MORGAN STANLEY ABS CAP I INC MRT PSS THR CERT SE 2002-HE3
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>7
<FILENAME>c26370_ex10-1.txt
<TEXT>


                                                                    EXHIBIT 10.1


                              ENDORSEMENT NO. 1 TO
                       FINANCIAL GUARANTY INSURANCE POLICY

FINANCIAL SECURITY                                               350 Park Avenue
ASSURANCE INC.                                          New York, New York 10022


TRUST:              The Trust  created by the Pooling and  Servicing  Agreement,
                    dated as of  November  1,  2002  among  Morgan  Stanley  ABS
                    Capital I Inc., as Depositor,  CDC Mortgage Capital Inc., as
                    Unaffiliated  Seller,  Fairbanks  Capital Corp., as Servicer
                    and Deutsche Bank National Trust Company, as Trustee

CERTIFICATES:       $537,817,000 CDC Mortgage  Capital Trust 2002-HE3,  Mortgage
                    Pass-Through   Certificates,   Series   2002-HE3,   Class  A
                    Certificates

Policy No.:         51369-N

Date of Issuance:   November 27, 2002


         1.  DEFINITIONS.  For all purposes of this Policy,  the terms specified
below shall have the meanings or constructions provided below. Capitalized terms
used herein and not otherwise defined herein shall have the meanings provided in
the Pooling and Servicing Agreement unless the context shall otherwise require.

         "BUSINESS DAY" means any day other than (i) Saturday or Sunday, or (ii)
a day on which  banking and savings and loan  institutions,  in (a) the State of
New  York,  New  Jersey  and  Florida,  (b) the  state in which  the  Servicer's
servicing  operations  are  located,  or (c) the  State in which  the  Trustee's
operations are located,  are authorized or obligated by law,  executive order or
government decree to be closed.

         "GUARANTEED  DISTRIBUTIONS"  means,  with respect to each  Distribution
Date, the distribution to be made to Holders of the Certificates in an aggregate
amount equal to (i) the Accrued  Certificate  Interest  Distribution Amount with
respect  to the  Certificates  for each  Distribution  Date,  (ii)  any  Class A
Principal  Parity  Amount  and  (iii)  the  Class  Certificate  Balance  of  the
Certificates  to the extent unpaid on the Final Scheduled  Distribution  Date or
earlier  termination  of the  Trust  pursuant  to the terms of the  Pooling  and
Servicing  Agreement,  after  giving  effect  to all  other  amounts  due to the
Certificates,  in  each  case in  accordance  with  the  original  terms  of the
Certificates  when issued and without regard to any amendment or modification of
the  Certificates or the Pooling and Servicing  Agreement  except  amendments or
modifications  to which Financial  Security has given its prior written consent.
Guaranteed Distributions shall not include, nor shall coverage be provided under
this Policy in respect of, any taxes, withholding or other



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charge imposed by any governmental  authority due in connection with the payment
of any Guaranteed Distribution to a Holder.

         "POLICY" means this Financial  Guaranty  Insurance  Policy and includes
each endorsement thereto.

         "POOLING  AND  SERVICING  AGREEMENT"  means the Pooling  and  Servicing
Agreement  dated as of November 1, 2002 among Morgan Stanley ABS Capital I Inc.,
as Depositor,  Fairbanks Capital Corp., as Servicer,  CDC Mortgage Capital Inc.,
as Unaffiliated Seller, and Deutsche Bank National Trust Company, as Trustee, as
amended from time to time with the consent of Financial Security.

         "RECEIPT" and "RECEIVED" mean actual delivery to Financial Security and
to the Fiscal Agent (as defined  below),  if any,  prior to 12:00 noon, New York
City time,  on a Business Day;  delivery  either on a day that is not a Business
Day, or after 12:00 noon,  New York City time,  shall be deemed to be receipt on
the next succeeding  Business Day. If any notice or certificate  given hereunder
by the Trustee is not in proper form or is not properly  completed,  executed or
delivered,  it shall be deemed not to have been Received, and Financial Security
or its Fiscal  Agent  shall  promptly  so advise the Trustee and the Trustee may
submit an amended notice.

         "TERM OF THIS POLICY"  means the period from and  including the Date of
Issuance to and including the date on which (i) the unpaid principal balances of
all of the Certificates is zero, (ii) any period during which any payment on the
Certificates could have been avoided in whole or in part as a preference payment
under  applicable  bankruptcy,  insolvency,  receivership  or  similar  law  has
expired,  and (iii) if any  proceedings  requisite  to avoidance as a preference
payment have been commenced prior to the occurrence of (i) and (ii), a final and
nonappealable order in resolution of each such proceeding has been entered.

