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


                                    FORM 10-Q


  X       QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)  OF  THE
-----     SECURITIES  EXCHANGE  ACT  OF  1934

FOR  THE  QUARTERLY  PERIOD  ENDED:   SEPTEMBER  30,  2000

                                       OR

          TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE SECURITIES
-----     EXCHANGE  ACT  OF  1934

FOR  THE  TRANSITION  PERIOD  FROM                TO
                                   --------------    -------------

COMMISSION  FILE  NUMBER:    001-11914


                            THORNBURG MORTGAGE, INC.
             (Exact name of Registrant as specified in its Charter)

                 MARYLAND                           85-0404134
        (State or other jurisdiction of           (IRS Employer
         incorporation or organization)       Identification Number)

          119  E.  MARCY  STREET
          SANTA  FE,  NEW  MEXICO                       87501
   (Address of principal executive offices)          (Zip  Code)

        Registrant's telephone number, including area code (505) 989-1900


    (Former name, former address and former fiscal year, if changed since last
                                     report)

Indicate  by  check  mark whether the Registrant (1) has filed all documents and
reports  required  to be filed by Section 13 or 15(d) of the Securities Exchange
Act  of 1934 during the preceding 12 months (or for such shorter period that the
Registrant  was required to file such reports), and (2) has been subject to such
filing  requirements  for  the  past  90  days.

                  (1)  Yes   X          No
                           -----           -----
                  (2)  Yes   X          No
                           -----           -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate  the  number  of  shares outstanding of each of the issuer's classes of
common  stock,  as  of  the  last  practicable  date.

Common Stock ($.01 par value)                 21,572,460 as of November 13, 2000


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<PAGE>
<TABLE>
<CAPTION>
                                     THORNBURG MORTGAGE, INC.
                                            FORM 10-Q


                                              INDEX


                                                                                            Page
                                                                                            ----

PART I.     FINANCIAL INFORMATION
<S>                                                                                          <C>
   Item 1.  Financial Statements

               Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 . .     3

               Consolidated Statements of Operations for the three and nine months ended
                September 30, 2000 and September 30, 1999. . . . . . . . . . . . . . . . .     4

               Consolidated Statement of Shareholders' Equity for the nine months
                ended September 30, 2000 and September 30, 1999. . . . . . . . . . . . . .     5

               Consolidated Statements of Cash Flows for the three and nine months ended
                September 30, 2000 and September 30, 1999. . . . . . . . . . . . . . . . .     6

               Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . .     7

   Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations . . . . . . . . . . . . . . . .     19



PART II.    OTHER INFORMATION

  Item 1.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      39

  Item 2.   Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . .      39

  Item 3.   Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . .      39

  Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . .      39

  Item 5.   Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      39

  Item 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . .       39


  SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       40

  EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       41
</TABLE>


                                       2
<PAGE>
<TABLE>
<CAPTION>
PART  I.     FINANCIAL  INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

CONSOLIDATED  BALANCE  SHEETS
(Amounts  in  thousands)

                                                                    September 30, 2000   December 31, 1999
                                                                       (Unaudited)
                                                                    ------------------   -----------------
<S>                                                                 <C>                  <C>
ASSETS

     Adjustable-rate mortgage ("ARM") assets: (Notes 2 and 3)
          ARM securities                                            $       3,297,473    $      3,391,467
          Collateral for collateralized notes                                 651,340             903,529
          ARM loans held for securitization                                   126,340              31,102
                                                                    ------------------   -----------------
                                                                            4,075,153           4,326,098
                                                                    ------------------   -----------------


     Cash and cash equivalents                                                 32,071              10,234
     Accrued interest receivable                                               31,466              31,928
     Prepaid expenses and other                                                 1,560               7,705
                                                                    ------------------   -----------------
                                                                    $       4,140,250    $      4,375,965
                                                                    ==================   =================

LIABILITIES

     Reverse repurchase agreements (Note 3)                         $       2,983,493    $      3,022,511
     Collateralized notes payable (Note 3)                                    638,437             886,722
     Other borrowings (Note 3)                                                110,331              21,289
     Payable for assets purchased                                              93,167             110,415
     Accrued interest payable                                                  14,664              18,864
     Dividends payable (Note 5)                                                 1,670               1,670
     Accrued expenses and other                                                 4,065               3,607
                                                                    ------------------   -----------------
                                                                            3,845,827           4,065,078
                                                                    ------------------   -----------------

COMMITMENTS (Note 2)

SHAREHOLDERS' EQUITY (Note 5)

     Preferred stock:  par value $.01 per share; 2,760 shares
         authorized; 9.68% Cumulative Convertible Series A,
         2,760 and 2,760 issued and outstanding, respectively;
         aggregate preference in liquidation $69,000                           65,805              65,805
     Common stock:  par value $.01 per share; 47,240 shares
          authorized , 21,990 and 21,990 shares issued and 21,490
          and 21,490 outstanding, respectively                                    220                 220
     Additional paid-in-capital                                               342,229             342,026
     Accumulated other comprehensive income (loss)                           (100,814)            (82,489)
     Notes receivable from stock sales                                         (4,632)             (4,632)
     Retained earnings (deficit)                                               (3,719)             (5,377)
     Treasury stock:  at cost, 500 and 500 shares, respectively                (4,666)             (4,666)
                                                                    ------------------   -----------------
                                                                              294,423             310,887
                                                                    ------------------   -----------------

                                                                    $       4,140,250    $      4,375,965
                                                                    ==================   =================
</TABLE>


See  Notes  to  Consolidated  Financial  Statements.


                                       3
<PAGE>
<TABLE>
<CAPTION>
THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

CONSOLIDATED  STATEMENTS  OF  OPERATIONS  (UNAUDITED)
In  thousands,  except  per  share  data)

                                                 Three Months Ended          Nine Months Ended
                                                    September 30,              September 30,
                                                 2000           1999         2000        1999
                                              -----------   ------------  ----------  ----------
<S>                                           <C>              <C>        <C>         <C>
Interest income from ARM assets and cash      $    71,017   $    67,955   $ 216,808   $ 190,687
Interest expense on borrowed funds                (62,039)      (58,623)   (189,761)   (165,717)
                                              ------------  ------------  ----------  ----------
     Net interest income                            8,978         9,332      27,047      24,970
                                              ------------  ------------  ----------  ----------

Gain on sale of ARM assets                              -            15          49          50
Provision for credit losses                          (270)         (764)       (983)     (2,139)
Management fee (Note 7)                            (1,029)       (1,023)     (3,086)     (3,061)
Performance fee (Note 7)                                -             -           -           -
Other operating expenses                             (663)         (405)     (1,532)     (1,033)
                                              ------------  ------------  ----------  ----------
     NET INCOME                               $     7,016   $     7,155   $  21,495   $  18,787
                                              ============  ============  ==========  ==========

Net income                                    $     7,016   $     7,155   $  21,495   $  18,787
Dividend on preferred stock                        (1,670)       (1,670)     (5,009)     (5,009)
                                              ------------  ------------  ----------  ----------

Net income available to common shareholders   $     5,346   $     5,485   $  16,486   $  13,778
                                              ============  ============  ==========  ==========

Basic earnings per share                      $      0.25   $      0.26   $    0.77   $    0.64
                                              ============  ============  ==========  ==========

Diluted earnings per share                    $      0.25   $      0.26   $    0.77   $    0.64
                                              ============  ============  ==========  ==========

Average number of common shares outstanding        21,490        21,490      21,490      21,490
                                              ============  ============  ==========  ==========
</TABLE>


See  Notes  to  Consolidated  Financial  Statements.


                                       4
<PAGE>
<TABLE>
<CAPTION>
THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

CONSOLIDATED  STATEMENTS  OF  SHAREHOLDERS'  EQUITY  (UNAUDITED)

Nine  Months  Ended  September  30,  2000  and  1999
(In  thousands,  except  share  data)


                                                                    Accum.      Notes
                                                                    Other      Receiv-
                                                       Additional   Compre-    able From  Retained              Compre-
                                    Preferred  Common    Paid-in    Hensive      Stock    Earnings/   Treasury  hensive
                                      Stock    Stock     Capital    Income      Sales     (Deficit)    Stock     Income     Total
                                    ---------  ------  ----------  ----------  ---------  ----------  --------  --------  ---------
<S>                                 <C>        <C>     <C>         <C>         <C>        <C>         <C>       <C>       <C>
Balance, December 31, 1998          $  65,805  $  220  $  341,756  $ (82,148)  $ (4,632)  $  (4,512)  $(4,666)            $311,823
Comprehensive income:
  Net income                                                                                 18,787             $18,787     18,787
  Other comprehensive income:
    Available-for-sale assets:
      Fair value adjustment, net
       of amortization                      -       -           -     16,927          -           -         -    16,927     16,927
      Deferred gain on sale of
       hedges, net of amortization          -       -           -       (556)         -           -         -      (556)      (556)
                                                                                                                --------
   Other comprehensive income                                                                                   $35,158
                                                                                                                ========
Interest from notes receivable
    from stock sales                                          202                                                              202
Dividends declared on preferred
  stock - $1.815 per share                  -       -           -          -          -      (5,009)        -               (5,009)
Dividends declared on common
  stock - $0.69 per share                   -       -           -          -          -     (14,828)        -              (14,828)
                                    ---------  ------  ----------  ----------  ---------  ----------  --------            ---------
Balance, September 30, 1999         $  65,805  $  220  $  341,958  $ (65,777)  $ (4,632)  $  (5,562)  $(4,666)            $327,346
                                    =========  ======  ==========  ==========  =========  ==========  ========            =========

Balance, December 31, 1999          $  65,805  $  220  $  342,026  $ (82,489)  $ (4,632)  $  (5,377)  $(4,666)            $310,887
Comprehensive income:
  Net income                                                                                 21,495             $21,495     21,495
  Other comprehensive income:
    Available-for-sale assets:
      Fair value adjustment, net
       of amortization                      -       -           -    (17,672)         -           -         -   (17,672)   (17,672)
      Deferred gain on sale of
       hedges, net of amortization          -       -           -       (653)         -           -         -      (653)      (653)
                                                                                                                --------
  Other comprehensive income                                                                                    $ 3,170
                                                                                                                ========
Interest from notes receivable
    from stock sales                                          203                                                              203
Dividends declared on preferred
  stock - $1.815 per share                  -       -           -          -          -      (5,009)        -               (5,009)
Dividends declared on common
  stock - $0.69 per share                   -       -           -          -          -     (14,828)        -              (14,828)
                                    ---------  ------  ----------  ----------  ---------  ----------  --------            ---------
Balance, September 30, 2000         $  65,805  $  220  $  342,229  $(100,814)  $ (4,632)  $  (3,719)  $(4,666)            $294,423
                                    =========  ======  ==========  ==========  =========  ==========  ========            =========
</TABLE>


See  Notes  to  Consolidated  Financial  Statements.


                                       5
<PAGE>
<TABLE>
<CAPTION>
THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS  (UNAUDITED)
(In  thousands)

                                                               Three Months Ended        Nine Months Ended
                                                                   September 30,           September 30,
                                                                 2000        1999        2000         1999
                                                              ----------  ----------  ----------  ------------
<S>                                                           <C>         <C>         <C>         <C>
Operating Activities:
  Net Income                                                  $   7,016   $   7,155   $  21,495   $    18,787
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Amortization                                                 4,067       6,448      13,282        26,220
     Net (gain) loss from investing activities                      270         749         934         2,089
     Change in assets and liabilities:
       Accrued interest receivable                                   33         455         462         5,544
       Prepaid expenses and other                                   466        (851)      6,145        (6,452)
       Accrued interest payable                                    (423)     (2,415)     (4,200)      (17,313)
       Accrued expenses and other                                 1,018         232         458           568
                                                              ----------  ----------  ----------  ------------
         Net cash provided by operating activities               12,447      11,773      38,576        29,443
                                                              ----------  ----------  ----------  ------------

Investing Activities:
  Available-for-sale ARM securities:
     Purchases                                                  (93,537)   (298,916)   (518,344)   (1,236,172)
     Proceeds on sales                                           22,812       3,348     112,255         9,922
     Proceeds from calls                                          4,288       2,108       4,288         6,234
     Principal payments                                         170,122     237,360     482,844       816,982
Collateral for collateralized notes payable:
     Principal payments                                          48,179      66,040     249,577       201,813
  ARM loans:
     Purchases                                                 (111,899)     (9,534)   (131,895)      (11,345)
     Proceeds on sales                                                -       6,991           -         6,991
     Principal payments                                           1,438         597       2,970         7,165
  Purchase of interest rate cap agreements                            -           -        (539)       (1,910)
                                                              ----------  ----------  ----------  ------------
         Net cash provided by (used in) investing activities     41,403      (7,994)    201,156      (200,320)
                                                              ----------  ----------  ----------  ------------

Financing Activities:
  Net borrowings from (repayments of) reverse
  repurchase agreements                                         (93,735)     47,076     (39,018)      392,145
  Repayments of collateralized notes                            (47,805)    (65,610)   (248,285)     (202,943)
  Net borrowing from (repayments of) other borrowings            91,923         183      89,042          (502)
  Dividends paid                                                 (6,611)     (6,613)    (19,837)      (19,839)
  Interest from notes receivable from stock sales                    68          68         203           202
                                                              ----------  ----------  ----------  ------------
         Net cash provided by (used in) financing activities    (56,160)    (24,896)   (217,895)      169,063
                                                              ----------  ----------  ----------  ------------

Net increase (decrease) in cash and cash equivalents             (2,310)     (5,129)     21,837        (1,814)

Cash and cash equivalents at beginning of period                 34,381      39,746      10,234        36,431
                                                              ----------  ----------  ----------  ------------
Cash and cash equivalents at end of period                    $  32,071   $  34,617   $  32,071   $    34,617
                                                              ==========  ==========  ==========  ============
</TABLE>

Supplemental  disclosure  of  cash  flow information and non-cash activities are
included  in  Note  3.


See  Notes  to  Consolidated  Financial  Statements


                                       6
<PAGE>
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

NOTE  1.  SIGNIFICANT  ACCOUNTING  POLICIES

          The accompanying unaudited consolidated financial statements have been
          prepared in accordance with generally accepted  accounting  principles
          for interim  financial  information and with the  instructions to Form
          10-Q and Rule 10-01 of Regulation S-X. Therefore,  they do not include
          all of the  information and footnotes  required by generally  accepted
          accounting principles for complete financial statements.

          In the opinion of management, all material adjustments,  consisting of
          normal  recurring   adjustments,   considered  necessary  for  a  fair
          presentation have been included. The operating results for the quarter
          and   nine-months   ended  September  30,  2000  are  not  necessarily
          indicative  of the results that may be expected for the calendar  year
          ending December 31, 2000.

            CASH  AND  CASH  EQUIVALENTS

               Cash and cash equivalents includes cash on hand and highly liquid
               investments with original maturities of three months or less. The
               carrying amount of cash equivalents approximates their value.

            BASIS  OF  PRESENTATION

               The  consolidated  financial  statements  include the accounts of
               Thornburg  Mortgage,  Inc (the  "Company")  and its  wholly-owned
               bankruptcy remote special purpose finance subsidiaries, Thornburg
               Mortgage  Funding  Corporation,   Thornburg  Mortgage  Acceptance
               Corporation and Thornburg Mortgage Acceptance  Corporation II and
               a  banking  subsidiary,   Thornburg  Mortgage  Home  Loans,  Inc.
               ("TMHL").  Each of these subsidiaries is a wholly-owned qualified
               REIT  subsidiary  and  is  consolidated   with  the  Company  for
               financial  statement  and tax  reporting  purposes.  The  Company
               formed the wholly-owned bankruptcy remote special purpose finance
               subsidiaries in connection with its securitization and whole loan
               financing   transactions   discussed  in  Note  4.  All  material
               intercompany   accounts  and   transactions   are  eliminated  in
               consolidation.

            ADJUSTABLE-RATE  MORTGAGE  ASSETS

               The  Company's   adjustable-rate   mortgage  ("ARM")  assets  are
               comprised of ARM  securities,  ARM loans and  collateral  for AAA
               notes  payable,  which also  consists of ARM  securities  and ARM
               loans.  Included  in the  Company's  ARM  assets  are  hybrid ARM
               securities and loans  ("Hybrid  ARMs") that have a fixed interest
               rate for an initial  period,  generally  three to ten years,  and
               then convert to an  adjustable-rate  for their  remaining term to
               maturity.

               Management  has  made  the  determination  that  all of  its  ARM
               securities should be designated as available-for-sale in order to
               be prepared to respond to potential  future  opportunities in the
               market,   to  sell  ARM  securities  in  order  to  optimize  the
               portfolio's  total return and to retain its ability to respond to
               economic conditions that might require the Company to sell assets
               in order to maintain an appropriate level of liquidity. Since all
               ARM  securities are  designated as  available-for-sale,  they are
               reported at fair value, with unrealized gains and losses excluded
               from  earnings and reported in  accumulated  other  comprehensive
               income as a separate component of shareholders' equity.

               Management  has the intent and ability to hold the  Company's ARM
               loans for the  foreseeable  future and until  maturity or payoff.
               Therefore,  they are carried at their unpaid principal  balances,
               net of  unamortized  premium or discount and  allowance  for loan
               losses.

               The  collateral for the AAA notes includes ARM securities and ARM
               loans,  which  are  accounted  for in the same  manner as the ARM
               securities, and ARM loans that are not held as collateral.


