10-K405: Annual report [Sections 13 and 15(d), S-K Item 405]

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, 1994
OR
[x] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9819

RESOURCE MORTGAGE CAPITAL, INC.
(Exact name of registrant as specified in its charter)

Virginia 52-1549373
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer I.D. No.)

2800 East Parham Road, Richmond, Virginia 23228
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (804) 967-5800

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value New York Stock Exchange
Title of each class Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act: (Title
of class) NONE

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 XX No___

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of 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. [x]

As of January 31, 1995, the aggregate market value of the voting
stock held by non-affiliates of the registrant was approximately
$258,457,323 (19,323,912 shares at a closing price on The New York
Stock Exchange of $13 3/8). Common stock outstanding as of January
31, 1995 was 20,078,013 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days from December 31, 1994, are
incorporated by reference into Part III.



RESOURCE MORTGAGE CAPITAL, INC.
1994 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PAGE

PART I

Item 1. BUSINESS..............................................3

Item 2. PROPERTIES............................................10

Item 3. LEGAL PROCEEDINGS.....................................10

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...10

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.......................11

Item 6. SELECTED FINANCIAL DATA...............................12

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........13

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........20

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................20

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...20

Item 11. EXECUTIVE COMPENSATION...............................20

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..............................21

Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........21

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K..............................21



Item 1. BUSINESS

General

Resource Mortgage Capital, Inc. ("the Company"), incorporated in
Virginia in 1987, originates, purchases, securitizes and services
residential mortgage loans (collectively "mortgage operations") and
invests in a portfolio of residential mortgage securities. The
Company's primary strategy is to use its mortgage operations to create
investments for its portfolio. The Company's principal sources of
income are net interest income on its investment portfolio, gains on
the securitization and sale of mortgage loans and the interest spread
realized while the mortgage loans are being accumulated for sale or
securitization. The Company and its wholly-owned subsidiaries elect
to be taxed as a real estate investment trust.

Mortgage Operations

The mortgage loans funded through the Company's mortgage operations
are originated by the Company or by various sellers that meet the
Company's qualification criteria. These sellers include savings and
loan associations, banks, mortgage bankers and other mortgage lenders.
The Company funds mortgage loans secured by residential properties
throughout the United States.

Substantially all of the mortgage loans funded through the mortgage
operations are "nonconforming" mortgage loans. Nonconforming mortgage
loans will not qualify for purchase by Federal Home Loan Mortgage
Association ("FHLMC") or Federal National Mortgage Association
("FNMA") or for inclusion in a loan guarantee program sponsored by
Government National Mortgage Association ("GNMA"). Nonconforming
mortgage loans generally are originated based upon different
underwriting criteria than are required by the federal agencies'
programs (i.e. "non-conforming credit profile") or have outstanding
principal balances in excess of the program guidelines of these
federal agencies. A borrower with a non-conforming credit profile
cannot easily qualify for a loan from the federal agencies for reasons
other than loan size. The maximum principal balance of a conforming
loan as of March 31, 1995 is $203,150 for FHLMC and FNMA. Such non-
conforming loans may have higher risks than conforming mortgage loans
due to their lower liquidity, different underwriting or qualification
criteria, and higher loan balances. The average principal balance of
loans funded through the Company's mortgage operations during 1994 was
$170,700.

Mortgage loans funded by the Company in its mortgage operations are
secured by single (one-to-four) family residential properties and have
either fixed or adjustable interest rates. Fixed-rate mortgage loans
generally have a constant interest rate over the life of the loan,
primarily 15 or 30 years. In addition, fixed-rate mortgage loans
funded by the Company may also have a fixed interest rate for the
first 3, 5, or 7 years and an interest rate which adjusts at six or
twelve month intervals thereafter, subject to periodic and lifetime
interest rate caps. Adjustable-rate mortgage ("ARM") loans provide
for the periodic adjustment to the rate of interest equal to the sum
of a fixed margin and an index, generally subject to certain periodic
and lifetime interest rate caps.

The Company has two primary methods for sourcing mortgage loans
funded through its mortgage operations. Mortgage loans funded through
the Company's wholesale operations are originated through a network of
mortgage loan brokers. Mortgage loans funded through the Company's
correspondent operations are purchased from a network of approved
sellers, including mortgage companies, banks, thrifts and other
lending institutions.

