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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:   MARCH  31,  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

                      THORNBURG MORTGAGE ASSET CORPORATION
    (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)                       21,489,663 as of May 5, 2000


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

<TABLE>
<CAPTION>
                                              INDEX


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

              Consolidated Balance Sheets at March 31, 2000 and December 31, 1999        3

              Consolidated Statements of Operations for the three months ended
              March 31, 2000 and March 31, 1999                                          4

              Consolidated Statement of Shareholders' Equity for the three months
              ended March 31, 2000                                                       5

              Consolidated Statements of Cash Flows for the three months ended
              March 31, 2000 and March 31, 1999                                          6

              Notes to Consolidated Financial Statements                                 7

   Item 2.    Management's Discussion and Analysis of
              Financial Condition and Results of Operations                             18



PART II.  OTHER INFORMATION

   Item 1.    Legal Proceedings                                                         33

   Item 2.    Changes in Securities                                                     33

   Item 3.    Defaults Upon Senior Securities                                           33

   Item 4.    Submission of Matters to a Vote of Security Holders                       33

   Item 5.    Other Information                                                         33

   Item 6.    Exhibits and Reports on Form 8-K                                          33


   SIGNATURES                                                                           34

   EXHIBIT INDEX                                                                        35
</TABLE>


                                        2
<PAGE>
PART  I.     FINANCIAL  INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED  BALANCE  SHEETS
(Amounts  in  thousands)

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

  Adjustable-rate mortgage ("ARM") assets: (Notes 2 and 4)
    ARM securities                                                 $3,527,519           $3,391,467
    Collateral for collateralized notes                               856,907              903,529
    ARM loans held for securitization                                  13,390               31,102
                                                              ----------------  -------------------
                                                                    4,397,816            4,326,098
                                                              ----------------  -------------------

  Cash and cash equivalents                                            33,288               10,234
  Accrued interest receivable                                          34,059               31,928
  Prepaid expenses and other                                            1,635                7,705
                                                              ----------------  -------------------
                                                                   $4,466,798           $4,375,965
                                                              ================  ===================


LIABILITIES

  Reverse repurchase agreements (Note 4)                           $3,303,809           $3,022,511
  Collateralized notes (Note 4)                                       841,519              886,722
  Other borrowings (Note 4)                                             8,522               21,289
  Payable for assets purchased                                              -              110,415
  Accrued interest payable                                             14,502               18,864
  Dividends payable (Note 6)                                            1,670                1,670
  Accrued expenses and other                                            3,282                3,607
                                                              ----------------  -------------------
                                                                    4,173,304            4,065,078
                                                              ----------------  -------------------

SHAREHOLDERS' EQUITY (Note 6)

  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                                          342,093              342,026
  Accumulated other comprehensive income (loss)                      (100,849)             (82,489)
  Notes receivable from stock sales                                    (4,632)              (4,632)
  Retained earnings (deficit)                                          (4,477)              (5,377)
  Treasury stock: at cost, 500 and 500 shares, respectively            (4,666)              (4,666)
                                                              ----------------  -------------------
                                                                      293,494              310,887
                                                              ----------------  -------------------

                                                                   $4,466,798           $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
                                                   March  31,
                                                2000       1999
                                              ---------  ---------
<S>                                           <C>        <C>
Interest income from ARM assets and cash      $ 72,654   $ 59,645
Interest expense on borrowed funds             (63,337)   (53,079)
                                              ---------  ---------
     Net interest income                         9,317      6,566
                                              ---------  ---------

Gain (loss) on sale of ARM assets                    -          -
Provision for credit losses                       (331)      (686)
Management fee (Note 8)                         (1,024)    (1,018)
Performance fee (Note 8)                             -          -
Other operating expenses                          (449)      (263)
                                              ---------  ---------

     NET INCOME                               $  7,513   $  4,599
                                              =========  =========

Net income                                    $  7,513   $  4,599
Dividend on preferred stock                     (1,670)    (1,670)
                                              ---------  ---------
Net income available to common shareholders   $  5,843   $  2,929
                                              =========  =========
Basic earnings per share                      $   0.27   $   0.14
                                              =========  =========
Diluted earnings per share                    $   0.27   $   0.14
                                              =========  =========
Average number of common shares outstanding     21,490     21,490
                                              =========  =========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                        4
<PAGE>
<TABLE>
<CAPTION>

THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

CONSOLIDATED  STATEMENT  OF  SHAREHOLDERS'  EQUITY  (Unaudited)

Three  Months  Ended  March  31,  2000
(In  thousands,  except  share  data)

                                                                Accum.     Notes
                                                                Other    Receivable
                                                   Additional   Compre-    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, 1999     $   65,805  $   220  $342,026  $ (82,489)  $(4,632)  $   (5,377)  $  (4,666)             $310,887
Comprehensive income:
 Net income                                                                              7,513               $  7,513      7,513
  Other comprehensive income:
   Available-for-sale assets:
   Fair value adjustment, net
   of amortization                      -        -         -    (18,144)        -            -           -    (18,144)   (18,144)
   Deferred gain on sale of
      hedges, net of
      amortization                      -        -         -       (216)        -            -           -       (216)      (216)
   Other comprehensive                                                                                       ---------
     income                                                                                                  $(10,847)
Interest from notes                                                                                          =========
 receivable from stock sales                              67                                                                  67
Dividends declared on
   preferred
   stock - $0.605 per share             -        -         -          -         -       (1,670)          -                (1,670)
Dividends declared on
   common
    stock - $0.23 per share             -        -         -          -         -       (4,943)          -                (4,943)
                               ----------  -------  --------  ----------  --------  -----------  ----------             ---------
Balance, March 31, 2000        $   65,805  $   220  $342,093  $(100,849)  $(4,632)  $   (4,477)  $  (4,666)             $293,494
                               ==========  =======  ========  ==========  ========  ===========  ==========             =========
</TABLE>



See  Notes  to  Consolidated  Financial  Statements.



