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

                                    FORM 10-K

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

          FOR  THE  FISCAL  YEAR  ENDED:     DECEMBER 31, 2000

                                       OR

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

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

                     COMMISSION FILE NUMBER:       001-11914

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

                 MARYLAND                                     85-0404134
       (State or other jurisdiction of                    (I.R.S. 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

           Securities registered pursuant to Section 12(b) of the Act:

     Title  of  Each  Class              Name  of  Exchange  on Which Registered
-------------------------------------    ---------------------------------------
Common  Stock  ($.01  par  value)              New  York  Stock  Exchange
Series A 9.68% Cumulative Convertible          New  York  Stock  Exchange
Preferred Stock ($.01 par value)

Indicate by check mark whether the Registrant (1) has filed all 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.
           Yes   X     No
                ---        ---

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
Regulation  S-K  is not contained herein, and will not be contained, to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [  ]

At  March  5,  2001,  the  aggregate  market  value  of the voting stock held by
non-affiliates  was $232,449,369, based on the closing price of the common stock
on  the  New  York  Stock  Exchange.

Number of shares of Common Stock outstanding at March 5 , 2001:  21,719,178

DOCUMENTS  INCORPORATED  BY  REFERENCE:

     Portions  of  the  Registrant's  definitive Proxy Statement dated March 28,
     2001,  issued  in connection with the Annual Meeting of Shareholders of the
     Registrant  to  be  held  on  April 26, 2001, are incorporated by reference
     into  Parts  I  and  III.

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                            THORNBURG MORTGAGE, Inc.
                          2000 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS


                                   PART I
                                                                   Page
                                                                   ----
ITEM 1.     BUSINESS . . . . . . . . . . . . . . . . . . . . . .      4

ITEM 2.     PROPERTIES . . . . . . . . . . . . . . . . . . . . .     21

ITEM 3.     LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . .     21

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.     21

                                  PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY
            AND RELATED SHAREHOLDER MATTERS. . . . . . . . . . .     22

ITEM 6.     SELECTED FINANCIAL DATA. . . . . . . . . . . . . . .     25

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . .     26

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE
             ABOUT MARKET RISKS. . . . . . . . . . . . . . . . .     45

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . .     45

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . .     45

                                  PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.     45

ITEM 11.     EXECUTIVE COMPENSATION. . . . . . . . . . . . . . .     45

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT . . . .  . . . . . . . . . . . . . . . .     45

ITEM 13.     CERTAIN RELATIONSHIPS AND  RELATED TRANSACTIONS . .     45

                                   PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
             REPORTS ON FORM 8-K . . . . . . . . . . . . . . . .     46

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . .    F-1

SIGNATURES

EXHIBIT INDEX


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                                     PART I


ITEM 1.     BUSINESS

GENERAL

Thornburg  Mortgage, Inc., including subsidiaries, (the "Company") is a mortgage
acquisition  company  that primarily invests in adjustable-rate mortgage ("ARM")
assets  comprised  of ARM securities and ARM loans, thereby providing capital to
the  single  family  residential  housing  market.  ARM  securities  represent
interests  in pools of ARM loans, which often include guarantees or other credit
enhancements against losses from loan defaults.  While the Company is not a bank
or  savings  and  loan,  its business purpose, strategy, method of operation and
risk  profile  are  best  understood  in  comparison  to such institutions.  The
Company leverages its equity capital using borrowed funds, invests in ARM assets
and  seeks  to  generate income based on the difference between the yield on its
ARM assets portfolio and the cost of its borrowings.  The corporate structure of
the  Company  differs  from  most  lending  institutions  in that the Company is
organized  for  tax  purposes  as  a  real  estate investment trust ("REIT") and
therefore  generally  passes  through  substantially  all  of  its  earnings  to
shareholders  without paying federal or state income tax at the corporate level.
See  "Federal  Income  Tax Considerations -- Requirements for Qualification as a
REIT".  The  Company  has  two qualified REIT subsidiaries which are involved in
financing  its  mortgage loan assets.  The two financing subsidiaries, Thornburg
Mortgage  Funding Corporation and Thornburg Mortgage Acceptance Corporation, are
consolidated  in  the  Company's  financial statements and federal and state tax
returns.

Thornburg Mortgage Home Loans, Inc.

The  Company  has  formed  Thornburg  Mortgage  Home  Loans,  Inc. ("TMHL") as a
wholly-owned  REIT subsidiary to conduct the Company's mortgage loan acquisition
and  mortgage  loan origination activities.  Retail  mortgage origination is the
newest  channel  for  acquiring  ARM  loans  for  the Company's portfolio.  TMHL
commenced  operations during the second quarter of 2000.   In the fourth quarter
of  2000,  all  of the Company's ARM loans and servicing rights were transferred
to  TMHL,  as were the obligations to buy, finance and securitize all ARM loans.
Effective December 1, 2000, TMHL and its subsidiaries began operating as taxable
entities.  To  facilitate the securitization and financing of loans by TMHL, two
special  purpose  subsidiaries  of  TMHL  have been created:  Thornburg Mortgage
Funding  Corporation  II  and  Thornburg  Mortgage  Acceptance  Corporation  II.

TMHL  acquires  mortgage  loans  through  three  channels:  bulk  acquisitions,
correspondent  lending and retail originations.  TMHL finances the loans through
two warehouse borrowing arrangements, pools loans for securitization and sale to
the parent's REIT operation, and occasionally sells loans to third parties. As a
taxable  REIT  subsidiary, TMHL has more flexibility in trading and securitizing
assets  than  a  REIT  qualified  subsidiary.

TMHL  originates  ARM loans  based upon the Company's underwriting standards and
ARM  product  designs.  It  also  offers other standard loan products, including
fixed-rate  loans,  that  are originated and sold to third-party investors.  The
Company  expects  to  avoid  establishing  an expensive infrastructure involving
substantial  fixed  costs generally associated with operating a mortgage banking
operation  by  utilizing  private-label  "fee based" third-party vendors who (1)
specialize in the underwriting, processing and closing of mortgage loans and (2)
a  subservicer  to  provide the capability to service the loans originated.  The
Company  believes  these  third-party  service  providers  have  developed  both
efficiencies  and  expertise  through  specialization that afford the Company an
opportunity  to  enter the mortgage origination and loan servicing business in a
cost  effective  manner  with  very little "up front" investment.  This approach
also  insulates the Company from the expenses and risks associated with mortgage
lending  business  cycles: hiring additional staff to meet heavy demand and then
laying  off  workers  as  lending  activity  declines.


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Thornburg  Brand  Development  and  Company  Name  Change

The  Company  instituted a new marketing approach in conjunction with affiliates
aimed  at  developing  brand  recognition  of  the Thornburg name.  As a part of
redefining its marketing message, the Company has formally changed its corporate
name  to  Thornburg  Mortgage,  Inc.  This new name more accurately reflects the
expanded  business  of the Company from purely an asset manager to a value-added
operating  enterprise  that  originates  and  services mortgage loans as well as
manages  a  portfolio  of  high  quality  mortgage  assets  on a low cost basis.

OPERATING  POLICIES  AND  STRATEGIES

Investment  Strategies

Historically,  the  Company  has  relied  solely  on  an  investment strategy to
purchase  ARM securities and ARM loans originated and serviced by other mortgage
lending  institutions  In 1999, the Company expanded its acquisition strategy to
include  acquiring  assets that meet Thornburg underwriting guidelines through a
new  correspondent lending program which currently includes approximately thirty
financial  institutions  approved  by  the  Company.  In 2000, the Company began
originating  loans  directly  through  its  mortgage  banking  subsidiary, TMHL.
Currently,  TMHL  is  licensed  to lend in nineteen states but over the next two
years TMHL intends to be licensed to lend nationwide.  In becoming an originator
of  loans  for its own portfolio, the Company offers its loan products to target
markets  of  higher  quality,  more  sophisticated  borrowers.  This approach is
consistent  with  the Company's emphasis on acquiring high credit quality loans.
By increasing its sources for mortgage loans, the Company expects to enhance its
ability  to  acquire  high  quality  assets  at  attractive  prices.

The  Company purchases ARM assets from broker-dealers and financial institutions
that  regularly  make  markets  in these assets.  The Company also purchases ARM
assets from other mortgage suppliers, including mortgage bankers, banks, savings
and  loans,  investment banking firms, home builders and other firms involved in
originating, packaging and selling mortgage loans. The Company believes it has a
competitive  advantage  in  the  acquisition  and  investment  of these mortgage
securities and mortgage loans because of the low cost of its operations relative
to  traditional  mortgage  investors  like  banks  and  savings  and loans. Like
traditional  financial  institutions,  the  Company seeks to generate income for
distribution  to  its  shareholders  primarily  from  the difference between the
interest  income  on  its  ARM  assets  and  the financing costs associated with
carrying  its  ARM  assets.

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  are typically 30 year loans that have a fixed rate of interest for
an  initial  period,  generally  3  to  10  years,  and  then  convert  to  an
adjustable-rate for the balance of the term of the Hybrid ARM.   In keeping with
the  Company's  policy  of  minimizing  interest rate risk in its portfolio, the
Hybrid  ARMs are generally financed with fixed rate debt for the period in which
their  interest  rate  is  fixed.  See  "Hedging  Strategies".

The  Company's  mortgage  assets  portfolio  may  consist  of  either  agency or
privately  issued  securities  (generally  publicly  registered)  mortgage
pass-through  securities,  multi-class  pass-through  securities, collateralized
mortgage  obligations  ("CMOs"),  collateralized  bond  obligations  ("CBOs"),
generally  backed  by high quality mortgage backed securities, ARM loans, Hybrid
ARMs,  fixed-rate  mortgage-backed  securities that have an expected duration of
one year or less or short-term investments that either mature within one year or
have  an  interest  rate  that  reprices  within one year.  The Company will not
invest  more  than 30% of its ARM assets in Hybrid ARMs, increased to 35% by the
Company's  Board  of directors in January 2001, and will limit its interest rate
repricing  mismatch (the difference between the remaining fixed-rate period of a
Hybrid ARM and the maturity of the fixed-rate liability funding a Hybrid ARM) to
a  duration  of  no  more than one year.  Hybrid ARMs with fixed-rate periods of
greater than five years are further limited to no more than 10% of the Company's
ARM  assets.  As  with  all its Hybrid ARMs, the Company will hedge the interest
rate  risk  of  financing  the  longer  Hybrid  ARMs consistent with its hedging
strategies.  See  "Hedging  Strategies".

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

  (1)   securities that are unrated but are guaranteed by the U.S. Government or
        issued  or  guaranteed  by  an  agency  of  the  U.S.  Government;
  (2)   securities  which  are  rated  within  one  of  the  two  highest rating
        categories  by  at  least  one  of  either  Standard & Poor's or Moody's
        Investors  Service,  Inc.  (the  "Rating  Agencies");  or


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  (3)   securities  that  are unrated or whose ratings have not been updated but
        are  determined  to be of comparable quality (by the rating standards of
        at least one  of  the  Rating Agencies) to a High Quality rated mortgage
        security,  as  determined by the Manager (as defined below) and approved
        by  the  Company's  Board  of  Directors;  or
  (4)   the portion of ARM or hybrid loans that have been deposited into a trust
        and  have  received  a  credit  rating of AA or better from at least one
        Rating  Agency.

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

  (1)   adjustable  or  variable  rate  pass-through  certificates,  multi-class
        pass-through  certificates  or  CMOs  backed  by loans on single-family,
        multi-family, commercial or other real estate-related properties so long
        as they are  rated  at  least  Investment Grade at the time of purchase.
        "Investment  Grade"  generally  means a security rating of BBB or Baa or
        better by at least one of  the  Rating  Agencies;
  (2)   ARM  loans  secured  by  first  liens  on  single-family  residential
        properties,  generally  underwritten  to  "A"  quality  standards,  and
        acquired for the  purpose  of  future  securitization  (see  description
        of  "A"  quality in "Portfolio  of Mortgage Assets - ARM and Hybrid  ARM
        Loans");  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
approximately  3%,  of  its  total  assets in Other Investment assets, excluding
loans  held for securitization.  Despite the generally higher yield, the Company
does  not  expect  to  significantly increase its investment in Other Investment
securities.  This is primarily due to the difficulty of financing such assets at
reasonable  financing  terms  and  values  through  all  economic  cycles.

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

Acquisition  of  ARM  and  Hybrid  ARM  Loans

Through  TMHL,  the  Company  acquires  existing  pools  of  ARM loans, acquires
individual  loans  directly from loan originators, and originates mortgage loans
on  a  retail  basis.  All  loans  acquired  from  third  parties  and ARM loans
originated  by  the  Company are intended to be securitized and then held in the
ARM  securities portfolio as high quality assets.  Acquiring and originating ARM
loans  for  securitization  is expected to benefit the Company by providing: (i)
greater  control  over  the  quality  and types of ARM assets acquired; (ii) the
ability  to acquire ARM assets at lower prices so that the amount of the premium
to  be  amortized  will  be reduced in the event of prepayment; (iii) additional
sources  of  new  whole-pool  ARM  assets;  and (iv) potentially higher yielding
investments  in  its  portfolio.

Mortgage  Acquisitions

The Company acquires third-party originated residential ARM and Hybrid ARM whole
loans  utilizing  two  processes  which  the  Company calls the Bulk Acquisition
Method  ("Bulk  Method")  and  the Flow Acquisition Method ("Flow Method").  The
Bulk Method, which the Company began utilizing in 1997, involves a number of the
Company's  established  relationships  with  mortgage  originators,  or mortgage
aggregators, who sell the Company pools of whole loans at market prices, with or
without  the  servicing  rights.  In  many  cases the Company buys the servicing
rights  along  with  the loans and the Company then services the loans using its
third-party  subservicer,  who  performs  the loan servicing function for a fee.

In  the  Bulk Method, the loans are originated using the seller's loan products,
programs  and  underwriting  guidelines.  Additionally, the credit review of the
borrower,  the  appraisal of the property and the quality control procedures are
performed  by the originator.  The Company generally only considers the purchase
of  loans  when all of the borrowers have had their incomes and assets verified,
their  credit  checked and appraisals of the properties have been obtained.  The
Company  then  obtains  an  independent  underwriter's  review,  performed  by a
third-party  for  the  benefit  of  the  Company,  which entails a review of the
application  processing, underwriting and loan closing methodologies used by the
originators  in  qualifying  a  borrower  for  a loan.  In addition, the Company
utilizes its own personnel to re-review some of the individual loans in order to
insure the highest possible loan quality.  The Company generally does not review
all  of  the  loans  in  a  bulk  package of loans, but rather selects loans for
underwriting review based upon specific criteria such as property location, loan


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size, effective loan-to-value ratios, borrowers' credit score and other criteria
the  Company  believes to be important indicators of credit risk.  Additionally,
prior  to  the  purchase  of  loans,  the  Company  obtains  representations and
warranties  from  each  seller  stating  that  each  loan  meets  the  seller's
underwriting  standards  and  other  requirements.  The  breach  of  such
representations  and  warranties  in  regards to a loan can result in the seller
having  an  obligation  to  repurchase  the  loan.

In the Flow Method, which the Company began utilizing in the first half of 1999,
the Company acquires mortgage loans largely from correspondent lenders using the
Company's  internally  developed  loan programs and underwriting criteria.  This
means that the correspondent originates the individual loans using the Company's
established credit and program guidelines.  In select cases, some correspondents
sell  their  own  loan products to the Company which are originated according to
the  correspondents'  pre-approved  product  specifications  and  underwriting
guidelines.  All  correspondents  are  pre-qualified by the Company to determine
their  financial  strength  and  the soundness of their own established in-house
mortgage  procedures.  Each  borrower's credit and the value of each property is
underwritten  by  the  correspondents  to the Company's approved specifications.
This  is  the same process used by originators/sellers in the Bulk Method except
that  in  the  Flow Method all of the application processing, loan underwriting,
credit  approval and appraisal guidelines have been developed or pre-approved by
the  Company  to  meet  the  Company's  own  credit  criteria  and  portfolio
requirements.

Prior  to  closing,  all  of  the  loans  acquired  in  the Flow Method are then
subjected to further compliance review by either 1) by the Company's staff or 2)
mortgage  insurance  companies  which use the Company's guidelines to review the
loans  to  insure  product quality and compliance with the Company's guidelines.
The  six  mortgage  insurance  companies  chosen  by the Company to perform this
function  use  a two-step loan approval process.  After the primary underwriting
and  quality control review are performed by the originator/seller, but prior to
the  purchase  of  the  loans  by the Company, all of the higher risk/higher LTV
loans  are placed through an automated underwriting system created by Fannie Mae
called  "Desktop  Underwriter."   This  is the same system used by Fannie Mae in
connection  with  all of their own loan purchases.  Secondly, all loans are then
screened  by  the mortgage insurance company personnel or the Company's staff to
verify  their  compliance  to the Company's guidelines.  After closing, a select
number of these loans are then subjected to an additional quality control review
performed  by  a  third-party  which  again  verifies that the loan was properly
underwritten  and  to  confirm that the loan documents are complete and properly
executed.  All  of  the  loans  acquired  through the Flow Method are assigned a
"Risk  Evaluation  Score"  or "Mortgage Score" by each of the mortgage insurance
companies.  The risk score evaluates not only the borrower's credit but also the
geographic  location  of  the  property, the economic viability of the area, the
general  market  conditions  and  the  loan product chosen by the borrower.  The
Company  believes that obtaining risk scores will help in reducing the Company's
securitization  costs by insuring that the Company purchases the highest quality
mortgage  loans  with  the  lowest  risk  possible.

Historically,  mortgage  loans  acquired  through either the Bulk or Flow Method
were  acquired,  generally,  with  the  servicing  rights  remaining  with  the
originator/seller.  In  the  third quarter of 2000, the Company began purchasing
the  servicing  rights  for most of the loans acquired.  By owning the servicing
rights,  the  Company  intends  to  provide borrowers with high quality customer
service along with loan modification and refinance opportunities.  These efforts
are  designed  to  lower  prepayments  speeds  on the portfolio through customer
retention.  In  cases where the Company buys the servicing rights along with the
loans,  the Company contracts with a qualified loan servicer, as subservicer, to
perform  the  loan  servicing  function for a fee.  The subservicer performs the
servicing  function  on  a  "private label basis" or in the name of the Company.
For  each loan purchase, the Company obtains representations and warranties from
the  seller  stating  that  each  loan meets the Company's approved underwriting
standards  and  other  requirements.  The  breach  of  such  representations and
warranties in regards to a loan can result in the seller having an obligation to
repurchase  the  loan.

In  both  methods,  the  Company  uses its in-house staff as well as third-party
credit underwriters to verify the credit quality of the borrowers as well as the
soundness  of  the  mortgage collateral securing the individual loans.  As added
security,  the  Company uses the services of a third-party document custodian to
insure  the  quality  and  accuracy  of  all  individual  mortgage  loan closing
documents,  which  are  then  held  in safekeeping with the third-party document
custodian.  As  a  result, all of the original individual loan closing documents
that  are  signed  by  the borrower, other than the original credit verification
documents,  are  examined,  verified  and  held  by  the  custodian.


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Loan  Origination

The  Company  originates  mortgage loans through TMHL.  As of February 20, 2001,
TMHL  is  licensed  to  originate loans in the following nineteen states and, by
2002,  TMHL  is  expected  to  be  licensed  nationwide  as  a  mortgage lender.

          Alaska        Kentucky        New  Mexico
          Arkansas      Louisiana       North  Carolina
          Colorado      Maryland        Oklahoma
          Connecticut   Massachusetts   South  Carolina
          Indiana       Mississippi     Texas
          Iowa          Missouri        Utah
          Kansas

The  Company's  retail  lending  strategy  is  to  utilize its portfolio lending
capability, its competitive advantages and its technology to become the mortgage
lender  of  the future, which is a low cost, low overhead, efficient lender that
provides  attractive  and  innovative  mortgage  products,  competitive mortgage
rates,  and  a  high  level  of customer service.  By eliminating intermediaries
between  the  borrower  and  the  Company,  an  investor in mortgage assets, the
Company  expects  to  originate  loans at attractive yields while still offering
borrowers  competitive mortgage rates.  In expanding into the retail origination
business, the Company intends to continue its strategy of acquiring only quality
mortgages  with  the  same  emphasis  on  loan  quality  as  in its current loan
acquisition  activities.

In  2000, the Company  began originating loans directly with borrowers using one
of  two  origination  channels.  The  Company started to originate loans using a
call  center,  where borrowers call the Company, inquire about loan products and
interest  rates,  seek advice and counseling regarding qualifying for a loan and
the  approval  process.  This  channel  began  operation  on  a pilot basis with
Company  staff  in  2000.  In  2001,  this  channel  will  be expanded to employ
third-party  call  center  specialists versed in mortgage loan origination where
prospective  borrowers  are  able  to  apply  for  a loan over the telephone.  A
completed  mortgage  loan  application  along  with  a  request  for  additional
supporting  documentation  is  sent  to  the  borrower for signature.  Thornburg
Mortgage  loan  processors,  or  their  third-party  agents, are responsible for
working  with  the  borrower to complete the processing of the loan application,
obtain  a  final  loan  approval  and  schedule  the  loan  for  closing.

By  the  second  quarter  of  2001,  the Company also expects to offer mortgages
on-line utilizing third-party, private label web-based origination systems.   In
this  instance,  prospective  borrowers  will  be  able to look up mortgage loan
product  and  interest rate information through the Company's website, submit an
application  on-line  and  obtain a pre-approval of their loan.  Once a mortgage
loan application has been submitted, a Thornburg Mortgage representative will be
assigned  the  responsibility  of  completing  the loan process on behalf of the
borrower.

The  mortgage  origination  process  is  a  labor  intensive, document intensive
business  that  requires  significant  back  office  systems and personnel.  The
Company  has  contracted  with  a  third-party  "back  office"  mortgage service
provider  to provide all of the loan processing, underwriting, documentation and
closing functions required to originate and close mortgage loans.  Additionally,
another third-party service provider has staffed a mortgage loan call center for
the  benefit  of  the Company.  These services are provided on a "private label"
basis,  meaning  that  all  of these representatives will identify themselves as
being  Thornburg  Mortgage  representatives.  The benefit to the Company of this
arrangement is that the Company pays for these services as it uses them, without
a  significant  investment  in  personnel,  systems, office space and equipment.

Regardless  of  the origination channel, the Company's borrowers will be able to
track  the  progress  of  their  mortgage  loan  application as it makes its way
through  processing,  underwriting  and  closing  using  the  Thornburg Mortgage
website.  In  this  way,  prospective  borrowers are able to stay fully informed
regarding  the  status  of  their  loan  application.

The Company has also contracted with a third-party to provide private label loan
servicing  for  loans  which  the Company originates or purchases on a servicing
released  basis.  This  third-party subservicer collects mortgage loan payments,
manages  escrow  accounts, provides monthly statements and notices to borrowers,
offers  on-line  mortgage  servicing  information and provides customer service,
loan  collection,  loss  mitigation,  foreclosure, bankruptcy and REO management
services.  The  fees  paid  by the Company for this service are based on a fixed
rate  schedule  based  on  the  number of loans serviced.  A third-party service
provider  using  the  name  Thornburg  Mortgage  is  providing  all  of  these
loan-servicing  functions.


                                        8
<PAGE>
Securitization  of  ARM  Loans

The  Company  acquires  ARM  loans  for  its  portfolio  with  the  intention of
securitizing  them  in  such  a  way  as  to maximize the amount of high quality
securities that can be created from an accumulation of  the ARM loans.  In order
to  facilitate  the securitization of its loans, the Company generally retains a
subordinate  interest  in  the  loans  which provides a limited amount of credit
enhancement,  and  often  purchases  an  insurance  policy  from  a  third-party
financial  guarantor that "wraps" the remaining balance of the loans to a credit
rating  of  AA  or  better.  Upon securitization, the Company then owns the high
quality  ARM  securities  and  the subordinate certificates in its portfolio and
finances  the  high  quality  securities  in the repurchase agreement market, or
issues  debt  obligations  in  the  capital  markets as an alternative financing
source  to  the  repurchase  agreement  market.

The  Company  also  securitizes  its  conforming balance loans through a program
provided  by Fannie Mae.  See "Fannie Mae Loan Programs".  The Company exchanges
pools  of  its loans with balances no greater than $252,000 in 2000 and $275,000
in  2001  for a Fannie Mae Mortgage-Backed Security or MBS.  As described in the
"Fannie  Mae  Loan  Programs"  below, the Company receives an MBS which pays the
Company  interest and principal derived from the interest and principal payments
on  the  underlying  mortgages  less a fee paid to the servicer of the loans and
less  a guaranty fee paid to Fannie Mae.  In this way, the Company no longer has
any  credit  exposure  to  the  pool  of mortgages and has exchanged the pool of
mortgages  for a High Quality asset. The Company also negotiates with Fannie Mae
to  securitize non-conforming products in this manner, although occasionally the
Company  will  retain  the  credit  exposure  for  the  pool.

Financing  Strategies

The  Company  employs  a leveraging strategy to increase its assets by borrowing
against  its  ARM  assets  and then using the proceeds to acquire additional ARM
assets.  By  leveraging  its  portfolio  in  this manner, the Company expects to
maintain  an  equity-to-assets  ratio  between  8%  and  10%, when measured on a
historical  cost  basis.  The  Company  believes  that  this level of capital is
sufficient  to  allow  the  Company  to  continue  to  operate  in interest rate
environments  in  which the Company's borrowing rates might exceed its portfolio
yield.  These  conditions  could occur when the interest rate adjustments on the
ARM  assets  lag  the  interest  rate  increases  in the Company's variable rate
borrowings  or  when the interest rate of the Company's variable rate borrowings
are  mismatched with the interest rate indices of the Company's ARM assets.  The
Company also believes that this capital level is adequate to protect the Company
from  having  to sell assets during periods when the value of its ARM assets are
declining.  If  the ratio of the Company's equity-to-total assets, measured on a
historical  cost basis, falls below 8%, the Company will take action to increase
its  equity-to-assets ratio to 8% of total assets or greater, when measured on a
historical  cost  basis,  through  normal portfolio amortization, raising equity
capital,  sale  of  assets  or  other  steps  as  necessary.

The  Company's  ARM  assets are financed primarily at short-term borrowing rates
and  can  be  financed  utilizing  reverse  repurchase  agreements,  dollar-roll
agreements,  borrowings  under  lines  of  credit and other secured or unsecured
financings  which the Company may establish with approved institutional lenders.
Prior  to  1998,  reverse  repurchase  agreements had been the primary source of
financing  utilized  by  the  Company  to  finance  its ARM assets.  Since 1998,
however,  the  Company  has diversified its financing sources by issuing debt in
the  capital  markets  as  described  below.  As  of  December 31, 2000, capital
markets debt represents 16% of the Company's total debt obligations.  Generally,
upon  repayment  of  each  reverse  repurchase agreement, the ARM assets used to
collateralize  the financing will immediately be pledged to secure a new reverse
repurchase  agreement.  The  Company  has  established  lines  of  credit  and
collateralized  financing  agreements  with  twenty-six  different  financial
institutions.

Reverse  repurchase  agreements  take the form of a simultaneous sale of pledged
assets  to a lender at an agreed upon price in return for the lender's agreement
to resell the same assets back to the borrower at a future date (the maturity of
the borrowing) at a higher price.  The price difference is the cost of borrowing
under  these  agreements.  In  the  event  of  the insolvency or bankruptcy of a
lender  during  the  term  of  a reverse repurchase agreement, provisions of the
Federal  Bankruptcy  Code,  if applicable, may permit the lender to consider the
agreement to resell the assets to be an executory contract that, at the lender's
option,  may  be either assumed or rejected by the lender.  If a bankrupt lender
rejects  its  obligation  to resell pledged assets to the Company, the Company's
claim  against  the lender for the damages resulting therefrom may be treated as
one of many unsecured claims against the lender's assets.  These claims would be
subject to significant delay and, if and when payments are received, they may be
substantially  less  than  the  damages  actually  suffered  by the Company.  To
mitigate  this  risk the Company enters into collateralized borrowings with only
financially  sound  institutions approved by the Board of Directors, including a
majority of unaffiliated directors, and monitors the financial condition of such
institutions  on  a  regular,  periodic  basis.


