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                                                                   EXHIBIT 10.16

                       ANWORTH MORTGAGE ASSET CORPORATION

                           DEFERRED COMPENSATION PLAN

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                                TABLE OF CONTENTS

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                                                                                                           PAGE
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ARTICLE I      TITLE AND DEFINITIONS........................................................................ 1

      1.1      Definitions.................................................................................. 1

ARTICLE II     PARTICIPATION................................................................................ 4

ARTICLE III    DEFERRAL ELECTIONS........................................................................... 4

ARTICLE IV     ALLOCATION OF INVESTMENT RETURN.............................................................. 4

ARTICLE V      DISTRIBUTIONS................................................................................ 5

ARTICLE VI     ADMINISTRATION............................................................................... 5

      6.1      Committee.................................................................................... 5

      6.2      Committee Action............................................................................. 5

      6.3      Powers and Duties of the Committee........................................................... 5

      6.4      Construction and Interpretation.............................................................. 6

      6.5      Information.................................................................................. 6

      6.6      Compensation, Expenses and Indemnity......................................................... 6

      6.7      Disputes..................................................................................... 7

ARTICLE VII    MISCELLANEOUS................................................................................ 8

      7.1      Unsecured General Creditor................................................................... 8

      7.2      Restriction Against Assignment............................................................... 8

      7.3      Withholding.................................................................................. 8

      7.4      Amendment, Modification, Suspension or Termination........................................... 9

      7.5      Governing Law................................................................................ 9

      7.6      Receipt or Release........................................................................... 9

      7.7      Payments on Behalf of Persons Under Incapacity............................................... 9

      7.8      Limitation of Rights and Employment Relationship............................................. 9

      7.9      Headings..................................................................................... 9
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                                       (i)

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                       ANWORTH MORTGAGE ASSET CORPORATION

                           DEFERRED COMPENSATION PLAN

     WHEREAS, Anworth Mortgage Asset Corporation ("Company"), a Maryland
corporation, desires to adopt the Anworth Mortgage Asset Corporation Deferred
Compensation Plan ("Plan") to provide supplemental retirement income benefits
for a select group of management and highly compensated employees of the Company
through deferrals of compensation effective as of January 15, 2003;

     WHEREAS, the Company intends that the Plan qualify as an unfunded deferred
compensation plan for the benefit of management and highly compensated employees
in accordance with Title 29, section 2520.104.23 of the Code of Federal
Regulations.

     NOW, THEREFORE, effective as of January 15, 2003 the Company hereby adopts
this Plan as to read as follows:

                                    ARTICLE I

                              TITLE AND DEFINITIONS

     1.1    Definitions.

            Whenever the following words and phrases are used in this Plan, with
the first letter capitalized, they shall have the meanings specified below.

            (a)   "Beneficiary" or "Beneficiaries" shall mean the person or
persons, including a trustee, personal representative or other fiduciary, last
designated in writing by a Participant in accordance with procedures established
by the Committee to receive the benefits specified hereunder in the event of the
Participant's death. No beneficiary designation shall become effective until it
is filed with the Committee. Any designation shall be revocable at any time
through a written instrument filed by the Participant with the Committee with or
without the consent of the previous Beneficiary. No designation of a Beneficiary
other than the Participant's spouse shall be valid unless consented to in
writing by such spouse. If there is no such designation or if there is no
surviving designated Beneficiary, then the Participant's surviving spouse shall
be the Beneficiary. If there is no surviving spouse to receive any benefits
payable in accordance with the preceding sentence, the duly appointed and
currently acting personal representative of the Participant's estate (which
shall include either the Participant's probate estate or living trust) shall be
the Beneficiary. In any case where there is no such personal representative of
the Participant's estate duly appointed and acting in that capacity within 90
days after the Participant's death (or such extended period as the Committee
determines is reasonably necessary to allow such personal representative to be
appointed, but not to exceed 180 days after the Participant's death), then
Beneficiary shall mean the person or persons who can verify by affidavit or
court order to the satisfaction of the Committee that they are legally entitled
to receive the benefits specified hereunder. In the event any amount is payable
under the Plan to a minor, payment shall not be made to the minor, but instead
be paid (a) to that person's living