                                        5
<PAGE>
THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES

<TABLE>
<CAPTION>
CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS  (UNAUDITED)
(In  thousands)
                                                         Three  Months  Ended
                                                             March  31,
                                                          2000        1999
                                                       ----------  ----------
<S>                                                    <C>         <C>
Operating Activities:
  Net Income                                              $7,513      $4,599
  Adjustments to reconcile net income to
    net cash provided by operating activities:
     Amortization                                          5,217      10,796
     Net (gain) loss from investing activities               331         686
     Change in assets and liabilities:
      Accrued interest receivable                         (2,131)      8,071
      Prepaid expenses and other                           6,070      (3,520)
      Accrued interest payable                            (4,362)    (20,146)
      Accrued expenses and other                            (325)       (469)
                                                       ----------  ----------
       Net cash provided by operating activities          12,313          17
                                                       ----------  ----------

Investing Activities:
  Available-for-sale ARM securities:
    Purchases                                           (398,717)    (99,707)
    Principal payments                                   149,583     338,460
  Collateral for collateralized notes:
    Principal payments                                    45,641      73,258
ARM loans:
    Purchases                                             (2,729)          -
    Principal payments                                       629       5,092
Purchase of interest rate cap agreements                    (448)     (1,469)
                                                       ----------  ----------
  Net cash provided by (used in) investing activities   (206,041)    315,634
                                                       ----------  ----------

Financing Activities:
  Net borrowings from (repayments of) reverse
     repurchase agreements                               281,298    (223,358)
  Repayments of collateralized notes                     (45,203)    (74,752)
  Repayments of other borrowings                         (12,767)        (83)
  Dividends paid                                          (6,613)     (6,613)
  Interest from notes receivable from stock sales             67          66
                                                       ----------  ----------
  Net cash provided by (used in) financing activities    216,782    (304,740)
                                                       ----------  ----------

Net increase (decrease) in cash and cash equivalents      23,054      10,911

Cash and cash equivalents at beginning of period          10,234      36,431
                                                       ----------  ----------
Cash and cash equivalents at end of period               $33,288     $47,342
                                                       ==========  ==========

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

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 end March 31,
     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
          bancruptcy  remote special  purpose  finance  subsidiaries,  Thornburg
          Mortgage   Funding   Corporation,    Thornburg   Mortgage   Acceptance
          Corporation  and Thornburg  Mortgage  Acceptance  Corporation  II. The
          Company  formed these entities 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.

          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


                                        7
<PAGE>
          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.

          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.

     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.  The 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


                                        8
<PAGE>
          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 SWAP AGREEMENTS

          The Company  enters into  interest  rate 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 interest rate swap agreements are
          accounted for on an accrual basis and  recognized as a net  adjustment
          to interest expense.

          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


                                        9
<PAGE>
          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-month  periods ended March 31, 2000 and 1999
          (amounts in thousands except per share data):


<TABLE>
<CAPTION>
                                                        Earnings
                                     Income    Shares  Per Share
                                   ----------  ------  ----------
Three Months Ended March 31, 2000
---------------------------------
<S>                                <C>         <C>     <C>
Net income                            $7,513

Less preferred stock dividends        (1,670)
                                   ----------
Basic EPS, income available to
 common shareholders                   5,843   21,490       $0.27
                                                        =========

Effect of dilutive securities:

  Stock options                            -        -
                                   ----------  ------
Diluted EPS                           $5,843   21,490       $0.27
                                   ==========  =======  =========
Three Months Ended March 31, 1999
---------------------------------
Net income                            $4,599

Less preferred stock dividends        (1,670)
                                    ---------
Basic EPS, income available to
 common stockholders                   2,929   21,490  $     0.14
                                                        =========

Effect of dilutive securities:

 Stock options                             -        -
                                   ----------  ------
Diluted EPS                        $   2,929   21,490  $     0.14
                                   ==========  =======  =========
</TABLE>

          The Company  has  granted  options to  directors  and  officers of the
          Company and  employees  of the Manager to  purchase  10,000  shares of
          common stock at an average price of $8.44 per share during the quarter
          ended  March 31,  2000.  The  Company  did not grant  any  options  to
          purchase shares of the Company's common stock to directors or officers
          or to  employees  of the Manager  during the  quarter  ended March 31,
          1999.  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  interest  rate  swap  agreements.  The fair  value of
          interest  rate swap  agreements  is disclosed in Note 5, Fair Value of
          Financial  Instruments.  The Company believes that its use of interest
          rate swap  agreements  qualify as  cash-flow  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.


                                       10
<PAGE>
     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.

NOTE  2.  ADJUSTABLE-RATE  MORTGAGE  ASSETS  AND  INTEREST  RATE  CAP AGREEMENTS

     The following  tables present the Company's ARM assets as of March 31, 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>
March 31, 2000:
                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                                --------------   ----------------  -----------  -----------
<S>                            <C>               <C>               <C>          <C>
Principal balance outstanding  $     3,549,397   $       845,428   $   13,466   $4,408,291
Net unamortized premium                 66,630            13,383           30       80,043
Deferred gain from hedging                (263)                -            -         (263)
Allowance for losses                    (1,842)           (2,395)        (106)      (4,343)
Cap agreements                           4,563               290            -        4,853
Principal payment receivable            10,532               201            -       10,733
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,629,017           856,907       13,390    4,499,314
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   4,540                35           22        4,597
Gross unrealized losses               (106,038)          (14,194)         (93)    (120,325)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,527,519   $       842,748   $   13,319   $4,383,586
                               ================  ================  ===========  ===========

  Carrying value               $     3,527,519   $       856,907   $   13,390   $4,397,816
                               ================  ================  ===========  ===========

December 31, 1999:
                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                               ----------------  ----------------  -----------  -----------
<S>                            <C>               <C>               <C>          <C>
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 both the  quarters  ended March 31, 2000 and 1999,  the Company
          did not sell any ARM securities.


                                       11
<PAGE>
          As of March 31,  2000,  the  Company had reduced the cost basis of its
          ARM  securities  due to estimated  credit losses (other than temporary
          declines in fair value) in the amount of  $1,842,000.  The Company has
          reduced the cost basis on two assets that have an  aggregate  carrying
          value  of $9.6  million,  which  represent  approximately  0.2% of the
          Company's  total  portfolio  of ARM assets.  The Company  believes the
          reduced  cost basis of these assets is at the  appropriate  amount and
          did not reduce the cost basis of these ARM assets  during the  quarter
          ended  March 31,  2000.  During  the first  three  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 $38,000 and recorded a $293,000  provision  for
          potential  credit  losses on its loan  portfolio,  although  no actual
          losses have been realized in the loan portfolio to date.

          The following tables summarize ARM loan delinquency  information as of
          March 31, 2000 and December 31, 1999 (dollar amounts in thousands):

<TABLE>
<CAPTION>
March 31, 2000
--------------------
                                            Percent
                     Loan        Loan       of ARM      Percent of
Delinquency Status   Count      Balance    Loans (1)    Total Assets
                    --------  ----------  -----------  -------------
<S>                 <C>       <C>          <C>            <C>

60 to 89 days            7      $  1,509        0.13%          0.03%
90 days or more          2         5,049        0.43           0.11
In foreclosure           8         1,731        0.15           0.04
                    --------  ----------  -----------  -------------
                        17      $  8,289        0.71%          0.18%
                    ========  ==========  ===========  =============

December 31,1999
--------------------
                                            Percent
                      Loan        Loan      of ARM       Percent of
Delinquency Status    Count      Balance   Loans (1)    Total 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%
                    ========  ==========  ===========  =============
<FN>

     (1)  ARM loans includes loans that the Company has securitized and retained
          first loss credit  exposure  for total  amounts of $1.183  billion and
          $1.108 billion at March 31, 2000 and December 31, 1999, respectively.
</TABLE>

     The following table summarizes the activity for the allowance for losses on
     ARM loans for the quarters ended March 31, 2000 and 1999 (dollar amounts in
     thousands):

                                        2000                  1999
                                        ----                  ----
           Beginning  balance          $2,208                 $804
           Provision  for  losses         293                  380
           Charge-offs,  net               -                    -
                                       ------               ------
           Ending  balance             $2,501               $1,184
                                       ======               ======

     As of March 31, 2000, the Company had commitments to purchase $18.9 million
     of ARM loans through its correspondent loan network.