                                        9
<PAGE>
The  Company  also  utilizes  capital  market  transactions  by  issuing  debt
collateralized  by specific pools of ARM assets that are placed in a trust.  The
financing  of  ARM assets in this way eliminates the risk of margin calls on the
financing  of  those ARM assets and limits the Company's exposure to credit risk
on the ARM and Hybrid ARM loans collateralizing such debt.  The Company receives
a  credit  rating  on the debt based on the quality of the ARM assets, amount of
any  credit enhancement obtained and subordination levels of the debt proscribed
by  the  rating agency(ies), all of which affects the interest rate at which the
debt can be issued.  The principal and interest payments on the debt are paid by
the trust out of the cash flows received on the collateral.  By utilizing such a
structure,  the  Company  can issue either floating rate debt indexed to various
indices  that more closely matches the characteristics of the collateralized ARM
assets,  depending  upon  market  constraints and conditions, or fixed rate debt
that  corresponds  to  the  characteristics  of collateralized Hybrid ARM loans.

The  Company also enters into financing facilities for whole loans.  The Company
uses  these  credit  lines to finance its acquisition of whole loans while it is
accumulating  loans  for  securitization  or  until  more permanent financing is
arranged  in  a  capital  markets collateralized debt transaction.  In 1998, the
Company  utilized  two whole loan financing facilities that provided the Company
with  uncommitted  lines of credit based on the market value of its whole loans.
Uncommitted  lines  of credit are generally less expensive than a committed line
of credit, but during periods of market turmoil, uncommitted lines of credit can
be  terminated  by  the  counterparty with little notice to the Company and at a
time  when  the  Company  would have difficulty in replacing the line of credit.
Therefore, beginning in 1999, the Company decided to negotiate and pay a fee for
committed  facilities  as  well  as  continue to utilize uncommitted facilities.
During January 2001, the Company renewed one committed facility in the amount of
$150,000,000,  which  the Company can increase to $300,000,000 for an additional
fee,  and  has  another  committed  facility  for $150,000,000 which can also be
expanded  to  $300,000,000  for  a  fee.  The  Company  also has one uncommitted
facility  available.

The  Company  mitigates  its  interest-rate  risk  from  borrowings by selecting
maturities  that approximately match the interest-rate adjustment periods on its
ARM assets.  Accordingly, borrowings bear variable or short-term fixed (one year
or  less)  interest  rates.  Generally,  the  borrowing  agreements  require the
Company  to  deposit  additional  collateral  in  the  event the market value of
existing  collateral  declines,  which,  in  dramatically  rising  interest rate
markets,  could  require  the  Company  to sell assets to reduce the borrowings.

The  Company's  Bylaws limit borrowings, excluding the collateralized borrowings
in  the  form of reverse repurchase agreements, dollar-roll agreements and other
forms  of collateralized borrowings discussed above, to no more than 300% of the
Company's  net assets, on a consolidated basis, unless approved by a majority of
the unaffiliated directors.  This limitation generally applies only to unsecured
borrowings  of  the  Company.  For this purpose, the term "net assets" means the
total  assets  (less  intangibles)  of  the  Company  at  cost, before deducting
depreciation  or  other non-cash reserves, less total liabilities, as calculated
at  the  end  of  each  quarter in accordance with generally accepted accounting
principles.  Accordingly,  the  300% limitation on unsecured borrowings does not
affect  the  Company's  ability  to finance its total assets with collateralized
borrowings.

Hedging  Strategies

The  Company makes use of hedging transactions to mitigate the impact of certain
adverse  changes  in  interest  rates  on its net interest income and fair value
changes  of  its  ARM  assets.  In  general,  ARM assets have a maximum lifetime
interest  rate  cap,  or  ceiling,  meaning  that  each  ARM  asset  contains  a
contractual maximum rate.  This lifetime interest rate cap is a component of the
fair  value  of  an  ARM asset and can effect the Company's net interest income.
The  borrowings  incurred by the Company to finance its ARM assets portfolio are
not  subject  to  equivalent  interest  rate  caps.  Accordingly,  the  Company
purchases  interest  rate  cap  agreements  ("Cap  Agreements")  and  options on
interest  rate  futures ("Options Contracts") to prevent the Company's borrowing
costs  from  exceeding  the  lifetime  maximum  interest rate on its ARM assets.
These  Cap  Agreements  and  Options  Contracts  have the effect of offsetting a
portion of the Company's borrowing costs if prevailing interest rates exceed the
rate  specified  in  the  Cap Agreement or Options Contract.  A Cap Agreement or
Option  Contract  is  a  contractual agreement for which the Company pays a fee,
which  may  at  times  be  financed,  typically  to  either a commercial bank or
investment banking firm.  Pursuant to the terms of the Cap Agreements and Option
Contacts  owned as of December 31, 2000 that hedge the lifetime maximum interest
rate on its ARM assets, the Company will receive cash payments if the applicable
index,  generally  the  one-month,  three-month, six-month LIBOR index or Prime,
increases  above  certain specified levels, which range from 7.10% to 13.00% and
average  approximately 10.04%.  The fair value of these Cap Agreements generally
increases  when general market interest rates increase and decreases when market
interest  rates  decrease, helping to partially offset changes in the fair value
of  the Company's ARM assets related to the effect of the lifetime interest rate
cap.


                                       10
<PAGE>
In  addition,  ARM assets are generally subject to periodic caps.  Periodic caps
generally  limit  the  maximum  interest rate coupon change on any interest rate
coupon adjustment date to either a maximum of 1% per semiannual adjustment or 2%
per  annual  adjustment.  The  borrowings  incurred  by  the Company do not have
similar periodic caps.  The Company generally does not hedge against the risk of
its borrowing costs rising above the periodic interest rate cap level on the ARM
assets  because  the  contractual  future  interest  rate adjustments on the ARM
assets will cause their interest rates to increase over time and reestablish the
ARM  assets'  interest  rate  to a spread over the then current index rate.  The
Company  attempts  to  mitigate  the  effect  of  periodic caps in several ways.
First,  the  yield on the Company's ARM assets can change by more that the 1% or
2%  per  periodic  interest  rate  adjustment  limitation  depending  upon  how
prepayment  activity  changes  as interest rates change.  Secondly, beginning in
1998,  the  Company  began  to acquire variable rate CMOs and CBOs ("Floaters"),
Hybrid  ARMs and certain other ARM loans that do not have a periodic cap.  As of
December  31, 2000, approximately $2.315 billion of the Company's ARM securities
and  ARM  loans  did  not  have  periodic caps or were Hybrid ARMs, representing
approximately  56%  of  total  ARM  assets.

The  Hybrid  ARMs  have  an  initial fixed rate period, generally 3 to 10 years.
Since the Company's borrowings are generally short-term, the Company enters into
interest  rate  swap  agreements that limit its interest rate repricing mismatch
(the  difference between the remaining fixed-rate period of a Hybrid ARM and the
maturity  of  the fixed-rate liability funding a Hybrid ARM) to a duration of no
more  than  one year. In accordance with the terms of these swap agreements, the
Company  pays  a  fixed  rate of interest during the term of the agreements, and
receives  a  payment  that  varies  monthly  with the one month LIBOR Index. The
Company generally enters into a swap that amortizes at an agreed upon prepayment
rate  based  on  the  Company's  estimate  of  the  expected  rate  of principal
amortization of the Hybrid ARMs being financed.  In similar fashion, the Company
has purchased Cap Agreements to limit the interest rate of financing 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.

The  Company  may  also  enter  into interest rate swap agreements to manage the
average  interest  rate  reset period on its borrowings.  In accordance with the
terms  of  the swap agreements, the Company pays a fixed rate of interest during
the  term  of the agreements and receives a payment that varies monthly with the
one month LIBOR Index.  These agreements have the effect of fixing the Company's
borrowing  costs  on  a  similar  amount of swaps owned by the Company and, as a
result,  the  Company  reduces  the interest rate variability of its borrowings.
The  Company  may  also  use  interest rate swap agreements from time to time to
change  from  one  interest  rate  index to another interest rate index and thus
decrease  further  the basis risk between the Company's interest yielding assets
and  the  financing  of  such  assets.

The  ARM  assets  held by the Company were generally purchased at prices greater
than  par.  The  Company  is  amortizing the premiums paid for these assets over
their  expected lives using the level yield method of accounting.  To the extent
that  the prepayment rate on the Company's ARM assets differs from expectations,
the  Company's  net  interest  income  will  be affected.  Prepayments generally
increase  when  mortgage  interest  rates  fall  below the interest rates on ARM
loans.  To  the  extent there is an increase in prepayment rates, resulting in a
shortening  of the expected lives of the Company's ARM assets, the Company's net
income  and,  therefore,  the  amount available for dividends could be adversely
affected.  To  mitigate  the adverse effect of an increase in prepayments on the
Company's ARM assets, the Company has purchased ARM assets at prices at or below
par,  however  the  Company's portfolio of ARM assets is currently held at a net
premium.  The  Company  may  also  purchase  limited amounts of "principal only"
mortgage  derivative  assets backed by either fixed-rate mortgages or ARM assets
as  a  hedge  against the adverse effect of increased prepayments.  To date, the
Company  has  not  purchased  any  "principal  only" mortgage derivative assets.

The  Company  also  enters  into  hedging  transactions  in  connection with the
purchase  of  Hybrid  ARMs  to minimize the impact of changes in financing rates
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 to the financing over the fixed-rate period of the Hybrid ARMs.


                                       11
<PAGE>
The  Company  may enter into other hedging-type transactions designed to protect
its  borrowings  costs  or  portfolio  yields  from  interest rate changes.  The
Company  may  also  purchase "interest only" mortgage derivative assets or other
derivative  products for purposes of mitigating risk from interest rate changes.
The  Company has not, to date, entered into these types of transactions, but may
do  so  in the future.  In 1999, the Board of Directors approved an expansion of
the  financial  instruments  with  which  the  Company  currently implements its
hedging strategies.  In addition to the instruments described above, the Company
will  also  utilize  from  time to time futures contracts and options on futures
contracts  on  the  Eurodollar, Fed Funds, Treasury bills and Treasury notes and
similar  financial  instruments.  In  order  to  utilize  these  instruments the
Company  became  registered and received an exemption from being classified as a
"Commodity  Pool  Operator"  by  the  Commodities  and Futures Trade Commission.

Effective  January  1,  2001,  the  Company  implemented  Financial  Accounting
Standards  No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS  133").  SFAS  No.  133  established a framework of accounting rules that
standardizes  accounting  and  reporting  for  all  derivative  instruments  and
requires  that  all  derivative  financial instruments be carried on the balance
sheet  at  fair  value.  The  Company  expects  to  continue  to  use derivative
instruments  to  the  extent  the  Company  believes  that  the  use  of and the
accounting  of  the  derivative instruments meets the Company's financial goals.
However,  it is likely that the Company's future quarterly earnings will vary to
a  greater  degree  than  they  might  otherwise  as  a  result  of hedging with
derivative  instruments.

Hedging transactions currently utilized by the Company generally are designed to
protect  the  Company's  net  interest  income during periods of changing market
interest  rates.  The Company does not intend to hedge for speculative purposes.
Further,  no hedging strategy can completely insulate the Company from risk, and
certain  of the federal income tax requirements that the Company must satisfy to
qualify  as  a  REIT  limit  the  Company's  ability to hedge, particularly with
respect  to  hedging  against periodic cap risk.  The Company carefully monitors
and  may have to limit its hedging strategies to ensure that it does not realize
excessive hedging income, or hold hedging assets having excess value in relation
to  total  assets.  See  "Federal  Income  Tax Considerations - Requirements for
Qualification  as  a  REIT".

Operating  Restrictions

The  Board of Directors has established the Company's operating policies and any
revisions  in  the operating policies and strategies require the approval of the
Board  of Directors, including a majority of the unaffiliated directors.  Except
as otherwise restricted, the Board of Directors has the power to modify or alter
the operating policies without the consent of shareholders.  Developments in the
market  which  affect  the operating policies and strategies mentioned herein or
which  change  the  Company's  assessment  of  the market may cause the Board of
Directors  (including  a  majority of the unaffiliated directors)  to revise the
Company's  operating  policies  and  financing  strategies.

In the event the rating of an ARM security held by the Company is reduced by the
Rating  Agencies to below Investment Grade after acquisition by the Company, the
asset  may  be  retained  in  the  Company's investment portfolio if the Manager
recommends  that  it be retained and the recommendation is approved by the Board
of  Directors  (including  a  majority  of  the  unaffiliated  directors).

The  Company has elected to qualify as a REIT for tax purposes.  The Company has
made  a  taxable  REIT  subsidiary  election  with  respect to TMHL, in order to
facilitate  the  origination,  securitization, sale and servicing of residential
mortgage  loans.  In  addition,  the  Company  has  adopted  certain  compliance
guidelines  which  include  restrictions on the acquisition, holding and sale of
assets.  Prior  to  the acquisition of any asset, the Company determines whether
such  asset  will constitute a "Qualified REIT Asset" as defined by the Internal
Revenue  Code  of  1986,  as amended (the "Code").  Substantially all the assets
that the Company has acquired and will acquire for investment are expected to be
Qualified  REIT  Assets.  This  policy limits the investment strategies that the
Company  may  employ.

The  Company  closely  monitors  its purchases of ARM assets and the income from
such assets, including from its hedging strategies, so as to ensure at all times
that  it  maintains  its qualification as a REIT.  The Company developed certain
accounting systems and testing procedures with the help of qualified accountants
and tax experts to facilitate its ongoing compliance with the REIT provisions of
the  Code.  See  "Federal  Income  Tax  Considerations  -  Requirements  for
Qualification  as  a REIT".  No changes in the Company's investment policies and
operating  policies and strategies, including credit criteria for mortgage asset
investments,  may  be  made  without  the  approval  of  the  Company's Board of
Directors,  including  a  majority  of  the  unaffiliated  directors.


                                       12
<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.
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  assets  represent  all the
certificates  issued  with  respect  to  an  underlying  pool of mortgages, such
mortgage  assets  may be treated as assets separate from the underlying mortgage
loans  and, thus, may not be considered Qualifying Interests for purposes of the
55%  requirement.  The  Company  closely  monitors  its  compliance  with  this
requirement  and  intends to maintain its exempt status.  Up to the present, the
Company  has  been  able to maintain its exemption through the purchase of whole
pool  government  agency  and  privately  issued  ARM  securities and loans that
qualify  for  the  exemption.  See  "Portfolio of Mortgage Assets - Pass-Through
Certificates  -  Privately  Issued  ARM  Pass-Through  Certificates".

The  Company  does  not  purchase any assets from or enter into any servicing or
administrative  agreements  (other  than  the  Management  Agreement)  with  any
entities  affiliated  with  the  Manager.  Any  changes  in this policy would be
subject  to  approval  by  the  Board  of Directors, including a majority of the
unaffiliated  directors.


                          PORTFOLIO OF MORTGAGE ASSETS

As of December 31, 2000, ARM assets comprised approximately 99% of the Company's
total  assets.  The  Company  has  invested  in  the following types of mortgage
assets  in  accordance  with  the operating policies established by the Board of
Directors  and  described  in  "Business  -  Operating Policies and Strategies -
Operating  Restrictions".

PASS-THROUGH  CERTIFICATES

The  Company's  investments  in mortgage assets are concentrated in High Quality
ARM  pass-through certificates which account for approximately 75% of ARM assets
held.  These  High  Quality  ARM  pass-through  certificates  consist  of Agency
Certificates  and  privately  issued ARM pass-through certificates that meet the
High  Quality credit criteria.  These High Quality ARM pass-through certificates
acquired  by  the  Company  represent  interests  in ARM loans which are secured
primarily  by  first  liens  on  single-family  (one-to-four  units) residential
properties,  although the Company may also acquire ARM pass-through certificates
secured  by liens on other types of real estate-related properties.  The Company
also  includes  in  this  category of assets a portion of the ARM and Hybrid ARM
loans  that  have been deposited in a trust and held as collateral for its notes
payable  in  the  amount equivalent to the AAA portion of the debt issued by the
trust.  The  ARM  pass-through  certificates,  including  the ARM and Hybrid ARM
loans  collateralizing  notes  payable,  acquired  by  the Company are generally
subject  to periodic interest rate adjustments, as well as periodic and lifetime
interest  rate  caps  which limit the amount an ARM security's interest rate can
change  during  any  given  period.

The  following  is a discussion of each type of pass-through certificate held by
the  Company  as  of  December  31,  2000:

Freddie  Mac  ARM  Programs

Freddie  Mac  is  a  shareholder-owned  government  sponsored enterprise created
pursuant  to  an  Act  of  Congress on July 24, 1970.  The principal activity of
Freddie  Mac  consists  of  the purchase of first lien, conventional residential
mortgages,  including  both  whole  loans  and  participation  interests in such
mortgages  and  the  resale  of  the  loans  and  participations  in the form of
guaranteed mortgage assets.  During 2000, Freddie Mac purchased $21.2 billion of
ARM loans to securitize into ARM certificates and as of December 31, 2000, there
was  $46.8  billion of all types of Freddie Mac ARM certificates outstanding, of
which  Freddie  Mac  held  $12.6  billion  in  its  own  portfolio.

Each Freddie Mac ARM Certificate issued to date has been issued in the form of a
pass-through  certificate  representing  an  undivided interest in a pool of ARM
loans  purchased  by Freddie Mac.  The ARM loans included in each pool are fully
amortizing, conventional mortgage loans with original terms to maturity of up to
40  years  secured  by  first  liens  on  one-to-four  unit  family  residential
properties  or  multi-family  properties.  The interest rate paid on Freddie Mac
ARM Certificates adjust periodically on the first day of the month following the
month  in  which  the  interest  rates  on the underlying mortgage loans adjust.


                                       13
<PAGE>
Freddie Mac guarantees to each holder of its ARM Certificates the timely payment
of  interest  at the applicable pass-through rate and ultimate collection of all
principal  on the holder's pro rata share of the unpaid principal balance of the
related  ARM  loans,  but  does  not  guarantee  the timely payment of scheduled
principal  of  the  underlying  mortgage  loans.  The obligations of Freddie Mac
under  its  guarantees are solely those of Freddie Mac and are not backed by the
full  faith  and  credit  of the U.S. Government.  If Freddie Mac were unable to
satisfy  such  obligations,  distributions  to  holders  of  Freddie  Mac  ARM
Certificates  would  consist  solely  of  payments  and  other recoveries on the
underlying  mortgage loans and, accordingly, monthly distributions to holders of
Freddie  Mac  ARM  Certificates  would  be  affected  by delinquent payments and
defaults  on  such  mortgage  loans.

Fannie  Mae  ARM  Programs

Fannie  Mae  is  a federally chartered and privately owned corporation organized
and  existing  under  the  Federal  National  Mortgage  Association Charter Act.
Fannie  Mae  provides  funds to the mortgage market primarily by purchasing home
mortgage  loans from mortgage loan originators, thereby replenishing their funds
for  additional  lending.  Fannie Mae established its first ARM programs in 1982
and  currently  has  several  ARM  programs  under which ARM certificates may be
issued,  including  programs for the issuance of assets through REMICs under the
Code.  During  2000,  Fannie  Mae  purchased  $18.1  billion  of  ARM  loans  to
securitize  into  ARM  certificates  and  issued $25.7 billion of Fannie Mae ARM
certificates.  As  of  December  31,  2000, Fannie Mae held $27.1 billion of ARM
certificates  in  its  own  portfolio.

Each  Fannie Mae ARM Certificate issued to date has been issued in the form of a
pass-through  certificate representing a fractional undivided interest in a pool
of  ARM  loans  formed  by  Fannie Mae.  The ARM loans included in each pool are
fully  amortizing  conventional mortgage loans secured by a first lien on either
one-to-four  family  residential  properties  or  multi-family  properties.  The
original  term  to  maturity  of the mortgage loans generally does not exceed 40
years.  Fannie  Mae  has  issued  several  different series of ARM Certificates.
Each  series bears an initial interest rate and margin tied to an index based on
all  loans  in  the related pool, less a fixed percentage representing servicing
compensation  and  Fannie  Mae's  guarantee  fee.

Fannie  Mae  guarantees to the registered holder of a Fannie Mae ARM Certificate
that  it  will  distribute amounts representing scheduled principal and interest
(at  the  rate provided by the Fannie Mae ARM Certificate) on the mortgage loans
in  the pool underlying the Fannie Mae ARM Certificate, whether or not received,
and  the full principal amount of any such mortgage loan foreclosed or otherwise
finally  liquidated,  whether  or not the principal amount is actually received.
The  obligations  of  Fannie Mae under its guarantees are solely those of Fannie
Mae  and are not backed by the full faith and credit of the U.S. Government.  If
Fannie  Mae were unable to satisfy such obligations, distributions to holders of
Fannie  Mae  ARM  Certificates  would  consist  solely  of  payments  and  other
recoveries  on  the  underlying  mortgage  loans  and,  accordingly,  monthly
distributions  to  holders  of  Fannie Mae ARM Certificates would be affected by
delinquent  payments  and  defaults  on  such  mortgage  loans.

Privately  Issued  ARM  Pass-Through  Certificates

Privately  issued  ARM  Pass-Through  Certificates are structured similar to the
Agency  Certificates  discussed  above  but  are  issued  by originators of, and
investors  in,  mortgage loans, including savings and loan associations, savings
banks,  commercial  banks,  mortgage banks, investment banks and special purpose
subsidiaries  of  such  institutions.  Privately  issued  ARM  pass-through
certificates  are  usually  backed  by  a  pool  of  non-conforming conventional
adjustable-rate  mortgage  loans  and  are generally structured with one or more
types  of  credit  enhancement,  including  pool  insurance,  guarantees,  or
subordination.  Accordingly,  the privately issued ARM pass-through certificates
typically  are  not  guaranteed by an entity having the credit status of Freddie
Mac  or  Fannie  Mae.

Privately  issued ARM pass-through certificates credit enhanced by mortgage pool
insurance  provide  the  Company with an alternative source of ARM assets (other
than  Agency  ARM  assets)  that meet the Qualifying Interests test for purposes
maintaining  the  Company's  exemption under the Investment Company Act of 1940.
Since  the  inception  of the Company in 1993, most of the providers of mortgage
pool  insurance  have  stopped providing such insurance.  Although, in 1999, the
Company  was  successful in negotiating a new pool insurance policy for a one of
the  privately-issued  ARM Pass-Through Certificates it purchased.   Since these
opportunities  are  rare, the Company has increased its investment in Agency ARM
securities  and in whole loans as its primary sources of Qualifying Interests in
real  estate.


                                       14
<PAGE>
COLLATERALIZED  MORTGAGE  OBLIGATIONS  ("CMOS"), MULTI-CLASS PASS-THROUGH ASSETS
AND  COLLATERALIZED  BOND  OBLIGATIONS  ("CBOS")

CMOs  are debt obligations, ordinarily issued in series and most commonly backed
by  a  pool  of  fixed rate mortgage loans or pass-through certificates, each of
which  consists  of several serially maturing classes.  Multi-class pass-through
securities  are  equity  interests  in  a  trust  composed of similar underlying
mortgage  assets.  Generally,  principal  and  interest payments received on the
underlying  mortgage-related  assets  securing  a  series of CMOs or multi-class
pass-through securities are applied to principal and interest due on one or more
classes  of  the  CMOs  of  such  series  or  to  pay scheduled distributions of
principal  and  interest  on  multi-class  pass-throughs.

The  CBOs  acquired by the Company, like CMOs, are debt obligations, but, in the
case  of  CBOs, are secured by security interests in portfolios of high quality,
low  duration,  mortgage-backed,  asset-backed and other fixed and floating rate
securities  managed  by third-parties.  The Company only acquires CBOs that have
portfolios  that  consist  primarily  of either real estate qualifying assets or
high  quality  mortgage  backed securities.  In a CBO transaction, principal and
interest  payments  are  used  to  pay current period interest and any excess is
reinvested  into  the portfolio.  The amount of proceeds at maturity, on the CBO
classes  owned  by  the  Company,  is generally dependent upon the total rate of
return  performance  of  the  underlying  collateral  and  can result in a final
redemption  value  that  is  less  than  the face value of the investment.  CBOs
typically  don't  amortize  monthly,  rather  they mature on a specific maturity
date.

Scheduled  payments of principal and interest on the mortgage-related assets and
other  collateral  securing  a series of CMOs, CBOs or multi-class pass-throughs
are  intended to be sufficient to make timely payments of principal and interest
on  such  issues  or  securities and to retire each class of such obligations at
their  stated  maturity.

Multi-class  pass-through  securities backed by ARM assets or ARM loans owned by
the  Company are typically structured into classes designated as senior classes,
mezzanine classes and subordinated classes.  The Company also owns variable rate
classes  of  CMOs  and  CBOs  that are backed by both fixed- and adjustable-rate
mortgages  that are issued by Freddie Mac, Fannie Mae and other private issuers.

The  senior  classes in a multi-class pass-through security generally have first
priority  over  all  cash flows and consequently have the least amount of credit
risk  since  principal  losses  are generally covered by mortgage pool insurance
policies  or  are  charged  against  the  subordinated  classes  in  order  of
subordination.  As  a  result  of these features, the senior classes receive the
highest  credit  rating  from  Rating Agencies of the series of classes for each
multi-class  pass-through  security.

The  mezzanine  classes  of a multi-class pass-through security generally have a
slightly  greater  risk  of  principal  loss  than the senior classes since they
provide  some  credit  enhancement to the senior classes.  In most, but not all,
instances, mezzanine classes participate on a pro-rata basis with senior classes
in  their  right  to  receive  cash  flow and have expected lives similar to the
senior  classes.  In other instances, mezzanine classes are subordinate in their
right  to  receive  cash  flow  and  have average lives that are longer than the
senior  classes.  However,  in  all  cases,  a  mezzanine class has a similar or
slightly  lower  credit  rating  than the senior class from the Rating Agencies.
Generally,  the  mezzanine  classes that the Company has acquired are rated High
Quality.

Subordinated  classes  are  junior  in  the  right  to  receive payment from the
underlying  mortgages  to  other classes of a multi-class pass-through security.
The  subordination  provides  credit  enhancement  to  the  senior and mezzanine
classes.  Subordinated  classes  may be at risk for some payment failures on the
mortgage  loans  securing  or  underlying  such assets and generally represent a
greater  level  of  credit  risk as they are responsible for bearing the risk of
credit loss on all of the outstanding loans underlying a CMO, CBO or multi-class
pass-through.  As  a  result  of being subject to more credit risk, subordinated
classes generally have lower credit ratings relative to the senior and mezzanine
classes.

The  subordinated classes which the Company has acquired were all rated at least
Investment  Grade  at the time of purchase by one of the Rating Agencies, and in
certain cases are High Quality, or were created as part of the Company's process
of  securitizing  whole loans.  The subordinated classes acquired by the Company
in  the  open  market  are  limited  in amount and bear yields which the Company
believes  are  commensurate  with the increased risks involved.  In general, the
Company  acquires  subordinated classes when they are seasoned and when the more
senior  classes  of  the multi-class security have been paid down to levels that
mitigate  the  risk  of  non-payment  on  the  subordinate  classes.


                                       15
<PAGE>
The  market  for  subordinated  classes  is  not  extensive  and at times may be
illiquid.  In  addition,  the  Company's ability to sell subordinated classes is
limited  by  the REIT Provisions of the Code.  The Company has not purchased any
subordinated  classes  that  are  not  Qualified  REIT Assets.  The subordinated
classes  acquired  by the Company, which are not High Quality, together with the
Company's  other  investments  in  Other  Investment  assets,  may  not,  in the
aggregate,  comprise  more than 30% of the Company's total assets, in accordance
with  the  Company's  investment  policy.

The  variable  rate  classes of CMOs and CBOs, or Floaters, owned by the Company
generally  float  at  a  spread  to  the one-month LIBOR index and are backed by
mortgages that are either fixed-rate or are adjustable-rate mortgages indexed to
the  one-year  U.  S.  Treasury  yield  or  a  Cost  of  Funds  index.