The Company established its mortgage loan wholesale origination
capability in 1994. Mortgage loans originated by the Company through
its wholesale operations are sourced by independent brokers and
underwritten and closed by the Company. This method allows the
Company to be directly involved in origination process of the loan,
but without the direct cost and overhead of a retail branch operation.
The Company's mortgage loan wholesale operation targets borrowers with
a non-conforming credit profile. As an approved mortgage loan
originator, the Company is subject to various federal and state
regulations. A violation of such regulations may result in the
Company losing its ability to originate mortgage loans in the
respective jurisdiction.



The Company sets prices at least once every business day for loans
either originated through the wholesale operations or purchased
through the correspondent operations. The prices posted may be for
immediate delivery of the mortgage loans or for subsequent delivery
(such as within 30, 60 or 90 days). Prices vary depending upon the
loans' features and characteristics, such as loan-to-value ratio and
insurance coverage. The Company generally issues a commitment to fund
one or more mortgage loans for a specific period of time at an
established price and yield, in a specified principal amount.

During the mortgage loan accumulation period prior to sale or
securitization, which is typically 60 to 90 days, the Company is
exposed to risks of interest rate fluctuations and may enter into
hedging transactions to reduce the change in value of such mortgage
loans caused by changes in interest rates. Gains and losses on these
hedging transactions are deferred as an adjustment to the carrying
value of the related mortgage loans until the mortgage loans are sold.
This strategy is designed to reduce the decline in value of the
commitments, as well as loans in inventory, when interest rates
increase, and will reduce the increase in value of the commitments, as
well as loans in inventory, when interest rates decrease. The Company
is also at risk for credit losses on mortgage loans in inventory
during the accumulation period.

When a sufficient volume of mortgage loans is accumulated, the
Company may elect to sell a pool of mortgage loans directly to an
investment banking firm or to securitize such pool of mortgage loans
through the issuance of mortgage securities. During 1994, the Company
sold $0.6 billion directly to investment banking firms as whole loans
and securitized $2.5 billion through the issuance of mortgage
securities. The mortgage-backed securities are structured so that
substantially all of the securities are rated in one of the two
highest rating categories (i.e. AA or AAA) by at least one of the
nationally recognized rating agencies. Mortgage-backed securities
issued by the Company are not generally guaranteed by the federal
agencies. Each series of mortgage securities is expected to be fully
payable from the collateral pledged to secure the series. It is
expected that the recourse of investors in the series generally will
be limited to the collateral underlying the securities. Except in the
case of a breach of the standard representations and warranties made
by the Company when loans are sold or securitized, the securities are
non-recourse to the Company.

The Company may securitize mortgage loans funded through its
mortgage operations by issuing collateralized mortgage obligations
("CMOs") or pass-through securities. The Company recognizes a gain or
loss on the issuance and sale of a pass-through security, while no
gain or loss is recognized on the issuance of CMOs, as CMOs represent
the issuance of a debt security. Credit enhancement for these
securities may take the form of over-collateralization, subordination,
reserve funds, pool insurance, bond insurance, or any combination of
the foregoing. The Company strives to use the most cost effective
security structure and form of credit enhancement available at the
time of securitization.

Regardless of the form of credit enhancement, the Company may
retain a limited portion of the direct credit risk after
securitization, including the risk of loss related to hazards not
covered under standard hazard insurance policies. Such credit loss
exposure is generally limited to an amount equal to a fixed percentage
of the principal balance of the pool of mortgage loans at the time of
securitization. Additionally, the Company may be contingently exposed
to losses due to fraud during the origination of a mortgage loan if
the originator of such mortgage loan defaults on its repurchase
obligation. The Company has established discounts and reserves for
estimated expected losses related to these various risks. The
Company's results will be negatively impacted in future periods to the
extent actual losses exceed the amount of such discounts and reserves.

Over-collateralization is generally used in conjunction with bond
insurance in the issuance of CMOs. Losses are first applied to the
over-collateralization amount, and any losses in addition to that
amount would be borne by the bond insurer or holders of the CMOs. The
Company retained $4.7 million in principal amount of over-
collateralization in 1994, representing 6% of the pool of mortgage
loans pledged to secure the CMOs issued by the Company. The Company
generally receives an excess yield on the mortgage loans relative to
the yield on the CMOs to compensate the Company for retaining such
loss exposure.