     As of March 31, 2000,  the Company owned three real estate  properties as a
     result of foreclosing on delinquent  loans in the aggregate  amount of $1.7
     million,  which are included in collateral for collateralized  notes on the
     balance sheet.  The Company  believes that the above allowance is more than
     adequate to cover estimated losses from these properties.

     The average  effective  yield on the ARM assets owned was 6.58% as of March
     31, 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.


                                       12
<PAGE>
     As of March 31, 2000 and December 31, 1999,  the Company had  purchased Cap
     Agreements  with a remaining  notional  amount of $3.025 billion and $2.945
     billion,  respectively. The notional amount of the Cap Agreements purchased
     decline at a rate that is expected to approximate  the  amortization of the
     ARM assets.  Under these Cap  Agreements,  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  the  Cap
     Agreements  that  range  from  5.75% to 12.50%  and  average  approximately
     10.02%.  Of the Cap  Agreements  owned by the Company as of March 31, 2000,
     $126.7  million are hedging  the cost of  financing  Hybrid ARMs and $2.899
     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
     11.68%. The Cap Agreements had an average maturity of 2.4 years as of March
     31,  2000.  The initial  aggregate  notional  amount of the Cap  Agreements
     declines to approximately $2.758 billion over the period of the agreements,
     which  expire  between  1999 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 seven different counterparties, five of which are rated
     AAA,  and one is rated AA and one is rate A, but the  Company has a two-way
     collateral agreement protecting its credit exposure with this counterparty.

NOTE  3.  AGREEMENT  TO  PURCHASE  FASLA  HOLDING  COMPANY

     On  December  23,  1999,  the  Company  and  Thornburg   Mortgage  Advisory
     Corporation  (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,  approximately $138 million in
     assets for $15 million, subject to certain adjustments.  The acquisition is
     subject to  regulatory  approval,  which is  expected to be received by the
     third quarter of 2000. Due to ownership restrictions in the current IRS tax
     code  applicable to REITs,  the purchase has been  structured such that the
     Company will pay 95% of the  purchase  price for  preferred  stock of FASLA
     Holding Company which will represent 95% of the economic interests in FASLA
     Holding  Company  and the  Manager  will pay 5% of the  purchase  price for
     common  shares of FASLA  Holding  Company  which will be voting shares that
     will represent 5% of the economic value of FASLA Holding  Company.  In this
     structure,  FASLA  Holding  Company  would be an  unconsolidated  qualified
     taxable REIT  subsidiary  of the  Company.  During  1999,  legislation  was
     enacted by the U.S.  Congress,  effective January 1, 2001, that will permit
     REITs to have 100% ownership in qualified taxable subsidiaries,  subject to
     certain limitations, that would permit the Company and the Manager to alter
     this  structure  such that FASLA Holding  Company may become a wholly-owned
     consolidated taxable subsidiary of the Company.

NOTE 4. 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 March 31, 2000, the Company had outstanding $3.294 billion of reverse
     repurchase agreements with a weighted average borrowing rate of 6.25% and a
     weighted average  remaining  maturity of 2.5 months.  As of March 31, 2000,
     $1.613 billion of the Company's  borrowings were variable-rate term reverse
     repurchase agreements with original maturities that range from three months
     to fourteen  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 March 31, 2000
     were  collateralized by ARM assets with a carrying value of $3.505 billion,
     including accrued interest.

     At March 31, 2000,  the reverse  repurchase  agreements  had the  following
     remaining maturities (dollar amounts in thousands):

             Within  30  days              $ 1,080,878
             31  to  89  days                  958,054
             90  days  or  greater           1,264,877
                                           -----------
                                           $ 3,303,809
                                           ===========


                                       13
<PAGE>
     As of March  31,  2000,  the  Company  had  entered  into four  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.  A third facility has an
     uncommitted  amount of  borrowing  capacity of $150  million and matures in
     April 2000. The fourth facility is for an unspecified amount of uncommitted
     borrowing  capacity and does not have a specific maturity date. As of March
     31, 2000,  the Company had $8.5 million  borrowed  against these whole loan
     financing  facilities at an effective cost of 6.72%. The amount borrowed on
     the whole loan financing agreements at March 31, 2000 was collateralized by
     ARM  loans  with a  carrying  value  of  $8.8  million,  including  accrued
     interest.

     The whole loan financing  facility entered into during the first quarter of
     2000, 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 bancrupcty 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
     March 31, 2000, the Notes had a net balance of $841.5 million, an effective
     interest  cost of 6.83%,  which changes each month at a spread to one-month
     LIBOR.  These  Notes  were  collateralized  by ARM loans  with a  principal
     balance  of $758.2  million  and ARM  securities  with a balance  of $119.5
     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 March 31, 2000, the Company was a counterparty  to nineteen  interest
     rate swap  agreements  ("Swaps")  having an aggregate  notional  balance of
     $650.3 million.  As of March 31, 2000,  these Swaps had a weighted  average
     remaining term of 2.8 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 36 days to
     229 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. Due
     to the favorable market value of the Swaps at March 31, 2000, they were not
     collateralized by any ARM assets.

     During the first quarter of 2000,  the Company  terminated and replaced six
     Swaps and deferred the realized gain of $7.7 million. The replacement Swaps
     have the identical terms as the terminated  Swaps other than the fixed rate
     to be paid by the Company. The amortization of the deferred gain as a yield
     adjustment to the new fixed rate reduces the rate on the replacement  Swaps
     to  approximately  the same fixed rate as the  terminated  Swaps and, as an
     additional benefit,  the Company was able to increase liquid assets by $7.7
     million which was used to reduce the Company's borrowings.

     The total cash paid for interest was $66.9 million and $68.8 million during
     the quarters ended March 31, 2000 and 1999, respectively.


