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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

         |X|      Quarterly Report Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934

                    For the quarter ended September 30, 2001

         |_|      Transition Report Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934

                         Commission file number 33-83524


                          MERIT SECURITIES CORPORATION
             (Exact name of registrant as specified in its charter)

         Virginia                                     54-1736551
(State or other jurisdiction                      (I.R.S. Employer
     of  incorporation)                           Identification No.)

      4551 Cox Road, Suite 300,                          23060
        Glen Allen, Virginia                           (Zip Code)
(Address of principal executive offices)

                                 (804) 217-5800
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past ninety days. |_| Yes |X| No

As of October 31, 2001, the latest  practicable date, there were 1,000 shares of
Merit Securities Corporation common stock outstanding.

The registrant  meets the conditions set forth in General  Instructions H (1)(a)
and (b) of Form 10-Q and is  therefore  filing  this Form 10-Q with the  reduced
disclosure format.
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<PAGE>
                          MERIT SECURITIES CORPORATION
                                    FORM 10-Q
                                      INDEX


                                                                     Page Number
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements
          Balance Sheets at September 30, 2001 (unaudited)
          and December 31, 2000                                           3

          Statements of Operations for the three months and nine months
          ended September 30, 2001 and 2000 (unaudited)                   4

          Statements of Cash Flows for the nine months ended
          September 30, 2001 and 2000 (unaudited)                         5

          Notes to Unaudited Financial Statements                         6

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                   8

Item 3.   Quantitative and Qualitative Disclosures about Market Risk     10

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                              11

Item 5.   Other Information                                              11

Item 6.   Exhibits and Reports on Form 8-K                               11

SIGNATURES                                                               14
<PAGE>
PART I.   FINANCIAL INFORMATION
Item 1.   Financial Statements

MERIT SECURITIES CORPORATION
Balance Sheets
(amounts in thousands except share data)
<TABLE>
<CAPTION>

                                                                        (Unaudited)
                                                                       September 30,         December 31,
                                                                            2001                 2000
                                                                    ------------------     ------------------
<S>                                                                          <C>                   <C>
ASSETS:
   Collateral for collateralized bonds                               $    1,737,365         $    2,208,015
   Cash                                                                           -                     10
                                                                    -----------------      ------------------
                                                                     $    1,737,365         $    2,208,025
                                                                    =================      ==================

LIABILITIES AND SHAREHOLDER'S EQUITY

LIABILITIES:
   Non-recourse debt - collateralized bonds                          $    1,666,562         $    2,143,028
                                                                    -----------------      -----------------

SHAREHOLDER'S EQUITY:
   Common stock, no par value,
       10,000 shares authorized, 1,000 shares                                    10                     10
        issued and outstanding
   Additional paid-in capital                                               127,444                147,240
   Accumulated other comprehensive loss                                     (70,040)               (94,296)
   Retained earnings                                                         13,389                 12,043
                                                                    -----------------      -----------------
                                                                             70,803                 64,997
                                                                    -----------------      -----------------
                                                                     $    1,737,365         $    2,208,025
                                                                    =================      =================
<FN>

See notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
MERIT SECURITIES CORPORATION
Statements of Operations, Unaudited
(amounts in thousands except share data)


<TABLE>
<CAPTION>
                                                      Three Months Ended      Nine Months Ended
                                                         September 30,          September 30,
                                                      ------------------      -----------------
                                                     2001         2000        2001         2000
                                                     ----         ----        ----         ----
<S>                                                   <C>          <C>          <C>          <C>
Interest income:
     Collateral for collateralized bonds ......   $  34,587    $  49,254    $ 119,314    $ 154,013
                                                  ---------    ---------    ---------    ---------

Interest and related expense:
     Interest expense on collateralized bonds .      24,336       43,419       88,965      134,379
     Other collateralized bond expense ........         439          413        1,317        1,217
                                                  ---------    ---------    ---------    ---------
                                                     24,775       43,832       90,282      135,596
                                                  ---------    ---------    ---------    ---------


Net interest margin before provision for losses       9,812        5,422       29,032       18,417
Provision for losses ..........................     (13,996)      (5,032)     (26,672)     (15,812)
                                                   ---------    ---------    ---------    ---------
Net interest margin ...........................      (4,184)         390        2,360        2,605

Loss on the termination of interest rate swaps         --           --           --         (2,440)
Other expense .................................        --           --           --            (94)
Interest on due to affiliates, net ............        --           --           --           (471)
                                                   ---------    ---------    ---------    ---------
(Loss) income before extraordinary item .......      (4,184)         390        2,360         (400)

