<PAGE>
[INSIDE FRONT COVER]
CONTENTS

Letter to Stockholders                 2
Financial Highlights                   4
Positioned for Profits                 5
Financials                            17
Corporate Directory                   48
Stockholder Information               49


<PAGE>
COMPANY OVERVIEW
North  American  Mortgage Company is a leading  U.S.  mortgage  banker
funding  $9.5 billion in loans for the purchase or refinance of  homes
in  1996  and  operating more than 100 loan production offices  in  32
states. The Company is the nationOs third largest independent mortgage
banker  and  ranks  in the top dozen of all home mortgage  lenders  It
offers  a wide array of loan products and programs to consumers realty
brokers,  mortgage  brokers and builders,  and  in  addition  provides
related  financial  products, including home equity  credit  and  full
lines of insurance. The Company also services Mortgage loans and ended
1996 with a servicing portfolio of $13.3 billion.

<PAGE>
[PHOTO]
<PAGE>
TO OUR STOCKHOLDERS

During  the  past year, North American Mortgage Company completed  the
investment phase of the corporate strategy we developed to strengthen,
diversify  and  grow the Company. Many key initiatives are  now  fully
implemented  and  others are well underway. We believe  that,  due  to
strategic  decisions and additional investments made during  the  past
two  years,  the  Company is well positioned  to  succeed  in  todayOs
difficult mortgage-banking environment.

In  1996,  the strong housing market and relatively favorable interest
rate  environment  spurred  consumer  loan  demand,  resulting  in  an
estimated $785 billion in new residential mortgage originations.  This
growth  in volume, however, was accompanied by continued consolidation
within  the  industry  and severe price competition.  In  this  highly
charged  environment, your Company increased its loan fundings  by  26
percent  over 1995, to $9.5 billion. Earnings for the year were  $2.30
per  share  despite  price  competition and continued  start-up  costs
associated   with  strategic  investments.  We  believe   that,   with
initiatives on course, investments made and major expansions complete,
we will be able to compete effectively in 1997.

The  recent trend toward consolidation in our industry shows no  signs
of abating. Commercial banks have become major players in the mortgage
market  through banking industry consolidation and the acquisition  of
independent mortgage companies. North American Mortgage Company  faces
larger and more powerful competitors than ever before. Fewer companies
control  more  of  the market. At the beginning  of  the  decade,  the
combined  market  shares of the 25 largest originators  accounted  for
little  more  than one-quarter of the total, while in  1996  the  same
group  captured nearly 40 percent. Consolidation has also resulted  in
price  competition, driving the CompanyOs price subsidies to borrowers
to an average of 35 basis points on loans originated in 1996, compared
with 32 basis points in 1995 and 22 basis points in 1994.

As   these  statistics  demonstrate,  mortgage  banking  today  is  an
enterprise that demands new thinking. North American Mortgage  Company
has  considered  carefully how best to compete  under  these  evolving
conditions, and we have taken specific strategic actions to deal  with
each  of  the  challenges presented by our industry. We have  met  our
challenges by strengthening our core business of mortgage origination;
by entering related businesses where we can leverage our expertise and
resources;  by  reducing  our production costs  through  hub-and-spoke
processing between branches and satellites; and by investing in people
and  technology.  Each  of these actions merits discussion,  and  each
should strengthen our competitive position in 1997.

2
<PAGE>

STRENGTHENING  OUR CORE BUSINESS North American Mortgage  Company  has
gained capacity through expanded operations and a continuing push  for
efficiencies,  with  a  focus  on  processing.  From  our  origins  in
California,  your Company has sought and achieved a national  presence
that  allows  us  to  take full advantage of the  regional  nature  of
business  cycles, expanding where the local economy is  growing.  With
109 offices in 32 states in every region of the country, our expansion
drive  is now complete. We have also worked to become a more efficient
producer  with  the  full  implementation of  our  re-engineered  loan
processing system, developed in consultation with Coopers & Lybrand.

ENTERING  RELATED BUSINESSES In todayOs competitive climate,  a  broad
market presence and efficient operations cannot, in themselves, ensure
the  continued  financial health of your Company. We  are  engaged  in
ongoing  evaluation of and entry into closely related businesses  that
draw on our core competencies as mortgage bankers, businesses where we
can  capitalize on our existing distribution network and physical  and
technological  infrastructure. We look for  opportunities  in  higher-
margin  businesses that will generate additional revenue  streams  and
that  will offset the cycles of the mortgage industry. In prior years,
we  took  the  first steps of introducing insurance, home  equity  and
credit card products.

In  1996,  we  made  an important decision to enter subprime  lending,
which  offers  considerably  higher profit margins  than  conventional
mortgage  lending. After examining alternatives, we  inaugurated  this
highly promising venture in a strategic alliance with a major subprime
securitizer, ContiMortgage, a subsidiary of ContiFinancial.  Following
a  pilot  phase in seven of our branches during the fourth quarter  of
1996,  we are now rolling out the subprime program across the  Company
and  we  expect  to complete implementation in our wholesale  branches
during the first quarter of 1997.

During  1996,  the Company decided to securitize mortgage  loans  that
exceed  Fannie  Mae  and  Freddie Mac guidelines  in  order  to  offer
desirable  products with more timely approvals and consistent  pricing
and  underwriting standards than are possible under  sale  to  a  loan
conduit.  We intend to sponsor our first securitization in the  second
quarter of 1997.

We also introduced an affinity program with United Airlines that
offers members of UnitedOs frequent flier program miles
for mortgages, and we are actively investigating similar programs with
market leaders in travel and other industry sectors.

REDUCING  PRODUCTION COSTS In addition to expanding our  reach  during
the  past  year, we continued to seek ways to lower production  costs.
Beginning  in wholesale branches, we experimented with a hub-and-spoke
transaction model in which full-service branches within a region carry
out  the  processing and underwriting functions for loan  applications
generated by satellite offices. We then expanded the model to selected
retail  branches. Our retail branches now support processing for  more
than  50  satellites. We are currently analyzing the  existing  branch
network  to identify additional locations where hub-and-spoke linkages
will generate further savings.

                                                                     3
<PAGE>
INVESTING  IN  PEOPLE AND TECHNOLOGY In tandem with  our  geographical
expansion  and  cost-saving initiatives, we have invested  significant
resources  in  recruiting, training and retaining  top  employees  and
adding  important new technological tools. These investments  are  now
complete  and we look forward to profiting from them in the  years  to
come.

In  addition  to inaugurating and following through on  its  strategic
initiatives,  North American Mortgage Company continues to  pay  close
attention to financial fundamentals. Our balance sheet remains strong;
we  have  a  current  warehouse line of  credit  of  $1  billion;  our
investment-grade  debt ratings were affirmed by the  rating  agencies;
and we continue to enjoy good financial liquidity.

Despite   the  challenges  of  the  increasingly  competitive  lending
environment,  we  believe that 1997 will offer many  opportunities  to
North  American Mortgage Company. The economy is healthy, and consumer
confidence  is  high  - both primary determinants  for  home  purchase
decisions.  Your  Company  is  now  positioned  to  benefit  from  the
initiatives we have implemented and the investments we have  made.  We
thank you for your support during this period of building, and we look
forward to rewarding your confidence in 1997.



[s/John F. Farrell, Jr.]                [s/Terrance G. Hodel]
John F. Farrell, Jr                     Terrance G. Hodel
Chairman of the Board                   President
Chief Executive Officer                 Chief Operating Officer

March 14, 1997

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years ended December 31,            1996      1995      1994      1993
----------------------------------------------------------------------
-
<S>                           <C>        <C>       <C>      <C>
Loan production In millions     $9,473     $7,495    $9,755    $17,607
Servicing portfolio
In millions                    $13,293    $14,109   $14,839    $17,280
Net income In thousands        $32,953    $40,455    $8,182    $47,694
Total assets In thousands     $853,657   $746,368  $765,374 $1,627,843
StockholdersO equity
In thousands                  $203,401   $193,144  $153,105   $165,380
Net income per share             $2.30      $2.69     $0.53      $3.17
Average shares outstanding
In thousands                    14,317     15,039    15,480     15,035
</TABLE>

4
<PAGE>

NORTH AMERICAN MORTGAGE COMPANY

POSITIONED FOR PROFITS

In  1996, North American Mortgage Company increased originations by 26
percent  to  $9.5 billion, while implementing initiatives designed  to
increase  profits  in  1997  and beyond. As  we  continue  to  compete
effectively in a mortgage-banking environment characterized  by  fewer
major  players  and greater price competition, we know that  long-term
success  depends  on  maintaining  a  solid  foundation  in  our  core
business,  entering  promising new businesses, operating  through  the
most  efficient  structure, and making the most of our investments  in
people and technology.

LOAN ORIGINATIONS($ IN BILLIONS)
[BAR CHART]
-----------------------------------
O95                        O96
7.5                        9.5
-----------------------------------

                                                                     5

<PAGE>
[PHOTO]
Profitability depends on making the right strategic decisions  -  like
growing  our  retail  market  share by offering  customers  attractive
products and the ability to do business at their convenience.
<PAGE>
NORTH AMERICAN MORTGAGE COMPANY

A STRONG BASE

The  Company  has  steadily developed its core  business  of  mortgage
lending by extending its geographical market reach, employing multiple
origination  channels,  offering  a  range  of  diverse  products  and
emphasizing operational efficiency. In addition to generating  revenue
from  mortgage  production, the Company has continued to  improve  the
performance of its servicing operation.

Over  the past five years, we have achieved a significant presence  in
all major markets. We are particularly pleased with the performance of
our  Midwest and Northeast regions, both operations we built from  the
ground  up.  Within four years of start-up, together the  Midwest  and
Northeast regions have grown to generate more than one-quarter of  the
CompanyOs total fundings.

THE  RIGHT BALANCE OF ORIGINATION CHANNELS The Company recognizes  the
value   of   reaching   customers  through   retail,   wholesale   and
telemarketing channels. This three-part approach allows the Company to
benefit  from  the  advantages of each channel  without  becoming  too
dependent  on  any one. Our branch expansion, completed in  1996,  has
increased  our  volume of retail business, which  today  is  our  most
profitable  origination channel. Retail is primarily oriented  to  the
purchase  market,  which,  since the refinancing  boom  in  1993,  has
accounted  for  more  than 70 percent of originations  nationwide.  At
North    American   Mortgage   Company,   retail   volume,   including
telemarketing, stood at 42 percent of all originations in 1996.

The   wholesale  channel,  which  produces  a  higher  percentage   of
refinancings  than  retail  production,  is  based  on  the  CompanyOs
relationship  with  a network of more than 6,500 independent  mortgage
brokers.  The Company maintains ties with this broker network  through
calling  officers  and  marketing  seminars,  which  are  designed  to
increase  awareness  of  the CompanyOs loan  products  and  to  assist
brokers in educating their customers.

AN  ARRAY OF PROGRAMS AND PRODUCTS We believe that providing consumers
with  a diverse array of attractive programs and products is a way  to
differentiate  North  American Mortgage Company  in  the  marketplace.
Accordingly,  we have created programs that are directed primarily  at
purchase  loans and are targeted to different kinds of  consumers  and
markets.  These programs are particularly important to  maintaining  a
healthy  retail  channel, and they performed well  in  1996.  Purchase
Express(R),  for  example,  is  an  advance  credit  approval  program
intended to build customer loyalty. As popular among realty brokers as
it  is among buyers, Purchase Express accounted for 24 percent of  the
CompanyOs total retail fundings in 1996.

RETAIL/WHOLESALE COMPARISON
($ In Millions)
[BAR CHART]
       O94       O95       O96
----------------------------------
*    3,822     3,312     3,995
+    5,933     4,183     5,478
----------------------------------
* Retail
+ Wholesale

FUNDING BY REGION
(% of Total Funding)
[CHART BY REGION]
                      O94       O95      O96
------------------------------------------------
Pacific               23%       19%      20%
Southern CA/NV        21%       19%      18%
Southwest             24%       23%      18%
Midwest                3%       14%      18%
Mid-Atlantic          20%       15%      13%
Northeast              2%        5%       8%
Telemarketing          7%        5%       5%
------------------------------------------------
[REGIONAL GRAPHIC MAP OF UNITED STATES]

                                                                     7

<PAGE>
NORTH AMERICAN MORTGAGE COMPANY

NUMBER OF LOANS PER SERVICING EMPLOYEE
[BAR CHART]

       O94       O95       O96
----------------------------------
+      933     1,070     1,086
*      692       732       n/a
----------------------------------
   + NAMC*
   * MBA**
* North American Mortgage Company
**Mortgage Bankers Association

LOAN DELINQUENCY RATE
(INCLUDES FORECLOSURES)
[BAR CHART]
       O94       O95       O96
----------------------------------
+    2.43%     3.06%     3.43%
*    5.28%     5.40%     5.40%
----------------------------------
+ North American Mortgage Company
* Mortgage Bankers Association

Some of the CompanyOs most successful loan programs are aimed at fast-
growing but traditionally underserved segments of the overall mortgage
market.  Opening  Doors for America(TM)is a community lending  program
that   uses   such   vehicles  as  special  loan  programs,   flexible
underwriting,  outreach  and education to  help  make  home  buying  a
reality   for   first-time,  low-  to  moderate-income  and   minority
purchasers.  This  commitment  has benefited  communities  across  the
country,  and  it  has  had  a  significant  impact  on  the  Company,
accounting for $2.6 billion of our 1996 production. Opening Doors  for
America  has  also  earned  us recognition from  the  Federal  Housing
Administration as one of the nationOs top five FHA lenders to African-
American, Asian-American and Hispanic households.

Another innovative program, introduced in 1995, is Rehab Express,(TM)a
government-insured loan that targets older, urban markets by combining
purchase and property improvement costs. In 1996, the first full  year
Rehab  Express  was offered, North American Mortgage Company  was  the
fourth-largest  originator of loans of this  type,  according  to  the
Department of Housing and Urban Development. Although this specialized
and complex product represents modest volume for the Company,
it  generates high revenue due to limited price competition. Based  on
the  success  of Rehab Express, we are planning to add a  conventional
loan to our rehabilitation product line in 1997.

A  HIGH-QUALITY  SERVICING PORTFOLIO North American  Mortgage  Company
ended   1996  with  a  servicing  portfolio  of  $13.3  billion.   The
delinquency  rate is a key measure of portfolio quality, and  in  1996
the  Company  continued  its  enviable  record  against  the  industry
average.  While  our delinquency rate rose slightly in  1996  to  3.58
percent (including foreclosures), it compares very favorably with  the
industry-wide  figure of 5.65 percent. Our average  coupon  rate  also
rose modestly, to 7.80 percent in 1996 from 7.73 percent in 1995,  but
it  remained  in  line with prevailing interest rates,  continuing  to
reduce   the   probability  of  borrower  refinancing  and  consequent
portfolio runoff.

Making  optimal  use of technology, reporting and tracking  regulatory
changes,  the  Company is among the most efficient  servicers  in  the
industry.  For  example, in 1996, the Company serviced an  average  of
1,086  loans  per servicing employee. This figure, up  for  the  third
consecutive year, compares with an industry average of 732  loans  per
servicing  employee in 1995, the latest year for which statistics  are
available.


8

<PAGE>
NORTH AMERICAN MORTGAGE COMFPANY
NEW OPPORTUNITIES

North  American  Mortgage  Company  actively  evaluates  related   new
business  opportunities that hold promise for the future.  We  subject
these  ventures  to  stringent tests:  they  must  draw  on  our  core
competencies as mortgage bankers, they must be delivered  through  our
existing  channels, they must be congruent with our corporate  mission
and  they  must  hold significant potential for profit.  In  1996,  we
expanded  our  existing  related businesses, introduced  three  highly
promising new initiatives and began planning for future additions.

CROSS-SELLING  PRODUCTS TO CURRENT CUSTOMERS North  American  Mortgage
Company  has a broad database of qualified customers - new homebuyers,
refinancers  and  those whose loans it services -  who  are  potential
buyers  of related products and services. New homeowners, for example,
frequently encounter changing insurance requirements, and the  Company
has  expanded its product lines through its subsidiary North  American
Mortgage  Insurance  Services (NAMIS)  to  serve  them.  NAMIS  has  a
dedicated  sales  force operating in conjunction  with  the  CompanyOs
production  branches  and from its headquarters  in  Santa  Rosa.  The
insurance operation offers homeowners, auto and life insurance and  is
licensed to write policies in most states where the Company originates
loans.