                                       7
<PAGE>
               Premiums and  discounts  associated  with the purchase of the ARM
               assets are amortized  into interest  income over the lives of the
               assets using the effective  yield method adjusted for the effects
               of estimated prepayments.

               ARM asset  transactions  are  recorded on the date the ARM assets
               are purchased or sold.  Purchases of new issue ARM securities and
               all ARM loans are  recorded  when all  significant  uncertainties
               regarding the  characteristics  of the assets are removed and, in
               the case of loans, underwriting due diligence has been completed,
               generally shortly before the settlement date.  Realized gains and
               losses on ARM asset  transactions  are determined on the specific
               identification basis.

          CREDIT  RISK

               The Company limits its exposure to credit losses on its portfolio
               of ARM securities by only  purchasing ARM securities that have an
               investment  grade  rating at the time of  purchase  and have some
               form of credit  enhancement or are guaranteed by an agency of the
               federal government.  An investment grade security generally has a
               security  rating  of BBB or Baa or  better by at least one of two
               nationally recognized rating agencies, Standard & Poor's, Inc. or
               Moody's  Investor   Services,   Inc.  (the  "Rating   Agencies").
               Additionally, the Company has also purchased ARM loans and limits
               its  exposure  to credit  losses by  restricting  its whole  loan
               purchases  to ARM  loans  generally  originated  to  "A"  quality
               underwriting  standards or loans that have at least five years of
               pay history and/or low loan to property value ratios. The Company
               further  limits its  exposure to credit  losses by  limiting  its
               investment in investment  grade  securities  that are rated A, or
               equivalent,  BBB, or equivalent,  or ARM loans  originated to "A"
               quality underwriting  standards ("Other  Investments") to no more
               than 30% of the portfolio,  including the subordinate  securities
               retained as part of the  Company's  securitization  of loans into
               AAA securities.

               The  Company  monitors  the   delinquencies  and  losses  on  the
               underlying  mortgage loans backing its ARM assets.  If the credit
               performance of the underlying  mortgage loans is not as expected,
               the Company  makes a provision  for probable  credit  losses at a
               level  deemed  appropriate  by  management  to provide  for known
               losses as well as  estimated  losses  inherent  in its ARM assets
               portfolio.  The provision is based on management's  assessment of
               numerous factors affecting its portfolio of ARM assets including,
               but not  limited to,  current  economic  conditions,  delinquency
               status,  credit  losses  to  date  on  underlying  mortgages  and
               remaining credit protection.  The provision for ARM securities is
               made by reducing  the cost basis of the  individual  security for
               the decline in fair value, which is other than temporary, and the
               amount of such write-down is recorded as a realized loss, thereby
               reducing earnings.

               The Company also makes a monthly  provision for estimated  credit
               losses on its portfolio of ARM loans, which is an increase to the
               reserve for possible  loan losses.  The  provision  for estimated
               credit  losses on loans is based on loss  statistics  of the real
               estate  industry  for similar  loans,  taking into  consideration
               factors   including,    but   not   limited   to,    underwriting
               characteristics,   seasoning,  geographic  location  and  current
               economic conditions. When a loan or a portion of a loan is deemed
               to be  uncollectible,  the portion deemed to be  uncollectible is
               charged  against the reserve and subsequent  recoveries,  if any,
               are credited to the reserve. Additionally, once a loan is 90 days
               or more delinquent,  the Company adjusts the value of the accrued
               interest  receivable  to what it believes to be  collectible  and
               generally stops accruing interest on the loan.

               Credit losses on pools of loans that are held as  collateral  for
               notes payable are also covered by third party insurance  policies
               that  protect the Company  from credit  losses  above a specified
               level,  limiting the Company's  exposure to credit losses on such
               loans. The Company makes a monthly provision for estimated credit
               losses on these  loans the same as it does for loans that are not
               held as  collateral  for notes  payable,  except,  it takes  into
               consideration its maximum exposure.

               Provisions  for credit  losses do not reduce  taxable  income and
               thus  do  not  affect  the  dividends  paid  by  the  Company  to
               shareholders  in the period  the  provisions  are  taken.  Actual
               losses  realized by the Company do reduce  taxable  income in the
               period the actual loss is realized and would affect the dividends
               paid to shareholders for that tax year.


                                       8
<PAGE>
     DERIVATIVE  FINANCIAL  INSTRUMENTS

          INTEREST  RATE  CAP  AGREEMENTS

          The  Company   purchases   interest  rate  cap  agreements  (the  "Cap
          Agreements")  to manage  interest rate risk. To date,  most of the Cap
          Agreements  purchased  limit the Company's  risks  associated with the
          lifetime  or  maximum  interest  rate  caps of its ARM  assets  should
          interest  rates  rise above  specified  levels.  These Cap  Agreements
          reduce the effect of the lifetime cap feature so that the yield on the
          ARM assets will continue to rise in high interest rate environments as
          the  Company's  cost of  borrowings  also continue to rise. In similar
          fashion,  the  Company  has  purchased  Cap  Agreements  to limit  the
          financing  rate of the  Hybrid  ARMs  during  their  fixed  rate term,
          generally  for three to ten years.  In general,  the cost of financing
          Hybrid  ARMs hedged  with Cap  Agreements  is capped at a rate that is
          0.75% to 1.00% below the fixed Hybrid ARM interest rate.

          All   Cap    Agreements    are   classified   as   a   hedge   against
          available-for-sale  assets or ARM loans and are  carried at their fair
          value  with  unrealized  gains  and  losses  reported  as  a  separate
          component  of equity.  The  carrying  value of the Cap  Agreements  is
          included in ARM securities on the balance sheet. The Company purchases
          Cap   Agreements   by  incurring  a  one-time  fee  or  premium.   The
          amortization of the premium paid for the Cap Agreements is included in
          interest income as a contra item (i.e., expense) and, as such, reduces
          interest income over the lives of the Cap Agreements.

          Realized gains and losses  resulting  from the  termination of the Cap
          Agreements  that were hedging  assets  classified as  held-to-maturity
          were deferred as an  adjustment  to the carrying  value of the related
          assets and are being  amortized into interest income over the terms of
          the  related  assets.  Realized  gains and losses  resulting  from the
          termination of Cap Agreements  that were hedging assets  classified as
          available-for-sale  were initially reported in a separate component of
          equity,  consistent  with  the  reporting  of  those  assets,  and are
          thereafter amortized as a yield adjustment.

          INTEREST RATE OPTIONS CONTRACTS

          The Company  purchases  options on interest rate futures (the "Options
          Contracts")  to manage  interest  rate risk in the same  manner as Cap
          Agreements.  To  date,  the  Options  Contracts  purchased  limit  the
          Company's risk associated  with the lifetime or maximum  interest rate
          caps of its ARM assets  should  interest  rates  rise above  specified
          levels.  These Options Contracts reduce the effect of the lifetime cap
          feature so that the yield on the ARM assets  will  continue to rise in
          high interest rate  environments  as the Company's  cost of borrowings
          also continue to rise.

          All   Options   Contracts   are   classified   as  a   hedge   against
          available-for-sale  assets or ARM loans and are  carried at their fair
          value  with  unrealized  gains  and  losses  reported  as  a  separate
          component of equity.  The carrying  value of the Options  Contracts is
          included in ARM securities on the balance sheet. The Company purchases
          Options  Contracts  by  incurring  a  one-time  fee  or  premium.  The
          amortization of the premium paid for the Options Contracts is included
          in  interest  income as a contra item  (i.e.,  expense)  and, as such,
          reduces interest income over the lives of the Options Contracts.

          INTEREST RATE SWAP AGREEMENTS

          The  Company   enters  into  interest  rate  swap   agreements   (Swap
          Agreements)  in  order to  manage  its  interest  rate  exposure  when
          financing  its ARM  assets.  In  general,  Swap  Agreements  have been
          utilized  by the  Company  in two  ways.  One way has been to use Swap
          Agreements as a cost  effective way to lengthen the average  repricing
          period of its variable rate and short-term  borrowings.  Additionally,
          as the  Company  acquires  Hybrid  ARMs,  it  also  enters  into  Swap
          Agreements  in order to manage the interest  rate  repricing  mismatch
          (the  difference  between the  remaining  duration of a hybrid and the
          maturity  of the  borrowing  funding  a  Hybrid  ARM) to a  mismatched
          duration of approximately one year or less. Revenues and expenses from
          the  Swap  Agreements  are  accounted  for  on an  accrual  basis  and
          recognized as a net adjustment to interest expense.


                                       9
<PAGE>
          Realized  gains  and  losses   resulting  from  the   termination  and
          replacement of Swap Agreements,  are recorded as basis  adjustments to
          the  hedged  liabilities  and  are  thereafter  amortized  as a  yield
          adjustment  over  the  remaining  term  of the  Swap  Agreements.  The
          terminated and  replacement  Swap  Agreements  generally have the same
          terms and conditions  other than the fixed rate. The  amortization  of
          the realized gains and losses as a yield  adjustment to the fixed rate
          of the replacement Swap Agreement  results in  approximately  the same
          fixed cost between the terminated and replacement Swap Agreements. The
          Company  terminates  and replaces  Swap  Agreements  as an  additional
          source  of  liquidity  when  it is  able  to do so  while  maintaining
          compliance to its hedging policies.

          All Swap  Agreements are  classified as a liability  hedge against the
          Company's borrowings.  As a result, the unrealized gains and losses on
          Swap Agreements are off balance sheet and are reported in Note 5.

          OTHER HEDGING ACTIVITY

          The Company also enters into hedging  transactions  in connection with
          the purchase of Hybrid ARMs between the trade date and the  settlement
          date. Generally, the Company hedges the cost of obtaining future fixed
          rate financing by entering into a commitment to sell similar  duration
          fixed-rate  mortgage-backed  securities  ("MBS") on the trade date and
          settles the  commitment by purchasing  the same  fixed-rate MBS on the
          purchase date. Realized gains and losses are deferred and amortized as
          a yield adjustment over the fixed rate period of the financing.

     INCOME  TAXES

          The Company has elected to be taxed as a Real Estate  Investment Trust
          ("REIT") and complies with the provisions of the Internal Revenue Code
          of 1986,  as amended (the "Code") with respect  thereto.  Accordingly,
          the Company will not be subject to Federal  income tax on that portion
          of its  income  that is  distributed  to  shareholders  and as long as
          certain asset, income and stock ownership tests are met.

     NET  EARNINGS  PER  SHARE

          Basic EPS amounts are  computed by dividing net income  (adjusted  for
          dividends  declared on preferred stock) by the weighted average number
          of  common  shares   outstanding.   Diluted  EPS  amounts  assume  the
          conversion,  exercise  or  issuance  of  all  potential  common  stock
          instruments  unless  the  effect is to reduce a loss or  increase  the
          earnings per common share.

          Following is  information  about the  computation  of the earnings per
          share data for the three and nine month  periods  ended  September 30,
          2000 and 1999 (amounts in thousands except per share data):

<TABLE>
<CAPTION>
                                                             Earnings
                                        Income    Shares    Per  Share
                                       --------  ---------  ----------
Three Months Ended September 30, 2000
-------------------------------------
<S>                                    <C>       <C>        <C>

Net income                             $ 7,016

Less preferred stock dividends          (1,670)
                                       --------

Basic EPS, income available to
  common shareholders                    5,346      21,490  $     0.25
                                                            ==========
Effect of dilutive securities:

  Stock options                              -          26
                                       --------  ---------
Diluted EPS                            $ 5,346      21,516  $     0.25
                                       ========  =========  ==========
Three Months Ended September 30, 1999
-------------------------------------
Net income                             $ 7,155

Less preferred stock dividends          (1,670)
                                       --------
Basic EPS, income available to
  common stockholders                    5,485      21,490  $     0.26
                                                            ==========
Effect of dilutive securities:

  Stock options                              -           3
                                       --------  ---------
Diluted EPS                            $ 5,485      21,493  $     0.26
                                       ========  =========  ==========


                                       10
<PAGE>
                                                             Earnings
                                        Income    Shares    Per  Share
                                       ---------  --------  -----------
Nine Months Ended September 30, 2000
------------------------------------
Net income                             $ 21,495

Less preferred stock dividends           (5,009)
                                       ---------
Basic EPS, income available to
  common shareholders                    16,486      21,490  $    0.77
                                                            ==========
Effect of dilutive securities:

  Stock options                               -           6
                                       ---------  ---------  ----------
Diluted EPS                            $ 16,486      21,496  $     0.77
                                       =========  =========  ==========
Nine Months Ended September 30, 1999
------------------------------------
Net income                             $ 18,787

Less preferred stock dividends           (5,009)
                                       ---------
Basic EPS, income available to
  common stockholders                    13,778      21,490  $     0.64
                                                             ==========
Effect of dilutive securities:

  Stock options                               -           8
                                      ----------  ---------
Diluted EPS                            $ 13,778      21,498  $     0.64
                                       =========  =========  ==========
</TABLE>

          The Company  has  granted  options to  directors  and  officers of the
          Company and  employees of the Manager to purchase  200,022 and 141,779
          shares of common  stock at average  prices of $7.375 and  $9.0625  per
          share  during  the nine  months  ended  September  30,  2000 and 1999,
          respectively.  The  conversion of preferred  stock was not included in
          the computation of diluted EPS because such conversion  would increase
          the diluted EPS.

     RECENT  ACCOUNTING  PRONOUNCEMENTS

          In June 1998, the FASB issued SFAS No. 133,  Accounting for Derivative
          Instruments  and  Hedging  Activities.  SFAS  No.  133  established  a
          framework  of  accounting  rules  that   standardize   accounting  and
          reporting  for  all  derivative   instruments  and  is  effective  for
          financial  statements issued for fiscal years beginning after June 15,
          2000. The Statement requires that all derivative financial instruments
          be carried on the  balance  sheet at fair  value.  Currently  the only
          derivative  instruments that are not on the Company's balance sheet at
          fair value are the Swap Agreements.  The fair value of Swap Agreements
          is  disclosed  in Note 5, Fair  Value of  Financial  Instruments.  The
          Company believes that its use of Swap Agreements  qualify as cash-flow
          hedges,  as  defined  in  the  statement,  and  that  its  use  of Cap
          Agreements  and Option  Contracts  qualify as fair  value  hedges,  as
          defined in the statement.  Therefore,  the effective  hedge portion of
          the derivative  instrument's  change in fair value will be recorded in
          other  comprehensive  income  and  the  ineffective  portion  will  be
          included in  earnings  when the Company  adopts the  statement  in the
          first quarter of its fiscal 2001 year.

     USE  OF  ESTIMATES

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.


                                       11
<PAGE>
NOTE  2.  ADJUSTABLE-RATE  MORTGAGE  ASSETS  AND  INTEREST  RATE  CAP AGREEMENTS

          The following  tables present the Company's ARM assets as of September
          30, 2000 and December  31,  1999.  The ARM  securities  classified  as
          available-for-sale  are  carried  at their fair  value,  while the ARM
          loans are carried at their  amortized  cost basis  (dollar  amounts in
          thousands):

<TABLE>
<CAPTION>
September  30,  2000

                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                               ----------------  ----------------  -----------  -----------
<S>                            <C>               <C>               <C>          <C>
Principal balance outstanding  $     3,319,946   $       641,693   $  126,937   $4,088,576
Net unamortized premium                 59,763            12,303         (473)      71,593
Deferred gain from hedging                 (90)                -            -          (90)
Allowance for losses                    (1,997)           (2,886)        (124)      (5,007)
Cap Agreements/Options
  Contracts                              3,613               230            -        3,843
Principal payment receivable            17,264                 -            -       17,264
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,398,499           651,340      126,340    4,176,179
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   2,765                12           11        2,788
                               ----------------  ----------------  -----------  -----------
Gross unrealized losses               (103,791)          (15,750)         (50)    (119,591)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,297,473   $       635,602   $  126,301   $4,059,376
                               ================  ================  ===========  ===========
  Carrying value               $     3,297,473   $       651,340   $  126,340   $4,075,153
                               ================  ================  ===========  ===========

December 31, 1999:
                                  Available-
                                  for-Sale       Collateral for
                               ARM Securities     Notes Payable     ARM Loans     Total
                               ----------------  ----------------  -----------  -----------
Principal balance outstanding  $     3,388,160   $       890,701   $   31,649   $4,310,510
Net unamortized premium                 70,409            14,045         (445)      84,009
Deferred gain from hedging                (351)                -            -         (351)
Allowance for losses                    (1,930)           (2,106)        (102)      (4,138)
Cap Agreements                           4,923               320            -        5,243
Principal payment receivable            13,610               569            -       14,179
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,474,821           903,529       31,102    4,409,452
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   5,462                29           65        5,556
                               ----------------  ----------------  -----------  -----------
Gross unrealized losses                (88,816)          (13,165)        (170)    (102,151)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,391,467   $       890,393   $   30,997   $4,312,857
                               ================  ================  ===========  ===========
  Carrying value               $     3,391,467   $       903,529   $   31,102   $4,326,098
                               ================  ================  ===========  ===========
</TABLE>


          During the first nine months of 2000,  in  accordance  with its credit
          policies,  the Company  provided for  estimated  credit  losses on the
          subordinated  classes  of  its  securitized  loans  in the  amount  of
          $180,000 and recorded a $803,000 provision for estimated credit losses
          on its loan portfolio, although no actual losses have been realized in
          the loan portfolio to date.