Subordination is generally used in conjunction with the issuance of
pass-through securities, and may also be used in conjunction with
reserve funds, pool insurance and bond insurance. The credit risk is
concentrated in the subordinated classes (which may partially be
credit enhanced with reserve funds or pool insurance) of the
securities, thus allowing the senior classes of the securities to
receive the higher credit ratings. To the extent credit losses are
greater than expected (or exceed the protection provided by any
reserve funds or pool insurance), the holders of the subordinated
securities will experience a lower yield (which may be negative) than
expected on their investments. The Company retained certain
subordinated securities in 1994, representing 1% of the total
principal amount of senior/subordinated securities securitized by the
Company. The Company recorded discounts at the date of issuance on
these securities representing the expected exposure to credit losses.
At December 31, 1994 the Company's net investment in such securities
totaled $2.7 million.

As mentioned above, the Company may use mortgage pool insurance and
reserve funds for credit enhancement. Mortgage pool insurance is
currently less available as a form of credit enhancement than it had
been in the past. Credit losses covered by the pool insurance
policies are borne by the pool insurers to the limits of their
policies and by the security holders if losses exceed those limits.
To the extent a loan is to be covered by mortgage pool insurance, the
Company may rely upon the credit review and analysis of each loan,
which is performed by the mortgage insurer, in deciding to fund the
mortgage loan. After these loans are securitized, the Company has
only limited exposure to losses not covered by pool insurance,
resulting primarily from special hazard risks and fraud during the
origination of a mortgage loan. The Company has established reserve
funds to cover risks not covered by the pool insurance policies, or to
cover credit risks on loans not covered by pool insurance. The
Company has established discounts and reserves for these potential
losses. The balances of these discounts and reserves totaled $22.8
million at December 31, 1994.

The following table summarizes mortgage loan delinquency
information where the Company is exposed to credit risk (other than
credit risk due to potential losses resulting from fraud or special
hazards).

Securitized Mortgage
mortgage loans in
(dollars in thousands) loans warehouse Total
60 to 89 days:
Number of loans 4 7 1
Principal amount $ 341 $ 1,709 $ 2,050
90 days and over including
REO and loans in foreclosure:
Number of loans 2 10 12
Principal amount $ 274 $ 1,184 $ 1,458
Total:
Number of loans 6 17 23
Principal amount $ 615 $ 2,893 $ 3,508

Discounts and reserves established by the Company for estimated
potential credit losses as well as losses due to fraud and special
hazard aggregated $36.0 million at December 31, 1994.

During 1994, the Company established, through an acquisition, the
capability to service mortgage loans funded through its mortgage
operations. If the Company retains a portion of the credit risk on a
pool of mortgage loans after securitization, it will generally
directly service these loans in an effort to better manage its credit
exposure. As of December 31, 1994, the Company serviced $770 million
in mortgage loans, of which $215 million related to loans on which the
Company retained a portion of the credit risk. The Company expects to
be servicing over $1 billion in mortgage loans by the end of 1995 as
the Company retains the servicing on a portion of the loans funded.



The following schedule summarizes the principal balances as of the
respective funding dates for mortgage loans funded through the
Company's mortgage operations during the year ended December 31, 1994.

(amounts in thousands)
Single-family :
Fixed-rate:
3-year $ 13,696
15-year 119,115
30-year 409,711
Total fixed-rate 542,522
Adjustable-rate:
1-month LIBOR 15,808
3-month LIBOR 181,892
6-month LIBOR 1,847,167
1-year Constant Maturity Treasury 253,428
Total adjustable-rate 2,298,295
Total single-family 2,840,817

Multi-family:
25-year fixed-rate 20,626
Total mortgage loans funded $ 2,861,443

Portfolio of Mortgage Investments

The Company's investment strategy is to create a diversified
portfolio of mortgage securities that in the aggregate generates
stable income for the Company in a variety of interest rate
environments and preserves the capital base of the Company. The
Company creates the majority of the investments for its portfolio by
retaining a portion of the mortgage securities or other assets that
are generated from its mortgage operations. By pursuing these
strategies, the Company believes it can structure the portfolio to
have more favorable yields in a variety of interest rate environments
than if it purchased mortgage investments in the market, although
there can be no assurance that the Company will be successful in
accomplishing this strategy. Included in the Company's portfolio of
mortgage investments are ARM securities, collateral for CMOs, fixed-
rate securities, other mortgage securities and mortgage warehouse
lines of credit. To the extent the Company retains a portion of the
credit risk on securities in the portfolio, the Company generally will
service the underlying mortgage loans to better manage this risk.