         "TRUSTEE"  means Deutsche Bank National Trust Company,  in its capacity
as Trustee under the Pooling and  Servicing  Agreement and any successor in such
capacity.

         2.  NOTICES  AND   CONDITIONS  TO  PAYMENT  IN  RESPECT  OF  GUARANTEED
DISTRIBUTIONS.   Following  Receipt  by  Financial  Security  of  a  notice  and
certificate  from  the  Trustee  in the  form  attached  as  Exhibit  A to  this
Endorsement, Financial Security will pay any amount payable hereunder in respect
of Guaranteed  Distributions out of the funds of Financial Security on the later
to occur of (a) 12:00  noon,  New York City  time,  on the second  Business  Day
following  such  Receipt;  and (b)  12:00  noon,  New  York  City  time,  on the
Distribution Date to which such claim relates. Payments due hereunder in respect
of Guaranteed  Distributions  will be disbursed by wire transfer of  immediately
available funds to the Class A Insurance Payment Account established pursuant to
the Pooling and  Servicing  Agreement  or, if no such Class A Insurance  Payment
Account has been established, to the Trustee.



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<PAGE>


         Financial  Security  shall be entitled to pay any amount  hereunder  in
respect of Guaranteed Distributions, including any acceleration payment, whether
or not any notice and certificate shall have been Received by Financial Security
as provided  above,  provided,  however,  that by  acceptance of this Policy the
Trustee  agrees to provide to  Financial  Security,  upon  Financial  Security's
request to the Trustee, a notice and certificate in respect of any such payments
made  by  Financial  Security.  Financial  Security  shall  be  entitled  to pay
principal hereunder on an accelerated basis if Financial Security shall so elect
in its sole  discretion,  at any time or from time to time, in whole or in part,
at an earlier  Distribution  Date than provided in the definition of "Guaranteed
Distributions,"  if such principal would have been payable under the Pooling and
Servicing  Agreement were funds sufficient to make such payment available to the
Trustee for such purpose.  Guaranteed  Distributions insured hereunder shall not
include  interest,  in respect of principal  paid  hereunder  on an  accelerated
basis,  accruing  from after the date of such  payment of  principal.  Financial
Security's obligations hereunder in respect of Guaranteed Distributions shall be
discharged to the extent funds are  disbursed by Financial  Security as provided
herein whether or not such funds are properly applied by the Trustee.

         3.  NOTICES  AND   CONDITIONS  TO  PAYMENT  IN  RESPECT  OF  GUARANTEED
DISTRIBUTIONS AVOIDED AS PREFERENCE Payments. If any Guaranteed  Distribution is
avoided  as  a  preference  payment  under  applicable  bankruptcy,  insolvency,
receivership or similar law,  Financial Security will pay such amount out of the
funds of  Financial  Security  on the  later of (a) the date when due to be paid
pursuant  to the  Order  referred  to below or (b) the first to occur of (i) the
fourth Business Day following Receipt by Financial  Security from the Trustee of
(A) a certified copy of the order of the court or other  governmental body which
exercised  jurisdiction  to the  effect  that the Holder is  required  to return
principal or interest  distributed with respect to the  Certificates  during the
Term of this Policy  because such  distributions  were  avoidable as  preference
payments under applicable bankruptcy law (the "Order"), (B) a certificate of the
Holder that the Order has been entered and is not subject to any stay and (C) an
assignment  duly  executed  and  delivered  by the  Holder,  in such  form as is
reasonably  required  by  Financial  Security  and  provided  to the  Holder  by
Financial Security,  irrevocably  assigning to Financial Security all rights and
claims of the Holder relating to or arising under the  Certificates  against the
debtor  which made such  preference  payment or  otherwise  with respect to such
preference  payment or (ii) the date of Receipt by Financial  Security  from the
Trustee of the items  referred to in clauses (A), (B) and (C) above if, at least
four Business Days prior to such date of Receipt,  Financial Security shall have
Received written notice from the Trustee that such items were to be delivered on
such date and such date was  specified  in such notice.  Such  payment  shall be
disbursed  to the  receiver,  conservator,  debtor-in-possession  or  trustee in
bankruptcy  named in the Order and not to the  Trustee  or any  Holder  directly
(unless a Holder has previously  paid such amount to the receiver,  conservator,
debtor-in-possession  or trustee in bankruptcy named in the Order, in which case
such payment shall be disbursed to the Trustee for  distribution  to such Holder
upon proof of such payment reasonably  satisfactory to Financial  Security).  In
connection with the foregoing, Financial Security shall have the rights provided
pursuant to Sections 4.05 and 4.06 of the Pooling and Servicing Agreement.



