10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

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

For the transition period from          N/A         to                     

Commission file number 1-10959

STANDARD PACIFIC CORP.

(Exact name of registrant as specified in its charter)

Delaware	33-0475989
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

15326 Alton Parkway, Irvine, California, 92618

(Address of principal executive offices)

(949) 789-1600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value	New York Stock Exchange and
(and accompanying Preferred Share Purchase Rights)	Pacific Stock Exchange
8½% Senior Notes Due 2007	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes x        No ¨

The aggregate market value of the common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $1,117,882,047.

As of February 28, 2003, there were 32,146,918 shares of common stock outstanding.

Documents incorporated by reference:

Portions of the Company’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2003 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

STANDARD PACIFIC CORP.

INDEX

		Page No.
	PART I
Item 1.	Business	1
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
Item 4A.	Executive Officers of the Company	12
	PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	13
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	61
	PART III
Item 10.	Directors and Executive Officers of the Registrant	61
Item 11.	Executive Compensation	61
Item 12.	Security Ownership of Certain Beneficial Owners and Management	61
Item 13.	Certain Relationships and Related Transactions	62
Item 14.	Disclosure Controls and Procedures	62
	PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	62

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STANDARD PACIFIC CORP.

PART I

ITEM 1.     BUSINESS

We are a leading geographically diversified builder of high-quality single-family homes. We construct homes within a wide range of price and size targeting a broad range of homebuyers. We have operations in major metropolitan areas in California, Texas, Arizona, Colorado, Florida and the Carolinas and have built homes for more than 53,000 families during our 37-year history. In California, we have 37 years of operating experience and currently sell homes throughout Southern California and in the San Francisco Bay Area and Sacramento. We have been building homes in Texas for over 20 years, with established operations in Dallas and Austin. In 1998, we entered the Phoenix, Arizona market through the acquisition of an ongoing homebuilding operation and in 2000, we entered the Denver, Colorado market through the acquisition of The Writer Corporation. In 2002, we furthered our geographic diversification by entering the Florida and Carolina markets through the acquisition of three established homebuilders: Westbrooke Homes in South Florida, Colony Homes in Orlando and Westfield Homes in Tampa, Southwest Florida and the Carolinas. In 2002, our percentage of home deliveries by state (including deliveries by unconsolidated joint ventures) were:

State	Percentage of Deliveries
California	42	%
Arizona	23
Florida	19
Texas	8
Carolinas	4
Colorado	4
Total	100	%

In addition to our core homebuilding operations, we also provide mortgage financing and title services to our homebuyers through our subsidiaries and joint ventures: Family Lending Services, SPH Mortgage, WRT Financial, Westfield Home Mortgage, Universal Land Title of South Florida and SPH Title. For business segment financial data, see our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Standard Pacific Corp. was incorporated in the State of Delaware in 1991. Through our predecessors, we commenced our homebuilding operations in 1966 with a single tract of land in Orange County, California. Our principal executive offices are located at 15326 Alton Parkway, Irvine, California 92618. Unless the context otherwise requires, the terms “we,” “us” and “our” refer to Standard Pacific Corp. and its predecessors and subsidiaries.

This annual report, and each of our other periodic and current reports, including any amendments, are available, free of charge, on our website, www.standardpacifichomes.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information contained on our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report. In addition, the Securities and Exchange Commission website contains reports, proxy and information statements, and other information about us at www.sec.gov.

Strategy

The main elements of our strategy include:

Targeting a Broad Range of Homebuyers

We focus on the construction of single-family homes for use as primary residences, offering a broad range of products and price points. During fiscal 2002, the sales prices of our homes generally ranged from $100,000 to

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over $1 million, a broad market segment in our geographic areas. We believe this diverse product platform enables us to take advantage of additional market opportunities and positions us strategically with product capabilities that appeal to a wide range of customers.

Focusing on Growth in our Existing Markets

We continue to focus on growing our existing markets through new community openings, expansion into adjacent markets and new product offerings. In 2002 we opened 61 new communities and we intend to continue this strong pace of new community openings in 2003 with approximately 100 new projects slated to begin selling this year (which includes approximately 45 new communities in our recently acquired Florida and Carolina operations). We have also expanded in recent years into regions adjacent to our existing markets such as the Inland Empire in Southern California, Sacramento in Northern California and urban infill locations in the Los Angeles area. As part of our focus on expanding our product offerings, we entered the active adult market in 2001 through the development of a four-project age restricted community in South Orange County, California.

Expanding and Diversifying Geographically through Acquisition

While we have pursued growth opportunities within our California and Texas markets, we have also diversified geographically during the past few years by expanding into some of the largest homebuilding markets in the United States. Since 1998, we have expanded through acquisition into Arizona, Colorado, Florida and the Carolinas. Each of these acquisitions included strategic lot inventories as well as experienced management teams. As a result of these acquisitions, our non-California divisions represented nearly 60 percent of our unit volume in 2002, compared to just over 20 percent in 1997. Going forward, we plan to continue to pursue acquisitions on an opportunistic basis as a means of expanding and diversifying geographically.

Maintaining Strong Land Positions, Including the Utilization of Joint Ventures and Strategic Alliances

We have been operating in California for 37 years and in Texas for over 20 years, and have established a strong reputation in these markets with many leading landowners and developers. In each of our divisions established through acquisition, we have partnered with local management teams that have long-standing relationships with landowners, subcontractors and other business partners. We believe that these long-standing relationships provide us significant opportunities to secure quality land positions at competitive prices in these markets. We generally attempt to maintain an inventory of building sites sufficient for construction of homes over a period of approximately three to four years, and believe based on our current operations and market conditions that our nearly 30,000 owned or controlled building sites at December 31, 2002 will be sufficient for our operations over this period. We also make use of joint ventures and strategic alliances as a means of securing land positions, reducing risk on larger, longer-term projects and effectively leveraging our capital base. At December 31, 2002, approximately 3,600 of our 30,000 owned or controlled building sites were controlled through joint ventures.

Leveraging our Experienced Management Team and Decentralized Operating Structure

Our senior corporate and division operating managers average over 20 years of experience in the homebuilding business. Each division is run by a local manager with an in-depth familiarity with the geographic areas within which the division operates. We leverage this significant experience and in-depth knowledge by providing local managers significant autonomy to operate their divisions. Land acquisition and other opportunities are typically identified and evaluated by the division management team with the final decision regarding land purchase and project development being made by the local division manager in conjunction with our corporate officers, including Regional Presidents. Thereafter, each division manager conducts the operations of the division, including project planning, subcontracting and sales and marketing, with minimal input from our corporate office. The autonomy provided by this decentralized operating structure not only allows us to more quickly identify and capitalize on new local market opportunities as they arise, but also has proven to be an important element in attracting potential acquisition candidates and in recruiting and retaining experienced local managers.

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Operating Conservatively and Emphasizing Control of Overhead and Operating Expenses

Mindful of the cyclical nature of the homebuilding business, we operate conservatively and continuously seek to minimize overhead and operating expenses through the following strategies:

• We generally purchase land only when substantially all material entitlements have been obtained and we anticipate commencing development or construction within a relatively short time period.

• We customarily acquire unimproved or improved land zoned for residential use suitable generally for the construction of 50 to 300 homes and build, depending on the geographic market, on a lot-by-lot basis or in increments of 10 to 30 homes.

• When building on a lot-by-lot basis, we generally do not commence construction on a lot until we have presold the home. When building on an incremental basis, the number of homes built in the first increment of a project is based upon internal market studies. The timing and size of subsequent increments depends to a large extent upon sales rates experienced in the earlier increments. The goal of each of these strategies is to minimize the number of completed and unsold homes held in inventory. At the end of 2002, we held 280 completed and unsold homes in inventory.

• We seek to maintain a strong balance sheet—our net homebuilding debt to total book capitalization ratio was 44.4 percent at December 31, 2002—and multiple sources of liquidity.

• We strive to control overhead costs by centralizing key administrative functions such as finance and treasury, information technology, risk management and legal, and human resources.

• We seek to minimize our fixed costs by primarily contracting with third parties, such as subcontractors, architects and engineers, to design and build our homes on a project-by-project or phase-by-phase basis.

Operations

We currently build homes through a total of 16 operating divisions, with 227 projects under development and 60 projects held or controlled for future development at December 31, 2002.

We build primarily single-family detached dwellings, particularly in our California, Texas, Arizona and Florida operations. For the year ended December 31, 2002, approximately 96 percent of our deliveries (excluding Colorado and the Carolinas) were single-family detached dwellings. For the same period, 46 percent of our Colorado deliveries and 40 percent of our Carolina deliveries consisted of attached townhomes.

Our homes are designed to suit the particular area of the country in which they are located and are available in a variety of models, exterior styles and materials depending upon local preferences. While we have built homes from 1,100 to over 6,000 square feet, our homes typically range in size from approximately 1,500 to 3,500 square feet. The sales prices of our homes generally range from $100,000 to over $1 million. Set forth below is our average selling prices of homes delivered during 2002:

State	Average Selling Price
California (excluding joint ventures)	$	488,000
Arizona	$	173,000
Florida	$	197,000
Texas	$	287,000
Carolinas	$	142,000
Colorado	$	318,000

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Land Acquisition, Development and Construction

In considering the purchase of land for the development of a project, we review such factors as:

• proximity to existing developed areas;

• the reputation and desirability of the surrounding developed areas;

• population growth patterns;

• availability of existing utility services, such as water, gas, electricity and sewers;

• proximity and quality of local schools;

• employment rates and trends;

• the expected absorption rates for new housing;

• the environmental condition of the land;

• transportation conditions and availability;

• the estimated costs of development;

• our ability to finance the project on commercially reasonable terms;

• our land concentration and risk in the local market; and

• the entitlement status of the property.

Generally, if all requisite material governmental agency approvals are not in place for a parcel of land, we enter into a conditional agreement to purchase the parcel, making a deposit which is generally refundable if the required approvals cannot be obtained. Our general policy is to complete a purchase of land only when we can reasonably project commencement of construction within a relatively short period of time. Closing of the land purchase is, therefore, generally made contingent upon satisfaction of conditions relating to the property and our ability to obtain all requisite approvals from governmental agencies within a given period of time. Our development work on a project includes obtaining any necessary zoning, environmental and other regulatory approvals, and constructing, as necessary, roads, water, sewer and drainage systems, recreational facilities and other improvements.

We customarily acquire unimproved or improved land zoned for residential use which appears suitable for the construction of 50 to 300 homes. Construction is then accomplished in smaller sized increments or on a lot-by-lot basis depending on the geographic market. When building on a lot-by-lot basis, we generally do not commence construction on a lot until we have presold the home. When building on an incremental basis, the number of homes built in the first increment of a project is based upon our internal market studies. The timing and size of subsequent increments depends on the sales rates of earlier increments and other market factors.

We typically use both our equity (including internally generated funds) and unsecured financing in the form of bank debt, proceeds from our public note offerings and other unsecured debt to fund land acquisitions, and development and construction of our properties. We also utilize joint ventures and option structures with land sellers, other builders and financial entities from time to time to procure land. Our joint ventures typically will obtain project specific financing to fund the acquisition of the land and the development and construction costs. To a lesser extent, we use purchase money trust deeds to finance the acquisition of land. Generally, with the exception of purchase money trust deeds and joint ventures, project specific secured financing is not used. In some markets, community development district or similar bond financing is used to fund community infrastructure such as roads, sewers and schools.

We essentially function as a general contractor with our supervisory employees coordinating all work on the project. The services of independent architectural, design, engineering and other consulting firms are engaged to

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assist in project planning and design, and subcontractors are employed to perform all of the physical development and construction work on the project. We do not have long-term contractual commitments with any of our subcontractors, consultants or suppliers of materials. However, because of our market presence and long-term relationships, we generally have been able to obtain sufficient services and materials from subcontractors, consultants and suppliers, even during times of market shortages. These arrangements are generally entered into on a phase-by-phase or project-by-project basis at a fixed price after competitive bidding. We believe that the low fixed labor expense resulting from conducting our operations in this manner has been instrumental in enabling us to retain the necessary flexibility to react to increases or decreases in demand for housing.

Although the construction time for our homes varies from project to project depending on the time of year, the size of the homes, local labor situations, the governmental approval processes, availability of materials and supplies and other factors, we can typically complete the construction of a home, depending on geographic region, in approximately three to seven months.

Homebuilding Joint Ventures

We enter into land development and homebuilding joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile and leveraging our capital base. Land development joint ventures are typically entered into with other homebuilders, local or regional developers and financial partners as a method of spreading the financial and market risks associated with developing larger projects. Homebuilding joint ventures may involve partnering with existing landowners or other builders as a means of acquiring desirable properties. In both types of joint ventures, we typically leverage our capital base by obtaining third party project financing. For the years ended December 31, 2002, 2001 and 2000, our unconsolidated joint ventures delivered 323, 294 and 155 homes, respectively, and plan on delivering approximately 625 homes in 2003. All of our joint ventures are with unrelated third parties who typically, along with us, make capital contributions to the venture. For financial reporting purposes we record our share of earnings and losses from our unconsolidated joint ventures as they are generated. Our more significant land development and homebuilding unconsolidated joint ventures are described below.

In 1996, our Orange County, California division entered into a joint venture with an affiliate of Unocal to develop and deliver up to approximately 800 homes and lots in Fullerton and Brea, California. During 2002, 2001 and 2000, the joint venture delivered 52, 193 and 155 new homes, respectively. Also, in 2000, this venture sold a 107-lot parcel of land in Brea, California. As of December 31, 2002, this joint venture had two remaining projects to develop and build a total of 212 homes. On such date, we had a net investment of approximately $2.3 million which represented our share of undistributed earnings.

In 1997, our Northern California division entered into two joint ventures with another homebuilder to develop approximately 700 lots and a championship golf course in Gilroy, California, located approximately 30 miles south of San Jose. A portion of these lots will be sold to us and our partner at cost for the construction and sale of homes thereon with the balance contributed to other joint ventures in which we are both partners. As of December 31, 2002, we had purchased 160 lots from the land development venture and had a combined net investment in both ventures of approximately $8.1 million.

During 1997, we entered into a joint venture with Catellus Residential Group, Inc. and an affiliate of Starwood Capital Group L.L.C. to acquire and develop a 3,470-acre master-planned community located in and adjacent to the south Orange County, California city of San Clemente. This joint venture has developed or plans to develop in phases finished lots for up to approximately 4,000 attached and detached homes, a championship golf course, and certain community amenities and commercial and industrial sites. As of December 31, 2002, we have purchased approximately 900 lots from the joint venture for construction and sale of homes by us. As of December 31, 2002, we had a net investment of approximately $6.6 million in this joint venture which represents undistributed earnings.

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In March 2002, our Northern California division entered into a joint venture with a local land developer to develop and deliver up to approximately 350 homes in Watsonville, California. Development is underway with first home deliveries planned for late 2003. As of December 31, 2002, our net investment in this venture was approximately $17.5 million.

In June 2002, our Southern California Inland Empire division entered into a joint venture with another national homebuilder in Rancho Cucamonga, California to develop approximately 550 finished lots. This venture will deliver to each homebuilder its pro rata share (approximately 50 percent) of finished lots at cost for the construction and sale of homes. As of December 31, 2002, our net investment in this joint venture was approximately $6.3 million.

In November 2002, our Northern California division entered into a joint venture with a local land developer to develop and deliver up to approximately 675 homes and lots in American Canyon, California. Development is scheduled to commence in mid-2003 with first home deliveries planned for early 2004. As of December 31, 2002, our net investment in this venture was approximately $17.5 million.

Marketing and Sales

Our homes are generally sold by our own sales personnel. Furnished and landscaped model homes are typically maintained at each project site. Homebuyers are afforded the opportunity to select, at additional cost, various optional amenities and upgrades such as prewiring and electrical options, upgraded flooring, cabinets, finished carpentry and countertops, varied interior and exterior color schemes, additional appliances and some room configurations. We maintain websites with project listings, floor plans, pricing and other project information and make extensive use of advertisements in local newspapers, illustrated brochures, billboards and on-site displays.

Our homes are typically sold during or prior to construction using sales contracts which are usually accompanied by a cash deposit, although some of our homes are sold after completion of construction. Purchasers are typically permitted for a limited time to cancel these contracts if they fail to qualify for financing. In some cases, purchasers are also permitted to cancel these contracts if they are unable to sell their existing homes or if certain other conditions are not met.

During each of the years ended December 31, 2002, 2001 and 2000, we experienced cancellation rates of 20, 26 and 23 percent, respectively. In order to minimize the negative impact of cancellations, it is our policy to closely monitor the progress of prospective buyers in obtaining financing and to monitor and adjust our start plan to continuously match the level of demand for our homes. At December 31, 2002, 2001 and 2000, we had an inventory of completed and unsold homes of 280, 345 and 134, respectively.

Financial Services

Customer Financing

We offer mortgage financing to our homebuyers in substantially all of the markets in which we operate. Family Lending Services, Inc. offers mortgage financing in our California and South Florida markets and is a wholly owned subsidiary. SPH Mortgage, WRT Financial and Westfield Home Mortgage are joint ventures with financial institution partners. SPH Mortgage offers mortgage financing to our Arizona and Texas homebuyers, WRT Financial offers mortgage financing to our Colorado homebuyers, and Westfield Home Mortgage offers mortgage financing to our Tampa, Southwest Florida and Carolina homebuyers.

The principal sources of revenues for these mortgage-banking operations are fees generated from loan originations, net gains on the sale of loans, and interest income earned on loans during the period they are held prior to sale. In addition to being a source of revenues, these mortgage operations benefit our homebuyers and

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complement our homebuilding operations by offering a dependable source of competitively priced financing staffed by a team of professionals experienced in the new home purchase process and our sales and escrow procedures.

Family Lending sells the loans it originates in the secondary mortgage market, with servicing rights released on a non-recourse basis. It typically finances its loans held for sale through its mortgage credit facilities. SPH Mortgage, WRT Financial and Westfield Home Mortgage generally sell the loans they originate, on a non-recourse basis and with servicing rights released, to their respective financial institution partners.

Title Services

In Texas and South Florida, we act as a title insurance agent and offer title examination services to our Texas and South Florida homebuyers through our title service subsidiary, SPH Title, Inc. and our title service joint venture, Universal Land Title of South Florida. We assume no underwriting risk associated with these title policies.

Certain Factors Affecting our Operations

Set forth below are certain matters that may affect us.

Economic Conditions and Interest Rates Affect Our Industry

The homebuilding industry is cyclical. Changes in world, national and local economic conditions affect our business and markets. These could include, for example, the impact on economic conditions of terrorist attacks or outbreak or escalation of armed conflict involving the United States. In particular, declines in consumer confidence or employment levels in our markets or in stock market valuations may adversely affect the demand for homes and could in turn reduce our sales and earnings.

Our customers typically finance their home purchase through lenders providing mortgage financing. Increases in interest rates or decreases in the availability of mortgage financing could depress the market for new homes because of the increased monthly mortgage costs, or the decreased availability of financing, to potential homebuyers. Even if some potential customers do not need financing, changes in interest rates and mortgage availability could make it harder for them to sell their existing homes to potential buyers who need financing. This could reduce our sales and earnings.

Additional Capital May Not Be Available

Our operations require significant amounts of cash, and we may be required to seek additional capital, whether from sales of equity or by borrowing more money, for the future growth and development of our business or to fund our operations and inventory, particularly in the event of a market downturn. Although we currently have significant availability under our revolving credit facility, this facility contains a borrowing base provision and financial covenants which may limit the amount we can borrow thereunder or from other sources.

Moreover, the indentures for our outstanding public notes contain provisions that may restrict the debt we may incur in the future. The revolving credit facility and indentures governing our public notes also limit our investments in unconsolidated joint ventures which limits our use of joint ventures as financing vehicles. In addition, a number of factors could affect our ability to access debt or equity financing, including:

• our financial condition, strength and credit rating;

• the financial market’s confidence in our management team and financial reporting;

• general economic conditions and the conditions in the housing sector; and

• capital market conditions.

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Even if available, additional financing could be costly or have adverse consequences. If additional funds are raised through the issuance of stock, dilution to stockholders will result. If additional funds are raised through the incurrence of debt, we will incur increased debt servicing costs and may become subject to additional restrictive financial and other covenants. We can give no assurance as to the terms or availability of additional capital. If we are not successful in obtaining sufficient capital, it could reduce our sales and earnings and adversely impact our financial position.

We Depend on the California Market

Although we have increased our geographic diversification in recent years, we still conduct a significant portion of our business in California and generate a disproportionate amount of our revenues and profits in the state. Demand for new homes, and in some instances home prices, have declined from time to time in California. For instance, during 2001 and part of 2002, we experienced a slowdown in our Northern California operations. If we experience another slowdown in Northern California or in one or more of our other California markets, our earnings and financial position may be negatively impacted.

Risk of Slow or Anti-Growth Initiatives

Several states, cities and counties in which we operate have in the past approved, or approved for inclusion on their ballot, various “slow growth” or “no growth” initiatives and other ballot measures which could negatively impact the availability of land and building opportunities within those localities. Approval of slow or no growth measures would reduce our ability to open new home communities and build and sell homes in the affected markets and create additional costs and administration requirements, which in turn could harm our future sales and earnings.

Possible Shortage of Land for Purchase and Development; Inventory Risks

Our success depends in part upon the continued availability of suitable undeveloped land at acceptable prices. The availability of undeveloped land for purchase at favorable prices depends on a number of factors outside of our control, including the risk of competitive over-bidding of land prices and restrictive governmental regulation. Should suitable land opportunities become less available, it could limit our ability to develop new communities, increase land costs and negatively impact our sales and earnings.

In addition, the risk of owning developed and undeveloped land can be substantial for homebuilders. The market value of undeveloped land, buildable lots and housing inventories can fluctuate significantly as a result of changing economic and market conditions. In the event of significant changes in economic or market conditions, we may have to write-down land holdings, write-down or write-off goodwill recorded in connection with the builder acquisitions we have made since 1997, write-down our investments in unconsolidated joint ventures, sell homes at a loss and/or hold land in inventory longer than planned. For example, during the third quarter of 2002 we recorded a noncash pretax asset impairment charge of $6.0 million. The charge resulted from the write-down of certain homebuilding projects to their estimated fair value in our Colorado division which has experienced slower than anticipated new home sales, increased sales incentives and lower new home selling prices. Inventory carrying costs can be significant and can result in losses in a poorly performing project or market.

Our Industry is Highly Competitive

The homebuilding industry is highly competitive. We compete with numerous other residential construction firms, including large national and regional firms, for customers, undeveloped land, financing, raw materials and skilled labor. We compete for customers primarily on the basis of the location, design, quality and price of our homes and the availability of mortgage financing. Some of our competitors have substantially larger operations and greater financial resources than we do, and as a result may have lower costs of capital, labor and materials than us, and may be able to compete more effectively for land acquisition opportunities. As a result of an ongoing consolidation trend in the industry, some of these competitors may continue to grow significantly in

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size. We also compete with the resale of existing homes and rental homes. An oversupply of attractively priced resale or rental homes in the markets in which we operate could adversely affect our ability to sell homes profitably. Our mortgage lending operations are subject to intense competition from other mortgage lenders, many of which are substantially larger and may have a lower cost of funds or effective overhead burden than our lending operations.

Risk of Material and Labor Shortages

The residential construction industry has from time to time experienced serious material and labor shortages, including shortages in insulation, drywall, cement and lumber. These labor and material shortages can be more severe during periods of strong demand for housing. Some of these materials, including lumber, cement and drywall in particular, have experienced volatile price swings. Similar shortages and price increases in the future could cause delays in and increase our costs of home construction which in turn would harm our operating results.

We Are Subject to Extensive Government Regulation

Our homebuilding operations are subject to environmental, building, worker health and safety, zoning and real estate regulations by various federal, state and local authorities. These regulations, which affect all aspects of the homebuilding process, including development, design, construction and sales, can substantially delay or increase the costs of homebuilding activities. In addition, regulations, such as those governing environmental and health matters, may prohibit or severely restrict homebuilding activity in environmentally sensitive regions.

New housing developments, particularly in California where a significant portion of our business is conducted, may be subject to various assessments for schools, parks, streets, highways and other public improvements. The costs of these assessments can be substantial and can cause increases in the effective prices of our homes, which in turn could reduce our sales.

During the development process, we must obtain the approval of numerous governmental authorities which regulate matters such as:

• permitted land uses, levels of density and architectural designs;

• the installation of utility services, such as water and waste disposal;

• the dedication of acreage for open space, parks, schools and other community services; and

• the preservation of habitat for endangered species and wetlands.

The approval process can be lengthy and cause significant delays in the development process. In addition, changes in local circumstances or laws may require additional approvals or modifications to approvals previously obtained, which can result in further delays and additional expenses. Delays in the development process can cause substantial increases to development costs, which in turn could harm our operating results. There can be no assurance that we will be successful in securing approvals for all of the land we currently control or that there will not be any significant modifications to approvals previously obtained.

Our mortgage financing operations are subject to numerous federal, state and local laws and regulations, including eligibility requirements for participation in federal loan programs. Our title insurance agency operations are subject to applicable insurance laws and regulations. Failure to comply with these requirements can lead to administrative enforcement actions, the loss of required licenses and claims for monetary damages.

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Risk of Adverse Weather Conditions and Natural Disasters

We are subject to the risks associated with adverse weather conditions and natural disasters which occur in our markets, including:

• unusually heavy or prolonged precipitation;

• hurricanes

• earthquakes;

• fires;

• floods; and

• landslides.

These conditions can negatively affect our operations by requiring us to delay or halt construction or to perform potentially costly repairs to our projects under construction and completed and unsold homes. In addition, California, Colorado and Arizona have periodically experienced drought conditions which result in water conservation measures and sometimes rationing by municipalities in which we do business. Restrictions by governmental agencies on construction activity as a result of limited water supplies could harm our operating results.

We are Subject to Product Liability and Warranty Claims Arising in the Ordinary Course of Business

As a homebuilder, we are subject to construction defect and home warranty claims arising in the ordinary course of business. These claims are common in the homebuilding industry and can be costly. While we maintain product liability insurance and generally seek to require our subcontractors and design professionals to indemnify us for liabilities arising from their work, there can be no assurance that these insurance rights and indemnities will be adequate to cover all construction defect and warranty claims for which we may be liable. For example, contractual indemnities can be difficult to enforce, we may be responsible for applicable self-insured retentions and certain claims may not be covered by insurance or may exceed applicable coverage limits. Additionally, the coverage offered by and availability of product liability insurance for construction defects is currently limited and costly. There can be no assurance that coverage will not be further restricted and become more costly.

We May Not Be Able to Successfully Complete Future Acquisitions

Our growth strategy includes expanding and diversifying geographically through strategic acquisitions. Successful acquisitions require us to correctly identify appropriate acquisition candidates and to integrate acquired operations and management with our own. Should we make an error in judgment when identifying an acquisition candidate, or should we fail to successfully integrate acquired operations and management, we will likely fail to realize the benefits we intended to derive from the acquisition. Although we believe that we have been successful in doing so in the past, we can give no assurance that we will be able to successfully identify, acquire and integrate strategic acquisitions in the future.

Our Significant Amount of Debt Could Harm our Financial Health

We currently have a significant amount of debt. As of December 31, 2002, our total consolidated indebtedness was approximately $639.0 million (excluding indebtedness relating to our mortgage financing operations and trade payables). In addition, subject to the restrictions in our revolving credit facility and public notes indentures, we may incur additional indebtedness in the future. Our indebtedness could have important consequences such as:

• requiring us to dedicate a substantial portion of our cash flows from operations to payments on our debt;

• limiting our ability to obtain future financing for working capital, capital expenditures, acquisitions and other general corporate requirements;

10

• making us more vulnerable to general adverse economic and industry conditions;

• limiting our flexibility in planning for, or reacting to, changes in our business and the homebuilding industry; and

• putting us at a disadvantage compared to competitors who have less debt.

Our unconsolidated joint ventures also have significant amounts of debt, and will likely incur additional debt. Under credit enhancements, which we typically provide with respect to joint venture borrowings, we could be required to make additional investments in these joint ventures, either in the form of capital contributions or loan repayments, to reduce these outstanding borrowings. If we were required to make such additional investments in amounts that exceed those permitted under our revolving credit facility or our public notes, this could cause a default under the facility or our public notes.

We Are Dependent on our Senior Management

Our success is dependent upon the management and the leadership skills of members of our senior management. The loss of any of these individuals or an inability to attract and retain additional qualified personnel could adversely affect us. There can be no assurance that we will be able to retain our existing senior management personnel or attract additional qualified personnel.

Employees

At December 31, 2002, we had approximately 1,300 employees. None of our employees are covered by collective bargaining agreements.

During the past five years, we have not directly experienced a work stoppage in our operations caused by labor disputes with our employees. However, construction of homes in our projects has, from time to time, been delayed due to strikes by certain construction unions against subcontractors retained by us or suppliers of materials used in the construction of our homes. Such delays have not had a significant adverse effect on our operations.

We believe that our relations with our employees and subcontractors are satisfactory.

ITEM 2.     PROPERTIES

We lease office facilities for our homebuilding and financial services operations. We lease our corporate headquarters which is located in Irvine, California. The lease on this facility consists of approximately 32,000 square feet and expires in 2010. We lease approximately 25 other properties for our division offices, design centers and for our financial services subsidiary. For information about land owned or controlled by us for use in our homebuilding activities please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Selected Operating Data”. We believe that all of our properties are currently satisfactory for the purposes for which they are used.

ITEM 3.     LEGAL PROCEEDINGS

Various claims and actions which we consider normal to our business have been asserted and are pending against us. We do not believe that such claims and actions will have a material adverse effect upon our results of operations or financial position.

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

None.

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ITEM 4A.    EXECUTIVE OFFICERS OF THE COMPANY

Our executive officers’ ages, positions, and brief accounts of their business experience as of March 1, 2003, are set forth below.

Name	Age	Position
Stephen J. Scarborough	54	Chairman of the Board and Chief Executive     Officer
Michael C. Cortney	55	President; Director
Andrew H. Parnes	44	Senior Vice President—Finance and Chief     Financial Officer; Director
Clay A. Halvorsen	43	Senior Vice President, General Counsel and     Secretary
Jari L. Kartozian	44	Vice President
Scott D. Stowell	45	President, Southern California Region
Kathleen R. Wade	49	President, Southwest Region

Stephen J. Scarborough has served as Chief Executive Officer since January 2000 and Chairman of the Board since May 2001. Mr. Scarborough has been a Director since 1996 and served as President from October 1996 through May 2001. Previously, Mr. Scarborough served as Executive Vice President. Mr. Scarborough joined the Company in 1981 as President of our Orange County, California homebuilding division.

Michael C. Cortney has served as President since May 2001 and was appointed to the Board of Directors in May 2000. From January 2000 until May 2001, Mr. Cortney served as Executive Vice President. Mr. Cortney served as Senior Vice President from January 1998 until December 1999. From 1985 until August 2000, Mr. Cortney also served as the President of our Northern California homebuilding division.

Andrew H. Parnes has served as Senior Vice President—Finance since January 2001 and as Vice President—Finance prior to this and since January 1997. In May 2001, Mr. Parnes was appointed to the Board of Directors. In addition, he has served as our Chief Financial Officer since July 1996. Mr. Parnes served as our Treasurer from January 1991 until May 2001. From December 1989 until July 1996, Mr. Parnes served as our Controller.

Clay A. Halvorsen has served as Senior Vice President, General Counsel and Secretary since January 2001 and as Vice President, General Counsel and Secretary prior to this and since January 1998. Prior to joining the Company, Mr. Halvorsen was a partner in the law firm of Gibson, Dunn & Crutcher LLP.

Jari L. Kartozian has served as Vice President since January 2000. Ms. Kartozian served as Senior Vice President Sales and Marketing of our Orange County, California homebuilding division from September 1998 to December 1999 and as Vice President Sales and Marketing of this division prior to this and since August 1991. Ms. Kartozian joined the Company in 1981.

Scott D. Stowell has served as President of our Southern California Region since September 2002. From April 1996 until September 2002, Mr. Stowell served as President of our Orange County Division. Mr. Stowell joined the Company in 1986 as a project manager.

Kathleen R. Wade has served as President of our Southwest Region since November 2002. From December 2000 until October 2002, Ms. Wade served as Chief Executive Officer of our Arizona Division, and as President of this division from September 1998 to December 2000. Prior to joining Standard Pacific, Ms. Wade served as President of the Arizona Division of UDC Homes and, prior thereto, as Co-CEO of Continental Homes, a publicly traded homebuilder.

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PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our shares of common stock are listed on the New York Stock Exchange and Pacific Stock Exchange. The following table sets forth, for the fiscal quarters indicated, the reported high and low sales prices of our common stock as reported on the New York Stock Exchange Composite Tape and the amount of dividends paid per share.

	Year Ended December 31,
	2002						2001
Quarter Ended	High		Low		Dividend		High		Low		Dividend
March 31	$	32.45	$	22.90	$	0.08	$	33.00	$	19.50	$	0.08
June 30		35.40		27.10		0.08		24.10		15.71		0.08
September 30		35.73		22.46		0.08		26.75		16.60		0.08
December 31		26.25		19.85		0.08		25.25		17.34		0.08

As of March 1, 2003, the number of record holders of our common stock was 1,010.

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ITEM 6.     SELECTED FINANCIAL DATA

The following should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K.

	Year Ended December 31,
	2002		2001		2000		1999			1998
	(Dollars in thousands, except per share amounts)
Revenues:
Homebuilding	$	1,870,757	$	1,375,610	$	1,317,995	$	1,198,831		$	759,612
Financial Services		14,398		8,851		3,410		2,257			1,403
Total revenues	$	1,885,155	$	1,384,461	$	1,321,405	$	1,201,088		$	761,015
Pretax Income:
Homebuilding	$	187,533	$	179,985	$	165,973	$	114,058		$	81,319
Financial Services		7,148		4,491		174		5			(425	)
Pretax income from continuing operations before extraordinary charge	$	194,681	$	184,476	$	166,147	$	114,063		$	80,894
Income from continuing operations before extraordinary charge	$	118,689	$	111,065	$	100,142	$	67,571		$	47,404
Loss from discontinued operations, net of income taxes		—		—		—		(159	)		(199	)
Gain on disposal of discontinued operations, net of income taxes		—		—		—		618			—
Extraordinary charge from early extinguishment of debt, net of income taxes		—		—		—		—			(1,328	)
Net Income	$	118,689	$	111,065	$	100,142	$	68,030		$	45,877
Basic Earnings Per Share:
Income per share from continuing operations before extraordinary charge	$	3.78	$	3.71	$	3.43	$	2.28		$	1.59
Earnings per share	$	3.78	$	3.71	$	3.43	$	2.29		$	1.54
Weighted average common shares outstanding		31,399,120		29,931,797		29,236,125		29,597,669			29,714,431
Diluted Earnings Per Share:
Income per share from continuing operations before extraordinary charge	$	3.67	$	3.63	$	3.39	$	2.27		$	1.58
Earnings per share	$	3.67	$	3.63	$	3.39	$	2.28		$	1.53
Weighted average common and diluted shares outstanding		32,321,260		30,628,445		29,562,230		29,795,263			30,050,078
Balance Sheet and Other Financial Data:
Total assets	$	1,792,126	$	1,366,301	$	1,118,786	$	829,968		$	866,362
Homebuilding long-term debt	$	626,648	$	524,653	$	424,351	$	321,847		$	404,806
Stockholders’ equity	$	773,758	$	573,092	$	486,230	$	381,885		$	324,679
Stockholders’ equity per share	$	24.04	$	19.51	$	16.17	$	13.07		$	10.96
Cash dividends declared per share	$	0.32	$	0.32	$	0.32	$	0.20		$	0.17

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

The following discussion and analysis should be read in conjunction with the section “Selected Financial Data” and our consolidated financial statements and the related notes included elsewhere in this Form 10-K.

Results of Operations

Selected Financial Information

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Homebuilding:
Revenues	$	1,870,757		$	1,375,610		$	1,317,995
Cost of sales		(1,528,927	)		(1,091,484	)		(1,057,827	)
Gross margin		341,830			284,126			260,168
Gross margin percentage		18.3	%		20.7	%		19.7	%
Selling, general and administrative expenses		(175,218	)		(124,468	)		(105,141	)
Income from unconsolidated joint ventures		27,616			26,675			16,478
Interest expense		(5,489	)		(4,158	)		(3,599	)
Amortization of goodwill		—			(2,342	)		(2,100	)
Other income (expense)		(1,206	)		152			167
Homebuilding pretax income		187,533			179,985			165,973
Financial Services:
Revenues		14,398			8,851			3,410
Expenses		(9,922	)		(6,443	)		(4,265	)
Income from unconsolidated joint ventures		2,323			1,713			718
Other income		349			370			311
Financial services pretax income		7,148			4,491			174
Income before taxes		194,681			184,476			166,147
Provision for income taxes		(75,992	)		(73,411	)		(66,005	)
Net income	$	118,689		$	111,065		$	100,142
Net cash provided by (used in) operating activities (1)	$	72,682		$	(137,036	)	$	10,375
EBITDA (2)	$	243,754		$	235,882		$	198,742

(1) Amounts were derived from our consolidated statements of cash flows.

