AMERICA FIRST MORTGAGE INVESTMENTS, INC.

1997 STOCK OPTION PLAN

1. PURPOSE. The Plan is intended to provide
incentive to key employees, officers, directors and
others expected to provide significant services to the
Company, including the employees, officers and
directors of the Participating Companies, to encourage
proprietary interest in the Company, to encourage such
key employees to remain in the employ of the Company
and the other Participating Companies, to attract new
employees with outstanding qualifications, and to
afford additional incentive to others to increase their
efforts in providing significant services to the
Company and the other Participating Companies. In
furtherance thereof, the Plan permits awards of equity-
based incentives to key employees, officers and
directors of, and certain other providers of services
to, the Participating Companies.

2. DEFINITIONS.

a. "Act" shall mean the Securities Act of
1933, as amended.

b. "Advisor" shall mean America First
Mortgage Advisory Corporation, a Maryland Corporation.

c. "Agreement" shall mean a written
agreement entered into between the Company and the
recipient of a Grant pursuant to section 7(b)(i)
hereof.

d. "Board" shall mean the Board of
Directors of the Company.

e. "Cause" shall mean, unless otherwise
provided in the Optionee's Agreement, (i) engaging in
(A) willful or gross misconduct or (B) willful or gross
neglect, (ii) repeatedly failing to adhere to the
directions of superiors or the Board or the written
policies and practices of the Company, (iii) the
commission of a felony or a crime of moral turpitude,
or any crime involving the Company, (iv) fraud,
misappropriation, embezzlement or material or repeated
insubordination, (v) a material breach of the
Optionee's employment agreement (if any) with the
Company (other than a termination of employment by the
Optionee), or (vi) any illegal act detrimental to the
Company; all as determined by the Committee.

f. "Class I Participant" shall mean any
director of the Company who is also appointed to serve
on the Committee and who at the time of his appointment
qualifies as a "Non-Employee Director" under Rule 16b-
3(b)(3)(i) promulgated under the Exchange Act and, to
the extent that relief from the limitation of Section
162(m) of the Code is sought, as an "Outside Director"
under Section 1.162-27(e)(3)(i) of the Treasury
Regulations. The Plan is intended to provide Grants to
Class I Participants pursuant to the formula set forth
in Section 7(a).


g. "Class II Participant" shall mean all
Eligible Persons, except the Class I Participants.

h. "Code" shall mean the Internal Revenue
Code of 1986, as amended.

i. "Committee" shall mean the Compensation
Committee, consisting solely of Class I Participants,
appointed by the Board in accordance with Section 4 of
the Plan.

j. "Common Stock" shall mean the Company's
Common Stock, par value $0.01, either currently
existing or authorized hereafter.

k. "Company" shall mean America First
Mortgage Investments, Inc., a Maryland corporation.

l. "DER" shall mean a dividend equivalent
right consisting of the right to receive, as specified
by the Committee or the Board at the time of Grant,
cash in an amount equal to the dividend distributions
paid on a share of Common Stock subject to an option.

m. "Disability" shall mean the occurrence
of an event which would entitle an employee of the
Company to the payment of disability income under one
of the Company's approved long-term disability income
plans or a long-term disability as determined by the
Committee in its absolute discretion pursuant to any
other standard as may be adopted by the Committee.

n. "Eligible Persons" shall mean officers,
directors and employees of the Participating Companies
and other persons expected to provide significant
services (of a type expressly approved by the Committee
as covered services for these purposes) to the Company.
For purposes of the Plan, a director (other than a
member of the Committee), in his or her capacity as
such, or a consultant, vendor, customer, or other
provider of significant services to the Company shall
be deemed to be an Eligible Person, but will be
eligible to receive Non-qualified Stock Options, or
DERs, only after a finding by the Committee or Board in
its discretion that the value of the services rendered
or to be rendered to the Participating Company is at
least equal to the value of the Grants being awarded.

o. "Employee" shall mean an individual,
including an officer of a Participating Company, who is
employed (within the meaning of Code Section 3401 and
the regulations thereunder) by the Participating
Company.

p. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.

q. "Exercise Price" shall mean the price
per Share of Common Stock, determined by the Board or
the Committee, at which an Option may be exercised.

r. "Fair Market Value" shall mean the value
of one share of Common Stock, determined as follows:

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i. If the Shares are then listed on a
national stock exchange, the closing sales
price per Share on the exchange for the last
preceding date on which there was a sale of
Shares on such exchange, as determined by the
Committee.

ii. If the Shares are not then listed
on a national stock exchange but are then
traded on an over-the-counter market, the
average of the closing bid and asked prices
for the Shares in such over-the-counter
market for the last preceding date on which
there was a sale of such Shares in such
market, as determined by the Committee.

iii. If neither (i) nor (ii) applies,
such value as the Committee in its discretion
may in good faith determine.