Extraordinary item - loss on extinguishment of       (1,013)        --         (1,013)        --
debt
Net (loss) income .............................   $  (5,197)   $     390    $   1,347    $    (400)
                                                  ==========   ==========   ==========   ==========

<FN>
See notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
MERIT SECURITIES CORPORATION
Statements of Cash Flows, Unaudited
(amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                   Nine Months Ended
                                                                                                     September 30,
                                                                                                   --------------------
                                                                                                      2001       2000
                                                                                                   ---------   --------
<S>                                                                                                    <C>         <C>

Operating activities:
  Net income .................................................................................   $   1,347    $    (400)
  Adjustments to reconcile net income to net
     cash provided by operating activities:
    Loss on the termination of interest rate caps ...........................................           --        2,440
    Provision for losses .....................................................................      26,672       15,812
    Amortization, net ........................................................................       4,694        7,729
    Extraordinary item - loss on extinguishment of debt ......................................       1,013           --
    Other ....................................................................................          86          (26)
                                                                                                 ---------    ----------
      Net cash provided by operating activities ..............................................      33,812       25,555
                                                                                                 ---------    ----------

Investing activities:
  Collateral for collateralized bonds:
    Principal payments on collateral .........................................................     460,723      375,313
    Net decrease in accrued interest receivable and ..........................................       2,774        1,614
      funds held by trustee
                                                                                                 ---------    ---------
      Net cash provided by investing activities ..............................................     463,497      376,927
                                                                                                 ---------    ---------

Financing activities:
  Collateralized bonds:
    Proceeds from issuance of collateralized bonds ...........................................     507,641          657
    Principal payments on collateralized bonds ...............................................    (984,408)    (385,822)
    Decrease in accrued interest payable .....................................................        (756)        (238)
    Decrease in due to affiliates ............................................................        --        (42,344)
    Capital (distributions) contributions ....................................................     (19,796)      25,265
                                                                                                 ----------   ---------
      Net cash used for financing activities .................................................    (497,319)    (402,482)
                                                                                                 ----------   ----------

Net decrease in cash .........................................................................         (10)          --
Cash, beginning of period ....................................................................          10           10
                                                                                                 ---------    ---------
                                                                                                 ---------    ---------

Cash, end of period ..........................................................................   $    --      $      10
                                                                                                 =========    =========

Supplemental disclosure of cash flow information:
  Cash paid for interest .....................................................................   $  62,661    $ 131,788
                                                                                                 =========    =========


<FN>
See notes to unaudited financial statements.
</FN>
</TABLE>
<PAGE>
MERIT SECURITIES  CORPORATION
Notes to Unaudited Financial Statements
September 30, 2001
(amounts in thousands except share data)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance  with the  instructions  to Form 10-Q and do not  include  all of the
information and notes required by generally accepted  accounting  principles for
complete financial statements.  The financial statements include the accounts of
Merit Securities  Corporation  (the  "Company").  The Company is a wholly owned,
limited-purpose  finance subsidiary of Issuer Holding Corporation  ("IHC").  IHC
was formed on September 4, 1996 to acquire all of the  outstanding  stock of the
Company and certain other affiliates of Dynex Capital, Inc. ("Dynex").  IHC is a
wholly owned  subsidiary of Dynex.  The Company was organized to facilitate  the
securitization  of loans through the issuance and sale of  collateralized  bonds
(the "Bonds").

In the opinion of  management,  all material  adjustments,  consisting of normal
recurring  adjustments,  considered  necessary  for a fair  presentation  of the
financial  statements  have been  included.  The Balance  Sheet at September 30,
2001, the Statements of Operations for the three and nine months ended September
30,  2001 and 2000,  the  Statements  of Cash  Flows for the nine  months  ended
September 30, 2001 and 2000,  and the related notes to financial  statements are
unaudited.  Operating  results for the nine months ended  September 30, 2001 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending  December  31,  2001.  For  further  information,  refer  to the  audited
financial  statements and footnotes  included in the Company's Form 10-K for the
year ended December 31, 2000.

Certain amounts for 2000 have been  reclassified to conform to the  presentation
for 2001.