(2) As used in this report, EBITDA means net income (plus cash distributions of income from unconsolidated homebuilding joint ventures) before (a) income taxes, (b) homebuilding interest expense, (c) expensing of previously capitalized interest included in cost of sales, (d) noncash impairment changes, (e) depreciation and amortization, (f) income from unconsolidated homebuilding joint ventures and (g) income (loss) from our financial services subsidiary. Other companies may calculate EBITDA differently. EBITDA is a non-GAAP measure of profitability and is a widely accepted financial indicator of a company’s ability to service debt. However, EBITDA should not be considered in isolation or as an alternative to net income or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) and should not be construed as an indicator of operating performance or as a measure of liquidity. EBITDA is used in covenants in our revolving credit facility and our public senior and senior subordinated notes. The calculations of EBITDA below are presented in accordance with the requirements of our debt covenants. The table set forth below reconciles net income to EBITDA:

	Year Ended December 31,
	2002		2001		2000
	(Dollars in thousands)
Net income	$	118,689	$	111,065	$	100,142
Add:
Cash distributions of income from unconsolidated homebuilding joint ventures		15,838		26,533		7,136
Provision for income taxes		75,992		73,411		66,005
Homebuilding interest expense		5,489		4,158		3,599
Expensing of previously capitalized interest included in cost of sales		48,208		39,990		33,854
Noncash impairment charges		8,952		5,399		—
Depreciation and amortization		2,678		4,409		3,629
Less:
Income from unconsolidated homebuilding joint ventures		27,616		26,675		16,478
Income (loss) from our financial services subsidiary		4,476		2,408		(855	)
EBITDA	$	243,754	$	235,882	$	198,742

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Selected Operating Data

	Year Ended December 31,
	2002		2001		2000
New homes delivered:
Southern California		1,727		1,325		1,367
Northern California		557		600		865
Total California		2,284		1,925		2,232
Texas		520		645		546
Arizona		1,432		1,067		797
Colorado		277		380		141
Florida		1,188		—		—
Carolinas		241		—		—
Consolidated total		5,942		4,017		3,716
Unconsolidated joint ventures:
Southern California		242		293		155
Northern California		81		1		—
Total unconsolidated joint ventures		323		294		155
Total		6,265		4,311		3,871
Average selling price of homes delivered:
California (excluding joint ventures)	$	488,000	$	458,000	$	443,000
Texas	$	287,000	$	292,000	$	287,000
Arizona	$	173,000	$	173,000	$	164,000
Colorado	$	318,000	$	316,000	$	272,000
Florida	$	197,000	$	—	$	—
Carolinas	$	142,000	$	—	$	—
Consolidated (excluding joint ventures)	$	314,000	$	342,000	$	354,000
Unconsolidated joint ventures (California)	$	532,000	$	537,000	$	554,000
Total (including joint ventures)	$	326,000	$	355,000	$	362,000
Net new orders:
Southern California		2,019		1,469		1,439
Northern California		639		392		967
Total California		2,658		1,861		2,406
Texas		519		551		661
Arizona		1,473		1,176		887
Colorado		287		310		140
Florida		1,115		—		—
Carolinas		177		—		—
Consolidated total		6,229		3,898		4,094
Unconsolidated joint ventures:
Southern California		459		259		156
Northern California		124		9		—
Total unconsolidated joint ventures		583		268		156
Total		6,812		4,166		4,250

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Selected Operating Data

	Year Ended December 31,
	2002		2001		2000
Average number of selling communities during the year:
Southern California		23		21		21
Northern California		13		13		13
Texas		25		27		26
Arizona		20		18		15
Colorado		11		10		5
Florida		13		—		—
Carolinas		4		—		—
Consolidated total		109		89		80
Unconsolidated joint ventures:
Southern California		7		5		3
Northern California		2		1		—
Total unconsolidated joint ventures		9		6		3
Total		118		95		83
	At December 31,
	2002		2001		2000
Backlog (in homes):
Southern California		856		558		414
Northern California		157		67		275
Total California		1,013		625		689
Texas		146		147		241
Arizona		567		526		417
Colorado		88		78		148
Florida		1,034		—		—
Carolinas		81		—		—
Consolidated total		2,929		1,376		1,495
Unconsolidated joint ventures:
Southern California		224		13		47
Northern California		43		8		—
Total unconsolidated joint ventures		267		21		47
Total		3,196		1,397		1,542
Backlog (estimated dollar values in thousands):
Consolidated total	$	872,694	$	433,413	$	518,751
Unconsolidated joint ventures		139,491		11,994		23,942
Total	$	1,012,185	$	445,407	$	542,693
Building sites owned or controlled:
Southern California		6,056		5,758		5,489
Northern California		3,791		2,977		3,356
Total California		9,847		8,735		8,845
Texas		2,731		2,598		2,650
Arizona		4,839		4,178		3,380
Colorado		1,792		1,971		2,238
Florida		8,007		—		—
Carolinas		2,673		—		—
Total		29,889		17,482		17,113
Total building sites owned		16,123		10,664		9,949
Total building sites optioned		10,200		4,646		4,786
Total joint venture lots		3,566		2,172		2,378
Total		29,889		17,482		17,113
Completed and unsold homes		280		345		134
Homes under construction		3,012		1,815		1,946

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Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those which impact our most critical accounting policies. We base our estimates and judgments on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following accounting policies are those that are most critical to the portrayal of our financial condition and results of operations, and require the more significant judgments and estimates:

Business Combinations

Acquisitions of other companies are accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). Under the purchase method of accounting, the assets acquired and liabilities assumed are recorded at their estimated fair values. Any purchase price paid in excess of the net fair values of tangible and identified intangible assets less liabilities assumed is recorded as goodwill. The estimation of fair values of assets and liabilities, and the allocation of purchase price requires a substantial degree of judgment by management, especially with respect to valuations of real estate inventories, which at the time of acquisition, are generally in various stages of development. Actual revenues, costs and time to complete a community could vary from estimates impacting the allocation of purchase price between tangible and intangible assets. A variation in allocation of purchase price between asset groups, including inventories and goodwill, could have an impact on the timing and ultimate recognition of current and future results of our operations. Our reported income from an acquired company includes the operations of the acquired company from the date of acquisition.

Cost of Sales

Homebuilding cost of sales is recognized when homes are sold and title has transferred to the homebuyer. Cost of sales is recorded based upon total estimated costs to be allocated to each home within a community. Certain direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their relative sales value. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their respective community. These costs include all direct and indirect construction costs associated with constructing and carrying the home as well as costs related to developing the surrounding community and amenities, such as land, land improvements and other common costs. The estimation of these costs requires a substantial degree of judgment by management.

The estimation process involved in determining relative sales values is inherently uncertain because it involves estimating future sales values of homes before delivery. Additionally, in determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred. It is possible that actual results could differ from budgeted amounts for various reasons, including construction delays, increases in costs which have not been committed, or unforeseen issues encountered during construction that fall outside the scope of existing contracts. While the actual results for a particular construction project are accurately reported over time, a variance between the budget and actual costs could result in the understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the potential for such variances, we have procedures which have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred, and utilizing the most recent information available to estimate costs. We believe that these policies and procedures provide for reasonably dependable estimates for purposes of calculating amounts to be relieved from inventories and expensed to cost of sales.

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Inventories

Inventories consist of land, land under development, homes under construction and completed homes and are stated at cost, net of impairment losses, if any. We capitalize direct carrying costs, including interest, property taxes and related development costs to real estate under development. Field construction supervision and related direct overhead are also included in the capitalized cost of real estate inventories. Certain direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their relative sales value.

We assess the recoverability of inventories in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires long-lived assets, including inventories, that are expected to be held and used in operations to be carried at the lower of cost or, if impaired, the fair value of the asset. SFAS 144 requires that companies evaluate long-lived assets for impairment based on undiscounted future cash flows of the assets at the lowest level for which there is identifiable cash flows. This evaluation requires estimates of future revenues, costs and the remaining time to develop the project and requires a substantial degree of judgment by management. Actual revenues, costs and time to complete development could vary from estimates which could affect our future results of operations (see cost of sales discussion above regarding the estimation process). We review each real estate project on a community-by-community basis to determine whether or not carrying amounts have been impaired. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Goodwill

The excess amount paid for business acquisitions over the net fair value of assets acquired and liabilities assumed has been capitalized as goodwill in the accompanying consolidated balance sheets in accordance with SFAS 141. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS 142 requires that goodwill not be amortized but instead assessed at least annually for impairment and expensed against earnings as a noncash charge if the estimated fair value of a reporting unit is less than its carrying value, including goodwill. This valuation process requires management to make comprehensive estimates of future revenues, costs and the timing of expected future cash flows which requires a substantial degree of judgment. Due to the uncertainties associated with such estimates and judgments, actual results could differ from such estimates. For purposes of this test, each of our homebuilding geographic operating divisions is a reporting unit.

Unconsolidated Homebuilding Joint Ventures

Investments in our unconsolidated joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to third parties. All joint venture profits generated from land sales to us are deferred and recorded as a reduction to our cost basis in the lots purchased until the homes are ultimately sold by us to others. Our ownership interests in our joint ventures vary, but are generally less than or equal to 50 percent. In certain instances, our ownership interest may be greater than 50 percent, however, we account for these investments under the equity method because we do not have voting or economic control.

The cost of sales and inventories critical accounting policies described above are also applicable to our unconsolidated homebuilding joint ventures.

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Fiscal Year 2002 Compared to Fiscal Year 2001

Overview

Net income for the year ended December 31, 2002 increased 7 percent to a record $118.7 million, or $3.67 per diluted share, compared to $111.1 million, or $3.63 per diluted share, in 2001. The increase in net income was driven by a 4 percent increase in homebuilding pretax income, a 59 percent increase in financial services pretax income and an 80 basis point reduction in our effective tax rate to 39.0 percent. EBITDA for 2002 increased 3 percent to a record $243.8 million compared to $235.9 million in 2001. A reconciliation of net income to EBITDA is set forth in footnote 2 to the Selected Financial Information table on page 15.

On April 15, 2002, we acquired Westbrooke Homes for total consideration of approximately $39 million in cash, plus the repayment of approximately $55 million in indebtedness. In connection with this acquisition, we recorded goodwill of approximately $12.5 million. Westbrooke Homes is a longtime homebuilder in the Miami, Florida metropolitan area. With this acquisition, we purchased or assumed the rights to acquire approximately 2,800 single-family lots, which included 8 active selling communities at the close of the transaction, and acquired a backlog of 485 presold homes.

On May 14, 2002, we acquired Colony Homes for total consideration of approximately $26 million in cash (including the contingent payments described below) and stock, plus the repayment of approximately $9 million in indebtedness. In connection with this acquisition, we recorded an initial amount of goodwill of approximately $15.9 million. The stock component consisted of the issuance of 133,333 shares of Standard Pacific common stock valued under the agreement at $30 per share. The contingent payments are subject to an aggregate cap of $7 million and will be payable annually pursuant to an earnout arrangement based on pretax income of Colony Homes during each of the fiscal years 2003 through 2005. Colony Homes has been in business since 1991 in the Orlando, Florida metropolitan area. At closing, we purchased or assumed the rights to acquire over 1,600 buildable lots and acquired a backlog of 141 presold homes.

On August 13, 2002, we acquired Westfield Homes for total consideration of approximately $56.5 million in cash (including the contingent payments described below) and stock, plus the repayment of approximately $46 million in indebtedness. In connection with this acquisition, we recorded an initial amount of goodwill of approximately $13.8 million. The cash component of the purchase price consisted of an initial payment of approximately $20 million, a deferred payment of $7 million payable in January 2003 and contingent payments estimated to equal approximately $14.5 million. The contingent payments are subject to an annual earnout arrangement based on a percentage of pretax income of Westfield Homes for the period subsequent to the acquisition through December 31, 2002 and for the years ended December 31, 2003 through December 31, 2005. We recorded additional goodwill for the 2002 earnout period of approximately $1.3 million. The stock component consisted of the issuance of 459,552 shares of our common stock valued under the agreement at $32.64 per share. Westfield Homes has been in business since 1980 and currently operates in Tampa and Southwest Florida, and in Raleigh-Durham and Charlotte in the Carolinas. We did not acquire Westfield’s Illinois operations. Westfield owned or controlled approximately 4,800 buildable lots in these markets at the time of acquisition. With this acquisition, we also acquired a backlog of 626 presold homes.

In August 2002, we announced our decision to close our Houston division. In 2001, our Houston operations represented less than 2 percent of our total homebuilding revenues and did not make a significant contribution to our Texas earnings. In connection with winding down our Houston operations, we recognized a noncash pretax charge of approximately $3.0 million during the 2002 third quarter.

Homebuilding

Homebuilding pretax income for 2002 was up 4 percent to $187.5 million compared to $180.0 million in the prior year. The higher level of pretax income was primarily attributable to a 36 percent rise in homebuilding revenues which was largely offset by a 240 basis point decrease in the homebuilding gross margin percentage, and an increase in selling, general and administrative (“SG&A”) expenses as a percentage of homebuilding revenues. Additionally, our 2002 homebuilding pretax income reflects a third quarter pretax asset impairment charge of $6.0 million resulting from the write-down of certain homebuilding projects in our Colorado division to their estimated fair values and the $3.0 million third quarter pretax charge discussed above related to our decision to close our Houston division. The Colorado asset impairment charge resulted from the decline in new

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home prices due to the region’s slow economy. The Colorado and Houston noncash charges are reflected in cost of sales and other expense, respectively, in our accompanying consolidated statements of income.

Homebuilding revenues for 2002 were a record $1.87 billion, a 36 percent increase over the $1.38 billion generated in 2001. The increase in revenues was attributable to a 48 percent increase in new home deliveries (exclusive of joint ventures) to 5,942 homes, reflecting in part the delivery of 1,429 homes from our new Florida and Carolina operations. The increase in deliveries was partially offset by an 8 percent decline in our consolidated average home price to $314,000. The lower average price was due primarily to increased deliveries from our Arizona division and the deliveries from our new Florida and Carolina operations.

In California, we delivered 2,284 new homes (exclusive of joint ventures) in 2002 versus 1,925 homes in 2001. Deliveries were up 30 percent in Southern California to 1,727 new homes and down 7 percent in Northern California to 557 new homes. In Arizona, deliveries increased 34 percent to 1,432 new homes, while deliveries in Texas and Colorado were down 19 and 27 percent, respectively. The decline in Texas and Colorado deliveries reflects the impact of slower economic conditions on housing demand in these markets.

Our average home price in California (exclusive of joint ventures) increased 7 percent to $488,000. The higher price reflects the delivery of larger homes combined with general new home price increases, primarily in the strong Southern California housing market. Our average home prices in Arizona and Colorado remained essentially flat compared to the prior year, while our average home price in Texas declined approximately 2 percent to $287,000. Our 2002 average home prices in Florida and the Carolinas were $197,000 and $142,000, respectively.

Our homebuilding gross margin percentage for 2002 decreased 240 basis points to 18.3 percent compared to 20.7 percent in 2001. The lower gross margin percentage reflects the impact of slower economic conditions in our Texas, Colorado and Northern California markets, the Colorado asset impairment charge noted above and the purchase accounting adjustments related to the three acquisitions we made during 2002. In accordance with purchase accounting standards, we increased the carrying values of presold homes in the backlog of the acquired entities to their estimated fair value. This adjustment had the impact of increasing cost of sales and reducing our gross margin percentage when these homes were delivered. Excluding the impact of the Colorado asset impairment charge and the purchase accounting adjustments, our gross margin percentage in 2002 would have been 19.1 percent.

SG&A expenses for 2002 were 9.4 percent of homebuilding revenues compared to 9.0 percent in 2001. The increase in SG&A expenses as a percentage of homebuilding revenues was due primarily to the increase in deliveries outside of California where G&A and sales and marketing costs are generally higher.

Income from unconsolidated joint ventures in 2002 was generated from the delivery of 323 new homes, compared to 294 deliveries in 2001, and from land sales from our Talega land development joint venture in South Orange County, California. All of our joint venture deliveries during 2002 and 2001 were generated in California.

Effective January 1, 2002, we ceased amortizing goodwill in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. During 2001, we amortized approximately $2.3 million of goodwill.

Other income (expense) for 2002 reflects the noncash pretax charge of approximately $3.0 million recognized in connection with the closure of our Houston division discussed above, which was offset in part by construction fee income generated by our Orlando, Florida operation.

Net new orders for 2002 were up 64 percent from the year earlier period to a record 6,812 new homes (including 583 joint venture orders) compared to 4,166 (including 268 joint venture orders) in 2001. In addition, our cancellation rate decreased in 2002 to 20 percent versus 26 percent in 2001. Orders were up 43 percent in Southern California on a 15 percent increase in the average community count, up 90 percent in Northern

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California on a 7 percent increase in the average community count, down 6 percent in Texas on a 7 percent decrease in average community count, up 25 percent in Arizona on an 11 percent higher average community count, and down 7 percent in Colorado on a 10 percent higher average community count. With respect to our divisions acquired in 2002, we generated 1,115 new home orders from an average of 13 communities in Florida during 2002 and 177 new home orders in the Carolinas from an average of 4 communities during 2002. Our sales activity remained strong in Southern California and Arizona and tapered off somewhat in the San Francisco Bay Area from the strong levels generated in the first half of 2002. Orders in Texas and Colorado reflected the impact of slower economic conditions on housing demand. New home order levels in Florida and the Carolinas reflected generally healthy housing market conditions in these regions for the price segments served by our operations.

The strong overall level of new home orders, together with our three acquisitions in 2002, resulted in a record year-end backlog of 3,196 presold homes (including 267 joint venture orders) valued at an estimated $1.0 billion (including $139 million of joint venture backlog value), an increase of 127 percent from the December 31, 2001 backlog value. No assurance can be given that all of the homes in our backlog will actually be sold as contracted. See “Business—Marketing and Sales” for a discussion of our cancellation rates.

Financial Services

Revenues for the financial services segment, which represents our mortgage banking operations throughout California and in South Florida, were up 63 percent in 2002 to $14.4 million from $8.9 million last year. The higher level of revenues was primarily attributable to a 36 percent increase in the volume of mortgage loans sold combined with a 44 percent increase in net interest income. The higher level of loan volume was driven by an increase in new homes delivered in California, an increase in our capture rate to 60 percent in California, and our commencement of loan originations in South Florida during the third quarter of 2002. The increase in net interest income was attributable to the higher level of loans carried by us prior to sale to third party investors and the favorable interest rate environment which resulted in a greater spread between the cost to carry the loans prior to sale and the interest rates received on the loans held for sale.

Expenses for the financial services segment were up 54 percent primarily as a result of increased compensation and overhead expenses driven by the higher revenue and earnings levels, and due to start-up expenses incurred in connection with our entrance into the South Florida market.

Financial services joint venture income, which is derived from mortgage banking joint ventures with third party mortgage lenders in Arizona, Texas, Colorado, Florida and the Carolinas, was up 36 percent to $2.3 million from $1.7 million in 2001. The higher income level was primarily due to increased deliveries in Arizona and the addition of the Florida and Carolina joint ventures in 2002 resulting from our acquisitions in these markets.

Other financial services income represents earnings from our title insurance operations in Texas and South Florida, which serve as title insurance agents offering title examination services.

Fiscal Year 2001 Compared to Fiscal Year 2000

Overview

Net income for 2001 increased 11 percent to $111.1 million, or $3.63 per diluted share, compared to $100.1 million, or $3.39 per diluted share, in 2000. The increase in net income was driven by an 8 percent improvement in homebuilding pretax income and a $4.3 million increase in financial services pretax income. EBITDA for 2001 increased 19 percent to $235.9 million compared to $198.7 million in 2000. A reconciliation of net income to EBITDA is set forth in footnote 2 to the Selected Financial Information table on page 15.

Homebuilding

Homebuilding pretax income for 2001 was up 8 percent to $180.0 million compared to $166.0 million in 2000. The higher level of pretax income was primarily attributable to a 100 basis point increase in our homebuilding gross margin percentage to 20.7 percent, a 4 percent rise in homebuilding revenues and a

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$10.2 million increase in joint venture income. These increases were partially offset by an increase in SG&A expenses as a percentage of revenues from 8.0 percent in 2000 to 9.0 percent in 2001.

Homebuilding pretax income and gross margin for 2001 were also impacted by a noncash pretax asset impairment charge of $5.4 million. The charge, which was included in cost of sales, resulted from the write-down to estimated fair value of one homebuilding project in the San Francisco Bay Area due to slower than anticipated new home sales.

Homebuilding revenues for 2001 were $1.38 billion, a 4 percent increase over the $1.32 billion achieved in 2000. The higher revenue total was due to an 8 percent increase in deliveries (exclusive of joint ventures) to 4,017 new homes, which was partially offset by a 3 percent decline in our average home selling price to $342,000. In California, we delivered 1,925 new homes in 2001 versus 2,232 homes in 2000. Deliveries were down 3 percent in Southern California to 1,325 new homes as a greater percentage of our deliveries were generated from our unconsolidated joint ventures. Deliveries were down 31 percent in Northern California to 600 new homes due to weak economic conditions and reduced demand for housing in the San Francisco Bay Area. Our Texas division’s deliveries were up 18 percent to 645 new homes, while deliveries in Arizona increased 34 percent to 1,067 new homes. Our Colorado division delivered 380 new homes in its first full year of operations compared to the delivery of 141 new homes in 2000 subsequent to our acquisition of Writer Homes in August 2000.

Our average home price in California increased 3 percent in 2001 to $458,000 (exclusive of joint ventures). Although we were successful in delivering a greater percentage of our homes in the $400,000 and under price range, the average home price was impacted by the delivery of homes in excess of $1 million from two projects in Southern California. Our average home price in Texas was up slightly to $292,000 reflecting a greater distribution of deliveries from our Dallas and Austin operations. In Arizona, our average home price was up 5 percent to $173,000 due to changes in delivery mix and, in Colorado, the average home price increased 16 percent to $316,000 also reflecting a shift in product mix.

Our homebuilding gross margin percentage for 2001 was up 100 basis points to 20.7 percent compared to 19.7 percent in 2000. The improvement in our gross margin percentage was primarily due to an increase in California gross margins as a result of continued strong demand for housing during the year in Southern California and as a result of higher margins in Northern California in the first half of the year due to the strong beginning backlog of presold homes. The increase in the 2001 gross margin percentage was partially offset by the $5.4 million asset impairment charge discussed above and the drop in Northern California deliveries in the second half of 2001, where new homes generate margins above our companywide average.

SG&A expenses for 2001 were 9.0 percent of homebuilding revenues compared to 8.0 percent in 2000. The increase in SG&A expenses as a percentage of homebuilding revenues was due primarily to higher levels of sales and marketing costs incurred in some of our markets as a result of weaker housing demand, combined with an increase in non-California deliveries which generally incur higher levels of selling and marketing costs as a percent of revenues.

Income from unconsolidated joint ventures in 2001 was generated from the delivery of 294 new homes, compared to 155 deliveries in 2000, and from land sales from our Talega land development joint venture. Our new home deliveries in 2001 were generated primarily from our multi-project joint venture in Fullerton, California and our four-project active adult development in Talega. In 2000, we generated a $5.1 million gain on the sale of a 107 lot parcel of land from our Fullerton, California venture.

Amortization of goodwill for 2001 reflects a slight increase over the 2000 level as it includes a full year of amortization expense for our Colorado acquisition which closed during the 2000 third quarter.

Net new orders for 2001 (including 268 joint venture orders) were down 2 percent to 4,166 new homes compared to 4,250 in 2000. The decline in orders was the result of weak housing demand in certain of our

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markets due to the national economic recession and slowdown in the high-tech sector. Orders were up 8 percent in Southern California on an 8 percent increase in average community count, down 59 percent in Northern California on an 8 percent increase in average community count, down 17 percent in Texas on a 4 percent increase in community count, and up 33 percent in Arizona on a 20 percent higher community count. Net new orders in Colorado totaled 310 new homes during 2001 from 10 active selling communities versus 140 new home orders for the period subsequent to our August 2000 acquisition. We ended 2001 with a backlog of 1,397 presold homes (including 21 joint venture orders) valued at an estimated $445.4 million compared to 1,542 homes valued at an estimated $542.7 million (including $12 million of joint venture backlog value) at December 31, 2000. The decrease in the 2002 backlog was due to slower new home sales trends experienced in the second half of 2001 compared to the same period in 2000.

Financial Services

For 2001, revenues from our California mortgage banking operations were up 160 percent to $8.9 million compared to $3.4 million in 2000. The higher revenue total was driven primarily by a 94 percent increase in the dollar volume of loans sold compared to 2000, combined with improved margins generated from the sale of loans and higher net interest income recognized on loans held for sale. The higher margins were due primarily to a softening of the competitive environment for new home financing, as lower interest rates resulted in a stronger mortgage refinancing market. The improvement in the net interest income margin was due to the lower interest rate environment which increased the spread between our cost of borrowing compared to interest rates earned on mortgages held prior to disposition. The increase in loan sale volume was due to an increase in our capture rate to 57 percent during 2001 compared to 37 percent in 2000. The rise in expenses during 2001 compared 2000 primarily reflects increased operating and compensation expenses associated with the higher loan volume.

Our financial services joint venture income for 2001 and 2000 reflected our share of the operating results of SPH Mortgage, our mortgage banking joint venture in Arizona and Texas, and the operations of WRT Financial, our mortgage banking joint venture in Colorado. The increase in venture income in 2001 was primarily attributable to higher delivery levels from these regions and improved margins generated from the sale of loans.

Other financial services income represents earnings from our title insurance operation in Texas, which serves as a title insurance agent offering title examination services.

Inventory Carrying Costs and Inventory Turnover Ratio

	December 31,
	2002		2001		2000
	(Dollars in millions)
Capitalized interest in ending inventories and capitalized interest as a percentage of total inventories	$	31.9    2.3%	$	28.9    2.6%	$	23.6    2.8%
Average inventory balance		$1,247		$981		$771
Cost of sales for the year then ended		$1,529		$1,091		$1,058
Ratio of cost of sales to average inventory balance (inventory turn ratio)		1.23x		1.11x		1.37x

The inventory turn ratio increased from 1.11 in 2001 to 1.23 in 2002. This improvement was primarily attributable to a 48 percent increase in consolidated new home deliveries in 2002 to 5,942 homes while the average inventory balance at the end of 2002 was up only 27 percent compared to the 2001 average inventory level. The increase in deliveries was primarily due to strong housing market conditions in Southern California and Arizona, and deliveries from our newly acquired operations in Florida and the Carolinas. These increases were partially offset by a decline in deliveries from our Northern California, Texas and Colorado divisions.

The inventory turn ratio decreased from 1.37 in 2000 to 1.11 in 2001 primarily due to slowing demand for housing in certain of our markets as a result of the national recession during 2001. The slowdown resulted in a 27 percent increase in average inventory value while homebuilding revenues were up only 4 percent.

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Capitalized interest as a percentage of ending inventories declined from 2.6 percent in 2001 to 2.3 percent in 2002. The lower level of carrying costs as a percentage of ending inventories was primarily the result of our higher inventory turn ratio in 2002, an increase in inventories from our acquisitions in Florida and the Carolinas, and to a lesser extent, a reduction in variable rate debt costs during 2002 reflecting a decline in short-term interest rates.

Capitalized interest as a percentage of ending inventories declined from 2.8 percent at the end of 2000 to 2.6 percent at the end of 2001. The lower level of carrying costs as a percentage of ending inventories was primarily the result of a reduction in variable rate debt costs in 2001 stemming from the decline in short-term interest rates during 2001, which was partially offset by the decrease in the inventory turn ratio in 2001 compared to 2000.

Liquidity and Capital Resources

Our principal uses of cash have been for land acquisitions, construction and development expenditures, operating expenses, market expansion (including acquisitions), investments in unconsolidated land development and homebuilding joint ventures, principal and interest payments on debt, share repurchases and dividends to our stockholders. Cash requirements have been met by internally generated funds, outside borrowings, including our bank revolving credit facility and public note offerings, land option contracts, joint venture financings, land seller notes, assessment district bond financing and through the sale of common equity through public offerings. To a lesser extent, capital has been provided through the issuance of common stock as acquisition consideration as well as from proceeds received upon the exercise of company stock options. In addition, our mortgage financing subsidiary requires funding to finance its mortgage lending operations. Its cash needs are funded from mortgage credit facilities, internally generated funds and a parent line of credit. Based on our current business plan and market conditions, and our desire to carefully manage our leverage, we believe that these sources of cash should be sufficient to finance our current working capital requirements and other needs.

In January 2003, we entered into a new $450 million unsecured revolving credit facility. The new facility replaced our existing $450 million unsecured revolving credit facility and matures on October 31, 2005. In addition to providing us with updated financial and other covenants, the credit facility contains provisions allowing us, at our option, to extend the maturity date of the facility to October 31, 2006 and to increase the total aggregate commitment under the facility up to $550 million, subject to the availability of additional bank lending commitments. The financial covenants contained in the facility require us to, among other things, maintain a minimum level of consolidated tangible stockholders’ equity and a minimum interest coverage ratio. The facility also limits our leverage and investments in joint ventures. These covenants, as well as a borrowing base provision, limit the amount we may borrow under the revolving credit facility and from other sources. Certain of our wholly-owned subsidiaries guarantee our obligations under the revolving credit facility. At December 31, 2002, we had no borrowings outstanding under our predecessor unsecured revolving credit facility and had issued approximately $52.2 million of letters of credit. Our ability to renew and extend the revolving credit facility in the future is dependent upon a number of factors including the state of the commercial lending environment, the willingness of banks to lend to homebuilders and our financial condition and strength.

We utilize three mortgage credit facilities to fund mortgage loans originated by our financial services subsidiary with a total aggregate commitment of $120 million. One of the facilities provided for an additional $30 million in borrowing capacity between November 1, 2002 and January 31, 2003. Mortgage loans are typically financed under the facilities for a short period of time, approximately 15 to 60 days, prior to completion of sale of such loans to third party investors. The facilities, which have LIBOR based pricing, also contain certain financial covenants including leverage and net worth covenants, and have current maturity dates ranging from June 30, 2003 to October 3, 2003. At December 31, 2002, we had approximately $112 million advanced under these facilities.

In April 2002, we issued $150 million of 9¼% Senior Subordinated Notes which mature on April 15, 2012. These notes were issued at a discount to yield approximately 9.38 percent and are unsecured obligations that are

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junior to our senior unsecured indebtedness. Net proceeds after underwriting expenses were approximately $147.0 million and were used to fund the acquisition of Westbrooke Homes and repay a portion of the balance outstanding under our revolving credit facility. We will, under certain circumstances, be obligated to make an offer to purchase all or a portion of these notes in the event of certain asset sales. In addition, these notes contain restrictive covenants which, among other things, impose certain limitations on our ability to (1) incur additional indebtedness, (2) create liens, (3) make restricted payments (including investments in unconsolidated joint ventures), and (4) sell assets. Also, upon a change in control we are required to make an offer to purchase these notes. In addition to these notes, we have approximately $600 million of publicly traded senior notes outstanding, including the 7 ³/4% notes discussed below, which mature from 2007 through 2013.

In May 2002, we issued 2,500,000 shares of common stock at a price to the public of $34.00 per share. In addition, two of our former directors sold 1,000,000 shares in conjunction with our offering. Net proceeds to us after underwriting expenses were approximately $80.5 million and were used to repay the remaining balance outstanding under our revolving credit facility and for general corporate purposes, including acquisitions. We did not receive any proceeds from the shares sold by the selling stockholders.

In March 2003, we issued $125 million of 7¾% Senior Notes which mature on March 15, 2013. These notes were issued at a discount to yield approximately 7.88 percent and are senior unsecured obligations. Net proceeds after underwriting expenses were approximately $122.4 million and were used to repay borrowings outstanding under our revolving credit facility. We will, under certain circumstances, be obligated to make an offer to purchase a portion of the notes in the event of certain asset sales. In addition, these notes contain other restrictive covenants which, among other things, impose certain limitations on our ability to (1) incur additional indebtedness, (2) create liens, (3) make restricted payments (including investments in unconsolidated joint ventures), and (4) sell assets. Also, upon a change in control we are required to make an offer to purchase these notes.

We evaluate our capital needs and the public capital market conditions on a continual basis to determine if and when it may be advantageous to issue additional securities. There may be times when the public debt or equity markets lack sufficient liquidity or when these securities cannot be sold at attractive prices, in which case we may not be able to access capital from these sources and may need to seek additional capital from our bank group or other sources, or adjust our expenditures accordingly. In addition, a weakening of our financial condition or strength, including in particular a material increase in our leverage or decrease in our profitability and interest coverage ratio, could result in a ratings downgrade or change in outlook or otherwise increase our cost of borrowing and adversely affect our ability to obtain necessary funds.

From time to time, purchase money mortgage financing and community development district (“CDD”) or similar bond financing are used to finance land acquisition and development costs. At December 31, 2002, we had approximately $16.7 million outstanding under trust deed and other notes payable, including CDD bonds.

We are subject to customary obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. As of December 31, 2002, we had deposits outstanding of approximately $33.3 million on land purchase contracts having a total remaining purchase price of approximately $256.6 million.

We also utilize option contracts with land sellers and third-party financial entities as a method of acquiring land in staged takedowns and minimizing the use of funds from our revolving credit facility and other corporate financing sources. These option contracts also help us manage the financial and market risk associated with land holdings. Option contracts generally require the payment of a non-refundable cash deposit or the issuance of a letter of credit for the right to acquire lots over a specified period of time at predetermined prices. We generally have the right at our discretion to terminate our obligations under these option agreements by forfeiting our cash deposit or repaying amounts drawn under the letter of credit with no further financial responsibility. As of

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December 31, 2002, we had deposits and letters of credit outstanding of approximately $40.9 million on option contracts having a total remaining purchase price of approximately $266.4 million, of which approximately $46.1 million is included in accrued liabilities in the accompanying consolidated balance sheet at December 31, 2002 related to two of our option contracts. The utilization of option contracts is dependent on, among other things, the availability of capital to the option provider, general housing market conditions and geographic preferences. Options may be more difficult to procure from land sellers in strong housing market conditions and are more prevalent in certain geographic regions.

We enter into land development and homebuilding joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile and leveraging our capital base. These joint ventures typically obtain secured acquisition, development and construction financing, which minimizes the use of funds from our revolving credit facility and other corporate financing sources. We plan to continue using these types of arrangements to finance the development of properties as opportunities arise. At December 31, 2002, these unconsolidated joint ventures had borrowings which totaled approximately $227.1 million which, in accordance with generally accepted accounting principles, are not recorded in our accompanying consolidated balance sheet. We and our joint venture partners generally provide credit enhancements to this financing in the form of loan-to-value maintenance agreements, which require us under certain circumstances to reduce the venture’s borrowings to the extent such borrowings plus construction completion costs exceed a specified percentage of the value of the property securing the loan. Either a decrease in the value of the property securing the loan or an increase in construction completion costs could trigger this payment obligation. Typically, we share these obligations with our other partners and, in some instances, these obligations are subject to limitations on the amount that we could be required to pay down. In addition, we and our joint venture partners are generally obligated to the project lenders to complete land development improvements and the construction of planned homes if the joint venture does not perform the required development and construction. Provided we and the other joint venture partners are in compliance with these completion obligations, the project lenders would be obligated to fund these improvements through any financing commitments available under the applicable joint venture development and construction loans.

We paid approximately $10.2 million, or $0.32 per common share ($0.08 per common share per quarter), in dividends to our stockholders during 2002. Common stock dividends are paid at the discretion of our Board of Directors and are dependent upon various factors, including earnings, cash flows, capital requirements and operating and financial conditions, including our overall level of leverage. Additionally, our revolving credit facility and public notes impose restrictions on the amount of dividends we may be able to pay. On January 30, 2003, our Board of Directors declared a quarterly cash dividend of $0.08 per share of common stock. This dividend was paid on February 25, 2003 to shareholders of record on February 11, 2003.

During the year ended December 31, 2002, we issued 308,113 shares of common stock pursuant to the exercise of stock options for cash consideration of approximately $4.8 million.

In April 2001, our Board of Directors authorized a $35 million stock repurchase plan that replaced our previously authorized repurchase plan. In October 2002, our Board increased the buyback limit to $50 million and in January 2003 to $75 million. Through February 28, 2003, we had repurchased 1,631,500 shares of common stock for approximately $34.4 million under the plan, leaving a balance of approximately $40.6 million for future share repurchases.

As part of the repurchase program, in November 2002, we adopted a repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. Rule 10b5-1 permits us to implement a repurchase plan that sets forth specific terms and conditions pursuant to which a broker designated by us will conduct common stock repurchases on our behalf, even if such repurchases are to be carried out during time periods when we would ordinarily be prohibited from conducting repurchases because of our possession of material nonpublic information. Our plan provides our broker with the authority to repurchase on our behalf up to an aggregate of $12.3 million of Standard Pacific common stock between December 1, 2002 and December 31, 2003, if the terms and conditions set forth in our plan are met. As of March 4, 2003 no repurchases had been made pursuant to the plan.

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During the term of the plan we may also elect to make common stock repurchases outside the plan, if market conditions permit and we are not otherwise prohibited by our self-imposed trading blackout windows, possession of material nonpublic information, or any other applicable law, rule or regulation.

We have no other material commitments or off-balance sheet financing arrangements that under current market conditions are expected to materially affect our future liquidity.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No 13, and Technical Corrections” (“SFAS 145”). SFAS 145 provides that gains or losses resulting from the extinguishment of debt not be classified as an extraordinary item unless it meets the criteria of Accounting Principles Board Opinion No. 30. SFAS 145 is effective for fiscal years beginning after May 15, 2002. We do not anticipate that the adoption of SFAS 145 will have a material impact on our financial position or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring)”. SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan as prescribed under EITF No. 94-3. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. We believe the adoption of SFAS 146 will not have a material impact on our financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation 45”). The disclosure requirements of Interpretation 45 are effective as of December 31, 2002 and we adopted that portion of the pronouncement as of that date. The initial recognition and measurement requirements of Interpretation 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. Recognition of a liability is recorded at its estimated fair value based on the present value of the expected contingent payments under the guarantee arrangement. We do not believe that the adoption of the initial recognition and measurement requirements of Interpretation 45 will have a material impact on our financial condition or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”). SFAS 148 amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Although SFAS 148 does not require use of the fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition should companies elect to adopt the fair value method of accounting which requires companies to record compensation expense when stock options are granted. SFAS 148 also amends the disclosure provisions of SFAS 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in interim and annual financial statements. We have elected to continue to use the intrinsic value method of accounting for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 148’s amendment of the transition and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The adoption of SFAS 148 will only require expanded disclosure in interim reporting since we have elected to continue accounting for stock-based compensation in accordance with APB 25.

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In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”). Interpretation 46 addresses the consolidation of variable interest entities. Under Interpretation 46, arrangements that are not controlled through voting or similar rights are accounted for as variable interest entities. An enterprise is required to consolidate a variable interest entity if it is the primary beneficiary. Interpretation 46 applies immediately to arrangements created after January 31, 2003 and, with respect to arrangements created before February 1, 2003, the interpretation will apply beginning on July 1, 2003. We have not yet determined the anticipated impact of adoption as we are currently evaluating the impact of the required accounting treatment under Interpretation 46 for our arrangements existing as of December 31, 2002. However, it may require the consolidation of the assets, liabilities and operations of certain of our homebuilding and land development joint ventures, as well as option contracts with third-party financial entities. Since we already recognize our proportionate share of joint venture earnings and losses under the equity method of accounting, the adoption of Interpretation 46 will not impact our consolidated net income.

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FORWARD-LOOKING STATEMENTS

This Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. In addition, other statements we may make from time to time, such as press releases, oral statements made by Company officials and other reports we file with the Securities and Exchange Commission, may also contain such forward-looking statements. These statements, which represent our expectations or beliefs regarding future events, may include but are not limited to statements regarding:

• our strategies;

• the strength of our markets;

• expected deliveries, average home prices and gross margins;

• sales orders and our backlog of homes and their estimated sales value;

• our opportunities and desire to expand in our existing markets and enter new geographic markets;

• the adequacy of our inventory of building sites and our competitive edge in acquiring new building sites;

• planned new home community openings and the expected number of active selling communities;

• the adequacy of our impairment charges relating to certain Colorado homebuilding projects and our exit from the Houston market;

• contingent earn-out payments in connection with acquisitions;

• the sufficiency of our capital resources;

• our planned continued use of joint ventures and expected joint venture deliveries;

• our review and assessment of goodwill for impairment;

• the expected impact of new accounting pronouncements;

• our expectation that our material commitments and off-balance sheet financing arrangements will not materially affect our liquidity;

• our exposure to market risks, including fluctuations in interest rates;

• the effectiveness and adequacy of our disclosure and internal controls;

• the time typically required to complete construction of a home;

• the expected impact of outstanding claims and actions on our results of operations and financial position;

• the likelihood of realization of a net deferred tax asset; and

• the potential value of and expense related to stock option grants.

Forward-looking statements are based on current expectations or beliefs regarding future events or circumstances, and you should not place undue reliance on these statements. Such statements involve known and unknown risks, uncertainties, assumptions and other factors—many of which are out of our control and difficult to forecast—that may cause actual results to differ materially from those that may be described or implied. Such factors include but are not limited to:

• local and general economic and market conditions, including consumer confidence, employment rates, interest rates, the cost and availability of mortgage financing, and stock market, home and land valuations;

• the impact on economic conditions of terrorist attacks or the outbreak or escalation of armed conflict involving the United States;

• the cost and availability of suitable undeveloped land, building materials and labor;

• the cost and availability of construction financing and corporate debt and equity capital;

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• the significant amount of our debt and the impact of the restrictive covenants in our credit agreements and public notes;

• the demand for single-family homes;

• cancellations of purchase contracts by homebuyers;

• the cyclical and competitive nature of our business;

• governmental regulation, including the impact of “slow growth,” “no growth” or similar initiatives;

• delays in the land entitlement and other approval processes, development, construction, or the opening of new home communities;

• adverse weather conditions and natural disasters;

• environmental matters;

• risks relating to our mortgage financing operations, including hedging activities;

• future business decisions and our ability to successfully implement our operational, growth and other strategies;

• risks relating to acquisitions;

• litigation and warranty claims; and

• other factors included in this Form 10-K.

We assume no, and hereby disclaim any, obligation to update any of the foregoing or any other forward-looking statements. We nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this Form 10-K. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks related to fluctuations in interest rates on our mortgage loans receivable, mortgage loans held for sale and outstanding debt. Other than forward sale commitments of mortgage-backed securities entered into by our financial services subsidiary for the purpose of hedging interest rate risk as described below, we did not utilize swaps, forward or option contracts on interest rates, foreign currencies or commodities or other types of derivative financial instruments as of or during the year ended December 31, 2002. We do not enter into or hold derivatives for trading or speculative purposes. The purpose of the following analysis is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of December 31, 2002. You should be aware that many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Forward-Looking Statements.”