                                       12
<PAGE>
          The following tables summarize ARM loan delinquency  information as of
          September   30,  2000  and  December  31,  1999  (dollar   amounts  in
          thousands):


September  30,  2000
--------------------

                                                  Percent of  Percent of
                             Loan        Loan         ARM      Total
Delinquency Status          Count       Balance    Loans (1)  Assets
------------------------  ----------  -----------  ---------  -------

60 to 89 days                      1  $       210      0.02%    0.01%
90 days or more                    1          209      0.02     0.01
In foreclosure                     6        4,253      0.36     0.10
                          ----------  -----------  ---------  -------
                                   8  $     4,672      0.40%    0.12%
                          ==========  ===========  =========  =======


December 31, 1999
-----------------
                                                  Percent of  Percent of
                            Loan         Loan         ARM      Total
Delinquency Status          Count       Balance    Loans (1)  Assets
------------------------  ----------  -----------  ---------  -------
60 to 89 days                      1  $       110     0.01 %   0.00 %
90 days or more                    -            -         -        -
In foreclosure                    10        5,450      0.49     0.12
                          ----------  -----------  ---------  -------
                                  11  $     5,560     0.50 %   0.12 %
                          ==========  ===========  =========  =======

     (1)  ARM loans includes loans that the Company has securitized and retained
          first loss credit  exposure  for total  amounts of $1.179  billion and
          $1.108   billion  at  September   30,  2000  and  December  31,  1999,
          respectively.


          The  following  table  summarizes  the activity for the  allowance for
          losses on ARM loans for the nine months ended  September  30, 2000 and
          1999 (dollar amounts in thousands):

                            2000            1999
                        ===========    ============
Beginning  balance      $     2,208    $        804
Provision  for  losses          803           1,193
Charge-offs,  net                -               -
                        -----------    ------------
Ending  balance         $     3,011    $      1,997
                        ===========    ============

          During the quarter ended  September 30, 2000, the Company  securitized
          $13.7  million of ARM loans into Agency ARM  securities.  In addition,
          the Company sold ARM  securities  in the amount of $22.8 million at no
          gain or loss.

          As of September  30,  2000,  the Company had  commitments  to purchase
          $199.7 million of ARM securities and $6.1 million of ARM loans.

          As of September 30, 2000,  the Company owned one real estate  property
          as a result  of  foreclosing  on a  delinquent  loan in the  aggregate
          amount  of  $0.6  million,   which  is  included  in  collateral   for
          collateralized  notes on the balance sheet.  The Company believes that
          the above  allowance is adequate to cover  estimated  losses from this
          property.

          The average  effective  yield on the ARM assets  owned was 7.00% as of
          September  30, 2000 and 6.38% as of  December  31,  1999.  The average
          effective   yield  is  based  on  historical  cost  and  includes  the
          amortization  of the net  premium  paid for the ARM assets and the Cap
          Agreements,  the impact of ARM principal  payment  receivables and the
          amortization of deferred gains from hedging activity.

          The  Company   purchases   Interest  Rate  Options   Contracts  as  an
          alternative  method of hedging the lifetime  interest  rate cap of ARM
          assets. Since these Options Contracts are purchased in connection with
          the  Company's  policy to hedge the  lifetime  cap of ARM assets along
          with the Company's Cap Agreements, they are included in the discussion
          about Cap Agreements below.


                                       13
<PAGE>
          As of  September  30,  2000 and  December  31,  1999,  the Company had
          purchased  Cap  Agreements  and  Options  Contracts  with a  remaining
          notional  amount of $2.645 billion and $2.945  billion,  respectively.
          The  notional  amount  of the Cap  Agreements  and  Options  Contracts
          purchased  decline  at a rate  that is  expected  to  approximate  the
          amortization of the ARM assets. Under these Cap Agreements and Options
          Contracts,   the  Company  will  receive  cash  payments   should  the
          one-month,  three-month  or  six-month  London  InterBank  Offer  Rate
          ("LIBOR")   increase   above  the  contract  rates  of  these  hedging
          instruments that range from 5.75% to 12.50% and average  approximately
          9.93%.  Of the Cap  Agreements  and  Options  Contracts  owned  by the
          Company as of September 30, 2000,  $111.0 million are hedging the cost
          of financing  Hybrid ARMs and $2.534  billion are hedging the lifetime
          interest rate cap of ARM assets.  The  Company's ARM assets  portfolio
          had  an  average  lifetime  interest  rate  cap  of  11.64%.  The  Cap
          Agreements and Options  Contracts had an average maturity of 2.2 years
          as of September 30, 2000. The initial aggregate notional amount of the
          Cap  Agreements  declines to  approximately  $2.333  billion  over the
          period of the  agreements,  which expire  between  2000 and 2004.  The
          Company has credit risk to the extent that the  counterparties  to the
          Cap  Agreements  do  not  perform  their  obligations  under  the  Cap
          Agreements. If one of the counterparties does not perform, the Company
          would not  receive  the cash to which it would  otherwise  be entitled
          under the conditions of the Cap  Agreement.  In order to mitigate this
          risk and to achieve competitive  pricing, the Company has entered into
          Cap Agreements  with six different  counterparties,  five of which are
          rated AAA and one is rated A, but the Company has a two-way collateral
          agreement protecting its credit exposure with this counterparty.

NOTE  3.  REVERSE REPURCHASE AGREEMENTS, COLLATERALIZED NOTES PAYABLE  AND OTHER
BORROWINGS

          The Company has entered into reverse repurchase  agreements to finance
          most  of  its  ARM  assets.  The  reverse  repurchase  agreements  are
          short-term  borrowings  that are  secured by the  market  value of the
          Company's  ARM assets and bear interest  rates that have  historically
          moved in close relationship to LIBOR.

          As of September 30, 2000, the Company had  outstanding  $2.983 billion
          of reverse  repurchase  agreements with a weighted  average  borrowing
          rate of 6.75% and a weighted average remaining maturity of 3.8 months.
          As of September 30, 2000,  $1.460 billion of the Company's  borrowings
          were variable-rate  term reverse  repurchase  agreements with original
          maturities  that range from six months to twelve months.  The interest
          rates of these  term  reverse  repurchase  agreements  are  indexed to
          either the one- or three-month LIBOR rate and reprice accordingly. The
          reverse   repurchase   agreements   at   September   30,   2000   were
          collateralized  by ARM assets with a carrying value of $3.282 billion,
          including accrued interest.

          At  September  30, 2000,  the reverse  repurchase  agreements  had the
          following remaining maturities (dollar amounts in thousands):

                   Within  30  days         $       967,395
                   31  to  89  days                 475,628
                   90  days  or  greater          1,540,470
                                            ---------------
                                            $     2,983,493
                                            ===============

          As of  September  30,  2000,  the Company had entered into three whole
          loan financing facilities.  One of the whole loan financing facilities
          has a committed borrowing capacity of $150 million,  with an option to
          increase this amount to $300 million. This facility matures in January
          2001.  During the first  quarter of 2000,  the Company  entered into a
          second  committed  whole  loan  financing  facility  that  also  has a
          borrowing  capacity of $150 million.  This second  committed  facility
          matures in March of 2003, subject to an annual review and extension by
          both  parties.  The third  facility  is for an  unspecified  amount of
          uncommitted  borrowing  capacity and does not have a specific maturity
          date.  As of  September  30,  2000,  the  Company  had $110.3  million
          borrowed against these whole loan financing facilities at an effective
          cost of  7.19%.  The  amount  borrowed  on the  whole  loan  financing
          agreements at September 30, 2000 was  collateralized by ARM loans with
          a carrying value of $114.3 million, including accrued interest.


                                       14
<PAGE>
          One of the  whole  loan  financing  facility,  discussed  above,  is a
          securitization  transaction in which the Company  transfers  groups of
          whole  loans  to a  wholly-owned  bankruptcy  remote  special  purpose
          subsidiary.  The  subsidiary  in  turn  simultaneously  transfers  its
          interest in the loans to a trust which issues beneficial  interests in
          the loans in the form of a note and a subordinated certificate,  which
          are then used to collateralize borrowings.

          On December 18, 1998, the Company,  through a wholly-owned  bankruptcy
          remote special  purpose finance  subsidiary,  issued $1.144 billion of
          notes  payable   ("Notes")   collateralized   by  ARM  loans  and  ARM
          securities.  As  part  of  this  transaction,   the  Company  retained
          ownership  of a  subordinated  certificate  in  the  amount  of  $32.4
          million,  which  represents the Company's  maximum  exposure to credit
          losses on the loans  collateralizing  the Notes.  As of September  30,
          2000,  the Notes had a net  balance of $638.4  million,  an  effective
          interest  cost of  7.36%,  which  changes  each  month at a spread  to
          one-month   LIBOR.  As  of  September  30,  2000,   these  Notes  were
          collateralized  by  ARM  loans  with a  principal  balance  of  $673.9
          million.  The Notes mature on January 25, 2029 and are callable by the
          Company  at par once the  balance  of the Notes is  reduced  to 25% of
          their  original   balance.   In  connection   with  the  issuance  and
          modification of the Notes, the Company incurred costs of approximately
          $6.0 million,  which is being  amortized over the expected life of the
          Notes.  Since the Notes are paid down as the collateral pays down, the
          amortization of the issuance cost will be adjusted  periodically based
          on actual payment experience.  If the collateral pays down faster than
          currently  estimated,  then the amortization of the issuance cost will
          increase  and the  effective  cost of the  Notes  will  increase  and,
          conversely,   if  the  collateral  pays  down  slower  than  currently
          estimated,  then the  amortization  of issuance cost will be decreased
          and the effective cost of the Notes will also decrease.

          As of September  30, 2000,  the Company was a  counterparty  to twenty
          interest rate swap agreements  ("Swaps") having an aggregate  notional
          balance of $575.8 million. As of September 30, 2000, these Swaps had a
          weighted average remaining term of 2.3 years. In accordance with these
          Swaps,  the Company will pay a fixed rate of interest  during the term
          of these Swaps and  receive a payment  that  varies  monthly  with the
          one-month LIBOR rate. As a result of entering into these Swaps and the
          Cap  Agreements  that also hedge the fixed rate period of Hybrid ARMs,
          the Company has reduced the interest rate  variability  of its cost to
          finance its ARM assets by increasing the average period until the next
          repricing  of its  borrowings  from 29 days to 186 days.  All of these
          Swaps were entered into in connection  with the Company's  acquisition
          of Hybrid  ARMs.  The Swaps  hedge the cost of  financing  Hybrid ARMs
          during  their  fixed rate term,  generally  three to ten years.  As of
          September 30, 2000, the Swap  Agreements  were  collateralized  by ARM
          assets  with a  carrying  value  of $1.0  million,  including  accrued
          interest

          The total cash paid for interest was $62.0  million and $60.6  million
          during the quarters ended September 30, 2000 and 1999, respectively.


                                       15
<PAGE>
NOTE  4.  FAIR  VALUE OF FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET CREDIT RISK

          The following  table presents the carrying  amounts and estimated fair
          values of the Company's  financial  instruments  at September 30, 2000
          and December 31, 1999. FASB Statement No. 107,  Disclosures About Fair
          Value of Financial Instruments,  defines the fair value of a financial
          instrument as the amount at which the instrument could be exchanged in
          a current transaction between willing parties,  other than in a forced
          or liquidation sale (dollar amounts in thousands):


<TABLE>
<CAPTION>
                                 September 30, 2000        December 31, 1999
                               -----------------------   ----------------------
                                Carrying      Fair       Carrying      Fair
                                 Amount       Value       Amount       Value
                               ----------  -----------  ----------  -----------
<S>                            <C>         <C>          <C>         <C>
Assets:
  ARM assets                   $4,072,283  $4,056,506   $4,318,301  $4,305,060
  Cap Agreements/Options
    Contracts                       2,870       2,870        7,797       7,797

Liabilities:
  Collateralized notes payable    638,437     639,572      886,722     889,305
  Other borrowings                110,331     110,331       21,289      21,289
  Swap agreements                   7,577        (900)         749     (11,527)
</TABLE>


          The above  carrying  amounts  for assets are  combined  in the balance
          sheet under the caption adjustable-rate  mortgage assets. The carrying
          amount for securities, which are categorized as available-for-sale, is
          their fair value  whereas  the  carrying  amount for loans,  which are
          categorized as held for the  foreseeable  future,  is their  amortized
          cost.

          The fair values of the Company's ARM  securities,  Cap  Agreements and
          Options  Contracts  are generally  based on market prices  provided by
          certain  dealers who make markets in these  financial  instruments  or
          third-party pricing services.  If the fair value of an ARM security is
          not  reasonably  available  from a  dealer  or a  third-party  pricing
          service,  management estimates the fair value based on characteristics
          of the  security  it  receives  from the issuer and  available  market
          information. The fair values for ARM loans is estimated by the Company
          by using  the same  pricing  models  employed  by the  Company  in the
          process of  determining  a price to bid for loans in the open  market,
          taking into consideration the aggregated  characteristics of groups of
          loans such as, but not limited to,  collateral  type,  index,  margin,
          life cap, periodic cap,  underwriting  standards,  age and delinquency
          experience.  The fair  value  of the  Company's  collateralized  notes
          payable and interest rate swap agreements, which are off-balance sheet
          financial instruments,  are based on market values provided by dealers
          who are  familiar  with  the  terms  of the  long-term  debt  and swap
          agreements.  The fair values  reported  reflect  estimates and may not
          necessarily  be indicative of the amounts the Company could realize in
          a  current  market  exchange.  Cash  and  cash  equivalents,  interest
          receivable,  reverse repurchase agreements, other borrowings and other
          liabilities  are  reflected  in  the  financial  statements  at  their
          amortized  cost,  which  approximates  their fair value because of the
          short-term nature of these instruments.

          The  Company's  transactions  in  interest  rate swap  agreements  and
          hedging   activity  using   commitments  to  sell  securities   create
          off-balance-sheet  risk. These  instruments  involve market and credit
          risk that is not recognized on the balance  sheet.  The principal risk
          related to the swap agreements is the possibility  that a counterparty
          to the  agreement  may be unable or unwilling to meet the terms of the
          agreement. With respect to commitments to sell securities,  there is a
          risk  that  the  change  in the  value  of the  hedged  item  may  not
          substantially  offset the change in the value of the  commitment.  The
          Company  reduces  counterparty  risk  by  dealing  only  with  several
          experienced  counterparties  with AA or  better  credit  ratings  or a
          two-way collateral agreement is required.


NOTE  5.  COMMON  AND  PREFERRED  STOCK

          On July 13,  1998,  the Board of  Directors  approved  a common  stock
          repurchase program of up to 500,000 shares at prices below book value,
          subject to  availability  of shares and other  market  conditions.  On
          September  18, 1998,  the Board of Directors  expanded this program by
          approving the repurchase of up to an additional  500,000  shares.  The
          Company did not  repurchase  any shares of its common stock under this
          program  during the quarter or nine-month  period ended  September 30,
          2000. To date, the company has repurchased 500,016 at an average price
          of $9.28 per share.


                                       16
<PAGE>
          On July 18,  2000,  the  Company  declared  the  second  quarter  2000
          dividend of $0.23 per common share,  which was paid on August 17, 2000
          to common shareholders of record as of August 4, 2000.

          On October 17,  2000,  the Company  declared  the third  quarter  2000
          dividend of $0.25 per common share, which will be paid on November 17,
          2000 to common shareholders of record as of November 6, 2000.

          On September 15, 2000, the Company  declared a third quarter  dividend
          of  $0.605  per  share  to the  shareholders  of the  Series  A  9.68%
          Cumulative  Convertible  Preferred Stock which was paid on October 10,
          2000 to preferred shareholders of record as of September 30, 2000.

          For federal  income tax  purposes,  all  dividends  are expected to be
          ordinary  income to the Company's  common and preferred  shareholders,
          subject  to  year-end  allocations  of  the  common  dividend  between
          ordinary income,  capital gain income and non-taxable income as return
          of capital,  depending on the amount and  character  of the  Company's
          full year taxable income.


NOTE  6.  STOCK  OPTION  PLAN

          The Company has a Stock  Option and  Incentive  Plan (the "Plan") that
          authorizes  the  granting of options to purchase an aggregate of up to
          1,800,000  shares,  but not more than 5% of the outstanding  shares of
          the  Company's   common  stock.  The  Plan  authorizes  the  Board  of
          Directors,  or a  committee  of  the  Board  of  Directors,  to  grant
          Incentive  Stock Options  ("ISOs") as defined under section 422 of the
          Internal  Revenue Code of 1986,  as amended,  options not so qualified
          ("NQSOs"),  Dividend  Equivalent Rights ("DERs"),  Stock  Appreciation
          Rights ("SARs"), and Phantom Stock Rights ("PSRs").

          The exercise  price for any options  granted under the Plan may not be
          less than 100% of the fair  market  value of the  shares of the common
          stock at the time the option is granted.  Options  become  exercisable
          six months  after the date granted and will expire ten years after the
          date granted, except options granted in connection with an offering of
          convertible  preferred  stock,  in  which  case  such  options  become
          exercisable if and when the  convertible  preferred stock is converted
          into common stock.

          The  Company  usually  issues DERs at the same time ISOs and NQSOs are
          granted.  The  number  of PSRs  issued  is based  on the  level of the
          Company's  dividends  and on the price of the  Company's  stock on the
          related  dividend  payment  date and is  equivalent  to the cash  that
          otherwise would be paid on the outstanding DERs and previously  issued
          PSRs.