                                       14
<PAGE>
NOTE  5.  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 March 31, 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>
                                     March 31, 2000         December 31, 1999
                                -----------------------  -----------------------
                                 Carrying       Fair      Carrying     Fair
                                   Amount      Value       Amount      Value
                                ----------  -----------  ----------  -----------
<S>                             <C>         <C>          <C>         <C>
Assets:
 ARM assets                     $4,390,922  $4,376,692   $4,318,301  $4,305,060
 Cap Agreements                      6,894       6,894        7,797       7,797

Liabilities:
 Callable collateralized notes     841,519     842,442       886,722     889,305
 Other borrowings                    8,522       8,522        21,289      21,289
 Swap agreements                     9,619      (6,479)          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  and cap  agreements  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  6.  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  ended
     March 31, 2000. To date, the company has repurchased  500,016 at an average
     price of $9.28 per share.


                                       15
<PAGE>
     On January 25, 2000, the Company  declared the fourth quarter 1999 dividend
     of $0.23 per common  share,  which was paid on February  17, 2000 to common
     shareholders of record as of February 3, 2000.

     On April 17, 2000, the Company  declared the first quarter 2000 dividend of
     $0.23  per  common  share,  which  will be paid on May 17,  2000 to  common
     shareholders of record as of May 4, 2000.

     On March 15, 2000, the Company  declared a first quarter dividend of $0.605
     per share to the shareholders of the Series A 9.68% Cumulative  Convertible
     Preferred  Stock  which  was  also  paid on  April  10,  2000 to  preferred
     shareholders of record as of March 31, 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  7.  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 March 31, 2000,  there were 10,000  options to buy
     common shares and 5,500 DERs granted. As of March 31, 2000, the Company had
     799,473  options  outstanding  at exercise  prices of $8.375 to $22.625 per
     share,  631,828 of which were  exercisable.  The weighted  average exercise
     price of the options  outstanding was $15.41 per share. As of the March 31,
     2000,  there were 167,675 DERs  outstanding,  of which 139,514 were vested,
     and 20,344 PSRs outstanding.  In addition,  the Company recorded an expense
     associated  with the DERs and the PSRs of $18,000 for each of the  quarters
     ended March 31, 2000 and 1999.

     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 have remaining maturity terms
     ranging from 1 year to 7 years and accrue interest at rates that range from
     5.40%  to 6.00%  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 March 31, 2000,  there were $4.6 million of
     notes receivable from stock sales outstanding.


                                       16
<PAGE>
NOTE  8.  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.

     For the  quarters  ended  March 31,  2000 and 1999,  the  Company  paid the
     Manager $1,024,000 and $1,018,000, respectively, in base management fees in
     accordance with the terms of the Agreement.

     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 ended March 31, 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  two wholly owned REIT  qualified
     subsidiaries  entered into separate lease  agreements  with the Manager for
     office  space in Santa Fe.  During the quarter  ended March 31,  2000,  the
     combined amount of rent paid to the Manager was $6,000.

                                       17
<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,"  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 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 indirectly 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 REIT qualified 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 REIT qualified subsidiary, Thornburg
Mortgage  Home  Loans, Inc., to originate loans for the Company according to the
Company's  underwriting  guidelines.  This  subsidiary  is  expected to commence
operations  during  the  second  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.

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.


                                       18
<PAGE>
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; or
     (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.

Since  inception,  the  Company  has generally invested less than 15%, currently
approximately  4%,  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  is  $15  million,  subject  to  certain adjustments.  The
acquisition  is subject to regulatory approval, which is expected to be received
by  the  third  quarter  of  2000.

The  primary  purpose  of  this  acquisition  is  to  obtain  nationwide lending
authority  in  order to expand the Company's acquisition channels for ARM loans.
The Company intends to initiate a mortgage banking division within First Arizona
Savings  that  would  originate  loans  for  sale to the Company, based upon the
Company's underwriting standards and ARM product design.  It is also likely that
other  standard  loan  products, including fixed-rate loans, would be originated
and sold to third party investors.  The Company expects to avoid establishing an
expensive  infrastructure involving substantial fixed costs generally associated
with  starting  up  and operating a mortgage banking operation by utilizing "fee
based"  third-party  vendors  who specialize in private label loan underwriting,
application  processing  and  loan  closing,  and by utilizing a sub-servicer to
service  the  loans  originated.  The Company believes these third-party service
providers  have developed both efficiencies and expertise through specialization
that  afford  the  Company  an  opportunity  to  enter  this  business in a cost
effective  manner  with  very  little  initial  capital  investment.

The  Company  also expects to continue operating First Arizona Savings as a full
service  community  bank  within  its current local market areas.  First Arizona
Savings has traditionally been an originator of single-family residential loans,
both  permanent  and  construction,  based  on  underwriting  standards that are
similar to the Company's and has generally retained ARM and Hybrid ARM loans for
its  portfolio  and  has  sold  a  significant percentage of its fixed-rate loan
production  to  FHLMC.  First  Arizona's primary source of funds has been retail
deposits  and  a limited amount of Federal Home Loan Bank advances.  The Company
believes this business model is a consistent extension of the Company's existing
business  model that emphasizes high credit quality lending and prudent interest
rate  risk  management.

Due  to  the  uncertainty of receiving regulatory approval and the timing of the
regulatory  decision,  the Company does not believe this acquisition will have a
material  effect  on the Company's operations during 2000.  Further, the Company
believes that the combination of the existing community-bank style of operations
and the effect of the projected mortgage banking operations will have a positive
effect  on  the  Company's  overall  operations  beginning  in  2001.


                                       19
<PAGE>
Thornburg  Brand  Development

In 1999, the Company instituted a new marketing approach in conjunction with the
other  affiliated  Thornburg  Companies aimed at developing brand recognition of
the  Thornburg  name.  In  the  process,  the  Company has refined its marketing
message  and updated the Company's logo and corporate literature.  The Company's
shareholders approved an amendment to the Company's Articles of Incorporation to
formally  change  the  name  of  the  Company to Thornburg Mortgage, Inc. at the
Annual  Shareholders  Meeting  held  on  April  27,  2000.  This  new  name more
accurately  reflects  the  expanded business of the Company from purely an asset
manager  to  a  value-added  operating  enterprise  that originates and services
mortgage  loans  as well as manages a portfolio of  high quality mortgage assets
on  a  low  cost  basis.


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

At  March  31,  2000,  the  Company  held total assets of $4.467 billion, $4.398
billion  of  which  consisted  of  ARM assets, as compared to $4.375 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  March  31,  2000,  96.0%  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,  86.1%  are  in  the  form  of
adjustable-rate  pass-through  certificates  or  ARM  loans.  The  remainder are
floating rate classes of CMOs (10.3%) or investments in floating rate classes of
CBOs  (3.6%)  backed  primarily  by  ARM  mortgaged-backed  securities.