As part of our ongoing operations, we provide mortgage loans to our homebuyers through our financial services subsidiary and joint ventures. SPH Mortgage, WRT Financial and Westfield Home Mortgage, our mortgage banking joint ventures, and to a lesser extent, Family Lending, our mortgage financing subsidiary, manage the interest rate risk associated with making loan commitments and holding loans for sale by preselling loans. Preselling loans consists of obtaining commitments (subject to certain conditions) from investors to purchase the mortgage loans while concurrently extending interest rate locks to loan applicants. In the case of SPH Mortgage, WRT Financial and Westfield Home Mortgage, these loans are presold and promptly transferred to their respective financial institution partners or third party investors. In the case of Family Lending, these loans are presold to third party investors. Before completing the sale to these investors, Family Lending finances these loans under its mortgage credit facilities for a short period of time (typically for 15 to 30 days), while the investors complete their administrative review of the applicable loan documents. Due to the frequency of these

31

loan sales and the commitments from its third party investors, we believe the market rate risk associated with loans originated on this basis by Family Lending is minimal.

To enhance potential returns on the sale of mortgage loans, Family Lending also originates a substantial portion of its mortgage loans on a non-presold basis. When originating on a non-presold basis, Family Lending locks interest rates with its customers and funds loans prior to obtaining purchase commitments from secondary market investors, thereby creating interest rate risk. To hedge this interest rate risk, Family Lending enters into forward sale commitments of mortgage-backed securities. Loans originated in this manner are typically held by Family Lending and financed under its mortgage credit facility for 15 to 60 days before they are sold to third party investors. Family Lending utilizes the services of a third party advisory firm to assist with the implementation and execution of its hedging strategy for loans originated on a non-presold basis. While this hedging strategy is designed to assist Family Lending in mitigating risk associated with originating loans on a non-presold basis, these instruments involve elements of market risk which could result in losses on loans originated in this manner if not hedged properly. As of December 31, 2002, Family Lending had approximately $83.7 million of closed mortgage loans and loans in process that were originated on a non-presold basis, of which approximately $77.3 million were hedged by forward sale commitments of mortgage-backed securities.

There are also certain loans in Family Lending’s mortgage loan portfolio which were contributed to Family Lending in connection with its initial capitalization. These mortgage loans are accounted for as loans held for sale and include both fixed and variable rate loans. To a much lesser extent, our homebuilding operation has provided first and second mortgage loans to homebuyers and on occasion trust deed mortgage financing on land sales. These loans are held to maturity and generally are at fixed interest rates.

We utilize debt financing primarily for acquiring and developing land, constructing and selling homes, funding market expansion through acquisitions and for other operating purposes. Historically, we have made short-term borrowings under our revolving credit facility to fund these expenditures and when market conditions were appropriate, based on our judgment, we would issue stock or fixed rate debt to provide longer-term financing. In addition, as discussed above our financial services subsidiary utilizes short-term borrowings under its mortgage credit facilities to finance mortgage loan originations for our homebuyers. Borrowings under these revolving credit facilities are at variable rates.

For our fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flows. Conversely, for our variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect our earnings and cash flows. We do not currently have any obligations to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until we would be required to refinance such debt. Holding our variable rate debt balance constant as of December 31, 2002, each one percentage point increase in interest rates would result in an increase in variable rate interest incurred for the coming year of approximately $1.1 million. A one percentage point increase in interest rates on our average variable rate debt outstanding during 2002 would have also resulted in an increase in variable rate interest costs of approximately $1.1 million. In addition, holding our combined homebuilding joint venture variable rate debt balance constant as of December 31, 2002, each one percentage point increase in interest rates would result in an approximate $2.3 million increase in the interest costs of the unconsolidated joint ventures.

The table below details the principal amount and the average interest rates for the mortgage notes receivable, mortgage loans held for sale and outstanding debt for each category based upon the expected maturity or disposition dates. Certain mortgage notes receivable and mortgage loans held for sale require periodic principal payments prior to the expected maturity date. The fair value estimates for these mortgage notes receivable and mortgage loans held for sale are based upon future discounted cash flows of similar type notes or quoted market prices for similar loans. The carrying value of our variable rate debt approximates fair value due to the frequency of repricing of this debt. Our fixed rate debt consists of trust deed and other notes payable, senior notes payable and senior subordinated notes payable. The interest rates on our trust deed and other notes

32

payable approximate the current rates available for secured real estate financing with similar terms and maturities, and as a result, their carrying amounts approximate fair value. Our senior and senior subordinated notes payable are publicly traded debt instruments and their fair values are based on their quoted market prices as of December 31, 2002.

	Expected Maturity Date																		Total			Estimated Fair Value
December 31,	2003			2004			2005			2006			2007			Thereafter
	(Dollars in thousands)
Assets:
Mortgage notes receivable	$	3,558		$	34		$	37		$	39		$	14		$	—		$	3,682		$	3,682
Average interest rate		0.4	%		7.0	%		7.0	%		7.0	%		7.0	%		—			0.7	%
Mortgage loans held for sale (1)	$	108,552		$	91		$	101		$	111		$	73		$	933		$	109,861		$	109,772
Average interest rate		7.2	%		8.0	%		9.5	%		9.5	%		9.5	%		9.6	%		7.2	%
Liabilities:
Fixed rate debt	$	12,345		$	3,571		$	—		$	34		$	100,339		$	522,704			638,993		$	645,608
Average interest rate		3.2	%	$	6.3	%		—			0	%		8.5	%		8.9	%		8.7	%
Variable rate debt	$	111,988		$	—		$	—		$	—		$	—		$	—			111,988		$	111,988
Average interest rate		2.4	%		—			—			—			—			—			2.4	%
Off-Balance Sheet Financial Instruments:
Forward sale commitments of mortgage-backed securities:
Notional amount	$	77,311		$	—		$	—		$	—		$	—		$	—		$	77,311		$	78,591
Average interest rate		6.1	%		—			—			—			—			—			6.1	%
Commitments to originate mortgage loans:
Notional amount	$	28,049		$	—		$	—		$	—		$	—		$	—		$	28,049		$	28,167
Average interest rate		5.9	%		—			—			—			—			—			5.9	%

(1) Substantially all of the amounts presented in this line item for 2003 reflect the expected date of disposition of certain loans rather than the actual scheduled maturity dates of these mortgages.

Based on the current interest rate management policies we have in place with respect to most of our mortgage loans held for sale, we do not believe that the future market rate risks related to the above securities will have a material adverse impact on our financial position, results of operations or liquidity.

33

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Auditors

To the Board of Directors and Stockholders of Standard Pacific Corp.:

We have audited the accompanying consolidated balance sheet of Standard Pacific Corp. and subsidiaries as of December 31, 2002 and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Standard Pacific Corp. and subsidiaries as of December 31, 2001 and for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements in their report dated January 21, 2002.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Standard Pacific Corp. and subsidiaries as of December 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

As discussed above, the consolidated financial statements of Standard Pacific Corp. and subsidiaries as of December 31, 2001 and for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations. As described in Note 2.q., these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, which was adopted by the Company as of January 1, 2002 and changed the Company’s method of accounting for goodwill. Our audit procedures with respect to the transitional disclosures in Note 2.q. for 2001 and 2000 included (i) agreeing the previously reported net income to the previously issued consolidated financial statements and the adjustments to reported net income representing goodwill amortization (net of income taxes) recognized in those periods related to goodwill that is no longer being amortized to the Company’s underlying records obtained from management, and (ii) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings per share amounts. In our opinion, the transitional disclosures for 2001 and 2000 in Note 2.q. are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of the Company other than with respect to such transitional disclosures and, accordingly, we do not express an opinion or any other form of assurance on the Company’s 2001 or 2000 consolidated financial statements taken as a whole.

/s/    ERNST & YOUNG LLP

Irvine, California

January 24, 2003

34

The following audit report of Arthur Andersen LLP is a copy of the original report dated January 21, 2002 rendered by Arthur Andersen LLP on our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001, and has not been reissued by Arthur Andersen LLP since that date. We are including this copy of the Arthur Andersen LLP audit report pursuant to Rule 2-02(e) of Regulation S-X under the Securities Act of 1933. The Arthur Andersen LLP audit report refers to consolidated balance sheets of Standard Pacific Corp. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2001; pursuant to the rules of the Securities and Exchange Commission, the consolidated balance sheet as of December 31, 2000 and consolidated statements of income, stockholders’ equity and cash flows for the year ended December 31, 1999 were included in our Annual Report on Form 10-K for the year ended December 31, 2001 but are not included in this report.

Report of Independent Public Accountants

To the Stockholders and Board of Directors of Standard Pacific Corp.:

We have audited the accompanying consolidated balance sheets of STANDARD PACIFIC CORP. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Standard Pacific Corp. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/s/    ARTHUR ANDERSEN LLP

Orange County, California

January 21, 2002

35

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands, except per share amounts)
Homebuilding:
Revenues	$	1,870,757		$	1,375,610		$	1,317,995
Cost of sales		(1,528,927	)		(1,091,484	)		(1,057,827	)
Gross margin		341,830			284,126			260,168
Selling, general and administrative expenses		(175,218	)		(124,468	)		(105,141	)
Income from unconsolidated joint ventures		27,616			26,675			16,478
Interest expense		(5,489	)		(4,158	)		(3,599	)
Amortization of goodwill		—			(2,342	)		(2,100	)
Other income (expense)		(1,206	)		152			167
Homebuilding pretax income		187,533			179,985			165,973
Financial Services:
Revenues		14,398			8,851			3,410
Expenses		(9,922	)		(6,443	)		(4,265	)
Income from unconsolidated joint ventures		2,323			1,713			718
Other income		349			370			311
Financial services pretax income		7,148			4,491			174
Income before taxes		194,681			184,476			166,147
Provision for income taxes		(75,992	)		(73,411	)		(66,005	)
Net Income	$	118,689		$	111,065		$	100,142
Earnings Per Share:
Basic	$	3.78		$	3.71		$	3.43
Diluted	$	3.67		$	3.63		$	3.39
Weighted Average Common Shares Outstanding:
Basic		31,399,120			29,931,797			29,236,125
Diluted		32,321,260			30,628,445			29,562,230

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

36

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2002		2001
	(Dollars in thousands)
ASSETS
Homebuilding:
Cash and equivalents	$	22,245	$	3,422
Mortgage notes receivable and accrued interest		3,682		1,675
Other notes and receivables		34,451		20,570
Inventories		1,375,763		1,119,055
Investments in and advances to unconsolidated joint ventures		122,460		70,171
Property and equipment, net		7,524		6,471
Deferred income taxes		18,611		23,028
Other assets		19,097		9,074
Goodwill		58,062		14,508
		1,661,895		1,267,974
Financial Services:
Cash and equivalents		5,406		5,780
Mortgage loans held for sale		109,861		90,548
Other assets		14,964		1,999
		130,231		98,327
Total Assets	$	1,792,126	$	1,366,301
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable	$	71,439	$	57,413
Accrued liabilities		193,832		104,813
Revolving credit facility		—		51,400
Trust deed and other notes payable		16,670		20,621
Senior notes payable		473,469		473,253
Senior subordinated notes payable		148,854		—
		904,264		707,500
Financial Services:
Accounts payable and other liabilities		2,116		1,497
Mortgage credit facilities		111,988		84,212
		114,104		85,709
Total Liabilities		1,018,368		793,209
Stockholders’ Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued		—		—
Common stock, $0.01 par value; 100,000,000 shares authorized; 32,183,630 and 29,372,832 shares outstanding, respectively		322		294
Additional paid-in capital		369,723		277,604
Retained earnings		403,713		295,194
Total Stockholders’ Equity		773,758		573,092
Total Liabilities and Stockholders’ Equity	$	1,792,126	$	1,366,301

The accompanying notes are an integral part of these consolidated balance sheets.

37

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2000, 2001 and 2002	Number of Common Shares		Common Stock			Additional Paid-In Capital			Retained Earnings			Total Stockholders’ Equity
	(Dollars in thousands, except per share amounts)
Balance, December 31, 1999	29,208,680		$	292		$	278,701		$	102,892		$	381,885
Exercise of stock options and related income tax benefit	233,816			2			3,123			—			3,125
Repurchase of common shares, net of expenses	(525,400	)		(5	)		(5,381	)		—			(5,386	)
Cash dividends declared ($0.32 per share)	—			—			—			(9,328	)		(9,328	)
Issuance of common shares in connection with acquisition	1,159,398			12			15,780			—			15,792
Net income	—			—			—			100,142			100,142
Balance, December 31, 2000	30,076,494			301			292,223			193,706			486,230
Exercise of stock options and related income tax benefit	274,338			3			4,571			—			4,574
Repurchase of common shares, net of expenses	(978,000	)		(10	)		(19,190	)		—			(19,200	)
Cash dividends declared ($0.32 per share)	—			—			—			(9,577	)		(9,577	)
Net income	—			—			—			111,065			111,065
Balance, December 31, 2001	29,372,832			294			277,604			295,194			573,092
Exercise of stock options and related income tax benefit	308,113			3			6,548			—			6,551
Repurchase of common shares, net of expenses	(590,200	)		(6	)		(13,544	)		—			(13,550	)
Cash dividends declared ($0.32 per share)	—			—			—			(10,170	)		(10,170	)
Issuance of common stock, net of expenses	2,500,000			25			80,213			—			80,238
Issuance of common stock in connection with acquisitions	592,885			6			18,902			—			18,908
Net income	—			—			—			118,689			118,689
Balance, December 31, 2002	32,183,630		$	322		$	369,723		$	403,713		$	773,758

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

38

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	118,689		$	111,065		$	100,142
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from unconsolidated homebuilding joint ventures		(27,616	)		(26,675	)		(16,478	)
Cash distributions of income from unconsolidated homebuilding joint ventures		15,838			26,533			7,136
Depreciation and amortization		2,678			4,409			3,629
Changes in cash and equivalents due to:
Mortgages, other notes and receivables		(28,437	)		(19,339	)		(60,509	)
Inventories		(57,335	)		(233,215	)		(66,655	)
Deferred income taxes		4,417			(5,739	)		(3,188	)
Other assets		(17,818	)		3,758			3,096
Accounts payable		(3,000	)		(12,959	)		23,912
Accrued liabilities		65,266			15,126			19,290
Net cash provided by (used in) operating activities		72,682			(137,036	)		10,375
Cash Flows from Investing Activities:
Net cash paid for acquisitions		(176,088	)		—			(46,874	)
Investments in and advances to unconsolidated homebuilding joint ventures		(118,818	)		(73,529	)		(126,905	)
Capital distributions and repayments from unconsolidated homebuilding joint ventures		74,357			71,548			82,460
Net additions to property and equipment		(1,963	)		(3,373	)		(3,591	)
Net cash provided by (used in) investing activities		(222,512	)		(5,354	)		(94,910	)
Cash Flows from Financing Activities:
Net proceeds from (payments on) revolving credit facilities		(51,400	)		51,400			(23,000	)
Principal payments on senior notes and trust deed notes payable		(16,694	)		(226	)		(3,138	)
Proceeds from the issuance of senior notes payable		—			48,615			123,125
Proceeds from the issuance of senior subordinated notes payable		146,963			—			—
Net proceeds from (payments on) mortgage credit facilities		27,776			38,882			35,026
Proceeds from issuance of common stock		80,538			—			—
Dividends paid		(10,170	)		(9,577	)		(9,328	)
Repurchase of common shares		(13,550	)		(19,200	)		(5,386	)
Proceeds from the exercise of stock options		4,816			3,255			2,501
Net cash provided by (used in) financing activities		168,279			113,149			119,800
Net increase (decrease) in cash and equivalents		18,449			(29,241	)		35,265
Cash and equivalents at beginning of year		9,202			38,443			3,178
Cash and equivalents at end of year	$	27,651		$	9,202		$	38,443

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

39

STANDARD PACIFIC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

	Year Ended December 31,
	2002		2001		2000
	(Dollars in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	52,039	$	46,271	$	33,614
Income taxes		54,397		92,583		55,170
Supplemental Disclosures of Noncash Activities:
Inventory financed by trust deed notes payable	$	12,705	$	20,454	$	—
Inventory received as distributions from unconsolidated joint ventures		3,950		22,118		12,737
Expenses capitalized in connection with the issuance of the 8½% senior notes due 2009		—		515		—
Expenses capitalized in connection with the issuance of the 9½% senior notes due 2010		—		—		1,875
Expenses capitalized in connection with the issuance of the 9¼% senior subordinated notes due 2012		1,838		—		—
Trust deed and other notes payable assumed in connection with acquisition		1,174		—		—
Issuance of common stock in connection with acquisitions		18,908		—		15,792
Deferred purchase price recorded in connection with acquisition		8,330		—		—
Income tax benefit credited in connection with stock option exercises		1,735		1,319		624

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

40

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Company Organization and Operations

We operate primarily as a geographically diversified builder of single-family homes for use as primary residences with operations in major metropolitan markets in California, Texas, Arizona, Colorado, Florida and the Carolinas. We also provide mortgage financing and title services to our homebuyers through our subsidiaries and joint ventures, Family Lending Services, SPH Mortgage, WRT Financial, Westfield Home Mortgage, Universal Land Title of South Florida and SPH Title. Unless the context otherwise requires, the terms “we”, “us” and “our” refer to Standard Pacific Corp. and its subsidiaries.

Our percentage of home deliveries by state (including unconsolidated joint ventures) for the years ended December 31, 2002, 2001 and 2000 were as follows:

	Year Ended December 31,
State	2002		2001		2000
California	42	%	51	%	62	%
Arizona	23		25		20
Florida	19		—		—
Texas	8		15		14
Carolinas	4		—		—
Colorado	4		9		4
Total	100%		100%		100%

Although we have increased our geographic diversification in recent years, we still conduct a significant portion of our business in California and generate a disproportionate amount of our revenues and profits in the state. There have been periods of time in California where economic activity has slowed or contracted and the demand for new homes in certain areas in California in which we do business, and in some instances home prices have declined. There can be no assurance that the demand for new homes or home sales prices in California or the other markets in which we operate will not decline in the future.

2.     Summary of Significant Accounting Policies

a.  Basis of Presentation

The consolidated financial statements include the accounts of Standard Pacific Corp. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

b.  Use of Estimates

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

c.  Segment Reporting

We report our consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”).

41

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under the provisions of SFAS 131, our reporting segments consist of homebuilding and financial services. These two segments are segregated in the accompanying consolidated financial statements under “Homebuilding” and “Financial Services,” respectively.

d.  Business Combinations

Acquisitions of other companies are accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). Under the purchase method of accounting, the assets acquired and liabilities assumed are recorded at their estimated fair values. Any purchase price paid in excess of the net fair values of tangible and identified intangible assets less liabilities assumed is recorded as goodwill. Our reported income from an acquired company includes the operations of the acquired company from the date of acquisition. SFAS 141 supersedes Accounting Principles Board Opinion No. 16, “Business Combinations” (“APB 16”), and Statement of Financial Accounting Standards No. 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises.”

e.  Revenue Recognition

Homebuilding revenues are recorded after construction is completed, title has passed to the homebuyer and collection of the purchase price is assured.

We recognize loan origination fees and expenses, and gains and losses on loans when the related mortgage loans are sold. Our current policy is to sell all mortgage loans originated. These sales generally occur within 60 days of origination. Mortgage loan interest is accrued only so long as it is deemed collectible.

f.  Cost of Sales

Homebuilding cost of sales is recognized when homes are sold and title has transferred to the homebuyer. Cost of sales is recorded based upon total estimated costs to be allocated to each home within a community. Certain direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their relative sales value. Any changes to the estimated costs are allocated to the remaining undelivered lots or homes within their respective community. These costs include all direct and indirect construction costs associated with constructing and carrying the home as well as costs related to developing the surrounding community and amenities, such as land, land improvements and other common costs. The estimation of these costs requires a substantial degree of judgment by management.

g.  Warranty Costs

Estimated future warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Amounts accrued are based upon historical experience rates. Accrued warranty reserve is included in accrued liabilities in the accompanying consolidated balance sheets. Changes in our accrued warranty reserve are detailed in the table set forth below:

	December 31,
	2002			2001
	(Dollars in thousands)
Accrued warranty reserve, beginning of the year	$	14,952		$	11,789
Warranty costs accrued during the year		16,642			16,836
Warranty costs paid during the year		(14,610	)		(13,673	)
Accrued warranty reserve, end of the year	$	16,984		$	14,952

42

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

h.  Earnings Per Share

We compute earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”). This statement requires the presentation of both basic and diluted earnings per share for financial statement purposes. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share includes the effect of the potential shares outstanding, including dilutive stock options using the treasury stock method. The table set forth below reconciles the components of the basic earnings per share calculation to diluted earnings per share.

	Year Ended December 31,
	2002					2001					2000
	Net Income		Shares	EPS		Net Income		Shares	EPS		Net Income		Shares	EPS
	(Dollars in thousands, except per share amounts)
Basic earnings per share	$	118,689	31,399,120	$	3.78	$	111,065	29,931,797	$	3.71	$	100,142	29,236,125	$	3.43
Effect of dilutive stock options (1)		—	922,140				—	696,648				—	326,105
Diluted earnings per share	$	118,689	32,321,260	$	3.67	$	111,065	30,628,445	$	3.63	$	100,142	29,562,230	$	3.39

(1) For the years ended December 31, 2002, 2001 and 2000 this line does not include stock options of 25,000, 534,000 and 888,500, respectively, for which the exercise price exceeded the average market price of Standard Pacific’s common stock during such period (i.e., excludes anti-dilutive stock options).

i.  Stock-Based Compensation

At December 31, 2002, we have stock option plans which are further described in Note 12. We account for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. In accordance with the intrinsic value method of accounting, no stock-based employee compensation expense is reflected in net income, as all options granted under those plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant and the vesting of the options is not dependent on any future performance conditions. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) to our stock option plans:

	Year Ended December 31
	2002			2001			2000
	(Dollars in thousands, except per share amounts)
Net income, as reported	$	118,689		$	111,065		$	100,142
Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects		(3,016	)		(2,150	)		(1,836	)
Net income, as adjusted	$	115,673		$	108,915		$	98,306
Earnings per share:
Basic—as reported	$	3.78		$	3.71		$	3.43
Basic—as adjusted	$	3.68		$	3.64		$	3.36
Diluted—as reported	$	3.67		$	3.63		$	3.39
Diluted—as adjusted	$	3.58		$	3.56		$	3.33

The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future values.

43

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

j.  Cash and Equivalents

For purposes of the consolidated statements of cash flows, cash and equivalents include cash on hand, demand deposits, and all highly liquid short-term investments, including interest-bearing securities purchased with a maturity of three months or less from the date of purchase.

k.  Mortgage Loans Held for Sale

Mortgage loans held for sale are reported at the lower of cost or market on an aggregate basis. We estimate the market value of our loans held for sale based on quoted market prices for similar loans. Loan origination fees, net of the related direct origination costs, and loan discount points are deferred as an adjustment to the carrying value of the related mortgage loans held for sale and are recognized as income upon the sale of mortgage loans, which generally occurs within 60 days of origination.

l.  Inventories

Inventories consisted of the following at:

	December 31,
	2002		2001
	(Dollars in thousands)
Land and land under development	$	840,169	$	613,079
Homes completed and under construction		449,600		436,718
Model homes		85,994		69,258
	$	1,375,763	$	1,119,055

Inventories consist of land, land under development, homes under construction and completed homes and are stated at cost, net of impairment losses, if any. We capitalize direct carrying costs, including interest, property taxes and related development costs to real estate under development. Field construction supervision and related direct overhead are also included in the capitalized cost of real estate inventories. Certain direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their relative sales value.

Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS 144 requires long-lived assets, including inventories, that are expected to be held and used in operations to be carried at the lower of cost or, if impaired, the fair value of the asset. SFAS 144 requires that companies evaluate long-lived assets for impairment based on undiscounted future cash flows of the assets at the lowest level for which there is identifiable cash flows. This evaluation requires estimates of future revenues, costs and the remaining time to develop the project and requires a substantial degree of judgment by management. Actual revenues, costs and time to complete development could vary from estimates which could affect our future results of operations. We review each real estate project on a community-by-community basis to determine whether or not carrying amounts have been impaired. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Our adoption of SFAS 144 did not have a material impact on our financial condition or results of operations at the time of adoption.

44

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During 2002, we recorded a $6.0 million noncash pretax asset impairment charge related to the write-down of certain homebuilding projects in our Colorado division to their estimated fair value. During 2001, we recorded a $5.4 million noncash pretax asset impairment charge related to a write-down of one homebuilding project to its estimated fair value in the San Francisco Bay Area. In both of these instances, the charges resulted from declines in new home prices due to slower economic conditions in each of the markets. These charges were included in cost of sales in the accompanying consolidated statements of income.

In August 2002, we announced our decision to close our Houston division. In 2001, our Houston operations represented less than 2 percent of our total homebuilding revenues and did not make a significant contribution to our Texas earnings. In connection with winding down our Houston operations, we recognized a noncash pretax impairment charge of approximately $3.0 million during the 2002 third quarter, which was included in other expense in the accompanying consolidated statement of income.

m. Capitalization of Interest

We follow the practice of capitalizing interest to real estate inventories during the period of development in accordance with Statement of Financial Accounting Standards No. 34, “Capitalization of Interest Cost.” Interest capitalized as a cost of real estate under development is included in cost of sales as related units are sold. The following is a summary of interest capitalized and expensed for the following periods:

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Total homebuilding interest incurred	$	56,667		$	49,478		$	39,627
Less: Homebuilding interest capitalized to inventories		(51,178	)		(45,320	)		(36,028	)
Homebuilding interest expense	$	5,489		$	4,158		$	3,599
Homebuilding interest previously capitalized to inventories, included in cost of sales	$	48,208		$	39,990		$	33,854
Homebuilding interest capitalized in ending inventories	$	31,860		$	28,890		$	23,560

n.  Unconsolidated Homebuilding Joint Ventures

Investments in our unconsolidated joint ventures are accounted for under the equity method of accounting. Under the equity method, we recognize our proportionate share of earnings and losses earned by the joint venture upon the delivery of lots or homes to third parties. All joint venture profits generated from land sales to us are deferred and recorded as a reduction to our cost basis in the lots purchased until the homes are ultimately sold by us to others. Our ownership interests in our joint ventures vary, but are generally less than or equal to 50 percent. In certain instances, our ownership interest may be greater than 50 percent, however, we account for these investments under the equity method because we do not have voting or economic control.

o.  Property and Equipment

Property and equipment is recorded at cost, net of accumulated depreciation and amortization of $7,887,000 and $6,446,000 as of December 31, 2002 and 2001, respectively. Depreciation and amortization are recorded using the straight-line method over the estimated useful lives of the assets which typically range from 3 to 10 years.

45

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

p.  Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” This statement requires a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.

q.  Goodwill

The excess amount paid for business acquisitions over the net fair value of assets acquired and liabilities assumed has been capitalized as goodwill in the accompanying consolidated balance sheets. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS 142 requires that goodwill not be amortized but instead assessed at least annually for impairment and expensed against earnings as a noncash charge if the estimated fair value of a reporting unit is less than its carrying value, including goodwill. For purposes of this test, each of our homebuilding geographic operating divisions has been treated as a reporting unit. We performed our annual impairment test of goodwill in accordance with SFAS 142 as of October 1, 2002 and determined there was no impairment.

The table set forth below reflects net income and basic and diluted earnings per share for the years ended December 31, 2002, 2001 and 2000, adjusted to add back the amortization of goodwill, net of applicable income taxes:

	Year Ended December 31,
	2002		2001		2000
	(Dollars in thousands, except per share amounts)
Adjusted Net Income:
Reported net income	$	118,689	$	111,065	$	100,142
Add back: Goodwill amortization, net of income taxes		—		1,944		1,945
Adjusted net income	$	118,689	$	113,009	$	102,087
Adjusted Basic Earnings Per Share:
Reported basic earnings per share	$	3.78	$	3.71	$	3.43
Add back: Goodwill amortization, net of income taxes		—		0.07		0.07
Adjusted basic earnings per share	$	3.78	$	3.78	$	3.50
Adjusted Diluted Earnings Per Share:
Reported diluted earnings per share	$	3.67	$	3.63	$	3.39
Add back: Goodwill amortization, net of income taxes		—		0.06		0.07
Adjusted diluted earnings per share	$	3.67	$	3.69	$	3.46

r.  Derivative Instruments and Hedging Activities

We account for derivatives and certain hedging activities in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as subsequently amended by Statement of Financial Accounting Standards No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” SFAS 133 requires all derivatives to be recorded as either assets or liabilities in the consolidated balance sheets and to measure these instruments at fair value.

46

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

s.  Accounting for Guarantees

In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation 45”). The disclosure requirements of Interpretation 45 are effective as of December 31, 2002 and we adopted that portion of the pronouncement as of that date. The initial recognition and measurement requirements of Interpretation 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. Recognition of a liability is recorded at its estimated fair value based on the present value of the expected contingent payments under the guarantee arrangement. We do not believe that the adoption of the initial recognition and measurement requirements of Interpretation 45 will have a material impact on our financial condition or results of operations.

The types of guarantees that we provide that are subject to Interpretation 45 generally are made to third parties on behalf of our unconsolidated homebuilding and land development joint ventures. As of December 31, 2002, these guarantees included, but were not limited to, loan-to-value maintenance agreements, construction completion guarantees, environmental indemnities and surety bond indemnities (see Note 10 for further discussion).

t.  Recent Accounting Pronouncements

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No 13, and Technical Corrections” (“SFAS 145”). SFAS 145 provides that gains or losses resulting from the extinguishment of debt not be classified as an extraordinary item unless it meets the criteria of Accounting Principles Board Opinion No. 30. SFAS 145 is effective for fiscal years beginning after May 15, 2002. We do not anticipate that the adoption of SFAS 145 will have a material impact on our financial position or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring)”. SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan as prescribed under EITF No. 94-3. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. We believe the adoption of SFAS 146 will not have a material impact on our financial position or results of operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”). SFAS 148 amends SFAS 123. Although SFAS 148 does not require use of the fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition should companies elect to adopt the fair value method of accounting which requires companies to record compensation expense when stock options are granted. SFAS 148 also amends the disclosure provisions of SFAS 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in interim and annual financial statements. We have elected to continue to use the intrinsic value method of accounting for stock-based compensation in accordance with APB 25. SFAS 148’s amendment of the transition and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The disclosure provisions of SFAS 148 have been adopted by us with appropriate disclosure included above.

47

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”). Interpretation 46 addresses the consolidation of variable interest entities. Under Interpretation 46, arrangements that are not controlled through voting or similar rights are accounted for as variable interest entities. An enterprise is required to consolidate a variable interest entity if it is the primary beneficiary. Interpretation 46 applies immediately to arrangements created after January 31, 2003 and with respect to arrangements created before February 1, 2003, the interpretation will apply beginning on July 1, 2003. We have not yet determined the anticipated impact of adoption as we are currently evaluating the impact of the required accounting treatment under Interpretation 46 for our arrangements existing as of December 31, 2002. However, it may require the consolidation of the assets, liabilities and operations of certain of our homebuilding and land development joint ventures, as well as option contracts with third party financial entities. Since we already recognize our proportionate share of joint venture earnings and losses under the equity method of accounting, the adoption of Interpretation 46 will not impact our consolidated net income.

u.  Reclassifications

Certain items in prior year financial statements have been reclassified to conform with current year presentation.

3.    Investments in Unconsolidated Homebuilding Joint Ventures

We enter into homebuilding and land development joint ventures from time to time as a means of accessing lot positions, expanding our market opportunities, establishing strategic alliances, managing our risk profile and leveraging our capital base. Our homebuilding joint ventures develop land and construct homes which are sold directly to third party homebuyers. Our land development joint ventures are typically entered into with other homebuilders and developers to develop finished lots for sale to the joint venture’s members or other third parties. The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures accounted for under the equity method:

	December 31,
	2002		2001
	(Dollars in thousands)
Assets:
Cash	$	24,960	$	27,622
Inventories		481,247		301,626
Other assets		29,240		34,876
	$	535,447	$	364,124
Liabilities and Equity:
Accounts payable and accrued liabilities	$	81,394	$	51,413
Construction loans and trust deed notes payable		227,138		194,488
Equity		226,915		118,223
	$	535,447	$	364,124

Our share of equity shown above was approximately $114.1 million and $56.1 million at December 31, 2002 and 2001, respectively. Additionally, as of December 31, 2002 and 2001, we had advances outstanding of approximately $8.4 and $14.1 million to these unconsolidated joint ventures, which were included in the accounts payable and accrued liabilities balance shown above.

48

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Revenues	$	249,431		$	199,987		$	209,717
Cost of sales and expenses		(192,236	)		(147,116	)		(159,000	)
Net income	$	57,195		$	52,871		$	50,717

Our ownership interests in the joint ventures detailed above vary, but are generally less than or equal to 50 percent.

For certain joint ventures for which we are the managing member, we receive management fees which represent overhead and other reimbursements for costs associated with managing the related real estate projects. During the years ended December 31, 2002, 2001 and 2000, we recognized approximately $8.5 million, $6.0 million and $2.6 million, respectively, in management fees and recorded these amounts as a reduction of general and administrative and construction overhead costs. As of December 31, 2002 and 2001, we had approximately $6.0 million and $4.1 million, respectively, in management fees receivable from various joint ventures which were included in other notes and receivables in the accompanying consolidated balance sheets.

4.    Acquisitions

On August 25, 2000, we acquired Writer Homes, a publicly traded Denver-based homebuilder (“Writer”), for a purchase price of $3.35 per share of Writer common stock, or a total of approximately $26 million (excluding transaction costs), plus the assumption of approximately $37.5 million of indebtedness. In connection with this transaction, we recorded goodwill of approximately $3.6 million. The acquisition consideration was paid in a combination of cash, totaling approximately $10.2 million, and 1,159,398 shares of Standard Pacific common stock. The cash component of the acquisition was financed under our unsecured revolving credit facility. With this acquisition, we purchased or assumed the rights to acquire approximately 2,000 single-family lots located in the Denver and Fort Collins areas, which included 11 active subdivisions at the close of the transaction. In addition, we acquired a backlog of 149 presold homes.

On April 15, 2002, we acquired Westbrooke Homes for total consideration of approximately $39 million in cash, plus the repayment of approximately $55 million in indebtedness. In connection with this acquisition, we recorded goodwill of approximately $12.5 million. Westbrooke Homes is a longtime homebuilder in the Miami, Florida metropolitan area. With this acquisition, we purchased or assumed the rights to acquire approximately 2,800 single-family lots, which included 8 active selling communities at the close of the transaction and acquired a backlog of 485 presold homes.

On May 14, 2002, we acquired Colony Homes for total consideration of approximately $26 million in cash (including the contingent payments described below) and stock, plus the repayment of approximately $9 million in indebtedness. In connection with this acquisition, we recorded an initial amount of goodwill of approximately $15.9 million. The stock component consisted of the issuance of 133,333 shares of Standard Pacific common stock valued under the agreement at $30 per share. The contingent payments are subject to an aggregate cap of $7 million and will be payable pursuant to an earnout arrangement based on pretax income of Colony Homes during the period 2003 through 2005. Contingent payments, if any, will be recorded as goodwill as they are earned and will be payable in cash annually following the relevant year end. Colony Homes has been in business since 1991 in the Orlando, Florida metropolitan area. At closing, we purchased or assumed the rights to acquire over 1,600 buildable lots and acquired a backlog of 141 presold homes.

49

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On August 13, 2002, we acquired Westfield Homes for total consideration of approximately $56.5 million in cash (including the contingent payments described below) and stock, plus the repayment of approximately $46 million in indebtedness. In connection with this acquisition, we recorded an initial amount of goodwill of approximately $13.8 million. The cash component of the purchase price consisted of an initial payment of approximately $20 million, a deferred payment of $7 million payable in January 2003 and contingent payments estimated to equal approximately $14.5 million. The contingent payments are subject to an annual earnout arrangement based on a percentage of pretax income of Westfield Homes for the period subsequent to the acquisition through December 31, 2002 and for the years ended December 31, 2003 through December 31, 2005. Contingent payments, if any, will be recorded as goodwill as they are earned and will be payable in cash annually following the relevant year end. We recorded additional goodwill for the 2002 earnout period of approximately $1.3 million. The stock component consisted of the issuance of 459,552 shares of Standard Pacific common stock valued under the agreement at $32.64 per share. Westfield Homes has been in business since 1980 and currently operates in Tampa and Southwest Florida, and in Raleigh-Durham and Charlotte in the Carolinas. We did not acquire Westfield’s Illinois operations. Westfield owned or controlled approximately 4,800 buildable lots in these markets at the time of acquisition. With this acquisition, we also acquired a backlog of 626 presold homes.

All of these acquisitions were accounted for under the purchase method of accounting in accordance with APB 16 for acquisitions initiated prior to July 1, 2001 and in accordance with SFAS 141 for acquisitions initiated after June 30, 2001. The purchase price of these acquisitions was allocated to the net assets acquired based upon their estimated fair values as of the date of acquisition. The results of operations of Writer Homes, Westbrooke Homes, Colony Homes and Westfield Homes are included in the accompanying consolidated financial statements beginning on their respective dates of acquisition.

The following unaudited pro forma condensed combined financial data for the years ended December 31, 2002 and 2001 were derived from our historical consolidated financial statements and the historical financial statements of Westfield Homes, Colony Homes and Westbrooke Homes prior to acquisition. The unaudited pro forma condensed combined financial data give effect to these acquisitions as if they had occurred at the beginning of each period presented.

The unaudited pro forma condensed combined financial data has been included for comparative purposes only and does not purport to show what the operating results would have been if the acquisitions had been consummated as of the dates indicated below and should not be construed as representative of future operating results.

	Year Ended December 31,
	2002		2001
	(Dollars in thousands, except per share amounts)
Pro Forma:
Revenues	$	2,039,313	$	1,809,580
Net Income	$	123,267	$	127,044
Earnings Per Share:
Basic	$	3.88	$	4.16
Diluted	$	3.77	$	4.07
Weighted Average Common Shares Outstanding:
Basic		31,736,340		30,524,682
Diluted		32,658,480		31,221,330

50

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.    Revolving Credit Facility and Trust Deed and Other Notes Payable

a.  Revolving Credit Facility

In January 2003, we entered into a new $450 million unsecured revolving credit facility. The new credit facility replaced our existing $450 million unsecured revolving credit facility and matures on October 31, 2005. In addition to providing us with updated financial and other covenants, the facility contains provisions allowing us, at our option, to extend the maturity date of the facility to October 31, 2006 and to increase the total aggregate commitment under the facility up to $550 million, subject to the availability of additional bank lending commitments. The financial covenants contained in the facility require us to, among other things, maintain a minimum level of consolidated tangible stockholders’ equity and a minimum interest coverage ratio. The facility also limits our leverage and investments in joint ventures. These covenants, as well as a borrowing base provision, limit the amount we may borrow under the revolving credit facility and from other sources. Certain of our wholly-owned subsidiaries guarantee our obligations under the revolving credit facility. At December 31, 2002, we had no borrowings outstanding under our predecessor unsecured revolving credit facility and had issued approximately $52.2 million in letters of credit. Interest rates charged under this facility include LIBOR and prime rate pricing options. In addition, there are fees charged on the commitment and unused portion of the facility. As of December 31, 2002, and throughout the year, we were in compliance with the covenants of the predecessor facility.

b.  Trust Deed and Other Notes Payable

At December 31, 2002 and 2001, trust deed and other notes payable consisted of trust deeds for land purchases and certain other real estate inventories, including community development district bonds.

c.  Borrowings and Maturities

The following summarizes the borrowings outstanding under the unsecured revolving credit facility and trust deed and other notes payable (excluding senior and senior subordinated notes—see Notes 6 and 7) during the three years ended December 31:

	2002			2001			2000
	(Dollars in thousands)
Maximum borrowings outstanding during the year at month end	$	122,307		$	167,489		$	210,749
Average outstanding balance during the year	$	72,956		$	100,672		$	84,217
Weighted average interest rate for the year		3.7	%		5.1	%		7.9	%
Weighted average interest rate on borrowings outstanding at year end		3.9	%		4.8	%		0	%

51

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Maturities of the revolving credit facility, trust deed and other notes payable, and senior and senior subordinated notes payable (see Notes 6 and 7 below) are as follows as of December 31, 2002:

	Year Ended December 31,
	(Dollars in thousands)
2003	$	12,345
2004		3,571
2005		—
2006		34
2007		100,339
Thereafter		522,704
	$	638,993

6.    Senior Notes Payable

Senior notes payable consist of the following:

	December 31,
	2002		2001
	(Dollars in thousands)
8½% Senior Notes due 2007, net	$	99,619	$	99,551
8% Senior Notes due 2008, net		99,590		99,527
8½% Senior Notes due 2009, net		149,260		149,175
9½% Senior Notes due 2010		125,000		125,000
	$	473,469	$	473,253

In June 1997, we issued $100 million of 8½% Senior Notes due June 15, 2007 (the “8½% Senior Notes”). The 8½% Senior Notes were issued at a discount to yield approximately 8.6 percent under the effective interest method and have been reflected net of the unamortized discount in the accompanying consolidated balance sheets. Interest is due and payable on June 15 and December 15 of each year until maturity. These notes are redeemable at our option, in whole or in part, commencing June 15, 2002 at a price of 104.25 percent of par value, with the call price reducing ratably to par on June 15, 2005. Net proceeds after offering expenses were approximately $96.9 million.