The  Company more than doubled the size of its insurance portfolio  in
1996 with the acquisition of the assets of Lomas Insurance Services, a
national  provider of personal lines insurance products and  services.
At  year-end, NAMIS had 89,068 policies in force, compared with 33,225
at the close of 1995.

In  December 1995, the Company introduced EquityEdge,(TM)a home equity
line  of  credit.  Homebuyers can take advantage  of  this  convenient
product at the time of a mortgage loan closing with virtually no extra
paperwork.   Some  customers  use  the  credit  line   for   immediate
improvements,  some  employ  it to eliminate  the  need  for  mortgage
insurance  or  to reduce a OjumboO loan to meet the conforming  limit,
and  some  simply  want  to  have a cushion for  unexpected  expenses.
EquityEdge  is  also  available  as a  stand-alone  product,  allowing
homeowners to draw on the equity in their homes to meet such needs  as
home   improvements,  major  purchases,  college   tuition   or   debt
consolidation  while taking advantage of tax benefits.  In  1996,  the
productOs first year, EquityEdge generated $58.5 million in fundings.

As these examples demonstrate, the Company and its insurance
subsidiary have recently increased the number of products available
for cross-sale, and each is actively marketing its products to
customers - at the point of sale, when the customer has an active
need.

                                                                     9
<PAGE>
[PHOTO]
Through subprime lending, we offer people who have hit a financial
rough spot the chance to consolidate debt and get on with their lives.

<PAGE>

SUBPRIME  LENDING The most significant strategic decision the  Company
reached  in 1996 was to enter subprime lending. This line of business,
generating  loans  used  primarily as debt-consolidation  vehicles  by
homeowners   with  less  than  impeccable  credit  histories,   offers
opportunity  on many fronts. Consumers, who have collectively  run  up
the  highest  rates of personal debt ever, are now eager  to  use  the
equity  they  have  in  their homes to help  them  manage  that  debt,
especially at interest rates considerably lower than those  on  credit
cards. Current market size is estimated at $120 billion, and no lender
controls  even  a five percent market share. The yields  available  to
originators  are  much  higher than for conventional  mortgage  loans.
Subprime   lending  will  flow  through  the  retail,  wholesale   and
telemarketing channels already employed by the Company. North American
Mortgage  Company  can  take  advantage of  this  market,  originating
subprime  loans in its existing production offices, for the most  part
with  current  personnel. As a leading mortgage lender, we  can  bring
efficiencies,  add  credibility  and  increase  the  customer  service
quotient in subprime lending.

In  determining the course of its entry into the subprime market,  the
Company   evaluated   and  rejected  the  alternative   scenarios   of
acquisition  and  start-up. Instead, we decided to capitalize  on  our
strengths  in  processing  and distribution  by  seeking  a  strategic
alliance with a major securitizer of subprime loans. This option had a
threefold advantage: it was the quickest, the most cost effective  and
entailed the least amount of risk.

In October, the Company officially entered the subprime business in  a
strategic alliance with ContiMortgage, a subsidiary of ContiFinancial,
a  major  securitizer of subprime loans. ContiMortgage will underwrite
and  purchase  the CompanyOs originations and will also assist  us  in
training our originators and processors in the special characteristics
of these loans.

A pilot subprime program was inaugurated in six wholesale branch
offices and our telemarketing operation during the fourth quarter of
1996, using our existing broker network and reaching out to additional
brokers who specialize in subprime lending. Initial response has been
very positive, and we plan to roll out subprime lending to our 46
wholesale branches during the first quarter. We will also implement
training, tools and systems to support subprime lending through our
retail channel.

SECURITIZING NONCONFORMING LOANS Nonconforming loans, in  contrast  to
subprime  loans,  are  distinguished by size or other  characteristics
apart  from  borrower credit. Traditionally, nonconforming loans  have
been sold to securitizers who offer a patchwork of constantly changing
guidelines,  leading  inevitably to approval delays  and  inconsistent
pricing  and underwriting standards. In 1996, North American  Mortgage
Company  studied  the  option of leveraging  the  CompanyOs  financial
strength to create its own nonconforming products. We determined  that
we  can benefit by acting as our own securitizer, gaining control over
product, pricing and underwriting while streamlining approval. We plan
to  complete our first securitization during the second quarter of the
year.

UNITED AIRLINES AFFINITY PROGRAM In late 1996, North American Mortgage
Company entered into a partnership with United Airlines in a miles-for-
mortgage  program  offered to UnitedOs MILEAGE  PLUS(R)  members.  The
HouseMiles(TM)program  proved  immediately  popular   with   consumers
because of its special features: a simple formula based on loan amount
rather than interest payment, with no ceiling; all miles delivered  up
front  rather  than in installments; and the draw of a  major  airline
carrier. The size of the average HouseMiles loan to date is in  excess
of  $156,000, compared with the 1996 Company-wide average of  $97,162.
The  program  underscores  the  value of strategic  partnerships  with
leading  companies, an avenue the Company will continue to  pursue  in
1997.

                                                                    11

<PAGE>
[PHOTO]
We have structured our business to foster entrepreneurship and
flexibility within regions while lowering costs.

<PAGE>
NORTH AMERICAN MORTGAGE COMPANY
A Flexible Business Structure

Throughout  the  entire organization, North American Mortgage  Company
practices  autonomous  decision making in the context  of  a  cohesive
corporate  culture. In growing our Company to a national organization,
we  opted  for  a  decentralized structure  supported  by  significant
management  guidance.  Branches  function  as  entrepreneurial   small
businesses,  competing  aggressively in their  local  territories  and
making  their  own decisions, within Company guidelines,  on  pricing,
processing, underwriting and funding. This approach has enabled us  to
operate flexibly, seeking maximum opportunity in a highly regionalized
mortgage market, while giving us an edge in recruiting able, ambitious
staff.

HUBS  AND  SPOKES  In 1996, we experimented with a lower-cost  way  to
expand   our  market  penetration  through  a  regional  hub-and-spoke
transaction  model.  We  believe  that  delegating  authority   within
established  guidelines allows us to be more competitive  in  regional
markets.  Nevertheless,  we  recognize  that  certain  processing  and
underwriting functions can be accomplished more efficiently  by  full-
service  branches  on  behalf of satellite  offices  within  the  same
region.   We  began  applying  the  hub-and-spoke  model  in  existing
wholesale branches and expanded it to include selected retail branches
and  satellites in 1996. In 1997, we will extend the use of the  model
to  additional locations within our network of existing  branches.  In
addition  to  benefiting  from processing  efficiencies,  we  can  now
respond  more  quickly to local economic conditions because  satellite
offices  are  easier  to open and less costly to  operate  than  full-
service  branches. With hub-and-spoke processing, we  will  ultimately
achieve  a  greater  local  presence, while giving  loan  officers  in
satellite offices the back-up they need to be successful and  reducing
our overall origination costs.

RETAIL BRANCH FUNCTIONS IN HUB-AND-SPOKE SYSTEM
[FLOW CHART]
---------------------------------------------------------------
SATELLITE BRANCHES                        SATELLITE BRANCHES
                   FULL-SERVICE BRANCHES
SATELLITE BRANCHES                        SATELLITE BRANCHES
---------------------------------------------------------------
FULL-SERVICE BRANCHES                     SATELLITE BRANCHES
Meet with customers                       Meet with customers
Take applications                         Take applications
Process loans                             Ship loans to full-service
Underwrite loans                             branches for processing
Prepare loan documents
Fund loans
Ship funded loan packages
 to corporate headquarters
---------------------------------------------------------------
                                                                    13

<PAGE>
[PHOTO}

Bringing the origination process closer to the customer is one of the
ways we deliver superior service...and gain competitive advantage.

<PAGE>
NORTH AMERICAN MORTGAGE COMPANY

A UNIQUE CONVERGENCE OF PEOPLE AND TECHNOLOGY

The   Company  has  invested  heavily  in  both  skilled  people   and
appropriate technology over the past several years - adding 172 retail
loan  officers in 1996, for example. We fully expect to capitalize  on
that  investment in 1997 and the years to come. We take an  integrated
approach to human and technological resources: by recruiting the right
people,  by giving them the training to make them more productive  and
by  putting  powerful and user-friendly technological tools  on  their
desktops,  we  benefit  from a unique convergence  of  these  two  key
resources.

In  1996, we implemented a new telecommunications infrastructure  that
will   be  capable  of  supporting  future  growth  even  if  specific
overlaying business strategies change. In 1997, we plan to  create  an
enterprise-wide data warehouse to ensure consistency and usability  of
data throughout the Company. This initiative symbolizes our philosophy
of maintaining centralized control of data with decentralized delivery
of  information  so that all offices and all functions  -  production,
processing,  underwriting and servicing - can access  the  tools  they
need to do their jobs more efficiently and more profitably.

FASTER,  BETTER,  CLOSER  TO  THE CUSTOMER Automated  credit  scoring,
introduced  in  1995,  was  fully  implemented  across  all  wholesale
branches  in  1996.  This system gives the Company immediate  feedback
regarding  a  customerOs credit risk and increases  the  accuracy  and
consistency  of our credit scoring, resulting in greater  efficiencies
and higher-quality loan originations.

Even  more ambitious is the automated underwriting program,  which  is
currently being integrated into the process our underwriters use to do
their  jobs.  We  anticipate that this automated  system  will  handle
approximately   one-third  of  our  loans  with  very  little   manual
intervention  by underwriters, thus saving personnel  costs.  For  the
balance  of  our  loan  applications, the system  will  flag  specific
problems  for  the underwriter to investigate. Automated  underwriting
will  be moved further forward in the production system. By the fourth
quarter of 1997, we expect to have it installed on originatorsO laptop
computers  so  that  they  can have an early indication  of  risk  and
counsel customers accordingly.

Automated  underwriting at the laptop level is  part  of  our  ongoing
effort  to bring the entire production process closer to the  customer
at the retail point of sale, whether that point is a kitchen table,  a
satellite  office or a full-service branch. In 1996, we completed  the
enhancement  of  software on laptops across the Company,  transforming
them  from  data  recorders for applications  into  interactive  tools
capable of generating prequalification or loan status reports when the
loan officer and customer are face to face.

Technology  also plays a major role in the efficient handling  of  our
servicing   portfolio.   Our  artificial  intelligence   and   scoring
collection  system enables our servicing employees to  spot  potential
problem  areas  earlier  in the process so they  may  contact  certain
borrowers  sooner  in the credit cycle and work with  those  who  need
help.


RETAIL LOAN OFFICERS AND RETAIL BRANCHES

[BAR CHART]
---------------------------------
       O94       O95       O96
*      638       623       803
+       85        91       106
---------------------------------
* Number of Retail Loan Officers
+ Number of Retail Branches

                                                                    15
<PAGE>
NORTH AMERICAN MORTGAGE COMPANY


ENHANCED  COMMUNICATIONS In 1996, we began to make use  of  the  World
Wide  Web  for  communicating  inside  and  outside  the  Company.  We
implemented   a  Company  intranet  for  internal  communications,   a
particular  advantage  for  a  national  organization  such  as  ours.
Currently, our intranet offers features such as bulletin boards  where
employees  in  different regions can share information.  The  intranet
will  also deliver information during the production process and serve
as  a training medium. On the external front, the Company launched its
site  on  the  World  Wide Web in February 1997  at  www.namc.com.  As
electronic  commerce develops more fully, we expect our  Web  site  to
emerge as an alternative delivery channel for retail customers, realty
brokers, builders and our partners in business alliances.

DEVELOPING  THE  POTENTIAL  OF OUR PEOPLE During  the  past  year,  we
increased   our  emphasis  on  branch  management  training,   raising
capabilities with new management tools and techniques. In  small-group
sessions  throughout  the  year,  all regional,  district  and  branch
managers   participated  in  Branch  Management  Works,  a   week-long
intensive  learning  experience at North American  Mortgage  CompanyOs
Santa  Rosa headquarters. The curriculum, which was developed  at  the
corporate level with input from the field, covered financial analysis,
pricing, planning for growth and sales management.

16

<PAGE>
FINANCIALS
<PAGE>
SELECTED FINANCIAL DATA                         YEAR ENDED DECEMBER 31
(Amounts in thousands, except Operating and Per Share Data)

<TABLE>
<CAPTION>

SELECTED STATEMENT OF OPERATING DATA          1996      1995      1994       1993        1992
--------------------------------------------------------------------------------
----------------
<S>                                       <C>      <C>        <C>      <C>           <C>
REVENUES:
 Loan administration fees, net            $ 45,280  $ 41,830  $ 50,574  $  38,784  $   26,314
 Loan origination fees                      84,605    69,282    75,140    125,807      80,860
 Gain (loss) from sales of loans           101,153    81,652  (14,951)     37,912      26,508
 Net interest income                        28,680    27,534    29,491     30,021      24,425
 Gain from sales of servicing               37,634    46,037   120,739     88,821      52,102
 Other                                       9,441     8,445     7,172      7,594       6,279
--------------------------------------------------------------------------------
----------------
  Total Revenues                          $306,793  $274,780  $268,165  $ 328,939  $  216,488
Expenses:
 Amortization and impairment
  of purchased and originated
  servicing                                 10,462     7,310       965      5,072       5,799
  Other expenses                           241,349   203,753   255,963    250,435     163,233
--------------------------------------------------------------------------------
----------------
  Total Expenses                          $251,811  $211,063  $256,928  $ 255,507  $  169,032
================================================================================
================
Income before income tax expense            54,982    63,717    11,237     73,432      47,456
Income tax expense                          22,029    23,262     3,055     25,738       7,290
Net Income                                $ 32,953  $ 40,455   $ 8,182  $  47,694  $   40,166
--------------------------------------------------------------------------------
----------------
Net income per share(1)                   $   2.30  $   2.69   $   .53  $    3.17
--------------------------------------------------------------------------------
----------------
Dividends per share                       $    .24  $    .24   $   .24  $     .21      $  .05
--------------------------------------------------------------------------------
----------------

SUPPLEMENTAL PRO FORMA INFORMATION(2)
--------------------------------------------------------------------------------
----------------
Supplemental pro forma net income                                                  $   32,456
--------------------------------------------------------------------------------
----------------
Supplemental pro forma net income per share                                            $ 2.37
--------------------------------------------------------------------------------
----------------
Weighted average shares outstanding(3)      14,317    15,039    15,480     15,035      13,704
--------------------------------------------------------------------------------
----------------

SELECTED BALANCE SHEET DATA AT END OF PERIOD
--------------------------------------------------------------------------------
----------------
Cash and cash equivalents                 $ 22,005  $ 12,273  $102,045$    11,695  $    5,192
Total assets                               853,657   746,368   765,374  1,627,843   1,020,560
Short-term borrowings(4)                   158,584   146,833   205,175  1,047,357     783,801
Term loan                                       --        --        --         --      16,388
Purchase money note                             --        --    10,580     12,091      13,473
Notes payable                               75,724    74,801    99,699     99,592
Subordinated debt                           10,070    10,070    10,070     10,070       9,967
Total liabilities                          650,256   553,224   612,269  1,462,463     945,117
StockholdersO equity/partnersO
 capital                                  $203,401  $193,144  $153,105 $   165,380 $   75,443
================================================================================
================

SELECTED OPERATING DATA ($ in millions)
Volume of loans originated                $  9,473  $  7,495  $  9,755 $   17,607  $   11,789
Loan servicing portfolio @ end of period(5)$ 13,293 $ 14,109  $ 14,839 $   17,280  $   11,813
================================================================================
================
<FN>
1    1996  and 1995 results are not directly comparable to results for 1994  and
     prior  years  due to the adoption of FAS No. 122. See Financial  Accounting
     Standards Board No. 122, OAccounting for Mortgage Servicing RightsO on page
     23 for further discussion.
2    Supplemental  pro  forma net income is computed by adjusting  revenues  and
     expenses for interest savings from the net proceeds of the public offering,
     additional operating expenses caused by the corporate structure and  income
     taxes  on adjusted net income that would have been payable had the  Company
     purchased the Partnership at the beginning of the first period presented in
     the   CompanyOs  Registration  Statement  related  to  its  initial  public
     offering.  Supplemental pro forma net income per share is then computed  on
     the  basis  of the weighted average number of shares that would  have  been
     outstanding during the year.
3    1992 is pro forma.
4    Short-term  borrowings  are  comprised of warehouse  lines  of  credit  and
     commercial paper.
5    Excludes servicing rights of $1.4 billion, $2.5 billion, $1.2 billion, $2.1
     billion,  and $2.6 billion, for the years ended December 31, 1992,  through
     1996 respectively, which had been sold but were sub-serviced by the Company
     prior to transfer.
</TABLE>

                                                                              19
<PAGE>

MANAGEMENTOS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The   CompanyOs  revenues  from  its  mortgage  origination  activities   result
from   loan   originations  and  related  fees,  interest   income   earned   on
mortgage  loans  that  are  held  by the Company  pending  their  sale  and  net
gains  on  the  sale  of  mortgage  loans. The  CompanyOs  revenues  related  to
servicing   rights   are   derived  principally   from   loan   servicing   fees
earned   on   servicing  rights  and  from  gains  realized  on  the   sale   of
servicing rights.

