loan Repo Facility requires PMC to maintain various financial and other covenants, which include maintaining (i) a minimum tangible net worth of $65 million, plus 50% of its positive quarterly net income for the prior quarter, (ii) a minimum of $7.5 million in unrestricted cash and cash equivalents, (iii) a maximum ratio of total liabilities to tangible net worth of less than 10:1, and (iv) profitability during any rolling three month period.

        The Loan Repo Facility also requires PMT to maintain various financial and other covenants, which include maintaining (i) a minimum tangible net worth of $300 million, and (ii) a minimum of $10 million in unrestricted cash and cash equivalents.

25

PENNYMAC MORTGAGE INVESTMENT TRUST AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 16—Subsequent Events (Continued)

        In addition, the Loan Repo Facility contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Loan Repo Facility and the liquidation by CSFB of the mortgage loans then subject to the Loan Repo Facility.

        The foregoing description of the Loan Repo Facility and the related guaranty by PMT and the Operating Partnership do not purport to be complete and are qualified in their entirety by reference to the full text of the master repurchase agreement and the related guaranty, which have been filed with this Report as Exhibits 10.13 and 10.14, respectively.

26

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        As used in this Report, references to "we," "our," "the Company" and "PMT" refer to PennyMac Mortgage Investment Trust and its consolidated subsidiaries unless otherwise indicated. This discussion includes forward-looking statements concerning future events and performance of the Company, which are subject to certain risks and uncertainties as discussed below under Factors That May Affect Our Future Results.

Overview

        We are a specialty finance company that invests primarily in residential mortgage loans and mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. We intend to achieve this objective primarily by investing in mortgage loans, a substantial portion of which may be distressed and acquired at discounts to their unpaid principal balances. We acquire these loans through direct acquisitions of mortgage loan portfolios from institutions such as banks, mortgage companies and insurance companies and direct acquisitions or participations in structured transactions. A significant portion of the nonperforming loans purchased in 2010 has been acquired from one major financial institution.

        We seek to maximize the value of the mortgage loans that we acquire using means that are appropriate for the particular loan, including both proprietary and nonproprietary loan modification programs (such as HAMP), special servicing and other initiatives focused on avoiding foreclosure, when possible. When we are unable to effect a cure for a mortgage delinquency, our objective is to effect timely acquisition and/or liquidation of the property securing the loan. We supplement these activities through participation in other mortgage-related activities, which are in various states of analysis, planning or implementation:

•

acquisition and sale or securitization of mortgage loans in a conduit capacity between originators of mortgage loans and the MBS markets. Changes in the mortgage market have significantly reduced the outlets for sales of mortgage loans by smaller mortgage originators who have traditionally sold their loans to larger mortgage companies and banks who, in turn, sold those loans into securitizations. We believe these changes provide us with the opportunity to act as a conduit between these loan originators and the securitization markets. During the quarter ended September 30, 2010, we purchased loans with unpaid balances totaling $12.1 million in furtherance of our conduit strategy.

•

acquisition of REIT-eligible MBS. We believe that the recent dislocations of the residential mortgage markets have disproportionately affected the pricing of certain classes of MBS, thereby providing attractive investment opportunities in certain residential and commercial mortgage-backed and asset-backed securities. Such securities include securities backed by Alt-A and subprime mortgage loans. Our portfolio of MBS amounts to $137.0 million at September 30, 2010.

•

providing inventory financing of mortgage loans for smaller mortgage originators. We believe this activity will supplement and make our conduit capacity more attractive to lenders from which we acquire newly originated loans.

•

acquisition of mortgage servicing rights ("MSRs"). We believe that opportunities exist to acquire mortgage servicing rights from liquidating and other institutions. We also believe that MSR investments would allow PMT to capture attractive current returns and to leverage the capabilities and efficiencies of PLS to improve the asset's value. We intend to retain the MSRs that we receive as proceeds from our sale or securitization of mortgage loans through our correspondent lending operation.

27

•

underwriting and funding of mortgage loans sourced by financial intermediaries.

•

acquisition of distressed loans or residential real estate. For example, we believe that opportunities exist to acquire condominium development loans at a discount, finance the completion of the project and design and deliver complete condominium financing solutions. This solution creates the opportunity to effectively repackage distressed developer loans into high quality residential loans.

        We are externally managed by PCM, an investment adviser that specializes in, and focuses on, residential mortgage loans.

        The Company conducts substantially all of its operations, and makes substantially all of its investments, through the Operating Partnership and its subsidiaries. A wholly-owned subsidiary of the Company is the sole general partner of the Operating Partnership and the Company is the sole limited partner.

        We believe that we qualify to be taxed as a REIT. We believe that we will not be subject to federal income tax on that portion of our income that is distributed to shareholders as long as we meet certain asset, income and share ownership tests. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, our profits will be subject to income taxes and we may be precluded from qualifying as a REIT for the four tax years following the year we lose our REIT qualification. A portion of the Company's activities are conducted in a taxable REIT subsidiary, which is subject to corporate federal and state income taxes. Accordingly, the Company has made a provision for income taxes with respect to the operations of its taxable REIT subsidiary. We expect that the effective rate for the provisions for income taxes will be volatile in future periods. Our goal is to manage the business to take full advantage of the tax benefits afforded to the Company as a REIT.

Observations on Current Market Opportunities

        The U.S. economy continues its pattern of modest growth, with economic data providing mixed reports on the economic recovery. During the second quarter of 2010, the U.S. gross domestic product expanded at a 1.6% annual rate compared to the first quarter's 3.7% annual rate. Residential real estate transactions have settled to historically low rates following the expiration of the first-time homebuyer credit on April 30, 2010. While the economy continues to grow, its growth has not been strong enough to improve the employment market. The September 2010 unemployment rate of 9.6% marked the seventeenth consecutive month of unemployment rates above 9%, a rate that is high by recent historical standards. High unemployment levels are reflected in increasing personal and business bankruptcy filings as well as high delinquency and foreclosure rates on residential mortgage loans.

        These conditions have contributed to continuing distress in the banking industry. During the third quarter of 2010, 41 depository institutions were seized, compared to 45 depository institutions in the second quarter. Year-to date through September 30, 2010, 132 institutions were seized compared to 140 institutions in all of 2009. As of June 30, 2010, the most recent date for which problem bank information is available, the number of problem banks as identified by the FDIC increased to 829 from 775 at March 31, 2010 and 702 at December 31, 2009.

        30-year mortgage interest rates declined from 4.58% for the week ended July 1, 2010 to 4.32% for the week ended September 30, 2010 (Source: Freddie Mac's Weekly Primary Mortgage Market Survey). For the nine months ended September 30, 2010, mortgage interest rates have remained at historically low levels, ranging from 4.19% to 5.21%.

        Our Manager continues to see substantial volumes of nonperforming residential mortgage loan sales by a limited number of sellers, but very few sales of troubled but performing loans. During the quarter ended September 30, 2010 we made acquisitions of distressed mortgage loans, primarily from one seller, totaling $72.7 million. After September 30, 2010, PCM committed to acquire on our behalf, mortgage loans with an estimated fair value of $222.0 million. The pending transaction is subject to

28

changes in the loans allocated to us by PCM, continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition. There can be no assurance that the committed amount will be acquired or that the transaction will be completed at all. We expect that our mortgage loan portfolio may continue to grow at an uneven pace, as opportunities to acquire distressed mortgage loans may be irregularly timed and may involve large portfolios of mortgage loans, and the timing and extent of our success in acquiring such mortgage loans, along with availability of capital to complete such transactions cannot be predicted. During the quarter ended September 30, 2010, we also made acquisitions of MBS totaling $52.3 million to supplement our investments in distressed mortgage loans and to ensure compliance with the REIT tax regulations relating to our asset composition.

        We believe that the collapse of the independent mortgage company business model and the weakened condition of banks and other traditional mortgage lenders have created additional opportunities for our business. Under current market conditions, these opportunities include the purchase from smaller mortgage lenders of newly originated mortgage loans that are eligible for sale to a government-sponsored entity ("GSE") such as the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") (Freddie Mac and Fannie Mae are each referred to as an "Agency" and, collectively, as the "Agencies"). To the extent market conditions improve, these opportunities could also include the purchase of newly originated mortgage loans that can be resold in the non-Agency whole loan market or securitized in the private label market. We believe that this strategy would also benefit us by supplementing PCM's continuing efforts to increase the number of relationships with depository and other financial institutions that may hold distressed residential mortgage loans. During the nine months ended September 30, 2010, our Manager made acquisitions on our behalf of $27.7 million in fair value of newly originated mortgage loans.

        We benefit from PCM's analytical and portfolio management expertise and technology in evaluating these investment opportunities. Furthermore, we seek to maximize the value of the mortgage loans we acquire using PCM's proprietary portfolio strategy techniques to identify the appropriate approach for each loan and, through the workout oriented servicing platform of PLS, offer borrowers alternatives, including, where appropriate, the modification of the terms and conditions of loans in a manner that reflects the borrowers' financial condition and residential property values. Mortgage loans may become re-performing through effective modification, restructuring and other techniques, and the mortgage loans subsequently may be monetized through a variety of disposition strategies. When we are unable to effect a cure for a mortgage delinquency, as is the case with a significant percentage of nonperforming loans, our objective is to effect timely acquisition and/or liquidation of the property securing the loan.

Results of Operations for the Quarter Ended September 30, 2010 compared to the Period from August 4, 2009 (Commencement of Operations) to September 30, 2009

        The following is a summary of our key performance measures for the periods presented:

		Quarter ended September 30, 2010		Period from August 4, 2009 (commencement of operations) to September 30, 2009
		(in thousands, except per share data)
Net investment income		$	12,656	$	816
Net income (loss)		$	7,729	$	(730	)
Diluted earnings (loss) per share		$	0.45	$	(0.04	)
Distributions per share:
	Declared	$	0.35	$	—
	Paid	$	0.35	$	—
Total assets at period end		$	453,971	$	324,187

29

        During the quarter ended September 30, 2010, we recorded net income of $7.7 million, or 45 cents per diluted share. Our net income reflects net gains on our investments totaling $8.2 million, including $4.0 million of valuation gains, supplemented by $3.8 million interest income, as well as gains on real estate operations of $637,000.

        During the period from August 4, 2009 (commencement of operations) to September 30, 2009, our operations were limited to investment of the proceeds of our IPO into our short-term investment and the purchase of certain short-lived MBS pending reinvestment of the proceeds into our targeted asset classes. The loss reflects the low yield on the temporary investments held pending investments in our targeted asset classes that did not offset the management fees and other expenses incurred during the period.

        The net loss for the period from August 4, 2009 (commencement of operations) to September 30, 2009 does not include provision for recovery by PCM of common overhead costs allowable under PMT's management agreement with PCM. PCM management waived recovery of common overhead during our startup period through March 31, 2010. Our results for the quarter ended September 30, 2010 include provision for reimbursement of $497,000 of common overhead expenses.

Asset Acquisitions

        During the quarter ended September 30, 2010, we made acquisitions of mortgage loans for investment and MBS with fair values of $72.7 million and $52.3 million, respectively. These acquisitions were financed from the sale of securities under agreements to repurchase along with cash flows from sale or repayment of our existing investments. After September 30, 2010 and through November 4, 2010, PCM committed us to acquire an additional $222.0 million in estimated fair value of mortgage loans. Our pending acquisition of mortgage loans is subject to changes in the loans allocated to us by PCM, continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition, and there can be no assurance that we will complete the acquisition of all of the loans subject to the commitment or that the acquisition will be completed at all. These acquisitions compare to acquisitions of MBS with fair values totaling $69.5 million during the period from August 4, 2009 (commencement of operations) to September 30, 2009.

        The mortgage loans acquired for investment during the quarter had unpaid principal balances on the purchase dates totaling $147.4 million and purchase discounts totaling $74.7 million. Over 97% of the loans were nonperforming. Approximately 99% of the loans had FICO scores at origination below 700. Approximately 33% of the mortgage loans acquired during the quarter are secured by California real estate.

        The MBS acquired during the quarter ended September 30, 2010 were backed by subprime loans, were rated below investment grade and are currently cash flowing senior-tranche securities with a remaining expected life of 0.97 years with an expected yield at period-end of 4.29%. This compares to the acquisitions made during the period from August 4, 2009 (commencement of operations) to September 30, 2009, which were backed by non-Agency Alt-A, subprime and prime jumbo loans and were currently cash flowing senior priority securities with an average remaining life of approximately one and one-half years at acquisition.

30

Net Investment Income

        During the quarter ended September 30, 2010, we recorded net investment income totaling $12.7 million, comprised primarily of realized and unrealized gains (losses) on investments and interest income. Net investment income on financial investments for the periods presented is shown below:

		Quarter ended September 30, 2010
		Investment income
		Interest
		Coupon		Discount accrual		Total interest		Realized and unrealized gains		Total		Average balance		Annualized interest %(1)
		(dollars in thousands)
Short-term money market investment		$	10	$	—	$	10	$	—	$	10	$	18,545		0.22	%
Mortgage-backed securities:
	Non-Agency Alt-A		263		103		366		223		589		19,751		7.25	%
	Non-Agency subprime		110		651		761		254		1,015		71,391		4.18	%
	Non-Agency prime jumbo		99		3		102		119		221		13,449		2.97	%
			472		757		1,229		596		1,825		104,591		4.60	%
Mortgage loans			2,607		—		2,607		7,561		10,168		224,953		4.53	%
		$	3,089	$	757	$	3,846	$	8,157	$	12,003	$	348,089		4.32	%

(1)

Annualized interest excludes realized and unrealized gains.

		Period from August 4, 2009 (commencement of operations) to September 30, 2009
		Investment income
		Interest
		Coupon		Discount accrual		Total interest		Realized and unrealized gains (losses)			Total			Average balance		Annualized interest %(1)
		(dollars in thousands)
Short-term money market investment		$	100	$	—	$	100	$	—		$	100		$	277,374		0.22	%
Mortgage backed securities:
	Non-Agency Alt-A		160		59		219		274			493			17,290		7.87	%
	Non-Agency subprime		10		150		160		152			312			14,780		6.69	%
	Non-Agency prime jumbo		61		9		70		(159	)		(89	)		13,060		3.33	%
			231		218		449		267			716			45,130		6.17	%
		$	331	$	218	$	549	$	267		$	816		$	322,504		1.06	%

(1)

Annualized interest excludes realized and unrealized gains (losses).

        Gains on MBS were the result of valuation changes as we did not sell any MBS during 2009 or 2010. The realized and unrealized gains on mortgage loans for the quarter ended September 30, 2010 are summarized below (no comparative data is presented, as we did not hold mortgage loans during the comparative period in 2009):

		(in thousands)
Changes reflected in loans' carrying values:
	Valuation changes	$	4,012
	Payoffs		2,728
	Sales		821
		$	7,561

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        The change in fair value arising from loan payoffs results from our collection of loan balances at levels higher than the purchase price for such loans, including our acceptance of short payoffs (generally payoffs arising from sales by the borrower of the property securing our loan for less than the amount owing and our acceptance of a reduced payoff in order to resolve the loan) and full payoffs. The valuation changes recognized in our portfolio were primarily the result of real estate values underlying our loans performing better than the projections underlying our initial acquisition. We also realized gains on sales of mortgage loans.

        During the quarter ended September 30, 2010, we realized a return on settled mortgage loans of 26.7%. This return was calculated by taking the ratio of (x) the excess of (a) the proceeds from acquisition through resolution of mortgage loans that were resolved during the quarter (either through payoff, sale or liquidation of the collateral) in the amount of $26.5 million over (b) the purchase price of such loans in the amount of $20.9 million to (y) the purchase price of such loans in the amount of $20.9 million. The return does not include allocations of indirect costs or servicing costs related to management or resolution of the assets.

        The return on settled mortgage loans represents the return on investment for loans that were settled during the quarter ended September 30, 2010, and is based on the acquisition cost of the settled asset and all principal or sales-related proceeds received from the loan or real estate acquired in settlement of the loan after its acquisition regardless of the period in which proceeds were received. The measure excludes interest and other loan revenues, as well as expenses associated with the settled loans. Due to factors including the relative newness of these investments to us and the volatility of the market, we can provide no assurance that the return on settled loans is indicative of future returns on our existing mortgage investments or on future investments in mortgage-related assets.

        During the quarter ended September 30, 2010, we realized direct cash flows relating to our mortgage investments as follows:

		(in thousands)
Mortgage-backed securities—principal payments		$	19,788
Mortgage loans(1):
	Scheduled payments		448
	Liquidations(2)		11,952
	Payoff		4,540
	Sales		1,960
			18,900
Real estate acquired in settlement of loans—proceeds from sale			6,193
		$	44,881

(1)

Excluding correspondent lending loans

(2)

Loan repayments and settlements at less than the loans' unpaid balances (e.g. short payoffs, purchases at foreclosure sale)

        During the quarter ended September 30, 2010, we recognized annualized interest of 4.53% on our portfolio of mortgage loans. At September 30, 2010, approximately 76% of our portfolio of mortgages was nonperforming. We do not accrue interest on nonperforming loans and generally do not recognize revenues during the period we hold real estate acquired in settlement of loans.

        The revenue benefits of nonperforming loans and real estate acquired in settlement of loans generally take longer to realize than those of performing loans due to the time required to work with borrowers to resolve payment issues through our modification programs, to resolve any collateral

32

documentation deficiencies or to acquire and liquidate the property securing the mortgage loans. The value and returns we realize from these assets are determined by our ability to cure the borrowers' defaults, or when curing of borrower defaults is not a viable solution, by our ability to effectively manage the liquidation process. As a participant in HAMP, we are required to comply with the process specified by the HAMP program before liquidating a loan, which may extend the liquidation process. At September 30, 2010, we held $181.9 million in fair value of nonperforming loans and $26.1 million in carrying value of real estate acquired in settlement of loans.

        During the quarter ended September 30, 2010, we also earned an annualized interest yield of approximately 4.60% on our portfolio of MBS and recognized fair value gains totaling $596,000 due to increased demand for non-Agency MBS in the marketplace that is not presently being matched by increased securitization volumes. We acquired our current portfolio of MBS initially as a short-term investment to enhance the yield we earn on our investments pending reinvestment of the proceeds of our initial equity offerings into our targeted asset classes. We have continued to invest in MBS as a complement to our investments in mortgage loans and as a means of ensuring our compliance with REIT tax regulations governing our asset composition.

        During the quarter ended September 30, 2010, we recorded a loss of $17,000 on sale of $12.1 million in unpaid principal balance relating to our correspondent lending activities. We also recorded $637,000 in results of real estate acquired in settlement of loans.

Expenses

        Our expenses for the periods presented are summarized below:

		Quarter ended September 30, 2010		Period from August 4, 2009 (commencement of operations) to September 30, 2009
		(in thousands)
Management fees		$	1,237	$	812
Compensation			573		483
Loan servicing fees			885		—
Professional services			628		72
Interest			251		—
Insurance			191		131
Other			801		48
	Total expenses	$	4,566	$	1,546

        The increase in our expenses was due to the difference in the length of the comparative periods between 2010 and 2009, and:

•

the introduction of loan servicing fees during 2010, owing to our acquisitions of mortgage loans beginning in December of 2009;

•

growth in professional services expenses primarily due to legal expenses incurred in support of completed and contemplated transactions;

•

growth in other expenses primarily due to allocation of common overhead expenses from our Manager and its affiliates. Our Manager waived its claim for reimbursement of common overhead expenses during the period from August 4, 2009 (commencement of operations) to September 30, 2009; and

•

recognition of interest expense during the quarter ended September 30, 2010, as we began using borrowings as a means of increasing our investment capacity.

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        We did not record any incentive management fee during either period as the threshold (as summarized in Note 4—Transactions with Related Parties in our Annual Report) for recognizing the incentive portion of the management fee in either period was not attained.

Results of Operations for the Nine Months Ended September 30, 2010

        The following is a summary of our key performance measures for the nine months ended September 30, 2010:

		(in thousands, except per share data)
Net investment income		$	30,425
Net income		$	17,134
Diluted earnings per share		$	1.01
Distributions per share:
	Declared	$	0.35
	Paid	$	0.35
Total assets at period end		$	453,971

        During the nine months ended September 30, 2010, we recorded net income of $17.1 million, or $1.01 per diluted share. Our net investment income includes net gains on our investments totaling $19.1 million, including $8.1 million of valuation gains, supplemented by $10.3 million of interest income as well as results of real estate acquired in settlement of loans of $972,000.

        Our net income for the period includes a provision of $978,000 for recovery by PCM of common overhead expenses pertaining to the second and third quarters of 2010 allowable under PMT's management agreement with PCM. PCM waived recovery of these costs during the startup of our operations through the quarter ended March 31, 2010. For the first quarter of 2010, PCM management waived recovery of common overhead expenses approximating $500,000. We expect PCM will no longer waive their right to claim recovery of these expenses.

Asset Acquisitions

        During the nine months ended September 30, 2010, we made acquisitions of MBS, mortgage loans and real estate acquired in settlement of loans with fair values of $89.2 million, $270.8 million and $1.2 million, respectively. As a result, we have fully invested the proceeds of our IPO and have begun leveraging our investment capacity with borrowings in the form of sales of securities under agreements to repurchase.

        The mortgage loans acquired during the nine months ended September 30, 2010 had unpaid principal balances on the purchase dates totaling $550.5 million and purchase discounts totaling $265.9 million. Approximately 89% of the loans were nonperforming with approximately 88% of the loans having FICO scores at origination below 700. Approximately 28% of the mortgage loans acquired during the nine months ended September 30, 2010 are secured by California real estate.

        After September 30, 2010 and through November 4, 2010, PCM committed to acquire an additional $222.0 million in estimated fair value of mortgage loans on our behalf. Our pending acquisition of mortgage loans is subject to changes in the loans allocated to us by PCM, continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition. There can be no assurance that we will complete the acquisition of all of the loans subject to the commitment or that the acquisition will be completed at all.

        The MBS acquired during the nine months ended September 30, 2010 were backed by subprime loans, were generally rated below investment grade and are currently cashflowing securities with a remaining expected life of 0.82 years with an expected yield at period-end of 4.34%.

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Net Investment Income

        During the nine months ended September 30, 2010, we recorded net investment income totaling $30.4 million, comprised primarily of realized and unrealized gains (losses) on investments of $19.1 million, supplemented by $10.3 million of interest income, as well as gains on real estate operations of $972,000.

        Net investment income on financial instruments during the nine months ended September 30, 2010 is shown below:

			Nine months ended September 30, 2010
			Interest income
			Coupon		Discount accrual		Total		Realized and unrealized gains (losses)			Total revenue		Average balance		Annualized interest %(1)
			(dollars in thousands)
Short-term money market investment			$	77	$	—	$	77	$	—		$	77	$	85,547		0.12	%
Mortgage-backed securities:
	Non-Agency Alt-A			908		521		1,429		213			1,642		22,923		8.22	%
	Non-Agency subprime			189		1,782		1,971		(44	)		1,927		48,077		5.41	%
	Non-Agency prime jumbo			365		15		380		277			657		15,358		3.26	%
		Total mortgage-backed securities		1,462		2,318		3,780		446			4,226		86,358		5.77	%
Mortgage loans				6,445		—		6,445		18,688			25,133		154,473		5.50	%
			$	7,984	$	2,318	$	10,302	$	19,134		$	29,436	$	326,378		4.16	%

(1)

Annualized interest yield excludes realized and unrealized gains (losses).

        Realized and unrealized gains on mortgage loans for the period are summarized below:

		(in thousands)
Changes reflected in loans' carrying values:
	Payoffs	$	9,517
	Valuation changes		8,151
	Sales		1,020
		$	18,688

        The change in fair value arising from loan payoffs results from our collection of loan balances at levels higher than our purchase price for such loans, including our acceptance of short payoffs (generally payoffs arising from sales by the borrower of the property securing our loan for less than the amount owing and our acceptance of a reduced payoff in order to resolve the loan) and full payoffs. We also realized gains on sales of mortgage loans. The valuation changes recognized in our portfolio were primarily the result of real estate values underlying our loans performing better than the projections underlying our initial acquisition.

        During the nine months ended September 30, 2010, we recognized annualized interest of 5.50% on our portfolio of mortgage loans. At September 30, 2010, approximately 76% of our portfolio of mortgages was nonperforming. We do not accrue interest on nonperforming loans and generally do not recognize revenues during the period we hold real estate acquired in settlement of loans.

        The revenue benefits of nonperforming loans and real estate acquired in settlement of loans generally take longer to realize than those of performing loans due to the time required to work with

35

borrowers to resolve payment issues through our modification programs or to acquire and liquidate the property securing the mortgage loans. The value and returns we realize from these assets are determined by our ability to cure the borrowers' defaults, or when curing of borrower defaults is not a viable solution, by our ability to effectively manage the liquidation process. As a participant in HAMP, we are required to comply with the process specified by the HAMP program before liquidating a loan, which may extend the liquidation process. At September 30, 2010, we held $181.9 million in fair value of nonperforming loans and $26.1 million in carrying value of real estate acquired in settlement of loans.

        During the nine months ended September 30, 2010, we also earned an annualized interest yield of approximately 5.77% and recognized net fair value gains totaling $446,000 on our portfolio of MBS. The appreciation in fair value of our MBS was primarily due to increased demand for non-Agency MBS in the marketplace that is not presently being matched by increased securitization volumes. At September 30, 2010, our portfolio of MBS was comprised of currently cash flowing securities with an average yield at period-end of 5.38% and an estimated remaining life of approximately 0.94 years. We acquired our current portfolio of MBS initially as a short-term investment to enhance the yield we earn on our investments pending reinvestment of the proceeds of our initial equity offerings into our targeted asset classes. We have continued to invest in MBS as a complement to our investments in mortgage loans and as a means of ensuring our compliance with REIT tax regulations governing our asset composition.

        During the nine months ended September 30, 2010, we recorded a loss of $9,000 on sale of mortgage loans relating to our conduit activities relating to the sale of $13.2 million in unpaid principal balance of mortgage loans. We also recorded net gains of $972,000 in results of real estate acquired in settlement of loans.

Expenses

        Our expenses for the nine months ended September 30, 2010 are summarized below:

		(in thousands)
Management fees		$	3,650
Compensation			2,212
Loan servicing fees			1,561
Professional services			1,121
Interest			251
Insurance			588
Other			1,508
	Total expenses	$	10,891

        Expenses for the nine month period ended September 30, 2010 reflect growth in the Company during the year as we invested the proceeds from our IPO and began to use borrowings to increase our investment capacity. During the first quarter of 2010, PCM waived its claim to reimbursement of approximately $500,000 of shared overhead costs. Accordingly, those expenses are not included in the total for the nine month period.

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Investment Portfolio Composition

        Our portfolio of MBS is backed by non-Agency subprime, Alt-A and prime jumbo loans and consists of currently cash flowing senior priority securities with an average remaining life of approximately 0.9 years. We acquired these securities to provide a higher yield than we earn with our short-term money market investment pending reinvestment in suitable pools of mortgage loans or mortgage-related assets.

        The following is a summary of our portfolio of MBS as of the dates presented:

		September 30, 2010												December 31, 2009
						Average												Average
		Fair value		Principal		Life (years)		Coupon			Yield			Fair value		Principal		Life (years)		Coupon			Yield
		(dollar amounts in thousands)
Security collateral type:
	Non-Agency subprime	$	106,501	$	109,919		0.80		0.51	%		4.92	%	$	39,522	$	41,944		0.82		0.37	%		9.08	%
	Non-Agency Alt-A		18,476		19,098		1.40		5.30	%		9.17	%		27,060		28,416		1.57		5.13	%		9.08	%
	Non-Agency prime jumbo		12,072		12,043		1.48		2.99	%		3.55	%		17,189		17,452		1.42		3.43	%		4.34	%
		$	137,049	$	141,060		0.94		1.37	%		5.38	%	$	83,771	$	87,812		1.18		2.52	%		8.11	%

        At December 31, 2009, our mortgage loan portfolio had no nonperforming loans. Because of our acquisitions during the nine months ended September 30, 2010, 76% of our mortgage loan portfolio is now comprised of nonperforming loans. Following is a summary of the distribution of our non-correspondent lending mortgage loans at fair value at September 30, 2010:

	Performing loans								Nonperforming loans
Loan type	Fair value		% total			Average note rate			Fair value		% total			Average note rate
	(dollar amounts in thousands)
Fixed	$	38,777		16	%		7.05	%	$	69,429		29	%		7.15	%
ARM/Hybrid		17,731		7	%		4.64	%		111,812		47	%		6.26	%
Interest rate step-up		1,646		1	%		2.55	%		229		0	%		6.73	%
Balloon		63		0	%		9.94	%		477		0	%		7.61	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

	Performing loans								Nonperforming loans
Lien position	Fair value		% total			Average note rate			Fair value		% total			Average note rate
1st lien	$	58,212		24	%		6.11	%	$	181,947		76	%		6.60	%
2nd lien		—		0	%					—		0	%
Unsecured		5		0	%		0.00	%		—		0	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

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	Performing loans								Nonperforming loans
Occupancy	Fair value		% total			Average note rate			Fair value		% total			Average note rate
Owner occupied	$	50,450		21	%		6.01	%	$	138,521		58	%		6.56	%
Investment property		7,691		3	%		6.70	%		42,928		18	%		6.72	%
Other		76		0	%		6.50	%		498		0	%		6.85	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

	Performing loans								Nonperforming loans
Loan age	Fair value		% total			Average note rate			Fair value		% total			Average note rate
Less than 12 months	$	5		0	%		0.00	%	$	—		0	%
12 - 35 months		15,194		6	%		7.54	%		26,956		11	%		6.49	%
36 - 59 months		25,667		11	%		5.73	%		89,482		37	%		6.90	%
60 months or more		17,351		7	%		5.47	%		65,509		28	%		6.10	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

	Performing loans								Nonperforming loans
Origination FICO score	Fair value		% total			Average note rate			Fair value		% total			Average note rate
Less than 600	$	27,238		11	%		5.96	%	$	117,010		49	%		6.73	%
600 - 649		13,189		5	%		6.46	%		24,336		10	%		6.65	%
650 - 699		10,540		4	%		6.28	%		18,443		8	%		6.07	%
700 - 749		5,947		3	%		5.62	%		16,353		7	%		6.45	%
750 or greater		1,303		1	%		6.39	%		5,805		2	%		5.78	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

	Performing Loans								Nonperforming Loans
Current loan-to-value(1)	Fair value		% total			Average note rate			Fair value		% total			Average note rate
Less than 80%	$	13,974		6	%		6.17	%	$	25,647		11	%		6.49	%
80% - 99.99%		13,618		5	%		6.71	%		35,024		14	%		6.39	%
100% - 119.99%		11,874		5	%		6.25	%		40,044		17	%		6.51	%
120% or greater		18,751		8	%		5.70	%		81,232		34	%		6.69	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

(1)

Current loan-to-value is calculated based on the unpaid principal balance of the mortgage loan and our estimate of the value of the mortgaged property.

	Performing loans								Nonperforming loans
Geographic distribution	Fair value		% total			Average note rate			Fair value		% total			Average note rate
California	$	10,607		4	%		4.59	%	$	50,633		21	%		5.86	%
Florida		3,043		1	%		6.10	%		19,006		8	%		6.84	%
Illinois		4,137		2	%		6.13	%		10,587		4	%		6.53	%
New York		3,630		2	%		6.27	%		13,756		6	%		6.86	%
Other		36,800		15	%		6.64	%		87,965		37	%		6.95	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

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	Performing loans								Nonperforming loans
Payment status	Fair value		% total			Average note rate			Fair value		% total			Average note rate
Current	$	44,067		18	%		6.14	%	$	—		0	%
30 days delinquent		8,926		4	%		5.80	%		—		0	%
60 days delinquent		5,224		2	%		6.33	%		—		0	%
90 days or more delinquent		—		0	%					90,301		38	%		6.45	%
In foreclosure		—		0	%					91,646		38	%		6.73	%
	$	58,217		24	%		6.11	%	$	181,947		76	%		6.60	%

        Following is a summary of the distribution of our mortgage loan holdings, all of which were considered performing loans, at December 31, 2009:

Loan type	Fair value		% total			Average note rate
	(dollar amounts in thousands)
Fixed	$	24,533		94	%		8.15	%
ARM/Hybrid		1,454		6	%		7.89	%
Balloon		59		0	%		9.94	%
	$	26,046		100	%		8.14	%

Lien position	Fair value		% total			Average note rate
1st lien	$	26,046		100	%		8.14	%
2nd lien		—		0	%
	$	26,046		100	%		8.14	%

Occupancy	Fair value		% total			Average note rate
Owner occupied	$	21,890		84	%		8.10	%
Investment property		4,156		16	%		8.32	%
Second property		—		0	%
	$	26,046		100	%		8.14	%

Loan age	Fair value		% total			Average note rate
Less than 12 months	$	121		0	%		5.54	%
12 - 35 months		25,466		98	%		8.15	%
36 - 60 months		459		2	%		8.13	%
	$	26,046		100	%		8.14	%

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Origination FICO score	Fair value		% total			Average note rate
Less than 600	$	8,174		31	%		8.58	%
600 - 649		8,702		33	%		8.23	%
650 - 699		6,111		24	%		7.88	%
700 - 749		2,260		9	%		7.12	%
750 or greater		799		3	%		6.77	%
	$	26,046		100	%		8.14	%

Current loan-to-value(1)	Fair value		% total			Average note rate
Less than 80%	$	3,587		14	%		7.96	%
80% - 99.99%		5,401		21	%		8.37	%
100% - 119.99%		6,669		25	%		8.19	%
120% or greater		10,389		40	%		8.07	%
	$	26,046		100	%		8.14	%

(1)

Current loan-to-value is calculated based on the unpaid principal balance of the mortgage loan and our estimate of the value of the mortgaged property.

Geographic distribution	Fair value		% total			Average note rate
Illinois	$	2,346		9	%		8.11	%
California		2,155		8	%		6.57	%
Arizona		1,922		7	%		7.47	%
Texas		1,866		7	%		7.98	%
Maryland		1,582		6	%		8.02	%
Florida		1,495		6	%		7.69	%
Other		14,680		57	%		8.55	%
	$	26,046		100	%		8.14	%

Payment status	Fair value		% total			Average note rate
Current	$	24,057		92	%		8.13	%
30 days delinquent		1,360		5	%		8.26	%
60 days delinquent		629		3	%		8.23	%
90 days or more delinquent		—		0	%
In foreclosure		—		0	%
	$	26,046		100	%		8.14	%

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        Following is a summary of the geographic concentrations by state of our portfolio of real estate acquired in settlement of loans as of the dates presented:

						December 31, 2009
	September 30, 2010
						Fair value
	Fair value		% total					% total
California	$	10,360		40	%	$	—
Arizona		2,206		8	%		—
Florida		1,601		6	%		—
Maryland		1,049		4	%		—
Colorado		907		3	%		—
Other		9,989		39	%		—
	$	26,112		100	%	$	—

Cash Flows

        Our cash flows resulted in a net increase in cash of $25.1 million during the nine months ended September 30, 2010. The positive cash flows arose primarily due to cash provided by financing activities exceeding cash used by investing and operating activities. Cash used by operating activities totaled $27.7 million during the nine months ended September 30, 2010. This use of cash was primarily due to the growth of principal and interest payments receivable relating to our mortgage loans at fair value. This growth reflects the growth in our mortgage loan portfolio during the period. Principal and interest receivable are generally collected in the month following the month in which they are recognized.

        Net cash used by investing activities was $57.4 million for the nine months ended September 30, 2010. This use of cash reflects the conversion of our money market investment to mortgage loans and MBS and supplementation of the cash raised in our IPO with borrowings in the form of securities sold under agreements to repurchase to finance additional purchases of loans and MBS. The Company purchased MBS, mortgage loans and real estate acquired in settlement of loans and MBS with fair values of $89.2 million, $270.8 million and $1.2 million, respectively, during the nine month period. Approximately 52% of the Company's investments (comprised of non-correspondent lending mortgage loans, MBS and real estate acquired in settlement of loans) were nonperforming assets as of September 30, 2010. Nonperforming assets include mortgage loans delinquent 90 or more days and real estate acquired in settlement of loans. Accordingly, we expect that these assets will require a longer period to begin producing cash flow and the timing and amount of cash flows from these assets is less certain than for performing assets. During the period, we transferred $31.8 million of mortgage loans to real estate acquired in settlement of loans and realized cash proceeds from the sale of real estate acquired in settlement of loans totaling $7.8 million.

        Net cash provided by financing activities was $110.1 million for the nine months ended September 30, 2010. These funds were procured to finance the acquisition of additional loans and MBS. As discussed below in Liquidity and Capital Resources, our Manager is evaluating and pursuing additional sources of financing to provide us with future investing capacity.

Liquidity and Capital Resources

        We generally need to distribute at least 90% of our taxable income each year (subject to certain adjustments) to our shareholders to qualify as a REIT under the Internal Revenue Code. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital to support our activities.

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        During the nine months ended September 30, 2010, and continuing through the date of this Report we have invested all of the equity we raised in our August 4, 2009 initial offerings as summarized below:

		(in thousands)
Acquisitions through December 31, 2009		$	119,095
Purchases during the nine months ended September 30, 2010:
	Mortgage loans, net of subsequent sales(1)		267,906
	Mortgage-backed securities		89,217
	Real estate acquired in settlement of loans		1,238
	Total acquisitions through September 30, 2010		477,456
Acquisitions completed after September 30, 2010			—
Commitments made after September 30, 2010(2)			222,000
Total investments committed through the date of this Report		$	699,456

(1)

Amount excludes mortgage loans purchased for subsequent sale.

(2)

Based on preliminary allocations. The final allocations will be determined based upon the composition of the final pools of loans purchased and the availability of investable funds among the entities managed by PCM. The pending transactions are subject to continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition, and there can be no assurance that the committed amounts will ultimately be acquired or that the transactions will be completed at all.

        Our Manager completed investment of the proceeds from our IPO during the nine months ended September 30, 2010. During the quarter ended September 30, 2010, we financed most of our acquisitions of loans and MBS through sales of securities under agreements to repurchase and, to a lesser extent, through the cash flows from repayment or liquidation of our existing investments in loans and MBS.

        Our Manager is exploring a variety of additional means of financing our continued growth, including debt financing through bank warehouse lines of credit, additional repurchase agreements, securitization transactions and additional equity offerings. However, there can be no assurance as to how much additional financing capacity such efforts will produce, what form the financing will take or that such efforts will be successful.

        As of September 30, 2010, our debt financing consists of short-term borrowings in the form of the sale of securities under agreements to repurchase. These transactions mature between October 13, 2010 and December 30, 2010, provide for sale to major financial institution counterparties of MBS in our investment portfolios at advance rates of 80-85% of the estimated fair value of the securities sold. The agreements provide for repurchase by us of the securities at terms of either three weeks or three months, depending on the facility under which the securities are sold. We have refinanced the maturing transactions under these agreements by renewing the agreements at maturity.

        At September 30, 2010, we financed $137.0 million of MBS, or approximately 34% of our investments in non-correspondent lending loans, MBS and real estate acquired in settlement of loans. Accordingly, repurchase agreements represent a significant source of funding for our investment portfolio. The amount we are able to borrow under our repurchase agreements is tied to the fair value of the MBS securing those agreements. We are subject to margin calls during the period the agreements are outstanding and therefore may be required to repay a portion of the borrowings before the respective agreements mature if the value of the MBS securing those agreements decreases.

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        During the quarter and nine months ended September 30, 2010, the average balance outstanding under agreements to repurchase was $67.6 million and $22.8 million, respectively, and the maximum daily amount outstanding under the agreements to repurchase was $121.0 million. The difference between the maximum daily amount outstanding and the average was due to the newness of the repurchase facilities and our continuing investments during the period.

        On November 2, 2010, we entered into a master repurchase agreement, pursuant to which two of our wholly-owned subsidiaries may sell, and later repurchase, certain distressed assets in an aggregate principal amount of up to $100 million. Also on November 2, 2010, we entered into a master repurchase agreement, pursuant to which our taxable REIT subsidiary may sell, and later repurchase, newly originated mortgage loans in an aggregate principal amount of up to $75 million. Both of these arrangements are discussed in greater detail below in Item 5, Other Information of this Report.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Off-Balance Sheet Arrangements and Guarantees

        As of the date of this Report, we have not entered into any off-balance sheet arrangements or guarantees.

Contractual Obligations

        As of the date of this Report, our on-balance sheet contractual obligations are limited to $116.1 million of agreements to repurchase securities sold with maturities between October 13, 2010 and December 30, 2010. All agreements to repurchase that matured between September 30, 2010 and the date of this Report have been renewed and are described in Note 9—Securities Sold Under Agreements to Repurchase in the accompanying financial statements.

        As of the date of this Report, we have an outstanding commitment to purchase mortgage loans with estimated fair values totaling $222.0 million. The pending transaction is subject to changes in the loans allocated to us by PCM, continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition and there can be no assurance that the committed amount will ultimately be acquired or that the transaction will be completed at all.

        We also have contractual agreements in the form of the management agreement, the loan servicing agreement, the indemnification agreements with our executive officers and trustees, our equity incentive plan, the registration rights agreement with the purchasers in our concurrent offering, and the conditional payment of the underwriting discount and the related reimbursement to PCM. These arrangements are discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption Contractual Obligations of our Annual Report.

Quantitative and Qualitative Disclosures About Market Risk

        Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices, real estate values and other market based risks. The primary market risks that we are exposed to are real estate risk, credit risk, interest rate risk, prepayment risk, inflation risk and market value risk. During the nine month period ended September 30, 2010, we invested a substantial portion of our investable funds into nonperforming loans. At September 30, 2010, we held nonperforming loans with an estimated fair value of $181.9 million, or 76% of the estimated fair value of our non correspondent lending loans. These investments significantly changed the risk profile of our invested assets.

        Due to the change in risk profile of our mortgage loan portfolio, we shifted the way we measure fair value sensitivity for our investment in mortgage loans from an approach that emphasizes fair value sensitivity to changes in interest rates to an approach that emphasizes fair value sensitivity to changes

43

in real estate values. Our mortgage loan investment portfolio previously was comprised of performing mortgage loans. Our mortgage loan acquisitions during the nine month period ended September 30, 2010, included approximately 76% nonperforming loans (i.e. mortgage loans delinquent 90 days or more). Accordingly, we have determined that our mortgage loan portfolio is now more sensitive to changes in the values of the real estate underlying the mortgage loans than to changes in interest rates. Generally, in a real estate market where values are rising or are expected to rise, the fair value of our mortgage loans would be expected to appreciate, whereas in a real estate market where values are generally dropping or are expected to drop, mortgage loan values would be expected to decrease.

        The following table summarizes the estimated change in fair value of our portfolio of mortgage loans as of September 30, 2010, given several hypothetical (instantaneous) changes in home values from those used in the determination of fair value:

Property value shift		-15%			-10%			-5%			+5%			+10%			+15%
		(dollar amounts in thousands)
Fair value		$	211,626		$	221,293		$	230,819		$	249,230		$	257,998		$	260,482
Change in fair value:
	$	$	(28,538	)	$	(18,871	)	$	(9,345	)	$	9,066		$	17,834		$	26,318
	%		-11.88	%		-7.86	%		-3.89	%		3.78	%		7.43	%		10.96	%

        We believe that our current investments in MBS remain generally sensitive to changes in interest rates due to our present portfolio of investments in MBS being comprised of presently cash flowing bonds with short expected lives. Generally, in a rising interest rate environment, the estimated fair value of these assets would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these assets would be expected to increase. However, we now evaluate the effect of interest rate shifts on bond valuations using a "constant yield" assumption rather than a "constant spread" assumption. These approaches differ in that, with a "constant spread" assumption, the spread to the discount curve in the base case is kept constant across interest rate scenarios, affecting both the projected cashflows and the implied return requirement of investors; with a "constant yield" assumption, the total yield of the bond is kept constant in the valuations across interest rate scenarios while projected cashflows change.

        Although the "constant spread" assumption is typically used for scenario valuation of mortgage and other interest-rate-sensitive assets in non-distressed environments, a "constant yield" assumption is more appropriate for distressed assets given the nature of the return requirements of investors in those assets, and the recent observed sensitivities of non-Agency mortgage bonds to shifts in "risk-free" interest rates. This approach is also consistent with the approach used by our Manager to evaluate valuation sensitivity for similar instruments in other investment vehicles that it manages.

        The following table summarizes the estimated change in fair value of our portfolio of MBS as of September 30, 2010, given several hypothetical (instantaneous) shifts in interest rates and parallel shifts in the yield curve:

Interest rate shift in basis points		-200			-100			-50			+50			+100			+200
		(dollar amounts in thousands)
Fair value		$	136,760		$	136,751		$	136,788		$	137,407		$	137,793		$	138,353
Change in fair value:
	$	$	(289	)	$	(298	)	$	(261	)	$	358		$	744		$	1,304
	%		-0.21	%		-0.22	%		-0.19	%		0.26	%		0.54	%		0.95	%

44

        The following table summarizes the estimated change in fair value of our mortgage loans and MBS as of December 31, 2009, given selected hypothetical (instantaneous) parallel shifts in interest rates and parallel shifts in the yield curve:

Interest rate shift in basis points		-200			-100			-50			+50			+100			+200
		(in thousands)
Change in fair value:
	Mortgage-backed securities(1)	$	(117	)	$	(209	)	$	(150	)	$	169		$	355		$	732
	Mortgage loans		(18	)		22			14			(17	)		(21	)		8

(1)

Restated to reflect the "constant yield" approach to evaluating interest rate sensitivity.

        These sensitivity analyses are limited in that they were performed at a particular point in time; only contemplate certain movements in real estate values as they relate to mortgage loans and interest rates as they relate to MBS; do not incorporate changes in interest rate volatility or changes in the relationship of one interest rate index to another; are subject to the accuracy of various models and assumptions used, including prepayment forecasts and discount rates; and do not incorporate other factors that would affect the Company's overall financial performance in such scenarios, including operational adjustments made by management to account for changing circumstances. For these reasons, the preceding estimates should not be viewed as an earnings forecast.

Accounting Developments

        In January 2010, the FASB issued ASU 2010-06 to the Fair Value Measurements and Disclosure of the Accounting Standards Codification. The ASU requires additional disclosures about the transfers of classifications among the fair value classification levels and the reasons for those changes and separate presentation of purchases, sales, issuances and settlements in the presentation of the roll forward of Level 3 assets and liabilities. The ASU also clarifies disclosure requirements relating to the level of disaggregation of disclosures relating to classes of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value estimates for Level 2 or Level 3 assets and liabilities. The requirements of the ASU are effective for interim and annual disclosures for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value estimates. Those disclosures are effective for interim and annual reporting periods for fiscal years beginning after December 15, 2010. The adoption of this ASU did not have a material effect on the Company's financial statements.

Factors That May Affect Our Future Results

        This Report contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "seek," "anticipate," "estimate," "approximately," "believe," "could," "project," "predict," "continue," "plan" or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Examples of forward-looking statements include the following:

•

projections of our revenues, income, earnings per share, capital structure or other financial items;

•

descriptions of our plans or objectives for future operations, products or services;

•

forecasts of our future economic performance, interest rates, profit margins and our share of future markets; and

45

•

descriptions of assumptions underlying or relating to any of the foregoing expectations regarding the timing of generating any revenues.

        Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. There are a number of factors, many of which are beyond our control, that could cause actual results to differ significantly from management's expectations. Some of these factors are discussed below.

        You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this Report and as set forth in Item IA. of Part II hereof and Item 1A. "Risk Factors" in our Annual Report.

        Factors that could cause actual results to differ materially from historical results or those anticipated include, but are not limited to:

•

changes in our investment objectives or investment or operational strategies, including any new lines of business or new products and services that may subject us to additional risks;

•

volatility in our industry, interest rates and spreads, the debt or equity markets, the general economy or the residential finance and real estate markets specifically, whether the result of market events or otherwise;

•

events or circumstances which undermine confidence in the financial markets or otherwise have a broad impact on financial markets, such as the sudden instability or collapse of large depository institutions or other significant corporations, terrorist attacks, natural or man-made disasters, or threatened or actual armed conflicts;

•

changes in general business, economic, market, employment, consumer confidence and spending habits and political conditions from those expected;

•

continued declines in residential real estate and significant changes in U.S. housing prices and/or activity in the U.S. housing market;

•

the availability of, and level of competition for, attractive risk-adjusted investment opportunities in residential mortgage loans and mortgage-related assets that satisfy our investment objective and investment strategies;

•

our success in winning bids to acquire loans;

•

the concentration of credit risks to which we are exposed;

•

the degree and nature of our competition;

•

changes in personnel and lack of availability of qualified personnel;

•

our dependence on PCM, potential conflicts of interest with PCM and its affiliated entities, and the performance of such entities;

•

the availability, terms and deployment of short-term and long-term capital;

•

the adequacy of our cash reserves and working capital;

•

our ability to match the interest rates and maturities of our assets with our financing;

•

the timing and amount of cash flows, if any, from our investments;

•

unanticipated increases in financing and other costs, including a rise in interest rates;

46

•

the performance, financial condition and liquidity of borrowers;

•

incomplete or inaccurate information or documentation provided by customers or counterparties, or adverse changes in the financial condition of our customers and counterparties;

•

the quality and enforceability of the collateral documentation evidencing our ownership and rights in the assets in which we invest;

•

increased rates of delinquency, default and/or decreased recovery rates on our investments;

•

our ability to foreclose on our investments in a timely manner or at all;

•

increased prepayments of the mortgages and other loans underlying our MBS and other investments;

•

the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•

the effect of the accuracy of or changes in the estimates we make about uncertainties and contingencies when measuring and reporting upon our financial condition and results of operations;

•

our failure to maintain appropriate internal controls over financial reporting;

•

developments in the secondary markets for our mortgage loan products;

•

legislative and regulatory changes that impact the mortgage loan industry or housing market;

•

changes in regulations or the occurrence of other events that impact the business, operation or prospects of GSEs;

•

the Dodd-Frank Wall Street Reform and Consumer Protection Act and any other legislative and regulatory changes that impact the business, operations or governance of publicly-traded companies;

•

changes in government support of homeownership;

•

changes in governmental regulations, accounting treatment, tax rates and similar matters (including changes to laws governing the taxation of REITs or the exclusions from registration as an investment company);

•

limitations imposed on our business and our ability to satisfy complex rules for us to qualify as a REIT for U.S. federal income tax purposes and qualify for an exclusion from the Investment Company Act of 1940 and the ability of certain of our subsidiaries to qualify as REITs and certain of our subsidiaries to qualify as TRSs for U.S. federal income tax purposes, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;

•

estimates relating to our ability to make distributions to our shareholders in the future;

•

the effect of public opinion on our reputation; and

•

the occurrence of natural disasters or other events or circumstances that could impact our operations.

        Other factors that could also cause results to differ from our expectations may not be described in this Report or any other document. Each of these factors could by itself, or together with one or more other factors, adversely affect our business, results of operations and/or financial condition.

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        Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        In response to this Item, the information set forth on pages 43 to 45 of this Report is incorporated herein by reference.

Item 4.    Controls and Procedures

Disclosure Controls and Procedures

        We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. However, no matter how well a control system is designed and operated, it can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

        Our management has conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Changes to Internal Control over Financial Reporting

        There has been no change in our internal control over financial reporting during the quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        From time to time, we may be involved in various proceedings, claims and legal actions arising in the ordinary course of business. As of September 30, 2010, we were not involved in any such proceedings, claims or legal actions that would have a material adverse effect on us.

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Item 1A.    Risk Factors

        There are no material changes from the risk factors set forth under Item 1A. "Risk Factors" in our Annual Report and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, except for the addition of the following risk factors:

         Our inability to promptly foreclose upon defaulted mortgage loans could increase our cost of doing business and/or diminish our expected return on investments.

        Our ability to promptly foreclose upon defaulted mortgage loans and liquidate the underlying real property plays a critical role in our valuation of the assets in which we invest and our expected return on those investments. There are a variety of factors that may inhibit our ability, through PLS, to foreclose upon a mortgage loan and liquidate the real property within the time frames we model as part of our valuation process. These factors include, without limitation: federal, state or local legislative action or initiatives designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures and that serve to delay the foreclosure process; HAMP and similar programs that require specific procedures to be followed to explore the refinancing of a mortgage loan prior to the commencement of a foreclosure proceeding; and continued declines in real estate values and sustained high levels of unemployment that increase the number of foreclosures and place additional pressure on the already overburdened judicial and administrative systems.

        In addition, certain issues, including "robo-signing," have been identified recently throughout the mortgage industry that relate to affidavits used in connection with the mortgage loan foreclosure process. A substantial portion of our investments are nonperforming mortgage loans, many of which are already subject to foreclosure proceedings at the time of purchase. While we have obtained assurances from PLS about its own practices relative to foreclosure proceedings and its proper use of affidavits, there can be no assurance that similar practices have been followed in connection with mortgage loans that are already subject to foreclosure proceedings at the time of purchase. To the extent we determine that any of these loans are impacted by these issues, we may be required to re-commence the foreclosure proceedings relating to such loans, thereby resulting in additional delay that could have the effect of increasing our cost of doing business and/or diminishing our expected return on our investments.

         Compliance with changing regulation of corporate governance and public disclosure will result in increased compliance costs and pose challenges for our management team.

        Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the compliance requirements, costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

        Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on us and, more generally, the financial services and mortgage industries. Additionally, we cannot predict whether there will be additional proposed laws or reforms that would affect us, whether or when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect us. However, the costs of complying with any additional laws or regulations could have a material adverse effect on our financial condition and results of operations.

49

         We leverage our investments, which may adversely affect our return on our investments and may reduce cash available for distribution to our shareholders.

        To the extent available, we intend to continue to leverage our investments through borrowings, the level of which may vary based on the particular characteristics of our investment portfolio and on market conditions. We have leveraged certain of our investments through repurchase agreements. In addition, subject to market conditions and availability, we may in the future utilize other sources of borrowings, including bank credit facilities and structured financing arrangements, among others. The percentage of leverage we employ varies depending on our available capital, our ability to obtain and access financing arrangements with lenders and the lenders' and rating agencies' estimate of the stability of our investment portfolio's cash flow. Our governing documents contain no limitation on the amount of debt we may incur. Our return on our investments and cash available for distribution to our shareholders may be reduced to the extent that changes in market conditions increase the cost of our financing relative to the income that can be derived from the investments acquired. Our debt service payments will reduce cash flow available for distributions to shareholders. We may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy the obligations.

        Further, bank credit facility providers and repurchase agreement providers may require us to maintain a certain amount of uninvested cash or to set aside unlevered assets sufficient to maintain a specified liquidity position, which would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our investments as fully as we would choose, which could reduce our return on investments. In the event that we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly and we could be forced to sell additional investments at a loss.

         We are subject to the risks inherent in the use of repurchase agreements.

        When we enter into repurchase agreements, we sell securities or mortgage loans to lenders (i.e., repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same assets back to us at the end of the term of the transaction. Because the cash we receive from the lender when we initially sell the assets to the lender is less than the value of those assets (this difference is referred to as the haircut), if the lender defaults on its obligation to resell the same assets back to us we could incur a loss on the transaction equal to the amount of the haircut (assuming there was no change in the value of the assets). We could also lose money on a repurchase agreement if the value of the underlying assets has declined as of the end of the term of the agreement, as we would have to repurchase the assets for their initial value but would receive assets worth less than that amount. In addition, repurchase agreements generally allow the counterparties, to varying degrees, to determine a new market value of the collateral to reflect current market conditions. If such counterparties determine that the value of the collateral has decreased, it may initiate a margin call and require us to either post additional collateral to cover such decrease or repay a portion of the outstanding borrowing. Additionally, in order to obtain cash to satisfy a margin call, we may be required to liquidate assets at a disadvantageous time, which could cause us to incur further losses. Further, if we default on one of our obligations under a repurchase agreement, the lender may be able to terminate the transaction and cease entering into any other repurchase transactions with us. Repurchase agreements may contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default. Any losses we incur on our repurchase agreements could adversely affect our earnings and thus our cash available for distribution to our shareholders.

50

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

        On July 29, 2009, the SEC declared effective our registration statement on Form S-11 (File No. 333-159460) relating to (1) our underwritten IPO of 14,706,327 shares and (2) our direct offering of 1,293,673 shares to certain investors in two private fund vehicles managed by PCM. On August 4, 2009, we completed offerings of 16,735,317 of our shares as follows:

•

our IPO of 14,706,327 of our shares at $20 per share as discussed in the following paragraph for gross proceeds of approximately $294.1 million;

•

a private placement to certain of our executive officers, Private National Mortgage Acceptance Company, LLC, and certain of its investors, of 735,317 shares for gross proceeds of approximately $14.7 million. In conducting this private placement, we relied upon the exemption from registration provided by Rule 506 of Regulation D, as promulgated under Section 4(2) of the Securities Act of 1933, as amended; and

•

as part of our IPO, the direct offering to investors in the funds managed by PCM of 1,293,673 shares for gross proceeds of approximately $25.9 million;

•

offsetting these offerings were underwriting and offering costs totaling approximately $20.0 million. We did not pay any underwriting discount in connection with the direct offering or the private placement.

        Certain of the underwriting costs incurred in the IPO were either paid on our behalf by PCM or deferred by agreement with the underwriters of the offering. Reimbursement to PCM and payment to the underwriters of the deferred underwriting discount are both contingent on our performance as follows: we will reimburse PCM approximately $2.9 million of underwriting costs paid by PCM on the offering date and pay the underwriters approximately $5.9 million in deferred underwriting discount if, during any full four calendar quarter period during the 24 full calendar quarters after the date of the completion of our IPO, August 4, 2009, our "core earnings" for such four quarter period and before the incentive portion of PCM's management fee equals or exceeds an 8% incentive fee "hurdle rate" (both defined in Note 4—Transactions with Related Parties to the accompanying financial statements). If this requirement is not satisfied by the end of such 24 calendar quarter period, our obligation to reimburse PCM and make the conditional payment of the underwriting discount will terminate.

        From the completion of these offerings through September 30, 2010, we purchased $182.3 million of MBS, $294.0 million of mortgage loans and $1.2 million of real estate acquired in settlement of loans. During the period from September 30, 2010 through the date of this Report, PCM committed to additional purchases on our behalf of mortgage loans for a price of approximately $222.0 million. The pending transaction is subject to changes in the loans allocated to us by PCM, continuing due diligence, customary closing conditions and our securing debt financing adequate to fund the acquisition. There can be no assurance that the committed amount will ultimately be acquired or that the transaction will be completed at all. At September 30, 2010, we had substantially reinvested the proceeds from the offerings.

Item 3.    Defaults Upon Senior Securities

        None

Item 4.    [Reserved]

Item 5.    Other Information

        On November 2, 2010, we entered into a master repurchase agreement with Wells Fargo Bank, N.A. ("WFB"), pursuant to which two of our wholly-owned subsidiaries may sell, and later repurchase, certain distressed assets in an aggregate principal amount of up to $100 million (the "NPL Facility").

51

The NPL Facility is committed for a period of 364 days and the obligations of these subsidiaries are fully guaranteed by PMT.

        Under the terms of the NPL Facility, (i) PennyMac Mortgage Investment Trust Holdings I, LLC ("PMITH"), our qualified REIT subsidiary, may sell to WFB eligible nonperforming mortgage loans and participation interests in certificated real estate mortgage investment conduits that hold nonperforming mortgage loans ("Participations"), and (ii) PennyMac Corp. ("PMC"), our taxable REIT subsidiary, may sell to WFB eligible nonperforming mortgage loans and equity interests (the "SPE Entity Interest") in a special purpose entity that owns real property acquired upon settlement of mortgage loans ("REO Property"). The principal amount paid by WFB is based on a percentage of the market value of the mortgage loans, the mortgage loans underlying the Participations, or the REO Property underlying the SPE Entity Interest (each, a "Facility Asset"), as applicable. The mortgage loans and real property are serviced by PLS pursuant to the terms of the NPL Facility.

        Upon our repurchase, or the sale, securitization or liquidation, of a Facility Asset, we are required to repay WFB the principal amount related to such Facility Asset plus accrued interest (at a rate reflective of the current market and based on LIBOR plus a margin) to the date of such repurchase, sale, securitization or liquidation. We are also required to pay WFB a fee for the structuring of the NPL Facility, as well as certain other administrative costs and expenses in connection with WFB's structuring, management and ongoing administration of the NPL Facility.

        The NPL Facility contains margin call provisions that provide WFB with certain rights where there has been both (a) the occurrence of one or more trigger events, which are based on aging timelines, repurchase volume, sale and disposition volume, and other criteria, and (b) a decline in the market value of the purchased mortgage loans and Participations. Under these circumstances, WFB may require PMITH and/or PMC to transfer cash or additional eligible mortgage loans or Participations with an aggregate market value in an amount sufficient to eliminate any margin deficit resulting from such a decline.

        The NPL Facility and the related guaranty require PMT to maintain various financial and other covenants, which include maintaining (i) a minimum tangible net worth of $265 million, plus 75% of the aggregate net proceeds received by it in connection with future equity issuances, (ii) a minimum of $5 million in unrestricted cash and cash equivalents, and (iii) a maximum ratio of total liabilities to tangible net worth of less than 3:1. The NPL Facility also requires PLS to maintain certain financial covenants.

        In addition, the NPL Facility contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, servicer termination events, guarantor defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the NPL Facility and the liquidation by WFB of the Facility Assets then subject to the NPL Facility.

        The foregoing description of the NPL Facility does not purport to be complete and is qualified in its entirety by reference to the full text of the master repurchase agreement and our related guaranty, which have been filed with this Report as Exhibits 10.11 and 10.12, respectively.

        On November 2, 2010, we entered into a master repurchase agreement with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"), pursuant to which PMC may sell, and later repurchase, newly originated mortgage loans in an aggregate principal amount of up to $75 million (the "Loan Repo Facility"). The Loan Repo Facility will be used to fund newly originated mortgage loans that are purchased from correspondent lenders by PMC and held for sale and/or securitization. The Loan Repo

52

Facility is committed for a period of 364 days and the obligations of PMC are fully guaranteed by PMT and our Operating Partnership.

        The principal amount paid by CSFB for each eligible mortgage loan is based on a percentage of the lesser of the market value or the unpaid principal balance of such mortgage loans. Upon our repurchase of a mortgage loan, we are required to repay CSFB the principal amount related to such mortgage loan plus accrued interest (at a rate reflective of the current market and based on CSFB's cost of funds plus a margin) to the date of such repurchase. We are also required to pay CSFB a commitment for the Loan Repo Facility, as well as certain other administrative costs and expenses in connection with CSFB's structuring, management and ongoing administration of the Loan Repo Facility.

        The Loan Repo Facility contains margin call provisions that provide CSFB with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, CSFB may require PMC to transfer cash or additional eligible mortgage loans with an aggregate market value in an amount sufficient to eliminate any margin deficit resulting from such a decline.

        The Loan Repo Facility requires PMC to maintain various financial and other covenants, which include maintaining (i) a minimum tangible net worth of $65 million, plus 50% of its positive quarterly net income for the prior quarter, (ii) a minimum of $7.5 million in unrestricted cash and cash equivalents, (iii) a maximum ratio of total liabilities to tangible net worth of less than 10:1, and (iv) profitability during any rolling three month period.

        The Loan Repo Facility also requires PMT to maintain various financial and other covenants, which include maintaining (i) a minimum tangible net worth of $300 million, and (ii) a minimum of $10 million in unrestricted cash and cash equivalents.

        In addition, the Loan Repo Facility contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, material adverse changes, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Loan Repo Facility and the liquidation by CSFB of the mortgage loans then subject to the Loan Repo Facility.

        The foregoing description of the Loan Repo Facility and the related guaranty by PMT and our Operating Partnership do not purport to be complete and are qualified in their entirety by reference to the full text of the master repurchase agreement and related guaranty, which have been filed with this Report as Exhibits 10.13 and 10.14, respectively.

53

Item 6.    Exhibits

Exhibit Number		Exhibit Description
	3.1	Declaration of Trust of PennyMac Mortgage Investment Trust, as amended and restated (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	3.2	Bylaws of PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	4.1	Specimen Common Share Certificate of PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 4.1 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.1	Registration Rights Agreement among PennyMac Mortgage Investment Trust, Stanford L. Kurland, David A. Spector, BlackRock Holdco II, Inc., Highfields Capital Investments LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.2	Amended and Restated Limited Partnership Agreement of PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.3	Management Agreement among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.4	Amendment No. 1 to Management Agreement, dated as of March 3, 2010, among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
	10.5	Loan (Flow) Servicing Agreement between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.6	Amendment No. 1 to Flow Servicing Agreement, dated as of March 3, 2010, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
	10.7	PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.8	Share Purchase Agreement among PennyMac Mortgage Investment Trust, Stanford L. Kurland, David A. Spector, BlackRock Holdco II, Inc., Highfields Capital Investments LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).

