EXECUTION

FIRST HORIZON ASSET SECURITIES INC.

MORTGAGE PASS-THROUGH CERTIFICATES

SERIES 2006-3

TERMS AGREEMENT

(to Underwriting Agreement,

dated June 28, 2006

among the Company, First Horizon

Home Loan Corporation

and the Underwriter)

First Horizon Asset Securities Inc.

4000 Horizon Way

Irving, Texas 75063

Memphis, Tennessee

September 26, 2006

Morgan Stanley & Co. Incorporated, (the “Underwriter”) agrees, subject to the terms and provisions herein and of the captioned Underwriting Agreement (the “Underwriting Agreement”), to purchase such Classes of First Horizon Mortgage Pass-Through Trust 2006-3, Mortgage Pass-Through Certificates, Series 2006-3 (the “Series 2006-3 Certificates”) specified in Section 2(a) hereof (the “Offered Certificates”). This letter supplements and modifies the Underwriting Agreement solely as it relates to the purchase and sale of the Offered Certificates described below. The Series 2006-3 Certificates are registered with the Securities and Exchange Commission by means of an effective Registration Statement (No. 333-132046). Capitalized terms used and not defined herein have the meanings given them in the Underwriting Agreement.

Section 1. The Mortgage Pools: The Series 2006-3 Certificates shall evidence the entire beneficial ownership interest in two mortgage pools (“Pool I” and “Pool II” and, collectively, the “Mortgage Pools”) of conventional, fixed rate, first lien, fully amortizing, one- to four-family residential mortgage loans (the “Mortgage Loans”) having the following characteristics as of September 1, 2006 (the “Cut-off Date”):

(a) Aggregate Principal Amount of the Mortgage Pools: Approximately $442,037,461 aggregate principal balance as of the Cut-off Date, subject to an upward or downward variance of up to 5%, the precise aggregate principal balance to be determined by the Company.

(b) Original Terms to Maturity: The original term to maturity of each Mortgage Loan in Pool I shall be between 351 and 360 months. The original term to maturity of each Mortgage Loan in Pool II shall be between 117 and 80 months.

Section 2. The Certificates: The Offered Certificates shall be issued as follows:

(a) Classes: The Offered Certificates shall be issued with the following Class designations, pass-through rates and class principal balances, subject in the aggregate to the variance referred to in Section 1(a)and, as to any particular Class, to an upward or downward variance of up to 5%:

		Class Principal	Pass-Through		Class Purchase Price		Required Ratings
Class		Balance	Rate		Percentage		Fitch	S&P	Moody’s
Class I-A-1	$	15,000,000.00	5.830	%⁽¹⁾	99.847656250	%	AAA	AAA	Aaa
Class I-A-2	$	15,000,000.00	Variable	⁽¹⁾	N/A		AAA	AAA	Aaa
Class I-A-3	$	53,340,000.00	6.250	%⁽¹⁾	99.847656250	%	AAA	AAA	Aaa
Class I-A-4	$	13,291,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-5	$	10,000,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-6	$	25,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-7	$	41,593,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-8	$	28,762,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-9	$	8,462,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-10	$	11,950,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-11	$	114,768,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-12	$	28,684,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-13	$	34,198,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-14	$	18,312,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-15	$	13,592,000.00	6.250	%	99.847656250	%	AAA	AAA	Aa1
Class I-A-16	$	350,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-17	$	25,000.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class I-A-PO	$	558,494.00	N/A		99.847656250	%	AAA	AAA	Aaa
Class I-A-R	$	100.00	6.250	%	99.847656250	%	AAA	AAA	Aaa
Class II-A-1	$	13,418,000.00	5.750	%	99.429687500	%	AAA	AAA	Aaa

⁽¹⁾	The pass-through rates for this class of certificates for each distribution date will be variable and will be calculated as described under “Description of the Certificates - Distributions on the Certificates - Interest” in this prospectus supplement.

⁽²⁾	Notional Amount.

(b) The Offered Certificates shall have such other characteristics as described in the related Prospectus.

Section 3. Purchase Price: The Purchase Price for each Class of the Offered Certificates shall be the Class Purchase Price Percentage therefor (as set forth in Section 2(a) above) of the initial Class Principal Balance thereof plus accrued interest at the applicable per annum pass-through rate set forth in 2(a) above from and including the Cut-off Date up to, but not including, September 29, 2006 (the “Closing Date”).

Section 4. Required Ratings: The Offered Certificates shall have received at least the Required Ratings from Fitch, Inc. (“Fitch”), Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) set forth in Section 2(a) above.

Section 5. Tax Treatment: One or more elections will be made to treat the assets of the Trust Fund as a REMIC.

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the undersigned a counterpart hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Underwriter, First Horizon Home Loan Corporation and the Company.

	Very truly yours,

	MORGAN STANLEY & CO. INCORPORATED

	By:
		Name: Title:

The foregoing Agreement is

hereby confirmed and accepted

as of the date first above written.

FIRST HORIZON ASSET SECURITIES INC.


By:
	Name: Alfred Chang Title: Vice President


FIRST HORIZON HOME LOAN CORPORATION


By:
	Name: Terry L. McCoy Title: Executive Vice President