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


                                    FORM 10-Q


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

For  the  quarterly  period  ended:     September  30,  1999

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

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

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

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

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

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

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


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Common  Stock  ($.01  par  value)        21,489,663  as  of  November  12,  1999


<PAGE>
                      THORNBURG MORTGAGE ASSET CORPORATION
                         (dba  THORNBURG MORTGAGE, INC.)

                                    FORM 10-Q


                                      INDEX

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>        <C>                                                                        <C>
PART I.    FINANCIAL INFORMATION

  Item 1.  Financial Statements

           Consolidated Balance Sheets at September 30, 1999 and December 31, 1998      3

           Consolidated Statements of Operations for the three and nine months ended
           September 30, 1999 and September 30, 1998                                    4

           Consolidated Statements of Shareholders' Equity for the nine months
           ended September 30, 1999 and 1998                                            5

           Consolidated Statements of Cash Flows for the three and nine months ended
           September 30, 1999 and September 30, 1998                                    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                                                           35

  Item 2.  Changes in Securities                                                       35

  Item 3.  Defaults Upon Senior Securities                                             35

  Item 4.  Submission of Matters to a Vote of Security Holders                         35

  Item 5.  Other Information                                                           35

  Item 6.  Exhibits and Reports on Form 8-K                                            35


SIGNATURES                                                                             36

EXHIBIT INDEX                                                                          37
</TABLE>


                                        2
<PAGE>
PART  I.     FINANCIAL  INFORMATION

ITEM  1.     FINANCIAL  STATEMENTS

<TABLE>
<CAPTION>
THORNBURG  MORTGAGE  ASSET  CORPORATION  AND  SUBSIDIARIES
(DBA  THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES)

CONSOLIDATED  BALANCE  SHEETS
(Amounts  in  thousands)

                                                                    September 30, 1999    December 31, 1998
                                                                   --------------------  -------------------
<S>                                                                <C>                   <C>
ASSETS

     Adjustable-rate mortgage ("ARM") assets: (Notes 2 and 3)
          ARM securities                                           $         3,505,774   $        3,094,657
          Collateral for collateralized notes                                  942,054            1,147,350
          ARM loans held for securitization                                      8,973               26,410
                                                                   --------------------  -------------------
                                                                             4,456,801            4,268,417
                                                                   --------------------  -------------------

     Cash and cash equivalents                                                  34,617               36,431
     Accrued interest receivable                                                32,395               37,939
     Prepaid expenses and other                                                  8,298                1,846
                                                                   --------------------  -------------------
                                                                   $         4,532,111   $        4,344,633
                                                                   ====================  ===================

LIABILITIES

     Reverse repurchase agreements (Note 3)                        $         3,259,352   $        2,867,207
     Collateralized notes (Note 3)                                             924,238            1,127,181
     Other borrowings (Note 3)                                                   1,527                2,029
     Accrued interest payable                                                   14,201               31,514
     Dividends payable (Note 5)                                                  1,670                1,670
     Accrued expenses and other                                                  3,777                3,209
                                                                   --------------------  -------------------
                                                                             4,204,765            4,032,810
                                                                   --------------------  -------------------

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                                                341,958              341,756
     Accumulated other comprehensive income (loss)                             (65,777)             (82,148)
     Notes receivable from stock sales                                          (4,632)              (4,632)
     Retained earnings (deficit)                                                (5,562)              (4,512)
     Treasury stock: at cost, 500 and 500 shares, respectively                  (4,666)              (4,666)
                                                                   --------------------  -------------------
                                                                               327,346              311,823
                                                                   --------------------  -------------------

                                                                   $         4,532,111   $        4,344,633
                                                                   ====================  ===================
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                        3
<PAGE>
<TABLE>
<CAPTION>
THORNBURG  MORTGAGE  ASSET  CORPORATION
(DBA  THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES)

CONSOLIDATED  STATEMENTS  OF  OPERATIONS
(Amounts  in  thousands,  except  per  share  data)


                                               Three Months Ended     Nine Months Ended
                                                  September 30,        September 30,
                                                 1999      1998       1999       1998
                                               --------  --------  ----------  ---------
<S>                                           <C>        <C>       <C>         <C>

Interest income from ARM assets and cash      $ 67,955   $72,252   $ 190,687   $221,587
Interest expense on borrowed funds             (58,623)  (66,458)   (165,717)  (196,591)
                                              ---------  --------  ----------  ---------
  Net interest income                            9,332     5,794      24,970     24,996
                                              ---------  --------  ----------  ---------

Gain on sale of ARM assets                          15       755          50      3,780
Provision for credit losses                       (764)     (561)     (2,139)    (1,402)
Management fee (Note 7)                         (1,023)   (1,040)     (3,061)    (3,115)
Performance fee (Note 7)                             -         -           -       (759)
Other operating expenses                          (405)     (270)     (1,033)      (851)
                                              ---------  --------  ----------  ---------

  NET INCOME                                  $  7,155   $ 4,678   $  18,787  $  22,649
                                              =========  ========  ==========  =========


Net income                                    $  7,155   $ 4,678   $  18,787  $  22,649
Dividend on preferred stock                     (1,670)   (1,670)     (5,009)    (5,009)
                                              ---------  --------  ----------  ---------

Net income available to common shareholders   $  5,485   $ 3,008   $  13,778  $  17,640
                                              =========  ========  ==========  =========

Basic earnings per share                      $   0.26   $  0.14   $    0.64  $    0.82
                                              =========  ========  ==========  =========

Diluted earnings per share                    $   0.26   $  0.14   $    0.64  $    0.82
                                              =========  ========  ==========  =========

Average number of common shares outstanding     21,490    21,858      21,490     21,488
                                              =========  ========  ==========  =========
</TABLE>


                                        4
<PAGE>
<TABLE>
<CAPTION>
THORNBURG  MORTGAGE  ASSET  CORPORATION  AND  SUBSIDIARIES
(DBA  THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES)

CONSOLIDATED  STATEMENT  OF  SHAREHOLDERS'  EQUITY

Nine  Months  Ended  September  30,  1999  and  1998
(In  thousands,  except  share  data)



                                                                               Accum.
                                                          Addit-   Other       Receiv-   Notes
                                                Common    ional    Compre-   able From  Retained             Compre-
                                    Preferred    Stock   Paid-in   hensive     Stock    Earnings/  Treasury  hensive
                                      Stock              Capital   Income      Sales    (Deficit)    Stock   Income      Total
<S>                                 <C>         <C>     <C>       <C>        <C>        <C>        <C>       <C>        <C>
Balance, December 31, 1997 . . . .  $   65,805  $  203  $315,240  $(19,445)  $ (2,698)  $   (951)  $                    $358,154
Comprehensive income:
 Net income                                                                               22,649             $ 22,649     22,649
  Other comprehensive
    income:
   Available-for-sale assets:
      Fair value adjustment,
      net of amortization. . . . .           -       -         -   (35,139)         -          -         -    (35,139)   (35,139)
   Deferred gain on sale of
      hedges, net of
      amortization . . . . . . . .           -       -         -    (1,248)         -          -         -     (1,248)    (1,248)
                                                                                                             ---------
   Other comprehensive income. . .                                                                           $(13,738)
                                                                                                             =========
Issuance of common
      stock (Note 5)                                17    26,261               (1,934)                                    24,344
Interest from notes
     receivable from stock
     sales                                                   188                                                             188
Purchase of treasury                                                                                (4,666)               (4,666)
     stock  (Note 5)
Dividends declared on
     preferred stock - $1.815
     per share . . . . . . . . . .           -       -         -         -          -     (5,009)        -                (5,009)
Dividends declared on
     common stock - $0.675
     per share . . . . . . . . . .           -       -         -         -          -    (14,635)        -               (14,635)
                                    ----------  ------  --------  ---------  ---------  ---------  --------             ---------
Balance, September 30, 1998. . . .  $   65,805  $  220  $341,689  $(55,832)  $ (4,632)  $  2,054   $(4,666)             $344,638
                                    ==========  ======  ========  =========  =========  =========  ========             =========

Balance, December 31, 1998 . . . .  $   65,805  $  220  $341,756  $(82,148)  $ (4,632)  $ (4,512)  $(4,666)             $311,823
Comprehensive income:
  Net income                                                                              18,787             $ 18,787     18,787
  Other comprehensive
    income:
    Available-for-sale assets:
       Fair value adjustment, net
       of amortization . . . . . .           -       -         -    16,927          -          -         -     16,927     16,927
  Deferred gain on sale of
        hedges, net of
        amortization . . . . . . .           -       -         -      (556)         -          -         -       (556)      (556)
                                                                                                             ---------
  Other comprehensive income                                                                                 $ 35,158
                                                                                                             =========
Interest from notes receivable
   from stock sales                                          202                                                             202
Dividends declared on
  preferred stock - $1.815
  per share. . . . . . . . . . . .           -       -         -         -          -     (5,009)        -                (5,009)
Dividends declared on
  common stock - $0.69
   per share . . . . . . . . . . .           -       -         -         -          -    (14,828)        -               (14,828)
                                    ----------  ------  --------  ---------  ---------  ---------  --------             ---------
Balance, September 30, 1999. . . .  $   65,805     220  $341,958  $(65,777)  $ (4,632)  $ (5,562)  $(4,666)             $327,346
                                    ==========  ======  ========  =========  =========  =========  ========             =========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                        5
<PAGE>
<TABLE>
<CAPTION>
THORNBURG  MORTGAGE  ASSET  CORPORATION
(DBA  THORNBURG  MORTGAGE,  INC.  AND  SUBSIDIARIES)

CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
(In  thousands)


                                                               Three  Months  Ended       Nine  Months  Ended
                                                                   September  30,           September  30,
                                                                  1999        1998         1999          1998
                                                               ----------  ----------  ------------  ------------
<S>                                                            <C>         <C>         <C>           <C>
Operating Activities:
 Net Income                                                    $   7,155   $   4,678   $    18,787   $    22,649
  Adjustments to reconcile net income to
  net cash provided by operating activities:
   Amortization                                                    6,448      13,959        26,220        37,120
   Net (gain) loss from investing activities                         749        (194)        2,089        (2,378)
   Change in assets and liabilities:
     Accrued interest receivable                                     455      (1,383)        5,544        (3,618)
     Receivable for assets sold                                        -       9,951             -       (30,040)
     Prepaid expenses and other                                     (851)     (2,213)       (6,452)       (4,370)
     Accrued interest payable                                     (2,415)       (183)      (17,313)      (11,128)
     Accrued expenses and other                                      232       2,650           568         2,761
                                                               ----------  ----------  ------------  ------------
          Net cash provided by (used in) operating activities     11,773      27,265        29,443        10,996
                                                               ----------  ----------  ------------  ------------