Notwithstanding the foregoing, where the Shares are
listed or traded, the Committee may make discretionary
determinations in good faith where the Shares have not
been traded for 10 trading days.

s. "Grant" shall mean the issuance of an
Incentive Stock Option, Non-qualified Stock Option, DER
or any combination thereof to an Eligible Person. The
Committee will determine the eligibility of employees,
officers, directors and others expected to provide
significant services to the Participating Companies
based on, among other factors, the position and
responsibilities of such individuals, the nature and
value to the Participating Company of such individuals
accomplishments and potential contribution to the
success of the Participating Company whether directly
or through its subsidiaries.

t. "Incentive Stock Option" shall mean an
Option of the type described in Section 422(b) of the
Code issued to an Employee.

u. "Non-qualified Stock Option" shall mean
an Option not described in Section 422(b) of the Code.

v. "Option" shall mean any option, whether
an Incentive Stock Option or a Non-qualified Stock
Option, to purchase, at a price and for the term fixed
by the Committee in accordance with the Plan, and
subject to such other limitations and restrictions in
the Plan and the applicable Agreement, a number of
Shares determined by the Committee.

w. "Optionee" shall mean any Eligible
Person to whom an Option is granted, or the Successors
of the Optionee, as the context so requires.

x. "Participating Companies" shall mean the
Company, Advisor and any subsidiary of any of them
which with the consent of the Board participates in the
Plan.

y. "Plan" shall mean the Company's 1997
Stock Option Plan, as set forth herein, and as the same
may from time to time be amended.

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z. "Purchase Price" shall mean the Exercise
Price times the number of Shares with respect to which
an Option is exercised.

aa. "Retirement" shall mean, unless
otherwise provided by the Committee in the Optionee's
Agreement, (i) the Termination (other than for Cause)
of Service of an Optionee on or after the Optionee's
attainment of age 65 (ii) on or after the Optionee's
attainment of age 55 with five consecutive years of
service with the Participating Companies or (iii) as
determined by the Committee in its absolute discretion
pursuant to such other standard as may be adopted by
the Committee.

bb. "Shares" shall mean shares of Common
Stock of the Company, adjusted in accordance with
Section 10 of the Plan (if applicable).

cc. "Subsidiary" shall mean any corporation,
partnership, or other entity at least 50% of the
economic interest in the equity of which is owned by
the Company or by another Subsidiary.

dd. "Successors of the Optionee" shall mean
the legal representative of the estate of a deceased
Optionee or the person or persons who shall acquire the
right to exercise an Option by bequest or inheritance
or by reason of the death of the Optionee.

ee. "Termination of Service" shall mean the
time when the employee-employer relationship or
directorship, or other service relationship (sufficient
to constitute service as an Eligible Person) between
the Optionee and the Participating Companies is
terminated for any reason, with or without Cause,
including but not limited to any termination by
resignation, discharge, death or Retirement; provided,
however, Termination of Service shall not include a
termination where there is a simultaneous reemployment
of the Optionee by a Participating Company or other
continuation of service (sufficient to constitute
service as an Eligible Person) for a Participating
Company. The Committee, in its absolute discretion,
shall determine the effects of all matters and
questions relating to Termination of Service, including
but not limited to the question of whether any
Termination of Service was for Cause and all questions
of whether particular leaves of absence constitute
Terminations of Employment.

3. EFFECTIVE DATE. Unless already approved by
shareholders, the Plan will be submitted to
shareholders for their approval within twelve months
after receipt of Board approval. Any Grants awarded
before approval of the Plan by the Company's
shareholders shall be accrued for the benefit of the
participant until the Plan has been approved by the
shareholders.

4. ADMINISTRATION.

a. Membership on Committee. The Plan shall
be administered by the Committee appointed by the
Board. If no Committee is designated by the Board to
act for those purposes, the full Board shall have the
rights and responsibilities of the Committee hereunder.

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b. Committee Meetings. The acts of a
majority of the members present at any meeting of the
Committee at which a quorum is present, or acts
approved in writing by a majority of the entire
Committee, shall be the acts of the Committee for
purposes of the Plan. If and to the extent applicable,
no member of the Committee may act as to matters under
the Plan specifically relating to such member.

c. Grant Awards. The Committee shall from
time to time at its discretion select the Class II
Participants who are to be issued Grants, determine the
number of Shares (i) to be optioned or (ii) with
respect to which the Grant is to be issued, to each
Class II Participant and designate any Options granted
as Incentive Stock Options or Non-qualified Stock
Options, or both, except that no Incentive Stock
Options may be granted to an Eligible Person who is not
an Employee of the Company. The Committee shall (i)
determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Grants awarded
hereunder, (including, but not limited to the
performance goals and periods applicable to the award
of Grants); (ii) determine the time or times when and
the manner and condition in which each Option shall be
exercisable and the duration of the exercise period;
and (iii) determine or impose other conditions to the
Grant or exercise of Options under the Plan as it may
deem appropriate. The Committee shall cause each
Option to be designated as an Incentive Stock Option or
a Non-qualified Stock Option. The Optionee shall take
whatever additional actions and execute whatever
additional documents the Committee may in its
reasonable judgment deem necessary or advisable in
order to carry or effect one or more of the obligations
or restrictions imposed on the Optionee pursuant to the
express provisions of the Plan and the Agreement. DERs
will be exercisable separately or together with
Options, and paid in cash or other consideration at
such times and in accordance with such rules, as the
Committee shall determine in its discretion. Unless
expressly provided hereunder, the Committee, with
respect to any Grant, may exercise its discretion
hereunder at the time of the award or thereafter. The
interpretation and construction by the Committee of any
provision of the Plan or of any Option granted
thereunder shall be final. Without limiting the
generality of Section 18, no member of the Committee
shall be liable for any action or determination made in
good faith with respect to the Plan or any Grant
hereunder.