54

Exhibit Number		Exhibit Description
	10.9	Underwriting Fee Reimbursement Agreement among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.7 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.10	Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the Company's Registration Statement on Form S-11, filed with the SEC on July 24, 2009).
	10.11	Master Repurchase Agreement among PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC, and Wells Fargo Bank, National Association.
	10.12	Guaranty Agreement by PennyMac Mortgage Investment Trust in favor of Wells Fargo Bank, National Association.
	10.13	Master Repurchase Agreement among Credit Suisse First Boston Mortgage Capital, LLC, PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P.
	10.14	Guaranty by PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. in favor of Credit Suisse First Boston Mortgage Capital, LLC.
	31.1	Certification of Stanford L. Kurland pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Anne D. McCallion pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Stanford L. Kurland pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Anne D. McCallion pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

55

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.

	PENNYMAC MORTGAGE INVESTMENT TRUST (Registrant)
Dated: November 8, 2010	By:	/s/ STANFORD L. KURLAND Stanford L. Kurland Chairman of the Board and Chief Executive Officer
Dated: November 8, 2010	By:	/s/ ANNE D. MCCALLION Anne D. McCallion Chief Financial Officer and Treasurer

56

PENNYMAC MORTGAGE INVESTMENT TRUST

FORM 10-Q
September 30, 2010

INDEX OF EXHIBITS

Exhibit Number		Exhibit Description
	3.1	Declaration of Trust of PennyMac Mortgage Investment Trust, as amended and restated (incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	3.2	Bylaws of PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 3.2 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	4.1	Specimen Common Share Certificate of PennyMac Mortgage Investment Trust (incorporated by reference to Exhibit 4.1 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.1	Registration Rights Agreement among PennyMac Mortgage Investment Trust, Stanford L. Kurland, David A. Spector, BlackRock Holdco II, Inc., Highfields Capital Investments LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.2	Amended and Restated Limited Partnership Agreement of PennyMac Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.3	Management Agreement among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.4	Amendment No. 1 to Management Agreement, dated as of March 3, 2010, among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
	10.5	Loan (Flow) Servicing Agreement between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.6	Amendment No. 1 to Flow Servicing Agreement, dated as of March 3, 2010, between PennyMac Operating Partnership, L.P. and PennyMac Loan Services, LLC (incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
	10.7	PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan. (incorporated by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.8	Share Purchase Agreement among PennyMac Mortgage Investment Trust, Stanford L. Kurland, David A. Spector, BlackRock Holdco II, Inc., Highfields Capital Investments LLC and Private National Mortgage Acceptance Company, LLC (incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).

Exhibit Number		Exhibit Description
	10.9	Underwriting Fee Reimbursement Agreement among PennyMac Mortgage Investment Trust, PennyMac Operating Partnership, L.P. and PNMAC Capital Management, LLC (incorporated by reference to Exhibit 10.7 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
	10.10	Form of Restricted Share Unit Award Agreement under the PennyMac Mortgage Investment Trust 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the Company's Registration Statement on Form S-11, filed with the SEC on July 24, 2009).
	10.11	Master Repurchase Agreement among PennyMac Corp., PennyMac Mortgage Investment Trust Holdings I, LLC, and Wells Fargo Bank, National Association.
	10.12	Guaranty Agreement by PennyMac Mortgage Investment Trust in favor of Wells Fargo Bank, National Association.
	10.13	Master Repurchase Agreement among Credit Suisse First Boston Mortgage Capital, LLC, PennyMac Corp., PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P.
	10.14	Guaranty by PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. in favor of Credit Suisse First Boston Mortgage Capital, LLC.
	31.1	Certification of Stanford L. Kurland pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Anne D. McCallion pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Stanford L. Kurland pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Anne D. McCallion pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.11

Exhibit 10.11

EXECUTION VERSION

MASTER REPURCHASE AGREEMENT

dated as of November 2, 2010

among

PennyMac Corp., a Seller,

PennyMac Mortgage Investment Trust Holdings I, LLC, a Seller,

and

Wells Fargo Bank, National Association, Buyer

TABLE OF CONTENTS

ARTICLE 1 APPLICABILITY		1
Section 1.01	Applicability	1
ARTICLE 2 DEFINITIONS AND INTERPRETATION		1
Section 2.02	Rules of Interpretation	37
ARTICLE 3 THE TRANSACTIONS		39
Section 3.01	Procedures	39
Section 3.02	Transfer of Purchased Assets; Servicing Rights	41
Section 3.03	Maximum Aggregate Purchase Price	42
Section 3.04	Early Repurchase Date; Mandatory Repurchases; Ineligibility Cures	42
Section 3.05	Repurchase; Removal; Sale	43
Section 3.06	Payment of Price Differential and Fees	44
Section 3.07	Payment, Transfer and Custody	44
Section 3.08	Repurchase Obligations Absolute	45
ARTICLE 4 MARGIN MAINTENANCE		45
Section 4.01	Margin Deficit	45
ARTICLE 5 APPLICATION OF INCOME		47
Section 5.01	Accounts; Income	47
Section 5.02	Before a Default or an Event of Default	47
Section 5.03	After Default or Event of Default	50
Section 5.04	Sellers to Remain Liable	50
Section 5.05	No Recourse for REO Equity Interests	50
ARTICLE 6 CONDITIONS PRECEDENT		50
Section 6.01	Conditions Precedent to Initial Transaction	50
Section 6.02	Conditions Precedent to All Transactions	51
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF SELLERS		54
Section 7.01	Seller	54
Section 7.02	Repurchase Documents	54
Section 7.03	Solvency	55
Section 7.04	Taxes	55
Section 7.05	Financial Condition	56
Section 7.06	True and Complete Disclosure	56
Section 7.07	Compliance with Laws	56
Section 7.08	Compliance with ERISA	57

Section 7.09	No Default or Material Adverse Effect	57
Section 7.10	Purchased Assets	58
Section 7.11	Purchased Assets Acquired from Transferors	58
Section 7.12	Transfer and Security Interest	59
Section 7.13	No Broker	59
Section 7.14	Separateness	59
Section 7.15	Other Indebtedness	59
Section 7.16	Location of Books and Records	59
Section 7.17	Chief Executive Office; Jurisdiction of Organization	59
Section 7.18	Investment Company Act	60
Section 7.19	REMIC Declaration Agreement	60
Section 7.20	REO Entity Interests	60
Section 7.21	Adverse Selection	60
ARTICLE 8 COVENANTS OF SELLER		60
Section 8.01	Existence; Governing Documents; Conduct of Business	61
Section 8.02	Compliance with Laws, Contractual Obligations and Repurchase Documents	61
Section 8.03	Structural Changes	61
Section 8.04	Protection of Buyer’s Interest in Purchased Assets	61
Section 8.05	Actions of Seller Relating to Distributions, Indebtedness, Guarantee Obligations, Contractual Obligations, Investments and Liens	62
Section 8.06	Maintenance of Property, Insurance	63
Section 8.07	Financial Covenants	63
Section 8.08	Delivery of Income	64
Section 8.09	Delivery of Financial Statements and Other Information	64
Section 8.10	Delivery of Notices	66
Section 8.11	Escrow Imbalance	68
Section 8.12	Reserved	68
Section 8.13	Records	68
Section 8.14	No Pledge	68
Section 8.15	No Sale or Material Adverse Actions	68
Section 8.16	Maximum Aggregate Purchase Price	69
Section 8.17	Reserved	69
Section 8.18	Distributions	69
Section 8.19	Applicable Law	69
Section 8.20	Existence	69
Section 8.21	Chief Executive Office; Jurisdiction of Organization	69
Section 8.22	BPOs	69
Section 8.23	Maintenance of Interest Reserve Account	69
Section 8.24	Servicer Change of Control	69
Section 8.25	Entitlement Holder; Additional Proceeds	70
Section 8.26	Voting Rights	70
Section 8.27	Actions under the REMIC Declaration Agreements	70

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ARTICLE 9 SINGLE-PURPOSE ENTITY			70
Section 9.01	Covenants Applicable to PC REO		70
Section 9.02	Reserved		71
Section 9.03	Additional Covenants Applicable to REO Property		71
ARTICLE 10 EVENTS OF DEFAULT AND REMEDIES			72
Section 10.01	Events of Default		72
Section 10.02	Remedies of Buyer as Owner of the Purchased Assets		75
ARTICLE 11 SECURITY INTEREST; REO DEED			78
Section 11.01	Grant		78
Section 11.02	Effect of Grant		79
Section 11.03	Sellers to Remain Liable		79
Section 11.04	Provisions of REO Deed		79
Section 11.05	Waiver of Certain Laws		81
ARTICLE 12 INCREASED COSTS; CAPITAL ADEQUACY			81
Section 12.01	Market Disruption		81
Section 12.02	Illegality		81
Section 12.03	Breakfunding		81
Section 12.04	Increased Costs	81
Section 12.05	Capital Adequacy	82
Section 12.06	Withholding Taxes	82
Section 12.07	Payment and Survival of Obligations	84
ARTICLE 13 INDEMNITY AND EXPENSES		84
Section 13.01	Indemnity	84
Section 13.02	Expenses	86
ARTICLE 14 INTENT		86
Section 14.01	Intent	86
ARTICLE 15 DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS		87
ARTICLE 16 NO RELIANCE		88
Section 16.01	No Reliance	88
ARTICLE 17 SERVICING		89
Section 17.01	Servicing of Purchased Assets and Underlying Assets	89
Section 17.02	Fees and Expenses of Servicer	91
Section 17.03	Servicing Reports	91

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Section 17.04	Servicer; Servicing Data File	91
ARTICLE 18 MISCELLANEOUS		91
Section 18.01	Governing Law	91
Section 18.02	Submission to Jurisdiction; Service of Process	91
Section 18.03	WAIVERS	92
Section 18.04	Integration	93
Section 18.05	Single Agreement	93
Section 18.06	Use of Employee Plan Assets	94
Section 18.07	Survival and Benefit of Sellers’ Agreements	94
Section 18.08	Assignments and Participations	94
Section 18.09	Ownership and Hypothecation of Purchased Assets	95
Section 18.10	Confidentiality	96
Section 18.11	No Implied Waivers	96
Section 18.12	Notices and Other Communications	96
Section 18.13	Counterparts; Electronic Transmission	97
Section 18.14	No Personal Liability	97
Section 18.15	Protection of Buyer’s Interests in the Purchased Assets; Further Assurances	97
Section 18.16	Default Rate	98
Section 18.17	Set-off	99
Section 18.19	Sellers’ Waiver of Setoff	100
Section 18.20	Periodic Due Diligence Review	100
Section 18.22	Time of the Essence	101
Section 18.23	Joint and Several Repurchase Obligations	101
Section 18.24	Patriot Act Notice	102
Section 18.25	Acknowledgement Of Anti-Predatory Lending Policies	102
Section 18.26	Successors and Assigns; No Third Party Beneficiaries	102

Schedule 1-A	Representations and Warranties with Respect to Mortgage Loans
Schedule 1-B	Representations and Warranties with Respect to REO Properties
Schedule 1-C	Representations and Warranties with Respect to REMIC Certificates
Schedule 2	Notice Addresses and Wire Instructions
Schedule 3	Representations and Warranties for Ineligible Remedies
Schedule 4	Schedule of Indebtedness
Schedule 5	Schedule of Average State Timelines Regarding Foreclosures
Schedule 6	Schedule of Maximum Foreclosure Aging

iv

EXHIBITS
EXHIBIT A	[Reserved]
EXHIBIT B	Form of Servicer Instruction Notice
EXHIBIT C	Form of Closing Certificate
EXHIBIT D	Form of Compliance Certificate
EXHIBIT E	Form of Confirmation
EXHIBIT F	Early Repurchase Schedule
EXHIBIT G	Form of Investment Advisor Side Letter
EXHIBIT H	Form of Mortgage Loan Schedule
EXHIBIT I	Form of REO Property Schedule
EXHIBIT J	Form of Transaction Request
EXHIBIT K	Form of Power of Attorney
EXHIBIT L	Form of Purchased Asset Data Summary
EXHIBIT M	Form of Assignment and Acceptance
EXHIBIT N	Form of “Good-Bye Letter”

v

THIS MASTER REPURCHASE AGREEMENT, dated as of November 2, 2010 (this “Agreement”), is made by and among PENNYMAC CORP., a Delaware corporation (“PMC”), PENNYMAC MORTGAGE INVESTMENT TRUST HOLDINGS I, LLC (a Delaware limited liability company (“PMIT”; together with PMC and as more specifically defined below each a “Seller” and collectively the “Sellers”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (as more specifically defined below, “Buyer”).  Sellers and Buyer (each a “Party”) hereby agree as follows:

ARTICLE 1

APPLICABILITY

Section 1.01           Applicability.  Subject to the terms and conditions of the Repurchase Documents, from time to time and at the request of a Seller, the Parties may enter into transactions in which Sellers agree to sell, transfer and assign to Buyer certain Assets and all related rights in and interests related to such Assets on a servicing released basis, against the transfer of funds by Buyer representing the Purchase Price for such Assets, with a simultaneous agreement by Buyer to transfer to Sellers and Sellers to repurchase such Assets in a repurchase transaction at a date not later than the Maturity Date, against the transfer of funds by Sellers representing the Repurchase Price for such Assets.

ARTICLE 2

DEFINITIONS AND INTERPRETATION

“Accelerated Repurchase Date”:  Defined in Section 10.02.

“Accepted Servicing Practices”:  With respect to any Purchased Mortgage Loan or Underlying Asset, those mortgage servicing practices of prudent financial or mortgage lending institutions which service assets of the same type as such assets in the jurisdiction where the related Underlying Mortgaged Property is located and in a manner at least equal in quality to the servicing that a Seller or Servicer provides to assets which they own in their own portfolios.

“Account”: As applicable, any of the Mortgage Loan Interest Reserve Account, REO Property Interest Reserve Account, REO Collection Account, Participation Account or Waterfall Account.

“Account Bank”:  Wells Fargo Bank, National Association, or any other bank approved by Buyer.

“Account Control Agreement” shall mean any collection account control agreement entered into by the Buyer, Sellers, Servicer, and the Account Bank, in form and substance acceptable to Buyer with respect to certain of the Accounts.

“Actual Knowledge”:  With respect to any Person, the actual knowledge of such Person without further inquiry or investigation; provided, that for the avoidance of doubt, such actual knowledge shall include the knowledge of such Person and each of its employees, officers, directors and agents.

“Additional Purchased Assets”:  The meaning specified in Section 4.01.

“Adjusted Tangible Net Worth”:  With respect to any Person, as of any date of determination, the excess of such Person’s total assets (net of goodwill and intangible assets, including mortgage servicing rights) over its total liabilities, calculated in accordance with GAAP as reflected on such Person’s financial statements.

“Affiliate”:  With respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with, such Person; provided, however, that neither the Servicer nor the Investment Advisor shall be deemed an Affiliate for the purposes of this Agreement.

“Agency”:  Fannie Mae or Freddie Mac, as applicable.

“Aggregate Purchase Price”:  As of any date of determination, the aggregate outstanding Purchase Price of all Purchased Assets subject to a Transaction.

“Agreement”:  This Master Repurchase Agreement dated as of the Closing Date, by and amongst Sellers and Buyer as amended, supplemented or modified thereto from time to time, which shall include on or prior to the Effective Date all Schedules and Exhibits thereto.

“ALTA”:  The American Land Title Association.

“Alternative Rate”:  A per annum rate based on an index approximating the behavior of LIBOR, as determined by Buyer.

“Anti-Terrorism Laws”:  Any Requirements of Law relating to money laundering or terrorism, including Executive Order 13224 signed into law on September 23, 2001, the regulations promulgated by the Office of Foreign Assets Control of the Treasury Department, and the Patriot Act.

“Applicable Percentage”:  For each Purchased Asset, the applicable percentage determined by Buyer for such Purchased Asset on the Purchase Date thereof, up to the Maximum Applicable Percentage.

“Appraised Value”:  The value set forth in an appraisal made in connection with the origination of a Mortgage Loan as the value of the related Underlying Mortgaged Property.

“Asset”:  Any Mortgage Loan, any REMIC Certificate, any REO Entity Interest or any Underlying Asset, as applicable and as the context may require.

“Asset Documents”:  (i) With respect to each Mortgage Loan, the Mortgage Loan Documents, (ii) with respect to each REMIC Certificate, such REMIC Certificate and the REMIC Certificate Documents, and (iii) with respect to each REO Property, the related REO Entity Interests and the related REO Property Documents.

“Asset Schedule”:  The Mortgage Loan Schedule or the REO Property Schedule, as applicable.

2

“Bankruptcy Code”:  Title 11 of the United States Code, as amended.

“Blank Assignment Documents”:  Defined in Section 6.02(j).

“BPO”:  An opinion of the BPO Value of an Underlying Mortgaged Property given by a licensed real estate agent or broker (acceptable to Buyer and at Sellers’ expense) which generally includes three comparable sales and three comparable listings.

“BPO Value”:  The stated dollar value contained in a BPO regarding the fair market value of a mortgaged property or parcel of real property.

“Business Day”:  Any day other than (a) a Saturday or a Sunday, (b) a day on which banks in the States of New York, California or North Carolina are authorized or obligated by law or executive order to be closed, (c) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York or the Custodian is authorized or obligated by law or executive order to be closed, or (d) if the term “Business Day” is used in connection with the determination of LIBOR, a day dealings in Dollar deposits are not carried on in the London interbank market.

“Buyer”:  Wells Fargo Bank, National Association, in its capacity as Buyer under this Agreement and the other Repurchase Documents.

“Buyer’s Margin Percentage”:  For any Purchased Asset or Underlying Asset as of any date, the percentage equivalent of the quotient obtained by dividing one (1) by the Applicable Percentage used to calculate the Purchase Price for such Purchased Asset or Underlying Asset on the related Purchase Date.

“Capital Lease Obligations”:  With respect to any Person, the amount of all obligations of such Person to pay rent or other amounts under a lease of property to the extent and in the amount that such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person.

“Capital Stock”:  Any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent equity ownership interests in a Person which is not a corporation, including, without limitation, any and all member or other equivalent interests (certificated or un-certificated) in any limited liability company, any and all partnership or other equivalent interests in any partnership or limited partnership, any and all trust certificate representing ownership of the related trust, and any and all warrants or options to purchase any of the foregoing.

“Carryover Amount” means the sum of (a) the aggregate of any Carryover Amounts in respect of prior Pricing Periods that have not previously been distributed under Section 5.02(a)(II), and (b) in respect of the current Pricing Period, the amount by which any payments due Servicer pursuant to clause first of Section 5.02(a) of the PC REO Trust Agreement and clause first of Section 5.02(a)(II) of the Agreement, exceed 30% of the Income collected by Servicer with respect to the Purchase Mortgage Loans, the Underlying REO Properties and the Underlying Mortgage Loans.

3

“Change of Control”:  The occurrence of any of the following events:  (a) any “person” or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the beneficial owner, directly or indirectly, of 25% or more of the total voting power of all classes of Equity Interests of any Seller or Guarantor entitled to vote generally in the election of the directors, (b) Guarantor shall cease to indirectly own and control, of record and beneficially, 100% of the Equity Interests of either (i) PMOP or (ii) PennyMac GP OP, Inc., (c) PMOP shall cease to own and control, of record and beneficially, 100% of the Equity Interests of PMC or PMIT, or (d) PMC shall cease to own and control, of record and beneficially, 100% of the Equity Interests of PC REO.

“Class A Participant” Has the meaning ascribed to such term in the related REMIC Declaration Agreement.

“Class A Participation”:  Has the meaning ascribed to such term in the related REMIC Declaration Agreement.

“Closing Certificate”:  A true and correct certificate in the form of Exhibit C, executed by a Responsible Officer of each Seller.

“Closing Date”:  November 2, 2010.

“Code”:  The Internal Revenue Code of 1986, as amended.

“Compliance Certificate”:  A true and correct certificate in the form of Exhibit D,  executed by a Responsible Officer of each Seller and Guarantor.

“Confirmation”:  A purchase confirmation in the form of Exhibit E, duly completed, executed and delivered by a Seller and Buyer in accordance with Section 3.01.

“Contingent Liabilities”:  With respect to any Person as of any date, all of the following as of such date:  (a) liabilities and obligations (including any Guarantee Obligations) of such Person in respect of “off-balance sheet arrangements” (as defined in the Off-Balance Sheet Rules defined below), (b) obligations, including Guarantee Obligations, whether or not required to be disclosed in the footnotes to such Person’s financial statements, guaranteeing in whole or in part any Non-Recourse Indebtedness, lease, dividend or other obligation, excluding, however (i) contractual indemnities (including any indemnity or price-adjustment provision relating to the purchase or sale of securities or other assets) and (ii) guarantees of non-monetary obligations that have not yet been called on or quantified, of such Person or any other Person, and (c) forward commitments or obligations to fund or provide proceeds with respect to any loan or other financing that is obligatory and non-discretionary on the part of the lender.  The amount of any Contingent Liabilities described in the preceding clause (b) shall be deemed to be (i) with respect to a guarantee of interest or interest and principal, or operating income guarantee, the sum of all payments required to be made thereunder (which, in the case of an operating income guarantee, shall be deemed to be equal to the debt service for the note secured thereby), through (x) in the case of an interest or interest and principal guarantee, the stated date of maturity of the obligation (and commencing on the date interest could first be payable thereunder), or (y) in the case of an operating income guarantee, the date through which such guarantee will remain in effect, and

4

(ii) with respect to all guarantees not covered by the preceding clause (i), an amount equal to the stated or determinable amount of the primary obligation in respect of which such guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as recorded on the balance sheet and in the footnotes to the most recent financial statements of such Person.  “Off-Balance Sheet Rules” means the Disclosure in Management’s Discussion and Analysis About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, Securities Act Release Nos. 33-8182; 34-47264; FR-67 International Series Release No. 1266 File No. S7-42-02, 68 Fed. Reg. 5982 (Feb. 5, 2003) (codified at 17 CFR Parts 228, 229 and 249).

“Contractual Obligation”:  With respect to any Person, any provision of any securities issued by such Person or any indenture, mortgage, deed of trust, deed to secure debt, contract, undertaking, agreement, instrument or other document to which such Person is a party or by which it or any of its property or assets are bound or are subject.

“Contribution Agreement”: The Contribution Agreement in form and substance satisfactory to Buyer between PMC and PC REO pursuant to which PMC will convey, transfer and contribute to PC REO the REO Property resulting from the foreclosure of a Purchased Mortgage Loan or other Mortgage Loan, as the same may be amended, modified or supplemented from time to time and approved by Buyer.

“Control”:  With respect to any Person, the direct or indirect possession of the power to direct or cause the direction of the management or policies of such Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling,” “Controlled” and “under common Control” have correlative meanings.

“Conversion Date”: As applicable, (i) with respect to any Purchased REMIC Certificate, the date on which Buyer releases its rights, title and interest in a Removed Mortgage Loan and such Removed Mortgage Loan becomes subject to a Transaction as a Purchased Mortgage Loan pursuant to Section 3.01(g)(i) hereof, or (ii) with respect to any Purchased Mortgage Loan, the date on which Buyer releases its rights, title and interest in such Purchased Mortgage Loan that has become a Foreclosed Mortgage Loan, and such Foreclosed Mortgage Loan is contributed to PC REO to support the related Purchased REO Entity Interests, pursuant to Section 3.01(g)(ii) hereof.

“Custodial Agreement”:  The Custodial Agreement, dated as of the date hereof, among Buyer, Sellers and Custodian, substantially in the form and substance as mutually agreed to between Buyer and Sellers, as the same may be amended, modified or supplemented from time to time.

“Custodian”:  Wells Fargo Bank, National Association, or any successor permitted by the Custodial Agreement.

“Default”:  Any event that, with the giving of notice or the lapse of time, or both, would become an Event of Default.

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“Default Rate”:  As of any date, the Pricing Rate in effect on such date plus 400 basis points (4.00%), determined after any Repurchase Date on the basis of periods corresponding to Pricing Periods.

“Derivatives Contract”:  Any rate swap transaction, basis swap, credit derivative transaction, forward rate transaction, commodity swap, commodity option, forward commodity contract, equity or equity index swap or option, bond or bond price or bond index swap or option or forward bond or forward bond price or forward bond index transaction, interest rate option, forward foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot contract, or any other similar transaction or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, including any obligations or liabilities thereunder.

“Derivatives Termination Value”:  With respect to any one or more Derivatives Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Derivatives Contracts, (a) for any date on or after the date such Derivatives Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in the preceding clause (a), the amount(s) determined as the mark-to-market value(s) for such Derivatives Contracts, as determined based on one or more mid-market or other readily available quotations provided by any recognized dealer in such Derivatives Contracts (which may include Buyer).

“Direct Pass-Through Expenses”: The professional fees, due diligence, accounting and auditing fees and other direct charges incurred by or for the benefit of PMC with respect to the Purchased Mortgage Loans and Underlying Assets under the Investment Advisor Agreement.  For any date of determination, such fees and expenses shall be estimated with respect to the Purchased Mortgage Loans and Underlying Assets on an asset-by-asset basis pursuant to an allocation method acceptable to Buyer.

“Dollars” and “$”:  Lawful money of the United States of America.

“Due Date”:  The day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.

“Early Repurchase”:  The repurchase of any Purchased Assets by any Seller prior to the Repurchase Date (other than on account of a Representation Breach).

“Early Repurchase Date”:  Defined in Section 3.04.

“Early Repurchase Schedule”: With respect to any Early Repurchase or a Sale and Disposition of Purchased Assets on the schedule set forth Exhibit F attached hereto.

“Effective Date”: The date on which all conditions set forth in 6.01 have been satisfied in Buyer’s determination.

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“Electronic Tracking Agreement”:  The Electronic Tracking Agreement among Buyer, Sellers, MERS and MERSCORP, Inc., to the extent applicable as the same may be amended from time to time.

“Eligible Asset”: An Eligible Mortgage Loan, an Eligible REMIC Certificate, an Eligible REO Property or any REO Entity Interests, as the case may be.

“Eligible Assignee”:  Any of the following Persons designated by Buyer for purposes of Section 18.08(c):  (a) a bank, financial institution, pension fund, insurance company or similar Person, an Affiliate of any of the foregoing, and an Affiliate of Buyer, and (b) any other Person to which Sellers have consented; provided, that such consent of Sellers shall not be unreasonably withheld, delayed or conditioned, and shall not be required at any time when a Default or Event of Default exists.  Such Person shall provide to Sellers such duly executed IRS forms as Sellers reasonably request.

“Eligible Mortgage Loan”:  Any Mortgage Loan (a) as to which each of the representations and warranties in Sections 7.06, 7.10, 7.11, and 7.12 and Schedule 1-A are true and correct in all material respects, (b) that contains all required Mortgage Loan Documents without exceptions unless otherwise waived by Buyer or permitted below and (c) that satisfies each of the following eligibility requirements:

(i)            At the time it was made, such Mortgage Loan complied in all material respects with all applicable local, state and federal laws, including but not limited to all predatory lending laws;

(ii)           Such Mortgage Loan is secured by a first priority mortgage or deed of trust on real property;

(iii)          The BPO Value for such Mortgage Loan exceeds $30,000;

(iv)          The unpaid principal balance of such Mortgage Loan is equal to or exceeds $50,000;

(v)           The Mortgagor on the Mortgage Loan did not have a Fair, Isaac & Company, Inc. (“FICO”) Score at origination of the Mortgage Loan that is less than 500;

(vi)          Such Mortgage Loan is not a “Section 32” loan;

(vii)         Such Mortgage Loan is not a High Cost Mortgage Loan;

(viii)        The Foreclosure Age of such Mortgage Loan does not exceed the related maximum foreclosure age as set forth on Schedule 6 attached hereto; provided that Buyer such condition may be waived by Buyer, with respect to any Mortgage Loan  for which foreclosure is imminent;

(ix)           The outstanding Protective Servicing Advances with respect to such Mortgage Loan do not exceed 15% of either (i) the BPO Value of the related Underlying Mortgaged Property or (ii) the unpaid principal balance of such Mortgage Loan;

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(x)            The information set forth in the related Mortgage Loan Schedule is true and correct in all material respects as of the date or dates respecting which the information is furnished;

(xi)           No Representation Breach exists with respect to such Mortgage Loan;

(xii)          There are no future funding obligations on the part of Sellers or Buyer or any other Person with respect to such Mortgage Loan;

(xiii)         A BPO has been conducted on the related Underlying Mortgaged Property no longer than ninety (90) days prior to the related Purchase Date with respect to the Mortgage Loan;

(xiv)        A BPO has been conducted and delivered to Buyer with respect to the related Underlying Mortgaged Property every one hundred and eighty (180) days that such Mortgage Loan is subject to a Transaction hereunder;

(xv)         If such Mortgage Loan is an Underlying Mortgage Loan, it is a “qualified mortgage loan” as such term is defined in Section 860(G)(a)(3) of the Code and the related Underlying Mortgage Property qualifies as foreclosure property within the meaning of Section 856(e) of the Code if obtained by foreclosure or deed in lieu of foreclosure (without regard to Treasury Regulation 1.856-6(b)(3));

(xvi)        The Mortgaged Property with respect to such Mortgage Loan located in the United States, and the Underlying Obligors are domiciled in the United States and are not Sanctioned Entities, and all obligations thereunder and under the Mortgage Loan Documents are denominated and payable in Dollars; and

(xvii)       Any other eligibility criteria as mutually agreed to by the Buyer and Sellers.

provided, that notwithstanding the failure of a Mortgage Loan to conform to the requirements of this definition, Buyer may, subject to such terms, conditions and requirements and Applicable Percentage adjustments as Buyer may require, designate in writing any such non-conforming Mortgage Loan as an Eligible Mortgage Loan, which designation (1) may include a temporary or permanent waiver of one or more Eligible Mortgage Loan requirements, and (2) shall not be deemed a waiver of the requirement that all other Mortgage Loans must be Eligible Mortgage Loan (including any Mortgage Loans that are similar or identical to the Mortgage Loan subject to the waiver).

“Eligible REMIC Certificate”:  Any REMIC Certificate (a) as to which each of the representations and warranties in Sections 7.06, 7.10, 7.11, and 7.12 and Schedule 1-C are true and correct in all material respects, (b) as to which all required REMIC Certificate Documents have been delivered to Custodian or Buyer without exceptions unless otherwise waived by Buyer or permitted below, (c) that is sold or proposed to be sold to Buyer together with each other REMIC regular interest then issued by PMC pursuant to the related REMIC Declaration Agreement, and (d) that satisfies each of the following eligibility requirements:

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(i)            Such REMIC Certificate is backed by Eligible Underlying Mortgage Loans at the time such REMIC Certificate was issued;

(ii)           Such REMIC Certificate is certificated;

(iii)          Such REMIC Certificate is owned by PMIT;

(iv)          No Representation Breach exists with respect to the REMIC Certificate;

(v)           The delivery of which shall be sufficient to cause Buyer to have a perfected, first priority security interest in, and to be the “entitlement holder” (as defined in Section 8-102(a)(7) of the UCC) with respect thereto;

(vi)          The Mortgage Loan Documents for the Underlying Mortgage Loans have been delivered to the Custodian without exception unless otherwise waived by Buyer;

(vii)         PMC has pledged all of its right, title and interest in all Underlying Mortgage Loans supporting such REMIC Certificate, together with the related Servicing Rights, the related Records, amounts and property from time to time on deposit in the Participation Account and the Participation Account itself and all Income related to such Underlying Mortgage Loans received by PMC or Servicer and all rights to receive such Income, and all products, proceeds and distributions relating to or constituting any or all of the foregoing, except to the extent any of PMC’s rights, title and interest therein have been legally and validly sold, transferred and assigned by PMC to the Class A Participant in accordance with the related REMIC Declaration Agreement;

(viii)        Such REMIC Certificate is endorsed in blank;

(ix)           Such REMIC Certificate is not in the possession of or in the name of any Person other than PMIT;  and

(x)            Any other eligibility criteria as mutually agreed to by the Buyer and Sellers.

provided, that notwithstanding the failure of a REMIC Certificate or any related Underlying  Mortgage Loan to conform to the requirements of this definition or the definition of “Eligible Mortgage Loan,” Buyer may, subject to such terms, conditions and requirements and Applicable Percentage adjustments as Buyer may require, designate in writing any such non-conforming REMIC Certificate or related Underlying Mortgage Loan as an Eligible REMIC Certificate or Eligible Mortgage Loan, which designation (1) may include a temporary or permanent waiver of one or more Eligible REMIC Certificate or Eligible Mortgage Loan, and (2) shall not be deemed a waiver of the requirement that all other REMIC Certificates must be Eligible REMIC Certificates or Eligible Mortgage Loan (including any REMIC Certificates or Eligible Mortgage Loan that are similar or identical to the REMIC Certificate or Eligible Mortgage Loan subject to the waiver).

“Eligible REO Property”:  All REO Property wholly owned by PC REO and (a) as to which each of the representations and warranties in Section 7.20 and Schedule 1-B are true and

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correct in all material respects; (b) as to which the related REO Deed has been recorded or sent for recordation, in either case in the name of the PC REO, and (c) which satisfies the following eligibility requirements:

(i)            The information set forth in the related REO Property Schedule is true and correct in all material respects as of the date or dates respecting which the information is furnished;

(ii)           No Representation Breach exists with respect to such REO Property;

(iii)          There are no future funding obligations on the part of Sellers or Buyer or any other Person with respect to such REO Property;

(iv)          The Underlying Mortgaged Property with respect to such REO Property is located in the United States and all obligations (if applicable) thereunder and under the Asset Documents are denominated and payable in Dollars;

(v)           A BPO has been conducted on such REO Property no longer than ninety (90) days prior to the related Purchase Date;

(vi)          A BPO has been conducted and delivered to Buyer with respect to such REO Property every one hundred and eighty (180) days that such REO Property is subject to a Transaction hereunder;

(vii)         A report containing updated property value information using the Competitive Market Analysis has been delivered to Buyer with respect to such REO Property every month that such REO Property is subject to a Transaction hereunder;

(viii)        The REO Aging of such REO Property does not exceed 360 days;

(ix)           The BPO Value for such REO Property exceeds $30,000;

(x)            The outstanding Protective Servicing Advances with respect to such REO Property do not exceed 15% of the BPO Value of the related Underlying Mortgaged Property; and

(xi)           Any other eligibility criteria as mutually agreed to by the Buyer and Sellers.

provided, that notwithstanding the failure of an REO Property to conform to the requirements of this definition, Buyer may, subject to such terms, conditions and requirements and Applicable Percentage adjustments  as Buyer may require, designate in writing any such non-conforming REO Property as an Eligible REO Property, which designation (1) may include a temporary or permanent waiver of one or more Eligible REO Property requirements, and (2) shall not be deemed a waiver of the requirement that all other REO Property must be Eligible REO Property  (including any REO Property that is similar or identical to the REO Property subject to the waiver).

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“Eligible Underlying Mortgage Loan”: An Underlying Mortgage Loan that satisfies the definition of Eligible Mortgage Loan, except as otherwise set forth in the related Schedule.

“Environmental Laws”:  Any federal, state, foreign or local statute, law, rule, regulation, ordinance, code, guideline, written policy and rule of common law now or hereafter in effect, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, employee health and safety or hazardous materials, including CERCLA, RCRA, the Federal Water Pollution Control Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Oil Pollution Act of 1990, the Emergency Planning and the Community Right-to-Know Act of 1986, the Hazardous Material Transportation Act, the Occupational Safety and Health Act, and any state and local or foreign counterparts or equivalents.

“Equity Interests”:  With respect to any Person, (a) any share, interest, participation and other equivalent (however denominated) of Capital Stock of (or other ownership, equity or profit interests in) such Person, (b) any warrant, option or other right for the purchase or other acquisition from such Person of any of the foregoing, (c) any security convertible into or exchangeable for any of the foregoing, and (d) any other ownership or profit interest in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such share, warrant, option, right or other interest is authorized or otherwise existing on any date.

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

“ERISA Affiliate”: Any entity, whether or not incorporated, that is a member of any group of organizations described in Section 414(b), (c), (m) or (o) of the Code of which any Seller or Guarantor is a member.

“Escrow Payments”:  With respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

“Estimate of Guarantor Net Income”:  An amount resulting from Guarantor’s GAAP net income, including but not limited to its election of the fair value option under SFAS No. 157, derived from, among other items, Interest Payments, accretion of expected Purchased Assets and Underlying Assets gain, amortization of asset purchase discount, gain or loss from short sales, gain or loss from liquidations, and gain/loss from sales, net of Sellers’ expenses.  These amounts will be calculated in good faith by Sellers in a commercially reasonable manner and reported on an individual basis for each Purchased Asset and Underlying Assets.

“Event of Default”:  Defined in Section 10.01.

“Facility Fee”:  The meaning set forth in the Fee Letter, which definition is incorporated by reference herein.

“Fannie Mae”:  Fannie Mae, or any successor thereto.

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“Fee Letter”:  The fee and pricing letter, dated as of the date hereof, between Buyer and Sellers.

“Foreclosure Age”:  With respect to Underlying Mortgage Loans and Purchased  Mortgage Loans in foreclosure (or other resolution), the number of days elapsed from the initial attorney referral date until title to the related REO Property is vested in PC REO.

“Foreclosed Mortgage Loans”: Any Mortgage Loan in which PMC has released its right, title and interest in connection with the foreclosure of such Mortgage Loan and contributed the resulting REO Property to PC REO as support for the Purchased REO Entity Interests.

“Freddie Mac”:  Freddie Mac, or any successor thereto.

“GAAP”:  Generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

“Governing Documents”:  With respect to any Person, its articles or certificate of incorporation or formation, by-laws, partnership, limited liability company, operating or trust agreement and/or other organizational, charter or governing documents.

“Governmental Authority”:  Any (a) nation or government, (b) state or local or other political subdivision thereof, (c) central bank or similar monetary or regulatory authority, (d) Person, agency, authority, instrumentality, court, regulatory body, central bank or other body or entity exercising executive, legislative, judicial, taxing, quasi-judicial, quasi-legislative, regulatory or administrative functions or powers of or pertaining to government, (e) court or arbitrator having jurisdiction over such Person, its Affiliates or its assets or properties, (f) stock exchange on which shares of stock of such Person are listed or admitted for trading, (g) accounting board or authority that is responsible for the establishment or interpretation of national or international accounting principles, and (h) supra-national body such as the European Union or the European Central Bank.

“Gross Margin”:  With respect to each adjustable rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note.

“Guarantee Default”:  Defined in Section 8.12.

“Guarantee Obligation”:  With respect to any Person (the “guaranteeing person”), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit) to induce the creation of the obligations for which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, Contractual Obligation, Derivatives Contract or other obligations or indebtedness (the “primary obligations”) of any other third Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation, or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services

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primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business.  The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the maximum stated amount of the primary obligation relating to such Guarantee Obligation (or, if less, the maximum stated liability set forth in the instrument embodying such Guarantee Obligation); provided, that in the absence of any such stated amount or stated liability, the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum anticipated liability in respect thereof as reasonably determined by such Person.

“Guarantor”: PennyMac Mortgage Investment Trust, a Maryland real estate investment trust, together with its permitted successors and assigns.

 “Guaranty Agreement”:  The Guaranty Agreement in form and substance satisfactory to Buyer, made by Guarantor in favor of Buyer in connection with this Agreement, as the same may be amended, modified or supplemented from time to time.

“High Cost Mortgage Loan”:  A Mortgage Loan classified as (a) a “high cost” loan under the Home Ownership and Equity Protection Act of 1994, (b) a “high cost,” “threshold,” “covered,” or “predatory” loan under any other applicable state, federal or local law (or a similarly classified loan using different terminology under a law, regulation or ordinance imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees) or (c) a High Cost Loan or Covered Loan, as applicable (as such terms are defined in the current Standard & Poor’s LEVELS® Glossary Revised, Appendix E).

“HUD”:  The U.S. Department of Housing and Urban Development.

“Income”:  With respect to any Purchased Asset, (in each case with respect to the entire par amount of the Purchased Asset and not just with respect to the portion of the par amount represented by the Purchase Price advanced against such Purchased Asset) all of the following:  (a) all Principal Payments, (b) all Interest Payments (without duplication of the amounts set forth in clause (f) with respect to the Underlying Mortgage Loans related to Purchased REMIC Certificates), (c) all other income, receipts, distributions, dividends, payments, collections, prepayments, recoveries, proceeds (including insurance and condemnation proceeds) and other payments or amounts of any kind paid, received, collected, recovered or distributed on, in connection with or in respect of such Purchased Asset, including prepayment fees, extension fees, exit fees, any rental payments, if any, and all proceeds of any Purchased Asset received upon securitization, liquidation, foreclosure, short sale or other disposition, transfer fees, make whole fees, late charges, late fees and all other fees or charges of any kind or nature, premiums, yield maintenance charges, penalties, default interest, gains, receipts, allocations, rents, interests, profits, payments in kind, returns or repayment of contributions, insurance payments, judgments, settlements and proceeds, (d) all payments received from hedge counterparties pursuant to the portion of any interest rate protection agreements allocated to such Purchased Asset, if applicable; (e) all other “proceeds” as defined in Section 9-102(64) of the UCC, including all collections or distributions thereon or other income or receipts therefrom or in respect thereof

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and (f) with respect to Purchased REMIC Certificates and Purchased REO Entity Interests, each of the foregoing amounts collected with respect to the related Underlying Assets; provided, that any amounts that under the applicable Asset Documents are required to be deposited into and held in escrow or reserve to be used for a specific purpose, such as taxes and insurance, shall not be included in the term “Income” unless and until (i) an event of default exists under such Asset Documents, (ii) the holder of the related Purchased Asset or Underlying Asset has exercised or is entitled to exercise rights and remedies with respect to such amounts, (iii) such amounts are no longer required to be held for such purpose under such Asset Documents, or (iv) such amounts may be applied to all or a portion of the outstanding indebtedness under such Asset Documents.

“Indebtedness”:  With respect to any Person and any date, all of the following with respect to such Person as of such date:  (a) obligations in respect of money borrowed (including principal, interest, assumption fees, prepayment fees, yield maintenance charges, penalties, exit fees, contingent interest and other monetary obligations whether choate or inchoate and whether by loan, the issuance and sale of debt securities or the sale of property or assets to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets, or otherwise), (b) obligations, whether or not for money borrowed (i) represented by notes payable, letters of credit or drafts accepted, in each case representing extensions of credit, (ii) evidenced by bonds, debentures, notes or similar instruments, or (iii) constituting purchase money indebtedness, conditional sales contracts, title retention debt instruments or other similar instruments, upon which interest charges are customarily paid or that are issued or assumed as full or partial payment for property or services rendered, (c) Capital Lease Obligations, (d) reimbursement obligations under any letters of credit or acceptances (whether or not the same have been presented for payment), (e) Off-Balance Sheet Obligations, (f) obligations to purchase, redeem, retire, defease or otherwise make any payment in respect of any mandatory redeemable stock issued by such Person or any other Person (inclusive of forward equity contracts), valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (g) as applicable, all obligations of such Person (but not the obligation of others) in respect of any keep well arrangements, credit enhancements, contingent or future funding obligations under any Purchased Asset or any obligation senior to any Purchased Asset, unfunded interest reserve amount under any Purchased Asset or any obligation that is senior to any Purchased Asset, purchase obligation, repurchase obligation, sale/buy-back agreement, takeout commitment or forward equity commitment, in each case evidenced by a binding agreement (excluding any such obligation to the extent the obligation can be satisfied by the issuance of Equity Interests (other than mandatory redeemable stock)), (h) net obligations under any Derivatives Contract not entered into as a hedge against existing indebtedness, in an amount equal to the Derivatives Termination Value thereof, (i) all Non-Recourse Indebtedness, recourse indebtedness and all indebtedness of other Persons that such Person has guaranteed or is otherwise recourse to such Person, (j) all indebtedness of another Person secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien (other than certain Permitted Liens) on property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligation; provided, that if such Person has not assumed or become liable for the payment of such indebtedness, then for the purposes of this definition the amount of such indebtedness shall not exceed the market value of the property subject to such Lien, (k) all Contingent Liabilities, (l) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person or obligations of such Person to pay the

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deferred purchase or acquisition price of property or assets, including contracts for the deferred purchase price of property or assets that include the procurement of services, (m) indebtedness of general partnerships of which such Person is liable as a general partner (whether secondarily or contingently liable or otherwise), and (n) obligations to fund capital commitments under any Governing Document, subscription agreement or otherwise.

“Indemnified Amount”:  Defined in Section 13.01.

“Indemnified Person”:  Defined in Section 13.01.

“Independent Director” or “Independent Manager”:  An individual who has prior experience as an independent director, independent manager or independent member with at least three (3) years of employment experience and who is provided by CT Corporation, Corporation Service Company, National Registered Agents, Inc., Wilmington Trust Company, Stewart Management Company, Lord Securities Corporation or, if none of those companies is then providing professional Independent Directors or Independent Managers, another nationally recognized company reasonably approved by Buyer, in each case that is not an Affiliate of a Seller and that provides professional Independent Directors and Independent Managers and other corporate services in the ordinary course of its business, and which individual is duly appointed as a member of the board of directors or board of managers of such corporation or limited liability company and is not, has never been, and will not while serving as Independent Director or Independent Manager be, any of the following:

(a)           a member, partner, equity holder, manager, director, officer or employee of a Seller, any Principal, any of their respective equity holders or Affiliates (other than (i) as an Independent Director or Independent Manager of a Seller or Principal and (ii) as an Independent Director or Independent Manager of an Affiliate of a Seller or Principal or any of their respective single-purpose entity equity holder that is not in the direct chain of ownership of a Seller or Principal and that is required by a creditor to be a single purpose bankruptcy remote entity, provided that such Independent Director or Independent Manager is employed by a company that routinely provides professional Independent Directors or Independent Managers);

(b)           a creditor, supplier or service provider (including provider of professional services) to a Seller, any single-purpose entity equity holder, or any of their respective equity holders or Affiliates (other than a nationally-recognized company that routinely provides professional Independent Directors or Independent Managers and other corporate services to a Seller, any single-purpose entity equity holder, or any of their respective equity holders or Affiliates in the ordinary course of business);

(c)           a family member of any such member, partner, equity holder, manager, director, officer, employee, creditor, supplier or service provider; or

(d)           a Person that controls (whether directly, indirectly or otherwise) any of the individuals described in the preceding clauses (a), (b) or (c).

An individual who otherwise satisfies the preceding definition other than clause (a) by reason of being the Independent Director or Independent Manager of a “special purpose entity” affiliated with a Seller or Principal shall not be disqualified from serving as an Independent Director or

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Independent Manager of a Seller or Principal if the fees that such individual earns from serving as Independent Directors or Independent Managers of affiliates of a Seller or Principal in any given year constitute in the aggregate less than 5% of such individual’s annual income for that year.

“Index”:  With respect to any adjustable rate Mortgage Loan, the index identified on the Mortgage Loan Schedule and set forth in the related Mortgage Note for the purpose of calculating the applicable Mortgage Interest Rate.

“Ineligibility Remedies”:  Has the meaning set forth in Section 3.04 hereof.

“Insolvency Action”:  With respect to any Person, the taking by such Person of any action resulting in an Insolvency Event, other than solely under clause (g) of the definition thereof.

“Insolvency Event”:  With respect to any Person, (a) the filing of a decree or order for relief by a court having jurisdiction in the premises with respect to such Person or any substantial part of its assets or property in an involuntary case under any applicable Insolvency Law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its assets or property, or ordering the winding-up or liquidation of such Person’s affairs, and such decree or order shall remain unstayed and in effect for a period of thirty (30) days, (b) the commencement by such Person of a voluntary case under any applicable Insolvency Law now or hereafter in effect, (c) the consent by such Person to the entry of an order for relief in an involuntary case under any Insolvency Law, (d) the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its assets or property, (e) the making by such Person of any general assignment for the benefit of creditors, (f) the admission in a legal proceeding of the inability of such Person to pay its debts generally as they become due, (g) the failure by such Person generally to pay its debts as they become due, or (h) the taking of action by such Person in furtherance of any of the foregoing.

“Insolvency Proceeding”:  Any case, action or proceeding before any court or other Governmental Authority relating to any Insolvency Event.

“Insolvency Laws”:  The Bankruptcy Code and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments and similar debtor relief laws from time to time in effect affecting the rights of creditors generally.

“Interest Payments”:  With respect to any Purchased Mortgage Loan or Underlying Mortgage Loan, all payments of interest, including default interest, received from time to time.

“Interest Rate Adjustment Date”:  The date on which an adjustment to the Mortgage Interest Rate with respect to each Mortgage Loan becomes effective.

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“Internal Control Event”:  Material weakness in, or fraud that involves management or other employees who have a significant role in, the internal controls of any Seller, Guarantor or any Affiliate thereof over financial reporting, in each case as described in the Securities Laws.

“Interest Reserve Account”:  The Mortgage Loan Interest Reserve Account or the REO Property Interest Reserve Account, as the context may require.

“Investment”:  With respect to any Person, any acquisition or investment (whether or not of a controlling interest) by such Person, whether by means of (a) the purchase or other acquisition of any Equity Interest in another Person, (b) a loan, advance or extension of credit to, capital contribution to, guaranty or credit enhancement of Indebtedness of, or purchase or other acquisition of any Indebtedness of, another Person, including any partnership or joint venture interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute the business or a division or operating unit of another Person.  Any binding commitment or option to make an Investment in any other Person shall constitute an Investment.  Except as expressly provided otherwise, for purposes of determining compliance with any covenant contained in this Agreement, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“Investment Advisor”: PNMAC Capital Management, LLC, together with its permitted successors and assigns.

“Investment Advisor Agreement”: That certain management agreement, dated as of August 4, 2009, by and among Guarantor, PennyMac Operating Partnership, L.P. and Investment Advisor and all amendments, modifications and supplements thereto.

“Investment Advisor Side Letter”:  The side letter agreement to be entered into among Buyer, Sellers and Investment Advisor as of the date hereof, in the form attached hereto as Exhibit G hereof or such other form that is acceptable to Buyer, pursuant to which the manner in which the Investment Advisor shall take direction from Buyer with respect to its management of the Purchased Assets and Underlying Assets shall be set forth after an Event of Default and certain other events set forth therein.

“Investment Company Act”:  The Investment Company Act of 1940, as amended, restated or modified from time to time

“Knowledge”:  With respect to any Person, means collectively (i) the Actual Knowledge of such Person, (ii) notice of any fact, event, condition or circumstance that would cause a reasonably prudent Person to conduct an inquiry that would give such Person Actual Knowledge, whether or not such Person actually undertook such an inquiry, and (iii) all knowledge that is imputed to a Person under any statute, rule, regulation, ordinance, or official decree or order.

“LIBOR”:  For any Pricing Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/100 of 1%) for deposits in Dollars, for a one-month period, that appears on Reuters Screen LIBOR01 (or the successor thereto) as the London interbank offered rate for deposits in Dollars as of 11:00 a.m., London time, on the Pricing Rate Reset Date for such Pricing Period.  If such rate does not appear on Reuters Screen LIBOR01 as

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of 11:00 a.m., London time, on such Pricing Rate Reset Date, Buyer shall request the principal London office of the Reference Banks selected by Buyer to provide such banks’ offered quotation (expressed as a percentage per annum) to leading banks in the international Eurocurrency market for deposits in Dollars for a one-month period as of 11:00 a.m., London time, on such Pricing Rate Reset Date for amounts of not less than the Aggregate Purchase Price.  If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations.  If fewer than two such quotations are so provided, Buyer shall request any three major banks in New York City selected by Buyer to provide such banks’ rate (expressed as a percentage per annum) for loans in Dollars to leading banks in the international Eurocurrency market for a one-month period as of approximately 11:00 a.m., New York City time on the applicable Pricing Rate Reset Date for amounts of not less than the Aggregate Purchase Price of all Purchased Assets.  If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates.

“LIBO Rate”:  For any Pricing Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/100 of 1%) determined for such Pricing Period in accordance with the following formula:

LIBOR for such Pricing

Period

1 - - Reserve Requirement

“Lien”:  Any mortgage, statutory or other lien, pledge, charge, right, claim, adverse claim, attachment, levy, hypothecation, assignment, deposit arrangement, security interest, UCC financing statement or encumbrance of any kind on or otherwise relating to any Person’s assets or properties in favor of any other Person or any preference, priority or other security agreement or preferential arrangement of any kind.

“Management Fees”:  The management fees due to the Investment Advisor pursuant to the Investment Advisor Agreement.  For any date of determination such fees shall be estimated with respect to the Purchased Mortgage Loans and Underlying Assets on an asset-by-asset basis pursuant to an allocation method acceptable to Buyer.

“Margin Call”:  Defined in Section 4.01.

“Margin Call Notice”:  A notice from Buyer to the applicable Seller(s), at any time, specifying the occurrence of a Margin Deficit and a Margin Call Trigger Event and the amount of cash required to be paid  by each such Seller pursuant to Section 4.01(a).

“Margin Call Trigger Event”:  If at any time any of the following shall occur:

(a)           on a static pool basis, the weighted average Foreclosure Age exceeds one hundred twenty (120%) percent of the then-current average state foreclosure timeline values, published by Lender Processing Services, Inc. (“LPS”) as set forth in Schedule 5 (which values are subject to amendment by LPS) as weighted by the Market Value of the applicable Purchased Mortgage Loans and Underlying Mortgage Loans;

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(b)           the weighted average monthly trailing 90-day roll rate for REO Properties supporting Purchased REO Entity Interests to reach final liquidation or resolution is less than 12.5% (static pool);

(c)           the ratio of the Aggregate Purchase Price to the aggregate BPO Values of the Purchased Mortgage Loans and Underlying Assets exceeds 35% at any time.  For purposes of this test, the BPO Value to be used shall be the lower of the most recent automated or manually reconciled BPO Value on the system of record;

(d)           (i) the weighted average monthly trailing ninety (90) day Net Liquidation Proceeds for the Purchased Mortgage Loans and Underlying Assets with respect to which the related Mortgage Loan or related Mortgaged Property have been sold, liquidated or otherwise disposed of during such 90-day period, calculated as the Net Liquidation Proceeds for such Assets, minus (ii) the sum of (x) the Purchase Price paid by Buyer for such Assets plus (y) all expenses for such Assets since the related Purchase Date, is less than or equal to zero at any time, with such weighted average being based on the Purchase Price of each such Asset;

(e)           the aggregate dollar value of all Sales and Dispositions of Purchased Mortgage Loans and Underlying Assets since (a) the most recent Margin Call or (b) the Closing Date (to the extent a Margin Call has never occurred) exceeds 5% of the Aggregate Purchase Price;

(f)            the aggregate dollar value of all repurchases of Purchased Mortgage Loans and Underlying Assets by Sellers (measured by Repurchase Price) since (a) the most recent Margin Call or (b) the Closing Date (to the extent a Margin Call has never occurred) exceeds 5% of the Aggregate BPO Value; or

(g)           a Default or an Event of Default.

“Margin Deficit”:  Defined in Section 4.01.

“Market Disruption Event”:  Any event or events that, in the determination of Buyer, results in (a) a significant deterioration of the “repo market” or related “lending market” for purchasing (subject to repurchase) or financing debt obligations secured by residential mortgage loans from the status of such markets on the Closing Date, (b) the effective absence of a “market” in the manner that exists as of the Closing Date, for assets of the type similar to the Purchased Assets and Underlying Assets, (c) Buyer’s not being able to sell the Purchased Assets at prices that would have been reasonable as of the Closing Date due to the occurrence of such event or events since the Closing Date, or (d) the imposition of a foreclosure moratorium or regulatory changes, the effect of which would be to materially impair Buyer’s ability to realize on the Purchased Assets and Underlying Assets.

“Market Value”:  With respect to any Purchased Mortgage Loan or Underlying Asset, the value, determined by Buyer, thereof (including the related Servicing Rights in the case of Mortgage Loans and Underlying Mortgage Loans) if sold in their entirety to a single third-party purchaser taking into account the fact that the Purchased Assets and/or the Underlying Assets may be sold under circumstances in which a Seller, as originator or servicer of the Assets is in default under this Agreement.  Buyer’s determination of Market Value shall be conclusive upon

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the parties, absent manifest error on the part of Buyer.  Buyer shall have the right to mark to market the Purchased Mortgage Loans and Underlying Assets on a daily basis, which Market Value with respect to one or more of the Purchased Mortgage Loans and Underlying Assets may be determined to be zero. Sellers acknowledge that Buyer’s determination of Market Value is for the limited purpose of determining the value of Purchased Mortgage Loans and Underlying Assets which are subject to Transactions hereunder without the ability to perform customary purchaser’s due diligence and is not necessarily equivalent to a determination of the fair market value of the Purchased Mortgage Loans and Underlying Assets achieved by obtaining competing bids in an orderly market in which the originator/servicer is not in default under a revolving debt facility and the bidders have adequate opportunity to perform customary asset and servicing due diligence.  For the purpose of determining the related Market Value, Buyer shall have the right to request at any time from Sellers an updated valuation for each Purchased Mortgage Loan and Underlying Asset, in a form acceptable to Buyer.  Notwithstanding anything else in this definition, the Market Value shall be deemed to be zero with respect to each Purchased Asset or Underlying Asset for which such valuation is not provided and with respect to which:

(a)           the requirements of the definition of Eligible Asset are not satisfied, as determined by Buyer;

(b)           a Representation Breach exists, as determined by Buyer;

(c)           any statement, affirmation or certification made or information, document, agreement, report or notice delivered by Sellers, Servicer or Guarantor to Buyer is untrue in any material respect;

(d)           any Retained Interest, funding obligation or any other obligation of any kind has been transferred to Buyer;

(e)           Sellers fail to repurchase such Purchased Asset by the Repurchase Date;

(f)            Buyer determines that a Material Adverse Effect has occurred, including, but not limited to, litigation (other than foreclosure proceedings) involving any Purchased Asset;

(g)           all Asset Documents have not been delivered to Custodian within the time periods required by this Agreement and the Custodial Agreement;

(h)           any material Asset Document with respect to a Purchased Mortgage Loan or a Purchased REMIC Certificate has been released from the possession of Custodian under the Custodial Agreement to a Seller for more than ten (10) days;

(i)            A Seller or Servicer fails to deliver any reports required hereunder where such failure adversely affects the Market Value thereof or Buyer’s ability to determine Market Value therefor; or

(j)            there is a material exception in the trust receipt or bailee letter or Buyer has not received a trust receipt or bailee letter.

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For the sake of clarity, the Market Value of any REMIC Certificates or the REO Entity Interests on any date shall be calculated with respect to the aggregate Market Value of the Underlying Assets related to such REMIC Certificates or REO Entity Interests as of such date.

“Master Servicer”:  The Corporate Trust Services Division of Wells Fargo Bank, N.A., and its successors and assigns.

“Material Adverse Effect”:  A material adverse effect on or material adverse change in or to (a) the property, assets, business, operations, financial condition, credit quality or prospects of any Seller, Guarantor, Servicer or any Affiliate thereof, (b) the ability of a Seller to pay and perform the Repurchase Obligations, (c) the validity, legality, binding effect or enforceability of any Repurchase Document, Asset Document, Purchased Asset or security interest granted hereunder or thereunder, (d) the rights and remedies of Buyer or any Indemnified Person under any Repurchase Document, Asset Document or Purchased Asset, (e) the Market Value, rating (if applicable), liquidity or other aspect of a material portion of the Purchased Assets and Underlying Assets, as determined by Buyer, or (f) the perfection or priority of any Lien granted under any Repurchase Document or Asset Document.

“Materials of Environmental Concern”:  Any hazardous, toxic or harmful substances, materials, wastes, pollutants or contaminants defined as such in or regulated under any Environmental Law.

“Maturity Date”:  The earliest of (a) the three-hundred-sixty-fourth (364th) day following the Closing Date; (b) any Accelerated Repurchase Date and (c) any date on which the Maturity Date shall otherwise occur in accordance with the Repurchase Documents or Requirements of Law.

“Maximum Aggregate Purchase Price”:  An amount equal to $100,000,000.

“Maximum Applicable Percentage”:  The meaning set forth in the Fee Letter, which definition is incorporated by reference herein.

“MERS Loan”: Any Mortgage Loan as to which the related Mortgage or Assignment of Mortgage has been recorded in the name of MERS, as agent for the holder from time to time of the Mortgage Note, and which is identified as a MERS Loan on the related Mortgage Loan Schedule.

“Monthly Payment”:  The scheduled monthly payment of principal and/or interest on a Mortgage Loan.

“Moody’s”:  Moody’s Investors Service, Inc. or, if Moody’s Investors Service, Inc. is no longer issuing ratings, another nationally recognized rating agency reasonably acceptable to Buyer.

“Mortgage”:  Any mortgage, deed of trust, assignment of rents, security agreement and fixture filing, or other instruments creating and evidencing a lien on real property and other property and rights incidental thereto.

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“Mortgage Interest Rate”:  The rate of interest borne on a Mortgage Loan from time to time in accordance with the terms of the related Mortgage Note.

“Mortgage Interest Rate Cap”: With respect to an adjustable rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth in the related Mortgage Note.

“Mortgage File”:  The meaning set forth  in the Custodial Agreement, which definition is incorporated by reference herein.

“Mortgage Loan”:  Any fixed rate or adjustable rate and closed-end one-to-four-family residential mortgage loan or closed-end line of credit that is current (including any modified loans), delinquent and/or in the process of imminent foreclosure and secured by a first Lien Mortgage and which the Custodian has been instructed to hold for Buyer or the Class A Participant pursuant to the Custodial Agreement, and which Mortgage Loan includes, without limitation, (i) a Mortgage Note, the related Mortgage and all other Mortgage Loan Documents and (ii) all right, title and interest of the related Seller in and to the Mortgaged Property covered by such Mortgage.

“Mortgage Loan Documents”:  With respect to any Mortgage Loan, those documents identified in the Custodial Agreement and executed in connection with, evidencing or governing such Mortgage Loan and the related Underlying Mortgaged Property and which are required to be delivered to Custodian under the Custodial Agreement.

“Mortgage Loan Interest Reserve Account”:  The separate trust account established by Sellers and maintained pursuant to this Agreement for the benefit of the Buyer, which shall at all times contain funds in an amount equal to the Required Amount with respect to Purchased Mortgage Loans, to be held for the benefit of the Buyer.  The Mortgage Loan Interest Reserve Account shall be established with the Account Bank and shall be subject to an Account Control Agreement.  Interest earnings in respect of funds on deposit in the Mortgage Loan Interest Reserve Account shall be held for the pro rata benefit of the Sellers.

“Mortgage Loan Schedule”:  With respect to any Transaction as of any date, a mortgage loan schedule in the form of either (a) Exhibit H attached hereto or (b) a computer tape or other electronic medium generated by Sellers, and delivered to Buyer and Custodian, which provides information (including, without limitation, the information set forth on Exhibit H attached hereto) relating to the Purchased Mortgage Loans and Underlying Mortgage Loans in a format acceptable to Buyer.

“Mortgage Note”:  The original executed promissory note or other evidence of the indebtedness of a Mortgagor with respect to a Mortgage Loan.

“Mortgaged Property”:  The real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements made at any time with respect to the foregoing) and all other collateral securing repayment of the indebtedness evidenced by a Mortgage Note.

“Mortgagee”:  The record holder of a Mortgage Note secured by a Mortgage.

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“Mortgagor”:  The obligor on a Mortgage Note, including any Person who has assumed or guaranteed the obligations of the obligor thereunder.

“Multiemployer Plan”:  A multiemployer plan as defined in Section 4001(a)(3) of ERISA as to which any Seller, Guarantor or any ERISA Affiliate has made or is required to make contributions or has any actual or potential liability.

“Negative Amortization”: With respect to each Negative Amortization Loan, that portion of interest accrued at the Mortgage Interest Rate in any month which exceeds the Monthly Payment on the related Mortgage Loan for such month and which, pursuant to the terms of the Mortgage Note, is added to the principal balance of the Mortgage Loan.

“Negative Amortization Loan”: Each Mortgage Loan that may be subject to Negative Amortization.

“Net Income”:  With respect to any Person for any period, the net income of such Person for such period as determined in accordance with GAAP.

“Net Liquidation Proceeds”: All amounts received in respect of Principal Payments on and any other proceeds of any sale, liquidation or other disposition of a Purchased Mortgage Loan or Underlying Asset.

“Non-Recourse Indebtedness”:  With respect to any Person and any date, indebtedness of such Person as of such date for borrowed money in respect of which recourse for payment (except for customary exceptions for fraud, misapplication of funds, environmental indemnities, Insolvency Events, non-approved transfers or other events) is contractually limited to specific assets of such Person encumbered by a Lien securing such Indebtedness.

“Nonrecoverable Advance”: Any Servicing Advance previously made or proposed to be made in respect of a Purchased Mortgage Loan or any Underlying Asset, which in the good faith judgment of the Servicer, will not or, in the case of a proposed advance, would not, be ultimately recoverable from related Income or otherwise from such Purchased Mortgage Loan or any Underlying Asset. The determination by the Servicer that it has made a Nonrecoverable Advance or that any proposed Servicing Advance or advance of principal and interest, if made, would constitute a Nonrecoverable Advance shall be evidenced by an officer’s certificate delivered to the Buyer.