The majority of the Company's portfolio is comprised of investments
in ARM securities. The Company increases the yield on these
investments by pledging the ARM securities as collateral for
repurchase agreements. The interest rates on the majority of the
Company's ARM securities reset every six months, and the rates are
subject to both periodic and lifetime limitations ("caps").
Generally, the repurchase agreements have terms that range from 30 to
180 days, and the interest rates are not subject to the periodic and
lifetime limitations. Thus, the yield on the ARM investments could
decline if the spread between the yield on the ARM security versus the
interest rate on the repurchase agreement was to be reduced. To
mitigate this risk, the Company (i) has established a reserve to hedge
against the impact on earnings when the spread is reduced, and (ii)
has purchased interest rate cap agreements to reduce the risk of the
lifetime interest rate limitation on the ARM securities.

Another segment of the Company's portfolio consists of net
investments in CMOs. The net margin on CMOs is derived primarily from
the difference between the cash flow generated from the CMO
collateral, and the amounts required for payment on the CMOs and
administrative expenses. The CMOs are non-recourse to the Company.
The Company's yield on its investment in CMOs is affected primarily by
changes in prepayment rates; such yield will decline with an increase
in prepayment rates, and the yield will increase with a decrease in
prepayment rates.



Fixed-rate mortgage securities consist of securities that have a
fixed-rate of interest for specified periods of time. Certain fixed-
rate mortgage securities have a fixed interest rate for the first 3,
5, or 7 years and an interest rate that adjusts at six or twelve month
intervals thereafter, subject to periodic and lifetime interest rate
caps. The Company's yields on these securities are primarily affected
by changes in prepayment rates; such yield will decline with an
increase in prepayment rates, and the yield will increase with a
decrease in prepayment rates. The Company generally borrows against
its fixed-rate mortgage securities, through the use of repurchase
agreements. The spread between the interest rate on a repurchase
agreement and the interest rate on any fixed-rate security that the
Company plans to hold is generally fixed by using an interest rate
swap. A portion of fixed-rate mortgage securities in the Company's
portfolio may be financed by short-term repurchase agreements on a
temporary basis as the Company obtains long-term financing or elects
to sell the securities. As a result, the yield on these investments
could decline if the spread between the yield on the fixed-rate
mortgage securities and the interest rate on the repurchase agreements
were to be reduced during this time period.

Other mortgage securities consist of interest-only securities
("I/O"s), principal-only securities ("P/O"s) and residual interests
which were either purchased or created through the Company's mortgage
operations. An I/O is a class of a CMO or a mortgage pass-through
security that pays to the holder substantially all interest. A P/O is
a class of a CMO or a mortgage pass-through security that pays to the
holder substantially all principal. Residual interests represent the
excess cash flows on a pool of collateral after payment of principal,
interest, and expenses of the related mortgage-backed security or
repurchase arrangement. Residual interests may have little or no
principal amount and may not receive scheduled interest payments. The
Company may borrow against its other mortgage securities for working
capital purposes. The yields on these securities are affected
primarily by changes in prepayment rates, and to a lesser extent, by
changes in short-term interest rates.

The Company continuously monitors the aggregate projected yield of
its investment portfolio under various interest rate environments.
While certain investments may perform very poorly in an increasing
interest rate environment, certain investments may perform very well,
and others may not be impacted at all. Generally, the Company adds
investments to its portfolio which are designed to increase the
diversification and reduce the variability of the yield produced by
the portfolio in different interest rate environments. The Company
may add new types of mortgage investments to its portfolio in the
future.

The Company may enter into transactions to protect its portfolio of
mortgage investments and related debt from interest rate fluctuations.
Such transactions may include the purchase or sale of interest rate
futures, options on interest rate futures and interest rate caps.
These transactions are designed to stabilize the portfolio yield
profile in a variety of interest rate environments. The Company may
also enter into such type of transactions to enhance the yield on its
portfolio, although there can be no assurance that such transactions
will provide additional income, and could result in losses.