NOTE 2--COLLATERAL FOR COLLATERALIZED BONDS

Pursuant to the requirements of Statement of Financial  Accounting Standards No.
115,  Accounting  for Certain  Investments  in Debt and Equity  Securities,  the
Company   has    classified    collateral    for    collateralized    bonds   as
available-for-sale.  The following table summarizes the Company's amortized cost
basis and fair value of  collateral  for  collateralized  bonds at September 30,
2001 and December 31, 2000,  and the related  average  effective  interest rates
(calculated  for the month ended  September 30, 2001 and December 31, 2000,  and
excluding unrealized gains and losses):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                    September 30, 2001                  December 31, 2000
-------------------------------------------------------------------------------------------------------------------
                                                                  Effective                          Effective
                                              Fair Value        Interest Rate      Fair Value      Interest Rate
-------------------------------------------------------------------------------------------------------------------

<S>                                               <C>                <C>                 <C>             <C>
Collateral for collateralized bonds:
   Amortized cost                         $      1,827,698          7.1%       $      2,322,537         8.1%
   Allowance for losses                            (20,293)                             (20,226)
-------------------------------------------------------------------------------------------------------------------
      Amortized cost, net                        1,807,405                            2,302,311
   Gross unrealized gains                           23,458                               25,113
   Gross unrealized losses                         (93,498)                            (119,409)
-------------------------------------------------------------------------------------------------------------------
                                          $      1,737,365                     $      2,208,015
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Collateral for collateralized bonds consists of debt securities backed primarily
by  adjustable-rate  and  fixed-rate  mortgage  loans  secured by first liens on
single  family  residential  housing,  manufactured  housing  installment  loans
secured by either a UCC filing or a motor vehicle title and delinquent  property
tax receivables.  All collateral for  collateralized  bonds is pledged to secure
repayment of the related  collateralized bonds. All principal and interest (less
servicing-related  fees) on the  collateral  is  remitted  to a  trustee  and is
available for payment on the  collateralized  bonds.  The Company's  exposure to
loss on collateral for  collateralized  bonds is generally limited to the amount
of collateral pledged in excess of the related  collateralized  bonds issued, as
the collateralized  bonds issued are non-recourse to the Company. The collateral
for  collateralized  bonds can be sold by the  Company,  but only subject to the
lien of the collateralized  bond indenture.  During the quarter ending September
30, 2001 the Company called and resold one series of collateralized  bonds. This
series of collateralized bonds is collateralized  principally by adjustable-rate
single-family mortgage loans and securities. As a result of this call and resale
the  Company  incurred  an  extraordinary  loss of $1.0  million  related to the
write-off of unamortized bond issue costs and discounts on the called series.

NOTE 3 - USE OF ESTIMATES

Fair Value.  The  Company  uses  estimates  in  establishing  fair value for its
financial instruments. Estimates of fair value for collateral for collateralized
bonds are determined by calculating  the present value of the projected net cash
flows of the instruments using appropriate discount rates,  prepayment rates and
credit loss assumptions. Discount rates used are those management believes would
be used by willing buyers of these  financial  instruments at prevailing  market
rates.  The  discount  rate  used  in the  determination  of fair  value  of the
collateral for collateralized  bonds at both September 30, 2001 and December 31,
2000 was 16%.  Variations in market discount rates,  prepayment rates and credit
loss  assumptions  may  materially  impact  the  resulting  fair  values  of the
Company's financial instruments.  In addition to variations in such assumptions,
as  discussed  further  in Note 4,  due to an  adverse  ruling  rendered  by the
Commonwealth  Court of  Pennsylvania  on July 5, 2001, the Company's  ability to
collect certain  amounts of interest,  fees and costs incurred on its delinquent
property tax receivables  pledged as collateral for collateralized  bonds may be
adversely impacted. The Company, based on consultation with counsel,  reasonably
believes that the Appellate Court's decision will ultimately be reversed or that
the ultimate  outcome of the litigation  will not result in a material impact on
the carrying value of the delinquent  property tax  receivables.  Since the fair
value of the Company's financial instruments is based on estimates, actual gains
and  losses  recognized  may  differ  from  those  estimates   recorded  in  the
consolidated financial statements.