LOAN   ORIGINATIONS   -   During   1996,  total   U.S.   mortgage   originations
increased   to   an   estimated  $785  billion  from  $636  billion   in   1995.
Generally,   U.S.   mortgage  origination  volume  varies  with   two   factors:
the   level   of   new   and  existing  home  purchases   and   the   level   of
refinancings  of  existing  mortgage  loans.  (See  adjacent  table.)  Both   of
these   factors   are   impacted  by  interest  rates.   To   the   extent   the
economy   encounters   a  period  of  rising  interest  rates,   mortgage   loan
originations    may   decline,   particularly   loan   originations    due    to
refinancings.

Mortgage   originations   for   the  purchase  of   new   and   existing   homes
increased   in  1996  to  an  estimated  $556  billion  from  $480  billion   in
1995.   This  increase  reflects  the  very  strong  U.S.  housing   market   in
1996.   According   to  industry  estimates,  1996  was  the  highest   purchase
market in history.

Mortgage   originations  from  refinances  also  increased   to   an   estimated
$229   billion   compared  with  $156  billion  during  1995.  As   demonstrated
in   the  graph  shown  below,  refinancing  activity  is  especially  sensitive
to    changes   in   mortgage   interest   rates.   The   strongest    refinance
quarters   for   the   industry  over  the  past  two  years   were   the   last
quarter   of  1995  and  the  first  quarter  of  1996,  when  30-year  mortgage
rates  were  generally  below  the  7.5% level.  The  overall  higher  level  of
refinancings   in  1996  compared  with  1995  resulted  from   a   particularly
slow  first  half  of  1995,  when  prevailing  refinance  mortgage  rates  were
on average above borrowersO existing fixed mortgage rates.

<TABLE>
<CAPTION>
                                                    1-4 Family U.S.
                                                 Mortgage Originations*
                                                 ----------------------
($ in Billions)                                   1996   1995     1994
----------------------------------------------------------------------
--
<S>                                               <C>     <C>     <C>
New and existing home purchases                   $556   $480     $551
Refinancings                                       229    156      222
----------------------------------------------------------------------
--
Total                                             $785   $636     $773
======================================================================
==
<FN>
*    Sources: HUD and Mortgage Bankers Association (1996 market data
     based on current estimates).
</TABLE>

COMPANYOS REFINANCING AND 30-YEAR FIXED INTEREST RATES
1995-1996
[BAR/MOUNTAIN CHART]
---------------------------------
Industry
Refinance Fundings (in millions)
---------------------------------
1995      1st Qtr          14
          2nd Qtr          21
          3rd Qtr          54
          4th Qtr          67

1996      1st Qtr          89
          2nd Qtr          59
          3rd Qtr          36
          4th Qtr          45
---------------------------------
30 Year Fixed Interest Rate
---------------------------------
Jan95  9.15%        Jan96 7.03%
Feb95  8.83%        Feb96 7.08%
Mar95  8.46%        Mar96 7.62%
Apr95  8.32%        Apr96 7.93%
May95  7.96%        May96 8.07%
Jun95  7.57%        Jun96 8.32%
Jul95  7.61%        Jul96 8.25%
Aug95  7.86%        Aug96 8.00%
Sep95  7.64%        Sep96 8.23%
Oct95  7.48%        Oct96 7.92%
Nov95  7.38%        Nov96 7.62%
Dec95  7.20%        Dec96 7.60%


20


The    CompanyOs   loan   origination   volume   in   1996   of   $9.5   billion
increased   by   26%   over  the  $7.5  billion  in  1995.  This   increase   in
origination   volume  is  primarily  attributable  to  the   general   rise   in
the   total   level   of  U.S.  mortgage  originations  and  to   the   positive
impact  of  the  CompanyOs  retail  sales  initiatives.  During  the  year,  the
Company   increased   its   retail  branch  offices   by   15,   its   satellite
locations   by   29   and  added  172  retail  loan  officers.   Despite   these
increases,   however,  the  CompanyOs  loan  origination   volumes   have   been
and   continue  to  be  negatively  impacted  by  aggressive  price  competition
from other originators. (See discussion of price subsidies following.)

The    adjacent   tables   show   the   CompanyOs   market   share    and    its
originations by distribution channel:

CURRENT   ORIGINATION   TRENDS   -   The  first   quarter   of   the   year   is
generally   the   slowest  for  housing  sales  due  to   seasonal   conditions.
Total  fundings  for  the  Company  in the first  two  months  of  1997  totaled
$1.3   billion  compared  with  $1.6  billion  for  the  same  period  in  1996.
As   previously   discussed,  the  origination  level  for  the  first   quarter
of   1996  benefited  from  a  relatively  high  level  of  refinance  activity.
Refinance  fundings  for  the  Company  were  $549  million  in  the  first  two
months of 1997 compared with $868 million in the same period of 1996.

<TABLE>
<CAPTION>


                                                         COMPANYOS MARKET SHARE*
                                                        ------------------------
                                          1996        1995        1994
----------------------------------------------------------------------
-
<S>                                      <C>         <C>         <C>
New and existing home purchases          1.04%       1.08%       0.94%
Refinancings                             1.57%       1.48%       2.28%
Total                                    1.20%       1.18%       1.26%
----------------------------------------------------------------------
-
<FN>
*    Based   on   total  1-4  Family  Mortgage  Originations  as   reported   by
     HUD   and   Mortgage  Bankers  Association  (1996  market  data  based   on
     current estimates).

                                                           COMPANYOS ORIGINATION
                                                         BY DISTRIBUTION CHANNEL
                                                        ------------------------
 ($ in billions)                          1996        1995        1994
----------------------------------------------------------------------
-
<S>                                      <C>         <C>         <C>
Wholesale                                 $5.5        $4.2        $5.9
Retail*                                    4.0         3.3         3.9
----------------------------------------------------------------------
-
Total                                     $9.5        $7.5        $9.8
----------------------------------------------------------------------
-
<FN>
*    Includes telemarketing.
</TABLE>

NET  INTEREST  INCOME  -  Between the closing  of  a  loan  and  its  sale,  the
CompanyOs    loans   are   financed   by   short-term   borrowings    under    a
warehouse  line  of  credit,  a  commercial  paper  facility  and  with  general
corporate   funds.  The  CompanyOs  net  interest  income   or   loss   is   the
difference  between  the  interest  income  it  earns  on  the  mortgage   loans
it   originates   and  its  interest  costs  under  its  short-term   borrowings
during   the   holding   period.   Generally,   the   CompanyOs   net   interest
income  is  impacted  by:  (i)  the  spread  between  short-term  and  long-term
interest  rates,  (ii)  the  average  balance  of  the  CompanyOs  real   estate
loans  held  for  sale  and  (iii)  the level of  corporate  cash  balances  and
compensating   balances   used   to  reduce  short-term   borrowing   costs.   A
decrease  in  any  of  the  above  factors  would  have  a  negative  impact  on
the CompanyOs net interest income.

                                                                              21

<PAGE>
During   1996,   the  CompanyOs  interest  rate  spread,  its  average   balance
of   loans  held  for  sale  and  its  compensating  balances  used  to   reduce
short-term    borrowing    costs   increased   compared    with    1995.    This
increase,  however,  was  largely  offset  by  a  reduction  in  corporate  cash
used   to   finance  the  loans  held  for  sale  (see  OLiquidity  and  Capital
ResourcesO).

GAIN  (LOSS)  FROM  SALES  OF  LOANS - In 1996  and  1995,  the  CompanyOs  gain
from   sales   of  loans  was  impacted  by  three  factors:  price   subsidies,
hedging   activity   and  the  recognition  of  gains  related   to   Originated
Mortgage   Servicing  Rights  (OMSRs)  under  FAS  No.  122.  In   1994,   OMSRs
were   not   recognized  for  accounting  purposes,  and  therefore,  the   only
comparable   factors   were  pricing  and  hedging.  The  following   paragraphs
describe each of these factors.
Price   subsidies:   The   Company  may  make  a  loan   at   a   price   (i.e.,
interest   rate   and  discount)  that  is  higher  or  lower  than   it   would
receive  if  it  immediately  sold  the  loan  in  the  secondary  market.   The
Company   adjusts   the   pricing  on  its  loans   depending   on   competitive
pressures.   From   1994   through   1996,  price   competition   for   mortgage
loans   remained   intense,  and  the  Company  generally   priced   its   loans
below   the  secondary  market.  The  price  competition  was  largely  led   by
major   banks,   which  were  aggressively  trying  to  increase  market   share
and build their servicing portfolios.
Price   competition   in  the  CompanyOs  wholesale  origination   channel   was
particularly   intense   throughout  1996  and  remained   intense   even   when
origination  volumes  were  increasing  during  the  year.  In  the  opinion  of
management,   this  prolonged  price  competition  for  loans  sourced   through
wholesale   brokers  has  signaled  that  a  secular  change  has  taken   place
in   the   pricing  structure  of  this  origination  channel.  To  the   extent
that   such   pricing   pressure   continues   or   intensifies   further,   the
CompanyOs gain on sales of loans will be negatively impacted.
Hedging   activity:  Gains  or  losses  may  result  from  changes  in  interest
rates   that  result  in  changes  in  the  market  value  of  the   loans,   or
commitments  to  purchase  loans,  from the  time  the  interest  rate  lock  is
given   to  the  borrower  until  the  time  that  the  loan  is  sold  by   the
Company  to  the  investor.  The  Company  uses  an  options  pricing  model  to
provide   information   to   hedge  this  latter   interest   rate   risk.   The
Company   uses   forward  delivery  contracts  for  mortgage-backed   securities
and   whole   loan  sales  as  hedging  instruments.  This  strategy   virtually
eliminates   basis  risk  as  the  borrowerOs  loan  is  used  to  satisfy   the
forward   delivery   contract.   In  periods  of   gradually   declining   rates
with   relatively   low  volatility,  such  as  the  Company   experienced   for
most   of  1995,  the  CompanyOs  hedging  activity  generally  produces  gains.
The   CompanyOs   hedging  strategy  is  negatively  impacted   during   periods
of   high  interest  rate  volatility  or  during  periods  when  there   is   a
significant   change   in  the  direction  of  interest   rates.   The   Company
experienced  both  of  these  conditions  during  the  first  nine   months   of
1996   and,   therefore,   its   hedging  profitability   for   the   year   was
negatively affected.

22

<PAGE>
OMSR   impact:  OMSR  gains  result  from  the  creation  of  servicing   rights
in  the  loan  origination  process.  OMSR gains  are  affected  by  the  volume
of   loan  originations,  the  product  mix  of  servicing  originated  and  the
general    market    for    mortgage   servicing   rights.    (See    discussion
Financial   Accounting  Standards  Board  No.  122,  OAccounting  for   Mortgage
Servicing Rights,O which follows.)

FINANCIAL   ACCOUNTING  STANDARDS  BOARD  NO.  122,  OACCOUNTING  FOR   MORTGAGE
SERVICING   RIGHTSO   -   In  May  1995,  the  Financial  Accounting   Standards
Board   issued  FAS  No.  122,  OAccounting  for  Mortgage  Servicing   Rights,O
an   amendment  to  FAS  No.  65.  Effective  January  1,  1995,   the   Company
adopted    FAS    No.   122.   Since   FAS   No.   122   prohibits   retroactive
application,   the   historical  accounting  results   for   1994   and   before
have   not   been  restated  and,  accordingly,  the  accounting   results   for
the   years   ended  December  31,  1996,  and  December  31,  1995,   are   not
directly comparable to the year ended December 31, 1994.
The   primary  difference  between  FAS  No.  122  and  FAS  No.   65,   as   it
relates   to   the  Company,  is  the  accounting  treatment  for   the   normal
servicing   fee   associated  with  in-house  OMSRs.  Virtually   all   of   the
CompanyOs   originations   are  in-house,  whereby  the   underlying   loan   is
funded and closed by the Company.
Under  FAS  No.  65,  OMSRs  were  not  recorded  as  an  asset.  In  1994,  the
revenues  and  costs  of  creating  OMSRs were  recognized  by  the  Company  in
the   financial  statements  at  the  time  the  underlying  loans  were   sold.
As   a   result   of   this   accounting  treatment,  the  CompanyOs   financial
statements   in   1994   did  not  recognize  any  balance   sheet   or   income
statement   value   for   the  OMSRs  created  by  the  Company,   even   though
these OMSRs had a substantial market value.
Under   FAS  No.  122,  OMSRs  are  treated  as  an  asset  separate  from   the
underlying   loan.   In  1996  and  1995,  the  total   cost   of   creating   a
mortgage   loan   was  allocated  at  the  time  of  origination   between   the
loan   and   the  servicing  right  based  on  their  respective  fair   values.
Additionally,   gains   on   the   sales   of   loans   attributable   to    the
allocation  of  costs  to  the  OMSR  were  recognized  when  the  related  loan
was   sold,  even  though  the  OMSR  asset  was  recognized  on  the  date  the
loan  was  originated.  A  portion  of  the  asset  established  for  OMSRs  was
amortized   and   the   OMSR  asset  was  analyzed  for  impairment   based   on
market   prices  under  comparable  servicing  sale  contracts  when   available
or,    alternatively,   on   the   expected   future   net   servicing   revenue
stream.
Several    financial   statement   captions   reported    in    the    CompanyOs
Statement   of   Operations  for  the  year  ended  December   31,   1996,   and
December   31,   1995,  were  impacted  by  the  adoption  of   FAS   No.   122,
including:   Gain   (loss)   from   sale  of   loans,   Gain   from   sales   of
servicing,   and   Amortization   and  impairment   of   loan   servicing.   The
impact   on   each  of  these  line  items  is  discussed  in  detail   in   the
Results   of   Operations   discussion  for  the  years   ended   December   31,
1996, and December 31, 1995.

                                                                              23
<PAGE>
SERVICING   RIGHTS   -   The  principal  balance  of  the  CompanyOs   servicing
portfolio   was  $13.3  billion  and  $14.1  billion  at  December   31,   1996,
and    December   31,   1995,   respectively.   Substantially   all   of   these
servicing    rights   have   been   obtained   through   in-house    origination
sources  (i.e.,  loans  which  are  funded  and  closed  by  the  Company).   As
more    fully   described   above,   servicing   rights   for   mortgage   loans
originated  prior  to  1995  were capitalized  on  the  balance  sheet  only  to
the  extent  of  the  value  of  excess  servicing,  while  essentially  all  of
the value of servicing originated since 1995 has been capitalized.
As   a   result   of  the  difference  in  accounting  treatment,  the   balance
sheet   carrying   value   for  servicing  rights  is  significantly   different
depending   on   whether  the  servicing  was  originated  before   January   1,
1995   (pre-1995),   or   after   January  1,   1995   (post-1995).   Management
believes   that   the  total  fair  market  value  of  its  pre-1995   servicing
rights   is  substantially  more  than  its  carrying  value,  while  the   fair
market   value  of  post-1995  servicing  rights  is  approximately   equal   to
its   total  carrying  value.  In  1996,  the  Company  sold  $2.8  billion   of
pre-1995   servicing  rights  and  recorded  a  net  pre-tax   gain   of   $32.8
million.   The   prices  received  for  sales  in  1996  may   not   necessarily
reflect   the   value   of   the   remaining   pre-1995   portfolio,   due    to
differences   in   portfolio  characteristics  (i.e.,   servicing   fees,   age,
coupon  rates)  and  changes  in  market  conditions.  At  December  31,   1996,
the   net   balance   sheet   carrying  value   (the   total   OMSR,   Purchased
Servicing   and   Excess  Servicing  Assets)  and  the  principal   balance   of
the   servicing   portfolio   originated  pre-1995   and   post-1995   were   as
shown in the adjacent table:
Management   continually   evaluates  the  CompanyOs  investment   in   retained
servicing   rights   and  periodically  makes  decisions   to   sell   servicing
rights after considering the following criteria: cash
requirements, market value for servicing rights compared with
their  economic  value  to  the  Company,  exposure  to  prepayment  risk,   and
earnings   impact.   To  the  extent  the  Company  elects  to   sell   pre-1995
servicing   rights,  virtually  all  of  the  net  proceeds  from   such   sales
are  recognized  as  one-time  gains from the  sale  of  servicing  due  to  the
minimal   book   value   of  these  servicing  rights.  Of   the   approximately
$5.8  billion  of  pre-1995  servicing  remaining  at  December  31,  1996,  the
Company   estimates   that   it   may   be  economically   advantageous   (i.e.,
where   market   value   equals   or  exceeds  the   economic   value   to   the
Company)   to   sell  approximately  $2.5  billion  as  part   of   its   future
servicing   sales.  The  CompanyOs  results  of  operations  have   historically
been   and   will  continue  to  be  impacted  by  the  amount  and  timing   of
sales of pre-1995 servicing rights.
Historically,    when   interest   rates   decline,   the   incremental    value
created by the CompanyOs production organization from
higher   refinance  originations  has  more  than  offset  the  loss  in   value
to    its    servicing    portfolio   resulting   from    higher    prepayments.
Accordingly,    the   Company   does   not   presently   hold   any    financial
prepayment  hedges,  but  it  has  relied  on  its  ability  to  originate   new
servicing  as  a  macro-hedge.  Under  FAS  No.  122,  however,  if  rates  were
to   decline,   the   timing   of  additional  production   revenues   and   any
servicing   impairment  charge  might  not  occur  in  the   same   period   for
financial    statement   purposes.   The   Company   could   be   required    to
recognize  a  servicing  impairment  charge  in  one  reporting  period,   while
the incremental production
revenues could be generated over several periods.