          During  the  quarter  ended  September  30,  2000,  there were not any
          options or DERs  granted or  exercised.  During the nine month  period
          ended  September 30, 2000,  there were 210,022  options granted to buy
          common shares at an average exercise price of $7.43 along with 215,500
          DERs.  As of  September  30,  2000,  the Company  had 999,495  options
          outstanding at exercise prices of $7.375 to $22.625 per share, 686,828
          of which were exercisable.  The weighted average exercise price of the
          options  outstanding  was $13.80 per share.  As of the  September  30,
          2000,  there were  377,675  DERs  outstanding,  of which  349,514 were
          vested, and 34,861 PSRs outstanding. In addition, the Company recorded
          an  expense  associated  with the DERs  and the PSRs of  $108,000  and
          $154,000  for the three and nine month  periods  ended  September  30,
          2000,  respectively,  and  $26,000  and $72,000 for the three and nine
          month periods ended September 30, 1999, respectively.

          Notes  receivable  from stock sales  result  from the Company  selling
          shares of common stock through the exercise of stock options partially
          for consideration  for notes receivable.  The notes mature in 2006 and
          2007and  accrue  interest  at rates that range from 5.47% to 6.25% per
          annum. In addition,  the notes are full recourse  promissory notes and
          are  secured by a pledge of the shares of the Common  Stock  acquired.
          Interest, which is credited to paid-in-capital,  is payable quarterly,
          with the balance due at the maturity of the notes.  The payment of the
          notes will be  accelerated  only upon the sale of the shares of Common
          Stock  pledged for the notes.  The notes may be prepaid at any time at
          the option of each borrower. As of September 30, 2000, there were $4.6
          million of notes receivable from stock sales outstanding.


                                       17
<PAGE>
NOTE  7.  TRANSACTIONS  WITH  AFFILIATES

          The Company has a  Management  Agreement  (the  "Agreement")  with the
          Manager.  Under the terms of this Agreement,  the Manager,  subject to
          the  supervision of the Company's  Board of Directors,  is responsible
          for the  management  of the  day-to-day  operations of the Company and
          provides all personnel and office space. The Agreement provides for an
          annual review by the unaffiliated  directors of the Board of Directors
          of the Manager's performance under the Agreement.

          The Company  pays the Manager an annual base  management  fee based on
          average  shareholders'  equity,  adjusted for liabilities that are not
          incurred to finance assets ("Average Shareholders' Equity" or "Average
          Net Invested  Assets" as defined in the Agreement)  payable monthly in
          arrears  as  follows:  1.1%  of the  first  $300  million  of  Average
          Shareholders'  Equity, plus 0.8% of Average Shareholders' Equity above
          $300  million.  In addition,  during  1999,  the two wholly owned REIT
          qualified subsidiaries of the Company entered into separate Management
          Agreements with the Manager for additional  management  services for a
          combined amount of $1,250 per calendar quarter, paid in arrears.

          On October 17, 2000,  the Board of Directors and the Manager agreed to
          amendments to the Agreement that included a 0.05% increase to the base
          management fee formula,  effectively immediately, and a cost of living
          clause that will adjust the base  management fee formula by the change
          in the  Consumer  Price Index over the previous  twelve month  period,
          effective  as of  each  annual  review  of the  Agreement.  The  0.05%
          adjustment to the base  management fee formula is expected to increase
          the cost of the base  management fee by  approximately  $200,000 on an
          annual basis.

          For the quarters  ended  September 30, 2000 and 1999, the Company paid
          the  Manager   $1,029,000  and  $1,023,000,   respectively,   in  base
          management fees in accordance  with the terms of the  Agreements.  For
          the nine month periods ended  September 30, 2000 and 1999, the Company
          paid the Manager base  management  fees of $3,086,000 and  $3,061,000,
          respectively.

          The Manager is also entitled to earn performance based compensation in
          an amount equal to 20% of the Company's annualized net income,  before
          performance based  compensation,  above an annualized Return on Equity
          equal to the ten year U.S.  Treasury Rate plus 1%. For purposes of the
          performance fee calculation,  equity is generally  defined as proceeds
          from issuance of common stock before underwriter's  discount and other
          costs of  issuance,  plus  retained  earnings.  For the  quarters  and
          nine-month  periods ended September 30, 2000 and 1999, the Company did
          not pay the Manager any  performance  based  compensation  because the
          Company's net income, as measured by Return on Equity,  did not exceed
          the ten year U.S. Treasury Rate plus 1%.

          Beginning in August 1999,  the Company's  wholly owned REIT  qualified
          subsidiaries  entered into separate lease  agreements with the Manager
          for office space in Santa Fe. During the quarter and nine-month period
          ended  September  30, 2000,  the  combined  amount of rent paid to the
          Manager was $9,000 and $24,000, respectively.


                                       18
<PAGE>

ITEM  2.    MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION
            AND  RESULTS  OF  OPERATIONS

Certain  information  contained in this Quarterly Report on Form 10-Q constitute
"Forward-Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933,  as  amended,  and Section 21E of the  Exchange  Act,  which can be
identified  by the use of  forward-looking  terminology  such as "may,"  "will,"
"expect,"  "anticipate,"  "estimate,"  "plan," or  "continue"  or the  negatives
thereof or other  variations  thereon or comparable  terminology.  Investors are
cautioned that all  forward-looking  statements  involve risks and uncertainties
including,   but  not  limited  to,  risks  related  to  the  future  level  and
relationship of various interest rates, prepayment rates,  availability and cost
of acquiring  new assets and the timing of new programs.  The  statements in the
"Risk Factors"  section of the Company's 1999 Annual Report on Form 10-K on page
17 constitute  cautionary statements  identifying  important factors,  including
certain risks and uncertainties, with respect to such forward-looking statements
that could cause the actual results,  performance or achievements of the Company
to differ materially from those reflected in such forward-looking statements.

GENERAL
-------

Thornburg  Mortgage, Inc., including subsidiaries, (the "Company") is a mortgage
acquisition  company  that primarily invests in adjustable-rate mortgage ("ARM")
assets  comprised  of ARM securities and ARM loans, thereby providing capital to
the  single-family  residential  housing  market.  ARM  securities  represent
interests  in pools of ARM loans, which often include guarantees or other credit
enhancements against losses from loan defaults.  While the Company is not a bank
or  savings  and  loan,  its business purpose, strategy, method of operation and
risk  profile  are  best  understood  in  comparison  to such institutions.  The
Company leverages its equity capital using borrowed funds, invests in ARM assets
and  seeks  to  generate income based on the difference between the yield on its
ARM assets portfolio and the cost of its borrowings.  The corporate structure of
the  Company  differs  from  most  lending  institutions  in that the Company is
organized  for  tax  purposes  as  a  real  estate investment trust ("REIT") and
therefore  generally  passes  through  substantially  all  of  its  earnings  to
shareholders  without paying federal or state income tax at the corporate level.
The Company has three qualified REIT subsidiaries that are involved in financing
its  mortgage loan assets.  The three financing subsidiaries, Thornburg Mortgage
Funding  Corporation,  Thornburg  Mortgage  Acceptance Corporation and Thornburg
Mortgage  Acceptance Corporation II, are consolidated in the Company's financial
statements and federal and state tax returns.  In 1999, the Company formed a new
qualified  REIT  subsidiary,  Thornburg  Mortgage  Home Loans, Inc. ("TMHL"), to
originate  loans  for  the  Company  according  to  the  Company's  underwriting
guidelines.  This  subsidiary received its HUD license during the second quarter
of  2000  and  commenced  marketing  and originating ARM loans for the Company's
portfolio  during  the  third  quarter  of  2000.

The  Company's  mortgage  assets  portfolio  may  consist  of  either  agency or
privately  issued  securities  (generally  publicly  registered)  mortgage
pass-through  securities,  multiclass  pass-through  securities,  collateralized
mortgage  obligations  ("CMOs"),  collateralized  bond  obligations  ("CBOs"),
generally  backed  by high quality mortgage backed securities, ARM loans, Hybrid
ARMs  or  short-term  investments  that either mature within one year or have an
interest  rate that reprices within one year.  Hybrid ARM assets ("Hybrid ARMs")
are  included  in  the  Company's  references  to  ARM securities and ARM loans.
Hybrid  ARMs  are typically 30-year loans that have a fixed rate of interest for
an  initial  period,  generally  3  to  10  years,  and  then  convert  to  an
adjustable-rate for the balance of the term of the Hybrid ARM.  The Company will
not  invest  more  than  30% of its ARM assets in Hybrid ARMs and will limit its
interest  rate  repricing  mismatch  (the  difference  between  the  remaining
fixed-rate  period  of a Hybrid ARM and the maturity of the fixed-rate liability
funding  a Hybrid ARM) to a duration of no more than one year.  Hybrid ARMs with
fixed-rate  periods  greater than five years are further limited to no more than
10%  of  the  Company's  ARM  assets.

On  July  18,  2000,  the  Company's  Board  of Directors modified the Company's
investment policy to allow for the origination of fixed-rate loans with up to 30
year terms by the Company's subsidiary, TMHL, to be held for the purpose of sale
only  and  not  for  investment  portfolio  purposes.  This  modification of the
Company's  investment policy to include fixed-rate loans will give the Company's
lending  programs  the ability to offer a more complete line of residential loan
products.  The  Company intends to hedge its pipeline of fixed rate loans and to
sell  them  on  a  regular  basis pursuant to implementing its low risk business
plan.  The  Company  does not believe that this modification, as directed by the
Company's  Board  of Directors, will materially affect the Company's exposure to
interest  rate  risk  or  credit  risk.


                                       19
<PAGE>
The  Company's  investment  policy  is to invest at least 70% of total assets in
High  Quality  adjustable  and  variable rate mortgage securities and short-term
investments.  High  Quality  means:

(1)  securities  that are unrated but are  guaranteed by the U.S.  Government or
     issued or guaranteed by an agency of the U.S. Government;
(2)  securities which are rated within one of the two highest rating  categories
     by at least one of either Standard & Poor's or Moody's  Investors  Service,
     Inc. (the "Rating Agencies"); or
(3)  securities  that are unrated or whose ratings have not been updated but are
     determined to be of comparable quality (by the rating standards of at least
     one of the Rating Agencies) to a High Quality rated mortgage  security,  as
     determined by the Manager (as defined  below) and approved by the Company's
     Board of Directors; or
(4)  the portion of ARM or hybrid  loans that have been  deposited  into a trust
     and have  received a credit rating of AA or better from at least one Rating
     Agency.

The  remainder  of  the Company's ARM portfolio, comprising not more than 30% of
total  assets,  may  consist  of  Other  Investment  assets,  which may include:

(1)  adjustable  or  variable  rate   pass-through   certificates,   multi-class
     pass-through  certificates  or  CMOs  backed  by  loans  on  single-family,
     multi-family, commercial or other real estate-related properties so long as
     they  are  rated  at  least  Investment  Grade  at the  time  of  purchase.
     "Investment  Grade"  generally  means a  security  rating  of BBB or Baa or
     better by at least one of the Rating Agencies;
(2)  ARM loans secured by first liens on single-family  residential  properties,
     generally  underwritten  to "A" quality  standards,  and  acquired  for the
     purpose  of  future  securitization  (see  description  of "A"  quality  in
     "Portfolio of Mortgage Assets - ARM and Hybrid ARM Loans");
(3)  real estate properties acquired as a result of foreclosing on the Company's
     ARM loans;
(4)  a limited  amount,  currently  $70  million as  authorized  by the Board of
     Directors, of less than investment grade classes of ARM securities that are
     created as a result of the Company's loan  acquisition  and  securitization
     efforts; or
(5)  fixed  rate  loans  secured  by first  liens on  single-family  residential
     properties held for sale.

Since  inception,  the  Company  has generally invested less than 15%, currently
approximately  5%,  of  its  total  assets in Other Investment assets, excluding
loans  held for securitization.  Despite the generally higher yield, the Company
does  not  expect  to  significantly increase its investment in Other Investment
securities.  This is primarily due to the difficulty of financing such assets at
reasonable  financing  terms  and  values  through  all  economic  cycles.

The  Company  does  not  invest  in  REMIC residuals or other CMO residuals and,
therefore  does not create excess inclusion income or unrelated business taxable
income  for  tax-exempt  investors.  Therefore,  the  Company is a mortgage REIT
eligible  for  purchase  by  tax-exempt investors, such as pension plans, profit
sharing  plans,  401(k)  plans,  Keogh  plans and Individual Retirement Accounts
("IRAs").

Acquisition  of  FASLA  Holding  Company

On  December  23, 1999, the Company and the Manager entered into an agreement to
purchase  FASLA  Holding  Company,  whose  principal  holding  is  First Arizona
Savings,  a  privately held Phoenix-based federally chartered thrift institution
with  six  retail branch offices and, at that time, $138 million in assets.  The
cash  purchase  price  was  $15  million,  subject  to certain adjustments.  The
purchase  agreement  expired on August 31, 2000 and both parties mutually agreed
not  to  extend  the  agreement.  The acquisition had been subject to regulatory
approval  which  had  not yet been obtained as of August 31, 2000.  Although the
Company  may  pursue  other  similar  transactions in the future, as part of its
business plan to originate mortgage loans nationwide, the Company has decided to
apply for mortgage licenses on a state-by-state basis at this time.  The Company
expects  to  have  applied for licenses in a significant number of states by the
end  of  2000  and  has  commenced  originating  mortgage loans as of the end of
September  in  Texas,  Colorado  and  New  Mexico.

Mortgage  Banking  Operations

The Company plans to convert its qualified REIT subsidiary, TMHL, into a taxable
REIT  subsidiary  during  the fourth quarter of 2000 and to operate it as a full
service mortgage banking subsidiary.  This mortgage banking subsidiary's primary
business will be to acquire residential mortgage loans, through bulk acquisition
as  well  as  through both the Company's correspondent network and direct retail
origination.  TMHL will then securitize the ARM and Hybrid ARM loans for sale to


                                       20
<PAGE>
the Company at fair market value.  This subsidiary is also expected to originate
fixed-rate  loans  for sale to third parties and to generate servicing revenues,
primarily  in  connection  with  secured  loans  sold  to the Company.   TMHL is
developing  a  variable  cost  model  by  entering into third-party contracts to
process,  underwrite, close and service loans rather than making the initial and
ongoing  investment  of  operating  these functions internally.  As part of this
variable-cost model, the administrative staff experienced in these functions and
responsible  for overseeing these functions will be transferred from the Manager
to  TMHL.  Since TMHL will be engaged in businesses and generating revenues that
are  not  REIT  qualified,  it will be operated as a taxable REIT subsidiary and
will file a separate tax return.  As a result of changes to the Internal Revenue
Code  effective  January  1,  2001,  the  Company  expects  to  consolidate this
subsidiary  for  financial  statement  purposes.

FINANCIAL  CONDITION
--------------------

At  September  30, 2000, the Company held total assets of $4.140 billion, $4.075
billion  of  which  consisted  of  ARM assets, as compared to $4.376 billion and
$4.326  billion,  respectively,  at  December  31,  1999.  Since  commencing
operations,  the Company has purchased either ARM securities (backed by agencies
of  the  U.S.  government  or  privately-issued,  generally publicly registered,
mortgage  assets,  most  of  which are rated AA or higher by at least one of the
Rating  Agencies)  or ARM loans generally originated to "A" quality underwriting
standards.  At  September  30,  2000,  94.8%  of the assets held by the Company,
including cash and cash equivalents, were High Quality assets, far exceeding the
Company's investment policy minimum requirement of investing at least 70% of its
total  assets  in High Quality ARM assets and cash and cash equivalents.  Of the
ARM  assets  currently  owned  by  the  Company,  85.6%  are  in  the  form  of
adjustable-rate  pass-through  certificates  or  ARM  loans.  The  remainder are
floating rate classes of CMOs (10.7%) or investments in floating rate classes of
CBOs  (3.7%)  backed  primarily  by  ARM  mortgaged-backed  securities.

The  following  table  presents  a schedule of ARM assets owned at September 30,
2000  and  December  31,  1999  classified  by High Quality and Other Investment
assets  and  further  classified  by  type  of issuer and by ratings categories.

<TABLE>
<CAPTION>
                        ARM  ASSETS  BY  ISSUER  AND  CREDIT  RATING
                              (Dollar  amounts  in  thousands)

                                 September 30, 2000         December 31, 1999
                              ------------------------  -------------------------
                                Carrying     Portfolio    Carrying     Portfolio
                                 Value          Mix         Value         Mix
                              -----------   ----------  ------------   ----------
<S>                           <C>           <C>         <C>            <C>
HIGH QUALITY:
  FHLMC/FNMA                  $2,071,044         50.8%   $2,068,152         47.8%
  Privately Issued:
    AAA/Aaa Rating             1,385,640 (1)     34.1     1,585,099 (1)     36.6
    AA/Aa Rating                 366,778          9.0       459,858         10.6
                              -----------   ----------  ------------   ----------
      Total Privately Issued   1,752,418         43.1     2,044,957         47.2
                              -----------   ----------  ------------   ----------

                              -----------   ----------  ------------   ----------
      Total High Quality       3,823,462         93.9     4,113,109         95.0
                              -----------   ----------  ------------   ----------

OTHER INVESTMENT:
  Privately Issued:
    A Rating                      13,885          0.3        49,995          1.2
    BBB/Baa Rating                70,152          1.7        84,929          2.0
    BB/Ba Rating or below         41,314 (1)      1.0        46,963 (1)      1.1
  Whole loans                    126,340          3.1        31,102          0.7
                              -----------   ----------  ------------   ----------
      Total Other Investment     251,691          6.1       212,989          5.0
                              -----------   ----------  ------------   ----------

      Total ARM Portfolio     $4,075,153        100.0%   $4,326,098        100.0%
                              ==========   ===========  ============   ==========
<FN>
-------------------------
(1)  AAA Rating  category  includes  $651.3  million  and  $781.8  million as of
     September 30, 2000 and December 31, 1999,  respectively,  of ARM loans that
     have been credit  enhanced to AAA by a combination  of an insurance  policy
     purchased  from a  third-party  and  an  unrated  subordinated  certificate
     retained by the Company in the amount of $32.3 million and $32.2 million as
     of September 30, 2000 and December 31, 1999, respectively. The subordinated
     certificate is included in the BB/Ba Rating category.

