<PAGE>
 
                                                                      EXHIBIT 12


         METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                         AND PREFERRED STOCK DIVIDENDS

  The ratio of adjusted earnings to fixed charges and preferred stock
dividends was computed using the following tabulations to compute adjusted
earnings and the defined fixed charges and preferred stock dividends.
<TABLE>
<CAPTION>
  
                                            Year Ended September 30
                                ------------------------------------------------
                                             (Dollars in Thousands)
                                  1998      1997      1996      1995      1994    
                                --------  --------  --------  --------  --------  
<S>                             <C>       <C>       <C>       <C>       <C>       
Net income                      $10,327   $ 9,668   $ 8,038   $ 6,303   $ 5,478   
Add:                                                                              
 Interest                        19,663    19,375    18,788    16,381    19,895   
 Taxes on income                  5,475     5,073     4,235     3,108     4,422   
                                -------   -------   -------   -------   -------   
Adjusted earnings               $35,465   $34,116   $31,061   $25,792   $28,365   
                                =======   =======   =======   =======   =======   
Preferred stock dividend                                                          
 requirements                   $ 3,732   $ 4,113   $ 3,868   $ 4,038   $ 3,423   
Ratio factor of income after                                                      
 provision for income taxes                                                       
 to income before provision                                                       
 for income taxes                    66%       66%       66%       67%       66%  
Preferred stock dividend                                                          
 factor on pretax basis           5,687     6,244     5,880     6,006     5,220   
Fixed charges                                                                     
 Interest                        19,663    19,375    18,788    16,381    19,895   
 Capitalized interest               611       521     2,468     2,730     2,152   
                                -------   -------   -------   -------   -------   
Fixed charges and                                                                 
 preferred stock                                                                  
 dividends                      $25,961   $26,140   $27,136   $25,117   $27,267   
                                =======   =======   =======   =======   =======   
Ratio of adjusted earnings                                                        
 to fixed charges and                                                             
 preferred stock dividends         1.37      1.31      1.14      1.03      1.04   
                                =======   =======   =======   =======   =======   
</TABLE>