5. PARTICIPATION.

a. Eligibility. Only Eligible Persons
shall be eligible to receive Grants under the Plan.

b. Limitation of Ownership. No Options
shall be granted under the Plan to any person who after
such Grant would beneficially own more than 9.8% of the
outstanding shares of Common Stock of the Company,
unless expressly and specifically waived by action of
the independent Directors of the Board.

c. Stock Ownership. For purposes of (b)
above, in determining stock ownership an Optionee shall
be considered as owning the stock owned, directly or
indirectly, by or for his brothers, sisters, spouses,
ancestors and lineal descendants. Stock owned,

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directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as
being owned proportionately by or for its shareholders,
partners or beneficiaries. Stock with respect to which
any person holds an Option shall be considered to be
owned by such person.

d. Outstanding Stock. For purposes of (b)
above, "outstanding shares" shall include all stock
actually issued and outstanding immediately after the
grant of the Option to the Optionee. With respect to
the Stock Ownership of any Optionee, "outstanding
shares" shall include shares authorized for issue under
outstanding Options held by such Optionee, but not
options held by any other person.

6. STOCK. Subject to adjustments pursuant to
Section 10, Options with respect to an aggregate of no
more than 1,000,000 Shares may be granted under the
Plan, nor may the number of Shares subject to Options
outstanding at any time exceed 10% of the total
outstanding shares of the Company's Common Stock. In
no event may any Optionee receive Options for more than
100,000 Shares of Common Stock over the life of the
Plan. Notwithstanding the foregoing provisions of this
Section 6, Shares as to which an Option is granted
under the Plan that remains unexercised at the
expiration, forfeiture or other termination of such
Option may be the subject of the grant of further
Options. Shares of Common Stock issued hereunder may
consist, in whole or in part, of authorized and
unissued shares or treasury shares. The certificates
for Shares issued hereunder may include any legend
which the Committee deems appropriate to reflect any
restrictions on transfer hereunder or under the
Agreement, or as the Committee may otherwise deem
appropriate.

7. TERMS AND CONDITIONS OF OPTIONS.

a. Class I Participants.

i. Initial Awards. Awards under this
Section 7(a) shall be made to Class I Participants
only. Each Class I Participant shall
automatically be granted a Non-qualified Stock
Option to purchase 5,000 shares of Common Stock
upon the date such person is initially appointed
to the Committee.

ii. Periodic Awards. Subject to the
limitations set forth in Sections 5 and 6, without
any further action by the Board or the Committee,
each Class I Participant shall be granted Non-
qualified Stock Options to purchase:

(1) Fixed offering. As of the
pricing date of any firm commitment public
offering or direct placement of the Common
Stock, a number of shares of Common Stock
equal to the total number of shares of Common
Stock sold under the offering (including
shares sold under the underwriter's
overallotment) multiplied by .0075; and

(2) Continuous offering. As of
the last business day on which the New York
Stock Exchange is open for trading during
each fiscal quarter of the Company, a number

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of shares of Common Stock equal to the total
number of shares of Common Stock sold by the
Company during such fiscal quarter multiplied
by .0075, excluding (A) Options granted
pursuant to the sale of Common Stock during
the calendar quarter under subsection (1)
above, (B) any shares of Common Stock issued
under any compensatory dividend reinvestment
or other stock purchase plan maintained by
the Company and (C) shares acquired pursuant
to the exercise of Options granted under the
Plan.

iii. Exercise Price. Each Option
granted to Class I Participants shall be
exercisable at the Fair Market Value of the Common
Stock on the date of Grant.

iv. Option Period and Adjustments.
Each Option granted to a Class I Participant shall
become exercisable commencing one year after the
date of Grant (unless otherwise provided in the
applicable Agreement) and shall expire 10 years
thereafter. Options granted to Class I
Participants shall be subject to adjustment as
provided in Section 10 provided that such
adjustment and any action by the Board or the
Committee with respect to the Plan and such
Options satisfies the requirements for exemption
under Rule 16b-3 and does not cause any member of
the Committee to be disqualified as a Non-Employee
Director under such Rule.