The Company's portfolio of mortgage assets also includes the
investment in mortgage warehouse lines of credit. A mortgage
warehouse line of credit provides short-term, revolving financing to a
mortgage originator for mortgage loans during the time period from
settlement until the mortgage loan is sold to a permanent investor.
The Company's obligations under such lines of credit are funded by
bank lines of credit or by repurchase agreements.

Federal Income Tax Considerations

General

The Company and its qualified REIT subsidiaries (collectively
"Resource REIT") believes it has complied, and intends to comply in
the future, with the requirements for qualification as a REIT under
the Internal Revenue Code (the "Code"). To the extent that Resource
REIT qualifies as a REIT for federal income tax purposes, it generally
will not be subject to federal income tax on the amount of its income
or gain that is distributed to shareholders. However, a subsidiary of
the Company, which conducts the mortgage operations and is included in
the Company's consolidated financial statements prepared in accordance
with generally accepted accounting principles ("GAAP"), is not a
qualified REIT subsidiary. Consequently, all of the nonqualified REIT
subsidiary's taxable income is subject to federal and state income
taxes.



The REIT rules generally require that a REIT invest primarily in
real estate-related assets, its activities be passive rather than
active, and it distribute annually to its shareholders a high
percentage of its taxable income. The Company could be subject to a
number of taxes if it failed to satisfy those rules or if it acquired
certain types of income-producing real property through foreclosure.
Although no complete assurances can be given, Resource REIT does not
expect that it will be subject to material amounts of such taxes.

Resource REIT's failure to satisfy certain Code requirements could
cause the Company to lose its status as a REIT. If Resource REIT
failed to qualify as a REIT for any taxable year, it would be subject
to federal income tax (including any applicable minimum tax) at
regular corporate rates and would not receive deductions for dividends
paid to shareholders. As a result, the amount of after-tax earnings
available for distribution to shareholders would decrease
substantially. While the Board of Directors intends to cause Resource
REIT to operate in a manner that will enable it to qualify as a REIT
in all future taxable years, there can be no certainty that such
intention will be realized.

Qualification of the Company as a REIT

Qualification as a REIT requires that Resource REIT satisfy a
variety of tests relating to its income, assets, distributions and
ownership. The significant tests are summarized below.

Sources of Income

To qualify as a REIT in any taxable year, Resource REIT must
satisfy three distinct tests with respect to the sources of its
income: the "75% income test," the "95% income test," and the "30%
income test." The 75% income test requires that Resource REIT derive
at least 75% of its gross income (excluding gross income from
prohibited transactions) from certain real estate related sources.

In order to satisfy the 95% income test, at least an additional 20%
of Resource REIT's gross income for the taxable year must consist
either of income that qualifies under the 75% income test or certain
other types of passive income.

The 30% income test, unlike the other income tests, prescribes a
ceiling for certain types of income. A REIT may not derive more than
30% of its gross income from the sale or other disposition of (i)
stock or securities held for less than one year, (ii) dealer property
that is not foreclosure property, or (iii) certain real estate
property held for less than four years.

If Resource REIT fails to meet either the 75% income test or the
95% income test, or both, in a taxable year, it might nonetheless
continue to qualify as a REIT, if its failure was due to reasonable
cause and not willful neglect, and the nature and amounts of its items
of gross income were properly disclosed to the Internal Revenue
Service. However, in such a case Resource REIT would be required to
pay a tax equal to 100% of any excess non-qualifying income. No
analogous relief is available to REITs that fail to satisfy the 30%
income test.

Nature and Diversification of Assets

At the end of each calendar quarter, three asset tests must be met
by Resource REIT. Under the "75% asset test," at least 75% of the
value of Resource REIT's total assets must represent cash or cash
items (including receivables), government securities or real estate
assets. Under the "10% asset test", Resource REIT may not own more
than 10% of the outstanding voting securities of any single non-
governmental issuer, if such securities do not qualify under the 75%
asset test. Under the "5% asset test," ownership of any stocks or
securities that do not qualify under the 75% asset test must be
limited, in respect of any single non-governmental issuer, to an
amount not greater than 5% of the value of the total assets of
Resource REIT.