Investing Activities:
  Available-for-sale ARM securities:
     Purchases                                                  (298,916)   (327,140)   (1,236,172)   (1,479,934)
     Proceeds on sales                                             3,348     180,032         9,922       513,544
     Proceeds from calls                                           2,108      12,227         6,234       128,006
     Principal payments                                          237,360     420,676       816,982     1,202,405
  Held-to-maturity ARM securities:
     Principal payments                                                -           -             -        16,152
Collateral for collateralized notes:
     Principal payments                                           66,040           -       201,813             -
  ARM Loans:
     Purchases                                                    (9,534)   (255,491)      (11,345)     (749,463)
     Proceeds on sales                                             6,991           -         6,991         2,043
     Principal payments                                              597      50,027         7,165        82,690
  Purchase of interest rate cap agreements                             -         (99)       (1,910)         (641)
                                                               ----------  ----------  ------------  ------------
          Net cash provided by (used in) investing activities      7,994      80,232      (200,320)     (285,198)
                                                               ----------  ----------  ------------  ------------

Financing Activities:
  Net borrowings from reverse repurchase agreements               47,076     (91,206)      392,145       280,332
  Repayments of collateralized notes                             (65,610)          -      (202,943)            -
  Net borrowings from other borrowings                               183        (892)         (502)       (3,102)
  Proceeds from common stock issued                                    -           -             -        24,344
  Purchase of treasury stock                                           -      (4,666)            -        (4,666)
  Dividends paid                                                  (6,613)     (8,266)      (19,839)      (29,784)
  Interest from notes receivable from stock sales                     68          68           202           189
                                                               ----------  ----------  ------------  ------------
     Net cash provided by (used in) financing activities         (24,896)   (104,962)      169,063       267,313
                                                               ----------  ----------  ------------  ------------

Net increase (decrease) in cash and cash equivalents              (5,129)      2,535        (1,814)       (6,889)

Cash and cash equivalents at beginning of period                  39,746       4,356        36,431        13,780
                                                               ----------  ----------  ------------  ------------

Cash and cash equivalents at end of period                     $  34,617   $   6,891   $    34,617   $     6,891
                                                               ==========  ==========  ============  ============

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

See  Notes  to  Financial  Statements


                                        6
<PAGE>
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS

NOTE  1.     SIGNIFICANT  ACCOUNTING  POLICIES

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 the Thornburg
Mortgage  Asset  Corporation  (dba Thornburg Mortgage, Inc.) (the "Company") and
its  wholly  owned  special  purpose  finance  subsidiaries,  Thornburg Mortgage
Funding  Corporation and Thornburg Mortgage Acceptance Corporation.  The Company
formed  these  entities  in  connection  with  the  issuance  of  the  callable
collateralized  notes  discussed  in Note 3.  All material intercompany accounts
and transactions are eliminated in consolidation.  In the opinion of management,
all material adjustments, consisting of normal recurring adjustments, considered
necessary  for a fair presentation of the consolidated financial statements have
been  included.

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 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.


                                        7
<PAGE>
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 possible
credit  losses  at a level deemed appropriate by management to provide for known
losses  as  well as estimated potential losses 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 possible credit losses on its
portfolio  of  ARM  loans  which is an increase to the reserve for possible loan
losses.  The  provision  for  possible  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 AAA 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 possible credit losses on these loans the same as it does for loans that are
not  held  as  collateral  for  AAA  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
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.


                                        8
<PAGE>
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  such 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  fixed-rate  period  of  a  hybrid  and  the maturity of the borrowing
funding  a Hybrid ARM) to 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.

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  the  Company's  Notes  to Financial
Statements.

OTHER  HEDGING  ACTIVITY

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

INCOME  TAXES

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

NET  EARNINGS  PER  SHARE

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


                                        9
<PAGE>
Following  is  information  about the computation of the earnings per share data
for  the three and nine month periods ended September 30, 1999 and 1998 (amounts
in  thousands  except  per  share  data):

<TABLE>
<CAPTION>
                                                              Earnings
                                         Income     Shares    Per Share
                                       ----------  ---------  ----------
<S>                                    <C>         <C>        <C>

Three Months Ended September 30, 1999
-------------------------------------
Net income                             $   7,155

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

Basic EPS, income available to
 common shareholders                       5,485      21,490  $     0.26
                                                              ==========

Effect of dilutive securities:

 Stock options                                 -           3
                                       ----------  ---------

Diluted EPS                            $   5,485      21,493  $     0.26
                                       ==========  =========  ==========

Three Months Ended September 30, 1998
-------------------------------------
Net income                             $   4,678

Less preferred stock dividends            (1,670)

Basic EPS, income available to
 common stockholders                       3,008      21,858  $     0.14
                                                              ==========

Effect of dilutive securities:

 Stock options                                 -           -
                                       ----------  ---------

Diluted EPS                            $   3,008      21,858  $     0.14
                                       ==========  =========  ==========

          Earnings
  Income                               Shares      Per Share
Nine Months Ended September 30, 1999
-------------------------------------
Net income                             $  18,787

Less preferred stock dividends            (5,009)
                                       ----------

Basic EPS, income available to
 common shareholders                      13,778      21,490  $     0.64
                                                              ==========

Effect of dilutive securities:

 Stock options                                 -           8
                                       ----------  ---------

Diluted EPS                            $  13,778      21,498  $     0.64
                                       ==========  =========  ==========

Nine Months Ended September 30, 1998
-------------------------------------
Net income                             $  22,649

Less preferred stock dividends            (5,009)
                                       ----------

Basic EPS, income available to
 common stockholders                      17,640      21,488  $     0.82
                                                              ==========

Effect of dilutive securities:

 Stock options                                 -           -
                                       ----------  ---------

Diluted EPS                            $  17,640      21,488  $     0.82
                                       ==========  =========  ==========
</TABLE>


The  Company  has  granted  options to directors and officers of the Company and
employees  of  the Manager to purchase 141,779 and 59,784 shares of common stock
at  average  prices of $9.0625 and $14.82 per share during the nine months ended
September  30,  1999  and 1998, respectively.  The conversion of preferred stock
was not included in the computation of diluted EPS because such conversion would
increase  the  diluted  EPS.


                                       10
<PAGE>
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 4, 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 portion
of the hedge's change in the fair value of these derivatives instruments will be
recorded  in  other  comprehensive  income  and  the ineffective portion will be
included  in earnings when the Company adopts the statement in the first quarter
of  its  fiscal  2001  year.

USE  OF  ESTIMATES

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


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

The  following  tables present the Company's ARM assets as of September 30, 1999
and  December 31, 1998.  The ARM securities classified as available-for-sale are
carried  at their fair value, while the ARM loans are carried at their amortized
cost  basis  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
September  30,  1999:


                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                               ----------------  ----------------  -----------  -----------
<S>                            <C>               <C>               <C>          <C>
Principal balance outstanding  $     3,475,971   $       928,525   $    9,052   $4,413,548
Net unamortized premium                 73,854            14,412           16       88,282
Deferred gain from hedging                (392)                -            -         (392)
Allowance for losses                    (1,551)           (1,902)         (95)      (3,548)
Cap agreements                           6,154               350            -        6,504
Principal payment receivable            18,472               669            -       19,141
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,572,508           942,054        8,973    4,523,535
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   8,908                24           27        8,959
Gross unrealized losses                (75,642)          (11,041)         (33)     (86,716)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,505,774   $       931,037   $    8,967   $4,445,778
                               ================  ================  ===========  ===========
  Carrying value               $     3,505,774   $       942,054   $    8,973   $4,456,801
                               ================  ================  ===========  ===========

December 31, 1998:
                                  Available-
                                   for-Sale       Collateral for
                                ARM Securities    Notes Payable     ARM Loans      Total
                               ----------------  ----------------  -----------  -----------
Principal balance outstanding  $     3,070,107   $     1,131,007   $   26,161   $4,227,275
Net unamortized premium                 86,956            17,112          324      104,392
Deferred gain from hedging                (613)                -            -         (613)
Allowance for losses                    (1,242)             (729)         (75)      (2,046)
Cap agreements                           8,302               440            -        8,742
Principal payment receivable            14,330                 -            -       14,330
                               ----------------  ----------------  -----------  -----------
  Amortized cost, net                3,177,840         1,147,830       26,410    4,352,080
                               ----------------  ----------------  -----------  -----------
Gross unrealized gains                   1,070                38           53        1,161
Gross unrealized losses                (84,253)           (7,606)         (87)     (91,946)
                               ----------------  ----------------  -----------  -----------
  Fair value                   $     3,094,657   $     1,140,262   $   26,376   $4,261,295
                               ================  ================  ===========  ===========
  Carrying value               $     3,094,657   $     1,147,350   $   26,410   $4,268,417
                               ================  ================  ===========  ===========
</TABLE>


During  the  quarter  ended  September 30, 1999, the Company realized $15,000 in
gains  on the sale of $10.4 million of ARM securities and ARM loans.  During the
same  period  of  1998,  the  Company realized $902,000 in gains and $147,000 in
losses  on  the  sale  of  $179.3  million  of  ARM  securities.  All of the ARM
securities  sold  were  classified  as  available-for-sale.

During the nine months ended September 30, 1999, the Company realized $50,000 in
gains  on the sale of $16.9 million of ARM securities and ARM loans.  During the
same  nine  month  period  of 1998, the Company realized $4,388,000 in gains and
$608,000  in losses on the sale of $511.1 million of ARM securities.  All of the
ARM  securities  sold  were  classified  as  available-for-sale.