ARM  AND  HYBRID  ARM  LOANS

The ARM and Hybrid ARM loans the Company has acquired are all first mortgages on
single-family  residential  properties.  Some  have additional collateral in the
form of pledged financial assets.  The Company acquires loans that are generally
underwritten  to  "A"  quality standards.  The Company considers loans to be "A"
quality  when they are underwritten in such a way as to assure that the borrower
has  adequate  verified  income  to  make  the  required  loan payment, adequate
verified  equity  in  the underlying property, and by the borrower's willingness
and  ability to repay the mortgage as demonstrated by a good credit history.  As
a result, the loans acquired by the Company are generally fully documented loans
to  borrowers with good credit histories, adequate income to support the monthly
mortgage payment, adequate assets to close the loan, generally with 80% or lower
effective  loan-to-value ratios based on independently appraised property values
or  are  seasoned  loans  with  good  payment  history.

When  acquiring ARM and Hybrid ARM loans, either originated specifically for the
Company or when the Company acquires pools of loans in bulk, the Company focuses
its  attention on key aspects of a borrower's profile and the characteristics of
a mortgage loan product that the Company believes are most important in insuring
excellent  loan  performance  and  minimal  credit exposure.  The Company's loan
programs  generally  focus  on  larger  down payments, excellent borrower credit
history  (as  measured by a credit report and a credit score) and a conservative
appraisal  process.  If  an  ARM  or  Hybrid  ARM  loan  acquired  has  a
loan-to-property-value  that  is above 80%, then the borrower is required to pay
for  private  mortgage  insurance providing additional protection to the Company
against credit risk.  The loans acquired have original maturities of forty years
or  less.  The  ARM  and  Hybrid  ARM  loans  are either fully amortizing or are
interest  only, generally up to ten years, and fully amortizing thereafter.  All
ARM  loans acquired bear an interest rate that is tied to an interest rate index
and  some  have  periodic and lifetime constraints on how much the loan interest
rate  can change on any predetermined interest rate reset date.  In general, the
interest  rate  on  each  ARM loan resets at a frequency that is either monthly,
semi-annually  or  annually.  The  ARM  loans  generally  adjust  based upon the
following  indices:  a U.S. Treasury Bill index, a LIBOR index, a Certificate of
Deposit  index,  a  Cost  of Funds index or Prime.  The Hybrid ARM loans have an
initial  fixed rate period, generally 3 to 10 years, and then they convert to an
ARM  loan  with  the  features  of  an  ARM  loan  described  above.


                                       16
<PAGE>
                                  RISK  FACTORS

FORWARD-LOOKING  STATEMENTS

     In  accordance  with  the  Private Securities Litigation Reform Act of 1995
(the  "1995  Act"),  the  Company can obtain a "Safe Harbor" for forward-looking
statements  by identifying those statements and by accompanying those statements
with  cautionary  statements,  which  identify  factors  that could cause actual
results  to  differ  from those in the forward-looking statements.  Accordingly,
the  following  information  contains or may contain forward-looking statements:
(1)  information included in this Annual Report on Form 10-K, including, without
limitation,  statements  made  regarding  investments  in ARM securities and ARM
loans, and Hybrid ARM loans, hedging, leverage, interest rates and statements in
Item  7, Management's Discussion and Analysis of Financial Condition and Results
of  Operations,  (2)  information included in future filings by the Company with
the Securities and Exchange Commission including, without limitation, statements
with  respect to growth, projected revenues, earnings, returns and yields on its
portfolio  of mortgage assets, the impact of interest rates, costs, and business
strategies  and  plans,  and  (3)  information contained in the Company's Annual
Report  or  other written material, releases and oral statements issued by or on
behalf  of,  the Company, including, without limitation, statements with respect
to  growth,  projected revenues, net income, returns and yields on its portfolio
of  mortgage assets, the impact of interest rates, costs and business strategies
and  plans.

     The  following  is  a summary of the factors the Company believes important
and  that  could cause actual results to differ from the Company's expectations.
The  Company is publishing these factors pursuant to the 1995 Act.  Such factors
should  not be construed as exhaustive or as an admission regarding the adequacy
of  disclosure  made by the Company prior to the effective date of the 1995 Act.
Readers  should  understand that many factors govern whether any forward-looking
statement  will  be  or  can  be achieved.  Any one of those factors could cause
actual  results  to  differ materially from those projected.  No assurance is or
can  be  given  that  any important factor set forth below will be realized in a
manner  so  as to allow the Company to achieve the desired or projected results.
The  words "believe," "except," "anticipate," "intend," "aim," "expect," "will,"
and  similar  words  identify  forward-looking statements.  The Company cautions
readers  that  the  following  important factors, among others, could affect the
Company's  actual  results  and  could  cause  the Company's actual consolidated
results  to  differ  materially  from  those  expressed  in  any forward-looking
statements  made  by  or  on  behalf  of  the  Company.

-     A  Dramatic  Increase  in  Short-term  Interest  Rates

-     The  Effectiveness  of  Using Various Interest Rate Derivative Instruments
      for  Hedging  ARM  Assets  or  Borrowing  Costs

-     The Ability to Acquire Attractively Priced and Underwritten ARM and Hybrid
      ARM  Loans  and  Securities

-     Interest  Rate Repricing Mismatch Between Asset Yields and Borrowing Rates

-     A  Decline  in  the  Market Value of ARM Securities and Loans, Which Would
      Result  in  Margin  Calls

-     Unanticipated  Levels  of  Prepayment  Rates

-     A  Flattening  or Inversion of the Yield Curve Between Short and Long-Term
      Interest  Rates

-     The  Use  of  Substantial  Borrowed  Funds  to  Enhance  Returns

-     Risk  of  Credit  Loss  Associated  with  Acquiring,  Accumulating  and
      Securitizing  ARM  Loans

-     Interest  Rate  Risks  Associated  with any Future Unhedged Portion of the
      Fixed  Term  of  Hybrid  ARMs

-     The  Loss  of  Key  Personnel

-     Fundamental  Changes  in  Investment  Policies  and  Strategies

-     Fluctuations  or  Variability  of  Dividend  Distributions

-     Capital  Stock  Price  Volatility

-     Uncertainty  Associated  With  New  Business  Lines

-     Additional  Investment  in  New  Business  Lines


                                       17
<PAGE>
                                   COMPETITION

In  acquiring  ARM  assets,  the  Company  competes  with  other mortgage REITs,
investment  banking  firms,  savings  and  loan  associations,  banks,  mortgage
bankers,  insurance  companies, mutual funds, other lenders, Fannie Mae, Freddie
Mac  and  other  entities  purchasing  ARM  assets,  many  of which have greater
financial  resources  than  the  Company.  The  existence  of  these competitive
entities,  as  well  as  the  possibility  of additional entities forming in the
future, may increase the competition for the acquisition of ARM assets resulting
in  higher  prices  and  lower  yields  on  such  mortgage  assets.

                                    EMPLOYEES

As  of  December  31,  2000,  the  Company had no employees.  Thornburg Mortgage
Advisory  Corporation  (the  "Manager") carries out the day to day operations of
the  Company, subject to the supervision of the Board of Directors and under the
terms  of  a  management  agreement  discussed  below.

THE  MANAGEMENT  AGREEMENT

The Company has entered into a management agreement (the "Management Agreement")
with  Thornburg  Mortgage  Advisory  Corporation (the  "Manager") for a ten-year
term,  with  an  annual  review  required  each year.  Upon a termination by the
Company,  other  than for cause, the Management Agreement provides for a minimum
fee  to  be paid to the Manager.  The Management Agreement also provides that in
the  event  a  person  or  entity  obtains more than 20% of the Company's common
stock,  if  the  Company  is  combined  with  another  entity, or if the Company
terminates  the  Agreement  other  than  for  cause, the Company is obligated to
acquire  substantially  all  of the assets of the Manager through an exchange of
shares  with  a value based on a formula tied to the Manager's net profits.  The
Company  has the right to terminate the Management Agreement upon the occurrence
of  certain  specific  events, including a material breach by the Manager of any
provision  contained  in  the  Management  Agreement.

The Manager at all times is subject to the supervision of the Company's Board of
Directors  and has only such functions and authority as the Company may delegate
to  it.  The Manager is responsible for the day-to-day operations of the Company
and  performs such services and activities relating to the assets and operations
of  the  Company  as  may  be  appropriate.

The  Manager receives a per annum base management fee on a declining scale 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.  The base
management fee formula is subject to an annual increase based on any increase in
the  Consumer Price Index over the previous twelve month period.  The Manager is
also  entitled to receive, as incentive compensation for each fiscal quarter, an
amount  equal  to  20%  of  the  Net  Income  of  the  Company, before incentive
compensation, in excess of the amount that would produce an annualized Return on
Equity  equal  to  1%  over  the  Ten  Year U.S. Treasury Rate. In addition, the
wholly-owned  subsidiaries  of  the  Company  entered  into  separate Management
Agreements  with the Manager for additional management services.  The Management
Agreement  also  provides  that  expenses  related  to  acquiring, securitizing,
selling,  hedging,  and  servicing  the  Company's  portfolio  of  ARM loans are
reimbursable  to  the Manager by the Company.  For further information regarding
the  base  management  fee,  incentive  compensation  reimbursable  expenses and
applicable  definitions,  see the Company's Proxy Statement dated March 28, 2001
under  the  caption  "Certain  Relationships  and  Related  Transactions".

Subject  to  the  limitations  set  forth  below, the Company pays all operating
expenses  except those specifically required to be paid by the Manager under the
Management Agreement.  The operating expenses required to be paid by the Manager
include  the  compensation  of  the  Company's  personnel  who  are  performing
management  services for the Manager and the cost of office space, equipment and
other  personnel  required  for  the  management  of  the  Company's  day-to-day
operations.  The  expenses  that  will be paid by the Company will include costs
incident  to  the  acquisition,  disposition,  securitization  and  financing of
mortgage  loans, compensation and expenses of the Company's operating personnel,
regular  legal  and  auditing  fees  and  expenses, the fees and expenses of the
Company's  directors,  the  costs of printing and mailing proxies and reports to
shareholders,  the  fees  and  expenses  of the Company's custodian and transfer
agent,  if  any,  and reimbursement of any obligation of the Manager for any New
Mexico  Gross  Receipts  Tax liability.  The expenses required to be paid by the
Company which are attributable to the operations of the Company shall be limited
to  an  amount  per  year equal to the greater of 2% of the Average Net Invested
Assets  of  the  Company  or 25% of the Company's Net Income for that year.  The


                                       18
<PAGE>
determination  of  Net Income for purposes of calculating the expense limitation
will  be the same as for calculating the Manager's incentive compensation except
that  it  will  include  any  incentive  compensation  payable  for such period.
Expenses  in  excess  of  such  amount  will  be paid by the Manager, unless the
unaffiliated  directors  determine  that,  based  upon  unusual or non-recurring
factors,  a higher level of expenses is justified for such fiscal year.  In that
event,  such expenses may be recovered by the Manager in succeeding years to the
extent  that  expenses  in  succeeding  quarters  are  below  the  limitation of
expenses.  The  Company,  rather  than the Manager, will also be required to pay
expenses  associated  with  litigation  and other extraordinary or non-recurring
expenses.  Expense  reimbursement will be made monthly, subject to adjustment at
the  end  of  each  year.

The  transaction  costs  incident  to  the  acquisition  and  disposition  of
investments,  the  incentive  compensation and the New Mexico Gross Receipts Tax
liability  will  not  be  subject  to  the  2% limitation on operating expenses.
Expenses  excluded  from the expense limitation are those incurred in connection
with the servicing of mortgage loans, the raising of capital, the acquisition of
assets,  interest  expenses,  taxes  and  license  fees,  non-cash costs and the
incentive  management  fee.


                        FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The Company has elected to be treated as a REIT for federal income tax purposes.
In  brief,  if certain detailed conditions imposed by the REIT provisions of the
Code  are  met,  electing  entities  that  invest  primarily  in real estate and
mortgage  loans,  and  that  otherwise  would be taxed as corporations are, with
certain  limited  exceptions,  not taxed at the corporate level on their taxable
income  that  is  currently  distributed  to their shareholders.  This treatment
eliminates  most of the "double taxation" (at the corporate level and then again
at  the shareholder level when the income is distributed) that typically results
from  the  use  of  corporate  investment  vehicles.

In  the  event that the Company does not qualify as a REIT in any year, it would
be subject to federal income tax as a domestic corporation and the amount of the
Company's after-tax cash available for distribution to its shareholders would be
reduced.  The  Company  believes  it  has  satisfied  the  requirements  for
qualification  as a REIT since commencement of its operations in June 1993.  The
Company  intends  at  all  times to continue to comply with the requirements for
qualification  as  a  REIT  under  the  Code,  as  described  below.

REQUIREMENTS  FOR  QUALIFICATION  AS  A  REIT

To  qualify  for  tax  treatment as a REIT under the Code, the Company must meet
certain  tests,  which  are  described  briefly  below.

Ownership  of  Common  Stock

For  all taxable years after the first taxable year for which a REIT election is
made,  the  Company's  shares  of capital stock must be held by a minimum of 100
persons  for  at least 335 days of a 12 month year (or a proportionate part of a
short  tax  year).  In  addition,  at  all  times during the second half of each
taxable  year, no more than 50% in value of the capital stock of the Company may
be  owned  directly  or indirectly by five or fewer individuals.  The Company is
required  to maintain records regarding the actual and constructive ownership of
its  shares, and other information, and to demand statements from persons owning
above  a  specified  level of the REIT's shares (as long as the Company has over
200 but fewer than 2,000 shareholders of record, only persons holding 1% or more
of  the Company's outstanding shares of capital stock) regarding their ownership
of shares.  The Company must keep a list of those shareholders who fail to reply
to  such  a  demand.

The  Company is required to use the calendar year as its taxable year for income
tax  purposes.

Nature  of  Assets

On  the  last  day  of  each  calendar  quarter at least 75% of the value of the
Company's  assets must consist of Qualified REIT Assets, government assets, cash
and  cash  items.  The Company expects that substantially all of its assets will
continue to be Qualified REIT Assets.  On the last day of each calendar quarter,
of  the investments in assets not included in the foregoing 75% assets test, the


                                       19
<PAGE>
value  of  securities issued by any one issuer may not exceed 5% in value of the
Company's  total  assets  and  the  Company may not own more than 10% of any one
issuer's  outstanding  securities  (with  an  exception for a qualified electing
taxable  REIT  subsidiary).  Under  that  exception,  the  aggregate  value  of
businesses  undertaken  by a REIT through taxable subsidiaries is limited to 20%
or  less of the REIT's total assets.  The Company believes that it has satisfied
this exception with respect to its ownership of TMHL. Pursuant to its compliance
guidelines, the Company monitors the purchase and holding of its assets in order
to  comply  with  the  above  asset  tests.

The  Company  may  from  time  to  time  hold,  through one or more taxable REIT
subsidiaries,  assets  that,  if  held  directly by the Company, could otherwise
generate income that would have an adverse effect on the Company's qualification
as a REIT or on certain classes of the Company's shareholders.  The Company does
not  reasonably  expect  that  the  value  of  such taxable subsidiaries, in the
aggregate,  will  ever  exceed  20%  of  the  Company's  assets.

Sources  of  Income

The  Company  must  meet  the  following  separate income-based tests each year:

     1.     THE 75% TEST.     At least 75% of the Company's gross income for the
taxable  year  must  be  derived  from  Qualified REIT Assets including interest
(other  than  interest based in whole or in part on the income or profits of any
person)  on  obligations  secured  by mortgages on real property or interests in
real  property.  The  investments that the Company has made and will continue to
make  will  give  rise  primarily  to mortgage interest qualifying under the 75%
income  test.

     2.     THE  95%  TEST.     In  addition to deriving 75% of its gross income
from the sources listed above, at least an additional 20% of the Company's gross
income  for  the  taxable  year  must  be  derived  from  those sources, or from
dividends,  interest  or  gains  from  the sale or disposition of stock or other
assets that are not dealer property.  The Company intends to limit substantially
all  of  the  assets  that  it  acquires  (other than stock in certain affiliate
corporations  as  discussed  below) to Qualified REIT Assets.  The policy of the
Company  to maintain REIT status may limit the type of assets, including hedging
contracts  and  other  assets,  that  the  Company  otherwise  might  acquire.

Distributions

The Company must distribute to its shareholders on a pro rata basis each year an
amount  equal  to  at  least  (i)  95% of its taxable income before deduction of
dividends  paid  and  excluding net capital gain, plus (ii) 95% of the excess of
the  net income from foreclosure property over the tax imposed on such income by
the  Code,  less (iii) any "excess noncash income".  The Company intends to make
distributions to its shareholders in sufficient amounts to meet the distribution
requirement.  As  a result of legislation enacted in 1999 and effective for 2001
and  thereafter,  the  Company  will  have to distribute an amount calculated by
substituting  90%  for  95%  in  the  foregoing  formula.

The  Service  has  ruled that if a REIT's dividend reinvestment plan (the "DRP")
allows  shareholders  of the REIT to elect to have cash distributions reinvested
in  shares  of the REIT at a purchase price equal to at least 95% of fair market
value  on  the distribution date, then such cash distributions qualify under the
95%  distribution  test.  The  Company  believes that its DRP complies with this
ruling.

TAXATION  OF  THE  COMPANY'S  SHAREHOLDERS

For  any  taxable  year  in  which  the Company is treated as a REIT for federal
income  purposes,  amounts distributed by the Company to its shareholders out of
current  or  accumulated  earnings  and  profits  will  be  includable  by  the
shareholders  as ordinary income for federal income tax purposes unless properly
designated  by  the  Company  as  capital  gain dividends.  Distributions of the
Company  will  not  be  eligible  for  the  dividends  received  deduction  for
corporations.  Shareholders  may  not deduct any net operating losses or capital
losses  of  the  Company.

If  the Company makes distributions to its shareholders in excess of its current
and  accumulated  earnings  and  profits, those distributions will be considered
first  a  tax-free  return of capital, reducing the tax basis of a shareholder's
shares  until  the  tax  basis is zero.  Such distributions in excess of the tax
basis  will  be  taxable as gain realized from the sale of the Company's shares.
The Company will withhold 30% of dividend distributions to shareholders that the
Company  knows to be foreign persons unless the shareholder provides the Company
with  a  properly  completed  IRS form for claiming the reduced withholding rate
under  an  applicable  income  tax  treaty.


                                       20
<PAGE>
The  provisions  of  the Code are highly technical and complex.  This summary is
not  intended  to  be  a detailed discussion of all applicable provisions of the
Code,  the  rules  and regulations promulgated thereunder, or the administrative
and  judicial  interpretations  thereof.  The  Company has not obtained a ruling
from the Internal Revenue Service with respect to tax considerations relevant to
its  organization  or operation, or to an acquisition of its common stock.  This
summary  is  not  intended to be a substitute for prudent tax planning, and each
shareholder  of the Company is urged to consult its own tax advisor with respect
to these and other federal, state and local tax consequences of the acquisition,
ownership  and  disposition  of shares of stock of the Company and any potential
changes  in  applicable  law.

ITEM  2.  PROPERTIES

          The Company's principal executive offices are located in Santa Fe, New
          Mexico  and  are  provided  by  the  Manager  in  accordance  with the
          Management  Agreement.  The  Company's  wholly-owned subsidiaries have
          their  principal  offices  in Santa Fe, New Mexico and are leased from
          the  Manager.

ITEM  3.  LEGAL  PROCEEDINGS

          At December 31, 2000, there were no pending legal proceedings to which
          the  Company  was a party or of which any of its property was subject.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

          No  matters  were  submitted  to  a vote of the Company's shareholders
          during  the  fourth  quarter  of  2000.


                                       21
<PAGE>
                                     PART II

ITEM  5.  MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED SHAREHOLDER
          MATTERS

The  Company's  common  stock is traded on the New York Stock Exchange under the
trading  symbol  "TMA".  As  of  February  21,  2001, the Company had 21,719,178
shares  of  common  stock outstanding which were held by 1,792 holders of record
and  approximately  14,300  beneficial  owners.

The  following  table  sets  forth, for the periods indicated, the high, low and
closing sales prices per share of common stock as reported on the New York Stock
Exchange  composite  tape  and  the  cash dividends declared per share of common
stock.


<TABLE>
<CAPTION>



                                                                      Cash
                                              Stock Prices          Dividends
                                        -------------------------   Declared
2000                                      High      Low    Close    Per Share
----                                    --------  -------  ------  ------------
<S>                                     <C>       <C>      <C>     <C>
Fourth Quarter ended December 31, 2000  $   9.81  $  8.63  $ 9.06  $   0.25 (1)
Third Quarter ended September 30, 2000      9.50     7.38    9.38      0.25
Second Quarter ended June 30, 2000 . .      8.88     7.19    7.19      0.23
First Quarter ended March 31, 2000 . .      9.13     7.06    7.38      0.23

1999
----
Fourth Quarter ended December 31, 1999  $   9.19  $  7.94  $ 8.25  $   0.23 (2)
Third Quarter ended September 30, 1999     10.88     8.25    8.81      0.23
Second Quarter ended June 30, 1999 . .     11.38     7.56   10.00      0.23
First Quarter ended March 31, 1999 . .     10.00     7.44    8.63      0.23

1998
----
Fourth Quarter ended December 31, 1998  $   9.50  $  5.63  $ 7.63  $   0.23
Third Quarter ended September 30, 1998     13.63     7.19    9.00       -   (3)
Second Quarter ended June 30, 1998 . .     16.13    10.50   11.88      0.30
First Quarter ended March 31, 1998 . .     18.50    14.75   15.88     0.375
<FN>
-----------------
(1)    The fourth quarter of 2000 dividend was declared in January 2001 and paid
       in  February  2001.
(2)    The fourth quarter of 1999 dividend was declared in January 2000 and paid
       in  February  2000.
(3)    On  August  17,  1998,  the  Company's  Board of Directors announced that
       dividends  on  common stock, in  the future, would be declared after each
       quarter-end  rather  than  during  the  applicable  quarter.
</TABLE>

The Company intends to pay quarterly dividends and to make such distributions to
its  shareholders  in  such amounts that all or substantially all of its taxable
income  each  year  (subject  to  certain  adjustments) is distributed, so as to
qualify  for  the  tax  benefits  accorded  to  a  REIT  under  the  Code.  All
distributions  will  be  made  by  the Company at the discretion of the Board of
Directors  and  will  depend  on  the  earnings  and  financial condition of the
Company,  maintenance  of  REIT  status  and  such other factors as the Board of
Directors  may  deem  relevant  from  time  to  time.

DIVIDEND  REINVESTMENT  PLAN

The Company has a Dividend Reinvestment and Stock Purchase Plan (the "DRP") that
allows both common and preferred shareholders to have their dividends reinvested
in  additional  shares  of  common stock and to purchase additional shares.  The
common  stock  to be acquired for distribution under the DRP may be purchased at
the Company's discretion from the Company at a discount from the then prevailing
market  price or in the open market.  Shareholders and non-shareholders also can
make  additional  purchases of stock monthly, subject to a minimum of $100 ($500
for  non-shareholders)  and a maximum of $5,000 for each optional cash purchase.
Continental Stock Transfer & Trust Company (the "Agent"), the Company's transfer
agent,  is  the  Trustee  and  administrator of the DRP.  Additional information
about  the  details  of the DRP and a prospectus are available from the Agent or
the  Company.  Shareholders  who  own stock that is registered in their own name
and  want  to participate must deliver a completed enrollment form to the Agent.
Forms  are available from the Agent or the Company.   Shareholders who own stock
that is registered in a name other than their own (e.g., broker or bank nominee)
and want to participate must either request the broker or nominee to participate
on  their  behalf or request that the broker or nominee re-register the stock in
the  shareholder's  name  and  deliver a completed enrollment form to the Agent.


                                       22
<PAGE>
ADOPTION  OF  SHAREHOLDER  RIGHTS  AGREEMENT

On  January  25,  2001,  the  Board  of  Directors  adopted a Shareholder Rights
Agreement (the "Rights Agreement").  This summary description of the Rights does
not  purport to be complete and is qualified in its entirety by reference to the
Rights  Agreement.

Pursuant  to  the  Rights  Agreement, the Board of Directors declared a dividend
distribution  of  one  Preferred  Stock  Purchase  Right  (a  "Right")  for each
outstanding  share  of  common  stock, par value $0.01 per share, of the Company
(the  "Common  Stock")  to shareholders of record as of the close of business on
March  9,  2001  (the "Record Date").  In addition, one Right will automatically
attach  to  each  share  of  Common Stock issued between the Record Date and the
Distribution Date (as defined herein). Each Right entitles the registered holder
thereof  to  purchase from the Company a unit (a "Preferred Unit") consisting of
one  one-thousandth of a share of Series B Cumulative Preferred Stock, par value
$0.01  per share (the "Preferred Stock"), at a cash exercise price of $50.00 per
Preferred  Unit  (the  "Exercise  Price"),  subject  to  adjustment.

Initially, the Rights are not exercisable and are attached to and trade with the
Common  Stock  outstanding  as of, and all Common Stock issued after, the Record
Date. The Rights will separate from the Common Stock, separate certificates will
be  distributed  to  holders  of  the  Common  Stock  and the Rights will become
exercisable  upon  the earlier of (i) the close of business on the 10th calendar
day  following the earlier of (a) the date of the first public announcement that
a  person or a group of affiliated or associated persons has acquired beneficial
ownership  of  9.8%  or  more  of  the  outstanding  Common Stock (an "Acquiring
Person"),  or  (b)  the  date on which the Company first has notice or otherwise
determines  that a person has become an Acquiring Person (the earlier of (a) and
(b),  the  "Stock  Acquisition Date"), or (ii) the close of business on the 10th
business day following the commencement of a tender offer or exchange offer that
would  result,  upon  its  consummation,  in  a  person  or  group  becoming the
beneficial owner of 9.8% or more of the outstanding Common Stock (the earlier of
(i)  and  (ii),  the "Distribution Date"). The Rights Agreement exempts from the
definition  of Acquiring Person any person who the Board of Directors determines
acquired 9.8% or more of the Common Stock inadvertently, if that person promptly
divests  itself  of  enough  Common  Stock  to  reduce  the  number  of  shares
beneficially  owned  by  that  person  to  below the 9.8% threshold.  The Rights
Agreement  also  exempts  from  the definition of Acquiring Person any person in
connection  with  which  the  Board  of Directors approved the transaction which
otherwise  would  have  resulted  in  that  person becoming an Acquiring Person.

Until  the  Distribution Date (or the earlier redemption, exchange or expiration
of  the  Rights),  (i)  the  Rights  will  be  evidenced  by  the  Common  Stock
certificates  and  will  be  transferred  with  and only with those Common Stock
certificates,  (ii)  new  Common Stock certificates issued after the Record Date
will  include  a  notation  incorporating the Rights Agreement by reference, and
(iii)  the  surrender for transfer of any certificate for Common Stock will also
constitute  the  transfer  of  the  Rights  associated  with  the  Common  Stock
represented  by  that  certificate.

The  Rights  are  not exercisable until the Distribution Date and will expire at
the  close  of  business  on  January  25,  2011,  unless previously redeemed or
exchanged  by  the  Company  as  described  below.

As  soon  as practicable after the Distribution Date, Right Certificates will be
mailed  to  holders of record of Common Stock as of the close of business on the
Distribution  Date  and,  thereafter, the separate Right Certificates alone will
represent  the Rights. Except as otherwise determined by the Board of Directors,
only  Common  Stock  issued  prior  to the Distribution Date will be issued with
Rights.