“Non-Performing Mortgage Loan”: A Mortgage Loan for which any payment of principal or interest is thirty (30) or more days contractually delinquent (without regard to any applicable grace period).

“Off-Balance Sheet Obligations”:  With respect to any Person and any date, to the extent not included as a liability on the balance sheet of such Person, all of the following with respect to such Person as of such date:  (a) monetary obligations under any financing lease or so-called “synthetic,” tax retention or off-balance sheet lease transaction that, upon the application of any Insolvency Laws, would be characterized as indebtedness, (b) monetary obligations under any sale and leaseback transaction that does not create a liability on the balance sheet of such Person, or (c) any other monetary obligation arising with respect to any other transaction that (i) is

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characterized as indebtedness for tax purposes but not for accounting purposes, or (ii) is the functional equivalent of or takes the place of borrowing but that does not constitute a liability on the balance sheet of such Person (for purposes of this clause (c), any transaction structured to provide tax deductibility as interest expense of any dividend, coupon or other periodic payment will be deemed to be the functional equivalent of a borrowing).

“Participant”:  Defined in Section 18.08(b).

“Participation Account”: Any account established by PMC at the Account Bank in the name of the PMC for the benefit of the applicable REMIC   and REMIC Certificates (as defined in the related REMIC Declaration Agreement), the account information for which is set forth on Schedule I of such REMIC Declaration Agreement, and may be changed from time to time at the written instruction of PMC after the Release Date (as defined in the REMIC Declaration Agreement), which account is subject to an Account Control Agreement.

“Patriot Act”:  The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.

“Pay-Option ARM”:  An adjustable rate mortgage with flexible payment options (a) pursuant to which the Mortgagor may pay an initial low rate for the initial Monthly Payments and a substantially higher rate in the later years of such Mortgage and (b) that is acceptable to Buyer.

“PC REO”:   PC REO Trust, together with its permitted successors and assigns.

“PC REO Trust Agreement”:  That certain Trust Agreement executed and delivered by REO Trustee and PMC, as the same may be further amended or modified with the written consent of Buyer.

“Permitted Liens”:  Any of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding has been commenced:  (a) Liens for state, municipal, local or other local taxes not yet due and payable, (b) Liens imposed by Requirements of Law, such as materialmen’s, mechanics’, carriers’, workmen’s, repairmen’s and similar Liens, arising in the ordinary course of business securing obligations that are not overdue for more than thirty (30) days, and (c) Liens granted pursuant to or by the Repurchase Documents.

“Person”:  An individual, corporation, limited liability company, business trust, partnership, trust, unincorporated organization, joint stock company, sole proprietorship, joint venture, Governmental Authority or any other form of entity.

“Plan”:  An employee benefit plan as defined in Section 3(3) of ERISA, subject to Title I of ERISA in respect of which any Seller, Servicer, Guarantor or any ERISA Affiliate thereof has any actual or potential liability or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be, an “employer” as defined in Section 3(5) of ERISA.

“PMC”: PennyMac Corp., together with its permitted successors and assigns.

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“PMI Policy” or “Primary Insurance Policy”:  A policy of primary mortgage guaranty insurance issued by a Qualified Insurer.

“PMIT”: PennyMac Mortgage Investment Trust Holdings I, LLC, together with its permitted successors and assigns.

“PMOP”: PennyMac Operating Partnership, L.P., together with its permitted successors and assigns.

“Price Differential”:  For any Pricing Period or portion thereof and (a) for any Purchased Mortgage Loan, any Purchased REMIC Certificate (calculated with respect to each Underlying Mortgage Loan) or the Purchased REO Entity Interests (calculated with respect to each Underlying REO Property) the sum of the products for each day during such Pricing Period or portion thereof, of (i) 1/360th of the applicable Pricing Rate in effect for such Asset on such day, times (ii) the Purchase Price for such Asset, (b) for any outstanding Transaction, the sum of the products, for each day during such Pricing Period or portion thereof, of (i) 1/360th of the applicable Pricing Rate in effect for each Purchased Asset (including the Underlying Assets) subject to such Transaction on such day, times (ii) the Purchase Price for such Purchased Asset (including the Underlying Assets), or (c) for all Transactions outstanding, the sum of the amounts calculated in accordance with the preceding clause (b) for all Transactions.

“Pricing Margin”:  The meaning set forth  in the Fee Letter, which definition is incorporated by reference herein.

“Pricing Period”:  For any Purchased Asset, (a) in the case of the first Remittance Date, the period from the Purchase Date for such Purchased Asset to but excluding the related Pricing Period End Date, and (b) in the case of any subsequent Remittance Date, the one-month period commencing on and including the prior Pricing Period End Date and ending on but excluding such Pricing Period End Date; provided, that no Pricing Period for a Purchased Asset shall end after the Repurchase Date for such Purchased Asset.

“Pricing Period End Date”: Two (2) Business Days prior to the related Remittance Date.

“Pricing Rate”:  For any Pricing Period, the LIBO Rate for such Pricing Period plus the applicable Pricing Margin, which shall be subject to adjustment and/or conversion as provided in Sections 12.01 and 12.02; provided, that while an Event of Default exists, the Pricing Rate shall be the Default Rate.

“Pricing Rate Reset Date”:  (a) In the case of the first Pricing Period for any Purchased Asset, the Purchase Date for such Purchased Asset, and (b) in the case of any subsequent Pricing Period, the related Pricing Period End Date or on any other date as determined by Buyer, as communicated to Sellers.  The failure to communicate shall not impair the Buyer’s decision to reset the Pricing Rate on any date.

“Principal Payments”:  With respect to any Mortgage Loans or REO Property, as applicable, all payments and prepayments of principal, including insurance and condemnation proceeds and actual recoveries received from liquidation or foreclosure, received from time to time.

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“Protective Servicing Advances”:  All customary, reasonable and necessary “out-of-pocket” costs and expenses (including reasonable attorneys’ fees and disbursements) incurred (regardless if any such advance is not, in the reasonable determination of the Servicer, a Nonrecoverable Advance when made but, thereafter, becomes a Nonrecoverable Advance) in the performance by the Servicer of its servicing obligations, including, but not limited to, the cost of (a) the preservation, restoration and protection of Underlying Mortgaged Property, (b) any fees relating to any enforcement or judicial proceedings, (c) any appraisals, valuations, broker price opinions, inspections, or environmental assessments, (d) the management and liquidation of Underlying Mortgaged Property if the Underlying Mortgaged Property is acquired in satisfaction of the related Mortgage, (e) taxes, assessments, water rates, sewer rents, mortgage insurance premiums, fire and hazard insurance premiums, flood insurance premiums and other charges which are or may become a lien upon Underlying Mortgaged Property, and (g) executing and recording instruments of satisfaction, deeds of reconveyance.

“Purchase Agreement”:  Any purchase agreement between any Seller and any Transferor pursuant to which such Seller purchased or acquired a Mortgage Loan which is subsequently sold to Buyer hereunder.

“Purchase Date”:  For any Purchased Asset or REO Property, the date on which such Purchased Asset is transferred by Sellers to Buyer or, as applicable, the date on which Buyer pays an amount of additional Purchase Price to Sellers in accordance with this Agreement with respect to such REO Property.

“Purchase Price”:  For any Purchased Asset, (a) as of the Purchase Date for such Purchased Asset, an amount equal to the product of the Market Value of such Purchased Asset, times the Applicable Percentage for such Purchased Asset and (b) as of any other date, the amount described in the preceding clause (a), as reduced by (i) any amount of Margin Deficit transferred by Sellers to Buyer pursuant to Section 4.01 (or paid by Guarantor under the Guaranty Agreement) and applied to the Purchase Price of such Purchased Asset, (ii) any Principal Payments remitted to the Waterfall Account and which were applied to the Purchase Price of such Purchased Asset by Buyer pursuant to clause sixth of Section 5.02(a)(I) and clause ninth of Section 5.02(a)(II) and Sections 5.02(b) and (c), and (iii) any payments made by Sellers in reduction of the outstanding Purchase Price, in each case before or as of such determination date with respect to such Purchased Asset, and, in the case of Purchased REO Entity Interests, Purchased REMIC Certificates and Purchased Mortgage Loans, as further increased or reduced, as applicable, pursuant to Section 3.01(g).  For the sake of clarity, the Purchase Price for any REMIC Certificates or the REO Entity Interests on any date shall be calculated with respect to the Underlying Mortgage Loans supporting such REMIC Certificates or REO Properties underlying such REO Entity Interests, as the case may be, as of such date.

“Purchased Assets”:  (a)  For any Transaction, each Asset that is a Mortgage Loan, REMIC Certificate or REO Entity Interest sold by Sellers to Buyer in such Transaction, (b) for the Transactions in general, all Assets that are Mortgage Loans, REMIC Certificates or REO Entity Interests sold by Sellers to Buyer, and (c) any Additional Purchased Assets that are Mortgage Loans, REMIC Certificates or REO Entity Interests transferred to Buyer pursuant to Section 4.01, in each case including, to the extent related, all of Sellers’ right, title and interest in and to (i) all Records, (ii) mortgage guaranties and insurance (issued by Governmental

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Authorities or otherwise) and claims, payments and proceeds thereunder, including but not limited to, any payments or proceeds under any related PMI Policy and hazard insurance, (iii) insurance policies, certificates of insurance and claims, payments and proceeds thereunder, (iv) the principal balance of any such Mortgage Loan, not just the amount advanced, (v) amounts and property from time to time on deposit in the Waterfall Account, and each Interest Reserve Account and the Waterfall Account, and each Interest Reserve Account themselves, (vi) collection, escrow, reserve, collateral or lock-box accounts and all amounts and property from time to time on deposit therein, to the extent of Sellers’ or the holder’s interest therein, (vii) all Income and all rights to receive Income, (viii) security interests of each Seller in Derivatives Contracts entered into by Underlying Obligors, (ix) rights of each Seller under any letter of credit, guarantee, warranty, indemnity, hedging arrangements, or other credit support or enhancement, (x) the portion of the interest rate protection agreements allocated to any such Mortgage Loans (if applicable), (xi) all rights to receive from any third party or to take delivery of any Records or other documents which constitute a part of the Asset Document or Servicing File, (xii) Servicing Rights (but for the avoidance of doubt, excluding Servicing Rights with respect to any Underlying Mortgage Loans which are pledged separately to Buyer as provided in Section 11.01(b), and (xiii) all related contracts, collateral and supporting obligations of any kind; provided, that (A) Purchased Assets shall not include any Underlying Assets or any Retained Interests, and (B) for purposes of the grant of security interest by each Seller to Buyer and the other provisions of Article 11, Purchased Assets shall include all of the following:  general intangibles, accounts, chattel paper, deposit accounts, securities accounts, instruments, securities, financial assets, uncertificated securities, security entitlements and investment property (as such terms are defined in the UCC) and replacements, substitutions, conversions, distributions or proceeds relating to or constituting any of the items described in the preceding clauses (i) through (xiv).

“Purchased Asset Data Summary”: A monthly report with respect to the Purchased Assets and Underlying Assets in the form of Exhibit L attached hereto.

“Purchased Mortgage Loan”:  Any Purchased Asset that is a Mortgage Loan.

“Purchased REMIC Certificate”:  Any Purchased Asset that is a REMIC Certificate.

“Purchased REO Entity Interests”:  Any Purchased Assets that are REO Entity Interests.

“Qualified Insurer”:  A mortgage guaranty or hazard insurance company reasonably acceptable to Buyer and duly authorized and licensed where required by law to transact mortgage guaranty insurance business and approved as an insurer by Fannie Mae or Freddie Mac.

“Qualified Trustee”: A trustee which is (i) (a) a national bank or (b) a nationally recognized trust company and (ii) not an Affiliate of any Seller, Servicer or Guarantor.

“Rating Agencies”:  Each of Fitch, Inc., Moody’s and S&P.

“Records”: All instruments, agreements and other books, records, and reports and data generated by other media for the storage of information maintained by Sellers or any other person or entity with respect to a Purchased Asset.  Records shall include the Mortgage Notes, any Mortgages, the Asset Documents, the Servicing Files, the Servicing Records, the credit files

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related to each Mortgage Loan and any other instruments necessary to document or service such Mortgage Loan or manage an REO Property.

“Recourse Limit”:  Has the meaning assigned thereto in the Guaranty Agreement.

“Reference Banks”:  Banks each of which shall (a) be a leading bank in the international Eurocurrency market, and (b) have an established place of business in London.  Initially, the Reference Banks shall be JPMorgan Chase Bank, Barclays Bank, PLC and Deutsche Bank AG.  If any such Reference Bank should be unwilling or unable to act as such or if Buyer shall terminate the appointment of any such Reference Bank or if any of the Reference Banks should be removed from the Reuters Monitor Money Rates Service or in any other way fail to meet the qualifications of a Reference Bank, Buyer may designate alternative banks meeting the criteria specified in the preceding clauses (a) and (b).

“REIT”:  A real estate investment trust, as defined in Section 856 of the Code.

“REIT Status”: With respect to any Person, such Person’s status as a real estate investment trust, as defined in Section 856(a) of the Code, that satisfies the conditions and limitations set forth in Section 856(b) and 856(c) of the Code.

“Release”:  Any generation, treatment, use, storage, transportation, manufacture, refinement, handling, production, removal, remediation, disposal, presence or migration of Materials of Environmental Concern on, about, under or within all or any portion of any property or Mortgaged Property.

“Remedial Work”:  Any investigation, inspection, site monitoring, containment, clean-up, removal, response, corrective action, mitigation, restoration or other remedial work of any kind or nature because of, or in connection with, the current or future presence, suspected presence, Release or threatened Release in or about the air, soil, ground water, surface water or soil vapor at, on, about, under or within all or any portion of any property or Mortgaged Property of any Materials of Environmental Concern, including any action to comply with any applicable Environmental Laws or directives of any Governmental Authority with regard to any Environmental Laws.

“REMIC Certificate”:  All certificated participation interests issued by PMC under a REMIC Declaration Agreement that represent the 100% beneficial interests in one or more Mortgage Loans owned by PMC, which is a Class A Participation, and as to which a REMIC election has been or will be made under Section 860D(b)(1) of the Code.

“REMIC Certificate Documents”: With respect to any Purchased REMIC Certificate:  (A) a copy of the executed REMIC Declaration Agreement governing such REMIC Certificate, certified by Sellers as a true, correct and complete copy of the original, and all ancillary documents required to be delivered to the certificateholders thereunder, (B) the Mortgage Loan Documents with respect to each of the related Underlying Mortgage Loans, (C) the REMIC Certificate and related documents in accordance with Section 6.02(d), (D) all related Transfer Documents, and (E) any other documents or instruments necessary in the reasonable opinion of the Buyer to effect and perfect a legally valid transfer of the relevant interest granted therein to the Buyers under the Program Documents.

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“REMIC Declaration Agreement”: Each REMIC Declaration, Servicing and Participation Agreement entered into among PMC, PMIT, PMOP and Servicer, each in form and substance satisfactory to Buyer, as the same may be amended, modified or supplemented from time to time pursuant to which (i) REMIC Certificates are issued, and (ii) the Servicer is appointed as the servicer and is responsible for the administration, collection and servicing of the related Underlying Mortgage Loans.  Each such REMIC Declaration Agreement shall be certified by Sellers as a true, correct and complete copy of the original.

“Remittance Date”:  The 22nd day of each month (or if such day is not a Business Day, the next following Business Day, or if such following Business Day would fall in the following month, the next preceding Business Day), or such other day as is mutually agreed to by Sellers and Buyer.

“Removed Mortgage Loans”: Any Underlying Mortgage Loan which is removed from the pool of mortgage loans supporting a Purchased REMIC Certificate in accordance with the related REMIC Declaration Agreement on a Conversion Date and held by PMC.

“REO Aging”:  With respect to any REO Property, the number of days elapsed from the related foreclosure sale date until the sale or disposition of such REO Property.

“REO Collection Account”: The Certificate Distribution Account as defined in and as established  pursuant to the Trust Agreement for the benefit of PC REO, into which Servicer shall direct all Income received with respect to the Purchased REO Entity Interests to be deposited.

“REO Deed”:  With respect to each REO Property that is acquired by PC REO, the instrument or document required by the law of the jurisdiction in which the REO Property is located to convey fee title and identified on the related REO Property Schedule.

“REO Entity Interests”:  100% of the Capital Stock of PC REO, together with such interests, options or rights of any nature whatsoever which may be issued or granted by PC REO to PMC while this Agreement is in effect.  Capital Stock of PC REO shall be represented by a single trust certificate issued by PC REO.

“REO Property”:  The real property acquired by or transferred to PC REO, the fee title to which is held by PC REO, together with all buildings, fixtures and improvements thereon and all other rights, benefits and proceeds arising from and in connection with such property.

“REO Property Documents”:  The meaning set forth  in the Custodial Agreement, which definition is incorporated by reference herein.

“REO Property Interest Reserve Account”: The separate trust account established by Sellers and maintained pursuant to this Agreement for the benefit of the Buyer, which shall at all times contain funds in an amount equal to the Required Amount with respect to the Purchased REO Entity Interests, to be held for the benefit of the Buyer.  The REO Property Interest Reserve Account shall be established with the Account Bank and shall be subject to an Account Control Agreement.  Interest earnings in respect of funds on deposit in the REO Property Interest Reserve Account shall be held for the pro rata benefit of the Sellers.

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“REO Property Schedule”:  A hard copy or electronic format incorporating the fields identified on Exhibit I, any other information required by Buyer with respect to REO Entity Interests and the related REO Property that is purchased hereunder.

“REO Trustee”: Wilmington Trust Company, as Qualified Trustee of PC REO.

“Reportable Event”:  Any event set forth in Section 4043(c) of ERISA, other than an event as to which the notice period is waived under Pension Benefit Guaranty Corporation Reg. §4043.

“Reporting Date”: The 8th day of each month or, if such day is not a Business Day, the next succeeding Business Day.

“Representation Breach”:  Any representation, warranty, certification, statement or affirmation made or deemed made by any Seller or Guarantor in any Repurchase Document (including those contained in Schedules 1-A, 1-B and 1-C) or in any certificate, notice, report or other document delivered pursuant to any Repurchase Document proves to be incorrect, false or misleading in any material respect when made or deemed made, without regard to any Knowledge or lack of Knowledge thereof by such Person  and without regard to any qualification, representation or warranty relating to such Knowledge or lack of Knowledge.

“Repurchase Date”:  For any Purchased Asset, the earliest of (a) the Maturity Date, (b) any Early Repurchase Date therefor, and (c) the Business Day on which Seller are to repurchase such Purchased Asset if specified by Sellers and agreed to by Buyer in the related Confirmation.

“Repurchase Documents”:  Collectively, this Agreement, the Custodial Agreement, the Fee Letter, the Servicing Agreement, the Servicer Instruction Notice, the Investment Advisor Side Letter, each REMIC Declaration Agreement, PC REO Trust Agreement, all Confirmations, the Contribution Agreement, the Electronic Tracking Agreement, each Account Control Agreement, each Power of Attorney, the Guaranty Agreement, all UCC financing statements, amendments and continuation statements filed pursuant to any other Repurchase Document, and all additional documents, certificates, agreements or instruments, the execution of which is required, necessary or incidental to or desirable for performing or carrying out any other Repurchase Document.

“Repurchase Obligations”:  All obligations of Sellers to pay the Repurchase Price on the Repurchase Date (including the obligations set forth in clauses (i) and (ii) of the Ineligibility Remedies) and all other obligations and liabilities of Sellers to Buyer arising under or in connection with the Repurchase Documents, whether now existing or hereafter arising, and all interest and fees that accrue after the commencement by or against a Seller, or Guarantor or any Affiliate thereof of any Insolvency Proceeding naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding (in each case, whether due or accrued).

“Repurchase Price”:  For any Purchased Asset as of any date, an amount equal to the sum of (a) the outstanding Purchase Price as of such date, (b) the accrued and unpaid Price Differential for such Purchased Asset as of such date, (c) all other amounts due and payable as of

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such date by Sellers to Buyer under this Agreement or any Repurchase Document, and (d) any accrued and unpaid fees and expenses and indemnity amounts and any other amounts owed by Sellers, Guarantor or Affiliates thereof to Buyer under this Agreement, any Repurchase Document or otherwise.

“Required Amount”: (a) With respect to Purchased REO Entity Interests, as of any date of determination, an amount equal to the product of (i) 1/4th  of the then current Pricing Rate for the Transaction related to the Purchased REO Entity Interests, times (ii) the outstanding Purchase Price of such Purchased REO Entity Interests as of such date (which, if such date is a Purchase Date for a Transaction involving Purchased REO Entity Interests shall include any additional REO Entity Interests or Underlying Purchased REO Property purchased by the Buyer on such date) and (b) with respect to Purchased Mortgage Loans and the Purchased Mortgage Certificates, as of any date of determination, an amount equal to the product of (i) 1/4th of the then current weighted average Pricing Rate for the Transactions related to the Purchased Mortgage Loans and the Purchased Mortgage Certificates, with such weighted average being weighted on the basis of the aggregate Purchase Price of each such Transaction, times and (ii) outstanding Purchase Price of such Purchased Mortgage Loans and such Purchased REMIC Certificates as of such date (which, if such date is a Purchase Date for a Transaction involving Purchased Mortgage Loans or Purchased Mortgage Certificates shall include any additional Purchased Mortgage Loans or Purchased Mortgage Certificates purchased by the Buyer on such date).

“Requirements of Law”:  With respect to any Person or property or assets of such Person and as of any date, all of the following applicable thereto as of such date:  all Governing Documents and existing and future laws, statutes, rules, regulations, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by any Governmental Authority (including Environmental Laws, ERISA, regulations of the Board of Governors of the Federal Reserve System, and laws, rules and regulations relating to usury, licensing, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), judgments, decrees, injunctions, writs, awards or orders of any court, arbitrator or other Governmental Authority.

“Reserve Requirement”:  For any Pricing Period, the aggregate of the rates (expressed as a decimal fraction) of reserve requirements in effect during such Pricing Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of such Board of Governors) maintained by Buyer.  As of the Closing Date, the Reserve Requirement is zero.  The Buyer will provide the Sellers with no less than thirty (30) days prior written notice of the implementation of any change in the Reserve Requirement.

“Responsible Officer”:  With respect to any Person other than Servicer, the chief executive officer, the president, the chief financial officer, the chief operating officer, the chief credit officer, the chief accounting officer, the chief legal officer, the secretary or the treasurer of such Person, and with respect to Servicer, the chief executive officer, the president, any vice president, the secretary or the treasurer.

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“Retained Interest”:  (a) With respect to any Purchased Asset, (i) all duties, obligations and liabilities of Sellers thereunder, including payment and indemnity obligations, (ii) all obligations of agents, trustees, servicers, administrators or other Persons under the documentation evidencing such Purchased Asset, and (iii) if any portion of the Indebtedness related to such Purchased Asset is owned by another lender or is being retained by Sellers, the interests, rights and obligations under such documentation to the extent they relate to such portion, and (b) with respect to any Purchased Asset with an unfunded commitment on the part of Sellers, all obligations to provide additional funding, contributions, payments or credits.

“S&P”:  Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or, if Standard & Poor’s Ratings Services is no longer issuing ratings, another nationally recognized rating agency reasonably acceptable to Buyer.

“Sale and Disposition of Purchased Assets”:  The monetization of Purchased Assets through one or more of the following courses of action:  (i) securitization of the Purchased Assets, (ii) competitive auction, or (iii) any sale of Purchased Assets by a Seller to a third party.  For purposes of clarity, Sale and Disposition of Purchased Assets shall exclude (x) any Purchased Asset repurchased by Sellers on account of a Representation Breach, (y) Mortgage Loan subject to a Conversion Date or (z) any Purchased Asset subject to an asset-level workout, consisting of pre-payments, short sales and liquidations, by Servicer in the ordinary course of Servicer’s business; provided that a Sale and Disposition of Purchased Assets shall not include a sale of any Underlying REO Property pursuant to clause (iv) of the definition of “Ineligible Remedies”.

“Sanctioned Entity”:  (a) A country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, (d) a Person resident in or determined to be resident in a country, that in each case is subject to a country sanctions program administered and enforced by the Office of Foreign Assets Control, or (e) a Person named on the list of Specially Designated Nationals maintained by the Office of Foreign Assets Control.

“Second Lien Mortgage Loan”:  A Mortgage Loan secured by the lien on the Mortgaged Property, subject only to one prior lien on such Mortgaged Property securing financing obtained by the related Mortgagor and to Permitted Liens.

“Securities Laws”:  The Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the Securities and Exchange Commission or the Public Company Accounting Oversight Board.

“Sellers”:  Jointly and severally, each of PMC and PMIT, together with their respective permitted successors and assigns.

“Seller’s Power of Attorney”: Defined in Section 18.18.

“Servicer”:  PennyMac Loan Services, LLC, a Delaware limited liability company, together with its permitted successors and assigns.

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“Servicer Change of Control”: At any time any Seller, Guarantor, or any Affiliate thereof, shall become, or shall obtain rights (whether by means of warrants, options or otherwise) to become, the beneficial owner, directly or indirectly, of 25% or more of the total voting power of all classes of Equity Interests of the Servicer.

“Servicer Termination Event”:  (i) Any default or event of default (however defined) by the Servicer under any Servicing Agreement, (ii) any breach by Servicer of the Servicer Instruction Notice, (iii) any breach by Servicer of the financial covenants set forth in Section 8.07, or (iv) any breach by Servicer of any other provision in the Repurchase Documents.

“Servicer Instruction Notice”:  The side letter agreement to be entered into among Buyer, Sellers, Servicer and PC REO on or prior to the Effective Date, pursuant to which the manner in which the servicing shall be performed and the party from whom Servicer shall take direction with respect to the Purchased Mortgage Loans and Underlying Assets shall be set forth.

“Servicing Agreement”:  (i) With respect to the servicing of Purchased Mortgage Loans or REO Property, the flow servicing agreement, dated as of August 4, 2009 (as amended as of March 3, 2010), by and between PMC and Servicer, and (ii) with respect to REMIC Certificates and the related Underlying Mortgage Loans, the related REMIC Declaration Agreement, in each case, as such agreement may be amended, supplemented or otherwise modified from time to time and approved by Buyer; provided, however, that Buyer’s failure to approve any such amendment, supplement or modification shall not affect the validity or enforceability thereof except as it relates to the Purchased Mortgage Loans and Underlying Assets, which shall remain subject to the terms of such agreement without giving effect to such amendment, supplement or modification thereto.

“Servicing Data File”: A computer file or other electronic medium generated by or on behalf of Sellers and delivered or transmitted to the Buyer and Custodian which provides information relating to the Mortgage Loans, including the information set forth in the related Mortgage Loan Schedule, as the case may be, in a format acceptable to the Buyer.

“Servicing Fees”:  The servicing fees (for which Servicer has provided proof acceptable to Buyer of such fees), actually incurred by Servicer and due to Servicer as provided for in the Servicing  Agreement.

“Servicing File”:  With respect to any Purchased Mortgage Loans and Underlying Assets, the file retained and maintained by Sellers or Servicer including the originals or copies of all Asset Documents and other documents and agreements relating to such Purchased Asset, including to the extent applicable all servicing agreements, files, documents, records, data bases, computer tapes, insurance policies and certificates, appraisals, other closing documentation, payment history and other records relating to or evidencing the servicing of such Purchased Asset, which file shall be held by Sellers and/or the Servicer for and on behalf of Buyer.

“Servicing Records”:  Any and all servicing agreements, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of the Assets.

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“Servicing Rights”:  With respect to any Purchased Mortgage Loans and Underlying Assets, all right, title and interest of Sellers, Servicer, Guarantor or any Affiliate thereof in and to any and all of the following:  (a) rights to service and collect such Purchased Mortgage Loans and Underlying Assets, (b) amounts received by Sellers or any other Person for servicing such Purchased Mortgage Loans and Underlying Assets, (c) late fees, penalties or similar payments with respect to the Purchased Mortgage Loans and Underlying Assets, (d) agreements and documents creating or evidencing any such rights to service, documents, files and records relating to the servicing of such Purchased Mortgage Loans and Underlying Assets, and rights of Sellers or any other Person thereunder, (e) escrow, reserve and similar amounts with respect to such Purchased Mortgage Loans and Underlying Assets, (f) rights to appoint, designate and retain any other servicers, sub-servicers, special servicers, agents, custodians, trustees and liquidators with respect to such Purchased Mortgage Loans and Underlying Assets, and (g) accounts and other rights to payment related to such Purchased Mortgage Loans and Underlying Assets.

“Servicing Standard”:  All of Servicer’s duties to service the related Purchased Mortgage Loans and Underlying Assets in accordance with Accepted Servicing Practices and comply with all of its other obligations and duties herein and pursuant to the Servicing Agreement, including but not limited to its obligations to:

(a)identify on its systems the Buyer as the owner of Purchased Assets and that such Purchased Assets and Underlying Mortgage Loans have been pledged to the Buyer;

(b)maintain systems and operating procedures necessary to comply with all the terms of this Agreement, the Servicing Agreement and the Servicer Instruction Notice, including but not limited to maintaining records and systems necessary to indicate cumulative recoveries on each category of Purchased Assets and Underlying Assets;

(c)cooperate with all Transaction parties on its duties as set forth in this Agreement;

(d)(i) remit all Income received by Servicer with respect to Purchased Mortgage Loans, including Income consisting of short sales and sale and disposition proceeds, to the Waterfall Account not later than the second (2nd) Business Day following Servicer’s receipt thereof, (ii) remit all Income received by Servicer with respect to Underlying Mortgage Loans to the Participation Account in accordance with the REMIC Declaration Agreement, and (iii) (x) direct all net liquidation proceeds payable to PC REO in connection with the sale or other disposition of any Underlying REO Property to be deposited directly into the REO Collection Account, and (y) remit all Income received by Servicer with respect to REO Properties underlying Purchased REO Entity Interests to the REO Collection Account not later than the second (2nd) Business Day following Servicer’s receipt thereof.

(e) continue to make Protective Servicing Advances with respect to the Purchased Mortgage Loans and Underlying Assets in accordance with the terms and conditions of the Servicing Agreement.

“Single Employer Plan”:  Any Plan that is not a Multiemployer Plan.

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“Solvent”:  With respect to any Person at any time, having a state of affairs such that all of the following conditions are met at such time:  (a) the fair value of the assets and property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 91(32) of the Bankruptcy Code, (b) the present fair salable value of the assets and property of such Person in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s assets and property would constitute unreasonably small capital.

“Special Purpose Entity”:  A corporation, limited partnership or limited liability company or trust that, since the date of its formation (unless otherwise indicated in this Agreement) and at all times on and after the date hereof, has complied with and shall at all times comply with the provisions of Article 11.

“Subsidiary”:  With respect to any Person, any corporation, partnership, limited liability company or other entity (heretofore, now or hereafter established) of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership, limited liability company or other entity (without regard to the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person, and shall include all Persons the accounts of which are with those of such Person pursuant to GAAP.

“Tangible Net Worth”:  With respect to any Person and any date, all amounts that would be included under capital or shareholder’s equity (or any like caption) on a balance sheet of such Person, minus (a) amounts owing to such Person from any Affiliate thereof, or from officers, employees, partners, members, directors, shareholders or other Persons similarly affiliated with such Person or any Affiliate thereof, (b) intangible assets, and (c) prepaid taxes and/or expenses, all on or as of such date.

“Total Assets”:  With respect to any Person and any date, an amount equal to the aggregate book value of all assets owned by such Person on a consolidated basis and the proportionate share of assets owned by all non-consolidated Subsidiaries of such Person, less (a) amounts owing to such Person from any Affiliate thereof, or from officers, employees, partners, members, directors, shareholders or other Persons similarly affiliated with such Person or any Affiliate thereof, (b) intangible assets, and (c) prepaid taxes and expenses, all on or as of such date.

“Total Indebtedness”:  With respect to any Person and any date, all amounts of Indebtedness and Contingent Liabilities of such Person plus the proportionate share of all

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Indebtedness and Contingent Liabilities not reflected on such Person’s consolidated balance sheet) of all non-consolidated Affiliates of such Person, on or as of such date.

“Transaction”:  With respect to any Purchased Asset, the sale and transfer of such Purchased Asset from the applicable Seller(s) to Buyer pursuant to the Repurchase Documents against the transfer of funds from Buyer to the applicable Seller(s) representing the Purchase Price or any additional Purchase Price for such Purchased Asset.

“Transaction Request”:  Defined in Section 3.01(a).

“Transfer Documents”:  All documents, certificates, and opinions of counsel necessary or required to (i) re-register REO Entity Interests or REMIC Certificates that are or will be Purchased Assets in the name of the Buyer, or otherwise to effect a delivery thereof to Buyer, including without limitation, the original certificate, and (ii) comply with the restrictions on transfer of REMIC Certificates as set forth in Article VIII of the applicable REMIC Declaration Agreement.

“Transferor”:  The seller of an Asset under a Purchase Agreement.

“Turbo Trigger Event”:  If at the end of any month, the monthly average trailing three (3) month (static pool) cash flow with respect to Purchased Assets and Underlying Assets shall have declined by 50% relative to the cash flow for the immediately preceding three (3) month period.

“UCC”:  The Uniform Commercial Code as in effect in the State of New York; provided, that, if, by reason of Requirements of Law, the perfection or priority of the security interest in any Purchased Asset is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority.

“Underlying Asset” Any Underlying REO Property or Underlying Mortgage Loan.

“Underlying Mortgage Loan”:  With respect to any REMIC Certificate or Purchased REMIC Certificate, as the context may require, a Mortgage Loan that supports such REMIC Certificate.

“Underlying Mortgaged Property”:  With respect to (i) any Mortgage Loan or Underlying Mortgage Loan, the Mortgaged Property securing such Mortgage Loan, or (ii) any REO Property, the real property acquired by or transferred to PC REO, together with all buildings, fixtures and improvements thereon and all other rights, benefits and proceeds arising from and in connection with such property.

“Underlying Obligor”:  Individually and collectively, as the context may require, the Mortgagor and other obligor or obligors under a Mortgage Loan, including (i) any Person that has not signed the related Mortgage Note but owns an interest in the related Underlying Mortgaged Property, which interest has been encumbered to secure such Asset, and (ii) any other Person who has assumed or guaranteed the obligations of such Mortgagor under the Mortgage Loan Documents relating to an Asset.

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“Underwriting Package”:  With respect to one or more Assets, the internal document or credit committee memorandum (redacted to protect confidential information) setting forth all material information relating to an Asset which is known by Sellers and prepared by Sellers for its evaluation of such Asset, which shall include, at a minimum, all of the information required to be set forth in the relevant Confirmation.  In addition, the Underwriting Package shall include all of the following, to the extent applicable and available with respect to each Asset, (i) all Asset Documents required to be delivered to Custodian under Section 2.01 of the Custodial Agreement, (ii) all Asset Schedules and (ii) all documents, instruments and agreements received in respect of the closing of the acquisition transaction under the Purchase Agreement, including, to the extent received: (a) an appraisal, (b) the current occupancy report, tenant stack and rent roll, if applicable, (c) third-party reports and agreed-upon procedures, letters and reports (whether drafts or final forms), site inspection reports, and other due diligence materials prepared by or on behalf of or delivered to Sellers, (d) such further documents or information as Buyer may request, (e) any and all agreements, documents, reports, or other information concerning the Purchased Assets and Underlying Assets received or obtained in connection with the origination of the Purchased Assets and Underlying Assets, and (f) any other material documents or reports concerning the Purchased Assets and Underlying Assets prepared or executed by Sellers or Guarantor.

“Underlying REO Property”:  With respect to any REO Entity Interest or Purchased REO Entity Interests, as the context may require, an REO Property that supports such REO Entity Interest.

“Waterfall Account”:  The separate trust account established by the Sellers and maintained pursuant to this Agreement for the benefit of Buyer, into which all Income received with respect to Purchased Assets shall be deposited.  The Waterfall Account shall be established at the Account Bank with the account number communicated to Buyer in writing on or prior to the Effective Date and shall be subject to an Account Control Agreement.

Section 2.02Rules of Interpretation.  Headings are for convenience only and do not affect interpretation.  The following rules of this Section 2.01 apply unless the context requires otherwise.  The singular includes the plural and conversely.  A gender includes all genders.  Where a word or phrase is defined, its other grammatical forms have a corresponding meaning.  A reference to an Article, Section, Subsection, Paragraph, Subparagraph, Clause, Annex, Schedule, Appendix, Attachment, Rider or Exhibit is, unless otherwise specified, a reference to an Article, Section, Subsection, Paragraph, Subparagraph or Clause of, or Annex, Schedule, Appendix, Attachment, Rider or Exhibit to, this Agreement, all of which are hereby incorporated herein by this reference and made a part hereof.  A reference to a party to this Agreement or another agreement or document includes the party’s permitted successors, substitutes or assigns.  A reference to an agreement or document is to the agreement or document as amended, modified, novated, supplemented or replaced, except to the extent prohibited by any Repurchase Document.  A reference to legislation or to a provision of legislation includes a modification, codification, replacement, amendment or reenactment of it, a legislative provision substituted for it and a rule, regulation or statutory instrument issued under it.  A reference to writing includes a facsimile or electronic transmission and any means of reproducing words in a tangible and permanently visible form.  A reference to conduct includes an omission, statement or undertaking, whether or not in writing.  A Default or Event of Default exists until it has been

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cured or waived in writing by Buyer.  The words “hereof,” “herein,” “hereunder” and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement, unless the context clearly requires or the language provides otherwise.  The word “including” is not limiting and means “including without limitation.”  The word “any” is not limiting and means “any and all” unless the context clearly requires or the language provides otherwise.  In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including,” the words “to” and “until” each mean “to but excluding,” and the word “through” means “to and including.”  The words “will” and “shall” have the same meaning and effect.  A reference to day or days without further qualification means calendar days.  A reference to any time means New York time.  This Agreement may use several different limitations, tests or measurements to regulate the same or similar matters.  All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their respective terms.  Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed in accordance with GAAP, and all accounting determinations, financial computations and financial statements required hereunder shall be made in accordance with GAAP, without duplication of amounts, and on a consolidated basis with all Subsidiaries.  All terms used in Articles 8 and 9 of the UCC, and used but not specifically defined herein, are used herein as defined in such Articles 8 and 9.  A reference to “fiscal year” and “fiscal quarter” means the fiscal periods of the applicable Person referenced therein.  A reference to an agreement includes a security interest, guarantee, agreement or legally enforceable arrangement whether or not in writing.  A reference to a document includes an agreement (as so defined) in writing or a certificate, notice, instrument or document, or any information recorded in computer disk form.  Whenever a Person is required to provide any document to Buyer under the Repurchase Documents, the relevant document shall be provided in writing or printed form unless Buyer requests otherwise.  At the request of Buyer, the document shall be provided in computer disk form or both printed and computer disk form.  The Repurchase Documents are the result of negotiations between the Parties, have been reviewed by counsel to Buyer and counsel to Sellers, and are the product of both Parties.  No rule of construction shall apply to disadvantage one Party on the ground that such Party proposed or was involved in the preparation of any particular provision of the Repurchase Documents or the Repurchase Documents themselves.  Except where otherwise expressly stated, Buyer may give or withhold, or give conditionally, approvals and consents, and may form opinions and make determinations, in its sole and absolute discretion subject in all cases to the implied covenant of good faith and fair dealing.  Reference in any Repurchase Document to Buyer’s discretion, shall mean, unless otherwise expressly stated herein or therein, Buyer’s sole and absolute discretion, and the exercise of such discretion shall be final and conclusive.  In addition, whenever Buyer has a decision or right of determination, opinion or request, exercises any right given to it to agree, disagree, accept, consent, grant waivers, take action or no action or to approve or disapprove (or any similar language or terms), or any arrangement or term is to be satisfactory or acceptable to or approved by Buyer (or any similar language or terms), the decision of Buyer with respect thereto shall be in the sole and absolute discretion of Buyer, and such decision shall be final and conclusive.  Any requirement of good faith, discretion or judgment by Buyer shall not be construed to require Buyer to request or await receipt of information or documentation not immediately available from or with respect to any Person or the Purchased Assets and Underlying Assets.

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ARTICLE 3

THE TRANSACTIONS

Section 3.01Procedures.

(a)Upon the Closing Date, from time to time but not more frequently than once per week a Seller may request Buyer to enter into a proposed Transaction by sending Buyer a notice substantially in the form of Exhibit J (“Transaction Request”) (i) describing the Transaction and each proposed Asset and any related Underlying Mortgaged Property and other security therefor in reasonable detail, (ii) transmitting an Underwriting Package for each proposed Asset acceptable to Buyer, and (iii) specifying which (if any) of the representations and warranties of the applicable Seller set forth in this Agreement (including those contained in Schedules 1-A, 1-B and 1-C applicable to the related Purchased Asset) the applicable Seller will be unable to make with respect to such Asset.  The applicable Seller shall promptly deliver to Buyer any supplemental materials requested at any time by Buyer.  Buyer shall conduct such review of the Underwriting Package and each such Asset as Buyer deems appropriate in its determination of whether or not to purchase any or all of the proposed Assets.  It is expressly agreed and acknowledged that Buyer is entering into the Transactions on the basis of all such representations and warranties and on the completeness and accuracy of the information contained in the applicable Underwriting Package, and any incompleteness or inaccuracies in the related Underwriting Package will only be acceptable to Buyer if disclosed in writing to Buyer by the applicable Seller in advance of the related Purchase Date, and then only if Buyer opts to purchase the related Purchased Asset from the applicable Seller notwithstanding such incompleteness and inaccuracies.  In the event of a Representation Breach in respect of a Purchased Mortgage Loan or an Underlying Asset, Buyer shall have such remedies as provided for in Section 3.04.

(b)Buyer shall give Sellers notice within two (2) Business Days of the date when Buyer has received a preliminary Underwriting Package and supplemental materials from Seller and acceptable to Buyer. Such notice shall contain a preliminary non-binding determination of whether or not Buyer is willing to purchase any or all of such Assets, and if so, on what terms and conditions (including without limitation the indicative pricing for such Assets).  Sellers shall promptly provide Buyer with a completed Underwriting Package and supplemental materials. Within three (3) Business Days after Buyer has received the completed Underwriting Package and supplemental materials, and if its preliminary determination is favorable, Buyer shall communicate to Sellers a final non-binding indication of its determination.  If Buyer has not communicated in writing, its final non-binding indication to Sellers by such date, Buyer shall automatically and without further action be deemed to have determined not to purchase any such Asset.

(c)If Buyer communicates to Sellers a final non-binding determination in writing that it is willing to purchase any or all of such Purchased Assets on a Purchase Date, Sellers shall deliver to Buyer an executed preliminary Confirmation for such Transaction, describing each such Purchased Asset and related  Underlying Asset, if any, and its proposed Purchase Date, Market Value, Applicable Percentage, Purchase Price and such other terms and conditions as Buyer may require.  If Buyer requires changes to the preliminary Confirmation,

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Sellers shall make such changes and re-execute the preliminary Confirmation.  If Buyer determines to enter into the Transaction on the terms described in the preliminary Confirmation, Buyer shall promptly execute and return the same to Sellers, which shall thereupon become effective as the Confirmation of the Transaction.  Buyer’s approval of the purchase of a Purchased Asset (and the related Underlying Assets) on such terms and conditions as Buyer may require shall be evidenced only by its execution and delivery of the related Confirmation.  For the avoidance of doubt, Buyer shall not (i) be bound by any preliminary or final non-binding determination referred to above, (ii) be deemed to have approved the purchase of a Purchased Asset by virtue of the approval or entering into by Buyer of a rate lock agreement, total return swap or any other agreement with respect to such Asset, or (iii) be obligated to purchase a Purchased Asset notwithstanding a Confirmation executed by the Parties unless and until all applicable conditions precedent in Article 6 have been satisfied or waived by Buyer.

(d)Each Confirmation, together with this Agreement, shall be conclusive evidence of the terms of the Transaction covered thereby, and shall be construed to be cumulative to the extent possible.  If terms in a Confirmation are inconsistent with terms in this Agreement with respect to a particular Transaction, the Confirmation shall prevail.  Whenever the Applicable Percentage or any other term of a Transaction (other than the Pricing Rate, Market Value and outstanding Purchase Price) with respect to an Asset is revised or adjusted in accordance with this Agreement, an amended and restated Confirmation reflecting such revision or adjustment and that is otherwise acceptable to the Parties shall be prepared by Sellers and executed by the Parties.

(e)The fact that Buyer has conducted or has failed to conduct any partial or complete examination or any other due diligence review of any Asset or Purchased Asset shall in no way affect any rights Buyer may have under the Repurchase Documents or otherwise with respect to any representations or warranties or other rights or remedies thereunder or otherwise, including the right to determine at any time that such Asset or Purchased Asset is not an Eligible Asset.

(f)No Transaction shall be entered into if (i) any Margin Deficit, Default or Event of Default exists or would exist as a result of such Transaction, (ii) the Repurchase Date for the Purchased Assets subject to such Transaction would be later than the Maturity Date, or (iii) after giving effect to such Transaction, the Aggregate Purchase Price then outstanding would exceed the Maximum Aggregate Purchase Price.

(g)(i) With respect to the Purchased REMIC Certificates, the related Underlying Mortgage Loans may be removed from supporting such REMIC Certificate from time to time at the option of PMC in accordance with the related REMIC Declaration Agreement.  Provided that any such Removed Mortgage Loan is and continues to be an Eligible Mortgage Loan, from and after the related Conversion Date, such Removed Mortgage Loan shall automatically be subject to a Transaction with respect to Purchased Mortgage Loans.  In such case, the aggregate outstanding Purchase Price of the Transaction for the related Purchased REMIC Certificate shall be reduced by the Purchase Price of each such Removed Mortgage Loan and the Purchase Price of the Transaction consisting of such Mortgage Loans shall be increased by the Purchase Price of each such Removed Mortgage Loan and the Buyer and Sellers shall reflect the same on their records. Notwithstanding anything contained herein to the

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contrary, each Conversion Date hereunder shall occur prior to the date on which the related Removed Mortgage Loans become REO Properties.

(ii)With respect to the Purchased Mortgage Loans, such Mortgage Loans from time to time at the option of PMC may be foreclosed upon and the subsequent related REO Property deeded in the name of PMC or PC REO as the case may be.  Provided that any such Foreclosed Mortgage Loan is Eligible REO Property and is contributed to PC REO pursuant to the Contribution Agreement, from and after the related Conversion Date, such Foreclosed Mortgage Loan shall automatically underlie the Purchased REO Entity Interests.  In such case, the aggregate outstanding Purchase Price of the Purchased Mortgage Loans shall be reduced by the Purchase Price of such Foreclosed Mortgage Loan and the Purchase Price of the Transaction consisting of such Purchased REO Entity Interests (now supported by the addition of the Foreclosed Mortgage Loan) shall be increased by the Purchase Price of such Foreclosed Mortgage Loan and the Buyer and Sellers shall reflect the same on their records.  Upon transfer of REO Entity Interests to Buyer as set forth herein and until termination of any related Transactions as set forth herein, ownership of the REO Entity Interests held by PMC shall be vested in the Buyer.  At any time an Eligible Mortgage Loan owned by PMC is transferred to and/or the related Underlying Mortgaged Property is foreclosed in the name of PC REO, the record title in such REO Property shall be vested in and retained by PC REO.  It is a condition precedent to Buyer entering into a Transaction with respect to such REO Property that the related REO Deed shall have been delivered to the appropriate recording office for recordation in the name of PC REO.

(h)For the purposes of each Transaction and any Purchased Assets sold to Buyer on a Purchase Date, Seller shall mean: (i) PMC with respect to any Purchased Assets which are Mortgage Loans (including, without limitation any Removed Mortgage Loans) and any REO Entity Interests, and (ii) PMIT, with respect to any Purchased Assets which are REMIC Certificates.

Section 3.02Transfer of Purchased Assets; Servicing Rights.

On the Purchase Date for each Purchased Asset, and subject to the satisfaction of all applicable conditions precedent in Article 6, (i) ownership of and title to such Purchased Asset shall be transferred to and vest in Buyer or its designee against the simultaneous transfer of the Purchase Price to Sellers’ (identified in the related Confirmation) account specified in Schedule 2 (or if not specified therein, in the related Confirmation or as directed by Sellers), and (ii) Sellers hereby sell, transfer, convey and assign, or with respect to Underlying Mortgage Loans, pledge as and to the extent provided in Section 11.01(b), to Buyer on a servicing-released basis all of Sellers’ right, title and interest (but no Retained Interests) in and to the related Purchased Assets or Underlying Mortgage Loans, as applicable, together with all related Servicing Rights (in the case of any Underlying Mortgage Loans as and to the extent provided in Section 11.01(b)).  Subject to this Agreement, upon the Closing Date, Sellers may sell to Buyer, repurchase from Buyer and re-sell Eligible Assets to Buyer, but may not substitute other Eligible Assets for Purchased Assets.  Buyer has the right to designate the servicer and any sub-servicer of the Purchased Assets and Underlying REO Property, and following the occurrence of a Servicer Termination Event or other Event of Default, the servicer and any sub-servicer of the Underlying Mortgage Loans; provided that Buyer shall not terminate the Servicer with respect to

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the Underlying Mortgage Loans in the absence of an Event of Default without first obtaining the Class A Participant and Sellers’ consent to such termination, which consent shall not be unreasonably withheld, conditioned or delayed, and shall be presumed to be given if Sellers do not respond to Buyer’s request for such consent within three (3) Business Days of such request; provided, however, that any replacement Servicer shall be selected in accordance with Section 17.01(f) The Servicing Rights and other servicing provisions under this Agreement are not severable from or to be separated from the Purchased Assets or Underlying Assets under this Agreement and, such Servicing Rights and other servicing provisions of this Agreement constitute (x) “related terms” under this Agreement within the meaning of Section 101(47)(A)(i) of the Bankruptcy Code and/or (y) a security agreement or other arrangement or other credit enhancement related to the Repurchase Documents.  Solely for the purpose of facilitating servicing of the Purchased Mortgage Loans pursuant to Article 17, Buyer may delay transfer of record title in one or more Purchased Mortgage Loans, subject to receipt from Sellers of fully executed transfer documentation in blank.

Section 3.03Maximum Aggregate Purchase Price.  The Aggregate Purchase Price for all Purchased Assets as of any date shall not exceed the Maximum Aggregate Purchase Price.  If the Aggregate Purchase Price exceeds the Maximum Aggregate Purchase Price, Sellers shall immediately pay to Buyer an amount necessary to reduce the Aggregate Purchase Price to an amount equal to or less than the Maximum Aggregate Purchase Price.

Section 3.04Early Repurchase Date; Mandatory Repurchases; Ineligibility Cures.  Sellers may terminate any Transaction with respect to any or all Purchased Assets subject to a Sale and Disposition or an Early Repurchase and repurchase such Purchased Assets on any date prior to the Repurchase Date (an “Early Repurchase Date”); provided, that (a) Sellers irrevocably notify Buyer prior to the Early Repurchase Date in accordance with the timeframes set forth in the Early Repurchase Schedule, identifying the Purchased Asset(s) to be repurchased and the Repurchase Price thereof, (b) each Seller delivers a certificate from a Responsible Officer of such Seller in form and substance satisfactory to Buyer certifying that no Margin Deficit, Default or Event of Default exists or would exist as a result of such repurchase and there are no other Liens on the Purchased Assets other than Buyer’s Lien,  and (c) Sellers thereafter comply with Section 3.05.  Such early terminations and repurchases shall be in accordance with the Early Repurchase Schedule.

To the extent (i) any Purchased Mortgage Loan no longer qualifies as an Eligible Mortgage Loan or any Underlying Mortgage Loan was not an Eligible Mortgage Loan as of the date the REMIC Certificates were issued, in either case as determined by Buyer, Sellers shall cure any such defect or repurchase any such Mortgage Loan within five (5) Business Days after the earlier of receipt of notice thereof from Buyer or the discovery of such defect by Seller, (ii) any Underlying REO Property was not an Eligible REO Property as of the date of contribution to PC REO, as determined by Buyer, PMC shall remove such REO Property from PC REO pursuant to the terms of the Trust Agreement Sellers within ten (10) Business Days after the earlier of receipt of notice thereof from Buyer or the discovery of such defect by Seller, (iii) any Underlying Mortgage Loan is not an Eligible Mortgage Loan at any time after the date the REMIC Certificates were issued, as determined by Buyer, Buyer may assign a Market Value of zero to such Underlying Mortgage Loan, or (iv) any Underlying REO Property is not an Eligible REO Property at any time after such REO Property was contributed to PC REO as a result of a

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Representation Breach with respect to any of those representations and warranties set forth in Schedule 1-B that are separately listed on Schedule 3 hereto, PMC, as Administrator of PC REO, shall cause the PC REO to sell such Underlying REO Property within thirty (30) days of the earlier of (x) discovery by any Seller or (y) written notice from Buyer (collectively, the “Ineligibility Remedies”).

Section 3.05Repurchase; Removal; Sale.  On the Repurchase Date for each Purchased Asset, Sellers shall transfer to Buyer the Repurchase Price for such Purchased Asset as of the Repurchase Date, and Buyer shall transfer to the applicable Seller such Purchased Asset whereupon the Transaction with respect to such Purchased Asset shall terminate.  On the Repurchase Date for any Underlying Mortgage Loan or Underlying REO Property pursuant to clause (i) or (ii) of the Ineligibility Remedies or on the sale date for any Underlying REO Property pursuant to clause (iv) of the Ineligibility Remedies, Sellers shall transfer to Buyer (or the Participation Account with respect to any Underlying Mortgage Loans related to a REMIC Certificate) the Repurchase Price for such Underlying Asset as of such date and such Underlying Asset shall be released from the related Purchased Asset, whereupon the outstanding Purchase Price for the related Purchased REMIC Certificates or Purchased REO Entity Interests shall be reduced by the Purchase Price of such Underlying Asset.  Buyer shall be deemed to have simultaneously released its interests in such Purchased Asset or Underlying Mortgage Loan, shall authorize Custodian to release to the applicable Seller the Asset Documents for such Purchased Asset or Underlying Asset and, to the extent any UCC financing statement filed against Sellers specifically identifies such Purchased Asset or Underlying Mortgage Loan, upon a Seller’s request Buyer shall deliver an amendment thereto or termination thereof evidencing the release of such Purchased Asset or Underlying Mortgage Loan from Buyer’s security interest therein.  Any such transfer or release shall be without recourse to Buyer and without representation or warranty by Buyer, except that Buyer shall represent to Sellers, to the extent that good title was transferred and assigned by Sellers to Buyer hereunder on the related Purchase Date, that Buyer is the sole owner of such Purchased Asset or pledgee of such Underlying Mortgage Loan, free and clear of any other interests or Liens caused by Buyer’s actions or inactions.  Any Income with respect to such Purchased Asset or Underlying Asset received by Buyer or Account Bank after payment of the Repurchase Price therefor shall be remitted to Sellers.  Notwithstanding the foregoing, on or before the Maturity Date, Sellers shall repurchase all Purchased Assets by paying to Buyer the outstanding Repurchase Price therefor and paying all other outstanding Repurchase Obligations as set forth herein.  Notwithstanding any provision to the contrary contained elsewhere in any Repurchase Document, at any time during the existence of an uncured Default or Event of Default, Sellers cannot repurchase a Purchased Asset in connection with a full payoff of such Asset by the Underlying Obligor, unless one-hundred percent (100%) of the net proceeds due in connection with the relevant payoff shall be paid directly to Buyer; together with payment of the excess of the then current Repurchase Price of the related Purchased Asset (if any) over such net proceeds (if any).  The portion of all such net proceeds in excess of the then-current Repurchase Price of the related Purchased Asset (if any) shall be applied by Buyer to reduce any other amounts due and payable to Buyer under this Agreement.

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Section 3.06Payment of Price Differential and Fees.

(a)Notwithstanding that Buyer and Sellers intend that the Transactions hereunder be sales to Buyer of the Purchased Assets for all but U.S. federal income tax purposes and GAAP, Sellers shall pay to Buyer the accrued value of the Price Differential for each Purchased Asset on each Remittance Date.  Buyer shall give Sellers notice of the Price Differential and any fees and other amounts due under the Repurchase Documents on or prior to the related Pricing Period End Date; provided, that Buyer’s failure to deliver such notice shall not affect a Seller’s obligation to pay such amounts.  If the Price Differential includes any estimated Price Differential, Buyer shall recalculate such Price Differential after the Remittance Date and, if necessary, make adjustments to the Price Differential amount due on the following Remittance Date.

(b)If a Seller fails to pay all or part of the Price Differential by 3:00 p.m. (New York City time) on the related Remittance Date, with respect to any Purchased Asset, the Sellers shall be obligated to pay to Buyer (in addition to, and together with, the amount of such Price Differential) interest on the unpaid Repurchase Price at a rate per annum equal to the Pricing Rate until the Price Differential is received in full by Buyer.

(c)Sellers shall pay to Buyer all fees and other amounts as and when due as set forth in this Agreement and the Fee Letter including, without limitation: the Facility Fee, which shall be due and earned in full by Buyer on the Closing Date and payable monthly (without reduction, set-off or refund in the event of any early termination of this Agreement) by Sellers and Guarantor in twelve (12) equal monthly installments with the first such installment due on the Closing Date.

Section 3.07Payment, Transfer and Custody.

(a)Unless otherwise expressly provided herein, all amounts required to be paid or deposited by Sellers hereunder shall be paid or deposited in accordance with the terms hereof no later than 3:00 p.m. (New York City time) on the day when due, in immediately available Dollars and without deduction, setoff or counterclaim, and if not received before such time shall be deemed to be received on the next Business Day.  Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next following Business Day, and such extension of time shall in such case be included in the computation of such payment.  Amounts payable to Buyer and not otherwise required to be deposited into an Account shall be deposited into an account of Buyer.  Sellers shall have no rights in, rights of withdrawal from, or rights to give notices or instructions regarding Buyer’s account or the Waterfall Account.  Amounts in the Waterfall Account may be invested at the direction of Buyer in cash equivalents before they are distributed in accordance with Article 5.

(b)Any Asset Documents not delivered to Buyer or Custodian, as may be required herein, are and shall be held in trust by Sellers or their agent for the benefit of Buyer as the owner thereof.  Sellers or their agent shall maintain a copy of the Asset Documents and the originals of the Asset Documents not delivered to Buyer or Custodian.  The possession of Asset Documents by Sellers or their agent is in a custodial capacity only at the will of Buyer for the sole purpose of assisting the Servicer with its duties under the Servicing Agreement.  Each

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Asset Document retained or held by Sellers or their agent shall be segregated on each Seller’s books and records from the other assets of such Seller or its agent, and the books and records of each Seller or its agent shall be marked to reflect clearly the sale of the related Purchased Asset to Buyer and with respect to the Purchased Mortgage Loans and Underlying Mortgage Loans, the sale or pledge in accordance with Section 11.01(b), respectively, to Buyer thereof on a servicing-released basis.  Each Seller or its related agent shall release its custody of the Asset Documents only in accordance with written instructions from Buyer, unless such release is required as incidental to the servicing of the Purchased Mortgage Loans and Underlying Assets by Servicer or is in connection with a repurchase of any Purchased Asset by Sellers, in each case in accordance with the Custodial Agreement.

Section 3.08Repurchase Obligations Absolute.  All amounts payable by Sellers under the Repurchase Documents shall be paid without notice, demand, counterclaim, setoff, deduction or defense (as to any Person and for any reason whatsoever) and without abatement, suspension, deferment, diminution or reduction (as to any Person and for any reason whatsoever), and the Repurchase Obligations shall not be released, discharged or otherwise affected, except as expressly provided herein, by reason of:  (a) any damage to, destruction of, taking of, restriction or prevention of the use of, interference with the use of, title defect in, encumbrance on or eviction from, any Purchased Asset or related Underlying Mortgaged Property, (b) any Insolvency Proceeding relating to a Seller or any Underlying Obligor, or any action taken with respect to any Repurchase Document or Asset Document by any trustee or receiver of a Seller or any Underlying Obligor or by any court in any such proceeding, (c) any claim that a Seller has or might have against Buyer under any Repurchase Document or otherwise, (d) any default or failure on the part of Buyer to perform or comply with any Repurchase Document or other agreement with a Seller, (e) the invalidity or unenforceability of any Purchased Asset, Repurchase Document or Asset Document, or (f) any other occurrence whatsoever, whether or not similar to any of the foregoing, and whether or not Sellers have notice or Knowledge of any of the foregoing.  The Repurchase Obligations with respect to Purchased Mortgage Loans and Purchased REMIC Certificates shall be full recourse to Sellers, but there shall be no recourse with respect to the Purchased REO Entity Interests as provided in Section 5.05 hereof.  This Section 3.08 shall survive the termination of the Repurchase Documents and the payment in full of the Repurchase Obligations.

ARTICLE 4

MARGIN MAINTENANCE

Section 4.01Margin Deficit.

(a)If on any date the Market Value of all Purchased Mortgage Loans and Purchased REMIC Certificates (taking into account the Market Value of the Underlying Mortgage Loans) is less than the product of (A) Buyer’s Margin Percentage times (B) the aggregate outstanding Purchase Price for such Purchased Assets as of such date, a margin deficit shall exist (a “Mortgage Loan/REMIC Margin Deficit”).  If on any date the Market Value of all Purchased REO Entity Interests (taking into account the Market Value of the related REO Properties)is less than the product of (A) Buyer’s Margin Percentage times (B) the aggregate outstanding Purchase Price for such Purchased Assets as of such date, a margin

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deficit shall exist (an “REO Margin Deficit”).  If on any date that a Mortgage Loan/REMIC Margin Deficit exists and a Margin Call Trigger Event shall have occurred, Buyer may provide a Margin Call Notice to Sellers notifying Sellers of such Margin Deficit (a “Margin Call”) and such Margin Call Notice shall require Sellers, upon Buyer’s direction or, in the case of a Margin Deficit arising solely because one or more of such Purchased Assets have ceased to be an Eligible Asset, at Seller’s option, to either (i) transfer cash to Buyer, (ii) transfer to Buyer or its designee (including Custodian) for no additional consideration additional Eligible Assets (“Additional Purchased Assets”), or (iii) choose any combination of the foregoing, so that, after giving effect to such transfers and payments, the aggregate outstanding Purchase Price for all Purchased Mortgage Loans and Purchased REMIC Certificates does not exceed the product of (A) the aggregate Market Value thereof times (B) the Applicable Purchase Price Percentage.  If on any date that an REO Margin Deficit exists and a Margin Call Trigger Event shall have occurred, Buyer may provide a Margin Call Notice to Sellers notifying Sellers of such Margin Deficit (a “Margin Call”) and Sellers may, but shall have no obligation to, (i) transfer cash to Buyer, (ii) transfer to Buyer or its designee (including Custodian) for no additional consideration additional Eligible Assets (“Additional Purchased Assets”), or (iii) choose any combination of the foregoing, so that, after giving effect to such transfers, repurchases and payments, the aggregate outstanding Purchase Price for all Purchased REO Entity Interests does not exceed the product of (A) the aggregate Market Value thereof times (B) the Applicable Purchase Price Percentage.  Buyer shall apply the funds received in satisfaction of a Margin Deficit to the Repurchase Obligations in such manner as Buyer determines; provided that any funds received from Sellers to satisfy an REO Margin Deficit shall be applied to satisfy such REO Margin Deficit and any funds received from Sellers to satisfy a Mortgage Loan/REMIC Margin Deficit shall be applied to satisfy such Mortgage Loan/REMIC Margin Deficit.  For the avoidance of doubt a Margin Call may be made with respect to a single Purchased Asset or multiple Purchased Assets.

(b)Margin Call Notices delivered pursuant to a Margin Call in Section 4.01(a) may be given by any written means.  Any Margin Call Notice with respect to a Mortgage Loan/REMIC Margin Deficit given before 11:00 a.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the following Business Day; notice given after 11:00 a.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 11:00 a.m. (New York City time) on the second Business Day following such notice delivery (the foregoing time requirements for satisfaction of a Margin Call are referred to as the “Margin Deadlines”).  The failure of Buyer, on any one or more occasions, to exercise its rights hereunder, shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of Buyer to do so at a later date.  Notwithstanding anything to the contrary herein, in no event shall Buyer have recourse against any Seller for failing to cure a Margin Deficit with respect to the REO Entity Interests, and any recourse to the Guarantor for any such Margin Deficit shall be subject to the Recourse Limit.

(c)Buyer’s election not to deliver a Margin Call at any time there is a Margin Deficit shall not waive the Margin Deficit or in any way limit or impair Buyer’s right to deliver a Margin Call at any time when the same or any other Margin Deficit exists.  Buyer’s rights under this Section 4.01 are in addition to and not in lieu of any other rights of Buyer under the Repurchase Documents or Requirements of Law.

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(d)All cash transferred to Buyer pursuant to this Section 4.01 with respect to a Purchased Asset shall be deposited into the Waterfall Account or REO Collection Account, as applicable, except as directed by Buyer, and notwithstanding any provision in Section 5.02 to the contrary, shall be applied to reduce the Purchase Price of such Purchased Asset.

