EXECUTED VERSION SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

EXECUTED VERSION

SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER

THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this “ Second Amendment ”) is made and entered into as of September 18, 2007 by and among ACCREDITED HOME LENDERS HOLDING CO., a Delaware corporation (the “ Company ”), LSF5 ACCREDITED INVESTMENTS, LLC, a Delaware limited liability company (“ Parent ”), and LSF5 ACCREDITED MERGER CO., INC. a Delaware corporation and wholly-owned subsidiary of Parent (“ Purchaser ” and, together with the Parent, the “ Buyer Parties ”).

WHEREAS, the Company and the Buyer Parties, entered into that certain Agreement and Plan of Merger dated as of June 4, 2007, as amended by the First Amendment to Agreement and Plan of Merger dated as of June 15, 2007 (the “ Merger Agreement ”);

WHEREAS, Section 11.04 of the Merger Agreement provides that at any time prior to the Merger Effective Time, the Merger Agreement may be amended by the parties thereto by action taken by their respective boards of directors (or similar governing body or entity); and

WHEREAS, in accordance with Section 11.04 of the Merger Agreement, the Buyer Parties and the Company have agreed to amend the Merger Agreement as set forth herein.

NOW, THEREFORE, in consideration of the foregoing premises the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 . Unless otherwise defined herein, all capitalized terms used in this Second Amendment have the meanings given to them in the Merger Agreement.

ARTICLE II

AMENDMENTS TO THE MERGER AGREEMENT

Section 2.01 . The recitals of the Merger Agreement are hereby amended by the provisions of this Second Amendment to include a new recital inserted as the sixth recital

of the Merger Agreement. As amended, the sixth recital of the Merger Agreement reads in its entirety:

WHEREAS, pursuant to the Second Amendment, the Company and the Buyer Parties have agreed to revise certain terms and to remove certain conditions related to the transactions contemplated hereby and to reduce the Offer Price and the Merger Consideration to $11.75 per Company Common Share;

Section 2.02. Section 1.01 of the Merger Agreement is hereby amended by the provisions of this Second Amendment to reflect the amended defined terms, new defined terms and deleted defined terms, each as set forth on Exhibit A hereto.

Section 2.03 . ANNEX I of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, ANNEX I of the Merger Agreement reads in its entirety:

Conditions of the Offer

Notwithstanding any other provision of the Offer, Purchaser shall not be obligated to accept for payment, and (subject to the rules and regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange Act (relating to Parent’s obligation to pay for or return tendered Company Common Shares promptly after termination or withdrawal of the Offer)) shall not be obligated to pay for, or may delay the acceptance for payment of or payment for, any Company Common Shares tendered pursuant to the Offer (and not theretofore accepted for payment or paid for) unless, prior to the expiration of the Offer (as it may have been extended pursuant to Section 2.01(d) of the Agreement), there shall have been tendered and not validly withdrawn Company Common Shares that, considered together with all other Company Common Shares (if any) beneficially owned by Parent and its Affiliates, represent more than 50% of the Company Outstanding Shares. The preceding condition is referred to as the “ Minimum Condition .”

Furthermore, Purchaser shall not be required to accept for payment, and (subject to the rules and regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange Act (relating to Parent’s obligation to pay for or return tendered Company Common Shares promptly after termination or withdrawal of the Offer)) shall not be obligated to pay for, or may delay the acceptance for payment of or payment for, any Company Common Shares tendered pursuant to the Offer (and not theretofore accepted for payment or paid for) if, upon the expiration of the Offer (as it may have been extended pursuant to Section 2.01(d) of the Agreement) and before acceptance of such Company Common Shares for payment, any of the following conditions exists and is continuing, regardless of the circumstances giving rise to such condition:

2

Any and all capitalized terms used herein, and not defined herein, shall have the same meaning as set forth in the Agreement and Plan of Merger, dated as of June 4, 2007, by and among ACCREDITED HOME LENDERS HOLDING CO., LSF5 ACCREDITED INVESTMENTS, LLC and LSF5 ACCREDITED MERGER CO., INC., as amended by the First Amendment and by the Second Amendment.

Section 2.04 . Section 2.01(d)(iii) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, Section 2.01(d)(iii) of the Merger Agreement reads in its entirety:

3

Section 2.05 . Section 2.02 of the Merger Agreement is hereby amended by the provisions of this Second Amendment to include a new paragraph (f). As amended, Section 2.02(f) of the Merger Agreement reads in its entirety:

(f) In connection with the execution and delivery of the Second Amendment, Parent, Purchaser and the Company and The Bank of New York, as escrow agent (the “ Escrow Agent ”), are entering into an escrow agreement dated as of date of the Second Amendment (the “ Escrow Agreement ”), in the form attached hereto as Exhibit B , pursuant to which Parent will deposit, simultaneously with the execution and delivery of the Second Amendment, into an escrow account cash in an amount equal to $ 295,560,310.75 (the “ Escrow Funds ”). The terms of the Escrow Agreement will specify the time for disbursement of an appropriate portion of the Escrow Funds to the holders of Company Common Shares who have properly tendered and not withdrawn Company Common Shares into the Offer (the “ Release Time ”).