<TABLE>
<CAPTION>
                                                              TOTAL AT
                                          PRE-1995 POST-1995  12/31/96
----------------------------------------------------------------------
-
<S>                                         <C>     <C>       <C>
Balance sheet carrying value                $1,338  $132,440  $133,778
(In thousands)
Servicing portfolio principal               $5,757  $  7,536  $ 13,293
balance (In millions)
----------------------------------------------------------------------
-
Carrying Value Percentage                    0.03%     1.76%     1.01%
</TABLE>

24

<PAGE>

RESULTS OF OPERATIONS
Year ended December 31, 1996, compared with the year ended December
31, 1995.

SUMMARY   -  Net  income  in  1996  was  $33.0  million,  compared  with   $40.5
million   for  1995.  The  decrease  in  net  income  was  attributable   to   a
combination    of    factors.   The   CompanyOs   direct   origination    income
(origination   fees   and  OMSR  gains  less  origination  expenses)   increased
as  a  result  of  the  26%  rise  in  origination  volume.  This  increase  was
more   than   offset  by  lower  servicing  sale  gains,  lower  hedging   gains
and higher amortization and impairment of OMSRs.

REVENUES  -  Revenues  for  1996  were  $306.8  million,  a  $32.0  million   or
12% increase, compared with 1995 revenue of $274.8 million.
Loan   administration  fees  were  $45.3  million  in  1996,  an  8%   increase,
compared   with   $41.8  million  in  1995.  Loan  administration   fees   rose,
despite   a   2%  decline  in  the  average  size  of  the  CompanyOs  servicing
portfolio,   due   to   an   increase   in  the   CompanyOs   weighted   average
service   fee   and   a   reduction  in  excess  servicing   fee   amortization,
which is netted against servicing revenues.
Loan   origination   fees  were  $84.6  million  in  1996,   a   22%   increase,
compared  with  $69.3  million  in  1995.  This  increase  reflects  the  higher
origination   level,   partially  offset  by   a   decrease   in   the   average
origination   fees  collected  on  each  loan  as  a  result   of   a   slightly
higher   percentage   of   wholesale   and   telemarketing   originations.    In
1996,     the     CompanyOs    wholesale    and    telemarketing    originations
represented 63% of total production as opposed to 60% in 1995.
The  gain  on  sales  of  loans  was  $101.2  million  in  1996,  compared  with
$81.7   million  in  1995.  The  gain  from  sales  of  loans  is  impacted   by
hedging   activities,  pricing  subsidies  and  gains  recorded   due   to   the
allocation  of  a  portion  of  the cost of the  loan  to  OMSR  under  FAS  No.
122. (See adjacent table.)

<TABLE>
<CAPTION>
 (In thousands)                               1996               1995
----------------------------------------------------------------------
-
<S>                                     <C>                  <C>
Hedging gains                             $  6,631           $ 14,289
Pricing subsidies                         (33,471)           (23,697)
FAS No. 122 impact                         127,993             91,060
----------------------------------------------------------------------
-                                         $101,153           $ 81,652
----------------------------------------------------------------------
-</TABLE>

Hedging  gains  were  $6.6  million,  or 7  basis  points  on  loans  originated
in  1996,  compared  with  $14.3  million, or 19  basis  points,  in  1995.  The
CompanyOs   hedging  results  were  negatively  impacted  by  the  upward   turn
in   interest   rates   and   increased  bond  market   volatility   experienced
during  the  first  three  quarters  of  this  year.  Hedging  gains  for   this
period   averaged   1  basis  point  on  loans  originated  compared   with   25
basis points on loans originated during the fourth quarter of 1996.
Pricing   subsidies   increased  to  $33.5  million  during   1996,   with   the
average   subsidy  on  loans  produced  at  35  basis  points,   compared   with
$23.7  million,  or  32  basis  points,  during  1995.  This  increase  reflects
the   continued  price  competition  for  mortgage  loans,  particularly   loans
sourced through wholesale brokers.
FAS  No.  122  related  gains  were  $128.0 million  in  1996,  an  increase  of
41%,  compared  with  $91.1  million  during  1995.  This  increase  is  related
to  a  36%  increase  in  loans  sold during  1996,  compared  with  1995,  that
were   originated  after  the  implementation  of  FAS  No.  122  and  a  higher
OMSR   capitalization  rate,  resulting  from  changes  in   product   mix   and
market values.
Interest  income,  net  of  warehouse  interest  expense,  increased  to   $28.7
million   for   1996,   compared  with  $27.5  million   for   1995.   This   4%
increase  in  net  interest  income  was due  to  an  increase  in  the  average
balance   of   loans   held  for  sale,  an  increase  in  the   interest   rate
spread  earned,  and  an  increase  in  compensating  balance  credits  used  to
reduce    warehouse   borrowing   costs.   These   increases   were    partially
offset   by   a  reduction  in  corporate  cash  used  to  fund  the   warehouse
(see OLiquidity and Capital ResourcesO).

                                                                              25
<PAGE>
Gain  from  sales  of  servicing  was  $37.6  million  in  1996,  compared  with
$46.0  million  in  1995,  an  18% decrease. In  1996,  the  Company  sold  $8.2
billion   (or   87%  of  originations)  of  servicing  rights,   compared   with
the  sale  of  $6.7  billion  (or  89% of originations)  in  1995.  The  related
gain  decreased,  however,  due  to  a  smaller  amount  of  pre-1995  servicing
sold   during  1996.  The  gain  on  sale  of  pre-1995  servicing  during  1996
was  $32.8  million  (on  $2.8  billion of  principal  sold),  compared  with  a
gain of $37.3 million (on $3.3 billion of principal sold) in 1995.

EXPENSES   -   Expenses   for  1996  were  $251.8  million,   a   19%   increase
compared with $211.1 million in 1995.
Personnel   costs   were   $150.1  million,  a  23%  increase,   compared   with
$122.0  million  in  1995,  caused primarily  by  a  26%  growth  rate  in  loan
origination   volume.   Personnel   costs   were   also   impacted   by   hiring
additional  loan  officers  in  connection  with  the  CompanyOs  retail   sales
initiative.
Other   operating  costs  increased  15%  to  $73.5  million   for   1996   from
$64.1    million    in   1995.   These   expense   increases   were    primarily
attributable  to  the  26%  increase  in  origination  volume  and  the   higher
startup   and  operating  costs  associated  with  new  branches  and  satellite
locations.
Interest  expense  decreased  to  $9.4  million  in  1996,  compared  with  $9.8
million   in   1995.   This  decrease  was  the  result  of   the   decline   in
interest   expense   on  the  medium-term  notes  (MTNs),   due   to   a   lower
average balance of MTNs outstanding in 1996.
Amortization   and   impairment   of   loan   servicing   increased   to   $10.5
million   during   1996,   compared  with  $7.3   million   during   1995.   The
primary  causes  for  this  increase  were  the  size  of  the  OMSR  assets  on
the   balance  sheet,  which  caused  higher  amortization  expense,   partially
offset by a lower impairment charge in 1996.

YEAR   ENDED   DECEMBER  31,  1995,  COMPARED  WITH  THE  YEAR  ENDED   DECEMBER
31, 1994.
SUMMARY   -   Net   income  in  1995  increased  by  394%  to   $40.5   million,
compared with net income of $8.2 million for 1994.
The    increase    in   net   income   for   1995   reflected   a    significant
improvement  in  gain  on  sale  of  loans  (see  discussion  of  FAS  No.   122
impact  below)  and  a  reduction  of costs,  largely  due  to  the  closing  of
29   offices   in  a  downsizing  plan  during  1994.  These  improved   results
were   partially   offset   by  a  reduction  in  the   gain   from   sales   of
servicing   resulting  from  a  reduction  in  the  volume  of  servicing   sold
and due to higher book value of the servicing rights.

REVENUES  -  Revenues  for  1995  were  $274.8  million,  a  $6.6  million,   or
2% increase, compared with 1994 revenue of $268.2 million.
Loan   administration  fees,  net  of  the  amortization  of  excess   servicing
fees  of  $4.7  million  in  1995  and $629,000  in  1994,  were  $41.8  million
in   1995,   a  17%  decrease,  compared  with  $50.6  million  in  1994.   This
decrease   is  primarily  the  result  of  the  12%  decrease  in  the   average
size   of   the   Company-owned  loan  servicing  portfolio,  partially   offset
by an increase in the average servicing fee collected.
Loan   origination   fees  were  $69.3  million  in  1995,   an   8%   decrease,
compared   with  $75.1  million  in  1994.  This  decrease  resulted   primarily
from   a   23%   decrease  in  loan  originations,  partially   offset   by   an
increase  in  origination  fees  collected  on  each  loan.  This  increase   in
the   average   fees   collected   was  primarily   a   result   of   a   higher
percentage  of  retail  production  in  1995  (44%  as  opposed  to   39%),   on
which the Company receives higher loan origination fees.
The  gain  on  sales  of  loans  was $81.7 million  in  1995,  compared  with  a
loss  of  $15.0  million  during  1994.  In  1994,  gains  or  losses  on  sales
of   loans   resulted  from  hedging  activities  and  pricing   subsidies.   In
1995,  gains  or  losses  on  sales  of  loans  were  affected  by  these   same
factors,  but  were  also  affected  by FAS  No.  122.  Under  FAS  No.  122,  a
higher  gain  on  sale  is  recorded  when a  loan  originated  by  the  Company
is   sold   and   the  servicing  is  retained  compared  with   FAS   No.   65,
because  under  FAS  No.  122,  the  cost  of  the  loan  is  reduced   by   the
amount allocated to OMSRs.

26

<PAGE>

Hedging   gains   increased  by  $7.6  million  as  a  result  of   periods   of
declining   interest  rates  and  lower  interest  rate  volatility,   both   of
which  existed  during  most  of  1995.  Adjacent  is  a  summary  of  marketing
results for 1995 and 1994:

<TABLE>
<CAPTION>
 (In thousands)                               1995             1994
----------------------------------------------------------------------
--
<S>                                        <C>              <C>
Hedging gains                             $ 14,289         $   6,640
Pricing subsidies                         (23,697)          (21,591)
FAS No. 122 impact                          91,060                --
----------------------------------------------------------------------
--
                                          $ 81,652        $ (14,951)
----------------------------------------------------------------------
--
</TABLE>

Pricing   subsidies   increased  10%,  with  the  average   subsidy   on   loans
produced  increasing  to  32  basis  points  during  1995,  compared   with   22
basis  points  in  1994,  due  to  intense  price  competition  associated  with
industry overcapacity.
Interest  income,  net  of  warehouse  interest  expense,  decreased  to   $27.5
million   for   1995,   compared  with  $29.5  million   for   1994.   This   7%
decrease  in  net  interest  income  was  primarily  due  to  a  lower   average
daily balance of loans held for sale.
Gain  from  sales  of  servicing  was  $46.0  million  in  1995,  compared  with
$120.7  million  in  1994,  a  62%  decrease. The  reduction  in  gain  resulted
primarily  from  a  32%  decrease  in  the volume  of  servicing  sold  and  the
reduction  of  the  gain  from  sales of servicing  by  $34.8  million  in  1995
due   to   OMSR   basis  associated  with  servicing  sold.  The  Company   sold
mortgage  servicing  rights  with  an  aggregate  principal  balance   of   $6.7
billion   in  1995,  or  89%  of  originations,  compared  with  $9.9   billion,
or 101% of originations, in 1994.

EXPENSES   -   Expenses  for  1995  were  $211.1  million,   an   18%   decrease
compared with $256.9 million in 1994.
Personnel   costs   were  $122.0  million,  an  18%  decrease,   compared   with
$147.9  million  in  1994.  This  decrease  in  personnel  expenses  from   1994
occurred   principally   in  the  residential  loan   production   area.   These
declining   expense  levels  resulted  from  staffing  reductions  and   reduced
commission payments as a result of lower production volume.
Other   operating  costs  decreased  21%  to  $64.1  million   for   1995   from
$81.1   million   in  1994.  These  cost  reductions  occurred  throughout   the
Company,   but  were  greatest  in  the  loan  production  area,  due   to   the
closing   of   29  offices  in  the  downsizing  plan  during   1994   and   the
reduced loan origination volumes from 1994 to 1995.
Interest   expense   decreased  to  $9.8  million  for   1995,   compared   with
$10.8   million   for   1994.   This  decrease   was   the   result   of   lower
prepayments  on  certain  securitized  loan  pools  serviced  by  the   Company,
which  require  the  Company  to  pay  interest  to  the  security  holders  for
the  period  from  the  prepayment  to  the  end  of  the  month,  as  well   as
reduced   interest  on  its  purchase  money  note,  which  matured   in   March
1995.
Amortization   and   impairment   of   loan   servicing   increased   to    $7.3
million   during  1995,  compared  with  $965,000  during  1994.   The   primary
cause  for  the  increase  relates  to  amortization  and  impairment  of  OMSRs
of  $6.6  million  in  1995  resulting from the adoption  of  FAS  No.  122  and
a   pattern   of  falling  interest  rates,  which  produces  higher  prepayment
activity.

INFLATION
The   Company  is  affected  by  inflation  primarily  through  its  impact   on
interest   rates.   During   periods  of  rising   inflation,   interest   rates
generally    tend   to   increase,   causing   decline   in   loan   origination
volumes,   particularly   loan   refinancing   activity.   During   periods   of
rising   interest   rates,  prepayment  rates  tend  to  slow,   extending   the
average    life   of   the   CompanyOs   servicing   portfolio   and   generally
enhancing   its   value.   During   periods  of  reduced   inflation,   interest
rates    generally    tend   to   decline,   resulting   in    increased    loan
origination    volume   and   loan   refinancing   activity,    affecting    the
CompanyOs servicing portfolio in the opposite manner.

LIQUIDITY AND CAPITAL RESOURCES
The   CompanyOs   cash   flow  requirements  primarily  depend   on   both   the
level   and   cost  of  its  loan  originations,  the  level  of  its  servicing
sales   and   the   cash   flow  generated  by,  or  required   by   its   other
operating   activities.   Additionally,  the  Company   may   use   or   provide
cash through its investing and other financing activities.