As  of  September  30,  1999,  the Company had reduced the cost basis of its ARM
securities  due to potential future credit losses (other than temporary declines
in  fair value) in the amount of $1,551,000.  At September 30, 1999, the Company
is  providing  for  potential  future  credit  losses on two assets that have an
aggregate  carrying  value  of $10.2 million, which represents less than 0.3% of
the  Company's  total  portfolio  of  ARM  assets.  Both  of  these  assets  are
performing  and  one  has  some  remaining  credit  support  that  mitigates the
Company's  exposure to potential future credit losses.  Additionally, during the
first  nine months of 1999, the Company, in accordance with its credit policies,
recorded  a  $1,193,000  provision  for  potential  credit  losses  on  its loan
portfolio, although no actual losses have been realized in the loan portfolio to
date.


                                       12
<PAGE>
The  following tables summarize ARM loan delinquency information as of September
30,  1999  and  December  31,  1998  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
September 30, 1999
--------------------
                      Loan      Loan      Percent of    Percent of
Delinquency Status    Count    Balance     ARM Loans   Total Assets
--------------------  -----  -----------  -----------  -------------
<S>                   <C>    <C>          <C>          <C>
  30 to 59 days           3  $     2,309        0.21%          0.05%
  60 to 89 days           -            -           -              -
  90 days or more         3          899        0.08           0.02
  In foreclosure          6        5,274        0.46           0.11
  Real estate owned       1          331        0.03           0.01
                      -----  -----------  -----------  -------------
                         13  $     8,813        0.78%          0.19%
                      =====  ===========  ===========  =============

December 31, 1998
--------------------
    Loan              Loan   Percent of   Percent of
  Delinquency Status  Count  Balance      ARM Loans    Total Assets
--------------------  -----  -----------  -----------  -------------
  30 to 59 days           4  $     1,138        0.11%          0.03%
  60 to 89 days           2          423        0.04           0.01
  90 days or more         1        3,450        0.32           0.08
  In foreclosure          5        1,097        0.10           0.02
                      -----  -----------  -----------  -------------
                         12  $     6,108        0.57%          0.14%
                      =====  ===========  ===========  =============
</TABLE>

The  following table summarizes the activity for the allowance for losses on ARM
loans  for  the nine months ended September 30, 1999 and 1998 (dollar amounts in
thousands):

                       1999   1998
                      ------  -----
Beginning balance     $  804  $  42
Provision for losses   1,193    442
Charge-offs, net           -      -
                      ------  -----
Ending balance        $1,997  $ 484
                      ======  =====

As  of  September 30, 1999, the Company had commitments to purchase $7.1 million
of  loans  through  its  correspondent  loan  program which commenced operations
during  the  second  quarter  of  1999.

The  average effective yield on the ARM assets owned, including the amortization
of  the net premium paid for the ARM assets and the Cap Agreements, was 6.11% as
of  September  30,  1999  and  5.86%  as  of  December  31,  1998.

As  of  September  30, 1999 and December 31, 1998, the Company had purchased Cap
Agreements  with  a  remaining  notional  amount  of  $3.437  billion and $4.026
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 which range
from  5.75%  to  13.00%  and average approximately 9.75%.  Of the Cap Agreements
owned by the Company as of September 30, 1999, $144 million are hedging the cost
of  financing  Hybrid  ARMs and $3.293 billion are hedging the lifetime interest
rate  cap  of  ARM  assets.  The  Company's  ARM assets portfolio, excluding ARM
assets  that  don't  have  a  lifetime interest rate cap and Hybrid ARMs, had an
average lifetime interest rate cap of 11.68%.  The Cap Agreements had an average
maturity  of 2.0 years as of September 30, 1999.  The initial aggregate notional
amount  of  the Cap Agreements declines to approximately $3.100 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 six different counterparties, five of which are
rated  AAA,  and  one  is  rated  AA.


                                       13
<PAGE>
NOTE  3.  REVERSE REPURCHASE AGREEMENTS, COLLATERALIZED NOTES PAYABLE  AND OTHER
BORROWINGS

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

As  of September 30, 1999, the Company had outstanding $3.259 billion of reverse
repurchase  agreements  with  a  weighted  average borrowing rate of 5.53% and a
weighted  average  remaining  maturity of 3.2 months.  As of September 30, 1999,
$1.564  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  September  30, 1999 were
collateralized  by ARM assets with a carrying value of $3.494 billion, including
accrued  interest.

At  September  30,  1999,  the  reverse  repurchase agreements had the following
remaining  maturities  (dollar  amounts  in  thousands):


Within 30 days      $1,462,743
31 to 89 days           89,576
90 days or greater   1,707,033
                    ----------
                    $3,259,352
                    ==========


As  of  September  30,  1999,  the  Company  had  entered  into three whole loan
financing  facilities.  One  of  the  whole  loan  financing  facilities  has  a
committed  borrowing  capacity  of $150 million, with an option to increase this
amount  to  $300  million.  This  facility  matures in January 2000.  One has an
uncommitted  amount  of  borrowing capacity of $150 million and matures in April
2000.  The  third facility is for an unspecified amount of uncommitted borrowing
capacity  and does not have a specific maturity date.  As of September 30, 1999,
the  Company  had  $1.5  million  borrowed  against  these  whole loan financing
facilities.

On December 18, 1998, the Company, through a special purpose finance subsidiary,
issued  $1.144  billion  of  callable  AAA notes ("Notes") collateralized by ARM
loans  and  ARM  securities.  As  part of this transaction, the Company retained
ownership  of  a  subordinated certificate in the amount of $32.4 million, which
represents  the  Company's  maximum  exposure  to  credit  losses  on  the loans
collateralizing  the  Notes.  As  of  September  30,  1999,  the Notes had a net
balance  of  $924.2  million,  an  effective  interest  cost  of  6.05% and were
collateralized  by  ARM loans with a principal balance of $837.8 million and ARM
securities  with  a  balance of $123.0 million.  The Notes mature on January 25,
2029  and  are  callable  by the Company at par once the balance of the Notes is
reduced  to  25% of their original balance.  In connection with the issuance and
modification  of  the  Notes,  the  Company incurred costs of approximately $6.0
million which is being amortized over the expected life of the Notes.  Since the
Notes  are  paid  down  as  the  collateral  pays  down, the amortization of the
issuance  cost will be adjusted periodically based on actual payment experience.
If  the  collateral  pays  down  faster  than  currently  estimated,  then  the
amortization  of  the  issuance cost will increase and the effective cost of the
Notes  will  increase  and,  conversely, if the collateral pays down slower than
currently  estimated,  then  the amortization of issuance cost will be decreased
and  the  effective  cost  of  the  Notes  will  also  decrease.

As  of  September  30, 1999, the Company was a counterparty to nineteen interest
rate  swap  agreements  ("Swaps") having an aggregate notional balance of $739.9
million.  As of September 30, 1999, these Swaps had a weighted average remaining
term of 3.3 years.  In accordance with these Swaps, the Company will pay a fixed
rate  of  interest  during  the  term  of these Swaps and receive a payment that
varies  monthly  with  the  one-month  LIBOR rate.  As a result of entering into
these  Swaps  and  the  Cap  Agreements that also hedge the fixed rate period of
Hybrid  ARMs,  the Company has reduced the interest rate variability of its cost
to  finance  its  ARM  assets  by  increasing  the average period until the next
repricing  of  its borrowings from 27 days to 280 days.  All of these Swaps were
entered  into  in  connection  with the Company's acquisition of Hybrid ARMs and
commitments  to  acquire  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 September 30, 1999, they were not
collateralized  by  any  ARM  assets.


                                       14
<PAGE>
During  the quarter ended September 30, 1999, the Company paid off the remaining
balance  of  $1.3 million of other borrowings that had financed a portion of its
Cap  Agreements.

The  total  cash  paid  for  interest was $60.6 million during the quarter ended
September  30,  1999.

NOTE  4.  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

The  following  table presents the carrying amounts and estimated fair values of
the Company's financial instruments at September 30, 1999 and December 31, 1998.
FASB  Statement  No. 107, Disclosures About Fair Value of Financial Instruments,
defines  the  fair  value  of  a financial instrument as the amount at which the
instrument  could be exchanged in a current transaction between willing parties,
other  than  in  a  forced  or  liquidation  sale (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                 September 30, 1999         December 31, 1998
                                -----------------------  -----------------------
                                 Carrying      Fair       Carrying       Fair
                                  Amount       Value       Amount       Value
                                ----------  -----------  -----------  ----------
<S>                             <C>         <C>          <C>          <C>
Assets:
 ARM assets                     $4,450,382  $4,439,359   $4,266,497   $4,259,374
 Cap Agreements                      6,419       6,419        1,920        1,920

Liabilities:
 Callable collateralized notes     924,238     924,238    1,127,181    1,127,181
 Other borrowings                        -           -        2,029        2,077
 Swap agreements                     1,236      (3,809)         (87)       7,326
</TABLE>

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

The  fair values of the Company's ARM securities and cap agreements are based on
market  prices  provided  by certain dealers who make markets in these financial
instruments  or third-party pricing services.  The fair values for ARM loans are
determined  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 aggregate 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 long-term debt 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,  whole  loan financing facilities, callable collateralized notes 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.

NOTE  5.  COMMON  AND  PREFERRED  STOCK

On  July  13,  1998,  the  Board of Directors approved a common stock repurchase
program  of  up  to  500,000  shares  at  prices  below  book  value, subject to
availability of shares and other market conditions.   On September 18, 1998, the
Board of Directors expanded this program by approving the repurchase of up to an
additional  500,000  shares.  The  Company  did not repurchase any shares of its
common  stock  under  this  program during the three or nine month periods ended
September  30, 1999.  To date, the company has repurchased 500,016 at an average
price  of  $9.28  per  share.


                                       15
<PAGE>
On  September  15, 1999, the Company declared a third quarter dividend of $0.605
per  share  to  the  shareholders  of  the Series A 9.68% Cumulative Convertible
Preferred  Stock which was paid on October 12, 1999 to preferred shareholders of
record  as  of  September  30,  1999.

On October 14, 1999, the Company declared a third quarter 1999 dividend of $0.23
per  common share which will be paid on November 17, 1999 to common shareholders
of  record  as  of  October  31,  1999.