v. Phase-in of DERs for Class I
Participants. The Company will issue DERs at the
same time as the Options in the amount of: 25% of
the Options granted to each Class I Participant in
1997, 35% of the Options granted to each Class I
Participant in 1998, 45% of the Options granted to
each Class I Participant in 1999, 55% of the
Options granted to each Class I Participant in
2000, 65% of the Options granted to each Class I
Participant in 2001, and 75% of the Options
granted to each Class I Participant in following
years.

vi. Notwithstanding the foregoing, the
Board may prospectively, from time to time,
discontinue, reduce or increase the amount of any
or all of the Grants otherwise to be made under
this Section 7(a).

b. Class II Participants.

i. Agreements. Grants to Class II
Participants shall be evidenced by written
Agreements in such form as the Committee shall
from time to time determine. Such Agreements
shall comply with and be subject to the terms and
conditions set forth below.

ii. Number of Shares. Each Option or
other Grant granted to a Class II Participant
shall state the number of Shares to which it
pertains and shall provide for the adjustment
thereof in accordance with the provisions of
Section 10 hereof.

c. Grants. Subject to the terms and
conditions of the Plan and consistent with the
Company's intention for the Committee to exercise the
greatest permissible flexibility under Rule 16b-3 in
awarding Grants, the Committee shall have the power:

7

i. to determine from time to time the
Grants to be granted to Eligible Persons under the
Plan and to prescribe the terms and provisions
(which need not be identical) of Grants granted
under the Plan to such persons;

ii. to construe and interpret the Plan
and Grants thereunder and to establish, amend, and
revoke rules and regulations for administration of
the Plan. In this connection, the Committee may
correct any defect or supply any omission, or
reconcile any inconsistency in the Plan, in any
Agreement, or in any related agreements, in the
manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
All decisions and determinations by the Committee
in the exercise of this power shall be final and
binding upon the Participating Companies and the
Optionees and Grantees;

iii. to amend any outstanding Grant,
subject to Section 12, and to accelerate or extend
the vesting or exercisability of any Grant and to
waive conditions or restrictions on any Grants, to
the extent it shall deem appropriate; and

iv. generally to exercise such powers
and to perform such acts as are deemed necessary
or expedient to promote the best interests of the
Company with respect to the Plan.

Each Agreement with a Class II Participant
shall state the Exercise Price. The Exercise Price for
any Option shall not be less than the Fair Market Value
on the date of Grant.

d. Medium and Time of Payment. Except as
may otherwise be provided below, the Purchase Price for
each Option granted to a Class II Participant shall be
payable in full in United States dollars upon the
exercise of the Option. In the event the Company
determines that it is required to withhold taxes as a
result of the exercise of an Option, as a condition to
the exercise thereof, an Employee may be required to
make arrangements satisfactory to the Company to enable
it to satisfy such withholding requirements in
accordance with Section 15. If the applicable
Agreement so provides, and the Committee otherwise so
permits, the Purchase Price may be paid in one or a
combination of the following:

i. by a certified or bank cashier's
check;

ii. by the surrender of Shares in good
form for transfer, owned by the person exercising
the Option and having a Fair Market Value on the
date of exercise equal to the Purchase Price, or
in any combination of cash and Shares, as long as
the sum of the cash so paid and the Fair Market
Value of the Shares so surrendered equals the
Purchase Price;

iii. by cancellation of indebtedness
owed by the Company to the Optionee;

iv. by a loan or extension of credit
from the Company evidenced by a full recourse

8


promissory note executed by the Optionee. The
interest rate and other terms and conditions of
such note shall be determined by the Committee (in
which case the Committee may require that the
Optionee pledge his or her Shares to the Company
for the purpose of securing the payment of such
note, and in no event shall the stock
certificate(s) representing such Shares be
released to the Optionee until such note shall
have been paid in full); or

v. by any combination of such methods
of payment or any other method acceptable to the
Committee in its discretion.

Except in the case of Options exercised
by certified or bank cashier's check, the
Committee may impose limitations and prohibitions
on the exercise of Options as it deems
appropriate, including, without limitation, any
limitation or prohibition designed to avoid
accounting consequences which may result from the
use of Common Stock as payment upon exercise of an
Option. Any fractional Shares resulting from an
Optionee's election that are accepted by the
Company shall in the discretion of the Committee
be paid in cash.

e. Term and Nontransferability of Grants
and Options.

i. Each Grant shall state the time or
times which all or part thereof becomes
exercisable, subject to the following
restrictions.

ii. No Grant shall be exercisable
except by the Optionee or a transferee permitted
hereunder.

iii. No Option shall be assignable or
transferable, except by will or the laws of
descent and distribution of the state wherein the
Optionee is domiciled at the time of his death;
provided, however, that the Committee may (but
need not) permit other transfers, where the
Committee concludes that such transferability (i)
does not result in accelerated taxation, (ii) does
not cause any Option intended to be an Incentive
Stock Option to fail to be described in Section
422(b) of the Code and (iii) is otherwise
appropriate and desirable.

iv. No Option shall be exercisable
until such time as set forth in the applicable

Agreement (but in no event after the expiration of
such Grant).

v. Unless otherwise provided in the
Agreement, no DERs shall be exercisable (i) until
such time as set forth in the applicable agreement
or (ii) the expiration of such Grant.

vi. The Committee may not modify,
extend or renew any Option granted to any Class I
Participant unless such modification, extension or
renewal shall satisfy any and all applicable
requirements of Rule 16b-3. The foregoing
notwithstanding, no modification of an Option
shall, without the consent of the Optionee, alter
or impair any rights or obligations under any
Option previously granted.