Section 2.06. Pursuant to Section 2.01 of the Merger Agreement, the Company hereby consents to the reduction of the Offer Price from $15.10 per Company Common Share to $11.75 per Company Common Share.

Section 2.07 . Article II of the Merger Agreement is hereby amended by the provisions of this Second Amendment to include a new Section 2.07. As amended, Section 2.07 of the Merger Agreement reads in its entirety:

Section 2.07. Amended Offer . On the date of execution and delivery of the Second Amendment, Parent shall cause Purchaser to, and Purchaser shall, file an amendment to the Tender Offer Statement on Schedule TO relating to the Offer and promptly thereafter shall amend the Offer consistent with the terms of the Second Amendment and file with the SEC and disseminate to holders of Company Common Shares such amended Offer Documents as required by applicable law. Promptly after the date of execution and delivery of the Second Amendment, the Company shall amend the Schedule 14D-9 consistent with the terms of the Second Amendment and file with the SEC and disseminate to holders of Company Common Shares such amended Schedule 14D-9, including a description of the negotiations leading up to the execution and delivery of the Second Amendment and of the fairness opinion delivered to the Company Board in connection therewith, as required by applicable Law (the “ Second Amendment Schedule 14D-9/A ”). All references in this Agreement to the “Offer”, “Offer Documents” and “Schedule 14D-9” shall include any amendments or supplements thereto pursuant to this Section 2.07.

Section 2.08 . Article V of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, Article V of the Merger Agreement reads in its entirety:

ARTICLE V

RESERVED

4

Section 2.09 . Section 7.01 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, Section 7.01 of the Merger Agreement reads in its entirety:

Section 7.01. Conduct of Business by the Company Pending the Merger . Except as required, permitted or otherwise contemplated by this Agreement, neither the Company nor any Company Subsidiary shall, between the date of execution and delivery of the Second Amendment and the Release Time, do any of the following without the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed:

(a) amend, or propose to holders of Company Common Shares any change to, any provision of the Company Charter or the Company Bylaws, or increase the size of the Company Board;

(b) (i) authorize for issuance, issue or sell or agree or commit to issue or sell any shares of any class of capital stock of the Company or any Company Subsidiary or any options, Company Warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest, of the Company or any Company Subsidiary, other than (A) the issuance of Company Common Shares issuable pursuant to Company Stock Awards and Company Warrants outstanding on the date hereof, and (B) the award of Company Stock Options or Company Stock-Based Awards granted in the ordinary course of business; provided , however , that no Company Stock Option award shall, taken together with all other Company Stock Options awarded in 2007, exceed the aggregate Company Stock Options awarded in 2006 (measured by the number of underlying Company Common Shares); provided , further , however, that the Company Stock-Based Awards awarded in any fiscal quarter shall not exceed the average of the quarterly Company Stock-Based Awards awarded during 2006 (measured by the aggregate dollar value of such awards), (ii) repurchase, redeem or otherwise acquire any securities or equity equivalents except in connection with the exercise of Company Stock Options or the vesting of or lapse of restrictions on Company Stock Awards, (iii) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions (whether in cash, shares, property or otherwise) in respect of, any shares of the Company’s capital stock or the shares of stock or other equity interests in any Company Subsidiary that is not directly or indirectly wholly-owned by the Company, other than (A) dividends by any direct or indirect Company Subsidiary to the Company or any other Company Subsidiary, (B) dividends paid by the Reporting Subsidiary on shares of its 9.75% Series A Perpetual Cumulative Preferred Shares (the “ Reporting Subsidiary Preferred Shares ”), (C) dividends paid by Accredited Preferred Securities Trust I, a Subsidiary of the Company, on its trust preferred securities, and (D) dividend equivalents paid with respect to Company Stock Awards or (iv) split, combine or reclassify any shares, stock or other equity interests of the Company or any Company Subsidiary or issue or authorize the issuance of any securities in respect of, in lieu of or in substitution for shares of such shares, stock or other equity interests;

5

(c) acquire (by merger, consolidation, acquisition of equity interests or assets, or any other business combination) any corporation, partnership, limited liability company, joint venture or other business organization (or division thereof) or any property, in each case, for an amount in excess of $10,000,000, except that this Section 7.01(c) shall not be deemed to restrict purchases of inventory, mortgage and real estate related assets and other assets in the ordinary course of business;

