ESCROW AGREEMENT

         This Escrow Agreement (the "Agreement") is made and entered into by and
among T. Alan Owen &  Associates,  P.C.  ("TAO"),  Attorneys at Law,  Arlington,
Texas, and Discount Mortgage Source,  Inc.  ("DMS"),  a  Texas  corporation,  on
behalf of all subscribers (the  "Investors") to the initial public offering (the
"Offering") of common stock by DMS,  pursuant to a Registration  Statement filed
under the Securities Act of 1933 on Form SB-1.

                                        I

                                    RECITALS

         1.1 Purchase of Shares.  The Investors,  at a price of $0.25 per share,
desire to individually purchase from DMS, an aggregate of between 240,000 shares
and 2,000,000  shares (the  "Shares") of the common stock of DMS pursuant to the
terms of the  Offering.  However,  there is no certainty  that any Shares may be
purchased under the Offering.

         1.2 Purpose Hereof.  In order to facilitate the purchase of the Shares,
DMS  shall  deposit  all  funds  received  by it from the sale of the  Shares to
Investors (the "Escrow Funds") with TAO, and TAO shall hold the Escrow Funds and
not release them to DMS until such time as is described below.

                                       II

                                ESCROW PROVISIONS

         2.1  Appointment  of TAO.  TAO is hereby  appointed  as Escrow Agent to
receive,  hold, and distribute all funds  deposited by the Investors for Shares,
all as hereinafter provided.

         2.2  Deposit  and  Receipt of Funds.  TAO shall  deposit  all funds for
purchase of the Shares in its Attorney  Trust  Account  (the "Escrow  Account").
Concurrently with the delivery of the deposits by each Investor,  TAO shall give
each Investor and DMS a receipt for the funds received by TAO.

         2.3  Disbursement  of Escrow Funds.  Following  deposit into the Escrow
Account of funds totaling  $60,000.00,  TAO shall disburse all such funds to DMS
and shall  notify all  Investors  that  placed  Escrow  Funds with TAO that such
disbursement has taken place.

         2.4  TAO's   Responsibility.   TAO's  sole  responsibility  under  this
Agreement  shall  be  for  the  recording  of  deposits  by the  Investors,  the
safekeeping of the Escrow Funds, and the disbursement thereof in accordance with
Paragraph  2.3,  and TAO shall not be  required  to take any other  action  with
reference to any matters which might arise in  connection  with the Escrow Funds
or this  Agreement.  TAO shall not be liable to DMS or any Investor for anything
which TAO may do or refrain from doing in connection herewith, so long as TAO is
acting in good faith in an attempt to perform its duties under this Agreement or






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unless Owen is guilty of gross  negligence or willful  misconduct.  TAO is not a
party to,  nor is it bound by, nor shall it give  consideration  to the terms or
provisions  of,  even  though he may have  knowledge  of, (i) any  agreement  or
undertaking  of any agreement  with any other party or parties,  except for this
Agreement, (ii) any agreement or undertaking which may be evidenced or disclosed
by this  Agreement,  and (iii) any other  agreements  regarding the Escrow Funds
that may now or in the  future be  deposited  with TAO in  connection  with this
Agreement.  TAO has no duty to  determine  or  inquire  into  any  happening  or
occurrence or any  performance or failure of performance of the Investors or DMS
or any other parties with respect to agreements or arrangements  with each other
or with any other party or parties.

         2.5  Indemnity to TAO.  DMS agrees to  indemnify  and hold TAO harmless
against and from any and all costs, expenses, claims, losses,  liabilities,  and
damages  (including  reasonable  attorneys'  fees)  that may  arise out of or in
connection  with TAO's acting as Escrow Agent under the terms of this Agreement,
except in those  instances  where TAO has been  guilty  of gross  negligence  or
willful misconduct.

         2.6 Return of Escrow  Funds.  If  $60,000.00  is not  deposited  in the
Escrow  Account by the Investors on or before 180 days after the effective  date
of the  offering,  TAO shall  promptly  return to each  Investor from the Escrow
Funds, an amount equal to the amount deposited by such Investor.

         2.7 Effective Date and Termination.  This Escrow Agreement shall become
effective on the date the first deposit is made by an Investor into Escrow.  All
of the provisions of this Agreement shall terminate 180 days after the effective
date of the offering by refunding  all funds in escrow to the  Investors,  or by
the  disbursement  of all Escrow Funds as herein set out. If not so  terminated,
TAO at any time after such date may disburse the allocable portion of the Escrow
Funds to each respective Investor,  close his records, and withdraw all of TAO's
liability and obligations in connection with the Escrow Funds and this Agreement
shall terminate.

                                       III

                                  MISCELLANEOUS

         3.1 Multiple Counterparts.  It is intended that this Agreement shall be
executed in multiple  counterparts,  each of which,  when so executed,  shall be
considered an original,  but all of which shall together  constitute one and the
same instrument.

         3.2 Entire  Agreement.  This instrument  evidences the entire agreement
between TAO and DMS with respect to the purchase of the Shares by Investors

         3.3  Controlling  Law. The terms of this Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.

         3.4 Notices. Any notice, request,  instruction,  or other instrument to
be given or served  hereunder  upon any party shall be deemed given or served if
in writing and  delivered  personally  or sent by United  States  Mail,  postage






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prepaid, certified, return receipt requested, to the respective party or parties
at the following addresses:

         a)       If to TAO:                T. Alan Owen & Associates, P.C.
                                                     1112 East Copeland Road
                                                     Suite 420
                                                     Arlington, Texas  76011
                                                     Attn: T. Alan Owen

         b)       If to DMS:                Discount Mortgage Source, Inc.
                                                     750 I-30 East
                                                     Suite 170
                                                     Rockwall, Texas 75087
                                                     Attn: Michael Kamps

         EXECUTED to be effective as of the 31st day of July, 2000.



                                               T. ALAN OWEN & ASSOCIATES, P.C.



                                               By:
                                                    --------------------------
                                                     T. Alan Owen




                                               DISCOUNT MORTGAGE SOURCE, INC.
                                               a Texas corporation



                                               By:
                                                    --------------------------
                                                    Michael Kamps, President






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