If Resource REIT inadvertently fails to satisfy one or more of the
asset tests at the end of a calendar quarter, such failure would not
cause it to lose its REIT status, provided that (i) it satisfied all
of the asset tests at the close of a preceding calendar quarter, and
(ii) the discrepancy between the values of Resource REIT's assets and
the standards imposed by the asset tests either did not exist
immediately after the acquisition of any particular asset or was not
wholly or partially caused by such an acquisition. If the condition
described in clause (ii) of the preceding sentence was not satisfied,
Resource REIT still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in
which it arose.

Distributions

With respect to each taxable year, in order to maintain its REIT
status, Resource REIT generally must distribute to its shareholders an
amount at least equal to 95% of the sum of its "REIT taxable income"
(determined without regard to the deduction for dividends paid and by
excluding any net capital gain) and any after-tax net income from
certain types of foreclosure property minus any "excess noncash
income." The Internal Revenue Code provides that distributions
relating to a particular year may be made early in the following year,
in certain circumstances. The Company will balance the benefit to the
shareholders of making these distributions and maintaining REIT status
against their impact on the liquidity of the Company. In an unlikely
situation, it may benefit the shareholders if the Company retained
cash to preserve liquidity and thereby lose REIT status.

For federal income tax purposes, Resource REIT is required to
recognize income on an accrual basis and to make distributions to its
shareholders when income is recognized. Accordingly, it is possible
that income could be recognized and distributions required to be made
in advance of the actual receipt of such funds by Resource REIT. The
nature of Resource REIT's investments is such that it expects to have
sufficient cash to meet any federal income tax distribution
requirements.

Taxation of Distributions by the Company

Assuming that Resource REIT maintains its status as a REIT, any
distributions that are properly designated as "capital gain
dividends'' generally will be taxed to shareholders as long-term
capital gains, regardless of how long a shareholder has owned his
shares. Any other distributions out of Resource REIT's current or
accumulated earnings and profits will be dividends taxable as ordinary
income. Shareholders will not be entitled to dividends-received
deductions with respect to any dividends paid by Resource REIT.
Distributions in excess of Resource REIT's current or accumulated
earnings and profits will be treated as tax-free returns of capital,
to the extent of the shareholder's basis in his shares, and as gain
from the disposition of shares, to the extent they exceed such basis.
Shareholders may not include on their own tax returns any of Resource
REIT ordinary or capital losses. Distributions to shareholders
attributable to "excess inclusion income'' of Resource REIT will be
characterized as excess inclusion income in the hands of the
shareholders. Excess inclusion income can arise from Resource REIT's
holdings of residual interests in real estate mortgage investment
conduits and in certain other types of mortgage-backed security
structures created after 1991. Excess inclusion income constitutes
unrelated business taxable income ("UBTI'') for tax-exempt entities
(including employee benefit plans and individual retirement accounts),
and it may not be offset by current deductions or net operating loss
carryovers. In the unlikely event that the Company's excess inclusion
income is greater than its taxable income, the Company's distribution
would be based on the Company's excess inclusion income. In 1994 the
Company's excess inclusion income was approximately 24% of its taxable
income. Although Resource REIT itself would be subject to a tax on
any excess inclusion income that would be allocable to a "disqualified
organization'' holding its shares, Resource REIT's by-laws provide
that disqualified organizations are ineligible to hold Resource REIT's
shares.

Dividends paid by Resource REIT to organizations that generally are
exempt from federal income tax under Section 501(a) of the Code should
not be taxable to them as UBTI except to the extent that (i) purchase
of shares of Resource REIT was financed by "acquisition indebtedness''
or (ii) such dividends constitute excess inclusion income.

Taxable Income

Resource REIT uses the calendar year for both tax and financial
reporting purposes. However, there may be differences between
taxable income and income computed in accordance with GAAP. These
differences primarily arise from timing differences in the recognition
of revenue and expense for tax and GAAP purposes. Additionally,
Resource REIT's taxable income does not include the taxable income of
its taxable affiliate, although the affiliate is included in the
Company's GAAP consolidated financial statements. For the year ended
December 31, 1994, Resource REIT's estimated taxable income was
approximately $48.4 million.