(d) except as required by applicable Law or by the terms of the Plans and except for (A) payments to employees (but not to any of the four most senior executives officers of the Company) of retention bonuses or implementation of a retention bonus plan involving payments or other awards exceeding $3,000,000 in the aggregate (for the avoidance of doubt, it being understood that payments made to employees involved in the production or origination of business in lieu of commission or bonus payments shall not be considered retention payments or retention bonuses), and (B) payments made to continuing employees of amounts in respect of accrued “paid time off” to which they would be entitled in connection with resignation of employment, (i) increase the compensation or benefits payable to its directors, officers or employees (other than increases made in the ordinary course of business for employees and merit increases in base salary not exceeding ten percent (10%) ( provided , however , that such increases are consistent with past practice or are necessary to respond to bona fide offers of employment made by third parties) or (ii) grant to any director, officer or employee of the Company or of any Company Subsidiary any new severance, change of control or termination pay, grant any increase in, or otherwise alter or amend, any right to receive any severance, change of control or termination pay or benefits or establish, adopt, enter into or amend to materially increase benefits under any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, loan, retention, consulting, indemnification, termination, severance or other similar plan, agreement, trust, fund, policy or arrangement with any director, officer or employee; or

(e) transfer, sell, pledge, surrender, encumber, divest, or otherwise dispose of any capital stock of any of the Company Subsidiaries, except any such transactions among it and wholly-owned Company Subsidiaries (for the avoidance of doubt, it being understood that a secured party’s exercise of rights in respect of the capital stock of any Company Subsidiary which is pledged as collateral to such secured party shall not be deemed to violate this Section 7.01(e)).

Section 2.10 . Section 8.02(a) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, Section 8.02(a) of the Merger Agreement reads in its entirety:

(a) Subject to applicable Law, from the date hereof until the earlier to occur of the termination of this Agreement in accordance with Section 10.01 and the Merger Effective Time, the Company shall, and shall cause the Company Subsidiaries and the officers, directors, employees, auditors and agents of the Company and the

6

Company Subsidiaries to afford Parent access during normal business hours to the officers, employees, agents, properties, offices, plants and other facilities, books and records of the Company and the Company Subsidiaries, and all other financial, operating and other data and information as Parent may request. Notwithstanding the foregoing the Company and the Company Subsidiaries shall not be obligated to disclose (i) any information that in the reasonable judgment of the Company, would result in the loss of attorney-client privilege with respect to such information or (ii) any information that would result in a breach of an agreement to which the Company or any of the Company Subsidiaries is a party. The Company shall be entitled to have representatives present at all times during any such inspection.

Section 2.11 . Section 8.03 of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, Section 8.03 of the Merger Agreement reads in its entirety:

Section 8.03. Solicitation .

(a) From and after the date of this Agreement and continuing until the Acceptance Time, the Company and the Company Subsidiaries and their respective officers, directors, employees, consultants, agents, advisors, affiliates and other representatives shall have the right to directly or indirectly: (i) initiate, solicit and encourage Company Acquisition Proposals, including by way of public disclosure and by way of providing access to non-public information to any Person pursuant to (but only pursuant to) one or more confidentiality agreements (on substantially similar terms as the Confidentiality Agreement) and (ii) enter into and maintain discussions or negotiations with respect to Company Acquisition Proposals or otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations.

(b) At any time prior to the Merger Effective Time, the Company Board may make an Adverse Recommendation Change if the Company Board determines that failure to take such action would be inconsistent with its fiduciary duties to the Company Stockholders under applicable Law.

Section 2.12 . Section 8.05(a) of the Merger Agreement is hereby amended and superseded in all respects by the provisions of this Second Amendment. As amended and restated, Section 8.05(a) of the Merger Agreement reads in its entirety:

(a) Without limiting any additional rights that any director, officer, trustee, employee, agent, or fiduciary may have under any employment or indemnification agreement or under the Company Charter, the Company Bylaws or this Agreement or, if applicable, similar organizational documents or agreements of any of the Company Subsidiaries, from and after the Release Time, the Surviving Corporation and Parent shall, jointly and severally, to the fullest extent permitted by applicable Law:

7

(i) indemnify and hold harmless each person who was as of June 4, 2007, or during the period from June 4, 2007 through the Closing Date, serving as a director, officer, trustee, employee, agent, or fiduciary of the Company or Company Subsidiaries or as a fiduciary under or with respect to any employee benefit plan (within the meaning of Section 3(3) of ERISA) (collectively, the “ Indemnified Parties ”), in connection with any Claim and any judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) resulting therefrom; and (ii) promptly pay on behalf of or, within thirty (30) days after any request for advancement, advance to each of the Indemnified Parties, to the fullest extent authorized or permitted by applicable Law, as now or hereafter in effect, any Expenses incurred in defending, serving as a witness with respect to or otherwise participating in any Claim in advance o