ARTICLE 5

APPLICATION OF INCOME

Section 5.01Accounts; Income.

Each of the Accounts shall be established at Account Bank.  Buyer shall have sole dominion and control (including, without limitation, “control” within the meaning of Section 9-104(a) of the UCC) over the Waterfall Account, the Participation Account and each Interest Reserve Account.  No Sellers nor any Person claiming through or under Sellers shall have any claim to or interest in the Waterfall Account, the Participation Account (except to the extent provided in the related REMIC Declaration Agreement) or any Interest Reserve Account.  All Income received with respect to Purchased Assets or Underlying Assets shall be deposited in to the applicable Account in accordance with Section 5.01(b).  All Income on deposit in the Waterfall Account and all amounts on deposit in each Interest Reserve Account shall be property of the Buyer and applied to and remitted by Account Bank in accordance with this Article 5.

(a)If any Income is received by Seller, Servicer, Guarantor or any Affiliate thereof, Seller shall or shall cause such Servicer, Guarantor or such Affiliate to: (i) remit Income with respect to Purchased Mortgage Loans and Purchased REMIC Certificates to the Waterfall Account not later than the second (2nd) Business Day following Servicer’s receipt thereof, (ii) remit all Income with respect to Underlying Mortgage Loans shall be deposited into the Participation Account in accordance with the REMIC Declaration Agreement, and (iii) (x) direct all net liquidation proceeds payable to PC REO in connection with the sale or other disposition of any Underlying REO Property to be deposited directly into the REO Collection Account, and (y) remit all Income received by Servicer with respect to REO Properties underlying Purchased REO Entity Interests to the REO Collection Account not later than the second (2nd) Business Day following receipt by Servicer, any Seller, Guarantor or any Affiliate thereof.  All Income remitted by Servicer pursuant to the foregoing shall be remitted on a gross basis, without deduction for Servicing Fees, Protective Servicing Advances or any other amounts that Servicer may otherwise be permitted to offset against Income under the Servicing Agreement.  All amounts on deposit in the Participation Account and the REO Collection Account shall be remitted to the Waterfall Account on each Remittance Date as provided in the REMIC Declaration Agreement and the Trust Agreement, as applicable. Buyer shall have the right as Paying Agent (as defined in the REMIC Declaration Agreement) to remit all amounts on deposit in the Participation Account to the Waterfall Account on each Distribution Date (as defined in the REMIC Declaration Agreement).

Section 5.02Before a Default or an Event of Default.  If no Default or Event of Default exists, all Income described in Section 5.01 and deposited into the REO Collection Account or

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the Waterfall Account during each Pricing Period shall be applied by Account Bank by no later than the next following Remittance Date as provided in clauses (a), (b), (c) and (d) below:

(a)All Income received prior to the occurrence of a Turbo Trigger Event shall be applied as follows:

I.With respect to Income on deposit in the Waterfall Account with respect to the Purchased REO Entity Interests:

first, to pay to Buyer an amount equal to the Price Differential accrued with respect to all Purchased REO Entity Interests as of such Remittance Date;

second, to pay to Buyer an amount sufficient to eliminate any outstanding REO Margin Deficit;

third, to deposit any amounts necessary to maintain the Required Amount with respect to the Purchased REO Entity Interests in the REO Property Interest Reserve Account;

fourth, to pay to Buyer an amount equal to all default interest, late fees, fees, expenses and Indemnified Amounts then due and payable from Sellers and other applicable Persons to Buyer under the Repurchase Documents and allocable to the Purchased REO Entity Interests;

fifth, pro-rata, to pay to Sellers, an amount equal to the sum of the Management Fees and the Direct Pass-Through Expenses then due and owing for the related Pricing Period and allocable to the Purchased REO Entity Interests; and

sixth, any remaining amounts to the Waterfall Account.

II.With respect to Income on deposit in the Waterfall Account with respect to the Purchased Mortgage Loans and Purchased REMIC Certificates and any amounts referred to in clause sixth of (a)(I) above:

first, to pay to Servicer, an amount equal to the Servicing Fees and Protective Servicing Advances then due and owing to Servicer for the related Pricing Period with respect to the Purchased REMIC Certificates (and the Underlying Mortgage Loans) and Purchased Mortgage Loans under the express terms of the related Servicing Agreement;

second, to pay to Buyer an amount equal to the Price Differential accrued with respect to all Purchased REMIC Certificates and Purchased Mortgage Loans as of such Remittance Date;

third, to pay to Buyer an amount sufficient to eliminate any outstanding Mortgage Loan/REMIC Margin Deficit with respect to the Purchased REMIC Certificates and the Purchased Mortgage Loans (without limiting Sellers’ obligation to satisfy a Mortgage Loan/REMIC Margin Deficit in a timely manner as required by Section 4.01);

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fourth, to deposit any amounts necessary to maintain the Required Amount with respect to the Purchased Mortgage Loans and Purchased REMIC Certificates in the Mortgage Loan Interest Reserve Account;

fifth, to pay to Buyer an amount equal to all default interest, late fees, fees, expenses and Indemnified Amounts then due and payable from Sellers and other applicable Persons to Buyer under the Repurchase Documents and allocable to the Purchased REMIC Certificates and the Purchased Mortgage Loans;

sixth, pro-rata, to pay to Sellers, an amount equal to the sum of the Management Fees and the Direct Pass-Through Expenses then due and owing for the related Pricing Period and allocable to the Purchased REMIC Certificates, Underlying Mortgage Loans and Purchased Mortgage Loans;

seventh, to pay to Sellers, an amount equal to the lesser of (i) the Estimate of Guarantor Net Income or (ii) 15% of all Income collected during such Pricing Period;

eighth, to pay to Servicer, an amount equal to the Carryover Amount;

ninth, to pay to Buyer, the amount needed to reduce the aggregate outstanding Purchase Price for the Purchased REMIC Certificates and Purchased Mortgage Loans to zero; and

tenth, any remaining amounts to Sellers.

Notwithstanding the foregoing, in no event shall the sum of the aggregate payments to Servicer and/or Sellers pursuant to the Trust Agreement with respect to REO Properties and clause fifth in Section 5.02(a)(I) above and clauses first, sixth, seventh, and eighth in Section 5.02(a)(II) above, exceed 30% of the Income collected by Servicer during such Pricing Period with respect to Purchased Mortgage Loans and Underlying Assets.

(b)All Income received with respect to Purchased Mortgage Loans and Purchased REMIC Certificates during the occurrence of a Turbo Trigger Event shall be paid to Buyer to reduce the aggregate outstanding Purchase Price of such Purchased Assets to zero.  All Income received with respect to Purchased REO Entity Interests during the occurrence of a Turbo Trigger Event shall be paid to Buyer to reduce the Aggregate Purchase Price to zero.

(c)On the Maturity Date, all Income net of those proceeds used to pay the Price Differential shall be paid to Buyer to reduce the Aggregate Purchase Price to zero.

(d)Notwithstanding anything contained herein to the contrary, if on any Remittance Date, the amounts then on deposit in the REO Collection Account are insufficient to satisfy clause first of Section 5.02(a)(I) of the Agreement or the amounts then on deposit in the Waterfall Account are insufficient to satisfy clause second of Section 5.02(a)(II) of the Agreement, Buyer may withdraw from the applicable Interest Reserve Account an amount of funds necessary to cure such deficiency.

(e)On any Remittance Date, after giving effect to any withdrawal from the Interest Reserve Accounts pursuant to clause (d) and upon written request from the Sellers, the

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Buyer shall withdraw from each Interest Reserve Account and pay to the Sellers (in accordance with their direction) any excess of (x) the amount on deposit therein, over (y) the related Required Amount; provided, however, that the Buyer shall have no obligation to make any such payment if an Event of Default shall have occurred and not been waived by the Buyer.

(f)Upon the Maturity Date and the repayment in full by the Sellers of all Repurchase Obligations hereunder, the Buyer shall withdraw from each Interest Reserve Account and pay to the Sellers (in accordance with their direction) any remaining amounts on deposit in each Interest Reserve Account.

Section 5.03After Default or Event of Default.  If an Event of Default exists, Buyer shall have the right to apply all Income deposited into the Waterfall Account, the REO Collection Account and the Participation Account in respect of the Purchased Assets and Underlying Assets, on the Business Day next following the Business Day on which each amount of Income is so deposited, in any manner Buyer deems appropriate.

Section 5.04Sellers to Remain Liable.  If the amounts remitted to Buyer as provided in Sections 5.02 and 5.03 are insufficient to pay all amounts due and payable from Sellers to Buyer under this Agreement or any Repurchase Document on a Remittance Date, a Repurchase Date, upon the occurrence of an Event of Default or otherwise, Sellers shall nevertheless remain liable for and shall pay to Buyer when due all such amounts other than with respect to the Purchase REO Entity Interests for which there shall be no recourse to Sellers, subject to Section 5.05 hereof.

Section 5.05No Recourse for REO Equity Interests. Notwithstanding anything contained in Section 5.04 hereof, if the amounts remitted to Buyer as provided in Sections 5.02 and 5.03 are insufficient to pay all amounts due and payable from Sellers to Buyer under this Agreement or any Repurchase Document on a Remittance Date, a Repurchase Date, upon the occurrence of an Event of Default or otherwise, to the extent any such amounts are in respect of the Purchased REO Entity Interests, there shall be no recourse to Sellers for any such amounts.

ARTICLE 6

CONDITIONS PRECEDENT

Section 6.01Conditions Precedent to Initial Transaction.  Buyer shall not be obligated to enter into any Transaction or purchase any Asset until the following conditions have been satisfied or waived by Buyer on and as of the Effective Date and the initial Purchase Date:

(a)Buyer has received the following documents, each dated the Closing Date or as of the Closing Date unless otherwise specified:  (i) each Repurchase Document duly executed and delivered by the parties thereto (other than with respect to the Closing Date, any REMIC Declaration Agreement), (ii) an official good standing certificate dated within fourteen (14) days of the Closing Date with respect to each Seller, Servicer and Guarantor, (iii) certificates of the secretary or an assistant secretary of each Seller, Servicer and Guarantor together with copies of the Governing Documents and applicable resolutions and the incumbencies and signatures of officers of each Seller, Servicer and Guarantor executing the Repurchase Documents to which it is a party, evidencing the respective authority of each Seller,

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Servicer and Guarantor with respect to the execution, delivery and performance thereof, (iv) a Closing Certificate, (v) an executed Power of Attorney, (vi) such opinions from counsel (dated on or prior to the Effective Date) to Sellers, Servicer and Guarantor as Buyer may require, including with respect to corporate matters, enforceability, non-contravention, no consents or approvals required other than those that have been obtained, first priority perfected security interests in the Purchased Assets and Underlying Mortgage Loans and related Servicing Rights (except to the extent any of PMC’s rights, title and interest in such Underlying Mortgage Loans and Servicing Rights have been legally and validly sold, transferred and assigned by PMC to the Class A Participant in accordance with the related REMIC Declaration Agreement. and any other collateral pledged pursuant to the Repurchase Documents, Investment Company Act matters, local counsel opinions with respect to any Seller or Guarantor that is domiciled offshore, true sale, substantive non-consolidation, and the applicability of Bankruptcy Code “securities contract” and “master netting agreement” safe harbors, and (vii) all other documents, certificates, information, financial statements, reports, approvals and opinions of counsel as it may require;

(b)(i) UCC financing statements have been filed against Sellers in all filing offices required by Buyer, (ii) Buyer has received such searches of UCC filings, tax liens, judgments, pending litigation, bankruptcy and other matters relating to Sellers, Servicer, Guarantor and the Purchased Assets and Underlying Mortgage Loans as Buyer may require, and (iii) the results of such searches are satisfactory to Buyer;

(c)Buyer has received payment from Sellers of all fees and expenses then payable under the Fee Letter and the other Repurchase Documents, as contemplated by Section 13.02, including without limitation the Facility Fee; and

(d)Buyer has completed to its satisfaction such due diligence and modeling as it may require.

Section 6.02Conditions Precedent to All Transactions.  Buyer shall not be obligated to enter into any Transaction, purchase any Asset, or be obligated to take, fulfill or perform any other action hereunder, until the following additional conditions have been satisfied or waived by Buyer, with respect to each Asset on and as of the Purchase Date therefor:

(a)With respect to any Asset proposed to be sold, Buyer has received the following documents:  (i) a Transaction Request, (ii) an Underwriting Package, (iii) a Confirmation, (iv) a fully executed Servicer Instruction Notice together with the Servicing Agreement (to the extent not already received pursuant to Section 6.01(a)), (v) a fully executed Investment Advisor Side Letter (to the extent not already received pursuant to Section 6.01(a)) and (vi) all other documents, certificates, information, financial statements, reports, approvals and opinions of counsel (including, without limitation, (x) a true sale opinion to the extent any Eligible Asset was transferred to Sellers from another Affiliate and was not transferred pursuant to the Contribution Agreement or any Underlying Mortgage Loans transferred pursuant to a participation interest by PMC to the Class A Participant pursuant to any REMIC Declaration Agreement, and (y) if such Asset being sold is a REMIC Certificate, an Investment Company Act opinion that covers such Asset and the related REMIC Declaration Agreement) as Buyer may require;

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(b)With respect to any Mortgage Loan (including, without limitation any Removed Mortgage Loans) proposed to be sold and any Underlying Mortgage Loan proposed to support REMIC Certificates, Custodian has received all related Mortgage Loan Documents in accordance with the provisions of the Custodial Agreement, and Buyer has received a trust receipt with respect to such Mortgage Loan Documents and any other item required to be delivered to Buyer under the Custodial Agreement;

(c)With respect to any REO Property (including, without limitation any Foreclosed Mortgage Loans) proposed to support REO Entity Interests, (i) Custodian has received all related REO Property Documents in accordance with the provisions of the Custodial Agreement, (ii) Buyer has received a trust receipt with respect to such REO Property Documents and any other item required to be delivered to Buyer under the Custodial Agreement and (iii) Buyer has been provided “view access” to Sellers’ REO Property management systems;

(d)With respect to any REMIC Certificate proposed to be sold, in addition to the requirements of Section 6.02(b):  (i) the original, definitive REMIC Certificate in form suitable for transfer, with appropriate Transfer Documents in blank duly executed or endorsed by PMIT, (ii) any other documents or instruments necessary in the reasonable opinion of Buyer to effect and perfect a legally valid delivery of such security to Buyer, and (iii) a copy of the fully executed, related REMIC Declaration Agreement, certified by Sellers as a true, correct and complete copy of the original, which REMIC Declaration Agreement shall be subject to Buyer’s approval, which may be given or withheld in its discretion.

(e)With respect to any REO Entity Interests proposed to be sold, in addition to the requirements of Section 6.02(c):  (i) the original, definitive trust certificate evidencing 100% of the Capital Stock of PC REO in form suitable for transfer, with appropriate Transfer Documents in blank duly executed or endorsed by PMC, (ii) any other documents or instruments necessary in the reasonable opinion of Buyer to effect and perfect a legally valid delivery of such security to Buyer, and (iii) a copy of the fully executed, related Trust Agreement, certified by Sellers as a true, correct and complete copy of the original, which Trust Agreement shall be subject to Buyer’s approval, which may be given or withheld in its discretion.

(f)immediately before such Transaction and after giving effect thereto and to the intended use thereof, no Representation Breach (including with respect to any Purchased Asset), Default, Event of Default, Margin Deficit, Material Adverse Effect or Market Disruption Event exists;

(g)Buyer has completed its due diligence review of the Underwriting Package, Asset Documents and such other documents, records and information as Buyer deems appropriate, and the results of such reviews are satisfactory to Buyer, which shall include without limitation, ordering BPOs on a representative sample of Assets as determined by Buyer and its credit review of the data and documentation related to any Assets proposed for sale under such Transaction.  The Sellers shall pay all reasonable out-of-pocket costs and expenses incurred by Buyer in connection with Buyer’s activities pursuant to this Section 6.02(c).  Sellers shall deliver BPOs in addition to the representative sample upon the request of Buyer or Buyer may order additional BPOs at anytime, provided that these additional BPOs shall be at the

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Buyer’s sole expense.  Sellers shall provide Buyer with a BPO Schedule for all Purchased Mortgage Loans and Underlying Assets;

(h)Buyer has (i) determined that such Asset is an Eligible Asset, (ii) approved the purchase of such Asset or the addition of such Asset (if an Underlying Asset), and (iii) executed the Confirmation;

(i)the Aggregate Purchase Price of all Transactions does not exceed the Maximum Aggregate Purchase Price after giving effect to such Transaction;

(j)such Purchase Date occurs on or after the Closing Date and the Repurchase Date is not later than the Maturity Date;

(k)Sellers and Custodian have satisfied all requirements and conditions and have performed all covenants, duties, obligations and agreements contained in the Repurchase Documents to be performed by such Person on or before such Purchase Date;

(l)to the extent the related Asset Documents contain notice, cure and other provisions in favor of a pledgee under a repurchase or warehouse facility, and without prejudice to the sale treatment of such Asset to Buyer, Buyer has received evidence that Sellers have given notice to the applicable Persons of Buyer’s interest in such Asset and otherwise satisfied any other applicable requirements under such pledgee provisions so that Buyer is entitled to the rights and benefits of a pledgee under such pledgee provisions;

(m)if requested by Buyer, such opinions from counsel to Sellers and Guarantor as Buyer may require, including, without limitation, with respect to the first priority perfected security interest in the Purchased Assets and Underlying Mortgage Loans (except to the extent any of PMC’s rights, title and interest in such Underlying Mortgage Loans have been legally and validly sold, transferred and assigned by PMC to the Class A Participant in accordance with the related REMIC Declaration Agreement).  and any other collateral pledged pursuant to the Repurchase Documents;

(n)Buyer shall have received executed blank assignments of all Mortgage Loan Documents in appropriate form for recording in the jurisdiction in which the Underlying Mortgaged Property is located (the “Blank Assignment Documents”);

(o)If there shall occur any Servicer Change of Control or if Servicer is otherwise deemed to be an Affiliate of a Seller or Guarantor, Buyer shall have provided Sellers with its written consent with respect to such Servicer Change of Control or affiliation;

(p)Buyer shall have received and consented to all amendments, supplements and modifications to the Servicing Agreement; and

(q)(x) each Interest Reserve Account contains funds in an amount equal to the applicable Required Amount (after giving effect to such purchase), or (y) the Sellers have irrevocably directed the Buyer to deduct any deficiency in the amount described in clause (x) from the Purchase Price to be paid the applicable Seller(s) with respect to such Transaction;

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Each Confirmation delivered by Sellers shall constitute a certification by Sellers that all of the conditions precedent in this Article 6 have been satisfied.

The failure of a Seller to satisfy any of the conditions precedent in this Article 6 with respect to any Transaction or Purchased Asset shall, unless such failure was waived in writing by Buyer on or before the related Purchase Date, give rise to the right of Buyer at any time to rescind the related Transaction, whereupon Sellers shall immediately pay to Buyer the Repurchase Price of such Purchased Asset.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF SELLERS

Each Seller (unless otherwise specified herein) represents and warrants, on and as of the date of this Agreement, each Purchase Date, and at all times when any Repurchase Document or Transaction is in full force and effect, as follows:

Section 7.01Seller.  Seller has been duly organized and validly exists in good standing as a corporation, limited liability company or limited partnership, as applicable, under the laws of the jurisdiction of its incorporation, organization or formation.  Seller (a) has all requisite power, authority, legal right, licenses and franchises, (b) is duly qualified to do business in all jurisdictions necessary, and (c) has been duly authorized by all necessary action, to (w) own, lease and operate its properties and assets, (x) conduct its business as presently conducted, (y) execute, deliver and perform its obligations under the Repurchase Documents to which it is a party, and (z) acquire, own, sell, assign, pledge and repurchase the Purchased Assets and Underlying Mortgage Loans.  Seller’s exact legal name is set forth in the preamble and signature pages of this Agreement.  Seller’s location (within the meaning of Article 9 of the UCC), and the office where Seller keeps all records (within the meaning of Article 9 of the UCC) relating to the Purchased Assets and Underlying Assets is at the address of Seller referred to in Schedule 2.  PMC has not changed its name or location within the past twelve (12) months.  PMC’s tax identification number is 80-0463416.  PMC has the following subsidiaries: PC REO.  PMC is a wholly-owned Subsidiary of PMOP.  The fiscal year of PMC is the calendar year.  PMIT has not changed its name or location within the past twelve (12) months.  PMIT’s tax identification number is 27-2199755.  PMIT does not have any subsidiaries.  PMIT is a wholly-owned Subsidiary of PMOP.  The fiscal year of PMIT is the calendar year.  PC REO is a wholly-owned Subsidiary of PMC.  The fiscal year of PC REO is the calendar year.  PC REO has no Indebtedness, Contractual Obligations or investments other than (a) ordinary trade payables (including amounts due and payable to Servicer for the REO Properties and other service providers in connection therewith), (b) in connection with Assets acquired or originated for the Transactions, and (c) the Repurchase Documents.  PC REO has no Guarantee Obligations.

Section 7.02Repurchase Documents.  Each Repurchase Document to which Seller is a party has been duly executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms, except as such enforceability may be limited by Insolvency Laws and general principles of equity.  The execution, delivery and performance by Seller of each Repurchase Document to which it is a party do not and will not (a) conflict with, result in a breach of, or constitute (with or without notice or lapse of time or both) a default under, any (i) Governing Document, Indebtedness,

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Guarantee Obligation or Contractual Obligation applicable to Seller or any of its properties or assets, (ii) Requirements of Law, or (iii) approval, consent, judgment, decree, order or demand of any Governmental Authority, or (b) result in the creation of any Lien (other than Permitted Liens) on any of the properties or assets of Seller.  All approvals, authorizations, consents, orders, filings, notices or other actions of any Person or Governmental Authority required for the execution, delivery and performance by Seller of the Repurchase Documents to which it is a party and the sale of and grant of a security interest in each Purchased Asset to Buyer, have been obtained, effected, waived or given and are in full force and effect.  The execution, delivery and performance of the Repurchase Documents do not require compliance by Seller with any “bulk sales” or similar law.  There is no material litigation, proceeding or investigation pending or, to the Knowledge of Seller threatened, against Seller or any Affiliate thereof before any Governmental Authority (a) asserting the invalidity of any Repurchase Document, (b) seeking to prevent the consummation of any Transaction, or (c) seeking any determination or ruling that could reasonably be expected to have a Material Adverse Effect.

Section 7.03Solvency.  Neither Seller nor any Affiliate of Seller is or has ever been the subject of an Insolvency Proceeding.  Seller and each Affiliate of Seller is Solvent and the Transactions do not and will not render Seller or any Affiliate thereof not Solvent.  Seller is not entering into the Repurchase Documents or any Transaction with the intent to hinder, delay or defraud any creditor of Seller or any Affiliate thereof.  Seller has received or will receive reasonably equivalent value for the Repurchase Documents and each Transaction.  Seller has adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations.  Seller is generally able to pay, and as of the date hereof is paying, its debts as they come due.

Section 7.04Taxes.  Seller and each Affiliate of Seller have filed all required federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by them and have paid all material taxes (including mortgage recording taxes), assessments, fees, and other governmental charges payable by them, or with respect to any of their properties or assets, which have become due, and income or franchise taxes have been paid or are being contested in good faith by appropriate proceedings diligently conducted and for which appropriate reserves have been established in accordance with GAAP.  Seller and each Affiliate of Seller have paid, or have provided adequate reserves for the payment of, all such taxes for all prior fiscal years and for the current fiscal year to date.  There is no material action, suit, proceeding, investigation, audit or claim relating to any such taxes now pending or, to the Knowledge of Seller, threatened by any Governmental Authority which is not being contested in good faith as provided above.  Neither Seller nor any Affiliate of Seller has entered into any agreement or waiver or been requested to enter into any agreement or waiver extending any statute of limitations relating to the payment or collection of taxes, or is aware of any circumstances that would cause the taxable years or other taxable periods of Seller or any Affiliate thereof not to be subject to the normally applicable statute of limitations.  No tax liens have been filed against any assets of Seller or any Affiliate thereof.  Seller does not intend to treat any Transaction as being a “reportable transaction” as defined in Treasury Regulation Section 1.6011-4.  If Seller determines to take any action inconsistent with such intention, it will promptly notify Buyer, in which case Buyer may treat each Transaction as subject to Treasury Regulation Section 301.6112-1 and will maintain the lists and other records required thereunder.

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Section 7.05Financial Condition.  The audited balance sheet of each of Seller and Servicer as of the fiscal year most recently ended for which such audited balance sheet is available, and the related audited statements of income and retained earnings and of cash flows for the fiscal year then ended, setting forth in each case in comparative form the figures for the previous year, reported on without a “going concern” or like qualification arising out of the audit conducted by each of Seller’s and Servicer’s respective independent certified public accountants, copies of which have been delivered to Buyer, are complete and correct and present fairly the financial condition of Seller and Servicer (as the case may be) as of such date and the results of its operations and cash flows for the fiscal year then ended.  All such financial statements, including related schedules and notes, were prepared in accordance with GAAP except as disclosed therein.  Neither Seller nor Servicer has any material contingent liability or liability for taxes or any long term lease or unusual forward or long term commitment, including any Derivative Contract, which is not reflected in the foregoing statements or notes.  Since the date of the financial statements and other information delivered to Buyer prior to the Closing Date, neither Seller nor Servicer has sold, transferred or otherwise disposed of any material part of its property or assets (except pursuant to the Repurchase Documents) or acquired any property or assets (including Equity Interests of any other Person) that are material in relation to the financial condition of Seller.

Section 7.06True and Complete Disclosure.  The information, reports, certificates, documents, financial statements, operating statements, forecasts, books, records, files, exhibits and schedules furnished by or on behalf of Seller or Servicer to Buyer in connection with the Repurchase Documents and the Transactions, when taken as a whole, do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.  All written information furnished after the date hereof by or on behalf of Seller to Buyer in connection with the Repurchase Documents and the Transactions will be true, correct and complete in all material respects, or in the case of projections will be based on reasonable estimates prepared and presented in good faith, on the date as of which such information is stated or certified.

Section 7.07Compliance with Laws.  Seller has complied in all material respects with all Requirements of Laws, and no Purchased Asset contravenes any Requirements of Laws.  Neither Seller nor any Affiliate of Seller (a) is an “enemy” or an “ally of the enemy” as defined in the Trading with the Enemy Act of 1917, (b) is in violation of any Anti-Terrorism Laws, (c) is a blocked person described in Section 1 of Executive Order 13224 or to its knowledge engages in any dealings or transactions or is otherwise associated with any such blocked person, (d) is in violation of any country or list based economic and trade sanction administered and enforced by the Office of Foreign Assets Control, (e) is a Sanctioned Entity, (f) has more than 10% of its assets located in Sanctioned Entities, or (g) derives more than 10% of its operating income from investments in or transactions with Sanctioned Entities.  The proceeds of any Transaction have not been and will not be used to fund any operations in, finance any investments or activities in or make any payments to a Sanctioned Entity.  Seller is a “qualified purchaser” as defined in the Investment Company Act.  Neither Seller nor any Affiliate of Seller (a) is or is controlled by an “investment company” as defined in such Act or is exempt from the provisions of the Investment Company Act, (b) is a “broker” or “dealer” as defined in, or could be subject to a liquidation proceeding under, the Securities Investor Protection Act of 1970, or (c) is subject to regulation

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by any Governmental Authority limiting its ability to incur the Repurchase Obligations.  No properties presently or previously owned or leased by Seller, any Affiliate of Seller or their respective predecessors contain or previously contained any Materials of Environmental Concern that constitute or constituted a violation of Environmental Laws or reasonably could be expected to give rise to liability of Seller thereunder.  Seller has no Knowledge of any violation, alleged violation, non-compliance, liability or potential liability of Seller under any Environmental Law.  Materials of Environmental Concern have not been released, transported, generated, treated, stored or disposed of in violation of Environmental Laws or in a manner that reasonably could be expected to give rise to liability of Seller.  Seller and all Affiliates of Seller are in compliance with the Foreign Corrupt Practices Act of 1977 and any foreign counterpart thereto.  Neither Seller nor any Affiliate of Seller has made, offered, promised or authorized a payment of money or anything else of value (a) in order to assist in obtaining or retaining business for or with, or directing business to, any foreign official, foreign political party, party official or candidate for foreign political office, (b) to any foreign official, foreign political party, party official or candidate for foreign political office, or (c) with the intent to induce the recipient to misuse his or her official position to direct business wrongfully to Seller, any Affiliate of Seller or any other Person, in violation of the Foreign Corrupt Practices Act.

Section 7.08Compliance with ERISA.  With respect to Seller, Servicer or any ERISA Affiliate thereof, during the immediately preceding five (5) year period, (a) neither a Reportable Event nor an “accumulated funding deficiency” nor “an unpaid minimum required contribution” as defined in the Code or ERISA has occurred, (b) each Plan has complied in all material respects with the applicable provisions of the Code and ERISA, (c) no termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded, and (d) no Lien in favor of the PBGC or a Plan has arisen.  The present value of all accumulated benefit obligations under each Single Employer Plan (based on the assumptions used for the purposes of Financial Accounting Statement Bulletin 87) relating to Seller, Servicer or any ERISA Affiliate thereof did not, as of the last annual valuation date prior to the date hereof, exceed the value of the assets of such Plan allocable to such accumulated benefit obligations.  Neither Seller nor any Affiliate of Seller is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan.  Seller does not provide any medical or health benefits to former employees other than as required by the Consolidated Omnibus Budget Reconciliation Act, as amended, or similar state or local law (collectively, “COBRA.”) at no cost to the employer.  None of the assets of Seller are deemed to be plan assets within the meaning of 29 C.F.R. 2510.3-101 as modified by Section 3(42)  of ERISA.

Section 7.09No Default or Material Adverse Effect.  No Default or Event of Default exists.  No default or event of default (however defined) exists under any Indebtedness, Guarantee Obligations or Contractual Obligations of Seller.  Seller believes that it is and will be able to pay and perform each agreement, duty, obligation and covenant contained in the Repurchase Documents and Asset Documents to which it is a party, and that it is not subject to any agreement, obligation, restriction or Requirements of Law which would unduly burden its ability to do so or could reasonably be expected to have a Material Adverse Effect.  Seller has no Knowledge of any actual or prospective development, event or other fact that could reasonably be expected to have a Material Adverse Effect.  No Internal Control Event has occurred.  Seller has delivered to Buyer all underlying servicing agreements (or provided the Buyer with access to a service, internet website or other system where the Buyer can successfully access such

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agreements) with respect to the Purchased Assets and Underlying Assets, and to Seller’s Knowledge no material default or event of default (however defined) exists thereunder.  No default or event of default (however defined) on the part of Seller exists under any credit facilities, repurchase facilities or substantially similar facilities of Seller that are presently in effect.

Section 7.10Purchased Assets.  Each Purchased Asset is an Eligible Asset.  Each representation and warranty of the Seller set forth in the Repurchase Documents (including those contained in Schedules 1-A, 1-B and 1-C applicable to related Purchased Asset) and the Asset Documents with respect to each Purchased Asset is true and correct.  The review and inquiries made on behalf of Seller in connection with the next preceding sentence have been made by Persons having the requisite expertise, knowledge and background to verify such representations and warranties.  Seller has complied with all requirements of the Custodial Agreement with respect to each Purchased Asset, including delivery to Custodian of all required Asset Documents.  Seller has no Knowledge of any fact that could reasonably lead it to expect that any Purchased Asset will not be paid in full or the Market Value thereon not be obtained or realized.  No Purchased Asset is or has been the subject of any compromise, adjustment, extension, satisfaction, subordination, rescission, setoff, counterclaim, defense, abatement, suspension, deferment, deduction, reduction, termination or modification, whether arising out of transactions concerning such Purchased Asset or otherwise, by Seller or any Affiliate thereof, Transferor, Underlying Obligor or other Person, except as set forth in the Asset Documents delivered to Buyer.  Each proposed Purchased Asset was acquired in accordance with and satisfies applicable standards established by Seller or any Affiliate thereof.  None of the Asset Documents has any marks or notations indicating that it has been sold, assigned, pledged, encumbered or otherwise conveyed to any Person other than Buyer.  If any Asset Document requires the holder or transferee of the related Purchased Asset to be a qualified transferee, qualified institutional lender or qualified lender (however defined), Seller meets such requirement.  Assuming that Buyer also meets such requirement, the assignment and pledge of such Purchased Asset to Buyer pursuant to the Repurchase Documents do not violate such Asset Document.  Seller and all Affiliates of Seller (a) have sold and transferred all Servicing Rights with respect to the Purchased Assets to Buyer, and (b) have no Retained Rights except as may be provided in the Repurchase Documents.  At Buyer’s election (and, prior to an Event of Default, at Buyer’s sole cost and expense), Buyer may complete and record any or all of the Blank Assignment Documents as further evidence of Buyer’s ownership interest in the related Purchased Assets.

Section 7.11Purchased Assets Acquired from Transferors.  With respect to each Purchased Asset purchased by Seller or an Affiliate of Seller from a Transferor, (a) such Purchased Asset was acquired and transferred on a true sale basis pursuant to a Purchase Agreement, (b) such Transferor received reasonably equivalent value in consideration for the transfer of such Purchased Asset, (c) no such transfer was made for or on account of an antecedent debt owed by such Transferor to Seller or an Affiliate of Seller, (d) no such transfer is or may be voidable or subject to avoidance under the Bankruptcy Code, and (e) the representations and warranties made by such Transferor to Seller or such Affiliate in such Purchase Agreement are hereby incorporated herein mutatis mutandis and are hereby remade by Seller to Buyer on each date as of which they speak in such Purchase Agreement.

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Section 7.12Transfer and Security Interest.  The Repurchase Documents constitute a valid and effective transfer to Buyer of all right, title and interest of Seller in, to and under all Purchased Assets (together with all related Servicing Rights with respect to such Purchased Assets), free and clear of any Liens (other than Permitted Liens).  With respect to the protective security interest granted by Seller in Section 11.01, upon the delivery of the Confirmations and the Asset Documents to Custodian, and the filing of the UCC financing statements as provided herein, such security interest shall be a valid first priority perfected security interest to the extent such security interest can be perfected by possession, filing or control under the UCC, subject only to Permitted Liens.  Upon receipt by Custodian of each Asset Document required to be endorsed in blank by Seller and payment by Buyer of the Purchase Price for the related Purchased Asset, Buyer shall either own such Purchased Asset and the related Asset Documents or have a valid first priority perfected security interest in such Asset Document.  The Purchased Assets constitute the following, as defined in the UCC:  a general intangible, instrument, investment property, security, deposit account, financial asset, uncertificated security, certificated security, securities account, or security entitlement.  Seller has not sold, assigned, pledged, encumbered or otherwise conveyed any of the Purchased Assets or Underlying Assets to any Person other than pursuant to the Repurchase Documents.  Seller has not authorized the filing of and is not aware of any UCC financing statements filed against Seller as debtor that include the Purchased Assets or Underlying Assets, other than any financing statement that has been terminated or filed pursuant to this Agreement or any other Repurchase Document.

Section 7.13No Broker.  Neither Seller nor any Affiliate of Seller has dealt with any broker, investment banker, agent or other Person, except for Buyer or an Affiliate of Buyer, who may be entitled to any commission or compensation in connection with any Transaction.

Section 7.14Separateness.  Seller is in compliance with the requirements of Article 9.

Section 7.15Other Indebtedness.  All Indebtedness (other than Indebtedness as evidenced by this Agreement or Indebtedness to Seller’s or Servicer’s sole stockholder or member included in the calculation of Adjusted Tangible Net Worth) of the Seller or Servicer existing on the date hereof are listed on Schedule 4 hereto.

Section 7.16Location of Books and Records.  The location where Seller keeps its books and records, including all computer tapes and records relating to the Purchased Assets and Underlying Assets is its chief executive office.

Section 7.17Chief Executive Office; Jurisdiction of Organization.  On the Closing Date, chief executive office of (i) PMC is and has been located at 27001 Agoura Road, Third Floor, Calabasas, CA 91301, (ii) PMIT is and has been located at 27001 Agoura Road, Third Floor, Calabasas, CA 91301 and (iii) PC REO is and has been located at 27001 Agoura Road, Third Floor, Calabasas, CA 91301.  On the Closing Date, the jurisdiction of organization of (x) PMC is Delaware, (y) PMIT is Delaware and (z) PC REO is Delaware.  Seller shall provide Buyer with thirty (30) days advance notice of any change in Seller’s principal office or place of business or jurisdiction.  Except as set forth on Schedule 7.17, Seller has no trade name.  Seller was previously known as TRS I, Inc. and, since the date of its incorporation, has not been known by or done business under any other name, corporate or fictitious, and has not filed or had filed against it any bankruptcy receivership or similar petitions nor has it made any assignments for the benefit of creditors.

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Section 7.18Investment Company Act.  None of Seller or any Affiliate thereof is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act.

Section 7.19REMIC Declaration Agreement.  All of the representations and warranties of PMC in any REMIC Declaration Agreement related to a Purchased REMIC Certificate are true and correct in all material respects and are incorporated herein by reference mutatis mutandis.  PMC is not in default under any related REMIC Declaration Agreement related to any Purchased REMIC Certificate.

Section 7.20REO Entity Interests.

The shares of REO Entity Interests issued and outstanding as of the Closing Date constitute all the issued and outstanding shares of all classes of the Capital Stock of PC REO.

(a)All of the shares of REO Entity Interests have been duly and validly issued in compliance with applicable law and related organizational documents and are fully paid and nonassessable.

(b)PMC is the record and beneficial owner of, and has title to, the REO Entity Interests representing substantially all of the economic interests in PC REO, free of any and all liens or options in favor, of, or claims of, any other Person, except the interests created by the Repurchase Documents or by or through Buyer.

(c)REO Entity Interests are unencumbered, other than Liens created in favor of Buyer pursuant to the Repurchase Documents created by or through Buyer.

(d)It is the intent of the parties hereto that the REO Entity Interests constitute “securities” as that term is defined in Section 8-102 of the Uniform Commercial Code and that the REO Entity Interests be governed by Article 8 of the Uniform Commercial Code.

Section 7.21Adverse Selection. No procedures believed by Seller to be adverse to Buyer were utilized by Seller, Servicer or Investment Advisor in identifying or selecting the proposed Purchased Assets for sale to Buyer.

ARTICLE 8

COVENANTS OF SELLER

From the date hereof until the Repurchase Obligations are paid in full and the Repurchase Documents are terminated, each Seller (unless otherwise specified herein) shall perform and observe the following covenants, which shall (a) be given independent effect (so that if a particular action or condition is prohibited by any covenant, the fact that it would be permitted by an exception to or be otherwise within the limitations of another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists), and (b) shall also apply to all Subsidiaries of each Seller:

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Section 8.01Existence; Governing Documents; Conduct of Business.  Seller shall (a) preserve and maintain its legal existence, (b) qualify and remain qualified in good standing in each jurisdiction where the failure to be so qualified would have a Material Adverse Effect, (c) comply with its Governing Documents, including all special purpose entity provisions, and (d) not modify, amend or terminate its Governing Documents.  Seller shall (a) continue to engage in the same (and no other) general lines of business as presently conducted by it and (b) maintain and preserve all of its material rights, privileges, licenses and franchises necessary for the operation of its business.  Seller shall not (a) change its name, organizational number, tax identification number, fiscal year, method of accounting, identity, structure or jurisdiction of organization (or have more than one such jurisdiction), move the location of its principal place of business and chief executive office, as defined in the UCC) from the location referred to in Section 7.01, or (b) move, or consent to Custodian moving, the Asset Documents from the location thereof on the Closing Date, unless in each case Seller has given at least thirty (30) days prior notice to Buyer and has taken all actions required under the UCC to continue the first priority perfected security interest of Buyer in the Purchased Assets and the Underlying Mortgage Loans (except to the extent any of PMC’s rights, title and interest in such Underlying Mortgage Loans have been legally and validly sold, transferred and assigned by PMC to the Class A Participant in accordance with the related REMIC Declaration Agreement).  Seller shall enter into each Transaction as principal, unless Buyer agrees before a Transaction that Seller may enter into such Transaction as agent for a principal and under terms and conditions disclosed to Buyer.

Section 8.02Compliance with Laws, Contractual Obligations and Repurchase Documents.  Seller shall comply in all material respects with all Requirements of Laws, including those relating to any Purchased Asset and to the reporting and payment of taxes.  No part of the proceeds of any Transaction shall be used for any purpose that violates Regulation T, U or X of the Board of Governors of the Federal Reserve System.  Seller shall conduct the requisite due diligence in connection with the origination or acquisition of each Asset for purposes of complying with the Anti-Terrorism Laws, including with respect to the legitimacy of the applicable Underlying Obligor and the origin of the assets used by such Person to purchase the Underlying Mortgaged Property, and will maintain sufficient information to identify such Person for purposes of the Anti-Terrorism Laws.  Seller shall maintain the Custodial Agreement in full force and effect.  Seller shall not directly or indirectly enter into any agreement that would be violated or breached by any Transaction or the performance by Seller of any Repurchase Document.

Section 8.03Structural Changes.  Seller shall not enter into a merger or consolidation, or liquidate, wind up or dissolve, or sell all or substantially all of its assets or properties, or permit any changes in the ownership of its Equity Interests, without the consent of Buyer.  Seller shall ensure that all Equity Interests of Seller shall continue to be owned by the owner or owners thereof as of the date hereof.  Seller shall ensure that neither the Equity Interests of Seller nor any property or assets of Seller shall be pledged to any Person other than Buyer.  Seller shall not enter into any transaction with an Affiliate of Seller unless such transaction is on market and arm’s-length terms and conditions.

Section 8.04Protection of Buyer’s Interest in Purchased Assets.  With respect to each Purchased Asset and the Underlying Mortgage Loans (except to the extent any of PMC’s rights,

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title and interest in such Underlying Mortgage Loans have been legally and validly sold, transferred and assigned by PMC to the Class A Participant in accordance with the related REMIC Declaration Agreement), Seller shall take all action necessary or required by the Repurchase Documents, Asset Documents or Requirements of Law, or requested by Buyer, to perfect, protect and more fully evidence the security interest granted in the Repurchase Documents and Buyer’s ownership of and first priority perfected security interest in such Purchased Asset and related Asset Documents, including executing or causing to be executed (a) such other instruments or notices as may be necessary or appropriate and filing and maintaining effective UCC financing statements, continuation statements and assignments and amendments thereto, and (b) all documents necessary to both collaterally and absolutely and unconditionally assign all rights (but none of the obligations) of Seller under each Purchase Agreement, in each case as additional collateral security for the payment and performance of each of the Repurchase Obligations.  Seller shall comply with all requirements of the Custodial Agreement with respect to each Purchased Asset, including the delivery to Custodian of all required Asset Documents.  Seller shall (a) not assign, sell, transfer, pledge, hypothecate, grant, create, incur, assume or suffer or permit to exist any security interest in or Lien (other than Permitted Liens) on any Purchased Asset to or in favor of any Person other than Buyer, (b) defend such Purchased Asset against, and take such action as is necessary to remove, any such Lien, and (c) defend the right, title and interest of Buyer in and to all Purchased Assets and Underlying Mortgage Loans (to the extent pledged hereunder, but excluding any of PMC’s rights, title and interest therein have been legally and validly sold, transferred and assigned by PMC to the Class A Participant as part of the issuance of REMIC Certificates in accordance with the related REMIC Declaration Agreement) against the claims and demands of all Persons whomsoever.  Notwithstanding the foregoing, if Seller grants a Lien on any Purchased Asset in violation of this Section 8.04 or any other Repurchase Document, Seller shall be deemed to have simultaneously granted an equal and ratable Lien on such Purchased Asset in favor of Buyer to the extent such Lien has not already been granted to Buyer; provided, that such equal and ratable Lien shall not cure any resulting Event of Default.  Seller shall not materially amend, modify, waive or terminate any provision of any Purchase Agreement or Servicing Agreement.  Seller shall not, or permit Servicer to, extend, amend, waive, terminate, rescind, cancel, release or otherwise modify the material terms of or any collateral, guaranty or indemnity for, or exercise any material right or remedy of a holder (including all lending, corporate and voting rights, remedies, consents, approvals and waivers) of, any Purchased Asset or Asset Document except in accordance with Accepted Servicing Practices and the Servicing Standard.  Seller shall mark its computer records and tapes to evidence the interests granted to Buyer hereunder.  Seller shall not take any action to cause any Purchased Asset that is not evidenced by an instrument or chattel paper (as defined in the UCC) to be so evidenced.  If a Purchased Asset becomes evidenced by an instrument or chattel paper, the same shall be immediately delivered to Custodian on behalf of Buyer, together with endorsements required by Buyer.

Section 8.05Actions of Seller Relating to Distributions, Indebtedness, Guarantee Obligations, Contractual Obligations, Investments and Liens.  Seller shall not declare or make any payment on account of, or set apart assets for, a sinking or similar fund for the purchase, redemption, defeasance, retirement or other acquisition of any Equity Interest of Seller or any Affiliate thereof, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller or any Affiliate thereof; provided, that Seller may declare and pay dividends in accordance with its

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Governing Documents if no Default or Event of Default exists or would exist as a result thereof.  Seller shall not contract, create, incur, assume or permit to exist any Indebtedness, Guarantee Obligations, Contractual Obligations or Investments, except to the extent (a) arising or existing under the Repurchase Documents, (b) existing as of the Closing Date, as referenced in the financial statements delivered to Buyer prior to the Closing Date, and any renewals, refinancings or extensions thereof in a principal amount not exceeding that outstanding as of the date of such renewal, refinancing or extension and (c) incurred after the Closing Date to originate or acquire assets or to provide funding with respect to assets.  Seller shall not (a) contract, create, incur, assume or permit to exist any Lien on or with respect to any of its property or assets (including the Purchased Assets and Underlying Assets) of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, except for Permitted Liens, or (b) except as provided in the preceding clause (a), grant, allow or enter into any agreement or arrangement with any Person that prohibits or restricts or purports to prohibit or restrict the granting of any Lien on any of the foregoing.

Section 8.06Maintenance of Property, Insurance.  Seller shall (a) keep all property useful and necessary in its business in good working order and condition, (b) maintain insurance on all its properties in accordance with customary and prudent practices of companies engaged in the same or a similar business, and (c) furnish to Buyer upon request information and certificates with respect to such insurance.

Section 8.07Financial Covenants.

(a)Servicer’s Adjusted Tangible Net Worth shall at all times be greater than or equal to the sum of (i) $5,000,000 and (ii) 50% of Servicer’s positive quarterly income.

(b)Servicer’s unrestricted cash shall at all times be greater than or equal to $2,500,000;

(c)Servicer’s residential mortgage servicing portfolio shall at all times be in excess of $2,000,000,000 in un-amortized principal balance of loans;

(d)The ratio of Servicer’s Total Indebtedness, to Tangible Net Worth shall at all times be less than 10:1;

(e)Servicer’s consolidated Net Income shall be equal to or greater than $1.00 for each calendar quarter;

(f)Sellers shall cause Servicer not to incur any additional material Indebtedness, other than such current Indebtedness identified on Schedule 4 attached hereto, Indebtedness under the Repurchase Documents or as otherwise acceptable to Buyer.

(g)Seller shall not and shall cause Servicer not to convey, sell, lease, assign, transfer or otherwise dispose of (collectively, “Transfer”), all or substantially all of its Property, business or assets (including, without limitation, receivables and leasehold interests) whether now owned or hereafter acquired or allow any Subsidiary to Transfer substantially all of its assets to any Person; provided, that Servicer may after prior written notice to Buyer allow such

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action with respect to any Subsidiary which is not a material part of Servicer’s overall business operations.

Section 8.08Delivery of Income.  Seller shall, and pursuant to the Servicer Instruction Notice shall cause the Servicer and all other applicable Persons to, deposit all Income in respect of the Purchased Assets and Underlying Assets into the applicable Account in accordance with Section 5.01(b).  Seller and Servicer (a) shall comply with and enforce the Servicer Instruction Notice, (b) shall not amend, modify, waive, terminate or revoke the Servicer Instruction Notice without Buyer’s consent, and (c) shall take all reasonable steps to enforce the Servicer Instruction Notice.  In connection with each principal payment or prepayment under a Purchased Asset, Seller shall provide or cause to be provided to Buyer and Custodian sufficient detail to enable Buyer and Custodian to identify the Purchased Asset to which such payment applies.  If Seller receives any rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any Purchased Assets or Underlying Mortgage Loan, or otherwise in respect thereof, Seller shall accept the same as Buyer’s agent, hold the same in trust for Buyer and immediately deliver the same to Buyer or its designee in the exact form received, together with duly executed instruments of transfer, stock powers or assignment in blank and such other documentation as Buyer shall reasonably request.

Section 8.09Delivery of Financial Statements and Other Information.  Seller shall deliver the following to Buyer and Master Servicer, as soon as available and in any event within the time periods specified:

(a)within thirty (30) days after the end of each month and each fiscal quarter (i) the unaudited balance sheets of Servicer as at the end of such period, (ii) the related unaudited statements of income, retained earnings and cash flows for such period and the portion of the fiscal year through the end of such period, setting forth in each case in comparative form the figures for the previous year, and (iii) a Compliance Certificate;

(b)within forty (40) days after the end of each month, (i) the consolidating financial statements of Guarantor as of the end of each month and (ii) a Compliance Certificate;

(c)within ninety (90) days after the end of each fiscal year of Servicer, (i) the audited balance sheets of Servicer as at the end of such fiscal year, (ii) the related statements of income, retained earnings and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, (iii) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said financial statements fairly present the financial condition and results of operations of Servicer as at the end of and for such fiscal year in accordance with GAAP, (iv) a certification from such accountants that, in making the examination necessary therefor, no information was obtained of any Default or Event of Default except as specified therein, (v) projections of Servicer of the operating budget and cash flow budget of Servicer for the following fiscal year, and (vi) a Compliance Certificate of Seller;

(d)all reports submitted to Servicer by independent certified public accountants in connection with each annual, interim or special audit of the books and records of

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Servicer made by such accountants, including any management letter commenting on Servicer’s internal controls;

(e)with respect to each Purchased Asset and related Underlying Mortgaged Property serviced by Seller or an Affiliate of Seller:  (i) within thirty (30) days after the end of each fiscal quarter of Seller, a quarterly report of the following:  delinquency, loss experience, internal risk rating, occupancy and other property-level information, and (ii) within ten (10) days after receipt or preparation thereof by Seller or Servicer, remittance, servicing, securitization, exception and other reports, operating and financial statements of Underlying Obligors, and modifications or updates to the items contained in the Underwriting Materials;

(f)all financial statements and material reports, notices and other documents that Servicer sends to holders of its Equity Interests or makes to or files with any Governmental Authority, promptly after the delivery or filing thereof;

(g)within eight (8) days after the end of each month,

(i)a report of all proposed sales, repurchases and other transactions with respect to the Purchased Assets and Underlying Assets, which schedule shall be acceptable to Buyer;

(ii)a properly completed Purchased Asset Data Summary, substantially in the form of Exhibit L, with respect to each Purchased Asset and Underlying Asset;

(iii)servicing reports for the prior month, including static pool analyses, liquidity (cash and availability) and identification of any modifications to any Purchased Assets or Underlying Assets;

(iv)servicing data feeds for the prior month detailing Mortgage Loan level or REO Property level attributes;

(v)reports reflecting those Purchased Mortgage Loans that are expected to become REO Properties within 60 days;

(h)a copy of all monthly reports that are required to be delivered to holders of any REMIC Certificate (as defined in the REMIC Declaration Agreement) pursuant to the REMIC Declaration Agreement;

(i)daily/weekly/monthly reports to Buyer as required and mutually agreed upon prior to the Purchased Date of the first Transaction;

(j)within five (5) days after any material amendment, modification or supplement to the Servicing Agreement a certified, fully executed copy of such amendment, modification or supplement;

(k)any other material agreements, correspondence, documents or other information not included in an Underwriting Package which is related to Seller or the Purchased

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Assets and Underlying Assets, as soon as possible after the discovery thereof by Seller or any Affiliate thereof;

(l)as soon as available, and in any event within thirty (30) days of receipt, (x) copies of relevant portions of any final written Agency and Governmental Authority and investor audits, examinations, evaluations, monitoring reviews and reports of its operations (including those prepared on a contract basis) which provide for or relate to (i) material corrective action required, (ii) material sanctions proposed, imposed or required, including without limitation notices of defaults, notices of termination of approved status, notices of imposition of supervisory agreements or interim servicing agreements, and notices of probation, suspension, or non-renewal, or (iii) “report cards,” “grades” or other classifications of the quality of the Seller’s operations and (y) any other material issues raised upon examination of the Seller or their facilities by any Governmental Authority;

(m)promptly upon reasonable request by Buyer, information regarding any Seller’s or Guarantor’s portfolio including information regarding asset allocation, leverage, liquidity, and such other information respecting the condition or operations, (financial or otherwise), of such Seller, Guarantor, Servicer, or Investment Advisor;

(n)(x) the first date on which a margin call or margin calls (however defined or described in the applicable underlying Indebtedness documents) in excess of $1,000,000 or other similar request is/are made upon any Seller, Servicer, Guarantor or any Affiliate thereof (each a “Seller Party”) in the aggregate to post additional cash or assets in connection with any Indebtedness on or after the Effective Date, and (y) thereafter, at any time a margin call or margin calls (however defined or described in the applicable underlying Indebtedness documents) in excess of $1,000,000 or other similar request is/are made upon any Seller Party in the aggregate to post additional cash or assets in connection with any Indebtedness since the most recent to occur of (i) the date on which Seller shall have provided a notice to Buyer under this Section 8.09(n) or (ii) the date of the immediately preceding financial statement of any such Seller Party, in each case Sellers shall promptly (and in no event later than two (2) days after any such margin call or request) give the Buyer notice of any such margin call or request which details (A) the amount of such margin call, (B) the time period for such margin call to be satisfied, (C) how satisfied (in cash or other assets) and (D) which facility the margin call was issued under; and

(o)such other information regarding the financial condition, operations or business of Servicer as Buyer may reasonably request.

Section 8.10Delivery of Notices.  Seller shall immediately notify Buyer of the occurrence of any of the following of which Seller has Knowledge, together with a certificate of a Responsible Officer of Seller setting forth details of such occurrence and any action Seller has taken or proposes to take with respect thereto:

(a)a Representation Breach;

(b)any of the following:  (i) with respect to any Purchased Asset or related Underlying Mortgaged Property:  material change in Market Value, material loss or damage, material licensing or permit issues, violation of Requirements of Law, discharge of or damage

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from Materials of Environmental Concern or any other actual or expected event or change in circumstances that could reasonably be expected to result in a default or material decline in value or cash flow, and (ii) with respect to Seller, Servicer and Guarantor:  violation of Requirements of Law, material decline in the value of Seller’s assets or properties, an Internal Control Event or other event or circumstance that could reasonably be expected to have a Material Adverse Effect;

(c)the existence of any Default, Event of Default under any Repurchase Document, or material default under or related to a Purchased Asset, Asset Document, Indebtedness, Guarantee Obligation or Contractual Obligation of Seller;

(d)the occurrence of any Servicer Termination Event or the resignation or termination of Servicer under any Servicing Agreement with respect to any Purchased Asset or Underlying Asset;

(e)the establishment of a rating by any Rating Agency applicable to Seller, Servicer, Guarantor or any Affiliate thereof and any downgrade in or withdrawal of such rating once established;

(f)any Reportable Event or failure to meet the minimum funding standard of Section 412 of the Code or Sections 302 or 303 of ERISA, includes the failure to make on or before its due date a required installment under Section 430(j) of the Code or Section 303(j) of ERISA, or any request for a waiver under Section 412(c) of the Code for any Plan; a notice of intent to terminate any Plan or any action taken by Seller, Guarantor or an ERISA Affiliate to terminate any Plan or the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Seller, Guarantor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; the complete or partial withdrawal from a Multiemployer Plan by Seller, Guarantor or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by Seller, Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA or the institution of a proceeding by a fiduciary of any Multiemployer Plan against Seller, Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code, would result in the loss of tax-exempt status of the trust of which such Plan is a part;

(g)the commencement of, settlement of or material judgment in any litigation, action, suit, arbitration, investigation or other legal or arbitrable proceedings before any Governmental Authority that affects Seller, Servicer, Guarantor or any Affiliate thereof, Purchased Asset or Underlying Mortgaged Property and (i) questions or challenges the validity or enforceability of any Repurchase Document, Transaction, Purchased Asset or Asset Document, or (ii) individually or in the aggregate, if adversely determined, could reasonably be likely to have a Material Adverse Effect;

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(h)the receipt of any Information Document Request from the Internal Revenue Service with respect to any Purchased REMIC Certificate or other written inquiry from the Internal Revenue Service relating to the REMIC qualifications of any such REMIC Certificate or related Underlying Mortgage Loans.

Section 8.11Escrow Imbalance.  Seller shall, no later than five (5) Business Days after learning of any material overdraw, deficit or imbalance in any escrow or reserve account relating to a Purchased Asset, correct and eliminate the same, including by depositing its own funds into such account.

Section 8.12[Reserved]

Section 8.13Records.

Seller shall collect and maintain or cause to be collected and maintained all Records relating to the related Purchased Assets and Underlying Assets in accordance with industry custom and practice for assets similar to the Purchased Assets and Underlying Assets, including those maintained pursuant to the preceding subparagraph, and all such Records constituting Asset Documents shall be in Custodian’s possession except as otherwise provided under the Custodial Agreement.  Seller will not allow any such papers, records or files that are an original or an only copy and part of the Asset Document to leave Custodian’s possession, except in accordance with the terms of the Custodial Agreement.  Seller shall or shall cause Servicer to maintain all such Records not in the possession of Custodian in good and complete condition in accordance with industry practices for assets similar to the Purchased Assets and Underlying Assets and preserve them against loss.

(a)For so long as Buyer has an interest in or lien on any Purchased Asset or Underlying Asset, Seller will hold or cause to be held all related Records in trust for Buyer (or in the case of any Underlying Mortgage Loan on behalf of the holder of the related Class A Participation).  Seller shall notify, or cause to be notified, every other party holding any such Records of the interests and liens in favor of Buyer granted hereby.

(b)Upon reasonable advance notice from Custodian or Buyer, Seller shall (x) make any and all such Records available to Custodian or Buyer to examine any such Records, either by its own officers or employees, or by agents or contractors, or both, and make copies of all or any portion thereof, and (y) permit Buyer or its authorized agents to discuss the affairs, finances and accounts of Seller with its respective chief operating officer and chief financial officer and to discuss the affairs, finances and accounts of Seller with its respective independent certified public accountants.

Section 8.14No Pledge.  Other than with respect to any pledge to Buyer hereunder, Seller shall not pledge, transfer or convey any security interest in any Account to any Person without the express written consent of Buyer, other than the pledge of the Participation Account to the Buyer under the REMIC Declaration Agreement.

Section 8.15No Sale or Material Adverse Actions.  If an Event of Default shall have occurred hereunder, Seller shall not permit any REO Property that is a Purchased Asset to be sold, transferred or otherwise liquidated without the express written consent of Buyer.  With

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respect to any REO Property that is a Purchased Asset, Seller shall not take any action nor permit Servicer to take any action that could have a material adverse effect on the direct interests of PC REO or the indirect interests of Buyer therein, without first procuring the express written consent of Buyer to such action.

Section 8.16Maximum Aggregate Purchase Price.  If at any time, the Aggregate Purchase Price exceeds the Maximum Aggregate Purchase Price, Seller shall, at Buyer’s request, repurchase Purchased Assets subject to Transactions and remit to Buyer the Repurchase Price with respect to each such Purchased Asset such that the Aggregate Purchase Price following such repurchase shall be less than or equal to the Maximum Aggregate Purchase Price, by 5:00 p.m. (New York City time) on the Business Day following Buyer’s request if made before 11:00 a.m. (New York City time) on a Business Day, or if such request is made after 11:00 a.m. (New York City time) on a Business Day, by no later than 4:00 p.m. (New York City time) on the second Business Day following such request.

Section 8.17Reserved.

Section 8.18Distributions.  If an Event of Default has occurred and is continuing, no Seller shall pay any dividends with respect to any capital stock or other equity interests in such entity, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of such Seller.

Section 8.19Applicable Law.  Seller shall comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority.

Section 8.20Existence.  Seller shall preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises.

Section 8.21Chief Executive Office; Jurisdiction of Organization.  Seller shall not move its respective chief executive office from the addresses referred to in Section 7.17 or change its respective jurisdiction of organization from the jurisdictions referred to in Section 7.17 unless it shall have provided Buyer thirty (30) days’ prior written notice of such change.

Section 8.22BPOs.  Seller shall deliver Buyer BPOs with respect to each Underlying Mortgaged Property every one hundred and eighty (180) days that such Purchased Asset is subject to a Transaction.

Section 8.23Maintenance of Interest Reserve Account.  Seller shall at all times, maintain in each Interest Reserve Account, funds in an amount equal to the applicable Required Amount.

Section 8.24Servicer Change of Control.  Seller shall not permit any Servicer Change of Control without the prior written consent of Buyer thereto, such consent not to be unreasonably withheld or delayed; provided that upon any such Servicer Change of Control Seller shall continue to cause Servicer to perform all of Servicer’s responsibilities, duties and obligations owed to Buyer and Seller in accordance with the terms of this Agreement, the Repurchase Documents and the Servicing Agreement.

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Section 8.25Entitlement Holder; Additional Proceeds.  With respect to any Income or other amounts paid or distributed in respect of REO Entity Interests or REMIC Certificates that are received by PMC (whether in its capacity as Servicer or otherwise) PMIT, Sellers shall hold such Income or other amounts in trust for the Buyer segregated from other funds of Sellers as part of the Purchased Assets pending the repurchase by Seller, until paid or delivered to Buyer as required hereunder.  If any Seller shall become entitled to receive or shall receive any rights, whether in addition to, in substitution of, as a conversion of, or in exchange for such REO Entity Interests or REMIC Certificates, or otherwise in respect thereof, such Seller shall accept the same as Buyer’s agent, hold the same in trust for Buyer and deliver the same forthwith to Buyer in the exact form received, duly endorsed by such Seller to Buyer, if required, together with duly executed Transfer Documents and with, if Buyer so requests, signature guaranteed, to be held by Buyer hereunder as part of the Purchased Assets.

Section 8.26Voting Rights.  Unless a Default or an Event of Default shall have occurred and be continuing, Sellers shall be entitled to exercise all voting and corporate rights with respect to Purchased REO Entity Interests and Purchased REMIC Certificates, provided, however, that no vote shall be cast or other action taken which, in Buyer’s judgment, could impair such Purchased REO Entity Interests or Purchased REMIC Certificates or which would be inconsistent with or result in any violation of any provision of this Agreement.

Section 8.27Actions under the REMIC Declaration Agreements.  Sellers shall not (i) cancel, terminate, amend, modify or supplement or consent to any cancellation, amendment, modification or supplement to any REMIC Declaration Agreement related to any Purchased REMIC Certificate, (ii) waive any provision thereof or take, direct, instruct or request any action under any such REMIC Declaration Agreement in contravention of the direction of Buyer or (iii) where the permission of any Seller is so required, permit any party to such REMIC Declaration Agreement to take any action thereunder, in each case which would reasonably be likely to have a Material Adverse Effect or which would violate the terms of this Agreement.

ARTICLE 9

SINGLE-PURPOSE ENTITY

Section 9.01Covenants Applicable to PC REO.  Sellers shall cause PC REO to comply with the following: PC REO shall (a) own no assets, and shall not engage in any business, other than the assets and transactions specifically contemplated by this Agreement and any other Repurchase Document, (b) not incur any Indebtedness or other obligation, secured or unsecured, direct or indirect, absolute or contingent (including guaranteeing any obligation), other than (i) with respect to the Asset Documents and the Retained Interests and (ii) as otherwise permitted under this Agreement, (c) not make any loans or advances to any Affiliate or third party and shall not acquire obligations or securities of its Affiliates, in each case other than in connection with the acquisition of Assets for purchase under the Repurchase Documents, (d) pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) only from its own assets, (e) comply with the provisions of its Governing Documents, (f) do all things necessary to observe organizational formalities and to preserve its existence, and shall not amend, modify, waive provisions of or otherwise change its Governing Documents, (g) maintain all of its books, records, financial statements and bank accounts separate from those of its Affiliates (except that

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such financial statements may be consolidated to the extent consolidation is required under GAAP or as a matter of Requirements of Law, provided, that (i) appropriate notation shall be made on such financial statements to indicate the separateness of such Seller from such Affiliate and to indicate that such Seller’s assets and credit are not available to satisfy the debts and other obligations of such Affiliate or any other Person and (ii) such assets shall also be listed on such Seller’s own separate balance sheet) and file its own tax returns (except to the extent consolidation is required or permitted under Requirements of Law), (h) be, and at all times shall hold itself out to the public as, a legal entity separate and distinct from any other entity (including any Affiliate), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, and shall not identify itself or any of its Affiliates as a division of the other, (i) maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations and shall remain Solvent, (j) not engage in or suffer any Change of Control, dissolution, winding up, liquidation, consolidation or merger in whole or in part or convey or transfer all or substantially all of its properties and assets to any Person (except as contemplated herein), (k) not commingle its funds or other assets with those of any Affiliate or any other Person and shall maintain its properties and assets in such a manner that it would not be costly or difficult to identify, segregate or ascertain its properties and assets from those of others, (l) maintain its properties, assets and accounts separate from those of any Affiliate or any other Person, (m) not hold itself out to be responsible for the debts or obligations of any other Person, (n) not, without the prior unanimous written consent of all of its Independent Directors, if any, take any Insolvency Action, (o) be administered by a Qualified Trustee, (p)ensure its Governing Documents provide that Buyer be given at least two (2) Business Days prior notice of the removal and/or replacement of its Qualified Trustee, together with the name and contact information of the replacement Qualified Trustee and evidence of the replacement’s satisfaction of the definition of Qualified Trustee, (q) not enter into any transaction with an Affiliate of such Seller except on commercially reasonable terms similar to those available to unaffiliated parties in an arm’s-length transaction, (r) maintain a sufficient number of employees in light of contemplated business operations, (s) allocate fairly and reasonably any overhead for shared office space and for services performed by an employee of an affiliate, (t) not pledge its assets to secure the obligations of any other Person, and (u) not form, acquire or hold any Subsidiary or own any Equity Interest in any other entity.

