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                                 MONTEREY HOMES
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                               LUXURY COMMUNITIES
January 15, 1998

Via Facsimile:  312-683-6755
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Mr. Keith Ramaden
Managing Director
PaineWebber
181 W. Madison Street
41st Floor
Chicago, IL  60602

Dear Keith:

By signing below, PaineWebber acknowledges and confirms as follows:

         1.       PaineWebber  has  requested,  on an  unsolicited  basis,  that
                  Monterey Homes sell all of its residual  interest with respect
                  to  Westam  Mortage  Financial  Corporation  Series  5 and  6.
                  Federal   Home   Loan   Mortgage    Corporation   Class   17-A
                  (representing  100% of the  residuals)  and  Federal  National
                  Mortgage Association Issue 1988-24  (representing 20.2% of the
                  residual)   and   1988-25    (representing   45.07%   of   the
                  residual)Bonds for a purchase price of $4,550,000 and Monterey
                  Homes has agreed to sell such residual interest to PaineWebber
                  for such purchase price,  subject to the execution of transfer
                  documents  acceptable to the transfer  agent for the residuals
                  to close effective February 2, 1998, so that PaineWebber shall
                  receive the payments due  subsequent  settlement.  The parties
                  shall cooperate in executing any necessary transfer documents,
                  including,  but  not  limited  to  the  transfer  of  Westam's
                  optional redemption rights.

         2.       PaineWebber  has  requested,  on an  unsolicited  basis,  that
                  Monterey Homes sell all of its residual  interest with respect
                  to Westam Mortage Financial Corporation Series 3 (representing
                  100% of the residual) Bonds for a purchase price of $2,050,000
                  and Monterey  Homes has agreed to sell such residual  interest
                  to  PaineWebber  for  such  purchase  price,  subject  to  the
                  execution  of transfer  documents  acceptable  to the transfer
                  agent for the residuals to close  effective  April 1, 1998, so
                  that  PaineWebber  shall  receive the payments due  subsequent
                  settlement.  The parties  shall  cooperate  in  executing  any
                  necessary transfer  documents,  including,  but not limited to
                  the transfer of Westam's optional redemption rights.

         3.       PaineWebber is qualified institutional buyer as defined by the
                  Federal securities laws.

         4.       PaineWebber  has  obtained  all  information  which  it  deems
                  appropriate  in  determining  to  make  its  purchase  of  the
                  residual interest and has not relied on any representations or
                  warranties of Monterey Homes.
Sincerely,

MONTEREY HOMES CORPORATION                    ACKNOWLEDGED

/s/ Larry W. Seay                             /s/ Keith Ramsden
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                                                    Authorized Signature

Larry W. Seay
Vice President of Finance & CFO                   1/18/98
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                                                   Date

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