NOTE 4 -- LITIGATION

GLS Capital, Inc. ("GLS"), a subsidiary of the Company, together with the County
of Allegheny, Pennsylvania ("Allegheny County"), were defendants in a lawsuit in
the Commonwealth  Court of Pennsylvania (the  "Commonwealth  Court") wherein the
plaintiffs  challenged the right of Allegheny  County and GLS to collect certain
interest,  costs and expenses related to delinquent  property tax receivables in
Allegheny County.  This lawsuit was related to the purchase by GLS of delinquent
property tax  receivables  from  Allegheny  County in 1997,  1998,  and 1999 for
approximately  $58.3  million.  On July 5, 2001, the  Commonwealth  Court ruling
addressed,  among  other  things,  (i) the right of the Company to charge to the
delinquent  taxpayer a rate of interest of 12% versus 10% on the  collection  of
its delinquent property tax receivables, (ii) the charging of attorney's fees to
the delinquent  taxpayer for the collection of such tax  receivables,  and (iii)
the charging to the  delinquent  taxpayer of certain  other fees and costs.  The
Commonwealth  Court  remanded for further  consideration  to the Court of Common
Pleas items (i) and (iii),  and ruled that neither  Allegheny County nor GLS had
the right to charge  attorney's fees to the delinquent  taxpayer  related to the
collection  of such  tax  receivables,  reversing  the  Court  of  Common  Pleas
decision.  On  September  10th the  Commonwealth  Court  denied  The  County  of
Allegheny and GLS's Application for Re-argument.  The Pennsylvania Supreme Court
has accepted the Application for Extraordinary  Jurisdiction  filed by Allegheny
County  and GLS.  No  damages  have been  claimed  in the  action;  however,  as
discussed in Note 3, the decision may impact the ultimate  recoverability of the
delinquent property tax receivables. To date, GLS has incurred attorneys fees of
$2 million, approximately $1 million of which have been reimbursed to GLS by the
taxpayer or through liquidation of the underlying real property.

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations

     The Company was organized to facilitate the securitization of loans through
the issuance and sale of collateralized  bonds (the "Bonds").  The Bonds will be
secured  primarily  by: (i) mortgage  loans  secured by first or second liens on
residential property, (ii) Federal National Mortgage Association Mortgage-Backed
Certificates,  (iii)  Federal  Home Loan  Mortgage  Corporation  Mortgage-Backed
Certificates,  (iv) Government  National  Mortgage  Association  Mortgage-Backed
Certificates,     (v)    other    mortgage    pass-through    certificates    or
mortgage-collateralized  obligations,  (vi) property tax  receivables  and (vii)
consumer installment loans (collectively,  the "Collateral"). In the future, the
Company may also securitize other types of loans.

     After  payment of the  expenses of an offering  and certain  administrative
expenses,  the net  proceeds  from an offering of Bonds will be used to purchase
Collateral  from IHC or various  third  parties.  IHC can be expected to use the
proceeds  to reduce  indebtedness  incurred  to obtain  such loans or to acquire
additional Collateral.  After the issuance of a series of Bonds, the Company may
sell the  Collateral  securing that series of Bonds,  subject to the lien of the
Bonds.

<TABLE>
<CAPTION>
                               FINANCIAL CONDITION

---------------------------------------------------------------------------------------------
                                                      September 30,            December 31,
(amounts in thousands except per share data)              2001                     2000
---------------------------------------------------------------------------------------------
<S>                                                        <C>                        <C>

Collateral for collateralized bonds                  $   1,737,365            $   2,208,015
Non-recourse debt - collateralized bonds                 1,666,562                2,143,028
Shareholder's equity                                        70,803                   64,997

Collateralized bond series outstanding                           7                        7

--------------------------------------------------- ------------------ ---- -----------------
</TABLE>

Collateral for collateralized bonds
As of both September 30, 2001 and December 31, 2000, the Company had 7 series of
collateralized  bonds  outstanding.  The  collateral  for  collateralized  bonds
decreased to $1.74  billion at September  30, 2001  compared to $2.21 billion at
December 31, 2000. This decrease of $471 million is primarily the result of $461
million in paydowns on the collateral.  During the quarter ending  September 30,
2001 the  Company  called and resold one series of  collateralized  bonds.  This
series of collateralized bonds is collateralized  principally by adjustable-rate
single-family mortgage loans and securities. As a result of this call and resale
the  Company  incurred  an  extraordinary  loss of $1.0  million  related to the
write-off of unamortized bond issue costs and discounts on the called series.

Non-recourse debt - collateralized bonds
     Collateralized  bonds decreased to $1.67 billion at September 30, 2001 from
$2.14  billion at  December  31,  2000 as a result of $477  million in  paydowns
during the nine months ended September 30, 2001.

Shareholder's Equity
     Shareholder's  equity increased to $70.8 million at September 30, 2001 from
$65.0  million at December 31, 2000.  This  increase was primarily the result of
net income of $1.3  million  and a decrease of $24.3  million in net  unrealized
loss on investments  available-for-sale  during the nine months ended  September
30, 2001 partially offset by a $19.8 million capital  distribution to IHC during
the period.