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

NOTE  6.  STOCK  OPTION  PLAN

The  Company has a Stock Option and Incentive Plan (the "Plan") which 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, non-qualified stock
options  ("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 issued DERs at the same time as ISOs and NQSOs based upon a formula
defined  in  the Plan.  During 1999 the number of DERs issued is based on 45% of
the  ISOs and NQSOs granted during 1999.  The number of PSRs issued are 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  nine  month  period  ended  September  30, 1999, there were 141,779
options  granted  to  buy  common shares at an average exercise price of $9.0625
along  with  63,803  DERs.  As  of  September  30, 1999, the Company had 744,473
options  outstanding at exercise prices of $9.0625 to $22.625 per share, 488,516
of  which  were exercisable.  The weighted average exercise price of the options
outstanding  was  $15.92  per  share.  As  of the September 30, 1999, there were
141,925 DERs granted, of which 113,764 were vested, and 12,714 PSRs granted.  In
addition,  the Company recorded an expense associated with the DERs and the PSRs
of  $26,000 and $72,000 for the three and nine month periods ended September 30,
1999,  respectively.

Notes  receivable  from  stock  sales  result from the Company selling shares of
common  stock  through the exercise of stock options partially for consideration
for  notes  receivable.  The notes have maturity terms ranging from 3 years to 9
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 September 30, 1999, there
were  $4.6  million  of  notes  receivable  from  stock  sales  outstanding.

NOTE  7.  TRANSACTIONS  WITH  AFFILIATES

The Company has a Management Agreement (the "Agreement") with Thornburg Mortgage
Advisory  Corporation  ("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.


                                       16
<PAGE>
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.

For the quarters ended September 30, 1999 and 1998, the Company paid the Manager
$1,023,000  and  $1,040,000, respectively, in base management fees in accordance
with the terms of the Agreement.  For the nine month periods ended September 30,
1999  and  1998, the Company paid the Manager base management fees of $3,061,000
and  $3,115,000,  respectively.

The Manager is also entitled to earn performance based compensation in an amount
equal  to  20%  of the Company's annualized net income, before performance based
compensation,  above  an  annualized Return on Equity equal to the ten year U.S.
Treasury  Rate plus 1%.  For purposes of the performance fee calculation, equity
is  generally  defined  as  proceeds  from  issuance  of  common  stock  before
underwriter's discount and other costs of issuance, plus retained earnings.  For
the  quarters  ended  September  30, 1999 and 1998 and for the nine month period
ended  September  30,  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%.  For the nine
month period ended September 30, 1998, the Company paid the Manager an incentive
fee  of  $759,000.


                                       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 and the
availablity  of  credit to finance mortgage assets.  The statements in the "Risk
Factors"  section  of  the  Company's 1998 Annual Report on Form 10-K on page 13
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  Asset  Corporation  (dba  Thornburg  Mortgage,  Inc.)  and
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.  Thornburg Mortgage Asset Corporation began using the
dba  Thornburg Mortgage, Inc. effective October 14, 1999.  The Company will seek
approval  from  its  shareholders  to  formally  change  its  corporate  name to
Thornburg  Mortgage,  Inc.  at  its  year 2000 annual shareholders meeting.  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.  In  1998,  in  connection with the Company's issuance of $1.1
billion  of  callable  AAA  notes,  the  Company  formed  two  REIT  qualified
subsidiaries.  These  subsidiaries  are  consolidated in the Company's financial
statements  and  federal  and  state  tax  returns.

In  1998, the Company began investing in hybrid ARM assets ("Hybrid ARMs") which
are  included  in  the  Company's  references  to  ARM securities and ARM loans.
Hybrid  ARMs 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.  On July 15, 1999, the Company's Board of Directors expanded the
Company's  investment policy to allow for the acquisition of Hybrid ARMs with an
initial  fixed  rate  period  of  up  to  ten  years.  Previously, the Company's
investment  policy  limited  the  acquisition of Hybrid ARMs to Hybrid ARMs with
initial  fixed  rate  periods  of five years or less.  To mitigate interest-rate
risk,  it  is  the  Company's policy to fund the Hybrid ARMs with long-term debt
obligations that mature within one year or less of the first interest rate reset
date  of  the  Hybrid  ARMs.

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.  The Company's investment policy
limits its investment in Hybrid ARMs to no more than 30% of its total investment
portfolio,  and  limits  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  no more than one year.  The
Company's  investment  policy  further limits its investment in Hybrid ARMs that
have  a  fixed  rate period of seven years or greater to no more than 10% of its
portfolio.

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:


                                       18
<PAGE>
(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 ARM loans that have been deposited into a
trust and have received a credit rating of AA or better from at least one Rating
Agency.

The remainder of the Company's ARM asset 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");  or
(3)     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
less  than  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
has  never had a large investment in Other Investment securities and believes it
has  always  been  very  selective  and  cautious  regarding  these investments.

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").

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

At  September  30, 1999, the Company held total assets of $4.532 billion, $4.457
billion  of  which  consisted  of  ARM assets, as compared to $4.345 billion and
$4.268  billion,  respectively,  at  December  31,  1998.  Since  commencing
operations,  the Company has purchased either ARM securities (backed by agencies
of  the  U.S.  government  or  privately-issued,  generally publicly registered,
mortgage  assets,  most  of  which are rated AA or higher by at least one of the
Rating  Agencies)  or ARM loans generally originated to "A" quality underwriting
standards.  At  September  30,  1999,  95.9%  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,  80.6%  are  in  the  form  of
adjustable-rate  pass-through  certificates  or  ARM  loans.  The  remainder are
floating rate classes of CMOs (15.4%) or investments in floating rate classes of
CBOs  (4.0%)  backed  primarily  by  mortgaged-backed  securities.


                                       19
<PAGE>
The  following  table  presents  a schedule of ARM assets owned at September 30,
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)

                                September 30, 1999          December 31, 1998
                             -------------------------  -------------------------
                               Carrying     Portfolio     Carrying     Portfolio
                                 Value         Mix          Value         Mix
                             -------------  ----------  -------------  ----------
<S>                          <C>            <C>         <C>            <C>
HIGH QUALITY:
 FHLMC/FNMA                  $  2,057,942        46.2%  $  2,072,871        48.6%
 Privately Issued:
   AAA/Aaa Rating             1,593,328(1)       35.8    1,398,659(1)       32.8
                             -------------  ----------  -------------  ----------
   AA/Aa Rating                   612,520        13.7        597,493        14.0
                             -------------  ----------  -------------  ----------
     Total Privately Issued     2,205,848        49.5      1,996,152        46.8
                             -------------  ----------  -------------  ----------

                             -------------  ----------  -------------  ----------
     Total High Quality         4,263,790        95.7      4,069,023        95.4
                             -------------  ----------  -------------  ----------

OTHER INVESTMENT:
 Privately Issued:
   A Rating                        52,089         1.2         40,591         1.0
   BBB/Baa Rating                  84,768         1.9         88,273         2.1
   BB/Ba Rating and Other        47,098(1)        1.0       44,120(1)        0.9
 Whole loans                        9,056         0.2         26,410         0.6
                             -------------  ----------  -------------  ----------
     Total Other Investment       193,011         4.3        199,394         4.6
                             -------------  ----------  -------------  ----------

     Total ARM Portfolio     $  4,456,801       100.0%  $  4,268,417       100.0%
                             =============  ==========  =============  ==========
<FN>
     (1)   AAA  Rating  category includes $818.5 million and $1.020 billion as of
September  30, 1999 and December 31, 1998, respectively, of whole loans that have
been  credit  enhanced  by  an  insurance policy purchased from a third-party and
credit  support  from  an  unrated  subordinated  certificate  for  $32.3 million
included  in  BB/Ba Rating and Other category and that are held as collateral for
callable  AAA  notes.
</TABLE>

As  of  September  30,  1999,  the Company had reduced the cost basis of its ARM
securities by $1.6 million to reflect potential future credit losses (other than
temporary  declines  in  fair  value).  The  Company  is providing for potential
future  credit losses on two securities that have an aggregate carrying value of
$10.2  million,  which represent less than 0.3% of the Company's total portfolio
of ARM assets.  Although both of these assets continue to perform, there is only
minimal remaining credit support to mitigate the Company's exposure to potential
future  credit  losses.

Additionally,  during  the  three  months  ended September 30, 1999, the Company
recorded a $429,000 provision for potential credit losses on its loan portfolio,
although  no actual losses have been realized in the loan portfolio to date.  As
of September 30, 1999, the Company's ARM loan portfolio included nine loans that
are  considered  seriously  delinquent  (60  days  or  more  delinquent) with an
aggregate  balance  of  $6.2  million.  The ARM loan portfolio also includes one
real  estate  property  ("REO")  that  the  Company  owns  as  the result of the
foreclosure  process in connection with one loan in the amount of $331,000.  The
average  original  effective  loan-to-value ratio of these nine delinquent loans
and  REO is approximately 66%. The Company's credit reserve policy regarding ARM
loans  is  to  record  a  monthly  provision  of  0.15% (annualized rate) 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  and  quality  of  underwriting  standards  applied  by  the  originator.


                                       20
<PAGE>
The  following table classifies the Company's portfolio of ARM assets by type of
interest  rate  index.

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


                                             September 30, 1999      December 31, 1998
                                           ----------------------  ----------------------
                                            Carrying   Portfolio    Carrying   Portfolio
                                             Value        Mix        Value        Mix
                                           ----------  ----------  ----------  ----------
<S>                                        <C>         <C>         <C>         <C>
ARM ASSETS:
    INDEX:
     One-month LIBOR                       $  694,516       15.6%  $  556,574       13.0%
     Three-month LIBOR                        177,175        4.0      181,143        4.2
     Six-month LIBOR                          679,752       15.2      939,824       22.0
     Six-month Certificate of Deposit         326,926        7.3      313,268        7.3
     Six-month Constant Maturity Treasury      38,890        0.9       49,023        1.2
     One-year Constant Maturity Treasury    1,360,558       30.5    1,479,054       34.7
     Cost of Funds                            229,792        5.2      268,486        6.3
                                           ----------  ----------  ----------  ----------
                                            3,507,609       78.7    3,787,372       88.7
                                           ----------  ----------  ----------  ----------

HYBRID ARM ASSETS                             949,192       21.3      481,045       11.3
                                           ----------  ----------  ----------  ----------
                                           $4,456,801      100.0%  $4,268,417      100.0%
                                           ==========  ==========  ==========  ==========
</TABLE>


The  portfolio  had  a current weighted average coupon of 6.85% at September 30,
1999.  This consisted of an average coupon of 6.56% on the Hybrid ARM portion of
the  portfolio  and an average coupon of 6.94% on the rest of the portfolio.  If
the  non-hybrid  portion  of the portfolio had been "fully indexed" at September
30, 1999, the weighted average coupon of the non-hybrid portion of the portfolio
would  have  been approximately 7.38%, based upon the current composition of the
portfolio  and  the  applicable  indices.  As  of  December  31,  1998,  the ARM
portfolio  had  a  weighted  average  coupon  of 7.28%, consisting of an average
coupon  of  6.96%  on  the  Hybrid  ARMs  and  7.32% on the remainder of the ARM
portfolio.  The  lower  average  coupon on the ARM portfolio as of September 30,
1999  compared to December 31, 1998 is primarily the result of the ARM portfolio
adjusting  to  the lower interest rate market that existed during the first half
of  1999 as individual ARM loans and securities reached their scheduled interest
rate  reset  dates.  Due  to  rises in the interest rate market during the third
quarter,  the  average  coupon  on  the  non-hybrid portion of the Company's ARM
portfolio  is  expected  to  rise  during  the  fourth  quarter  of  1999.