Section 9.02Reserved.

Section 9.03Additional Covenants Applicable to REO Property.  Sellers shall cause PC REO to comply with the following additional provisions if PC REO is a limited partnership, a corporation, a limited liability company with more than one member or a single-member limited liability (as the case may be):

(a)if PC REO is a limited partnership, each such entity shall have at least one general partner and shall have, as its only general partners, Special Purpose Entities each of which (i) is a corporation or single-member Delaware limited liability company, (ii) has at least one Independent Director, and (iii) holds a direct interest as general partner in the limited partnership of not less than 0.5% (or 0.1% if the limited partnership is a Delaware entity);

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(b)if PC REO is a corporation, each such entity shall have at least one Independent Director, and shall not cause or permit the board of directors of such entity to take any Insolvency Action with respect to itself, or any action requiring the unanimous affirmative vote of 100% of the members of its board of directors unless all of its Independent Directors shall have participated in such vote and shall have voted in favor of such action;

(c)if PC REO is a limited liability company (other than a limited liability company meeting all of the requirements applicable to a single-member limited liability company set forth in Section 9.03(d), it shall have at least one member that is a Special Purpose Entity, that is a corporation or a single-member Delaware limited liability company, that has at least one Independent Director and that directly owns at least 0.5% of the equity of the limited liability company (or 0.1% if the limited liability company is a Delaware entity); and

(d)if PC REO is a single-member limited liability company, it (i) shall be a Delaware limited liability company, (ii) shall have at least one Independent Director or Independent Manager serving as manager of such company, (iii) shall not take any Insolvency Action and shall not cause or permit the members or managers of such entity to take any Insolvency Action, either with respect to itself or, if the company is a Principal, with respect to PC REO, in each case unless all of its Independent Directors or Independent Managers then serving as managers of the company shall have consented in writing to such action, and (iv) shall have either (A) a member which owns no economic interest in the company, has signed the company’s limited liability company agreement and has no obligation to make capital contributions to the company, or (B) two natural persons or one entity that is not a member of the company, that has signed its limited liability company agreement and that, under the terms of such limited liability company agreement becomes a member of the company immediately prior to the resignation or dissolution of the last remaining member of the company.

(e)if PC REO is a trust it (i) shall be a Delaware statutory trust, (ii) shall have a Qualified Trustee serving as its trustee and (iii) shall not take any Insolvency Action and shall not cause or permit the trustee with respect to itself to take any Insolvency Action.

ARTICLE 10

EVENTS OF DEFAULT AND REMEDIES

Section 10.01Events of Default.  Each of the following events shall be an “Event of Default”:

(a)A Seller fails to make a payment of (i) Margin Deficit or Repurchase Price (other than Price Differential) when due, whether by acceleration or otherwise, (ii) Price Differential within one (1) Business Day of when due, or (iii) any other amount within two (2) Business Days of when due (unless otherwise specified in this Section 10.01), in each case under the Repurchase Documents;

(b)A Seller fails to observe or perform in any material respect any other covenant or Repurchase Obligation of such Seller under the Repurchase Documents or the Asset Documents to which such Seller is a party, and (except in the case of a failure to perform

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or observe the Repurchase Obligations of such Seller under Section 8.04, and 18.08(a)) such failure continues unremedied for five (5) Business Days after the earlier of receipt of notice thereof from Buyer or the discovery of such failure by any Seller;

(c)Any Representation Breach (other than a Representation Breach regarding any representation contained in Section 7.10 or Schedules 1-A, 1-B or 1-C attached hereto, the sole remedy for which is a Repurchase Obligation as set forth in Section 3.04) exists and continues unremedied for five (5) Business Days after the earlier of receipt of notice thereof from Buyer or the discovery of such failure by Seller or PMC’s failure to comply with clause (iv) of the Ineligibility Remedies with respect to any Underlying REO Property;

(d)A Seller or Guarantor defaults beyond any applicable grace period in paying any amount or performing any obligation under any Indebtedness, Guarantee Obligation or Contractual Obligation with an outstanding amount of at least $1,000,000 with respect to each Seller or $1,000,000 with respect to Guarantor, and the effect of such default is to permit the acceleration thereof (regardless of whether such default is waived or such acceleration occurs);

(e)A Seller, Guarantor or any Affiliate thereof defaults beyond any applicable grace period in paying any amount or performing any obligation due to Buyer or any Affiliate of Buyer under any other financing, hedging, security or other agreement (other than under this Agreement) between a Seller, Guarantor or any Affiliate thereof and Buyer or any Affiliate of Buyer;

(f)An Insolvency Event occurs with respect to a Seller, Guarantor, Servicer or any Affiliate thereof;

(g)A Change of Control occurs with respect to a Seller, Guarantor, or any Affiliate thereof without Buyer’s consent;

(h)A Servicer Change of Control occurs;

(i)A final judgment or judgments for the payment of money in excess of $1,000,000 with respect to any Seller or $1,000,000 with respect to Guarantor in the aggregate that is not insured against is entered against such Seller or Guarantor by one or more Governmental Authorities and the same is not satisfied, discharged (or provision has not been made for such discharge) or bonded, or a stay of execution thereof has not been procured, within thirty (30) days from the date of entry thereof;

(j)A Governmental Authority takes any action to (i) condemn, seize or appropriate, or assume custody or control of, all or any substantial part of the property of a Seller, (ii) displace the management of a Seller or curtail its authority in the conduct of the business of a Seller, (iii) terminate the activities of a Seller as contemplated by the Repurchase Documents, or (iv) remove, limit or restrict the approval of a Seller of the foregoing as an issuer, buyer or seller of securities, and in each case such action is not discontinued or stayed within thirty (30) days;

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(k)A Seller, Servicer, Guarantor or any Affiliate thereof admits that it is not Solvent or is not able or not willing to perform any of its Repurchase Obligations, Contractual Obligations, Guarantee Obligations, Capital Lease Obligations or Off-Balance Sheet Obligations;

(l)Any provision of the Repurchase Documents, any right or remedy of Buyer or obligation, covenant, agreement or duty of a Seller thereunder, or any Lien, security interest or control granted under or in connection with the Repurchase Documents or Purchased Assets terminates, is declared null and void, ceases to be valid and effective, ceases to be the legal, valid, binding and enforceable obligation of a Seller or any other Person, or the validity, effectiveness, binding nature or enforceability thereof is contested, challenged, denied or repudiated by a Seller or any other Person, in each case directly, indirectly, in whole or in part;

(m)Buyer ceases for any reason to have a valid and perfected first priority security interest in any material portion (as determined by Buyer) of the Purchased Assets or interest in the Underlying Mortgage Loans pledged pursuant to Section 11.01 hereunder (which for the avoidance of doubt, shall not include any of PMC’s rights, title and interest therein have been legally and validly sold, transferred and assigned by PMC to the Class A Participant as part of the issuance of REMIC Certificates in accordance with the related REMIC Declaration Agreement);

(n)A Seller, Servicer, Guarantor or any Affiliate thereof is required to register as an “investment company” (as defined in the Investment Company Act) or the arrangements contemplated by the Repurchase Documents shall require registration of a Seller, Servicer, Guarantor as an “investment company”;

(o)A Seller engages in any conduct or action where Buyer’s prior consent is required by any Repurchase Document and such Seller fails to obtain such consent;

(p)A Seller or Servicer fails to deposit to the applicable Account all Income and other amounts as required by Section 5.01 and other provisions of this Agreement within one (1) Business Day of when due;

(q)A Servicer Termination Event shall have occurred which shall not have been waived by Buyer;

(r)Guarantor’s audited annual financial statements or the notes thereto or other opinions or conclusions stated therein are qualified or limited by reference to the status of Guarantor as a “going concern” or a reference of similar import, other than a qualification or limitation expressly related to Buyer’s rights in the Purchased Assets and Underlying Assets;

(s)Guarantor breaches any of the obligations, terms or conditions set forth in the Guaranty Agreement;

(t)Any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) a determination that a Plan is “at risk” (within the meaning of Section 302 (of ERISA) or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Seller, Guarantor or any ERISA Affiliate,

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(iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of Buyer, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Plan shall terminate for purposes of Title IV of ERISA, (v) Sellers, Guarantor or any ERISA Affiliate shall, or in the reasonable opinion of Buyer is likely to, incur any liability in connection with a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan, (vi) Sellers, Guarantor or any ERISA Affiliate shall file an application for a minimum funding waiver under Section 302 of ERISA or Section 412 of the Code with respect to any Plan, (vii) any obligation for post-retirement medical costs (other than as required by COBRA) exists, or (viii) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (ix) the assets of any Seller or Guarantor are treated as “plan assets” under 29 C.F.R. 2510.3-101 as amended by Section 3(42) of ERISA;

(u)Failure of Sellers to maintain in any Interest Reserve Account at all times funds in an amount equal to the applicable Required Amount and such failure continues unremedied for a period of two (2) Business Days;

(v)Except as described elsewhere in this Section 10.01, there shall have occurred a material default or breach under any of the Repurchase Documents;

(w)Any condition or circumstance exists which causes, constitutes or may cause or constitute a Material Adverse Effect, as determined by Buyer; and

(x)At any time, the Guarantor shall fail to maintain its REIT Status under all applicable laws and regulations or shall fail to satisfy any of the conditions set forth in Section 856 (c)(2), (3) and (4) of the Code and any Treasury Regulations promulgated thereunder.

Section 10.02Remedies of Buyer as Owner of the Purchased Assets.  If an Event of Default exists, at the option of Buyer, exercised by notice to Sellers (which option shall be deemed to be exercised, even if no notice is given, automatically and immediately upon the occurrence of an Event of Default under Section 10.01(f), (g) or (j)), the Repurchase Date for all Purchased Assets shall be deemed automatically and immediately to occur (the date on which such option is exercised or deemed to be exercised, the “Accelerated Repurchase Date”).  If Buyer exercises or is deemed to have exercised the foregoing option:

(a)All Repurchase Obligations shall become immediately due and payable on and as of the Accelerated Repurchase Date.

(b)All amounts in the Accounts and all Income paid after the Accelerated Repurchase Date shall be retained by Buyer and applied in accordance with Article 5.

(c)Buyer may complete any assignments, allonges, endorsements, powers or other documents or instruments executed in blank and otherwise obtain physical possession of all Records and all other instruments, certificates and documents then held by Custodian under the Custodial Agreement.  Buyer may obtain physical possession of all Servicing Files,

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Servicing Records, Servicing Agreement and other files and records of Sellers or Servicer.  Sellers shall deliver to Buyer such assignments and other documents with respect thereto as Buyer shall request.

(d)Buyer may immediately, at any time and from time to time, exercise either of the following remedies with respect to any or all of the Purchased Assets:  (i) sell such Purchased Assets on a servicing-released basis in a recognized market and by means of a public or private sale at such price or prices as Buyer accepts, and apply the net proceeds thereof in accordance with Article 5, or (ii) retain such Purchased Assets and give Sellers credit against the Repurchase Price for such Purchased Assets (or if the amount of such credit exceeds the Repurchase Price for such Purchased Assets, to other Repurchase Obligations due and any other amounts then owing to Buyer by any other Person pursuant to any Repurchase Document, in such order and in such amounts as determined by Buyer), in an amount equal to the Market Value of such Purchased Assets.  Until such time as Buyer exercises either such remedy with respect to a Purchased Asset, Buyer may hold such Purchased Asset for its own account and retain all Income with respect thereto.

(e)The Parties agree that the Purchased Assets are of such a nature that they may decline rapidly in value, and may not have a ready or liquid market.  Accordingly, Buyer shall not be required to sell more than one Purchased Asset on a particular Business Day, to the same purchaser or in the same manner.  Buyer may determine whether, when and in what manner a Purchased Asset shall be sold, it being agreed that both a good faith public and a good faith private sale shall be deemed to be commercially reasonable.  Buyer shall not be required to give notice to Sellers or any other Person prior to exercising any remedy in respect of an Event of Default.  If no prior notice is given, Buyer shall give notice to Sellers of the remedies exercised by Buyer promptly thereafter.

(f)Buyer shall have the right to direct Servicer to remit all collections on the Purchased Assets to Buyer, and if any such payments are received by the Sellers, Guarantor or Servicer, Sellers shall not and shall not permit Guarantor or Servicer to commingle the amounts received with other funds of the Sellers, Guarantor or Servicer and shall promptly pay them over to Buyer.  Buyer shall also have the right to terminate Servicer with or without cause.  In addition, Buyer shall have the right to immediately sell the Purchased Assets and liquidate all Purchased Assets.  Such disposition of Purchased Assets may be, at Buyer’s option, on a servicing-released basis.  Buyer shall not be required to give any warranties as to the Purchased Assets with respect to any such disposition thereof.  Buyer may specifically disclaim or modify any warranties of title or the like relating to the Purchased Assets.  The foregoing procedure for disposition of the Purchased Assets and liquidation of the Purchased Assets shall not be considered to adversely affect the commercial reasonableness of any sale thereof.  Sellers agree that it would not be commercially unreasonable for Buyer to dispose of the Purchased Assets or the Purchased Assets or any portion thereof by using Internet sites that provide for the auction of assets similar to the Purchased Assets, or that have the reasonable capability of doing so, or that match buyers and sellers of assets.  Buyer shall be entitled to place the Purchased Assets in a pool for issuance of mortgage-backed securities at the then-prevailing price for such securities and to sell such securities for such prevailing price in the open market.  Buyer shall also be entitled to sell any or all of such Assets individually for the prevailing price.  Buyer shall also be entitled, to elect, in lieu of selling all or a portion of such Purchased Assets, to give the

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Sellers credit for such Purchased Assets in an amount equal to the Market Value of the Purchased Assets against the aggregate unpaid Repurchase Price and any other amounts owing by the Sellers hereunder.

(g)Upon the occurrence of one or more Events of Default, Buyer may apply any proceeds from the liquidation of the Purchased Assets and/or Underlying Assets to the Repurchase Prices hereunder and all other Repurchase Obligations in the manner Buyer deems appropriate.

(h)Other than with respect to Purchased REO Entity Interests for which the related Obligations are non-recourse to Sellers, Sellers shall be liable to Buyer for (i) any amount by which the Repurchase Obligations due to Buyer exceed the aggregate of the net proceeds and credits referred to in the preceding clause (d), (ii) the amount of all actual out-of-pocket expenses, including reasonable legal fees and expenses, actually incurred by Buyer in connection with or as a consequence of an Event of Default, (iii) any costs and losses payable under Section 12.03, and (iv) any other actual loss, damage, cost or expense resulting from the occurrence of an Event of Default.

(i)Buyer shall be entitled to an injunction, an order of specific performance or other equitable relief to compel Sellers to fulfill any of its obligations as set forth in the Repurchase Documents, including this Article 10, if a Seller fails or refuses to perform its obligations as set forth herein or therein.

(j)Each Seller hereby appoints Buyer as attorney-in-fact of such Seller for purposes of carrying out the Repurchase Documents and Buyer’s rights under this Section 10.02, including executing, endorsing and recording any instruments or documents and taking any other actions that Buyer deems necessary or advisable to accomplish such purposes (the “Repurchase Document Purposes”), which appointment is coupled with an interest and is irrevocable.  Upon the occurrence of a Default or an Event of Default Buyer shall be entitled to use appointment to carry out the Repurchase Document Purposes.

(k)Buyer may, without prior notice to Sellers, exercise any or all of its set-off rights including those set forth in Section 18.17.  This Section 10.02(k) shall be without prejudice and in addition to any right of set-off, combination of accounts, Lien or other rights to which any Party is at any time otherwise entitled.

(l)All rights and remedies of Buyer under the Repurchase Documents, including those set forth in Section 18.17, are cumulative and not exclusive of any other rights or remedies that Buyer may have and may be exercised at any time when an Event of Default exists.  Such rights and remedies may be enforced without prior judicial process or hearing.  Each Seller agrees that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm’s-length.  Each Seller hereby expressly waives any defenses such Seller might have to require Buyer to enforce its rights by judicial process or otherwise arising from the use of nonjudicial process, disposition of any or all of the Purchased Assets, or any other election of remedies.

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ARTICLE 11

SECURITY INTEREST; REO DEED

Section 11.01Grant.

(a)  Buyer and Sellers intend that all Transactions shall be sales to Buyer of the Purchased Assets and not loans from Buyer to Sellers secured by the Purchased Assets.  However, to preserve and protect Buyer’s rights with respect to the Purchased Assets and under the Repurchase Documents in the event that any Governmental Authority recharacterizes the Transactions as other than sales, and as security for Sellers’ performance of the Repurchase Obligations, each Seller hereby grants, assigns and pledges to Buyer a fully perfected first priority security interest in all of its rights, title and interest in, to and under the Purchased Assets (which for this purpose shall be deemed to include the items described in the proviso in the definition thereof) and the transfers of the Purchased Assets to Buyer shall be deemed to constitute and confirm such grant, to secure the payment and performance of the Repurchase Obligations (including the obligation of Sellers to pay the Repurchase Price, or if the Transactions are recharacterized as loans, to repay such loans for the Repurchase Price).

(b)Each Seller acknowledges and agrees that its rights with respect to the Purchased Assets (including without limitation, any security interest Sellers may have in the Purchased Assets and any other collateral granted by Sellers to Buyer pursuant to any other agreement) are and shall continue to be at all times junior and subordinate to the rights of Buyer hereunder.  Each Seller further acknowledges that it has no rights to the Servicing Rights related to the Purchased Assets.  Without limiting the generality of the foregoing and for the avoidance of doubt, in the event that a Seller is deemed to retain any residual Servicing Rights related to the Purchased Assets, such Seller grants, assigns and pledges to Buyer a first priority security interest in all of its rights, title and interest in and to the Servicing Rights as indicated hereinabove.  In addition, (x) Sellers shall and shall cause, Servicer to grant, assign and pledge to Buyer a first priority security interest in and to all Servicing Records and rights to receive Servicing Records or other documents which constitute a part of the Asset Document or Servicing File with respect to each of the Purchased Assets, and all Income related to the Purchased Assets received by Sellers or Servicer and all rights to receive such Income, and all products, proceeds and distributions relating to or constituting any or all of the foregoing and (y) PMC grants, assigns and pledges to Buyer a first priority security interest in all of its rights, title and interest in and to the Underlying Mortgage Loans supporting each Purchased REMIC Certificate, together with the related Servicing Rights, the related Records, amounts and property from time to time on deposit in the Participation Account and the Participation Account itself and all Income related to such Underlying Mortgage Loans received by PMC or Servicer and all rights to receive such Income, and all products, proceeds and distributions relating to or constituting any or all of the foregoing, in each case except to the extent any of PMC’s rights, title and interest therein have been legally and validly sold, transferred and assigned by PMC to the Class A Participant as part of the issuance of REMIC Certificates in accordance with the related REMIC Declaration Agreement (collectively, and together with the pledge of Servicing Rights in the immediately preceding sentence, the “Related Credit Enhancement”).  The Related Credit Enhancement is hereby pledged as further security for Sellers’ Repurchase Obligations to Buyer hereunder.

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Section 11.02Effect of Grant.  If any circumstance described in Section 11.01 occurs, (a) this Agreement shall also be deemed to be a security agreement as defined in the UCC, (b) Buyer shall have all of the rights and remedies provided to a secured party by Requirements of Law (including the rights and remedies of a secured party under the UCC and the right to set off any mutual debt and claim) and under any other agreement between Buyer and Sellers, (c) without limiting the generality of the foregoing, Buyer shall be entitled to set off the proceeds of the liquidation of the Purchased Assets against all of the Repurchase Obligations, without prejudice to Buyer’s right to recover any deficiency, (d) the possession by Buyer or any of its agents, including Custodian, of the Asset Documents, the Purchased Assets and such other items of property as constitute instruments, money, negotiable documents, securities or chattel paper shall be deemed to be possession by the secured party for purposes of perfecting such security interest under the UCC and Requirements of Law, and (e) notifications to Persons (other than Buyer) holding such property, and acknowledgments, receipts or confirmations from Persons (other than Buyer) holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, securities intermediaries, bailees or agents (as applicable) of the secured party for the purpose of perfecting such security interest under the UCC and Requirements of Law.  The security interest of Buyer granted herein shall be, and each Seller hereby represents and warrants to Buyer that it is, a first priority perfected security interest.  For the avoidance of doubt, (i) each Purchased Asset secures the Repurchase Obligations of Sellers with respect to all other Transactions and all other Purchased Assets, including any Purchased Assets that are junior in priority to the Purchased Asset in question, and (B) if an Event of Default exists, no Purchased Asset relating to a Purchased Asset will be released from Buyer’s Lien or transferred to Sellers until the Repurchase Obligations are indefeasibly paid in full.  Notwithstanding the foregoing, the Repurchase Obligations (other than with respect to the Purchased REO Entity Interests) shall be full recourse to Sellers.

Section 11.03Sellers to Remain Liable.  Buyer and Sellers agree that the grant of a security interest under this Article 11 shall not constitute or result in the creation or assumption by Buyer of any Retained Interest or other obligation of Sellers or any other Person in connection with any Purchased Asset, whether or not Buyer exercises any right with respect thereto.  Sellers shall remain liable under the Purchased Assets and Asset Documents to perform all of Sellers’ duties and obligations thereunder to the same extent as if the Repurchase Documents had not been executed.

Section 11.04Provisions of REO Deed.

(a)If any Seller shall acquire, or contemplate the acquisition of, any REO Property or desires to extinguish any Mortgage Note in connection with the foreclosure of the related Eligible Mortgage Loan, a transfer of the real property underlying the Mortgage Note in lieu of foreclosure or other transfer of such real property, such Seller shall cause such real property to be owned in fee simple by REO Deed in the name of PC REO.  Each such REO Deed shall be duly executed, be in recordable form in accordance with applicable law and, shall have been recorded in or delivered for recordation to the recordation office of the jurisdiction in which the REO Property is located.

(b)PMC shall cause PC REO, with respect to any REO Property owned by it or transferred to it, to deliver a correct and complete REO Property File to Buyer or its designee

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as a condition precedent to any Transaction involving such REO Property.  A certified copy of the file-stamped REO Deed shall be delivered to Buyer promptly upon receipt thereof by any Seller.  Each copy of an REO Deed delivered to the Buyer or its designee as part of an REO Property File (including intervening deeds) shall be a true, correct and complete copy of the original REO Deed, and if recorded in the name of PC REO (as indicated on the related REO Property Schedule), the original REO Deed shall be in recordable form, acceptable in all respects for recording under the laws of the jurisdiction in which the REO Property is located and shall have been delivered for recordation to the appropriate recording office.  Each title commitment, ‘date-down’ or trustee’s sale guarantee delivered to the Buyer or its designee as part of an REO Property File shall be a true, correct and complete copy of the original document.

(c)All costs and expenses in connection with the preparation, execution, delivery and filing or recording of any REO Deed, and any filing, transfer or recording tax or other charges with respect thereto shall be borne by Sellers.

(d)Upon the acquisition of title to an REO Property by PC REO, PC REO will be deemed to make the representations and warranties hereto with respect to such REO Property as set forth in Section 7.18 and Schedule 1-B attached hereto.  Sellers shall, at their sole cost and expense, take all such other steps as may be necessary in connection with the preservation of Buyer’s rights in and interests to the REO Entity Interests.

(e)If PMC shall become entitled to receive or shall receive any certificate evidencing any option rights or any other equity interest in PC REO, whether in addition to, in substitution for, as a conversion of, or in exchange for the REO Entity Interests, or otherwise in respect thereof, PMC shall assign and deliver the same forthwith to Buyer in the exact form received, duly indorsed by PMC, together with an undated transfer power, if required, covering such certificate duly executed in blank.  Any sums paid upon or in respect of REO Entity Interests upon the liquidation or dissolution of the REO Entity shall be paid over to Buyer and applied to the payment of the outstanding Repurchase Price.

(f)Unless an Event of Default shall have occurred and be continuing, PMC shall be permitted to exercise all voting and member rights inuring to each of them with respect to the REO Entity Interests in accordance with the terms of the PC REO Trust Agreement; provided, however, that no vote shall be cast or member right exercised or other action taken which would impair such REO Entity Interests or Buyer’s rights to such REO Entity Interests or which would be inconsistent with or result in a violation of any provision of this Agreement.  Without the prior consent of Buyer, PMC shall not (i) vote to enable, or take any other action to permit PC REO to issue any equity interests of any nature or to issue any other equity interests convertible into or granting the right to purchase or exchange for any equity interests of PC REO, or (ii) sell, assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, REO Entity Interests or (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, REO Entity Interests, or any interest therein, except for the Lien provided for by this Agreement, or (iv) enter into any agreement (other than this Agreement) or undertaking restricting the right or ability of PMC to sell, pledge, assign or transfer any REO Entity Interests.

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Section 11.05Waiver of Certain Laws.  Each Seller agrees, to the extent permitted by Requirements of Law, that neither it nor anyone claiming through or under it will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force in any locality where any Purchased Assets may be situated in order to prevent, hinder or delay the enforcement or foreclosure of this Agreement, or the absolute sale of any of the Purchased Assets, or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and each Seller, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may be lawful so to do, the benefit of all such laws and any and all right to have any of the properties or assets constituting the Purchased Assets marshaled upon any such sale, and agrees that Buyer or any court having jurisdiction to foreclose the security interests granted in this Agreement may sell the Purchased Assets as an entirety or in such parcels as Buyer or such court may determine.

ARTICLE 12

INCREASED COSTS; CAPITAL ADEQUACY

Section 12.01Market Disruption.  If prior to any Pricing Period, Buyer determines that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Pricing Period, Buyer shall give prompt notice thereof to Sellers, whereupon the Pricing Rate for such Pricing Period, and for all subsequent Pricing Periods until such notice has been withdrawn by Buyer, shall be the Alternative Rate.

Section 12.02Illegality.  If the adoption of or any change in any Requirements of Law or in the interpretation or application thereof after the date hereof shall make it unlawful for Buyer to effect or continue Transactions as contemplated by the Repurchase Documents, (a) any commitment of Buyer hereunder to enter into new Transactions shall be terminated, (b) the Pricing Rate shall be converted automatically to the Alternative Rate on the last day of the then current Pricing Period or within such earlier period as may be required by Requirements of Law, and (c) if required by such adoption or change, the Maturity Date shall be deemed to have occurred.

Section 12.03Breakfunding.  Sellers shall indemnify Buyer and hold Buyer harmless from any loss, cost or expense (including reasonable legal fees and expenses) which Buyer may sustain or incur arising from (a) the failure by Sellers to terminate any Transaction after a Seller has given a notice of termination pursuant to Section 3.04, (b) any failure by a Seller to sell Eligible Assets to Buyer after a Seller has notified Buyer of a proposed Transaction and Buyer has agreed to purchase such Eligible Assets in accordance with this Agreement, or (c) any conversion of the Pricing Rate to the Alternative Rate because the LIBO Rate is not available for any reason on a day that is not the last day of the then current Pricing Period.

Section 12.04Increased Costs.  If the adoption of or any change in any Requirements of Law or in the interpretation or application thereof by any Governmental Authority or compliance by Buyer with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority having jurisdiction over Buyer made after the date of this Agreement (a) shall subject Buyer to any tax of any kind whatsoever with respect to the Repurchase Documents, any Purchased Asset or any Transaction, or change the basis of taxation of payments to Buyer in respect thereof (except for income taxes and any changes in the rate of

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tax on Buyer’s overall net income), (b) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of Buyer, or (c) shall impose on Buyer any other condition; and the result of any of the preceding clauses (a), (b) and (c) is to increase the cost to Buyer, by an amount that Buyer deems to be material, of entering into, continuing or maintaining Transactions, or to reduce any amount receivable under the Repurchase Documents in respect thereof, then, in any such case, Sellers shall pay to Buyer such additional amount or amounts as reasonably necessary to fully compensate Buyer for such increased cost or reduced amount receivable.  Upon written notice to Sellers of any change or event pursuant to which additional amounts are due or to become due under this Section 12.04, Sellers shall (a) pay all additional amounts due under this Section 12.04 which are incurred or accrue beginning thirty (30) days following such written notice or (b) repurchase all of the Purchased Assets in accordance with Section 3.05 prior to thirty (30) days following such written notice.

Section 12.05Capital Adequacy.  If Buyer determines that the adoption of or any change in any Requirements of Law regarding capital adequacy or in the interpretation or application thereof or compliance by Buyer or any corporation Controlling Buyer with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made after the date of this Agreement has or shall have the effect of reducing the rate of return on Buyer’s or such corporation’s capital as a consequence of its obligations hereunder to a level below that which Buyer or such corporation could have achieved but for such adoption, change or compliance (taking into consideration Buyer’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by Buyer to be material, then, in any such case, Sellers shall pay to Buyer such additional amount or amounts as reasonably necessary to fully compensate Buyer for such reduction.  Upon written notice to Sellers of any change or event pursuant to which additional amounts are due or to become due under this Section 12.05, Sellers shall (a) pay all additional amounts due under this Section 12.05 which are incurred or accrue beginning thirty (30) days following such written notice or (b) repurchase all of the Purchased Assets in accordance with Section 3.05 prior to thirty (30) days following such written notice.

Section 12.06Withholding Taxes.  (a)  All payments made by Sellers to Buyer or any other Indemnified Person under the Repurchase Documents and by Underlying Obligors with respect to the Purchased Assets shall be made free and clear of and without deduction or withholding for or on account of any present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities (including penalties, interest and additions to tax) with respect thereto imposed by any Governmental Authority therewith or thereon, excluding income taxes, branch profits taxes, franchise taxes or any other tax imposed on net income by the United States, a state or a foreign jurisdiction under the laws of which Buyer or such other Indemnified Person is organized or of its applicable lending office, or a state or foreign jurisdiction with respect to which Buyer or such other Indemnified Person has a present or former connection, or any political subdivision thereof (collectively, “Taxes”), all of which shall be paid by Sellers for their own account not later than the date when due.  If any taxes are required to be deducted or withheld from any amounts payable to Buyer and/or any other Indemnified Person, then Sellers shall (a) make such deduction or withholding, (b) pay the amount so deducted or withheld to the appropriate Governmental Authority not later than the date when due; and (c) pay to Buyer or

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other Indemnified Person such additional amounts (the “Additional Amount”) as may be necessary so that every net payment made under this Agreement after deduction or withholding for or on account of any Taxes (including any Taxes on such increase and any penalties) is not less than the amount that would have been paid absent such deduction or withholding.  The foregoing obligation to pay Additional Amounts, however, will not apply with respect to (i) net income or franchise taxes imposed on Buyer and/or any other Indemnified Person, with respect to payments required to be made by Sellers under the Repurchase Documents, by a taxing jurisdiction in which Buyer and/or any other Indemnified Person is organized, conducts business or is paying taxes (as the case may be).  Promptly after Sellers pay any taxes referred to in this Section 12.06, Sellers will send Buyer appropriate evidence of such payment, or (ii) any U.S. federal withholding tax imposed on “withholdable payments” made after December 31, 2012, if the Buyer is a “foreign financial institution” that fails to comply with the requirements of section 1471(b) of the Code or a “non-financial foreign entity” that fails to comply with section 1472(b) of the Code, each as in effect on the date hereof, or Treasury regulations or administrative guidance promulgated thereunder.

(b)In addition, Sellers agree to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (including, without limitation, mortgage recording taxes, transfer taxes and similar fees) imposed by the United States or any taxing authority thereof or therein that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (“Other Taxes”).

(c)Sellers agree to indemnify Buyer for the full amount of Taxes (including additional amounts with respect thereto) and Other Taxes, and the full amount of Taxes of any kind imposed by any jurisdiction on amounts payable under this Section 12.06(c), and any liability (including penalties, interest and expenses arising thereon or with respect thereto) arising therefrom or with respect thereto, provided that Buyer shall have provided Sellers with evidence, reasonably satisfactory to Sellers, of payment of Taxes or Other Taxes, as the case may be.

(d)If a Person acquires any of the rights and obligations of Buyer as an Eligible Assignee under this Agreement, and such Person is not organized under the laws of the United States, any state thereof or the District of Columbia (a “Non-U.S. Person”), such Non-U.S. Person shall deliver to Sellers on or before the date on which such Person becomes a party to this Agreement, two duly completed and executed copies of, as applicable, IRS Form W-8BEN or IRS Form W-8ECI or any successor forms thereto designated as such by the IRS.  If the Non-U.S. Person is eligible for and wishes to claim exemption from or reduction in U.S. federal withholding tax through benefit of a treaty, such Person shall deliver a Form W-8ECI.  If the Non-U.S. Person is eligible for and wishes to claim exemption from U.S. federal withholding tax under Section 871(h) or Section 881(c) of the Code with respect to payments of “portfolio interest,” such Person shall deliver both the Form W-8BEN and a statement certifying that such Person is not a bank, a “10 percent shareholder” or a “controlled foreign corporation” within the meaning of Section 881(c)(3) of the Code.  If any previously delivered form or statement becomes inaccurate with respect to the Non-U.S. Person that delivered it, the Non-U.S. Person shall promptly notify Sellers of this fact.

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(e)Without prejudice to the survival or any other agreement of Sellers hereunder, the agreements and obligations of Sellers contained in this Section 12.06(e) shall survive the termination of this Agreement.  Nothing contained in this Section 12.06(e) shall require Buyer to make available any of their tax returns or other information that it deems to be confidential or proprietary.

(f)Each party to this Agreement acknowledges that it is its intent solely for purposes of U.S. federal, state and local income and franchise taxes to treat each Transaction as indebtedness of the applicable Seller that is secured by the Purchased Assets and that the Purchased Assets are owned by the applicable Seller in the absence of an Event of Default by a Seller.  All parties to this Agreement agree to such treatment and agree to take no action inconsistent with this treatment, unless required by law.

Section 12.07Payment and Survival of Obligations.  Buyer may at any time send Sellers a notice showing the calculation of any amounts payable pursuant to this Article 12, and Sellers shall pay such amounts to Buyer within ten (10) Business Days after Sellers receive such notices.  The obligations of Sellers under this Article 12 shall apply to Eligible Assignees and Participants and survive the termination of the Repurchase Documents.

ARTICLE 13

INDEMNITY AND EXPENSES

Section 13.01Indemnity.

(a)Sellers shall release, defend, indemnify and hold harmless Buyer, Affiliates of Buyer and its and their respective officers, directors, shareholders, partners, members, owners, employees, agents, attorneys, Affiliates and advisors (each an “Indemnified Person” and collectively the “Indemnified Persons”), on a net after-tax basis, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, taxes (other than net income taxes and franchise taxes of Buyer), fees, costs, expenses (including reasonable legal fees and expenses), penalties or fines of any kind that may be imposed on, incurred by or asserted against such Indemnified Person (collectively, the “Indemnified Amounts”) in any way relating to, arising out of or resulting from or in connection with (i) the Repurchase Documents, the Asset Documents, the Purchased Assets, the Underlying Assets, the Transactions, any Underlying Mortgaged Property or related property, or any action taken or omitted to be taken by any Indemnified Person in connection with or under any of the foregoing, or any transaction contemplated hereby or thereby, or any amendment, supplement or modification of, or any waiver or consent under or in respect of any Repurchase Document, any Transaction, any Purchased Asset, any Asset Document (ii) any claims, actions or damages by an Underlying Obligor or lessee with respect to a Purchased Asset, (iii) any violation or alleged violation of, non-compliance with or liability under any Requirements of Law, (iv) ownership of, Liens on, security interests in or the exercise of rights or remedies under any of the items referred to in the preceding clause (i), (v) any accident, injury to or death of any person or loss of or damage to property occurring in, on or about any Underlying Mortgaged Property or on the adjoining sidewalks, curbs, parking areas, streets or ways, (vi) any use, nonuse or condition in, on or about, or possession, alteration, repair, operation, maintenance or management of, any Underlying Mortgaged Property or on the adjoining sidewalks, curbs,

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parking areas, streets or ways, (vii) any failure by Sellers to perform or comply with any Repurchase Document, Asset Document or Purchased Asset, (viii) performance of any labor or services or the furnishing of any materials or other property in respect of any Underlying Mortgaged Property or Purchased Asset, (ix) any claim by brokers, finders or similar Persons claiming to be entitled to a commission in connection with any lease or other transaction involving any Repurchase Document, Purchased Asset, Underlying Asset or Underlying Mortgaged Property, (x) any taxes attributable to the execution, delivery, filing or recording of any Repurchase Document, Asset Document or any memorandum of any of the foregoing, (xi) any Lien or claim arising on or against any Purchased Asset, Underlying Asset or related Underlying Mortgaged Property under any Requirements of Law or any liability asserted against Buyer or any Indemnified Person with respect thereto, (xii) (1) a past, present or future violation or alleged violation of any Environmental Laws in connection with any property or Underlying Mortgaged Property by any Person or other source, whether related or unrelated to Sellers or any Underlying Obligor, (2) any presence of any Materials of Environmental Concern in, on, within, above, under, near, affecting or emanating from any Underlying Mortgaged Property, (3) the failure to timely perform any Remedial Work, (4) any past, present or future activity by any Person or other source, whether related or unrelated to Sellers or any Underlying Obligor in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from any Underlying Mortgaged Property of any Materials of Environmental Concern at any time located in, under, on, above or affecting any Underlying Mortgaged Property, (5) any past, present or future actual Release (whether intentional or unintentional, direct or indirect, foreseeable or unforeseeable) to, from, on, within, in, under, near or affecting any Underlying Mortgaged Property by any Person or other source, whether related or unrelated to Sellers or any Underlying Obligor, (6) the imposition, recording or filing or the threatened imposition, recording or filing of any Lien on any Underlying Mortgaged Property with regard to, or as a result of, any Materials of Environmental Concern or pursuant to any Environmental Law, or (7) any misrepresentation or failure to perform any obligations pursuant to any Repurchase Document or Asset Document relating to environmental matters in any way, or (xiii) a Seller’s conduct, activities, actions and/or inactions in connection with, relating to or arising out of any of the foregoing clauses of this Section 13.01, that, in each case, results from anything whatsoever other than any Indemnified Person’s gross negligence or intentional misconduct, as determined by a court of competent jurisdiction pursuant to a final, non-appealable judgment.  In any suit, proceeding or action brought by an Indemnified Person in connection with any Purchased Asset for any sum owing thereunder, or to enforce any provisions of any Purchased Asset, Sellers shall defend, indemnify and hold such Indemnified Person harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the account debtor or Underlying Obligor arising out of a breach by a Seller of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or Underlying Obligor from Sellers.  In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 13.01 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by a Seller, an Indemnified Person or any other Person or any Indemnified Person is otherwise a party thereto and whether or not any Transaction is entered into.

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(b)If for any reason the indemnification provided in this Section 13.01 is unavailable to the Indemnified Person or is insufficient to hold an Indemnified Person harmless, even though such Indemnified Person is entitled to indemnification under the express terms thereof, then Sellers shall contribute to the amount paid or payable by such Indemnified Person as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative benefits received by such Indemnified Person on the one hand and Sellers on the other hand, the relative fault of such Indemnified Person, and any other relevant equitable considerations.

(c)An Indemnified Person may at any time send Sellers a notice showing the calculation of Indemnified Amounts, and Sellers shall pay such Indemnified Amounts to such Indemnified Person within ten (10) Business Days after Sellers receive such notices.  The obligations of Sellers under this Section 13.01 shall apply to Eligible Assignees and Participants and survive the termination of this Agreement.

Section 13.02Expenses.  Sellers shall promptly on demand pay to or as directed by Buyer all third-party out-of-pocket costs and expenses (including legal, accounting and advisory fees and expenses) incurred by Buyer in connection with (a) the development, evaluation, preparation, negotiation, execution, consummation, delivery and administration of, and any amendment, supplement or modification to, or extension, renewal or waiver of, the Repurchase Documents and the Transactions, (b) any Asset or Purchased Asset, including due diligence, inspection, testing, review, recording, registration, travel custody, care, insurance or preservation, (c) the enforcement of the Repurchase Documents or the payment or performance by Sellers of any Repurchase Obligations, and (d) any actual or attempted sale, exchange, enforcement, collection, compromise or settlement relating to the Purchased Assets or Underlying Assets.

ARTICLE 14

INTENT

Section 14.01Intent.

(a)The Parties intend (i) for each Transaction to qualify for the safe harbor treatment provided by the Bankruptcy Code and for Buyer to be entitled to all of the rights, benefits and protections afforded to Persons under the Bankruptcy Code with respect to a “repurchase agreement” as defined in Section 101(47) of the Bankruptcy Code (except with respect to Purchased REO Entity Interests), a “master netting agreement” as defined in Section 101(38A) of the Bankruptcy Code and a “securities contract” as defined in Section 741(7) of the Bankruptcy Code and that payments under this Agreement are deemed “margin payments” or “settlement payments,” as defined in Section 101 of the Bankruptcy Code, (ii) for the grant of a security interest set forth in Article 11 to also be a “securities contract” as defined in Section 741(7)(A)(xi) of the Bankruptcy Code and a “repurchase agreement” as defined in Section 101(47)(A)(v) of the Bankruptcy Code (except with respect to Purchased REO Entity Interests), and a “master netting agreement” as defined in Section 101(38A) of the Bankruptcy Code and (iii) that Buyer (for so long as Buyer is a “financial institution,” “financial participant” or other entity listed in Section 555, 559, 362(b)(6), 362(b)(7) or 362(b)(27) of the Bankruptcy Code) shall be entitled to the “safe harbor” benefits and protections afforded under

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the Bankruptcy Code with respect to a “repurchase agreement” (except with respect to Purchased REO Entity Interests)  a “securities contract,” and a “master netting agreement” including (x) the rights, set forth in Article 10 and in Section 555, 559 (except with respect to Purchased REO Entity Interests) and 561 of the Bankruptcy Code, to liquidate the Purchased Assets and terminate this Agreement, and/or Transactions hereunder (y) the right to offset or net out as set forth in Article 10 and Section 18.17 and in Sections 362(b)(6), 362(b)(7) or 362(b)(27) of the Bankruptcy Code and (z) the non-avoidability of transfers made in connection with this Agreement as set forth in Section 546(e), 546(f) and 546(j) of the Bankruptcy Code.

(b)The Parties acknowledge and agree that Buyer’s right to liquidate Purchased Assets delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Articles 10 and 11 and as otherwise provided in the Repurchase Documents is a contractual right to liquidate such Transactions as described in Section 555, 559 and 561 of the Bankruptcy Code.

(c)The Parties acknowledge and agree that if a Party is an “insured depository institution,” as such term is defined in the Federal Deposit Insurance Act, as amended (“FDIA”), then each Transaction hereunder is a “qualified financial contract,” as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of assets subject to such Transaction would render such definition inapplicable).

(d)The Parties acknowledge and agree that this Agreement constitutes a “netting contract” as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and each payment entitlement and payment obligation under any Transaction shall constitute a “covered contractual payment entitlement” or “covered contractual payment obligation,” respectively, as defined in and subject to FDICIA (except insofar as one or both of the parties is not a “financial institution” as that term is defined in FDICIA).

ARTICLE 15

DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS

The Parties acknowledge that they have been advised and understand that:

(a)in the case of Transactions in which one of the Parties is a broker or dealer registered with the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, the Securities Investor Protection Corporation has taken the position that the provisions of the Securities Investor Protection Act of 1970 do not protect the other Party with respect to any Transaction;

(b)in the case of Transactions in which one of the Parties is a government securities broker or a government securities dealer registered with the Securities and Exchange Commission under Section 14C of the Securities Exchange Act of 1934, the Securities Investor Protection Act of 1970 will not provide protection to the other Party with respect to any Transaction;

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(c)in the case of Transactions in which one of the Parties is a financial institution, funds held by the financial institution pursuant to a Transaction are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, as applicable; and

(d)in the case of Transactions in which one of the Parties is an “insured depository institution” as that term is defined in Section 1813(c)(2) of Title 12 of the United States Code, funds held by the financial institution pursuant to a Transaction are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or the Bank Insurance Fund, as applicable.

ARTICLE 16

NO RELIANCE

Section 16.01No Reliance. Each Party acknowledges, represents and warrants to the other Party that, in connection with the negotiation of, entering into, and performance under, the Repurchase Documents and each Transaction:

(a)It is not relying (for purposes of making any investment decision or otherwise) on any advice, counsel or representations (whether written or oral) of the other Party, other than the representations expressly set forth in the Repurchase Documents;

(b)It has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary, and it has made its own investment, hedging and trading decisions (including decisions regarding the suitability of any Transaction) based on its own judgment and on any advice from such advisors as it has deemed necessary and not on any view expressed by the other Party;

(c)It is a sophisticated and informed Person that has a full understanding of all the terms, conditions and risks (economic and otherwise) of the Repurchase Documents and each Transaction and is capable of assuming and willing to assume (financially and otherwise) those risks;

(d)It is entering into the Repurchase Documents and each Transaction for the purposes of managing its borrowings or investments or hedging its Underlying Assets or liabilities and not for purposes of speculation;

(e)It is not acting as a fiduciary or financial, investment or commodity trading advisor for the other Party and has not given the other Party (directly or indirectly through any other Person) any assurance, guaranty or representation whatsoever as to the merits (either legal, regulatory, tax, business, investment, financial accounting or otherwise) of the Repurchase Documents or any Transaction; and

(f)No partnership or joint venture exists or will exist as a result of the Transactions or entering into and performing the Repurchase Documents.

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ARTICLE 17

SERVICING

This Article 17 shall apply to all Purchased Assets and Underlying Assets to the extent that the servicing thereof is within the direct or indirect control of Sellers or an Affiliate of Sellers.

Section 17.01Servicing of Purchased Assets and Underlying Assets.

(a)During the period the Purchased Assets and Underlying Assets are subject to a Transaction hereunder, Sellers agree that (i) Buyer is the owner of the related Servicing Rights and all Servicing Files and Servicing Records with respect to the Purchased Assets and pledgee of the related Servicing Rights and all Servicing Files and Servicing Record with respect to the Underlying Mortgage Loans (to the extent set forth in Section 11.01), and (ii) that the Servicer shall service the Purchased Assets and Underlying Assets for exclusive benefit of the Buyer (and with respect to the Underlying Mortgage Loans, the Class A Participant) as owner and pledgee, respectively.

(b)Sellers, on Buyer’s (or in the case of Underlying Mortgage Loans, the holder of the Class A Participation’s) behalf, shall contract with Servicer to service the Purchased Assets and Underlying Assets consistent with the degree of skill and care that the Sellers customarily requires with respect to similar Mortgage Loans and REO Properties owned or managed by it and in accordance with Accepted Servicing Practices and the Servicing Standard.  Servicer shall also (i) comply with all applicable Federal, State and local laws and regulations, (ii) maintain all state and federal licenses necessary for it to perform its servicing responsibilities hereunder and (iii) not impair the rights of Buyer (or the holder of the Class A Participation) in any Purchased Assets or Underlying Assets or any payment thereunder.  Buyer (or in the case of Underlying Mortgage Loans, the holder of the Class A Participation) may terminate the servicing of any Purchased Asset with the Servicer in accordance with Section 17.01(f) hereof.

(c)Sellers shall cause Servicer to hold or cause to be held all escrow funds collected by the Servicer with respect to any Purchased Assets in trust accounts and shall apply the same for the purposes for which such funds were collected.

(d)Sellers shall cause Servicer to remit or deposit all Income received by the Servicer on the Purchased Assets and Underlying Assets in strict accordance with Section 5.01 hereof.

(e)As a condition precedent to Buyer funding any Transactions hereunder and following the termination of Servicer pursuant to the terms hereof and upon the appointment of any successor Servicer, Sellers shall provide to Buyer a Servicer Instruction Notice addressed to and executed by Servicer, advising Servicer of such matters as Buyer may reasonably request, including, without limitation, (i) recognition by Servicer of Buyer’s ownership interest in such Purchased Assets and security interest in the Underlying Mortgage Loans as provided hereunder, (ii) recognition by Servicer that it owes its duties to the Buyer as owner or pledgee of such Assets (subject to each Seller’s right to direct and control servicing of

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such Assets prior to an Event of Default or with respect to the Purchased Mortgage Loans and REO Properties, Servicer termination pursuant to Section 17.01(h) below), (iii) agreement by Servicer to comply with the Servicing Standards, and (iv) acknowledgment by Servicer that upon receipt of notice of an Event of Default from Buyer, it will follow the instructions of Buyer with respect to the Purchased Assets and Underlying Assets and any related Income with respect thereto.

(f)Upon the occurrence of an Event of Default hereunder or Servicer Termination Event, Buyer shall have the right to immediately terminate Servicer’s right to service the Purchased Assets and Underlying Assets without payment of any penalty or termination fee.  Sellers and Servicer shall cooperate in transferring the servicing of the Purchased Assets and Underlying Assets to Buyer or its designee, or in the case of a Servicer Termination Event for which Buyer did not declare an Event of Default, a successor servicer selected by (i) the Class A Participant with respect to the Underlying Mortgage Loans, and (ii) Sellers with respect to the Purchased Mortgage Loans, in each case as approved by Buyer, all at no cost or expense to Buyer, it being agreed that Sellers will pay any fees and expenses required to terminate the Servicing Agreement and transfer servicing to Buyer, its designee or a successor Servicer, as the case may be.  Seller shall cause any such successor Servicer to execute a Servicer Instruction Notice and such successor Servicer shall be bound by the terms of such notice and the terms of this Agreement.

(g)If Sellers should discover that, for any reason whatsoever, Sellers, or Servicer or any entity responsible for managing or servicing any such Purchased Asset has failed to perform fully the any Seller’s obligations under the Program Agreements or any of the obligations of such entities with respect to the Purchased Assets and Underlying Assets, the Sellers shall promptly notify Buyer.

(h)The Servicer shall service the Purchased Mortgage Loans and Underlying REO Properties for a term of thirty (30) days, beginning on each Remittance Date and ending thirty (30) days therafter unless renewed in writing by Buyer (the “Servicing Term”).  If the Servicing Term is not renewed by Buyer as provided in the foregoing sentence, Sellers and Servicer shall cooperate in effectively transferring the servicing of the Purchased Mortgage Loans and Underlying REO Properties and shall deliver the Servicing Files and Servicing Records (except with respect to the Purchased REMIC Certificates and Underlying Mortgage Loans) and the physical and contractual servicing to the designee of the Buyer, in each case within the thirty (30) day period immediately following the expiration of the Servicing Term.  Any such transfer of servicing at the end of each non-renewed Servicing Term shall be in accordance with customary and prudent mortgage banking standards for the transfer of servicing for assets similar to the Purchased Assets and REO Properties and such transfer shall include the transfer of the gross amount of all escrows held for the related mortgagors (without reduction for unreimbursed advances or “negative escrows”).  For the avoidance of doubt, Servicer’s servicing of the Underlying Mortgage Loans shall not be subject to the Servicing Term.

(i)Buyer shall have the right to appoint a third party to perform due diligence with respect to Servicer at any time.  Upon the occurrence of a Servicer Change of Control that is approved by Buyer, Sellers shall cooperate and cause Servicer to cooperate with

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Buyer and/or its designees to provide access to the Servicer’s servicing facilities, as applicable, including without limitation its books and records with respect to the Servicer’s servicing portfolio and the related Purchased Assets and Underlying Assets and any other information Buyer may reasonably request regarding Servicer or its servicing activities.  In addition to the foregoing, Sellers shall permit Buyer to inspect upon reasonable prior written notice at a mutually convenient time, such Servicer’s servicing facilities, as the case may be, for the purpose of satisfying Buyer that the Servicer, has the ability to service the Assets as provided in this Agreement.  In addition, at any time that Servicer is not otherwise an Affiliate of a Seller, Guarantor or any Affiliate thereof, Sellers shall use its best efforts to enable Buyer to inspect the servicing facilities of Servicer and to cause Servicer to cooperate with Buyer and/or its designees in connection with any due diligence performed by Buyer and/or such designees in accordance with this Section 17.01(e).  Sellers and Buyer further agree that all reasonable out-of-pocket costs and expenses incurred by Buyer in connection with any due diligence or inspection performed pursuant to this Section 17.01(e) shall be paid by Sellers.

Section 17.02Fees and Expenses of Servicer.  All fees and expenses of any Servicer shall be borne solely by the Sellers (and with respect to the REO Property, by PC REO in accordance with the PC REO Trust Agreement.

Section 17.03Servicing Reports.  Sellers shall deliver and cause Servicer to deliver to Buyer, Master Servicer and Custodian a monthly remittance report on or before the 15th day of each month containing servicing information, including those fields reasonably requested by Buyer from time to time, on an asset-by-asset and in the aggregate, with respect to the Purchased Assets and Underlying Assets serviced by Servicer for the month (or any portion thereof) before the date of such report.

Section 17.04Servicer; Servicing Data File.  Upon the occurrence of any of the following (a) the occurrence and continuation of an Event of Default, (b) the twenty-fifth (25th) calendar day (or if such calendar day is not a Business Day, the immediately following Business Day) of each month, or (c) upon the request of Buyer, the Sellers shall cause Servicer to provide to Buyer, electronically, in a format mutually acceptable to Buyer and the Sellers, a Servicing Data File by no later than the Reporting Date.  The Sellers shall not cause the Assets to be serviced by any servicer other than Servicer unless expressly approved in writing by Buyer.

ARTICLE 18

MISCELLANEOUS

Section 18.01Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of laws principles thereof other than Section 5-1401 of the New York General Obligations law, which shall govern.

Section 18.02Submission to Jurisdiction; Service of Process.  Buyer irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of New York sitting in the Borough of Manhattan and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to the Repurchase Documents, or for recognition

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or enforcement of any judgment, and each Party irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such State court or, to the fullest extent permitted by applicable law, in such Federal court.  Each Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement or the other Repurchase Documents shall affect any right that Buyer may otherwise have to bring any action or proceeding arising out of or relating to the Repurchase Documents against any Seller or its properties in the courts of any jurisdiction.  Each Seller irrevocably and unconditionally waives, to the fullest extent permitted by Requirements of Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to the Repurchase Documents in any court referred to above, and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.  Each Party irrevocably consents to service of process in the manner provided for notices in Section 18.12.  Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.

Section 18.03WAIVERS.

(a)EACH SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY BUYER OR ANY INDEMNIFIED PERSON.

(b)TO THE EXTENT PERMITTED BY REQUIREMENTS OF LAW, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE BETWEEN THEM, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH OR RELATED TO THE REPURCHASE DOCUMENTS, THE PURCHASED ASSETS, THE UNDERLYING ASSETS, THE TRANSACTIONS, ANY DEALINGS OR COURSE OF CONDUCT BETWEEN THEM, OR ANY STATEMENTS (WRITTEN OR ORAL) OR OTHER ACTIONS OF EITHER PARTY.  NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

(c)TO THE EXTENT PERMITTED BY REQUIREMENTS OF LAW, EACH SELLER HEREBY WAIVES ANY RIGHT TO CLAIM OR RECOVER IN ANY LITIGATION WHATSOEVER INVOLVING ANY INDEMNIFIED PERSON, ANY SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES, WHETHER SUCH WAIVED DAMAGES ARE BASED ON STATUTE, CONTRACT, TORT, COMMON LAW OR ANY OTHER LEGAL THEORY, WHETHER THE LIKELIHOOD OF SUCH DAMAGES WAS KNOWN AND REGARDLESS OF THE FORM OF THE CLAIM OF ACTION, INCLUDING ANY CLAIM OR ACTION ALLEGING GROSS NEGLIGENCE, RECKLESS DISREGARD, WILLFUL OR WONTON MISCONDUCT, FAILURE TO EXERCISE

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REASONABLE CARE OR FAILURE TO ACT IN GOOD FAITH.  NO INDEMNIFIED PERSON SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH ANY REPURCHASE DOCUMENT OR THE TRANSACTIONS.

(d)EACH SELLER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF BUYER OR AN INDEMNIFIED PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BUYER OR AN INDEMNIFIED PERSON WOULD NOT SEEK TO ENFORCE ANY OF THE WAIVERS IN THIS SECTION 18.03 IN THE EVENT OF LITIGATION OR OTHER CIRCUMSTANCES.  THE SCOPE OF SUCH WAIVERS IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THE REPURCHASE DOCUMENTS, REGARDLESS OF THEIR LEGAL THEORY.

(e)EACH PARTY ACKNOWLEDGES THAT THE WAIVERS IN THIS SECTION 18.03 ARE A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT SUCH PARTY HAS ALREADY RELIED ON SUCH WAIVERS IN ENTERING INTO THE REPURCHASE DOCUMENTS, AND THAT SUCH PARTY WILL CONTINUE TO RELY ON SUCH WAIVERS IN THEIR RELATED FUTURE DEALINGS.  EACH PARTY FURTHER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED SUCH WAIVERS WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL AND OTHER RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

(f)THE WAIVERS IN THIS SECTION 18.03 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO ANY OF THE REPURCHASE DOCUMENTS.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

(g)THE PROVISIONS OF THIS SECTION 18.03 SHALL SURVIVE TERMINATION OF THE REPURCHASE DOCUMENTS AND THE PAYMENT IN FULL OF THE OBLIGATIONS.

Section 18.04Integration.  The Repurchase Documents supersede and integrate all previous negotiations, contracts, agreements and understandings (whether written or oral) between the Parties relating to a sale and repurchase of Purchased Assets and the other matters addressed by the Repurchase Documents, and contain the entire final agreement of the Parties relating to the subject matter thereof.

Section 18.05Single Agreement.  Each Seller agrees that (a) each Transaction is in consideration of and in reliance on the fact that all Transactions constitute a single business and contractual relationship, and that each Transaction has been entered into in consideration of the other Transactions, (b) a default by it in the payment or performance of any its obligations under

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a Transaction shall constitute a default by it with respect to all Transactions, (c) Buyer may set off claims and apply properties and assets held by or on behalf of Buyer with respect to any Transaction against the Repurchase Obligations owing to Buyer with respect to other Transactions, and (d) payments, deliveries and other transfers made by or on behalf of Sellers with respect to any Transaction shall be deemed to have been made in consideration of payments, deliveries and other transfers with respect to all Transactions, and the obligations of Sellers to make any such payments, deliveries and other transfers may be applied against each other and netted.

Section 18.06Use of Employee Plan Assets.  No assets of an employee benefit plan subject to any provision of ERISA shall be used by either Party in a Transaction.

Section 18.07Survival and Benefit of Sellers’ Agreements.  The Repurchase Documents and all Transactions shall be binding on and shall inure to the benefit of the Parties and their successors and permitted assigns.  All of Sellers’ representations, warranties, agreements and indemnities in the Repurchase Documents shall survive the termination of the Repurchase Documents and the payment in full of the Repurchase Obligations, and shall apply to and benefit Eligible Assignees and Participants.  No other Person shall be entitled to any benefit, right, power, remedy or claim under the Repurchase Documents.

Section 18.08Assignments and Participations.

(a)Sellers shall not sell, assign or transfer any of its rights or the Repurchase Obligations or delegate its duties under this Agreement or any other Repurchase Document without the prior written consent of Buyer, and any attempt by a Seller to do so without such consent shall be null and void.

(b)Buyer may at any time, without the consent of or notice to Sellers or Guarantor, sell participations to any Person (other than a natural person or Sellers, Guarantor or any Affiliate thereof) (a “Participant”) in all or any portion of Buyer’s rights and/or obligations under the Repurchase Documents; provided, that (i) Buyer’s obligations under the Repurchase Documents shall remain unchanged, (ii) Buyer shall remain solely responsible to Sellers for the performance of such obligations, and (iii) Sellers shall continue to deal solely and directly with Buyer in connection with Buyer’s rights and obligations under the Repurchase Documents.  No Participant shall have any right to approve any amendment, waiver or consent with respect to any Repurchase Document, except to the extent that the Repurchase Price or Price Differential of any Purchased Asset would be reduced or the Repurchase Date of any Purchased Asset would be postponed.  Each Participant shall be entitled to the benefits of Article 12 to the same extent as if it had acquired its interest by assignment pursuant to Section 18.08(c), but shall not be entitled to receive any greater payment thereunder than Buyer would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with each Seller’s prior written consent.  To the extent permitted by Requirements of Law, each Participant shall be entitled to the benefits of Sections 10.02(j) and 18.17 to the same extent as if it had acquired its interest by assignment pursuant to Section 18.08(c).

(c)Buyer may at any time, without consent of Sellers or Guarantor but upon notice to Sellers, sell and assign to any Eligible Assignee all or any portion of all of the rights

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and obligations or duties of Buyer under the Repurchase Documents.  Each such assignment shall be made pursuant to an Assignment and Acceptance substantially in the form of Exhibit F (an “Assignment and Acceptance”).  From and after the effective date of such Assignment and Acceptance, (i) such Eligible Assignee shall be a Party and, to the extent provided therein, have the rights and obligations of Buyer under the Repurchase Documents with respect to the percentage and amount of the Repurchase Price allocated to it, (ii) Buyer shall, to the extent provided therein, be released from such obligations (and, in the case of an Assignment and Acceptance covering all or the remaining portion of Buyer’s rights and obligations under the Repurchase Documents, Buyer shall cease to be a Party), (iii) the obligations of Buyer shall be deemed to be so reduced, and (iv) Buyer will give prompt written notice thereof (including identification of the Eligible Assignee and the amount of Repurchase Price allocated to it) to each Party (but Buyer shall not have any liability for any failure to timely provide such notice).  Any sale or assignment by Buyer of rights or obligations under the Repurchase Documents that does not comply with this Section 18.08(c) shall be treated for purposes of the Repurchase Documents as a sale by such Buyer of a participation in such rights and obligations in accordance with Section 18.08(b).

(d)Sellers shall cooperate with Buyer in connection with any such sale and assignment of participations or assignments and shall enter into such restatements of, and amendments, supplements and other modifications to, the Repurchase Documents to give effect to any such sale or assignment; provided, that none of the foregoing shall change any economic or other material term of the Repurchase Documents in a manner adverse to Sellers without the consent of Sellers in its respective discretion.

(e)Buyer shall have the right to partially or completely syndicate and or all of its rights under the Agreement and the other Repurchase Documents to any Eligible Assignee.

Section 18.09Ownership and Hypothecation of Purchased Assets.  Title to all Purchased Assets shall pass to and vest in Buyer on the applicable Purchase Dates; provided that Buyer may delay transfer of record title in one or more of the Purchased Assets, subject to receipt from Sellers of fully executed transfer documentation in blank, solely for the purpose of facilitating servicing.  Subject to the terms of the Repurchase Documents, Buyer or its designee shall have free and unrestricted use of all Purchased Assets and be entitled to exercise all rights, privileges and options relating to the Purchased Assets as the owner thereof, including rights of subscription, conversion, exchange, substitution, voting, consent and approval, and to direct any servicer or trustee.  Buyer or its designee may engage in repurchase transactions with the Purchased Assets or otherwise sell, pledge, repledge, transfer, hypothecate, or rehypothecate the Purchased Assets, all on terms that Buyer may determine; provided, that no such transaction shall affect the obligations of Buyer to transfer the Purchased Assets to Sellers on the applicable Repurchase Dates free and clear of any pledge, Lien, security interest, encumbrance, charge or other adverse claim.  In the event Buyer engages in a repurchase transaction with any of the Purchased Assets or otherwise pledges or hypothecates any of the Purchased Assets, Buyer shall have the right to assign to Buyer’s counterparty any of the applicable representations or warranties herein and the remedies for breach thereof, as they relate to the Purchased Assets that are subject to such repurchase transaction.