In February 1998, we issued $100 million of 8% Senior Notes due February 15, 2008 (the “8% Senior Notes”). The 8% Senior Notes were issued at a discount to yield approximately 8.1 percent under the effective interest method. Interest is due and payable on February 15 and August 15 of each year until maturity. These notes are redeemable at our option, in whole or in part, commencing February 15, 2003 at 104.00 percent of par, with the call price reducing ratably to par on February 15, 2006. Net proceeds after offering expenses were approximately $97.3 million.

In April 1999, we issued $100 million of 8½% Senior Notes which mature April 1, 2009 (the “8½% Senior Notes due 2009”). The 8½% Senior Notes due 2009 were issued at par with interest due and payable on April 1 and October 1 of each year until maturity. The 8½% Senior Notes due 2009 are redeemable at our option, in whole or in part, commencing April 1, 2004 at 104.25 percent of par, with the call price reducing ratably to par on April 1, 2007. Net proceeds after underwriting expenses were approximately $98.3 million. In June 2001, we

52

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

issued $50 million of 8½% Senior Notes which mature on April 1, 2009. These notes were an add-on to our  previously issued 8½% Senior Notes due 2009. These notes were issued at a discount to yield approximately 8.8 percent under the effective interest method. Net proceeds after underwriting expenses were approximately $48.6 million.

In September 2000, we issued $125 million of 9½% Senior Notes which mature on September 15, 2010 (the “9½% Senior Notes”). These notes were issued at par with interest due and payable on March 15 and September 15 of each year until maturity. The 9½% Senior Notes are redeemable at our option, in whole or in part, commencing September 15, 2005 at 104.75 percent of par, with the call price reducing ratably to par on September 15, 2008. Net proceeds after underwriting expenses were approximately $123.1 million.

The senior notes described above are all senior unsecured obligations and rank equally with our other existing senior unsecured indebtedness, including borrowings under our revolving credit facility. We will, under certain circumstances, be obligated to make an offer to purchase a portion of the notes in the event of certain asset sales. In addition, these notes contain other restrictive covenants which, among other things, impose certain limitations on our ability to (1) incur additional indebtedness, (2) create liens, (3) make restricted payments (including investments in unconsolidated joint ventures), and (4) sell assets. Also, upon a change in control we are required to make an offer to purchase these notes. As of December 31, 2002, we were in compliance with all of the covenants under the notes.

7.    Senior Subordinated Notes Payable

On April 15, 2002, we issued $150 million of 9¼% Senior Subordinated Notes which mature on April 15, 2012. These notes were issued at a discount to yield approximately 9.38 percent and are unsecured obligations that are junior to our senior unsecured indebtedness. Net proceeds after underwriting expenses were approximately $147.0 million and were used to fund the acquisition of Westbrooke Homes and repay a portion of the balance outstanding under our revolving credit facility at the time of issuance. We will, under certain circumstances, be obligated to make an offer to purchase all or a portion of these notes in the event of certain asset sales. In addition, these notes contain restrictive covenants which, among other things, impose certain limitations on our ability to (1) incur additional indebtedness, (2) create liens, (3) make restricted payments (including investments in joint ventures), and (4) sell assets. Also, upon a change in control we are required to make an offer to purchase these notes. As of December 31, 2002, we were in compliance with all of the covenants under the notes.

8.    Mortgage Credit Facilities

Our financial services subsidiary, Family Lending Services, utilizes three mortgage credit facilities to fund mortgage loans, which serve as collateral, with a total aggregate commitment of $120 million. One of the facilities provides for an additional $30 million in borrowing capacity between November 1, 2002 and January 31, 2003. Under the mortgage credit facilities, mortgage loans presold to investors are financed for a short period of time (typically for 15 to 30 days), while the investor completes its administrative review of the applicable loan documents. Loans originated on a non-presold basis are typically financed for 15 to 60 days, before sale to third party investors. The facilities have current maturity dates ranging from June 30, 2003 to October 3, 2003. Maximum borrowings outstanding under these facilities during 2002, 2001 and 2000 were approximately $112.0 million, $84.4 million and $45.3 million, respectively. Average borrowings outstanding during the years ended December 31, 2002, 2001 and 2000 were approximately $51.1 million, $37.5 million and $13.6 million, respectively. The weighted average interest rate of borrowings under the mortgage credit facilities, which have LIBOR based pricing, during the years ended December 31, 2002, 2001, and 2000 were 2.7 percent,

53

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.1 percent and 7.3 percent, respectively. In addition, the facilities also contain certain financial covenants including leverage and net worth covenants. As of December 31, 2002, and throughout the year, Family Lending was in compliance with all covenants under the mortgage credit facilities.

9.    Disclosures about Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate:

Cash and Equivalents—The carrying amount is a reasonable estimate of fair value as these assets primarily consist of short-term investments and demand deposits.

Mortgage Notes Receivable and Accrued Interest—Mortgage notes receivable and accrued interest consist of first mortgages on single-family residences. Fair values are determined based upon discounted cash flows of the applicable instruments.

Mortgage Loans Held for Sale—These consist primarily of first mortgages on single-family residences. Fair values of these loans are based on quoted market prices for similar loans.

Revolving Credit Facility and Mortgage Credit Facilites—The carrying amounts of these credit obligations approximate market value because of the frequency of repricing the borrowings (generally every 7 to 90 days).

Trust Deed and Other Notes Payable—These notes are for purchase money deeds of trust on land acquired and certain other real estate inventory construction, including community development district bonds. The notes were discounted at an interest rate which is commensurate with market rates of similar secured real estate financing.

8½% Senior Notes due 2007, net—This issue is publicly traded on the New York Stock Exchange. As a result, the fair value of this issue was based on its quoted market price at year end.

8% Senior Notes due 2008, net—This issue is publicly traded over the counter and its fair value was based upon the value of its last trade at year end.

8½% Senior Notes due 2009, net—This issue is publicly traded over the counter and its fair value was based upon the value of its last trade at year end.

9½% Senior Notes due 2010—This issue is also publicly traded over the counter and its fair value was based upon the value of its last trade at year end.

9¼% Senior Subordinated Notes due 2012—This issue is publicly traded over the counter and its fair value was based upon the value of its last trade at year end.

54

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The estimated fair values of financial instruments are as follows:

	December 31,
	2002				2001
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
Financial assets:
Homebuilding:
Cash and equivalents	$	22,245	$	22,245	$	3,422	$	3,422
Mortgage notes receivable and accrued interest		3,682		3,682		1,675		1,719
Financial services:
Cash and equivalents		5,406		5,406		5,780		5,780
Mortgage loans held for sale		109,861		109,772		90,548		91,036
Financial liabilities:
Homebuilding:
Revolving credit facility	$	—	$	—	$	51,400	$	51,400
Trust deed and other notes payable		16,670		16,670		20,621		20,621
8½% Senior and other Notes due 2007, net		99,619		102,250		99,551		100,000
8% Senior Notes due 2008, net		99,590		99,500		99,527		94,250
8½% Senior Notes due 2009, net		149,260		151,500		149,175		144,000
9½% Senior Notes due 2010		125,000		130,938		125,000		125,625
9¼% Senior Subordinated Notes due 2012		148,854		144,750		—		—
Financial services:
Mortgage credit facilities		111,988		111,988		84,212		84,212

10.    Commitments and Contingencies

We lease office facilities and certain equipment under noncancelable operating leases. Future minimum rental payments under these leases, net of related subleases, having an initial term in excess of one year as of December 31, 2002 are as follows:

	Year Ended December 31,
	(Dollars in thousands)
2003	$	3,898
2004		3,470
2005		2,797
2006		1,892
2007		1,068
Thereafter		3,517
Subtotal		16,642
Less—Sublease income		(231	)
Net rental obligations	$	16,411

Rent expense under noncancelable operating leases, net of sublease income, for each of the years ended December 31, 2002, 2001 and 2000 was approximately $4.4 million, $3.9 million and $2.3 million, respectively.

We are subject to customary obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require a cash deposit and the purchase of properties

55

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property entitlements. As of December 31, 2002, we had deposits outstanding of approximately $33.3 million on land purchase contracts having a total remaining purchase price of $256.6 million.

In addition, we utilize option contracts with land sellers and third-party financial entities as a method of acquiring land. Option contracts generally require the payment of a non-refundable cash deposit or the issuance of a letter of credit for the right to acquire lots over a specified period of time at predetermined prices. We generally have the right at our discretion to terminate our obligations under these option agreements by forfeiting our cash deposit or repaying amounts drawn under the letter of credit with no further financial responsibility. As of December 31, 2002, we had cash deposits and letters of credit outstanding of approximately $40.9 million on option contracts having a total remaining purchase price of approximately $266.4 million, of which approximately $46.1 million is included in accrued liabilities in the accompanying consolidated balance sheet at December 31, 2002 related to two of our option contracts.

We also enter into land development and homebuilding joint ventures. These joint ventures typically obtain secured acquisition, development and construction financing. At December 31, 2002, our unconsolidated joint ventures had borrowings of approximately $227.1 million. We and our joint venture partners generally provide credit enhancements to this financing in the form of loan-to-value maintenance agreements which require us under certain circumstances to reduce the venture’s borrowings to the extent such borrowings plus construction completion costs exceed a specified percentage of the value of the property securing the loan. Either a decrease in the value of the property securing the loan or an increase in construction completion costs could trigger this payment obligation. Typically, we share these obligations with our other partners and, in some instances, these obligations are subject to limitations on the amount that we could be required to pay down. As of December 31, 2002, approximately $178.7 million of our unconsolidated joint venture borrowings were subject to these credit enhancements.

We and our joint venture partners are also generally obligated to the project lenders to complete land development improvements and the construction of planned homes if the joint venture does not perform the required construction. Provided we and the other joint venture partners are in compliance with these completion obligations, the project lenders would be obligated to fund these improvements through any financing commitments available under the applicable joint venture development and construction loans. In addition, we and our joint venture partners have occasionally provided unsecured environmental indemnities to joint venture project lenders. In many instances these indemnities are subjects to caps. In each case, we have performed due diligence on potential environmental risks including obtaining an independent environmental review from outside consultants. These indemnities obligate us to reimburse the project lenders for claims related to environmental matters while the project loan is outstanding.

Additionally, we and our joint venture partners have indemnified third party surety providers with respect to performance bonds issued on behalf of certain of our unconsolidated joint ventures. If a joint venture does not perform its obligations, the surety bond could be called. If these surety bonds are called, and the joint venture fails to reimburse the surety, we and our joint venture partners would be obligated to indemnify the surety. These surety indemnity arrangements are generally joint and several obligations with our other joint venture partners. As of December 31, 2002, there were approximately $139.5 million of surety bonds outstanding subject to these indemnity arrangements with our unconsolidated joint ventures.

Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $28.0 million at December 31, 2002 and carried a weighted average interest rate of approximately 5.9 percent. Interest rate risks related to these obligations are generally mitigated by Family Lending preselling the loans

56

STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to its investors or through its interest rate hedging program. As of December 31, 2002, Family Lending had approximately $83.7 million of closed mortgage loans held for sale and loans in process that were originated on a non-presold basis, of which approximately $77.3 million were hedged by forward sale commitments of mortgage-backed securities. In addition, Family Lending held approximately $37.8 million in closed mortgage loans which were presold to third party investors subject to completion of their administrative review of the applicable loan documents.

We are party to claims and litigation proceedings arising in the normal course of business. Although the legal responsibility and financial impact with respect to certain claims and litigation cannot presently be ascertained, we do not believe that these matters will result in us making a payment of monetary damages that, in the aggregate, would have a material impact on our financial position, results of operations or liquidity. It is possible that the reserves provided for by us with respect to such claims and litigation could change in the near term.

11.    Income Taxes

The provision for income taxes includes the following components:

	Year Ended December 31,
	2002		2001			2000
	(Dollars in thousands)
Current:
Federal	$	60,431	$	64,406		$	57,711
State		11,144		13,661			12,560
		71,575		78,067			70,271
Deferred:
Federal		3,624		(4,157	)		(4,001	)
State		793		(499	)		(265	)
		4,417		(4,656	)		(4,266	)
Provision for income taxes	$	75,992	$	73,411		$	66,005

The components of our net deferred income tax asset are as follows:

	December 31,
	2002			2001
	(Dollars in thousands)
Inventory adjustments	$	945		$	744
Financial accruals		15,218			18,172
State income taxes		3,900			4,781
Nondeductible purchase price		(440	)		(744	)
Amortization of goodwill		(533	)		403
Other		(479	)		(328	)
	$	18,611		$	23,028

At December 31, 2002, we had a consolidated net deferred tax asset of approximately $18.6 million. Although realization is not assured, management believes it is more likely than not that the net deferred tax asset will be realized in future years. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced or if tax rates are lowered.

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STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The effective tax rate differs from the federal statutory rate of 35 percent due to the following items:

	Year Ended December 31,
	2002			2001			2000
	(Dollars in thousands)
Income before taxes	$	194,681		$	184,476		$	166,147
Provision for income taxes at statutory rate	$	68,138		$	64,567		$	58,151
Increases (decreases) in tax resulting from:
State income taxes, net of federal benefit		7,759			8,270			7,736
Nondeductible amortization of goodwill		—			534			437
Other, net		95			40			(319	)
Provision for income taxes	$	75,992		$	73,411		$	66,005
Effective tax rate		39.0	%		39.8	%		39.7	%

12.    Stock Option Plans

In 1991, we adopted the 1991 Employee Stock Incentive Plan (the “1991 Plan”) pursuant to which our officers, directors and employees are eligible to receive options to purchase shares of common stock. Under the 1991 Plan, the maximum number of shares of stock that may be issued is one million. In 1997, our shareholders approved the 1997 Stock Incentive Plan (the “1997 Plan”). Under the 1997 Plan, the maximum number of shares of stock that may be issued is two million. On May 18, 2000, our shareholders approved the 2000 Stock Incentive Plan (the “2000 Plan”). Under the 2000 Plan, the maximum number of shares of stock that may be issued is one million. On April 24, 2001, Standard Pacific’s Board of Directors approved the 2001 Non-Executive Officer Stock Incentive Plan with a maximum of 525,000 shares of stock that may be issued. On May 15, 2002, our shareholders approved an additional 1.5 million shares that may be issued under the 2000 plan.

Options granted under the plans discussed above were granted at prices equal to the fair market value of the shares at the date of grant. These options typically vest over a one to four year period and are generally exercisable for a 10-year period. When the options are exercised, the proceeds are credited to equity net of the related income tax benefits, if any.

The following is a summary of the transactions relating to the four plans on a combined basis for the years ended December 31, 2002, 2001 and 2000:

	2002				2001				2000
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Options outstanding, beginning of year	3,037,707		$	14.88	2,565,549		$	14.08	2,426,990		$	11.53
Granted	766,000			22.90	823,000			16.50	558,500			23.26
Exercised	(308,113	)		15.63	(274,338	)		11.45	(233,816	)		10.71
Canceled	(86,882	)		17.21	(76,504	)		17.78	(186,125	)		12.79
Options outstanding, end of year	3,408,712		$	16.58	3,037,707		$	14.88	2,565,549		$	14.08
Options exercisable at end of year	1,983,468				1,631,212				1,338,010
Options available for future grant	1,280,282				459,400				680,900			.

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STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of each option granted during each of the three years ended December 31, 2002, 2001 and 2000 was estimated using the Black—Scholes option-pricing model on the date of grant using the following weighted average assumptions:

	2002		2001		2000
Dividend yield	1.40	%	1.94	%	1.38	%
Expected volatility	53.93	%	49.50	%	47.44	%
Risk-free interest rate	3.52	%	5.25	%	5.26	%
Expected life	5 years		5 years		5 years

The 3,408,712 options outstanding as of December 31, 2002 have exercise prices ranging from $5.38 to $32.63 with a weighted average exercise price of $16.58 and a weighted average remaining contractual life of 7.0 years. As of December 31, 2002, 1,983,468 of these options are exercisable with a weighted average exercise price of $14.06. Based on the above assumptions, the weighted average per share fair value of options granted during the years ended December 31, 2002, 2001 and 2000 was $10.15, $6.93 and $10.00, respectively.

As required for disclosure purposes only under SFAS 123 and 148, we have measured the amount of compensation expense which would have been recognized related to stock options had the fair value of options at the date of grant been used for accounting purposes. This information is summarized in Note 2 above.

13.    Stockholder Rights Plan and Common Stock Repurchase Plan

Effective December 31, 2001, Standard Pacific’s Board of Directors approved the adoption of a new stockholder rights agreement (the “Agreement”). Under the Agreement, one preferred stock purchase right is granted for each share of outstanding common stock payable to holders of record on December 31, 2001. The rights issued under the Agreement replace rights previously issued by Standard Pacific in 1991 under the prior rights plan, which rights expired on December 31, 2001. Each right entitles the holder, in certain takeover situations, as defined, and upon paying the exercise price (currently $115), to purchase common stock or other securities having a market value equal to two times the exercise price. Also, if we merge into another corporation, or if 50 percent or more of our assets are sold, the rightholders may be entitled, upon payment of the exercise price, to buy common shares of the acquiring corporation at a 50 percent discount from the then current market value. In either situation, these rights are not exercisable by the acquiring party. The rights may be redeemed by Standard Pacific’s Board of Directors under certain circumstances, including if they believe a proposed transaction to be in the best interests of our stockholders, at the rate of $.001 per right. The rights will expire on December 31, 2011, unless earlier redeemed, or exchanged. If the rights have separated from the common shares, the rights shall expire ten years from the date they were separated.

In April 2001, our Board of Directors authorized a $35 million stock repurchase plan that replaced our previously authorized repurchase plan. In October 2002, our Board increased the buyback limit to $50 million and in January 2003 to $75 million. For the year ended December 31, 2002, we repurchased 590,200 shares of common stock under the existing plan for aggregate consideration of approximately $13.6 million and from April 2001 through December 31, 2002, we have repurchased approximately 1.6 million shares of common stock for approximately $32.7 million, leaving a balance of approximately $42.3 million available for future repurchases.

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STANDARD PACIFIC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14.    Results of Quarterly Operations (Unaudited)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total(1)
	(Dollars in thousands, except per share amounts)
2002:
Revenues	$	288,567	$	448,055	$	465,305	$	683,229	$	1,885,155
Income before taxes	$	29,534	$	43,082	$	36,530	$	85,534	$	194,681
Net income	$	17,788	$	25,989	$	22,617	$	52,295	$	118,689
Diluted earnings per share	$	0.59	$	0.81	$	0.68	$	1.58	$	3.67
2001:
Revenues	$	288,384	$	325,768	$	336,381	$	433,928	$	1,384,461
Income before taxes	$	45,133	$	43,742	$	43,774	$	51,827	$	184,476
Net income	$	27,165	$	26,318	$	26,284	$	31,299	$	111,065
Diluted earnings per share	$	0.88	$	0.85	$	0.86	$	1.04	$	3.63

(1) Some amounts do not add across due to rounding differences in quarterly amounts and due to the impact of differences between the quarterly and annual weighted average share calculations.

15.    Subsequent Event (Unaudited)

In March 2003, we issued $125 million of 7¾% Senior Notes which mature on March 15, 2013 (the “7¾% Senior Notes”). These notes were issued at a discount to yield approximately 7.88 percent under the effective interest method. Interest on these notes is payable on March 15 and September 15 of each year until maturity. The 7¾% Senior Notes are redeemable at our option, in whole or in part, commencing March 15, 2008 at 103.875 percent of par, with the call price reducing ratably to par on March 15, 2011. Net proceeds after underwriting expenses were approximately $122.4 million and were used to repay borrowings outstanding under our revolving credit facility.

The senior notes are unsecured obligations and rank equally with our other existing senior unsecured indebtedness, including borrowings under our revolving credit facility. We will, under certain circumstances, be obligated to make an offer to purchase a portion of the notes in the event of certain asset sales. In addition, these notes contain other restrictive covenants which, among other things, impose certain limitations on our ability to (1) incur additional indebtedness, (2) create liens, (3) make restricted payments (including investments in unconsolidated joint ventures), and (4) sell assets. Also, upon a change in control we are required to make an offer to purchase these notes.

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

The Company filed a Current Report on Form 8-K dated June 4, 2002 to report a change in the Company’s certifying accountant from Arthur Andersen LLP to Ernst & Young LLP.

PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain of the information required by this Item with respect to executive officers is set forth under the caption “Executive Officers of the Company” in Part I. The remaining information required by Items 401 and 405 of Regulation S-K will be set forth in the Company’s 2003 Annual Meeting Proxy Statement which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2002 (the “2003 Proxy Statement”). For the limited purpose of providing the information necessary to comply with this Item 10, the 2003 Proxy Statement, is incorporated herein by this reference. All references to the 2003 Proxy Statement in this Part III are exclusive of the information set forth under the captions “Report of the Compensation Committee,” “Report of the Audit Committee” and “Company Performance.”

ITEM 11.     EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-K will be set forth in the 2003 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the 2003 Proxy Statement is incorporated herein by this reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 403 of Regulation S-K will be set forth in the 2003 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 12, the 2003 Proxy Statement is incorporated herein by this reference.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides summary information, as of December 31, 2002, with respect to securities issued and available for issuance pursuant to all of our equity compensation plans.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category	(a)	(b)		(c)
Equity compensation plans approved by security holders	3,085,182	$	16.57	1,150,650
Equity compensation plans not approved by security holders(1)	323,530	$	16.50	129,632
Total	3,408,712	$	16.58	1,280,282

(1) On April 24, 2001, our Board of Directors approved our 2001 Non-Executive Officer Stock Incentive Plan. Awards of up to an aggregate of 525,000 shares of common stock may be issued to eligible employees other than our executive officers under the plan. The plan is administered by the Compensation Committee of our Board of Directors and provides the committee discretion to award options, incentive bonuses or incentive stock. The committee is also authorized to amend, alter or discontinue the plan, except to the extent that it would impair the rights of a participant. Generally, each option granted under the plan will be exercisable no earlier than one year from the date of grant, at an exercise price per share equal to or greater than the fair market value of our common stock on the date of grant. In addition, options may not be repriced without the prior approval of our stockholders. Incentive bonus and incentive stock awards granted under the plan will be subject to performance criteria or other conditions designated by the committee at the time of grant.

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ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 404 of Regulation S-K will be set forth in the 2003 Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 13, the 2003 Proxy Statement is incorporated herein by this reference.

ITEM 14.     DISCLOSURE CONTROLS AND PROCEDURES

(a) Within the 90 days prior to the filing date of this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in timely alerting them to material information relating to Standard Pacific (including its consolidated subsidiaries) required to be included in our periodic SEC filings.

(b) There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of our evaluation.

PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

	Page Reference
(a)(1) Financial Statements, included in Part II of this report:
Report of Independent Auditors	34
Report of Independent Public Accountants	35
Consolidated Statements of Income for each of the three years in the period ended     December 31, 2002	36
Consolidated Balance Sheets at December 31, 2002 and 2001	37
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2002	38
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002	39
Notes to Consolidated Financial Statements	41

    (2)  Financial Statement Schedules:

Financial Statement Schedules are omitted since the required information is not present or is not present in the amounts sufficient to require submission of a schedule, or because the information required is included in the consolidated financial statements, including the notes thereto.

    (3)  Index to Exhibits

See Index to Exhibits on pages 66-68 below.

(b)  Reports on Form 8-K. None.

(c)  Index to Exhibits. See Index to Exhibits on pages 66-68 below.

(d)  Financial Statements required by Regulation S-X excluded from the annual report to shareholders by Rule 14(a)-3(b)(1). Not applicable.

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SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, California, on the 17th day of March 2003.

STANDARD PACIFIC CORP. (Registrant)
By:	/s/    STEPHEN J. SCARBOROUGH
	Stephen J. Scarborough Chairman of the Board and Chief Executive Officer

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

Signature	Title	Date
/s/    STEPHEN J. SCARBOROUGH         (Stephen J. Scarborough)	Chairman of the Board of Directors and Chief Executive Officer	March 17, 2003
/s/    ANDREW H. PARNES         (Andrew H. Parnes)	Senior Vice President—Finance, Chief Financial Officer (Principal Financial and Accounting Officer) and Director	March 17, 2003
/s/    MICHAEL C. CORTNEY         (Michael C. Cortney)	President and Director	March 17, 2003
/s/    JAMES L. DOTI         (James L. Doti)	Director	March 17, 2003
/s/    RONALD R. FOELL         (Ronald R. Foell)	Director	March 17, 2003
/s/    DOUGLAS C. JACOBS         (Douglas C. Jacobs)	Director	March 17, 2003
/s/    KEITH D. KOELLER         (Keith D. Koeller)	Director	March 17, 2003
/s/    LARRY MCNABB         (Larry McNabb)	Director	March 17, 2003
/s/    JEFFREY V. PETERSON         (Jeffrey V. Peterson)	Director	March 17, 2003

63

Certifications:

I, Stephen J. Scarborough, certify that:

1. I have reviewed this annual report on Form 10-K of Standard Pacific Corp.

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 17, 2003

/s/    STEPHEN J. SCARBOROUGH

Stephen J. Scarborough

Chairman of the Board of Directors and Chief Executive Officer

64

I, Andrew H. Parnes, certify that:

1. I have reviewed this annual report on Form 10-K of Standard Pacific Corp.

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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-14 and 15d-14) for the registrant and have:

a. designed such disclosure controls and procedures 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 annual report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days to the filing date of this annual report (the “Evaluation Date”); and

c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 17, 2003
	/s/    ANDREW H. PARNES
	Andrew H. Parnes Senior Vice President—Finance, Chief Financial Officer

65

INDEX TO EXHIBITS

*3.1	Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-4 (file no. 33-42293), filed with the Securities and Exchange Commission on August 16, 1991.
*3.2	Certificate of Correction of Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form 8-B, filed with the Securities and Exchange Commission on December 17, 1991.
*3.3	Form of Certificate of Amendment to Certificate of Incorporation of the Registrant incorporated by reference to Exhibit 3.3 of the Registrant’s Registration Statement on Form 8-B, filed with the Securities and Exchange Commission on December 17, 1991.
*3.4	Form of Certificate of Merger of the Registrant incorporated by reference to Exhibit 3.4 of the Registrant’s Registration Statement on Form 8-B, filed with the Securities and Exchange Commission on December 17, 1991.
*3.5	Bylaws of the Registrant incorporated by reference to Exhibit 3.5 of the Registrant’s Registration Statement on Form S-4 (file no. 333-37014), filed with the Securities and Exchange Commission on May 15, 2000.
*4.1	Form of Specimen Stock Certificate, incorporated by reference to Exhibit 28.3 of the Registrant’s Registration Statement on Form S-4 (file no. 33-42293), as filed with the Securities and Exchange Commission on August 16, 1991.
*4.2	Rights Agreement, effective as of December 31, 2001, between the Registrant and EquiServe Trust Company, N.A., as Rights Agent, incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form 8-A12B (file no. 1-10959), filed with the Securities and Exchange Commission on December 28, 2001.
*4.3	Indenture, dated as of April 1, 1992, by and between the Registrant and United States Trust Company of New York, Trustee, incorporated by reference to Exhibit 4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 1993.
*4.4	Standard Pacific Corp. Officers’ Certificate dated June 17, 1997 with respect to the Registrant’s 8½% Senior Notes due 2007, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 16, 1997.
*4.5	Standard Pacific Corp. Officers’ Certificate dated February 5, 1998 with respect to the Registrant’s 8% Senior Notes due 2008, incorporated by reference to Exhibit 4.4 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.
*4.6	First Supplement Indenture, dated as of December 28, 2001, by and between the Registrant and the Bank of New York (as successor in interest to United States Trust Company of New York), incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
*4.7	Indenture, dated as of April 1, 1999, by and between the Registrant and The First National Bank of Chicago, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 1999.
*4.8	First Supplemental Indenture relating to the Registrant’s 8½% Senior Notes due 2009, dated as of April 13, 1999, by and between the Registrant and The First National Bank of Chicago, as Trustee, with Form of Note attached, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K dated April 16, 1999.
*4.9	Second Supplemental Indenture relating to the Registrant’s 9½% Senior Notes due 2010, dated as of September 5, 2000, by and between the Registrant and Bank One Trust Company, N.A., as Trustee, with Form of Note attached, incorporated by reference to Exhibit 4.1 on the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2000.

66

*4.10	Third Supplemental Indenture relating to the Registrant’s 8½% Senior Notes due 2009 and 9½% Notes due 2010, dated as of December 28, 2001, by and between the Registrant and Bank One Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.10 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.
*4.11	Fourth Supplemental Indenture relating to the Registrant’s 7 3/4% Senior Notes due 2013, dated as of March 7, 2003, by and between the Registrant and Bank One Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 7, 2003.
*4.12	Senior Subordinated Debt Securities Indenture dated as of April 10, 2002 by and between the Registrant and Bank One Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 15, 2002.
*4.13	First Supplemental Indenture relating to the Registrant’s 9 1/4% Senior Subordinated Notes due 2012, dated as of April 10, 2002, by and between the Registrant and Bank One Trust Company, N.A., as trustee, with Form of Note attached, incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 15, 2002.
*10.1	Revolving Credit Agreement dated as of January 29, 2003, among the Registrant, Bank of America, Bank One, NA, Guaranty Bank, Washington Mutual Bank, F.A., Fleet National Bank, PNC Bank, National Association, Comerica Bank, U.S. Bank, National Association, Union Bank of California, N.A., SunTrust Bank, Bank of the West, AmSouth Bank, Credit Suisse First Boston, Cayman Islands Branch, Wells Fargo Bank, National Association, and California Bank & Trust, incorporated by reference to Exhibit 16.1 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 7, 2003.
+*10.2	Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated by reference to Annex B of the Registrant’s prospectus dated October 11, 1991, filed with the Securities and Exchange Commission pursuant to Rule 424(b).
+*10.3	Form of Stock Option Agreement to be used in connection with the Standard Pacific Corp. 1991 Employee Stock Incentive Plan, incorporated by reference to Exhibit 28.2 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 3, 1992.
+*10.4	Standard Pacific Corp. 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.1 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on August 21, 1997.
+*10.5	Form of Non-Qualified Stock Option Agreement to be used in connection with Registrant’s 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.2 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on August 21, 1997.
+*10.6	Form of Non-Qualified Director’s Stock Option Agreement to be used in connection with the Registrant’s 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.3 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on August 21, 1997.
+*10.7	Form of Incentive Stock Option Agreement to be used in connection with the Registrant’s 1997 Stock Incentive Plan, incorporated by reference to Exhibit 99.4 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on August 21, 1997.
+*10.8	Standard Pacific Corp. 2000 Stock Incentive Plan, incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-4 (file no. 333-37014) filed with the Securities and Exchange Commission on May 15, 2000.
+*10.9	Standard Pacific Corp. 2001 Non-Executive Officer Stock Incentive Plan, incorporated by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

67

*10.10	Stock Purchase Agreement, dated as of September 30, 1997, by and between the Registrant, Duc Development Company and Daniel A. Duc, incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
*10.11	Industrial Lease between Irvine Technology Partners III and the Registrant, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
+*10.12	Change of Control Agreement, dated December 1, 2000, between the Registrant and Stephen J. Scarborough, incorporated by reference to Exhibit 10.13 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
+*10.13	Form of Change of Control Agreement, between the Registrant and each of Michael C. Cortney, Andrew H. Parnes, Clay A. Halvorsen and Jari L. Kartozian, incorporated by reference to Exhibit 10.14 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
*10.14	Stock Purchase Agreement dated April 6, 2002 between Newmark Homes Corp. and the Registrant, relating to the acquisition of Westbrooke Homes, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
*10.15	Stock Purchase Agreement dated May 13, 2002 between Larry Godwin, Robert Godwin, Colony Communities, Inc. and the Registrant, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report o n Form 10-Q for the quarter ended June 30, 2002.
*10.16	2000 Stock Incentive Plan of Standard Pacific Corp., as amended and restated effective May 15, 2002, incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
*10.17	Stock Purchase Agreement dated August 9, 2002 between the shareholders of Westfield Homes USA, Inc., WF Acquisition, Inc. and the Registrant, relating to the acquisition of Westfield Homes USA, Inc., incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
*10.18	Master Repurchase Agreement between Credit Suisse First Boston Mortgage Capital LLC and Family Lending Services, Inc., a wholly-owned subsidiary of the Registrant, dated October 5, 2001, and as further amended on December 28, 2001, March 31, 2002, October 4, 2002 and October 9, 2002, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
10.19	Credit Agreement between Guaranty Bank and Family Lending Services, Inc., a wholly-owned subsidiary of the Registrant, dated December 26, 2002.
10.20	Mortgage Loan Purchase and Sale Agreement between Guaranty Bank and Family Lending Services, Inc., a wholly-owned subsidiary of the Registrant, dated December 26, 2002.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Ernst & Young LLP, Independent Auditors.
99.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

(*) Previously filed.

(+) Management contract, compensation plan or arrangement.

68

EX-10.19

                                                                   Exhibit 10.19

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



                                CREDIT AGREEMENT





                          FAMILY LENDING SERVICES, INC.



                                   as Borrower




                                  GUARANTY BANK

                                    as Lender


                                   $30,000,000





                                December 26, 2002


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





                                TABLE OF CONTENTS



                                                                                           Page
                                                                                           ----
                                                                                        
ARTICLE I    GENERAL TERMS                                                                   1
             Section 1.1    Certain Definitions ...........................................  1
             Section 1.2    Exhibits and Schedules ........................................ 16
             Section 1.3    Calculations and Determinations ............................... 16

ARTICLE II   AMOUNT AND TERMS OF LOANS .................................................... 17
             Section 2.1    Commitment and Loans .......................................... 17
             Section 2.2    Promissory Note; Interest on the Note ......................... 17
             Section 2.3    Notice and Manner of Obtaining Loans .......................... 17
             Section 2.4    Fees .......................................................... 17
             Section 2.5    Mandatory Repayments .......................................... 18
             Section 2.6    Payments to Lender ............................................ 18
             Section 2.7    Increased Cost and Reduced Return ............................. 19

ARTICLE III  CONDITIONS PRECEDENT ......................................................... 19
             Section 3.1    Initial Loan .................................................. 19
             Section 3.2    All Loans ..................................................... 20

ARTICLE IV   BORROWER REPRESENTATIONS AND WARRANTIES ...................................... 21
             Section 4.1    Organization and Good Standing ................................ 21
             Section 4.2    Authorization and Power ....................................... 22
             Section 4.3    No Conflicts or Consents ...................................... 22
             Section 4.4    Enforceable Obligations ....................................... 22
             Section 4.5    Priority of Liens ............................................. 22
             Section 4.6    No Liens ...................................................... 22
             Section 4.7    Financial Condition of Borrower ............................... 22
             Section 4.8    Full Disclosure ............................................... 23
             Section 4.9    No Default .................................................... 23
             Section 4.10   No Litigation ................................................. 23
             Section 4.11   Taxes ......................................................... 23
             Section 4.12   Principal Office, etc. ........................................ 23
             Section 4.13   Compliance with ERISA ......................................... 23
             Section 4.14   Subsidiaries .................................................. 23
             Section 4.15   Indebtedness .................................................. 24
             Section 4.16   Permits, Patents, Trademarks, etc. ............................ 24
             Section 4.17   Status Under Certain Federal Statutes ......................... 24
             Section 4.18   Securities Act ................................................ 24
             Section 4.19   No Approvals Required ......................................... 24
             Section 4.20   Survival of Representations ................................... 25
             Section 4.21   Individual Mortgage Loans ..................................... 25
             Section 4.22   Environmental Matters ......................................... 26


                                       i





                                                                                                    
ARTICLE V      AFFIRMATIVE COVENANTS ..................................................................26
               Section 5.1    Financial Statements and Reports ........................................26
               Section 5.2    Taxes and Other Liens ...................................................28
               Section 5.3    Maintenance .............................................................28
               Section 5.4    Further Assurances ......................................................28
               Section 5.5    Reimbursement of Expenses ...............................................28
               Section 5.6    Insurance ...............................................................29
               Section 5.7    Accounts and Records; Servicing Records .................................29
               Section 5.8    Right of Inspection .....................................................30
               Section 5.9    Notice of Certain Events ................................................30
               Section 5.10   Performance of Certain Obligations and Information Regarding Investors ..30
               Section 5.11   Use of Proceeds; Margin Stock ...........................................30
               Section 5.12   Notice of Default .......................................................31
               Section 5.13   Compliance with Loan Documents ..........................................31
               Section 5.14   Operations and Properties ...............................................31
               Section 5.15   Environmental Matters ...................................................31

ARTICLE VI     NEGATIVE COVENANTS .....................................................................31
               Section 6.1    No Merger; Limitation on Issuance of Securities .........................32
               Section 6.2    Limitation on Indebtedness ..............................................32
               Section 6.3    Fiscal Year, Method of Accounting .......................................32
               Section 6.4    Business ................................................................32
               Section 6.5    Liquidations, Consolidations and Dispositions of Substantial Assets .....32
               Section 6.6    Loans, Advances, and Investments ........................................32
               Section 6.7    Use of Proceeds .........................................................33
               Section 6.8    Actions with Respect to Mortgage Collateral .............................33
               Section 6.9    Transactions with Affiliates ............................................34
               Section 6.10   Liens ...................................................................34
               Section 6.11   ERISA ...................................................................34
               Section 6.12   Change of Principal Office ..............................................34
               Section 6.13   Tangible Net Worth ......................................................34
               Section 6.14   Total Debt to Tangible Net Worth Ratio ..................................34
               Section 6.15   Profitability ...........................................................34
               Section 6.16   Management Fees .........................................................34

ARTICLE VII    EVENTS OF DEFAULT ......................................................................35
               Section 7.1    Nature of Event .........................................................35
               Section 7.2    Default Remedies ........................................................37

ARTICLE VIII   INDEMNIFICATION ........................................................................37
               Section 8.1    Indemnification .........................................................37
               Section 8.2    Limitation of Liability .................................................38



                                       ii



ARTICLE IX   MISCELLANEOUS ............................................... 38
             Section 9.1    Notices ...................................... 38
             Section 9.2    Amendments, Etc. ............................. 39
             Section 9.3    CHOICE OF LAW; VENUE ......................... 39
             Section 9.4    Invalidity ................................... 39
             Section 9.5    Survival of Agreements ....................... 39
             Section 9.6    Renewal, Extension or Rearrangement .......... 40
             Section 9.7    Waivers ...................................... 40
             Section 9.8    Cumulative Rights ............................ 40
             Section 9.9    Limitation on Interest ....................... 40
             Section 9.10   Bank Accounts; Offset ........................ 41
             Section 9.11   Assignments, Participations .................. 41
             Section 9.12   Exhibits ..................................... 42
             Section 9.13   Titles of Articles, Sections and Subsections . 42
             Section 9.14   Confidentiality .............................. 42
             Section 9.15   Counterparts ................................. 42
             Section 9.16   ENTIRE AGREEMENT ............................. 42
             Section 9.17   Termination; Limited Survival ................ 42
             Section 9.18   Joint and Several Liability. ................. 43
             Section 9.19   Disclosures. ................................. 43
             Section 9.20   WAIVER OF JURY TRIAL ......................... 43
             Section 9.21   CONSEQUENTIAL DAMAGES ........................ 43

                                      iii



EXHIBITS

      Exhibit A   --  Form of Note
      Exhibit B   --  Form of Borrowing Request
      Exhibit C   --  Investors
      Exhibit D   --  Subsidiaries
      Exhibit E   --  Certificate Accompanying Financial Statement
      Exhibit F   --  Form of Security Agreement
      Exhibit G   --  Opinion of Borrower's Counsel
      Exhibit H   --  Borrowing Base Certificate

                                       v



                                CREDIT AGREEMENT

     THIS CREDIT AGREEMENT is made and entered into as of December 26, 2002,
between FAMILY LENDING SERVICES, INC., a Delaware corporation ("Borrower"), and
GUARANTY BANK, a federal savings bank ("Lender").