At  September 30, 1999, the current yield of the ARM assets portfolio was 6.09%,
compared  to  5.86%  as  of  December 31, 1998, with an average term to the next
repricing  date of 353 days as of September 30, 1999, compared to 253 days as of
December  31,  1998.  The  average  term to the next repricing date includes the
effect  of  Hybrid  ARMs  which have an average remaining fixed-rate term of 3.8
years as of September 30, 1999.  The non-hybrid portion of the ARM portfolio has
an average next repricing term of 93 days as of September 30, 1999.  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  improvement  of  0.23%  in the yield as of September 30, 1999,  compared to
December  31, 1998, is due to a number of factors including reduced amortization
of  purchase  premiums,  which improved by 0.67%, and a 0.01% improvement in the
impact  of  the  non-interest  earning principal payment receivables.  These two
factors were partially offset by a 0.43% decrease in the weighted average coupon
and  an  increase  in  the  cost  of  hedging  by  0.02%.


                                       21
<PAGE>
The  following  table  presents various characteristics of the Company's ARM and
Hybrid  ARM  loan portfolio as of September 30, 1999.  This information pertains
to  both  the loans held for securitization and the loans held as collateral for
the  callable  AAA  notes  payable.

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


                              Average      High        Low
                             ---------  -----------  -------
<S>                          <C>        <C>          <C>

  Unpaid principal balance   $273,750   $3,450,000   $1,975
  Coupon rate on loans           7.25%        9.63%    5.00%
  Pass-through rate              6.85%        9.23%    4.61%
  Pass-through margin            2.00%        5.06%    0.48%
  Lifetime cap                  13.02%       16.75%    9.75%
  Original Term (months)          344          480       72
  Remaining Term (months)         325          360       64
</TABLE>

<TABLE>
<CAPTION>
<S>                                      <C>     <C>                     <C>
Geographic Distribution (Top 5 States):          Property type:
  California                             21.46%  Single-family           64.56%
  Florida                                11.96   DeMinimus PUD           20.76
  Georgia                                 6.85   Condominium              9.51
  New York                                6.82   Other                    5.17
  New Jersey                              4.83

Occupancy status:                                Loan purpose:
  Owner occupied                         84.00%  Purchase                55.88%
  Second home                            11.28   Cash out refinance      25.83
  Investor                                4.72   Rate & term refinance   18.29

Documentation type:                              Periodic Cap:
  Full/Alternative                       96.34%                    None  58.54%
  Other                                   3.66                    3.00%   0.03
                                                                  2.00%  39.65
  Average effective original                                      1.00%   0.54
    loan-to-value:                       66.58%                   0.50%   1.24
</TABLE>


On  May  15,  1999,  the  Company  commenced the operations of its correspondent
lending  program  under which the Company acquires ARM and Hybrid ARM loans that
have  been originated in conformance with the Company's criteria by a network of
correspondent  mortgage  lenders  approved  by  the  Company.   The  Company has
selectively  approved  twenty  correspondents  and  is  currently  either  in
discussions  or  considering  the  applications  of  eight  others.  The Company
reviews the financial strength, the past ability to originate ARM and Hybrid ARM
products  as  well  as  the credit performance and prepayment characteristics of
past  originations  of  a  prospective  correspondent  in making its decision to
approve  a  correspondent.  The  Company's  underwriting guidelines specify that
borrowers  must  be  "A"  quality  only  and are generally more restrictive than
current  FNMA  guidelines,  other  than  the  size  of the loan.  Over time, the
Company  expects  that  most  of  the  loans  acquired through the correspondent
lending  program  will  be non-conforming  or "Jumbo" loans based on the size of
the  loan.  (Currently,  any  loan  over $240,000 is non-conforming or a "Jumbo"
loan).  However,  most  of  the loans acquired to date through this program have
been  conforming.  The  Company  believes  that  one  of  the  benefits  of  the
correspondent  lending  program will be the acquisition of loans at prices close
to  par.  In fact, the average price of the loans acquired to date has been at a
discount  price.  Acquiring  loans at or below par eliminates the risk of having
to  write-off  the  remaining  premium  balance  if  a  loan prepays sooner than
expected and should help to stabilize the Company's net income during periods of
rapid  prepayment  of  ARM  assets.

During  the  quarter  ended  September  30,  1999,  the Company purchased $308.5
million  of  ARM  assets,  96.9%  of which were High Quality assets.  Of the ARM
assets  acquired during the three months ended September 30, 1999, approximately
55%  were Hybrids ARMs, 35% were indexed to the six-month certificate of deposit
index,  7%  were  indexed  to  U.S.  Treasury  bill rates and 3% were indexed to
one-month  LIBOR.

During  the nine months ended September 30, 1999, the Company purchased $1,247.5
million  of  ARM  assets,  97.1%  of which were High Quality assets.  Of the ARM
assets  acquired  during  the  first nine months of 1999, approximately 50% were
Hybrid  ARMs,  22% were indexed to LIBOR, 17% were indexed to U.S. Treasury bill
rates,  9%  were  indexed  to the six-month certificate of deposit index and the
remaining  2%  were  indexed  to  a  Cost  of  Funds  index.


                                       22
<PAGE>
As  of  September  30,  1999, the only purchase commitments that the Company had
were  commitments  to  purchase  $7.1 million of loans through its correspondent
loan  program.

During  the  three  month  period ended September 30, 1999, the Company sold ARM
assets  in  the  amount of $10.3 million for a gain of $15,000.  During the nine
month period ended September 30, 1999, the Company sold ARM assets in the amount
of  $24.3  million  for  a gain of $50,000.  The Company acquires ARM assets for
investment  purposes  only  and therefore generally does not realize significant
gains  and  losses from the sale of assets in the normal course of its business.
The  Company  does  sell  selected  assets at times for the purpose of improving
long-term  portfolio characteristics or to improve liquidity, as part of its ARM
portfolio  management.

For  the quarter ended September 30, 1999, the Company's ARM assets paid down at
an  approximate  average  annualized constant prepayment rate of 22% compared to
32% for the quarter ended September 30, 1998 and 26% for the prior quarter ended
June 30, 1999.  When prepayment experience exceeds expectations, 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  is less than the assumed constant prepayment rate, 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 securities improved by 0.75%
from a negative adjustment of 2.62% of the portfolio as of December 31, 1998, to
a  negative  adjustment  of  1.87%  as  of  September  30,  1999.  This negative
adjustment  is  substantially  the  same  as  at  June  30,  1999 when the price
adjustment  was  1.83%.  The  fair value adjustment was relatively stable during
the third quarter generally due to the outlook for slower prepayments, which had
a  positive  impact  and which, for the most part, offset the negative impact of
rising  interest  rates  and  wider  spreads  on  mortgage  products.  The price
improvement  from  year-end  is  primarily  the result of an improved market for
mortgage  products  in  general,  as  buying  and selling activity has picked up
during  1999  with  the improvement in the outlook regarding prepayments and the
financing  of  mortgage  assets, compared to the end of 1998.  The amount of the
negative adjustment to the fair value of the ARM securities decreased from $83.2
million  as  of  December  31,  1998, to $66.7 million as of September 30, 1999.

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.  The 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 September 30, 1999, 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
$3.293  billion  with  an  average  final  maturity  of 1.9 years, compared to a
remaining  notional  balance of $4.026 billion with an average final maturity of
2.3  years at December 31, 1998.  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  13.00% and average approximately 9.91%.  The Company has also entered
into  $144.2 million of Cap Agreements in connection with hedging the fixed rate
period  of  certain  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 which generally corresponds to the initial fixed
rate term of Hybrid ARM assets.  The Cap Agreements hedging Hybrid ARM assets as
of  September  30, 1999 would receive cash payments if one-month LIBOR increases
above  certain  specified  levels,  which  range from 5.75% to 6.00%, and have a
remaining  average  term  of  3.7  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 September 30, 1999, the fair value of the
Company's  Cap Agreements was $6.4 million, $0.1 million less 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  September  30,  1999:

<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>

      25,916     8.00%  $       26,000          7.10%       3.5 Years
     400,984      8.74          401,003          7.50              0.6
     522,011     10.15          522,073          8.00              2.5
     159,522     11.07          158,458          8.50              0.5
     242,832     11.35          242,888          9.00              0.2
      84,934     11.43           85,203          9.50              1.6
     286,587     11.73          287,535         10.00              2.7
     309,905     12.22          309,797         10.50              1.6
     177,119     12.35          176,908         11.00              4.8
     528,908     12.83          528,915         11.50              2.9
     382,279     13.50          381,934         12.00              2.1
      91,916     14.09           92,092         12.50              1.3
     108,390     15.96           80,296         13.00              0.4
------------  ---------  --------------  -------------  --------------
   3,321,303    11.68%  $    3,293,102          9.91%       1.9 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 September 30, 1999, the Company was a counterparty to twenty interest rate
swap  agreements  ("Swaps")  having  an  aggregate  notional  balance  of $739.9
million.  As of September 30, 1999, these Swaps had a weighted average remaining
term of 3.3 years.  In accordance with these Swaps, the Company will pay a fixed
rate  of  interest  during  the  term  of these Swaps and receive a payment that
varies  monthly  with the one-month LIBOR rate.  All of these Swaps were entered
into in connection with the Company's acquisition of Hybrid ARMs.  Generally, as
the Company enters into a commitment to purchase a Hybrid ARM asset, the Company
will  simultaneously  enter  into  a  transaction  to hedge the financing of the
Hybrid  ARM  to  achieve  a fixed rate during a substantial period of the Hybrid
ARMs  fixed  rate period.  At times, since there is a period of time between the
commitment date and the actual cash purchase date of the Hybrid ARM, the Company
will  enter  into a short-term hedge transaction on the commitment date in order
to achieve a cost of financing on the cash settlement date that approximates the
Company's expected cost of financing at the time it entered into the commitment.
The  Company  generally  does this by entering into a commitment to sell similar
duration  fixed-rate  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.  The  Swaps  hedge the cost of financing Hybrid ARMs
during  a  substantial  period  of their fixed rate term, generally three to ten
years.  The average remaining fixed rate term of the Company's Hybrid ARM assets
as  of  September 30, 1999 was 3.8 years.  The Company has also entered into one
delayed  Swap Agreement that becomes effective for a one year term, beginning in
April  of  2002.  This  delayed  Swap  Agreement  has a notional balance of $100
million  and  is  designated  to  hedge the interest rate exposure of Hybrid ARM
assets  upon  the termination of certain other Swap Agreements.  As of September
30,  1999,  the  Swaps  had a positive fair value to the Company of $3.8 million
which  was $5.0 million more favorable to the Company than their carrying value.
Since  the  Swaps  are designated a liability hedge, the unrealized gain of $5.0
million  is  off  balance  sheet  and  is  not  recorded by the Company as Other
Comprehensive  Income  as  part  of  the  Company's  shareholders'  equity.

