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                                                                     EXHIBIT (Z)

                             [AMRESCO LETTERHEAD]


CONFIDENTIAL



TO:              Scott J. Reading

FROM:            Robert H. Lutz, Jr.

SUBJECT:         ARCC Incentive Compensation

DATE:            August 15, 1996


The following are the principal terms of the Incentive Compensation Program
(the "Program") for AMRESCO Residential Credit Corporation ("ARCC") which has
been approved by the Compensation Committee and the Board of Directors of
AMRESCO, INC. ("AMRESCO").

1.       ARCC Bonus Pool

         An annual bonus pool will be created under the Program and it will be
         in an amount equal to 20% of ARCC's Pre-Tax Profit after allocation
         for corporate overhead and charge for capital (the "ARCC Bonus Pool").

2.       Allocation of Corporate Overhead

         Once all direct corporate overhead has been charged to the appropriate
         line of business, ARCC will be charged 25% of the remainder.

3.       Charge for Capital

         ARCC will be charged for its cost of capital, currently 12%; however,
         such rate will fluctuate based on AMRESCO's then cost of capital.

4.       Incentive Plan for Lower Staff

         Staff members ("Staff Member") below the executive team (the
         "Executive Team") will be eligible for an annual discretionary cash
         bonus.  Depending on job grade, level of responsibility and
         performance/contribution, cash bonuses for Staff Members will
         generally range from 0% to 20% of such person's base salary.  However,
         exceptional performance could warrant a cash bonus well in excess of
         20%.

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Scott J. Reading
ARCC Executive Compensation
August 15, 1996

CONFIDENTIAL


         Each staff Member will have a performance plan/objectives established
         and measured as part of AMRESCO's Performance Management Process.
         These performance plans/objectives will designed to contribute to the
         Program.

5.       Special Incentive Compensation Program - Executive Team

         You, as a member of the Executive Team, will participate in a special
         incentive compensation program.  After deducting the total cost of
         Staff Member cash bonuses from the ARCC Bonus Pool, you will be
         eligible for allocation of up to 39% of the remainder.

         Your performance, as assessed by your manager, will determine the
         final percentage to be paid to you.

6.       Bonus Caps for Annual Cash Bonus

         Annual cash bonuses for you may not exceed 250% of your base salary.

7.       Excess Over the Cash Bonus Cap

         The excess in the ARCC Bonus Pool allocated to you over your annual
         cash bonus will be paid 50% in Restricted Stock (RS) and 50% in
         Non-Qualified Stock Options (NQSO).  RS will be a ratio of 1:1 while
         NQSO would be a ratio based on the lessor of (i) 50% of the then
         market value of a share of AMRESCO common stock or (ii) $20 per share.

         NQSO's will have a term of 10 years from the date of grant and will
         have an exercise price equal to the market price of a share of AMRESCO
         common stock on the date of the grant.

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Scott J. Reading
ARCC Executive Compensation
August 15, 1996

CONFIDENTIAL

         The following are examples of the number of RS and NQSO's which would
         be granted assuming that $2,000,000 of the ARCC Bonus Pool is
         available for such grants:

                 AMRESCO Common Stock at $20 Per Share
                 -------------------------------------
                 $1,000,000 / $20 = 50,000 Shares of RS
                 $1,000,000 / $10 (50% of market price) = 100,000 Options

                 AMRESCO Common Stock at $50 Per Share
                 -------------------------------------
                 $1,000,000 / $50 = 20,000 Shares of RS
                 $1,000,000 / $20 ($20 maximum) = 50,000 Options

8.       Vesting

         RS and NQSO will vest 20% immediately and 20% each year thereafter.
         Vesting would be accelerated if your employment is terminated other
         than for cause.(1)

9.       In the Event of an IPO

         If there is an IPO, it is essential that top management be linked
         financially to the new corporation.  Therefore, 5% of the value of the
         new corporation would be allocated to the Executive Team; however, the
         5% cannot exceed 20% of the value of proceeds to AMRESCO from the IPO.
         Also, the allocation to the Executive Team would be paid in NQSO's.
         Each NQSO will have an exercise price equal to the IPO offering price.


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

         (1) Cause shall mean the occurrence of any of the following events:
         voluntary resignation or voluntary retirement prior to the age of 62;
         conviction for any felony or a misdemeanor which involves moral
         turpitude; inability to perform duties as a consequence of the filing
         of a voluntary or involuntary petition in bankruptcy, the making of an
         assignment for the benefit of creditors, or a like of insolvency by or
         against the employee; any material breach of his/her obligations to
         AMRESCO or its subsidiaries or of any published policy of AMRESCO;
         making a material misrepresentation of fact or omission as to
         educational attainments or employment history; making a material
         misrepresentation of fact or omission to disclose material facts in
         relation to transactions occurring in the business and financial
         matters of AMRESCO; willful or negligent failure to perform his/her
         duties.
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Scott J. Reading
ARCC Executive Compensation
August 15, 1996

CONFIDENTIAL

10.      Other RS and NQSO Programs

         You will continue to be eligible for all other incentive compensation
         and benefit programs in which you are currently participating or in
         which you become eligible to participate as a result of your
         employment status or position with AMRESCO or one of its affiliates,
         and your compensation under the Program will not affect your
         participation in these programs.

11.      In the Event a Member of the Executive Team Leaves

         If a member of the original Executive Team leaves the employment of
         ARCC, the remaining members will not share in the departing member's
         portion.  Also, a person replacing one of the original Executive Team
         members will not receive the departing member's portion or participate
         in the special incentive program.

12.      Duration of This Program

         The Program will be subject to annual review by the Compensation and
         Stock and Bonus Committees of the board of directors of AMRESCO.


         ACCEPTED:



         _______________________           Date:________________, 1996
         Scott J. Reading