<TABLE>
<CAPTION>
                              RESULTS OF OPERATIONS

---------------------------------------------------------------------------------------------------------------------------
                                                         Three Months Ended                     Nine Months Ended
                                                           September 30,                          September 30,
                                                 -----------------------------------    -----------------------------------
(amounts in thousands)                                2001               2000                2001               2000
---------------------------------------------------------------------------------------------------------------------------

<S>                                                       <C>                <C>                 <C>                <C>
Interest income                                    $     34,587       $     49,254        $    119,314       $    154,013
Interest expense on collateralized bonds                 24,336             43,419              88,965            134,379
Provision for losses                                     13,996              5,032              26,672             15,812
Net interest margin                                      (4,184)               390               2,360              2,605
Extraordinary item - loss on extinguishment of           (1,013)                 -              (1,013)                 -
debt
Loss on the termination of interest rate swaps                -                  -                   -             (2,440)
Net (loss) income                                        (5,197)               390               1,347               (400)

---------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Interest  income on the collateral for  collateralized  bonds  decreased to
$119.3 million for the nine months ended  September 30, 2001 from $154.0 million
for the same period in 2000.  This  decrease was primarily a result of a decline
in collateral for collateralized bonds between the respective periods.

     Interest expense on collateralized bonds decreased to $88.9 million for the
nine months  ended  September  30, 2001 from $134.4  million for the nine months
ended  September  30,  2000.   This  decrease   resulted  from  the  decline  in
collateralized   bonds  due  to  prepayments  on  the  related   collateral  for
collateralized  bonds,  coupled with an overall  decline in the cost of funds on
the collateralized bonds.

     Provision  for losses  increased to $26.7 million for the nine months ended
September 30, 2001 from $15.8 million for the same period in 2000. Provision for
losses was $14.0 million for the three months ended  September 30, 2001 compared
with $5.0 million for the 3 months ended  September  30, 2000.  The increase for
both the three and nine months ended  September 30, 2001 were primarily a result
of increasing  the reserve for probable  losses on various loan pools pledged as
collateral for collateralized  bonds where the Company has retained credit risk,
specifically the Company's investment in manufactured housing loan pools.

     Net  interest  margin  decreased  to $2.4 million from $2.6 million for the
nine month periods ended September 30, 2001 and 2000, respectively. Net interest
margin for the three months ended September 30, 2001 was a negative $4.2 million
compared to a positive  $0.4  million  for the same period in 2000.  In both the
three and nine months  ended  September  30, 2001 an increase in  provision  for
losses  and the  decline  in  interest  earning  assets  was  offset by  reduced
borrowing costs on collateralized bonds outstanding.

During the three months ended  September 30, 2001 the Company  called and resold
one  series of  collateralized  bonds.  As a result of this call and  resale the
Company incurred an extraordinary  loss of $1.0 million related to the write-off
of unamortized bond issue costs and discounts on the called series.

Credit Exposures
     With  collateralized  bond  structures,  the  Company  retains  credit risk
relative to the amount of overcollateralization required in conjunction with the
bond  issuance.  Losses are generally  first  applied to the  overcollateralized
amount,  or in some  instances  surplus  cash and  then the  overcollaterialized
amount,  with any losses in excess of that amount  borne by the bond  insurer or
the holders of the  collateralized  bonds. The Company only incurs credit losses
to the extent that losses are incurred in the repossession, foreclosure and sale
of the  underlying  collateral.  Such losses  generally  equal the excess of the
principal  amount  outstanding,  less  any  proceeds  from  mortgage  or  hazard
insurance,  over the  liquidation  value of the  collateral.  To compensate  the
Company for retaining  this loss  exposure,  the Company  generally  receives an
excess  yield  on  the  collateralized  loans  relative  to  the  yield  on  the
collateralized bonds. At September 30, 2001, the Company retained $165.8 million
in  aggregate  principal  amount  of  overcollateralization.   The  Company  had
reserves,  or otherwise had provided  coverage on $77.3 million at September 30,
2001. At September 30, 2001,  $30.3 million of these reserve  amounts are in the
form of a loss  reimbursement  guarantee.  During the first nine months of 2001,
the Company  provided  for  additional  reserves of $26.7  million and  incurred
credit losses of $26.7 million.

     The  Company  and  Dynex  are  currently  engaged  in a  dispute  with  the
counterparty  to the  loss  reimbursement  guarantees,  which  aggregated  $30.3
million at September 30, 2001.  Such guarantees are payable when cumulative loss
trigger  levels are reached on certain of the Company's  single-family  mortgage
loan securitizations.  Currently, these trigger levels have been reached on four
of the  Company's  securities,  and  the  Company  has  made  claims  under  the
reimbursement guarantees in amounts approximating $1.7 million. The counterparty
has  denied  payment  on  these  claims,  citing  various  deficiencies  in loan
underwriting which would render these loans and corresponding  claims ineligible
under the reimbursement agreements. The Company disputes this classification and
is pursuing this matter through court-ordered arbitration.