If  a  Stock Acquisition Date occurs, provision will be made so that each holder
of  a Right (other than an Acquiring Person or associates or affiliates thereof,
whose Rights will become null and void) thereafter has the right to receive upon
exercise  that  number  of  shares  of Common Stock having a market value of two
times  the  exercise  price  of  the  Right (that right being referred to as the
"Subscription Right").  If, at any time following the Distribution Date: (i) the
Company  consolidates with, or merges with and into, any Acquiring Person or any
associate  or  affiliate  thereof,  and  the  Company  is  not the continuing or
surviving  corporation,  (ii) any Acquiring Person or any associate or affiliate
thereof  consolidates  with the Company, or merges with and into the Company and
the  Company  is  the continuing or surviving corporation of that merger and, in
connection  with that merger, all or part of the Common Stock is changed into or
exchanged for stock or other securities of any other person or cash or any other
property, or (iii) 50% or more of the Company's assets or earning power is sold,
mortgaged  or otherwise transferred, each holder of a Right will thereafter have
the  right  to  receive,  upon  exercise, capital stock of the acquiring company
having  a  market value equal to two times the exercise price of the Right (that
right  being  referred  to  as  the "Merger Right"). Each holder of a Right will
continue  to  have the Merger Right whether or not that holder has exercised the
Subscription  Right,  but  Rights  that  are  or  were  beneficially owned by an
Acquiring  Person  may  (under  certain  circumstances  specified  in the Rights
Agreement)  become  null  and  void.


                                       23
<PAGE>
At  any  time after a Stock Acquisition Date occurs, the Board of Directors may,
at  its  option, exchange Common Stock or Preferred Units for all or any part of
the  then  outstanding  and exercisable Rights (which excludes Rights held by an
Acquiring  Person)  at an initial exchange ratio of one share of Common Stock or
one Preferred Unit per Right. However, the Board of Directors generally will not
be  empowered  to  effect any such exchange at any time after any person becomes
the  beneficial  owner  of  50%  or  more  of  the  Common  Stock.

The  Exercise  Price  payable,  and  the  number  of  Preferred  Units  or other
securities  or  property  issuable,  upon  exercise of the Rights are subject to
adjustment  from  time  to  time to prevent dilution (i) in the event of a share
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock,  (ii)  if  holders  of  the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the  current market price of the Preferred Stock, or (iii) upon the distribution
to  holders  of  the  Preferred  Stock  of  evidences  of indebtedness or assets
(excluding  regular  quarterly  cash  dividends)  or  of  subscription rights or
warrants  (other  than  those  referred  to  in  (i)  and  (ii)).

With  certain  exceptions,  no adjustment in the Exercise Price will be required
until  cumulative  adjustments  amount to at least 1% of the Exercise Price. The
Company  is  not  obligated  to issue fractional Preferred Units. If the Company
elects not to issue fractional Preferred Units, in lieu thereof an adjustment in
cash  will  be made based on the fair market value of the Preferred Stock on the
last  trading  date  prior  to  the  date  of  exercise.

The  Rights  may  be redeemed in whole, but not in part, at a price of $0.01 per
Right  (payable  in  cash,  Common  Stock  or  other  consideration  considered
appropriate  by the Board of Directors) by the Board of Directors only until the
earlier  of  the  close  of  business  on  (i)  the calendar day after the Stock
Acquisition  Date,  and  (ii)  the  expiration  date  of  the  Rights Agreement.
Immediately upon any action of the Board of Directors ordering redemption of the
Rights,  the  Rights will terminate and thereafter the only right of the holders
of  Rights  will  be  to  receive  the  redemption  price.

The  Rights  Agreement  may  be  amended  by  the Board of Directors in its sole
discretion  until the earlier of the Distribution Date and the date on which the
rights  become nonredeemable, as described above. After the earlier of those two
dates,  the  Board of Directors may, subject to certain limitations set forth in
the  Rights  Agreement,  amend  the Rights Agreement only to cure any ambiguity,
defect  or  inconsistency,  to  shorten  or lengthen any time period, or to make
changes  that do not adversely affect the interests of Rights holders (excluding
the  interests  of  an  Acquiring  Person  or associates or affiliates thereof).

Until  a  Right is exercised, the holder will have no rights as a shareholder of
the  Company  (beyond  those as an existing shareholder), including the right to
vote  or  to receive dividends. While the distribution of the Rights will not be
taxable  to shareholders or to the Company, shareholders may, depending upon the
circumstances,  recognize  taxable  income  if the Rights become exercisable for
Preferred  Units, other securities of the Company or other consideration, or for
common  stock  of  an  acquiring  company.

The  Rights  have  certain  anti-takeover  effects.  The  Rights  will  cause
substantial  dilution  to a person or group that attempts to acquire the Company
in  a transaction not approved by the Board of Directors.  The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors,  since  the Rights Agreement may be amended prior to the Distribution
Date,  as described above, and the Rights may be redeemed until the calendar day
after  a  Stock  Acquisition  Date,  as  described  above.


                                       24
<PAGE>
ITEM  6.     SELECTED  FINANCIAL  DATA

The  following  selected  financial  data  are  derived  from  audited financial
statements  of  the  Company  for the years ended December 31, 2000, 1999, 1998,
1997  and  1996.  The selected financial data should be read in conjunction with
the  more  detailed  information contained in the Financial Statements and Notes
thereto  and  "Management's  Discussion and Analysis of Financial Conditions and
Results  of  Operations"  included  elsewhere  in  this  Form  10-K  (Amounts in
thousands,  except  per  share  data).

<TABLE>
<CAPTION>
OPERATIONS  STATEMENT  HIGHLIGHTS

                                                       2000      1999      1998      1997      1996
                                                     --------  --------  --------  --------  --------
<S>                                                  <C>       <C>       <C>       <C>       <C>
Net interest income . . . . . . . . . . . . . . . .  $36,630   $34,015   $31,040   $49,064   $30,345

Net income. . . . . . . . . . . . . . . . . . . . .  $29,165   $25,584   $22,695   $41,402   $25,737

Basic earnings per share. . . . . . . . . . . . . .  $  1.05   $  0.88   $  0.75   $  1.95   $  1.73

Diluted earnings per share. . . . . . . . . . . . .  $  1.05   $  0.88   $  0.75   $  1.94   $  1.73

Average common shares . . . . . . . . . . . . . . .   21,506    21,490    21,488    18,048    14,874

Distributable income per common share . . . . . . .  $  1.07   $  0.99   $  0.84   $  1.98   $  1.76

Dividends declared per common share . . . . . . . .  $  0.94   $  0.92   $ 0.905   $  1.97   $  1.65

Yield on net int.-earning assets (Portfolio Margin)     0.86%     0.77%     0.64%     1.30%     1.29%

Return on average common equity . . . . . . . . . .     6.90%     5.81%     4.80%    12.72%    11.68%

Noninterest expense to average assets . . . . . . .     0.16%     0.12%     0.13%     0.21%     0.21%
</TABLE>

<TABLE>
<CAPTION>
BALANCE  SHEET  HIGHLIGHTS
                                                                       As of December 31
                                                ---------------------------------------------------------------
                                                   2000         1999         1998         1997         1996
                                                -----------  -----------  -----------  -----------  -----------
<S>                                             <C>          <C>          <C>          <C>          <C>
Adjustable-rate mortgage assets. . . . . . . .  $4,139,461   $4,326,098   $4,268,417   $4,638,694   $2,727,875

Total assets . . . . . . . . . . . . . . . . .  $4,190,167   $4,375,965   $4,344,633   $4,691,115   $2,755,358

Shareholders' equity  (1). . . . . . . . . . .  $  395,965   $  394,241   $  395,484   $  380,658   $  238,005

Historical book value per share (2). . . . . .  $    15.30   $    15.28   $    15.34   $    15.53   $    14.67

Market value adjusted book value per share (3)  $    11.67   $    11.40   $    11.45   $    14.42   $    13.70

Number of common shares outstanding. . . . . .      21,572       21,490       21,490       20,280       16,219

Yield on ARM assets. . . . . . . . . . . . . .        7.06%        6.38%        5.86%        6.38%        6.64%
<FN>
-----------------------------------------------
(1)     Shareholders'  equity  before  unrealized  market  value  adjustments.
(2)     Shareholders'  equity before unrealized market value adjustments, excluding preferred stock, divided by
        common  shares  outstanding.
(3)     Shareholders'  equity,  excluding  preferred  stock,  divided  by  common  shares  outstanding.
</TABLE>


                                       25
<PAGE>
ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
             RESULTS  OF  OPERATIONS


FINANCIAL  CONDITION

At  December  31,  2000, the Company held total assets of $4.190 billion, $4.139
billion  of  which  consisted of ARM assets.  That compares to $4.376 billion in
total  assets  and  $4.326  billion  of  ARM assets at December 31, 1999.  Since
commencing  operations,  the Company has purchased either ARM securities (backed
by  agencies  of  the  U.S.  government  or privately-issued, generally publicly
registered,  mortgage  assets,  most of which are rated AA or higher by at least
one  of  the  Rating  Agencies) or ARM loans generally originated to "A" quality
underwriting  standards.  At  December 31, 2000, 93.7% 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 owned by the Company at year-end, 80.3% are in
the  form  of  adjustable-rate  pass-through  certificates  or  ARM  loans.  The
remainder  are  floating rate classes of CMOs (15.9%) or investments in floating
rate  classes  of  CBOs  (3.8%) backed primarily by mortgaged-backed securities.

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

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

                                 December 31, 2000          December 31, 1999
                             -------------------------  --------------------------
                               Carrying      Portfolio   Carrying        Portfolio
                                Value           Mix        Value            Mix
                             -----------     ---------  ----------      ----------
HIGH QUALITY:
<S>                          <C>             <C>        <C>             <C>
 Freddie Mac/Fannie Mae      $2,187,180          52.9%  $2,068,152           47.8%
 Privately Issued:
   AAA/Aaa Rating             1,309,584 (1)      31.6    1,585,099 (1)       36.6
   AA/Aa Rating                 351,499           8.5      459,858           10.6
                             -----------     ---------  ----------      ----------
     Total Privately Issued   1,661,083          40.1    2,044,957           47.2
                             -----------     ---------  ----------      ----------

                             -----------     ---------  ----------      ----------
     Total High Quality       3,848,263          93.0    4,113,109           95.0
                             -----------     ---------  ----------      ----------

OTHER INVESTMENT:
 Privately Issued:
   A Rating                      13,724           0.3       49,995            1.2
   BBB/Baa Rating                72,114           1.7       84,929            2.0
   BB/Ba Rating and Other        40,947 (1)       1.0       46,963 (1)        1.1
 Whole loans                    164,413           4.0       31,102            0.7
                             -----------     ---------  ----------      ----------
     Total Other Investment     291,198           7.0      212,989            5.0
                             -----------     ---------  ----------      ----------
     Total ARM Portfolio     $4,139,461         100.0%  $4,326,098          100.0%
                             ===========     =========  ==========      ==========
<FN>
----------------------
(1)  The AAA Rating category includes $615.7 million and $781.8 million of whole
     loans as of December 31, 2000 and 1999, respectively, that have been credit
     enhanced  to  AAA  by a combination of an insurance policy purchased from a
     third-party and an unrated subordinated certificate retained by the Company
     in  the amount of $32.1 and $32.3 million as of December 31, 2000 and 1999,
     respectively.  The subordinated certificate is included in the BB/Ba Rating
     and  Other  category.
</TABLE>

As  of  December  31,  2000,  the  Company had reduced the cost basis of its ARM
securities  by  $1,869,000  due to estimated credit losses (other than temporary
declines  in fair value).  The estimated credit losses for ARM securities relate
to  Other  Investments that the Company purchased at a discount that included an


                                       26
<PAGE>
estimate  of credit losses and to loans that the Company has securitized for its
own  portfolio.  Additionally,  during  the  year  ended  December  31, 2000, in
accordance  with  its credit policies, the Company provided for estimated credit
losses  on  the  subordinated  classes of its securitized loans in the amount of
$207,000  and  recorded  a $951,000 provision for estimated credit losses on its
loan portfolio.  During 2000, the Company sold two REO properties for a combined
loss  of  $59,000.  As  of  December  31, 2000, the Company's ARM loan portfolio
included  8  loans  that  are  considered  seriously delinquent (60 days or more
delinquent)  with  an aggregate balance of $4.4 million.  The ARM loan portfolio
also  includes one property ("REO") that the Company acquired as the result of a
foreclosure  process  in  the  amount  of  $0.6  million.  The  average original
effective  loan-to-value  ratio  on  these  8  delinquent  loans  and  REO  is
approximately  61%.  As  of  December 31, 2000, the Company had an allowance for
estimated credit losses for loans and REO of $3.1 million.  The Company believes
this  level of allowances is adequate to cover estimated losses from these loans
and  REO properties.  The Company's credit reserve policy regarding ARM loans is
to  record  a  provision  based  on  the  outstanding principal balance of loans
(including  loans  securitized by the Company for which the Company has retained
first  loss  exposure), subject to adjustment on certain loans or pools of loans
based  upon  factors  such  as,  but  not limited to, age of the loans, borrower
payment  history,  low loan-to-value ratios, historical loss experience, current
economic  conditions  and  quality  of  underwriting  standards  applied  by the
originator.

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

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

                                              December 31, 2000        December 31, 1999
                                           -----------------------  -----------------------
                                            Carrying    Portfolio    Carrying    Portfolio
                                             Value         Mix        Value         Mix
                                           ----------  -----------  ----------  -----------
<S>                                        <C>         <C>          <C>         <C>
ARM ASSETS:
  INDEX:
     One-month LIBOR                       $  651,502        15.7%  $  680,449        15.7%
     Three-month LIBOR                        158,512         3.8      170,384         3.9
     Six-month LIBOR                          430,908        10.4      626,616        14.5
     Six-month Certificate of Deposit         230,934         5.6      304,621         7.0
     Six-month Constant Maturity Treasury      22,330         0.5       37,781         0.9
     One-year Constant Maturity Treasury    1,402,764        33.9    1,359,229        31.4
     Cost of Funds                            164,697         4.0      213,800         5.0
                                           ----------  -----------  ----------  -----------
                                            3,061,647        73.9    3,392,880        78.4
                                           ----------  -----------  ----------  -----------

HYBRID ARM ASSETS                           1,077,814        26.1      933,218        21.6
                                           ----------  -----------  ----------  -----------
                                           $4,139,461       100.0%  $4,326,098       100.0%
                                           ==========  ===========  ==========  ===========
</TABLE>


The ARM portfolio had a current weighted average coupon of 7.75% at December 31,
2000.  This consisted of an average coupon of 6.77% on the hybrid portion of the
portfolio  and  an average coupon of 8.11% on the rest of the portfolio.  If the
non-hybrid  portion  of  the  portfolio  had  been "fully indexed," the weighted
average  coupon  would  have  been  approximately  7.46%, based upon the current
composition  of  the  portfolio  and the applicable indices.  As of December 31,
1999,  the ARM portfolio had a weighted average coupon of 7.08%.  This consisted
of  an  average  coupon  of  6.54% on the hybrid portion of the portfolio and an
average coupon of 7.22% on the rest of the portfolio.  If the non-hybrid portion
of  the  portfolio  had  been "fully indexed," the weighted average coupon would
have  been  approximately 7.79%, based upon the composition of the portfolio and
the  applicable  indices at the time.  The higher average interest coupon on the
ARM  portfolio as of December 31, 2000 compared to the end of 1999 is reflective
of  Federal  Reserve  Board interest rate increases that had been occurring from
June  of  1999  through  the second quarter of 2000.  Late in the fourth quarter
interest  rates  began  to decrease and the Federal Reserve Board, January 2001,
has  taken  action  to lower short-term interest rates further and, as a result,
the  average  interest  rate  on the ARM portion of the portfolio is expected to
decline  to  a  lower  "fully  indexed"  rate  during  2001.

At  December  31, 2000, the current yield of the ARM assets portfolio was 7.06%,
compared  to  6.38%  as  of  December 31, 1999, with an average term to the next
repricing  date  of 308 days as of December 31, 2000, compared to 344 days as of
December  31, 1999.  As of December 31, 2000, hybrid ARMs comprised 26.1% of the
total  ARM portfolio, up from 21.6% as of the end of 1999.  The Company finances


                                       27
<PAGE>
its  hybrid  ARM  portfolio  with  longer term borrowings such that the duration
mismatch  of  the  hybrid  ARMs  and the corresponding borrowings is one year or
less.  The  current  yield includes the impact of the amortization of applicable
premiums  and  discounts,  the cost of hedging, the amortization of the deferred
gains  from  hedging  activity  and the impact of principal payment receivables.

The increase in the yield of 0.68% as of December 31, 2000, compared to December
31,  1999,  is  primarily  due  to  the increased weighted average interest rate
coupon  discussed  above,  which  increased  by  0.67%.  The change in the yield
adjustment  from  amortizing  the  net  portfolio  premium  had  the  effect  of
decreasing  the yield by 0.04%.  The yield improved as a result of lower hedging
cost,  which decreased by 0.08%, as higher cost hedges matured and were replaced
with  lower  cost  hedges.  The impact of non-interest earning principal payment
receivables  increased  during  the year 2000, decreasing the portfolio yield by
0.03%  as  of  year-end.

The  following  table  presents various characteristics of the Company's ARM and
Hybrid ARM loan portfolio as of December 31, 2000.  This information pertains to
loans  held  for  securitization, loans held as collateral for the notes payable
and  loans  TMA  has  securitized  for  its  own portfolio for which the Company
retained  credit  loss  exposure.

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


                              Average      High        Low
                             ---------  -----------  -------
<S>                          <C>        <C>          <C>
  Unpaid principal balance.  $282,890   $5,160,000   $1,978
  Coupon rate on loans. . .      7.67%       10.13%    5.50%
  Pass-through rate . . . .      7.35%        9.73%    5.23%
  Pass-through margin . . .      1.98%        3.48%    0.36%
  Lifetime cap. . . . . . .     12.90%       16.75%    9.75%
  Original Term (months). .       355          480       72
  Remaining Term (months) .       322          444       30
</TABLE>


<TABLE>
<CAPTION>
Geographic Distribution (Top 5 States):   Property type:
<S>                        <C>               <C>                     <C>
          California       28.17%            Single-family           65.46%
          Florida           9.66             DeMinimus PUD           20.38
          Georgia           7.16             Condominium              9.22
          New York          6.23             Other                    4.94
          Colorado          4.55

Occupancy status:                         Loan purpose:
          Owner occupied    85.60%           Purchase                60.73%
          Second home       10.41            Cash out refinance      22.06
          Investor           3.99            Rate & term refinance   17.21

Documentation type:                       Periodic Cap:
          Full/Alternative  93.98%           None                    53.38%
          Other              6.02            2.00%                   45.19
                                             1.00%                    0.41
Average effective original                   0.50%                    1.02
loan-to-value:              68.73%
</TABLE>


During the year ended December 31, 2000, the Company purchased $861.5 million of
ARM  securities,  96.8% of which were High Quality assets, and $176.0 million of
ARM  loans  generally  originated to "A" quality underwriting standards.  Of the
ARM  assets  acquired  during  2000, approximately 35% were Hybrid ARMs, 7% were
indexed  to LIBOR and 58% were indexed to U.S. Treasury bill rates.  Since 1997,
the  Company  has  emphasized  purchasing  assets  at substantially lower prices
relative  to  par in order to reduce the potential impact of future prepayments.
As a result, the Company emphasized the acquisition of ARM and Hybrid ARM assets
and  high  quality  floating  rate  collateralized  mortgages.  In doing so, the
average  premium/(discount)  paid for ARM assets acquired in 2000, 1999 and 1998
was  (0.42%),  0.45% and 1.09% of par, respectively, as compared to 3.29% of par
in  1997  when  the  Company emphasized the purchase of seasoned ARM assets.  In
part,  as  a result of this strategy, the Company's unamortized net premium as a
percent  of par decreased to 1.64% as of December 31, 2000, compared to 1.95% as
of  December  31,  1999  and  down  from  2.83%  as  of  the  end  of  1997.


                                       28
<PAGE>
During  2000,  the  Company  sold  $120.0  million  of  ARM assets.  These sales
consisted  of  securities and one loan, that generally did not fit the Company's
current  portfolio  parameters, as well as two REO properties.  The Company sold
ARM assets in the amount of $18.6 million during 1999.  These sales consisted of
a  mixture  of  securities  and  loans as well as one REO property.  The Company
monitors  the  performance  of  its individual ARM assets and generally sells an
asset  when  there is an opportunity to replace it with an ARM asset that has an
expected  higher  long-term  yield  or  more  attractive  interest  rate
characteristics.  The  Company is presented with investment opportunities in the
ARM  assets  market on a daily basis and management evaluates such opportunities
against  the  performance  of  its existing portfolio.  At times, the Company is
able to identify opportunities that it believes will improve the total return of
its  portfolio  by  replacing  selected  assets.  In managing the portfolio, the
Company  may realize either gains or losses in the process of replacing selected
assets.

For the quarter ended December 31, 2000, the Company's mortgage assets paid down
at an approximate average annualized constant prepayment rate of 18% compared to
16%  during  the  same  period of 1999.  The annualized constant prepayment rate
averaged  approximately  17% during the full year of 2000 compared to 24% during
1999.  When  prepayment  experience  exceeds  expectations  due  to  sustained
increased  prepayment  activity, 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  assets  classified  as
available-for-sale  improved  by  0.12% to a negative adjustment of 2.28% of the
portfolio  as  of  December  31, 2000, from a negative adjustment of 2.40% as of
December  31, 1999.  Additionally, this is a 0.67% improvement from the negative
adjustment  of  2.97%  as  of  September  30,  2000.  This  price improvement is
primarily due to the decrease in short-term interest rates that was occurring at
year-end  and  the relatively high interest rate on the Company's ARM portfolio,
compared to the interest rate on mortgage products being originated.  The amount
of  the  negative  adjustment  to  fair  value  on  the ARM assets classified as
available-for-sale  decreased  to  $78.4  million  as of December 31, 2000, from
$83.4  million  as  of  December 31, 1999 and $101.0 million as of September 30,
2000.

The Company has purchased Cap Agreements and Options Contracts in order to hedge
exposure to changing interest rates.  The majority of the Cap Agreements and all
of  the Options Contracts have been purchased to limit the Company's exposure to
risks  associated  with the lifetime interest rate caps of its ARM assets should
interest  rates  rise  above specified levels.  These hedging instruments act to
reduce  the  effect  of  the  lifetime  or maximum interest rate cap limitation.
These  hedging  instruments purchased by the Company will allow the yield on the
ARM  assets  to continue to rise in a high interest rate environment just as the
Company's cost of borrowings would continue to rise, since the borrowings do not
have any interest rate cap limitation.  At December 31, 2000, the Cap Agreements
and  Options  Contracts  owned  by  the  Company  that are designated as a hedge
against  the  lifetime  interest rate cap on ARM assets had a remaining notional
balance  of $2.520 billion with an average final maturity of 2.2 years, compared
to a remaining notional balance of $2.810 billion with an average final maturity
of  2.2  years  at  December  31,  1999.  Pursuant to the terms of these hedging
instruments,  the  Company  will  receive  cash  payments  if  the  one-month,
three-month  or  six-month LIBOR index increases above certain specified levels,
which  range from 7.10% to 12.50% and average approximately 10.04%.  The Company
has  also  entered into Cap Agreements with a notional balance of $104.1 million
as  of December 31, 2000, compared to $134.6 million as of December 31, 1999, in
connection  with  hedging  the  fixed  rate period of its Hybrid ARM assets.  In
doing  so,  the  Company  establishes a maximum cost of financing the Hybrid ARM
assets  during  the  term  of  the  designated  Cap  Agreements  that  generally
corresponds  to  within  one  year  of the initial fixed rate term of Hybrid ARM
assets.  The  Cap  Agreements  hedging Hybrid ARM assets as of December 31, 2000
would receive cash payments if the one-month LIBOR Index increases above certain
specified  levels,  which  range  from  5.75% to 6.00% and average approximately
5.94%  and have a remaining term of 2.6 years.  The fair value of Cap Agreements
and  Options  Contracts also tend to increase when general market interest rates
increase  and decrease when market interest rates decrease, helping to partially
offset  changes  in the fair value of the Company's ARM assets.  At December 31,
2000,  the  fair value of the Company's Cap Agreements and Options Contracts was
$1.3  million,  $2.4  million  less  than  the  amortized  cost of these hedging
instruments.


                                       29
<PAGE>
The  following  table presents information about the Company's Cap Agreement and
Options  Contract  portfolio  that is designated as a hedge against the lifetime
interest  rate  cap  on  ARM  assets  as  of  December  31,  2000:

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

Hedged        Weighted    Cap Agreement/                       Weighted
ARM Assets     Average   Options Contract                  Average Remaining
Balance (1)   Life Cap   Notional Balance   Strike Price         Term
------------  ---------  -----------------  -------------  -----------------
<S>           <C>        <C>                <C>            <C>
$     26,958      8.01%  $          26,000          7.10%          2.2 Years
     201,434      8.35             200,000          7.50           3.0
     516,647      9.76             519,760          8.00           1.5
      25,779     10.61              25,000          9.00           1.7
      60,404     10.73              60,544          9.50           1.7
     362,451     11.29             362,132         10.00           1.7
     199,968     11.77             200,852         10.50           1.3
     454,099     12.38             452,652         11.00           2.6
     279,392     12.89             280,000         11.50           3.6
     359,346     13.93             360,777         12.00           2.7
      25,020     16.53              32,562         12.50           1.0
------------  ---------  -----------------  -------------  -----------------
$  2,511,498     11.51%  $       2,520,279         10.04%          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  December 31, 2000, the Company was a counterparty to twenty-two interest
rate  swap  agreements  ("Swaps") having an aggregate notional balance of $623.4
million.  As  of December 31, 2000, these Swaps had a weighted average remaining
term of 2.4 years.  In accordance with these Swaps, the Company will pay a fixed
rate  of  interest  during  the  term  of these Swaps and receive a payment that
varies  monthly  with the one-month LIBOR rate.  All of these Swaps were entered
into in connection with the Company's acquisition of Hybrid ARMs and commitments
to  acquire  Hybrid  ARMs.  As a result of entering into these Swaps and the Cap
Agreements that also hedge the fixed rate period of Hybrid ARMs, the Company has
reduced  the  interest rate variability of its cost to finance its ARM assets by
increasing the average period until the next repricing of its borrowings from 25
days to 191 days.  The Swaps hedge the cost of financing Hybrid ARMs to within a
one  year  duration of their fixed rate term, generally three to ten years.  The
average  remaining  fixed  rate  term  of  the Company's Hybrid ARM assets as of
December  31, 2000 was 2.9 years.  The Company has also entered into one delayed
Swap Agreement that becomes effective for a one-year term, beginning in April of
2002.  This delayed Swap Agreement has a notional balance of $100 million and is
designated  to  hedge  the  interest rate exposure of Hybrid ARM assets upon the
termination  of  the  other  Swap  Agreements.

RESULTS  OF  OPERATIONS  -  2000  COMPARED  TO  1999

For  the year ended December 31, 2000, the Company's net income was $29,165,000,
or  $1.05  per  share  (Diluted  EPS), based on a weighted average of 21,506,000
shares  outstanding.  That  compares to $25,584,000, or $0.88 per share (Diluted
EPS),  based on a weighted average of 21,490,000 shares outstanding for the year
ended  December 31, 1999.  Net interest income for the year totaled $36,630,000,
compared  to  $34,015,000  for  the same period in 1999.  Net interest income is
comprised  of  the  interest  income  earned  on  portfolio assets less interest
expense  from  borrowings.  During  2000, the Company recorded a net gain on the
sale of ARM assets of $287,000 as compared to a net gain of $47,000 during 1999.
Additionally,  during  2000,  the  Company reduced its earnings and the carrying
value  of  its  ARM  assets by reserving $1,158,000 for estimated credit losses,
compared to $2,867,000 during 1999.  During 2000, the Company incurred operating
expenses  of  $6,594,000,  consisting  of a base management fee of $4,158,000, a
performance-based  fee  of  $46,000  and other operating expenses of $2,390,000.
During  1999,  the Company incurred operating expenses of $5,611,000, consisting
of  a  base  management  fee  of  $4,088,000  and  other  operating  expenses of
$1,523,000.