The  following  table  presents a schedule of ARM assets owned at March 31, 1999
and December 31, 1998 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)

                                    March 31, 2000         December 31, 1999
                              ------------------------  -----------------------
                              Carrying      Portfolio    Carrying     Portfolio
                               Value           Mix        Value          Mix
                             ----------     ----------  ----------   ----------
<S>                          <C>            <C>         <C>          <C>
HIGH QUALITY:
 FHLMC/FNMA                  $2,129,913         48.4%   $2,068,152       47.8%
 Privately Issued:
   AAA/Aaa Rating             1,630,970(1)      37.1     1,585,099(1)    36.6
   AA/Aa Rating                 439,844         10.0       459,858       10.6
                             -------------  ----------  -------------  -------
     Total Privately Issued   2,070,814         47.1     2,044,957       47.2
                             -------------  ----------  -------------  -------

                             -------------  ----------  -------------  -------
     Total High Quality       4,200,727         95.5     4,113,109       95.0
                             -------------  ----------  -------------  -------

OTHER INVESTMENT:
 Privately Issued:
   A Rating                      50,793          1.2        49,995        1.2
   BBB/Baa Rating                85,557          2.0        84,929        2.0
   BB/Ba Rating or below         47,349(1)       1.1        46,963(1)     1.1
 Whole loans                     13,390          0.2        31,102        0.7
                             -------------  ----------  -------------  -------
     Total Other Investment     197,089          4.5       212,989        5.0
                             -------------  ----------  -------------  -------

     Total ARM Portfolio     $4,397,816        100.0%   $4,326,098      100.0%
                             =============  ==========  =============  =======
<FN>
-----------------
(1)  AAA Rating category  includes $737.2 million and $781.8 million as of March
     31,  2000 and  December  31,  1999,  respectively,  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 as of March 31, 2000 and December 31, 1999.
     The  subordinated  certificate  is included  in the BB/Ba  Rating and Other
     category.
</TABLE>


                                       20
<PAGE>
As  of  March  31,  2000,  the  Company  had  reduced  the cost basis of its ARM
securities  by  $1,842,000  due to estimated credit losses (other than temporary
declines  in  fair value).  The Company has provided for estimated credit losses
on  two  securities that have an aggregate carrying value of $9.6 million, which
represent  approximately  0.2%  of  the Company's total portfolio of ARM assets.
The  Company  believes  the reduced cost basis of these two ARM securities is at
the appropriate amount and did not reduce the cost basis of these ARM securities
during  the  quarter  ended  March  31,  2000.

Additionally,  during  the  first  three  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 $38,000 and
recorded a $293,000 provision for estimated credit losses on its loan portfolio,
although  no  actual losses have been realized in the loan portfolio to date. As
of  March  31, 2000, the Company's ARM loan portfolio included 17 loans that are
considered  seriously  delinquent (60 days or more delinquent) with an aggregate
balance  of $8.3 million.  The ARM loan portfolio also includes three properties
("REO")  that the Company acquired as the result of foreclosure processes in the
amount  of  $1.7 million.  The average original effective loan-to-value ratio on
these  17  delinquent  loans and REO is approximately 68%.  The Company believes
that  its  current  level  of  reserves is more than 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)

                                              March 31, 2000          December 31, 1999
                                           ----------------------  ----------------------
                                            Carrying   Portfolio    Carrying   Portfolio
                                             Value        Mix        Value        Mix
                                           ----------  ----------  ----------  ----------
<S>                                        <C>         <C>         <C>         <C>
ARM ASSETS:
    INDEX:
     One-month LIBOR                       $  710,333       16.2%  $  680,449       15.7%
     Three-month LIBOR                        155,968        3.5      170,384        3.9
     Six-month LIBOR                          584,469       13.3      626,616       14.5
     Six-month Certificate of Deposit         289,190        6.6      304,621        7.0
     Six-month Constant Maturity Treasury      35,903        0.8       37,781        0.9
     One-year Constant Maturity Treasury    1,393,024       31.7    1,359,229       31.4
     Cost of Funds                            203,065        4.6      213,800        5.0
                                           ----------  ----------  ----------  ----------
                                            3,371,952       76.7    3,392,880       78.4
                                           ----------  ----------  ----------  ----------

HYBRID ARM ASSETS                           1,025,864       23.3      933,218       21.6
                                           ----------  ----------  ----------  ----------
                                           $4,397,816      100.0%  $4,326,098      100.0%
                                           ==========  ==========  ==========  ==========
</TABLE>

The  ARM  portfolio  had a current weighted average coupon of 7.26% at March 31,
2000.  This consisted of an average coupon of 6.63% on the hybrid portion of the
portfolio  and  an average coupon of 7.45% 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  8.12%, 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 March 31, 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  during  2000  to  the  "fully  indexed"  rate.


                                       21
<PAGE>
At  March  31,  2000,  the  current yield of the ARM assets portfolio was 6.58%,
compared  to  6.38%  as  of  December 31, 1999, with an average term to the next
repricing  date  of  354  days  as of March 31, 2000, compared to 344 days as of
December  31, 1999.  The increase in the number of days until the next repricing
of  the  ARMs is primarily due to the hybrid ARMs acquired by the Company during
the first quarter of 2000, which, in general, do not reprice for five years from
their  origination  date.  As  of March 31, 2000, hybrid ARMs comprised 23.3% 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 0.20% as of March 31, 2000, compared to December
31,  1999,  is  primarily  due  to  the increased weighted average interest rate
coupon  discussed above, which increased by 0.18%.  The yield also improved as a
result  of  lower  hedging cost, which decreased by 0.06%, as higher cost hedges
matured  and  were  replaced with lower cost hedges.  The impact of non-interest
earning  principal  payments receivables also decreased during the first quarter
of  2000,  increasing the portfolio yield by 0.02%, as the rate of ARM portfolio
prepayments  slowed  to 15% from the 16% rate during the fourth quarter of 1999.
These  favorable  factors  that increased the ARM portfolio yield were partially
offset  by  a  higher level of net premium amortization, which had the effect of
lowering  the  yield  by  0.06%.

The  following  table  presents various characteristics of the Company's ARM and
Hybrid  ARM  loan  portfolio as of March 31, 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.