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<PAGE>


         4.  GOVERNING  LAW.  This Policy shall be governed by and  construed in
accordance with the laws of the State of New York,  without giving effect to the
conflict of laws principles thereof.

         5. FISCAL AGENT. At any time during the Term of this Policy,  Financial
Security may appoint a fiscal  agent (the  "Fiscal  Agent") for purposes of this
Policy by written notice to the Trustee at the notice  address  specified in the
Pooling and Servicing  Agreement  specifying  the name and notice address of the
Fiscal Agent.  From and after the date of receipt of such notice by the Trustee,
(i) copies of all notices and  documents  required to be  delivered to Financial
Security pursuant to this Policy shall be simultaneously delivered to the Fiscal
Agent and to Financial  Security and shall not be deemed Received until Received
by both and (ii) all payments  required to be made by Financial  Security  under
this Policy may be made directly by Financial Security or by the Fiscal Agent on
behalf  of  Financial  Security.  The  Fiscal  Agent is the  agent of  Financial
Security only and the Fiscal Agent shall in no event be liable to any Holder for
any acts of the Fiscal Agent or any failure of Financial Security to deposit, or
cause to be deposited, sufficient funds to make payments due under this Policy.

         6. WAIVER OF DEFENSES.  To the fullest  extent  permitted by applicable
law, Financial Security agrees not to assert, and hereby waives, for the benefit
of each Holder,  all rights (whether by  counterclaim,  setoff or otherwise) and
defenses (including, without limitation, the defense of fraud), whether acquired
by  subrogation,  assignment  or  otherwise,  to the extent that such rights and
defenses  may be  available  to  Financial  Security  to  avoid  payment  of its
obligations under this Policy in accordance with the express  provisions of this
Policy.

         7.  NOTICES.  All  notices  to be given  hereunder  shall be in writing
(except  as  otherwise  specifically  provided  herein)  and  shall be mailed by
registered mail or personally  delivered or telecopied to Financial  Security as
follows:

                          Financial Security Assurance Inc.
                          350 Park Avenue
                          New York, NY  10022
                          Attention:  Managing Director - Transaction Oversight
                          Re:  CDC Mortgage Capital Trust 2002-HE3
                          Policy No.:  51369-N
                          Telecopy No.:  (212) 339-3518
                          Confirmation:  (212) 826-0100

Financial  Security  may specify a  different  address or  addresses  by writing
mailed or delivered to the Trustee.

         8.  PRIORITIES.  In the event any term or provision of the face of this
Policy is inconsistent with the provisions of this  Endorsement,  the provisions
of this Endorsement shall take precedence and shall be binding.



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<PAGE>


         9. EXCLUSIONS FROM INSURANCE GUARANTY FUNDS. This Policy is not covered
by the Property/Casualty  Insurance Security Fund specified in Article 76 of the
New York  Insurance  Law.  This Policy is not  covered by the Florida  Insurance
Guaranty  Association  created  under  Part  II of  Chapter  631 of the  Florida
Insurance Code. In the event Financial  Security were to become  insolvent,  any
claims  arising under this Policy are excluded  from coverage by the  California
Insurance Guaranty Association,  established pursuant to Article 14.2 of Chapter
1 of Part 2 of Division 1 of the California Insurance Code.

         10.  SURRENDER OF POLICY.  The Trustee shall  surrender  this Policy to
Financial Security for cancellation upon expiration of the Term of this Policy.






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<PAGE>


         IN WITNESS WHEREOF,  FINANCIAL  SECURITY ASSURANCE INC. has caused this
Endorsement No. 1 to be executed by its Authorized Officer.

                                        FINANCIAL SECURITY ASSURANCE INC.

                                        By:
                                            -----------------------------
                                                 Authorized Officer



<PAGE>


Policy No.: 51369-N                          Date of Issuance: November 27, 2002

                                                                       EXHIBIT A
                                                                TO ENDORSEMENT 1

                         NOTICE OF CLAIM AND CERTIFICATE

                             (Letterhead of Trustee)

Financial Security Assurance Inc.
350 Park Avenue
New York, NY 10022

          Re:  CDC  Mortgage  Capital  Trust  2002-HE3   Mortgage   Pass-Through
Certificates, Series 2002-HE3


          The  undersigned, a duly authorized  officer of Deutsche Bank National
Trust Company (the "Trustee"),  hereby certifies to Financial Security Assurance
Inc.  ("Financial  Security"),  with reference to Financial  Guaranty  Insurance
Policy No. 51369-N dated  November 27, 2002 (the  "Policy")  issued by Financial
Security  in  respect  of the  CDC  Mortgage  Capital  Trust  2002-HE3  Mortgage
Pass-Through Certificates, Series 2002-HE3 (the "Certificates"), that:

          (i) The Trustee is the  Trustee for the Holders  under the Pooling and
     Servicing Agreement.