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Section 18.10Confidentiality.  All information regarding the terms set forth in any of the Repurchase Documents or the Transactions, and the identities of the parties hereto, shall be kept confidential and shall not be disclosed by either Party to any Person except (a) to the Affiliates of such Party or its or their respective directors, officers, employees, agents, advisors, underwriters, financing sources and other representatives who are informed of the confidential nature of such information and instructed to keep it confidential, (b) to the extent requested by any regulatory authority or required by Requirements of Law, (c) to the extent required to be included in the financial statements or filings with the Securities and Exchange Commission of either Party or an Affiliate thereof; provided, that Sellers shall cause Guarantor to (i) in connection with the execution of this Agreement, provide Buyer with copies of any such filing with the Securities and Exchange Commission on Form 8-K at least one (1) day prior to filing such statement and Buyer shall have the right to provide comments in its discretion and (ii) use its commercially reasonable efforts to provide Buyer with copies of any other filings (other than Form 10-Q and Form 10-K) to be made with the Securities and Exchange Commission in connection with this Agreement at least one (1) day prior to filing such statements, (d) to the extent required to exercise any rights or remedies under the Repurchase Documents, Purchased Assets, Underlying Assets or Underlying Mortgaged Properties, (e) to the extent required to consummate and administer a Transaction, (f) to any actual or prospective Participant or Eligible Assignee which agrees to comply with this Section 18.10; provided, further that no such disclosure made with respect to any Repurchase Document shall include a copy of such Repurchase Document to the extent that a summary would suffice, but if it is necessary for a copy of any Repurchase Document to be disclosed, all pricing and other economic terms set forth therein shall be redacted before disclosure. Notwithstanding the generality of the foregoing, Sellers, Guarantor, Investment Advisor and any of their respective Affiliates shall maintain the confidentiality of the sensitive economic terms (i.e., Applicable Percentage, Pricing Margin and the like) set forth in any of the Repurchase Documents or the Transactions in negotiations, discussions, agreements or due diligence in connection with any financing, repurchase, credit or similar transactions with any third-party (including any credit facility or any similar structure with respect to mortgage related assets including mortgage loans, RMBS or any similar assets).

Section 18.11No Implied Waivers.  No failure on the part of Buyer to exercise, or delay in exercising, any right or remedy under the Repurchase Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy thereunder preclude any further exercise thereof or the exercise of any other right.  The rights and remedies in the Repurchase Documents are cumulative and not exclusive of any rights and remedies provided by law.  Application of the Default Rate after an Event of Default shall not be deemed to constitute a waiver of any Event of Default or Buyer’s rights and remedies with respect thereto, or a consent to any extension of time for the payment or performance of any obligation with respect to which the Default Rate is applied.  Except as otherwise expressly provided in the Repurchase Documents, no amendment, waiver or other modification of any provision of the Repurchase Documents shall be effective without the signed agreement of Sellers and Buyer.  Any waiver or consent under the Repurchase Documents shall be effective only if it is in writing and only in the specific instance and for the specific purpose for which given.

Section 18.12Notices and Other Communications.  Unless otherwise provided in this Agreement, all notices, consents, approvals, requests and other communications required or permitted to be given to a Party hereunder shall be in writing and sent prepaid by hand delivery,

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by certified or registered mail, by expedited commercial or postal delivery service, or by facsimile or email if also sent by one of the foregoing, to the address for such Party specified in Schedule 2 or such other address as such Party shall specify from time to time in a notice to the other Party.  Any of the foregoing communications shall be effective when delivered or upon the first attempted delivery on a Business Day.  A Party receiving a notice that does not comply with the technical requirements of this Section 18.12 may elect to waive any deficiencies and treat the notice as having been properly given.

Section 18.13Counterparts; Electronic Transmission.  This Agreement and any other Repurchase Document may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.  The parties agree that this Agreement, any documents to be delivered pursuant to this Agreement, any other Repurchase Document and any notices hereunder may be transmitted between them by email and/or facsimile.  The parties intend that faxed signatures and electronically imaged signatures such as .pdf files shall constitute original signatures and are binding on all parties.

Section 18.14No Personal Liability.  No administrator, incorporator, Affiliate, owner, member, partner, stockholder, officer, director, employee, agent or attorney of Buyer, any Indemnified Person, Sellers, or Guarantor, as such, shall be subject to any recourse or personal liability under or with respect to any obligation of Buyer, Sellers, or Guarantor under the Repurchase Documents, whether by the enforcement of any assessment, by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed that the obligations of Buyer, Sellers, or Guarantor under the Repurchase Documents are solely their respective corporate, limited liability company or partnership obligations, as applicable, and that any such recourse or personal liability is hereby expressly waived.  This Section 18.14 shall survive the termination of the Repurchase Documents.

Section 18.15Protection of Buyer’s Interests in the Purchased Assets; Further Assurances.

(a)Sellers shall cause the Repurchase Documents and/or all financing statements and continuation statements and any other necessary documents covering the right, title and interest of Buyer to the Purchased Assets and Underlying Assets to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect such right, title and interest.  Sellers shall deliver to Buyer file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing.  Sellers shall execute any and all documents reasonably required to fulfill the intent of this Section 18.15.

(b)Sellers will promptly at its expense execute and deliver such instruments and documents and take such other actions as Buyer may reasonably request from time to time in order to perfect, protect, evidence, exercise and enforce Buyer’s rights and remedies under and with respect to the Repurchase Documents, the Transactions and the Purchased Assets.

(c)If a Seller fails to perform any of its Repurchase Obligations, Buyer may (but shall not be required to) perform or cause to be performed such Repurchase Obligation,

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and the costs and expenses incurred by Buyer in connection therewith shall be payable by Sellers.  Without limiting the generality of the foregoing, each Seller authorizes Buyer, at the option of Buyer and the expense of Sellers, at any time and from time to time, to take all actions and pay all amounts that Buyer deems necessary or appropriate to protect, enforce, preserve, insure, service, administer, manage, perform, maintain, safeguard, collect or realize on the Purchased Assets and Underlying Assets and Buyer’s Liens and interests therein or thereon and to give effect to the intent of the Repurchase Documents.  No Default or Event of Default shall be cured by the payment or performance of any Repurchase Obligation by Buyer on behalf of Sellers.  Buyer may make any such payment in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax Lien, title or claim except to the extent such payment is being contested in good faith by Sellers in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP.

(d)Without limiting the generality of the foregoing, Sellers will no earlier than six (6) or later than three (3) months before the fifth (5th) anniversary of the date of filing of each UCC financing statement filed in connection with to any Repurchase Document or any Transaction, (i) deliver and file or cause to be filed an appropriate continuation statement with respect to such financing statement; provided that Buyer may elect to file such continuation statement, and (ii) deliver or cause to be delivered to Buyer an opinion of counsel, in form and substance reasonably satisfactory to Buyer, confirming and updating the opinion delivered pursuant to Section 6.01(a) with respect to perfection and otherwise to the effect that the security interests hereunder continue to be enforceable and perfected security interests, subject to no other Liens of record except as provided herein or otherwise permitted hereunder, which opinion may contain usual and customary assumptions, limitations and exceptions.

(e)Except as provided in the Repurchase Documents, the sole duty of Buyer, Custodian or any other designee or agent of Buyer with respect to the Purchased Assets shall be to use reasonable care in the custody, use, operation and preservation of the Purchased Assets in its possession or control.  Buyer shall incur no liability to Sellers or any other Person for any act of Governmental Authority, act of God or other destruction in whole or in part or negligence or wrongful act of custodians or agents selected by Buyer with reasonable care, or Buyer’s failure to provide adequate protection or insurance for the Purchased Assets.  Buyer shall have no obligation to take any action to preserve any rights of Sellers in any Purchased Asset against prior parties, and Sellers hereby agree to take such action.  Buyer shall have no obligation to realize upon any Purchased Asset except through proper application of any distributions with respect to the Purchased Assets made directly to Buyer or its agent(s).  So long as Buyer and Custodian shall act in good faith in their handling of the Purchased Assets, Sellers waive or are deemed to have waived the defense of impairment of the Purchased Assets by Buyer and Custodian.

Section 18.16Default Rate.  To the extent permitted by Requirements of Law, Sellers shall pay interest at the Default Rate on the amount of all Repurchase Obligations not paid when due under the Repurchase Documents until such Repurchase Obligations are paid or satisfied in full.

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Section 18.17Set-off.  In addition to any rights now or hereafter granted under the Repurchase Documents, Requirements of Law or otherwise, Sellers and Guarantor, each on behalf of itself and each of its respective Affiliates, hereby grants to Buyer and each Indemnified Person, to secure repayment of the Repurchase Obligations, a right of set-off upon any and all of the following:  (i)  monies, securities, collateral or other property of each Seller, Guarantor and each of their respective Affiliates and any proceeds from the foregoing, now or hereafter held or received by Buyer (other than prior to an Event of Default, amounts held in the Participation Account and the Underlying Mortgage Loans), any Affiliate of Buyer or any Indemnified Person, for the account of Sellers or such Affiliate of a Seller, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (ii) any and all deposits (general, specified, special, time, demand, provisional or final) and credits, claims or Indebtedness of Sellers, Guarantor or any Affiliate thereof at any time existing, (iii) any obligation owed by Buyer or any Affiliate of Buyer to a Seller, Guarantor or any Affiliate thereof and (iv) any Repurchase Obligations or Indebtedness owed by a Seller, Guarantor or any Affiliate thereof and any Indebtedness owed by Buyer or any Affiliate of Buyer to Sellers, Guarantor or any Affiliate thereof, in each case whether direct or indirect, absolute or contingent, matured or unmatured, whether or not arising under the Repurchase Documents and irrespective of the currency, place of payment or booking office of the amount or obligation and in each case at any time held or owing by Buyer, any Affiliate of Buyer or any Indemnified Person to or for the credit of a Seller, Guarantor or any Affiliate thereof.  Each of Buyer, each Affiliate of Buyer and each Indemnified Person is hereby authorized upon any amount becoming due and payable by Sellers, Guarantor or any Affiliate thereof to Buyer or any Indemnified Person under the Repurchase Documents, the Repurchase Obligations or otherwise or upon the occurrence of an Event of Default, without notice to Sellers, Guarantor or any Affiliate thereof, any such notice being expressly waived by Sellers and each Affiliate of any Seller to the extent permitted by any Requirements of Law, to set-off, appropriate, apply and enforce such right of set-off against any and all items hereinabove referred to against any amounts owing to Buyer or any Indemnified Person by Sellers, Guarantor or any Affiliate thereof under the Repurchase Documents and the Repurchase Obligations, irrespective of whether Buyer, any Affiliate of Buyer or any Indemnified Person shall have made any demand under the Repurchase Documents and regardless of any other collateral securing such amounts, and in all cases without waiver or prejudice of Buyer’s rights to recover any deficiency.  Notwithstanding the foregoing, with respect to obligations owing to Buyer regarding the Purchased REO Entity Interests, (a) Buyer shall have no right to (i) set off such obligations against Purchased Mortgage Loans or Purchased REMIC Certificates or other collateral held by it with respect to any Seller, or (ii) set off collateral held by it on behalf of any Seller against such obligations or collateral held by it with respect to such Purchased REO Entity Interests and (b) any such set off rights exercised by Buyer against Guarantor in respect of such obligations shall be subject to the Recourse Limit.  Sellers and all Affiliates of each Seller shall be deemed directly indebted to Buyer and the other Indemnified Persons in the full amount of all amounts owing to Buyer and the other Indemnified Parties by Sellers and all Affiliates of each Seller under the Repurchase Documents and the Repurchase Obligations, and Buyer and the other Indemnified Persons shall be entitled to exercise the rights of set-off provided for above.  ANY AND ALL RIGHTS TO REQUIRE BUYER OR OTHER INDEMNIFIED PERSONS TO EXERCISE THEIR RIGHTS OR REMEDIES WITH RESPECT TO THE PURCHASED ASSETS OR OTHER INDEMNIFIED PERSONS UNDER THE REPURCHASE DOCUMENTS, PRIOR TO EXERCISING THE FOREGOING RIGHT OF SET-OFF, ARE

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HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED BY SELLERS AND EACH AFFILIATE OF EACH SELLER.

Buyer or any Indemnified Person shall promptly notify the Sellers or Affiliate of each Seller after any such set-off and application made by Buyer or such Indemnified Person; provided that the failure to give such notice shall not affect the validity of such set-off and application.  If an amount or obligation is unascertained, Buyer may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant Party accounting to the other Party when the amount or obligation is ascertained.  Nothing in this Section 18.17 shall be effective to create a charge or other security interest.  This Section 18.17 shall be without prejudice and in addition to any right of set-off, combination of accounts, Lien or other rights to which any Party is at any time otherwise entitled.

Section 18.18Power of Attorney.  Sellers hereby authorize Buyer to file such financing statement or statements relating to the Purchased Assets without any Seller’s signature thereon as Buyer, at its option, may deem appropriate.  Each Seller hereby appoints Buyer as such Seller’s agent and attorney in fact to execute any such financing statement or statements in such Seller’s name and to perform all other acts which Buyer deems appropriate to perfect and continue its ownership interest in and/or the security interest granted hereby, if applicable, and to protect, preserve and realize upon the Purchased Assets, including, but not limited to, the right to endorse notes, complete blanks in documents, transfer servicing (including, but not limited, to sending “good-bye letters” on behalf of Sellers and Servicer to any Mortgagor in the form of Exhibit N with respect to Purchased Assets which are Mortgage Loans), and sign assignments on behalf of each Seller as its agent and attorney in fact.  This agency and power of attorney is coupled with an interest and is irrevocable without Buyer’s consent.  Notwithstanding the foregoing, the power of attorney hereby granted may be exercised only during the occurrence and continuance of any Event of Default hereunder. The Sellers shall pay the filing costs for any financing statement or statements prepared pursuant to this Section 18.18.  In addition, Sellers shall execute and deliver to Buyer and power of attorney in the form set forth in Exhibit K attached hereto (“Seller’s Power of Attorney”).

Section 18.19Sellers’ Waiver of Setoff.  Each Seller hereby waives any right of setoff it may have or to which it may be or become entitled under the Repurchase Documents or otherwise against Buyer, any Affiliate of Buyer, any Indemnified Person or their respective assets or properties.

Section 18.20Periodic Due Diligence Review.  Buyer may perform continuing due diligence reviews with respect to the Purchased Assets, Sellers and Affiliates of any Seller, including ordering new third party reports, for purposes of, among other things, verifying compliance with the representations, warranties, ordering BPOs at any time during the term of this Agreement, covenants, agreements, duties, obligations and specifications made under the Repurchase Documents or otherwise.  Upon reasonable prior notice to Sellers, unless a Default or Event of Default exists, in which case no notice is required, Buyer or its representatives may during normal business hours inspect any properties and examine, inspect and make copies of the books and records of Sellers and Affiliates of any Seller, the Asset Documents and the Servicing Files.  Sellers shall make available to Buyer one or more knowledgeable financial or accounting officers and representatives of the independent certified public accountants of Sellers for the

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purpose of answering questions of Buyer concerning any of the foregoing.  Sellers shall cause Servicer to cooperate with Buyer by permitting Buyer to conduct due diligence reviews of the related Servicing Files and Servicing Records.  Buyer may purchase Purchased Assets from Sellers based solely on the information provided by Sellers to Buyer in the Underwriting Materials and the representations, warranties, duties, obligations and covenants contained herein, and Buyer may at any time conduct a partial or complete due diligence review on some or all of the Purchased Assets, including ordering new credit reports and new appraisals on the Underlying Mortgaged Properties and otherwise regenerating the information used to originate and underwrite such Purchased Assets.  Buyer may underwrite such Purchased Assets itself or engage a mutually acceptable third-party underwriter to do so.  Sellers shall be responsible for all of the due diligence costs and expenses incurred by Buyer.

Section 18.22Time of the Essence.  Time is of the essence with respect to all obligations, duties, covenants, agreements, notices or actions or inactions of a Seller under the Repurchase Documents.

Section 18.23Joint and Several Repurchase Obligations.

(a)Subject to Section 18.23(c), at all times when there is more than one Seller under this Agreement, each Seller hereby acknowledges and agrees that (i) each Seller shall be jointly and severally liable to Buyer to the maximum extent permitted by Requirements of Law for each Transaction and all Repurchase Obligations, (ii) the liability of each Seller (A) shall be absolute and unconditional and shall remain in full force and effect (or be reinstated) until all Repurchase Obligations shall have been paid in full and the expiration of any applicable preference or similar period pursuant to any Insolvency Law, or at law or in equity, without any claim having been made before the expiration of such period asserting an interest in all or any part of any payment(s) received by Buyer, and (B) until such payment has been made, shall not be discharged, affected, modified or impaired on the occurrence from time to time of any event, including any of the following, whether or not with notice to or the consent of each Seller, (1) the waiver, compromise, settlement, release, termination or amendment (including any extension or postponement of the time for payment or performance or renewal or refinancing) of any of the Repurchase Obligations, (2) the failure to give notice to each Seller of the occurrence of an Event of Default, (3) the release, substitution or exchange by Buyer of any Purchased Asset (whether with or without consideration) or the acceptance by Buyer of any additional collateral or the availability or claimed availability of any other collateral or source of repayment or any nonperfection or other impairment of collateral, (4) the release of any Person primarily or secondarily liable for all or any part of the Repurchase Obligations, whether by Buyer or in connection with any Insolvency Proceeding affecting any Seller or any other Person who, or any of whose property, shall at the time in question be obligated in respect of the Repurchase Obligations or any part thereof, or (5) to the extent permitted by Requirements of Law, any other event, occurrence, action or circumstance that would, in the absence of this Section 18.22, result in the release or discharge of any or all of Sellers from the performance or observance of any Repurchase Obligation, (iii) Buyer shall not be required first to initiate any suit or to exhaust its remedies against any Seller or any other Person to become liable, or against any of the Purchased Assets, in order to enforce the Repurchase Documents and each Seller expressly agrees that, notwithstanding the occurrence of any of the foregoing, each Seller shall be and remain directly and primarily liable for all

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sums due under any of the Repurchase Documents, (iv) when making any demand hereunder against any Seller, Buyer may, but shall be under no obligation to, make a similar demand on any other Seller, and any failure by Buyer to make any such demand or to collect any payments from any other Seller, or any release of any such other Seller shall not relieve any Seller in a respect of which a demand or collection is not made or Sellers not so released of their obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of Buyer against Sellers, and (v) on disposition by Buyer of any property encumbered by any Purchased Assets, each Seller shall be and shall remain jointly and severally liable for any deficiency.

(b)To the extent that any Seller (the “paying Seller”) pays more than its proportionate share of any payment made hereunder, the paying Seller shall be entitled to seek and receive contribution from and against any other Seller that has not paid its proportionate share; provided, that the provisions of this Section 18.22 shall not limit the duties, covenants, agreements, obligations and liabilities of any Seller to Buyer, and, notwithstanding any payment or payments made by the paying Seller hereunder or any setoff or application of funds of the paying Seller by Buyer, the paying Seller shall not be entitled to be subrogated to any of the rights of Buyer against any other Seller or any collateral security or guarantee or right of setoff held by Buyer, nor shall the paying Seller seek or be entitled to seek any contribution or reimbursement from any other Seller in respect of payments made by the paying Seller hereunder, until all Repurchase Obligations are paid in full.  If any amount shall be paid to the paying Seller on account of such subrogation rights at any time when all such amounts shall not have been paid in full, such amount shall be held by the paying Seller in trust for Buyer, segregated from other funds of the paying Seller, and shall, forthwith upon receipt by the paying Seller, be turned over to Buyer in the exact form received by the paying Seller (duly indorsed by the paying Seller to Buyer, if required), to be applied against the Repurchase Obligations, whether matured or unmatured, in such order as Buyer may determine.

(c)The Repurchase Obligations with respect to the Purchased Mortgage Loans and Purchased REMIC Certificates are full recourse obligations to each Seller, and each Seller hereby forever waives, demises, acquits and discharges any and all defenses, and shall at no time assert or allege any defense to the contrary.  Notwithstanding anything to the contrary herein, Buyer shall have no recourse to any Seller for any Repurchase Obligations with respect to the Purchased REO Entity Interests.

Section 18.24Patriot Act Notice.  Buyer hereby notifies Sellers that Buyer is required by the Patriot Act to obtain, verify and record information that identifies Sellers.

Section 18.25Acknowledgement Of Anti-Predatory Lending Policies.  Sellers and Buyer each have in place internal policies and procedures that expressly prohibit their purchase of any High Cost Mortgage Loan.

Section 18.26Successors and Assigns; No Third Party Beneficiaries.  Subject to the foregoing, the Repurchase Documents and any Transactions shall be binding upon and shall inure to the benefit of the Parties and their successors and permitted assigns.  Nothing in the Repurchase Documents, express or implied, shall give to any Person other than the Parties any benefit or any legal or equitable right, power, remedy or claim under the Repurchase Documents.

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[ONE OR MORE UNNUMBERED SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first above written.

PENNYMAC CORP., as a Seller	WELLS FARGO BANK, NATIONAL ASSOCIATION,
	as Buyer
By:
Its:	By:
Title:	Its:
	Title:
PENNYMAC MORTGAGE INVESTMENT TRUST
HOLDINGS I, LLC, as a Seller
By:
Its:
Title:

Signature Page to Master Repurchase Agreement

EX-10.12

Exhibit 10.12

EXECUTION VERSION

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT, dated as of November 2, 2010, (as amended, supplemented and otherwise modified from time to time, this “Guaranty”), is made by PennyMac Mortgage Investment Trust, a Maryland real estate investment trust (“Guarantor”) in favor of Wells Fargo Bank, National Association (“Buyer”).

RECITALS

A.            Pursuant to the Master Repurchase Agreement, dated as of  November 2, 2010 (as amended, supplemented or otherwise modified from time to time, the “Repurchase Agreement”), among PennyMac Corp. (“PMC”), PennyMac Mortgage Investment Trust Holdings I, LLC (“PMIT”; together with PMC and as more specifically defined below, each a “Seller” and collectively the “Sellers”), and Buyer, Buyer has agreed to purchase certain loans, REMIC certificates, REO entity interests and related assets (as more particularly defined in the Repurchase Agreement, collectively the “Assets”) from Sellers and Sellers have agreed to repurchase such Assets upon the terms and subject to the conditions set forth therein.

B.            It is a condition precedent to the obligation of Buyer to purchase the Assets from Sellers under the Repurchase Agreement that Guarantor shall have executed and delivered this Guaranty to Buyer.

NOW, THEREFORE, for good and valuable consideration, receipt of which by the parties hereto is hereby acknowledged, the parties hereto hereby agree as follows:

1.             Defined Terms.

(a)           Unless otherwise defined herein, terms defined in the Repurchase Agreement and used herein shall have the meanings given to them in the Repurchase Agreement.

“ERISA” shall mean The Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” shall mean any entity, whether or not incorporated, that is a member of any group of organizations described in Section 414(b), (c), (m) or (o) of the Code of which Guarantor is a member.

“Expiration Date” shall have the meaning set forth in Section 2(c) hereof.

“Multiemployer Plan” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA as to which Guarantor or any ERISA Affiliate has made or is required to make contributions or has any actual or potential liability.

“Obligations” shall mean the obligations and liabilities of each Seller to Buyer, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, or out of or in connection with the Repurchase Agreement or any other Repurchase Document, including without limitation the Repurchase Obligations.

“Plan” shall mean an employee benefit plan as defined in Section 3(3) of ERISA, subject to Title I of ERISA in respect of which Guarantor or any ERISA Affiliate thereof has any actual or

potential liability or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be, an “employer” as defined in Section 3(5) of ERISA.

“Recourse Limit” shall have the meaning assigned thereto in Section 2(e) hereof.

“Reportable Event” shall mean any event set forth in Section 4043(c) of ERISA, other than an event as to which the notice period is waived under Pension Benefit Guaranty Corporation Reg. §4043.

“Repurchase Documents” shall mean the “Repurchase Documents” as such term is defined in the Repurchase Agreement.

“Repurchase Obligations” shall mean the “Repurchase Obligations” as such term is defined in the Repurchase Agreement.

“Seller” shall have the meaning set forth in the introductory paragraph hereto.

“Single Employer Plan” shall mean any Plan that is not a Multiemployer Plan.

“UCC” shall mean the Uniform Commercial Code as in effect in the State of New York at any time.

(b)           The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Guaranty shall refer to this Guaranty as a whole and not to any particular provision of this Guaranty, and section and paragraph references are to this Guaranty unless otherwise specified.

(c)           The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

2.             Recourse Guaranty.

(a)           Guarantor hereby, unconditionally and irrevocably, guarantees to Buyer and its successors, indorsees, transferees and assigns the prompt and complete payment and performance by Sellers when due (whether at the stated maturity, by acceleration, demand or otherwise) of the Obligations.

(b)           Notwithstanding the foregoing, Guarantor further agrees to pay any and all expenses (including, without limitation, all reasonable fees, expenses and disbursements of counsel) which may be paid or incurred by Buyer in enforcing any rights with respect to, or collecting, any or all of the Repurchase Obligations and/or enforcing any rights with respect to, or collecting against, Guarantor under this Guaranty.  This Guaranty shall remain in full force and effect until the Repurchase Obligations are paid in full, notwithstanding that from time to time prior thereto one or more Sellers may be free from any Repurchase Obligations.

(c)           No payment or payments made by any Seller or any other Person or received or collected by Buyer from any Seller or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of Guarantor hereunder.  Guarantor shall remain liable under this Guaranty until the Repurchase Obligations are satisfied and paid in full and the Repurchase Agreement and the other Repurchase Documents are

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terminated (such date, the “Expiration Date”), notwithstanding any payment or payments referred to in the foregoing sentence.

(d)           Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to Buyer on account of its liability hereunder, it will notify Buyer in writing that such payment is made under this Guaranty for such purpose.

(e)           Notwithstanding the foregoing or anything contained in this Guaranty to the contrary, the Guarantor’s liability hereunder on any date of determination solely regarding Obligations with respect to the Purchased Assets consisting of REO Entity Interests shall not exceed an amount equal to the excess (if any) of (x) the product of (i) ten percent (10%) and (ii) the sum of the aggregate Purchase Price (calculated as of the Purchase Date) of all REO Properties then owned by the REO SPE, over (y) the amount of all payments previously made by the Guarantor on or at any time prior to such date of determination pursuant to the terms hereof with respect to such Obligations (the “Recourse Limit”); provided that such Recourse Limit shall not (i) constitute a waiver, release or impairment of any obligation evidenced or secured by the Repurchase Documents; (ii) impair the right of Buyer to name the Guarantor or any Seller as a party or defendant in any action or suit for judicial foreclosure and sale under the Repurchase Documents; (iii) impair the right of Buyer to obtain the appointment of a receiver; (iv) impair the right of Buyer to bring suit (and seek a money judgment therein) with respect to breach of contract, tort, fraud or intentional misrepresentation by the Guarantor or any Seller or any other person or entity in connection with the Repurchase Documents; (v) impair the right of Buyer to obtain payments on the REO Equity Interests or with respect to any such REO Properties received by the Guarantor or any Seller after the occurrence of an Event of Default under the Repurchase Agreement; (vi) impair the right of Buyer to bring suit (and seek a money judgment therein) with respect to any misappropriation by the Guarantor or any Seller of payments collected in advance with respect to the REO Equity Interests or with respect to any such REO Properties; (vii) impair the right of Buyer to apply to losses arising out of any misrepresentation, willful misconduct or fraud by the Guarantor or any Seller or any of their agents or employees, any suit or money judgment related thereto; (viii) limit Guarantor’s liability for any Repurchase Obligations as they relate to a breach of the representations and warranties set forth on Schedule 1-B of the Repurchase Agreement with respect to the REO Equity Interests or with respect to any such REO Properties; or (ix) limit the Guarantor’s liability for any amount paid to the Buyer by any Seller that is avoided pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder. For the avoidance of doubt, Guarantor’s liability hereunder shall be full recourse and the Recourse Limit shall not apply with respect to any Repurchase Obligations with respect to Mortgage Loans and REMIC Certificates (insofar as such Repurchase Obligations are Obligations of PMC and PMIT).

3.             Representations and Warranties of Guarantor.  Guarantor hereby represents and warrants that:

(a)           Guarantor.  Guarantor has been duly organized and validly exists in good standing as a real estate investment trust under the laws of the jurisdiction of its formation. Guarantor (i) has all requisite power, authority, legal right, licenses and franchises, (ii) is duly qualified to do business in all jurisdictions necessary, and (iii) has been duly authorized by all necessary action, to (x) own, lease and operate its properties and assets, (y) conduct its business as presently conducted and (z) execute, deliver and perform its obligations under this Guaranty.  Guarantor’s exact legal name is set forth in the preamble and signature pages of this Guaranty.  Guarantor’s tax identification number is 27-0186273.  Guarantor has the following subsidiaries:  PennyMac GP OP, Inc., PennyMac Operating Partnership, L.P., PennyMac Mortgage Investment Trust Holdings I, LLC, PennyMac Corp., and PC REO Trust.  The fiscal year of the Guarantor is the calendar year.

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(b)           Licenses.  Guarantor is duly licensed or is otherwise qualified in each jurisdiction in which it transacts business for the business which it conducts and is not in default of any applicable federal, state or local laws, rules and regulations.

(c)           Power.  Guarantor has all requisite corporate or other power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted.

(d)           Guaranty.  This Guaranty has been duly executed and delivered by Guarantor and constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, except as such enforceability may be limited by Insolvency Laws and general principles of equity.  The execution, delivery and performance by Guarantor of this Guaranty does not and will not (i) conflict with, result in a breach of, or constitute (with or without notice or lapse of time or both) a default under, any (x) Governing Document, Indebtedness, Guarantee Obligation or Contractual Obligation applicable to Guarantor or any of its properties or assets, (y) Requirements of Law, or (z) approval, consent, judgment, decree, order or demand of any Governmental Authority, or (ii) result in the creation of any Lien on any of the properties or assets of Guarantor.  All approvals, authorizations, consents, orders, filings, notices or other actions of any Person or Governmental Authority required for the execution, delivery and performance by Guarantor of this Guaranty have been obtained, effected, waived or given and are in full force and effect.

(e)           Solvency; Fraudulent Conveyance.  Guarantor is solvent and will not be rendered insolvent by the transactions contemplated hereby.  Guarantor does not intend to incur, nor does it believe that it has incurred, debts beyond its ability to pay such debts as they mature and is not contemplating the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of such entity or any of its assets.

(f)            Compliance with Law.  Guarantor has complied in all respects with all Requirements of Law.  Guarantor  (i) is not an “enemy” or an “ally of the enemy” as defined in the Trading with the Enemy Act of 1917, (ii) is not in violation of any Anti-Terrorism Laws, (iii) is not a blocked person described in Section 1 of Executive Order 13224 or to its knowledge engages in any dealings or transactions or is otherwise associated with any such blocked person, (iv) is not in violation of any country or list based economic and trade sanction administered and enforced by the Office of Foreign Assets Control, (v) is not a Sanctioned Entity, (vi) does not have more than 10% of its assets located in Sanctioned Entities, or (vii) does not derive more than 10% of its operating income from investments in or transactions with Sanctioned Entities.  Neither Guarantor nor any Affiliate of Guarantor (x) is a “broker” or “dealer” as defined in, or could be subject to a liquidation proceeding under, the Securities Investor Protection Act of 1970, or (y) is subject to regulation by any Governmental Authority limiting its ability to incur the Obligations.  No properties presently or previously owned or leased by Guarantor, any Affiliate of Guarantor or their respective predecessors contain or previously contained any Materials of Environmental Concern that constitute or constituted a violation of Environmental Laws or reasonably could be expected to give rise to liability of Guarantor thereunder.  Guarantor has no Knowledge of any violation, alleged violation, non-compliance, liability or potential liability of Guarantor under any Environmental Law.  Materials of Environmental Concern have not been released, transported, generated, treated, stored or disposed of in violation of Environmental Laws or in a manner that reasonably could be expected to give rise to liability of Guarantor thereunder.  Guarantor and all Affiliates of Guarantor are in compliance with the Foreign Corrupt Practices Act of 1977 and any foreign counterpart thereto.  Neither Guarantor nor any Affiliate of Guarantor has made, offered, promised or authorized a payment of money or anything else of value (1) in order to assist in obtaining or retaining business for or with, or directing business to, any foreign official, foreign political party, party official or candidate for foreign political office, (2) to any foreign official, foreign political party, party official or candidate for foreign political

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office, or (3) with the intent to induce the recipient to misuse his or her official position to direct business wrongfully to Guarantor, any Affiliate of Guarantor or any other Person, in violation of the Foreign Corrupt Practices Act.

(g)           True and Complete Disclosure.  All information, reports, exhibits, schedules, financial statements or certificates of Guarantor or any of its officers furnished or to be furnished to Buyer in connection with the initial or any ongoing due diligence of Guarantor or any officer thereof, negotiation, preparation, or delivery of this Guaranty are true and complete and do not omit to disclose any material facts necessary to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.

(h)           Approvals.  No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required under applicable law in connection with the execution, delivery and performance by Guarantor of this Guaranty.

(i)            Litigation.  There is no material litigation, proceeding or investigation pending or, to the knowledge of Guarantor threatened, against Guarantor before any Governmental Authority (i) asserting the invalidity of any this Guaranty, or (ii) seeking any determination or ruling that could reasonably be expected to have a Material Adverse Effect.

(j)            Material Adverse Change.  There has been no material adverse change in the business, operations, financial condition, properties or prospects of Guarantor since the date set forth in the most recent financial statements supplied to Buyer.

(k)           Taxes.  Guarantor has timely filed all tax returns that are required to be filed by it and has paid all taxes, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided.  The charges, accruals and reserves on the books of Guarantor in respect of taxes and other governmental charges are, in the opinion of Guarantor, adequate.  No tax liens have been filed against any assets of the Guarantor or any Affiliate thereof.

(l)            Investment Company.  Neither Guarantor nor any of its Subsidiaries is required to register as an “investment company”, or as a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

(m)          Chief Executive Office; Jurisdiction of Organization.  On the date hereof, Guarantor’s chief executive office, is, and has been, located at 27001 Agoura Road, Calabasas, California 91301.  Guarantor does not have a trade name.  On the date hereof, Guarantor’s jurisdiction of organization is Maryland. During the preceding five (5) years, Guarantor has not been known by or done business under any other name, corporate or fictitious, and has not filed or had filed against it any bankruptcy receivership or similar petitions nor has it made any assignments for the benefit of creditors.

(n)           Location of Books and Records.  The location where Guarantor keeps its books and records is its chief executive office.

(o)           Compliance with ERISA.  With respect to Guarantor or any ERISA Affiliate thereof, during the immediately preceding five (5) year period, (i) neither a Reportable Event nor an “accumulated funding deficiency” nor “an unpaid minimum required contribution” as defined in the Code or ERISA has occurred, (ii) each Plan has complied in all material respects with the applicable provisions of the Code and ERISA, (iii) no termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded, and (iv) no Lien in favor of the PBGC or a Plan has arisen.  The

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present value of all accumulated benefit obligations under each Single Employer Plan (based on the assumptions used for the purposes of Financial Accounting Statement Bulletin 87) relating to Guarantor or any ERISA Affiliate thereof did not, as of the last annual valuation date prior to the date hereof, exceed the value of the assets of such Plan allocable to such accumulated benefit obligations.  Neither Guarantor nor any Affiliate of Guarantor is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan.  Guarantor does not provide any medical or health benefits to former employees other than as required by the Consolidated Omnibus Budget Reconciliation Act, as amended, or similar state or local law (collectively, “COBRA.”) at no cost to the employer.  None of the assets of Guarantor are deemed to be plan assets within the meaning of 29 C.F.R. 2510.3-101 as modified by Section 3(42)  of ERISA.

(p)           Agreements.  Guarantor is not a party to any agreement, instrument, or indenture or subject to any restriction materially and adversely affecting its business, operations, assets or financial condition.  Guarantor is not in default in the performance, observance or fulfillment of any of the  Obligations, covenants or conditions contained in any agreement, instrument, or indenture which default could have a material adverse effect on the business, operations, properties, or financial condition of Guarantor as a whole.  No holder of any indebtedness of Guarantor has given notice of any asserted default thereunder.

(q)           No Reliance.  Guarantor has made its own independent decisions to enter into this Guaranty based upon its own judgment and upon advice from such advisors (including without limitation, legal counsel and accountants) as it has deemed necessary, and Guarantor is not relying upon any advice from Buyer as to any aspect of this Guaranty.

(r)            Repurchase Agreement.  Guarantor has received and reviewed copies of the Repurchase Agreement.

(s)           Financial Representations and Warranties.

(i)            Guarantor’s Adjusted Tangible Net Worth is greater than or equal to the sum of (x) $265,000,000 and (y) 75% of the aggregate net proceeds received by Guarantor in connection with any future equity issuances;

(ii)           Guarantor’s unrestricted cash is greater than or equal to $5,000,000;

(iii)          The ratio of Guarantor’s Total Indebtedness to Tangible Net Worth is less than 3:1.

4.             Covenants of Guarantor.  Guarantor hereby covenants and agrees that:

(a)           Existence; Governing Documents; Conduct of Business.  Guarantor  shall (i) preserve and maintain its legal existence, (ii) qualify and remain qualified in good standing in each jurisdiction where it does business, (iii) comply with its Governing Documents, (iv) continue to engage in the same (and no other) general lines of business as presently conducted by it, (v) maintain and preserve all of its material rights, privileges, licenses, permits, franchises and other approvals necessary for the operation of its business and perform its obligations under this Guaranty and (vi) conduct its business in accordance with applicable law.  Guarantor shall not (x) change its name, organizational number, tax identification number, fiscal year, method of accounting, identity, structure or jurisdiction of organization (or have more than one such jurisdiction) or (y) move the location of its principal place of business and chief executive office, as defined in the UCC) from the location referred to in Section 3(m) hereof, unless Guarantor has given at least thirty (30) days prior notice to Buyer.

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(b)           Litigation.  At all times during the term of this Guaranty, Guarantor will promptly, and in any event within ten (10) days after service of process on any of the following, give to Buyer notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are threatened or pending) or other legal or arbitrable proceedings affecting Guarantor or affecting any of Guarantor’s Property before any Governmental Authority that (i) questions or challenges the validity or enforceability of this Guaranty or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim individually in an amount greater than $1,000,000 or in an aggregate amount greater than $2,500,000, or (iii) which, individually or in the aggregate, if adversely determined, could be reasonably likely to have a Material Adverse Effect.

(c)           Prohibition of Fundamental Changes.  At all times during the term of this Guaranty, neither Guarantor nor any of its Subsidiaries shall enter into a merger or consolidation, or liquidate, wind up or dissolve, or convey, sell, lease, assign, transfer or otherwise dispose of all or substantially all of its assets or properties (whether now owned or hereafter acquired) to any Person, or permit any changes in the ownership of its Equity Interests, without the consent of Buyer in its discretion.  Guarantor shall ensure that all Equity Interests of Guarantor shall continue to be owned by the owner or owners thereof as of the date hereof.

(d)           Insurance.  Guarantor will continue to maintain insurance coverage with respect to employee dishonesty, forgery or alteration, theft, disappearance and destruction, robbery and safe burglary, property (other than money and securities) and computer fraud in an aggregate amount reasonably acceptable to Buyer, and shall have added Seller as an additional insured in connection with any such insurance coverage.

(e)           Books.  Guarantor shall keep or cause to be kept in reasonable detail books and records of account of its assets and business.

(f)            Material Change in Business.  Guarantor shall not make any material change in the nature of its business as carried on at the date hereof.  There shall be no material change in the senior management of Guarantor.

(g)           Applicable Law.  Guarantor shall comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority.

(h)           Taxes.  Guarantor shall timely file all tax returns that are required to be filed by them and shall timely pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.

(i)            Transactions with Affiliates.  Guarantor shall not (i) enter into transactions, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Seller or any Subsidiary unless such transaction is (x) otherwise not prohibited under any Repurchase Document, (y) in the ordinary course of Guarantor’s business and (z) upon fair and reasonable terms no less favorable to Guarantor than it would obtain in a comparable arm’s length transaction with a Person which is not a Subsidiary, or (ii) make a payment that is not otherwise pursuant to the transactions permitted by this Section 4(i) to any Affiliate.

(j)            True and Correct Information.  All information, reports, exhibits, schedules, financial statements or certificates of Guarantor or any of its officers furnished to Buyer hereunder and

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during Buyer’s diligence of Guarantor are and will be true and complete and do not omit to disclose any material facts necessary to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.

(k)           Bankruptcy.  Guarantor shall not file or cause or suffer to be filed with respect to any Seller a voluntary petition in bankruptcy to seek relief for such Seller under any provision of any bankruptcy, reorganization, moratorium, delinquency, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction whether now or subsequently in effect, or consent to the filing of any petition against any Seller under any such law, or consent to the appointment of or taking possession by a custodian, receiver, conservator, trustee, liquidator, sequestrator or similar official for any Seller, or of all or any part of such Seller’s Property, or make an assignment for the benefit of any Seller.

(l)            ERISA.  Guarantor shall immediately notify Buyer of the occurrence of any of the following of which Guarantor has Knowledge, together with a certificate of a Responsible Officer of Guarantor setting forth details of such occurrence and any action Guarantor has taken or proposes to take with respect thereto any Reportable Event or failure to meet the minimum funding standard of Section 412 of the Code or Sections 302 or 303 of ERISA, includes the failure to make on or before its due date a required installment under Section 430(j) of the Code or Section 303(j) of ERISA, or any request for a waiver under Section 412(c) of the Code for any Plan; a notice of intent to terminate any Plan or any action taken by Guarantor or an ERISA Affiliate to terminate any Plan or the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Guarantor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; the complete or partial withdrawal from a Multiemployer Plan by Guarantor or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA or the institution of a proceeding by a fiduciary of any Multiemployer Plan against Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code, would result in the loss of tax-exempt status of the trust of which such Plan is a part.

(m)          Use of Employee Plan Assets. No assets of an employee benefit plan subject to any provision of ERISA shall be used by either party in a connection with this Guaranty.

(n)           Financial Covenants.

(i)            Guarantor’s Adjusted Tangible Net Worth shall at all times be greater than or equal to the sum of (i) $265,000,000 and (ii) 75% of the aggregate net proceeds received by Guarantor in connection with any future equity issuances;

(ii)           Guarantor’s unrestricted cash shall at all times be greater than or equal to $5,000,000;

(iii)          The ratio of Guarantor’s Total Indebtedness to Tangible Net Worth shall at all times be less than 3:1.

(o)           Financial Statements. Guarantor shall deliver its financial statements to Buyer pursuant to the terms of the Repurchase Agreement.

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5.             No Subrogation.  Notwithstanding any payment or payments made by Guarantor hereunder or any set-off or application of funds of Guarantor by Buyer or any of its Affiliates, Guarantor shall not be entitled to be subrogated to any of the rights of Buyer against any related Seller or any collateral security or guarantee or right of offset held by Buyer for the payment of the Obligations, nor shall Guarantor seek or be entitled to seek any contribution or reimbursement from any related Seller in respect of payments made by Guarantor hereunder, until all amounts owing to Buyer by the related Sellers on account of the Obligations are paid and satisfied in full and the Repurchase Agreement is terminated.  If any amount shall be paid to Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid and satisfied in full, such amount shall be held by Guarantor in trust for Buyer, segregated from other funds of Guarantor, and shall, forthwith upon receipt by Guarantor, be turned over to Buyer in the exact form received by Guarantor (duly indorsed by Guarantor to Buyer, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Buyer may determine.

6.             Amendments, Etc. with Respect to the Obligations.  Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against Guarantor and without notice to or further assent by Guarantor, any demand for payment of any of the Obligations made by Buyer may be rescinded by Buyer and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, terminated, waived, surrendered or released by Buyer, and the Repurchase Agreement and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as Buyer may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by Buyer for the payment of the Obligations may be sold, exchanged, waived, surrendered or released.  Buyer shall not have any obligation to protect, secure, perfect or insure any lien at any time held by it as security for the Obligations or for this Guaranty or any property subject thereto.  When making any demand hereunder against Guarantor, Buyer may, but shall be under no obligation to, make a similar demand on any related Seller, and any failure by Buyer to make any such demand or to collect any payments from any related Seller or any release of any related Seller shall not relieve Guarantor of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of Buyer against Guarantor.  For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

7.             Waiver of Rights.  Except as otherwise expressly provided herein, Guarantor waives any and all notice of any kind including, without limitation, notice of the creation, renewal, extension or accrual of any of the Obligations, and notice of or proof of reliance by Buyer upon this Guaranty or acceptance of this Guaranty; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guaranty; and all dealings between any related Seller and Guarantor, on the one hand, and Buyer, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guaranty. Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any related Seller or Guarantor with respect to its Repurchase Obligations or the Obligations, respectively.  In addition, Guarantor waives any requirement that Buyer exhaust any right, power or remedy or proceed against any related Seller.

8.             Guaranty Absolute and Unconditional.  Guarantor understands and agrees that this Guaranty shall be construed as a continuing, absolute and unconditional guarantee of the full and punctual payment and performance of the Obligations and not of their collectibility only and is in no way conditioned upon any requirement that Buyer first attempt to collect any of the Obligations from any related Seller, without regard to (a) the validity, regularity or enforceability of the Repurchase Agreement

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or any other Repurchase Document, any of the Obligations therefor or guarantee or right of offset with respect thereto at any time or from time to time held by Buyer, (b) any defense, set-off, deduction, abatement, recoupment, reduction or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any related Seller against Buyer, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any related Seller or Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of Guarantor from this Guaranty, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against Guarantor, Buyer may, but shall be under no obligation to, pursue such rights, powers, privileges and remedies as it may have against any related Seller or any other Person or any right of offset with respect thereto, and any failure by Buyer to pursue such other rights or remedies or to collect any payments from any related Seller or any such other Person or to exercise any such right of offset, or any release of any related Seller or any such other Person or right of offset, shall not relieve Guarantor of any liability hereunder, and shall not impair or affect the rights, powers, privileges and remedies, whether express, implied or available as a matter of law or equity, of Buyer against Guarantor.  This Guaranty shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon Guarantor and the successors and assigns thereof, and shall inure to the benefit of Buyer, and its successors, indorsees, transferees and assigns, until all the Repurchase Obligations and the Obligations of Guarantor under this Guaranty shall have been satisfied by performance and payment in full and the Repurchase Agreement and the other Repurchase Documents shall have been terminated, notwithstanding that from time to time during the term of the Repurchase Agreement, one or more Sellers may be free from any Repurchase Obligations.

9.             Reinstatement.  This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by Buyer upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any related Seller or Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any related Seller or Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

10.          Payments.  Guarantor hereby guarantees that payments hereunder will be paid to Buyer without deduction, abatement, recoupment, reduction, set-off or counterclaim, in U.S. Dollars and in accordance with the wiring instructions of Buyer.

11.          Notices.  Any and all notices statements, demands or other communications hereunder may be given by a party to the other by mail, facsimile, messenger or otherwise to the address specified at the “Address for Notices” specified on the signature page for Guarantor or specified below for Buyer, or so sent to such party at any other place specified in a notice of change of address hereafter received by the other.  All notices, demands and requests hereunder may be made orally, to be confirmed promptly in writing, or by other communication as specified in the preceding sentence.

Address for Notices to Buyer:

Wells Fargo Bank, National Association

301 S. College St.

MAC D1053-082

Charlotte, North Carolina 28288

Attention: Goetz Rokahr

Telephone: (704) 374-3455

12.          Entire Agreement; Severability.  This Guaranty shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions.  Each

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provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement

13.          Integration.  This Guaranty represents the agreement of Guarantor with respect to the subject matter hereof and thereof and there are no promises or representations by Buyer relative to the subject matter hereof or thereof not reflected herein or therein.

14.          Amendments in Writing; No Waiver; Cumulative Remedies.

(a)           None of the terms or provisions of this Guaranty may be waived, amended, supplemented or otherwise modified except by a written instrument executed by Guarantor, and Buyer; provided that any provision of this Guaranty may be waived in writing by Buyer.

(b)           Buyer shall not be deemed by any act (except by a written instrument pursuant to Section 14(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right, power, privilege or remedy hereunder or to have acquiesced in any Default or Event of Default under the Repurchase Agreement or in any breach of any of the terms and conditions hereof.  No failure to exercise, nor any delay in exercising, on the part of Buyer, any right, power, remedy or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right, power, remedy or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Buyer of any right, power, privilege or remedy hereunder on any one occasion shall not be construed as a bar to any right, power, privilege or remedy which Buyer would otherwise have on any future occasion.

(c)           The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

15.          Section Headings.  The section headings used in this Guaranty are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

16.          Successors and Assigns.  This Guaranty shall be binding upon the successors and permitted assigns of Guarantor and shall inure to the benefit of Buyer and its successors and assigns.  This Guaranty may not be assigned by Guarantor without the express written consent of Buyer in its sole discretion and any attempt to assign or transfer this Guaranty without such consent shall be null and void and of no effect whatsoever.

17.          Governing Law.  THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL GOVERN.

18.          Waiver Of Jury Trial; Consent To Jurisdiction And Venue; Service Of Process.  Buyer irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of New York sitting in the Borough of Manhattan and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guaranty, or for recognition or enforcement of any judgment, and each party irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such State court or, to the fullest extent permitted by applicable law, in such Federal court.  Each party agrees that a final judgment in any such action or

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proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Guaranty shall affect any right that Buyer may otherwise have to bring any action or proceeding arising out of or relating to this Guaranty against Guarantor or its properties in the courts of any jurisdiction.  Guarantor irrevocably and unconditionally waives, to the fullest extent permitted by Requirements of Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Guaranty in any court referred to above, and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.  Each party irrevocably consents to service of process in the manner provided for notices in Section 11.  Nothing in this Guaranty will affect the right of any party hereto to serve process in any other manner permitted by applicable law.

19.          Waivers.

(a)           GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY BUYER.

(b)           TO THE EXTENT PERMITTED BY REQUIREMENTS OF LAW, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE BETWEEN THEM, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH OR RELATED TO THIS GUARANTY, ANY DEALINGS OR COURSE OF CONDUCT BETWEEN THEM, OR ANY STATEMENTS (WRITTEN OR ORAL) OR OTHER ACTIONS OF EITHER PARTY.  NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

(c)           TO THE EXTENT PERMITTED BY REQUIREMENTS OF LAW, GUARANTOR HEREBY WAIVES ANY RIGHT TO CLAIM OR RECOVER IN ANY LITIGATION WHATSOEVER INVOLVING BUYER, ANY SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES, WHETHER SUCH WAIVED DAMAGES ARE BASED ON STATUTE, CONTRACT, TORT, COMMON LAW OR ANY OTHER LEGAL THEORY, WHETHER THE LIKELIHOOD OF SUCH DAMAGES WAS KNOWN AND REGARDLESS OF THE FORM OF THE CLAIM OF ACTION, INCLUDING ANY CLAIM OR ACTION ALLEGING GROSS NEGLIGENCE, RECKLESS DISREGARD, WILLFUL OR WONTON MISCONDUCT, FAILURE TO EXERCISE REASONABLE CARE OR FAILURE TO ACT IN GOOD FAITH.  BUYER SHALL NOT BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS GUARANTY.

(d)           GUARANTOR CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF BUYER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BUYER WOULD NOT SEEK TO ENFORCE ANY OF THE WAIVERS IN THIS SECTION 19 IN THE EVENT OF LITIGATION OR OTHER CIRCUMSTANCES.  THE SCOPE OF SUCH WAIVERS IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE

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FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS GUARANTY, REGARDLESS OF THEIR LEGAL THEORY.

(e)           EACH PARTY ACKNOWLEDGES THAT THE WAIVERS IN THIS SECTION 19 ARE A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT SUCH PARTY HAS ALREADY RELIED ON SUCH WAIVERS IN ENTERING INTO THIS GUARANTY, AND THAT SUCH PARTY WILL CONTINUE TO RELY ON SUCH WAIVERS IN THEIR RELATED FUTURE DEALINGS.  EACH PARTY FURTHER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED SUCH WAIVERS WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL AND OTHER RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

(f)            THE WAIVERS IN THIS SECTION 19 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS THIS GUARANTY.  IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

20.          Agents.  Buyer may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by them in good faith.

21.          Counterparts.  This Guaranty may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.  The parties agree that this Guaranty, any documents to be delivered pursuant to this Guaranty and any notices hereunder may be transmitted between them by email and/or facsimile. The parties intend that faxed signatures and electronically imaged signatures such as .pdf files shall constitute original signatures and are binging on all parties.

[SIGNATURE PAGE TO FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly executed and delivered as of the day and year first above written.

PENNYMAC MORTGAGE INVESTMENT TRUST, as Guarantor

By:

Name:

Title:

Address for Notices:

27001 Agoura Road

Calabasas, CA 91301

Attn: Chief Legal Officer

Guarantee Agreement — Wells Fargo-PennyMac

EX-10.13

Exhibit 10.13

EXECUTION VERSION

MASTER REPURCHASE AGREEMENT

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as buyer
(“Buyer”), and

PENNYMAC CORP., as seller (“Seller”), and

PENNYMAC MORTGAGE INVESTMENT TRUST and PENNYMAC OPERATING PARTNERSHIP, L.P., each a guarantor (collectively, the “Guarantors”)

Dated November 2, 2010

TABLE OF CONTENTS

		Page
1.	Applicability	1
2.	Definitions	1
3.	Program; Initiation of Transactions	17
4.	Repurchase	18
5.	Price Differential	19
6.	Margin Maintenance	20
7.	Income Payments	21
8.	Security Interest	22
9.	Payment and Transfer	23
10.	Conditions Precedent	23
11.	Program; Costs	26
12.	Servicing	27
13.	Representations and Warranties	28
14.	Covenants	35
15.	Events of Default	41
16.	Remedies Upon Default	45
17.	Reports	48
18.	Repurchase Transactions	51
19.	Single Agreement	51
20.	Notices and Other Communications	52
21.	Entire Agreement; Severability	53
22.	Non assignability	53
23.	Set-off	54

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24.	Binding Effect; Governing Law; Jurisdiction	54
25.	No Waivers, Etc.	55
26.	Intent	55
27.	Disclosure Relating to Certain Federal Protections	55
28.	Power of Attorney	56
29.	Buyer May Act Through Affiliates	56
30.	Indemnification; Obligations	56
31.	Counterparts	57
32.	Confidentiality	57
33.	Recording of Communications	59
34.	Commitment Fee	59
35.	Reserved	59
36.	Periodic Due Diligence Review	59
37.	Authorizations	60
38.	Acknowledgement Of Anti-Predatory Lending Policies	60
39.	Documents Mutually Drafted	60
40.	General Interpretive Principles	60

SCHEDULES

Schedule 1 - Representations and Warranties with Respect to Purchased Mortgage Loans

Schedule 2 – Authorized Representatives

EXHIBITS

Exhibit A – Form of Purchase Confirmation for Exception Mortgage Loans

Exhibit B – Form of Mortgage Loan Schedule

Exhibit C – Form of Servicing Renewal Letter

Exhibit D – Form of Power of Attorney

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Exhibit E – Form of Opinion of Seller’s and Guarantors’ Counsel

Exhibit F – Officer’s Certificate

Exhibit G – Seller’s and Guarantors’ Tax Identification Numbers

Exhibit H – Existing Indebtedness

Exhibit I – Escrow Instruction Letter

Exhibit J – Form of Servicer Notice and Pledge

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1.     Applicability

From time to time the parties hereto may enter into transactions in which Seller agrees to transfer to Buyer Mortgage Loans (as hereinafter defined) on a servicing released basis against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans on a servicing released basis at a date certain or on demand, against the transfer of funds by Seller.  This Agreement is a commitment by Buyer to engage in the Transactions as set forth herein up to the Maximum Committed Purchase Price; provided, that Buyer shall have no commitment to enter into any Transaction requested that would result in the aggregate Purchase Price of then-outstanding Transactions to exceed the Maximum Committed Purchase Price.  Each such transaction shall be referred to herein as a “Transaction” and, unless otherwise agreed in writing, shall be governed by this Agreement, including any supplemental terms or conditions contained in any annexes identified herein, as applicable hereunder.

2.     Definitions

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

“Acceptable State” means any state acceptable pursuant to the Underwriting Guidelines.

“Accepted Servicing Practices” means, with respect to any Mortgage Loan, those mortgage servicing practices of prudent mortgage lending institutions which service mortgage loans of the same type as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located.

“Act of Insolvency” means, with respect to any Person or its Affiliates, (a) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding, or the voluntary joining of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors, or suffering any such petition or proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief; (b) the seeking of the appointment of a receiver, trustee, custodian or similar official for such party or an Affiliate or any substantial part of the property of either; (c) the appointment of a receiver, conservator, or manager for such party or an Affiliate by any governmental agency or authority having the jurisdiction to do so; (d) the making or offering by such party or an Affiliate of a composition with its creditors or a general assignment for the benefit of creditors; (e) the admission by such party or an Affiliate of such party of its inability to pay its debts or discharge its obligations as they become due or mature; or (f) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such party or of any of its Affiliates, or shall have taken any action to displace the management of such party or of any of its Affiliates or to curtail its authority in the conduct of the business of such party or of any of its Affiliates.

“Additional Collateral” has the meaning set forth in Section 8 hereof.

“Adjusted Tangible Net Worth” means (a) the sum of (i) Net Worth and (ii) Subordinated Debt, minus (b) intangibles, goodwill and receivables from Affiliates.

“Affiliate” means, with respect to any Person, any “affiliate” of such Person, as such term is defined in the Bankruptcy Code; provided, however, that any entity that is otherwise not directly or indirectly owned or controlled by Seller or any Guarantor shall not be deemed an “Affiliate” for the purposes of this definition.

“Aged Loan” means an Aged 60 Day Loan or an Aged 90 Day Loan.

“Aged 90 Day Loan” means a Mortgage Loan which has been subject to a Transaction hereunder for a period of greater than 60 days but not greater than 90 days.

“Aged 60 Day Loan” means a Mortgage Loan which has been subject to a Transaction hereunder for a period of greater than 30 days but not greater than 60 days.

“Agency” means Freddie Mac, Fannie Mae or GNMA, as applicable.

“Agency Approvals” has the meaning set forth in Section 14w hereof.

“Agency Security” means a mortgage-backed security issued by an Agency.

“Agreement” means this Master Repurchase Agreement, as it may be amended, supplemented or otherwise modified from time to time.

“Appraised Value” means the value set forth in an appraisal made in connection with the origination of the related Mortgage Loan as the value of the Mortgaged Property.

“Assignment of Mortgage” means an assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the sale of the Mortgage to Buyer.

“AUS” means a proprietary automated underwriting system used by an Agency in connection with its approval of eligible Mortgage Loans and includes Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Prospector.

“AUS Refi Plus Loans” means a Conforming Mortgage Loan originated in accordance with Fannie Mae’s DU Refi Plus™ program or other related programs, including any similar program offered by Freddie Mac.

“Bailee Letter” has the meaning assigned to such term in the Custodial Agreement.

“Bankruptcy Code” means the United States Bankruptcy Code of 1978, as amended from time to time.

“Bid” has the meaning set forth in Section 4(c) hereof.

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“Business Day” means any day other than (A) a Saturday or Sunday and (B) a public or bank holiday in New York City.

“Buydown Amount” has the meaning set forth in Section 5(c) hereof.

“Buyer” means Credit Suisse First Boston Mortgage Capital LLC, and any successor or assign hereunder.

“Buyer’s Margin Amount” means with respect to any Transaction as of any date of determination, an amount equal to the product of (a) Buyer’s Margin Percentage and (b) the Purchase Price for such Transaction.

“Buyer’s Margin Percentage” means, with respect to any Transaction as of any date, a percentage equal to the percentage obtained by dividing the (a) Market Value of the Purchased Mortgage Loans  on the Purchase Date for such Transaction by (b) the Purchase Price on the Purchase Date for such Transaction; provided, that, with respect to any Mortgage Loan which was not an Exception Mortgage Loan on the related Purchase Date and which, as of the date of determination, is an Exception Mortgage Loan, Buyer’s Margin Percentage as of such date of determination shall be equal to the percentage obtained by dividing (a) the Market Value of such Mortgage Loan on the related Purchase Date by (b) the amount the Purchase Price would have been on the Purchase Date if such Mortgage Loan had been categorized as the type of Mortgage Loan (e.g., Exception Mortgage Loan, etc.) that it is categorized on the date of determination.

“Capital Lease Obligations” means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

“Cash Equivalents” means  (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of Buyer or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of Buyer or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody’s and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby

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letters of credit issued by Buyer or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

“Change in Control” means:

(a)           any transaction or event as a result of which PennyMac Operating Partnership, L.P. ceases to own, beneficially or of record, 100% of the stock of Seller;

(b)           any transaction or event as a result of which PennyMac Mortgage Investment Trust ceases to own, beneficially or of record, 100% of the stock of PennyMac Operating Partnership, L.P.;

(c)           the acquisition by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder), directly or indirectly, beneficially or of record, of ownership or control of in excess of 50% of the voting common stock of PennyMac Mortgage Investment Trust on a fully diluted basis at any time;

(d)           the sale, transfer, or other disposition of all or substantially all of Seller’s or any Guarantor’s assets (excluding any such action taken in connection with any securitization transaction); or

(e)           the consummation of a merger or consolidation of Seller or Guarantors with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s stock outstanding immediately after such merger, consolidation or such other reorganization is owned by Persons who were not stockholders of Seller or Guarantors immediately prior to such merger, consolidation or other reorganization.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committed Mortgage Loan” means a Mortgage Loan which is the subject of a Take-out Commitment with a Take-out Investor.

“Commitment Fee” has the meaning assigned to such term in the Pricing Side Letter.

“Compare Ratio” has the meaning set forth in Compare Report.

“Compare Report” means the “Early Warnings — Single Lender” report found at https://entp.hud.gov/sfnw/public/.

“Conforming Mortgage Loan” means a first lien Mortgage Loan originated in accordance with the criteria of an Agency for purchase of Mortgage Loans, including, without limitation, conventional Mortgage Loans, as determined by Buyer in its sole discretion.

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“CSCOF” means, in the Buyer’s sole discretion, which may be confirmed by notice to the Seller (which may be electronic), for each day, the rate of interest (calculated on a per annum basis) determined by Buyer (which such determination shall be dispositive absent manifest error), equal to the overnight interest expense incurred by Buyer for borrowing funds.

“Custodial Agreement” means the custodial agreement dated as of the date hereof, among Seller, Buyer and Custodian as the same may be amended from time to time.

“Custodial Mortgage Loan Schedule” has the meaning assigned to such term in the Custodial Agreement.

“Custodian” means Deutsche Bank Trust Company Americas or such other party specified by Buyer and agreed to by Seller, which approval shall not be unreasonably withheld.

“Default” means an Event of Default or an event that with notice or lapse of time or both would become an Event of Default.

“Dollars” and “$” means dollars in lawful currency of the United States of America.

“Due Date” means the day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.

“EDGAR” mean the Electronic Data-Gathering, Analysis, and Retrieval system maintained by the SEC.

“Effective Date” means the date upon which the conditions precedent set forth in Section 10 shall have been satisfied.

“Electronic Tracking Agreement” means an Electronic Tracking Agreement among Buyer, Seller, MERS and MERSCORP, Inc., to the extent applicable as the same may be amended from time to time.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any corporation or trade or business that, together with Seller or Guarantors is treated as a single employer under Section 414(b) or (c) of the Code or solely for purposes of Section 302 of ERISA and Section 412 of the Code is treated as single employer described in Section 414 of the Code.

“Escrow Instruction Letter” means the Escrow Instruction Letter from Seller to the Settlement Agent, in the form of Exhibit I hereto, as the same may be modified, supplemented and in effect from time to time.

“Escrow Payments” means, with respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, fire and hazard insurance premiums, condominium charges, and

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any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

“Event of Default” has the meaning specified in Section 15 hereof.

“Event of Termination” means with respect to Seller or Guarantors (a) with respect to any Plan, a reportable event, as defined in Section 4043 of ERISA, as to which the PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified with 30 days of the occurrence of such event, or (b) the withdrawal of Seller, Guarantors or any ERISA Affiliate thereof from a Plan during a plan year in which it is a substantial employer, as defined in Section 4001(a)(2) of ERISA, or (c) the failure by Seller, Guarantors or any ERISA Affiliate thereof to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA with respect to any Plan, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code (or Section 430 (j) of the Code as amended by the Pension Protection Act) or Section 302(e) of ERISA (or Section 303 (j) of ERISA, as amended by the Pension Protection Act), or (d) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by Seller, Guarantors or any ERISA Affiliate thereof to terminate any plan, or (e) the failure to meet requirements of Section 436 of the Code resulting in the loss of qualified status under  Section 401(a)(29) of the Code, or (f) the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (g) the receipt by Seller, Guarantors or any ERISA Affiliate thereof of a notice from a Multiemployer Plan that action of the type described in the previous clause (f) has been taken by the PBGC with respect to such Multiemployer Plan, or (h) any event or circumstance exists which may reasonably be expected to constitute grounds for Seller, Guarantors or any ERISA Affiliate thereof to incur liability under Title IV of ERISA or under Sections 412 (b) or 430 (k) of the Code with respect to any Plan.