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parent(s) to act as custodian, (b) if that person's parents are then divorced,
and one parent is the sole custodial parent, to such custodial parent, or (c) if
no parent of that person is then living, to a custodian selected by the
Committee to hold the funds for the minor under the Uniform Transfers or Gifts
to Minors Act in effect in the jurisdiction in which the minor resides. If no
parent is living and the Committee decides not to select another custodian to
hold the funds for the minor, then payment shall be made to the duly appointed
and currently acting guardian of the estate for the minor or, if no guardian of
the estate for the minor is duly appointed and currently acting within 60 days
after the date the amount becomes payable, payment shall be deposited with the
court having jurisdiction over the estate of the minor. Payment by Company
pursuant to any unrevoked Beneficiary designation, or to the Participant's
estate if no such designation exists, of all benefits owed hereunder shall
terminate any and all liability of Company.

            (b)   "Board of Directors" or "Board" shall mean the Board of
Directors of Company.

            (c)   "Change of Control" shall mean the occurrence of any of the
following:

                  (i)   any "person," as such term is used in Sections 13(d) and
     14(d) of the Exchange Act (other than the Company, any trustee or other
     fiduciary holding securities under an employee benefit plan of the Company,
     or any company owned, directly or indirectly, by the stockholders of the
     Company in substantially the same proportions as their ownership of stock
     of the Company) is or becomes after the effective date of the Plan the
     "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
     directly or indirectly, of securities of the Company (not including in the
     securities beneficially owned by such person any securities acquired
     directly from the Company or its affiliates) representing 30% or more of
     the combined voting power of the Company's then outstanding securities; or

                  (ii)  during any period of two consecutive years (not
     including any period prior to the effective date of the Plan), individuals
     who at the beginning of such period constitute the Board, and any new
     director (other than a director designated by a person who has entered into
     an agreement with the Company to effect a transaction described in clause
     (i), (iii) or (iv) of this Paragraph (c)) whose election by the Board or
     nomination for election by the Company's stockholders was approved by a
     vote of at least two-thirds (2/3) of the directors then still in office who
     either were directors at the beginning of the period or whose election or
     nomination for election was previously so approved, cease for any reason to
     constitute at least a majority thereof; or

                  (iii) the stockholders of the Company approve a merger or
     consolidation of the Company with any other corporation, other than (A) a
     merger or consolidation which would result in the voting securities of the
     Company outstanding immediately prior thereto continuing to represent
     (either by remaining outstanding or by being converted into voting
     securities of the surviving entity), in combination with the ownership of
     any trustee or other fiduciary holding securities under an employee benefit
     plan of the Company, at least 75% of the combined voting power of the
     voting securities of the Company or such surviving entity outstanding
     immediately after such merger or consolidation or (B) a merger or
     consolidation effected to implement a recapitalization of

                                       -2-

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     the Company (or similar transaction) in which no person acquires more than
     50% of the combined voting power of the Company's then outstanding
     securities; or

                  (iv)  the stockholders of the Company approve a plan of
     complete liquidation of the Company or an agreement for the sale or
     disposition by the Company of all or substantially all of the Company's
     assets.

            (d)   "Code" shall mean the Internal Revenue Code of 1986, as
amended.

            (e)   "Committee" shall mean the Committee appointed by the Board to
administer the Plan in accordance with Article VI.

            (f)   "Company" shall mean Anworth Mortgage Asset Corporation, a
Maryland corporation.

            (g)   "Compensation" shall be mean the Participant's base salary,
bonus and incentive compensation payments payable in cash (amounts payable in a
form other than cash are excluded from the definition of "Compensation",
including, but not limited to, amounts payable in stock, amounts attributable to
the vesting of restricted stock and amounts attributable to the exercise of
options to purchase stock).

            (h)   "Deferral Account" or "Account" shall mean the bookkeeping
account maintained by the Company for each Participant that is credited with
amounts equal to (1) the portion of the Participant's Compensation that has been
deferred, and (2) earnings and losses pursuant to Article IV. The Account shall
constitute only a bookkeeping entry by the Company for purposes of facilitating
the benefits to which the Participant is entitled hereunder and shall not
constitute a trust fund or escrow account nor any form of asset segregation.