RESULTS  OF  OPERATIONS  FOR  THE  THREE  MONTHS  ENDED  SEPTEMBER  30,  1999

For  the  quarter  ended  September  30,  1999,  the  Company's  net  income was
$7,155,000,  or  $0.26  per  share  (Basic and Diluted EPS), based on a weighted
average of 21,490,000 shares outstanding.  That compares to $4,678,000, or $0.14
per  share  (Basic  and  Diluted EPS), based on a weighted average of 21,858,000
shares  outstanding  for  the  quarter  ended  September 30, 1998.  Net interest
income  for  the quarter totaled $9,332,000, compared to $5,794,000 for the same
period  in 1998.  Net interest income is comprised of the interest income earned
on mortgage investments less interest expense from borrowings.  During the three
months  ended September 30, 1999, the Company recorded $15,000 of gains from the
sale  of ARM assets compared to a net gain of $755,000 during the same period of
1998.  Additionally,  during  the third quarter of 1999, the Company reduced its
earnings  and  the  carrying  value  of its ARM assets by reserving $764,000 for
potential  credit losses, compared to $561,000 during the third quarter of 1998.
During  the  third  quarter  of 1999, the Company incurred operating expenses of
$1,428,000,  consisting  of  a  base  management  fee  of  $1,023,000  and other
operating  expenses  of  $405,000.  During  the same period of 1998, the Company
incurred  operating  expenses of $1,310,000, consisting of a base management fee
of  $1,040,000  and  other  operating  expenses  of  $270,000.


                                       24
<PAGE>
The  Company's  return  on average common equity was 6.75% for the quarter ended
September  30,  1999  compared to 2.54% for the quarter ended September 30, 1998
and  compared to 6.60% for the prior quarter ended June 30, 1999.  The Company's
return  on  equity  improved  in this past quarter compared to the prior quarter
primarily  because  the Company's net interest income, the Company's core source
of  income,  improved.

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  which 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, 1997     18.85%         0.32%    0.01%          1.65%    1.43%       2.07%   13.40%     6.55%     6.85%
Jun 30, 1997     19.48%         0.34%    0.03%          1.81%    1.25%       2.67%   13.45%     6.71%     6.74%
Sep 30, 1997     17.66%         0.30%    0.45%          1.64%    1.24%       2.23%   12.70%     6.26%     6.44%
Dec 31, 1997     15.62%         0.33%    1.06%          1.59%    1.01%       2.12%   11.63%     5.92%     5.71%
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%
-------------
<FN>
(1)     Average  common  equity  excludes  unrealized  gain  (loss)  on  available-for-sale  ARM  securities.
(2)     Excludes  performance  fees.
</TABLE>

The  Company's return on common equity of 6.75% in the third quarter of 1999 was
a  substantial improvment over the 3.54% return in the third quarter of 1998 and
a  modest  improvement over the 6.60% return in the second quarter of 1999.  The
Company's  return  on  equity  from net interest income has improved by 68% from
6.82%  in the third quarter of 1998 compared to 11.48% during the same period in
1999.  As presented above, there has been an improvement in the return on equity
from  net  interest  income  each  quarter  since the third quarter of 1998.  As
presented  in the table below, the most significant improvement in core earnings
resulted from the lower cost of funds which improved net interest income by $7.8
million.  Coupon  interest  income  has decreased by $12.1 million, but this was
partially  offset  by  the  decrease  in  the  amortization of net premium which
declined  by  $7.8 million resulting in a net decrease in interest income on ARM
assets  of  $4.3 million.  The decline in the amortization of the net premium is
primarily  the  result of the following three items: (1) a slow down in the rate
of  ARM  asset prepayments (22% rate of prepayments in the third quarter of 1999
versus  32%  in  the  third  quarter  of  1998);  (2) the decline in the average
interest  coupon  of  the  ARM  portfolio (6.85% versus 7.40%) resulting in less
gross  interest income to adjust to an appropriate yield; and (3) the cumulative
effect of recent purchases at lower prices such that there is less premium to be
amortized  over  the remaining expected life of the portfolio.  During 1999, the
average purchase price of newly acquired ARM assets has been approximately 0.50%
above  par  as  compared to the portfolio average remaining purchase price as of
December  31,  1998  of  2.47%.  As of September 30, 1999, the average remaining
purchase  price of the ARM portfolio is 2.00% and is expected to decline further
as  the Company realizes the benefits of its newly created correspondent lending
business,  the  continued  purchase  of  bulk loans and continues to selectively
purchase  other  ARM and Hybrid ARM assets at prices below the current portfolio
average.


                                       25
<PAGE>
The following table presents the components of the Company's net interest income
for  the  quarters  ended  September  30,  1999  and  1998:

<TABLE>
<CAPTION>


                   COMPARATIVE NET INTEREST INCOME COMPONENTS
                          (Dollar amounts in thousands)

                                         Quarters  Ending
                                          September  30,
                                        -------------------
                                          1999      1998
                                        --------  ---------
<S>                                     <C>       <C>

  Coupon interest income on ARM assets  $74,078   $ 86,183
  Amortization of net premium            (5,240)   (13,068)
  Amortization of Cap Agreements         (1,368)    (1,358)
  Amort. of deferred gain from hedging      185        467
  Cash and cash equivalents                 300         28
                                        --------  ---------
  Interest income                        67,955     72,252
                                        --------  ---------

  Reverse repurchase agreements          43,609     66,252
  AAA notes payable                      14,179          -
  Other borrowings                           31        144
  Interest rate swaps                       804         62
                                        --------  ---------
  Interest expense                       58,623     66,458
                                        --------  ---------

  Net interest income                   $ 9,332   $  5,794
                                        ========  =========
</TABLE>

The  following  table  presents  the  average  balances for each category of the
Company's  interest  earning  assets  as  well as the Company's interest bearing
liabilities,  with  the  corresponding effective rate of interest annualized for
the  quarters  ended  September  30,  1999  and  1998:

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


                                             For the Quarter Ended   For the Quarter Ended
                                               September 30, 1999      September 30, 1998
                                            -----------------------  ----------------------
                                              Average    Effective    Average    Effective
                                              Balance       Rate      Balance       Rate
                                            -----------  ----------  ----------  ----------
<S>                                         <C>          <C>         <C>         <C>

Interest Earning Assets:
  Adjustable-rate mortgage assets           $4,538,040        5.97%  $4,959,879       5.82%
  Cash and cash equivalents                     14,038        3.57        3,815       2.89
                                            -----------  ----------  ----------  ----------
                                             4,552,078        5.97    4,963,694       5.82
                                            -----------  ----------  ----------  ----------
  Interest Bearing Liabilities:
  Borrowings                                 4,181,869        5.61    4,570,463       5.82
                                            -----------  ----------  ----------  ----------

  Net Interest Earning Assets and Spread    $  370,209        0.36%  $  393,231       0.00%
                                            ===========  ==========  ==========  ==========

  Yield on Net Interest Earning Assets (1)                    0.82%                   0.47%
                                                         ==========              ==========
<FN>
(1)     Yield  on  Net  Interest  Earning  Assets  is  computed  by dividing annualized net
interest  income  by  the  average  daily  balance  of  interest  earning  assets.
</TABLE>

As  a  result of the yield on the Company's interest-earning assets improving to
5.97% during the third quarter of 1999 from 5.82% during the same period of 1998
and  the  Company's cost of funds decreasing to 5.61% from 5.82% during the same
time periods, net interest income increased by $3,538,000.  This increase in net
interest  income  is primarily a favorable rate variance, partially offset by an
unfavorable  volume  variance.  There  was a combined favorable rate variance of
$4,161,000, composed of a favorable rate variance of $1,773,000 on the Company's
ARM  assets  portfolio  and other interest-earning assets as well as a favorable
rate  variance  on  borrowings of $2,388,000.  The decreased average size of the
Company's portfolio during the third quarter of 1999 compared to the same period
in  1998  resulted  in  less  net  interest  income  in  the amount of $622,000,
partially  offsetting  the more favorable rate variance.  The average balance of
the  Company's  interest-earning  assets  was  $4.552  billion  during the third
quarter  of 1999, compared to $4.964 billion during the third quarter of 1998 --
a  decrease  of  8%.  The  Company  allowed its portfolio to decrease during the
third  quarter  of  1999  in  order  to  increase liquidity, consistent with its
previously  reported  contingency  plan  in connection with preparation for Year
2000  issues  and  also  in anticipation of potential reduced ability to finance
certain  mortgage  assets  over  year-end.