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f. Termination of Service, Except by death,
Retirement or Disability. Unless otherwise provided in
the applicable Agreement, upon any Termination of
Service for any reason other than his or her death,
Retirement or Disability, an Optionee shall have the
right, subject to the restrictions of subsection (c)
above, to exercise his or her Grant at any time within
three months after Termination of Service, but only to
the extent that, at the date of Termination of Service,
the Optionee's right to exercise such Grant had accrued
pursuant to the terms of the Agreement and had not
previously been exercised; provided, however, that,
unless otherwise provided in the Agreement, if there
occurs a Termination of Service by a Participating
Company for Cause or a termination of Service by the
Optionee (other than on account of death, Retirement or
Disability), any Grant not exercised in full prior to
such termination shall be canceled. For this purpose,
the service relationship shall be treated as continuing
intact while the Optionee is on military leave, sick
leave or other bona fide leave of absence (to be
determined in the discretion of the Committee).

g. Death of Optionee. Unless otherwise
provided in the applicable Agreement, if the Optionee
dies while an Eligible Person or within three months
after any Termination of Service other than for Cause
or a termination of Service by the Optionee (other than
on account of death, Retirement or Disability), and has
not fully exercised the Grant, then the Grant may be
exercised in full, subject to the restrictions of
subsection (c) above, at any time within 12 months
after the Optionee's death, by the Successor of the
Optionee, but only to the extent that, at the date of
death, the Optionee's right to exercise such Grant had
accrued and had not been forfeited pursuant to the
terms of the Agreement and had not previously been
exercised.

h. Disability or Retirement of Grant
Recipient. Unless otherwise provided in the Agreement,
upon Termination of Service for reason of Disability or
Retirement, such Grant recipient shall have the right,
subject to the restrictions of subsection (c) above, to
exercise the Grant at any time within 24 months after
Termination of Service, but only to the extent that, at
the date of Termination of Service, the Grant
recipient's right to exercise such Grant had accrued
pursuant to the terms of the applicable Agreement and
had not previously been exercised.

i. Rights as a Shareholder. An Optionee, a
Successor of the Optionee, or the holder of a DER shall
have no rights as a shareholder with respect to any
Shares covered by his or her Grant until, in the case
of an Optionee, the date of the issuance of a stock
certificate for such Shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether
in cash, securities or other property), distributions
or other rights for which the record date is prior to
the date such stock certificate is issued, except as
provided in Section 10.

j. Modification, Extension and Renewal of
Option. Within the limitations of the Plan, and only
with respect to Options granted to Class II
Participants, the Committee may modify, extend or renew
outstanding Options or accept the cancellation of
outstanding Options (to the extent not previously

10


exercised) for the granting of new Options in
substitution therefor. The Committee may modify,
extend or renew any Option granted to any Class I
Participant, unless such modification, extension or
renewal would not satisfy any applicable requirements
of Rule 16b-3. The foregoing notwithstanding, no
modification of an Option shall, without the consent of
the Optionee, alter or impair any rights or obligations
under any Option previously granted.

k. Other Provisions. The Agreement
authorized under the Plan may contain such other
provisions not inconsistent with the terms of the Plan
(including, without limitation, restrictions upon the
exercise of the Option) as the Committee shall deem
advisable.

8. SPECIAL RULES FOR INCENTIVE STOCK OPTIONS.

a. In the case of Incentive Stock Options
granted hereunder, the aggregate Fair Market Value
(determined as of the date of the Grant thereof) of the
Shares with respect to which Incentive Stock Options
become exercisable by any Optionee for the first time
during any calendar year (under the Plan and all other
plans maintained by the Participating Companies, their
parent or Subsidiaries) shall not exceed $100,000.

b. In the case of an individual described
in Section 422(b)(6) of the Code (relating to certain
10% owners), the Exercise Price with respect to an
Incentive Stock Option shall not be less than 110% of
the Fair Market Value of a Share on the day the Option
is granted and the term of an Incentive Stock Option
shall be no more than five years from the date of
grant.

c. If Shares acquired upon exercise of an
Incentive Stock Option are disposed of in a
disqualifying disposition within the meaning of Section
422 of the Code by an Optionee prior to the expiration
of either two years from the date of grant of such
Option or one year from the transfer of Shares to the
Optionee pursuant to the exercise of such Option, or in
any other disqualifying disposition within the meaning
of Section 422 of the Code, such Optionee shall notify
the Company in writing as soon as practicable
thereafter of the date and terms of such disposition
and, if the Company thereupon has a tax-withholding
obligation, shall pay to the Company an amount equal to
any withholding tax the Company is required to pay as a
result of the disqualifying disposition.