<TABLE>
<CAPTION>
                       ARM AND HYBRID ARM LOAN PORTFOLIO CHARACTERISTICS


                                                Average                High              Low
                                            ----------------  -----------------------  -------
<S>                                         <C>               <C>                      <C>
  Unpaid principal balance                         $270,871               $3,450,000     $169
  Coupon rate on loans                                 7.40%                    9.63%    5.00%
  Pass-through rate                                    7.03%                    9.23%    4.61%
  Pass-through margin                                  1.89%                    5.06%    0.48%
  Lifetime cap                                        12.96%                   16.75%    9.75%
  Original Term (months)                                342                      480       72
  Remaining Term (months)                               318                      359       55

  Geographic Distribution (Top 5 States):             Property type:
    California                   20.17%                  Single-family             64.50%
    Florida                      11.41                   DeMinimus PUD             20.40
    Georgia                       7.37                   Condominium                9.87
    New York                      6.98                   Other                      5.23
    New Jersey                    4.79

  Occupancy status:                                   Loan purpose:
    Owner occupied               84.56%                  Purchase                  58.01%
    Second home                  10.75                   Cash out refinance        24.47
    Investor                      4.69                   Rate & term refinance     17.52

  Documentation type:                                 Periodic Cap:
    Full/Alternative             93.33%                  None                      60.97%
    Other                         6.67                   2.00%                     37.44
                                                         1.00%                      0.47
  Average effective original                             0.50%                      1.11
  loan-to-value:                 67.94%
</TABLE>


                                       22
<PAGE>
During  the  quarter  ended  March 31, 2000, the Company settled the purchase of
$401.4  million  of ARM assets, 98.4% of which were High Quality assets.  Of the
ARM  assets  acquired  during  the first three months of 2000, approximately 48%
were  indexed  to  U.S.  Treasury  bill rates, 36% were Hybrid ARMs and 16% were
indexed  to  LIBOR.  Additionally,  as  of  March  31,  2000,  the  Company  has
commitments  to  purchase  approximately  $18.9  million  of  loans  through its
correspondent  network.  The  Company did not sell any assets during the quarter
ended  March  31,  2000.

The  Company's  ARM  asset  purchases  during the first quarter of 2000 included
$129.2  million  of  ARM  securities  that were formed from whole loans that the
Company  securitized in the process of acquiring them.  The Company combined the
loans  being  purchased  in  the first quarter with $19.8 million of other loans
acquired  in previous periods to create total securities in the amount of $149.1
million.  The  Company  structured  the  securitization as a senior subordinated
structure,  which,  when rated by the Rating Agencies, resulted in approximately
99.5% of the securities receiving an investment grade rating and 97.6% receiving
a  high  enough  rating (AA or better) to qualify for the Company's High Quality
asset  portfolio.

For the quarter ended March 31, 2000, the Company's mortgage assets paid down at
an  approximate  average  annualized constant prepayment rate of 15% compared to
29%  for the quarter ended March 31, 1999 and 16% for the quarter ended December
31, 1999.  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 0.31% from a negative adjustment of 2.40% of the
portfolio as of December 31, 1999, to a negative adjustment of 2.71% as of March
31,  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 $101.5 million as of March 31, 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 March 31, 2000, the unrecorded positive
fair  value  adjustment  for Swap Agreements was $16.1 million.  As of March 31,
2000,  all  of the Company's ARM securities are classified as available-for-sale
and  are  carried  at  their  fair  value.

The  Company has purchased Cap Agreements in order to hedge exposure to changing
interest rates.  The majority of the Cap Agreements 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 Cap
Agreements act to reduce the effect of the lifetime or maximum interest rate cap
limitation.  These  Cap Agreements 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 March 31, 2000, the Cap
Agreements  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
$2.899  billion  with  an  average  final  maturity  of 2.4 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 Cap Agreements,
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 10.02%.  The Company has also entered
into  Cap  Agreements  with a notional balance of $126.7 as of March 31, 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 March 31, 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
5.93%  and have a remaining term of 3.2 years.  The fair value of Cap Agreements
also  tends 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 March 31, 2000, the fair value of
the  Company's  Cap  Agreements  was  $6.9  million,  $2.0 million more than the
amortized  cost  of  the  Cap  Agreements.


                                       23
<PAGE>
The  following  table  presents  information  about  the Company's Cap Agreement
portfolio  that  is designated as a hedge against the lifetime interest rate cap
on  ARM  assets  as  of  March  31,  2000:

<TABLE>
<CAPTION>
                   CAP AGREEMENTS STRATIFIED BY STRIKE PRICE
                       (Dollar  amounts  in  thousands)

Hedged         Weighted    Cap Agreement                   Weighted
ARM Assets     Average       Notional                       Average
Balance (1)    Life Cap      Balance      Strike Price  Remaining Term
------------  ----------  --------------  ------------  --------------
<S>           <C>         <C>             <C>           <C>
      26,936       8.01%         $26,000         7.10%       3.0 Years
     178,625        8.33         178,590         7.50        0.3
     511,511        9.69         511,503         8.00        2.1
      62,129       10.73          61,685         8.50        0.1
      37,784       10.94          37,059         9.00        1.7
      65,100       11.07          65,148         9.50        2.5
     392,291       11.39         391,487        10.00        2.4
     226,466       11.73         225,566        10.50        2.0
     457,677       12.34         458,178        11.00        3.4
     472,137       12.82         472,763        11.50        2.6
     385,901       13.61         385,850        12.00        3.3
      87,111       16.03          84,853        12.50        0.8
------------  ----------  --------------  ------------  --------------
   2,903,668       11.68%     $2,898,682        10.19%       2.4 Years
============  ==========  ==============  ============  ==============
<FN>
-------------
(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.
</TABLE>

As  of  March 31, 2000, the Company was a counterparty to nineteen interest rate
swap  agreements  ("Swaps")  having  an  aggregate  notional  balance  of $650.3
million.  As  of  March  31,  2000, these Swaps had a weighted average remaining
term of 2.8 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 36
days  to  229 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  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  March 31, 2000 was 3.5 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.

During  the first quarter of 2000, the Company terminated and replaced six Swaps
and  deferred the realized gain of $7.7 million.  The replacement Swaps have the
identical  terms as the terminated Swaps other than the fixed rate to be paid by
the Company.  The amortization of the deferred gain as a yield adjustment to the
new  fixed  rate  reduces the rate on the replacement Swaps to approximately the
same  fixed  rate  as  the  terminated  Swaps and, as an additional benefit, the
Company  was  able  to  increase liquid assets by $7.7 million which was used to
reduce  the  Company's  borrowings.

RESULTS  OF  OPERATIONS  FOR  THE  THREE  MONTHS  ENDED  MARCH  31,  2000

For  the  quarter ended March 31, 2000, the Company's net income was $5,843,000,
or  $0.27 per share (Basic and Diluted EPS) compared to $2,929,000, or $0.14 per
share  (Basic and Diluted EPS) for the quarter ended March 31, 1999.  There were
21,490,000  weighted average common shares outstanding during both periods.  Net
interest  income  for the quarter totaled $9,317,000, compared to $6,566,000 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 three months of both 2000 and 1999, the Company did not record
any  gain  or  loss from the sale of ARM assets.  Additionally, during the first
quarter  of 2000, the Company reduced its earnings and the carrying value of its
ARM  assets  by  reserving  $331,000  for  estimated  credit losses, compared to
$686,000  during  the  first quarter of 1999.  During the first quarter of 2000,
the  Company  incurred  operating  expenses  of $1,473,000, consisting of a base
management  fee  of $1,024,000 and other operating expenses of $449,000.  During
the  same period of 1999, the Company incurred operating expenses of $1,281,000,
consisting  of  a base management fee of $1,018,000 and other operating expenses
of  $263,000.  Total  operating  expenses  increased  as a percentage of average
assets to 0.13% for the three months ended March 31, 2000, compared to 0.12% for
the  same  period  of  1999.