                                       30
<PAGE>
The  Company's  return  on  average  common  equity was 6.90% for the year ended
December  31,  2000  compared  to  5.81%  for  the year ended December 31, 1999.
During the fourth quarter of 2000, the Company's return on equity rose to 7.37%,
compared  to 6.56% during the third quarter of 2000.  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)   G & A                                Net      10-Year     10-Year
  For the     Interest    Provision      on ARM     Expense                 Preferred   Income/    US Treas   US Treas
  Quarter      Income/   For Losses/     Sales/       (2)/    Performance   Dividend/    Equity    Average     Average
   Ended       Equity       Equity       Equity      Equity   Fee/ Equity     Equity     (ROE)      Yield       Yield
------------  ---------  ------------  -----------  --------  ------------  ----------  --------  ----------  ---------
<S>           <C>        <C>           <C>          <C>       <C>           <C>         <C>       <C>         <C>
Mar 31, 1998     14.13%         0.48%        1.89%     1.62%         0.94%       2.06%    10.91%       5.60%      5.31%
Jun 30, 1998      9.15%         0.53%        1.76%     1.58%            -        1.96%     6.83%       5.60%      1.23%
Sep 30, 1998      6.82%         0.66%        0.89%     1.54%            -        1.97%     3.54%       5.24%     -1.70%
Dec 31, 1998      7.27%         0.76%       -4.88%     1.57%            -        2.01%    -1.95%       4.66%     -6.61%
Mar 31, 1999      8.07%         0.84%           -      1.58%            -        2.05%     3.60%       4.98%     -1.38%
Jun 30, 1999     11.17%         0.85%        0.04%     1.70%            -        2.05%     6.60%       5.54%      1.06%
Sep 30, 1999     11.48%         0.94%        0.02%     1.76%            -        2.05%     6.75%       5.88%      0.87%
Dec 31, 1999     11.09%         0.89%           -      1.86%            -        2.05%     6.29%       6.14%      0.15%
Mar 31, 2000     11.47%        0.41%            -      1.81%            -        2.06%     7.20%       6.47%      0.73%
Jun 30, 2000     10.74%         0.47%        0.06%     1.78%            -        2.05%     6.50%       6.18%      0.32%
Sep 30, 2000     11.01%         0.33%           -      2.07%            -        2.05%     6.56%       5.89%      0.67%
Dec 31, 2000     11.77%         0.21%        0.29%     2.37%         0.06%       2.05%     7.37%       5.57%      1.80%
<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 equity was higher in this past quarter compared to the
prior  quarter  primarily  because  the  yield  on  the  Company's ARM portfolio
increased more than its cost of funds, improving the net interest spread for the
respective  quarters  from  an average of 0.26% for the third quarter of 2000 to
0.30%  for the fourth quarter of 2000.  The yield on the Company's ARM portfolio
increased  from  6.99%  for  the  third  quarter of 2000 to 7.09% for the fourth
quarter,  an  improvement of 0.10%.  The Company's average cost of funds for the
most  recent  quarter  increased  by  0.05%, from 6.73% for the prior quarter to
6.78%  for  the  fourth  quarter  of 2000.  Based on market interest rates as of
December 31, 2000, Federal Reserve Board actions to decrease short-term interest
rates  early  in  2001  and  interest  rate  re-pricing  characteristics  of the
Company's  ARM  portfolio  and  borrowings, the Company expects that its cost of
funds  will  decrease  at  a  faster pace than its ARM portfolio will decline in
yield,  increasing  the  Company's  portfolio margin during the first quarter of
2001.  However, there is uncertainty regarding future Federal Reserve actions to
increase  or  decrease interest rates in the future and the effect these actions
may  have  on  the  ARM  portfolio  prepayment  rate  over  the  course of 2001.


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

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


                                              2000       1999
                                            ---------  ---------
<S>                                         <C>        <C>
Coupon interest income on ARM assets        $306,142   $289,991
Amortization of net premium                  (16,273)   (26,634)
Amortization of Cap Agreements                (2,386)    (5,352)
Amortization of deferred gain from hedging     1,183        906
Cash and cash equivalents                      1,307      1,454
                                            ---------  ---------
     Interest income                         289,973    260,365
                                            ---------  ---------

Reverse repurchase agreements                202,309    163,807
AAA notes payable                             52,336     58,893
Other borrowings                               3,512        105
Interest rate swaps                           (4,814)     3,545
                                            ---------  ---------
     Interest expense                        253,343    226,350
                                            ---------  ---------
Net interest income                         $ 36,630   $ 34,015
                                            =========  =========
</TABLE>

As  presented  in  the  table  above, the Company's net interest income was $2.6
million  higher during 2000 compared to 1999.  The Company's interest income was
$29.6  million  higher, primarily due to higher interest rates and a lower level
of  net  premium  amortization, in part due to slower prepayments during 2000 as
compared  to  1999.  The  Company's  amortization expense for Cap Agreements has
also declined, improving interest income further.  This amortization expense has
declined  as  the  Company's more expensive Cap Agreements have expired and have
been replaced with less expensive Cap Agreements and because a larger proportion
of  the  Company's ARM portfolio consists of ARMs that do not have lifetime caps
and  Hybrid ARMs that are generally match funded during their fixed rate period,
eliminating any need to hedge their lifetime cap during their fixed rate period.
The  Company's  interest  expense  increased  by $27.0 million, primarily due to
higher  interest  rates.  It  is  important  to note that the Company received a
benefit  from  its  use  of Swaps to hedge the fixed rate period of Hybrid ARMs,
decreasing  its  interest  expense  by  $4.8  million during 2000 compared to an
expense  of $3.5 million during 1999.  The Company's use of hedges has mitigated
the  effect  of  rising short-term interest rates on the financing of its Hybrid
ARMs  and  was an important factor in the Company's ability to increase earnings
and  improve  return  on  equity  in  the  year  2000  as  compared  to  1999.


                                       32
<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  years  ended  December  31,  2000  and  1999:

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

                                             For the Year  Ended    For the Year  Ended
                                          -----------------------  ----------------------
                                              December 31, 2000      December 31, 1999
                                          -----------------------  ----------------------
                                            Average    Effective    Average    Effective
                                            Balance       Rate      Balance       Rate
                                          -----------  ----------  ----------  ----------
<S>                                       <C>          <C>         <C>         <C>
Interest Earning Assets:
     Adjustable-rate mortgage assets      $4,233,933        6.82%  $4,378,998       5.92%
     Cash and cash equivalents                19,332        6.76       21,679       4.71
                                          -----------  ----------  ----------  ----------
                                           4,253,265        6.82    4,400,677       5.92
                                          -----------  ----------  ----------  ----------
Interest Bearing Liabilities:
     Borrowings                            3,875,118        6.54    4,026,970       5.62
                                          -----------  ----------  ----------  ----------

Net Interest Earning Assets and Spread    $  378,147        0.28%  $  373,707       0.30%
                                          ===========  ==========  ==========  ==========

Yield on Net Interest Earning Assets (1)                    0.86%                   0.77%
                                                       ==========              ==========

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

As a net result of the yield on the Company's interest-earning assets increasing
to  6.82%  during  2000  from  5.92% during 1999 and the Company's cost of funds
increasing to 6.54% from 5.62%, its net interest income increased by $2,615,000.
This  increase  in  net  interest income is primarily the result of a  favorable
rate  variance,  partially  offset  by  a  less  significant  unfavorable volume
variance.  There  was  a  net  favorable  rate  variance  of  $2,736,000,  which
consisted of a favorable variance of $39,657,000 resulting from the higher yield
on  the  Company's ARM assets portfolio and other interest-earning assets and an
unfavorable variance of $36,921,000 resulting from the increase in the Company's
cost  of  funds.  The  slightly  lower average amount of interest earning assets
during 2000 produced an unfavorable volume variance of $10,049,000, but this was
almost entirely offset by a lower average balance of borrowings which produced a
favorable  volume  variance of $9,928,000, resulting in a net unfavorable volume
variance  of  only  $122,000.


                                       33
<PAGE>
The  following  table  highlights  the components of net interest spread and the
annualized  yield  on  net interest-earning assets as of each applicable quarter
end:

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

                                                                                               Yield on
               Average   Wgt Avg                       Yield on                                   Net
As of the     Interest    Fully    Weighted            Interest                    Net         Interest
 Quarter       Earning   Indexed    Average    Yield    Earning    Cost of       Interest       Earning
  Ended        Assets     Coupon    Coupon    Adj (2)   Assets      Funds         Spread        Assets
------------  ---------  --------  ---------  -------  ---------  ------------  -------------  ---------
<S>           <C>        <C>       <C>        <C>      <C>        <C>           <C>            <C>
Mar 31, 1998  $ 4,859.7     7.47%      7.47%    1.23%      6.24%      5.74%          0.50%         0.92%
Jun 30, 1998  $ 4,918.3     7.51%      7.44%    1.50%      5.94%      5.81%          0.13%         0.56%
Sep 30, 1998  $ 4,963.7     6.97%      7.40%    1.52%      5.88%      5.78%          0.09%         0.46%
Dec 31, 1998  $ 4,526.2     6.79%      7.28%    1.42%      5.86%      5.94% (3)     -0.08% (3)     0.61%
Mar 31, 1999  $ 4,196.4     6.85%      7.03%    1.31%      5.71%      5.36%          0.35%         0.63%
Jun 30, 1999  $ 4,405.3     7.10%      6.85%    1.11%      5.74%      5.40%          0.34%         0.82%
Sep 30, 1999  $ 4,552.1     7.20%      6.85%    0.76%      6.09%      5.74%          0.35%         0.82%
Dec 31, 1999  $ 4,449.0     7.51%      7.08%    0.70%      6.38%      6.47% (3)     -0.09% (3)     0.81%
Mar 31, 2000  $ 4,471.0     7.77%      7.26%    0.68%      6.58%      6.32%          0.26%         0.83%
Jun 30, 2000  $ 4,344.6     7.87%      7.48%    0.59%      6.89%      6.75%          0.14%         0.81%
Sep 30, 2000  $ 4,066.1     7.84%      7.68%    0.68%      7.00%      6.72%          0.28%         0.88%
Dec 31, 2000  $ 4,131.4     7.46%      7.75%    0.69%      7.06%      6.75% (3)      0.31% (3)     0.93%
<FN>
   -----------------
     (1)  Yield  on  Net  Interest  Earning  Assets  is  computed  by  dividing
          annualized  net  interest  income  for  the  applicable quarter by the
          average  daily  balance of interest earning assets during the quarter.
     (2)  Yield  adjustments  include  the  impact  of  amortizing  premiums and
          discounts,  the  cost  of  hedging  activities,  the  amortization  of
          deferred  gains  from  hedging  activities and the impact of principal
          payment  receivables. The following table presents these Components of
          the  Yield  Adjustments  on  ARM Assets for the dates presented in the
          table  above.
     (3)  The  year-end  cost  of  funds  and  net  interest spread are commonly
          affected  by  significant, but generally temporary, year-end pressures
          that  raise  the  Company's  cost  of  financing  mortgage assets over
          year-end.  The  effect  generally  begins  during  the  latter part of
          November  and  continues  through  January.
</TABLE>


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

                                                    Amort of
                          Impact of              Deferred Gain
 As of the    Premium/    Principal                   From           Total
  Quarter     Discount    Payments     Hedging      Hedging          Yield
   Ended        Amort    Receivable   Activity      Activity      Adjustment
------------  ---------  -----------  ---------  ---------------   -----------
<S>           <C>        <C>          <C>        <C>              <C>
Mar 31, 1998      0.98%        0.16%      0.13%          (0.04)%       1.23%
Jun 30, 1998      1.24%        0.17%      0.13%          (0.04)%       1.50%
Sep 30, 1998      1.25%        0.18%      0.13%          (0.04)%       1.52%
Dec 31, 1998      1.18%        0.14%      0.14%          (0.04)%       1.42%
Mar 31, 1999      1.09%        0.10%      0.15%          (0.03)%       1.31%
Jun 30, 1999      0.87%        0.13%      0.13%          (0.02)%       1.11%
Sep 30, 1999      0.51%        0.13%      0.13%          (0.01)%       0.76%
Dec 31, 1999      0.51%        0.09%      0.11%          (0.01)%       0.70%
Mar 31, 2000      0.57%        0.07%      0.07%          (0.03)%       0.68%
Jun 30, 2000      0.46%        0.10%      0.06%          (0.03)%       0.59%
Sep 30, 2000      0.56%        0.10%      0.05%          (0.03)%       0.68%
Dec 31, 2000      0.54%        0.13%      0.05%          (0.03)%      0.69%
</TABLE>


                                       34
<PAGE>
As  of  December  31,  2000,  the  Company's  yield on its ARM assets portfolio,
including  the impact of the amortization of premiums and discounts, the cost of
hedging, the amortization of deferred gains from hedging activity and the impact
of  principal  payment  receivables, was 7.06%, compared to 6.38% as of December
31, 1999-- an increase of 0.68%.  The Company's cost of funds as of December 31,
2000,  was  6.75%,  compared  to 6.47% as of December 31, 1999 -- an increase of
0.28%.  As  a  result  of these changes, the Company's net interest spread as of
December  31,  2000 was 0.31%, compared to    --0.09% as of December 31, 1999 --
an  increase  of  0.40%.  The increase in the Company's cost of funds as of year
end,  compared  to  September  30,  2000,  is  generally  the impact of year end
pressures  on short-term interest rates that typically cause a temporary rise in
the  interest  rate  on  the  Company's  borrowings.

The  Company's spreads and net interest income has also been negatively impacted
since  early  1998  by  the  spread relationship between U.S. Treasury rates and
LIBOR.  This  spread  relationship has impacted the Company negatively because a
portion of the Company's ARM portfolio is indexed to U.S. Treasury rates and the
interest rates on all of the Company's borrowings tend to change with changes in
LIBOR.  The  Company  has  been  reducing  its  exposure  to ARM assets that are
indexed  to  U.S.  Treasury  rates  through  the  product  mix  of its sales and
acquisitions in order to reduce the negative impact of this situation.  In March
of 2000, the U.S. Treasury announced that it would adjust its monthly auction of
one-year  treasury  bills  to  quarterly  and that it would cease auctioning the
one-year  treasury  bill  next  year.  As  a consequence, a shortage of one-year
bills has developed, increasing its cost and lowering its yield.  Therefore, the
relationship  between  the  one-year  treasury  index  and  LIBOR was negatively
impacted  beginning  with the second quarter of 2000 after improving during 1999
and  early  2000.  The  Company  does not know when or if this relationship will
improve, although, now that the U.S. Treasury has ceased to auction new one-year
treasury  bills  and  is considering several new methods to compute the one-year
index, the Company believes that any of new methods being considered may improve
the  relationship.  The  following table presents historical data since the year
the  Company  commenced  operations  regarding this relationship as well as data
regarding  the  percent  of  the Company's ARM portfolio that is indexed to U.S.
Treasury  rates.  As  presented  in the table below, the Company has reduced the
proportion  of its ARM portfolio that is indexed to one-year U.S. Treasury rates
to  33.9% at December 31, 2000 from 49.0% as of the end of 1997.  The data is as
follows:

<TABLE>
<CAPTION>

         ONE-YEAR U.S. TREASURY RATES COMPARED TO ONE- AND THREE-MONTH LIBOR RATES


                                                        Average Spread
                                                        Between 1 Year
                                                        U.S. Treasury      Percent of ARM
                    Average 1 Year   Average 1 and 3   Rates and 1 & 3   Portfolio Indexed
                     U.S. Treasury     Month LIBOR       Month LIBOR       to 1 Year U.S.
For the Year Ended   Rates During      Rates During      Rates During    Treasury Rates at
   December 31,         Period            Period            Period         End of Period
------------------  ---------------  ----------------  ----------------  ------------------
<S>                 <C>              <C>               <C>               <C>
1993                          3.43%             3.25%             0.18%               20.9%
1994                          5.32%             4.61%             0.71%               15.5%
1995                          5.94%             6.01%            -0.07%               19.3%
1996                          5.52%             5.48%             0.04%               45.4%
1997                          5.63%             5.69%            -0.06%               49.0%
1998                          5.05%             5.57%            -0.52%               34.7%
1999                          5.08%             5.33%            -0.25%               31.4%
2000                          6.11%             6.47%            -0.36%               33.9%
</TABLE>

The  Company's  provision for estimated credit losses decreased in 2000 compared
to  1999,  in  part, because the Company discontinued reducing the cost basis of
two  securities  that the Company now believes have been reduced to a cost basis
that fully reflects its estimate of credit losses for these two securities.  The
outlook  for  estimated  loss  on  these  two  securities  has  improved  as the
underlying  loans  have  been  paying  off and real estate values have improved,
primarily  in  the California market.  Additionally, during the third quarter of
2000,  the  Company  decided  to  reduce its rate of providing for losses on its
whole  loan  credit  exposure.  During the Company's third quarter review of the
level  of  its  loan  loss  reserves and after considering its identifiable loss
exposure to currently delinquent loans and the lack of any significant losses to
date  recorded  in  the  portfolio,  the  Company  concluded  that its loan loss
reserves had reached a level that it was appropriate to reduce the rate at which
the  Company is recording provisions.  Since the commencement of acquiring whole
loans  in  1997,  the  Company  has  only experienced a loss on one loan, in the


                                       35
<PAGE>
amount  of  $59,000, which was fully reserved and occurred in 2000.  The Company
will  continue  to  review  economic  conditions  and  the  quality  of its loan
portfolio and periodically adjust the rate at which it provides for losses.  The
Company's  provision  for  estimated loan losses is based on a number of factors
including,  but  not  limited  to,  the  outstanding principal balance of loans,
historical  loss  experience,  current  economic  conditions,  borrower  payment
history, age of loans, loan-to-value ratios and underwriter standards applied by
the  originator.  The Company includes the outstanding balance of loans which it
has  securitized  and retained an exposure to credit losses, although the credit
losses in certain securitization structures may be limited by third-party credit
enhancement  agreements.  As  of  December  31, 2000, the Company's whole loans,
including  those  held  as  collateral  for the notes payable and those that the
Company  has  securitized but retained credit loss exposure, accounted for 28.2%
of  the  Company's  portfolio  of  ARM  assets  or  $1.165  billion.

During 2000, the Company realized $287,000 in gains and no losses on the sale of
$120.0  million  of ARM assets.  The gain from the sale of ARM securities during
2000  included  $48,000  of  gains  that  were  the  result  of  the  Company's
re-securitization  of Other Investment ARM securities and the subsequent sale of
AAA  and AA rated securities resulting from this re-securitization.  The Company
retained  a  AAA rated interest only security and the subordinate classes of the
re-securitization  in  connection  with  this  transaction.  As a result of this
transaction,  the  Company improved its liquidity, the credit quality of its ARM
portfolio  and  recorded  a  small  gain.

During  1999, the Company realized a net gain from the sale of ARM assets in the
amount  of  $47,000.  The sales during 1999 were a combination of securities and
loans  and  one sale of a real estate property that the Company acquired through
foreclosure,  which  was  sold  for  a  $10,000  gain.

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% (90% effective 2001) 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.  As of December 31, 2000, the Company
had  met  all  of  the  dividend distribution requirements of a REIT.  Since the
Company,  as a REIT, pays its dividends based on taxable earnings, the dividends
may  at  times  be  more  or  less  than reported earnings.  The following table
provides  a  reconciliation  between the Company's earnings as reported based on
generally accepted accounting principles and the Company's taxable income before
its'  common  dividend  deduction:

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

                                                Years Ending December 31,
                                               --------------------------
                                                   2000          1999
                                               ------------  ------------
<S>                                            <C>           <C>
Net income                                     $  29,165     $    25,584
  Additions:
    Provision for credit losses                    1,147           2,867
    Net compensation related items                   554             362
    Non-REIT Subsidiary taxable loss                  70               -
  Deductions:
    Dividend on Series A Preferred Shares         (6,679)(1)      (6,679)
    Actual credit losses on ARM securities          (941)           (776)
    Use of capital loss carry forward               (230)            (47)
                                               ------------  ------------
Taxable net income available to common         $  23,086     $    21,311
                                               ============  ============

<FN>
-------------
(1)     Excludes  the  preferred  dividend  declared  December 15, 2000 and paid
        January  10,  2001.
</TABLE>

For  the year ended December 31, 2000, the Company's ratio of operating expenses
to  average  assets  was  0.16% compared to 0.12% for 1999.  The Company's other
expenses  increased  by  approximately $867,000, primarily due the operations of
the  Company's  taxable mortgage banking subsidiary, the expenses related to the
discontinued  efforts  to  acquire  a federally chartered financial institution,
expenses  associated  with  the  Company's  issuance of DERs and PSRs and due to
other  corporate  matters.  The Company's expense ratios are among the lowest of
any  company  originating  and  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.


                                       36
<PAGE>
This  competitive  advantage enables the Company to operate with less risk, such
as  credit  and  interest  rate risk, and still generate an attractive long-term
return  on  equity  when  compared  to these more traditional mortgage portfolio
lending  institutions.  The  Company  pays the Manager an annual base management
fee,  generally based on average shareholders' equity, not assets, as defined in
the  Management  Agreement, payable monthly in arrears as follows:  1.15% of the
first  $300  million  of  Average  Shareholders'  Equity,  plus 0.85% 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%.
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.

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

<TABLE>
<CAPTION>
                       ANNUALIZED OPERATING EXPENSE RATIOS


               Management Fee &                           Total
   For the      Other Expenses/   Performance Fee/   G & A Expense/
Quarter Ended   Average Assets     Average Assets    Average Assets
-------------  -----------------  -----------------  ---------------
<S>            <C>                <C>                <C>
Mar 31, 1998               0.10%              0.06%            0.16%
Jun 30, 1998               0.10%                 -             0.10%
Sep 30, 1998               0.10%                 -             0.10%
Dec 31, 1998               0.11%                 -             0.11%
Mar 31, 1999               0.12%                 -             0.12%
Jun 30, 1999               0.12%                 -             0.12%
Sep 30, 1999               0.13%                 -             0.13%
Dec 31, 1999               0.13%                 -             0.13%
Mar 31, 2000               0.13%                 -             0.13%
Jun 30, 2000               0.13%                 -             0.13%
Sep 30, 2000               0.16%                 -             0.16%
Dec 31, 2000               0.18%                 -             0.18%
</TABLE>

RESULTS  OF  OPERATIONS  -  1999  COMPARED  TO  1998

For  the year ended December 31, 1999, the Company's net income was $25,584,000,
or  $0.88  per  share  (Diluted  EPS), based on a weighted average of 21,490,000
shares  outstanding.  That  compares to $22,695,000, or $0.75 per share (Diluted
EPS),  based on a weighted average of 21,488,000 shares outstanding for the year
ended  December 31, 1998.  Net interest income for the year totaled $34,015,000,
compared  to  $31,040,000  for  the same period in 1998.  Net interest income is
comprised  of  the  interest  income  earned  on  portfolio assets less interest
expense  from  borrowings.  During  1999, the Company recorded a net gain on the
sale of ARM assets of $47,000 as compared to a net loss of $278,000 during 1998.
Additionally,  during  1999,  the  Company reduced its earnings and the carrying
value  of  its  ARM  assets by reserving $2,867,000 for estimated credit losses,
compared to $2,032,000 during 1998.  During 1999, the Company incurred operating
expenses  of  $5,611,000,  consisting of a base management fee of $4,088,000 and
other  operating  expenses  of  $1,523,000.  During  1998,  the Company incurred
operating  expenses  of  $6,035,000,  consisting  of  a  base  management fee of
$4,142,000,  a performance-based fee of $759,000 and other operating expenses of
$1,134,000.  Total  operating  expenses  decreased  as  a  percentage of average
assets  to  0.12%  for  1999,  compared  to  0.13%  for  1998.

The  Company's  return  on  average  common  equity was 5.81% for the year ended
December  31,  1999 compared to 4.80% for the year ended December 31, 1998.  The
improved  return  on  average common equity was primarily the result of a higher
net  interest  spread  during  1999  as compared to 1998.  The Company's cost of
funds  during  1999  was  0.16%  lower  compared  to  1998  and the yield on the
Company's  interest earning assets was 0.04% lower during 1999 compared to 1998.
As  a  result,  the  Company's  net  interest  margin averaged 0.30% during 1999
compared  to  0.18%  during  1998.


                                       37
<PAGE>
The following table presents the components of the Company's net interest income
for  the  years  ended  December  31,  1999  and  1998:

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

                                           1999        1998
                                        ----------  ---------
<S>                                     <C>         <C>
  Coupon interest income on ARM assets  $ 289,991   $ 35,983
  Amortization of net premium             (26,634)   (46,101)
  Amortization of Cap Agreements           (5,352)    (5,444)
  Amort. of deferred gain from hedging        906      1,889
  Cash and cash equivalents                 1,454        705
                                        ----------  ---------
    Interest income                       260,365    287,032
                                        ----------  ---------

  Reverse repurchase agreements           163,807    251,462
  Notes payable                            58,893      2,811
  Other borrowings                            105        632
  Interest rate swaps                       3,545      1,087
                                        ----------  ---------
    Interest expense                      226,350    255,992
                                        ----------  ---------

  Net interest income                   $  34,015   $ 31,040
                                        ==========  =========
</TABLE>

As  presented in the table above, the Company's net interest income increased by
$3.0  million in 1999 compared to 1998. Amortization of net premium decreased by
$19.5  million.  In  1999  the  amortization  of  net premium was 9.2% of coupon
interest income on ARM assets as compared to 13.7% in 1998, reflecting, in part,
the  decreased  rate  of  ARM  prepayments  in  1999  as  compared  to  1998.

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  years  ended  December  31,  1999  and  1998:

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

                                                For  the  Year  Ended     For  the  Year  Ended
                                                 December  31,  1999       December  31,  1998
                                            --------------------------  ------------------------
                                               Average      Effective     Average     Effective
                                               Balance        Rate        Balance       Rate
                                            -------------  -----------  -----------  -----------
<S>                                         <C>            <C>          <C>          <C>
    Interest Earning Assets:
        Adjustable-rate mortgage assets     $   4,378,998        5.92%  $ 4,800,772        5.96%
        Cash and cash equivalents                  21,679        4.71        16,214        4.35
                                            -------------  ----------  ------------  -----------
                                                4,400,677        5.92     4,816,986        5.96
                                                                       ------------  -----------
  Interest Bearing Liabilities:
      Borrowings                                4,026,970        5.62     4,430,167        5.78

  Net Interest Earning Assets and Spread    $     373,707        0.30%  $   386,819        0.18%
                                            =============  ===========  ===========  ===========

  Yield on Net Interest Earning Assets (1)                       0.77%                     0.64%
                                                           ===========               ===========
<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 Company's cost of funds declining to 5.62% during 1999 from
5.78%  during  1998, which was partially offset by a decline in the yield on the
Company's  interest-earning  assets to 5.92% during 1999 from 5.96% during 1998,
net  interest  income  increased  by  $2,975,000.  This increase in net interest
income is a combination of rate and volume variances.  There was a net favorable
rate  variance  of  $4,883,000, which was the result of the lower cost of funds,
partially  offset  by  the lower yield on the Company's ARM assets portfolio and
other  interest-earning  assets.  The  decreased  average  size of the Company's
portfolio  during  1999 compared to 1998 contributed to less net interest income
in  the  amount  of  $1,908,000.  The  average  balance  of  the  Company's
interest-earning  assets  was  $4.401  billion  during  1999  compared to $4.817
billion  during  1998  --  a  decrease  of  8.6%.


                                       38
<PAGE>
As  of  December  31,  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, was 6.38%, compared to 5.86% as of December
31, 1998-- an increase of 0.52%.  The Company's cost of funds as of December 31,
1999,  was  6.47%,  compared  to 5.94% as of December 31, 1998 -- an increase of
0.53%.  As  a  result  of these changes, the Company's net interest spread as of
December  31,  1999  was  -0.09%, compared to    -0.08% as of December 31, 1998.
The  increase  in  the  Company's  cost of funds as of year end is generally the
impact of year end pressures on short-term interest rates that were magnified by
concerns  regarding  Y2K that combined to cause a temporary rise in the interest
rate  on  the  Company's  borrowings.  The  Company's cost of funds reflects, in
part, the increase in one-month LIBOR that occurred at the end of November which
increased  by  approximately  0.87%  on  November 24, 1999.  During the month of
December, the Company's cost of funds increased by 0.46%.  By the end of January
2000,  the  Company's cost of funds had decreased by 0.44%, in part reflecting a
decrease  in one-month LIBOR at the end of December of approximately 0.65%.  The
Company's  portfolio  yield  is  not as sensitive to changes in one-month LIBOR.
The  Company's  portfolio yield increased by 0.10% in December and an additional
0.06%  by  the  end  of  January  2000.