            (i)   "Eligible Employee" shall mean such management and highly
compensated employees of Company, who are designated by the Board for
participation in this Plan.

            (j)   "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

            (k)   "Participant" shall mean any Eligible Employee who becomes a
Participant in accordance with Article II.

            (l)   "Plan" shall mean the Anworth Mortgage Asset Corporation
Deferred Compensation Plan.

            (m)   "Plan Year" shall be the twelve (12) month period beginning
each January 1 and ending December 31; provided, however, the first Plan Year
shall begin on January 15, 2003 and end on December 31, 2003.

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                                   ARTICLE II

                                  PARTICIPATION

     An Eligible Employee shall become a Participant in the Plan by electing to
defer a portion of his or her Compensation in accordance with Article III. An
Eligible Employee who completes the requirement of the preceding sentence shall
commence participation in this Plan as of the first day of the month following
completion of such requirement; provided, however, with respect to the first
Plan Year, an Eligible Employee who completes such requirement on or before
thirty (30) days following January 15, 2003 shall commence participation in the
Plan upon completion of such requirement.

                                   ARTICLE III

                               DEFERRAL ELECTIONS

     An Eligible Employee may elect to defer a portion of his Compensation by
filing with the Chief Financial Officer of the Company on behalf of the
Committee an election, on a form provided by the Committee, no later than the
last day of the calendar year which precedes the Plan Year for which the
election is to be effective; provided, however, with respect to the first Plan
Year, an Eligible Employee may file such an election with the Committee on or
before thirty (30) days following January 15, 2003 and such election shall be
effective as of the date such election is filed with the Committee. The
Participant may only elect to defer Compensation in excess of the limitation on
deductible compensation imposed by Section 162(m) of the Code.

     A Participant may increase, decrease or terminate a deferral election with
respect to Compensation for any subsequent Plan Year by filing a new election
before December 31, which election shall be effective on the first day of the
next following Plan Year.

                                   ARTICLE IV

                         ALLOCATION OF INVESTMENT RETURN

     As of the last day of each month, the Committee shall credit the
Participant's Account with an amount equal to the Compensation, if any, deferred
by the Participant for such month in accordance with the Participant's election
under Article III. As of the last day of the Plan Year, the Participant's
Account shall be credited with earnings for the Plan Year calculated by
multiplying the Participant's Account as of the first day of the Plan Year by a
fraction the numerator of which is the sum of all dividends on Company stock
where the dividend record date occurred during the Plan Year divided by the
average closing price for Company stock on the last day of each calendar quarter
during such Plan Year on which the stock market is open. In addition,
contributions added to a Participant's Account during the Plan Year shall be
credited with earnings as calculated under this paragraph on a pro rata basis
for the length of time during the Plan Year that the contributions have been
credited to a Participant's Account.

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                                    ARTICLE V

                                  DISTRIBUTIONS

     A Participant's Account shall be distributed to the Participant (i) no
later than thirty (30) days after Participant's termination of employment with
the Company, or (ii) immediately upon the occurrence of a Change of Control of
the Company. In addition, the Company reserves the right to pay amounts to a
Participant, in the Company's sole and absolute discretion, where (i) the
Participant's Compensation (other than "qualified performance-based
compensation" within the meaning of Treasury Regulation Section 1.162-27(e)) in
any Plan Year is below the limitation imposed by Section 162(m) of the Code, or
(ii) the Participant is not subject to Section 162(m) of the Code, provided
Company shall make no such distribution unless the amount credited to the
Participant's Account has been in the Account for a period of not less than two
years from the close of the Plan Year in which the funds were deferred.

                                   ARTICLE VI

                                 ADMINISTRATION

     6.1    Committee.

            A committee shall be appointed by, and serve at the pleasure of, the
Board of Directors. The number of members comprising the Committee shall be
determined by the Board, which may from time to time vary the number of members.
A member of the Committee may resign by delivering a written notice of
resignation to the Board. The Board may remove any member by delivering a
certified copy of its resolution of removal to such member. Vacancies in the
membership of the Committee shall be filled promptly by the Board.