          (ii) The sum of all amounts on deposit (or scheduled to be on deposit)
     in the  Collection  Account and available for  distribution  to the Holders
     pursuant to the Pooling and Servicing  Agreement will be $___________  (the
     "Shortfall")  less than the  Guaranteed  Distributions  with respect to the
     Distribution Date.

          (iii) The Trustee is making a claim under the Policy for the Shortfall
     to be  applied to  distributions  of  principal  or  interest  or both with
     respect to the Certificates.

          (iv)  The  Trustee  agrees  that,  following  receipt  of  funds  from
     Financial  Security,  it shall (a) hold such amounts in trust and apply the
     same   directly  to  the  payment  of  Guaranteed   Distributions   on  the
     Certificates when due; (b) not apply such funds for any other purpose;  (c)
     not  commingle  such  funds with other  funds held by the  Trustee  and (d)
     maintain  an  accurate  record  of  such  payments  with  respect  to  each
     Certificate and the corresponding  claim on the Policy and proceeds thereof
     and, if the Certificate is required to be surrendered or presented for such
     payment,  shall  stamp on each  such  Certificate  the  legend  "$  [insert
     applicable  amount] paid by Financial  Security and the balance  hereof has
     been  cancelled and reissued"  and then shall deliver such  Certificate  to
     Financial Security.

          (v) The Trustee, on behalf of the Holders, hereby assigns to Financial
     Security the rights of the Holders with respect to the  Certificates to the
     extent of any payments under the Policy, including, without limitation, any
     amounts due to



<PAGE>


     the Holders in respect of securities law violations  arising from the offer
     and sale of the Certificates.  The foregoing  assignment is in addition to,
     and not in limitation  of,  rights of  subrogation  otherwise  available to
     Financial Security in respect of such payments. The Trustee shall take such
     action and deliver  such  instruments  as may be  reasonably  requested  or
     required by Financial  Security to effectuate  the purpose or provisions of
     this clause (v).

          (vi) The Trustee,  on its behalf and on behalf of the Holders,  hereby
     appoints Financial Security as agent and  attorney-in-fact  for the Trustee
     and  each  such  Holder  in  any  legal  proceeding  with  respect  to  the
     Certificates.  The Trustee hereby agrees that Financial Security may at any
     time during the  continuation  of any  proceeding  by or against the Issuer
     under the United States Bankruptcy Code or any other applicable bankruptcy,
     insolvency,  receivership,  rehabilitation  or similar law (an  "Insolvency
     Proceeding")  direct all matters  relating to such  Insolvency  Proceeding,
     including  without  limitation,  (A) all  matters  relating to any claim in
     connection  with  an  Insolvency  Proceeding  seeking  the  avoidance  as a
     preferential  transfer  of  any  distribution  made  with  respect  to  the
     Certificates (a "Preference Claim"), (B) the direction of any appeal of any
     order  relating  to any  Preference  Claim,  at the  expense  of  Financial
     Security  but  subject  to  reimbursement  as  provided  in  the  Insurance
     Agreement  and (C) the posting of any surety,  supersedeas  or  performance
     bond pending any such appeal.  In addition,  the Trustee hereby agrees that
     Financial  Security  shall be subrogated  to, and the Trustee on its behalf
     and on behalf of each Holder,  hereby delegates and assigns, to the fullest
     extent  permitted  by law, the rights of the Trustee and each Holder in the
     conduct of any Insolvency Proceeding,  including,  without limitation,  all
     rights of any party to an  adversary  proceeding  or action with respect to
     any court order issued in connection with any such Insolvency Proceeding.

          (vii) Payment should be made by wire transfer  directed to the Class A
     Insurance Payment Account.

          Unless the context otherwise requires,  capitalized terms used in this
Notice of Claim and  Certificate  and not defined herein shall have the meanings
provided in the Policy.

          IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
of Claim and Certificate as of the ____________ day of ___________, _____.

                                     DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                     as Trustee

                                     By:
                                            ------------------------------
                                     Title:
                                            ------------------------------


--------------------------------------------------------------------------------

For Financial Security or Fiscal Agent Use Only



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Wire transfer sent on ____________________ by _______________________

Confirmation Number _____________________









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