The  Company's provision for losses increased to $2.9 million for 1999 from $2.0
million  for  1998.  The  provision for losses increases as the Company acquires
and  securitizes  whole loans.  The provision for estimated loan losses is based
on a number of pertinent factors as discussed earlier.  As of December 31, 1999,
the  Company's  whole  loans,  including  those held as collateral for the notes
payable  and  those  that  the  Company has securitized but retained credit loss
exposure,  accounted for 25.7% of the Company's portfolio of ARM assets compared
to  24.5%  as  of  December  31,  1998.

During  1999, the Company realized a net gain from the sale of ARM assets in the
amount  of  $47,000  compared  to a net loss of $278,000 during 1998.  The sales
during  1999  were  a  combination of securities and loans that did not meet the
current  investment  criteria  for the Company's ARM portfolio and one sale of a
real  estate  property  that the Company acquired through foreclosure, which was
sold  for  a  $10,000  gain.  The 1998 sales generally fall into two categories.
During  the  first  nine  months of 1998, the Company realized a net gain on the
sale  of  ARM  assets  in the amount $3,780,000 as part of the Company's ongoing
portfolio  management.  These  sales  reflect the Company's desire to manage the
portfolio  with  a  view to enhancing the total return of the portfolio over the
long-term  while  generating  current  earnings  during  this  period  of  fast
prepayments  and  narrow interest spreads.  The Company monitors the performance
of  its  individual  ARM  assets and selectively sells an asset when there is an
opportunity  to  replace  it  with  an  ARM  asset  that  has an expected higher
long-term  yield  or more attractive interest rate characteristics.  The Company
sold  $511.8 million of ARM assets during the first nine months of 1998, most of
which  were either indexed to a Cost of Funds index, the one-year U. S. Treasury
index  or  were prepaying faster than expected.  During the first nine months of
1998 when the Company sold selected assets, it was able to reinvest the proceeds
in  ARM  assets  that  were  indexed  to indices preferred by the Company and at
prices  that  reflected  current market assumptions regarding prepayments speeds
and  interest  rates  and thus far, as a whole, they have been performing better
than  the  portfolio  acquired before 1998.   During the fourth quarter of 1998,
the  Company  sold assets for the primary purpose of maintaining adequate levels
of  liquidity  at  a  time when the mortgage finance market experienced a sudden
liquidity  crises  and, thus, was able to avoid the forced liquidation of any of
its  assets  by  its  mortgage  finance  counterparties.  However,  the  Company
realized  a  net  loss  of  $4,059,000  on  these  sales.

As  a  REIT,  the  Company was 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.  For  2001  and  thereafter,  the  Company  must
distribute  dividends  equal  to  90% of its taxable income.  As of December 31,
1999,  the  Company  had  met all of the dividend distribution requirements of a
REIT.  Since  the  Company,  as  a  REIT,  pays  its  dividends based on taxable
earnings,  the  dividends  may  at  times  be  more  or  less  than


                                       39
<PAGE>
reported  earnings.  The  following  table provides a reconciliation between the
Company's earnings as reported based on generally accepted accounting principles
and  the  Company's  taxable  income  before  its'  common  dividend  deduction:

<TABLE>
<CAPTION>

           RECONCILIATION OF REPORTED NET INCOME TO TAXABLE NET INCOME
                          (Dollar amounts in thousands)

                                              Years  Ending  December  31,
                                              ----------------------------
                                                   1999          1998
                                              -------------  -------------
<S>                                            <C>           <C>
Net income                                     $    25,584   $     22,695
 Additions:
   Provision for credit losses                       2,867          2,032
   Net compensation related items                      362           (209)
   Non-deductible capital losses                       (47)           278
 Deductions:
   Dividend on Series A Preferred Shares            (6,679)        (5,009)
   Actual credit losses on ARM securities             (776)        (1,766)
                                              -------------  -------------
Taxable net income available to common         $    21,311   $     18,021
                                              =============  =============
</TABLE>

For  the year ended December 31, 1999, the Company's ratio of operating expenses
to  average assets was 0.12% compared to 0.13% for 1998.  The primary reason for
the  decline  in  this ratio is that the Manager did not receive any performance
fee  in  1999  compared  to  earning a performance fee of $759,000 in 1998.  The
Company's  other  expenses did increase by approximately $389,000, primarily due
to  increased usage of legal services in connection with the Company's financing
and  securitization  of  loans  and  other  general  corporate  matters.

MARKET  RISKS

The  market  risk  management  discussion  and  the  amounts  estimated from the
analysis  that follows are forward-looking statements regarding market risk that
assume  that  certain  market  conditions  occur.  Actual  results  may  differ
materially  from  these  projected  results  due to changes in the Company's ARM
portfolio  and borrowings mix and due to developments in the domestic and global
financial  and  real  estate  markets.  Developments  in  the  financial markets
include  the  likelihood  of  changing  interest  rates  and the relationship of
various  interest  rates  and their impact on the Company's ARM portfolio yield,
cost  of funds and cashflows.  The analytical methods utilized by the Company to
assess  and  mitigate these market risks should not be considered projections of
future  events  or  operating  performance.

As  a  financial  institution  that has only invested in U.S. dollar denominated
instruments,  primarily  residential mortgage instruments, and has only borrowed
money  in  the  domestic  market, the Company is not subject to foreign currency
exchange  or commodity price risk, but rather the Company's market risk exposure
is  limited  solely to interest rate risk.  Interest rate risk is defined as the
sensitivity  of  the  Company's  current  and  future  earnings to interest rate
volatility,  variability  of  spread  relationships, the difference in repricing
intervals  between  the Company's assets and liabilities and the effect interest
rates may have on the Company's cashflows, especially ARM portfolio prepayments.
Interest  rate  risk impacts the Company's interest income, interest expense and
the  market  value  on  a large portion of the Company's assets and liabilities.
The  management  of  interest  rate  risk  attempts  to maximize earnings and to
preserve  capital  by  minimizing the negative impacts of changing market rates,
asset  and  liability  mix  and  prepayment  activity.

The table below presents the Company's consolidated interest rate risk using the
static  gap  methodology.  This  method  reports the difference between interest
rate  sensitive assets and liabilities at specific points in time as of December
31,  2000, based on the earlier of term to repricing or the term to repayment of
the  asset or liability.  The table does not include assets and liabilities that
are  not  interest rate sensitive such as payment receivables, prepaid expenses,
payables  and  accrued  expenses.  The  table  provides a projected repricing or
maturity  based on scheduled rate adjustments, scheduled payments, and estimated
prepayments.  For  many  of  the  Company's  assets and certain of the Company's
liabilities,  the maturity date is not determinable with certainty.  In general,
the  Company's  ARM assets can be prepaid before contractual amortization and/or
maturity.  Likewise,  the Company's AAA rated notes payable are paid down as the
related  ARM  asset  collateral  pays  down.  The static gap report reflects the
Company's  investment  policy that allows for only the acquisition of ARM assets
that  reprice within one year, short-term fixed rate assets with an average life
of  one  year or less or Hybrids ARMs that are match funded to within a duration
mismatch  of  one-year.


                                       40
<PAGE>
The  difference  between assets and liabilities repricing or maturing in a given
period  is  one  approximate  measure of interest rate sensitivity.  More assets
than  liabilities  repricing  in a period (a positive gap) implies earnings will
rise  as  interest  rates  rise  and  decline  as  interest rates decline.  More
liabilities  repricing  than assets (a negative gap) implies declining income as
rates rise and increasing income as rates decline.  The static gap analysis does
not take into consideration constraints on the repricing of the interest rate of
ARM  assets  in a given period resulting from periodic and lifetime cap features
nor  the  behavior  of  various  indexes  applicable to the Company's assets and
liabilities.  Different  interest  rate  indexes  exhibit  different  degrees of
volatility  in  the  same  interest rate environment due to other market factors
such  as,  but  not  limited  to,  government  fiscal  policies,  market concern
regarding  potential  credit  losses,  changes  in  spread  relationships  among
different  indexes  and  global  market  disruptions.

The  use  of  interest rate instruments such as Swaps, Cap Agreements and Option
Contracts  are integrated into the Company's interest rate risk management.  The
notional amounts of these instruments are not reflected in the Company's balance
sheet.  The  Swaps and Caps that hedge the Company's Hybrid ARMs are included in
the  static gap report for purposes of analyzing interest rate risk because they
have  the  affect  of  adjusting  the repricing characteristics of the Company's
liabilities.  The  Cap  Agreements  and Option Contracts that hedge the lifetime
cap  on  the  Company's  ARM  assets  are  not considered in a static gap report
because  they  do not effect the timing of the repricing of the instruments they
hedge,  but  rather  they, in effect, remove the limit on the amount of interest
rate  change  that  can  occur  relative  to  the  applicable  hedged  asset.

<TABLE>
<CAPTION>

                                            INTEREST RATE SENSITIVITY GAP ANALYSIS
                                                 (Dollar amounts in millions)

December  31,  2000
                                                       Over  3      Over  6
                                        3 Months      Months to    Months to      Over
                                         or less      6 Months      1 Year      1 Year      Total
                                       -------------  ------------  ---------  ----------  ----------
<S>                                   <C>            <C>           <C>        <C>         <C>
Interest-earning assets:
  ARM securities                      $  1,644,011   $   561,635   $530,296   $       -   $2,735,942
  ARM loans                                289,229        55,201     13,543           -      357,973
  Hybrid ARM loans                          77,643        64,174    135,048     823,319    1,100,184
  Cash and cash equivalents                 13,105             -          -           -       13,105
                                      -------------  ------------  ---------  ----------  ----------
    Total interest-earning assets        2,023,988       681,010    678,887     823,319    4,207,204
                                      -------------  ------------  ---------  ----------  ----------

Interest-bearing liabilities:
  Reverse repurchase agreements          2,941,134        13,739          -           -    2,954,873
  Notes payable                            603,910             -          -           -      603,910
  Whole Loan Financing                     158,593             -          -           -      158,593
  Swaps                                   (578,828)       44,547     85,971     448,310            -
                                      -------------  ------------  ---------  ----------  ----------
    Total interest-bearing
      liabilities                        3,124,809        58,286     85,971     448,310    3,717,376
                                      -------------  ------------  ---------  ----------  ----------

Interest rate sensitivity gap         $ (1,100,821)  $   622,724   $592,916   $ 375,009   $  489,828
                                      =============  ============  =========  =========   ==========

Cumulative interest rate
sensitivity gap                       $ (1,100,821)  $  (478,097)  $114,819   $ 489,828
                                      =============  ============  =========  ==========

Cumulative interest rate sensitivity
gap as a percentage of total assets
before market value adjustments            (25.79)%      (11.20)%      2.69%      11.48%
                                      =============  ============  =========  ==========
</TABLE>


                                       41
<PAGE>
The Company generally ends each year with a significant sensitivity to liability
repricing  due to year-end aberrations in the cost of financing mortgage assets.
Although the Company begins the process of financing many of its mortgage assets
over  year-end  as  early  as  the  third quarter, the Company has a significant
amount  of  assets  that  are in term reverse repurchase agreements that have an
interest  rate  that  re-sets monthly and that are collateralizing the Company's
notes  payable  that also have an interest rate that re-sets monthly, as well as
other  assets  that are not financed over year-end until close to the end of the
year.  As  a  result, the Company typically re-finances assets during the latter
part  of  the  year  with short maturity borrowings in order to avoid locking in
year-end  rates  for  a  longer maturity.  In this way, assets that are financed
close  to year-end at unusually high rates have an opportunity to be re-financed
at lower rates soon after year-end, which has been a common seasonal fluctuation
applicable  to  financing  mortgage  assets.

Although  the  static gap methodology is widely accepted in identifying interest
rate  risk,  it does not take into consideration changes that may occur such as,
but  not  limited to, changes in investment and financing strategies, changes in
market  spreads  and  relationships  among different indexes, changes in hedging
strategy,  changes  in  prepayment  speeds  and  changes  in  business  volumes.
Accordingly,  the  Company makes extensive usage of an earnings simulation model
to  analyze  its level of interest rate risk.  This analytical technique used to
measure  and  manage  interest  rate  risk  includes  the  impact  of  all
on-balance-sheet  and  off-balance-sheet  financial  instruments.

There  are  a  number  of  key  assumptions made in using the Company's earnings
simulation  model.  These  key  assumptions include changes in market conditions
that effect interest rates, the pricing of ARM products, the availability of ARM
products,  the  availability  and the cost of financing for ARM products.  Other
key  assumptions  made  in using the simulation model include prepayment speeds,
management's  investment,  financing  and hedging strategies and the issuance of
new  equity.  The Company typically runs the simulation model under a variety of
hypothetical  business  scenarios  that  may  include  different  interest  rate
scenarios,  different  investment strategies, different prepayment possibilities
and  other  scenarios that provide the Company with a range of possible earnings
outcomes  in order to assess potential interest rate risk.  The assumptions used
represent  the  Company's  estimate  of the likely effect of changes in interest
rates  and  do  not necessarily reflect actual results.  The earnings simulation
model  takes  into  account periodic and lifetime caps embedded in the Company's
ARM  assets  in  determining  the  earnings  at  risk.

At  December  31,  2000,  based  on the earnings simulation model, the Company's
potential earnings at risk to a gradual, parallel 100 basis point rise in market
interest  rates  over the next twelve months was approximately 8.7% of projected
2001  net  income.  The  assumptions  used  in the earnings simulation model are
inherently  uncertain and as a result, the analysis cannot precisely predict the
impact of higher interest rates on net income.  Actual results would differ from
simulated  results  due  to  timing,  magnitude  and  frequency of interest rate
changes,  changes  in prepayment speed other than what was assumed in the model,
changes  in  other  market  conditions  and  management strategies to offset its
potential  exposure,  among  other factors.  This measure of risk represents the
Company's  exposure to higher interest rates at a particular point in time.  The
Company's actual risk is always changing.  The Company continuously monitors the
Company's risk profile as it changes and alters its strategies as appropriate in
its  view  of  the likely course of interest rates and other developments in the
Company's  business.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  Company's  primary  source  of  funds  for the year ended December 31, 2000
consisted  of  reverse  repurchase  agreements,  which  totaled  $2.962 billion,
collateralized  notes  payable,  which had a balance of $603.9 million and whole
loan financing facilities, which had a balance of $158.6 million.  The Company's
other  significant  sources  of  funds  for  the  year  ended  December 31, 2000
consisted primarily of payments of principal and interest from its ARM assets in
the  amount  of  $1.161 billion.  In the future, the Company expects its primary
sources  of  funds  will  consist  of  borrowed  funds  under reverse repurchase
agreement transactions with one- to twelve-month maturities, funds borrowed from
whole  loan  financing  facilities,  capital  market  financing  transactions
collateralized  by  ARM  and  hybrid  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  December  31,  2000,  had a weighted average
effective  cost  of  6.91%.  The  reverse  repurchase  agreements had a weighted
average  remaining  term  to  maturity  of 2.3 months and the collateralized AAA
notes payable had a final maturity of January 25, 2029, but will be paid down as
the  ARM  assets  collateralizing  the  notes  are  paid  down.  The  whole loan
financing  facilities  are  committed facilities that mature in January 2001 and
March  2003,  subject to annual review.  As of December 31, 2000, $1.357 billion


                                       42
<PAGE>
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 two months to twelve months.  The interest
rates on these term reverse repurchase agreements are indexed to either the one-
or  three-month  LIBOR  rate  and reprice accordingly.  The interest rate on the
collateralized  AAA  notes  adjusts monthly based on changes in one-month LIBOR.
The  interest  rates  on  the whole loan financing facilities are indexed to the
one-month  LIBOR  index  and  are subject to either daily or monthly adjustment.

The Company has arrangements to enter into reverse repurchase agreements with 26
different  financial  institutions  and on December 31, 2000, 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 3.0%) and
have  less  liquidity  than  assets that are rated AA or higher.  Other mortgage
assets  which  are rated AA or higher by the Rating Agencies derive their credit
rating based on a mortgage pool insurer's rating.  As a result of either changes
in  interest  rates,  credit  performance of a mortgage pool or a downgrade of a
mortgage  pool  issuer, the Company may find it difficult to borrow against such
assets  and, therefore, may be required to sell certain mortgage assets in order
to  maintain  liquidity.  If required, these sales could be at prices lower than
the carrying value of the assets, which would result in losses.  The Company had
adequate  liquidity  throughout  the  year  ended  December  31,  2000.  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  December 31, 2000, the Company had $603.9 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 December 31, 2000, the Company had entered into three whole loan financing
facilities.  The  Company borrows money under these facilities based on the fair
value of the ARM loans.  Therefore, the amount of money available to the Company
under these facilities is subject to margin call based on changes in fair value,
which can be negatively effected by changes in interest rates and other factors,
including  the  delinquency  status  of individual loans.  One of the whole loan
financing facilities has a committed borrowing capacity of $150 million, with an
option  to  increase  this  amount  to  $300  million.  This facility matures in
January  2001.  During  the  first  quarter  of 2000, the Company entered into a
second  committed  whole  loan  financing  facility  that  also  has a borrowing
capacity  of  $150  million.  This second committed facility matures in March of
2003,  subject  to  an  annual  review and extension by both parties.  The third
facility is for an unspecified amount of uncommitted borrowing capacity and does
not  have  a  specific  maturity date.  As of December 31, 2000, the Company had
$158.6  million  borrowed  against  these  whole loan financing facilities at an
effective  cost  of  7.05%.

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 December 31, 2000, the Company had $109
million  of  its  securities  registered for future sale under this Registration
Statement.

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

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

EFFECTS  OF  INTEREST  RATE  CHANGES

Changes  in interest rates impact the Company's earnings in various ways.  While
the  Company  only  invests  in ARM assets, rising short-term interest rates may
temporarily  negatively  affect  the  Company's  earnings and conversely falling
short-term interest rates may temporarily increase the Company's earnings.  This
impact  can  occur  for  several  reasons  and  may  be  mitigated  by portfolio


                                       43
<PAGE>
prepayment  activity  as  discussed below.  First, the Company's borrowings will
react  to changes in interest rates sooner than the Company's ARM assets because
the  weighted average next repricing date of the borrowings is usually a shorter
time  period.  Second,  interest  rates on ARM loans are generally limited to an
increase  of  either 1% or 2% per adjustment period (commonly referred to as the
periodic  cap)  and  the  Company's  borrowings do not have similar limitations.
Third,  the  Company's  ARM  assets lag changes in the indices due to the notice
period  provided  to  ARM  borrowers  when the interest rates on their loans are
scheduled  to change.  The periodic cap only affects the Company's earnings when
interest  rates  move  by  more  than  1%  per  six-month period or 2% per year.

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

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

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

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,  after  an  initial
short-term  decline, following periods when short-term interest rates have risen
and  decrease,  after  an  initial  short-term  increase, following periods when
short-term  interest  rates have declined.  This is because the financed portion
of  the  Company's  portfolio of ARM assets will, over time, reprice to a spread
over  the  Company's cost of funds, while the portion of the Company's portfolio
of ARM assets that are purchased with shareholders' equity will generally have a
higher  yield in a higher interest rate environment and a lower yield in a lower
interest  rate  environment.

OTHER  MATTERS

The  Company  calculates  its  Qualified REIT Assets, as defined in the Internal
Revenue  Code of 1986, as amended (the "Code"), to be 99.7% of its total assets,
compared  to  the Code requirement that at least 75% of its total assets must be
Qualified  REIT  Assets.  The  Company  also  calculates  that 97.9% of its 2000
revenue qualifies for the 75% source of income test and 100% of its 2000 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 December 31, 2000, the
Company believes that it will continue to qualify as a REIT under the provisions
of  the  Code.


                                       44
<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, 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  assets  represent  all  the  certificates  issued  with  respect to an
underlying  pool  of  mortgages,  such  mortgage assets may be treated as assets
separate  from  the  underlying  mortgage loans and, thus, may not be considered
Qualifying  Interests  for  purposes of the 55% requirement.  As of December 31,
2000,  the  Company  calculates  that it is in compliance with this requirement.


ITEM  7A.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

               The  information  called  for  by  Item  7A  is  incorporated  by
               reference  from  the  information  in  Item  7  under the caption
               "Market Risk" set forth on pages 40 through 42 in this Form 10-K.

ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

               The  financial  statements  of the Company, the related notes and
               schedules  to the financial statements, together with the Reports
               of  Independent  Accountants  thereon  are set forth on pages F-3
               through  F-25  in  this  Form  10-K.

ITEM  9.     CHANGES  IN  AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL  DISCLOSURE.

               None

                                    PART  III

ITEM  10.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

               The  information  required  by  Item 10 is incorporated herein by
               reference  to the definitive Proxy Statement dated March 28, 2001
               pursuant  to  General  Instruction  G(3).

ITEM  11.     EXECUTIVE  COMPENSATION

               The  information  required  by  Item 11 is incorporated herein by
               reference  to the definitive Proxy Statement dated March 28, 2001
               pursuant  to  General  Instruction  G(3).

ITEM  12.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

               The  information  required  by  Item 12 is incorporated herein by
               reference  to the definitive Proxy Statement dated March 28, 2001
               pursuant  to  General  Instruction  G(3).

ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

               The  information  required  by  Item 13 is incorporated herein by
               reference  to the definitive Proxy Statement dated March 28, 2001
               pursuant  to  General  Instruction  G(3).


                                       45
<PAGE>
                                    PART  IV

 ITEM  14.     EXHIBITS,  FINANCIAL  STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

               (a)  Documents  filed  as  part  of  this  report:

                    1.   The  following  Financial Statements of the Company are
                         included  in  Part  II, Item 8 of this Annual Report on
                         Form-K:

                         Reports  of  Independent  Accountants;
                         Consolidated  Balance  Sheets  as  of December 31, 2000
                         and  1999;
                         Consolidated  Statements  of  Operations  for the years
                         ended  December  31,  2000,  1999  and  1998;
                         Consolidated Statements of Shareholders' Equity for the
                         years  ended  December  31,  2000,  1999  and  1998;
                         Consolidated  Statements  of  Cash  Flows for the years
                         ended  December  31,  2000,  1999 and 1998 and Notes to
                         Consolidated  Financial  Statements.

                    2.   Schedules  to  Consolidated  Financial  Statements:

                         All  consolidated  financial  statement  schedules  are
                         included  in  Part  II, Item 8 of this Annual Report on
                         Form-K.

                    3.   Exhibits:

                         See  "Exhibit  Index".

               (b)  Reports  on  Form  8-K:

                         None


                                       46
<PAGE>
                             THORNBURG MORTGAGE, INC
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                       AND

                       REPORTS OF INDEPENDENT ACCOUNTANTS



                           For Inclusion in Form 10-K

                                   Filed with

                       Securities and Exchange Commission

                                December 31, 2000


<PAGE>
                             THORNBURG MORTGAGE, INC
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                         PAGE
                                                         ----
FINANCIAL STATEMENTS:

Reports of Independent Accountants                        F-3

Consolidated Balance Sheets                               F-5

Consolidated Statements of Operations                     F-6

Consolidated Statements of Shareholders' Equity           F-7

Consolidated Statements of Cash Flows                     F-8

Notes to Consolidated Financial Statements                F-9

FINANCIAL STATEMENT SCHEDULE:

Schedule IV - Mortgage Loans on Real Estate              F-24


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




To  the  Board  of  Directors  and  Shareholders
Thornburg  Mortgage,  Inc.

In  our  opinion,  the  accompanying consolidated balance sheets and the related
consolidated  statements  of  operations,  shareholders'  equity  and cash flows
present  fairly,  in  all material respects, the financial position of Thornburg
Mortgage,  Inc.  and  its  subsidiaries  at  December 31, 2000 and 1999, and the
results  of  their  operations and their cash flows for each of the two years in
the  period  ended  December  31,  2000 in conformity with accounting principles
generally  accepted  in  the  United  States  of  America.  In  addition, in our
opinion,  the  accompanying financial statement schedule presents fairly, in all
material  respects,  the  information set forth therein when read in conjunction
with  the  related consolidated financial statements. These financial statements
and  the  financial  statement  schedule are the responsibility of the Company's
management;  our  responsibility  is  to  express  an opinion on these financial
statements  and  the  financial  statement  schedule  based  on  our audits.  We
conducted  our  audits of these statements in accordance with auditing standards
generally  accepted  in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements,  assessing  the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We  believe  that  our  audits  provide  a  reasonable  basis  for  our opinion.



/s/  PricewaterhouseCoopers  LLP


New  York,  New  York
January  24,  2001


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To  the  Board  of  Directors  and  Shareholders
Thornburg  Mortgage,  Inc.

We  have  audited  the  accompanying  consolidated  statements  of  operations,
shareholders' equity and cash flows of Thornburg Mortgage, Inc. and Subsidiaries
for  the  year  ended  December  31,  1998.  These  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on  these  financial  statements  based  on  our  audit.

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

In  our  opinion,  the  consolidated financial statements of Thornburg Mortgage,
Inc.  and  Subsidiaries  referred  to  above  present  fairly,  in  all material
respects,  the  results  of  their  operations and their cash flows for the year
ended  December  31,  1998  in  conformity  with  generally  accepted accounting
principles.



/s/  McGladrey  &  Pullen,  LLP


New  York,  New  York
January  20,  1999


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

                             CONSOLIDATED BALANCE SHEETS
                               (Amounts in thousands)

                                                                   December 31
                                                            ------------------------
                                                               2000         1999
                                                            -----------  -----------
<S>                                                         <C>          <C>
ASSETS

  Adjustable-rate mortgage ("ARM") assets (Notes 2 and 3)
    ARM securities                                          $3,359,352   $3,391,467
    Collateral for collateralized notes                        615,696      903,529
    ARM loans held for securitization                          164,413       31,102
                                                            -----------  -----------
                                                             4,139,461    4,326,098

  Cash and cash equivalents (Note 3)                            13,105       10,234
  Accrued interest receivable                                   32,730       31,928
  Prepaid expenses and other                                     4,871        7,705
                                                            -----------  -----------
                                                            $4,190,167   $4,375,965
                                                            ===========  ===========

LIABILITIES

  Reverse repurchase agreements (Note 3)                    $2,961,617   $3,022,511
  Collateralized notes payable (Note 3)                        603,910      886,722
  Other borrowings (Note 3)                                    158,593       21,289
  Payable for assets purchased                                 124,942      110,415
  Accrued interest payable                                      20,519       18,864
  Dividends payable (Note 5)                                     1,670        1,670
  Accrued expenses and other                                     1,378        3,607
                                                            -----------  -----------
                                                             3,872,629    4,065,078
                                                            -----------  -----------

COMMITMENTS (Note 2)

SHAREHOLDERS' EQUITY (Note 5)

  Preferred stock: par value $.01 per share;
    2,760 shares authorized; 9.68% Cumulative
    Convertible Series A, 2,760 and 2,760 issued
    and outstanding, respectively; aggregate preference in
    liquidation $69,000                                         65,805       65,805
  Common stock: par value $.01 per share;
    47,240 shares authorized, 22,072 and 21,990 shares
    issued and 21,572 and 21,490 outstanding, respectively         221          220
  Additional paid-in-capital                                   343,036      342,026
  Accumulated other comprehensive income (loss)                (78,427)     (82,489)
  Notes receivable from stock sales                             (5,318)      (4,632)
  Retained earnings (deficit)                                   (3,113)      (5,377)
  Treasury stock: at cost, 500 and 500 shares respectively      (4,666)      (4,666)
                                                            -----------  -----------
                                                               317,538      310,887
                                                            -----------  -----------

                                                            $4,190,167   $4,375,965
                                                            ===========  ===========
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-5
<PAGE>
<TABLE>
<CAPTION>

                        THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

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


                                                            Year ended December 31
                                                       ----------------------------------
                                                          2000        1999        1998
                                                       ----------  ----------  ----------
<S>                                                    <C>         <C>         <C>
Interest income from ARM assets and cash equivalents   $ 289,973   $ 260,365   $ 287,032
Interest expense on borrowed funds                      (253,343)   (226,350)   (255,992)
                                                       ----------  ----------  ----------
    Net interest income                                   36,630      34,015      31,040
                                                       ----------  ----------  ----------

Gain (loss) on sale of ARM assets                            287          47        (278)
Provision for credit losses                               (1,158)     (2,867)     (2,032)
Management fee (Note 7)                                   (4,158)     (4,088)     (4,142)
Performance fee (Note 7)                                     (46)          -        (759)
Other operating expenses                                  (2,390)     (1,523)     (1,134)
                                                       ----------  ----------  ----------
    NET INCOME                                         $  29,165   $  25,584   $  22,695
                                                       ==========  ==========  ==========

Net income                                             $  29,165   $  25,584   $  22,695
Dividend on preferred stock                               (6,679)     (6,679)     (6,679)
                                                       ----------  ----------  ----------
Net income available to common shareholders            $  22,486   $  18,905   $  16,016
                                                       ==========  ==========  ==========
Basic earnings per share                               $    1.05   $    0.88   $    0.75
                                                       ==========  ==========  ==========
Diluted earnings per share                             $    1.05   $    0.88   $    0.75
                                                       ==========  ==========  ==========
Average number of common shares outstanding               21,506      21,490      21,488
                                                       ==========  ==========  ==========
</TABLE>


See  Notes  to  Consolidated  Financial  Statements.