     The parties hereto hereby agree as follows:

                                       I

                                  GENERAL TERMS

     I.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings:

     "Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.

     "Agreement" means this Credit Agreement, as the same may from time to time
be amended, supplemented or restated.

     "Agreement to Pledge" means each agreement by Borrower set forth in a
Borrowing Request for Wet Mortgage Loans, to deliver Required Mortgage Documents
to Lender.

     "Alt A Loan" means a Mortgage Loan that meets the definition of Eligible
Mortgage Loan (as defined below) with certain documentation exceptions that have
been approved by Lender.

     "Alt A Sublimit" means twenty-five percent (25%) of the Commitment.

     "Borrower" shall have the meaning assigned to such term in the preamble
hereof.

     "Borrowing" means a borrowing of a new Loan.

     "Borrowing Base" means at any date all Eligible Mortgage Loans which have
been delivered to and held by Lender or otherwise identified as Mortgage
Collateral.

     "Borrowing Base Certificate" means a certificate describing the Eligible
Mortgage Loans to be included in the Borrowing Base in a form reasonably
acceptable to Lender.

     "Borrowing Request" means a request, in the form of Exhibit B, for a Loan
pursuant to Article II.

     "Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Dallas, Texas. Any
Business Day in any way relating to the



Eurodollar Rate must also be a day on which, in the judgment of Lender,
significant transactions in dollars are carried out in the interbank
Eurocurrency market.

     "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within ninety (90) days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within ninety (90) days from the date of acquisition, of Lender or any other
domestic commercial bank having capital and surplus in excess of $200,000,000,
which has, or the holding company of which has, a commercial paper rating of at
least A-1 or the equivalent thereof by Standard & Poors Corporation or P-1 or
the equivalent thereof by Moody's Investors Service, Inc.

     "Change of Control" means Standard Pacific Corporation ceases to own one
hundred percent (100%) of the voting power of the voting stock of Borrower.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Collateral" has the meaning given to it in the Security Agreement.

     "Collateral Value of the Borrowing Base" means on any day the sum of the
Unit Collateral Values of all Eligible Mortgage Loans included in the Borrowing
Base on such day as determined by Lender based on information then available to
Lender.

     "Commitment" means at any date, the obligation of the Lender to make Loans
to Borrower pursuant to Section 2.1 hereof in an aggregate outstanding amount
not to exceed at any time $30,000,000.

     "Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its consolidated subsidiaries. References herein to a Person's
Consolidated financial statements, financial position, financial condition,
liabilities, etc. refer to the consolidated financial statements, financial
position, financial condition, liabilities, etc. of such Person and its
consolidated subsidiaries.

     "Debtor Laws" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar Laws from time to time in effect affecting the rights of creditors
generally and general principles of equity.

     "Default" means any of the events specified in Section 7.1 hereof, whether
or not any requirement for notice or lapse or time or any other condition has
been satisfied.

     "Default Rate" means, at the time in question, with respect to all
Obligations, the sum of (i) three percent (3%) per annum, plus (ii) the per
annum interest rate otherwise payable in respect of the Obligations; provided
that in no event shall the Default Rate ever exceed the Maximum Rate.

     "Dividends" in respect of any corporation, means: (a) cash distributions or
any other distributions on, or in respect of, any class of equity security of
such corporation, except for distributions made solely in shares of securities
of the same class; and (b) any and all funds, cash or other payments made in
respect of the redemption, repurchase or acquisition of such securities.

     "Drawdown Termination Date" means June 30, 2003 or the day on which the
Note first becomes due and payable in full.

                                        2



     "Eligible Mortgage Loan" means a Mortgage Loan with respect to which each
of the following statements is accurate and complete (and the Borrower by
including such Mortgage Loan in any computation of the Collateral Value of the
Borrowing Base shall be deemed to so represent to Lender at and as of the date
of such computation):

          (a) Such Mortgage Loan is a binding and valid obligation of the
     Obligor thereon, in full force and effect and enforceable in accordance
     with its terms, except as enforceability may be limited by Debtor Laws;

          (b) The Mortgage Note evidencing such Mortgage Loan is genuine in all
     respects as appearing on its face and as represented in the books and
     records of Borrower, and all information set forth therein is true and
     correct;

          (c) Such Mortgage Loan is free of any default (other than as permitted
     by subparagraph below) of any party thereto (including Borrower),
     counterclaims, offsets and defenses, including the defense of usury, and
     from any rescission, cancellation or avoidance, and all right thereof,
     whether by operation of law or otherwise;

          (d) No payment under such Mortgage Loan is more than thirty (30) days
     past due the payment due date set forth in the underlying Mortgage Note and
     Mortgage;

          (e) The Mortgage Note evidencing such Mortgage Loan contains the
     entire agreement of the parties thereto with respect to the subject matter
     thereof, has not been modified or amended in any respect not expressed in
     writing therein and is free of concessions or understandings with the
     Obligor thereon of any kind not expressed in writing therein;

          (f) Such Mortgage Loan is in all respects in accordance with all
     Requirements of Law applicable thereto, including, without limitation, the
     federal Consumer Credit Protection Act and the regulations promulgated
     thereunder and all applicable usury Laws and restrictions, and all notices,
     disclosures and other statements or information required by Law or
     regulation to be given, and any other act required by Law or regulation to
     be performed, in connection with such Mortgage Loan have been given and
     performed as required;

          (g) All advance payments and other deposits on such Mortgage Loan have
     been paid in cash, and no part of said sums has been loaned, directly or
     indirectly, by Borrower to the Obligor, and, other than as disclosed to
     Lender in writing, there have been no prepayments;

          (h) At all times such Mortgage Loan will be free and clear of all
     Liens, except in favor of Lender;

          (i) The Property covered by such Mortgage Loan is insured against loss
     or damage by fire and all other hazards normally included within standard
     extended coverage in accordance with the provisions of such Mortgage Loan
     with Borrower named as a loss payee thereon;

          (j) Such Mortgage Loan is secured by a first priority Mortgage, or in
     the case of any Second Lien Loan, a second priority Mortgage, on Property
     consisting of a completed one-to-four unit single family residence that is
     not used for commercial purposes and that is not a construction loan;
     provided that if such Mortgage Loan is a Second Lien Loan, the Unit
     Collateral Value of such Mortgage Loan when added to the Unit Collateral
     Value of other Second Lien Loans does not exceed the Second Lien Sublimit;

                                       3



          (k)  The date of origination of such Mortgage Loan is not more than
     thirty (30) days prior to the date such Mortgage Loan was first included in
     the Borrowing Base;

          (l)  Such Mortgage Loan has not been included in the Borrowing Base
     for more than one hundred and twenty (120) days;

          (m)  If such Mortgage Loan is included in the Borrowing Base and has
     been withdrawn from the possession of the Lender on terms and subject to
     conditions set forth in the Security Agreement:

               (i)   If such Mortgage Loan was withdrawn by Borrower for
          purposes of correcting clerical or other non-substantive documentation
          problems, the promissory note and other documents relating to such
          Mortgage Loan are returned to the Lender within ten (10) Business Days
          from the date of withdrawal; and the Unit Collateral Value of such
          Mortgage Loan when added to the Unit Collateral Value of other
          Mortgage Loans which have been similarly released to Borrower and have
          not been returned does not exceed ten percent (10%) of the Commitment;

               (ii)  If such Mortgage Loan was shipped by the Lender directly to
          a permanent investor for purchase or to a custodian for the formation
          of a pool, (x) such investor or custodian is in full compliance with
          the terms of the bailee letter under which such Mortgage Loan was
          shipped, and (y) the full purchase price for such Mortgage Loan has
          been received by the Lender (or such Mortgage Loan has been returned
          to the Lender) within forty-five (45) calendar days from the date of
          shipment by the Lender;

          (n)  Such Mortgage Loan is subject to a Take-Out Commitment (or
     otherwise hedged in a manner acceptable to Lender) which is in full force
     and effect;

          (o)  Such Mortgage Loan conforms to FNMA, FHLMC, FHA or VA guidelines
     in regards to credit quality, or if such Mortgage Loan is a Non-Conforming
     Loan:

               (i)   The Obligor under such Non-Conforming Loan has a FICO Score
          of at least 620 or if such FICO score of such Obligor is less than
          650, the Unit Collateral Value of such Non-Conforming Loan when added
          to the Unit Collateral Value of all other Non-Conforming Loans of the
          Obligors which have FICO Scores greater than 620 but less than 650
          does not exceed the Non-Conforming FICO Score Sublimit and:

               (ii)  If such Non-Conforming Loan is a Jumbo Loan, the Unit
          Collateral Value of such Non-Conforming Loan when added to the Unit
          Collateral Value of all other Jumbo Loans, does not exceed the Jumbo
          Sublimit; or

               (iii) If such Non-Conforming Loan is a Super Jumbo Loan, the Unit
          Collateral Value of such Non-Conforming Loan when added to the Unit
          Collateral Value of all other Super Jumbo Loans does not exceed the
          Super Jumbo Sublimit; or

               (iv)  If such Non-Conforming Loan is an Alt A Loan, the Unit
          Collateral Value of such Non-Conforming Loan when added to the Unit
          Collateral Value of all other Alt A Loans does not exceed the Alt A
          Sublimit;
                                       4



               (p) If the aggregate loan-to-value ratio of such Mortgage Loan to
          the Property secured thereby (taking into account all Mortgage Loans
          secured by such Property) exceeds eighty percent (80%), such Mortgage
          Loan is covered by a policy of mortgage insurance acceptable to
          Lender, and

               (q) Beginning on January 1, 2003 and at all times thereafter, the
          Required Mortgage Documents have been delivered to Lender prior to the
          inclusion of each Mortgage Loan in any computation of the Borrowing
          Base; provided that prior to such date, if such items have not been
          delivered to Lender on or prior to the date such Mortgage Loan is
          first included in any computation of the Borrowing Base because such
          Mortgage Loan is a Wet Loan, (a) Borrower has pledged and agreed to
          deliver all Required Mortgage Documents pursuant to a Borrowing
          Request delivered to Lender prior to such inclusion, and (b) the
          Collateral Value of such Mortgage Loan when added to the Collateral
          Value of all other Mortgage Loans for which Lender has not received
          the Required Mortgage Documents does not exceed the Wet Warehousing
          Sublimit, provided that, all Required Documents with respect to such
          Mortgage Loan shall be delivered to Lender within seven (7) Business
          Days after the date of the Agreement to Pledge with respect thereto;

          "Environmental Laws" means any and all Laws relating to (a) the
protection of the environment, (b) emissions, discharges or releases of
pollutants, contaminants, chemicals or hazardous or toxic substances or wastes
into the environment including ambient air, surface water, ground water or land,
or (c) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with the regulations from time to time
promulgated with respect thereto.

          "ERISA Affiliate" means all members of the group of corporations and
trades or businesses (whether or not incorporated) which, together with
Borrower, are treated as a single employer under Section 414 of the Code.

          "ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by Borrower or any
ERISA Affiliate with respect to which Borrower has a fixed or contingent
liability.

          "Eurodollar Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Bloomberg
Eurorate (or, if not available, any other nationally recognized trading screen
reporting on-line trading with Eurorates) at 10:00 a.m. (Dallas, Texas time) as
the Eurorates for deposits in dollars on that day for a period of one month. In
the event such rate ceases to be published, Eurodollar Rate shall mean a
comparable rate of interest reasonably selected by Lender.

          "Eurodollar Rate" means, for any day, the rate per annum equal to the
quotient of the Eurodollar Base Rate divided by 1.00 minus the Reserve
Requirement (expressed as a decimal).

          "Event of Default" means any of the events specified in Section 7.1
hereof, provided that any requirement in connection with such event for the
giving of notice or the lapse of time, or the happening of any further
condition, event or act has been satisfied.

          "FHA" means the Federal Housing Administration or any successor
thereto.

                                       5



         "FHLMC" means the Federal Home Loan Mortgage Corporation, or any
successor thereto.

         "Financing Lease" means (i) any lease of Property if the then present
value of the minimum rental commitment thereunder should, in accordance with
GAAP, be capitalized on a balance sheet of the lessee, and (ii) any other lease
obligations which are capitalized on a balance sheet of the lessee.

         "FICO Score" means, on any date, and with respect to an obligor under a
Mortgage Loan, the credit rating score for such obligor on such date calculated
in accordance with the procedures of Fair, Isaac and Company, Inc.

         "First Tier Loans" means Eligible Mortgage Loans (other than Second
Lien Loans and Wet Loans), which are included in the Borrowing Base.

         "First Tier Portion" means the Unit Collateral Value of the First Tier
Loans.

         "First Tier Margin" means nine-tenths percent (0.9%) per annum.

         "Fiscal Quarter" means each period of three (3) calendar months ending
March 31, June 30, September 30 and December 31 of each year.

         "Fiscal Year" means each period of twelve (12) calendar months ending
December 31 of each year.

         "FNMA" means the Federal National Mortgage Association, or any
successor thereto.

         "Funding Account" means the non-interest bearing demand checking
account established by Borrower with Lender to be used for (a) the initial
deposit of proceeds of Loans; and (b) the funding or purchase of a Mortgage Note
by Borrower; provided that the Funding Account shall be pledged to Lender and
that Borrower shall not be entitled to withdraw funds from the Funding Account.

         "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Borrower
and its consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the financing statements described in Section 4.7. If
any change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or Parent may be prepared in accordance with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to Lender and Lender
agrees to such change insofar as it affects the accounting of Borrower.

         "Governmental Authority" means any nation or government, any agency,
department, state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

         "Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing which relate to
environmental standards or controls, energy regulations and occupational, safety
and health standards or controls) of any arbitrator,

                                       6



court or other Governmental Authority, which exercises jurisdiction over any
Related Person or any of its Property.

     "Guaranty Obligation" of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness, lease, dividends or other obligations (the
"Primary Obligations") of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, contingently or absolutely, in whole or
in part, including without limitation agreements:

          (a) to purchase such Primary Obligation or any property constituting
     direct or indirect security therefor;

          (b) to advance or supply funds (A) for the purchase or payment of any
     such Primary Obligation, or (B) to maintain working capital or other
     balance sheet conditions of the Primary Obligor or otherwise to maintain
     the net worth or solvency of the Primary Obligor;

          (c) to purchase property, securities or services 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

          (d) otherwise to assure or hold harmless the owner of any such Primary
     Obligation against loss in respect thereof;

provided, that "Guaranty Obligation" shall not include endorsements that are
made in the ordinary course of business of negotiable instruments or documents
for deposit or collection. The amount of any Guaranty Obligation shall be deemed
to be the maximum amount for which the guarantor may be liable pursuant to the
agreement that governs such Guaranty Obligation, unless such maximum amount is
not stated or determinable, in which case the amount of such obligation shall be
the maximum reasonably anticipated liability thereon, as determined by such
guarantor in good faith.

     "Indebtedness" of any Person at a particular date means the sum (without
duplication) at such date of (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture, or similar instrument (other than trade
payables incurred in the ordinary course of business), (b) all obligations of
such Person under any Financing Lease, (c) all obligations of such Person in
respect of letters of credit, acceptances, or similar obligations issued or
created for the account of such Person, (d) all Guaranty Obligations of such
Person, (e) all liabilities secured by any Lien on any property owned by such
Person, whether or not such Person has assumed or otherwise become liable for
the payment thereof, and (f) any liability of such Person in respect of unfunded
vested benefits under an ERISA Plan and (g) all liabilities of such Person in
respect of indemnities or repurchase obligations made in connection with the
sale of Mortgage Loans.

     "Intercreditor Agreement" means that certain Intercreditor Agreement of
even date herewith between Borrower, Lender and CS First Boston.

     "Investor" means any Person listed on Exhibit C, as such exhibit may be
updated or supplemented from time to time; provided, however, that Lender shall
deliver a list of all Persons approved as Investors by Lender upon each
amendment of such exhibit by Lender, and a Investor shall be removed from such
list upon the written direction of Lender.

                                       7



         "Jumbo Loans" means Mortgage Loans that have been underwritten in
accordance with the guidelines of an Investor and that would be Eligible
Mortgage Loans except that the original unpaid principal amount of the
underlying Mortgage Notes is greater than $300,700 but does not exceed $650,000.

         "Jumbo Sublimit" means fifty percent (50%) of the Commitment.

         "Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof. Any reference to a Law includes any
amendment or modification to such Law, and all regulations, rulings, and other
Laws promulgated under such Law.

         "Lender" means Guaranty Bank and its successors and assigns.

         "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any Financing Lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).

         "Loan" has the meaning given it in Section 2.1.

         "Loan Balance" means for any day, the principal balance of the Loans
outstanding on such day.

         "Loan Document" means any, and "Loan Documents" shall mean all, of this
Agreement, the Note, the Security Instruments, and any and all other agreements
or instruments now or hereafter executed and delivered by Borrower or any other
Person in connection with, or as security for the payment or performance of any
or all of the Obligations, as any of such may be renewed, amended or
supplemented from time to time.

         "Market Value" on any day shall be determined by Lender, in its sole
discretion, based upon (a) information then available to Lender regarding quotes
to dealers for the purchase of mortgage notes similar to the Mortgage Note that
have been delivered to Lender pursuant to this Agreement or (b) sales prices
actually received by Borrower for mortgage notes sold by Borrower during the
immediately preceding thirty (30) day period similar to the Mortgage Note that
have been delivered to Lender pursuant to this Agreement.

         "Material Adverse Effect" means any material adverse effect on (a) the
validity or enforceability of this Agreement, the Note or any other Loan
Document, (b) the business, operations, total Property or financial condition of
any Related Person, (c) the collateral under any Security Instrument, or (d) the
ability of any Related Person to fulfill its obligations under this Agreement,
the Note, or any other Loan Document to which it is a party.

         "Maximum Rate" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loans.

                                       8


         "MERS" means Mortgage Electronic Registration, Inc., a Delaware
corporation, or any successor thereto.

         "MERS Agreement" means those agreements by and among Borrower, Lender,
MERS and MERSCORP, Inc., as amended, modified, supplemented, extended, restated
or replaced from time to time.

         "MERS(R) System" means the system of recording transfers of mortgages
electronically maintained by MERS.

         "MIN" means, with respect to each Mortgage Loan, the Mortgage
Identification Number for such Mortgage Loan registered with MERS on the MERS(R)
System.

         "MOM Loan" means, with respect to any Mortgage Loan, MERS acting as the
mortgagee of such Mortgage Loan, solely as nominee for the originator or
Borrower, as the case may be, of such Mortgage Loan and its successors and
assignees.

         "Mortgage" means a mortgage or deed of trust, on standard forms in form
and substance satisfactory to Lender, securing a Mortgage Note and granting a
perfected, first or second priority lien on residential real property consisting
of land and a one-to-four-family dwelling thereon which is completed and ready
for occupancy.

         "Mortgage Assignment" means an instrument duly executed and in
recordable form assigning a Mortgage, in blank and like all intervening
instruments that have been executed with respect to such Mortgage and which is
in form acceptable to Lender and satisfies all Requirements of Law.

         "Mortgage Collateral" means all Mortgage Notes (a) which are made
payable to the order of Borrower or have been endorsed (without restriction or
limitation) payable to the order of Borrower, (b) in which Lender has been
granted and continues to hold a perfected first priority security interest, (c)
which are in form and substance acceptable to Lender in its reasonable
discretion, (d) which are secured by Mortgages, and (e) conform in all respects
with all the requirements for purchase of such Mortgage Note under the Take-Out
Commitments and are valid and enforceable in accordance with their respective
terms.

         "Mortgage Loan" means a one-to-four-family mortgage loan which is
evidenced by a Mortgage Note and secured by a Mortgage, together with the rights
and obligations of a holder thereof and payments thereon and proceeds therefrom.

         "Mortgage Note" means the note or other evidence of indebtedness
evidencing the indebtedness of an Obligor under a Mortgage Loan.

         "Net Worth" of any Person means, as of any date, the remainder of all
Consolidated assets of such Person minus such Person's Consolidated liabilities,
each as determined by GAAP.

         "Non-Conforming Loans" means Jumbo Loans, Super Jumbo Loans and Alt A
Loans.

         "Non-Conforming FICO Score Sublimit" means fifteen percent (15%) of the
Commitment.

         "Note" means any promissory note delivered by Borrower to Lender
pursuant to Section 2.2 in the form attached hereto as Exhibit A and all
renewals, modifications and extensions thereof.

                                       9



         "Obligations" means all present and future Indebtedness, obligations,
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to this Agreement or any other Loan
Document, and all interest accrued thereon, and reasonable attorneys' fees and
other costs incurred in the drafting, negotiation, enforcement or collection
thereof, regardless of whether such Indebtedness, obligations, and liabilities
are direct, indirect, fixed, contingent, joint, several or joint and several.

         "Obligor" means the Person or Persons obligated to pay the Indebtedness
which is the subject of a Mortgage Loan.

         "Operating Account" means the non-interest bearing demand checking
accounts (whether one or more) established by Borrower with Lender to be used
for Borrower's operations.

         "Parent" means Standard Pacific Corporation, a Delaware corporation,
and owner of all of the outstanding capital stock of Borrower.

         "Parent Subordinated Debt" means debt owing by Borrower to Parent that
is subordinate to the Obligations on terms acceptable to Lender.

         "PBGC" means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to any of its functions.

         "Permitted Tax Distributions" means, for any Fiscal Year, the amount
necessary for the shareholders of Borrower (so long as Borrower is an S
corporation) to pay their state and federal income taxes on the basis of
Borrower's net income, which taxes shall be calculated at the highest marginal
tax rate applicable to any shareholder of Borrower.

         "Permitted Warehouse Facilities" means (i) the mortgage warehouse
credit facility provided by Credit Suisse First Boston to Borrower in an
aggregate principal amount not to exceed $100,000,000, and (ii) any other
mortgage warehouse credit facility approved in writing by Lender.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, Governmental Authority, or any other form of
entity.

         "Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

         "Purchase Facility" means the Mortgage Loan Purchase and Sale Agreement
of even date herewith between Borrower and Lender.

         "Regulation D" means Regulation D issued by the Board of Governors of
the Federal Reserve System as in effect from time to time.

         "Regulation U" means Regulation U issued by the Board of Governors of
the Federal Reserve System as in effect from time to time.

         "Regulation X" means Regulation X issued by the Board of Governors of
the Federal Reserve System as in effect from time to time.



         "Related Persons" means Borrower and each of Borrower's Subsidiaries.

         "Reportable Event" means (1) a reportable event described in Sections
4043(c)(5) or (6) of ERISA or the regulations promulgated thereunder, or (2) any
other reportable event described in Section 4043(c) of ERISA or the regulations
promulgated thereunder other than a reportable event not subject to the
provision for 30-day notice to the PBGC pursuant to a waiver by the PBGC under
Section 4043(a) of ERISA.

         "Required Mortgage Documents" means as to any Mortgage Loan, the items
described on Schedule A to the Security Agreement.

         "Requirement of Law" as to any Person means the charter and by-laws or
other organizational or governing documents of such Person, and any law,
statute, code, ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other determination,
direction or requirement (including, without limitation, any of the foregoing
which relate to environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any arbitrator, court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.

         "Reserve Requirement" means at any time, the maximum rate at which
reserves (including any marginal, special, supplemental, or emergency reserves)
are required to be maintained under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities" (as such
term is used in Regulation D).

         "Risk Rating" means the risk rating of a Mortgage Loan determined by
the applicable standards of an Investor to which such Mortgage Loan is to be
sold by Borrowers under a Take-Out Commitment, provided that such applicable
standards comply with industry standards in the sole judgment of Lender.

         "Second Lien Loan" means an otherwise Eligible Mortgage Loan, except
that such Mortgage Loan is secured by a second priority lien on Property
consisting of a completed one-to-four-family dwelling, including a condominium,
planned unit development, townhouse or co-op.

         "Second Lien Sublimit" means ten percent (10%) of the Commitment.

         "Second Tier Loans" means all Second Lien Loans and Wet Loans.

         "Second Tier Portion" means the Unit Collateral Value of the Second
Tier Loans.

         "Second Tier Margin" means one and one-eighth percent (1.125%) per
annum.

         "Security Agreement" means the Security Agreement between Borrower and
Lender in the form attached hereto as Exhibit F, as the same may from time to
time be further supplemented, amended or restated.

         "Security Instrument" means (a) the Security Agreement and (b) such
other executed documents as are or may be necessary to grant to Lender a
perfected first prior and continuing security interest in and to all Mortgage
Collateral, and any and all other agreements or instruments now or hereafter
executed and delivered by Borrower in connection with, or as security for the
payment or performance of, all or any of the Obligations, including Borrower's
obligations under the Note and this Agreement, as such agreements may be
amended, modified or supplemented from time to time.

                                       11



         "Servicing Agreements" means all agreements between the Related Persons
and Persons other than a Related Person pursuant to which Borrower undertakes to
service Mortgage Loans.

         "Servicing Records" means all contracts and other documents, books,
records and other information (including without limitation, computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained with respect to the Servicing Rights.

         "Servicing Rights" means all of right, title and interest of any
Related Person in and under the Servicing Agreements, including, without
limitation, the rights of Borrower to income and reimbursement thereunder.

         "Settlement Account" means (i) the non-interest bearing demand deposit
account established by Borrower with Lender to be used for the deposit of
proceeds from the sale of Mortgage Collateral; and (ii) the payment of the
Obligations; provided that (a) the Settlement Account shall be pledged to Lender
for the benefit of Lender, (b) Borrower shall not be entitled to withdraw funds
from the Settlement Account, (c) as long as no Event of Default has occurred and
is continuing, to the extent that the deposit of proceeds from the sale of
Mortgage Loans exceeds the Unit Collateral Value of such Mortgage Loans and any
payments then due and owing under this Agreement or the Note, Lender shall
transfer such excess amount to the Operating Account, and (d) if at any time the
aggregate amount of funds in the Settlement Account is insufficient to pay any
and all payments due and owing under this Agreement or the Note (such amount
being referred to as the "Deficiency"), Lender shall transfer an amount equal to
the Deficiency from the Operating Account to the Settlement Account.

         "Submission List" means a list in the form of Schedule B-I or B-II to
the form of Borrowing Request.

         "Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent (50%) or more by such
Person.

         "Super Jumbo Loans" means Mortgage Loans that have been underwritten in
accordance with the guidelines of an Investor and that would be Eligible
Mortgage Loans except that the original unpaid principal amount of the
underlying Mortgage Notes is greater than $650,000 but does not exceed
$1,500,000 and for which Borrower has obtained a prior approval letter.

         "Super Jumbo Sublimit" means ten percent (10%) of the Commitment.

         "Take-Out Commitment" means with respect to any Eligible Mortgage Loan,
a written master commitment of an Investor to purchase a pool of Mortgage Loans
under which such Eligible Mortgage Loans will be delivered to such Investor on
terms satisfactory to Lender, in its reasonable discretion.

         "Tangible Net Worth of any Person" means, as of any date, the Net Worth
of such Person plus Parent Subordinated Debt minus (a) all Consolidated assets
of such Person which would be classified as intangible assets under GAAP,
including but not limited to goodwill (whether representing the excess cost over
book value of assets acquired or otherwise), patents, trademarks, trade names,
copyrights, franchises, deferred charges, and capitalized servicing rights and
(b) all Indebtedness of such Person owing to its Affiliates and its shareholders
(c) all Indebtedness of Affiliates of such Person owing to such Person.

                                       12



     "Termination Event" means (a) the occurrence with respect to any ERISA Plan
of a Reportable Event, (2) the withdrawal of the Borrower or any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer,"
as defined in Section 4001(a)(2) of ERISA, (c) the distribution to affected
parties of a notice of intent to terminate any ERISA Plan or the treatment of
any ERISA Plan amendment as a termination under Section 4041 of ERISA, (d) the
institution of proceedings to terminate any ERISA Plan by the PBGC under Section
4042 of ERISA, or (5) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any ERISA Plan.

     "UCC" means the Texas Uniform Commercial Code, as the same may hereafter be
amended.

     "Unit Collateral Value" means on any day with respect to each Eligible
Mortgage Loan included in the Borrowing Base, ninety-eight percent (98%) of the
least of the following:

          (i)   the outstanding principal balance of the Mortgage Note
     constituting such Mortgage Loan;

          (ii)  the actual out-of-pocket cost to Borrower of such Mortgage Loan
     minus the amount of principal paid under such Mortgage Loan and delivered
     to Lender for application to the prepayment of the Loans;

          (iii) the amount at which an Investor has committed to purchase the
     Mortgage Loan pursuant to a Take-Out Commitment not to exceed 100% of the
     original principal balance of the Mortgage Note; or

          (iv)  the Market Value of the Mortgage Note constituting such Mortgage
     Loan.

     "VA" means the Veterans Administration and any successor thereto.

     "Wet Loans" means Eligible Mortgage Loans which are included in the
Borrowing Base, but for which the Required Mortgage Documents have not been
delivered to Lender.

     "Wet Warehousing Sublimit" means twenty-five percent (25%) of the
Commitment.

Other Definitional Provisions.

     (b) Unless otherwise specified therein, all terms defined in this Agreement
shall have the above-defined meanings when used in the Note or any other Loan
Document, certificate, report or other document made or delivered pursuant
hereto.

     (c) Each term defined in the singular form in Section 1.1 shall mean the
plural thereof when the plural form of such term is used in this Agreement, the
Note or any other Loan Document, certificate, report or other document made or
delivered pursuant hereto, and each term defined in the plural form in Section
1.1 shall mean the singular thereof when the singular form of such term is used
herein or therein.

     (d) The words "hereof," "herein," "hereunder" and similar terms when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, subsection, schedule and
exhibit references herein are references to sections, subsections, schedules and
exhibits to this Agreement unless otherwise specified. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without limitation."

                                       13



     (e)  Unless the context otherwise requires or unless otherwise provided
herein the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments and restatements of such agreement,
instrument or document, provided that nothing contained in this section shall be
construed to authorize any such renewal, extension, modification, amendment or
restatement.

     (f)  As used herein, in the Note or in any other Loan Document,
certificate, report or other document made or delivered pursuant hereto,
accounting terms relating to any Person and not specifically defined in this
Agreement or therein shall have the respective meanings given to them under
GAAP.

     I.2  Exhibits and Schedules. All Exhibits and Schedules attached to this
Agreement are a part hereof for all purposes.

     I.3  Calculations and Determinations. All calculations under the Loan
Documents of interest and of fees shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of three
hundred sixty (360) days. Each determination by Lender of amounts to be paid
under Section 2.6 shall, in the absence of manifest error, be conclusive and
binding. Unless otherwise expressly provided herein or unless Lender otherwise
consents all financial statements and reports furnished to Lender hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP. Lender shall deliver to Borrower
an interest billing statement for each month on or before the fifteenth day of
the next succeeding month, which interest billing statement shall set forth the
interest accrued on the Loans for such month; provided that any failure or delay
in delivering such interest billing or any inaccuracy therein shall not affect
the Obligations.

                                       II

                           AMOUNT AND TERMS OF LOANS

     II.1 Commitment and Loans. Subject to the terms and conditions contained in
this Agreement, Lender agrees to make loans ("Loans") to Borrower on a revolving
credit basis from time to time on any Business Day from the date of this
Agreement through the Drawdown Termination Date; provided that no Wet Loans
shall be made on or after January 1, 2003. The aggregate amount of all Loans
requested in any Borrowing Notice must be greater than or equal to $25,000 or
the unadvanced portion of the Borrowing Base. After giving effect to the
transactions contemplated by the Borrowing Request pursuant to which a Loan is
requested, and at all other times, the aggregate amount of all Loans outstanding
shall not exceed the lesser of (i) the Collateral Value of the Borrowing Base
and (ii) the Commitment.

     II.2 Promissory Note; Interest on the Note. The obligation of Borrower to
repay the Loans made by Lender, together with interest accruing in connection
therewith, shall be evidenced by a Note payable to the order of Lender. Interest
on the Note shall be due and payable as provided herein and therein. The entire
Loan Balance and all accrued and unpaid interest thereon shall be finally due
and payable on the Drawdown Termination Date.

     II.3 Notice and Manner of Obtaining Loans. Borrower must give written
notice, or telephonic notice promptly confirmed in writing, of each request for
Loans. Each such written request or confirmation must be made in writing in the
form and substance of the "Borrowing Request" attached hereto as Exhibit B, duly
completed. Each such Borrowing Request must:

                                       14



     (a)  specify the aggregate amount of any such Borrowing of new Loans and
the date on which such Loans are to be advanced; and

     (b)  be received by Lender not later than 2:00 p.m., Dallas, Texas, time,
on the day on which any such Loans are to be made.

Each such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. If all conditions precedent to such
Loan have been met Lender will on the date requested promptly remit to Borrower
the amount of such Loan in immediately available dollars, by crediting the
Funding Account with immediately available funds as the amount of such Loan.

     II.4 Fees.

     (a)  In consideration of Borrower's commitment to make the Loans, Borrower
will pay to Lender a non-refundable commitment fee in the amount of $17,500
(calculated as of December 1, 2002 and will be adjusted to actual closing date).
This commitment fee shall be due and payable on the date hereof.

     (b)  In consideration of Lender's commitment to make the Loans, Borrowers
will pay to Lender in advance on the first day of such Fiscal Quarter a
non-refundable, facility fee determined on a daily basis by applying a rate of
twelve and one-half basis points (.125%) per annum to the Commitment on each day
during such Fiscal Quarter. A prorated fee for the Fiscal Quarter ending
December 31, 2002, shall be due and payable on the date hereof.

     (c)  Borrower shall pay to Lender, a collateral handling fee in the amount
of $15 for each Mortgage Loan file.

     II.5 Mandatory Repayments. If at any time the Loan Balance exceeds the
Collateral Value of the Borrowing Base, Borrower shall repay the amount of such
excess within one (1) Business Day after written notice thereof is given by
Lender to Borrower.

     II.6 Payments to Lender. All payments of interest on the Note, all payments
of principal, including any principal payment made with proceeds of Mortgage
Collateral, and fees hereunder shall be made directly to Lender in federal or
other immediately available funds before 1:00 pm (Dallas, Texas time) on the
respective dates when due via wire transfer to the Settlement Account. Borrower
shall send notice to Lender before 1:00 p.m. (Dallas, Texas time) on the day any
payment of principal or interest is received by Lender which sets forth the
Loans against which such payment is to be applied. Any payment (or any payment
received without a notice regarding application of such payment) received by
Lender after such time will be deemed to have been made on the next following
Business Day. Should any such payment become due and payable on a day other than
a Business Day, the maturity of such payment shall be extended to the next
succeeding Business Day, and, in the case of a payment of principal or past due
interest, interest shall accrue and be payable thereon for the period of such
extension as provided in the Loan Document under which such payment is due. Each
payment under a Loan Document shall be payable at the place provided therein
and, if no specific place of payment is provided, shall be payable at the place
of payment of the Note. When Lender collects or receives money on account of the
Obligations, Lender shall apply all such money so distributed, as follows:

          (a) first, for the payment of all Obligations which are then due, and
     if such money is insufficient to pay all such Obligations, (i) first to any
     reimbursements due Lender under Section

                                       15



     5.5, (ii) second, to the payment of the Loans then due, and (iii) then to
     the partial payment of all other Obligations then due in proportion to the
     amounts thereof, or as Lender shall otherwise agree;

           (b) then for the prepayment of amounts owing under the Loan Documents
     if so specified by Borrower;

           (c) then for the prepayment of principal on the Note, together with
     accrued and unpaid interest on the principal so prepaid; and

           (d) last, for the payment or prepayment of any other Obligations.

All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest.

     II.7  Increased Cost and Reduced Return.

     (a)   If, after the date hereof, Lender shall have determined that the
adoption of any applicable Law, rule, or regulation regarding capital adequacy
or any change therein or in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of Law) of any such
governmental authority, central bank, or comparable agency, has or would have
the effect of reducing the rate of return on the capital of Lender or any
corporation controlling Lender, due to the obligations of Lender hereunder, to a
level below that which Lender or such corporation could have achieved but for
such adoption, change, request, or directive (taking into consideration its
policies with respect to capital adequacy), then, within fifteen (15) days after
demand by Lender, Borrower shall pay to Lender such additional amount or amounts
as will compensate Lender for such reduction, but only to the extent that Lender
has not been compensated therefor by any increase in the Adjusted Eurodollar
Rate.

     (b)   Lender shall promptly notify Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle Lender to
compensation pursuant to this Section. In the event that Lender claims
compensation under this Section, Lender shall furnish to Borrower a statement
setting forth the additional amount or amounts to be paid to it hereunder which
shall be conclusive in the absence of manifest error. In determining such
amount, Lender shall act in good faith and may use any reasonable averaging and
attribution methods.

                                      III

                              CONDITIONS PRECEDENT

     The obligation of Lender to make Loans hereunder is subject to fulfillment
of the conditions precedent stated in this Article III.

     III.1 Initial Loan. The obligation of Lender to fund the initial Loan
hereunder shall be subject to, in addition to the conditions precedent specified
in Section 3.2, the following terms and conditions:

     (a)   Borrower shall have delivered to Lender the following (each of the
following documents being duly executed and delivered and in form and substance
satisfactory to Lender, and, with the

                                       16



exception of the Note, each in a sufficient number of originals that Lender and
its counsel may have an executed original of each document):

           (i)    an executed counterpart of this Agreement and of all
     instruments, certificates and opinions referred to in this Article III not
     theretofore delivered (except the Borrowing Request which is to be
     delivered at the time provided in Subsection 3.2(a) hereof);

           (ii)   the Note;

           (iii)  the Security Agreement dated of even date herewith;

           (iv)   a certificate of the Secretary or Assistant Secretary of
     Borrower setting forth (i) resolutions of its board of directors
     authorizing the execution, delivery, and performance of the Loan Documents
     to which it is a party and identifying the officers authorized to sign such
     instruments, (ii) specimen signatures of the officers so authorized, (iii)
     articles of incorporation of Borrower certified by the appropriate
     Secretary of State as of a recent date, (iv) bylaws of Borrower, certified
     as being accurate and complete, and (v) a certificate of the existence and
     good standing for Borrower in its state of incorporation dated no earlier
     than fifteen (15) days prior to the date hereof;

           (v)    a Borrowing Request and a Borrowing Base Certificate dated as
     of the date of the first Loan, certified by the chief financial officer or
     treasurer of Borrower;

           (vi)   a duly executed original of the MERS Agreement;

           (vii)  the Intercreditor Agreement;

           (viii) an opinion of counsel to Borrower reasonably satisfactory to
     Lender; and

           (ix)   such other documents as Lender may reasonably request at any
     time at or prior to the date of the initial Loan hereunder.

     (b)   No Person, other than Lender, holds any mortgage, pledge, lien,
security interest or other charge or encumbrance in, against or to any of the
Collateral.

     (c)   Borrower shall have paid all fees and reimbursements to be paid to
Lender pursuant to any Loan Document, or otherwise due Lender and including
reasonable fees and disbursements of Lender's attorneys which shall not exceed
$15,000 unless Lender has notified Borrower of a higher amount.