“Exception Mortgage Loan” means any Mortgage Loan which is otherwise ineligible for purchase hereunder, or which otherwise becomes ineligible for purchase hereunder and which is approved by Buyer in its sole discretion; provided, that upon 30 days’ notice to the Seller, Buyer may change such Exception Mortgage Loan approval fee.  Buyer’s approval of a Mortgage Loan as an Exception Mortgage Loan shall expire on the earlier of (a) the date set forth by the Buyer in the written notice that such Mortgage Loan is approved as an Exception Mortgage Loan (an “Exception Notice”) or  (b) the occurrence of any additional event, other than that set forth in the Exception Notice, which would cause the Mortgage Loan to become ineligible for purchase hereunder.  The Pricing Rate, Market Value, Purchase Price and Buyer’s Margin Percentage with respect to Exception Mortgage Loans shall be set in the sole discretion of Buyer.  Buyer may at any time, and in its sole discretion, no longer consider a Mortgage Loan an Exception Mortgage Loan, in which case such Mortgage Loan shall  have a Market Value of zero.

“Existing Indebtedness” has the meaning specified in Section 13(a)(23) hereof.

“Fannie Mae” means the Federal National Mortgage Association or any successor thereto.

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“FHA” means the Federal Housing Administration, an agency within the United States Department of Housing and Urban Development, or any successor thereto, and including the Federal Housing Commissioner and the Secretary of Housing and Urban Development where appropriate under the FHA Regulations.

“FHA Approved Mortgagee” means a corporation or institution approved as a mortgagee by the FHA under the National Housing Act, as amended from time to time, and applicable FHA Regulations, and eligible to own and service mortgage loans such as the FHA Loans.

“FHA Loan” means a Mortgage Loan which is the subject of an FHA Mortgage Insurance Contract.

“FHA Mortgage Insurance” means, mortgage insurance authorized under the National Housing Act, as amended from time to time, and provided by the FHA.

“FHA Mortgage Insurance Contract” means the contractual obligation of the FHA respecting the insurance of a Mortgage Loan.

“FHA Regulations” means the regulations promulgated by the Department of Housing and Urban Development under the National Housing Act, as amended from time to time and codified in 24 Code of Federal Regulations, and other Department of Housing and Urban Development issuances relating to FHA Loans, including the related handbooks, circulars, notices and mortgagee letters.

“FICO” means Fair Isaac & Co., or any successor thereto.

“Fidelity Insurance” shall mean insurance coverage with respect to employee errors, omissions, dishonesty, forgery, theft, disappearance and destruction, robbery and safe burglary, property (other than money and securities) and computer fraud in an aggregate amount acceptable to Seller’s regulators.

“Freddie Mac” means the Federal Home Loan Mortgage Corporation or any successor thereto.

“GAAP” means generally accepted accounting principles in effect from time to time in the United States of America and applied on a consistent basis.

“GNMA” means the Government National Mortgage Association and any successor thereto.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions over Seller, Guarantors or Buyer, as applicable.

“Governmental Event” means Seller’s failure to obtain licensing from any Governmental Authority, the imposition of sanctions on Seller from any Governmental

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Authority, or any dispute, litigation, investigation, proceeding or suspension between Seller and any Governmental Authority or any Person.

“Gross Margin” means, with respect to each adjustable rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note.

“Guarantee” means, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term “Guarantee” shall not include (a) endorsements for collection or deposit in the ordinary course of business, or (b) obligations to make servicing advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged Property, to the extent required by Buyer.  The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith.  The terms “Guarantee” and “Guaranteed” used as verbs shall have correlative meanings.

“Guarantor” means PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P., each in its capacity as guarantor under the Guaranty.

“Guaranty” means the guaranty of the Guarantors dated as of the date hereof as the same may be amended from time to time, pursuant to which each Guarantor fully and unconditionally guarantees the obligations of the Seller hereunder.

“High Cost Mortgage Loan” means a Mortgage Loan classified as (a) a “high cost” loan under the Home Ownership and Equity Protection Act of 1994 or (b) a “high cost,” “threshold,” “covered,” or “predatory” loan under any other applicable state, federal or local law (or a similarly classified loan using different terminology under a law, regulation or ordinance imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees).

“High LTV Loan” means a Mortgage Loan having a Loan to Value Ratio in excess of (a) with respect to FHA Loans or VA Loans, 97.75%; (b) with respect to all other Mortgage Loans, 95% (other than AUS Refi Plus Loans and Refi Plus Loans which may have Loan to Value Ratios up to 125%); or (c) such lower percentage as may be set forth in the Underwriting Guidelines.

“Income” means with respect to any Purchased Mortgage Loan at any time until repurchased by the Seller, any principal received thereon or in respect thereof and all interest, dividends or other distributions thereon.

“Indebtedness” means, for any Person: at any time, and only to the extent outstanding at such time: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase

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such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business, so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements, sale/buy-back agreements or like arrangements, including, without limitation, any Indebtedness arising hereunder; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; (i) Indebtedness of general partnerships of which such Person is a general partner and (j) with respect to clauses (a)-(i) above both on and off balance sheet.

“Index” means, with respect to any adjustable rate Mortgage Loan, the index identified on the Mortgage Loan Schedule and set forth in the related Mortgage Note for the purpose of calculating the applicable Mortgage Interest Rate.

“Interest Only Adjustment Date” means, with respect to each Interest Only Loan, the date, specified in the related Mortgage Note on which the Monthly Payment will be adjusted to include principal as well as interest.

“Interest Only Loan” means a Mortgage Loan which only requires payments of interest for a period of time specified in the related Mortgage Note.

“Interest Rate Adjustment Date” means the date on which an adjustment to the Mortgage Interest Rate with respect to each Mortgage Loan becomes effective.

“Interest Rate Protection Agreement” means, with respect to any or all of the Purchased Mortgage Loans, any short sale of a US Treasury Security, or futures contract, or mortgage related security, or Eurodollar futures contract, or options related contract, or interest rate swap, cap or collar agreement or Take-out Commitment, or similar arrangement providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller and an Affiliate of Buyer or such other party acceptable to Buyer in its sole discretion, which agreement is acceptable to Buyer in its sole discretion.

“Jumbo Mortgage Loan” means a Mortgage Loan with an outstanding principal balance in an amount in excess of the conventional conforming limits which is also eligible for purchase by Buyer, Buyer’s Affiliates or any other national residential mortgage lender acceptable to Buyer in its sole discretion.

“Lien” means any mortgage, lien, pledge, charge, security interest or similar encumbrance.

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“Loan to Value Ratio” or “LTV” means with respect to any Mortgage Loan, the ratio of the original outstanding principal amount of such Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) if the Mortgaged Property was purchased within 12 months of the origination of such Mortgage Loan, the purchase price of the Mortgaged Property.

“Low Percentage Margin Call” has the meaning specified in Section 6(b) hereof.

“Margin Call” has the meaning specified in Section 6(a) hereof.

“Margin Deadline” has the meaning specified in Section 6(b) hereof.

“Margin Deficit” has the meaning specified in Section 6(a) hereof.

“Market Value” has the meaning assigned to such term in the Pricing Side Letter.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of Seller, any Guarantor or any Affiliate that is a party to any Program Agreement taken as a whole; (b) a material impairment of the ability of Seller, any Guarantor or any Affiliate that is a party to any Program Agreement to perform under any Program Agreement and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability of any Program Agreement against Seller, any Guarantor or any Affiliate that is a party to any Program Agreement, in each case as determined by the Buyer in its sole good faith discretion.

“Maximum Committed Purchase Price” means SEVENTY-FIVE MILLION DOLLARS ($75,000,000).

“MERS” means Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto.

“MERS System” means the system of recording transfers of mortgages electronically maintained by MERS.

“Monthly Payment” means the scheduled monthly payment of principal and/or interest on a Mortgage Loan.

“Moody’s” means Moody’s Investors Service, Inc. or any successors thereto.

“Mortgage” means each mortgage, assignment of rents, security agreement and fixture filing, or deed of trust, assignment of rents, security agreement and fixture filing, deed to secure debt, assignment of rents, security agreement and fixture filing, or similar instrument creating and evidencing a lien on real property and other property and rights incidental thereto.

“Mortgage File” means, with respect to a Mortgage Loan, the documents and instruments relating to such Mortgage Loan and set forth in an exhibit to the Custodial Agreement.

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“Mortgage Interest Rate” means the rate of interest borne on a Mortgage Loan from time to time in accordance with the terms of the related Mortgage Note.

“Mortgage Interest Rate Cap” means, with respect to an adjustable rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth in the related Mortgage Note.

“Mortgage Loan” means any first lien closed Conforming Mortgage Loan, FHA Loan, VA Loan or Jumbo Mortgage Loan which is a fixed or floating-rate, one-to-four-family residential mortgage loan evidenced by a promissory note and secured by a first lien mortgage.

“Mortgage Loan Documents” means the documents in the related Mortgage File to be delivered to the Custodian.

“Mortgage Loan Schedule” means with respect to any Transaction as of any date, a mortgage loan schedule in the form of either (a)  Exhibit B attached hereto or (b) a computer tape or other electronic medium generated by Seller, and delivered to Buyer and  Custodian, which provides information (including, without limitation, the information set forth on Exhibit B attached hereto) relating to the Purchased Mortgage Loans in a format acceptable to Buyer.

“Mortgage Note” means the promissory note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage.

“Mortgaged Property” means the real property securing repayment of the debt evidenced by a Mortgage Note.

“Mortgagor” means the obligor or obligors on a Mortgage Note, including any person who has assumed or guaranteed the obligations of the obligor thereunder.

“Multiemployer Plan” means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by Seller or any ERISA Affiliate and that is covered by Title IV of ERISA.

“Net Income” means, for any period and any Person, the net income of such Person for such period as determined in accordance with GAAP.

“Net Worth” means, with respect to any Person, an amount equal to, on a consolidated basis, such Person’s stockholder equity (determined in accordance with GAAP).

“1934 Act” means the Securities Exchange Act of 1934, as amended from time to time.

“Non-Performing Mortgage Loan” means (a) any Mortgage Loan for which any payment of principal or interest is more than thirty (30) days past due, (b) any Mortgage Loan with respect to which the related mortgagor is in bankruptcy or (c) any Mortgage Loan with respect to which the related mortgaged property is in foreclosure.

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“Obligations” means (a) all of Seller’s indebtedness, obligations to pay the Repurchase Price on the Repurchase Date, the Price Differential on each Price Differential Payment Date, and other obligations and liabilities, to Buyer, its Affiliates or Custodian arising under, or in connection with, the Program Agreements, whether now existing or hereafter arising; (b) any and all sums paid by Buyer or on behalf of Buyer in order to preserve any Purchased Mortgage Loan or its interest therein; (c) in the event of any proceeding for the collection or enforcement of any of Seller’s indebtedness, obligations or liabilities referred to in clause (a), the reasonable expenses of retaking, holding, collecting, preparing for sale, selling or otherwise disposing of or realizing on any Purchased Mortgage Loan, or of any exercise by Buyer of its rights under the Program Agreements, including, without limitation, attorneys’ fees and disbursements and court costs; and (d) all of Seller’s indemnity obligations to Buyer or Custodian or both pursuant to the Program Agreements.

“OFAC” has the meaning set forth in Section 13(a)(27) hereof.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Pension Protection Act” means the Pension Protection Act of 2006.

“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

“Plan” means an employee benefit or other plan established or maintained by Seller or any ERISA Affiliate and covered by Title IV of ERISA, other than a Multiemployer Plan.

“PMIT” means Pennymac Mortgage Investment Trust, or its permitted successors or assigns.

“PMIT Group” means PMIT and its Subsidiaries.

“Power of Attorney” has the meaning specified in Section 28 hereto.

“Post Default Rate” has the meaning assigned to such term in the Pricing Side Letter.

“Price Differential” means with respect to any Transaction as of any date of determination, an amount equal to the product of (a) the Pricing Rate for such Transaction and (b) the Purchase Price for such Transaction, calculated daily on the basis of a 360-day year for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date.

“Price Differential Payment Date” means, with respect to a Purchased Mortgage Loan, the 5th day of the month following the related Purchase Date and each succeeding 5th day of the month thereafter; provided, that, with respect to such Purchased Mortgage Loan, the final Price Differential Payment Date shall be the related Repurchase Date; and provided, further, that

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if any such day is not a Business Day, the Price Differential Payment Date shall be the next succeeding Business Day.

“Pricing Rate” has the meaning assigned to such term in the Pricing Side Letter.

“Pricing Side Letter” means the letter agreement dated as of the date hereof, among Buyer, Seller and the Guarantors as the same may be amended from time to time.

“Program Agreements” means, collectively, this Agreement, the Pricing Side Letter, the Guaranty, the Custodial Agreement, the Electronic Tracking Agreement, the Power of Attorney, the Servicing Agreement, if any, the Servicer Notice and Pledge and, with respect to each Exception Mortgage Loan, a Purchase Confirmation.

“Prohibited Person” has the meaning set forth in Section 13(a)(27) hereof.

“Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

“Purchase Confirmation” means, with respect to an Exception Mortgage Loan, a confirmation of a Transaction, in the form attached as Exhibit A hereto.

“Purchase Date” means the date on which Purchased Mortgage Loans are to be transferred by Seller to Buyer.

“Purchase Price” means the price at which each Purchased Mortgage Loan is transferred by Seller to Buyer, which shall equal:

(a) on the Purchase Date, the applicable Purchase Price Percentage multiplied by the lesser of either: (x) the Market Value of such Purchased Mortgage Loan or (y) the outstanding principal amount thereof as set forth on the related Mortgage Loan Schedule;

(b) on any day after the Purchase Date, except where Buyer and the Seller agree otherwise, the amount determined under the immediately preceding clause (a) decreased by the amount of any cash transferred by the Seller to Buyer pursuant to Section 6 hereof or applied to reduce the Seller’s obligations under Section 4(b)(ii) or Section 4(c) hereof.

“Purchase Price Percentage” has the meaning assigned to such term in the Pricing Side Letter.

“Purchased Mortgage Loans” means the collective reference to Mortgage Loans together with the Repurchase Assets related to such Mortgage Loans transferred by Seller to Buyer in a Transaction hereunder, listed on the related Mortgage Loan Schedule attached to the related Transaction Request, which such Mortgage Loans the Custodian has been instructed to hold pursuant to the Custodial Agreement.

“Qualified Insurer” means an insurance company duly authorized and licensed where required by law to transact insurance business and approved as an insurer by Fannie Mae or Freddie Mac.

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“Qualified Originator” means an originator of Mortgage Loans which is acceptable under the Underwriting Guidelines.

“Records” means all instruments, agreements and other books, records, and reports and data generated by other media for the storage of information maintained by Seller, Servicer, any Guarantor or any other person or entity with respect to a Purchased Mortgage Loan.  Records shall include the Mortgage Notes, any Mortgages, the Mortgage Files, the credit files related to the Purchased Mortgage Loan and any other instruments necessary to document or service a Mortgage Loan.

“Refi Plus Loans” means a Conforming Mortgage Loan originated in accordance with Fannie Mae’s Refi Plus™ program or other related programs, including any similar program offered by Freddie Mac.

“REIT” means a real estate investment trust, as defined in Section 856 of the Code.

“REO Property” means real property acquired by Seller, including a Mortgaged Property acquired through foreclosure of a Mortgage Loan or by deed in lieu of such foreclosure.

“Repo Rights” has the meaning set forth in Section 8 hereof.

“Reporting Date” means the 5th day of each month or, if such day is not a Business Day, the next succeeding Business Day.

“Repurchase Assets” has the meaning assigned thereto in Section 8 hereof.

“Repurchase Date” means the earliest of (a) the Termination Date, (b) the date set forth in the applicable Purchase Confirmation with respect to an Exception Mortgage Loan or (c) the date determined by application of Section 16 hereof.

“Repurchase Price” means the price at which Purchased Mortgage Loans are to be transferred from Buyer to Seller upon termination of a Transaction, which will be determined in each case (including Transactions terminable upon demand) as the sum of the Purchase Price and the accrued but unpaid Price Differential as of the date of such determination.

“Request for Certification” means a notice sent to the Custodian reflecting the sale of one or more Purchased Mortgage Loans to Buyer hereunder.

“Requirement of Law” means, with respect to any Person, any law, treaty, rule or regulation or determination of an arbitrator, a court or other governmental authority, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer” means as to any Person, the chief executive officer or, with respect to financial matters, the chief financial officer of such Person.  The Responsible Officers of Seller and Guarantor as of the date hereof are listed on Schedule 2 hereto.

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“S&P” means Standard & Poor’s Ratings Services, or any successor thereto.

“SEC” means the Securities and Exchange Commission, or any successor thereto.

“Seller” means PennyMac Corp. or its permitted successors and assigns.

“Servicer” means PennyMac Loan Services, LLC or any other servicer approved by Buyer in its sole discretion, which may be Seller.

“Servicer Notice and Pledge” means the notice to and pledge by the Servicer substantially in the form of Exhibit J hereto.

“Servicing Agreement” means that certain Flow Servicing Agreement, dated as of August 4, 2009, by and between PennyMac Operating Partnership, L.P. and Servicer, as the same may be amended from time to time.

“Servicing Rights” means rights of any Person to administer, service or subservice, the Purchased Mortgage Loans or to possess related Records.

“Settlement Agent” means, with respect to any Transaction the subject of which is a Wet-Ink Mortgage Loan, the entity approved by Buyer, in its sole good-faith discretion, which may be a title company, escrow company or attorney in accordance with local law and practice in the jurisdiction where the related Wet-Ink Mortgage Loan is being originated.  A Settlement Agent is deemed approved unless Buyer notifies Seller otherwise at any time electronically or in writing.

“SIPA” means the Securities Investor Protection Act of 1970, as amended from time to time.

“Streamlined Mortgage Loan”  means an FHA Loan originated in accordance with FHA’s streamlined mortgage loan refinance program as set forth in FHA’s Underwriting Guidelines.

“Subordinated Debt” means, Indebtedness of Seller which is (a) unsecured, (b) no part of the principal of such Indebtedness is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the date which is one year following the Termination Date and (c) the payment of the principal of and interest on such Indebtedness and other obligations of Seller in respect of such Indebtedness are subordinated to the prior payment in full of the principal of and interest (including post-petition obligations) on the Transactions and all other obligations and liabilities of Seller to Buyer hereunder on terms and conditions approved in writing by Buyer and all other terms and conditions of which are satisfactory in form and substance to Buyer.

“Subsidiary” means, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes

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of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

“Take-out Commitment” means a commitment of Seller to either (a) sell one or more identified Mortgage Loans to a Take-out Investor or (b) (i) swap one or more identified Mortgage Loans with a Take-out Investor that is an Agency for an Agency Security, and (ii) sell the related Agency Security to a Take-out Investor, and in each case, the corresponding Take-out Investor’s commitment back to Seller to effectuate any of the foregoing, as applicable. With respect to any Take-out Commitment with an Agency, the applicable agency documents list Seller as the subscriber to the Agency Security; provided that, such Agency Security is delivered to an account specified by Buyer.

“Take-out Investor”  means (a) an Agency, (b) PennyMac Loan Services, LLC or (c) any other institution which has made a Take-out Commitment and has been approved by Buyer.

“Termination Date” means the earlier of (a) November 1, 2011, and (b) the date of the occurrence of an Event of Default.

“Test Period” means any rolling three month period.

“Transaction” has the meaning set forth in Section 1 hereof.

“Transaction Request” means a request via email from Seller to Buyer notifying Buyer that Seller wishes to enter into a Transaction hereunder that indicates that it is a Transaction Request under this Agreement.

“Trust Receipt” means, with respect to any Transaction as of any date, a receipt in the form attached as an exhibit to the Custodial Agreement.

“Underwriting Guidelines” means the standards, procedures and guidelines of Seller for underwriting Mortgage Loans, as set forth in the written policies and procedures of Seller, copies of which have been provided to Buyer, and, as applicable, the Fannie Mae Single-Family Selling and Servicing Guide, the Freddie Mac Single-Family Seller/Servicer Guide, FHA Underwriting Guidelines or VA Underwriting Guidelines and such other guidelines as are identified and approved in writing by Buyer.

“Uniform Commercial Code” means the Uniform Commercial Code as in effect on the date hereof in the State of New York or the Uniform Commercial Code as in effect in the applicable jurisdiction.

“VA” means the U.S. Department of Veterans Affairs, an agency of the United States of America, or any successor thereto including the Secretary of Veterans Affairs.

“VA Approved Lender” means a lender which is approved by the VA to act as a lender in connection with the origination of VA Loans.

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“VA Loan” means a Mortgage Loan which is subject of a VA Loan Guaranty Agreement as evidenced by a loan guaranty certificate, or a Mortgage Loan which is a vendor loan sold by the VA.

“VA Loan Guaranty Agreement” means the obligation of the United States to pay a specific percentage of a Mortgage Loan (subject to a maximum amount) upon default of the Mortgagor pursuant to the Servicemen’s Readjustment Act, as amended.

“Violation Deadline” has the meaning assigned thereto in Section 4(c) hereof.

“Warehouse Facility” means a mortgage loan warehouse facility, warehouse line of credit (including both on and off balance sheet facilities), and any other such facility with terms and conditions similar to the terms and conditions of this Agreement and the purpose of which is to fund the origination and/or purchase of newly originated Mortgage Loans pending sale or securitization.

“Wet-Ink Documents” means, with respect to any Wet-Ink Mortgage Loan, the (a) Transaction Request and (b) the Mortgage Loan Schedule.

“Wet-Ink Mortgage Loan” means a Mortgage Loan which Seller is selling to Buyer simultaneously with the origination thereof.

3.     Program; Initiation of Transactions

a.     From time to time, Buyer will purchase from Seller certain Mortgage Loans that have been originated or acquired by Seller.  This Agreement is a commitment by Buyer to enter into Transactions with Seller for an aggregate amount equal to the Maximum Committed Purchase Price.  This Agreement is not a commitment by Buyer to enter into Transactions with Seller for amounts exceeding the Maximum Committed Purchase Price, but rather, sets forth the procedures to be used in connection with periodic requests for Buyer to enter into Transactions with Seller.  Seller hereby acknowledges that, beyond the Maximum Committed Purchase Price, Buyer is under no obligation to agree to enter into, or to enter into, any Transaction pursuant to this Agreement.  All Purchased Mortgage Loans shall exceed or meet the Underwriting Guidelines, and shall be serviced by Seller or Servicer, as applicable.  The aggregate Purchase Price of Purchased Mortgage Loans subject to outstanding Transactions shall not exceed the Maximum Committed Purchase Price.

b.     Seller shall request that Buyer enter into a Transaction by delivering (i) to Buyer, a Transaction Request on or before 3:00 p.m. (New York City time) on the Purchase Date for Transactions involving Wet-Ink Mortgage Loans and one (1) Business Day prior to the proposed Purchase Date for Transactions involving all Mortgage Loans other than Wet-Ink Mortgage Loans, and (ii) to Buyer and Custodian a Request for Certification and related Mortgage Loan Schedule, in accordance with the Custodial Agreement. In the event the Mortgage Loan Schedule provided by Seller contains erroneous computer data, is not formatted

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properly or the computer fields are otherwise improperly aligned, Buyer shall provide written or electronic notice to Seller describing such error and Seller shall correct the computer data, reformat or properly align the computer fields itself and resubmit the Mortgage Loan Schedule as required herein.

c.     With respect to each Exception Mortgage Loan, upon receipt of the Transaction Request, Buyer shall, consistent with this Agreement, specify the terms for such proposed Transaction, including the Purchase Price, the Pricing Rate, the Market Value and the Repurchase Date in respect of such Transaction.  The terms thereof shall be set forth in the Purchase Confirmation to be delivered to Seller on or prior to the Purchase Date.

d.     With respect to each Exception Mortgage Loan, the Purchase Confirmation, together with this Agreement, shall constitute conclusive evidence of the terms agreed between Buyer and Seller with respect to the Transaction to which the Purchase Confirmation relates, and Seller’s acceptance of the related proceeds shall constitute Seller’s agreement to the terms of such Purchase Confirmation.  It is the intention of the parties that, with respect to each Exception Mortgage Loan, each Purchase Confirmation shall not be separate from this Agreement but shall be made a part of this Agreement.  In the event of any conflict between this Agreement and, with respect to each Exception Mortgage Loan, a Purchase Confirmation, the terms of the Purchase Confirmation shall control with respect to the related Transaction.

e.     Upon the satisfaction of the applicable conditions precedent set forth in Section 10 hereof, all of Seller’s interest in the Repurchase Assets shall pass to Buyer on the Purchase Date, against the transfer of the Purchase Price to Seller.  Upon transfer of the Mortgage Loans to Buyer as set forth in this Section and until termination of any related Transactions as set forth in Sections 4 or 16 of this Agreement, ownership of each Mortgage Loan, including each document in the related Mortgage File and Records, is vested in Buyer; provided that, prior to the recordation by the Custodian as provided for in the Custodial Agreement record title in the name of Seller to each Mortgage shall be retained by Seller in trust, for the benefit of Buyer, for the sole purpose of facilitating the servicing and the supervision of the servicing of the Mortgage Loans.

f.     With respect to each Wet-Ink Mortgage Loan, by no later than the seventh (7th) calendar day following the applicable Purchase Date, Seller shall cause the related Settlement Agent to deliver to the Custodian the remaining documents in the Mortgage File, as more particularly set forth in the Custodial Agreement.

4.     Repurchase

a.     Seller shall repurchase the related Purchased Mortgage Loans from Buyer on each related Repurchase Date.  Such obligation to repurchase exists without regard to any prior or intervening liquidation or foreclosure with respect to any Purchased Mortgage Loan (but liquidation or foreclosure proceeds received by

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Buyer shall be applied to reduce the Repurchase Price for such Purchased Mortgage Loan on each Price Differential Payment Date except as otherwise provided herein).  Seller is obligated to repurchase and take physical possession of the Purchased Mortgage Loans from Buyer or its designee (including the Custodian) at Seller’s expense on the related Repurchase Date.

b.     Provided that no Default shall have occurred and is continuing, and Buyer has received the related Repurchase Price upon repurchase of the Purchased Mortgage Loans, Buyer agrees to release its ownership interest hereunder in the Purchased Mortgage Loans (including, the Repurchase Assets related thereto) at the request of Seller.  The Purchased Mortgage Loans (including the Repurchase Assets related thereto) shall be delivered to Seller free and clear of any lien, encumbrance or claim. With respect to payments in full by the related Mortgagor of a Purchased Mortgage Loan, Seller agrees to (i) provide Buyer with a copy of a report from the related Servicer indicating that such Purchased Mortgage Loan has been paid in full, (ii) remit to Buyer, within two (2) Business Days, the Repurchase Price with respect to such Purchased Mortgage Loan and (iii)  provide Buyer a notice specifying each Purchased Mortgage Loan that has been prepaid in full.  Buyer agrees to release its ownership interest in Purchased Mortgage Loans which have been prepaid in full after receipt of evidence of compliance with clauses (i) through (iii) of the immediately preceding sentence.

c.     In the event that at any time any Purchased Mortgage Loan violates the applicable sublimit set forth in the definition of Market Value, Buyer may, in its sole discretion, redesignate such Mortgage Loan as an Exception Mortgage Loan.  If Buyer does not redesignate such Mortgage Loan as an Exception Mortgage Loan, and if Seller fails to notify Buyer within five (5) Business Days following notice or knowledge of such violation that Seller does not want to receive a bid for such Mortgage Loan as described below, Buyer or an Affiliate of Buyer may offer to terminate Seller’s right and obligation to repurchase such Mortgage Loan  by paying Seller a price to be set by Buyer in its sole discretion (a “Bid”). Seller, within one (1) Business Day of receipt of Buyer’s bid (the “Violation Deadline”) may, in its sole discretion, either (i) accept Buyer’s bid, terminating Seller’s right and obligation to repurchase such Mortgage Loan under this Agreement or (ii) immediately repurchase the Mortgage Loan at the Repurchase Price in accordance with this Section 4.  Any amount paid by Buyer or its Affiliate to terminate Seller’s right and obligation to repurchase a Purchased Mortgage Loan if a Bid is accepted pursuant to this Section shall be applied by Buyer toward the outstanding Repurchase Price for the applicable Transaction.

5.     Price Differential.

a.     On each Business Day that a Transaction is outstanding, the Pricing Rate shall be reset and, unless otherwise agreed, the accrued and unpaid Price Differential shall be settled in cash on each related Price Differential Payment Date.  Two (2) Business Days prior to the Price Differential Payment Date, Buyer shall give Seller written or electronic notice of the amount of the Price Differential due on

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such Price Differential Payment Date.  On the Price Differential Payment Date, Seller shall pay to Buyer the Price Differential for such Price Differential Payment Date (along with any other amounts to be paid pursuant to Sections 7 and 34 hereof), by wire transfer in immediately available funds.

b.     If Seller fails to pay all or part of the Price Differential by 3:00 p.m. (New York City time) on the related Price Differential Payment Date, with respect to any Purchased Mortgage Loan, Seller shall be obligated to pay to Buyer (in addition to, and together with, the amount of such Price Differential) interest on the unpaid Repurchase Price at a rate per annum equal to the Post Default Rate until the Price Differential is received in full by Buyer.

c.     Seller may remit to Buyer funds in an amount up to the outstanding Purchase Price of the Purchased Mortgage Loans, to be held as unsegregated cash margin and collateral for all Obligations under this Agreement (such amount, to the extent not applied to Obligations under this Agreement, the “Buydown Amount”).  The Buydown Amount shall be used by Buyer in order to calculate the aggregate Price Differential, which will accrue on the aggregate Purchase Price then outstanding minus the Buydown Amount, applied to Transactions involving the lowest Pricing Rate.  The Seller shall be entitled to request a drawdown of the Buydown Amount or remit additional funds to be added to the Buydown Amount no more than one time per week.  Without limiting the generality of the foregoing, in the event that a Margin Call or other Default exists, the Buyer shall be entitled to use any or all of the Buydown Amount to cure such circumstance or otherwise exercise remedies available to the Buyer without prior notice to, or consent from, the Seller.  Within two (2) Business Days’ receipt of written request from Seller, and provided no Margin Call or other Default exists, Buyer shall remit any portion of such Buydown Amount back to Seller.

6.     Margin Maintenance

a.     If at any time the Market Value of any Purchased Mortgage Loan subject to a Transaction is less than Buyer’s Margin Amount for such Transaction (a “Margin Deficit”), then Buyer may by notice to Seller require Seller to transfer to Buyer cash in an amount at least equal to the Margin Deficit (such requirement, a “Margin Call”) .

b.     Notice delivered pursuant to Section 6(a) may be given by any written or electronic means.  With respect to a Margin Call in the amount of less than 5% of  the Purchase Price for all Transactions (a “Low Percentage Margin Call”), any notice given before 5:00 p.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the following Business Day; notice given after 5:00 p.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the second Business Day following the date of such notice. With respect to all Margin Calls other than Low Percentage Margin Calls, any notice given before 10:00 a.m. (New York City

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time) on a Business  Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on such Business Day; notice given after 10:00 a.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the following Business Day. The foregoing time requirements for satisfaction of a Margin Call are referred to as the “Margin Deadlines”).  The failure of Buyer, on any one or more occasions, to exercise its rights hereunder, shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of Buyer to do so at a later date.  Seller and Buyer each agree that a failure or delay by Buyer to exercise its rights hereunder shall not limit or waive Buyer’s rights under this Agreement or otherwise existing by law or in any way create additional rights for Seller.

c.     In the event that a Margin Deficit exists with respect to any Purchased Mortgage Loan, Buyer may retain any funds received by it to which the Seller would otherwise be entitled hereunder, which funds (i) shall be held by Buyer against the related Margin Deficit and (ii) may be applied by Buyer against the Repurchase Price of any Purchased Mortgage Loan for which the related Margin Deficit remains otherwise unsatisfied.  Notwithstanding the foregoing, the Buyer retains the right, in its sole discretion, to make a Margin Call in accordance with the provisions of this Section 6.

7.     Income Payments

a.     If Income is paid in respect of any Purchased Mortgage Loan during the term of a Transaction, such Income shall be the property of Buyer.  Upon an Event of Default, Seller shall and shall cause Servicer to deposit all Income to the account set forth in Section 9, upon receipt thereof, in accordance with Section 12(c) hereof.

b.     Provided no Event of Default has occurred and is continuing, on each Price Differential Payment Date, Seller shall remit to Buyer an amount equal to the Price Differential out of the interest portion of the Income paid in respect to the Purchased Mortgage Loans for the preceding month in accordance with Section 5 of this Agreement.  Provided no Event of Default has occurred and is continuing, upon termination of any Transaction or portion thereof, Servicer shall retain from the Income relating thereto any servicing fee and other amounts due under the Servicing Agreement and remit all remaining amounts as follows:

(1)   first, to Buyer in payment of any accrued and unpaid Price Differential, to the extent not paid by Seller to Buyer pursuant to Section 5;

(2)   second, without limiting the rights of Buyer under Section 6 of this Agreement, to Buyer, in the amount of any unpaid Margin Deficit;

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(3)   third, to Buyer in reduction of the Repurchase Price of the Purchased Mortgage Loans, an amount equal to the full or partial prepayments of principal received on or with respect to such Purchased Mortgage Loans;

(4)   fourth, to the payment of all other costs and fees payable to Buyer pursuant to this Agreement; and

(5)   fifth, to Seller, any remaining amounts.

c.     Notwithstanding any provision to the contrary in this Section 7, within two (2) Business Days of receipt by Seller of any prepayment of principal in full, with respect to a Purchased Mortgage Loan, Seller shall remit such amount to Buyer and Buyer shall immediately apply any such amount received by Buyer to reduce the amount of the Repurchase Price due upon termination of the related Transaction.

8.     Security Interest

a.     Although the parties intend that all Transactions hereunder be sales and purchases and not loans, in the event any such Transactions are deemed to be loans, and in any event, Seller hereby pledges to Buyer as security for the performance by Seller of the Obligations and hereby grants, assigns and pledges to Buyer a fully perfected first priority security interest in the Purchased Mortgage Loans, any Agency Security or right to receive such Agency Security when issued to the extent backed by any of the Purchased Mortgage Loans, the Records, and all related Servicing Rights, the Program Agreements (to the extent such Program Agreements and Seller’s right thereunder relate to the Purchased Mortgage Loans), any related Take-out Commitments, any Property relating to the Purchased Mortgage Loans, all insurance policies and insurance proceeds relating to any Purchased Mortgage Loan or the related Mortgaged Property, including, but not limited to, any payments or proceeds under any related primary insurance, hazard insurance and FHA Mortgage Insurance Contracts and VA Loan Guaranty Agreements (if any), Income, the Buydown Amount and any account to which such amount is deposited, Interest Rate Protection Agreements to the extent of the Purchased Mortgage Loans protected thereby, accounts (including any interest of Seller in escrow accounts) and any other contract rights, instruments, accounts, payments, rights to payment (including payments of interest or finance charges), general intangibles and other assets relating to the Purchased Mortgage Loans (including, without limitation, any other accounts) or any interest in the Purchased Mortgage Loans, and any proceeds (including the related securitization proceeds) and distributions with respect to any of the foregoing and any other property, rights, title or interests as are specified on a Transaction Request and/or Trust Receipt, in all instances, whether now owned or hereafter acquired, now existing or hereafter created (collectively, the “Repurchase Assets”).

b.     Reserved.

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c.     The Seller and Guarantors each acknowledge that neither has rights to service the Purchased Mortgage Loans but only has rights as a party to the current Servicing Agreement.  Without limiting the generality of the foregoing and in the event that the Seller or Guarantors are deemed to retain any residual Servicing Rights, and for the avoidance of doubt, each of Seller and Guarantors grants, assigns and pledges to Buyer a security interest in the Servicing Rights and proceeds related thereto and in all instances, whether now owned or hereafter acquired, now existing or hereafter created.

d.     The foregoing provisions (a) and (c) are intended to constitute a security agreement or other arrangement or other credit enhancement related to this Agreement and  Transactions hereunder as defined under Sections 101(47)(A)(v) and 741(7)(A)(xi) of the Bankruptcy Code.

e.     Seller agrees to execute, deliver and/or file such documents and perform such acts as may be reasonably necessary to fully perfect Buyer’s security interest created hereby.  Furthermore, the Seller hereby authorizes the Buyer to file financing statements relating to the Repurchase Assets, as the Buyer, at its option, may deem appropriate.  The Seller shall pay the filing costs for any financing statement or statements prepared pursuant to this Section 8.

9.     Payment and Transfer

Unless otherwise mutually agreed in writing, all transfers of funds to be made by Seller hereunder shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the following account maintained by Buyer: Account No. 30809505, for the account of  CSFB Buyer/PennyMac Corp.-Inbound Account, Citibank, ABA No. 021 000 089 or such other account as Buyer shall specify to Seller in writing.  Seller acknowledges that it has no rights of withdrawal from the foregoing account.  All Purchased Mortgage Loans transferred by one party hereto to the other party shall be in the case of a purchase by Buyer in suitable form for transfer or shall be accompanied by duly executed instruments of transfer or assignment in blank and such other documentation as Buyer may reasonably request.  All Purchased Mortgage Loans shall be evidenced by a Trust Receipt.  Any Repurchase Price received by Buyer after 2:00 p.m. (New York City time) shall be deemed received on the next succeeding Business Day.

10.  Conditions Precedent

a.     Initial Transaction.  As conditions precedent to the initial Transaction, Buyer shall have received on or before the day of such initial Transaction the following, in form and substance satisfactory to Buyer and duly executed by Seller, Guarantors and each other party thereto:

(1)   Program Agreements.  The Program Agreements duly executed and delivered by the parties thereto and being in full force and effect, free of any modification, breach or waiver.

(2)   Reserved.

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(3)   Security Interest.  Evidence that all other actions necessary or, in the opinion of Buyer, desirable to perfect and protect Buyer’s interest in the Purchased Mortgage Loans and other Repurchase Assets have been taken, including, without limitation, duly authorized and filed Uniform Commercial Code financing statements on Form UCC-1.

(4)   Organizational Documents.  A certificate of the corporate secretary of the Seller, each Guarantor and PennyMac OP GP, Inc. substantially in the form of Exhibit F hereto, attaching certified copies of Seller’s certificate of incorporation and by-laws, PennyMac Mortgage Investment Trust’s declaration of trust and PennyMac Operating Partnership, L.P.’s limited partnership certificate and limited partnership agreement and in each case resolutions approving the Program Agreements and transactions thereunder (either specifically or by general resolution) and all documents evidencing other necessary corporate action or governmental approvals as may be required in connection with the Program Agreements.

(5)   Good Standing Certificate.  A certified copy of a good standing certificate from the jurisdiction of organization of Seller and Guarantors, dated as of no earlier than the date ten (10) Business Days prior to the Purchase Date with respect to the initial Transaction hereunder.

(6)   Incumbency Certificate.  An incumbency certificate of the corporate secretary of each of Seller and Guarantors, certifying the names, true signatures and titles of the representatives duly authorized to request transactions hereunder and to execute the Program Agreements.

(7)   Opinion of Counsel.  An opinion of Seller’s and Guarantors’ counsel, in form and substance substantially as set forth in Exhibit E attached hereto.

(8)   Underwriting Guidelines.  A true and correct copy of the Underwriting Guidelines certified by an officer of the Seller.

(9)   Fees.  Payment of any fees due to Buyer hereunder.

(10) Insurance.  Evidence that Seller has added Buyer as an additional loss payee under the Seller’s Fidelity Insurance.

b.     All Transactions.  The obligation of Buyer to enter into each Transaction pursuant to this Agreement is subject to the following conditions precedent:

(1)   Due Diligence Review.  Without limiting the generality of Section 36 hereof, Buyer shall have completed, to its satisfaction, its due diligence review of the related Mortgage Loans and Seller, Guarantors and the Servicer.

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(2)   Required Documents.

(a)   With respect to each Purchased Mortgage Loan which is not a Wet-Ink Mortgage Loan, the Mortgage File has been delivered to the Custodian in accordance with the Custodial Agreement;

(b)   With respect to each Wet-Ink Mortgage Loan, the Wet-Ink Documents have been delivered to Buyer or Custodian, as the case may be, in accordance with the Custodial Agreement.

(3)   Transaction Documents.  Buyer or its designee shall have received on or before the day of such Transaction (unless otherwise specified in this Agreement) the following, in form and substance satisfactory to Buyer and (if applicable) duly executed:

(a)   A Transaction Request and Mortgage Loan Schedule delivered by Seller pursuant to Section 3(b) or 3(c) hereof and a Purchase Confirmation with respect to an Exception Mortgage Loan.

(b)   The Request for Certification and the related Mortgage Loan Schedule delivered by Seller, and the Trust Receipt and Custodial Mortgage Loan Schedule delivered by Custodian.

(c)   Such certificates, opinions of counsel or other documents as Buyer may reasonably request.

(4)   No Default.  No Default or Event of Default shall have occurred and be continuing;

(5)   Requirements of Law.  Buyer shall not have determined that the introduction of or a change in any Requirement of Law or in the interpretation or administration of any Requirement of Law applicable to Buyer has made it unlawful, and no Governmental Authority shall have asserted that it is unlawful, for Buyer to enter into Transactions with a Pricing Rate based on CSCOF.

(6)   Representations and Warranties.  Both immediately prior to the related Transaction and also after giving effect thereto and to the intended use thereof, the representations and warranties made by Seller in each Program Agreement shall be true, correct and complete on and as of such Purchase Date in all material respects with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date).

(7)   Electronic Tracking Agreement. To the extent Seller is selling Mortgage Loans which are registered on the MERS® System, an Electronic Tracking Agreement entered into, duly executed and delivered by the parties thereto and being in full force and effect, free of any modification, breach or waiver.

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(8)   Material Adverse Change.  None of the following shall have occurred and/or be continuing:

(a)   Credit Suisse AG, New York Branch’s corporate bond rating as calculated by S&P or Moody’s has been lowered or downgraded to a rating below investment grade by S&P or Moody’s;

(b)   an event or events shall have occurred in the good faith determination of Buyer resulting in the effective absence of a “repo market” or comparable “lending market” for financing debt obligations secured by mortgage loans or securities or an event or events shall have occurred resulting in Buyer not being able to finance Purchased Mortgage Loans through the “repo market” or “lending market” with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events; or

(c)   an event or events shall have occurred resulting in the effective absence of a “securities market” for securities backed by mortgage loans or an event or events shall have occurred resulting in Buyer not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; or

(d)   there shall have occurred a material adverse change in the financial condition of Buyer which affects (or can reasonably be expected to affect) materially and adversely the ability of Buyer to fund its obligations under this Agreement.

11.  Program; Costs

a.     Seller shall pay the fees and expenses of Buyer’s counsel in an amount not exceeding $35,000 in connection with the original preparation and execution of the Program Agreements. Seller shall reimburse Buyer for any of Buyer’s reasonable out-of-pocket costs, including due diligence review costs and reasonable attorney’s fees as further described below and in Section 36, incurred by Buyer in determining the acceptability to Buyer of any Mortgage Loans.  Seller shall also pay, or reimburse Buyer if Buyer shall pay, any termination fee, which may be due any servicer.  Legal fees for any subsequent amendments to this Agreement or related documents shall be borne by Seller.  Seller shall pay ongoing custodial fees and expenses as set forth in the Custodial Agreement, and any other ongoing fees and expenses under any other Program Agreement.

b.     If Buyer determines that, due to the introduction of, any change in, or the compliance by Buyer with (i) any eurocurrency reserve requirement or (ii) the interpretation of any law, regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be an increase in the cost to Buyer in engaging in the present or any future Transactions, then Seller agrees to pay to Buyer, from time to time, upon demand by Buyer (with a copy to Custodian) the actual cost of additional amounts

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as specified by Buyer to compensate Buyer for such increased costs; provided that this Section 11(b) shall only apply to the extent that such increased costs are not reflected in Buyer’s calculation of CSCOF.

c.     With respect to any Transaction, Buyer may conclusively rely upon, and shall incur no liability to Seller in acting upon, any request or other communication that Buyer reasonably believes to have been given or made by a person authorized to enter into a Transaction on Seller’s behalf, whether or not such person is listed on the certificate delivered pursuant to Section 10(a)(6) hereof.  In each such case, Seller hereby waives the right to dispute Buyer’s record of the terms of the Purchase Confirmation, request or other communication.

d.     Notwithstanding the assignment of the Program Agreements with respect to each Purchased Mortgage Loan to Buyer, Seller agrees and covenants with Buyer to enforce diligently Seller’s rights and remedies set forth in the Program Agreements.

e.     Any payments made by Seller or any Guarantor to Buyer shall be free and clear of, and without deduction or withholding for, any taxes; provided, however, that if such payer shall be required by law to deduct or withhold any taxes from any sums payable to Buyer, then such payer shall (A) make such deductions or withholdings and pay such amounts to the relevant authority in accordance with applicable law, (B) pay to Buyer the sum that would have been payable had such deduction or withholding not been made, and (C) at the time Price Differential is paid, pay to Buyer all additional amounts as specified by Buyer to preserve the after-tax yield Buyer would have received if such tax had not been imposed, and otherwise indemnify Buyer for any such taxes imposed.

12.  Servicing

a.     Pursuant to the Servicing Agreement, Seller has contracted with Servicer to service the Mortgage Loans consistent with the degree of skill and care that Seller customarily requires with respect to similar Mortgage Loans owned or managed by it and in accordance with Accepted Servicing Practices.  The Seller and Servicer shall (i) comply with all applicable Federal, State and local laws and regulations, (ii) maintain all state and federal licenses necessary for it to perform its servicing responsibilities hereunder and (iii) not impair the rights of Buyer in any Mortgage Loans or any payment thereunder.  Buyer may terminate the servicing of any Mortgage Loan with the then-existing servicer in accordance with Section 12(e) hereof.

b.     Seller shall and shall cause the Servicer to hold or cause to be held all escrow funds collected by Seller and Servicer with respect to any Purchased Mortgage Loans in trust accounts and shall apply the same for the purposes for which such funds were collected.

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c.     Seller shall and shall cause the Servicer to deposit all collections received by Servicer on the Purchased Mortgage Loans in the account set forth in Section 9 upon an Event of Default.

d.     Seller shall provide to Buyer a Servicer Notice and Pledge addressed to and agreed to by the Servicer of the related Purchased Mortgage Loans, advising such Servicer of such matters as Buyer may reasonably request, including, without limitation, recognition by the Servicer of Buyer’s interest in such Purchased Mortgage Loans and the Servicer’s agreement that upon receipt of notice of an Event of Default from Buyer, it will follow the instructions of Buyer with respect to the Purchased Mortgage Loans and any related Income with respect thereto.

e.     Upon the occurrence and continuation of an Event of Default hereunder, Buyer shall have the right to immediately terminate the Servicer’s right to service the Purchased Mortgage Loans without payment of any penalty or termination fee under the Servicing Agreement.  Seller and the Servicer shall cooperate in transferring the servicing of the Purchased Mortgage Loans to a successor servicer appointed by Buyer in its sole discretion.

f.     If Seller should discover that, for any reason whatsoever, Seller or any entity responsible to Seller for managing or servicing any such Purchased Mortgage Loan has failed to perform fully Seller’s obligations under the Program Agreements or any of the obligations of such entities with respect to the Purchased Mortgage Loans, Seller shall promptly notify Buyer.

g.     Servicer shall service the Purchased Mortgage Loans on behalf of Buyer for ninety (90) day intervals which will automatically terminate if not renewed by Buyer, which renewal shall be evidenced by delivery of a renewal letter substantially in the form of Exhibit C hereto.

h.     For the avoidance of doubt, the Seller retains no economic rights to the servicing of the Purchased Mortgage Loans; provided that the Seller shall and shall cause the Servicer to continue to service the Purchased Mortgage Loans hereunder as part of the Obligations hereunder.  As such, the Seller expressly acknowledges that the Purchased Mortgage Loan are sold to Buyer on a “servicing released” basis.

13.  Representations and Warranties

a.     Except as otherwise specifically set forth below, each of Seller and Guarantors represents and warrants to Buyer as of the date hereof and as of each Purchase Date for any Transaction that:

(1)           Seller and Guarantors Existence.  Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware.  PennyMac Mortgage Investment Trust has been duly organized and is validly existing as a real estate investment trust in good standing under the laws of the State of Maryland.  PennyMac Operating Partnership, L.P.

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has been duly organized and is validly existing as a limited partnership in good standing under the laws of the State of Delaware.

(2)           Licenses.  Each of Seller and Guarantors is duly licensed or is otherwise qualified in each jurisdiction in which it transacts business for the business which it conducts and is not in default of any applicable federal, state or local laws, rules and regulations unless, in either instance, the failure to take such action is not reasonably likely (either individually or in the aggregate) to cause a Material Adverse Effect.  The Seller has the requisite power and authority, legal right and necessary licenses (including from VA and FHA) to originate and purchase Mortgage Loans (as applicable) and to own, sell and grant a lien on all of its right, title and interest in and to the Mortgage Loans, and to execute and deliver, engage in the transactions contemplated by, and perform and observe the terms and conditions of, each Program Agreement and any Transaction Request.  Seller is an FHA Approved Mortgagee and VA Approved Lender as of the Purchase Date for the initial Transaction involving an FHA Loan or VA Loan, respectively, and as of each Purchase Date thereafter.

(3)           Power.  Each of Seller and Guarantors has all requisite corporate or other power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect.

(4)           Due Authorization.  Each of Seller and Guarantors has all necessary corporate or other power, authority and legal right to execute, deliver and perform its obligations under each of the Program Agreements, as applicable.  Each Program Agreement has been (or, in the case of Program Agreements not yet executed, will be) duly authorized, executed and delivered by Seller and Guarantors, all requisite or other corporate action having been taken, and each is valid, binding and enforceable against Seller and Guarantors in accordance with its terms except as such enforcement may be affected by bankruptcy, by other insolvency laws, or by general principles of equity.

(5)           Financial Statements.  Each of PennyMac Mortgage Investment Trust and Seller have heretofore furnished to Buyer a copy of (a) its consolidated balance sheets and the consolidated balance sheets of its consolidated Subsidiaries for the fiscal year ended December 31, 2009 and the related consolidated statements of income and retained earnings and of cash flows for it and its consolidated Subsidiaries for such fiscal year, with the opinion thereon of Deloitte & Touche LLP and (b) its consolidated balance sheets and the consolidated balance sheets of its consolidated Subsidiaries for the quarterly fiscal periods ended March 31, 2010 and June 30, 2010 and the related consolidated statements of income and retained earnings and of cash flows for it and its consolidated Subsidiaries for such quarterly fiscal periods.  All such financial statements are complete and correct and fairly present, in all material respects, the

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consolidated financial condition of PennyMac Mortgage Investment Trust, Seller and their consolidated Subsidiaries, as applicable and the consolidated results of their operations as at such dates and for such fiscal periods, all in accordance with GAAP (other than monthly financial statements solely with respect to footnotes, year-end adjustments and cash flow statements) applied on a consistent basis.  Each of Seller and each Guarantor has, on the date of the statements delivered pursuant to this Section (the “Statement Date”) no liabilities, direct or indirect, fixed or contingent, matured or unmatured, known or unknown, or liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, said balance sheet and related statements, and at the present time there are no material unrealized or anticipated losses from any loans, advances or other commitments of Seller except as heretofore disclosed to Buyer in writing.

(6)           Event of Default.  There exists no Event of Default under Section 15(b) hereof, which default gives rise to a right to accelerate indebtedness as referenced in Section 15(b) hereof, under any mortgage, borrowing agreement or other instrument or agreement pertaining to indebtedness for borrowed money or to the repurchase of mortgage loans or securities.

(7)           Solvency.  Each of Seller and Guarantors is solvent and will not be rendered insolvent by any Transaction and, after giving effect to such Transaction, will not be left with an unreasonably small amount of capital with which to engage in its business.  Neither Seller nor Guarantors intend to incur, nor believe that they have incurred, debts beyond their ability to pay such debts as they mature and are not contemplating the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of such entity or any of its assets.  The amount of consideration being received by Seller upon the sale of the Purchased Mortgage Loans to Buyer constitutes reasonably equivalent value and fair consideration for such Purchased Mortgage Loans.  Seller is not transferring any Purchased Mortgage Loans with any intent to hinder, delay or defraud any of its creditors.

(8)           No Conflicts.  The execution, delivery and performance by each of Seller and each Guarantor of each Program Agreement do not conflict with any term or provision of the formation documents or by-laws of Seller or Guarantors or any law, rule, regulation, order, judgment, writ, injunction or decree applicable to Seller or either Guarantor of any court, regulatory body, administrative agency or governmental body having jurisdiction over Seller or any Guarantor, which conflict would have a Material Adverse Effect and will not result in any violation of any such mortgage, instrument, agreement or obligation to which Seller or any Guarantor is a party.

(9)           True and Complete Disclosure.  All information, reports, exhibits, schedules, financial statements or certificates of Seller, Guarantors, or any Affiliate thereof or any of their officers furnished or to be furnished to Buyer

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in connection with the initial or any ongoing due diligence of Seller, Guarantors, or any Affiliate or officer thereof, negotiation, preparation, or delivery of the Program Agreements are true and complete and do not omit to disclose any material facts necessary to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.  All financial statements have been prepared in accordance with GAAP (other than monthly financial statements solely with respect to footnotes, year-end adjustments and cash flow statements).

(10)         Approvals.  No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required under applicable law in connection with the execution, delivery and performance by Seller or any Guarantor of each Program Agreement.

(11)         Litigation.  There is no action, proceeding or investigation pending with respect to which either Seller or either Guarantor has received service of process or, to the best of Seller’s or either Guarantor’s knowledge threatened against it before any court, administrative agency or other tribunal (A) asserting the invalidity of any Program Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated any Program Agreement, (C) makes a claim individually in an amount greater than $1,000,000 or in an aggregate amount greater than $5,000,000, (D) which requires filing with the Securities and Exchange Commission in accordance with the 1934 Act or any rules thereunder or (E) which might materially and adversely affect the validity of the Mortgage Loans or the performance by it of its obligations under, or the validity or enforceability of any Program Agreement.

(12)         Material Adverse Change.  There has been no material adverse change in the business, operations, financial condition, properties or prospects of Seller, Guarantors or their Affiliates since the date set forth in the most recent financial statements supplied to Buyer as determined by Buyer in its sole good faith discretion.

(13)         Ownership.  Upon payment of the Purchase Price and the filing of the financing statement and delivery of the Mortgage Files to the Custodian and the Custodian’s receipt of the related Request for Certification, Buyer shall become the sole owner of the Purchased Mortgage Loans and related Repurchase Assets, free and clear of all liens and encumbrances.

(14)         Underwriting Guidelines.  The Underwriting Guidelines provided to Buyer are the true and correct Underwriting Guidelines of the Seller.

(15)         Taxes. Seller, Guarantors and their Subsidiaries have timely filed all tax returns that are required to be filed by them and have paid all taxes, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided.  The charges, accruals and reserves on the

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books of Seller, Guarantors and their Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Seller or Guarantors, as applicable, adequate.

(16)         Investment Company.  None of Seller, any Guarantor or any of their Subsidiaries is an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended; provided, however, that any entity that is under the management of PNMAC Capital Management LLC in its capacity as an “investment adviser” within the meaning of the Investment Advisers Act of 1940 and is otherwise not directly or indirectly owned or controlled by Seller shall not be deemed a “Subsidiary” for the purposes of this Section 13(a)(16).

(17)         Chief Executive Office; Jurisdiction of Organization.  On the Effective Date, Seller’s chief executive office, is, and has been, located at 27001 Agoura Road, Third Floor, Calabasas, California 91301.  On the Effective Date, Seller’s jurisdiction of organization is the State of Delaware.  Seller shall provide Buyer with thirty days advance notice of any change in Seller’s principal office or place of business or jurisdiction.  Seller has no trade name.  During the preceding five years, Seller has not been known by or done business under any other name, corporate or fictitious, and has not filed or had filed against it any bankruptcy receivership or similar petitions nor has it made any assignments for the benefit of creditors.

(18)         Location of Books and Records.  The location where Seller keeps its books and records, including all computer tapes and records relating to the Purchased Mortgage Loans and the related Repurchase Assets is its chief executive office.

(19)         Adjusted Tangible Net Worth.  On the Effective Date, (A) Seller’s Adjusted Tangible Net Worth is not less than the sum of (x) $65,000,000 and (y) 50% of Seller’s positive quarterly Net Income for the previous calendar quarter and (B) PennyMac Mortgage Investment Trust’s Adjusted Tangible Net Worth is not less than $300,000,000.

(20)         ERISA.  Each Plan to which Seller, Guarantors or their Subsidiaries make direct contributions, and, to the knowledge of Seller, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law.

(21)         Adverse Selection.  Seller has not selected the Purchased Mortgage Loans in a manner so as to adversely affect Buyer’s interests.

(22)         Agreements.  Neither Seller nor any Subsidiary of Seller is a party to any agreement, instrument, or indenture or subject to any restriction materially and adversely affecting its business, operations, assets or financial

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condition, except as disclosed in the financial statements described in Section 13(a)(5) hereof.  Neither Seller nor any Subsidiary of Seller is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, instrument, or indenture which default could have a material adverse effect on the business, operations, properties, or financial condition of Seller as a whole.  No holder of any indebtedness of Seller or of any of its Subsidiaries has given notice of any asserted default thereunder.

(23)         Other Indebtedness.  All Indebtedness (other than Indebtedness evidenced by this Agreement) of Seller existing on the date hereof is listed on Exhibit H hereto (the “Existing Indebtedness”).

(24)         Agency Approvals.  With respect to each Agency Security and to the extent necessary, Seller is an FHA Approved Mortgagee, a VA Approved Lender and/or a GNMA Approved Lender.  On and after approval by the Agencies, Seller will be, to the extent necessary, approved by Fannie Mae as an approved lender and Freddie Mac as an approved seller/servicer, and, to the extent necessary, approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the National Housing Act.  On and after approval by the Agencies, Seller is in good standing, with no event having occurred or Seller having any reason whatsoever to believe or suspect will occur prior to the issuance of the Agency Security or the consummation of the Take-out Commitment, as the case may be, including, without limitation, a change in insurance coverage which would either make Seller unable to comply with the eligibility requirements for maintaining all such applicable approvals or require notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA.  If, on and after approval by the Agencies, Seller for any reason ceases to possess all such applicable approvals, or should notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA be required, Seller or Guarantors shall so notify Buyer immediately in writing.

(25)         No Reliance.  Each of Seller and each Guarantor has made its own independent decisions to enter into the Program Agreements and each Transaction and as to whether such Transaction is appropriate and proper for it based upon its own judgment and upon advice from such advisors (including without limitation, legal counsel and accountants) as it has deemed necessary.  Neither Seller nor any Guarantor is relying upon any advice from Buyer as to any aspect of the Transactions, including without limitation, the legal, accounting or tax treatment of such Transactions.

(26)         Plan Assets. Neither Seller nor Guarantors are an employee benefit plan as defined in Section 3 of  Title I of ERISA, or a plan described in Section 4975(e)(1) of the Code, and the Purchased Mortgage Loans are not “plan assets” within the meaning of 29 CFR §2510.3 101 as amended by Section 3(42) of ERISA, in the Seller’s hands, and transactions by or with Seller or Guarantors are not subject to any state or local statute regulating investments or fiduciary

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obligations with respect to governmental plans within the meaning of Section 3(32) of ERISA.

(27)         No Prohibited Persons. Neither the Seller nor any of its Affiliates, officers, directors, partners or members, is an entity or person (or to the  Seller’s knowledge, owned or controlled by an entity or person): (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224 issued on September 24, 2001 (“EO13224”); (ii) whose name appears on the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) most current list of “Specifically Designated National and Blocked Persons” (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf); (iii) who commits, threatens to commit or supports “terrorism”, as that term is defined in EO13224; or (iv) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in clauses (i) through (iv) above are herein referred to as a “Prohibited Person”).

(28)         Servicing.  Seller has adequate financial standing and, through the Servicing Agreement with Servicer, access to adequate servicing facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same types as may from time to time constitute Mortgage Loans and in accordance with Accepted Servicing Practices.

(29)         Real Estate Investment Trust.  PennyMac Mortgage Investment Trust is a REIT and has not engaged in any material “prohibited transactions” as defined in Section 857(b)(6)(B)(iii) of the Code. PennyMac Mortgage Investment Trust for its current taxable year is entitled to a dividends paid deduction under the requirements of Section 857 of the Code with respect to any dividends paid by it with respect to each taxable year for which it claims a deduction in its Form 1120-REIT filed with the United States Internal Revenue Service.

b.     With respect to every Purchased Mortgage Loan, each of Seller and each Guarantor jointly and severally represents and warrants to Buyer as of the applicable Purchase Date for any Transaction and each date thereafter that each representation and warranty set forth on Schedule 1 is true and correct.

c.     The representations and warranties set forth in this Agreement shall survive transfer of the Purchased Mortgage Loans to Buyer and shall continue for so long as the Purchased Mortgage Loans are subject to this Agreement.  Upon discovery by Seller, Servicer or Buyer of any breach of any of the representations or warranties set forth in this Agreement, the party discovering such breach shall promptly give notice of such discovery to the others.  Buyer has the right to require, in its unreviewable discretion, Seller to repurchase within one (1) Business Day after receipt of notice from Buyer any Purchased Mortgage Loan (i) for which a breach of one or more of the representations and warranties

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referenced in Section 13(b) exists and which breach has a material adverse effect on the value of such Mortgage Loan or the interests of Buyer or (ii) which is determined by Buyer, in its good faith discretion, to be generally unacceptable for inclusion in a securitization.

14.  Covenants

Each of Seller and each Guarantor covenants with Buyer that, during the term of this facility:

a.     Litigation. Seller and each Guarantor, as applicable, will promptly, and in any event within ten (10) days after service of process on any of the following, give to Buyer notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are threatened or pending) or other legal or arbitrable proceedings affecting Seller, Guarantors or any of their Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Program Agreements or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim individually in an amount greater than $1,000,000 or in an aggregate amount greater than $5,000,000, or (iii) which, individually or in the aggregate, if adversely determined, could be reasonably likely to have a Material Adverse Effect.  Seller and each Guarantor, as applicable, will promptly provide notice of any judgment, which with the passage of time, could cause an Event of Default hereunder.

b.     Prohibition of Fundamental Changes.  Seller shall not enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets; provided, that Seller may merge or consolidate with (a) any wholly owned subsidiary of Seller, or (b) any other Person if Seller is the surviving corporation; and provided further, that if after giving effect thereto, no Default would exist hereunder.

c.     Servicing.  Seller shall not cause the Mortgage Loans to be serviced by any servicer other than a servicer expressly approved in writing by Buyer, which approval shall be deemed granted by Buyer with respect to Servicer with the execution of this Agreement.

d.     Insurance.  The Seller or Guarantors shall continue to maintain, for Seller and its Subsidiaries, Fidelity Insurance in an aggregate amount at least equal to $300,000.  The Seller or Guarantors shall maintain, for Seller and its Subsidiaries, Fidelity Insurance in respect of its officers, employees and agents, with respect to any claims made in connection with all or any portion of the Repurchase Assets.  The Seller or Guarantors shall notify the Buyer of any material change in the terms of any such Fidelity Insurance.

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e.     No Adverse Claims.  Seller warrants and will defend, and shall cause any Servicer to defend, the right, title and interest of Buyer in and to all Purchased Mortgage Loans and the related Repurchase Assets against all adverse claims and demands.

f.     Assignment.  Except as permitted herein, neither Seller nor any Servicer shall sell, assign, transfer or otherwise dispose of, or grant any option with respect to, or pledge, hypothecate or grant a security interest in or lien on or otherwise encumber (except pursuant to the Program Agreements), any of the Purchased Mortgage Loans or any interest therein, provided that this Section shall not prevent any transfer of Purchased Mortgage Loans in accordance with the Program Agreements.

g.     Security Interest.  Seller shall do all things necessary to preserve the Purchased Mortgage Loans and the related Repurchase Assets so that they remain subject to a first priority perfected security interest hereunder.  Without limiting the foregoing, Seller will comply with all rules, regulations and other laws of any Governmental Authority and cause the Purchased Mortgage Loans or the related Repurchase Assets to comply with all applicable rules, regulations and other laws.  Seller will not allow any default for which Seller is responsible to occur under any Purchased Mortgage Loans or the related Repurchase Assets or any Program Agreement and Seller shall fully perform or cause to be performed when due all of its obligations under any Purchased Mortgage Loans or the related Repurchase Assets and any Program Agreement.

h.     Records.

(1)   Seller shall collect and maintain or cause to be collected and maintained all Records relating to the Purchased Mortgage Loans in accordance with industry custom and practice for assets similar to the Purchased Mortgage Loans, including those maintained pursuant to the preceding subparagraph, and all such Records shall be in Custodian’s possession unless Buyer otherwise approves.  Except in accordance with the Custodial Agreement, Seller will not allow any such papers, records or files that are an original or an only copy to leave Custodian’s possession, except for individual items removed in connection with servicing a specific Mortgage Loan, in which event Seller will obtain or cause to be obtained a receipt from a financially responsible person for any such paper, record or file.  Seller or the Servicer of the Purchased Mortgage Loans will maintain all such Records not in the possession of Custodian in good and complete condition in accordance with industry practices for assets similar to the Purchased Mortgage Loans and preserve them against loss.