                                                                              27


<PAGE>

LIQUIDITY   SOURCES   -   The   CompanyOs  loan   originations   are   primarily
financed    through   warehouse   borrowings,   commercial   paper   borrowings,
and   with   corporate  funds.  This  financing  requirement   begins   at   the
time   of  loan  closing  and  extends  for  an  average  of  approximately   30
days  until  the  loan  is  sold  into  the secondary  market.  On  January  23,
1996,  the  Company  entered  into  a  new warehouse  line  of  credit  facility
which   will   expire   on   January  23,  1999.  The   outstanding   commitment
under   this   facility   was   $1.0  billion  at   December   31,   1996.   The
CompanyOs  management  expects,  although  there  can  be  no  assurance,   that
this facility will continue to be available in the future.
The   Company  also  has  a  commercial  paper  borrowing  program.   Borrowings
under   this  $500  million  program  replace,  at  a  reduced  interest   rate,
borrowings  under  the  CompanyOs  warehouse  line  of  credit.  The   warehouse
line   of   credit   acts   as   the   liquidity   backup   facility   for   the
commercial paper borrowings.
At   times,  the  Company  will  accelerate  the  sale  of  its  mortgage   loan
inventory   through   the  use  of  OgestationO  facilities   provided   by   an
investment bank and the Federal National Mortgage Association.
The   CompanyOs  corporate  funds  are  generally  invested  in  its   inventory
of   mortgage   loans   held  for  sale.  The  level  of  funds   available   to
support  its  inventory  decreased  from  1995  to  1996  because  of  the  cash
used for the investing and other financial activities detailed below.
In   October  1993,  the  Company  implemented  a  $250  million  MTN   program.
Since   1993,   $126  million  in  MTNs  have  been  issued  and   $76   million
remain outstanding at December 31, 1996.

INVESTING AND OTHER FINANCIAL ACTIVITIES

COMMON   STOCK   -   On   February   7,  1996,  the   Company   authorized   the
repurchase  of  up  to  1.5  million  shares  of  common  stock.  During   1996,
the   Company   repurchased  1,182,400  shares  under  this   authorization   at
an   aggregate   cost  of  $21.5  million.  As  of  December   31,   1996,   the
Company   held   2,322,916   shares  in  treasury   stock,   which   have   been
acquired    since    1994    under   the   current    and    prior    repurchase
authorizations at an aggregate cost of $40.7 million.

DIVIDENDS   -   The   Company  has  paid  quarterly   common   stock   dividends
since   the  initial  public  offering  on  July  15,  1992.  Dividend  payments
totaled   $3.4  million  in  1996  and  $3.6  million  in  1995.   In   February
1997,   the   CompanyOs   board   of   directors   approved   a   common   stock
dividend of $.06 per share.

BUSINESS   INVESTMENT   -   In   October  1996,  the   Company   purchased   the
assets of Lomas Insurance Services for $3.5 million.

MTN  PROGRAM  AND  PURCHASE  MONEY  NOTE -  In  1996,  the  Company  issued  $26
million   in   seven-year  MTNs.  The  Company  paid  off  in  both   1996   and
1995,   $25   million  of  MTNs  that  matured.  Also,  in  1995,  the   Company
paid off a purchase money mortgage for $10.2 million.

PROPERTY,   PLANT   AND  EQUIPMENT  -  During  1996  and   1995,   the   Company
purchased   property   and   equipment   totaling   $10.0   million   and   $3.6
million, respectively.

EXCESS   SERVICING   FEES  -  During  1996  and  1995,   the   Company   created
$37.9   million  and  $49.1  million  of  excess  servicing  fees  during   loan
sales   transactions.   In  general,  the  Company  creates   excess   servicing
fees   when  the  secondary  market  price  offered  for  that  servicing  asset
is   lower   than   the  economic  value  or  the  amount  the   Company   could
receive  by  accumulating  the  asset  and  selling  it  as  part  of   a   bulk
sale   at   a   later  date.  During  the  CompanyOs  holding  period   of   the
Excess  Servicing  Fee  asset,  the Company is  at  risk  that  the  asset  will
decline  in  value  and  a  write  down  will  be  required,  primarily  due  to
faster   prepayment   speeds.   The  carrying   amount   of   excess   servicing
rights   was  $25.5  million  and  $20.6  million  at  December  31,  1996   and
December 31, 1995, respectively.


28

<PAGE>

REPORT OF INDEPENDENT AUDITORS



Board of Directors
North American Mortgage Company(R)

We   have  audited  the  accompanying  consolidated  balance  sheets  of   North
American   Mortgage  Company(R)  and  subsidiaries  as  of  December  31,   1996
and   1995,   and   the   related   consolidated   statements   of   operations,
stockholdersO  equity  and  cash  flows for each  of  the  three  years  in  the
period   ended   December  31,  1996.  These  financial   statements   are   the
responsibility   of  North  American  Mortgage  Company(R)Os   management.   Our
responsibility   is  to  express  an  opinion  on  these  financial   statements
based on our audits.

We   conducted  our  audits  in  accordance  with  generally  accepted  auditing
standards.  Those  standards  require  that  we  plan  and  perform  the   audit
to   obtain   reasonable  assurance  about  whether  the  financial   statements
are   free  of  material  misstatement.  An  audit  includes  examining,  on   a
test   basis,   evidence  supporting  the  amounts  and   disclosures   in   the
financial   statements.  An  audit  also  includes  assessing   the   accounting
principles  used  and  significant  estimates  made  by  management,   as   well
as   evaluating  the  overall  financial  statement  presentation.  We   believe
that our audits provide a reasonable basis for our opinion.

In   our   opinion,   the   consolidated  financial   statements   referred   to
above   present   fairly,   in   all   material   respects,   the   consolidated
financial    position    of    North   American    Mortgage    Company(R)    and
subsidiaries   at   December   31,   1996  and   1995   and   the   consolidated
results  of  their  operations  and their cash  flows  for  each  of  the  three
years   in   the   period   ended  December  31,  1996,   in   conformity   with
generally accepted accounting principles.

In    1995,    North    American   Mortgage   Company(R)    adopted    Financial
Accounting   Standards  Board  Statement  No.  122,  OAccounting  for   Mortgage
Servicing  Rights.O  These  changes  are  discussed  in  Note  D  of  the  Notes
to the Consolidated Financial Statements.

[s/ERNST & YOUNG LLP]


San Francisco, California
January 31, 1997

                                                                              29



<PAGE>
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31                                   1996                1995
----------------------------------------------------------------------
-
<S>                                        <C>                <C>
DOLLARS IN THOUSANDS
ASSETS
  Cash and cash equivalents               $ 22,005            $ 12,273
  Advances and other receivables            85,299              76,628
  Real estate loans held for sale to
    investors
    net of unearned discounts              554,415             526,913
  Originated loan servicing - Note D       107,679              56,353
  Excess servicing fees - Note D            25,540              20,559
  Purchased loan servicing - Note D            559               1,163
  Other intangible assets - Note D           9,391               6,438
  Property and equipment - Note E           38,541              36,339
  Other assets                              10,228               9,702
----------------------------------------------------------------------
--
                                          $853,657            $746,368
======================================================================
==
LIABILITIES AND STOCKHOLDERSO EQUITY
  LIABILITIES
    Warehouse line of credit - Note C     $158,584            $146,833
    Notes payable - Note C                  75,724              74,801
    Commercial paper - Note C              340,115             279,221
    Subordinated debt - Note C              10,070              10,070
    Accounts payable and other liabilities  65,763              42,299
----------------------------------------------------------------------
--
                                           650,256             553,224
======================================================================
==
COMMITMENTS AND CONTINGENCIES -
  Notes I, J, K, and N
  STOCKHOLDERSO EQUITY - Note G
    Convertible preferred stock (1,000,000
     shares authorized,
     748,179 shares issued and outstanding)     --                  --
    Common stock (50,000,000 shares
     authorized, 16,394,544 and
     16,394,543 shares issued at
     December 31, 1996
     and 1995, respectively)                   164                 163
    Additional paid-in capital             112,492             110,250
    Retained earnings                      131,435             101,909
    Treasury stock (2,322,916 and
     1,140,516 shares at
     December 31, 1996 and 1995,
     respectively)                        (40,690)            (19,178)
                                           203,401             193,144
----------------------------------------------------------------------
--
                                          $853,657            $746,368
======================================================================
==
</TABLE>

See accompanying notes to consolidated financial statements.


30

<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31                   1996      1995          1994
Amounts in thousands, except per share data
<S>                                    <C>       <C>          <C>
INCOME
 Loan administration fees, net
 of excess servicing fee amortization $ 45,280  $ 41,830      $ 50,574
 Loan origination fees                  84,605    69,282        75,140
 Gain (loss) from sales of loans       101,153    81,652      (14,951)
 Interest income, net of warehouse
 interest expense of
 $20,428, $11,588 and $11,166 for 1996,
 1995 and 1994, respectively - Note C   28,680    27,534        29,491
 Gain from sales of servicing - Note J  37,634    46,037       120,739
 Other                                   9,441     8,445         7,172
----------------------------------------------------------------------
--
                                       306,793   274,780       268,165
EXPENSES
 Personnel                             150,076   122,033       147,941
 Other operating expenses               73,487    64,142        81,121
 Interest expense                        9,430     9,828        10,812
 Downsizing expenses - Note M               --        --         8,470
 Depreciation and amortization of
 property and equipment                  7,852     7,306         7,207
 Amortization and impairment of
 loan servicing                         10,462     7,310           965
 Amortization of other intangibles         504       444           412
----------------------------------------------------------------------
--
                                       251,811   211,063       256,928
======================================================================
==

 Income before income taxes             54,982    63,717        11,237
 Income tax expense - Note H            22,029    23,262         3,055
----------------------------------------------------------------------
--
 NET INCOME                           $ 32,953  $ 40,455      $  8,182
======================================================================
==

Net income per share                  $   2.30  $   2.69      $    .53
----------------------------------------------------------------------
--
Weighted average shares outstanding     14,317    15,039        15,480
----------------------------------------------------------------------
--
DIVIDENDS PER SHARE                   $    .24    $  .24      $    .24
======================================================================
==
</TABLE>
See accompanying notes to consolidated financial statements.
                                                                              31
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERSO EQUITY

<TABLE>
<CAPTION>
                                               COMMON     ADD.                          TOTAL
                                      COMMON    STOCK  PAID-IN   RETAINED  TREASURY STCKHLDRS
                               STOCK SHARES    AMOUNT  CAPITAL   EARNINGS     STOCK    EQUITY
--------------------------------------------------------------------------------
----------------
Amounts in thousands
<S>                                   <C>        <C>   <C>       <C>       <C>       <C>

Balance at December 31, 1993          15,848     $158  $104,620  $ 60,602            $165,380
 Net income                                                         8,182               8,182
 Dividends                                                        (3,716)             (3,716)
 Stock issuances under option plan        82        1     1,324                         1,325
 Stock issuances under Employee
    Stock Purchase Plan                   89        1     1,111                         1,112
 Purchases of Treasury Stock                                              $(19,178)  (19,178)
--------------------------------------------------------------------------------
----------------
Balance at December 31, 1994          16,019      160   107,055    65,068  (19,178)   153,105

 Net income                                                        40,455              40,455
 Dividends                                                        (3,614)             (3,614)
 Stock issuances under option plan       144        2     2,002                         2,004
 Stock issuances under Employee
    Stock Purchase Plan                   95        1     1,193                         1,194
--------------------------------------------------------------------------------
----------------
Balance at December 31, 1995          16,258      163   110,250   101,909  (19,178)   193,144

 Net income                                                        32,953              32,953
 Dividends                                                        (3,427)             (3,427)
 Stock issuances under option plan        39                599                           599
 Stock issuances under Employee
    Stock Purchase Plan                   98        1     1,643                         1,644
 Purchases of Treasury Stock                                               (21,512)  (21,512)
--------------------------------------------------------------------------------
----------------
Balance at December 31, 1996          16,395     $164  $112,492  $131,435 $(40,690)  $203,401
================================================================================
================
See accompanying notes to consolidated financial statements.
</TABLE>
32
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                    1996     1995       1994
----------------------------------------------------------------------
--
<S>                                        <C>      <C>        <C>
DOLLARS IN THOUSANDS

OPERATING ACTIVITIES
 Net income                                $32,953  $ 40,455   $ 8,182
 Adjustments to reconcile net
 income to net cash
 provided by (used in) operating activities
 Depreciation and amortization              21,441    19,738     9,214
 Capitalized excess servicing fee income  (37,937)  (49,110)   (5,407)
 Gain on sales of servicing rights        (37,634)  (46,037) (120,739)
 Cash proceeds from sales of servicing
   rights                                  135,126   111,850   122,244
 Decrease (increase) in real estate
   loans held for sale,
 net of unearned discounts                (27,502)    15,090   952,641
 Decrease (increase) in advances and
   other receivables                       (8,671)  (19,887)     3,397
 Increase (decrease) in accounts payable
   and other liabilities                    23,464    17,440  (19,049)
 Decrease (increase) in other assets         (527)   (1,720)     3,571
----------------------------------------------------------------------
--
 NET CASH PROVIDED BY OPERATING
   ACTIVITIES                              100,713    87,819   954,054

INVESTING ACTIVITIES
 Acquisition of assets of branches
   and insurance operations
 acquired including purchase
   accounting adjustments                  (3,551)     (143)     (913)
 Purchase of servicing rights                   --      (80)     (131)
 Acquisition of originated
   servicing rights                      (128,343)  (97,751)        --
 Purchase of property and equipment        (9,959)   (3,608)  (11,058)
 Retirement of property and equipment           --       892        --
----------------------------------------------------------------------
--
 NET CASH USED IN INVESTING ACTIVITIES   (141,853) (100,690)  (12,102)

FINANCING ACTIVITIES
 Issuance of notes payable                  25,844        --        --
 Principal payments on long-term debt     (24,921)  (35,478)   (1,511)
 Net increase (decrease) in
   warehouse line of credit
 and commercial paper                       72,645  (41,007) (829,634)
 Dividends                                 (3,427)   (3,614)   (3,716)
 Purchases of Treasury Stock              (21,512)        --  (19,178)
 Stock issuance under Employee
   Stock Purchase Plan
 and Stock Option Plan                       2,243     3,198     2,437
----------------------------------------------------------------------
--
 NET CASH PROVIDED BY (USED IN)
   FINANCING ACTIVITIES                     50,872  (76,901) (851,602)
----------------------------------------------------------------------
--
 INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                          9,732  (89,772)    90,350
----------------------------------------------------------------------
--
 Cash and cash equivalents at beginning
   of year                                  12,273   102,045    11,695
----------------------------------------------------------------------
--
 CASH AND CASH EQUIVALENTS AT END OF YEAR  $22,005  $ 12,273  $102,045
======================================================================
==
</TABLE>
See accompanying notes to consolidated financial statements.

                                                                              33

<PAGE>

Notes to Consolidated Financial Statements

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------------------
--
ORGANIZATION     The    accompanying    Consolidated    Financial     Statements
include   the   accounts   of   North  American   Mortgage   Company(R);   North
American   Mortgage   Insurance  Services;  Sonoma   Conveyancing   Corporation;
Fairfield   Financial   Holdings   Inc.;   IC   Capital   Co.,   Inc.;   Vintage
Reinsurance Company; and IMCO Capital Co., Inc.

CASH   AND  CASH  EQUIVALENTS  Cash  and  cash  equivalents  include   cash   on
hand   and  in  banks  and  short-term  investments  with  maturities  of  three
months or less.

REAL  ESTATE  LOAN  VALUATION  Real estate loans  held  for  sale,  net  of  the
related   commitments,   are  stated  at  the  lower  of   aggregate   cost   or
market value.

PURCHASED  LOAN  SERVICING  Purchased  loan  servicing  is  recorded   at   cost
which  is  not  in  excess  of  the  future  net  cash  flows  related  to   the
servicing  portfolio.  The  cost  is  being  amortized  in  proportion  to   the
estimated   future   net  servicing  income.  Impairment   of   purchased   loan
servicing   is   determined   using   the   estimated   fair   value   of    the
purchased    mortgage   servicing   rights   on   a   disaggregated    portfolio
basis.

ORIGINATED   LOAN  SERVICING  Originated  loan  servicing  is   recorded   based
on  its  fair  value  relative  to  the loan as  a  whole.  The  cost  is  being
amortized   in  proportion  to  the  estimated  future  net  servicing   income.
Impairment   of   originated   loan   servicing   is   determined   using    the
estimated    fair   value   of   the   mortgage   servicing    rights    on    a
disaggregated portfolio basis.

EXCESS   SERVICING  FEES  In  determining  the  gain  or   loss   on   sale   of
mortgage   loans   to   investors   where  the   stated   servicing   fee   rate
differs   materially  from  a  normal  servicing  fee  rate,  the  sales   price
is   adjusted  by  the  difference  between  the  actual  sales  price  and  the
estimated   sales   price   that  would  have  been   obtained   if   a   normal
servicing  fee  rate  had  been  specified  and  a  capitalized  servicing   fee
receivable is recorded.
Capitalized  servicing  fees  are  carried at  amounts  not  in  excess  of  the
estimated   future   discounted  cash  flows  using  original   discount   rates
on   a   disaggregated   portfolio  basis.   The   Company   uses   the   income
forecast   method   to   amortize  capitalized   servicing   fees.   Under   the
income   forecast   method,  capitalized  servicing  fees   are   amortized   in
proportion   to   the  estimated  future  excess  servicing  income   and   over
the   period   of   the  estimated  economic  life  of  the  loans   sold.   The
estimated  economic  lives  of  the loans used  by  the  Company  are  based  on
the   median   prepayment   rates  forecasted   by   several   large   brokerage
firms.