     III.2 All Loans. The obligation of Lender to fund any Loan pursuant to this
Agreement is subject to the satisfaction of all of the conditions set forth in
Section 3.1 above and the following further conditions precedent:

     (a)   Borrowing Request accompanied by a Borrowing Base Certificate dated
as of the date of such Loan, certified by the chief financial officer of
Borrower, and the Required Mortgage Documents for all Eligible Mortgage Loans
other than Wet Loans;

     (b)   all other Property in which Borrower has granted a Lien to Lender
shall have been physically delivered to the possession of Lender;

                                       17



     (c) the representations and warranties of each Related Person contained in
this Agreement or any Security Instrument (other than those representations and
warranties which are by their terms limited to the date of the agreement in
which they are initially made) shall be true and correct in all material
respects on and as of the date of such Loan;

     (d) no Default or Event of Default shall have occurred and be continuing
and no change or event which constitutes a Material Adverse Effect shall have
occurred as of the date of such Loan;

     (e) the Funding Account, the Settlement Account and the Operating Account
shall be established and in existence;

     (f) the making of such Loan shall not be prohibited by any Governmental
Requirement;

     (g) the delivery to Lender of such other documents, including such
documents as may be necessary or desirable to perfect or maintain the priority
of any Lien granted or intended to be granted hereunder or otherwise, as Lender
may reasonably request; and

     (h) No Person, other than Lender, shall be listed in the field designated
"interim funder" on the MERS(R) System.

Delivery to Lender of a Borrowing Request shall be deemed to constitute a
representation and warranty by Borrower on the date thereof and on the date on
which the Loan is made, if any, set forth therein as to the facts specified in
Subsections (c) and (d) of this Section.

                                       IV

                     BORROWER REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants as follows:

     IV.1 Organization and Good Standing. Each Related Person (a) is a
corporation duly incorporated and existing in good standing under the Laws of
the jurisdiction of its incorporation, (b) is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which its failure to be
so qualified could have a Material Adverse Effect, (c) has the corporate power
and authority to own its properties and assets and to transact the business in
which it is engaged and is or will be qualified in those states wherein it
proposes to transact business in the future and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.

     IV.2 Authorization and Power. Each Related Person has the corporate power
and requisite authority to execute, deliver and perform the Loan Documents to
which it is a party; each Related Person is duly authorized to and has taken all
corporate action necessary to authorize it to, execute, deliver and perform the
Loan Documents to which it is a party and is and will continue to be duly
authorized to perform such Loan Documents.

     IV.3 No Conflicts or Consents. Neither the execution and delivery by any
Related Person of the Loan Documents to which it is a party, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, will (a) materially contravene or conflict with any Requirement of Law
to which any

                                       18



Related Person is subject, or any indenture, mortgage, deed of trust, or other
agreement or instrument to which any Related Person is a party or by which any
Related Person may be bound, or to which the Property of any Related Person may
be subject, or (b) result in the creation or imposition of any Lien, other than
the Lien of the Security Agreement, on the Property of any Related Person. All
actions, approvals, consents, waivers, exemptions, variances, franchises,
orders, permits, authorizations, rights and licenses required to be taken, given
or obtained, as the case may be, from any Governmental Authority that are
necessary in connection with the transactions contemplated by the Loan Documents
have been obtained except to the extent that the failure to have received any of
the foregoing could not reasonably be expected to have a Material Adverse
Effect.

     IV.4 Enforceable Obligations. This Agreement, the Note, and the other Loan
Documents to which any Related Person is a party are the legal, valid and
binding obligations of such Related Person, enforceable in accordance with their
respective terms, except as limited by Debtor Laws.

     IV.5 Priority of Liens. Upon delivery to Lender of each Borrowing Request,
Lender shall have valid, enforceable, perfected, first priority Liens and
security interests in each Mortgage Note identified therein.

     IV.6 No Liens. Borrower has good and indefeasible title to the Mortgage
Collateral free and clear of all Liens and other adverse claims of any nature,
except for ad valorem taxes and assessments not yet due and payable and Liens in
the Mortgage Collateral in favor of Lender.

     IV.7 Financial Condition of Borrower. Borrower has delivered to Lender
copies of its annual audited balance sheet as of December 31, 2001, and the
related statements of income, stockholders' equity and cash flows for the period
ended such date; such financial statements fairly present the financial
condition of Borrower as of such date and the results of operations of Borrower
for the period ended on such date and have been prepared in accordance with
GAAP, subject to normal year-end adjustments; as of the date thereof, there were
no obligations, liabilities or Indebtedness (including material contingent and
indirect liabilities and obligations or unusual forward or long-term
commitments) of Borrower which are not reflected in such financial statements
and no change which constitutes a Material Adverse Effect has occurred in the
financial condition or business of Borrower since December 31, 2001. Borrower
has also delivered to Lender its unaudited quarterly balance sheet for the
period ending September 30, 2002 and management reports for September 30, 2002;
such reports fairly and accurately present Borrower's commitment position,
pipeline position, servicing and production as of the end of such months and for
the fiscal year to date for the periods ending on such dates.

     IV.8 Full Disclosure. There is no material fact of which Borrower is aware
that Borrower has not disclosed to Lender which could adversely affect the
properties, business, prospects or condition (financial or otherwise) of the
Related Persons, or could adversely affect the Mortgage Collateral or the
Servicing Rights. To the knowledge of Borrower, none of (i) the financial
statements referred to in Section 4.7 hereof, (ii) any Borrowing Request or
officer's certificate, or (iii) any statement delivered by any Related Person to
Lender in connection with this Agreement, contains any untrue statement of
material fact.

     IV.9 No Default. No Related Person is in default under any loan agreement,
mortgage, security agreement or other material agreement or obligation to which
it is a party or by which any of its Property is bound.

                                       19



     IV.10 No Litigation. There are no material actions, suits or legal,
equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower threatened, against any Related Person the adverse
determination of which could constitute a Material Adverse Effect.

     IV.11 Taxes. All tax returns required to be filed by each Related Person in
any jurisdiction have been filed and all taxes, assessments, fees and other
governmental charges therein shown to be due upon each Related Person or upon
any of its properties, income or franchises have been paid prior to the time
that such taxes could give rise to a Lien thereon, unless protested in good
faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been established on the books of such Related Person.
No Related Person has any knowledge of any proposed tax assessment against any
Related Person.

     IV.12 Principal Office, etc. The principal office, chief executive office
and principal place of business of each Related Person is at the address set
forth in Section 9.1.

     IV.13 Compliance with ERISA. No Related Person currently maintains,
contributes to, is required to contribute to or has any liability, whether
absolute or contingent, with respect to an ERISA Plan. With respect to all other
employee benefit plans maintained or contributed to by each Related Person, each
Related Person is in material compliance with ERISA.

     IV.14 Subsidiaries. No Related Person presently has any Subsidiary or owns
any stock in any other corporation or association except those listed in Exhibit
D. As of the date hereof, each Related Person owns, directly or indirectly, the
equity interest in each of its Subsidiaries which is indicated in such exhibit.

     IV.15 Indebtedness. No Related Person has any Indebtedness outstanding
other than the Indebtedness permitted by Section 6.2.

     IV.16 Permits, Patents, Trademarks, etc.

     (a)   Each Related Person has all permits and licenses necessary for the
operation of its business.

     (b)   Each Related Person owns or possesses (or is licensed or otherwise
has the necessary right to use) all patents, trademarks, service marks, trade
names and copyrights, technology, know-how and processes, and all rights with
respect to the foregoing, which are necessary for the operation of its business,
without any known material conflict with the rights of others. The consummation
of the transactions contemplated hereby will not alter or impair in any material
respect any of such rights of each Related Person.

     IV.17 Status Under Certain Federal Statutes. No Related Person is (a) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility," as such term is defined in the Federal
Power Act, as amended, (c) an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1949, as amended or (d) a "rail carrier," or a "person controlled by or
affiliated with a rail carrier," within the meaning of Title 49, U.S.C., and no
Related Person is a "carrier" to which 49 U.S.C. (S)11301(b)(1) is applicable.

                                       20



     IV.18 Securities Act. No Related Person has issued any unregistered
securities in violation of the registration requirements of the Securities Act
of 1933, as amended, or of any other Requirement of Law, and is not violating
any rule, regulation, or requirement under the Securities Act of 1933, as
amended, or the Securities and Exchange Act of 1934, as amended. No Related
Person is required to qualify an indenture under the Trust Indenture Act of
1939, as amended, in connection with its execution and delivery of the Note.

     IV.19 No Approvals Required. Other than consents and approvals previously
obtained and actions previously taken, neither the execution and delivery of
this Agreement, the Note and the other Loan Documents to which any Related
Person is a party, nor the consummation of any of the transactions contemplated
hereby or thereby requires the consent or approval of, the giving of notice to,
or the registration, recording or filing by any Related Person of any document
with, or the taking of any other action in respect of, any Governmental
Authority which has jurisdiction over each Related Person or any of its
Property, except for (a) the filing of the Uniform Commercial Code financing
statements and other similar filings to perfect the interest of Lender in the
Collateral, and (b) such other consents, approvals, notices, registrations,
filings or action as may be required in the ordinary course of business of the
Related Persons in connection with the performance of the obligations of the
Related Persons hereunder.

     IV.20 Survival of Representations. All representations and warranties by
Borrower herein shall survive delivery of the Note and the funding of the Loans,
and any investigation at any time made by or on behalf of Lender shall not
diminish the right of Lender to rely thereon.

     IV.21 Individual Mortgage Loans. Borrower hereby represents with respect to
each Mortgage Note and Mortgage Loan that is part of the Collateral:

     (a)   Borrower has good and marketable title to each Mortgage Note and
Mortgage, was the sole owner thereof and had full right to pledge the Mortgage
Loan to Lender free and clear of any other Lien (other than the rights of
Investors under Takeout Commitments having terms that are customary in the
industry);

     (b)   To the knowledge of Borrower, there is no default, breach, violation
or event of acceleration existing under any Mortgage or the related Mortgage
Note and there is no event which, with the passage of time or with notice and/or
the expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration and no such default, breach, violation or
event of acceleration has been waived;

     (c)   To the knowledge of Borrower, the physical condition of the Property
subject to the Mortgage has not deteriorated since the date of origination of
the related secured Mortgage Loan (normal wear and tear excepted) and there is
no proceeding pending for the total or partial condemnation of any Mortgaged
Property;

     (d)   Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the related Property subject to the Mortgage of the benefits
of the security provided thereby, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise, by
judicial foreclosure;

     (e)   Each Mortgage Loan is a first lien or second lien one-to-four-family
loan, and has been underwritten by the originator thereof in accordance with
such originator's then current underwriting guidelines; provided that the
aggregate amount of Second Lien Loans does not exceed the Second Lien Sublimit;

                                       21



     (f) Each Mortgage Note is payable in monthly installments of principal and
interest, with interest payable in arrears, and requires a monthly payment which
is sufficient to amortize the original principal balance over the original term
and to pay interest at the related interest rate; and no Mortgage Note provides
for any extension of the original term;

     (g) No Mortgage Loan is a loan in respect of either the purchase of a
manufactured home or mobile home or the purchase of the land on which a
manufactured home or mobile home will be placed;

     (h) The origination practices used by the originator of the Mortgage Loans
and the collection practices used by the Borrower with respect to each Mortgage
Loan have been in all material respects legal, proper, prudent and customary in
the loan origination and servicing business;

     (i) Each Mortgage Loan was originated in compliance with all applicable
Laws and no fraud or misrepresentation was committed by any Person in connection
therewith;

     (j) Each Mortgage Loan matures within thirty (30) years after the date of
origination thereof.

     (k) For each Mortgage Loan, Borrower has obtained closing protection
letters from the underwriter for the respective title insurance policy.

                                       V

                              AFFIRMATIVE COVENANTS

     Each Related Person shall at all times comply with the covenants contained
in this Article V, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding unless Lender has agreed otherwise.

     V.1 Financial Statements and Reports.

     (a) Borrower shall furnish to Lender the following, all in form and detail
reasonably satisfactory to Lender.

         (i)  Promptly after becoming available, and in any event within ninety
     (90) days after the close of each Fiscal Year, Borrower's Consolidated
     balance sheet as of the end of such Fiscal Year, and the related
     Consolidated statements of income, stockholders' equity and cash flows of
     Borrower for such Fiscal Year, setting forth in each case in comparative
     form the corresponding figures for the preceding Fiscal Year, such
     financial statements shall be unqualified and shall be accompanied by the
     related report of independent certified public accountants acceptable to
     Lender which report shall be to the effect that such statements have been
     prepared in accordance with GAAP applied on a basis consistent with prior
     periods except for such changes in such principles with which the
     independent public accountants shall have concurred;

         (ii) Promptly after becoming available, and in any event within ninety
     (90) days after the close of each Fiscal Year, Parent's and its
     Subsidiaries' consolidated and consolidating (unaudited) balance sheet as
     of the end of such Fiscal Year, and the related consolidated statements of
     stockholders' equity and cash flows of Parent and its subsidiaries for such
     Fiscal Year and on unaudited consolidating statement of income of Parent
     and its Subsidiaries for such

                                       22



     Fiscal Year, setting forth in each case in comparative form the
     corresponding figures for the preceding Fiscal Year, such financial
     statements shall be unqualified except as to such matters as are reasonably
     acceptable to the majority of Parents' lenders and shall be accompanied by
     the related report of Ernst & Young LLP, any successor thereto, or any
     other independent certified public accountants of recognized national
     standing which report shall be to the effect that such statements have been
     prepared in accordance with GAAP.

          (iii)  Promptly after becoming available, and in any event within
     forty-five (45) days after the end of each calendar month, including the
     twelfth calendar month in each Fiscal Year, a Consolidated balance sheet of
     Borrower as of the end of such month and the related Consolidated
     statements of income, stockholders' equity and cash flows of Borrower for
     such month and the period from the first day of the then current Fiscal
     Year through the end of such month, certified by the chief financial
     officer or other executive officer of Borrower to have been prepared in
     accordance with GAAP applied on a basis consistent with prior periods
     (subject to normal year-end audit adjustments and the absence of
     footnotes);

          (iv)   Promptly and in any event within forty-five (45) days after the
     end of each calendar month in each Fiscal Year of Borrower (except the
     last), and within fifteen (15) days after the completion of each year-end
     audit by Borrower's independent public accountants, a completed Officer's
     Certificate in the form of Exhibit E hereto, executed by the president or
     chief financial officer of Borrower;

          (v)    Promptly and in any event within forty-five (45) days after the
     end of each calendar month, a management report in form acceptable to
     Lender including, without limitation detail on Borrower's pipeline
     position, commitment position, repurchase requests by investors and
     production statistics;

          (vi)   With each Borrowing Notice and in any event within thirty (30)
     days after the end of each calendar month, a Borrowing Base Certificate;
     and

          (vii)  Promptly upon receipt thereof, a copy of each other report
     submitted to Borrower by independent accountants in connection with any
     annual, interim or special audit of the books of Borrower; and

          (viii) such other information concerning the business, properties or
     financial condition of any Related Person as Lender may reasonably request.

     V.2  Taxes and Other Liens. Each Related Person shall pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or upon any of its Property as well as all claims of any
kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien upon any or all of its Property; provided, however,
each Related Person shall not be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings diligently
conducted by or on behalf of such Related Person and if such Related Person
shall have set up reserves therefor adequate under GAAP.

     V.3  Maintenance. Each Related Person shall (a) maintain its corporate
existence, rights and franchises; (b) observe and comply in all material
respects with all Governmental Requirements, and (c) maintain its Properties
(and any Properties leased by or consigned to it or held under title retention
or conditional sales contracts) in good and workable condition at all times and
make all repairs, replacements,

                                       23



additions, betterments and improvements to its Properties as are needed and
proper so that the business carried on in connection therewith may be conducted
properly and efficiently at all times. Borrower shall maintain good standing as
an approved seller and servicer for FNMA and FHLMC and as an approved lender
with FHA, VA and HUD.

     V.4 Further Assurances. Borrower shall, within three (3) Business Days
after the request of Lender, cure any defects in the execution and delivery of
the Note, this Agreement or any other Loan Document and each Related Person
shall, at its expense, promptly execute and deliver to Lender upon request all
such other and further documents, agreements and instruments in compliance with
or accomplishment of the covenants and agreements of each Related Person in this
Agreement and in the other Loan Documents or to further evidence and more fully
describe the collateral intended as security for the Note, or to correct any
omissions in this Agreement or the other Loan Documents, or more fully to state
the security for the obligations set out herein or in any of the other Loan
Documents, or to make any recordings, to file any notices, or obtain any
consents.

     V.5 Reimbursement of Expenses. Borrower shall pay (a) all reasonable legal
fees (including, without limitation, allocated costs for in-house legal service)
incurred by Lender in connection with the preparation, negotiation, syndication,
execution and delivery of this Agreement, the Note and the other Loan Documents
and any amendments, consents or waivers executed in connection therewith, (b)
all fees, charges or taxes for the recording or filing of the Security
Instruments, (c) all reasonable out-of-pocket expenses of Lender in connection
with the administration of this Agreement, the Note and the other Loan
Documents, including courier expenses incurred in connection with the Mortgage
Collateral, (d) all amounts expended, advanced or incurred by Lender to satisfy
any obligation of Borrower under this Agreement or any of the other Loan
Documents or to collect the Note, or to protect, preserve, exercise or enforce
the rights of Lender under this Agreement or any of the other Loan Documents or
to collect the Note, or to protect, preserve, exercise or enforce the rights of
Lender or any Lender under this Agreement or any of the other Loan Documents,
(e) all reasonable out-of-pocket costs and expenses (including fees and
disbursements of attorneys and other experts employed or retained by such
Person) incurred in connection with, arising out of, or in any way related to
(i) consulting during a Default with respect to (A) the protection,
preservation, exercise or enforcement of any of its rights in, under or related
to the Collateral or the Loan Documents or (B) the performance of any of its
obligations under or related to the Loan Documents, or (ii) protecting,
preserving, exercising or enforcing during a Default any of its rights in, under
or related to the Collateral or the Loan Documents, each of (a) through (e)
shall include all underwriting expenses, collateral liquidation costs, court
costs, attorneys' fees (including, without limitation, for trial, appeal or
other proceedings), fees of auditors and accountants, and investigation expenses
reasonably incurred by Lender in connection with any such matters, together with
interest at the post-maturity rate specified in the Note on each item specified
in clause (a) through (e) from thirty (30) days after the date of written demand
or request for reimbursement until the date of reimbursement.

     V.6 Insurance. Borrower shall maintain with financially sound and reputable
insurers insurance with respect to its Properties and business against such
liabilities, casualties, risks and contingencies and in such types and amounts
as is customary in the case of Persons engaged in the same or similar businesses
and similarly situated, including, without limitation, a fidelity bond or bonds
with financially sound and reputable insurers with such coverage and in such
amounts as is customary in the case of Persons engaged in the same or similar
businesses and similarly situated; provided, however, that Borrower may chose to
participate in a self insurer program with respect to such liabilities
maintained by Parent with comparable coverage and amounts. The improvements on
the land covered by each Mortgage shall be kept continuously insured at all
times by responsible insurance companies against fire and extended coverage
hazards under policies, binders, letters, or certificates of insurance, with a
standard mortgagee clause in favor of Borrower and its assigns. Each such policy
must be in an amount equal to the

                                       24



lesser of the maximum insurable value of the improvements or the original
principal amount of the Mortgage Note, without reduction by reason of any
co-insurance, reduced rate contribution, or similar clause of the policies or
binders. Upon request of Lender, Borrower shall furnish or cause to be furnished
to Lender from time to time a summary of the insurance coverage of Borrower in
form and substance satisfactory to Lender and if requested shall furnish Lender
copies of the applicable policies.

     V.7  Accounts and Records; Servicing Records. Each Related Person shall
keep books of record and account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and activities,
in accordance with GAAP. Each Related Person shall maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate all records pertaining to the performance of such Related
Person's obligations under the Servicing Agreements in the event of the
destruction of the originals of such records) and keep and maintain all
documents, books, records, computer tapes and other information reasonably
necessary or advisable for the performance by each Related Person of its
obligations under the Servicing Agreements.

     V.8  Right of Inspection. Each Related Person shall permit authorized
representatives of Lender to discuss the business, operations, assets and
financial condition of such Related Person with their officers and employees, to
examine their Servicing Records and books of records and account and make copies
or extracts thereof and to visit and inspect any of the Properties of each
Related Person, all at such reasonable times and as often as Lender may request.
Each Related Person will provide its accountants with a copy of this Agreement
promptly after the execution hereof and will instruct its accountants to answer
candidly any and all questions that the officers of Lender or any authorized
representatives of Lender may address to them in reference to the financial
condition or affairs of any Related Person as those conditions or affairs relate
to this Agreement. Representatives of each Related Person shall be in attendance
at any meetings between the officers or other representatives of Lender and such
Related Person's accountants held in accordance with this authorization.

     V.9  Notice of Certain Events. Borrower shall promptly notify Lender upon
(a) the receipt of any notice from, or the taking of any other action by, the
holder of any promissory note, debenture or other evidence of Indebtedness of
any Related Person with respect to a claimed default, together with a detailed
statement by a responsible officer of Borrower specifying the notice given or
other action taken by such holder and the nature of the claimed default and what
action Borrower is taking or proposes to take with respect thereto; (b) the
commencement of, or any determination in, any legal, judicial or regulatory
proceedings between any Related Person and any Governmental Authority or any
other Person which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect; (c) any change in senior management of Borrower;
(d) any material adverse change in the business, operations, prospects or
financial condition of any Related Person, including, without limitation, the
insolvency of any Related Person, (e) any event or condition which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect or
(f) the occurrence of any Termination Event.

     V.10 Performance of Certain Obligations and Information Regarding
Investors. Borrower shall perform and observe in all material respects each of
the provisions of each Take-Out Commitment and each of the Servicing Agreements
on its part to be performed or observed and will cause all things to be done
which are necessary to have each item of Mortgage Collateral covered by a
Take-Out Commitment comply with the requirements of such Take-Out Commitment.
Upon request by Lender, Borrower will deliver to Lender financial information
concerning any Person Lender is reviewing to determine whether to approve such
Person as an Investor; all such financial information must be delivered to
Lender prior to any request by Borrower for Mortgage Collateral to be delivered
to such Person.

                                       25



     V.11 Use of Proceeds; Margin Stock. The proceeds of all Loans shall be used
by Borrower solely for the origination and funding of Eligible Mortgage Loans
pending sale to an Investor. None of such proceeds shall be used for the purpose
of purchasing or carrying any "margin stock" as defined in Regulation U, or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of such
Regulation U. Neither Borrower nor any Person acting on behalf of Borrower shall
take any action in violation of Regulation U or Regulation X or shall violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.

     V.12 Notice of Default. Borrower shall furnish to Lender immediately upon
becoming aware of the existence of any Default or Event of Default, a written
notice specifying the nature and period of existence thereof and the action
which Borrower is taking or proposes to take with respect thereto.

     V.13 Compliance with Loan Documents. Each Related Person shall promptly
comply with any and all covenants and provisions of this Agreement the Note and
the other Loan Documents to be complied with by such Related Person.

     V.14 Operations and Properties. Each Related Person shall comply with all
rules, regulations and guidelines applicable to it. Each Related Party shall act
prudently and in accordance with customary industry standards in managing and
operating its Property.

     V.15 Environmental Matters.

     (a)  Each Related Person will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Related Person and shall
obtain, at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.

     (b)  Borrower will promptly furnish to Lender all written notices of
violation, orders, claims, citations, complaints, penalty assessments, suits or
other proceedings received by Borrower, or of which it has notice, pending or
threatened against Borrower, by any governmental authority with respect to any
alleged violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or use of
its properties or the operation of its business.

                                       VI

                               NEGATIVE COVENANTS

     Each Related Person shall at all times comply with the covenants contained
in this Article VI, from the date hereof and for so long as any part of the
Obligations or the Commitment is outstanding unless Lender has agreed otherwise:

     VI.1 No Merger; Limitation on Issuance of Securities. Neither Parent nor
any Related Person shall merge or consolidate with or into any Person; provided
that Borrower or Parent may merge or consolidate with any Person if Borrower or
Parent, as applicable is the surviving corporation and after giving effect
thereto, no Default would exist hereunder. No Related Person shall acquire by
purchase, or otherwise, all or substantially all of the assets or capital stock
of any Person. Borrower will not issue any securities other than (i) the Notes
or other promissory notes issued in connection with the Indebtedness permitted
by Section 6.2 and (ii) shares of its common stock and any options or warrants
giving the holders

                                       26



thereof only the right to acquire such shares. No Subsidiary of Borrower will
issue any additional shares of its capital stock or other securities or any
options, warrants or other rights to acquire such additional shares or other
securities except to Borrower and only to the extent not otherwise forbidden
under the terms hereof. No Subsidiary of Borrower which is a partnership will
allow any diminution of Borrower's interest (direct or indirect) therein.

     VI.2 Limitation on Indebtedness. No Related Person shall incur, create,
contract, assume, have outstanding, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness except:

     (a)  the Obligations;

     (b)  trade debt, equipment leases, equipment loans and liens for taxes and
assessments not yet due and payable owed in the ordinary course of business;

     (c)  Indebtedness arising under Permitted Warehouse Facilities;

     (d)  Indebtedness of the Related Persons under agreements and in the amount
described on the Disclosure Schedule;

     (e)  Parent Subordinated Debt.

     VI.3 Fiscal Year, Method of Accounting. Neither Parent nor any Related
Person shall change its Fiscal Year or make any material change in its method of
accounting.

     VI.4 Business. No Related Person shall, directly or indirectly, engage in
any business which differs materially from that currently engaged in by
Borrower.

     VI.5 Liquidations, Consolidations and Dispositions of Substantial Assets.
No Related Person shall dissolve or liquidate or sell, transfer, lease or
otherwise dispose of any material portion of their property or assets or
business; provided, however, nothing in this Section 6.5 shall be construed to
prohibit any Related Person from selling rights to service mortgage loans and
pools of mortgage loans or Mortgage Notes in the ordinary course of their
business.

     VI.6 Loans, Advances, and Investments. No Related Person shall:

     (a)  make any loan (other than Mortgage Loans), advance, or capital
contribution to, or investment in (including any investment in any Subsidiary,
joint venture or partnership); or

     (b)  or purchase or otherwise acquire any of the capital stock, securities,
or evidences of indebtedness of, any Person (collectively, "Investment"), or
otherwise acquire any interest in, or control of, another Person, except for the
following:

          (i)  Cash Equivalents;

          (ii) Any acquisition of securities or evidences of indebtedness of
     others when acquired by a Related Person in settlement of accounts
     receivable or other debts arising in the ordinary course of its business,
     so long as the aggregate amount of any such securities or evidences of
     indebtedness is not material to the business or condition (financial or
     otherwise) of such Related Person;

                                       27


           (iii) Mortgage Notes acquired by Borrower in the ordinary course of
     Borrower's business; and

           (iv)  Loans made by Borrower to Parent in an aggregate amount not to
     exceed $13,000,000 at any time outstanding.

     VI.7  Use of Proceeds. Borrower shall not permit the proceeds of the Loans
to be used for any purpose other than those permitted by Section 5.11 hereof.
Borrower shall not, directly or indirectly, use any of the proceeds of the Loans
for the purpose, whether immediate, incidental or ultimate, of buying any
"margin stock" or of maintaining, reducing or retiring any Indebtedness
originally incurred to purchase a stock that is currently any "margin stock," or
for any other purpose which might constitute this transaction a "purpose
credit," in each case within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, as amended), or
Regulation U, or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation T (12
C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such board.

     VI.8  Actions with Respect to Mortgage Collateral. Borrower shall not:

     (a)   Compromise, extend, release, or adjust payments on any Mortgage
Collateral, accept a conveyance of mortgaged property in full or partial
satisfaction of any Mortgage Collateral, or release any Mortgage securing or
underlying any Mortgage Collateral;

     (b)   Agree to the amendment or termination of any Take-Out Commitment in
which Lender has a security interest or to substitution of a Take-Out Commitment
for a Take-Out Commitment in which Lender has a security interest hereunder, if
such amendment, termination or substitution may reasonably be expected (as
determined by Lender in its sole discretion) to have a Material Adverse Effect;

     (c)   Transfer, sell, assign, or deliver any Mortgage Collateral pledged to
Lender to any Person other than Lender, except pursuant to a Take-Out
Commitment; or

     (d)   Grant, create, incur, permit or suffer to exist any Lien upon any
Mortgage Collateral except for Liens granted to Lender to secure the Note and
Obligations and such non-consensual Liens as may be deemed to arise as a matter
of law pursuant to any Take-Out Commitment.

     VI.9  Transactions with Affiliates. Borrower shall not enter into any
transactions including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transactions are otherwise permitted under this Agreement, are in the
ordinary course of Borrower's business and are upon fair and reasonable terms no
less favorable to Borrower than it would obtain in a comparable arm's length
transaction with a Person not an Affiliate.

     VI.10 Liens. No Related Person shall grant, create, incur, assume, permit
or suffer to exist any Lien, upon any of its Property, including without
limitation any and all of Borrower's Mortgage Note, and Servicing Rights and the
proceeds from any thereof, other than (a) Liens which secure payment of the
Obligations, (b) Liens on Borrower's Mortgage Notes and Servicing Rights which
secure Permitted Warehouse Facilities and are not part of the Collateral, and
(c) to the extent not otherwise prohibited hereunder, Liens which secure payment
of the Indebtedness described in Section 6.2(b) or Section 6.2(d) on Property
other than Collateral.

                                       28



     VI.11 ERISA Plans. No Related Person shall adopt or agree to maintain or
contribute to any ERISA Plan. Borrower shall promptly notify Lender in writing
in the event an ERISA Affiliate adopts an ERISA Plan.

     VI.12 Change of Principal Office. No Related Person shall move its
principal office, executive office or principal place of business from the
address set forth in Section 9.1 without prior written notice to Lender.

     VI.13 Tangible Net Worth. As of the end of each calendar month, the
Consolidated Tangible Net Worth of Borrower shall not be less than $10,000,000.

     VI.14 Total Debt to Tangible Net Worth Ratio. As of the end of any Fiscal
Quarter, the ratio of the Consolidated Indebtedness of Borrower to the
Consolidated Tangible Net Worth of Borrower shall not exceed 10.0 to 1.0.

     VI.15 Profitability. As of the end of each Fiscal Quarter, Borrower's
Consolidated net income for the immediately preceding two Fiscal Quarters shall
be a positive number equal to or greater than $1.

     VI.16 Management Fees. No Related Person shall pay management fees to any
of its Affiliates, except that each Related Person may pay the reasonably
allocated costs of services provided by Parent.

                                      VII

                                EVENTS OF DEFAULT

     VII.1 Nature of Event. An Event of Default shall exist if any one or more
of the following occurs:

     (a)   Borrower fails to make any payment of principal of or interest on the
Note, or payment of any fee, expense or other amount due hereunder, under the
Note, or under any other Loan Document, on or before the date such payment is
due;

     (b)   Default is made in the due observance or performance by any Related
Person of any covenant set forth in Article V of this Agreement (other than
Section 5.9) and such Default continues for a period of fifteen (15) days after
Lender gives Borrower notice thereof;

     (c)   Default is made in the due observance or performance by any Related
Person of any of the covenants or agreements contained in this Agreement other
than those described in subsections (a) or (b) immediately above;

     (d)   Any Related Person defaults in the due observance or performance or
any of the covenants or agreements contained in any other Loan Document to which
it is a party, and (unless such default otherwise constitutes a Default pursuant
to other provisions of this Section 7.1) such default continues unremedied
beyond the expiration of any applicable grace period which may be expressly
allowed under such other Loan Document;

     (e)   Any material statement, warranty or representation by or on behalf of
any Related Person contained in this Agreement, the Note or any other Loan
Document to which it is a party, or in any

                                       29



Borrowing Request, officer's certificate or other writing furnished in
connection with this Agreement, proves to have been incorrect or misleading in
any material respect as of the date made or deemed made;

     (f)  Any Related Person:

          (i)   suffers the entry against it of a judgment, decree or order for
     relief by a court of competent jurisdiction in an involuntary proceeding
     commenced under any applicable bankruptcy, insolvency or other similar law
     of any jurisdiction now or hereafter in effect, including the federal
     Bankruptcy Code, as from time to time amended, or has any such proceeding
     commenced against it which remains undismissed for a period of sixty (60)
     days; or

          (ii)  commences a voluntary case under any applicable bankruptcy,
     insolvency or similar law now or hereafter in effect, including the federal
     Bankruptcy Code, as from time to time amended; or applies for or consents
     to the entry of an order for relief in an involuntary case under any such
     law; or makes a general assignment for the benefit of creditors; or fails
     generally to pay (or admits in writing its inability to pay) its debts as
     such debts become due; or takes corporate or other action to authorize any
     of the foregoing; or

          (iii) suffers the appointment of or taking possession by a receiver,
     liquidator, assignee, custodian, trustee, sequestrator or similar official
     of all or a substantial part of its assets or of any part of the Mortgage
     Collateral in a proceeding brought against or initiated by it, and such
     appointment or taking possession is neither made ineffective nor discharged
     within sixty (60) days after the making thereof, or such appointment or
     taking possession is at any time consented to, requested by, or acquiesced
     to by it; or

          (iv)  suffers the entry against it of a final judgment for the payment
     of money in excess of $1,000,000 (not covered by insurance satisfactory to
     Lender in its discretion), unless the same is discharged within thirty (30)
     days after the date of entry thereof or an appeal or appropriate proceeding
     for review thereof is taken within such period and a stay of execution
     pending such appeal is obtained; or

          (v)   suffers a writ or warrant of attachment or any similar process
     to be issued by any court against all or any substantial part of its assets
     or any part of the Mortgage Collateral;

     (g)  Any Related Person fails to make when due or within any applicable
grace period any payment on any Indebtedness (other than the Obligations) with
an unpaid principal balance of over $3,000,000; or any event or condition occurs
under any provision contained in any agreement under which such obligation is
governed, evidenced or secured (or any other material breach or default under
such obligation or agreement occurs) if the effect thereof is to cause or permit
the holder or trustee of such obligation to cause such obligation to become due
prior to its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of any
Related Person with unpaid principal balances exceeding, in the aggregate,
$3,000,000;

     (h)  This Agreement, the Note or any other Loan Document shall for any
reason cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part as the result of any action initiated by any
Person other than Lender; or the validity or enforceability of any such document
shall be challenged or denied by any Person other than Lender other than by
reason of illegality;

                                       30



     (i)    Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Code in excess of $25,000 exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate, or
(ii) any Termination Event occurs with respect to any ERISA Plan and the then
current value of such ERISA Plan's benefits guaranteed under Title IV of ERISA
exceeds the then current value of such ERISA Plan's assets available for the
payment of such benefits by more than $10,000 (or in the case of a Termination
Event involving the withdrawal of a substantial employer, the withdrawing
employer's proportionate share of such excess exceeds such amount) or (iii) any
Related Person or any ERISA Affiliate withdraws from a multiemployer plan
resulting in liability under Title IV of ERISA of an amount in excess of $10,000
in the case of any Related Person or $100,000 in the case of any other ERISA
Affiliate; or

     (j)    A Change of Control occurs.

     VII.2  Default Remedies. Upon the occurrence and during the continuance of
an Event of Default, Lender may declare the Commitment to be terminated and/or
declare the entire principal and all interest accrued on the Note to be, and the
Note, together with all Obligations, shall thereupon become, forthwith due and
payable, without any presentment, demand, protest, notice of protest and
nonpayment, notice of acceleration or of intent to accelerate or other notice of
any kind, all of which hereby are expressly waived. Notwithstanding the
foregoing, if an Event of Default specified in Subsections 7.1 (f)(i), (ii) or
(iii) above occurs with respect to Borrower, the Commitment shall automatically
and immediately terminate and the Note and all other Obligations shall become
automatically and immediately due and payable, both as to principal and
interest, without any action by Lender and without presentment, demand, protest,
notice of protest and nonpayment, notice of acceleration or of intent to
accelerate, or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein, in the Note to the contrary notwithstanding.

                                      VIII

                                 INDEMNIFICATION

     VIII.1 Indemnification. Borrower agrees to indemnify Lender and each
director, officer, agent, attorney, employee, representative and Affiliate of
Lender (each an "Indemnified Party"), upon demand, from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this Section 8.1 collectively called "liabilities and costs") which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against
any Indemnified Party growing out of, resulting from or in any other way
associated with any of the Mortgage Collateral, the Loan Documents, and the
transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Related Person).

         THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
         LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR
         IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED
         IN WHOLE OR PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY SUCH
         INDEMNIFIED PARTY,

provided only that such indemnified party shall be not entitled under this
section to receive indemnification for that portion, if any, of any liabilities
and costs which is proximately caused by its own individual gross

                                       31



negligence or willful misconduct. All amounts payable by Borrower shall be
immediately due upon Lender's request for the payment thereof.

     VIII.2 Limitation of Liability. None of Lender, its directors, officers,
agents, attorneys, employees, representatives or affiliates shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement. THE FOREGOING EXCULPATION SHALL APPLY TO ANY NEGLIGENT ACT
OR OMISSION OF ANY KIND BY ANY SUCH PERSON, PROVIDED THAT SUCH PERSON SHALL BE
LIABLE FOR ITS OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

                                       IX

                                  MISCELLANEOUS

     IX.1   Notices. Any notice or request required or permitted to be given
under or in connection with this Agreement, the Note or the other Loan Documents
(except as may otherwise be expressly required therein) shall be in writing and
shall be mailed by first class or express mail, postage prepaid, or sent by
telex, telegram, telecopy or other similar form of rapid transmission, confirmed
by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission, or
personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered to the parties hereto at their
respective addresses as follows:

     Borrower:          Family Lending Services, Inc.
                        18581 Teller Avenue, Suite 100
                        Irvine, California  92612
                        Attention:  Richard Ambrose
                        FAX: 949.724.7888
                        TEL: 949.724.7805

     with a copy to:    Standard Pacific Corporation
                        15326 Alton Parkway
                        Irvine, California  92618
                        Attention:  Clay Halvorsen
                        FAX: 949.789.1609
                        TEL: 949.789.1600

     Lender:            Guaranty Bank
                        8333 Douglas Avenue
                        Dallas, Texas  75225
                        Attention:  Clay Carter
                        FAX: 214.360.1660
                        TEL: 214.360.1976

or at such other addresses or to such individual's or department's attention as
any party may have furnished the other party in writing. Any communication so
addressed and mailed shall be deemed to be given when so mailed, except that
Borrowing Requests, and communications related thereto shall not be effective
until actually received by Lender or Borrower, as the case may be; and any
notice so sent by rapid transmission shall be deemed to be given when receipt of
such transmission is acknowledged, and any communication so delivered in person
shall be deemed to be given when receipted for by, or actually received by, an
authorized officer of Borrower or Lender, as the case may be.

                                       32



     IX.2 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, the Security Instruments, the Note, or any other Loan Document, nor
consent to any departure by any Related Person from the terms thereof, shall in
any event be effective unless the same shall be in writing and signed by (i) if
such party is Borrower, by Borrower and (ii) if such party is Lender, by Lender.

     IX.3 CHOICE OF LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF TEXAS. ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED IN THE APPLICABLE
STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. THIS AGREEMENT IS PERFORMABLE IN
DALLAS COUNTY, TEXAS AND THE PARTIES HERETO WAIVE ANY RIGHT THEY MAY HAVE TO BE
SUED ELSEWHERE. THE PARTIES HERETO CONSENT TO PERSONAL JURISDICTION IN DALLAS
COUNTY, TEXAS. Section 346 of the Texas Finance Code (which regulates certain
revolving loan accounts and revolving triparty accounts) shall not apply to this
Agreement or the other Loan Documents.

     IX.4 Invalidity. In the event that any one or more of the provisions
contained in the Note, this Agreement or any other Loan Document shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of such document.