                                       26
<PAGE>
The  following  table  highlights  the components of net interest spread and the
annualized  yield  on  net interest-earning assets as of each applicable quarter
end:

<TABLE>
<CAPTION>


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


                                    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, 1997   $2,950.6           7.93%     7.53%     0.89%     6.65%     5.67%      0.98%     1.54%
Jun 30, 1997    3,464.1           7.75%     7.57%     0.90%     6.67%     5.77%      0.90%     1.39%
Sep 30, 1997    4,143.7           7.63%     7.65%     1.07%     6.58%     5.79%      0.79%     1.22%
Dec 31, 1997    4,548.9           7.64%     7.56%     1.18%     6.38%     5.91%      0.47%     0.96%
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%     -0.08%     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%
<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.
     (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:
</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, 1997       0.63%        0.13%      0.19%        (0.07)%        0.89%
Jun 30, 1997       0.66%        0.13%      0.16%        (0.05)%        0.90%
Sep 30, 1997       0.85%        0.12%      0.15%        (0.05)%        1.07%
Dec 31, 1997       0.94%        0.14%      0.14%        (0.04)%        1.18%
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%
</TABLE>

As  of  September  30,  1999,  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, and its cash and cash equivalents was 6.09%,
compared  to 5.74% as of June 30, 1999-an increase of 0.35%.  The Company's cost
of  funds  as of September 30, 1999, was 5.74%, compared to 5.40% as of June 30,
1999  -  an  increase of 0.34%.  As a result of these changes, the Company's net
interest spread as of September 30, 1999 was 0.35%, compared to 0.34% as of June
30,  1999.  The  slight  improvement  in  the  net  interest  spread  is largely
attributable  to  the  impact of the slower rate of ARM portfolio prepayments on
the  amortization  of  the purchase premium which more than offset the impact of
rising  interest  rates  on  the  Company's  cost  of  funds.


                                       27
<PAGE>
The  Company's  spreads  and  net  interest income have been negatively impacted
since  early  1998  by  the  spread relationship between U.S. Treasury rates and
LIBOR.  This  spread  relationship has 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  this period of time, U.S. Treasury rates decreased significantly
whereas LIBOR did not decrease 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.  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
30.5%  at  September  30, 1999 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 Index to
                        U.S. Treasury     Month LIBOR       Month LIBOR        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

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
</TABLE>

The  Company's  provision for losses has increased with the acquisition of whole
loans.  The provision for loan losses is based on an annualized rate of 0.15% on
the  outstanding  principal  balance  of  loans as of each month-end, subject to
certain adjustments as discussed above.  As of September 30, 1999, the Company's
whole  loans,  including  those held as collateral for the AAA notes payable and
those  that  have  been  securitized  by  the  Company for which the Company has
retained credit loss exposure, accounted for 25.6% of the Company's portfolio of
ARM assets compared to 16.7% as of September 30, 1998.  To date, the Company has
not  experienced  any  actual  losses  in its whole loan portfolio, but based on
industry  standards,  losses  are  expected  and  are  being reserved for 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:


                                       28
<PAGE>
<TABLE>
<CAPTION>
    RECONCILIATION OF REPORTED NET INCOME TO TAXABLE NET INCOME
                 (Dollar amounts in thousands)


                                                Quarters  Ending
                                                 September  30,
                                               ------------------
                                                 1999      1998
                                               --------  --------
<S>                                            <C>       <C>
Net income                                     $ 7,155   $ 4,678
 Additions:
 Provision for credit losses                       764       561
 Net compensation related items                     95        55
   Deductions:
        Dividend on Series A Preferred Shares   (1,670)   (1,670)
        Capital loss carryover from 1998           (15)        -
       Actual credit losses on ARM securities     (140)     (425)
                                               --------  --------
Taxable net income                             $ 6,189   $ 3,199
                                               ========  ========
</TABLE>

For  the  quarter  ended  September  30,  1999, the Company's ratio of operating
expenses  to  average assets was 0.13% compared to 0.10% for the same quarter in
1998.  The primary reason for the increase in the ratio of operating expenses to
average  assets  in  the respective third quarters in 1999 and 1998 is the lower
level  of  average  assets during the 1999 third quarter.  If average assets had
been  the  same in both quarters, the ratio in 1999 would have been 0.02% lower.
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 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%.  During the third quarter of 1999 and
1998,  the  Company did not pay the Manager a performance fee in accordance with
the terms of the Management Agreement.  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, 1997               0.14%              0.11%            0.25%
Jun 30, 1997               0.13%              0.09%            0.22%
Sep 30, 1997               0.12%              0.09%            0.21%
Dec 31, 1997               0.12%              0.05%            0.17%
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%
</TABLE>

RESULTS  OF  OPERATIONS  FOR  THE  NINE  MONTHS  ENDED  SEPTEMBER  30,  1999

For  the  nine  months  ended  September  30, 1999, the Company's net income was
$18,787,000,  or  $0.64  per  share (Basic and Diluted EPS), based on a weighted
average  of  21,490,000  shares  outstanding.  That  compares to $22,649,000, or
$0.82  per  share  (Basic  and  Diluted  EPS),  based  on  a weighted average of
21,488,000 shares outstanding for the nine months ended September 30, 1998.  Net
interest income for the quarter totaled $24,970,000, compared to $24,996,000 for
the  same  period  in  1998.  Net  interest  income is comprised of the interest
income  earned  on  mortgage  investments less interest expense from borrowings.
During the first nine months of 1999, the Company recorded a gain on the sale of
ARM  securities  of  $50,000 as compared to a gain of $3,780,000 during the same
period of 1998.  Additionally, during the first nine months of 1999, the Company
reduced  its  earnings  and  the  carrying  value of its ARM assets by reserving
$2,139,000  for potential credit losses, compared to $1,402,000 during the first
nine  months  of  1998.  During  the  nine  months ended September 30, 1999, the
Company  incurred  operating  expenses  of  $4,094,000,  consisting  of  a  base
management fee of $3,061,000 and other operating expenses of $1,033,000.  During
the  same period of 1998, the Company incurred operating expenses of $4,725,000,
consisting  of  a  base management fee of $3,115,000, a performance-based fee of
$759,000  and  other  operating  expenses  of  $851,000.

The Company's return on average common equity was 5.7% for the nine months ended
September  30,  1999  compared  to  7.0% for the nine months ended September 30,
1998.  The  primary reasons for the lower return on average common equity is the
lower  level  of gains recorded during this nine month period on the sale of ARM
assets  as  compared  to  the  same  period  during 1998 and the higher level of
provisions  for  credit  losses  commensurate  with  the  increased  size of the
Company's  whole  loan  portfolio.


                                       30
<PAGE>
The  following  table  reflects  the  average  balances for each category of the
Company's  interest  earning  assets  as  well as the Company's interest bearing
liabilities,  with  the  corresponding effective rate of interest annualized for
the  nine  month  periods  ended  September  30,  1999  and  1998:

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


                                              For the Nine Month      For the Nine Month
                                                 Period Ended            Period Ended
                                              September 30, 1999      September 30, 1998
                                            -----------------------  ----------------------
                                              Average    Effective    Average    Effective
                                              Balance       Rate      Balance       Rate
                                            -----------  ----------  ----------  ----------
<S>                                         <C>          <C>         <C>         <C>

Interest Earning Assets:
  Adjustable-rate mortgage assets           $4,359,562        5.80%  $4,906,926       6.02%
  Cash and cash equivalents                     25,007        6.37        6,981       3.93
                                            -----------  ----------  ----------  ----------
                                             4,384,569        5.80    4,913,907       6.01
                                            -----------  ----------  ----------  ----------
  Interest Bearing Liabilities:
  Borrowings                                 4,010,895        5.51    4,526,102       5.79

                                            -----------  ----------  ----------  ----------
  Net Interest Earning Assets and Spread    $  373,674        0.29%  $  387,805       0.22%
                                            ===========  ==========  ==========  ==========

  Yield on Net Interest Earning Assets (1)                    0.76%                   0.68%
                                                         ==========              ==========
<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>

The Company's net interest income was slightly less, $26,000, for the nine month
period  ended  September  30,  1999  compared  to the same period in 1998.  This
decrease  in  net interest income is the net result of a favorable rate variance
and  an unfavorable volume variance.  There was a net favorable rate variance of
$1,618,000,  which  consisted of an unfavorable variance of $7,970,000 resulting
from  the  lower  yield  on  the  Company's  ARM  assets  portfolio  and  other
interest-earning  assets and a favorable variance of $9,587,000 resulting from a
decrease  in  the  Company's  cost  of funds.  The decreased average size of the
Company's  portfolio  during  the first nine months of 1999 compared to the same
period  of  1998  resulted  in  lower  net  interest  income  in  the  amount of
$1,643,000.  The  average  balance  of the Company's interest-earning assets was
$4.385  billion  during the first nine months of 1999 compared to $4.914 billion
during  the  same  period  of  1998  --  a  decrease  of  11%.

During  the  first nine months of 1999, the Company realized a net gain from the
sale of ARM assets in the amount of $50,000 as compared to $3,780,000 during the
first  nine months of 1998.  The Company considers selling assets as a portfolio
and  liquidity  management  tool and not a core source of earnings.  During 1998
the  Company  was  focused  on  repositioning its portfolio into less prepayment
sensitive ARM assets and selling assets that were prepaying faster than expected
for  which  the  Company  could  get a good value from a sale.  As a result, the
Company  was  more  active  in selling a few selected assets in 1998 than it has
been  year  to  date  in  1999.  In 1999, especially during the second and third
quarters,  the  Company has been focused on fully utilizing its capital capacity
after  allowing  the Company's assets to decrease during the latter part of 1998
and  early  1999  and  has,  therefore,  not  been seeking opportunities to sell
assets.

The  Company  recorded  an expense for credit losses in the amount of $2,139,000
during  the  nine months ended September 30, 1999, compared to $1,402,000 during
the  same  period of 1998.  The increase in the provision reflects the increased
size  of  the  Company's  ARM  loan  portfolio  which  includes  loans  held for
securitization, loans held as collateral for AAA notes and securitized loans for
which  the  Company  retained  all  of  the  classes  of securities created upon
securitization,  including  the  first  loss  classes,  although the Company has
acquired  third-party  credit insurance that has reduced or capped the Company's
exposure  to  credit  losses on securitized loans.  To date, the Company has not
experienced  any losses from its loan portfolio and the loans that are currently
delinquent  appear  to  be  adequately  secured  by  their  collateral  value.
Therefore,  the  Company  does  not believe it will experience any loss from the
loans  currently  delinquent  or from the one REO property owned as of September
30, 1999.  The one REO property that the Company owned at June 30, 1999 was sold
for  an  amount  above  the  Company's  carrying  value.