OTHER   INTANGIBLE   ASSETS   Amortization  of  other   intangible   assets   is
provided  by  the  straight-line  method  over  estimated  useful  lives  of   5
to 20 years.

PROPERTY   AND   EQUIPMENT   Property  and  equipment   is   stated   at   cost.
Depreciation   and   amortization   is  calculated   using   the   straight-line
method over estimated useful lives of the assets (3 to 35 years).

LOAN   ADMINISTRATION   The  Company  services  mortgages   for   investors   as
well  as  mortgages  held  for  sale.  In  connection  with  mortgage  servicing
activities,   the   Company   segregates   escrow   and   custodial   funds   in
separate   trust   accounts   and   excludes   these   balances   (approximately
$276.9   million   and   $230.1  million  at  December  31,   1996   and   1995,
respectively)   from   the  balance  sheet.  These  funds  represent   principal
and   interest   payment   amounts   held  for   investors   pending   scheduled
remittance   and   funds   held  for  borrowers   for   payment   of   scheduled
items, primarily taxes and insurance.

34

<PAGE>

INCOME   RECOGNITION   Lending  transaction  costs  are   deferred   until   the
related   loan   is   sold.  Commitment  fees  paid  to  investors   are   being
deferred  until  either  the  expiration  of  the  commitment  or  the  sale  of
the   related   loan.   Upon   sale  of  the   loan   or   expiration   of   the
commitment,   the   deferred   origination   fees   are   recognized   as   loan
origination    fees    in   the   statement   of   operations    and    deferred
origination    costs    are    recognized    in    the    applicable     expense
classification.
Loan   administration  income  represents  fees  earned  for   servicing   loans
for   various   investors.  The  fees  are  either  based   on   a   contractual
percentage   of   the   outstanding  principal  balance  or   a   fixed   dollar
amount  per  loan.  Fees  are  credited to  income  when  the  related  payments
are received.
Discounts  and  premiums  from  the  origination  of  real  estate  loans   held
for   sale  are  deferred  and  recognized  as  adjustments  to  gain  or   loss
upon sale.

INCOME   TAXES  The  Company  has  adopted  Statement  of  Financial  Accounting
Standards   No.   109,   OAccounting  for  Income  Taxes.O   The   Company   has
provided disclosures related to income taxes (see Note H).
The   Company   and  its  subsidiaries  file  separate  United  States   federal
income   tax   returns   and   separate  or   combined   returns   for   certain
states,   including  California.  State  and  local  income  tax   returns   are
filed according to the taxable activities of the Company.
The  liability  method  of  accounting is  used  for  income  taxes.  Under  the
liability   method,   deferred  tax  assets  and  liabilities   are   recognized
for   the   expected   future   tax   consequences   of   existing   differences
between   financial   reporting  and  tax  reporting   bases   of   assets   and
liabilities,  as  well  as  for  the operating  losses  and  tax  credit  carry-
forwards,   using   enacted   tax   laws  and  rates.   Deferred   tax   expense
represents   the   net   change  in  the  deferred  tax   asset   or   liability
balance   during   the   year.   This  amount,  together   with   income   taxes
currently   payable  or  refundable  for  the  current  year,   represents   the
total income tax expense for the year.

NET  INCOME  PER  SHARE  Net  income  per share  is  computed  by  dividing  net
income   by   the   average  number  of  common  shares  outstanding   and   the
additional   dilutive   effect   (if   any)   of   stock   options   outstanding
during   the   period.  The  dilutive  effect  of  stock  options  is   computed
using the Treasury Stock method.

COMMITMENT    DEPOSITS    FROM   BUILDERS   AND   PRE-PAID    COMMITMENT    FEES
Commitment   deposits   from  builders  are  included   in   other   liabilities
and   represent  fees  received  for  guaranteeing  the  funding   of   mortgage
loans   to   borrowers.   Prepaid  commitment  fees  are   included   in   other
assets   and   represent  fees  paid  to  permanent  investors  to  ensure   the
ultimate   sale  of  the  loans.  These  fees  are  recognized  as  revenue   or
expense   when  the  loans  are  sold  to  permanent  investors  or   when   the
commitment expires.

USE   OF   ESTIMATES   IN   THE   PREPARATION  OF   FINANCIAL   STATEMENTS   The
preparation   of   the  Consolidated  Financial  Statements   of   the   Company
requires   management   to   make   estimates  and   assumptions   that   affect
reported   amounts.   These  estimates  are  based  on   information   available
as   of  the  date  of  the  financial  statements.  Therefore,  actual  results
could differ from those estimates.

RECENTLY   ISSUED   FINANCIAL   ACCOUNTING   STANDARD   In   June   1996,    the
Financial   Accounting   Standards   Board   issued   Statement   of   Financial
Accounting   Standards  No.  125,  OAccounting  for  Transfers   and   Servicing
of   Financial   Assets   and   Extinguishments  of   LiabilitiesO   (SFAS   No.
125).   As   amended,   SFAS   No.   125,   applies   to   securities   lending,
repurchase    agreements,   dollar   rolls,   and    other    similar    secured
financing   transactions  occurring  after  December  31,  1997,  and   to   all
other   transfers   and   servicing   of  financial   assets   occurring   after
December 31, 1996. FAS 125 will result in the recording of

                                                                              35

<PAGE>
Originated  Mortgage  Servicing  Rights (OMSR)  on  the  date  of  the  sale  of
a  mortgage  loan  as  opposed  to  the  current  practice  of  recording  OMSRs
on   the   date  that  loans  are  originated.  Additionally,  under  FAS   125,
excess   servicing   fees  will  be  combined  with  OMSR  for   balance   sheet
presentation   as   well   as   for  transactions   beginning   in   the   first
quarter   of  1997.  Based  on  current  circumstances,  the  Company   believes
that  the  application  of  the  new  rules will  not  have  a  material  impact
on the financial statements.

NOTE B - NATURE OF OPERATIONS
----------------------------------------------------------------------
--
The   Company  is  engaged  primarily  in  the  mortgage  banking  business  and
accordingly,   originates,   acquires,  sells  and   services   mortgage   loans
which  are  principally  first-lien  mortgage  loans  secured  by  single   (one
to   four)   family   residences.  The  Company   also   sells   the   servicing
rights associated with a portion of such loans.
The   Company  sells  the  majority  of  the  conventional  mortgage  loans   it
originates   under   purchase   and  guarantee   programs   sponsored   by   the
Federal   Home   Loan   Mortgage   Corporation   (OFHLMCO)   and   the   Federal
National   Mortgage  Association  (OFNMAO).  The  CompanyOs  loans  insured   by
the   Federal   Housing  Administration  (OFHAO)  or  partially  guaranteed   by
the   Veterans   Administration  (OVAO)  or  Farmers  Home  Administration   are
pooled    to   form   Government   National   Mortgage   Association    (OGNMAO)
securities.   The   Company   sells  FHLMC,  FNMA   and   GNMA   securities   to
investment    banking   firms   that   are   primary   dealers   in   government
securities.   Loans  not  conforming  to  requirements  of  such  agencies   are
sold to private institutional investors.
The   principal  sources  of  revenue  from  the  CompanyOs  business  are   (i)
loan   administration  fees,  (ii)  loan  origination  fees,  (iii)  gain   from
sales  of  loans,  (iv)  net  interest  earned  on  mortgage  loans  during  the
period   that  they  are  held  by  the  Company  pending  sale  and  (v)   gain
from sales of servicing.

NOTE C - BORROWING ARRANGEMENTS
----------------------------------------------------------------------
--
Borrowing arrangements consist of the following:

<TABLE>
<CAPTION>
December 31                                          1996         1995
----------------------------------------------------------------------
--
<S>                                               <C>       <C>
Dollars in thousands

Warehouse line of credit facilities with banks
at December 31, 1996, of $1 billion expiring
January 23, 1999, and at December 31, 1995,
of $800 million, bearing a variable interest
rate, as described below, with outstanding
interest and principal due on demand and
collateralized by mortgage loans held for sale.   $158,584  $146,833

Outstanding medium-term notes, net of discount,
bearing interest rates between 5.78% and 7.34% at
December 31, 1996, and between 4.61% and 6.53%
at December 31, 1995. Interest is payable
semi-annually and principal is due at various
dates through August 25, 2003.                    $75,724   $74,801

Outstanding Commercial paper notes at
December 31, 1996, bearing interest rates of
5.59% to 6.75% and due between January 2, 1997
and January 16, 1997 and at December 31, 1995,
bearing interest rates of 5.78% to 6.30% and due
between January 2, 1996 and January 24, 1996.     $340,115  $279,221

Unsecured notes payable to insurance companies
and accrued interest, due August 1999,
subordinated to the warehouse line of credit,
interest at 10 percent payable or capitalized
at the CompanyOs option semi-annually, principal
and accrued interest due upon maturity.           $10,070   $10,070
</TABLE>
36

<PAGE>
The   Company  has  a  warehouse  line  of  credit  with  banks  to   fund   its
mortgage   loan   activity.  The  line  bears  interest  at   various   interest
rates.   The   weighted   average  cost  of  funds   to   fund   the   CompanyOs
mortgage  loan  activity  in  1996,  1995,  and  1994  was  5.99  percent,  6.68
percent    and   5.62   percent,   respectively.   Under   various   agreements,
interest   expense   is   reduced   as  a  result   of   holding   escrows   and
custodial   funds  at  non-affiliated  banks.  Borrowing  costs   were   reduced
by   $10.9   million,  $9.9  million  and  $10.7  million  during  1996,   1995,
and   1994   respectively,   for   the  use  of  such   compensating   balances.
Compensating   balances  averaged  $217.3  million  and   $209.5   million   for
the   years   ended  December  31,  1996  and  1995,  respectively,   and   were
comprised of corporate and custodial accounts.
The   Company   must   comply   with   certain   covenants   provided   in   its
warehouse   loan   agreement,   including   requirements   relating    to    net
worth,   working   capital   and  leverage.  In   addition,   the   Company   is
limited   to   $35  million  as  the  aggregate  amount  it  may  disburse   for
cash   dividends  and  stock  repurchases  in  any  four  consecutive  quarters.
At   any   time   that   the   Company  is  not  in  compliance   with   certain
covenants  to  its  loan  agreement,  the Company  cannot  declare  or  pay  any
non-stock  dividends.  At  December  31,  1996,  and  December  31,  1995,   the
Company was in compliance with the aforementioned loan covenants.
Aggregate   maturities  of  borrowing  arrangements  excluding   discounts,   at
December 31, 1996, are as shown in the chart.

<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------
--
<S>                                                         <C>
(In thousands)
1997                                                        $498,699
1998                                                          25,000
1999                                                          10,070
2000                                                          25,000
2001                                                               --
2002 and beyond                                               26,000
                                                            $584,769

</TABLE>
Interest  paid  for  the  years  ended December 31,  1996,  1995  and  1994  was
$29.9 million, $22.5 million and $21.6 million, respectively.

NOTE D - ORIGINATED LOAN SERVICING, PURCHASED LOAN SERVICING,
EXCESS SERVICING FEES AND OTHER INTANGIBLE ASSETS
----------------------------------------------------------------------
--
The   Company   elected  to  adopt  FAS  No.  122,  OAccounting   for   Mortgage
Servicing    RightsO   for   its   financial   statement   reporting   beginning
January   1,   1995.  FAS  No.  122  prohibits  retroactive  application   prior
to that date.
FAS   No.   122   requires  that  mortgage  servicing  rights   be   capitalized
when   acquired   either   through  purchase   or   origination   for   mortgage
loans  that  will  be  subsequently  sold  or  securitized  with  the  servicing
rights    retained.    The    amount   of   the   mortgage    servicing    right
capitalized   is  based  on  its  fair  value  relative  to  the   loan   as   a
whole.   To   determine  the  fair  value  of  servicing  rights  created,   the
Company    used   the   market   prices   under   comparable   servicing    sale
contracts,   when   available,  or  alternatively   used   a   valuation   model
that   calculates  the  present  value  of  future  cash  flows   to   determine
the   fair   value   of   the  servicing  rights.  In   using   this   valuation
method,   the   Company   incorporated  assumptions  that  market   participants
would   use   in   estimating  future  net  servicing  income   which   included
estimates  of  the  cost  of  servicing  per  loan,  the  discount  rate,  float
value,   an  inflation  rate,  ancillary  income  per  loan,  prepayment  speeds
and default rates.
In    determining    servicing   value   impairment,   the   post-implementation
originated   servicing   portfolio  was  disaggregated  into   its   predominant
risk    characteristics.    The    Company    has    determined    those    risk
characteristics   to   be  prepayment  and  foreclosure   risks.   The   Company
has   disaggregated   the   portfolio  by   loan   type,   investor   type   and
interest   rate  to  reflect  those  risk  characteristics.  To  determine   the
fair   value  for  impairment  measurement  purposes,  the  Company   used   the
market    prices    under    comparable   servicing   sale    contracts,    when
available,   or   alternatively  used  a  valuation  model  to   determine   the
fair value of the servicing rights.

                                                                              37

<PAGE>
The  fair  value  of  post-implementation Originated Loan Servicing  was  $109.5
million  and  $56.4  million  at  December  31,  1996  and  1995,  respectively.
Originated loan servicing and the related valuation allowance activity for  1996
and 1995 were as follows:

<TABLE>
<CAPTION>
In thousands                         1996                        1995
--------------------------------------------------------------------------------
----------------
                                     Originated      Valuation   Originated      Valuation
                                     Loan Servicing, Allowance,  Loan Servicing, Allowance,
                                     Net of          Originated  Net of          Originated
                                     Amortization    Servicing   Amortization    Servicing
<S>                                  <C>             <C>         <C>             <C>
Balance at beginning of year         $ 58,905       $(2,552)   $     --         $     --
Additions                             128,343             --     97,751               --
Scheduled amortization                (8,321)             --    (3,067)               --
Impairment additions charged to
 operations                                --        (3,589)         --          (3,517)
Impairment reductions credited to
 operations                                --          2,052         --               --
Basis on servicing sales             (67,159)             --   (35,779)              965
--------------------------------------------------------------------------------
----------------
                                     $111,768       $(4,089)    $58,905         $(2,552)

================================================================================
================
</TABLE>
Purchased loan servicing and excess servicing fees, net of accumulated
amortization were as follows:

<TABLE>
<CAPTION>
                                   Purchased Loan Servicing,     Excess
Servicing Fees,
                                   Net of Amortization           Net of
Amortization
In thousands                       1996      1995      1994      1996      1995     1994
--------------------------------------------------------------------------------
----------------
<S>                                <C>       <C>       <C>       <C>       <C>      <C>
Balance at beginning of year       $1,163    $1,933    $2,907   $20,559   $ 7,001   $ 3,588
Additions                              --        80       131    37,937    49,110     5,407
Scheduled amortization              (604)     (725)     (964)  (2,498)    (1,878)     (630)
Amortization resulting from higher
 than anticipated prepayments          --        --       --      (125)   (2,800)        --
Basis on servicing sales               --     (125)     (141)  (30,333) (30,874)    (1,364)
--------------------------------------------------------------------------------
----------------
Balance at end of year             $  559    $1,163    $1,933   $25,540   $20,559    $7,001
================================================================================
================
</TABLE>
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31                               1996      1995
--------------------------------------------------------------
In thousands
<S>                                       <C>       <C>
Goodwill                                  $7,479    $7,412
Book of insurance business                 3,354        55
Organization costs                         1,731     1,641
Trademark                                    349       349
--------------------------------------------------------------
                                          12,913     9,457
Accumulated amortization                 (3,522)   (3,019)
--------------------------------------------------------------
                                          $9,391    $6,438
==============================================================
</TABLE>

38
<PAGE>
NOTE E - PROPERTY AND EQUIPMENT
----------------------------------------------------------------------
--Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31                                        1996      1995
----------------------------------------------------------------------
--In thousands
<S>                                                <C>       <C>
Land                                               $ 3,900   $ 3,900
Building                                            17,230    17,163
Furniture and equipment                             49,674    40,567
Leasehold improvements                               2,191     1,500
----------------------------------------------------------------------
--                                                            72,995
63,130
Accumulated depreciation
 and amortization                                 (34,454)  (26,791)
----------------------------------------------------------------------
--                                                           $38,541
$36,339
======================================================================
==
</TABLE>

NOTE  F  -  RETIREMENT  AND  401(K)  SAVINGS  PLAN  AND  SUPPLEMENTAL  EXECUTIVE
RETIREMENT PLAN
----------------------------------------------------------------------
--
The   Company   has   a  defined  contribution  Retirement   Plan   and   401(k)
Savings   Plan   which  covers  substantially  all  employees.   The   CompanyOs
contributions   to   the   Retirement   Plan   are   equal   to   4%   of    the
participantsO   compensation   and  were  $1.8  million,   $2.0   million,   and
$1.9   million  in  1996,  1995,  and  1994,  respectively.  The  Company  began
contributions  to  the  401(k)  Savings  Plan  in  1996  equal  to  50%  of  the
participantsO  contributions  not  to  exceed  the  lessor  of  1  1/2%  of  the
participantsO   basic   compensation   or   the   maximum   amount   permissible
under  the  plan.  Company  contributions  for  the  401(k)  Savings  Plan  were
$0.9   million  in  1996.  The  Retirement  Plan  contains  a  vesting  schedule
graduated  from  three  to  seven  years of  service,  and  the  401(k)  Savings
Plan  contains  a  vesting  schedule  graduated  from  one  to  four  years   of
service.
The   Company  has  a  Supplemental  Executive  Retirement  Plan,  which  covers
certain   members   of   management.   The   plan   benefits   accrue    as    a
percentage   of   the   portion  of  each  participantOs   annual   salary   and
bonuses   in   excess   of   the  amount  included  in   the   retirement   plan
covering  all  employees.  The  cost  of the  Plan  was  $87,000,  $69,000,  and
$30,000  in  1996,  1995  and  1994,  respectively.  The  plan  is  an  unfunded
plan.