     6.2    Committee Action.

            The Committee shall act at meetings by affirmative vote of a
majority of the members of the Committee. Any action permitted to be taken at a
meeting may be taken without a meeting if, prior to such action, a written
consent to the action is signed by all members of the Committee and such written
consent is filed with the minutes of the proceedings of the Committee. A member
of the Committee shall not vote or act upon any matter which relates solely to
himself or herself as a Participant. The Chairman or any other member or members
of the Committee designated by the Chairman may execute any certificate or other
written direction on behalf of the Committee.

     6.3    Powers and Duties of the Committee.

            (a)   The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, shall be
charged with the general administration of the Plan, and shall have all powers
necessary to accomplish its purposes, including, but not by way of limitation,
the following:

                  (1)   To construe and interpret the terms and provisions of
this Plan;

                                       -5-

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                  (2)   To compute and certify to the amount and kind of
benefits payable to Participants and their Beneficiaries;

                  (3)   To maintain all records that may be necessary for the
administration of the Plan;

                  (4)   To provide for the disclosure of all information and the
filing or provision of all reports and statements to Participants, Beneficiaries
or governmental agencies as shall be required by law;

                  (5)   To make and publish such rules for the regulation of the
Plan and procedures for the administration of the Plan as are not inconsistent
with the terms hereof;

                  (6)   To appoint a Plan administrator or any other agent, and
to delegate to them such powers and duties in connection with the administration
of the Plan as the Committee may from time to time prescribe; and

                  (7)   To take all actions necessary for the administration of
the Plan.

     6.4    Construction and Interpretation.

            The Committee shall have full discretion to construe and interpret
the terms and provisions of this Plan, which interpretations or construction
shall be final and binding on all parties, including but not limited to the
Company and any Participant or Beneficiary. The Committee shall administer such
terms and provisions in a uniform and nondiscriminatory manner and in full
accordance with any and all laws applicable to the Plan.

     6.5    Information.

            To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death or other events which cause
termination of their participation in this Plan, and such other pertinent facts
as the Committee may require.

     6.6    Compensation, Expenses and Indemnity.

            (a)   The members of the Committee shall serve without compensation
for their services hereunder.

            (b)   The Committee is authorized at the expense of the Company to
employ such legal counsel as it may deem advisable to assist in the performance
of its duties hereunder. Expenses and fees in connection with the administration
of the Plan shall be paid by the Company.

            (c)   To the extent permitted by applicable state law, the Company
shall indemnify and hold harmless the Committee and each member thereof, the
Board of Directors and any delegate of the Committee who is an employee of the
Company against any and all expenses, liabilities and claims, including legal
fees to defend against such liabilities and claims

                                       -6-

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arising out of their discharge in good faith of responsibilities under or
incident to the Plan, other than expenses and liabilities arising out of willful
misconduct. This indemnity shall not preclude such further indemnities as may be
available under insurance purchased by the Company or provided by the Company
under any bylaw, agreement or otherwise, as such indemnities are permitted under
state law.

     6.7    Disputes.

            (a)   Claim.

            A person who believes that he or she is being denied a benefit to
which he or she is entitled under this Plan (hereinafter referred to as
"Claimant") must file a written request for such benefit with the Company,
setting forth his or her claim. The request must be addressed to the President
of the Company at its then principal place of business.

            (b)   Claim Decision.

            Upon receipt of a claim, the Company shall advise the Claimant that
a reply will be forthcoming within ninety (90) days and shall, in fact, deliver
such reply within such period. The Company may, however, extend the reply period
for an additional ninety (90) days for special circumstances.

            If the claim is denied in whole or in part, the Company shall inform
the Claimant in writing, using language calculated to be understood by the
Claimant, setting forth: (A) the specified reason or reasons for such denial;
(B) the specific reference to pertinent provisions of this Plan on which such
denial is based; (C) a description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation of why
such material or such information is necessary; (D) appropriate information as
to the steps to be taken if the Claimant wishes to submit the claim for review;
and (E) the time limits for requesting a review under subsection (c).

            (c)   Request For Review.

            Within sixty (60) days after the receipt by the Claimant of the
written opinion described in subsection (b) above, the Claimant may request in
writing that the Committee review the determination of the Company. Such request
must be addressed to the Secretary of the Company, at its then principal place
of business. The Claimant or his or her duly authorized representative may, but
need not, review the pertinent documents and submit issues and comments in
writing for consideration by the Committee. If the Claimant does not request a
review within such sixty (60) day period, he or she shall be barred and estopped
from challenging the Company's determination.