                                       24
<PAGE>
The  Company's  return  on average common equity was 7.20% for the quarter ended
March  31,  2000  compared  to  3.60%  for  the quarter ended March 31, 1999 and
compared  to 6.29% for the prior quarter ended December 31, 1999.  The Company's
return  on  equity  improved  in this past quarter compared to the prior quarter
primarily  because  the  Company's  provision for credit losses declined and net
interest income improved due to more efficient use of capital during the quarter
ended March 31, 2000 compared to the fourth quarter of 1999 when the Company was
preserving  capital due to concerns related to Y2K and year-end financing of the
ARM  portfolio.

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
                                                                                                                 Excess of
                       Net                 Gain (Loss)                                       Net      10-Year    10-Year
                     Interest    Provision   on ARM     G & A     Performance  Preferred   Income/    US Treas.  US Treas.
   For The           Income/    For Losses/  Sales/   Expense (2)/    Fee/     Dividend/    Equity     Average   Average
Quarter Ended        Equity       Equity     Equity      Equity      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%
<FN>
---------------
(1)  Average  common  equity  excludes  unrealized  gain  (loss)  on  available-for-sale  ARM  securities.
(2)  Excludes  performance  fees.
</TABLE>

The  increase  in  the Company's return on common equity in the first quarter of
2000, compared to the first quarter of 1999, is primarily due to the improvement
in  the  net  interest  spread between the Company's interest-earning assets and
interest-bearing  liabilities  and  a  decrease  in  the Company's provision for
losses.  These positive impacts on the Company's return on equity were partially
offset  by  an  increase  in  other  expenses.


                                       25
<PAGE>
The following table presents the components of the Company's net interest income
for  the  quarters  ended  March  31,  2000  and  1999:

<TABLE>
<CAPTION>
                   COMPARATIVE NET INTEREST INCOME COMPONENTS
                          (Dollar amounts in thousands)

                                                   2000     1999
                                                 --------  -------
<S>                                              <C>       <C>
  Coupon interest income on ARM assets           $77,615   $69,991
  Amortization of net premium                     (4,683)   (9,768)
  Amortization of Cap Agreements                    (838)   (1,345)
  Amort. of deferred gain from hedging               304       325
  Cash and cash equivalents                          256       442
                                                 --------  --------
    Interest income                               72,654    59,645
                                                 --------  --------

  Reverse repurchase agreements                   48,883    35,366
  AAA notes payable                               14,660    16,351
  Other borrowings                                   285        39
  Interest rate swaps                               (491)    1,323
                                                 --------  --------
    Interest expense                              63,337    53,079
                                                 --------  --------

  Net interest income                             $9,317    $6,566
                                                 ========   =======
</TABLE>

As  presented in the table above, the Company's net interest income increased by
$2.8  million in the first quarter of 2000 compared to the first three months of
1999.  The  most  significant  causes  are:  (1)  the Company's average interest
coupon  on  its  ARM  portfolio  was 7.24% during the first three months of 2000
compared  to  7.12%  during  the  same period in 1999; and (2) the Company's ARM
portfolio  paid off at an annualized CPR of 15% during the first quarter of 2000
compared  to 29% during the same quarter of 1999, decreasing the amortization of
the net premium.  These items were partially offset by a higher cost of funds on
the  Company's  borrowings,  which  was  6.20%  during the first quarter of 2000
compared  to  5.56%  during  the  first  quarter  of  1999.

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  March  31,  2000  and  1999:

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

                                            For the Quarter Ended     For the Quarter Ended
                                               March  31,  2000         March  31,  1999
                                            -----------------------  ----------------------
                                              Average    Effective    Average    Effective
                                              Balance       Rate      Balance       Rate
                                            -----------  ----------  ----------  ----------
<S>                                         <C>          <C>         <C>         <C>
Interest Earning Assets:
    Adjustable-rate mortgage assets         $4,455,295        6.50%  $4,166,311       5.68%
    Cash and cash equivalents                   15,699        6.52       30,044       5.88
                                            -----------  ----------  ----------  ----------
                                             4,470,994        6.50    4,196,355       5.69
                                            -----------  ----------  ----------  ----------
  Interest Bearing Liabilities:
    Borrowings                               4,088,287        6.20    3,815,961       5.56
                                            -----------  ----------  ----------  ----------
  Net Interest Earning Assets and Spread    $  382,707        0.30%  $  380,394       0.13%
                                            ===========  ==========  ==========  ==========

  Yield on Net Interest Earning Assets (1)                    0.83%                   0.63%
                                                         ==========              ==========
<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>


                                       26
<PAGE>
As  a result of the yield on the Company's interest-earning assets increasing to
6.50% during the first three months of 2000 from 5.69% during the same period of
1999  and  the Company's cost of funds increasing to 6.20% from 5.56% during the
same  time  periods, net interest income increased by $2,751,000.  This increase
in  net  interest  income  is primarily a rate variance and to a lesser extent a
volume  variance.  There  was  a  net  favorable  rate  variance  of $2,508,000,
primarily  due  to  a favorable rate variance of $8,548,000 on the Company's ARM
assets  portfolio  and other interest-earning assets, which was partially offset
by an unfavorable rate variance on borrowings that decreased net interest income
by $6,039,000.  The increased average size of the Company's portfolio during the
first quarter of 2000 compared to the same period in 1999 increased net interest
income  in  the  amount  of  $243,000.  The  average  balance  of  the Company's
interest-earning  assets  was  $4.471  billion  during the first three months of
2000,  compared  to  $4.196  billion during the first three months of 1999 -- an
increase  of  7%.

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)

                                    ARM  Assets
                 Average   ----------------------------------    Yield  on                            Yield  on
                 Interest      Wgt. Avg.   Weighted               Interest                   Net     Net Interest
  As of the      Earning    Fully Indexed   Average    Yield       Earning      Cost of    Interest    Earning
Quarter 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%
<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 effected 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>


<TABLE>
<CAPTION>
                COMPONENTS OF THE YIELD ADJUSTMENTS ON ARM ASSETS

                              Impact of                 Amort. of
                 Premium/     Principal                Deferred Gain    Total
  As of the      Discount      Payments      Hedging   from Hedging     Yield
Quarter Ended     Amort.      Receivable    Activity     Activity     Adjustment
-------------  ----------  --------------  ---------  -------------  -----------
<S>            <C>         <C>             <C>        <C>            <C>
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%
</TABLE>


                                       27
<PAGE>
As of March 31, 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 6.58%, compared to 6.38% as of December 31,
1999--  an increase of 0.20%.  The Company's cost of funds as of March 31, 2000,
was 6.32%, compared to 6.47% as of December 31, 1999 -- a decrease of 0.15%.  As
a  result  of  these  changes, the Company's net interest spread as of March 31,
2000  was  0.26%,  compared  to  negative  0.09%  as  of December 31, 1999.  The
improvement  in  the net interest spread is largely attributable to the increase
in  the average interest rate coupon on the ARM portfolio and lower hedging cost
discussed  earlier and the lower cost of funds on borrowings.  The cost of funds
on  borrowings  declined principally as a result of getting beyond the impact of
Y2K  concerns  and  year-end  financing  concerns  which  typically increase the
Company's  cost  of  funds  temporarily  during the fourth quarter of each year.