9. TERM OF PLAN. Options may be granted
pursuant to the Plan until the expiration of 10 years
from the effective date of the Plan.

10. RECAPITALIZATION AND CHANGES OF CONTROL.

a. Subject to any required action by
shareholders, if (i) the Company shall at any time be
involved in a merger, consolidation, dissolution,
liquidation, reorganization, exchange of shares, sale
of all or substantially all of the assets or stock of
the Company or a transaction similar thereto, (ii) any
stock dividend, stock split, reverse stock split, stock
combination, reclassification, recapitalization or
other similar change in the capital structure of the
Company, or any distribution to holders of Common Stock

11


other than cash dividends, shall occur or (iii) any
other event shall occur which in the judgment of the
Committee necessitates action by way of adjusting the
terms of the outstanding Options or rights under the
Grant of a DER, then the Committee shall forthwith take
any such action as in its judgment shall be necessary
to preserve to the Optionees rights substantially
proportionate to the rights existing prior to such
event, and to maintain the continuing availability of
Shares under Section 6 (if Shares are otherwise then
available) in a manner consistent with the intent
hereof, including, without limitation, adjustments in
(x) the number and kind of shares subject to Options,
(y) the Option Price, and (z) the number and kind of
shares available under Section 6; provided that this
provision shall not be effective to the extent that the
Company or the Committee determines that the
accelerated vesting of the Options upon the occurrence
of a Change of Control as contemplated hereby would
adversely affect the ability of the Company or acquiror
(in the case of a Change of Control in connection with
which the Company is not the surviving corporation) to
use the pooling method of accounting in connection with
a Change of Control transaction, if such method of
accounting would otherwise be available and desired by
the Company or acquiror. To the extent that such
action shall include an increase or decrease in the
number of shares subject to outstanding Options, the
number of shares available under Section 6 above shall
be increased or decreased, as the case may be,
proportionately.

b. Subject to any required action by
shareholders, if the Company is the surviving
corporation in any merger or consolidation, each
outstanding Option and the rights under the Grant of a
DER shall pertain and apply to the securities to which
a holder of the number of Shares subject to the Option
would have been entitled. In the event of a merger or
consolidation in which the Company is not the surviving
corporation, the date of exercisability of each
outstanding Grant shall be accelerated to a date prior
to such merger or consolidation, unless the agreement
of merger or consolidation provides for the assumption
of the Grant by the successor to the Company.

c. To the extent that the foregoing
adjustment related to securities of the Company, such
adjustments shall be made by the Committee, whose
determination shall be conclusive and binding on all
persons.

d. Except as expressly provided in this
Section 10, the recipient of the Grant shall have no
rights by reason of subdivision or consolidation of
shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the
number of shares of stock of any class or by reason of
any dissolution, liquidation, merger or consolidation
or spin-off of assets or stock of another corporation,
and any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the
number or Exercise Price of Shares subject to an
Option.

e. Grants made pursuant to the Plan shall
not affect in any way the right or power to the Company
to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to
merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business assets.

f. Upon the occurrence of a Change of
Control:

i. The Committee as constituted
immediately before the Change of Control may make
such adjustments as it, in its discretion,

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determines are necessary or appropriate in light
of the Change of Control (including, without
limitation, the substitution of stock other than
stock of the Company as the stock optioned
hereunder, and the acceleration of the
exercisability of the Options), provided that the
Committee determines that such adjustments do not
have a substantial adverse economic impact on the
Optionee as determined at the time of the
adjustments.

ii. All restrictions and conditions on
each DER shall automatically lapse and all Grants
under the Plan shall be deemed fully vested.

g. "Change of Control" shall mean the
occurrence of any one of the following events:

i. any "person," as such term is used
in Sections 13(d) and 14(d) of the Act (other than
the Company, any of its Affiliates or any trustee,
fiduciary or other person or entity holding
securities under any employee benefit plan or
trust of the Company or any of its Affiliates)
together with all "affiliates" and "associates"
(as such terms are defined in Rule 12b-2 under the
Act) of such person, shall become the "beneficial
owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of
securities of the Company representing 30% or more
of either (A) the combined voting power of the
Company's then outstanding securities having the
right to vote in an election of the Board of
Directors ("voting securities") or (B) the then
outstanding Shares (in either such case other than
as a result of an acquisition of securities
directly from the Company); or

