William W. Brown - Page 4

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          Anchor Savings and Loan Association (Anchor), gave a mortgage on            
          the lots, and a second mortgage on his home, as security (entire            
          transaction hereinafter referred to as the “loan”).  According to           
          the loan commitment letter, $20,000 of the amount borrowed was to           
          be placed into a passbook savings account at Anchor as an                   
          interest reserve.                                                           
               In 1990, petitioner completed a home on one of the lots, and           
          in 1991, he sold a partially completed home on another one of the           
          lots.  Before 1999, petitioner sold all of the lots that had                
          secured repayment of the loan.                                              
               During 1994 and 1995, Anchor was placed in receivership by             
          the Resolution Trust Corporation, and petitioner’s loan was                 
          subsequently sold to Federal Financial Co.  On March 15, 1999,              
          petitioner and Federal Financial Co. executed a modification                
          agreement whereby petitioner agreed to repay the outstanding                
          indebtedness of the loan, $100,353.38, at a 9-percent interest              
          rate over 84 months.  Pursuant to the terms of the modification             
          agreement, petitioner was required to make $1,000 monthly                   
          payments, each payment consisting of principal and interest.                
               Pursuant to the modification agreement, petitioner made 12             
          monthly payments of $1,000 toward the loan to Federal Financial             
          Co. in 2001.  Of the $12,000 paid, $8,515.64 was applied to                 
          interest and $3,484.16 was applied to the principal of the loan.            

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