                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                                     THORNBURG MORTGAGE ASSET CORPORATION AND SUBSIDIARIES

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                              Three Years Ended December 31, 1999
                                     (Dollar amounts in thousands, except per share data)

                                                                              Notes
                                                                   Accum.    Receiv-
                                                         Addit-     Other     able
                                       Pref-             ional    Compre-     From     Retained              Compre-
                                       erred   Common   Paid-in    hensive    Stock    Earnings/  Treasury   hensive
                                       Stock   Stock    Capital    Income     Sales    (Deficit)   Stock     Income     Total
                                      -------  ------  --------  ---------  --------  ----------  --------  ---------  ---------
<S>                                   <C>      <C>     <C>       <C>        <C>       <C>         <C>       <C>        <C>
Balance, December 31, 1997 . . . . .  $65,805  $  203  $315,240  $(19,445)  $ (2,698) $    (951)  $     -              $358,154
Comprehensive income:
   Net income. . . . . . . . . . . .                                                     22,695              $22,695     22,695
   Other comprehensive income:
     Available-for-sale assets:
       Fair value adjustment, net. .        -       -         -   (61,157)        -           -         -    (61,157)   (61,157)
      Deferred gain on sale of
       hedges, net of amortization .        -       -         -    (1,546)        -           -         -     (1,546)    (1,546)
                                                                                                            ---------
   Other comprehensive loss. . . . .                                                                        $(40,008)
                                                                                                            =========
Issuance of common stock (Note 5). .        -      17    26,259         -     (1,934)         -                          24,342
Purchase of treasury stock (Note 5).        -       -         -         -         -      (4,666)                         (4,666)
Interest from notes receivable from
  stock sales  . . . . . . . . . . .                        257                                                             257
Dividends declared on preferred
 stock - $2.42 per share . . . . . .        -       -         -         -         -      (6,679)        -                (6,679)

Dividends declared on common
 stock - $0.905 per share. . . . . .        -       -         -         -         -     (19,577)        -               (19,577)
                                      -------  ------  --------  ---------  --------  ----------  --------  ---------  ---------

Balance, December 31, 1998 . . . . .   65,805     220   341,756   (82,148)   (4,632)     (4,512)   (4,666)              311,823
Comprehensive income:
   Net income. . . . . . . . . . . .                                                     25,584             $ 25,584     25,584
   Other comprehensive income:
     Available-for-sale assets:
       Fair value adjustment, net. .        -       -         -       307         -           -         -        307        307
      Deferred gain on sale of
       hedges, net of amortization .        -       -         -      (648)        -           -         -       (648)      (648)
                                                                                                            ---------
   Other comprehensive income. . . .                                                                        $(25,243)
                                                                                                            =========
Interest from notes receivable
  from stock sales . . . . . . . . .                        270                                                             270
Dividends declared on preferred
 stock - $2.42 per share . . . . . .        -       -         -         -         -      (6,679)        -                (6,679)
Dividends declared on common
 stock - $0.92 per share. . . . . . .       -       -         -         -         -     (19,770)        -               (19,770)
                                      -------  ------  --------  ---------  --------  ----------  --------             ---------
Balance, December 31, 1999 . . . . .  $65,805  $  220  $342,026  $(82,489)  $(4,632)  $  (5,377)  $(4,666)             $310,887
Comprehensive income:
   Net income. . . . . . . . . . . .                                                     29,165             $ 29,165     29,165
   Other comprehensive income:
     Available-for-sale assets:
       Fair value adjustment, net. .        -       -         -     4,927         -           -         -      4,927      4,927
      Deferred gain on sale of
       hedges, net of amortization .        -       -         -      (865)        -           -         -       (865)      (865)
                                                                                                            ---------
   Other comprehensive income. . . .                                                                        $ 33,227
                                                                                                            =========
Issuance of common stock (Note 5). .        -       1       730         -       (686)         -                              45
Interest from notes receivable from
 stock sales . . . . . . . . . . . .                        280                                                             280
Dividends declared on preferred
 stock - $2.42 per share . . . . . .        -       -         -         -         -      (6,679)        -                (6,679)
Dividends declared on common
 stock - $0.92 per share. . . . . .        -       -         -         -         -      (20,222)        -               (20,222)
                                      -------  ------  --------  ---------  --------  ----------  --------             ---------
Balance, December 31, 2000 . . . . .  $65,805  $  221  $343,036  $(78,427)  $(5,318)  $  (3,113)  $(4,666)             $317,538
                                      =======  ======  ========  =========  ========  ==========  ========             =========
</TABLE>
See  Notes  to  Consolidated  Financial  Statements.


                                      F-7
<TABLE>
<CAPTION>

                                 THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (Dollar amounts in thousands)

                                                                           Year ended December 31
                                                                    --------------------------------------
                                                                       2000         1999          1998
                                                                    ----------  ------------  ------------
<S>                                                                 <C>         <C>           <C>
Operating Activities:
 Net income                                                         $  29,165   $    25,584   $    22,695
 Adjustments to reconcile net income to
   net cash provided by operating activities:
   Amortization                                                        17,476        31,080        49,657
   Net realized (gain) loss from investing activities                    (287)          (47)          278
   Provision for credit losses                                          1,158         2,867         2,032
   Decrease (increase) in accrued interest receivable                    (802)        6,011           414
   Decrease (increase) in prepaid expenses and other                    2,834        (5,859)       (1,557)
   Increase (decrease) in accrued interest payable                      1,655       (12,650)       (8,235)
   Increase (decrease) in accrued expenses and other                   (2,229)          397         1,994
                                                                    ----------  ------------  ------------
     Net cash provided by operating activities                         48,970        47,383        67,278
                                                                    ----------  ------------  ------------

Investing Activities:
 Available-for-sale securities:
   Purchases                                                         (736,568)   (1,244,341)   (1,501,961)
   Proceeds on sales                                                  120,149         9,922       929,999
   Proceeds from calls                                                  4,288         6,234       138,926
   Principal payments                                                 682,624     1,026,098     1,651,450
 Collateral for collateralized notes payable:
   Principal payments                                                 284,326       239,737        13,416
 ARM Loans:
   Purchases                                                         (176,027)      (35,417)   (1,092,238)
   Principal payments                                                   9,029         9,339       115,081
   Proceeds on sales                                                      107         8,775         2,043
 Purchase of interest rate cap and floor agreements                    (1,048)       (1,853)       (1,081)
                                                                    ----------  ------------  ------------
     Net cash provided by  investing activities                       186,880        18,494       255,635
                                                                    ----------  ------------  ------------

Financing Activities:

 Net borrowings from (repayments of) reverse repurchase agreements    (60,894)      155,304    (1,402,963)
 Net borrowings from (repayments of) collateralized  notes           (282,813)     (240,459)    1,127,181
 Net borrowings from (repayments of) other borrowings                 137,303        19,260        (7,989)
 Proceeds from common stock issued                                         45             -        24,342
 Purchase of treasury stock                                                 -             -        (4,666)
 Dividends paid                                                       (26,900)      (26,449)      (36,396)
 Interest from notes receivable from stock sales                          280           270           229
                                                                    ----------  ------------  ------------
   Net cash (used in) financing activities                           (232,979)      (92,074)     (300,262)
                                                                    ----------  ------------  ------------

Net increase (decrease) in cash and cash equivalents                    2,871       (26,197)       22,651

Cash and cash equivalents at beginning of year                         10,234        36,431        13,780
                                                                    ----------  ------------  ------------
Cash and cash equivalents at end of year                            $  13,105   $    10,234   $    36,431
                                                                    ==========  ============  ============
Supplemental disclosure of cash flow information and non-cash
 investing and financing activities are included in Notes 2 and 3.
</TABLE>

See  Notes  to  Consolidated  Financial  Statements.


                                      F-8
<PAGE>
                    THORNBURG MORTGAGE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1.  ORGANIZATION  AND  SIGNIFICANT  ACCOUNTING  POLICIES

          Thornburg  Mortgage,  Inc.,  formerly  Thornburg  Mortgage  Asset
          Corporation,  was  incorporated  in  Maryland  on  July  28, 1992. The
          Company  commenced  its  operations  of  purchasing  and  managing for
          investment  a portfolio of adjustable-rate mortgage assets on June 25,
          1993,  upon  receipt  of  the  net  proceeds  from  the initial public
          offering  of  the  Company's  common  stock.

          A  summary  of  the Company's significant accounting policies follows:

          CASH  AND  CASH  EQUIVALENTS

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

          BASIS  OF  PRESENTATION

               The  consolidated  financial  statements  include the accounts of
               Thornburg  Mortgage, Inc (together with its subsidiaries referred
               to  hereafter  as  the "Company") and its wholly-owned bankruptcy
               remote  special  purpose finance subsidiaries, Thornburg Mortgage
               Funding  Corporation  ("TMFC"),  Thornburg  Mortgage  Acceptance
               Corporation  ("TMAC")  and a taxable mortgage banking subsidiary,
               Thornburg  Mortgage  Home  Loans,  Inc.  ("TMHL") and its special
               purpose  finance  subsidiaries,  Thornburg  Mortgage  Funding
               Corporation  II,  Thornburg  Mortgage  Acceptance Corporation II.
               TMFC  and  TMAC  are wholly-owned qualified REIT subsidiaries and
               are consolidated with the Company for financial statement and tax
               reporting  purposes.  TMHL  and its subsidiaries have operated as
               taxable  REIT  subsidiaries  since  December  1,  2000  and  are
               consolidated  with  the  Company for financial statement purposes
               and  are  not  consolidated  with  the  Company for tax reporting
               purposes. All material intercompany accounts and transactions are
               eliminated  in  consolidation.

          ADJUSTABLE-RATE  MORTGAGE  ASSETS

               The  Company's  adjustable-rate  mortgage  ("ARM")  assets  are
               comprised  of  ARM securities, ARM loans and collateral for 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 notes payable 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.


                                      F-9
<PAGE>
               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  risk  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 classes of
               securities  retained  as  part of the Company's securitization of
               loans.


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

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

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

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

          DERIVATIVE  FINANCIAL  INSTRUMENTS

               INTEREST  RATE  CAP  AGREEMENTS

               The  Company  purchases  interest  rate  cap  agreements  ("Cap
               Agreements")  to  manage interest rate risk. To date, most of the
               Cap  Agreements  purchased  limit  the Company's risks associated
               with the lifetime or maximum interest rate caps of its ARM assets
               should  interest  rates  rise  above  specified levels. These Cap
               Agreements  reduce the effect of the lifetime cap feature so that


                                      F-10
<PAGE>
               the  yield  on  the  ARM  assets  will  continue  to rise in high
               interest  rate  environments  as the Company's cost of borrowings
               also  continue  to  rise.  In  similar  fashion,  the Company has
               purchased  Cap  Agreements  to  limit  the  financing rate of the
               Hybrid  ARMs during their fixed rate term, generally for three to
               ten  years.  In general, the cost of financing Hybrid ARMs hedged
               with  Cap  Agreements  is capped at a rate that is 0.75% to 1.00%
               below  the  fixed  Hybrid  ARM  interest  rate.

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

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

               INTEREST  RATE  OPTIONS  CONTRACTS

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

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

               INTEREST  RATE  SWAP  AGREEMENTS

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

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

               All  Swap  Agreements are classified as a liability hedge against
               the  Company's  borrowings. As a result, the unrealized gains and
               losses on Swap Agreements are off balance sheet and are discussed
               in  Note  4.



                                      F-11
<PAGE>
                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, excluding TMHL and its subsidiaries, 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. TMHL and
               each  of  its  subsidiaries  became  taxable REIT subsidiaries on
               December  1,  2000 and, as such, they are subject to both federal
               and  state  corporate income tax. For the period December 1, 2000
               through  December  31, 2000, TMHL had an immaterial taxable loss.

          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.


                                      F-12
<PAGE>
Following  is  information  about the computation of the earnings per share data
for  the  years  ended  December  31,  2000, 1999 and 1998 (Amounts in thousands
except  per  share  data):
<TABLE>
<CAPTION>

                                                  Earnings
                                 Income   Shares  Per Share
                                --------  ------  ----------
              2000
<S>                             <C>       <C>     <C>
Net income                      $29,165

Less preferred stock dividends   (6,679)
                                --------
Basic EPS, income available to
 common shareholders             22,486   21,506  $     1.05
                                                  ==========

Effect of dilutive securities:

 Stock options                        -       13
                                --------  ------
Diluted EPS                     $22,486   21,519  $     1.05
                                ========  ======  ==========

              1999
Net income                      $25,584

Less preferred stock dividends   (6,679)
                                --------
Basic EPS, income available to
 common shareholders             18,905   21,490  $     0.88
                                                  ==========
Effect of dilutive securities:

 Stock options                        -        -
                                --------  ------
Diluted EPS                     $18,905   21,490  $     0.88
                                ========  ======  ==========

              1998
Net income                      $22,695

Less preferred stock dividends   (6,679)

Basic EPS, income available to
 common shareholders             16,016   21,488  $     0.75
                                                  ==========
Effect of dilutive securities:

 Stock options                        -        -
                                --------  ------
Diluted EPS                     $16,016   21,488  $     0.75
                                ========  ======  ==========

</TABLE>



               The  Company has granted options to directors and officers of the
               Company and employees of the Manager to purchase 210,022, 186,779
               and  59,784  shares  of  common stock at average prices of $7.43,
               $8.90  and  $14.82  per share during the years ended December 31,
               2000,  1999  and  1998, respectively. The conversion of preferred
               stock  was not included in the computation of diluted EPS for any
               year  because  such  conversion  would  increase the diluted EPS.

          RECENT  ACCOUNTING  PRONOUNCEMENTS

               On  January  1,  2001, the Company adopted Statement of Financial
               Accounting  Standards  No.  133,  Accounting  for  Derivative
               Instruments  and  Hedging  Activities  ("SFAS  133").  SFAS  133
               established  a  framework  of  accounting  rules that standardize
               accounting and reporting for all derivative instruments. SFAS 133
               requires  that all derivative financial instruments be carried on
               the  balance  sheet  at fair value. The adoption of this standard
               did  not  affect  the  Company's  previously  issued  financial
               statements  up to and including those as of December 31, 2000. In
               the first quarter of 2001, the Company will report the SFAS 133's
               impact  as  a  cumulative  effect  of  a  change  in  accounting
               principle.  The  Company  currently  expects  the  cumulative
               adjustment  required  by  SFAS  to  decrease "other comprehensive
               income" by approximately $600,000 and to decrease "Net income" by
               approximately  $300,000.


                                      F-13
<PAGE>
               In  September  of  2000, the Financial Accounting Standards Board
               issued  SFAS  No.  140, Accounting for Transfers and Servicing of
               Financial  Assets and Extinguishments of Liabilities. The Company
               has  adopted  the  disclosure  requirements  relation  to
               securitization  transactions  in  its  2000 financial statements.
               Other  provisions  of this standard will be applied prospectively
               in  the  Company's  fiscal  quarter  starting  April 1, 2000. The
               Company  does  not  expect the implementation of this standard to
               materially  affect  the  Company's reported results of operations
               and  financial  position.

          USE  OF  ESTIMATES

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

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

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

December  31,  2000:
                                 Available-
                                  for-Sale        Collateral for
                                ARM Securities    Notes Payable    ARM Loans      Total
                               ----------------  ---------------  -----------  -----------
<S>                            <C>               <C>              <C>          <C>
Principal balance outstanding  $     3,359,301   $      606,686   $  165,131   $4,131,118
Net unamortized premium                 56,759           11,759         (567)      67,951
Allowance for losses                    (1,869)          (2,949)        (151)      (4,969)
Cap agreements                           3,705              200            -        3,905
Principal payment receivable            19,883                -            -       19,883
                               ----------------  ---------------  -----------  -----------
Amortized cost, net                 3,437,779          615,696      164,413    4,217,888
                               ----------------  ---------------  -----------  -----------
Gross unrealized gains                   7,526               45        2,029        9,600
Gross unrealized losses                (85,953)         (10,499)         (97)     (96,549)
                               ----------------  ---------------  -----------  -----------
 Fair value                    $     3,359,352   $      605,242   $  166,345   $4,130,939
                               ================  ===============  ===========  ===========
 Carrying value                $     3,359,352   $      615,696   $  164,413   $4,139,461
                               ================  ===============  ===========  ===========

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

 Carrying value                $     3,391,467   $      903,529   $   31,102   $4,326,098
                               ================  ===============  ===========  ===========
</TABLE>

          During  2000,  the Company realized $287,000 in gains and no losses on
          the  sale  of  $120.0  million of ARM assets. During 1999, the Company
          realized  $52,000  in  gains and $5,000 in losses on the sale of $18.6
          million  of  ARM  assets,  and  during  1998,  the  Company  realized
          $4,634,000  in  gains  and  $4,912,000 in losses on the sale of $932.3
          million  of ARM assets. All of the ARM securities sold were classified
          as  available-for-sale.  During  1998,  approximately  $379 million of
          securities previously classified as held-to-maturity were reclassified
          as  available-for-sale.


                                      F-14
<PAGE>
          During  2000, the Company securitized $162.8 million of ARM loans into
          $159.3  million  High  Quality  ARM  securities  and  $3.5  million of
          subordinated  securities, all of which are retained by the Company for
          its  ARM  portfolio.

          During the year ended December 31, 2000, in accordance with its credit
          policies,  the  Company  provided  for  estimated credit losses on the
          subordinated  classes  of  its  securitized  loans  in  the  amount of
          $207,000 and recorded a $951,000 provision for estimated credit losses
          on  its loan portfolio. During the year 2000, the Company sold two REO
          properties  for  a  combined  loss  of  $59,000.

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

<TABLE>
<CAPTION>
     2000
     ----

                                Percent
       Loan           Loan      of ARM      Percent of
Delinquency Status   Count      Balance      Loans (1)    Total Assets
------------------  --------  -----------  -------------  -------------
<S>                 <C>       <C>          <C>            <C>
60 to 89 days              3  $       447         0.04%           0.01%
90 days or more            -            -            -               -
In foreclosure             5        3,980         0.34            0.10
                    --------  -----------  -------------  -------------
                           8  $     4,427         0.38%           0.11%
                    ========  ===========  =============  =============

      1999
      ----
                                          Percent
                      Loan      Loan      of ARM    Percent of
Delinquency Status    Count    Balance   Loans (1)    Total Assets
------------------- --------  --------  -----------  -------------
60 to 89 days              1  $    110        0.01%          0.00%
90 days or more            -         -           -              -
In foreclosure            10     5,450        0.49           0.12
                    --------  --------  -----------  -------------
                          11  $  5,560        0.50%          0.12%
                    ========  ========  ===========  =============
<FN>
(1)  ARM  loans  includes  loans  that  the Company has securitized and retained
     first  loss  credit exposure for total amounts of $1.165 billion and $1.108
     billion  at  December  31,  2000  and  1999,  respectively.
</TABLE>

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

                                                2000               1999
                                             ---------          ---------
                    Beginning  balance       $  2,208          $     804
                    Provision  for  losses        951              1,404
                    Charge-offs,  net             (59)                 0
                                             ---------          ---------
                    Ending  balance          $  3,100           $  2,208
                                             =========          =========

          As of December 31, 2000, the Company owned one real estate property as
          a  result  of foreclosing on a delinquent loan in the aggregate amount
          of  $0.6  million,  which is included in collateral for collateralized
          notes  on  the  balance  sheet.  The Company believes that its current
          level  of reserves is adequate to cover any estimated loss, should one
          occur,  from  the  sale  of  this  property.

          As of December 31, 2000, the Company had commitments to purchase $42.7
          million  of  ARM  loans.

          The  average  effective  yield on the ARM assets owned was 7.09% as of
          December  31,  2000  and  6.38%  as  of December 31, 1999. The average
          effective  yield  is  based  on  historical  cost  and  includes  the
          amortization  of  the  net  premium  paid  for the ARM assets, the Cap
          Agreements  and  Option Contracts, the impact of ARM principal payment
          receivables  and  the  amortization  of  deferred  gains  from hedging
          activity.

          As  of  December  31,  2000  and  December  31,  1999, the Company had
          purchased  Cap  Agreements  and  Options  Contracts  with  a remaining
          notional  amount  of  $2.624 billion and $2.945 billion, respectively.
          The  notional  amount  of  the  Cap  Agreements  and Options Contracts
          purchased  decline  at  a  rate  that  is  expected to approximate the
          amortization of the ARM assets. Under these Cap Agreements and Options
          Contracts,  the  Company  will  receive  cash  payments  should  the
          one-month,  three-month  or  six-month  London  InterBank  Offer  Rate
          ("LIBOR")  increase  above  the  contract  rates  of  these  hedging
          instruments  that range from 5.75% to 12.50% and average approximately
          9.88%.  Of  the  Cap  Agreements  and  Options  Contracts owned by the
          Company  as  of December 31, 2000, $104.1 million are hedging the cost
          of  financing  Hybrid ARMs and $2.520 billion are hedging the lifetime
          interest  rate  cap  of ARM assets. The Company's ARM assets portfolio
          had  an  average  lifetime  interest  rate  cap  of  11.77%.  The  Cap
          Agreements  and Options Contracts had an average maturity of 2.3 years
          as  of December 31, 2000. The initial aggregate notional amount of the


                                      F-15
<PAGE>
          Cap  Agreements  declines  to  approximately  $2.346  billion over the
          period  of  the  agreements,  which  expire between 2000 and 2004. The
          Company  has  credit risk to the extent that the counterparties to the
          Cap  Agreements  do  not  perform  their  obligations  under  the  Cap
          Agreements. If one of the counterparties does not perform, the Company
          would  not  receive  the  cash to which it would otherwise be entitled
          under  the  conditions of the Cap Agreement. In order to mitigate this
          risk  and to achieve competitive pricing, the Company has entered into
          Cap  Agreements  with  six different counterparties, five of which are
          rated AAA and one is rated A, but the Company has a two-way collateral
          agreement  protecting  its  credit  exposure  with  this counterparty.

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

          The  Company has entered into reverse repurchase agreements to finance
          most  of  its  ARM  assets.  The  reverse  repurchase  agreements  are
          short-term  borrowings  that are collateralized 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 December 31, 2000, the Company had outstanding $2.962 billion of
          reverse  repurchase  agreements with a weighted average borrowing rate
          of  6.80%  and a weighted average remaining maturity of 2.3 months. As
          of  December 31, 2000, $1.357 billion of the Company's borrowings were
          variable-rate  term  reverse  repurchase  agreements  with  original
          maturities  that  range from two months to twelve months. The interest
          rates  of  these  term  reverse  repurchase  agreements are indexed to
          either the one- or three-month LIBOR rate and reprice accordingly. The
          reverse repurchase agreements at December 31, 2000 were collateralized
          by  ARM  assets  with  a  carrying  value of $3.166 billion, including
          accrued  interest.

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

                Within  30  days     $    1,520,837
                31  to  89  days            365,655
                90  days or greater       1,075,125
                                     --------------
                                     $    2,961,617
                                     ==============

          As of December 31, 2000, the Company had entered into three whole loan
          financing facilities. One of the whole loan financing facilities has a
          committed  borrowing  capacity  of  $150  million,  with  an option to
          increase this amount to $300 million. This facility matures in January
          2001  and  is in the process of being extended for an additional year.
          During  the  first  quarter of 2000, the Company entered into a second
          committed  whole  loan  financing  facility  that also has a borrowing
          capacity  of  $150  million. This second committed facility matures in
          March  of  2003,  subject  to  an  annual review and extension by both
          parties.  The  third  facility  is  for  an  unspecified  amount  of
          uncommitted  borrowing  capacity and does not have a specific maturity
          date. As of December 31, 2000, the Company had $158.6 million borrowed
          against  these whole loan financing facilities at an effective cost of
          7.05%.  The  amount borrowed on the whole loan financing agreements at
          December  31,  2000  was  collateralized  by ARM loans with a carrying
          value  of  $164.2  million,  including  accrued  interest.

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

          On  December  18, 1998, the Company, through a wholly-owned bankruptcy
          remote  special  purpose  finance subsidiary, issued $1.144 billion of
          notes  payable  ("Notes")  collateralized  by  ARM  loans  and  ARM
          securities.  As  part  of  this  transaction,  the  Company  retained
          ownership  of  a  subordinated  certificate  in  the  amount  of $32.4
          million,  which  represents  the  Company's maximum exposure to credit
          losses  on  the  loans  collateralizing  the Notes. As of December 31,
          2000,  the  Notes  had  a  net balance of $603.9 million, an effective
          interest  cost  of  7.38%,  which  changes  each  month at a spread to
          one-month  LIBOR.  As  of  December  31,  2000,  these  Notes  were
          collateralized  by  ARM  loans  with  a  principal  balance  of $638.8
          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


                                      F-16
<PAGE>
          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 December 31, 2000, the Company was a counterparty to twenty-two
          interest  rate  swap agreements ("Swaps") having an aggregate notional
          balance  of $623.4 million. As of December 31, 2000, these Swaps had a
          weighted average remaining term of 2.4 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 25 days to 191 days. All of these
          Swaps  were  entered into in connection with the Company's acquisition
          of  Hybrid  ARMs.  The  Swaps  hedge the cost of financing Hybrid ARMs
          during  their  fixed  rate  term,  generally three to ten years. As of
          December  31,  2000,  the  Swap  Agreements were collateralized by ARM
          assets  with  a  carrying  value  of  $5.9  million, including accrued
          interest.

          The  total  cash  paid for interest was $249.6 million, $233.3 million
          and  $267.9  million  for  2000,  1999  and  1998  respectively.

NOTE  4.  FAIR  VALUE OF FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET CREDIT RISK

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

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

<TABLE>
<CAPTION>
                                        December 31, 2000          December 31, 1999
                                      -----------------------  -----------------------
                                       Carrying       Fair      Carrying      Fair
                                        Amount       Value       Amount       Value
                                      -----------  ----------  ----------  -----------
<S>                                   <C>          <C>         <C>         <C>
Assets:
     ARM assets                       $4,137,943   $4,129,421  $4,318,301  $4,305,060
     Cap Agreements/Option Contracts       1,518        1,518       7,797       7,797

Liabilities:
     Collateralized notes payable        603,910      605,927     886,722     889,305
     Other borrowings                    158,593      158,593      21,289      21,289
     Swap agreements                        (334)       7,259         749     (11,527)
</TABLE>


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

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


                                      F-17
<PAGE>
          The  Company's  transactions  in  interest  rate  swap  agreements and
          hedging  activity  using  commitments  to  sell  securities  create
          off-balance-sheet  risk.  These  instruments involve market and credit
          risk  that  is not recognized on the balance sheet. The principal risk
          related  to the swap agreements is the possibility that a counterparty
          to  the  agreement may be unable or unwilling to meet the terms of the
          agreement.  With respect to commitments to sell securities, there is a
          risk  that  the  change  in  the  value  of  the  hedged  item may not
          substantially  offset  the  change in the value of the commitment. The
          Company  reduces  counterparty  risk  by  dealing  only  with  several
          experienced  counterparties  with  AA  or  better  credit ratings or a
          two-way  collateral  agreement  is  required.