Other Matters
     At September 30, 2001, the Company had securities of  approximately  $308.6
million  remaining for issuance  under a registration  statement  filed with the
Securities and Exchange  Commission.  The Company anticipates issuing additional
Bonds in the future.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Market risk generally  represents the risk of loss that may result from the
potential  change in the value of a financial  instrument due to fluctuations in
interest and foreign exchange rates and in equity and commodity  prices.  Market
risk is inherent to both derivative and  non-derivative  financial  instruments,
and  accordingly,  the scope of the  Company's  market risk  management  extends
beyond derivatives to include all market risk sensitive  financial  instruments.
As a financial  services  company,  net interest  income  comprises  the primary
component of the Company's earnings. As a result, the Company is subject to risk
resulting  from  interest  rate  fluctuations  to the extent that there is a gap
between the amount of the  Company's  interest-earning  assets and the amount of
interest-bearing   liabilities  that  are  prepaid,  mature  or  reprice  within
specified periods.

     Dynex and IHC continuously  monitor the aggregate cash flow,  projected net
yield and market value of the collateral for collateralized  bonds under various
interest rate and prepayment assumptions.

     Approximately  $0.8 billion of the Company's  collateral for collateralized
bonds as of September 30, 2001,  is comprised of loans or  securities  that have
coupon  rates which adjust over time  (subject to certain  periodic and lifetime
limitations)  in  conjunction   with  changes  in  short-term   interest  rates.
Approximately  66% and 22% of the ARM loans underlying the Company's  collateral
for  collateralized  bonds  are  indexed  to and reset  based  upon the level of
six-month LIBOR and one-year CMT, respectively.

     Generally,  during  a period  of  rising  short-term  interest  rates,  the
Company's net interest spread earned on its collateralized  bonds will decrease.
The  decrease of the net interest  spread  results from (i) the lag in resets of
the ARM loans underlying the collateral for collateralized bonds relative to the
rate  resets on the  collateralized  bonds and (ii) rate resets on the ARM loans
which are generally limited to 1% every six months or 2% every twelve months and
subject  to  lifetime  caps,  while  the  associated  borrowings  have  no  such
limitation.  As short-term interest rates stabilize and the ARM loans reset, the
net interest margin may be restored to its former level as the yields on the ARM
loans adjust to market conditions.  Conversely, net interest margin may increase
following a fall in short-term interest rates. This increase may be temporary as
the  yields on the ARM loans  adjust to the new  market  conditions  after a lag
period. In each case, however, the Company expects that the increase or decrease
in the net interest spread due to changes in the short-term interest rates to be
temporary.  The net  interest  spread may also be  increased or decreased by the
proceeds or costs of interest  rate swap and cap  agreements,  to the extent the
Company has entered into such agreements.

     As part of its asset/liability  management  process,  the Company may enter
into interest rate cap and swap  agreements.  These interest rate agreements are
used by the Company to help  mitigate  the risk  related to the  collateral  for
collateralized  bonds for  fluctuations in interest rates that would  ultimately
impact net interest income.

     The remaining portion of the Company's collateral for collateralized bonds,
as of September 30, 2001, approximately $1.0 billion, is comprised of loans that
have coupon rates that are fixed. The Company has limited its interest rate risk
on such collateral  primarily through the issuance of fixed-rate  collateralized
bonds.  Overall,  the Company's  interest rate risk is primarily  related to the
rate of  change in  short-term  interest  rates  and to the level of  short-term
interest rates.

     Dynex  measures the  sensitivity  of the  Company's  net  interest  income,
excluding  various  accounting  adjustments  including  provision for losses and
premium and  discount  amortization,  to changes in interest  rates.  Changes in
interest rates are defined as instantaneous,  parallel,  and sustained  interest
rate  movements in 100 basis point  increments.  Dynex  estimates  the Company's
interest income for the next twelve months assuming no changes in interest rates
from those at period end. Once the base case has been estimated,  cash flows are
projected  for each of the  defined  interest  rate  scenarios.  Those  scenario
results are then  compared  against  the base case to  determine  the  estimated
change to net interest income.

       The  following  table   summarizes  the  Company's  net  interest  margin
sensitivity  analysis  as  of  September  30,  2001.  This  analysis  represents
management's  estimate of the percentage  change in net interest  margin given a
parallel shift in interest  rates.  The "Base" case represents the interest rate
environment  as it existed as of  September  30,  2001.  The analysis is heavily
dependent  upon the  assumptions  used in the  model.  The  effect of changes in
future  interest  rates,  the shape of the yield  curve or the mix of assets and
liabilities  may cause actual  results to differ from the modeled  results.  The
model applies prepayment rate assumptions representing  management's estimate of
prepayment  activity  on a  projected  basis  for  each  collateral  pool in the
investment  portfolio.  While the Company's model  considers these factors,  the
extent to which borrowers utilize the ability to exercise their option may cause
actual  results to  significantly  differ from the  analysis.  Furthermore,  its
projected   results  assume  no  additions  or  subtractions  to  the  Company's
portfolio, and no change to the Company's liability structure. Historically, the
Company  has made  significant  changes to its assets  and  liabilities,  and is
likely to do so in the future.