</TABLE>


                                       21
<PAGE>
As  of  September  30,  2000,  the Company had reduced the cost basis of its ARM
securities  by  $1,997,000  due to estimated credit losses (other than temporary
declines  in fair value).  The estimated credit losses for ARM securities relate
to  Other  Investments that the Company purchased at a discount that included an
estimate  of credit losses and to loans that the Company has securitized for its
own  portfolio.  Additionally,  during the nine months ended September 30, 2000,
in  accordance  with  its  credit  policies,  the Company provided for estimated
credit losses on the subordinated classes of its securitized loans in the amount
of $180,000 and recorded a $803,000 provision for estimated credit losses on its
loan  portfolio,  although  no  actual  losses  have  been  realized in the loan
portfolio  to  date.  As of September 30, 2000, the Company's ARM loan portfolio
included  8  loans  that  are  considered  seriously delinquent (60 days or more
delinquent)  with  an aggregate balance of $4.7 million.  The ARM loan portfolio
also  includes one property ("REO") that the Company acquired as the result of a
foreclosure  process  in  the  amount  of  $0.6  million.  The  average original
effective  loan-to-value  ratio  on  these  8  delinquent  loans  and  REO  is
approximately  63%.  As  of  September 30, 2000, the Company had $3.0 million of
reserves  for  estimated  credit losses for loans and REO.  The Company believes
this  level  of  reserves is adequate to cover estimated losses from these loans
and  REO properties.  The Company's credit reserve policy regarding ARM loans is
to  record  a  provision  based  on  the  outstanding principal balance of loans
(including  loans  securitized by the Company for which the Company has retained
first  loss  exposure), subject to adjustment on certain loans or pools of loans
based  upon  factors  such  as,  but  not limited to, age of the loans, borrower
payment  history,  low loan-to-value ratios, historical loss experience, current
economic  conditions  and  quality  of  underwriting  standards  applied  by the
originator.

The  following table classifies the Company's portfolio of ARM assets by type of
interest  rate  index.

<TABLE>
<CAPTION>
                             ARM  ASSETS  BY  INDEX
                       (Dollar  amounts  in  thousands)

                                            September 30, 2000       December 31, 1999
                                           ----------------------  ---------------------
                                           Carrying     Portfolio   Carrying   Portfolio
                                             Value         Mix       Value        Mix
                                           ----------  ----------  ----------  ---------
<S>                                        <C>         <C>         <C>         <C>
ARM ASSETS:
    INDEX:
     One-month LIBOR                       $  675,486       16.6%  $  680,449      15.7%
     Three-month LIBOR                        150,643        3.7      170,384       3.9
     Six-month LIBOR                          472,500       11.6      626,616      14.5
     Six-month Certificate of Deposit         255,186        6.3      304,621       7.0
     Six-month Constant Maturity Treasury      23,630        0.6       37,781       0.9
     One-year Constant Maturity Treasury    1,236,811       30.3    1,359,229      31.4
     Cost of Funds                            173,697        4.2      213,800       5.0
                                           ----------  ----------  ----------  ---------
                                            2,987,953       73.3    3,392,880      78.4
                                           ----------  ----------  ----------  ---------

HYBRID ARM ASSETS                           1,087,200       26.7      933,218      21.6
                                           ----------  ----------  ----------  ---------
                                           $4,075,153      100.0%  $4,326,098     100.0%
                                           ==========  ==========  ==========  =========
</TABLE>

The  ARM  portfolio  had a current weighted average coupon of 7.68% at September
30, 2000.  This consisted of an average coupon of 6.75% on the hybrid portion of
the  portfolio  and an average coupon of 8.04% on the rest of the portfolio.  If
the  non-hybrid  portion of the portfolio had been "fully indexed," the weighted
average  coupon  would  have  been  approximately  8.27%, based upon the current
composition  of  the  portfolio  and the applicable indices.  As of December 31,
1999,  the ARM portfolio had a weighted average coupon of 7.08%.  This consisted
of  an  average  coupon  of  6.54% on the hybrid portion of the portfolio and an
average coupon of 7.22% on the rest of the portfolio.  If the non-hybrid portion
of  the  portfolio  had  been "fully indexed," the weighted average coupon would
have  been  approximately 7.79%, based upon the composition of the portfolio and
the  applicable  indices at the time.  The higher average interest coupon on the
ARM portfolio as of September 30, 2000 compared to the end of 1999 is reflective
of  Federal Reserve Board interest rate increases that have been occurring since
June  of 1999.  The average interest rate on the ARM portion of the portfolio is
expected  to  continue  to  rise  to  the  "fully  indexed"  rate.


                                       22
<PAGE>
At  September 30, 2000, the current yield of the ARM assets portfolio was 7.00%,
compared  to  6.38%  as  of  December 31, 1999, with an average term to the next
repricing  date of 346 days as of September 30, 2000, compared to 344 days as of
December 31, 1999.  As of September 30, 2000, hybrid ARMs comprised 26.7% of the
total  ARM portfolio, up from 21.6% as of the end of 1999.  The Company finances
its  hybrid  ARM  portfolio  with  longer term borrowings such that the duration
mismatch  of  the  hybrid  ARMs  and the corresponding borrowings is one year or
less.  The  current  yield includes the impact of the amortization of applicable
premiums  and  discounts,  the cost of hedging, the amortization of the deferred
gains  from  hedging  activity  and the impact of principal payment receivables.

The  increase  in  the  yield  of  0.62%  as  of September 30, 2000, compared to
December  31,  1999, is primarily due to the increased weighted average interest
rate  coupon discussed above, which increased by 0.60%.  The change in the yield
adjustment  from  amortizing  the  net  portfolio  premium  had  the  effect  of
decreasing  the yield by 0.05%.  The yield improved as a result of lower hedging
cost,  which decreased by 0.08%, as higher cost hedges matured and were replaced
with  lower  cost hedges.  The impact of non-interest earning principal payments
receivables  increased slightly during the third quarter of 2000, decreasing the
portfolio  yield  by  0.01%.

The  following  table  presents various characteristics of the Company's ARM and
Hybrid  ARM  loan portfolio as of September 30, 2000.  This information pertains
to loans held for securitization, loans held as collateral for the notes payable
and  loans  TMA  has  securitized  for  its  own portfolio for which the Company
retained  credit  loss  exposure.

                ARM AND HYBRID ARM LOAN PORTFOLIO CHARACTERISTICS


                            Average      High        Low
                           ---------  -----------  -------
Unpaid principal balance   $279,596   $3,450,000   $2,208
Coupon rate on loans           7.65%       10.00%    5.50%
Pass-through rate              7.32%        9.61%    5.11%
Pass-through margin            1.96%        5.06%    0.36%
Lifetime cap                  12.91%       16.75%    9.75%
Original Term (months)          354          480       72
Remaining Term (months)         324          447       49


Geographic Distribution (Top 5 States):      Property type:
     California                 27.60%          Single-family           65.44%
     Florida                    10.06           DeMinimus PUD           19.44
     Georgia                     6.85           Condominium              9.95
     New York                    6.45           Other                    5.17
     New Jersey                  4.44

Occupancy status:                            Loan purpose:
     Owner occupied             85.76%          Purchase                59.67%
     Second home                10.02           Cash out refinance      22.81
     Investor                    4.22           Rate & term refinance   17.52

Documentation type:                          Periodic Cap:
     Full/Alternative           93.51%          None                    55.14%
     Other                       6.49           2.00%                   43.36
                                                1.00%                    0.43
Average effective original                      0.50%                    1.07
     Loan-to-value:            68.55%

During  the  quarter  ended  September  30,  2000,  the Company purchased $205.4
million  of  ARM  assets,  44.5% of which were High Quality ARM securities, 1.0%
were  Other  Investment  ARM securities, 50.1% were whole loans purchased in the
secondary  market  and  4.4%  were  ARM  loans  acquired  through  the Company's
correspondent loan network.  Of the ARM assets acquired during the third quarter
of  2000,  approximately 69% were Hybrid ARMs, 29% were indexed to U.S. Treasury
bill rates and 2% were ARMs indexed to other indexes.  The Company also recorded
the  unsettled purchase of $93.2 million of Agency ARM securities, most of which
are  indexed  to  the  one-year  treasury  rate,  as  of  September  30,  2000.
Additionally,  as of September 30, 2000, the Company has commitments to purchase
approximately $199.7 million of ARM securities that are being created during the
fourth  quarter  of  2000,  all of which will be high quality and indexed to the
one-year  treasury  rate,  and  $6.1  million of loans through its correspondent
network.


                                       23
<PAGE>
During  the  nine  months ended September 30, 2000, the Company purchased $650.2
million  of  ARM  assets,  75.5% of which were High Quality ARM securities, 4.2%
were  Other  Investment  ARM  securities  and  20.3% were ARM loans.  Of the ARM
assets  acquired  during  the  first nine months of 2000, approximately 45% were
indexed  to  U.S. Treasury bill rates, 45% were Hybrid ARMs and 10% were indexed
to  LIBOR.

During  the  three  month  period ended September 30, 2000, the Company sold one
asset  for  $22.8  million for its carrying value and did not record any gain or
loss.  During  the  three  month  period  ended  June  30,  2000,  the  Company
re-securitized  Other  Investment ARM securities with a $94.0 million par value,
and  a  carrying  value of $89.4 million, into a new series of securities, $56.1
million  of  which was rated AAA, an interest only strip with a notional balance
of  $45.0  million  rated AAA, $11.7 million of which rated AA and the remaining
$26.2  million  rated below AA.  As a part of the re-securitization transaction,
the  Company  sold  the  AAA  and AA rated ARM securities for a $49,000 gain and
retained  the AAA rated interest only strip and the other securities rated below
AA.   These  are the only asset sales that occurred during the first nine months
of  2000.

For  the  quarter  ended  September 30, 2000, the Company's mortgage assets paid
down  at  an  approximate  average  annualized  constant  prepayment rate of 18%
compared to 22% for the quarter ended September 30, 1999 and 16% for the quarter
ended  June  30, 2000.  When prepayment experience increases, the Company has to
amortize  its  premiums over a shorter time period, resulting in a reduced yield
to  maturity  on  the  Company's  ARM  assets.  Conversely, if actual prepayment
experience  decreases, the premium would be amortized over a longer time period,
resulting  in  a  higher yield to maturity.  The Company monitors its prepayment
experience  on  a  monthly  basis in order to adjust the amortization of the net
premium,  as  appropriate.

The  fair  value  of  the  Company's  portfolio  of  ARM  assets  classified  as
available-for-sale decreased by 0.57% from a negative adjustment of 2.40% of the
portfolio  as  of  December  31,  1999,  to a negative adjustment of 2.97% as of
September  30,  2000.  This  price  decrease  was primarily due to the effect of
rising  interest  rates.  The amount of the negative adjustment to fair value on
the  ARM assets classified as available-for-sale increased from $83.4 million as
of  December  31,  1999,  to  $101.0 million as of September 30, 2000.  The fair
value  of  the Company's portfolio of ARM assets excludes an adjustment for fair
value  changes  in Swap Agreements, since the Swap Agreements hedge liabilities,
i.e.  the  financing  of  Hybrid ARMs.  As of September 30, 2000, the unrecorded
positive  fair  value  adjustment  for  Swap Agreements was $8.5 million.  As of
September  30,  2000,  all  of  the  Company's  ARM securities are classified as
available-for-sale  and  are  carried  at  their  fair  value.

The  fair  value  of  the  Company's  portfolio  of  ARM  assets  classified  as
available-for-sale increased by 0.17% from a negative adjustment of 3.14% of the
portfolio as of June 30, 2000, to a negative adjustment of 2.97% as of September
30,  2000.  The  price improvement was, in part, due to the rise in the interest
rate  coupon on the ARM portfolio as a portion of the portfolio has had a chance
to  reset  to  the  current  interest  rate  level.  The  amount of the negative
adjustment  to  fair  value  on  the ARM assets classified as available-for-sale
decreased  from  $106.6  million  as  of  June 30, 2000, to $101.0 million as of
September  30,  2000.

The Company has purchased Cap Agreements and Options Contracts in order to hedge
exposure to changing interest rates.  The majority of the Cap Agreements and all
of  the Options Contracts have been purchased to limit the Company's exposure to
risks  associated  with the lifetime interest rate caps of its ARM assets should
interest  rates  rise  above specified levels.  These hedging instruments act to
reduce  the  effect  of  the  lifetime  or maximum interest rate cap limitation.
These  hedging  instruments purchased by the Company will allow the yield on the
ARM  assets  to continue to rise in a high interest rate environment just as the
Company's cost of borrowings would continue to rise, since the borrowings do not
have  any  interest  rate  cap  limitation.  At  September  30,  2000,  the  Cap
Agreements  and  Options Contracts owned by the Company that are designated as a
hedge  against  the  lifetime  interest  rate  cap on ARM assets had a remaining
notional  balance of $2.534 billion with an average final maturity of 2.2 years,
compared to a remaining notional balance of $2.810 billion with an average final
maturity  of  2.2  years  at  December 31, 1999.  Pursuant to the terms of these
hedging  instruments,  the  Company will receive cash payments if the one-month,
three-month  or  six-month LIBOR index increases above certain specified levels,
which  range from 7.10% to 12.50% and average approximately 10.10%.  The Company
has  also  entered  into  Cap Agreements with a notional balance of $111.0 as of
September  30,  2000  in  connection  with  hedging the fixed rate period of its
Hybrid  ARM  assets.  In  doing  so,  the  Company establishes a maximum cost of
financing the Hybrid ARM assets during the term of the designated Cap Agreements
that  generally corresponds to within one year of the initial fixed rate term of
Hybrid ARM assets.  The Cap Agreements hedging Hybrid ARM assets as of September
30,  2000  would  receive  cash  payments if the one-month LIBOR Index increases
above  certain  specified  levels,  which  range from 5.75% to 6.00% and average
approximately  5.94%  and have a remaining term of 2.8 years.  The fair value of
Cap  Agreements  and Options Contracts also tend to increase when general market
interest  rates  increase  and  decrease  when  market  interest rates decrease,
helping  to  partially  offset  changes  in  the fair value of the Company's ARM
assets.  At  September  30, 2000, the fair value of the Company's Cap Agreements
and  Options  Contracts  was  $2.6 million, $1.0 million less than the amortized
cost  of  these  hedging  instruments.


                                       24
<PAGE>
The  following  table presents information about the Company's Cap Agreement and
Options  Contract  portfolio  that is designated as a hedge against the lifetime
interest  rate  cap  on  ARM  assets  as  of  September  30,  2000:


           CAP AGREEMENTS/OPTIONS CONTRACTS STRATIFIED BY STRIKE PRICE
                        (Dollar  amounts  in  thousands)

  Hedged       Weighted    Cap Agreement/                     Weighted
ARM Assets     Average    Options Contract                    Average
Balance (1)    Life Cap   Notional Balance   Strike Price   Remaining Term
------------  ----------  -----------------  -------------  --------------

      26,953       8.01%  $          26,000          7.10%       2.5 Years
     138,530       8.29             140,000          7.50              0.2
     546,558       9.67             546,826          8.00              1.7
      24,849      10.76              25,000          9.00              2.0
      62,199      10.93              62,019          9.50              2.0
     371,272      11.38             371,529         10.00              1.9
     210,894      11.94             210,384         10.50              1.5
     455,042      12.40             454,423         11.00              2.9
     279,964      12.79             280,000         11.50              3.9
     382,822      13.51             382,818         12.00              2.8
      92,776      15.83              35,454         12.50              1.2
------------  ----------  -----------------  -------------  --------------
   2,591,859      11.64%  $       2,534,453         10.10%       2.2 Years
============  ==========  =================  =============  ==============

------------------------
     (1)  Excludes ARM assets that do not have life caps or are hybrids that are
          match  funded  during a fixed  rate  period,  in  accordance  with the
          Company's investment policy.