            (d)   Review of Decision.

            Within sixty (60) days after the Committee's receipt of a request
for review, after considering all materials presented by the Claimant, the
Committee will inform the Participant in writing, in a manner calculated to be
understood by the Claimant, the decision setting forth the specific reasons for
the decision containing specific references to the pertinent provisions of this

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Plan on which the decision is based. If special circumstances require that the
sixty (60) day time period be extended, the Committee will so notify the
Claimant and will render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for review.

                                   ARTICLE VII

                                  MISCELLANEOUS

     7.1    Unsecured General Creditor.

            Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interest in any specific
property or assets of the Company. No assets of the Company shall be held in any
way as collateral security for the fulfilling of the obligations of the Company
under this Plan. Any and all of the Company's assets shall be, and remain, the
general unpledged, unrestricted assets of the Company. The Company's obligation
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future, and the rights of the Participants and
Beneficiaries shall be no greater than those of unsecured general creditors. It
is the intention of the Company that this Plan be unfunded for purposes of the
Code and for purposes of Title 1 of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").

     7.2    Restriction Against Assignment.

            The Company shall pay all amounts payable hereunder only to the
person or persons designated by the Plan and not to any other person or
corporation. No part of a Participant's Accounts shall be liable for the debts,
contracts, or engagements of any Participant, his or her Beneficiary, or
successors in interest, nor shall a Participant's Accounts be subject to
execution by levy, attachment, or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate,
sell, transfer, commute, pledge, encumber, or assign any benefits or payments
hereunder in any manner whatsoever. If any Participant, Beneficiary or successor
in interest is adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, commute, assign, pledge, encumber or charge any distribution or
payment from the Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part thereof) to or
for the benefit of such Participant, Beneficiary or successor in interest in
such manner as the Committee shall direct.

     7.3    Withholding.

            There shall be deducted from each payment made under the Plan or any
other Compensation payable to the Participant (or Beneficiary) all taxes which
are required to be withheld by the Company in respect to such payment or this
Plan. The Company shall have the right to reduce any payment (or compensation)
by the amount of cash sufficient to provide the amount of said taxes.

                                       -8-

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     7.4    Amendment, Modification, Suspension or Termination.

            The Company may amend, modify, suspend or terminate the Plan in
whole or in part, except that no amendment, modification, suspension or
termination shall have any retroactive effect to reduce any amounts allocated to
a Participant's Accounts. In the event that this Plan is terminated, the amounts
allocated to a Participant's Accounts shall be distributed to the Participant
or, in the event of his or her death, his or her Beneficiary in a lump sum
within thirty (30) days following the date of termination.

     7.5    Governing Law.

            This Plan shall be construed, governed and administered in
accordance with the laws of the State of Maryland.

     7.6    Receipt or Release.

            Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Committee and the Company. The
Committee may require such Participant or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release to such effect.

     7.7    Payments on Behalf of Persons Under Incapacity.

            In the event that any amount becomes payable under the Plan to a
person who, in the sole judgment of the Committee, is considered by reason of
physical or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgment, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.

     7.8    Limitation of Rights and Employment Relationship

            Neither the establishment of the Plan nor any modification thereof,
nor the creating of any fund or account, nor the payment of any benefits shall
be construed as giving to any Participant, or Beneficiary or other person any
legal or equitable right against the Company except as provided in the Plan; and
in no event shall the terms of employment of any Employee or Participant be
modified or in any way be affected by the provisions of the Plan.

     7.9    Headings.

            Headings and subheadings in this Plan are inserted for convenience
of reference only and are not to be considered in the construction of the
provisions hereof.

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<PAGE>

     IN WITNESS WHEREOF, the Company has caused this plan to be adopted
effective as of January 15, 2003.

                                   ANWORTH MORTGAGE ASSET CORPORATION

                                   By:  /s/ Thad M. Brown
                                      -----------------------------------------
                                      Name:   Thad M. Brown
                                           ------------------------------------
                                      Title:  Chief Financial Officer
                                            -----------------------------------

                                      -10-