                                       31
<PAGE>
For  the  nine  months ended September 30, 1999 and 1998, the Company's ratio of
operating  expenses  to  average  assets  was  0.12%.  The biggest difference in
operating  expenses  during  the  first nine months of 1999 compared to 1998 was
that  the  Manager has not earned a performance fee during the first nine months
of  1999  compared  to  earning  $759,000  during  the same period of 1998.  The
operating expense ratio is the same for both periods due to the effect of having
more  average  assets  during  1998  compared  to  1999.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  primary source of funds for the quarter ended September 30, 1999
consisted  of  reverse  repurchase agreements, which totaled $3.259 billion, and
callable  AAA notes, which had a balance of $924.2 million.  The Company's other
significant  source  of funds for the quarter ended September 30, 1999 consisted
of  payments  of  principal  and  interest  from its ARM assets in the amount of
$378.5 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  September  30,  1999, had a weighted average
effective  cost  of  5.65%.  The  reverse  repurchase  agreements had a weighted
average  remaining  term  to  maturity  of 3.2 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 September 30,
1999, $1.564 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 September 30, 1999, had borrowed funds
with  12  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.  The  Company  had  adequate liquidity throughout the
quarter  ended  September  30,  1999.  Further,  the  Company  believes  it will
continue  to have sufficient liquidity to meet its future cash requirements from
its  primary sources of funds for the foreseeable future without needing to sell
assets.

As  of September 30, 1999, the Company had $924.2 million of  AAA collateralized
notes  outstanding, which are not subject to margin calls.  Due to the structure
of  the  collateralized  notes,  their financing is not based on market value or
subject  to subsequent changes in mortgage credit markets, as is the case of the
reverse  repurchase  agreement  arrangements.

As  of  September  30,  1999,  the  Company  had  entered  into three whole loan
financing  facilities.  One  of  the  whole  loan  financing  facilities  has  a
committed  borrowing  capacity  of $150 million, with an option to increase this
amount  to  $300  million.  This  facility  matures in January 2000.  One has an
uncommitted  amount  of  borrowing capacity of $150 million and matures in April
2000.  The  third facility is for an unspecified amount of uncommitted borrowing
capacity  and does not have a specific maturity date.  As of September 30, 1999,
the  Company  had  $1.5  million  borrowed  against  these  whole loan financing
facilities.

In  December 1996, the Company's Registration Statement on Form S-3, registering
the  sale  of  up  to $200 million of additional equity securities, was declared
effective  by  the  Securities  and  Exchange  Commission.  This  registration
statement  includes  the  possible  issuances  of common stock, preferred stock,
warrants  or shareholder rights.  As of September 30, 1999, the Company had $109
million  of  its  securities  registered for future sale under this Registration
Statement.


                                       32
<PAGE>
During  1998,  the Board of Directors approved a common stock repurchase program
of up to 1,000,000 shares at prices below book value, subject to availability of
shares  and  other market conditions.  The Company did not repurchase any shares
during  the  first  nine  months  of 1999.  To date, the Company has repurchased
500,016  shares  at  an  average  price  of  $9.28  per  share.

The  Company  has  a  Dividend  Reinvestment and Stock Purchase Plan (the "DRP")
designed to provide a convenient and economical way for existing shareholders to
automatically  reinvest their dividends in additional shares of common stock and
for  new  and  existing  shareholders to purchase shares, as defined in the DRP.
During  the  first nine months of 1999, 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  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  home owners 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 factors or to
the  same  degree.  As  a  result, the Company's income can increase or decrease
depending on the relationship between the various indices to which the Company's
ARM  assets  are  indexed,  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.


                                       33
<PAGE>
YEAR  2000  ISSUES

The  Year  2000 issues involve both hardware design flaws in which many computer
systems,  and machines that use computer chips, will not correctly recognize the
date  beginning  in  the  Year 2000 and, additionally, software applications and
compilers that do not use a four-digit reference to years which might not behave
as  intended once the Year 2000 is reached.  Three general areas of concern are:
1)  clocks built into computers and computer chips that will rollover to 1900 or
1980  instead  of  2000,  2) purchased software that does not recognize the Year
2000 as a leap year or that does not use a four-digit reference to years, and 3)
internally  developed  applications  that  do not store the year as a four-digit
year.  The  Company invests in assets and enters into agreements that employ the
use  of  dates  and  is, therefore, concerned about the ability of equipment and
computer  programs  to  interpret  dates  or  recognize  dates  accurately.

In  consideration  of the Year 2000 issues, the Manager has reviewed the ability
of  its  own  computers  and  computer programs to properly recognize and handle
dates in the Year 2000.  Through the normal upgrading of computer equipment, the
Manager  has  already  replaced all computers that were not Year 2000 compliant.
The  primary  software  used  by the Company has been internally developed using
products  that  are Year 2000 compliant.  Other software that has been purchased
has also been certified to be Year 2000 compliant.  The Manager has reviewed all
the date fields embedded in its internally developed spreadsheets, databases and
other  programs  and  has determined that all such programs are using four-digit
years  in  references to dates.  Therefore, the Company believes that all of its
equipment  and  internal  systems  are  ready  for  the Year 2000.  To date, the
Manager  has  incurred  all  costs  in  order  for  the  Company to be Year 2000
compliant.

The  Company believes that most of its exposure to Year 2000 issues involves the
readiness of third parties such as, but not limited to, loan servicers, security
master servicers, security paying agents and trustees, its stock transfer agent,
its securities custodian, the counterparties on its various financing agreements
and  hedging  contracts  and  vendors.  The Manager, at its expense, conducted a
survey,  which  was  completed  during the first half of 1999, of all such third
parties  to  try to determine the readiness of such third parties to handle Year
2000  dates  and  to  try to determine the potential impact of Year 2000 issues.
All  surveyed parties have either certified that they are Year 2000 compliant or
that  they  are  in the testing stage and expect to be Year 2000 compliant.  All
third parties that indicated they are in the testing stage are being re-surveyed
during  the fourth quarter.  Based on the surveys and re-surveys, the Company is
satisfied  that  the computer programs of all significant third parties that the
Company  relies  on  will  be  ready  for  the Year 2000.  The Company cannot be
certain  that  the  survey fully identified all Year 2000 issues to fully access
the  potential  problems  or  loss  associated with Year 2000 issues or that any
failure  by these other third parties to resolve Year 2000 issues would not have
an  adverse  effect  on  the  Company's operations and financial condition.  The
Company  and  the  Manager  believe  that  they are spending the appropriate and
necessary  resources  to try to identify Year 2000 issues and to resolve them or
to  mitigate  the  impact  of  them  to  the  best  of their ability as they are
identified.

The  Company  has developed a contingency plan for what it believes to be likely
worst  case  scenarios.  The  Company  believes  that the most likely worst case
scenarios  all  impact  the  availability  and cost of financing ARM assets over
year-end.  For  this  reason,  the  Company  has  already entered into financing
arrangements  that  finances  over  60%  of  the  Company's  ARM  portfolio over
year-end.  In  addition,  the  Company  has decided to increase its liquidity as
year-end  approaches  by  de-emphasizing  the acquisition of ARM assets over the
balance  of  the  year.  As an additional precaution, if it becomes prudent, the
Company  may  review  the  appropriateness of selling selected assets that could
prove  to  be  difficult  to  finance  over  year-end,  if  acceptable financing
arrangements  for  such  assets can not or are not expected to be consummated by
the end of the year.  The Company is also discussing the financing of its agency
payment receivables with other financial institutions as another possible source
of liquidity.  The Company believes that these steps, as part of its contingency
plan,  are  prudent  measures  in  light of the uncertainty related to Year 2000
issues.  Further,  the  Company  believes that these steps will be sufficient to
address  the  most  likely  worst case scenarios, but the Company can provide no
certainty  that  such  will  prove  to  be  the  case.

OTHER  MATTERS

As  of  September 30, 1999, the Company calculates its Qualified REIT Assets, as
defined  in  the  Internal  Revenue Code of 1986, as amended (the "Code"), to be
99.5% 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  99.4%  of its 1999 revenue for the first nine months qualifies for the 75%
source  of  income  test and 100% of its revenue qualifies for the 95% source of
income  test  under  the REIT rules.  The Company also met all REIT requirements
regarding  the  ownership  of  its common stock and the distributions of its net
income.  Therefore,  as of September 30, 1999, the Company believes that it will
continue  to  qualify  as  a  REIT  under  the  provisions  of  the  Code.


                                       34
<PAGE>
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.


PART  II.     OTHER  INFORMATION

Item  1.     Legal  Proceedings
               At September 30, 1999, there were no pending legal proceedings to
               which the Company  was  a  party  or of which any of its property
               was subject.

Item  2.     Changes  in  Securities
               Not  applicable

Item  3.     Defaults  Upon  Senior  Securities
               Not  applicable

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

Item  5.     Other  Information
               None

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

             (a)     Exhibits
                       See  "Exhibit  Index"

             (b)     Reports  on  Form  8-K

                     The Company filed the following Current Report on  Form 8-K
                     during the  period  covered  by  this  Form  10-Q:

                     (i)     Current Report on Form 8-K, dated September 1, 1999
                             regarding  the  Registrant's  Change  in Certifying
                             Accountant.


                                       35
<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  ASSET  CORPORATION
                                     (dba  THORNBURG  MORTGAGE,  INC.)



Dated:     November  12,  1999       By:  /s/  Larry  A.  Goldstone
                                          -------------------------------------
                                          Larry  A.  Goldstone
                                          President and Chief Operating Officer
                                          (authorized  officer  of  registrant)




Dated:     November  12,  1999       By:  /s/  Richard  P.  Story
                                          -------------------------------------
                                          Richard  P.  Story,
                                          Chief Financial Officer and Treasurer
                                          (principal accounting officer)




                                       36
<PAGE>
                                  Exhibit Index

<TABLE>
<CAPTION>
                                                                                  Sequentially
                                                                                    Numbered
Exhibit Number  Exhibit Description                                                   Page
--------------  ----------------------------------------------------------------  ------------
<C>             <S>                                                               <C>
       3.2.1.1  Amendment to Article IV, Section 13 of the Bylaws of the Company            38
</TABLE>


                                       37
<PAGE>