Until the last couple of quarters, the Company's spreads and net interest income
had been negatively impacted since early 1998 by the spread relationship between
U.S. Treasury rates and LIBOR.  This spread relationship had negatively impacted
the  Company 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.  During much of this period of time, U.S. Treasury
rates  decreased  significantly  whereas  LIBOR  had  not  decreased to the same
degree.  As  a  result, the Company had 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.  Over
recent  months,  the  relationship  between  U.S.  Treasury  rates and LIBOR has
improved,  although  the Company does not know if this improvement will continue
or  revert  back  to the relationship that existed during 1998 and much of 1999.
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 U.S. Treasury rates to 31.7% at March 31, 2000
from  49.0%  as  of  the  end  of  1997.  The  data  is  as  follows:

<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%
</TABLE>

The  Company's  provision  for  estimated  credit  losses decreased in the first
quarter  of 2000 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.  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


                                       28
<PAGE>
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  March  31, 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 26.8% of the
Company's  portfolio  of ARM assets or $1.183 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:

<TABLE>
<CAPTION>
           RECONCILIATION OF REPORTED NET INCOME TO TAXABLE NET INCOME
                          (Dollar amounts in thousands)

                                            Quarters Ending March 31,
                                          ----------------------------
                                                 2000      1999
<S>                                            <C>       <C>
                                               --------  --------
Net income                                      $7,513    $4,599
 Additions:
 Provision for credit losses                       331       686
 Net compensation related items                     86        85
   Deductions:
        Dividend on Series A Preferred Shares   (1,670)   (1,670)
       Actual credit losses on ARM securities     (126)     (175)
                                               --------  --------
Taxable net income                              $6,134    $3,525
                                               --------  --------

                                               --------  --------
Taxable income per share                         $0.29     $0.16
                                               ========  ========
</TABLE>

For  the quarter ended March 31, 2000, the Company's ratio of operating expenses
to  average  assets  was 0.13% compared to 0.12% for the same period in 1999 and
0.13%  for  the  prior  quarter  ended  December  31, 1999.  The Company's other
expenses  increased  by  approximately  $186,000 for the quarter ended March 31,
2000  compared  to  the  same  three-month  period  in 1999.  The other expenses
increased  primarily due to increased usage of legal services in connection with
the Company's financing and securitization of 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 due to other general corporate
matters.  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.  As
presented in the following table, 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.


                                       29
<PAGE>
The  following  table  highlights the quarterly trend of operating expenses as a
percent  of  average  assets:

<TABLE>
<CAPTION>
                        ANNUALIZED OPERATING EXPENSE RATIOS

                   Management Fee &                          Total
   For The          Other Expenses/   Performance Fee/  G & A Expense/
Quarter Ended       Average Assets    Average Assets    Average Assets
-----------------  ----------------  -----------------  --------------
<S>                <C>               <C>                <C>
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%
</TABLE>

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  primary  source  of  funds  for the quarter ended March 31, 2000
consisted  of  reverse  repurchase agreements, which totaled $3.304 billion, and
callable  AAA notes, which had a balance of $841.5 million.  The Company's other
significant  source  of  funds for the quarter ended March 31, 2000 consisted of
payments  of  principal and interest from its ARM assets in the amount of $271.2
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,  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 March 31, 2000, had a weighted average effective
cost  of  6.32%.  The  reverse  repurchase  agreements  had  a  weighted average
remaining  term  to  maturity  of  2.5  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.  As of March 31, 2000,
$1.613  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 three months to fourteen
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 Company has arrangements to enter into reverse repurchase agreements with 25
different  financial institutions and on March 31, 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 4.0%) 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
first  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  March  31,  2000,  the Company had $841.5 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.


                                       30
<PAGE>
As  of  March  31,  2000, the Company had entered into four 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.  A  third  facility  has  an uncommitted amount of
borrowing  capacity  of  $150  million  and  matures  in April 2000.  The fourth
facility is for an unspecified amount of uncommitted borrowing capacity and does
not  have  a specific maturity date.  As of March 31, 2000, the Company had $8.5
million  borrowed  against these whole loan financing facilities at an effective
cost  of  6.72%.

On  December  23, 1999, the Company and the Manager entered into an agreement to
purchase  FASLA Holding Company for $15 million, subject to certain adjustments,
in  a cash transaction.  The Company expects to complete this acquisition by the
third  quarter  of  2000,  depending  upon  the  timing  of receiving regulatory
approval.  The Company expects to generate sufficient working capital in advance
of  the  purchase  acquisition  date  in  order to complete the acquisition with
cash-on-hand.

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  March 31, 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  three  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  quarter  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.


                                       31
<PAGE>
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.

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  March  31,  2000,  the  Company calculates its Qualified REIT Assets, as
defined  in  the  Internal  Revenue Code of 1986, as amended (the "Code"), to be
99.1% 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  99.0%  of  its  2000  revenue  for the first quarter 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  March  31,  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.


                                       32
<PAGE>
PART  II.  OTHER  INFORMATION

Item  1.  Legal  Proceedings
            At March 31,  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
            Not  applicable

Item  5.  Other  Information

          On  April  27,  2000,  the  shareholders of the Registrant approved an
          amendment to the  Registrant's Articles of Incorporation to change the
          name of the  Registrant  to  Thornburg  Mortgage,  Inc.

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

          (a)  Exhibits
                 See  "Exhibit  Index"

          (b)  Reports  on  Form  8-K
                 None


                                       33
<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:   May 5, 2000                  By:  /s/  Larry  A.  Goldstone
                                           -------------------------------------
                                           Larry  A.  Goldstone
                                           President and Chief Operating Officer
                                           (authorized  officer  of  registrant)




Dated:   May 5, 2000                  By:  /s/  Richard  P.  Story
                                           -------------------------------------
                                           Richard  P.  Story,
                                           Chief Financial Officer and Treasurer
                                           (principal  accounting  officer)


                                       34
<PAGE>
                                  Exhibit Index



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

3.1.3     Amendment to Articles of Incorporation dated April 27, 2000       36

3.3       Audit  Committee  Charter,  adopted  April  17,  2000             37

27        Financial  Data  Schedule                                         40


                                       35
<PAGE>