     IX.5 Survival of Agreements. All covenants and agreements herein and in any
other Loan Document not fully performed before the date hereof or the date
thereof, and all representations and warranties herein or therein, shall survive
until payment in full of the Obligations and termination of the Commitment.

     IX.6 Renewal, Extension or Rearrangement. All provisions of this Agreement
and of the other Loan Documents shall apply with equal force and effect to each
promissory note hereafter executed which in whole or in part represents a
renewal, extension for any period, increase or rearrangement of any part of the
Obligations originally represented by the Note or of any part of such other
Obligations.

     IX.7 Waivers. No course of dealing on the part of Lender, or any of its
officers, employees, consultants or agents, nor any failure or delay by Lender
with respect to exercising any right, power or privilege of Lender under the
Note, this Agreement or any other Loan Document shall operate as a waiver
thereof, except as otherwise provided in Section 9.2 hereof.

     IX.8 Cumulative Rights. The rights and remedies of Lender under the Note,
this Agreement, and any other Loan Document shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.

     IX.9 Limitation on Interest. Lender, each Related Person and any other
parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable Law from time to time in
effect. Neither each Related Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in

                                       33



conflict or apparent conflict herewith. Lender expressly disavows any intention
to charge or collect excessive unearned interest or finance charges in the event
the maturity of any Obligation is accelerated. If (a) the maturity of any
Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a
result any amounts held to constitute interest are determined to be in excess of
the legal maximum, or (c) Lender or any other holder of any or all of the
Obligations shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or all of the
Obligations to an amount in excess of that permitted to be charged by applicable
Law then in effect, then all such sums determined to constitute interest in
excess of such legal limit shall, without penalty, be promptly applied to reduce
the then outstanding principal of the related Obligations or, at Lender's or
such holder's option, promptly returned to each Related Person or the other
payor thereof upon such determination. In determining whether or not the
interest paid or payable, under any specific circumstance, exceeds the maximum
amount permitted under applicable Law, Lender and each Related Persons (and any
other payors thereof) shall to the greatest extent permitted under applicable
Law, (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) amortize, prorate, allocate, and spread the total amount of
interest throughout the entire contemplated term of the instruments evidencing
the Obligations in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to time in effect
under applicable Law in order to lawfully charge the maximum amount of interest
permitted under applicable Law. In the event applicable Law provides for an
interest ceiling under Section 303 of the Texas Finance Code, that ceiling shall
be the weekly ceiling.

     IX.10 Bank Accounts; Offset. To secure the repayment of the Obligations
each Related Person hereby grants to Lender and to each financial institution
which hereafter acquires a participation or other interest in the Loans or Note
(in this section called a "Participant") a security interest, a lien, and a
right of offset, each of which shall be in addition to all other interests,
liens, and rights of Lender or any Participant at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any and
all moneys, securities or other property (and the proceeds therefrom) of any
Related Person now or hereafter held or received by or in transit to Lender, any
Lender or Participant from or for the account of any Related Person, whether for
safekeeping, custody pledge, transmission, collection or otherwise, (b) any and
all deposits (general or special, time or demand, provisional or final) of any
Related Person with Lender or any Participant, and (c) any other credits and
claims of any Related Person at any time existing against Lender, any Lender or
Participant, including claims under certificates of deposit. Upon the occurrence
of any Default, each of Lender and Participants is hereby authorized to
foreclose upon, offset, appropriate, and apply, at any time and from time to
time, without notice to Borrower, any and all items hereinabove referred to
against the Obligations then due and payable.

     IX.11 Assignments, Participations.

     (a)   Assignments. Lender shall have the right to sell, assign or transfer
all or any part of Note, Loans and rights and the associated rights and
obligations under all Loan Documents to one or more financial institutions, with
minimum assets of $500,000,000, and the assignee, transferee or recipient shall
have, to the extent of such sale, assignment, or transfer, the same rights,
benefits and obligations of Lender. Within five (5) Business Days after any such
assignment, the assignee shall notify Borrower of the outstanding principal
balance of the Note payable to assignee and Borrower shall execute and deliver
to assignee a new Note evidencing such assignee's assigned Loans and, if the
assignor Lender has retained a portion of its Loans, replacement Note in the
principal amount of the Loans retained by the assignor Lender (such Note to be
in exchange for, but not in payment of, the Note held by such Lender).

                                       34



     (b)   Participations. Lender shall have the right to grant participations
in all or any part of the Note, Loans and the associated rights and obligations
under all Loan Documents to one or more financial institutions with minimum
assets of $500,000,000.

     (c)   Distribution of Information. It is understood and agreed that Lender
may provide to assignees and participants and prospective assignees and
participants financial information and reports and data concerning Borrower's
properties and operations which was provided to Lender pursuant to this
Agreement, so long as such actual or prospective Assignee or participant agrees
to hold all such information, reports, and data confidential pursuant to the
terms set forth in Section

     IX.12 Exhibits. The exhibits attached to this Agreement are incorporated
herein and shall be considered a part of this Agreement for the purposes stated
herein, except that in the event of any conflict between any of the provisions
of such exhibits and the provisions of this Agreement, the provisions of this
Agreement shall prevail.

     IX.13 Titles of Articles, Sections and Subsections. All titles or headings
to articles, sections, subsections or other divisions of this Agreement or the
exhibits hereto are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.

     IX.14 Confidentiality. Lender agrees to keep confidential any information
furnished or made available to it by any Related Person pursuant to this
Agreement that is marked confidential; provided that nothing herein shall
prevent Lender from disclosing such information (a) to any officer, director,
employee, agent, or advisor of Lender or Affiliate of Lender, (b) to any other
Person if reasonably incidental to the administration of the credit facility
provided herein, (c) as required by any law, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any tribunal, (f) that
is or becomes available to the public or that is or becomes available to Lender
other than as a result of a disclosure by Lender prohibited by this Agreement,
(g) in connection with any litigation to which such Lender or any of its
Affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any right or remedy under this Agreement or any other Loan Document,
and (i) subject to provisions substantially similar to those contained in this
section, to any actual or proposed participant or assignee.

     IX.15 Counterparts. This Agreement may be executed in counterparts, and it
shall not be necessary that the signatures of both of the parties hereto be
contained on any one counterpart hereof; each counterpart shall be deemed an
original, but all counterparts together shall constitute one and the same
instrument. This Agreement may be duly executed by facsimile or other electronic
transmission.

     IX.16 ENTIRE AGREEMENT. THE NOTE, THIS AGREEMENT, AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

     IX.17 Termination; Limited Survival. In its sole and absolute discretion
Borrower may at any time that no Obligations are owing elect in a notice
delivered to Lender to terminate this Agreement. Upon receipt by Lender of such
a notice, if no Obligations are then owing, this Agreement and all other Loan
Documents shall thereupon be terminated and the parties thereto released from
all prospective obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by any Person in
any Loan Documents, any Obligations, and any obligations which any Person may

                                       35



have to indemnify or compensate Lender shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrower,
Lender shall prepare and execute all necessary instruments to reflect and effect
such termination of the Loan Documents.

     IX.18 Joint and Several Liability. All obligations which are incurred by
two or more Related Persons shall be their joint and several obligations and
liabilities.

     IX.19 Disclosures. Lender may disclose to, and exchange and discuss with,
any other Person any information concerning the Collateral or Borrower or any
Subsidiary (whether received by Lender or any other Person) for the purpose of
(a) complying with Governmental Requirements or any legal proceedings, (b)
protecting or preserving the Collateral, (c) protecting, preserving, exercising
or enforcing any of their rights in, under or related to the Collateral or the
Loan Documents, (d) performing any of their obligations under or related to the
Loan Documents, or (e) consulting with respect to any of the foregoing matters.

     IX.20 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES, TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ITS RESPECTIVE RIGHTS TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND ANY OTHER LOAN DOCUMENTS.

     IX.21 CONSEQUENTIAL DAMAGES. NEITHER BORROWER, NOR LENDER SHALL HAVE ANY
LIABILITY WITH RESPECT TO, AND EACH SUCH PERSON HEREBY WAIVES, RELEASES AND
AGREES NOT TO SUE EACH OTHER SUCH PERSON FOR, ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY SUCH OTHER PERSON IN CONNECTION WITH ANY CLAIM
RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREIN.

                                       36



         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.


BORROWER:                         FAMILY LENDING SERVICES, INC.



                                  By:___________________________________________
                                     Name:
                                     Title:



LENDER:                           GUARANTY BANK



                                  By:___________________________________________
                                     Carolyn Eskridge
                                     Senior Vice President

EX-10.20

                                                                   Exhibit 10.20

________________________________________________________________________________


                    MORTGAGE LOAN PURCHASE AND SALE AGREEMENT

                                 by and between

                          FAMILY LENDING SERVICES, INC.

                                   as Seller,

                                       and

                                  GUARANTY BANK
                                    as Buyer

                       ___________________________________


                          Dated as of December 26, 2002

                       ___________________________________


                                   $30,000,000

________________________________________________________________________________



                                TABLE OF CONTENTS



                                                                                  Page
                                                                               
ARTICLE I     CERTAIN DEFINITIONS................................................    1

ARTICLE II    PURCHASE OF MORTGAGE LOANS.........................................    6
         Section 2.01   Purchase of Mortgage Loans...............................    6
         Section 2.02   Sale and Assignment......................................    8

ARTICLE III   REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE SELLER...........    8
         Section 3.01   Representations and Warranties of the Seller.............    8
         Section 3.02   Representations and Warranties Regarding Mortgage Loans..    9
         Section 3.03   Remedies Upon Breach.....................................   14
         Section 3.04   Indemnification..........................................   14

ARTICLE IV    CONDITIONS.........................................................   14
         Section 4.01   Conditions to Purchase...................................   14

ARTICLE V     COVENANTS OF THE SELLER............................................   16
         Section 5.01   Protection of Right, Title and Interest..................   16
         Section 5.02   Principal Executive Office...............................   16
         Section 5.03   Transfer Taxes...........................................   16
         Section 5.04   Costs and Expenses.......................................   16
         Section 5.05   Assignment of Mortgage Loans.............................   17
         Section 5.06   Seller's Records; Delivery of Financial Statements.......   17
         Section 5.07   Cooperation by the Seller................................   18

ARTICLE VI    INTERIM SERVICING OF THE MORTGAGE LOANS............................   18
         Section 6.01   Servicer Files...........................................   18
         Section 6.02   Interim Servicer Reports.................................   19
         Section 6.03   Collections..............................................   19
         Section 6.04   Termination of Interim Servicing Rights..................   19
         Section 6.05   Transfer to Successor Servicer...........................   20

ARTICLE VII   OPTIONAL REPURCHASE BY SELLER......................................   20
         Section 7.01   Terms of Repurchase......................................   20
         Section 7.02   Repurchase Procedures....................................   20
         Section 7.03   Shipment of Mortgage Documents...........................   21


                                        i



                                                                               
ARTICLE VIII  MISCELLANEOUS PROVISIONS..........................................  21
      Section 8.01      Obligations of the Seller...............................  21
      Section 8.02      Amendment...............................................  21
      Section 8.03      Waivers.................................................  21
      Section 8.04      Notices.................................................  21
      Section 8.05      Representations.........................................  22
      Section 8.06      Headings and Cross-References...........................  22
      Section 8.07      Governing Law...........................................  22
      Section 8.08      Counterparts............................................  22



SCHEDULE 1  SCHEDULE OF REQUIRED MORTGAGE DOCUMENTS
SCHEDULE 2  APPROVED TAKEOUT INVESTORS

EXHIBIT A   PURCHASE REQUEST AND ASSIGNMENT
EXHIBIT B   WAREHOUSE LENDER'S RELEASE
EXHIBIT C   SHIPPING REQUEST
EXHIBIT D   BAILEE LETTER
EXHIBIT E   BUYER'S REPURCHASE REQUEST

                                       ii



                    MORTGAGE LOAN PURCHASE AND SALE AGREEMENT

     This MORTGAGE LOAN PURCHASE AND SALE AGREEMENT is made as of this 26th day
of December, 2002, by and between FAMILY LENDING SERVICES, INC., a Delaware
corporation (the "Seller") and GUARANTY BANK, a federal savings bank (the
"Buyer").

     WHEREAS, the Seller has acquired and will acquire in the ordinary course of
business, certain Mortgage Loans, each secured by a lien granted by the related
Mortgagor in the Mortgaged Property financed thereby; and

     WHEREAS, the Seller and the Buyer wish to set forth the terms and
provisions pursuant to which the Mortgage Loans are to be absolutely sold by the
Seller to the Buyer on the Closing Dates;

     NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE I

                               CERTAIN DEFINITIONS

     As used in this Agreement, the following terms shall, unless the context
otherwise requires, have the following meanings (such meanings to be equally
applicable to the singular and plural forms of such terms and to the masculine,
feminine and neuter genders of such terms):

     "Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.

     "Agency" means any of FHA, FNMA, FHLMC, GNMA and VA.

     "Agreement" or "Purchase and Sale Agreement" means this Mortgage Loan
Purchase and Sale Agreement and all amendments and restatements hereof and
supplements hereto.

     "Approved Takeout Investor" means FNMA, FHLMC, GNMA and any other investor
listed on Schedule 2.



     "Business Day" means any day except Saturday, Sunday or other day on which
banks located in the city of New York, New York or the city of Dallas, Texas are
authorized or obligated by law or executive order to be closed and any day on
which the Buyer is authorized or obligated by law or executive order to be
closed.

     "Buyer" means Guaranty Bank, a federal savings bank, its successors and
assigns.

     "Buyer's Repurchase Request" means a request executed by the Buyer and
delivered to the Seller in substantially the form of Exhibit E.

     "Closing Date" means any day on which Mortgage Loans are sold by the Seller
to the Buyer.

     "Custodial Account" has the meaning assigned to it in Section 6.03.

     "Eligible Mortgage Loan "means a Mortgage Loan (a) which has been
designated for purchase hereunder by the Seller and the Buyer, (b) with respect
to which all of the Mortgage Documents have been delivered to the Buyer and are
accurate and complete and (c) with respect to which all of the representations
and warranties of the Seller set forth in Article III of this Agreement are
true, correct and complete.

     "Eurodollar Rate" means, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) appearing on the Bloomberg Eurorate
(or, if not available, any other nationally recognized trading screen reporting
on-line trading with Eurorates) at 10:00 a.m. (Dallas, Texas time) as the
Eurorates for deposits in dollars on that day for a period of one month. In the
event such rate ceases to be published, "Eurodollar Rate" shall mean a
comparable rate of interest reasonably selected by the Buyer.

     "Event of Insolvency" means, with respect to the Seller, (i) the filing of
a petition, commencing, or authorizing the commencement 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; (ii) seeking the
appointment of a receiver, trustee, custodian or similar official for the Seller
or the Parent or any substantial part of the property of the Seller or the
Parent, (iii) the appointment of a receiver, conservator, or manager for the
Seller or the Parent by any governmental agency or authority having the
jurisdiction to do so; (iv) the making or offering by the Seller or the Parent
of a concession with its creditors or a general assignment for the benefit of
creditors, (v) the admission by the Seller or the Parent of its inability to pay
its debts or discharge its obligations as they become due or mature; or (vi) 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 the Seller or of any of its Affiliates, or
shall have taken any action to displace the management of the Seller or of any
of its Affiliates or to curtail its authority in the conduct of the business of
the Seller or of any of its Affiliates.

                                       2



     "Expiration Date" means, with respect to any Takeout Commitment, the
expiration date thereof.

     "FHA" means the Federal Housing Administration, or any successor thereto.

     "FHLMC" means the Federal Home Loan Mortgage Corporation, or any successor
thereto.

     "FICO Score" means, on any date, and with respect to an obligor under a
Mortgage Note, the credit rating score for such obligor on such date calculated
in accordance with the procedures of Fair, Isaac and Company, Inc.

     "FNMA" means the Federal National Mortgage Association, or any successor
thereto.

     "GNMA" means the Government National Mortgage Association.

     "Market Value" at any time shall be determined by the Buyer, in its sole
discretion, based upon (a) information then available to the Buyer regarding
quotes to dealers for the purchase of mortgage notes similar to the Mortgage
Note that have been delivered to the Buyer pursuant to this Agreement or (b)
sales prices actually received by the Seller for mortgage notes sold by the
Seller during the immediately preceding thirty (30) day period similar to the
Mortgage Note that have been delivered to the Buyer pursuant to this Agreement.

     "Maximum Purchase Amount" means $30,000,000.

     "MERS" means Mortgage Electronic Registration, Inc., a Delaware
corporation, or any successor thereto.

     "MERS Agreement" means those agreements by and among Seller, Buyer, MERS
and MERSCORP, Inc., as amended, modified, supplemented, extended, restated or
replaced from time to time.

     "MERS(R) System" means the system of recording transfers of mortgages
electronically maintained by MERS.

     "MIN" means, with respect to each Mortgage Loan, the Mortgage
Identification Number for such Mortgage Loan registered with MERS on the MERS(R)
System.

     "MOM Loan" means, with respect to any Mortgage Loan, MERS acting as the
mortgagee of such Mortgage Loan, solely as nominee for the originator or Seller,
as the case may be, of such Mortgage Loan and its successors and assignees.

     "Monthly Payment" means a scheduled monthly payment of principal and
interest on a Mortgage Loan.

                                       3



     "Mortgage" means the trust deed, mortgage, deed of trust, or other
instrument creating a lien on real property securing a Mortgage Note.

     "Mortgage Documents" means, with respect to each Mortgage Loan, the
documents and other items described on Schedule 1 hereto relating to such
Mortgage Loan.

     "Mortgaged Property" means, with respect to any Mortgage Loan, the property
covered by the Mortgage securing such Mortgage Loan.

     "Mortgage Loan" means a mortgage loan made to an individual person that is
not a construction or non-residential commercial loan, is evidenced by a valid
promissory note, and is secured by a Mortgage that grants a perfected
first-priority lien on the residential-real property.

     "Mortgage Loan Schedule" means a schedule in a form acceptable to the Buyer
setting forth, at a minimum, the following information concerning each Mortgage
Loan described thereon: loan number, Mortgagor's name, address of the Mortgaged
Property, original amount of Mortgage Note, date of Mortgage Note, coupon rate,
name of originator, and Approved Takeout Investor.

     "Mortgage Note" means a promissory note evidencing the indebtedness of a
Mortgagor under a Mortgage Loan.

     "Mortgagor" means the current and unreleased obligor(s) on a Mortgage Note.

     "Parent" means Standard Pacific Corporation, a Delaware corporation.

     "Pass-Through Rate" means the Eurodollar Rate plus 0.825% per annum.

     "Purchase Price" means with respect to each Mortgage Loan purchased by the
Buyer on a Closing Date, the amount equal to ninety-eight percent (98 %) of the
least of the following:

          (a) the outstanding principal balance of such Mortgage Loan;

          (b) the actual out-of-pocket cost to the Seller of such Mortgage Loan
     minus the amount of principal paid to Seller under such Mortgage Loan as of
     the Closing Date;

          (c) the Trade Price under the applicable Takeout Commitment, not to
     exceed 100% of the original principal balance of such Mortgage Loan; or

          (d) the Market Value of such Mortgage Loan,

(calculated by 3:00p.m. Dallas, Texas time on the Closing Date with respect to
the Mortgage Loans to be purchased on such Closing Date.

                                       4



     "Purchase Request and Assignment" means a request by the Seller for the
purchase of Mortgage Loans by the Buyer and Assignment thereof made in the form
of Exhibit A.

     "Repurchase Date" means (i) with respect to any Seller Repurchase Request,
the date specified in such Seller Repurchase Request with respect to the
Mortgage Loans described therein and (ii) with respect to any Buyer Repurchase
Request the date specified in such Buyer Repurchase Request.

     "Repurchase Price" means for any Mortgage Loan repurchased by the Seller
hereunder, an amount equal to the Purchase Price paid by the Buyer for such
Mortgage Loan plus accrued and unpaid interest on such Mortgage Loan at the
Pass-Through Rate from the Closing Date for the purchase of such Mortgage Loan
by the Buyer through the date prior to the repurchase date, both inclusive, less
all payments of principal of and interest on such Mortgage Loan received by the
Buyer during such period, (calculated as of the date of repurchase and delivered
to the Buyer by the Seller by 9:00 a.m. Dallas, Texas time on such date) and
agreed to by the Buyer.

     "Sale Agreement" means the agreement providing for the purchase by an
Approved Takeout Investor of Mortgage Loans from the Seller.

     "Seller" means Family Lending Services, Inc., a Delaware corporation, its
successors and assigns.

     "Seller Repurchase Request" means a request by the Seller delivered to the
Buyer in written or electronic form describing the date repurchase is to be made
and the Mortgage Loans to be repurchased.

     "Servicer Files" means, with respect to any Mortgage Loan, all Mortgage
Loan papers and documents required to be maintained pursuant to the Sale
Agreement and all other papers and records of whatever kind or description,
whether developed or originated by the Seller or others, required to document or
service the Mortgage Loan, excluding the Mortgage Documents.

     "Settlement Date" means, with respect to any Mortgage Loan, the date of
payment of the Takeout Proceeds by an Approved Takeout Investor to the Buyer on
behalf of the Seller.

     "Shipping Request" means a request to ship Mortgage Loans executed and
delivered by the Seller in the form of Exhibit C.

     "Successor Servicer" means an entity designated by the Buyer, with notice
provided in conformity with Section 6.04, to replace the Seller as servicer of
the Mortgage Loans.

     "Takeout Commitment" means a written commitment of an Approved Takeout
Investor to purchase a Mortgage Loan on terms satisfactory to the Buyer.

     "Takeout Proceeds" means, with respect to any Mortgage Loan, the related
Trade Principal plus accrued interest as calculated in accordance with Section
2.01(d).

                                       5



     "Third Party Underwriter" means any third party, including but not limited
to a mortgage loan pool insurer, who underwrites a Mortgage Loan prior to the
purchase thereof by the Buyer.

     "Third Party Underwriter's Certificate" means a certificate issued by a
Third Party Underwriter with respect to a Mortgage Loan, certifying that such
Mortgage Loan complies with its underwriting requirements.

     "Trade Price" means the trade price set forth on a Takeout Commitment.

     "Trade Principal" means, with respect to any Mortgage Loan, the aggregate
outstanding principal balance of such Mortgage Loan, multiplied by a percentage
equal to the Trade Price.

     "Transfer Taxes" means any tax, fee or governmental charge payable by the
Seller or the Buyer to any federal, state or local government attributable to
the assignment of a Mortgage Loan.

     "VA" means the Veteran's Administration, or any successor thereto.

                                   ARTICLE II

                     PURCHASE OF MORTGAGE LOANS AND SALE TO
                            APPROVED TAKEOUT INVESTOR

     Section 2.1 Purchase of Mortgage Loans. Subject to the terms and conditions
of this Agreement, the Seller may, in its sole discretion, offer to sell to the
Buyer, and the Buyer may, in its sole discretion, agree to purchase from the
Seller, Mortgage Loans and the Mortgage Documents relating thereto on the terms
and conditions set forth herein, provided that in no event shall the aggregate
outstanding principal balance of all Mortgaged Loans which have been purchased
by the Buyer under this Agreement and which the Buyer continues to own exceed
the Maximum Purchase Amount at any time.

     (a) Procedures for Purchase of Mortgage Loans. The Seller may request that
the Buyer purchase Mortgage Loans by delivering to the Buyer a Purchase Request
and Assignment and the Mortgage Documents relating to the Mortgage Loans
described in such Purchase Request and Assignment, no later than 10:00 a.m. two
(2) Business Days prior to the requested Closing Date. Each Purchase Request and
Assignment must be for Mortgage Loans having an aggregate outstanding principal
balance equal to or greater than $100,000 and no more than one Purchase Request
and Assignment may be made on any Business Day. The Buyer shall notify the
Seller whether or not the Buyer agrees to purchase such Mortgage Loans which
constitute Eligible Mortgage Loans) by 3:00 p.m. on the requested Closing Date.
Notwithstanding any other provision of this Agreement, the Seller understands
that the Buyer's consideration of any such Purchase Request and Assignment
constitutes an independent decision which the Buyer retains the absolute and
unfettered discretion to make and that no commitment to make any purchase is
hereby given by the Buyer. In the event that any Mortgage Documents

                                        6



delivered by the Seller to the Buyer for purchase hereunder are not purchased by
the Seller within ten (10) Business Days after the date of delivery thereof to
the Buyer, the Buyer shall promptly return such Mortgage Documents to the Seller
at the Seller's expense.

     (b) Purchase Price. If the Buyer agrees to purchase the Eligible Mortgage
Loans described in any Purchase Request and Assignment, then in consideration of
the sale by the Seller to the Buyer of such Mortgage Loans and the transfer of
the Mortgage Documents relating thereto, the Buyer shall, on the Closing Date,
pay or cause to be paid to the Seller the Purchase Price therefor in the form of
cash by federal wire transfer (same day) funds, and simultaneously with such
payment, the Seller hereby sells, assigns and transfers to the Buyer, (i) the
Eligible Mortgage Loans listed on the Mortgage Loan Schedule attached to the
Purchase Request and Assignment delivered on such Closing Date and all Monthly
Payments received thereon after such Closing Date, (ii) all Mortgage Documents
related to those Mortgage Loans, (iii) all rights of the Seller in, to and under
those Mortgage Loans and Mortgage Documents, including, without limitation, the
right to receive principal, interest and all other payments with respect thereto
and all rights under related title and hazard insurance policies, all escrow and
other amounts held by the Seller in connection therewith, and all rights to
service those Mortgage Loans, (iv) all rights of the Seller in, to and under the
real property and improvements thereon securing those Mortgage Loans, including,
without limitation, all rights of the Seller as mortgagee with respect to such
real property and improvements, and (v) all purchase agreements, credit
agreements or other agreements pursuant to which the Seller or any Affiliate of
the Seller acquired such Mortgage Loans and Mortgage Documents and all
promissory notes, security agreements and other instruments and documents
executed by the Seller or any Affiliate of the Seller pursuant thereto or in
connection therewith, insofar as such agreements, instruments and documents
relate to such Mortgage Loans and Mortgage Documents.

     (c) Takeout Commitment. By the Closing Date for each Mortgage Loan, the
Seller shall deliver to the Buyer a copy of a written or electronic notice from
the Approved Takeout Investor holding the Takeout Commitment for such Mortgage
Loan stating either that such Mortgage Loan is eligible for purchase under such
Takeout Commitment or that such Mortgage Loan is not eligible for purchase
thereunder and further stating the reasons for such ineligibility. The Seller
has not and will not take any action, or fail to act where action is required,
the result of which would be to impair any Takeout Commitment. The Seller shall
notify and provide the Buyer with copies of any changes made to any Sale
Agreement or any other correspondence agreements between the Seller and any
Approved Takeout Investor within two (2) Business Days of such change.

     (d) Set-Off. In addition to any rights and remedies of the Buyer provided
by this Agreement and by law, the Buyer shall have the right, without prior
notice to the Seller, any such notice being expressly waived by the Seller to
the extent permitted by applicable law, upon any amount becoming due and payable
by Seller hereunder to set-off and appropriate and apply against such amount any
and all Property and 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 the Buyer or any Affiliate
thereof to or for the credit or the account

                                       7



of the Seller. The exercise of any such right of set-off shall be without
prejudice to the Buyer's right to recover any deficiency.

     Section 2.2 Sale and Assignment. It is the intention of the Seller and the
Buyer that each assignment, transfer and conveyance hereunder constitute a sale
and assignment of the Mortgage Documents from the Seller to the Buyer. If,
notwithstanding the express intention of the parties, this Agreement is deemed
not to constitute a sale, conveyance and assignment of the Mortgage Documents
from the Seller to the Buyer, this Agreement shall be deemed to be a security
agreement within the meaning of Article 8 and Article 9 of the Uniform
Commercial Code as in effect in the State of Texas and the conveyance provided
for in this Section 2.02 shall be deemed to be a grant by the Seller to the
Buyer of a valid first priority perfected security interest in all of the
Seller's right, title and interest in and to the Mortgage Documents to secure
all obligations of the Seller to the Buyer hereunder. The Buyer does not assume
and shall not be liable for any of the Seller's liabilities, duties, or
obligations under or in connection with the Takeout Commitments.

                                   ARTICLE III

                        REPRESENTATIONS, WARRANTIES, AND
                             COVENANTS OF THE SELLER

     Section 3.1 Representations and Warranties of the Seller: The Seller hereby
represents, warrants and covenants that:

          (a) Seller and Originators. The Seller is duly organized, validly
     existing and in good standing under the laws of the jurisdiction in which
     it was incorporated or organized, and has all licenses, registrations and
     certifications necessary to carry on its mortgage lending business. The
     Seller is not operating under any type of agreement or order (including,
     without limitation, a supervisory agreement, memorandum of understanding,
     cease and desist order, capital or supervisory directive, or consent
     decree) with or by the Office of Thrift Supervision, the Federal Deposit
     Insurance Corporation, the Office of the Comptroller of the Currency or any
     other applicable regulatory authority, and the Seller is in compliance with
     any and all capital, leverage and other financial requirements imposed by
     any applicable regulatory authority.

          (b) Authority. The Seller has the full corporate or partnership (as
     the case may be) power and authority to execute and deliver all agreements,
     contracts, commitments, issuances of checks or drafts, or other papers
     related to conducting business with the Buyer and to perform in accordance
     with each of the terms hereof, and to enter into and consummate all
     transactions contemplated hereby. The Seller has duly authorized and
     completed the execution, delivery and performance of this Agreement. This
     Agreement constitutes a legal, valid and binding obligation of the Seller,
     enforceable in accordance with their respective terms. The Seller is a FNMA
     and FHLMC approved lender in good standing. The Seller has obtained all
     licenses and effected all registrations required under

                                       8



     all applicable local, state and federal laws, regulations and orders by
     virtue of any of the activities conducted, or property owned, by it.

          (c) Ordinary Course of Business. The consummation of the transactions
     contemplated by this Agreement is in the ordinary course of business of the
     Seller, and the transfer, assignment and conveyance of each Mortgage Note
     and related Mortgage Documents by the Seller pursuant to this Agreement is
     not subject to the bulk transfer laws or any similar statutory provisions
     in effect in any applicable jurisdiction.

          (d) No Conflicts. Neither the execution and delivery of this
     Agreement, the acquisition and/or making of each Mortgage Loan by the
     Seller, the sale of each Mortgage Loan to the Buyer, the consummation of
     the transactions contemplated thereby nor the fulfilment of or compliance
     with the terms and conditions of this Agreement will conflict with or
     result in a breach of any of the terms, conditions or provisions of the
     Seller's articles of incorporation, charter, by-laws, partnership agreement
     or other organizational document, or of any legal restriction or regulatory
     directive or any agreement or instrument to which the Seller is now a party
     or by which it is bound, or constitute a default or result in an
     acceleration under any of the foregoing, or result in the violation of any
     law, rule, regulation, order, judgment or decree to which the Seller or any
     of its property is subject.

          (e) No Consent Required. No consent, approval, authorization, order or
     review by or on behalf of any person, entity, court, authority or agency,
     governmental or otherwise, is required for the execution and performance by
     the Seller of, or compliance by the Seller with, this Agreement.

          (f) No Litigation Pending. There is no action, suit, proceeding,
     inquiry, review, audit or investigation pending or, to the Seller's
     knowledge, threatened against the Seller (i) that could have any material
     adverse impact on the Seller's business, operations, license, financial
     condition or general prospects, (ii) which would draw into question the
     validity of the Mortgage Loan or enforceability of the Mortgage Documents,
     or (iii) which would be likely to materially impair the ability of the
     Seller to perform its obligations under this Agreement.

     Section 3.2 Representations and Warranties Regarding Mortgage Loans: The
Seller hereby represents, warrants and covenants as to each Mortgage Loan sold
hereunder, as of the date herein below specified or, if no such date is
specified, then as of the applicable Closing Date that:

          (a) As of the Closing Date, the Seller has good title to, and is the
     sole owner of, such Loan delivered and sold to the Buyer. The assignment of
     the Mortgage Loan by the Seller validly transfers such Mortgage Loan to the
     Buyer free and clear of any pledge, lien, equity, charge, claim or security
     interest, or any other encumbrance. The sale and transfer of each Mortgage
     Loan to the Buyer do not violate any applicable state laws. To the extent
     that any applicable state law places any restrictions on the transfer of
     any

                                       9



     Mortgage Loan, the Seller has notified the Buyer in writing of that
     restriction and any related state licensing or registration requirements.

          (b) The origination and servicing of each Mortgage Loan have been in
     all respects legal, proper, prudent and customary, and have conformed to
     customary standards of the residential mortgage origination and servicing
     business.

          (c) All parties which have had any interest in the Mortgage Documents,
     whether as mortgagee, assignee, pledgee or otherwise, are (or, during the
     period in which they held and disposed of such interest, were) (i) in
     compliance with any and all applicable licensing requirements of the laws
     of the state wherein the Mortgaged Property is located, and (ii) organized
     under the laws of such state, or qualified to do business in such state, or
     federal savings and Mortgage Loan associations or national banks having
     principal offices in such state, or not doing business in such state so as
     to require qualification as a foreign corporation in order to use the
     courts of such state to enforce the Mortgage Documents.

          (d) Except as otherwise disclosed in writing to the Buyer prior to the
     registration with the Buyer of any Mortgage Loans, the Seller has not dealt
     with any broker, investment banker, agent or other person or entity, except
     for the Buyer, who may be entitled to any commission or compensation from
     the Seller in connection with the sale of any Mortgage Loans.

          (e) Each of the Mortgage Loans delivered and sold to the Buyer has
     been underwritten in accordance with Agency guidelines and/or has met all
     applicable requirements for sale to the applicable Approved Takeout
     Investor.

          (f) The sale of the Mortgage Loan is not subject to any right of
     rescission, set-off, counterclaim or defense, including the defense of
     usury, nor will the operation of any of the terms of this Agreement, or the
     exercise of any right hereunder, render the sale unenforceable, in whole or
     in part, or subject to any right of rescission, set off, counterclaim or
     defense, and no such right of rescission, set off, counterclaim or defense
     has been asserted with respect thereto.

          (g) Each Mortgage Document contains customary and enforceable
     provisions which render the rights and remedies of the holder adequate to
     the benefits of the security against the Mortgaged Property, including: (i)
     in the case of a Mortgage Documents designed as a deed of trust, by
     trustee's sale, (ii) by summary foreclosure, if available under applicable
     law, and (iii) otherwise by foreclosure, and there are no homestead or
     other exemptions of dower, curtesy or other rights or interests available
     to the Mortgagor or the Mortgagor's spouse, survivors or estate, or any
     other person or entity that would, or could, interfere with such right to
     sell at a trustee's sale or right to foreclose. Unless applicable law
     provides otherwise, to the extent necessary to protect the interests of the
     holder of the Mortgage Note and the Mortgage Documents, both spouses shall
     be

                                       10



     signatories on, and jointly and severally liable under, the Mortgage Note
     and the Mortgage Documents.

          (h) Such Mortgage Loan is a binding and valid obligation of the
     Mortgagor thereon, in full force and effect and enforceable in accordance
     with its terms, except as enforceability may be limited by bankruptcy,
     insolvency, reorganization or other similar terms affecting creditor's
     rights in general and by general principles of equity;

          (i) Such Mortgage Loan is genuine in all respects as appearing on its
     face and as represented in the books and records of the Seller, and all
     information set forth therein is true and correct;

          (j) Such Mortgage Loan is free of any default (other than as permitted
     by subparagraph (k) below) of any party thereto (including the Seller),
     counterclaims, offsets and defenses, including the defense of usury, and
     from any rescission, cancellation or avoidance, and all right thereof,
     whether by operation of law or otherwise;

          (k) No more than thirty (30) calendar days have elapsed since the date
     of the Mortgage Note evidencing such Mortgage Loan, and no Monthly Payment
     is more than thirty (30) calendar days past due;

          (l) Such Mortgage Loan contains the entire agreement of the parties
     thereto with respect to the subject matter thereof, has not been modified
     or amended in any respect not expressed in writing therein and is free of
     concessions or understandings with the Mortgagor thereon of any kind not
     expressed in writing therein;

          (m) All advance payments and other deposits on such Mortgage Loan have
     been paid in cash, and no part of said sums has been loaned, directly or
     indirectly, by the Seller to the Mortgagor, and, other than as disclosed to
     the Buyer in writing, there have been no prepayments;

          (n) Such Mortgage Loan matures within thirty (30) years after such
     date of origination;

          (o) At all times such Mortgage Loan will be free and clear of all
     Liens;

          (p) The Mortgaged Property covered by such Mortgage Loan is insured
     against loss or damage by fire and all other hazards normally included
     within standard extended coverage in accordance with the provisions of such
     Mortgage Loan with the originator named as a loss payee thereon;

          (q) Such Mortgage Loan is secured by a first lien on Mortgaged
     Property consisting of a completed one-to-four unit single family residence
     which is not used for commercial purposes and which is not a construction
     loan;

                                       11



          (r) There are no delinquent taxes, insurance premiums, water, sewer
     and municipal charges, governmental assessments or any other outstanding
     charges affecting the Mortgaged Property.

          (s) Each Mortgage Loan has been closed and fully disbursed and there
     is no requirement for future advances thereunder, and any and all
     requirements as to completion of any on-site or off-site improvements and
     as to disbursements of any escrow funds therefor have been complied with.

          (t) Additionally, the Seller warrants that the Seller has not made
     arrangements with any Mortgagor for any payment forbearance or future
     refinancing with respect to any Mortgage Loan except to the extent provided
     in the related Mortgage or the Mortgage Note.

          (u) With respect to each deed of trust, a trustee duly qualified under
     applicable law to serve as such is properly named, designated and serving.

          (v) Except in connection with a trustee's sale after default by the
     Mortgagor, no fees or expenses are or will become payable by the Seller or
     the Buyer to the trustee under any deed of trust.

          (w) The application for each Mortgage Loan was taken from the
     Mortgagor and each Mortgage Loan was made in compliance with, and is
     enforceable under all applicable local, state and federal laws, regulations
     and orders in all material respects (including, but not limited to, state
     usury laws, federal Equal Credit Opportunity and Fair Credit Reporting
     Acts, the Real Estate Settlement Procedures Act, and the federal
     Truth-in-Lending Act and Regulation Z thereunder), and neither the transfer
     of any interest in any Mortgage Loan to the Buyer nor any other act
     provided for in this Agreement will involve the violation of any such law,
     regulation or order. This warranty is made to the best knowledge of the
     Seller with respect each Mortgage Loan originated by an entity other than
     the Seller or any of its Affiliates. The Seller further warrants that the
     funds utilized by the Mortgagor in the purchase of the Mortgaged Property
     and in obtaining a Mortgage Loan relating thereto were not obtained or in
     any way related to illegal gambling or to the use of or trafficking in
     illegal drugs.

          (x) A commitment or policy for title insurance, in the form and amount
     required by this Agreement, was effective as of the closing of each Loan,
     is valid and binding, and remains in full force and effect. No claims have
     been made under such title insurance policy and no holder of the related
     mortgage, including the Seller, has done or omitted to do anything which
     would impair the coverage of such title insurance policy.

          (y) As to each Mortgage Loan secured by a Mortgaged Property located
     in Iowa, and if an American Land Title Association (ALTA) policy of title
     insurance has not been provided, an attorney's certificate, in the form and
     amount required by this

                                       12



     Agreement, duly delivered and effective as of the closing of each such
     Mortgage Loan, is valid and binding, and remains in full force and effect.

          (z)  If required by this Agreement, primary mortgage insurance has
     been obtained, the premium has been paid, and the mortgage insurance
     coverage is in full force and effect meeting the requirements of this
     Agreement.

          (aa) The improvements upon the Mortgaged Property are insured against
     loss by fire and other hazards as required by this Agreement, including
     flood insurance if required under the National Flood Insurance Act of 1968,
     as amended. The Mortgage Documents requires the Mortgagor to maintain such
     casualty insurance at the Mortgagor's cost and expense, and on the
     Mortgagor's failure to do so, authorizes the holder of the Mortgage
     Documents to obtain and maintain such insurance at the Mortgagor's cost and
     expense and to seek reimbursement therefor from the Mortgagor.