          ------------------------ ---------------------
                Basis Point          % Change in Net
          Increase (Decrease) in     Interest Margin
              Interest Rates          from Base Case
          ------------------------ ---------------------

                   +200                  (7.6)%
                   +100                  (3.8)%
                   Base                     -
                   -100                   3.8%
                   -200                   7.6%
          ------------------------ --------------------

PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings:

                  None

Item 5.           Other Information:

                  None

Item 6.           Exhibits and Reports on Form 8-K:

(a)               Exhibits

3.1     Articles  of  Incorporation  of  the  Registrant  (Incorporated  herein
        by  reference  to  the  Exhibits  to  Registrant's Registration
        Statement No. 33-83524 on Form S-3 filed August 31, 1994).

3.2     Bylaws of the  Registrant  (Incorporated  herein by reference to the
        Exhibits to  Registrant's  Registration  Statement No. 33-83524 on
        Form S-3 filed August 31, 1994).

3.3     Amended and Restated Articles of Incorporation of the Registrant,
        effective April 19, 1995 (Incorporated  herein by reference to Exhibit
        to the Registrant's Current Report on Form 8-K, filed April 21, 1995).

4.1     Indenture  between  Registrant and Trustee,  dated as of August 1, 1994
        (Incorporated  herein by  reference  to the  Exhibits  to  Registrant's
        Registration Statement No. 33-83524 on Form S-3 filed August 31, 1994).

4.2     Form of Supplement Indenture between Registrant and Trustee
        (Incorporated  herein by  reference  to the  Exhibits to
        Registrant's Registration Statement No. 33-83524 on Form S-3
        filed August 31, 1994).

4.3     Copy of the Indenture, dated as of November 1, 1994, by and between the
        Registrant  and Texas  Commerce Bank National  Association,  as Trustee
        (Incorporated  herein  by  reference  to  Exhibit  to the  Registrant's
        Current Report on Form 8-K, filed December 19, 1994).

4.4     Copy of the Series 4 Indenture Supplement, dated as of June 1, 1995, by
        and  between  the   Registrant   and  Texas   Commerce   Bank  National
        Association,    as   Trustee   (including   schedules   and   exhibits)
        (Incorporated  herein  by  reference  to  Exhibit  to the  Registrant's
        Current Report on Form 8-K, filed July 10, 1995).

4.5     Copy of the Series 10  Indenture  Supplement,  dated as of  December 1,
        1997, by and between the  Registrant  and Texas  Commerce Bank National
        Association,  as Trustee (related schedules and exhibits available upon
        request of the Trustee).  (Incorporated  herein by reference to Exhibit
        of Registrant's Current Report on Form 8-K, filed January 6, 1998).

4.6     Copy of the Series 11 Indenture Supplement,  dated as of March 1, 1998,
        by  and  between  the  Registrant  and  Texas  Commerce  Bank  National
        Association,  as Trustee (related schedules and exhibits available upon
        request of the Trustee).  (Incorporated  herein by reference to Exhibit
        of Registrant's Current Report on Form 8-K, filed June 12, 1998).

4.7     Copy of the Series 12 Indenture Supplement,  dated as of March 1, 1999,
        by  and  between  the  Registrant  and  Texas  Commerce  Bank  National
        Association,  as Trustee (related schedules and exhibits available upon
        request of the Trustee).  (Incorporated  herein by reference to Exhibit
        of Registrant's Current Report on Form 8-K, filed April 12, 1999).

4.8     Copy of the Series 13 Indenture Supplement, dated as of August 1, 1999,
        by  and  between  the  Registrant  and  Texas  Commerce  Bank  National
        Association,  as Trustee (related schedules and exhibits available upon
        request of the Trustee).  (Incorporated  herein by reference to Exhibit
        of Registrant's Current Report on Form 8-K, filed September 13, 1999).

4.9     Copy of the Series 14  Indenture  Supplement,  dated as of  November 1,
        1999, by and between the  Registrant  and Texas  Commerce Bank National
        Association,  as Trustee (related schedules and exhibits available upon
        request of the Trustee).  (Incorporated  herein by reference to Exhibit
        of Registrant's Current Report on Form 8-K, filed November 12, 1999).