(2)   For so long as Buyer has an interest in or lien on any Purchased Mortgage Loan, Seller will hold or cause to be held all related Records in trust for Buyer.  Seller shall notify, or cause to be notified, every other party holding any such Records of the interests and liens in favor of Buyer granted hereby.

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(3)   Upon reasonable advance notice from Custodian or Buyer, Seller shall (x) make any and all such Records available to Custodian or Buyer to examine any such Records, either by its own officers or employees, or by agents or contractors, or both, and make copies of all or any portion thereof, and (y) permit Buyer or its authorized agents to discuss the affairs, finances and accounts of Seller with its chief operating officer and chief financial officer and to discuss the affairs, finances and accounts of Seller with its independent certified public accountants.

i.      Books.  Seller shall keep or cause to be kept in reasonable detail books and records of account of its assets and business and shall clearly reflect therein the transfer of Purchased Mortgage Loans to Buyer.

j.      Approvals.  Seller shall maintain all licenses, permits or other approvals necessary for Seller to conduct its business and to perform its obligations under the Program Agreements, and Seller shall conduct its business strictly in accordance with applicable law.

k.     Material Change in Business.  Neither Seller nor Guarantors shall  make any material change in the nature of its business as carried on at the date hereof.

l.      Underwriting Guidelines.  Without the prior written consent of Buyer, Seller shall not amend or otherwise modify the Underwriting Guidelines in any material respect.  Without limiting the foregoing, in the event that Seller makes any amendment or modification to the Underwriting Guidelines, Seller shall promptly deliver to Buyer a complete copy of the amended or modified Underwriting Guidelines, specifying in detail the amendments and modifications set forth therein from the previous copy delivered.

m.   Distributions. If an Event of Default has occurred and is continuing, neither Seller nor Guarantors shall pay any dividends with respect to any capital stock or other equity interests in such entity, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller or Guarantors.

n.     Applicable Law.  Seller and each Guarantor shall comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority.

o.     Existence.  Seller and the Guarantors shall preserve and maintain their legal existence and all of their material rights, privileges, licenses and franchises.

p.     Chief Executive Office; Jurisdiction of Organization.  Seller shall not move its chief executive office from the address referred to in Section 13(a)(17) or change its jurisdiction of organization from the jurisdiction referred to in Section 13(a)(17) unless it shall have provided Buyer 30 days’ prior written notice of such change.

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q.     Taxes.  Seller and each Guarantor shall timely file all tax returns that are required to be filed by them and shall timely pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.

r.      Transactions with Affiliates.  Seller will not enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under the Program Agreements, (b) in the ordinary course of Seller’s business and (c) upon fair and reasonable terms no less favorable to Seller than it would obtain in a comparable arm’s length transaction with a Person which is not an Affiliate, or make a payment that is not otherwise permitted by this Section to any Affiliate.

s.     Guarantees.  Seller shall not create, incur, assume or suffer to exist any Guarantees, except (i) to the extent reflected in Seller’s financial statements or notes thereto and (ii) to the extent the aggregate Guarantees of Seller do not exceed $250,000.

t.      Indebtedness. Seller shall not incur any additional material Indebtedness (other than (i) the Existing Indebtedness in amounts not to exceed the amounts specified on Exhibit H hereto; (ii) usual and customary accounts payable for a mortgage company; (iii) Indebtedness incurred in connection with another secured lending facility; and (iv) Indebtedness incurred in connection with an intercompany lending agreement) without the prior written consent of Buyer.

u.     Hedging. Seller has entered into Interest Rate Protection Agreements with respect to the Purchased Mortgage Loans, having terms with respect to protection against fluctuations in interest rates acceptable to Buyer in its sole discretion.  In the event that Seller intends to make any change to its policy regarding Interest Rate Protection Agreements, Seller shall notify Buyer in writing 30 days prior to implementing any such change.

v.     True and Correct Information.  All information, reports, exhibits, schedules, financial statements or certificates of Seller, each Guarantor, any Affiliate thereof or any of their officers furnished to Buyer hereunder and during Buyer’s diligence of Seller and Guarantors are and will be true and complete and do not omit to disclose any material facts necessary to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.  All required financial statements, information and reports delivered by Seller to Buyer pursuant to this Agreement shall be prepared in accordance with U.S. GAAP, or, if applicable, to SEC filings, the appropriate SEC accounting regulations.

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w.    Agency Approvals.  On and after approval by the Agencies, Seller shall maintain its status with Fannie Mae as an approved lender and Freddie Mac as an approved seller/servicer, in each case in good standing (“Agency Approvals”).  Seller shall service all Purchased Mortgage Loans which are Committed Mortgage Loans in accordance with the applicable Agency guide.  On and after approval by the Agencies, if Seller, for any reason, cease to possess all such applicable Agency Approvals, or should notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA be required, Seller shall so notify Buyer immediately in writing.  Notwithstanding the preceding sentence, Seller shall take all necessary action to maintain all of its applicable Agency Approvals at all times during the term of this Agreement and each outstanding Transaction.

x.     Take-out Payments. With respect to each Committed Mortgage Loan, Seller shall arrange that all payments under the related Take-out Commitment shall be paid directly to Buyer at the account set forth in Section 9 hereof, or to an account approved by Buyer in writing prior to such payment. With respect to any Agency Take-out Commitment, if applicable, (1) with respect to the wire transfer instructions as set forth in Freddie Mac Form 987 (Wire Transfer Authorization for a Cash Warehouse Delivery) such wire transfer instructions are identical to Buyer’s wire instructions or Buyer has approved such wire transfer instructions in writing in its sole discretion, or (2) the Payee Number set forth on Fannie Mae Form 1068 (Fixed-Rate, Graduated-Payment, or Growing-Equity Mortgage Loan Schedule) or Fannie Mae Form 1069 (Adjustable-Rate Mortgage Loan Schedule), as applicable, shall be identical to the Payee Number that has been identified by Buyer in writing as Buyer’s Payee Number or Buyer shall have previously approved the related Payee Number in writing in its sole discretion; with respect to any Take-out Commitment with an Agency, the applicable agency documents shall list Buyer as sole subscriber, unless otherwise agreed to in writing by Buyer, in Buyer’s sole discretion.

y.     [Reserved].

z.     Plan Assets. Neither Seller  nor Guarantors shall be an employee benefit plan as defined in Section 3 of Title I of ERISA, or a plan described in Section 4975(e)(1) of the Code and the Seller shall not use “plan assets” within the meaning of 29 CFR §2510.3 101, as amended by Section 3(42) of ERISA to engage in this Agreement or any Transaction hereunder. Transactions by or with Seller or Guarantors shall not be subject to any state or local statute regulating investments of or fiduciary obligations with respect to governmental plans within the meaning of Section 3(32) of ERISA.

aa.  Sharing of Information.  The Seller shall allow the Buyer to exchange information related to the Seller and the Transaction hereunder with third party lenders and the Seller shall permit each third party lender to share such information with the Buyer.

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bb.  Compare Report.  At all such times during which Seller is an FHA Approved Mortgagee and/or VA Approved Lender, Seller’s (i) Compare Ratio (A) for each of the three default choices shall not deviate by more than 25% from its Compare Ratio as of the date hereof and (B) shall not exceed 150% and (ii) Compare Report by Branch (as such term is defined in the Compare Report) based upon current defaults, defaults within the first year, and defaults within the first two years, shall not exceed 150%.

cc.   Quality Control.  Seller shall maintain an internal quality control program that verifies, on a regular basis, the existence and accuracy of all legal documents, credit documents, property appraisals, and underwriting decisions related to Mortgage Loans.  Such program shall be capable of evaluating and monitoring the overall quality of Seller’s loan production and servicing activities.  Such program shall (i) ensure that the Mortgage Loans are originated and serviced in accordance with prudent mortgage banking practices and accounting principles; (ii) guard against dishonest, fraudulent, or negligent acts; and (iii) guard against errors and omissions by officers, employees, or other authorized persons.

dd.  Financial Covenants.  Seller and PennyMac Mortgage Investment Trust, as applicable, shall at all times comply with any and all financial covenants and/or financial ratios set forth in this Section dd and in Section 2 of the Pricing Side Letter.

(1)   Adjusted Tangible Net Worth.  (A) Seller shall maintain an Adjusted Tangible Net Worth of at least the sum of (x) $65,000,000, and (y) 50% of Seller’s positive quarterly Net Income for the previous quarter and (B) PennyMac Mortgage Investment Trust shall maintain an Adjusted Tangible Net Worth of at least $300,000,000.

(2)   Indebtedness to Adjusted Tangible Net Worth Ratio.  Seller’s ratio of Indebtedness (on and off balance sheet) to Adjusted Tangible Net Worth shall not exceed 10:1.

(3)   Maintenance of Liquidity.  The Seller and PennyMac Mortgage Investment Trust shall ensure that, as of the end of each calendar month, they have unrestricted cash and Cash Equivalents in amounts not less than (i) with respect to the Seller, $7,500,000, and (ii) with respect to the PMIT Group, $10,000,000.

(4)   Maintenance of Profitability.  Seller shall not permit, for any Test Period, Net Income for such Test Period, before income taxes for such Test Period and distributions made during such Test Period, to be less than $1.00.

ee.   Most Favored Status.  Seller, Guarantors and the Buyer each agree that should Seller enter into a Warehouse Facility with any Person other than the Buyer or an Affiliate of the Buyer which by its terms provides more favorable terms to the Buyer with respect to the financial covenants set forth in Section 14dd hereof (a

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“More Favorable Agreement”), the terms of this Agreement shall be deemed automatically amended to include such more favorable terms contained in such More Favorable Agreement; provided, that in the event that such More Favorable Agreement is terminated, upon notice by the Seller to the Buyer of such termination, the original terms of this Agreement shall be deemed to be automatically reinstated.  The Seller, the Guarantors, and the Buyer further agree to execute and deliver any new agreements or amendments to this Agreement evidencing such provisions, provided that the execution of such amendment shall not be a precondition to the effectiveness of such amendment, but shall merely be for the convenience of the parties hereto.  Promptly upon Seller entering into a repurchase agreement or other credit facility with any Person other than the Buyer, Seller shall notify Buyer that it has entered into such repurchase agreement or other credit facility and deliver to Buyer a summary of the material terms related to the comparable financial covenants of such repurchase agreement or other credit facility in form and substance acceptable to Buyer.

15.  Events of Default

Each of the following shall constitute an “Event of Default” hereunder:

a.     Payment Failure.  Failure of Seller to (i) make any payment of Price Differential or Repurchase Price or any other sum which has become due, on a Price Differential Payment Date or a Repurchase Date or otherwise, whether by acceleration or otherwise, under the terms of this Agreement, any other warehouse and security agreement or any other document evidencing or securing Indebtedness of Seller to Buyer or to any Affiliate of Buyer, or (ii) cure any Margin Deficit when due pursuant to Section 6 hereof.

b.     Cross Default.  Seller, any Guarantor or any Affiliates thereof shall be in default under (i) any Indebtedness, in the aggregate, in excess of $1.5 million of Seller, any Guarantor or any Affiliate thereof, which default (1) involves the failure to pay a matured obligation, or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary with respect to such Indebtedness, or (ii) any other contract or contracts, in the aggregate in excess of $1.5 million to which Seller, any Guarantor or any Affiliate thereof is a party which default (1) involves the failure to pay a matured obligation, or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary of such contract.

c.     Assignment.  Assignment or attempted assignment by Seller or any Guarantor of this Agreement or any rights hereunder without first obtaining the specific written consent of Buyer, or the granting by Seller of any security interest, lien or other encumbrances on any Purchased Mortgage Loans to any person other than Buyer.

d.     Insolvency.  An Act of Insolvency shall have occurred with respect to Seller, any Guarantor or any Affiliate.

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e.     Material Adverse Change.  Any material adverse change in the Property, business, financial condition or operations of Seller, any Guarantor or any of their Affiliates shall occur, in each case as determined by Buyer in its sole good faith discretion, or any other condition shall exist which, in Buyer’s sole good faith discretion, constitutes a material impairment of Seller’s ability to perform its obligations under this Agreement or any other Program Agreement.

f.     Breach of Financial Representation or Covenant or Obligation. A breach by Seller or either Guarantor of any of the representations, warranties or covenants or obligations set forth in Sections 13(a)(1), 13(a)(7), 13(a)(12), 13(a)(19), 13(a)(23), 14b, 14o, 14s, 14t, 14z, 14dd or 14ee of this Agreement.

g.     Breach of Take-out Payment Covenant.  A breach by Seller or any Guarantor of the covenant set forth in Section 14x, if such breach is not cured within one (1) Business Day.

h.     Breach of Non-Financial Representation or Covenant.  A breach by Seller or any Guarantor of any other material representation, warranty or covenant set forth in this Agreement (and not otherwise specified in Sections 15(f) and (g) above), if such breach is not cured within five (5) Business Days (other than the representations and warranties set forth in Schedule 1, which shall be considered solely for the purpose of determining the Market Value, the existence of a Margin Deficit and the obligation to repurchase such Mortgage Loan) unless (i) such party shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made, (ii) any such representations and warranties have been determined by Buyer in its sole discretion to be materially false or misleading on a regular basis, or (iii) Buyer, in its sole discretion, determines that such breach of a material representation, warranty or covenant materially and adversely affects (A) the condition (financial or otherwise) of such party, its Subsidiaries or Affiliates; or (B) Buyer’s determination to enter into this Agreement or Transactions with such party, then such breach shall constitute an immediate Event of Default and Seller shall have no cure right hereunder).

i.      Change of Control.  The occurrence of a Change in Control.

j.      Failure to Transfer.  Seller fails to transfer the Purchased Mortgage Loans to Buyer on the applicable Purchase Date (provided Buyer has tendered the related Purchase Price).

k.     Judgment.  A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against the Seller or any of its Affiliates by one or more courts, administrative tribunals or other bodies having jurisdiction and the same shall not be satisfied, discharged (or provision shall not be made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof.

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l.      Government Action.  Any Governmental Authority or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the Property of Seller, Guarantors or any Affiliate thereof, or shall have taken any action to displace the management of Seller, Guarantors or any Affiliate thereof or to curtail its authority in the conduct of the business of Seller, Guarantors or any Affiliate thereof, or takes any action in the nature of enforcement to remove, limit or restrict the approval of Seller, Guarantors or Affiliate as an issuer, buyer or a seller/servicer of Mortgage Loans or securities backed thereby, and such action provided for in this Section 15l shall not have been discontinued or stayed within 30 days.

m.   Inability to Perform.  A Responsible Officer of Seller or any Guarantor shall admit its inability to, or its intention not to, perform any of the Obligations hereunder or any Guarantor’s obligations hereunder or under the Guaranty.

n.     Security Interest.  This Agreement shall for any reason cease to create a valid, first priority security interest in any material portion of the Purchased Mortgage Loans or other Repurchase Assets purported to be covered hereby.

o.     Financial Statements.  Seller’s or Guarantors’ audited annual financial statements or the notes thereto or other opinions or conclusions stated therein shall be qualified or limited by reference to the status of Seller or Guarantors as a “going concern” or a reference of similar import.

p.     Guarantor Breach.  A breach by any Guarantor of any material representation, warranty or covenant set forth in the Guaranty or any other Program Agreement, any “event of default” by any Guarantor under the Guaranty, any repudiation of the Guaranty by any Guarantor, or if the Guaranty is not enforceable against  any Guarantor.

q.     REIT Asset and Income Tests.  The failure of PennyMac Mortgage Investment Trust to satisfy any of the following asset or income tests and Buyer has delivered notice of an Event of Default to the Sellers with respect thereto:

(1)   At the close of each of PennyMac Mortgage Investment Trust’s taxable years, at least 75 percent of PennyMac Mortgage Investment Trust’s gross income (excluding gross income from “prohibited transactions” as defined in Section 857(b)(6)(B)(iii) of the Code and taking into account Section 856(c)(5)(G) of the Code) consists of (a) “rents from real property” within the meaning of Section 856(c)(3)(A) of the Code, (b) interest on obligations secured by mortgages on real property or on interests in real property, within the meaning of Section 856(c)(3)(B) of the Code, (c) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) which is not property described in Section 1221(a)(1) of the Code, within the meaning of Section 856(c)(3)(C) of the Code, (d) dividends or other distributions on, and gain (other than gain from prohibited transactions) from the

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sale or other disposition of, transferable shares (or transferable certificates of beneficial interest) in other REITs, within the meaning of Section 856(c)(3)(D) of the Code, and (e) amounts described in Sections 856(c)(3)(E) through 856(c)(3)(I) of the Code.

(2)   At the close of each of PennyMac Mortgage Investment Trust’s taxable years, at least 95 percent of PennyMac Mortgage Investment Trust’s gross income (excluding gross income from “prohibited transactions” as defined in Section 857(b)(6)(iii) of the Code and taking into account Section 856(c)(5)(G) of the Code) consists of (a) the items of income described in paragraph (i) hereof (other than those described in Section 856(c)(3)(I) of the Code or the requirements in any successor or replacement provision in the Code), (b) gain realized from the sale or other disposition of stock or securities which are not property described in Section 1221(a)(1) of the Code or the requirements in any successor or replacement provision in the Code, if any, (c) interest and (d) dividends, in each case within the meaning of Section 856(c)(2) of the Code or the requirements in any successor or replacement provision thereto.

(3)   At the close of each quarter of each of PennyMac Mortgage Investment Trust’s taxable years, at least 75 percent of the value of PennyMac Mortgage Investment Trust’s total assets (as determined in accordance with Treasury Regulations Section 1.856-2(d)) consists of “real estate assets” within the meaning of Section 856(c)(5)(B) of the Code, cash and cash items (including receivables which arise in the ordinary course of PennyMac Mortgage Investment Trust’s operations, but not including receivables purchased from another person), and Government Securities; unless (a) the test described in this paragraph (iii) has been satisfied as of the end of the immediately preceding quarter of PennyMac Mortgage Investment Trust’s taxable year, (b) the failure of such test is the result of the acquisition of a security or property during the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, (c) PennyMac Mortgage Investment Trust delivers to Buyer prompt, but in no event more than 30 days after the end of the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, notice that such test is not satisfied, (d) such test is satisfied within the 30 day period prescribed by the last sentence of Section 856(c)(4) of the Code for such satisfaction, and (e) an officer of PennyMac Mortgage Investment Trust certifies as to such satisfaction within such 30 day period, and provides documentation reasonably satisfactory to Buyer evidencing such satisfaction.

(4)   At the close of each quarter of each of PennyMac Mortgage Investment Trust’s taxable years, (a) not more than 25 percent of the value of PennyMac Mortgage Investment Trust’s total assets is represented by securities (other than those described in paragraph (iii)), (b) not more than 25 percent of the value of PennyMac Mortgage Investment Trust’s total assets is represented by securities of one or more “taxable REIT subsidiaries” (as defined in Section 856(1) of the Code), and (c) (1) not more than 5 percent of the value of PennyMac Mortgage Investment Trust’s total assets is represented by securities of any one

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issuer (other than Government Securities and securities of taxable REIT subsidiaries), and (2) PennyMac Mortgage Investment Trust does not hold securities possessing more than 10 percent of the total voting power or value of the outstanding securities of any one issuer (other than Government Securities and securities of taxable REIT subsidiaries); unless (aa) the tests described in this paragraph (iv) have been satisfied as of the end of the immediately preceding quarter of PennyMac Mortgage Investment Trust’s taxable year, (bb) the failure of any such test is the result of the acquisition of a security or property during the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, (cc) PennyMac Mortgage Investment Trust delivers to Buyer, within 10 days of the end of the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, notice that such test is not satisfied, (dd) such test is satisfied within the 30 day period prescribed by the last sentence of Section 856(c)(4) of the Code for such satisfaction, and (ee) an officer of PennyMac Mortgage Investment Trust certifies as to such satisfaction within such 30 day period, and provides documentation reasonably satisfactory to Buyer evidencing such satisfaction.

r.      Governmental Event.  Buyer shall determine, in its sole discretion, that a Governmental Event, individually or collectively, and whether unforeseen or arising out of Seller’s existing applications, communications and correspondence with any Governmental Authority or Person, has had, or is likely to have, a Material Adverse Effect, or an adverse effect upon its ability to perform its obligations under this Agreement or any other material agreement to which it is a party or that may otherwise materially impair, limit or restrict Seller’s ability to conduct its business or its operations.

An Event of Default shall be deemed to be continuing unless expressly waived by Buyer in writing.

16.  Remedies Upon Default

In the event that an Event of Default shall have occurred:

a.     Buyer may, at its option (which option shall be deemed to have been exercised immediately upon the occurrence of an Act of Insolvency of Seller or any Affiliate), declare an Event of Default to have occurred hereunder and, upon the exercise or deemed exercise of such option, the Repurchase Date for each Transaction hereunder shall, if it has not already occurred, be deemed immediately to occur (except that, in the event that the Purchase Date for any Transaction has not yet occurred as of the date of such exercise or deemed exercise, such Transaction shall be deemed immediately canceled).  Buyer shall (except upon the occurrence of an Act of Insolvency) give notice to Seller and Guarantors of the exercise of such option as promptly as practicable.

b.     If Buyer exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Section, (i) Seller’s obligations in such Transactions to

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repurchase all Purchased Mortgage Loans, at the Repurchase Price therefor on the Repurchase Date determined in accordance with subparagraph (a) of this Section, shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by Buyer and applied, in Buyer’s sole discretion, to the aggregate unpaid Repurchase Prices for all outstanding Transactions and any other amounts owing by Seller hereunder, and (iii) Seller shall immediately deliver to Buyer the Mortgage Files relating to any Purchased Mortgage Loans subject to such Transactions then in Seller’s possession or control.

c.     Buyer also shall have the right to obtain physical possession, and to commence an action to obtain physical possession, of all Records and files of Seller relating to the Purchased Mortgage Loans and all documents relating to the Purchased Mortgage Loans (including, without limitation, any legal, credit or servicing files with respect to the Purchased Mortgage Loans) which are then or may thereafter come in to the possession of Seller or any third party acting for Seller.  To obtain physical possession of any Purchased Mortgage Loans held by Custodian, Buyer shall present to Custodian a Trust Receipt.  Without limiting the rights of Buyer hereto to pursue all other legal and equitable rights available to Buyer for Seller’s failure to perform its obligations under this Agreement, Seller acknowledges and agrees that the remedy at law for any failure to perform obligations hereunder would be inadequate and Buyer shall be entitled to specific performance, injunctive relief, or other equitable remedies in the event of any such failure. The availability of these remedies shall not prohibit Buyer from pursuing any other remedies for such breach, including the recovery of monetary damages.

d.     Buyer shall have the right to direct all servicers then servicing any Purchased Mortgage Loans to remit all collections thereon to Buyer, and if any such payments are received by Seller, Seller shall not commingle the amounts received with other funds of Seller and shall promptly pay them over to Buyer.  Buyer shall also have the right to terminate any one or all of the servicers then servicing any Purchased Mortgage Loans with or without cause.  In addition, Buyer shall have the right to immediately sell the Purchased Mortgage Loans and liquidate all Repurchase Assets.  Such disposition of Purchased Mortgage Loans may be, at Buyer’s option, on either a servicing-released or a servicing-retained basis.  Buyer shall not be required to give any warranties as to the Purchased Mortgage Loans with respect to any such disposition thereof.  Buyer may specifically disclaim or modify any warranties of title or the like relating to the Purchased Mortgage Loans.  The foregoing procedure for disposition of the Purchased Mortgage Loans and liquidation of the Repurchase Assets shall not be considered to adversely affect the commercial reasonableness of any sale thereof.  Seller agrees that it would not be commercially unreasonable for Buyer to dispose of the Purchased Mortgage Loans or the Repurchase Assets or any portion thereof by using Internet sites that provide for the auction of assets similar to the Purchased Mortgage Loans or the Repurchase Assets, or that have the reasonable capability of doing so, or that match buyers and sellers of assets.  Buyer shall be entitled to place the

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Purchased Mortgage Loans in a pool for issuance of mortgage-backed securities at the then-prevailing price for such securities and to sell such securities for such prevailing price in the open market.  Buyer shall also be entitled to sell any or all of such Mortgage Loans individually for the prevailing price. Buyer shall also be entitled, in its sole discretion to elect, in lieu of selling all or a portion of such Purchased Mortgage Loans, to give the Seller credit for such Purchased Mortgage Loans and the Repurchase Assets in an amount equal to the Market Value of the Purchased Mortgage Loans against the aggregate unpaid Repurchase Price and any other amounts owing by the Seller hereunder.

e.     Upon the happening of one or more Events of Default, Buyer may apply any proceeds from the liquidation of the Purchased Mortgage Loans and Repurchase Assets to the Repurchase Prices hereunder and all other Obligations in the manner Buyer deems appropriate in its sole discretion.

f.     Seller shall be liable to Buyer for (i) the amount of all reasonable legal or other expenses (including, without limitation, all costs and expenses of Buyer in connection with the enforcement of this Agreement or any other agreement evidencing a Transaction, whether in action, suit or litigation or bankruptcy, insolvency or other similar proceeding affecting  creditors’ rights generally, further including, without limitation, the reasonable fees and expenses of counsel (including the costs of internal counsel of Buyer) incurred in connection with or as a result of an Event of Default, (ii) damages in an amount equal to the cost (including all fees, expenses and commissions) of entering into replacement transactions and entering into or terminating hedge transactions in connection with or as a result of an Event of Default, and (iii) any other loss, damage, cost or expense directly arising or resulting from the occurrence of an Event of Default in respect of a Transaction.

g.     To the extent permitted by applicable law, Seller shall be liable to Buyer for interest on any amounts owing by Seller hereunder, from the date Seller becomes liable for such amounts hereunder until such amounts are (i) paid in full by Seller or (ii) satisfied in full by the exercise of Buyer’s rights hereunder.  Interest on any sum payable by Seller under this Section 16(g) shall accrue at a rate equal to the Post-Default Rate.

h.     Buyer shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law.

i.      Buyer may exercise one or more of the remedies available to Buyer immediately upon the occurrence of an Event of Default and, except to the extent provided in subsections (a) and (d) of this Section, at any time thereafter without notice to Seller.  All rights and remedies arising under this Agreement as amended from time to time hereunder are cumulative and not exclusive of any other rights or remedies which Buyer may have.

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j.      Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process.  Seller also waives any defense (other than a defense of payment or performance) Seller might otherwise have arising from the use of nonjudicial process, enforcement and sale of all or any portion of the Repurchase Assets, or from any other election of remedies.  Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm’s length.

k.     Buyer shall have the right to perform reasonable due diligence with respect to Seller and the Mortgage Loans, which review shall be at the expense of Seller.

17.  Reports

a.     Default Notices.  Seller  or Guarantors shall furnish to Buyer (i) promptly, copies of any material and adverse notices (including, without limitation, notices of defaults, breaches, potential defaults or potential breaches) and any material financial information that is not otherwise required to be provided by Seller hereunder which is given to Seller’s lenders and (ii) immediately, notice of the occurrence of any (A) Event of Default hereunder, (B) default or breach by Seller or Servicer or Guarantors of any obligation under any Program Agreement or any material contract or agreement of Seller or Servicer or Guarantors or (C) event or circumstance that such party reasonably expects has resulted in, or will, with the passage of time, result in, a Material Adverse Effect or an Event of Default or such a default or breach by such party.

b.     Financial Notices.  Seller or PennyMac Mortgage Investment Trust shall furnish to Buyer:

(1)   as soon as available and in any event within thirty (30) calendar days after the end of each calendar month, the unaudited consolidated balance sheets of Seller or PennyMac Mortgage Investment Trust and their consolidated Subsidiaries as at the end of such period and the related unaudited consolidated statements of income and retained earnings and of cash flows for the Seller or PennyMac Mortgage Investment Trust and their consolidated Subsidiaries for such period and the portion of the fiscal year through the end of such period, accompanied by a certificate of a Responsible Officer of Seller or PennyMac Mortgage Investment Trust, which certificate shall state that said consolidated financial statements fairly present in all material respects the consolidated financial condition and results of operations of Seller or PennyMac Mortgage Investment Trust and their consolidated Subsidiaries in accordance with GAAP (other than solely with respect to footnotes, year-end adjustments and cash flow statements) consistently applied, as at the end of, and for, such period;

(2)   to the extent not filed with the SEC on EDGAR, as soon as available and in any event within ninety (90) days after the end of each fiscal year

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of Seller or PennyMac Mortgage Investment Trust, the consolidated balance sheets of Seller, PennyMac Mortgage Investment Trust and their consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for the Seller or PennyMac Mortgage Investment Trust and their consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion and the scope of audit shall be acceptable to Buyer in its sole discretion, shall have no “going concern” qualification and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Seller or PennyMac Mortgage Investment Trust and their respective consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP

(3)   at the time the Seller or PennyMac Mortgage Investment Trust furnish each set of financial statements pursuant to Section 17(b)(1) or (2) above (or, with respect to (2) above, at the time filed with the SEC on EDGAR), a certificate of a Responsible Officer of Seller in the form of Exhibit A to the Pricing Side Letter;

(4)   if applicable, notice of any 10-K or 10-Q filings with the SEC on EDGAR by Seller or PennyMac Mortgage Investment Trust, within five (5) Business Days of such filing with the SEC; and

(5)   as soon as available and in any event within thirty (30) days of receipt thereof:

(a)           reserved;

(b)           copies of relevant portions of all final written Agency, FHA, VA, Governmental Authority and investor audits, examinations, evaluations, monitoring reviews and reports of its operations (including those prepared on a contract basis) which provide for or relate to (i) material corrective action required, (ii) material sanctions proposed, imposed or required, including without limitation notices of defaults, notices of termination of approved status, notices of imposition of supervisory agreements or interim servicing agreements, and notices of probation, suspension, or non-renewal, or (iii) “report cards,” “grades” or other classifications of the quality of Seller’s operations;

(c)           such other information regarding the financial condition, operations, or business of the Seller or Guarantors as Buyer may reasonably request; and

(d)           the particulars of any Event of Termination in reasonable detail.

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c.     Notices of Certain Events.  As soon possible and in any event within five (5) Business Days of knowledge thereof, Seller shall furnish to Buyer notice of the following events:

(1)   a change in the insurance coverage required of Seller, Servicer or any other Person pursuant to any Program Agreement, with a copy of evidence of same attached;

(2)   any material dispute, litigation, investigation, proceeding or suspension between Seller or Servicer, on the one hand, and any Governmental Authority or any Person;

(3)   any material change in accounting policies or financial reporting practices of Seller or Servicer;

(4)   with respect to any Purchased Mortgage Loan, that the underlying Mortgaged Property has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to affect adversely the value of such Mortgaged Loan;

(5)   any material issues raised upon examination of Seller or Seller’s facilities by any Governmental Authority;

(6)   any material change in the Indebtedness of the Seller, including, without limitation, any default, renewal, non-renewal, termination, increase in available amount or decrease in available amount related thereto;

(7)   any default related to any Repurchase Asset or any lien or security interest (other than security interests created hereby or by the other Program Agreements) on, or claim asserted against, any of the Purchased Mortgage Loans;

(8)   any other event, circumstance or condition that has resulted, or has a possibility of resulting, in a Material Adverse Effect with respect to Seller or Servicer;

(9)   the occurrence of any material employment dispute and a description of the strategy for resolving it that has the possibility of resulting in a Material Adverse Effect; and

(10) without limiting any of the other reporting obligations of Seller hereunder, Seller shall promptly notify Buyer of any Governmental Event or update thereto, and shall include the particulars of each update with sufficient detail as is satisfactory to Buyer.

d.     Portfolio Performance Data.  On the first Reporting Date of each calendar month, Seller will furnish to Buyer (i) in the event the Mortgage Loans are serviced on a “retained” basis, an electronic Mortgage Loan performance data,

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including, without limitation, delinquency reports and volume information, broken down by product (i.e., delinquency, foreclosure and net charge-off reports) and (ii) electronically, in a format mutually acceptable to Buyer and Seller, servicing information, including, without limitation, those fields reasonably requested by Buyer from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Purchased Mortgage Loans serviced by Seller or any Servicer for the month (or any portion thereof) prior to the Reporting Date.  In addition to the foregoing information on each Reporting Date, Seller will furnish to Buyer such information upon (i) the occurrence and continuation of an Event of Default and (ii) upon any Purchased Mortgage Loan becoming an Aged Loan.

e.     Other Reports. Seller shall deliver to Buyer any other reports or information reasonably requested by Buyer or as otherwise required pursuant to this Agreement.

18.  Repurchase Transactions

Buyer may, in its sole election, engage in repurchase transactions with the Purchased Mortgage Loans or otherwise pledge, hypothecate, assign, transfer or otherwise convey the Purchased Mortgage Loans with a counterparty of Buyer’s choice.  Unless an Event of Default shall have occurred, no such transaction shall relieve Buyer of its obligations to transfer Purchased Mortgage Loans to Seller pursuant to Section 4 hereof, or of Buyer’s obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Section 7 hereof.  In the event Buyer engages in a repurchase transaction with any of the Purchased Mortgage Loans or otherwise pledges or hypothecates any of the Purchased Mortgage Loans, Buyer shall have the right to assign to Buyer’s counterparty any of the applicable representations or warranties herein and the remedies for breach thereof, as they relate to the Purchased Mortgage Loans that are subject to such repurchase transaction.

19.  Single Agreement

Buyer and Seller acknowledge they have and will enter into each Transaction hereunder, in consideration of and in reliance upon the fact that, all Transactions hereunder constitute a single business and contractual relationship and have been made in consideration of each other.  Accordingly, each of Buyer and Seller agrees (i) to perform all of its obligations in respect of each Transaction hereunder, and that a default in the performance of any such obligations shall constitute a default by it in respect of all Transactions hereunder, (ii) that each of them shall be entitled to set-off claims and apply property held by them in respect of any Transaction against obligations owing to them in respect of any other Transactions hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect of any Transaction shall be deemed to have been made in consideration of payments, deliveries and other transfers in respect of any other Transactions hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted.

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20.  Notices and Other Communications

Any and all notices (with the exception of Transaction Requests or Purchase Confirmations, which shall be delivered via facsimile only), statements, demands or other communications hereunder may be given by a party to the other by mail, email, facsimile, messenger or otherwise to the address specified below, or so sent to such party at any other place specified in a notice of change of address hereafter received by the other.  All notices, demands and requests hereunder may be made orally, to be confirmed promptly in writing, or by other communication as specified in the preceding sentence.  In all cases, to the extent that the related individual set forth in the respective “Attention” line is no longer employed by the respective Person, such notice may be given to the attention of a Responsible Officer of the respective Person or to the attention of such individual or individuals as subsequently notified in writing by a Responsible Officer of the respective Person.

If to Seller or Guarantors:

PennyMac Corp.
27001 Agoura Road
Calabasas, CA 91301
Attention: David M. Walker/Michael Wong
Phone Number: (818) 224-7053/(818) 224-7055
E-mail: david.walker@pnmac.com; michael.wong@pnmac.com

with a copy to:

PennyMac Corp.
27001 Agoura Road
Calabasas, CA 91301
Attention: Jeff Grogin
Phone Number: (818) 224-7050
E-mail: jeff.grogin@pnmac.com

If to Buyer:

For Transaction Requests and Purchase Confirmations:

CSFBMC LLC

c/o Credit Suisse Securities (USA) LLC

One Madison Avenue, 2nd floor

New York, New York  10010

Attention: Christopher Bergs, Resi Mortgage Warehouse Ops

Phone:  212-538-5087

E-mail: christopher.bergs@credit-suisse.com

with a copy to:

Credit Suisse First Boston Mortgage Capital LLC

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c/o Credit Suisse Securities (USA) LLC

Eleven Madison Avenue, 4th Floor

New York, NY 10010

Attention: Bruce Kaiserman

E-mail: bruce.kaiserman@credit-suisse.com

For all other Notices:

Credit Suisse First Boston Mortgage Capital LLC

c/o Credit Suisse Securities (USA) LLC

Eleven Madison Avenue, 4th Floor

Attention:       Margaret Dellafera

Phone Number: 212-325-6471

Fax Number:  212-743-4810

E-mail: margaret.dellafera@credit-suisse.com

with a copy to:

Credit Suisse First Boston Mortgage Capital LLC

c/o Credit Suisse Securities (USA) LLC

One Madison Avenue, 9th Floor

New York, NY 10010

Attention: Legal Department—RMBS Warehouse Lending

Fax Number: (212) 322-2376

21.  Entire Agreement; Severability

This Agreement shall supersede any existing agreements between the parties containing general terms and conditions for repurchase transactions.  Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.

22.  Non assignability

The Program Agreements are not assignable by Seller or either Guarantor.  Buyer may from time to time assign all or a portion of its rights and obligations under this Agreement and the Program Agreements; provided, however that Buyer shall maintain as agent of Seller, for review by Seller upon written request, a register of assignees and a copy of an executed assignment and acceptance by Buyer and assignee (“Assignment and Acceptance”), specifying the percentage or portion of such rights and obligations assigned.  Upon such assignment, (a) such assignee shall be a party hereto and to each Program Agreement to the extent of the percentage or portion set forth in the Assignment and Acceptance, and shall succeed to the applicable rights and obligations of Buyer hereunder, and (b) Buyer shall, to the extent that such rights and obligations have been so assigned by it to either (i) an Affiliate of Buyer which assumes the obligations of Buyer or (ii)  another Person approved by Seller (such approval not to be unreasonably withheld) which assumes the obligations of Buyer, be released from its

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obligations hereunder and under the Program Agreements.  Unless otherwise stated in the Assignment and Acceptance, Seller shall continue to take directions solely from Buyer unless otherwise notified by Buyer in writing.  Buyer may distribute to any prospective assignee any document or other information delivered to Buyer by Seller.

23.  Set-off

In addition to any rights and remedies of the Buyer hereunder and by law, the Buyer shall have the right, without prior notice to the Seller or Guarantors, any such notice being expressly waived by the Seller and Guarantors to the extent permitted by applicable law to set-off and appropriate and apply against any Obligation from Seller, any Guarantor or any Affiliate thereof to Buyer or any of its Affiliates any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other obligation (including to return excess margin), credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by or due from the Buyer or any Affiliate thereof to or for the credit or the account of the Seller, any Guarantor or any Affiliate thereof.  The Buyer agrees promptly to notify the Seller or Guarantors after any such set off and application made by the Buyer; provided that the failure to give such notice shall not affect the validity of such set off and application.

24.  Binding Effect; Governing Law; Jurisdiction

a.     This Agreement shall be binding and inure to the benefit of the parties hereto and their respective successors and permitted assigns.  Seller acknowledges that the obligations of Buyer hereunder or otherwise are not the subject of any guaranty by, or recourse to, any direct or indirect parent or other Affiliate of Buyer.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (EXCEPT FOR SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

b.     SELLER AND EACH GUARANTOR HEREBY WAIVE TRIAL BY JURY.  SELLER AND EACH GUARANTOR HEREBY IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS IN ANY ACTION OR PROCEEDING.  SELLER AND EACH GUARANTOR HEREBY SUBMIT TO, AND WAIVE ANY OBJECTION THEY MAY HAVE TO, EXCLUSIVE PERSONAL JURISDICTION AND VENUE IN THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT TO ANY DISPUTES ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS.

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25.  No Waivers, Etc.

No express or implied waiver of any Event of Default by either party shall constitute a waiver of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute a waiver of its right to exercise any other remedy hereunder.  No modification or waiver of any provision of this Agreement and no consent by any party to a departure herefrom shall be effective unless and until such shall be in writing and duly executed by both of the parties hereto.  Without limitation on any of the foregoing, the failure to give a notice pursuant to Section 6(a), 16(a) or otherwise, will not constitute a waiver of any right to do so at a later date.

26.  Intent

a.     The parties recognize that each Transaction is a “repurchase agreement” as that term is defined in Section 101 of Title 11 of the United States Code, as amended and a “securities contract” as that term is defined in Section 741 of Title 11 of the United States Code, as amended and that all payments hereunder are deemed “margin payments” or “settlement payments” as defined in Title 11 of the United States Code.

b.     It is understood that either party’s right to liquidate Purchased Mortgage Loans delivered to it in connection with Transactions hereunder or to exercise any other remedies pursuant to Section 16 hereof is a contractual right to liquidate such Transaction as described in Sections 555 and 559 of Title 11 of the United States Code, as amended.

c.     The parties agree and acknowledge that if a party hereto is an “insured depository institution,” as such term is defined in the Federal Deposit Insurance Act, as amended (“FDIA”), then each Transaction hereunder is a “qualified financial contract,” as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of assets subject to such Transaction would render such definition inapplicable).

d.     It is understood that this Agreement constitutes a “netting contract” as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and each payment entitlement and payment obligation under any Transaction hereunder shall constitute a “covered contractual payment entitlement” or “covered contractual payment obligation”, respectively, as defined in and subject to FDICIA (except insofar as one or both of the parties is not a “financial institution” as that term is defined in FDICIA).

e.     This Agreement is intended to be a “repurchase agreement” and a “securities contract,” within the meaning of Section 555 and Section 559 under the Bankruptcy Code.

27.  Disclosure Relating to Certain Federal Protections

The parties acknowledge that they have been advised that:

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a.     in the case of Transactions in which one of the parties is a broker or dealer registered with the SEC under Section 15 of the 1934 Act, the Securities Investor Protection Corporation has taken the position that the provisions of the SIPA do not protect the other party with respect to any Transaction hereunder;

b.     in the case of Transactions in which one of the parties is a government securities broker or a government securities dealer registered with the SEC under Section 15C of the 1934 Act, SIPA will not provide protection to the other party with respect to any Transaction hereunder; and

c.     in the case of Transactions in which one of the parties is a financial institution, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, as applicable.

28.  Power of Attorney

Seller hereby authorizes Buyer to file such financing statement or statements relating to the Repurchase Assets without Seller’s signature thereon as Buyer, at its option, may deem appropriate.  Seller hereby appoints Buyer as Seller’s agent and attorney-in-fact to execute any such financing statement or statements in Seller’s name and to perform all other acts which Buyer deems appropriate to perfect and continue its ownership interest in and/or the security interest granted hereby, if applicable, and to protect, preserve and realize upon the Repurchase Assets, including, but not limited to, the right to endorse notes, complete blanks in documents, transfer servicing, and sign assignments on behalf of Seller as its agent and attorney-in-fact.  This agency and power of attorney is coupled with an interest and is irrevocable without Buyer’s consent.  Notwithstanding the foregoing, the power of attorney hereby granted may be exercised only during the occurrence and continuance of any Default hereunder. Seller shall pay the filing costs for any financing statement or statements prepared pursuant to this Section 28.  In addition the foregoing, the Seller agrees to execute a power of attorney, the form of Exhibit D hereto (the “Power of Attorney”), to be delivered on the date hereof.

29.  Buyer May Act Through Affiliates

Buyer may, from time to time, designate one or more Affiliates for the purpose of performing any action hereunder.

30.  Indemnification; Obligations

a.     Each of Seller and each Guarantor agrees to hold Buyer and each of its respective Affiliates and their officers, directors, employees, agents and advisors (each, an “Indemnified Party”) harmless from and indemnify each Indemnified Party (and will reimburse each Indemnified Party as the same is incurred) against all liabilities, losses, damages, judgments, costs and expenses (including, without limitation, reasonable fees and expenses of counsel) of any kind which may be imposed on, incurred by, or asserted against any Indemnified Party relating to or arising out of this Agreement, any Transaction Request, Purchase Confirmation, any Program Agreement or any transaction contemplated hereby or thereby

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resulting from anything other than the Indemnified Party’s gross negligence or willful misconduct.  Each of Seller and each Guarantor also agrees to reimburse each Indemnified Party for all reasonable expenses in connection with the enforcement of this Agreement and the exercise of any right or remedy provided for herein, any Transaction Request, Purchase Confirmation and any Program Agreement, including, without limitation, the reasonable fees and disbursements of counsel.  Seller’s and each Guarantor’s agreements in this Section 30 shall survive the payment in full of the Repurchase Price and the expiration or termination of this Agreement.  Each of Seller and each Guarantor hereby acknowledges that its obligations hereunder are recourse obligations of Seller and  such Guarantor and are not limited to recoveries each Indemnified Party may have with respect to the Purchased Mortgage Loans.  Each of Seller and each Guarantor also agrees not to assert any claim against Buyer or any of its Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the facility established hereunder, the actual or proposed use of the proceeds of the Transactions, this Agreement or any of the transactions contemplated thereby.  THE FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS EXPRESSLY APPLIES, WITHOUT LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.

b.     Without limitation to the provisions of Section 4, if any payment of the Repurchase Price of any Transaction is made by Seller other than on the then scheduled Repurchase Date thereto as a result of an acceleration of the Repurchase Date pursuant to Section 16 or for any other reason, Seller shall, upon demand by Buyer, pay to Buyer an amount sufficient to compensate Buyer for any losses, costs or expenses that it may reasonably incur as of a result of such payment.

c.     Without limiting the provisions of Section 30(a) hereof, if Seller fails to pay when due any costs, expenses or other amounts payable by it under this Agreement, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of Seller by Buyer, in its sole discretion.

31.  Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all such counterparts shall together constitute one and the same instrument.

32.  Confidentiality

a.     This Agreement and its terms, provisions, supplements and amendments, and notices hereunder, are proprietary to Buyer and shall be held by Seller and each

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Guarantor in strict confidence and shall not be disclosed to any third party without the written consent of Buyer except for (i) disclosure to Seller’s or Guarantors’ direct and indirect Affiliates and Subsidiaries, attorneys or accountants, but only to the extent such disclosure is necessary and such parties agree to hold all information in strict confidence, or (ii)  disclosure required by law, rule, regulation or order of a court or other regulatory body.  Notwithstanding the foregoing or anything to the contrary contained herein or in any other Program Agreement, the parties hereto may disclose to any and all Persons, without limitation of any kind, the federal, state and local tax treatment of the Transactions, any fact relevant to understanding the federal, state and local tax treatment of the Transactions, and all materials of any kind (including opinions or other tax analyses) relating to such federal, state and local tax treatment and that may be relevant to understanding such tax treatment; provided that Seller may not disclose the name of or identifying information with respect to Buyer or any pricing terms (including, without limitation, the Pricing Rate, Commitment Fee, Purchase Price Percentage and Purchase Price) or other nonpublic business or financial information (including any sublimits and financial covenants) that is unrelated to the federal, state and local tax treatment of the Transactions and is not relevant to understanding the federal, state and local tax treatment of the Transactions, without the prior written consent of the Buyer.

b.     Notwithstanding anything in this Agreement to the contrary, the Seller shall comply with all applicable local, state and federal laws, including, without limitation, all privacy and data protection law, rules and regulations that are applicable to the Purchased Mortgage Loans and/or any applicable terms of this Agreement (the “Confidential Information”).  The Seller understands that the Confidential Information may contain “nonpublic personal information”, as that term is defined in Section 509(4) of the Gramm-Leach-Bliley Act (the “Act”), and the Seller agrees to maintain such nonpublic personal information that it receives hereunder in accordance with the Act and other applicable federal and state privacy laws.  The Seller shall implement such physical and other security measures as shall be necessary to (a) ensure the security and confidentiality of the “nonpublic personal information” of the “customers” and “consumers” (as those terms are defined in the Act) of Buyer or any Affiliate of Buyer which the Seller holds, (b) protect against any threats or hazards to the security and integrity of such nonpublic personal information, and (c) protect against any unauthorized access to or use of such nonpublic personal information. The Seller represents and warrants that it has implemented appropriate measures to meet the objectives of Section 501(b) of the Act and of the applicable standards adopted pursuant thereto, as now or hereafter in effect.  Upon request, the Seller will provide evidence reasonably satisfactory to allow Buyer to confirm that the providing party has satisfied its obligations as required under this Section.  Without limitation, this may include Buyer’s review of audits, summaries of test results, and other equivalent evaluations of the Seller.  The Seller shall notify Buyer immediately following discovery of any breach or compromise of the security, confidentiality, or integrity of nonpublic personal information of the customers and consumers of Buyer or any Affiliate of Buyer provided directly to the Seller

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by Buyer or such Affiliate.  The Seller shall provide such notice to Buyer by personal delivery, by facsimile with confirmation of receipt, or by overnight courier with confirmation of receipt to the applicable requesting individual.

33.  Recording of Communications

Buyer, Seller and Guarantors shall have the right (but not the obligation) from time to time to make or cause to be made tape recordings of communications between its employees and those of the other party with respect to Transactions.  Buyer, Seller and Guarantors consent to the admissibility of such tape recordings in any court, arbitration, or other proceedings.  The parties agree that a duly authenticated transcript of such a tape recording shall be deemed to be a writing conclusively evidencing the parties’ agreement.

34.  Commitment Fee

Seller shall pay to Buyer in immediately available funds, due and owing on the date hereof, a non-refundable Commitment Fee.  The Commitment Fee shall be paid in four equal installments as set forth in the Pricing Side Letter, which shall be paid on the date hereof and on the Price Differential Payment Date every third (3rd) month thereafter.  All such payments shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at such account designated by Buyer.

35.  Reserved

36.  Periodic Due Diligence Review

Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to the Seller and the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, for the purpose of performing quality control review of the Mortgage Loans or otherwise, and Seller agrees that upon reasonable (but no less than one (1) Business Day’s) prior notice unless an Event of Default shall have occurred, in which case no notice is required, to Seller, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Mortgage Files and any and all documents, data, records, agreements, instruments or information relating to such Mortgage Loans (including, without limitation, quality control review) in the possession or under the control of Seller and/or the Custodian.  Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Files and the Mortgage Loans.  Without limiting the generality of the foregoing, Seller acknowledges that Buyer may purchase Mortgage Loans from Seller based solely upon the information provided by Seller to Buyer in the Mortgage Loan Schedule and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Mortgage Loans purchased in a Transaction, including, without limitation, ordering Broker’s price opinions, new credit reports and new appraisals on the related Mortgaged Properties and otherwise re-generating the information used to originate such Mortgage Loan.  Buyer may underwrite such Mortgage Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting.  Seller agrees to cooperate

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with Buyer and any third party underwriter in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession, or under the control, of Seller.  Seller further agrees that Seller shall pay all out-of-pocket costs and expenses incurred by Buyer in connection with Buyer’s activities pursuant to this Section 36 (“Due Diligence Costs”).

37.  Authorizations

Any of the persons whose signatures and titles appear on Schedule 2 are authorized, acting singly, to act for Seller or Buyer, as the case may be, under this Agreement.

38.  Acknowledgement Of Anti-Predatory Lending Policies

Buyer has in place internal policies and procedures that expressly prohibit its purchase of any High Cost Mortgage Loan.

39.  Documents Mutually Drafted

The Seller and the Buyer agree that this Agreement and each other Program Agreement prepared in connection with the Transactions set forth herein have been mutually drafted and negotiated by each party, and consequently such documents shall not be construed against either party as the drafter thereof.

40.  General Interpretive Principles

For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

a.     the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;

b.     accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP;

c.     references herein to “Articles”, “Sections”, “Subsections”, “Paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement;

d.     a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;

e.     the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision;

60

f.     the term “include” or “including” shall mean without limitation by reason of enumeration;

g.     all times specified herein or in any other Program Agreement  (unless expressly specified otherwise) are local times in New York, New York unless otherwise stated; and

h.     all references herein or in any Program Agreement to “good faith” means good faith as defined in Section 1-201(19) of the UCC as in effect in the State of New York.

[Signature Page Follows]

61

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

Credit Suisse First Boston Mortgage Capital LLC, as Buyer

By:
	Name:
	Title:
PennyMac Corp., as Seller
By:
	Name:
	Title:
PennyMac Mortgage Investment Trust, as Guarantor
By:
	Name:
	Title:
PennyMac Operating Partnership, L.P., as Guarantor
	By: PennyMac GP OP, Inc., its General Partner
By:
	Name:
	Title:

Signature Page to the Master Repurchase Agreement

EX-10.14

Exhibit 10.14

EXECUTION VERSION

GUARANTY

GUARANTY, dated as of November 2, 2010 (as amended, supplemented, or otherwise modified from time to time, this “Guaranty”), made by PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P. each a “Guarantor” and collectively the “Guarantors”, in favor of Credit Suisse First Boston Mortgage Capital, LLC (“Buyer”).

RECITALS

Pursuant to the Master Repurchase Agreement, dated as of November 2, 2010 (as amended, supplemented or otherwise modified from time to time, the “Repurchase Agreement”), among PennyMac Corp. (“Seller”), Guarantors and Buyer, Buyer has agreed from time to time to enter into transactions in which Seller agrees to transfer to Buyer Mortgage Loans against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans at a date certain or on demand, against the transfer of funds by Seller.  Each such transaction shall be referred to herein as a “Transaction”.  It is a condition precedent to the obligation of Buyer to enter into Transactions under the Repurchase Agreement that Guarantors shall have executed and delivered this Guaranty to Buyer.

NOW, THEREFORE, in consideration of the foregoing premises, to induce Buyer to enter into the Repurchase Agreement and to enter into Transactions thereunder, Guarantors hereby agree with Buyer, as follows:

1.     Defined Terms. (a) Unless otherwise defined herein, terms which are defined in the Repurchase Agreement and used herein are so used as so defined.

(b)   For purposes of this Guaranty, “Obligations” shall mean all obligations and liabilities of Seller to Buyer, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, or out of or in connection with the Repurchase Agreement and any other Program Agreements and any other document made, delivered or given in connection therewith or herewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to Buyer that are required to be paid by Seller pursuant to the terms of the Program Agreements and costs of enforcement of this Guaranty) or otherwise.

2.     Guaranty. (a) Guarantors hereby unconditionally and irrevocably guarantee to Buyer the prompt and complete payment and performance by Seller when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

(b)   Guarantors further agree to pay any and all expenses (including, without limitation, all fees and disbursements of counsel) which may be paid or incurred by Buyer in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, Guarantors under this Guaranty.  This Guaranty shall remain in full force and effect until the

later of (i) the termination of the Repurchase Agreement or (ii) the Obligations are paid in full, notwithstanding that from time to time prior thereto Seller may be free from any Obligations.

(c)   No payment or payments made by Seller or any other Person or received or collected by Buyer from Seller or any other Person by virtue of any action or proceeding or any set-off or appropriation or application, at any time or from time to time, in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of Guarantors hereunder which shall, notwithstanding any such payment or payments, remain liable for the amount of the outstanding Obligations until the outstanding Obligations are paid in full.

(d)   Each Guarantor agrees that whenever, at any time, or from time to time, a Guarantor shall make any payment to Buyer on account of such Guarantor’s liability hereunder, such Guarantor will notify Buyer in writing that such payment is made under this Guaranty for such purpose.

3.     Right of Set-off.  Buyer is hereby irrevocably authorized at any time and from time to time without notice to Guarantors, any such notice being hereby waived by Guarantors, to set off and appropriate and apply any and all monies and other property of Guarantors, deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by Buyer of any affiliate thereof to or for the credit or the account of any Guarantor, or any part thereof in such amounts as Buyer may elect, on account of the Obligations and liabilities of Guarantors hereunder and claims of every nature and description of Buyer against either Guarantor, in any currency, whether arising hereunder, under the Repurchase Agreement or otherwise, as Buyer may elect, whether or not Buyer has made any demand for payment and although such Obligations and liabilities and claims may be contingent or unmatured. Buyer shall notify Guarantors promptly of any such set-off and the application made by Buyer, provided that the failure to give such notice shall not affect the validity of such set-off and application.  The rights of Buyer under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of set-off) which Buyer may have.

4.     Subrogation.  Notwithstanding any payment or payments made by either Guarantor hereunder or any set-off or application of funds of either Guarantor by Buyer, either Guarantor shall not be entitled to be subrograted to any of the rights of Buyer against Seller or any other guarantor or any collateral security or guarantee or right of offset held by Buyer for the payment of the Obligations, nor shall either Guarantor seek or be entitled to seek any contribution or reimbursement from Seller or any other guarantor in respect of payments made by either Guarantor hereunder, until all amounts owing to Buyer by Seller on account of the Obligations are paid in full and the Repurchase Agreement is terminated.  If any amount shall be paid to either Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amounts shall be held by such Guarantor for the benefit of Buyer, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to Buyer in the exact form received by such Guarantor

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(duly indorsed by such Guarantor to Buyer, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Buyer may determine.

5.     Amendments, etc. with Respect to the Obligations.  Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against either Guarantor, and without notice to or further assent by Guarantors, any demand for payment of any of the Obligations made by Buyer may be rescinded by Buyer, and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by Buyer, and the Repurchase Agreement, and the other Program Agreements and any other document in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, pursuant to its terms and as Buyer may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by Buyer for the payment of the Obligations may be sold, exchanged, waived, surrendered or released.  Buyer shall have no obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guaranty or any property subject thereto.  When making any demand hereunder against any Guarantor, Buyer may, but shall be under no obligation to, make a similar demand on Seller and any failure by Buyer to make any such demand or to collect any payments from Seller or any release of Seller shall not relieve any Guarantor of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of Buyer against any Guarantor.  For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

6.     Guaranty Absolute and Unconditional. (a)  Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by Buyer upon this Guaranty or acceptance of this Guaranty; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived in reliance upon this Guaranty; and all dealings between Seller or Guarantors, on the one hand, and Buyer, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guaranty.  Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon Seller or the Guaranty with respect to the Obligations.  This Guaranty shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (i) the validity or enforceability of the Repurchase Agreement, the other Program Agreements, any of the Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by Buyer, (ii) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by Seller against Buyer, or (iii) any other circumstance whatsoever (with or without notice to or knowledge of Seller or Guarantors) which constitutes, or might be construed to constitute, an equitable or legal discharge of Seller for the Obligations, or of any Guarantor under this Guaranty, in bankruptcy or in any other instance.  When pursuing its rights and remedies hereunder against either Guarantor, Buyer may, but shall be under no obligation, to pursue such rights and remedies that they may have against Seller or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto,

3

and any failure by Buyer to pursue such other rights or remedies or to collect any payments from Seller or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of Seller or any such other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of Buyer against either Guarantor.  This Guaranty shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon Guarantors and their successors and assigns thereof, and shall inure to the benefit of Buyer, and successors, indorsees, transferees and assigns, until all the Obligations and the obligations of Guarantors under this Guaranty shall have been satisfied by payment in full, notwithstanding that from time to time during the term of the Repurchase Agreement, Seller may be free from any Obligations.

(b)  Without limiting the generality of the foregoing, each Guarantor hereby agrees, acknowledges, and represents and warrants to Buyer as follows:

(i)       Such Guarantor hereby waives any defense arising by reason of, and any and all right to assert against Buyer any claim or defense based upon, an election of remedies by Buyer which in any manner impairs, affects, reduces, releases, destroys and/or extinguishes such Guarantor’s subrogation rights, rights to proceed against Seller or any other guarantor for reimbursement or contribution, and/or any other rights of Guarantors to proceed against Seller, against any other guarantor, or against any other person or security.

(ii)      Such Guarantor is presently informed of the financial condition of Seller and of all other circumstances which diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations.  Such Guarantor hereby covenants that it will make its own investigation and will continue to keep itself informed of Seller’s financial condition, the status of other guarantors, if any, of all other circumstances which bear upon the risk of nonpayment and that it will continue to rely upon sources other than Buyer for such information and will not rely upon Buyer for any such information.  Absent a written request for such information by such Guarantor to Buyer, such Guarantor hereby waives its right, if any, to require Buyer to disclose to such Guarantor any information which Buyer may now or hereafter acquire concerning such condition or circumstances including, but not limited to, the release of or revocation by any other guarantor.

(iii)     Such Guarantor has independently reviewed the Repurchase Agreement and related agreements and has made an independent determination as to the validity and enforceability thereof, and in executing and delivering this Guaranty to Buyer, such Guarantor is not in any manner relying upon the validity, and/or enforceability, and/or attachment, and/or perfection of any Liens or security interests of any kind or nature granted by Seller or any other guarantor to Buyer, now or at any time and from time to time in the future.

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7.     Reinstatement.  This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by Buyer upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Seller or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Seller or any substantial part of its property, or otherwise, all as though such payments had not been made.

8.     Payments.  Each Guarantor hereby agrees that the Obligations will be paid to Buyer without set-off or counterclaim in U.S. Dollars.

9.     Event of Default.  If an Event of Default under the Repurchase Agreement shall have occurred and be continuing, each Guarantor agrees that, as between such Guarantor and Buyer, the Obligations may be declared to be due in accordance with the terms of the Repurchase Agreement for purposes of this Guaranty notwithstanding any stay, injunction or other prohibition which may prevent, delay or vitiate any such declaration as against a Seller and that, in the event of any such declaration (or attempted declaration), such Obligations shall forthwith become due by each Guarantor for purposes of this Guaranty.

10.   Severability.  Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

11.   Headings.  The paragraph headings used in this Guaranty are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

12.   No Waiver; Cumulative Remedies.  Buyer shall not by any act (except by a written instrument pursuant to paragraph 13 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof.  No failure to exercise, nor any delay in exercising, on the part of Buyer, any right, power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  A waiver by Buyer of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Buyer would otherwise have on any future occasion.  The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law.

13.   Waivers and Amendments; Successors and Assigns; Governing Law.  None of the terms or provisions of this Guaranty may be waived, amended, supplemented or otherwise modified except by a written instrument executed by Guarantors and Buyer, provided that any provision of this Guaranty may be waived by Buyer in a letter or agreement executed by Buyer or by facsimile or electronic transmission from Buyer to Guarantors.  This Guaranty shall be

5

binding upon the personal representatives, successors and assigns of Guarantors and shall inure to the benefit of Buyer and its successors and assigns.  .

14.   Notices.  Notices delivered in connection with this Guaranty shall be given in accordance with Section 20 of the Repurchase Agreement.

15.   Jurisdiction.

(a)   THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

(b)   EACH GUARANTOR HEREBY WAIVES TRIAL BY JURY.  EACH GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS IN ANY ACTION OR PROCEEDING.  EACH GUARANTOR HEREBY SUBMITS TO, AND WAIVES ANY OBJECTION IT MAY HAVE TO, EXCLUSIVE PERSONAL JURISDICTION AND VENUE IN THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT TO ANY DISPUTES ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS.

16.   Integration.  This Guaranty represents the agreement of Guarantors with respect to the subject matter hereof and there are no promises or representations by Buyer relative to the subject matter hereof not reflected herein.

17.   Acknowledgments.  Each Guarantor hereby acknowledges that:

(a)           such Guarantor has been advised by counsel in the negotiation, execution and delivery of this Guaranty and the other Program Agreements;

(b)           Buyer does not have any fiduciary relationship to such Guarantor, such Guarantor does not have any fiduciary relationship to Buyer and the relationship between Buyer and such Guarantor is solely that of surety and creditor; and

(c)           no joint venture exists between Buyer and such Guarantor or among Buyer, Seller and such Guarantor.

18.   Joint and Several Liability.  Each Guarantor hereby acknowledges and agrees that such Guarantor shall be jointly and severally liable for all representations, warranties, covenants, obligations and indemnities of the Guarantors hereunder.

[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly executed and delivered as of the date first above written.

PennyMac Mortgage Investment Trust, as a Guarantor
	By:
		Name:
		Title:
PennyMac Operating Partnership, L.P., as a Guarantor
By: PennyMac GP OP, Inc., its General Partner
	By:
		Name: Anne McCallion
		Title: Chief Financial Officer and Treasurer

GUARANTY

EX-31.1

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Exhibit 31.1

CERTIFICATION

I, Stanford L. Kurland, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust;

2.

Based on my knowledge, this report does 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, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

[Intentionally Omitted];

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Trustees (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2010

/s/ STANFORD L. KURLAND
Stanford L. Kurland
Chairman of the Board and
Chief Executive Officer

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Exhibit 31.1

CERTIFICATION

EX-31.2

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Exhibit 31.2

CERTIFICATION

I, Anne D. McCallion, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust;

2.

Based on my knowledge, this report does 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, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

[Intentionally Omitted];

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Trustees (or persons performing the equivalent functions):

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 8, 2010

/s/ ANNE D. MCCALLION
Anne D. McCallion
Chief Financial Officer and Treasurer

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Exhibit 31.2

CERTIFICATION

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust (the "Company") for the quarter ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stanford L. Kurland, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ STANFORD L. KURLAND
Stanford L. Kurland
Chairman of the Board and
Chief Executive Officer

November 8, 2010

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PennyMac Mortgage Investment Trust and will be retained by PennyMac Mortgage Investment Trust and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report on Form 10-Q of PennyMac Mortgage Investment Trust (the "Company") for the quarter ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anne D. McCallion, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ANNE D. MCCALLION
Anne D. McCallion
Chief Financial Officer and Treasurer

November 8, 2010

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to PennyMac Mortgage Investment Trust and will be retained by PennyMac Mortgage Investment Trust and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002