NOTE G - PREFERRED STOCK, STOCK PLANS AND STOCK RIGHTS PLAN
----------------------------------------------------------------------
--
The   Board  of  Directors  of  the  Company  is  authorized,  without   further
action   of   stockholders   of  the  Company,  to  issue   up   to   20,000,000
shares  of  Preferred  Stock  in  one or more  classes  or  series  and  to  fix
the   number   of   shares   constituting   such   series,   the   designations,
relative  rights,  preferences  and  limitations  relating  to  shares  of   any
such series.
The   CompanyOs   Board  of  Directors  has  authorized  the   issuance   of   a
series   of  Preferred  Stock  consisting  of  1,000,000  shares  of  Series   A
Convertible  Preferred  Stock  par  value  $0.01  per  share,  with  a  dividend
rate  of  $0.20  per  annum  and  for  which unpaid  dividends  are  cumulative.
Unpaid  cumulative  dividends  were  $667,000  and  $517,000  at  December   31,
1996   and  December  31,  1995,  respectively.  The  Company  has  the   option
to  convert  each  share  of  Convertible Preferred  Stock  into  one  share  of
Common  Stock.  At  December  31,  1996  and  1995,  748,179  shares  of  Series
A   Convertible  Preferred  Stock  were  outstanding,  all  of  which  are  held
by Fairfield Financial Holdings, Inc., a wholly-owned subsidiary.

                                                                              39
<PAGE>
During  1992,  the  Board of Directors declared a dividend distribution  of  one
Preferred Stock Purchase Right (a ORightO) for each outstanding share of  Common
Stock.  The  Rights  are  not currently exercisable  and  are  attached  to  all
outstanding shares of Common Stock. The Rights will generally separate from  the
Common  Stock and be distributed to registered holders of the Common Stock  upon
(1) acquisition of beneficial ownership by a person or persons of 15% or more of
the CompanyOs Common Stock, (2) a tender offer or exchange offer for 15% or more
of the CompanyOs Common Stock which is not approved by the board of directors of
the Company, or (3) the declaration by the board that any person holding 10%  or
more of the CompanyOs Common Stock is an Oadverse personO (generally, an adverse
person is a party seeking a financial gain by taking actions that are not in the
interest of the remaining stockholders). Each Right gives the registered  holder
the right to purchase from the Company one one-hundredth of a share of Series  A
Cumulative Preferred Stock upon certain terms and subject to certain conditions.
The  Company has a stock option plan (the OPlanO) that provides for the granting
of  non-qualified and qualified options to employees and directors. Options  are
generally granted at the average market price of the CompanyOs common  stock  on
the  date of grant, vest over a three-year period of equal amounts each year and
expire  10  years after the date of grant. Stock option transactions  under  the
Plan were as follows:
<TABLE>
<CAPTION>
                                                        Weighted-Average
                                      Options           Exercise Price
Options
                                      1996              1996
1995
--------------------------------------------------------------------------------
----------------
<S>                                                     <C>
<C>
<C>
Outstanding options at beginning
 of year                                  1,338,193      $18.18                   1,323,379
   Options granted                          234,475      $25.63                     236,822
   Options exercised                       (39,005)      $15.35                   (143,915)
   Options expired or canceled              (3,457)      $19.88                    (78,093)
--------------------------------------------------------------------------------
----------------
 Outstanding options at
   end of year                            1,530,206      $19.39                   1,338,193
--------------------------------------------------------------------------------
----------------

Exercise price:
 Per share for options
   exercised during
   the year                          $11.50-$18.625                           $11.50-$24.19
 Per share for options outstanding
   at end of year                    $11.50-$29.375                          $11.50-$29.375
Weighted-average fair value of
 options granted                            $ 12.90                                  $ 8.78
Weighted-average contractual life of
 options outstanding (in years)                 7.6                                     5.6

</TABLE>
Of  the  outstanding  options as of December 31, 1996,  1,306,189  options  were
immediately  exercisable under the Plan. Options designated  for  future  grants
under  the  Plan were 149,521 and 446,294 as of December 31, 1996, and  December
31, 1995, respectively.
The  Company has an Employee Stock Purchase Plan which covers substantially  all
employees.  Employees may purchase stock at a price equal to 85%  of  the  lower
stock  price  at  the beginning or the end of the purchase period.  The  Company
issued  97,924  shares of Common Stock for the Employee Stock Purchase  Plan  at
$16.7875 per share on December 31, 1996, and 95,193 shares at $12.5375 per share
on December 31, 1995.

40
<PAGE>
The   Company   currently  follows  Accounting  Principles  Board  Opinion   No.
25,   OAccounting  for  Stock  Issued  to  EmployeesO  (APB  25)   and   related
interpretations   in   accounting  for  its  stock  options.   Under   APB   25,
because   the   exercise   price  of  the  CompanyOs  employee   stock   options
equals  the  market  price  of  the underlying  stock  on  the  date  of  grant,
no   compensation  expense  is  recognized.  The  Company  intends   to   follow
the provisions of APB 25 for future years.
Pro   forma  information  regarding  net  income  and  earnings  per  share   is
required    by   FASB   Statement   No.   123,   OAccounting   for   Stock-Based
CompensationO   (OStatement  123O),  and  has  been   determined   as   if   the
Company   had  accounted  for  its  employee  stock  options  under   the   fair
value  method  of  that  Statement.  The  fair  value  for  these  options   was
estimated   at   the  date  of  grant  using  a  Black-Scholes  option   pricing
model   with   the   following  weighted-average  assumptions   for   1996   and
1995,    respectively:   risk-free   interest   rates   of   5.5%   and    7.4%;
dividend   yields  of  1.5%  and  1.5%;  volatility  factors  of  the   expected
market   price  of  the  CompanyOs  common  stock  of  .50  and   .50;   and   a
weighted-average expected life of the options of 7 years.
The   Black-Scholes   option  valuation  model  was   developed   for   use   in
estimating   the   fair  value  of  traded  options  which   have   no   vesting
restrictions   and  are  fully  transferable.  In  addition,  option   valuation
models   require   the   input  of  highly  subjective   assumptions   including
the   expected   stock   price  volatility.  Because  the   CompanyOs   employee
stock   options   have  characteristics  significantly  different   from   those
of   traded   options,   and   because   changes   in   the   subjective   input
assumptions    can   materially   affect   the   fair   value    estimate,    in
managementOs  opinion,  the  existing  models  do  not  necessarily  provide   a
reliable   single   measure   of  the  fair  value   of   its   employee   stock
options.
For  purposes  of  pro  forma  disclosures, the  estimated  fair  value  of  the
options  is  amortized  to  expense  over  the  optionsO  vesting  period.   The
CompanyOs  pro  forma  net  income  and earnings  per  share  determined  as  if
the   Company   had   accounted   for   its   employee   stock   options   under
Statement 123 follows
(in thousands except for earnings per share information):
<TABLE>
<CAPTION>
                                                1996        1995
----------------------------------------------------------------------
--
<S>                                             <C>         <C>
Pro forma net income                            $30,625     $39,310
Pro forma earnings per share                    $  2.14     $  2.61
</TABLE>
                                                                              41
<PAGE>
NOTE H - INCOME TAXES
--------------------------------------------------------------------------------
----------------
Significant components of the CompanyOs deferred tax liabilities and assets as
of December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
Years Ended                                                 1996           1995
--------------------------------------------------------------------------------
----------------
In thousands
<S>                                                                        <C>
<C>
Deferred tax liabilities
 Warehouse capitalized origination costs                    $   533        $
875
 Depreciation                                                 4,079
4,062
 Originated and excess servicing                             40,635
20,099
 Other                                                          247
543
--------------------------------------------------------------------------------
----------------
Total deferred tax liabilities                              $45,494
$25,579
================================================================================
================
Deferred tax assets:
 Purchased servicing                                          1,916
3,011
 Loss, foreclosure & other book reserves                      2,080
2,295
 Accrued expenses                                               549
876
 Other                                                          512
464
--------------------------------------------------------------------------------
----------------
Total deferred tax assets                                   $ 5,057        $
6,646
--------------------------------------------------------------------------------
----------------
Net deferred liability                                      $40,437
$18,933
================================================================================
================
</TABLE>
During 1996, net income of the Company was entirely from the U.S. Significant
components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended                                          1996             1995           1994
--------------------------------------------------------------------------------
----------------
In thousands
<S>                                                                  <C>             <C>  <C>
Current:
 Federal                                             $   371         $ 3,845         $ 2,297
 State                                                   154             484             758
--------------------------------------------------------------------------------
----------------
Total Current                                            525           4,329           3,055
--------------------------------------------------------------------------------
----------------
Deferred:
 Federal                                             $17,133         $14,271               0
 State                                                 4,371           4,662               0
--------------------------------------------------------------------------------
----------------
Total Deferred                                        21,504          18,933               0
--------------------------------------------------------------------------------
----------------
                                                     $22,029         $23,262         $ 3,055
================================================================================
================
</TABLE>
The reconciliation of income tax expense at the U.S. federal statutory tax rate
to income tax expense calculated for financial reporting purposes is:
<TABLE>
<CAPTION>
Years Ended                                1996             1995            1994
--------------------------------------------------------------------------------
----------------
In thousands                                         %                %                 %
<S>                                        <C>      <C>     <C>      <C>    <C>       <C>
Tax at U.S. statutory rate                 $19,244   35     $22,301  35
$3,933                                     35
State income taxes net of federal benefit    2,941    5       3,345   5
590                                        5
Change in valuation allowance                    0  ---      (2,519) (4)
(1,971)                                    (17)
Other                                         (156)  ---        135   1
503                                        4
--------------------------------------------------------------------------------
----------------
                                           $22,029   40     $23,262  37
$3,055                                     27
================================================================================
================
</TABLE>
Income taxes paid in 1996, 1995 and 1994 totaled $2.5 million, $7.7 million, and
$7.5 million, respectively.

42
<PAGE>
NOTE I - LEASES
--------------------------------------------------------------------------------
----------------
The  Company  occupies  certain office space and rents equipment  under  various
operating  leases  which expire at various dates through  2001.  Future  minimum
payments consist of the following at December 31, 1996.
Rental  expense for the years ended December 31, 1996, 1995 and 1994, was  $13.9
million, $14.6 million and $17.2 million, respectively.
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------
In thousands
<S>                                               <C>
1997                                              $12,545
1998                                                8,155
1999                                                4,009
2000                                                1,865
2001 and beyond                                       992
--------------------------------------------------------------
Total                                             $27,566
==============================================================
</TABLE>

NOTE J - MORTGAGE SERVICING PORTFOLIO AND RELATED OFF-BALANCE SHEET RISK AND
INSURANCE COVERAGE
--------------------------------------------------------------------------------
----------------
The  CompanyOs  origination and servicing activities are primarily  concentrated
within  the  states  of California, Texas, Virginia, Arizona and  Maryland.  The
CompanyOs servicing portfolio is comprised of the following:
<TABLE>
<CAPTION>
December 31                   1996                 1995                  1994
--------------------------------------------------------------------------------
----------------
                              Number  Principal    Number   Principal    Number  Principal
                              of      Balance      of       Balance      of      Balance
                              Loans   Outstanding  Loans    Outstanding  Loans   Outstanding
<S>                           <C>     <C>          <C>      <C>          <C>     <C>
GNMA FHA/VA                    29,772 $ 2,646       28,041  $ 2,488       21,611 $ 1,900
Conventional loans & other    107,043  10,647      115,276   11,621      130,236  12,936
Loans subserviced for others        3       --           3        --          41       3
--------------------------------------------------------------------------------
----------------
                              136,818 $13,293      143,320  $14,109      151,888 $14,839
================================================================================
================
</TABLE>
The  above amounts exclude servicing rights, which had been sold but were  being
subserviced by the Company prior to transfer, of $2,646 million, $2,146  million
and $1,224 million as of December 31, 1996, 1995 and 1994, respectively.
The Company is required to advance, from corporate funds, escrow and foreclosure
costs  for loans which it services. A portion of the advances is not recoverable
for loans serviced for GNMA. In addition, VA insurance only protects the Company
from  losses  for a set percentage of the initial loan amount or  a  set  dollar
amount.  As  of  December  31, 1996 and 1995, a reserve  for  the  unrecoverable
advances  and losses of approximately $852,000 and $798,000 has been established
for  GNMA  loans in default. GNMA FHA/VA losses including GNMA VA no-bid  losses
for  the years ended December 31, 1996, 1995 and 1994, were $1,444,000, $949,000
and $572,000, respectively.
Upon foreclosure, a FHA/VA property is typically conveyed to HUD or VA. However,
when  it  is  in  the VAOs financial interest, they have the authority  to  deny
conveyance  of the foreclosed property to the VA (OVA no-bidO). The  VA  instead
reimburses the Company based on a percentage of the loansO outstanding principal
balance  (OguaranteeO amount). For GNMA VA no-bids, the foreclosed  property  is
conveyed  to  the  Company,  and the Company then assumes  the  market  risk  of
disposing  of the property, GNMA VA no-bid losses were approximately  $1,270,000
and  $685,000 during 1996 and 1995, respectively. There were no significant GNMA
VA  no-bid losses for the year ended December 31, 1994. Prior to conveying title
to  HUD on FHA loans that have been foreclosed upon, the Company is required  to
return  the  property  to an inhabitable condition. The cost  of  returning  the
property  to  an inhabitable condition is not recoverable from HUD. The  related
reserve  for  unrecoverable advances and losses on FHA/VA loans in  default  for
potential  no-bid  losses as of December 31, 1996 and 1995 is  included  in  the
reserve for unrecoverable advances described above.
                                                                              43
<PAGE>
The   Company   has   servicing   agreements  with   certain   investors   which
require   the   repurchase   of  real  estate  mortgages   in   the   event   of
default   by   the   primary  and,  if  applicable,  secondary   obligors.   The
aggregate   principal  balances  outstanding  as  of  December  31,   1996   and
1995   relating  to  these  agreements  are  approximately  $8.2   million   and
$16.8  million,  respectively.  As  of  December  31,  1996,  there  have   been
no   significant  repurchases  of  loans  under  the  terms  of  the   servicing
agreements.   The   Company   has   the   ability   to   meet   these    funding
requirements under normal business circumstances.
At   December  31,  1996  and  1995,  the  number  of  loans  in  the  CompanyOs
servicing    portfolio    included    loans   collateralized    by    California
properties   of   37%  and  45%,  respectively,  and  loans  collateralized   by
Texas   properties  of  12%  and  14%,  respectively.  Loans   from   no   other
state   exceed  5%  of  the  number  of  loans  in  the  portfolio   of   either
year.
The   Company   sold   servicing   rights   for   mortgages   with   outstanding
principal   balances   of   $8.2  billion,  $6.7  billion   and   $9.9   billion
during  the  years  ended  December  31,  1996,  1995  and  1994,  respectively.
These   sales   resulted  in  gains  of  $37.6  million,   $46.0   million   and
$120.7 million.
The    Company    has    issued   various   representations    and    warranties
associated    with    whole    loan   and   bulk    servicing    sales.    These
representations   and   warranties  may  require  the  Company   to   repurchase
defective   loans   as   defined   in  the  applicable   servicing   and   sales
agreements.   At  December  31,  1996  and  1995,  the  Company   had   reserved
$4.5   million   and   $3.6   million,  respectively,   for   potential   losses
resulting from these representations and warranties.
Errors   and   omissions   coverage  was  $23.5  million   and   fidelity   bond
insurance  coverage  under  a  mortgage  bankerOs  bond  was  $47.0  million  at
December 31, 1996 and 1995.