99.1    Standard Provisions to Servicing Agreement (Incorporated herein by
        reference to the Exhibits to Registrant's  Registration Statement
        No. 33-83524 on Form S-3 filed August 31, 1994).

99.2    Form of Servicing Agreement (Incorporated herein by reference to the
        Exhibits to Registrant's  Registration  Statement No. 33-83524 on
        Form S-3 filed August 31, 1994).

99.3    Standard Terms to Master Servicing Agreement (Incorporated herein by
        reference  to the  Exhibits  to  Registrant's Registration Statement
        No. 33-83524 on Form S-3 filed August 31, 1994).

99.4    Form of Master Servicing Agreement (Incorporated herein by reference to
        the  Exhibits  to  Registrant's  Registration Statement No. 33-83524
        on Form S-3 filed August 31, 1994).

99.5    Form of  Prospectus  Supplement  of Bonds  secured by  adjustable-rate
        mortgage  loans  (Incorporated  herein by reference to Exhibits to
        Registrant's Pre-Effective Amendment No. 4 to Registration Statement
        No. 33-83524 on Form S-3 filed December 5, 1994).

99.6    Form  of  Financial  Guaranty  Assurance  Policy  (Incorporated  herein
        by  reference  to  the  Exhibits  to  Registrant's Registration
        Statement No. 33-83524 on Form S-3 filed August 31, 1994).

99.7    Form of GEMICO  Mortgage  Pool  Insurance  Policy  (Incorporated  herein
        by  reference  to the  Exhibits  to  Registrant's Registration Statement
        No. 33-83524 on Form S-3 filed August 31, 1994).

99.8    Form  of PMI  Mortgage  Insurance  Co.  Pool  Insurance  Policy
        (Incorporated  herein  by  reference  to the  Exhibits  to Registrant's
        Registration Statement No. 33-83524 on Form S-3 filed August 31, 1994).

99.9    Form of Prospectus Supplement of Bonds secured by fixed-rate mortgage
        loans (Incorporated  herein by reference to Exhibits to Registrant's
        Pre-Effective Amendment No. 4 to Registration Statement No. 33-83524
        on Form S-3 filed December 5, 1994).

99.10   Copy of the Saxon  Mortgage  Funding  Corporation  Servicing  Guide for
        Credit Sensitive Loans,  February 1, 1995 Edition  (Incorporated herein
        by reference to Exhibit to the Registrant's Current Report on Form 8-K,
        filed March 8, 1995).

99.11   Copy of Financial  Guaranty  Insurance Policy No. 50364-N issued by
        Financial Guaranty Assurance Inc., dated April 7, 1995, with respect to
        the Series 3 Bonds  (Incorporated  herein by reference to Exhibit to the
        Registrant's  Current  Report on Form 8-K, filed April 21, 1995).

99.12   Copy of Financial  Guaranty  Insurance Policy No. 50382-N issued by
        Financial Guaranty Assurance Inc., dated June 29, 1995, with  respect to
        the Series 4 Bonds (Incorporated herein by reference to Exhibit to the
        Registrant's  Current  Report on Form 8-K, filed July 10, 1995).

99.13   Copy of the Standard Terms to Master Servicing Agreement,  June 1, 1995
        Edition (Incorporated herein by reference to Exhibit to the
        Registrant's Current Report on Form 8-K, filed July 10, 1995).

99.14   Copy of Financial Guaranty Insurance Policy No. 19804 issued by MBIA
        Insurance Corporation (Incorporated  herein by reference to Exhibit to
        the Registrant's Current Report on Form 8-K, filed November 15, 1995).

99.15   Copy of Financial Guaranty  Insurance Policy No. 20596 issued by MBIA
        Insurance Corporation (Incorporated  herein by reference to Exhibit to
        the Registrant's Current Report on Form 8-K, filed March 21, 1996).

99.16   Copy of Financial Guaranty Insurance Policy No. 21296 issued by MBIA
        Insurance Corporation (Incorporated  herein by reference to Exhibit to
        the Registrant's Current Report on Form 8-K, filed June 19, 1996).

(b)     Reports on Form 8-K

        None.
<PAGE>
                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                      MERIT SECURITIES CORPORATION



                                      By:  /s/ Thomas H. Potts
                                           -------------------------------------
                                           Thomas H. Potts, President
                                           (Principal Executive Officer)



                                           /s/ Stephen J. Benedetti
                                           -------------------------------------
                                           Stephen J. Benedetti, Treasurer
                                           (Principal Financial and
                                            Accounting Officer)

Dated:  November 12, 2001