As of September 30, 2000, the Company was a counterparty to twenty interest rate
swap  agreements  ("Swaps")  having  an  aggregate  notional  balance  of $575.8
million.  As of September 30, 2000, these Swaps had a weighted average remaining
term of 2.3 years.  In accordance with these Swaps, the Company will pay a fixed
rate  of  interest  during  the  term  of these Swaps and receive a payment that
varies  monthly  with the one-month LIBOR rate.  All of these Swaps were entered
into in connection with the Company's acquisition of Hybrid ARMs and commitments
to  acquire  Hybrid  ARMs.  As a result of entering into these Swaps and the Cap
Agreements that also hedge the fixed rate period of Hybrid ARMs, the Company has
reduced  the  interest rate variability of its cost to finance its ARM assets by
increasing the average period until the next repricing of its borrowings from 29
days to 186 days.  The Swaps hedge the cost of financing Hybrid ARMs to within a
one  year  duration of their fixed rate term, generally three to ten years.  The
average  remaining  fixed  rate  term  of  the Company's Hybrid ARM assets as of
September 30, 2000 was 2.8 years.  The Company has also entered into one delayed
Swap Agreement that becomes effective for a one-year term, beginning in April of
2002.  This delayed Swap Agreement has a notional balance of $100 million and is
designated  to  hedge  the  interest rate exposure of Hybrid ARM assets upon the
termination  of  the  other  Swap  Agreements.

RESULTS  OF  OPERATIONS  FOR  THE  THREE  MONTHS  ENDED  SEPTEMBER  30,  2000

For  the  quarter  ended  September  30,  2000,  the  Company's  net  income was
$7,016,000,  or  $0.25 per share (Basic and Diluted EPS) compared to $7,155,000,
or  $0.26  per share (Basic and Diluted EPS) for the quarter ended September 30,
1999.  There  were  21,490,000 weighted average common shares outstanding during
both  periods.  Net interest income for the quarter totaled $8,978,000, compared
to  $9,332,000 for the same period in 1999.  Net interest income is comprised of
the  interest  income  earned on mortgage investments less interest expense from
borrowings.  During  the  third  quarter  of 2000 the Company did not record any
gain  or loss from the sale of assets whereas, during the third quarter of 1999,
the  Company  recorded a gain of $15,000 from the sale of assets.  Additionally,
during  the  third  quarter  of  2000,  the Company reduced its earnings and the


                                       25
<PAGE>
carrying  value  of  its  ARM  assets by reserving $270,000 for estimated credit
losses,  compared to $764,000 during the same quarter of 1999.  During the third
quarter  of  2000,  the  Company  incurred  operating  expenses  of  $1,692,000,
consisting  of  a base management fee of $1,029,000 and other operating expenses
of  $663,000.  During  the  same  period of 1999, the Company incurred operating
expenses  of  $1,428,000,  consisting of a base management fee of $1,023,000 and
other  operating expenses of $405,000.  Total operating expenses were 0.16% as a
percentage  of  average  assets  for  the three months ended September 30, 2000,
compared  to  0.13%  for  the  third  quarter  of  1999.

The  Company's  return  on average common equity was 6.56% for the quarter ended
September  30,  2000  compared to 6.75% for the quarter ended September 30, 1999
and  compared to 6.50% for the prior quarter ended June 30, 2000.  The Company's
return  on  equity was higher in this past quarter compared to the prior quarter
primarily  because  the yield on the Company's ARM portfolio increased more than
its cost of funds, improving the net interest spread for the respective quarters
from  an  average of 0.23% for the second quarter of 2000 to 0.26% for the third
quarter  of 2000.  The yield on the Company's ARM portfolio increased from 6.73%
for the second quarter of 2000 to 6.99% for the third quarter, an improvement of
0.26%.  The  Company's  average  cost  of  funds  for  the  most  recent quarter
increased  by  0.23%,  from  6.50%  for the prior quarter to 6.73% for the third
quarter  of  2000.  Based  on market interest rates as of September 30, 2000 and
interest  rate  re-pricing  characteristics  of  the Company's ARM portfolio and
borrowings,  the Company expects the ARM portfolio yield to continue to increase
more  than  the  Company's  cost  of  funds  during  the fourth quarter as well.
However,  there  is  uncertainty  regarding  future  Federal  Reserve actions to
increase  or  decrease  interest  rates  in  the  future.

The  table below highlights the historical trend and the components of return on
average  common  equity  (annualized) and the 10-year U S Treasury average yield
during  each  respective  quarter  that  is applicable to the computation of the
performance  fee:

<TABLE>
<CAPTION>
                                     COMPONENTS OF RETURN ON AVERAGE COMMON EQUITY (1)


                                                                                                             ROE in
                                          Gain                                                              Excess of
                  Net                    (Loss)    G & A                                 Net      10-Year    10-Year
  For the      Interest     Provision    on ARM   Expense                 Preferred    Income/   US Treas   US Treas
  Quarter       Income/    For Losses/   Sales/     (2)/    Performance   Dividend/    Equity     Average    Average
   Ended        Equity        Equity     Equity    Equity   Fee/ Equity     Equity      (ROE)      Yield      Yield
------------  -----------  ------------  -------  --------  ------------  ----------  ---------  ---------  --------
<S>           <C>          <C>           <C>      <C>       <C>           <C>         <C>        <C>        <C>
Mar 31, 1998       14.13%         0.48%    1.89%     1.62%         0.94%       2.06%     10.91%      5.60%     5.31%
Jun 30, 1998        9.15%         0.53%    1.76%     1.58%            -        1.96%      6.83%      5.60%     1.23%
Sep 30, 1998        6.82%         0.66%    0.89%     1.54%            -        1.97%      3.54%      5.24%    -1.70%
Dec 31, 1998        7.27%         0.76%   -4.88%     1.57%            -        2.01%     -1.95%      4.66%    -6.61%
Mar 31, 1999        8.07%         0.84%       -      1.58%            -        2.05%      3.60%      4.98%    -1.38%
Jun 30, 1999       11.17%         0.85%    0.04%     1.70%            -        2.05%      6.60%      5.54%     1.06%
Sep 30, 1999       11.48%         0.94%    0.02%     1.76%            -        2.05%      6.75%      5.88%     0.87%
Dec 31, 1999       11.09%         0.89%       -      1.86%            -        2.05%      6.29%      6.14%     0.15%
Mar 31, 2000       11.49%         0.41%       -      1.82%            -        2.06%      7.20%      6.47%     0.73%
Jun 30, 2000       10.74%         0.47%    0.06%     1.78%            -        2.05%      6.50%      6.18%     0.32%
Sep 30, 2000       11.01%         0.33%       -      2.08%            -        2.05%      6.56%      5.89%     0.67%
<FN>
---------------------
(1)     Average  common  equity  excludes  unrealized  gain  (loss)  on  available-for-sale  ARM  securities.
(2)     Excludes  performance  fees.
</TABLE>


The modest decline in the Company's return on common equity in the third quarter
of  2000,  compared to the third quarter of 1999, is primarily due to the effect
of lower net interest income and higher operating expenses, which were partially
offset  by  a  decrease  in  the  Company's  provision  for  losses.


                                       26
<PAGE>
The following table presents the components of the Company's net interest income
for  the  quarters  ended  September  30,  2000  and  1999:


                   COMPARATIVE NET INTEREST INCOME COMPONENTS
                          (Dollar amounts in thousands)

                                                    2000         1999
                                               ------------  -------------

Coupon interest income on ARM assets           $    74,738   $     74,078
Amortization  of  net  premium                      (3,885)        (5,240)
Amortization  of  Cap  Agreements                     (467)        (1,368)
Amortization  of  deferred gain from hedging           285            185
Cash  and  cash  equivalents                           346            300
                                               ------------  -------------
     Interest  income                               71,017         67,955
                                               ------------  -------------

Reverse  repurchase  agreements                     50,867         43,609
AAA  notes  payable                                 12,375         14,179
Other  borrowings                                      462             31
Interest  rate  swaps                               (1,665)           804
                                               ------------  -------------
     Interest  expense                              62,039         58,623
                                               ------------  -------------

Net  interest  income                          $     8,978   $      9,332
                                               ============  =============


As  presented  in  the  table  above, the Company's net interest income was $0.4
million  lower in the third quarter of 2000 compared to the same three months of
1999.  The  Company's  interest income was $3.1 million higher, primarily due to
higher interest rates and a lower level of net premium amortization, in part due
to  slower  prepayments during the third quarter of 2000 as compared to the same
period  in 1999.  The Company's amortization expense for Cap Agreements has also
declined,  improving  interest  income  further.  This  amortization expense has
declined  as  the  Company's more expensive Cap Agreements have expired and have
been replaced with less expensive Cap Agreements and because a larger proportion
of  the  Company's ARM portfolio consists of ARMs that do not have lifetime caps
and  Hybrid ARMs that are generally match funded during their fixed rate period,
eliminating any need to hedge their lifetime cap during their fixed rate period.
The  Company's  interest expense was $3.4 million higher in the third quarter of
2000  compared to the same three months of 1999.  This interest expense increase
reflects the Federal Reserve Board actions to increase short-term interest rates
by  1.75% since June of 1999.  The Company's hedging of its Hybrid ARM assets in
the  form  of  Swap  Agreements  mitigated  the Federal Reserve Board actions by
offsetting  a  portion  of  the increase in interest expense by $2.5 million, as
presented  in  the  table  above.


                                       27
<PAGE>
The  following  table  reflects  the  average  balances for each category of the
Company's  interest  earning  assets  as  well as the Company's interest bearing
liabilities,  with  the  corresponding effective rate of interest annualized for
the  quarters  ended  September  30,  2000  and  1999:

<TABLE>
<CAPTION>
                              AVERAGE BALANCE AND RATE TABLE
                              (Dollar amounts in thousands)

                                            For the Quarter Ended  For the Quarter Ended
                                             September 30, 2000    September 30, 1999
                                          -----------------------  ---------------------
                                            Average    Effective    Average    Effective
                                            Balance       Rate      Balance       Rate
                                          ----------  -----------  ----------  ---------
<S>                                       <C>          <C>         <C>         <C>
Interest Earning Assets:
     Adjustable-rate mortgage assets      $4,046,485        6.99%  $4,538,040      5.97%
     Cash and cash equivalents                19,605        7.00       14,038      3.57
                                          ----------  -----------  ----------  ---------
                                           4,066,090        6.99    4,552,078      5.97
                                          ----------  -----------  ----------  ---------

Interest Bearing Liabilities:
     Borrowings                            3,688,518        6.73    4,181,869      5.61
                                          ----------  -----------  ----------  ---------

Net Interest Earning Assets and Spread    $  377,572        0.26%  $  370,209      0.36%
                                          ==========  ===========  ==========  =========

Yield on Net Interest Earning Assets (1)                    0.88%                  0.82%
                                                      ===========              =========
<FN>
(1)  Yield on Net Interest Earning Assets is computed by dividing annualized net
     interest income by the average daily balance of interest earning assets.

</TABLE>

As  a result of the yield on the Company's interest-earning assets increasing to
6.99%  during  the  three  months ended September 30, 2000 from 5.97% during the
same  period  of  1999  and the Company's cost of funds increasing to 6.73% from
5.61%  during  the same time periods, net interest income decreased by $354,000.
This decrease in net interest income is the combination of a rate variance and a
volume  variance.  There  was  a  net  unfavorable  rate  variance  of $165,000,
primarily  due  to  an  unfavorable  rate variance on borrowings of $11,714,000,
which  was  partially  offset by a favorable rate variance of $11,549,000 on the
Company's ARM assets portfolio and other interest-earning assets.  The decreased
average  size  of  the  Company's  portfolio  during  the  third quarter of 2000
compared  to the same period in 1999 decreased net interest income in the amount
of  $189,000.  The  average balance of the Company's interest-earning assets was
$4.066  billion  during  the  third  quarter of 2000, compared to $4.552 billion
during  the  third  quarter  of  1999  --  a  decrease  of  11%.


                                       28
<PAGE>
The  following  table  highlights  the components of net interest spread and the
annualized  yield  on  net interest-earning assets as of each applicable quarter
end:


<TABLE>
<CAPTION>
          COMPONENTS OF NET INTEREST SPREAD AND YIELD ON NET INTEREST EARNING ASSETS (1)
                                   (Dollar amounts in millions)


                                                                                              Yield on
               Average   Wgt Avg                         Yield on                               Net
As of the     Interest    Fully    Weighted              Interest                   Net       Interest
Quarter        Earning   Indexed    Average     Yield    Earning    Cost of      Interest     Earning
Ended          Assets     Coupon    Coupon     Adj (2)    Assets     Funds        Spread       Assets
------------  ---------  --------  ---------  ---------  --------  -------------  -----------  ------
<S>           <C>        <C>       <C>        <C>        <C>       <C>            <C>           <C>
Mar 31, 1998  $ 4,859.7     7.47%      7.47%      1.23%     6.24%      5.74%       0.50%        0.92%
Jun 30, 1998  $ 4,918.3     7.51%      7.44%      1.50%     5.94%      5.81%       0.13%        0.56%
Sep 30, 1998  $ 4,963.7     6.97%      7.40%      1.52%     5.88%      5.78%       0.09%        0.46%
Dec 31, 1998  $ 4,526.2     6.79%      7.28%      1.42%     5.86%      5.94% (3)  -0.08% (3)    0.61%
Mar 31, 1999  $ 4,196.4     6.85%      7.03%      1.31%     5.71%      5.36%       0.35%        0.63%
Jun 30, 1999  $ 4,405.3     7.10%      6.85%      1.11%     5.74%      5.40%       0.34%        0.82%
Sep 30, 1999  $ 4,552.1     7.20%      6.85%      0.76%     6.09%      5.74%       0.35%        0.82%
Dec 31, 1999  $ 4,449.0     7.51%      7.08%      0.70%     6.38%      6.47% (3)  -0.09% (3)    0.81%
Mar 31, 2000  $ 4,471.0     7.77%      7.26%      0.68%     6.58%      6.32%       0.26%        0.83%
Jun 30, 2000  $ 4,344.6     7.87%      7.48%      0.59%     6.89%      6.75%       0.15%        0.81%
Sep 30, 2000  $ 4,066.1     7.84%      7.68%      0.68%     7.00%      6.72%       0.29%        0.88%
<FN>
---------------
     (1)  Yield  on  Net  Interest   Earning  Assets  is  computed  by  dividing
          annualized  net  interest  income  for the  applicable  quarter by the
          average daily balance of interest earning assets during the quarter.
     (2)  Yield  adjustments  include  the  impact of  amortizing  premiums  and
          discounts,  the  cost  of  hedging  activities,  the  amortization  of
          deferred  gains from  hedging  activities  and the impact of principal
          payment receivables.  The following table presents these components of
          the yield adjustments for the dates presented in the table above.
     (3)  The  year-end  cost of funds  and net  interest  spread  are  commonly
          affected by significant,  but generally temporary,  year-end pressures
          that  raise the  Company's  cost of  financing  mortgage  assets  over
          year-end.  The effect  generally  begins  during  the  latter  part of
          November and continues through January.
</TABLE>


                COMPONENTS OF THE YIELD ADJUSTMENTS  ON ARM ASSETS

                                                     Amort of
                            Impact of                Deferred
As of the      Premium/     Principal                Gain From    Total
Quarter        Discount      Payments      Hedging    Hedging     Yield
Ended           Amort       Receivable    Activity   Activity   Adjustment
------------  ----------  --------------  ---------  ---------  ----------
Mar 31, 1998       0.98%           0.16%      0.13%     (0.04)%      1.23%
Jun 30, 1998       1.24%           0.17%      0.13%     (0.04)%      1.50%
Sep 30, 1998       1.25%           0.18%      0.13%     (0.04)%      1.52%
Dec 31, 1998       1.18%           0.14%      0.14%     (0.04)%      1.42%
Mar 31, 1999       1.09%           0.10%      0.15%     (0.03)%      1.31%
Jun 30, 1999       0.87%           0.13%      0.13%     (0.02)%      1.11%
Sep 30, 1999       0.51%           0.13%      0.13%     (0.01)%      0.76%
Dec 31, 1999       0.51%           0.09%      0.11%     (0.01)%      0.70%
Mar 31, 2000       0.57%           0.07%      0.07%     (0.03)%      0.68%
Jun 30, 2000       0.46%           0.10%      0.06%     (0.03)%      0.59%
Sep 30, 2000       0.56%           0.10%      0.05%     (0.03)%      0.68%

As  of  September  30,  2000,  the  Company's yield on its ARM assets portfolio,
including  the impact of the amortization of premiums and discounts, the cost of
hedging, the amortization of deferred gains from hedging activity and the impact
of  principal  payment  receivables, was 7.00%, compared to 6.89% as of June 30,
2000--  an  increase  of 0.11%.  The Company's cost of funds as of September 30,
2000,  was  6.72%, compared to 6.75% as of June 30, 2000 -- a decrease of 0.03%.


                                       29
<PAGE>
As  a result of these changes, the Company's net interest spread as of September
30,  2000 was 0.29%, compared to 0.15% as of June 30, 2000.  The increase in the
net  interest spread is largely attributable to the increase in the yield on the
Company's ARM portfolio, coupled with a slight decrease in the Company's cost of
funds.  As  discussed  in the Company's quarterly report on Form 10-Q dated June
30,  2000,  the Federal Reserve raised short-term interest rates by 0.25% at the
end of March and another 0.50% at the end of May and has not taken any action to
raise short-term interest rates since that time.  As a result, the interest rate
on the Company's various sources of borrowings had increased by 0.54% by the end
of  June,  but this was partially offset by the Company's use of Swap Agreements
such  that  the  total cost of the Company's borrowings, including the effect of
hedging,  only  increased  by  the  0.43% to 6.75%.  Since that time, short-term
interest  rates  have been relatively stable and, in fact, the Company's cost of
funds  has  improved  slightly to 6.72%, when including the effect of hedging in
the  form of Swap Agreements.  Due to the repricing and maturity characteristics
of  the  Company's  borrowings  compared  to the Company's assets, the Company's
borrowings  react  quicker  to  changes in interest rates, but the Company's ARM
assets  also  reprice  to changes in interest rates, but over a longer period of
time.  On  average,  as  of  the end of September 2000, the Company's borrowings
reprice  in  186  days  whereas the Company's assets, on average, reprice in 346
days.  Since the Federal Reserve did not increase rates during the third quarter
of  2000,  the  Company's  ARM  assets, as expected, have repriced more than the
Company's borrowings and, therefore, the Company's margins, interest rate spread
and  net  income  have  improved.

