FORM OF 1997 STOCK OPTION PLAN OF THE CO.

Exhibit 10.5




AMERICA FIRST MORTGAGE INVESTMENTS, INC.

FORM OF 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 American First Mortgage Advisor 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, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being

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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 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

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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:

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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 promissory note executed by the Optionee. The interest
rate and other

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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
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,

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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 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

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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, determines
are necessary or appropriate in light of the Change of Control (including,
without limitation, the

12



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
acquisition of securities by the Company which, by reducing the number of Shares
or other voting securities outstanding,

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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 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

14



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 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

15



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.

AMERICA FIRST MORTGAGE INVESTMENTS, INC.
a Maryland corporation



By: _________________________
Name:
Title:



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