ii. persons who, as of the effective
date of the Plan, constitute the Company's Board
of Directors (the "Incumbent Directors") cease for
any reason, including, without limitation, as a
result of a tender offer, proxy contest, merger or
similar transaction, to constitute at least a
majority of the Board, provided that any person
becoming a Director of the Company subsequent to
the effective date whose election or nomination
for election was approved by a vote of at least a
majority of the Incumbent Directors shall, for
purposes of the Plan, be considered an Incumbent
Director; or

iii. there shall occur (A) any
consolidation or merger of the Company or any
Subsidiary where the shareholders of the Company,
immediately prior to the consolidation or merger,
would not, immediately after the consolidation or
merger, beneficially own (as such term is defined
in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate
50% or more of the voting securities of the
corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent
corporation, if any), (B) any sale, lease,
exchange or other transfer (in one transaction or
a series of transactions contemplated or arranged
by any party as a single plan) of all or
substantially all of the assets of the Company or
(C) any plan or proposal for the liquidation or
dissolution of the Company.

Notwithstanding the foregoing, a "Change of Control"
shall not be deemed to have occurred for purposes of
the foregoing clause (i) solely as the result of an

13


acquisition of securities by the Company which, by
reducing the number of Shares or other voting
securities outstanding, increases (x) the proportionate
number of Shares beneficially owned by any person to
30% or more of the Shares then outstanding or (y) the
proportionate voting power represented by the voting
securities beneficially owned by any person to 30% or
more of the combined voting power of all then
outstanding voting securities; provided, however, that,
if any person referred to in clause (x) or (y) of this
sentence shall thereafter become the beneficial owner
of any additional Shares or other voting securities
(other than pursuant to a stock split, stock dividend,
or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of this
subsection (g).

11. EFFECT OF CERTAIN TRANSACTIONS. In the case
of (i) the dissolution or liquidation of the Company,
(ii) a merger, consolidation, reorganization or other
business combination in which the Company is acquired
by another entity or in which the Company is not the
surviving entity, or (iii) any sale, lease, exchange or
other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a
single plan) of all or substantially all of the assets
of the Company, the Plan and the Grants issued
hereunder shall terminate upon the effectiveness of any
such transaction or event, unless provision is made in
connection with such transaction for the assumption of
Grants theretofore granted, or the substitution for
such Grants of new Grants, by the successor entity or
parent thereof, with appropriate adjustment as to the
number and kind of shares and the per share exercise
prices, as provided in Section 10. In the event of
such termination, all outstanding Options and Grants
shall be exercisable in full for at least fifteen days
prior to the date of such termination whether or not
otherwise exercisable during such period.

12. SECURITIES LAW REQUIREMENTS.

a. Legality of Issuance. The issuance of
any Shares upon the exercise of any Option and the
grant of any Option shall be contingent upon the
following:

i. the obligation of the Company to
sell Shares with respect to Options granted under
the Plan shall be subject to all applicable laws,
rules and regulations, including all applicable
federal and state securities laws, and the
obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate
by the Committee;

ii. the Committee may make such changes
to the Plan as may be necessary or appropriate to
comply with the rules and regulations of any
government authority or to obtain tax benefits
applicable to stock options; and

iii. each Option is subject to the
requirement that, if at any time the Committee
determines, in its discretion, that the listing,
registration or qualification of Shares issuable
pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the
consent or approval of any governmental regulatory

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body is necessary or desirable as a condition of,
or in connection with, the grant of an Option or
the issuance of Shares, no Options shall be
granted or payment made or Shares issued, in whole
or in part, unless listing, registration,
qualification, consent or approval has been
effected or obtained free of any conditions in a
manner acceptable to the Committee.

b. Restrictions on Transfer. Regardless of
whether the offering and sale of Shares under the Plan
has been registered under the Act or has been
registered or qualified under the securities laws of
any state, the Company may impose restrictions on the
sale, pledge or other transfer of such Shares
(including the placement of appropriate legends on
stock certificates) if, in the judgment of the Company
and its counsel, such restrictions are necessary or
desirable in order to achieve compliance with the
provisions of the Act, the securities laws of any state
or any other law. In the event that the sale of Shares
under the Plan is not registered under the Act but an
exemption is available which requires an investment
representation or other representation, each Optionee
shall be required to represent that such Shares are
being acquired for investment, and not with a view to
the sale or distribution thereof, and to make such
other representations as are deemed necessary or
appropriate by the Company and its counsel. Any
determination by the Company and its counsel in
connection with any of the matters set forth in this
Section 11 shall be conclusive and binding on all
persons. Without limiting the generality of the last
sentence of Section 6, stock certificates evidencing
Shares acquired under the Plan pursuant to an
unregistered transaction shall bear the following
restrictive legend and such other restrictive legends
as are required or deemed advisable under the
provisions of any applicable law.

