CUSTODIAL AGREEMENT

THIS CUSTODIAL AGREEMENT (as amended and supplemented from time to time, the Agreement), dated as of July 1, 2006, by and among HSBC Bank USA, National Association, not individually but solely as trustee under the Pooling and Servicing Agreement (defined below) (including its successors, the Trustee), Peoples Choice Home Loan Securities Corp., as depositor (together with any successor in interest, the Depositor), Wells Fargo Bank, N.A., as master servicer (in such capacity, together with any successor in interest, the Master Servicer) and as securities administrator (in such capacity, together with any successor in interest, the Securities Administrator), and as custodian (together with any successor in interest or any successor appointed hereunder, the Custodian) (each under the Pooling and Servicing Agreement), EMC Mortgage Corporation, as servicer under the Servicing Agreement (as defined in the Pooling and Servicing Agreement) (together with any successor in interest, the Servicer), and Peoples Choice Home Loan, Inc., as subservicer under the Pooling and Servicing Agreement and the Servicing Agreement (the Subservicer).

WITNESSETH THAT:

WHEREAS, the Depositor, the Master Servicer, the Securities Administrator, the Trustee, the Servicer, the Subservicer and Peoples Choice Home Loan, Inc., as seller (the Seller) have entered into a Pooling and Servicing Agreement, dated as of July 1, 2006 (the Pooling and Servicing Agreement), pursuant to which the Depositor conveyed certain mortgage loans (the Mortgage Loans) to the Issuing Entity; and

WHEREAS, pursuant to the Pooling and Servicing Agreement, the Issuing Entity issued Peoples Financial Realty Mortgage Securities Trust, Series 2006-1, Mortgage Pass- Through Certificates, Series 2006-1 (the Certificates), evidencing ownership interests in, among other things, the Mortgage Loans; and

WHEREAS, the Custodian has agreed to act as custodian for the Trustee for the purposes of receiving and holding certain documents and other instruments delivered by the Depositor or the Master Servicer under the Pooling and Servicing Agreement and the Servicing Agreement, all upon the terms and conditions and subject to the limitations hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Trustee, the Depositor, the Master Servicer, the Servicer, the Subservicer and the Custodian hereby agree as follows:

ARTICLE I

DEFINITIONS

Capitalized terms used in this Agreement and not defined herein shall have the meanings assigned in the Pooling and Servicing Agreement, unless otherwise required by the context herein.

1

ARTICLE II

CUSTODY OF MORTGAGE DOCUMENTS

Section 2.1. Custodian to Act as Agent: Acceptance of Mortgage Files. The Custodian, as the duly appointed custodial agent of the Trustee for these purposes, acknowledges (subject to any exceptions noted in the Initial Certification referred to in Section 2.2(a)), receipt of the Mortgage Files relating to the Mortgage Loans identified on Schedule B attached hereto (the Mortgage Loan Schedule) and declares that it holds and will hold such Mortgage Files as custodial agent for the Trustee, in trust, for the use and benefit of all present and future Certificateholders. The Depositor shall deliver to the Custodian, and the Custodian agrees to accept, the Mortgage Note and other documents constituting the Mortgage File with respect to any Substitute Mortgage Loan.

Section 2.2. Review of Mortgage Files.

(a) On or prior to the Closing Date, the Custodian shall deliver to the Depositor, the Seller and the Trustee an Initial Certification, in the form annexed hereto as Exhibit One, evidencing receipt (subject to any exceptions noted therein) of a Mortgage File for each of the Mortgage Loans listed on Mortgage Loan Schedule. Items (i) and (iii) (pertaining to the delivery of Mortgage Notes (including any riders thereto) and Assignments to the Trustee) on Schedule B attached hereto have been delivered to the Custodian in blank. The Custodian is hereby authorized to stamp such Mortgage Notes (including any riders thereto) and Assignments to HSBC Bank USA, National Association, as Trustee under the Pooling and Servicing Agreement relating to Peoples Financial Realty Mortgage Securities Trust, Series 2006-1, Mortgage Pass-Through Certificates, Series 2006-1.

(b) Within 90 days of the Closing Date (or, with respect to an Substitute Mortgage Loan delivered to the Custodian, within five Business Days after the receipt by the Custodian thereof), the Custodian agrees, for the benefit of the Certificateholders, to review the documents listed in Schedule B attached hereto and shall deliver to the Depositor, the Seller and the Trustee an Interim Certification in the form annexed hereto as Exhibit Two, to the effect that all such documents have been executed and received and that the Mortgage Certificates relate, determined on the basis of Mortgagor Name, original principal balance and loan number, to the Mortgage Loans identified on the Mortgage Loan Schedule, except for any exceptions listed on Schedule B attached to such Interim Certification. The Custodian shall be under no duty or obligation to inspect, review or examine said documents, instruments, certificates or other papers to determine that the same are genuine, enforceable, or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face.

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