The  Company's spreads and net interest income has also been negatively impacted
since  early  1998  by  the  spread relationship between U.S. Treasury rates and
LIBOR.  This  spread  relationship has impacted the Company negatively because a
portion of the Company's ARM portfolio is indexed to U.S. Treasury rates and the
interest rates on all of the Company's borrowings tend to change with changes in
LIBOR.  The  Company  has  been  reducing  its  exposure  to ARM assets that are
indexed  to  U.S.  Treasury  rates  through  the  product  mix  of its sales and
acquisitions in order to reduce the negative impact of this situation.  In March
of  this  year,  the  U.S.  Treasury  announced that it would adjust its monthly
auction  of  one-year  treasury  bills  to  quarterly  and  that  it would cease
auctioning  the  one-year treasury bill next year.  As a consequence, a shortage
of  one-year  bills  has  developed, increasing its cost and lowering its yield.
Therefore,  the  relationship  between the one-year treasury index and LIBOR was
negatively impacted during the second and third quarters of 2000 after improving
during  1999  and  early  2000.  The  Company  does  not  know  when  or if this
relationship  will  improve,  although  it  expects  that once the U.S. Treasury
ceases  to  auction  new one-year treasury bills, that the method to compute the
one-year  index  will  be  based on outstanding U.S. treasury debt one year from
maturity which may improve the relationship back to its historical average.  The
following  table  presents  historical data since the year the Company commenced
operations  regarding this relationship as well as data regarding the percent of
the  Company's  ARM  portfolio  that  is  indexed  to  U.S.  Treasury rates.  As
presented  in the table below, the Company has reduced the proportion of its ARM
portfolio  that is indexed to one-year U.S. Treasury rates to 30.5% at September
30,  2000  from  49.0%  as  of  the  end  of  1997.  The  data  is  as  follows:


                                       30
<PAGE>
<TABLE>
<CAPTION>
           ONE-YEAR U.S. TREASURY RATES COMPARED TO ONE- AND THREE-MONTH LIBOR RATES


                                                          Average Spread
                                                          Between 1 Year
                                                          U.S. Treasury      Percent of ARM
                       Average 1 Year   Average 1 and 3   Rates and 1 & 3   Portfolio Indexed
                        U.S. Treasury     Month LIBOR       Month LIBOR       to 1 Year U.S.
For the Year Ended      Rates During      Rates During      Rates During    Treasury Rates at
December 31,               Period            Period            Period         End of Period
---------------------  ---------------  ----------------  ----------------  ------------------
<S>                    <C>              <C>               <C>               <C>
1993                             3.43%             3.25%             0.18%               20.9%
1994                             5.32%             4.61%             0.71%               15.5%
1995                             5.94%             6.01%            -0.07%               19.3%
1996                             5.52%             5.48%             0.04%               45.4%
1997                             5.63%             5.69%            -0.06%               49.0%
1998                             5.05%             5.57%            -0.52%               34.7%
1999                             5.08%             5.33%            -0.25%               31.4%

For the Quarter Ended
---------------------
Mar 31, 1998                     5.32%             5.66%            -0.34%               44.3%
Jun 30, 1998                     5.41%             5.68%            -0.27%               38.8%
Sep 30, 1998                     5.10%             5.62%            -0.52%               37.5%
Dec 31, 1998                     4.39%             5.32%            -0.93%               34.7%
Mar 31, 1999                     4.67%             4.98%            -0.31%               34.8%
Jun 30, 1999                     4.88%             5.02%            -0.14%               32.5%
Sep 30, 1999                     5.16%             5.36%            -0.20%               30.5%
Dec 31, 1999                     5.62%             5.96%            -0.34%               31.4%
Mar 31, 2000                     6.19%             6.02%             0.17%               31.7%
Jun 30, 2000                     6.22%             6.55%            -0.33%               29.8%
Sep 30, 2000                     6.13%             6.66%            -0.53%               30.5%
</TABLE>

The  Company's  provision  for  estimated  credit  losses decreased in the third
quarter  of  2000  compared  to  the  same  period in 1999, in part, because the
Company  discontinued reducing the cost basis of two securities that the Company
now  believes have been reduced to a cost basis that fully reflects its estimate
of  credit  losses  for these two securities.  The outlook for estimated loss on
these  two  securities has improved as the underlying loans have been paying off
and  real  estate  values  have  improved,  primarily  in the California market.
Additionally,  during  the third quarter, the Company decided to reduce its rate
of  providing  for  losses  on its whole loan credit exposure.  During the third
quarter  the  Company  reviewed the level of its loan loss reserves and reviewed
its identifiable loss exposure to currently delinquent loans and the lack of any
losses  to  date  recorded  in the portfolio and came to the conclusion that its
loan  loss  reserves  had  reached a level that it was appropriate to reduce the
rate at which the Company is recording provisions.  The Company will continue to
review  economic  conditions  and  the  quality  of  its  loan  portfolio  and
periodically  adjust  the  rate  at which it provides for losses.  The Company's
provision  for  estimated loan losses is based on a number of factors including,
but  not limited to, the outstanding principal balance of loans, historical loss
experience, current economic conditions, borrower payment history, age of loans,
loan-to-value  ratios  and underwriter standards applied by the originator.  The
Company  includes  the outstanding balance of loans which it has securitized and
retained  an  exposure  to  credit losses, although the credit losses in certain
securitization  structures  may  be  limited  by  third party credit enhancement
agreements.  As  of  September  30,  2000,  the Company's whole loans, including
those  held  as  collateral for the notes payable and those that the Company has
securitized  but  retained  credit  loss  exposure,  accounted  for 28.9% of the
Company's  portfolio  of ARM assets or $1.179 billion.  To date, the Company has
not  experienced  any actual losses in its whole loan portfolio, although losses
are  expected  and  are  being  estimated  as  the  portfolio  ages.

As a REIT, the Company is required to declare dividends amounting to 85% of each
year's  taxable  income  by  the  end of each calendar year and to have declared
dividends  amounting  to  95% of its taxable income for each year by the time it
files  its  applicable  tax  return  and,  therefore,  generally  passes through
substantially  all of its earnings to shareholders without paying federal income
tax  at  the  corporate level.  Since the Company, as a REIT, pays its dividends
based  on  taxable  earnings,  the  dividends  may at times be more or less than
reported  earnings.  The  following  table provides a reconciliation between the
Company's earnings as reported based on generally accepted accounting principles
and  the  Company's  taxable  income  before  its'  common  dividend  deduction:


                                       31
<PAGE>
               RECONCILIATION OF REPORTED NET INCOME TO TAXABLE NET INCOME
                              (Dollar amounts in thousands)

                                                Quarters Ending September 30,
                                               -------------------------------
                                                     2000           1999
                                               ---------------  --------------
Net income                                     $        7,016   $       7,155
  Additions:
    Provision for credit losses                           270             764
    Net compensation related items                        179              95
  Deductions:
    Dividend on Series A Preferred Shares              (1,670)         (1,670)
    Capital loss carryover from 1998                        -             (15)
    Actual credit losses on ARM securities               (265)           (140)
                                               ---------------  --------------
Taxable net income                             $        5,530   $       6,189
                                               ---------------  --------------

                                               ---------------  --------------
Taxable income per share                       $         0.26   $        0.29
                                               ===============  ==============

For  the  quarter  ended  September  30,  2000, the Company's ratio of operating
expenses  to  average  assets was 0.16% compared to 0.13% for the same period in
1999  and  0.13%  for  the  prior  quarter  ended  June  30, 2000.  The ratio of
operating  expenses to average assets increased by 0.01% because of the decrease
in the average assets of the Company from the level of average assets during the
third  quarter  of  1999  and the second quarter of 2000.  The Company decreased
average  assets  during  the  third quarter of 2000 due to concerns over Federal
Reserve  actions  to  raise interest rates.  The Company expects to increase the
level  of assets during the fourth quarter of 2000 back to a level comparable to
prior  periods,  since  the Federal Reserve did not take any actions to increase
short-term interest rates during the third quarter and it does not appear likely
that  it  will take any further actions to raise short-term interest rates until
the  end  of  the  fourth  quarter, if then.  The Company has also experienced a
modest  increase in certain expenses, namely legal and public relations, related
to  its  development  of a direct loan origination capability.  The Company also
experienced  an  increase  in its expense for DERs and PSRs with the increase in
the  number  granted  during  the  second  quarter of 2000 and the effect of the
rising  stock  price  for  the  Company's common stock.  As the Company's common
stock  price  changes,  the  Company  records  a  market value adjustment to its
liability  in  connection  with  outstanding  PSRs.

The  Company's  expense  ratios are among the lowest of any company investing in
mortgage  assets,  giving  the  Company  what  it  believes  to be a significant
competitive  advantage  over  more  traditional  mortgage  portfolio  lending
institutions  such  as  banks and savings and loans.  This competitive advantage
enables  the Company to operate with less risk, such as credit and interest rate
risk,  and still generate an attractive long-term return on equity when compared
to  these more traditional mortgage portfolio lending institutions.  The Company
pays  the  Manager  an  annual  base  management fee, generally based on average
shareholders'  equity,  not  assets,  as  defined  in  the Management Agreement,
payable  monthly  in  arrears  as  follows:  1.1%  of  the first $300 million of
Average  Shareholders'  Equity,  plus 0.8% of Average Shareholders' Equity above
$300  million.  Since  this  management fee is based on shareholders' equity and
not  assets,  this  fee  increases  as the Company successfully accesses capital
markets  and  raises  additional  equity  capital  and is, therefore, managing a
larger  amount  of invested capital on behalf of its shareholders.  In order for
the  Manager  to earn a performance fee, the rate of return on the shareholders'
investment,  as  defined  in  the  Management Agreement, must exceed the average
ten-year  U.S.  Treasury  rate  during the quarter plus 1%.  The Company has not
paid  the  Manager  a  performance  fee  since  the  first quarter of 1998.  The
performance  fee is a variable expense that fluctuates with the Company's return
on  shareholders'  equity  relative  to  the average 10-year U.S. Treasury rate.


                                       32
<PAGE>
The  following  table  highlights the quarterly trend of operating expenses as a
percent  of  average  assets:


                       ANNUALIZED OPERATING EXPENSE RATIOS

               Management Fee &                         Total
For the         Other Expenses/   Performance Fee/   G & A Expense/
Quarter Ended   Average Assets     Average Assets    Average Assets
-------------  -----------------  -----------------  --------------
Mar 31, 1998               0.10%              0.06%           0.16%
Jun 30, 1998               0.10%                 -            0.10%
Sep 30, 1998               0.10%                 -            0.10%
Dec 31, 1998               0.11%                 -            0.11%
Mar 31, 1999               0.12%                 -            0.12%
Jun 30, 1999               0.12%                 -            0.12%
Sep 30, 1999               0.13%                 -            0.13%
Dec 31, 1999               0.13%                 -            0.13%
Mar 31, 2000               0.13%                 -            0.13%
Jun 30, 2000               0.13%                 -            0.13%
Sep 30, 2000               0.16%                 -            0.16%

RESULTS  OF  OPERATIONS  FOR  THE  NINE  MONTHS  ENDED  SEPTEMBER  30,  2000

For  the  nine  months  ended  September  30, 2000, the Company's net income was
$21,495,000,  or  $0.77  per  share (Basic and Diluted EPS), based on a weighted
average  of  21,490,000  shares  outstanding.  That  compares to $18,787,000, or
$0.64  per  share  (Basic  and  Diluted  EPS),  based  on  a weighted average of
21,490,000 shares outstanding for the nine months ended September 30, 1999.  Net
interest  income  for  this  most  recent nine month period totaled $27,047,000,
compared  to  $24,970,000  for  the same period in 1999.  Net interest income is
comprised  of  the  interest income earned on mortgage investments less interest
expense  from  borrowings.  During  the  first  nine months of 2000, the Company
recorded  a  gain on the sale of ARM securities of $49,000 as compared to a gain
of  $50,000 during the same period of 1999.  Additionally, during the first nine
months  of  2000, the Company reduced its earnings and the carrying value of its
ARM  assets  by  reserving  $983,000  for  potential  credit losses, compared to
$2,139,000  during  the  same  period  of  1999.  During  the  nine months ended
September  30,  2000,  the  Company  incurred  operating expenses of $4,618,000,
consisting  of  a base management fee of $3,086,000 and other operating expenses
of  $1,532,000.  During  the same period of 1999, the Company incurred operating
expenses  of  $4,094,000,  consisting of a base management fee of $3,061,000 and
other  operating  expenses  of  $1,033,000.

The Company's return on average common equity was 6.8% for the nine months ended
September  30,  2000  compared  to  5.7% for the nine months ended September 30,
1999.  The  primary  reasons for the higher return on average common equity is a
higher  interest  rate  spread,  as  discussed  below,  and  the  lower level of
provisions  for  credit  losses.


                                       33
<PAGE>
The following table presents the components of the Company's net interest income
for  the  six  month  periods  ended  June  30,  2000  and  1999:


                   COMPARATIVE NET INTEREST INCOME COMPONENTS
                          (Dollar amounts in thousands)

                                               2000       1999
                                            ---------  ---------
Coupon interest income on ARM assets        $229,124   $215,654
Amortization of net premium                  (12,226)   (22,845)
Amortization of Cap Agreements                (1,938)    (4,090)
Amortization of deferred gain from hedging       882        773
Cash and cash equivalents                        966      1,195
                                            ---------  ---------
     Interest income                         216,808    190,687
                                            ---------  ---------

Reverse repurchase agreements                151,237    117,445
AAA notes payable                             40,722     44,822
Other borrowings                               1,097        105
Interest rate swaps                           (3,295)     3,345
                                            ---------  ---------
     Interest expense                        189,761    165,717
                                            ---------  ---------

Net interest income                         $ 27,047   $ 24,970
                                            =========  =========

As  presented  in  the  table  above, the Company's net interest income was $2.1
million  higher  during  the first nine months of 2000 compared to the same nine
months  of  2000.  The  Company's  interest  income  was  $26.1  million higher,
primarily  due  to  higher  interest  rates  and  a  lower  level of net premium
amortization,  in part due to slower prepayments during the first nine months of
2000 as compared to the same period in 1999.  The Company's amortization expense
for  Cap  Agreements has also declined, improving interest income further.  This
amortization expense has declined as the Company's more expensive Cap Agreements
have  expired  and  have  been  replaced  with less expensive Cap Agreements and
because a larger proportion of the Company's ARM portfolio consists of ARMs that
do not have lifetime caps and Hybrid ARMs that are generally match funded during
their fixed rate period, eliminating any need to hedge their lifetime cap during
their  fixed  rate  period.  The  Company's  interest expense increased by $24.0
million,  primarily  due to higher interest rates.  It is important to note that
the  Company  received  a  benefit from its use of Swaps to hedge the fixed rate
period  of  Hybrid  ARMs, decreasing its interest expense by $3.3 million during
the  first nine months of 2000 compared to an expense of $3.3 million during the
same  period  of  1999.  The Company's use of hedges has mitigated the effect of
rising  short-term  interest  rates  on  the  financing  of  its Hybrid ARMs and
thereby, was an important factor in the Company's ability to maintain comparable
earnings  between  the  third  quarter  of  2000  and  1999.


                                       34
<PAGE>
The  following  table  reflects  the  average  balances for each category of the
Company's  interest  earning  assets  as  well as the Company's interest bearing
liabilities,  with  the  corresponding effective rate of interest annualized for
the  nine  month  periods  ended  September  30,  2000  and  1999:

<TABLE>
<CAPTION>
                              AVERAGE BALANCE AND RATE TABLE
                              (Dollar amounts in thousands)

                                             For the Nine Month       For the Nine Month
                                                Period Ended              Period Ended
                                           ----------------------  -----------------------
                                             September 30, 2000      September 30, 1999
                                           ----------------------  -----------------------
                                            Average    Effective     Average     Effective
                                            Balance       Rate       Balance        Rate
                                          -----------  ----------  -----------  ----------
<S>                                       <C>          <C>         <C>          <C>
Interest Earning Assets:
     Adjustable-rate mortgage assets      $ 4,274,828       6.73%  $ 4,359,562       5.80%
     Cash and cash equivalents                 19,075       6.75        25,007       6.37
                                          -----------  ----------  -----------  ----------
                                            4,293,903       6.73     4,384,569       5.80
                                          -----------  ----------  -----------  ----------
Interest Bearing Liabilities:
     Borrowings                             3,915,744       6.46     4,010,895       5.51
                                          -----------  ----------  -----------  ----------

Net Interest Earning Assets and Spread    $   378,159       0.27%  $   373,674       0.29%
                                          ===========  ==========  ===========  ==========

Yield on Net Interest Earning Assets (1)                    0.84%                    0.76%
                                                       ==========               ==========
<FN>

(1)  Yield on Net Interest Earning Assets is computed by dividing annualized net
     interest income by the average daily balance of interest earning assets.