"THE SALE OF THE SECURITIES REPRESENTED
HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH SECURITIES
WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER
THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE
OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH
THE ACT."

c. Registration or Qualification of
Securities. The Company may, but shall not be
obligated to, register or qualify the issuance of
Options and/or the sale of Shares under the Act or any
other applicable law. The Company shall not be
obligated to take any affirmative action in order to
cause the issuance of Options or the sale of Shares
under the Plan to comply with any law.

d. Exchange of Certificates. If, in the
opinion of the Company and its counsel, any legend
placed on a stock certificate representing Shares sold
under the Plan is no longer required, the holder of
such certificate shall be entitled to exchange such
certificate for a certificate representing the same
number of Shares but lacking such legend.

13. AMENDMENT OF THE PLAN. The Board may from
time to time, with respect to any Shares at the time
not subject to Options, suspend or discontinue the Plan
or revise or amend it in any respect whatsoever. The
Board may amend the Plan as it shall deem advisable,
except that no amendment may adversely affect an

15



Optionee with respect to Options previously granted
unless such amendments are in connection with
compliance with applicable laws; provided that the
Board may not make any amendment in the Plan that
would, if such amendment were not approved by the
holders of the Common Stock, cause the Plan to fail to
comply with any requirement or applicable law or
regulation, unless and until the approval of the
holders of such Common Stock is obtained.

14. APPLICATION OF FUNDS. The proceeds received
by the Company from the sale of Common Stock pursuant
to the exercise of an Option will be used for general
corporate purposes.

15. TAX WITHHOLDING. Each recipient of a Grant
shall, no later than the date as of which the value of
any Grant first becomes includable in the gross income
of the recipient for federal income tax purposes, pay
to the Company, or make arrangements satisfactory to
the Company regarding payment of any federal, state or
local taxes of any kind that are required by law to be
withheld with respect to such income. An Optionee may
elect to have such tax withholding satisfied, in whole
or in part, by (i) authorizing the Company to withhold
a number of Shares to be issued pursuant to a Grant
equal to the Fair Market Value as of the date
withholding is effected that would satisfy the
withholding amount due, (ii) transferring to the
Company Shares owned by the Optionee with a Fair Market
Value equal to the amount of the required withholding
tax, or (iii) in the case of an Optionee who is an
Employee of the Company at the time such withholding is
effected, by withholding from the Optionee's cash
compensation. Notwithstanding anything contained in
the Plan to the contrary, the Optionee's satisfaction
of any tax-withholding requirements imposed by the
Committee shall be a condition precedent to the
Company's obligation as may otherwise by provided
hereunder to provide Shares to the Optionee, and the
failure of the Optionee to satisfy such requirements
with respect to the exercise of an Option shall cause
such Option to be forfeited.

16. NOTICES. All notices under the Plan shall be
in writing, and if to the Company, shall be delivered
to the Board or mailed to its principal office,
addressed to the attention of the Board; and if to the
Optionee or recipient of a Grant, shall be delivered
personally or mailed to the Optionee or recipient of a
Grant at the address appearing in the records of the
Participating Company. Such addresses may be changed
at any time by written notice to the other party given
in accordance with this Section 16.

17. RIGHTS TO EMPLOYMENT OR OTHER SERVICE.
Nothing in the Plan or in any Option or Grant granted
pursuant to the Plan shall confer on any individual any
right to continue in the employ or other service of the
Company (if applicable) or interfere in any way with
the right of the Company and its shareholders to
terminate the individual's employment or other service
at any time.

18. EXCULPATION AND INDEMNIFICATION. To the
maximum extent permitted by law, the Company shall
indemnify and hold harmless the members of the Board
and the members of the Committee from and against any
and all liabilities, costs and expenses incurred by
such persons as a result of any act or omission to act
in connection with the performance of such person's
duties, responsibilities and obligations under the
Plan, other than such liabilities, costs and expenses
as may result from the gross negligence, bad faith,
willful misconduct or criminal acts of such persons.

16


19. NO FUND CREATED. Any and all payments
hereunder to recipients of Grants hereunder shall be
made from the general funds of the Company (or, if
applicable, a Participating Company), and no special or
separate fund shall be established or other segregation
of assets made to assure such payments; provided that
bookkeeping reserves may be established in connection
with the satisfaction of payment obligations hereunder.
The obligations of the Company under the Plan are
unsecured and constitute a mere promise by the Company
to make benefit payments in the future, and, to the
extent that any person acquires a right to receive
payments under the Plan from the Company (or, if
applicable, a Participating Company), such right shall
be no greater than the right of an general unsecured
creditor of the Company (or, if applicable, a
Participating Company).

20. CAPTIONS. The use of captions in the Plan is
for convenience. The captions are not intended to
provide substantive rights.

21. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY
THE LAWS OF MARYLAND, WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICT OF LAWS.

22. EXECUTION. The Company has caused the Plan
to be executed in the name and on behalf of the Company
by an officer of the Company thereunto duly authorized.

DATED: December 12, 1997


AMERICA FIRST MORTGAGE
INVESTMENTS, INC.
a Maryland corporation



By: /s/ Stewart Zimmerman
----------------------
Name: Stewart Zimmerman
Title: President and
Chief
Executive Officer



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