SUBSERVICING AGREEMENT

This SUBSERVICING AGREEMENT, dated as of July 1, 2006 (this Agreement), is by and between EMC Mortgage Corporation (the Servicer) and Peoples Choice Home Loan, Inc., as seller (the Seller) and as subservicer (the Subservicer).

W I T N E S S E T H:

WHEREAS, Schedule I attached hereto and made a part hereof identifies one pool of conventional, first- and second-lien, adjustable- and fixed-rate, fully and dual-amortizing, residential mortgage loans, some of which include a balloon-payment feature (collectively, the Mortgage Loans) conveyed by the Seller to Peoples Financial Realty Mortgage Securities Trust, Series 2006-1 (the Issuing Entity) pursuant to the terms of a pooling and servicing agreement (the Pooling and Servicing Agreement), dated as of July 1, 2006, by and among the Seller, Wells Fargo Bank, N. A., as master servicer and securities administrator (Wells Fargo), the Servicer, the Subservicer and HSBC Bank USA, National Association, as trustee (the Trustee);

WHEREAS, the Servicer has agreed, itself or through the Subservicer, to service the Mortgage Loans under the terms of a servicing agreement (the Servicing Agreement), dated as of July 1, 2006, a copy of which is attached hereto as Exhibit A, among the Servicer, the Subservicer, Wells Fargo and the Trustee;

WHEREAS, the Servicing Agreement provides that the Servicer may retain one or more subservicers to perform the servicing functions with respect to the Mortgage Loans;

WHEREAS, the Servicer desires to appoint the Subservicer as its subservicer;

WHEREAS, the parties to this Agreement intend that, effective as of the Closing Date, the Mortgage Loans shall be serviced by the Subservicer on behalf of the Servicer pursuant to the provisions of the Servicing Agreement;

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

Section 1. Definitions.

Adjusted Debt: means Debt minus Securitization Debt.

Adjusted Tangible Net Worth: means, with respect to the PCFC Companies, as of any date of determination, the excess of the PCFC Companies total assets over the PCFC Companies total liabilities on such date in accordance with GAAP, plus the sum of (i) the portion of Subordinated Debt not due within one year of such date and (ii) the face amount of the PCFC Companies convertible preferred stock on such date (to the extent not already included in the determination of Adjusted Tangible Net Worth). For purposes of calculating Adjusted Tangible Net Worth, the following shall be excluded from the calculation of the PCFC Companies total assets: (a) the aggregate amount of advances or loans to shareholders,

directors, officers, employees of the PCFC Companies, (b) assets of the PCFC Companies pledged to secure any liabilities not included in the definition of Indebtedness, (c) intangible assets and (d) the aggregate value of any assets that would be deemed by the Department of Housing and Urban Development (or any successor thereto) to be non-acceptable in calculating adjusted net worth in accordance with the requirements set forth in the Consolidated Audit Guide for Audits of HUD Programs as in effect on such date.

Aggregate Available Borrowing Capacity: means the sum of the Available Borrowing Capacity under the Financing Facilities.

Available Borrowing Capacity: means the excess of the product of Cash Equivalents plus the mortgage loans and other assets eligible for financing under one or more of the Financing Facilities minus margin requirements on purchased assets under any Financing Facility (Other Purchased Assets). For avoidance of doubt, Available Borrowing Capacity plus Other Purchased Assets shall not exceed the value of a Financing Facility.

Cash Equivalents: means (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poors Ratings Group (S&P), F-1 or the equivalent thereof by Fitch, Inc. (Fitch) or P-1 or the equivalent thereof by Moodys Investors Service, Inc. (Moodys) and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or Fitch or A by Moodys, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

Debt: means, with respect to any Person at any date, (a) the total liabilities of such entity, determined in accordance with GAAP, and (b) all indebtedness or other obligations of such entity, for borrowed money or for the deferred purchase price of property or services not included in total liabilities; provided that for the purposes of this calculation, there shall be excluded from Debt, at any date, any liability on such entitys balance sheet consisting of reserves for loan repurchases.

EMC Servicing Fee: with respect to each Mortgage Loan and any Distribution Date, an amount equal to the product of (a) the EMC Servicing Fee Rate and (b) the Stated Principal Balance of such Mortgage Loan in respect of such Distribution Date.

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EMC Servicing Fee Rate: with respect to each Mortgage Loan, 0.03% per annum.

Financing Facilities: shall mean all mortgage loan warehousing and repurchase facilities used to finance the origination or acquisition of mortgage loans.

Monthly Period: shall mean each calendar month, provided that the initial Monthly Period hereunder shall mean the period from (and including) the Closing Date to (and including) the last day of the calendar month thereafter.

PCFC: Peoples Choice Financial Corporation or its permitted successors and assigns.

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