</TABLE>

As a net result of the yield on the Company's interest-earning assets increasing
to  6.73% during the first nine months of 2000 from 5.80% during the same period
of  1999  and the Company's cost of funds increasing to 6.46% from 5.51% for the
same  respective  time periods, its net interest income increased by $2,077,000.
This  increase  in  net  interest income is primarily the result of a  favorable
rate  variance  as  well as a less significant favorable volume variance.  There
was  a net favorable rate variance of $2,045,000, which consisted of a favorable
variance  of  $30,700,000  resulting  from the higher yield on the Company's ARM
assets  portfolio  and other interest-earning assets and an unfavorable variance
of  $28,655,000 resulting from the increase in the Company's cost of funds.  The
slightly  higher  average amount of net interest earning assets during the first
nine  months of 2000 compared to the same period of 1999, $378.2 million in 2000
compared  to  $373.7  million  in 1999,  also contributed to higher net interest
income  in  the  amount  of  $32,000.

During  the  first nine months of 2000, the Company realized a net gain from the
sale  of  ARM  securities in the amount of $49,000 as compared to $50,000 during
the  first nine months of 1999.  The gain from the sale of ARM securities during
2000  was  a  result  of the Company's re-securitization of Other Investment ARM
securities and the subsequent sale of AAA and AA rated securities resulting from
this  re-securitization.  As  a result of this transaction, the Company improved
its  liquidity,  the  credit  quality  of its ARM portfolio and recorded a small
gain.

The  Company  recorded  an  expense for estimated credit losses in the amount of
$983,000 during the nine months ended September 30, 2000, compared to $2,139,000
during  the  same  period of 1999.  The Company's provision for estimated credit
losses  has  decreased  in  2000,  primarily  because  the  Company discontinued
reducing  the  cost  basis  of two securities that the Company now believes have
been  reduced  to  a  cost  basis that fully reflects its applicable estimate of
credit  losses.  The  outlook  for  estimated  loss  on these two securities has
improved  as  the  underlying  loans have been paying off and real estate values
have  improved,  primarily  in  the  California  market.

For  the  nine months ended September 30, 2000, the Company's ratio of operating
expenses to average assets was 0.15% as compared to 0.12% for the same period of
1999.  The ratio of operating expenses to average assets increased by 0.01% as a
result  of  the  decrease  in the amount of average assets during the first nine
months  of  2000  compared  to  the  same period during 1999.  Additionally, the
Company's other expenses increased by approximately $499,000 for the nine months
ended  September  30,  2000 compared to the same nine-month period in 1999.  The
other  expenses  increased primarily due to increased usage of legal services in
connection with the Company's acquisition, financing and securitization of whole
loans,  increased  usage  of  investor and public relations services in order to
increase  the visibility and awareness of the Company to potential new investors
and  potential retail mortgage loan borrowers and due to other general corporate
matters.


                                       35
<PAGE>
LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  primary source of funds for the quarter ended September 30, 2000
consisted  of  reverse  repurchase  agreements,  which  totaled  $2.983 billion,
callable  AAA  notes,  which  had  a  balance  of  $638.4 million and whole loan
financing  facilities,  which  had  a  balance of $110.3 million.  The Company's
other  significant  source  of  funds  for  the quarter ended September 30, 2000
consisted  of  payments  of  principal  and  interest from its ARM assets in the
amount  of  $294.4  million.  In  the  future,  the  Company expects its primary
sources  of  funds  will  consist  of  borrowed  funds  under reverse repurchase
agreement transactions with one- to twelve-month maturities, funds borrowed from
whole  loan  financing  facilities  and  capital  market  financing transactions
collateralized  by  ARM  and Hybrid ARM loans, proceeds from monthly payments of
principal  and  interest on its ARM assets portfolio and occasional asset sales.
The  Company's liquid assets generally consist of unpledged ARM assets, cash and
cash  equivalents.

Total  borrowings  outstanding  at  September  30,  2000, had a weighted average
effective  cost  of  6.87%.  The  reverse  repurchase  agreements had a weighted
average  remaining  term  to  maturity  of 3.8 months and the collateralized AAA
notes payable had a final maturity of January 25, 2029, but will be paid down as
the  ARM  assets  collateralizing  the  notes  are  paid  down.  The  whole loan
financing  facilities  are  committed facilities that mature in January 2001 and
March  2003, subject to annual review.  As of September 30, 2000, $1.460 billion
of  the  Company's  borrowings  were  variable-rate  term  reverse  repurchase
agreements.  Term  reverse  repurchase  agreements are committed financings with
original  maturities  that range from six months to twelve months.  The interest
rates on these term reverse repurchase agreements are indexed to either the one-
or  three-month  LIBOR  rate  and reprice accordingly.  The interest rate on the
collateralized  AAA  notes  adjusts monthly based on changes in one-month LIBOR.
The  interest  rates  on  the whole loan financing facilities are indexed to the
one-month  LIBOR  index  and  is  subject  to  daily  adjustment.

The Company has arrangements to enter into reverse repurchase agreements with 25
different  financial  institutions and on September 30, 2000, had borrowed funds
with 13 of these firms. Because the Company borrows money under these agreements
based  on the fair value of its ARM assets and because changes in interest rates
can  negatively  impact  the  valuation  of  ARM assets, the Company's borrowing
ability  under these agreements could be limited and lenders may initiate margin
calls  in  the  event  interest  rates  change or the value of the Company's ARM
assets  decline  for  other reasons.  Additionally, certain of the Company's ARM
assets  are  rated  less than AA by the Rating Agencies (approximately 3.0%) and
have  less  liquidity  than  assets that are rated AA or higher.  Other mortgage
assets  which  are rated AA or higher by the Rating Agencies derive their credit
rating based on a mortgage pool insurer's rating.  As a result of either changes
in  interest  rates,  credit  performance of a mortgage pool or a downgrade of a
mortgage  pool  issuer, the Company may find it difficult to borrow against such
assets  and, therefore, may be required to sell certain mortgage assets in order
to  maintain  liquidity.  If required, these sales could be at prices lower than
the  carrying  value  of  the  assets, which would result in losses.  During the
third  quarter  of  2000,  the  Company increased its level of liquidity and the
Company  believes  it  will  continue  to  have sufficient liquidity to meet its
future  cash  requirements from its primary sources of funds for the foreseeable
future  without  needing  to  sell  assets.

As  of September 30, 2000, the Company had $638.4 million of  AAA collateralized
notes  outstanding, which are not subject to margin calls.  Due to the structure
of  the  collateralized  notes,  their financing is not based on market value or
subject  to subsequent changes in mortgage credit markets, as is the case of the
reverse  repurchase  agreement  arrangements.

As  of  September  30,  2000,  the  Company  had  entered  into three whole loan
financing facilities.  The Company borrows money under these facilities based on
the  fair  value  of the ARM loans.  Therefore, the amount of money available to
the Company under these facilities is subject to margin call based on changes in
fair  value,  which  can be negatively effected by changes in interest rates and
other factors, including the delinquency status of individual loans.  One of the
whole  loan  financing  facilities  has  a  committed borrowing capacity of $150
million,  with an option to increase this amount to $300 million.  This facility
matures  in January 2001.  During the first quarter of 2000, the Company entered
into  a second committed whole loan financing facility that also has a borrowing
capacity  of  $150  million.  This second committed facility matures in March of
2003,  subject  to  an  annual  review and extension by both parties.  The third
facility is for an unspecified amount of uncommitted borrowing capacity and does
not  have  a  specific maturity date.  As of September 30, 2000, the Company had
$110.3  million  borrowed  against  these  whole loan financing facilities at an
effective  cost  of  7.19%.


                                       36
<PAGE>
In  December 1996, the Company's Registration Statement on Form S-3, registering
the  sale  of  up  to $200 million of additional equity securities, was declared
effective  by  the  Securities  and  Exchange  Commission.  This  registration
statement  includes  the  possible  issuances  of common stock, preferred stock,
warrants  or shareholder rights.  As of September 30, 2000, the Company had $109
million  of  its  securities  registered for future sale under this Registration
Statement.

During  1998,  the Board of Directors approved a common stock repurchase program
of up to 1,000,000 shares at prices below book value, subject to availability of
shares  and  other market conditions.  The Company did not repurchase any shares
during  the  first  nine  months  of 2000.  To date, the Company has repurchased
500,016  shares  at  an  average  price  of  $9.28  per  share.

The  Company  has  a  Dividend  Reinvestment and Stock Purchase Plan (the "DRP")
designed to provide a convenient and economical way for existing shareholders to
automatically  reinvest their dividends in additional shares of common stock and
for  new  and  existing  shareholders to purchase shares, as defined in the DRP.
During  the  first nine months of 2000, the Company purchased shares in the open
market  on  behalf  of the participants in its DRP instead of issuing new shares
below  book  value.  In accordance with the terms and conditions of the DRP, the
Company  pays  the  brokerage  commission  in  connection  with these purchases.

EFFECTS  OF  INTEREST  RATE  CHANGES

Changes  in interest rates impact the Company's earnings in various ways.  While
the  Company  only  invests  in ARM assets, rising short-term interest rates may
temporarily  negatively  affect  the  Company's  earnings and conversely falling
short-term interest rates may temporarily increase the Company's earnings.  This
impact  can  occur  for  several  reasons  and  may  be  mitigated  by portfolio
prepayment  activity  as  discussed below.  First, the Company's borrowings will
react  to changes in interest rates sooner than the Company's ARM assets because
the  weighted average next repricing date of the borrowings is usually a shorter
time  period.  Second,  interest  rates on ARM loans are generally limited to an
increase  of  either 1% or 2% per adjustment period (commonly referred to as the
periodic  cap)  and  the  Company's  borrowings do not have similar limitations.
Third,  the  Company's  ARM  assets lag changes in the indices due to the notice
period  provided  to  ARM  borrowers  when the interest rates on their loans are
scheduled  to change.  The periodic cap only affects the Company's earnings when
interest  rates  move  by  more  than  1%  per  six-month period or 2% per year.

Interest  rates can also affect the Company's net return on its Hybrid ARMs (net
of  the  cost of financing Hybrid ARMs).  The Company has estimated the duration
of  the fixed rate period of its Hybrid ARM and operates under a policy to hedge
a  minimum  of  the  duration  of  the  fixed  rate  period  less one year.  The
financing  of  the  unhedged  fixed rate remaining period of one year or less is
subject to prevailing interest rates on the remaining balance of the Hybrid ARMs
at  the  expiration  of the hedged period.  As a result, if the cost of funds on
borrowings  is  higher at the expiration of the hedged period, the Company's net
interest  spread on the remaining balance of a Hybrid ARM asset will be affected
unfavorably and conversely, if the cost of funds on borrowings is lower, the net
interest  spread  will  be  affected  favorably.

Interest  rate  changes  may also impact the Company's ARM assets and borrowings
differently  because  the  Company's  ARM  assets are indexed to various indices
whereas  the  interest  rate  on  the  Company's  borrowings generally move with
changes in LIBOR.  Although the Company has always favored acquiring LIBOR based
ARM assets in order to reduce this risk, LIBOR based ARMs are not generally well
accepted  by  homeowners  in the U.S.  As a result, the Company has acquired ARM
assets indexed to a mix of indices in order to diversify its exposure to changes
in  LIBOR  in  contrast  to  changes  in  other indices.  During times of global
economic  instability, U.S. Treasury rates generally decline because foreign and
domestic  investors  generally  consider  U.S. Treasury instruments to be a safe
haven  for investments.  The Company's ARM assets indexed to U.S. Treasury rates
then  decline  in  yield  as  U.S. Treasury rates decline, whereas the Company's
borrowings  and other ARM assets may not be affected by the same pressures or to
the  same  degree.  As  a  result,  the Company's income can improve or decrease
depending on the relationship between the various indices that the Company's ARM
assets  are  indexed  to  compared  to  changes  in the Company's cost of funds.

The rate of prepayment on the Company's mortgage assets may increase if interest
rates  decline,  or  if the difference between long-term and short-term interest
rates diminishes.  Increased prepayments would cause the Company to amortize the
premiums  paid  for  its mortgage assets faster, resulting in a reduced yield on
its mortgage assets.  Additionally, to the extent proceeds of prepayments cannot
be reinvested at a rate of interest at least equal to the rate previously earned
on  such  mortgage  assets,  the  Company's  earnings may be adversely affected.


                                       37
<PAGE>
Conversely, the rate of prepayment on the Company's mortgage assets may decrease
if  interest  rates  rise, or if the difference between long-term and short-term
interest  rates  increases.  Decreased  prepayments  would  cause the Company to
amortize  the  premiums  paid  for  its  ARM  assets  over a longer time period,
resulting  in  an  increased yield on its mortgage assets.  Therefore, in rising
interest  rate  environments where prepayments are declining, not only would the
interest rate on the ARM assets portfolio increase to re-establish a spread over
the  higher  interest  rates,  but  the  yield  also  would  rise  due to slower
prepayments.  The  combined  effect  could significantly mitigate other negative
effects  that  rising  short-term  interest  rates  might  have  on  earnings.

Lastly,  because  the Company only invests in ARM assets and approximately 8% to
10%  of  such  mortgage  assets  are  purchased  with  shareholders' equity, the
Company's  earnings  over  time  will  tend  to  increase following periods when
short-term  interest  rates  have  risen  and  decrease  following  periods when
short-term  interest  rates have declined.  This is because the financed portion
of  the  Company's  portfolio of ARM assets will, over time, reprice to a spread
over  the  Company's cost of funds, while the portion of the Company's portfolio
of ARM assets that are purchased with shareholders' equity will generally have a
higher  yield in a higher interest rate environment and a lower yield in a lower
interest  rate  environment.

OTHER  MATTERS

As  of  September 30, 2000, the Company calculates its Qualified REIT Assets, as
defined  in  the  Internal  Revenue Code of 1986, as amended (the "Code"), to be
99.2% of its total assets, as compared to the Code requirement that at least 75%
of  its total assets must be Qualified REIT Assets.  The Company also calculates
that  98.1% of its 2000 revenue  for the first nine months qualifies for the 75%
source  of  income  test and 100% of its revenue qualifies for the 95% source of
income  test  under  the REIT rules.  The Company also met all REIT requirements
regarding  the  ownership  of  its common stock and the distributions of its net
income.  Therefore,  as of September 30, 2000, the Company believes that it will
continue  to  qualify  as  a  REIT  under  the  provisions  of  the  Code.

The  Company  at  all  times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act of 1940.  If
the  Company  were  to  become  regulated  as  an  investment  company, then the
Company's  use  of  leverage  would  be  substantially  reduced.  The Investment
Company  Act  exempts  entities  that  are "primarily engaged in the business of
purchasing  or otherwise acquiring mortgages and other liens on and interests in
real  estate"  ("Qualifying  Interests").  Under  current  interpretation of the
staff  of  the  SEC,  in  order  to qualify for this exemption, the Company must
maintain  at  least  55%  of  its  assets  directly in Qualifying Interests.  In
addition,  unless  certain  mortgage  securities  represent all the certificates
issued with respect to an underlying pool of mortgages, such mortgage securities
may  be  treated  as securities separate from the underlying mortgage loans and,
thus,  may  not  be  considered  Qualifying  Interests  for  purposes of the 55%
requirement.  The  Company  calculates  that  it  is  in  compliance  with  this
requirement.

On October 17, 2000, the Board of Directors and the Manager agreed to amendments
to  the  Agreement  that  included  a  0.05% increase to the base management fee
formula, effective immediately, and a cost of living clause that will adjust the
base  management  fee formula by the change in the Consumer Price Index over the
previous  twelve  month  period,  effective  as  of  each  annual  review of the
Agreement.  The  0.05% adjustment to the base management fee formula is expected
to  increase the cost of the base management fee by approximately $200,000 on an
annual  basis.


                                       38
<PAGE>
PART  II.     OTHER  INFORMATION

Item  1.     Legal  Proceedings
                At  September  30, 2000, there were no pending legal proceedings
                to  which  the  Company  was  a  party  or  of  which any of its
                property was subject.

Item  2.     Changes  in  Securities
                Not  applicable

Item  3.     Defaults  Upon  Senior  Securities
                Not  applicable

Item  4.     Submission  of  Matters  to  a  Vote  of  Security  Holders
                None

Item  5.     Other  Information
                None

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

             (a)  Exhibits
                    See  "Exhibit  Index"

             (b)  Reports  on  Form  8-K
                    None


                                       39
<PAGE>
                                   SIGNATURES



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




                                        THORNBURG  MORTGAGE,  INC.



Dated:    November 13, 2000             By:  /s/  Larry  A.  Goldstone
                                           -----------------------------
                                           Larry  A.  Goldstone
                                           President and Chief Operating Officer
                                           (authorized  officer  of  registrant)




Dated:    November 13, 2000             By:  /s/  Richard  P.  Story
                                           -----------------------------
                                           Richard  P.  Story,
                                           Chief Financial Officer and Treasurer
                                           (principal  accounting  officer)


                                       40
<PAGE>
                                  Exhibit Index




                                                                   Sequentially
                                                                    Numbered
Exhibit  Number               Exhibit  Description                    Page
---------------  ---------------------------------------------  ----------------

    10.1.1        Amendment No. 1 to the Management Agreement          42

    27            Financial  Data  Schedule                            44




                                       41
<PAGE>