NOTE K - MORTGAGE LOAN PIPELINE, HEDGES AND RELATED OFF-BALANCE SHEET
RISK
----------------------------------------------------------------------
--
The   Company   enters  into  financial  instruments  with   off-balance   sheet
risk  in  the  normal  course  of  business through  the  origination  and  sale
of   mortgage   loans   and  the  management  of  the  related   loss   exposure
caused   by   fluctuations  in  interest  rates.  These  financial   instruments
include   commitments   to  extend  credit  (e.g.,  mortgage   loan   pipeline),
mandatory    and    optional   forward   commitments,    and    other    hedging
instruments.
The   CompanyOs  pipeline  of  loans  in  process  totaled  approximately   $2.1
billion    and   $2.4   billion   as   of   December   31,   1996   and    1995,
respectively.  Until  a  rate  commitment  is  extended  by  the  Company  to  a
borrower,  there  is  no  market  risk to the  Company.  Loans  in  process  for
which    interest    rates    were   committed   to   the    borrower    totaled
approximately   $534.7  million  and  $509.9  million   as   of   December   31,
1996 and 1995, respectively.
For   loans   in   process   for  which  interest  rates   were   committed   to
borrowers,  the  Company  determines  daily  what  portion  of  those  loans  to
hedge.   In   making   this  determination,  both  the  anticipated   percentage
of   the   pipeline   that   is  expected  to  fund  and   the   inherent   risk
position of the portfolio are considered.
Mandatory  and  optional  forward  commitments  are  used  by  the  Company   to
hedge   its   interest   rate  exposure  during  the  period   from   when   the
Company   extends  an  interest  rate  lock  to  a  loan  applicant  until   the
time   in   which   the   loan  is  sold  to  an  investor.  These   instruments
involve,   to   varying   degrees,  elements  of  credit   and   interest   rate
risk.   Credit   risk   is   managed   by   the   Company   by   entering   into
agreements   only   with   Wall   Street   investment   bankers   with   primary
dealer    status   and   with   permanent   investors   meeting    the    credit
standards  of  the  Company.  At  any time the  risk  to  the  Company,  in  the
event of

44
<PAGE>
default  by  the  purchaser,  is  the  difference  between  the  contract  price
and   current   market   value,   which  amount   is   a   percentage   of   the
outstanding  commitments.  To  the  extent  that  the  counterparties  are   not
able  to  fulfill  the  forward commitments, the  Company  is  at  risk  to  the
extent  that  there  are  fluctuations in  the  market  value  of  the  mortgage
loans and locked pipeline.
Realized   gains   and  losses  on  mandatory  and  optional  delivery   forward
commitments  are  recognized  in  gain  (loss)  from  sales  of  loans  in   the
period  settlement  occurs.  Unrealized  gains  and  losses  on  mandatory   and
optional   forward   commitments  are  included  in  the  lower   of   cost   or
market   valuation   adjustment   to  mortgage   loans   held   for   sale.   At
December   31,   1996  and  1995,  the  Company  had  mandatory   and   optional
forward   commitments   aggregating   $756.9   million   and   $589.1   million,
respectively,   which  covered  the  market  risk  associated  with   the   real
estate   loans   held  for  sale  to  investors  of  $554   million   and   $527
million,  respectively,  and  the  pipeline  loans  for  which  interest   rates
were committed of $534.7 million and $509.9 million, respectively.
The  Company  had  adequate  lines of credit  at  December  31,  1996  and  1995
to fund its projected loan closings from its mortgage loan pipeline.
At   December   31,   1996   and  1995,  the  Company   had   firm   commitments
outstanding    to    fund   residential   mortgages   for    various    builders
totaling    $96.0    million    and   $38.0   million,    respectively.    These
commitments  expose  the  Company  to  market  risk  as  the  builder  has   the
option   to   require   the   Company   to   fund   loans   to   borrowers    at
precommitted   interest  rates.  The  Company  hedges   its   optional   builder
commitments  by  investing  in  put  and  call  options  to  sell  and  purchase
Treasury  bonds  and  notes  and  in  over-the-counter  put  and  call   options
to   sell  and  purchase  mortgage-backed  securities.  During  1996  and  1995,
the Company did not have any significant open put or call options.

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
----------------------------------------------------------------------
--
The   following  methods  and  assumptions  were  used  to  estimate  the   fair
value of each class of financial instruments:
*   Cash  and  cash  equivalents,  warehouse  line  of  credit,  purchase  money
notes   and   commercial  paper:  The  carrying  amounts  of  the   assets   and
liabilities   approximate  fair  value  because  of  the   short   maturity   of
those instruments.
*  Real  estate  loans  held  for  sale (LHS) to  investors  and  mandatory  and
optional   delivery   forward  commitments  used  to  hedge  market-rate   risk:
Fair values of LHS and commitments are based on quoted market prices.
*   Excess  servicing  fees:  Fair  values  for  excess  servicing  fee   assets
approximate the present values, based on market
interest   rates  for  similar  instruments,  of  the  difference  between   the
normal   and   stated   servicing  fees  over  the  estimated   lives   of   the
underlying   mortgage  loans.  The  estimated  lives  of  the  loans   used   by
the   Company   are  based  on  the  median  prepayment  rates   forecasted   by
several large brokerage firms.
*   Notes   payable  and  subordinated  debt:  The  fair  value   is   estimated
using   discounted   cash  flow  analysis  for  similar   types   of   borrowing
arrangements to companies with similar credit standing.
*   Loans   in  process  for  which  interest  rates  were  committed   to   the
borrower   (locked   pipeline)  and  mandatory  and  optional-delivery   forward
commitments  used  to  hedge  market-rate  risk:  Fair  values  of  the   locked
pipeline,    allowing    for    estimated   fallout    based    on    historical
experience and commitments, are based on quoted market prices.

                                                                              45
<PAGE>
The   following   table  presents  the  carrying  amounts  and  estimated   fair
values   of   certain  of  the  CompanyOs  financial  instruments  at   December
31, 1996 and 1995.
<TABLE>
<CAPTION>
In millions              1996                1995
----------------------------------------------------------------------
--
                         Carrying             Carrying
                         Amount    Fair Value Amount    Fair Value
<S>                      <C>       <C>        <C>       <C>
Financial assets:
 Real estate loans for
   sale to investors     $554.4   $557.5      $526.9    $532.3
 Locked Pipeline              ---   (1.8)       ---        3.1
 Forward Delivery
   Commitments                ---    5.4        ---       (2.2)
----------------------------------------------------------------------
--
 Net                      554.4    561.1       526.9     533.2
======================================================================
==
 Excess servicing fees     25.5     26.8        20.6      20.8
Financial liabilities:
 Notes payable            (75.7)   (75.5)      (74.8)    (74.7)
 Subordinated debt        (10.1)   (10.1)      (10.1)    (10.1)
</TABLE>
The   carrying  amounts  shown  in  the  table  are  included  in  the   balance
sheet under the indicated captions.

NOTE M - DOWNSIZING EXPENSES
Beginning  in  the  second  quarter  of  1994,  the  CompanyOs  loan  production
volumes   began   to   decline  significantly.  The  decline   in   volume   was
consistent   with   overall  industry  trends  and   was   the   result   of   a
contracting   origination  market  caused  by  sharp   increases   in   interest
rates.   Lower   origination  volumes  resulted  in  production  over   capacity
within    the    mortgage    banking    industry.    In    addition,    industry
overcapacity   intensified   price  competition  reducing   margins   throughout
the CompanyOs branch origination network.
During   1994,   management  developed  a  plan  to   downsize   the   CompanyOs
production   capacity   in   order   to   adjust   to   the   contracted    loan
origination   market.   Management  first  reduced  headcount   throughout   its
branches  and  at  its  corporate  office in  order  to  bring  personnel  costs
in   line   with   lower  production  levels.  Approximately   1,100   employees
were   terminated   during  1994  as  a  result  of  the   downsizing   efforts.
Total severance expenses recognized for the year were $2.5 million.

<TABLE>
<CAPTION>
December 31,                             1996      1995      1994
----------------------------------------------------------------------
--
<S>                                      <C>       <C>       <C>
Occupancy lease costs, net
 of recovery on subleases                $293      $  907    $3,397
Fixed asset write-offs and
 equipment lease buyouts                  160         236     1,438
Severance costs                             --          --       40
Other                                      81          89       302
           ---------------------------------------------------------------------
-                                                                           $534
$1,232                                   $5,177
======================================================================
==
</TABLE>
Management    also    identified   unprofitable   and   marginally    profitable
production  locations  and  decided  to  close  29  facilities.  Each  lease  on
the   closed   branches  was  evaluated  for  a  possible  buyout  or   sublease
arrangement   to  either  eliminate  or  reduce  the  future  lease  obligations
associated   with   the   closed   production   facilities.   Based   on    this
analysis,   the   Company   established  a   reserve   totaling   $3.8   million
which   was   charged   to  expense  in  the  fourth   quarter   of   1994.   At
December  31,  1996,  1995  and  1994,  $293,000,  $907,000  and  $3.4   million
in   the   reserve   remained.  During  the  fourth   quarter   of   1994,   the
Company   also   recorded  a  reserve  totaling  $1.6  million  for   write-offs
of   leasehold  improvements,  furniture  and  equipment  and  terminations   of
certain    equipment   leases   for   assets   located   at    the    production
facilities   identified   above.  At  December  31,   1996,   1995   and   1994,
$160,000, $236,000 and $1.4 million of the reserve remained.
Downsizing  expenses  incurred  during  1994  were  $8.5  million.  There   were
no   downsizing   expenses   incurred  during  1995   or   1996.   The   related
reserves  at  December  31,  1996,  1995  and  1994  are  shown  in  the   above
chart.
Management believes that remaining reserves are adequate to cover
future costs expected to be incurred from remaining payments required
from the downsizing plan.

46

<PAGE>
NOTE N - CONTINGENCIES
The Company is a defendant in litigation arising in the normal course
of its business. Although the ultimate outcome of pending litigation
cannot be reasonably estimated at this time, the Company believes that
any liability resulting from the aggregate amount of damages for
outstanding lawsuits and claims will not have a material adverse
effect on its financial position.
NOTE O - QUARTERLY FINANCIAL DATA
----------------------------------------------------------------------
--
<TABLE>
<CAPTION>
1996 UNAUDITED
----------------------------------------------------------------------
--
Dollars in
thousands, except
per share data      First     Second    Third     Fourth    Total
<S>                           <C>       <C>       <C>       <C>  <C>
Revenues            $68,562   $77,163   $76,836   $84,232   $306,793
Costs and expenses   56,128    62,698    61,961    71,024    251,811
Income before
 income taxes        12,434    14,465    14,875    13,208     54,982
Income tax expense    4,974     5,794     5,950     5,311     22,029
Net income          $ 7,460   $ 8,671   $ 8,925   $ 7,897   $ 32,953
======================================================================
==
Net income per share          $  0.50   $  0.61   $  0.64   $  0.57
$   2.30
======================================================================
==
Stock price per
 Common Share:
 High               26.250    20.750      19.000    23.000
 Low                19.750    15.750      15.000    18.625
----------------------------------------------------------------------
--
Dividends per
 Common Share       $ 0.06    $ 0.06    $ 0.06    $   0.06  $  0.24
======================================================================
==
</TABLE>
<TABLE>
<CAPTION>
1995 UNAUDITED
----------------------------------------------------------------------
--
Dollars in
thousands, except
per share data      First     Second    Third     Fourth    Total
<S>                           <C>       <C>       <C>       <C>  <C>
Revenues            $53,736   $67,267   $74,579   $79,198   $274,780
Costs and expenses   45,039    51,325    55,029    59,670    211,063
Income before
 income taxes         8,697    15,942    19,550    19,528     63,717
Income tax expense    3,039     5,893     7,427     6,903     23,262
----------------------------------------------------------------------
--
Net income          $ 5,658   $10,049   $12,123  $ 12,625   $ 40,455
======================================================================
==
Net income per share          $  0.38   $  0.67   $  0.80   $  0.84
$   2.69
======================================================================
==
Stock price per
 Common Share:
 High                18.125    25.875    26.000     25.375
 Low                 14.500    17.125    20.000     20.250
----------------------------------------------------------------------
--Dividends per
 Common Share       $  0.06   $  0.06   $  0.06   $  0.06   $   0.24
======================================================================
==
</TABLE>

                                                                              47
<PAGE>
CORPORATE DIRECTORY

BOARD OF DIRECTORS

JOHN F. FARRELL, JR.
Chairman of the Board and
Chief Executive Officer

TERRANCE G. HODEL
President and
Chief Operating Officer

WILLIAM L. BROWN*+
Former Chairman and
Chief Executive Officer
Bank of Boston

WILLIAM F. CONNELL*+
Chairman and Chief Executive Officer
Connell Limited Partnership

MAGNA L. DODGE*
Senior Vice President
Lehman Brothers Inc.

WILLIAM O. MURPHY+*
Retired Partner
Simpson Thacher & Bartlett

ROBERT J. MURRAY*+
Chairman,
Chief Executive Officer and President
New England Business Services

JAMES B. NICHOLSON+
President and Chief Executive Officer
Pressure Vessel Services, Inc.


SENIOR OFFICERS

JOHN F. FARRELL, JR.
Chairman of the Board and
Chief Executive Officer

TERRANCE G. HODEL
President and
Chief Operating Officer

HAROLD B. BONNIKSON
Executive Vice President
Residential Loan Production

MICHAEL G. CONWAY
Executive Vice President
Secondary Marketing and
Credit Risk Management

ROBERT J. GALLAGHER
Executive Vice President
Planning and Business Development

MARTIN S. HUGHES
Executive Vice President,
Chief Financial Officer and Treasurer

GARY F. MOORE
Executive Vice President
Information Technology,
Human Resources and Training

ROBERT A. ROSEN
Executive Vice President
Loan Administration

CAROLYN OWENS VOGT
Senior Vice President,
General Counsel and Secretary


* Member of Audit Committee
+ Member of Compensation Committee
* Member of Nominating Committee

48
<PAGE>
STOCKHOLDER INFORMATION

EXECUTIVE OFFICE




North American Mortgage Company
3883 Airway Drive
Santa Rosa, California 95403-1699
707-536-3310
Internet: www.namc.com


TRANSFER AGENT AND REGISTRAR

The Bank of New York
101 Barclay Street
New York, New York 10286
800-524-4458


ANNUAL MEETING OF SHAREHOLDERS

To be held at Chase Manhattan Bank, 270 Park Avenue, 3rd floor, New
York, New York, at 10:00 a.m. (Eastern time) on May 28, 1997.


COMMON STOCK

Shares  of  North  American  Mortgage  Company  are  traded  on  the  New   York
Stock   Exchange  under  the  symbol  NAC.  As  of  February  18,  1997,   North
American Mortgage Company had 997 registered stockholders of record.



STOCKHOLDER INQUIRIES




Communications   concerning   stock  transfers,   lost   certificates,   changes
of   address   and  dividend  payments  should  be  directed  to  the   Transfer
Agent   (see   above).   The   CompanyOs   Form   10-K   as   filed   with   the
Securities   and   Exchange   Commission  will  be  provided   without   charge,
but without exhibits. Requests should be addressed to:

Martin S. Hughes
Executive Vice President
Investor Relations
North American Mortgage Company
3883 Airway Drive
Santa Rosa, California 95403-1699


INVESTOR RELATIONS

Inquiries   concerning  the  Company  or  its  operations  should  be   directed
to:

Martin S. Hughes
Executive Vice President
North American Mortgage Company
3883 Airway Drive
Santa Rosa, California 95403-1699
707-523-5049


EMPLOYEES

As of January 31, 1997, the Company
had 2,877 employees.

                                                                              49