          (bb) The Mortgaged Property is free of damage and in good repair, and
     no notice of condemnation has been given with respect thereto and, to the
     Seller's knowledge, no circumstances exist involving the Mortgage
     Documents, the Mortgaged Property or the Mortgagor's credit standing that
     could: (i) cause investors to regard the Mortgage Loan as an unacceptable
     investment, (ii) cause the Mortgage Loan to become delinquent, or (iii)
     adversely affect the value or marketability of the Mortgaged Property or
     the Mortgage Loan. The Seller warrants that each Mortgaged Property is free
     from toxic materials or other environmental hazards. The Seller warrants
     compliance with local, state or federal laws or regulations designed to
     protect the health and safety of the occupants of the property.

          (cc) The Mortgaged Property is lawfully occupied under applicable law
     and all inspections, licenses and certificates required to be made or
     issued with respect to all occupied portions of the Mortgaged Property, or
     with respect to the use and occupancy of the same (including, without
     limitation, certificates of occupancy and fire underwriting certificates),
     have been made or obtained by the Seller from the appropriate authorities.

          (dd) For each Mortgage Loan, Seller has obtained closing protection
     letters from the underwriter for the respective title insurance policy.

          (ee) The Mortgage Loan has been prudently originated and underwritten
     in compliance with all applicable requirements of this Agreement, (ii) the
     Seller's underwriting standards and procedures applicable to such Mortgage
     Loan and (iii) all applicable rules and guidelines. Any appraisal made with
     respect to any Mortgaged Property was made by an appraiser who is licensed
     or certified as appropriate under applicable state law and meets the
     minimum qualifications for appraisers as set forth in herein.

          (ff) No obligor under any Mortgage Loan is, to the Seller's actual
     knowledge, in bankruptcy, in litigation or in foreclosure.

                                       13



          (gg) Unless the Mortgage Loan is eligible under Agency guidelines, it
     has a FICO Score of at least 650.

     Section 3.3 Remedies Upon Breach.

          (a)    If discovery is made by the Buyer or its agent or the Seller at
     anytime during the life of any Mortgage Loan hereunder of an inaccuracy or
     a breach of any of the Seller's representations and warranties set forth
     herein, the party discovering such breach shall give prompt written notice
     of such breach to the other party. In such event, the Seller shall, within
     thirty (30) Business Days of its discovery or receipt of written notice by
     the Buyer, use its reasonable efforts to cure such inaccuracy or breach.

          (b)    If the Seller fails to cure an inaccuracy or breach within the
     thirty (30) day period set forth in Subparagraph (a) above, the Seller
     shall repurchase the affected Mortgage Loan from the Buyer within ten (10)
     Business Days after receipt of a Buyer's Repurchase Request by delivery of
     the Repurchase Price therefor to the Buyer in immediately available funds.

          (c)    With respect to any Mortgage Loan repurchased by the Seller
     pursuant to this Agreement, the Buyer shall assign, without recourse,
     representation or warranty, to the Seller all the Buyer's right, title and
     interest in and to such Mortgage Loan.

     Section 3.4 Indemnification. In addition to, and not in limitation of, the
provisions hereof, in the event that the Buyer determines at any time after the
initial Closing Date that the Seller has breached any of the representations,
warranties or covenants made by it in this Agreement, whether with respect to
any Mortgage Loan sold to the Buyer, itself or another matter, the Buyer shall
promptly notify the Seller, and the Seller shall, at its sole cost and expense,
promptly cure such breach in a manner acceptable to the Buyer, or if such breach
cannot be promptly so cured, indemnify, defend and hold harmless the Buyer, and
each of the Buyer's directors, officers, employees and agents, from and against
any and all liabilities, losses, claims, damages, costs or expenses (including
attorneys' fees and costs of litigation or defense), which may be suffered or
sustained by the Buyer, or asserted against the Buyer, based upon, arising out
of or as a result of the breach of any of the Seller's representations,
warranties or covenants contained in this Agreement.

                                   ARTICLE IV

                                   CONDITIONS

     Section 4.1 Conditions to Purchase. Any purchase of Mortgage Loans by the
Buyer is subject to the satisfaction of the following conditions:

          (a)    Representations and Warranties True. The representations and
     warranties of the Seller hereunder shall be true, correct and complete on
     each Closing Date, and the

                                       14



     Seller shall have performed all obligations to be performed by it hereunder
     on or prior to such Closing Date.

          (b) Files Marked; Files and Records Owned by the Buyer. The Seller
     shall, at its own expense, on or prior to each Closing Date, indicate in
     its files that the Mortgage Loans sold to the Buyer on such Closing Date
     have been absolutely assigned to the Buyer pursuant to this Agreement.
     Further, the Seller hereby agrees that the computer files and other
     physical records of the Mortgage Loans maintained by the Seller will bear
     an indication reflecting that the Mortgage Loans are owned by the Buyer.

          (c) Organizational Documents. Solely with respect to the initial
     Purchase or Mortgage Loans, the Seller shall have delivered to the Buyer a
     certificate of the Secretary or Assistant Secretary of Seller setting forth
     (i) resolutions of its board of directors authorizing the execution,
     delivery and performance of this Agreement and the other agreements
     contemplated to be executed by Seller in connection herewith and
     identifying the officers of Seller authorized to sign such instruments on
     its behalf, (ii) specimen signatures of the officers so authorized, (iii)
     Seller's certificate of incorporation certified by the appropriate
     Secretary of State as of a recent date, (iv) the bylaws of Seller,
     certified as being accurate and complete and (v) a certificate, dated no
     earlier than fifteen (15) days prior to the date hereof, of the existence
     and good standing of Seller in its state of organization.

          (d) Seller Assignment. As of each Closing Date, the Seller shall have
     executed and delivered to the Buyer a Purchase Request and Assignment
     substantially in the form of Exhibit A hereto covering the Mortgage Loans
     and Mortgage Documents being purchased by the Buyer on such Closing Date.

          (e) Warehouse Lender's Release. The Seller will deliver to the Buyer a
     Warehouse Lender's Release in the form of Exhibit B, duly executed by all
     Persons holding a lien, security interest or other encumbrance on the
     Mortgage Loans being purchased by the Buyer, except for liens, security
     interests and other encumbrances held by the Buyer.

          (f) MERS Agreement. The Seller shall have delivered to the Buyer a
     duly executed original of the MERS Agreement.

          (g) Other Documents. Such other documents as the Buyer may reasonably
     request, which shall not include, except in respect of the initial Closing
     Date, an opinion of counsel to the Seller unless otherwise agreed by the
     Seller.

          (h) Loan File Fee. A loan file fee in the amount of $20 for each
     Mortgage Loan submitted by the Seller to the Buyer, less the amount of any
     loan file fee previously paid by the Seller with respect to such Mortgage
     Loan.

                                       15




                                    ARTICLE V

                             COVENANTS OF THE SELLER

     The Seller agrees with the Buyer as follows:

     Section 5.1 Protection of Right, Title and Interest.

            (a)  Further Assurances. The Seller will, at its expense as from
     time to time requested by the Buyer, promptly execute and deliver all
     further instruments, agreements, filings and registrations, and take all
     further action, in order to confirm and validate this Agreement and the
     Buyer's rights and remedies hereunder, or to otherwise give the Buyer the
     full benefits of the rights and remedies described in or granted under this
     Agreement.

            (b)  Name Change. Within ten (10) Business Days after the Seller
     makes any change in its name, identity or corporate structure which would
     make any financing statement or continuation statement filed in accordance
     with paragraph (a) above seriously misleading within the applicable
     provisions of the UCC or any title statute, the Seller shall give the Buyer
     notice of any such change and no later than five (5) Business Days after
     the effective date thereof, and shall file such financing statements or
     amendments as may be necessary to continue the perfection of the Buyer's
     security interest in the Mortgage Documents.

     Section 5.2 Principal Executive Office. Since its inception, the Seller has
maintained and, from the date of this Agreement, shall maintain its principal
executive office in the State set forth in the Seller's address on the signature
page hereof.

     Section 5.3 Transfer Taxes. In the event that the Buyer receives actual
notice of any Transfer Taxes arising out of the transfer, assignment and
conveyance of the Mortgage Loans, on written demand by the Buyer or upon the
Seller's otherwise being given notice thereof by the Buyer, the Seller shall
pay, and otherwise indemnify and hold the Buyer harmless, on an after-tax basis,
from and against any and all such Transfer Taxes (it being understood that the
Buyer shall have no obligation to pay such Transfer Taxes).

     Section 5.4 Costs and Expenses. The Seller agrees to pay all reasonable
costs and out-of-pocket expenses in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement, the documents and
instruments executed and delivered in connection therewith (including but not
limited to the delivery of the Mortgage Documents by the Seller to the Buyer and
the delivery of the Mortgage Documents by the Buyer to the Seller upon any
repurchase of Mortgage Loans by the Seller), and any subsequent consents,
waivers or modifications thereof, (ii) the perfection, as against all third
parties, of the sale and assignment to the Buyer of the Seller's right, title
and interest in and to the Mortgage Loans, and (iii) the enforcement of the
obligations of the Seller under this Agreement, including but not limited to
reasonable attorneys' fees and disbursements.

                                       16



     Section 5.5 Assignment of Mortgage Loans. The Seller will take no action
inconsistent with the Buyer's ownership of the Mortgage Loans. If a third party,
including a potential buyer of the Mortgage Loans from the Buyer, should
inquire, the Seller will promptly indicate that ownership of the Mortgage Loans
has been absolutely assigned to the Buyer. If the Mortgage Loan is registered on
the MERS(R) System, the Seller shall enter the name of the buyer in the "interim
funder" category of such system with respect to such Mortgage Loan.

     Section 5.6 Seller's Records; Delivery of Financial Statements.

             (a) Seller's Records. This Agreement and all related documents
     describe the transfer of the Mortgage Loans from the Seller as a sale and
     assignment by the Seller to the Buyer and evidence the clear intention by
     the Seller to effectuate a sale and assignment of such Mortgage Loans.

             (b) Financial Statements. The Seller shall furnish to the Buyer the
     following, all in form and detail reasonably satisfactory to the Buyer:

                 (i)   Promptly after becoming available, and in any event
             within ninety (90) days after the close of each fiscal year of the
             Seller, the Seller's Consolidated balance sheet as of the end of
             such fiscal year, and the related Consolidated statements of
             income, stockholders' equity and cash flows of the Seller for such
             fiscal year, setting forth in each case in comparative form the
             corresponding figures for the preceding fiscal year, such financial
             statements shall be unqualified and shall be accompanied by the
             related report of independent certified public accountants
             acceptable to the Buyer which report shall be to the effect that
             such statements have been prepared in accordance with GAAP applied
             on a basis consistent with prior periods except for such changes in
             such principles with which the independent public accountants shall
             have concurred;

                 (ii)  Promptly after becoming available, and in any event
             within forty-five (45) days after the end of each calendar month,
             including the twelfth calendar month in each fiscal year of the
             Seller, a Consolidated balance sheet of the Seller as of the end of
             such month and the related Consolidated statements of income,
             stockholders' equity and cash flows of the Seller for such month
             and the period from the first day of the then current fiscal year
             of the Seller through the end of such month, certified by the chief
             financial officer or other executive officer of the Seller to have
             been prepared in accordance with GAAP applied on a basis consistent
             with prior periods (subject to normal year-end adjustments and the
             absence of footnotes);

                 (iii) Promptly upon receipt thereof, a copy of each other
             report submitted to the Seller by independent accountants in
             connection with any annual, interim or special audit of the books
             of the Seller; and

                                       17



                 (iv)  Such other information concerning the business,
             properties or financial condition of the Seller as the Buyer may
             reasonably request.

             (c) Promptly after receipt of an audit by any Agency, the Seller
     shall deliver to the Buyer a copy thereof.

     Section 5.7 Cooperation by the Seller.

             (a) Insurance and Guarantees. The Seller will cooperate fully and
     in a timely manner with the Buyer in connection with: (i) the filing of any
     claims with an insurer or guarantor or any agent of any insurer or
     guarantor under any insurance policy or guaranty affecting a Mortgagor or
     any of the Mortgaged Property; (ii) supplying any additional information as
     may be requested by the Buyer or any such agent or insurer in connection
     with the processing of any such claim; (iii) the execution or endorsement
     of any check or draft made payable to the Seller representing proceeds from
     any such claim and (iv) the sale of any Mortgage Loan under a Takeout
     Commitment. The Seller shall take all such actions as may be requested by
     the Buyer to protect the rights of the Buyer in and to any proceeds under
     any and all of the foregoing insurance policies. The Seller shall not take
     or cause to be taken any action which would impair the rights of the Buyer
     in and to any proceeds under any of the foregoing insurance policies.

             (b) Endorsement of Check and Delivery of Funds. The Seller shall,
     within one (1) Business Day of receipt thereof, endorse any check or draft
     payable to the Seller representing insurance proceeds and (i) in the event
     there are no other payees on such check or draft, deliver such check or
     draft to the Buyer and (ii) in the event such check or draft is also
     payable to the Buyer, forward, via overnight courier, such endorsed check
     or draft to the Buyer for endorsement and return. The Seller will hold in
     trust and remit to the Buyer, within one (1) Business Day of receipt
     thereof, any funds received with respect to the Mortgage Loans after the
     initial Closing Date.

                                   ARTICLE VI

                     INTERIM SERVICING OF THE MORTGAGE LOANS

     Section 6.1 Servicer Files. Upon payment of the Purchase Price for a
Mortgage Loan, the Buyer shall own all rights to service such Mortgage Loan, all
Servicer Files and Mortgage Documents for such Mortgage Loan and all derivative
information created by the Seller or other third party used or useful in
servicing such Mortgage Loan. The Seller (or a subservicer approved by the
Buyer) shall interim service and administer such Mortgage Loan on behalf of the
Buyer in accordance with prudent mortgage loan servicing standards and
procedures generally accepted by prudent lenders in the mortgage banking
industry and in accordance with the requirements of an Approved Takeout
Investors, provided that the Seller shall at all times comply with applicable
law and the terms of the related Mortgage Loan Documents, and the requirements
of any applicable insurer or guarantor including, without limitation, any Third
Party

                                       18



Underwriter, so that the insurance in respect of any Mortgage Loan is not voided
or reduced. The Seller shall at all times maintain accurate and complete records
of its interim servicing of each Mortgage Loan, and the Buyer may, at any time
during the Seller's business hours on reasonable notice, examine and make copies
of such records. At the request and in accordance with the directions of the
Buyer, the Seller shall deliver to the Buyer copies of any Servicer Files within
three (3) Business Days of such request by the Buyer. In addition, upon not less
than two (2) Business Days' notice to the Seller, the Buyer shall have the right
to perform a due diligence review of the Seller, including the Seller's
servicing capabilities.

     Section 6.2 Interim Servicer Reports. If any Mortgage Loans are not
purchased by an Approved Takeout Investor within thirty (30) days after the
respective Closing Date the Seller shall at the Buyer's request deliver to the
Buyer monthly reports regarding the status of such Mortgage Loans, which reports
shall include, but shall not be limited to, a description of any default which
has existed for more than thirty (30) calendar days, and such other
circumstances that could materially adversely affect any such Mortgage Loan, the
Buyer's ownership of any such Mortgage Loan or the collateral securing any such
Mortgage Loan. The Seller shall deliver such a report to the Buyer every thirty
(30) calendar days until the purchase by an Approved Takeout Investor of such
Mortgage Loans pursuant to the related Takeout Commitment.

     Section 6.3 Collections. The Buyer shall have the right to receive payments
of principal and interest on any and all Mortgage Loans purchased by the Buyer
hereunder if the Buyer so requests. Any such collections shall be deposited in a
segregated account of the Buyer. Following receipt by the Buyer or its designee
of the Takeout Proceeds for such Mortgage Loan from an Approved Takeout
Investor, amounts deposited in such segregated account related to such Mortgage
Loan that are not otherwise subject to setoff as provided hereunder shall be
released to the Seller. The amounts paid to the Seller (if any) pursuant to this
Section 6.03 shall constitute the Seller's sole compensation for interim
servicing the Mortgage Loans.

     Section 6.4 Termination of Interim Servicing Rights. The Seller's rights
and obligations to interim service each Mortgage Loan as provided in this
Agreement, shall terminate on the earlier of the related Settlement Date or the
date which is thirty (30) calendar days following the related Closing Date;
provided that, the Seller's rights and obligations to service such Mortgage Loan
shall be extended automatically unless notice to the contrary is given by the
Buyer to the Seller prior to the termination of the initial thirty-day period.
The Buyer may in its sole discretion further extend such thirty-day interim
servicing period by one or more additional thirty-day periods by providing
written notice to the Seller prior to the termination of such interim servicing
period. If an Event of Insolvency or any default hereunder by the Seller occurs
at any time, the Seller's rights and obligations to service the Mortgage
Loan(s), as provided in this Agreement, shall terminate immediately, without any
notice of action by the Buyer. Upon any such termination, the Buyer is hereby
authorized and empowered to sell and transfer such rights to service the
Mortgage Loan(s) for such price and on such terms and conditions as the Buyer
shall reasonably determine, and the Seller shall have no right to attempt to
sell or transfer such rights to service. The Seller shall perform all acts and
take all actions so that the Mortgage Loan(s) and all files and documents
relating to such Mortgage Loan held by the Seller, together with all escrow
amounts relating to such Mortgage Loan, are delivered to Successor Servicer. To

                                       19



the extent that the approval of any Third Party Underwriter or any other insurer
or guarantor is required for any such sale or transfer, the Seller shall fully
cooperate with the Buyer to obtain such approval. All amounts paid by the
purchaser of such rights to service the Mortgage Loan(s) shall be the property
of the Buyer.

     Section 6.5  Transfer to Successor Servicer. Each Mortgage Loan delivered
to the Buyer hereunder shall be delivered on a servicing released basis free of
any servicing rights in favor of the Seller and free of any title, interest,
lien, encumbrance or claim of any kind of the Seller and the Seller hereby
waives its right to assert any interest, lien, encumbrance or claim of any kind.
Upon transfer of such servicing rights to any Successor Servicer, the Seller
shall deliver or cause to be delivered all files and documents relating to each
Mortgage Loan held by the Seller to Successor Servicer. The Seller shall
promptly take such actions and furnish to the Buyer such documents that the
Buyer deems necessary or appropriate to enable the Buyer to cure any defect in
each such Mortgage Loan or to enforce such Mortgage Loans, as appropriate.

                                   ARTICLE VII

                          OPTIONAL REPURCHASE BY SELLER

     Section 7.01 Terms of Repurchase. So long as no breach of any of the
Seller's representations or warranties set forth herein shall be in existence,
and the Seller has otherwise complied with the terms and conditions hereof, the
Seller may repurchase Mortgage Loans any time and from time to time by
delivering to the Buyer a Seller's Repurchase Request at least one (1) Business
Day before the requested repurchase date (in this Article called the "Repurchase
Date") ; provided that any such repurchase shall include Mortgage Loans having
an aggregate Book Value of at least $50,000. Such repurchase shall be on a
whole-loan, servicing-released basis without recourse, representation or
warranty of the Buyer, at the Repurchase Price.

     Section 7.02 Repurchase Procedures. Upon receipt of a properly executed
Seller's Repurchase Request, the Buyer agrees to sell, assign and transfer to
the Seller the following (the "Repurchased Property"): (i) the Mortgage Loans
listed on the Seller Repurchase Request, (ii) all Mortgage Documents related to
those Mortgage Loans, (iii) all rights of the Buyer in, to and under those
Mortgage Loans and Mortgage Documents, including, without limitation, the right
to receive principal, interest and all other payments with respect thereto after
the Repurchase Date and all rights under related title and hazard insurance
policies, all escrow and other amounts held by the Buyer in connection
therewith, and all rights to service those Mortgage Loans, and (iv) all rights
of the Buyer in, to and under the real property and improvements thereon
securing those Mortgage Loans, including, without limitation, all rights of the
Buyer as mortgagee with respect to such real property and improvements provided
that the terms and conditions hereof are satisfied; provided that the Buyer
shall have the right to substitute for all or part of the Mortgage Loans listed
on the Seller Repurchase Request, other Mortgage Loans that in the aggregate
have substantially similar average outstanding principal balances, interest
rates and terms to maturity. Such repurchase shall be on a whole-loan,
servicing-released basis without recourse, representation or warranty of the
Buyer, at the Repurchase Price (in the case of any such

                                       20



substitution, adjusted as the Buyer and the Seller shall agree is necessary to
achieve the same economics that would have existed with respect to the
repurchase of the Mortgage Loans listed in the Seller Repurchase Request had no
such substitution occurred). Such sale shall be effective as of the Repurchase
Date upon receipt by the Buyer of the Repurchase Price in the form of cash by
federal wire transfer (same day) funds. To secure the Repurchase Price, the
Seller hereby grants to the Buyer a continuing security interest in the
Repurchased Property and all proceeds thereof. The Seller further agrees that
the Buyer shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code as adopted in the State of Texas with respect to such
security interest and that the failure to deliver the Repurchase Price to the
Buyer on the Repurchase Date shall constitute a default for purposes of such
security interest. The Buyer's security interest in the Repurchased Property
shall continue until the Buyer receives payment of the Repurchase Price in full
in an account acceptable to the Buyer. At such time such security interest shall
be released automatically and the Buyer shall execute any documents reasonably
requested by the Seller to evidence the release of such security interest.

     Section 7.03 Shipment of Mortgage Documents. Together with the delivery of
a Seller's Repurchase Request, the Seller may request that the Buyer ship
Mortgage Documents relating to the Repurchased Property to an Approved Takeout
Investor or its servicer or custodian for purchase. The Buyer shall ship such
Mortgage Documents to that Approved Takeout Investor or its servicer or
custodian under a Bailee Letter in the form attached hereto as Exhibit D.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

     Section 8.1  Obligations of the Seller. The obligations of the Seller under
this Agreement shall not be affected by reason of any invalidity, illegality or
irregularity of any Mortgage Loan.

     Section 8.2  Amendment. This Agreement may be amended, restated or
supplemented from time to time by a written agreement duly executed and
delivered by the Seller and the Buyer. The Seller shall deliver to the Persons
identified on a list provided to the Seller, as such list may be amended from
time to time, a copy of any amendment to this Agreement.

     Section 8.3  Waivers. No failure or delay on the part of the Buyer in
exercising any power, right or remedy under this Agreement or a Purchase Request
and Assignment shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or remedy preclude any other or
further exercise thereof or the exercise of any other power, right or remedy.
Any waiver of the terms and provisions hereof must be in writing and must be
consented to in writing by the Buyer.

     Section 8.4  Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered personally
or mailed by first-class registered or certified mail, postage prepaid, or by
electronic mail or facsimile transmission and overnight

                                       21



delivery service, postage prepaid, to any party at its address shown opposite
its signature on this Agreement or at such other address as may be designated by
it by notice to the other party and shall be deemed given when so delivered, or
if mailed. The Parties agree that electronic mail and fax transmissions shall be
treated as writings and signed documents if so indicated on the electronic mail
or if the facsimile is signed, and neither party hereto shall contest the
validity of any such communication on the grounds that it is not a writing or is
not signed.

     Section 8.5 Representations. The respective agreements, representations,
warranties and other statements by the Seller and the Buyer set forth in or made
pursuant to this Agreement shall remain in full force and effect and will
survive each Closing Date.

     Section 8.6 Headings and Cross-References. The various headings in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Agreement. References in this Agreement
to Section names or numbers are to such Sections of this Agreement.

     Section 8.7 Governing Law. This Agreement and the Purchase Request and
Assignment shall be governed by and construed in accordance with the internal
laws of the State of Texas.

     Section 8.8 Counterparts. This Agreement may be executed in two or more
counterparts and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.

            [The remainder of this page is intentionally left blank.]

                                       22



     IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
and year first written above.

Seller's Address:                 FAMILY LENDING SERVICES, INC., as the Seller
18581 Teller Avenue, Suite 100
Irvine, California 92612
                                        By: ____________________________________
                                            Name:
                                            Title:


Buyer's Address:                        GUARANTY BANK, as the Buyer

8333 Douglas Avenue
Dallas, Texas 75225                     By: ____________________________________
                                            Carolyn Eskridge
                                            Senior Vice President



                                                                      SCHEDULE 1

                     SCHEDULE OF REQUIRED MORTGAGE DOCUMENTS
                             FOR EACH MORTGAGE LOAN

     1.   original Mortgage Note executed in favor of the Seller or the
          originator who sold such Mortgage Note to the Seller (with a complete
          series of endorsements without recourse from the original payee
          thereof, through any subsequent holders to the Seller if purchased by
          the Seller and endorsed by an authorized signatory of the Seller in
          blank);

     2.   unless the Mortgage is registered on the MERS(R) System, an assignment
          of the Mortgage executed by the Seller in favor of the Buyer in
          recordable form, such assignment may be in the form of one or more
          blanket assignments covering Mortgage Loans located in the same
          county, if the Buyer so agrees;

     3.   if the Mortgage is registered on the MERS(R) System and noting the
          presence of a MIN, an assignment of the Mortgage executed by the
          Seller in favor of MERS in recordable form;

     4.   originals or copies of assignments from each holder of the Mortgage
          Loan to each subsequent assignee, if any, to complete the chain of
          record ownership of such Mortgage Loan to the Seller;

     5.   the original or a copy of the Mortgage, including all available
          Mortgage riders relating to the Mortgage Loan, noting the presence of
          the MIN of the Mortgage Loan and language indicating that the Mortgage
          Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with the
          recording information indicated thereon;

     6.   unless hedged to Buyer's reasonable satisfaction, a copy of an
          original, executed Takeout Commitment as to which the Expiration Date
          is less than thirty (30) calendar days following the Closing Date;

     7.   an approved takeout investor prior approval certificate or evidence of
          the Seller's designated underwriting authority (then delivered or
          already on file with the Purchaser) plus one of the following: (i)
          FNMA/FHLMC Form 1008 or a substitute therefor signed by the applicable
          underwriter for the Seller, (ii) Desk-top underwriter approval form
          (FNMA), (iii) loan prospector form (FHLMC) or (iv) third party
          underwriting approval;

     8.   either the complete FNMA Form 1003 or the first page of the form plus
          electronic HMDA file.



                                                                      SCHEDULE 2

                           APPROVED TAKEOUT INVESTORS



                                                                       EXHIBIT A

                         PURCHASE REQUEST AND ASSIGNMENT

The Buyer:     Guaranty Bank                             DATE:  ________, 200___

The Seller:    Family Lending Services, Inc.


     This Purchase Request and Assignment is delivered pursuant to the Mortgage
Loan Purchase and Sale Agreement (as renewed, extended, amended, or restated,
the "Purchase Agreement") dated as of December 26, 2002, between the Seller and
the Buyer. Terms defined in the Purchase Agreement have the same meanings when
used -- unless otherwise defined -- in this request.

     Pursuant to Section 2.01(a) of Purchase Agreement, the Seller requests that
the Buyer purchase from the Seller on the terms set forth in the Purchase
Agreement the Mortgage Loans described on the Mortgage Loan Schedule attached
hereto (the "Requested Purchase").

     Pursuant to Section 2.01(b) of the Purchase Agreement, the Seller hereby
assigns, transfers and otherwise conveys unto the Buyer, without recourse, a one
hundred percent (100%) undivided interest in and to the Mortgage Loans listed on
the Mortgage Loan Schedule attached hereto and made a part hereof and the
related property described in Section 2.01(b) of the Purchase Agreement,
effective upon payment of the Purchase Price therefor.

     The foregoing assignment, transfer and conveyance does not constitute and
is not intended to result in any assumption by the Buyer of any obligation of
the undersigned to the Mortgagors, insurers or any other person in connection
with such Mortgage Loans, the Servicer Files therefor, any insurance policies or
any agreement or instrument relating to any of them.

     The Seller certifies that as of the Closing Date for the purchase requested
hereby: (a) the representations and warranties of the Seller in the Purchase
Agreement are true and correct in all material respects, (b) no breach of any of
Seller's representations or warranties set forth in the Purchase Agreement is in
existence, and the Seller has otherwise complied with the terms and conditions
thereof, (c) upon the completion of the Requested Purchase, (i) the Purchase
Price of all Mortgage Loans purchased by the Buyer as of the Closing Date plus
(ii) the Requested Purchase will not exceed the Maximum Purchase Amount, (d) all
Mortgage Documents required by the Purchase Agreement to be delivered to the
Buyer in connection with the Requested Purchase have been delivered to the
Buyer, and (e) the Seller has otherwise complied with all conditions of the
Purchase Agreement to permit the Requested Purchase to be competed.



                                         FAMILY LENDING SERVICES, INC.,
                                         as Seller



                                         By: ___________________________________
                                             Name:
                                             Title:

                                       2



                                                                       EXHIBIT B

                           WAREHOUSE LENDER'S RELEASE

Guaranty Bank
8333 Douglas Avenue
Dallas, Texas  75225

Ladies and Gentlemen:

     We hereby release all right, interest or claim of any kind, including any
security interest or lien, with respect to the mortgage loan(s) referenced
below, such release to be effective automatically without any further action by
any party, upon payment, in one or more installments, by Guaranty Bank, in
accordance with the wire instructions set forth below, of an aggregate amount of
$___________________.

                             Street
Loan#       Mortgagor        Address               City            State Zip




                                         Very truly yours,

                                         [WAREHOUSE LENDER]



                                         By: ___________________________________
                                             Name:
                                             Title:



Wire Instructions:
     Bank Name:
     City, State:
     ABA #:
     Account #:
     Account Name:



                                                                       EXHIBIT C

                                SHIPPING REQUEST

The Buyer:        Guaranty Bank                           DATE:  ________, 200__

The Seller:       Family Lending Services, Inc.

SHIPMENT # _________________                    SHIPMENT $______________________
POOL # _____________________________            # OF LOANS _____________________


     This request is delivered under the Mortgage Loan Purchase and Sale
Agreement (as renewed, extended, amended, or restated, the "Purchase Agreement")
dated as of December 26, 2002, between the Seller and the Buyer together with a
Seller's Repurchase Request of even date herewith from the Buyer to the Seller.
Terms defined in the Purchase Agreement have the same meanings when used --
unless otherwise defined -- in this request.

     Seller requests the Buyer to (a) forward the ship list and files for the
Mortgage Loans identified on the ship list to the following Approved Takeout
Investor or its custodian or servicer; (b) complete the endorsement of the
promissory notes for those Mortgage Loans from the Seller to that Approved
Takeout Investor or its servicer or custodian as follows: _______; and (c) place
them along with the blank assignments furnished to Administrative Agent in the
appropriate collateral files:

                          _____________________________
                          _____________________________
                          _____________________________
                          _____________________________

The Buyer should ship the whole file of Mortgage Documents in Buyer's possession
for those Mortgage Loans by either Federal Express or such other courier service
as the Seller has designated to the Buyer as "approved" for that purpose. The
courier used must be acting as an independent-contractor bailee solely on behalf
of the Buyer for the benefit of the Buyer, but the Buyer is not responsible for
any delays in shipment caused by any actions or inactions by that courier. The
Seller's completed air bill for shipment accompanies this request.



     On and as of the date of this request, the Seller certifies, represents and
warrants to the Buyer that the Seller's representations and warranties in the
Purchase Documents are true and correct in all material respects except to the
extent that (i) a representation or warranty speaks to a specific date or (ii)
the facts on which a representation or warranty is based have changed by
transactions or conditions contemplated or permitted by the Purchase Documents.

                                        FAMILY LENDING SERVICES, INC.,
                                        as Seller



                                        By: ____________________________________
                                            Name
                                            Title

                                        2



                                                                       EXHIBIT D

                           BAILEE LETTER FOR INVESTORS

                                                                   GUARANTY BANK
                                                             8333 Douglas Avenue
                                                             Dallas, Texas 75225
                                                     Attention: Carolyn Eskridge
                                                     Mortgage Finance Department
                                                             FAX: (214) 360-1660
                                                       Telephone: (214) 360-3357

The enclosed mortgage notes and other documents (the "Mortgage Documents") as
more particularly described on the attached schedule, have been (i) sold to
GUARANTY BANK ("Guaranty") under the Mortgage Loan Purchase and Sale Agreement
(as renewed, extended, amended, or restated, the "Purchase Agreement") dated as
of December 26, 2002 between Family Lending Services, Inc. (the "Company") and
Guaranty or (ii) assigned and pledged to Guaranty as collateral under the Credit
Agreement (as renewed, extended, amended, or restated, the "Credit Agreement")
dated as of December 26, 2002 between the Company and Guaranty.

The Mortgage Documents themselves are being delivered to you for purchase under
an existing commitment (the "Takeout Commitment"). Either payment in full for
the Mortgage Documents or the Mortgage Documents themselves must be received by
Guaranty within forty-five (45) days after the date of this letter. Until that
time, you are deemed to be holding the Mortgage Documents in trust as bailee for
Guaranty, subject to the security interest granted Guaranty in accordance with
the applicable provisions of the Uniform Commercial Code. No property interest
in the Mortgage Documents is transferred to you until Guaranty receives the
greater of (i) the agreed purchase price of the Mortgage Documents or (ii)
$_________________. If you receive conflicting instructions regarding the
Mortgage Documents from the Company and Guaranty, you agree to act in accordance
with Guaranty's instructions. Guaranty reserves the right, at any time before it
receives full payment, to notify you and require that you return the Mortgage
Documents to Guaranty.

Payment for the Mortgage Documents must be made by wire transfer of immediately
available funds to:

       GUARANTY BANK                            Account Number ___________
       ABA Number:                              Attn:
       Further Credit: ________________         TEL:
                                                FAX:



By accepting the Mortgage Documents delivered to you with this letter, you
consent to hold the Mortgage Documents for the benefit of Guaranty and to be
Guaranty's bailee on the terms described in this letter. Guaranty requests that
you acknowledge receipt of the enclosed Mortgage Documents and this letter by
signing and returning to Guaranty the enclosed copy of this letter, but your
failure to do so does not nullify your consent or otherwise affect or impair any
term or condition of this letter or their binding effects on you. If you fail to
make full payment to Guaranty for it within forty-five (45) days after the date
of this letter, you are instructed to return all of the Mortgage Documents to
Guaranty. the preceding provision in no way affects or impairs any claim or
cause of action against you in respect of the Takeout Commitment.

This letter binds you and your successors, assigns, trustees, conservators, and
receivers and inures to Guaranty and its respective successors and assigns.

                                      Very truly yours,

                                      GUARANTY BANK



                                      By:_______________________________________
                                           Name:
                                           Title:


Acknowledged and Agreed as of ___________,200__

[NAME OF BAILEE]



By:____________________________
     Name:
     Title:

                                        2



                                                                       EXHIBIT E

                           BUYER'S REPURCHASE REQUEST
                          UNDER SECTION 3.03 (b) or (c)

Buyer: Guaranty Bank                                      DATE:  ________, 200__

Seller:   Family Lending Services, Inc.


     This request is delivered under the Purchase Agreement (as renewed,
extended, amended, or restated, the "Purchase Agreement") dated as of December
26, 2002, between the Seller and the Buyer. Terms defined in the Purchase
Agreement have the same meanings when used -- unless otherwise defined -- in
this request.

Section 3.03(b)

     Notice was given by the ___________ to the ______________ on
___________________ that one or more of the representations and warranties set
forth in Section 3.02 of the Purchase Agreement were not true, correct and
complete with respect to the Mortgage Loans described in Schedule I hereto
(collectively, the "Defective Mortgage Loans").[List of Defective Mortgage Loans
to be attached.] Such inaccuracy or breach has not been cured within thirty (30)
calendar days after the date of such notice and the Buyer hereby directs the
Seller to repurchase the Defective Mortgage Loans on ________________, 200__
(the "Repurchase Date") for the Repurchase Price.

                                   GUARANTY BANK



                                   By: _________________________________________
                                       Name:
                                       Title:

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Subsidiaries

1. Standard Pacific of Orange County, Inc., a Nevada corporation

2. Standard Pacific of Fullerton, Inc., a Nevada corporation

3. Standard Pacific of Texas, L.P., a Delaware limited partnership

4. Standard Pacific of Texas GP, Inc., a Delaware corporation

5. SP Texas Investments, Inc., a Delaware corporation

6. Standard Pacific of Arizona, Inc., a Delaware corporation

7. HSP Arizona, Inc. a Delaware corporation

8. The Writer Corporation, a Delaware corporation

9. Standard Pacific Active Adult Communities, Inc., a Delaware corporation

10. Family Lending Services, Inc., a Delaware corporation

11. SPS Affiliates, Inc., a California corporation

12. Standard Pacific Financing, Inc., a California corporation

13. Standard Pacific Financing, L.P., a Delaware limited partnership

14. StanPac Corp., a Delaware corporation

15. SPH Title, Inc., a Delaware corporation

16. Westbrooke Companies, Inc., a Delaware corporation

17. HWB Construction, Inc., a Delaware corporation

18. HWB Investments, Inc., a Delaware corporation

19. Westbrooke Homes, a Florida general partnership

20. SP Colony Investments, Inc., a Delaware corporation

21. Colony Communities, Inc., a Delaware corporation

22. Colony Communities, dba Colony Homes, a Florida general partnership

23. CH Florida, Inc., a Delaware corporation

24. Westfield Homes USA, Inc., a Delaware corporation

25. Westfield Development Corp., a Florida corporation

26. Westfield Homes of Florida, Inc., a Florida corporation

27. Westfield Homes of Florida, Inc., a Delaware corporation

28. Westfield Homes of the Carolinas, LLC, a Delaware limited liability company

29. Westfield Homes of Southwest Florida, Inc., a Florida corporation

30. Westfield Homes of Southwest Florida, Inc., a Delaware corporation

31. Westfield Homes of Florida Partnership, a Florida general partnership

32. Westfield Homes of Southwest Florida Partnership, a Florida general partnership

33. SPNS Golden Gate, LLC, a Delaware limited liability company

34. Pala Village Investments, Inc., a Delaware corporation

35. Standard Pacific of Walnut Hills, Inc., a Delaware corporation

36. Walnut Hills Development 268, LLC, a California limited liability company

Neither the subsidiaries nor the partnerships in which the registrant has an interest have done business under names other than their own, with the exception of the following:

1. Standard Pacific of Orange County, a division of Standard Pacific Corp.

2. Standard Pacific of San Diego, a division of Standard Pacific Corp.

3. Standard Pacific of Ventura, a division of Standard Pacific Corp.

4. Standard Pacific of Inland Empire, a division of Standard Pacific Corp.

5. Standard Pacific of Northern California, a division of Standard Pacific Corp.

6. Standard Pacific of Dallas, a division of Standard Pacific of Texas, Inc.

7. Standard Pacific of Houston, a division of Standard Pacific of Texas, Inc.

8. Standard Pacific Homes

9. Standard Pacific

10. Standard Pacific Gallery Communities

11. Standard Pacific Design Studio

12. Westbrooke Communities, Inc.

13. Westbrooke Homes

14. Westfield Homes

15. Colony Homes

59

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-44954), the Registration Statement (Form S-8 No. 333-34073), the Registration Statement (Form S-8 No. 333-90598), the Registration Statement (Form S-8 No. 333-63326), the Registration Statement (Form S-3 No. 333-52732 ), and the Registration Statement (Form S-3 No. 333-103575) of our report dated January 24, 2003 with respect to the consolidated financial statements of Standard Pacific Corp. and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 2002.

/s/    Ernst & Young LLP        

Irvine, California

March 14, 2003

EX-99.1

                                                                    EXHIBIT 99.1

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in his capacity as an officer of
Standard Pacific Corp., a Delaware corporation (the "Company"), for purposes of
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

     .    the Company's Annual Report on Form 10-K for the year ended December
          31, 2002, as filed with the Securities and Exchange Commission on the
          date hereof, fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934, as amended; and

     .    the information contained in such report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.

Dated: March 17, 2003



   /s/ Stephen J. Scarborough
- ----------------------------------------
Stephen J. Scarborough
Chairman and Chief Executive Officer


   /s/ Andrew H. Parnes
- ----------------------------------------
Andrew H. Parnes
Senior Vice President-Finance & Chief
Financial Officer