NOTE  5.  COMMON  AND  PREFERRED  STOCK

          In  1997,  the  Company  issued  2,760,000  shares  of  Series A 9.68%
          Cumulative  Convertible  Preferred  Stock at a price of $25 per share.
          Net  proceeds  from this issuance totaled $65.8 million. The dividends
          are cumulative commencing on the issue date and are payable quarterly,
          in  arrears.  The  dividends per share are equal to the greater of (i)
          $0.605  per  quarter,  or  (ii) the quarterly dividend declared on the
          Company's common stock. Each share is convertible at the option of the
          holder  at  any  time  into  one  share of common stock. The preferred
          shares  are  redeemable by the Company on and after December 31, 1999,
          in  whole  or  in  part, as follows: (i) for one share of common stock
          plus  accumulated,  accrued but unpaid dividends, provided that for 20
          trading  days  within  any  period  of 30 consecutive trading days the
          closing  price  of  the  common stock equals or exceeds the conversion
          price  of  $25,  or  (ii) for cash at the issue price of $25, plus any
          accumulated, accrued but unpaid dividends through the redemption date.
          In  the event of liquidation, the holders of the preferred shares will
          be  entitled to receive out of the assets of the Company, prior to any
          distribution  to  the  common shareholders, the issue price of $25 per
          share in cash, plus any accumulated, accrued and unpaid dividends. The
          Company  has  not, nor does it have any currents plans to exercise its
          redemption  rights  at  this  time.

          During  2000  and 1999, the Company did not issue any shares of common
          stock  under its Dividend Reinvestment and Stock Purchase Plan. During
          1998,  the  Company issued 1,581,550 shares of common stock under this
          plan  and  received  net  proceeds  of  $24.4  million.

          During  2000,  stock  options  for  82,797 shares of common stock were
          exercised  at  an  average price of $8.83 and $685.7 thousand of notes
          receivable  were  executed  in  connection  with the exercise of these
          options  and  the  Company  received  net  proceeds of $45.3 thousand.
          During  1999,  there  were no exercises of stock options. During 1998,
          stock  options for 128,377 shares of common stock were exercised at an
          average  price  of  $15.23  and  $2.0 million of notes receivable were
          executed  in  connection  with  the  exercise  of  these  options.

          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 common stock during 2000 or
          1999.  To  date,  the Company has repurchased 500,016 shares of common
          stock  under  this  program  at  an  average price of $9.28 per share.


                                      F-18
<PAGE>
          The  following  table  presents  information  regarding  the Company's
          common  and  preferred  dividends declared for the 2000, 1999 and 1998
          fiscal  years:

<TABLE>
<CAPTION>
                                   28% (1)    20% (1)  Return
                        Ordinary   Capital   Capital    of
                         Income     Gains     Gains   Capital    Total
                       ---------  --------  --------  -------  -----------
<S>                    <C>        <C>       <C>       <C>      <C>
Common Dividends:
     2000              $ 0.9400   $      -  $      -  $     -  $0.940 (2)
     1999                0.9200          -         -        -   0.920 (2)
     1998                0.8412          -         -   0.0638   0.905 (2)

Preferred Dividends:
     2000              $  2.420   $      -  $      -  $     -  $2.420 (3)
     1999                 2.420          -         -        -   2.420 (3)
     1998                 2.420          -         -        -   2.265 (3)

<FN>
          (1)  Maximum  federal  tax  rate  applicable  to  capital  gains
          (2)  $0.25,  $0.23 and $0.50 of dividends was declared and paid in the
               following  fiscal  years  for  2000, 1999 and 1998, respectively.
          (3)  $0.605,  $0.605  and $0.605 was paid in the following fiscal year
               for  2000,  1999,  and  1998,  respectively.
</TABLE>

          The  $0.605  preferred dividend declared on December 15, 2000 and paid
          on  January  10,  2001  will  be  taken as a dividend deduction on the
          Company's  2000  income tax return and is therefore taxable income for
          preferred  shareholders  for  2000,  as  well  as  the  four preferred
          dividends  paid  during  2000.

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, options not so qualified
          ("NQSOs"),  Dividend  Equivalent  Rights  ("DERs"), Stock Appreciation
          Rights  ("SARs"),  and  Phantom  Stock  Rights  ("PSRs").

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

          The Company usually grants DERs at the same time as it grants ISOs and
          NQSOs.  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  2000,  there were 215,500 DERs granted and 28,765 PSRs issued.
          As  of  the December 31, 2000, there were 367,974 DERs outstanding, of
          which  339,813  were  vested, and 44,827 PSRs outstanding. The Company
          recorded an expense associated with the DERs and the PSRs of $274,000,
          $92,000  and  $11,000  for the years ended December 31, 2000, 1999 and
          1998,  respectively.

          Notes  receivable  from  stock  sales  result from the Company selling
          shares of common stock through the exercise of stock options partially
          for  consideration for notes receivable. The notes mature between 2006
          and  2009  and accrue interest at rates that range from 5.47% to 6.25%
          per  annum.  In addition, the notes are full recourse promissory notes
          and  are  secured  by  a  pledge  of  the  shares  of the Common Stock
          acquired.  Interest,  which is credited to paid-in-capital, is payable
          quarterly,  with  the  balance  due  at the maturity of the notes. The
          payment  of  the  notes  will be accelerated only upon the sale of the
          shares of Common Stock pledged for the notes. The notes may be prepaid
          at  any  time at the option of each borrower. As of December 31, 2000,
          there  were  $5.3  million  of  notes  receivable  from  stock  sales
          outstanding.


                                      F-19
<PAGE>
          The  Company  adopted  the  disclosure-only provisions of Statement of
          Financial  Accounting  Standards  No. 123, "Accounting for Stock-Based
          Compensation."  Accordingly,  no compensation cost has been recognized
          for  the  Company's  stock  option plan. Had compensation cost for the
          Company's stock option plan been determined based on the fair value at
          the  grant  date for awards in 2000, 1999 and 1998 consistent with the
          provisions  of  SFAS  No. 123, the Company's net earnings and earnings
          per  share  would have been reduced to the pro forma amounts indicated
          in  the  table below. The fair value of each option grant is estimated
          on  the  date  of  grant  using the Black-Scholes option-pricing model
          (dollar  amounts  in  thousands,  except  per  share  data).

<TABLE>
<CAPTION>
                                           2000       1999       1998
                                         ---------  ---------  ---------
<S>                                      <C>        <C>        <C>
            Net income - as reported     $ 29,165   $ 25,584   $ 22,695
            Net income - pro forma         28,989     25,428     22,629

            Basic EPS - as reported          1.05       0.88       0.75
            Basic EPS - pro forma            1.04       0.87       0.74

            Diluted EPS - as reported        1.05       0.88       0.75
            Diluted EPS - pro forma          1.04       0.87       0.74

            Assumptions:
                Dividend yield              10.00%     10.00%     10.00%
                Expected volatility          32.4%      30.1%     25.60%
                Risk-free interest rate      6.29%      5.48%      5.68%
                Expected lives            7 years    7 years    7 years
</TABLE>

          Information  regarding  options  is  as  follows:

<TABLE>
<CAPTION>
                                                        2000                 1999                1998
                                              ---------------------  ------------------  ------------------
                                                           Weighted             Weighted            Weighted
                                                            Average              Average            Average
                                                           Exercise             Exercise            Exercise
                                                Shares      Price     Shares     Price    Shares     Price
                                              ----------  ---------  ---------  -------  ---------  -------
<S>                                           <C>         <C>        <C>        <C>      <C>        <C>
             Outstanding, beginning of year     789,473   $  15.494    612,402  $17.549   680,995   $17.353
             Granted                            210,022       7.426    186,779    8.897    59,784    14.817
             Exercised                          (82,797)      8.829          -        -  (128,377)   15.234
             Expired                                  -           -      9,708   18.227         -         -
                                              ----------  ---------  ---------  -------  ---------  -------
            Outstanding, end of year            916,698   $  14.248    789,473  $15.494   612,402   $17.549
                                              ==========  =========  =========  =======  =========  =======

             Weighted average fair value of
             options granted during the year  $    0.93             $    0.93          $    1.22

             Options exercisable at year end    804,053               631,828            479,482
</TABLE>

          The  following  table  summarizes  information  about  stock  options
          outstanding  at  December  31,  2000:

<TABLE>
<CAPTION>
                                                       Options Outstanding     Options Exercisable
                                                     -----------------------  ---------------------
                                                      Weighted
                                                       Average      Weighted               Weighted
                                                      Remaining     Average                 Average
                                          Options    Contractual   Exercise   Exercisable  Exercise
             Range of Exercise Prices   Outstanding   Life (Yrs)     Price    At 12/31/00    Price
             -------------------------  -----------  ------------  ---------  -----------  --------
<S>                                     <C>          <C>           <C>        <C>          <C>

             $    7.375 - $12.4375         332,311           9.0  $   8.167      332,311  $   8.167
             $    14.375 - $16.125         320,428           3.6     15.343      320,428     15.343
             $    17.500 - $20.000         178,279           6.2     19.586       65,634     18.876
                  $   22.625                85,680           6.5     22.625       85,680     22.625
             -------------------------  -----------  ------------  ---------  -----------  --------
             $    7.375 - $22.625          916,698           6.4   $ 14.248      804,053   $ 13.442
             =========================  ===========  ============  =========  ===========  ========
</TABLE>

          In  January  2001,  outstanding  stock  options  for 578,303 shares at
          option  exercise prices of $15.00 per share and above were voluntarily
          surrendered and cancelled by the officers and directors of the Company
          and  employees  of  the  Manager  who  held the options. The cancelled
          options  will be returned to the Plan and will be available for future
          option  grants  under  the  Plan.


                                      F-20
<PAGE>
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.  According  to the terms of the Agreement, certain
          defined  expenses  of  the  Manager  are  reimbursed  by  the Company,
          principally  expenses  of  the  Company's  taxable  mortgage  banking
          subsidiary  related  to  mortgage loan acquisition, selling, servicing
          and  securitization  activities.  The Agreement provides for an annual
          review  by the unaffiliated directors of the Board of Directors of the
          Manager's  performance  under  the  Agreement.

          The  Company  pays  the Manager an annual base management fee based on
          average  shareholders'  equity,  adjusted for liabilities that are not
          incurred to finance assets ("Average Shareholders' Equity" or "Average
          Net  Invested  Assets" as defined in the Agreement) payable monthly in
          arrears  as  follows:  1.15%  of  the  first  $300  million of Average
          Shareholders' Equity, plus 0.85% of Average Shareholders' Equity above
          $300  million. In addition, the three wholly-owned subsidiaries of the
          Company  and  the  two  wholly-owned subsidiaries of TMHL have entered
          into  separate  Management  Agreements with the Manager for additional
          management services for a combined amount of $1,200 per month, paid in
          arrears.

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

          For the years ended December 31, 2000, 1999 and 1998, the Company paid
          the  Manager  $4,158,000,  $4,088,000 and $4,142,000, respectively, in
          base  management  fees  in accordance with the terms of the Management
          Agreements.

          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 year ended December
          31,  2000,  the  Company  earned performance based compensation in the
          amount  of $46,000, in accordance with the terms of the Agreement. For
          the  year ended December 31, 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  year ended December 31, 1998, the
          Company paid the Manager $759,000 in performance based compensation in
          accordance  with  the  terms  of  the  Agreement.

          During  2000,  the  Company's  mortgage  banking  subsidiary,  TMHL,
          reimbursed  the Manager $75,000 for expenses, primarily related to the
          acquisition  of  loans, in accordance with the terms of the Agreement.
          Additionally,  the Company reimbursed the Manager and other affiliated
          companies  $95,000  for  certain other direct expenses of the Company,
          primarily  related  to  shareholder  relation,  public  relation  and
          marketing  consulting  services.

          Beginning  in  1999,  the Company's subsidiaries, except TMHL, entered
          into  separate  lease  agreements with the Manager for office space in
          Santa  Fe,  New  Mexico.  During 2000 and 1999, the combined amount of
          rent  paid  to  the  Manager  was  $31,000  and $10,000, respectively.


                                      F-21
<PAGE>
NOTE  8.  NET  INTEREST  INCOME  ANALYSIS

          The  following  table  summarizes  the  amount  of interest income and
          interest  expense  and  the  average  effective  interest rate for the
          periods  ended  December  31,  2000,  1999 and 1998 (dollar amounts in
          thousands):

<TABLE>
<CAPTION>
                                                           2000                  1999           1998
                                                    -------------------  ----------------  ---------------
                                                                Average            Average          Average
                                                     Amount      Rate     Amount    Rate    Amount   Rate
                                                    ---------  --------  ---------  -----  --------  -----
<S>                                                 <C>        <C>       <C>        <C>    <C>       <C>
          Interest Earning Assets:
               ARM assets                           $288,666      6.82%  $258,911   5.92%  $286,327  5.96%
               Cash and cash equivalents               1,307      6.76      1,454   4.71        705  4.35
                                                    ---------  --------  ---------  -----  --------  -----
                                                     289,973      6.82    260,365   5.92    287,032  5.96
                                                    ---------  --------  ---------  -----  --------  -----
          Interest Bearing Liabilities:
               Borrowings                            253,343      6.54    226,350   5.62    255,992  5.78
                                                    ---------  --------  ---------  -----  --------  -----
          Net Interest Earning Assets and Spread    $ 36,630      0.28%  $ 34,015   0.30%  $ 31,040  0.18%
                                                    =========  ========  =========  =====  ========  =====
          Yield on Net Interest Earning Assets (1)                0.86%             0.77%            0.64%
                                                               ========             =====            =====
<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  following  table  presents the total amount of change in interest
          income/expense  from the table above and presents the amount of change
          due  to  changes  in interest rates versus the amount of change due to
          changes  in  volume  (dollar  amounts  in  thousands):
<TABLE>
<CAPTION>
                                       2000 versus 1999             1999 versus 1998
                                ----------------------------  ------------------------------
                                 Rate     Volume     Total      Rate     Volume      Total
                                -------  ---------  --------  --------  ---------  ---------
<S>                             <C>      <C>        <C>       <C>       <C>        <C>
Interest Income:

     ARM assets                 $39,645  $ (9,890)  $29,755   $(2,477)  $(24,938)  $(27,415)
     Cash and cash equivalents       12      (159)     (147)      382        366        748
                                -------  ---------  --------  --------  ---------  ---------
                                 39,657   (10,049)   29,608    (2,095)   (24,572)   (26,667)
                                -------  ---------  --------  --------  ---------  ---------
Interest Expense:
     Borrowings                  36,921    (9,928)   26,993    (6,979)   (22,663)   (29,642)
                                -------  ---------  --------  --------  ---------  ---------
Net interest income             $ 2,736  $   (121)  $ 2,615   $ 4,884   $ (1,909)  $  2,975
                                =======  =========  ========  ========  =========  =========
</TABLE>


                                      F-22
<PAGE>
NOTE  9.  SUMMARIZED  QUARTERLY  RESULTS  (UNAUDITED)

          The following is a presentation of the quarterly results of operations
          (amounts  in  thousands,  except  per  share  amounts):

<TABLE>
<CAPTION>
                                                                   Year Ended December 31, 2000
                                                            ------------------------------------------
                                                             Fourth      Third     Second      First
                                                             Quarter    Quarter    Quarter    Quarter
                                                            ---------  ---------  ---------  ---------
<S>                                                         <C>        <C>        <C>        <C>
          Interest income from ARM assets and cash          $ 73,150   $ 71,017   $ 73,152   $ 72,654
          Interest expense on borrowed funds                 (63,567)   (62,039)   (64,400)   (63,337)
                                                            ---------  ---------  ---------  ---------
               Net interest income                             9,583      8,978      8,752      9,317
                                                            ---------  ---------  ---------  ---------
          Gain (loss) on ARM assets                              238          -         49          -

          Provision for credit losses                           (176)      (270)      (381)      (331)

          General and administrative expenses                 (1,976)    (1,692)    (1,453)    (1,473)

          Dividend on preferred stock                         (1,669)    (1,670)    (1,670)    (1,670)
                                                            ---------  ---------  ---------  ---------
               Net income available to common shareholders  $  6,000   $  5,346   $  5,297   $  5,843
                                                            =========  =========  =========  =========
          Basic EPS                                         $   0.28   $   0.25   $   0.25   $   0.27
                                                            =========  =========  =========  =========
          Diluted EPS                                       $   0.28   $   0.25   $   0.25   $   0.27
                                                            =========  =========  =========  =========
          Average number of common shares outstanding         21,553     21,490     21,490     21,490
                                                            =========  =========  =========  =========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Year Ended December 31, 1999
                                                            ------------------------------------------
                                                             Fourth      Third     Second      First
                                                             Quarter    Quarter    Quarter    Quarter
                                                            ---------  ---------  ---------  ---------
<S>                                                         <C>        <C>        <C>        <C>
          Interest income from ARM assets and cash          $ 69,678   $ 67,955   $ 63,087   $ 59,645
          Interest expense on borrowed funds                 (60,633)   (58,623)   (54,015    (53,079)
                                                            ---------  ---------  ---------  ---------
               Net interest income                             9,045      9,332      9,072      6,566
                                                            ---------  ---------  ---------  ---------

          Gain (loss) on ARM assets                               (3)        15         35          -

          Provision for credit losses                           (728)      (764)      (689)      (686)

          General and administrative expenses                 (1,518)    (1,428)    (1,384)    (1,281)

          Dividend on preferred stock                         (1,669)    (1,670)    (1,670)    (1,670)
                                                            ---------  ---------  ---------  ---------
               Net income available to common shareholders  $  5,127   $  5,485   $  5,364   $  2,929
                                                            =========  =========  =========  =========
          Basic EPS                                         $   0.24   $   0.26   $   0.25   $   0.14
                                                            =========  =========  =========  =========
          Diluted EPS                                       $   0.24   $   0.26   $   0.25   $   0.14
                                                            =========  =========  =========  =========
          Average number of common shares outstanding         21,490     21,490     21,490     21,490
                                                            =========  =========  =========  =========
</TABLE>


                                      F-23
<PAGE>
                   SCHEDULE IV - Mortgage Loans on Real Estate

Column A, Description:  The Company's whole loan portfolio at December 31, 2000,
which  consists of only first mortgages on single-family residential housing, is
stratified  as  follows  (dollar  amounts  in  thousands):

<TABLE>
<CAPTION>
   Column A (continued)       Column  B   Column C   Column  G          Column  H
--------------------------  ------------  --------  -----------  -----------------------
     Description(4)

        Range of           Number                  Final    Carrying     Principal Amount of
    Carrying Amounts         of       Interest    Maturity  Amount of    Loans Delinquent as to
      of Mortgages         Loans        Rate        Date   Mortgages(3)  Principal or Interest
------------------------  --------  ------------  -------  ------------  -----------------------
<S>                       <C>       <C>           <C>      <C>           <C>
ARM Loans:
            $    0 - 250       535   5.38 - 9.61  Various  $     71,603  $                  443
               251 - 500       285   6.36 - 9.36  Various        99,545                       -
               501 - 750       104   6.86 - 9.11  Various        62,970                       -
             751 - 1,000        50   7.23 - 8.86  Various        45,304                       -
              over 1,000        46   6.61 - 9.73  Various        66,134                   3,450
                          --------                         ------------  -----------------------
                             1,020                             345,556                    3,893
                          --------                         ------------  -----------------------
Hybrid Loans:
                 0 - 250     1,075   5.61 - 9.36  Various       140,227                     534
               251 - 500       446   5.61 - 9.00  Various       157,805                       -
               501 - 750       117   5.61 - 9.00  Various        71,027                       -
             751 - 1,000        58   6.36 - 8.73  Various        52,596                       -
              over 1,000        22   6.13 - 8.73  Various        36,075                       -
                          --------                         ------------  -----------------------
                             1,718                              457,730                     534
                          --------                         ------------  -----------------------

Premium                                                         11,193
Allowance for losses (2)                                       (3,100)
                          --------                         ------------  -----------------------
                            2,738                             $811,379  $                 4,427
                          ========                         ============  =======================
</TABLE>

Notes:
(1)     Reconciliation  of  carrying  amounts  of  mortgage  loans:

     Balance at December 31, 1999                         $843,834
          Additions during 2000:
          Loan purchases                                   176,027

          Deductions during 2000:
               Collections of principal                    170,983
               Cost of mortgage loans sold                     106
               Cost of mortgage loans securitized           33,673
               Cost of mortgage loans transferred to REO       624
               Provision for losses                            951
               Amortization of premium                       2,145
                                                          --------
                                                           208,482
                                                          --------
                    Balance at December 31, 2000          $811,379
                                                          ========


                                      F-24
<PAGE>
(2)  The  provision  for  losses  is based on management's assessment of various
     factors.
(3)  Cost  for  Federal  income  taxes  is  the  same.
(4)  The  geographic  distribution  of  the  Company's  whole  loan portfolio at
     December  31,  2000  is  as  follows:

<TABLE>
<CAPTION>
                                             Number of
                      State or Territory       Loans      Carrying Amount
                    -----------------------  ----------  -----------------
<S>                                          <C>         <C>
                    Arizona                         60   $         17,692
                    California                     597            260,149
                    Colorado                        65             37,883
                    Connecticut                     42             15,915
                    Florida                        361             85,062
                    Georgia                        180             55,424
                    Illinois                        59             15,505
                    Massachusetts                   53             13,675
                    Michigan                       122             22,383
                    Missouri                       121             22,064
                    New Jersey                     114             32,705
                    New York                       215             52,344
                    Pennsylvania                    46             11,192
                    Texas                           86             20,097
                    Washington                      40             11,890
                    Other states, less than
                        50 loans each              577            129,306
                    Premium                                        11,193
                    Allowance for losses                           (3,100)
                                             ----------  -----------------
                    TOTAL                        2,738   $        811,379
                                             ==========  =================
</TABLE>


                                      F-25
<PAGE>
                                   SIGNATURES


Pursuant  to  the  requirements  of Section 13 or 15(d) of the Securities Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the  undersigned,  thereunto  duly  authorized.

                                   THORNBURG  MORTGAGE,  INC.
                                   (Registrant)

Dated:  March  26,  2001           /s/   Garrett  Thornburg
                                   ---------------------------------------------
                                         Garrett  Thornburg
                                         Chairman of the Board of Directors and
                                         Chief  Executive  Officer
                                         (Principal  Executive  Officer)


Dated:  March  26,  2001           /s/  Richard  P.  Story
                                   ---------------------------------------------
                                        Richard  P.  Story
                                        Chief  Financial  Officer and Treasurer
                                        (Principal  Accounting  Officer)

Pursuant  to  the  requirements of the Securities and Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
registrant  and  in  the  capacities  and  on  the  dates  indicated.

  Signature                       Capacity               Date
-------------------------  -----------------------  --------------

/s/ Garrett Thornburg      Chairman of the Board,   March 26, 2001
-------------------------
Garrett Thornburg          Director and Chief
                           Executive Officer

/s/ Larry A. Goldstone     President, Director and  March 26, 2001
-------------------------
Larry A. Goldstone         Chief Operating Officer

/s/ David A. Ater          Director                 March 26, 2001
-------------------------
David A. Ater

/s/ Joseph H. Badal        Director                 March 26, 2001
-------------------------
Joseph H. Badal

/s/ Ike Kalangis           Director                 March 26, 2001
-------------------------
Ike Kalangis

/s/ Owen M. Lopez          Director                 March 26, 2001
-------------------------
Owen M. Lopez

/s/ James H. Lorie         Director                 March 26, 2001
-------------------------
James H. Lorie

/s/ Francis I. Mullin III  Director                 March 26, 2001
-------------------------
Francis I. Mullin

/s/ Stuart C. Sherman      Director                 March 26, 2001
-------------------------
Stuart C. Sherman


<PAGE>
<TABLE>
<CAPTION>
                                 Exhibit Index
                                                                                 Sequentially
                                                                                   Numbered
Exhibit Number                 Exhibit Description                                   Page
--------------  --------------------------------------------------------------  ------------
<S>             <C>                                                             <C>

     1.1       Sales  Agency  Agreement  (a)

     3.1       Articles  of  Incorporation  of  the  Registrant  (b)

     3.1.1     Articles of Amendment to Articles of Incorporation
               dated June 29, 1995  (c)

     3.1.2     Articles  Supplementary  dated  January  21,  1997  (d)

     3.1.3     Amendment  to  Articles  of  Incorporation  dated
               April 27, 2000 (e)

     3.1.4     Form  of  Articles  Supplementary  for Series B Cumulative
               Preferred Stock  *                                                     75

     3.2       Amended  and  Restated  Bylaws  of  the  Registrant  (f)

     3.2.1.1   Amendment to the Restated Bylaws of  the  Registrant  (g)

     3.3       Audit  Committee  Charter  dated  January  25,  2001  (n)

     4.1       Specimen  Common  Stock  Certificates  (b)

     4.2       Specimen  Preferred  Stock  Certificates  (d)

     4.3       Form  of  Common  Stock  Certificate  *                                81

     4.4       Form of Preferred Stock Certificate for Series B
               Cumulative Preferred Stock *                                           83

     4.5       Form of Right Certificate *                                            85

    10.1       Management Agreement between the Registrant and
               Thornburg Mortgage Advisory Corporation dated July 15, 1999 (h)

    10.1.1     Amendment No. 1 to the Management Agreement dated
               October 17, 2000 (i)

    10.2       Form of Servicing Agreement (b)

    10.3       Form of 1992 Stock Option and Incentive Plan as amended and
               restated March 14, 1997 (j)

    10.3.1     Amendment dated December 16, 1997 to the amended and restated
               1992 Stock Option and Incentive Plan  (k)

    10.3.2     Amendment dated April 15, 1999 to the amended and restated
               1992 Stock Option and Incentive Plan  (h)

    10.4       Form of Dividend Reinvestment and Stock Purchase Plan (l)

    10.5       Trust Agreement dated as of December 1, 1998 (m)

    10.6       Indenture Agreement dated as of December 1, 1998 (m)

    10.7       Sales and Service Agreement dated as of December 1, 1998 (m)

    10.8       Form of Shareholder Rights Agreement *                                 91

    22.        Notice and Proxy Statement for the Annual Meeting of
               Shareholders to be held on April 26, 2001 (n)

<FN>
-----------------------------
*    Being  filed  herewith.
(a)  Previously  filed  with  Registrant's  Form  8-K dated October 10, 1995 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(b)  Previously filed as part of Form S-11 which went effective on June 18, 1993
     and  incorporated  herein  by  reference  pursuant  to  Rule  12b-32.


<PAGE>
(c)  Previously  filed  with  Registrant's  Form  10-Q  dated  June 30, 1995 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(d)  Previously  filed  as  part  of  Form  8-A  dated  January  17,  1997  and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(e)  Previously  filed  with  Registrant's  Form  10-Q  dated March 31, 2000 and
     incorporated  herein  by  reference pursuant to Rule 12b-32. (f) Previously
     filed  as  part  of  Form S-8 dated July 1, 1994 and incorporated herein by
     reference  pursuant  to Rule  12b-32.
(g)  Previously  filed  with Registrant's Form 10-Q dated September 30, 1999 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(h)  Previously  filed  with  Registrant's  Form  10-Q  dated  June 30, 1999 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(i)  Previously  filed  with Registrant's Form 10-Q dated September 30, 2000 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(j)  Previously  filed  with  Registrant's Form 10-K dated December 31, 1996 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(k)  Previously  filed  with  Registrant's Form 10-K dated December 31, 1997 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(l)  Previously  filed  as  Exhibit  4 to Registrant's registration statement on
     Form  S-3D  dated  September  24, 1997 and incorporated herein by reference
     pursuant  to  Rule  12b-32.
(m)  Previously  filed  with  Registrant's Form 10-K dated December 31, 1998 and
     incorporated  herein  by  reference  pursuant  to  Rule  12b-32.
(n)  Filed  on  March  28,  2001  and incorporated by reference pursuant to Rule
     12-b32.
</TABLE>


                                       B-1
<PAGE>