A portion of the dividends paid during 1994 was allocated to
satisfy 1993 distribution requirements and a portion of the dividends
paid in 1995 will be allocated to satisfy 1994 distribution
requirements. Of the dividends paid during 1994, approximately 94%
represented ordinary income and approximately 6% represented capital
gains for federal tax purposes.

Competition

The Company competes with a number of institutions with greater
financial resources in originating and purchasing mortgage loans
through its mortgage operations. In addition, in purchasing mortgage
assets and in issuing mortgage securities, the Company competes with
investment banking firms, savings and loan associations, banks,
mortgage bankers, insurance companies and other lenders, GNMA, FHLMC
and FNMA and other entities purchasing mortgage assets, many of which
have greater financial resources than the Company. Additionally,
mortgage securities issued relative to its mortgage operations will
face competition from other investment opportunities available to
prospective purchasers.

Employees

As of December 31, 1994, the Company had approximately 180
employees.

Item 2. PROPERTIES

The Company's executive and administrative offices are located in
Richmond, Virginia and the Company's operations offices are located in
Glen Allen, Virginia, on properties leased by the Company. The
executive and administrative offices are located at 2800 East Parham
Road, Richmond, Virginia, 23228.

Item 3. LEGAL PROCEEDINGS

In March 1993, the Company was notified by the Securities and
Exchange Commission (the "Commission") that a formal order of
investigation had been issued to review trading activity in the
Company's stock during April and May of 1992. In this regard, the
Company and certain of its officers and directors have produced
documents and testified before the staff of the Commission. The
Company and the subpoenaed officers and directors are complying with
the requests of the Commission. Based on information available to the
Company, and upon advice of counsel, management does not believe that
the investigation will result in any action that will have a material
adverse impact on the Company.

There were no other material pending legal proceedings, outside
the normal course of business, to which the Company was a party or of
which any of its property was subject at December 31, 1994.

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

No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of 1994.




PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is traded on the New York Stock Exchange
under the trading symbol RMR. The Company's common stock was held by
approximately 4,970 holders of record as of January 31, 1995. In
addition, depository companies held stock for approximately 24,500
beneficial owners. During the last two years, the high and low
closing stock prices and cash dividends declared on common stock were
as follows:

Cash Dividends
High Low Declared
1994

First quarter $ 30 $ 25 1/8 0.52 (1)
Second quarter 27 1/2 22 1/8 0.78
Third quarter 25 3/4 20 3/8 0.78
Fourth quarter 22 3/4 9 1/2 0.68

1993

First quarter $ 29 7/8 $ 20 3/8 $ 0.50
Second quarter 28 1/8 26 1/2 0.75
Third quarter 30 7/8 27 3/4 0.77
Fourth quarter 32 1/4 28 5/8 1.04 (1)


(1) The $0.26 January 1994 dividend was declared in December 1993 and
is included in the dividends for the fourth quarter of 1993.



Item 6 SELECTED FINANCIAL DATA

(amounts in thousands except share data)

Years ended December 31, 1994 1993 1992 1991 1990
Net margin on mortgage assets
$46,488 $45,019 $32,655 $22,923 $14,975
Gain on sale of mortgage assets, net of associated costs
$25,599 $25,985 $26,991 $10,218 $1,371
Total revenue $254,359 $198,975 $177,505 $161,229 $140,038
Total expenses 202,102 144,848 139,336 139,593 127,245
Net income $ 52,257 $ 54,127 $ 38,169 $ 21,636 $ 12,793
Net income per share $ 2.64 $ 3.12 $ 2.73 $ 1.60 $ 0.91
Average number of shares outstanding
19,829,609 17,364,309 13,999,047 13,531,290 14,091,783
Dividends declared per share
$ 2.76 $ 3.06 $ 2.60 $ 1.53 $ 0.74

Return on average shareholders' equity (1)
19.2% 25.8% 27.7% 17.9% 10.6%
Principal balance of mortgage loans funded
$2,861,443 $4,093,714 $5,334,174 $2,491,434 $605,752

As of December 31, 1994 1993 1992 1991 1990
Mortgage Investments: (2)
Collateral for CMOs $441,222 $434,698 $571,567 $820,517 $987,856
Adjustable-rate mortgage securities
2,321,388 2,021,196 1,199,911 658,311 223,894
Fixed-rate mortgage securities
194,078 214,128 165,206 22,062 14,741
Other mortgage securities 64,293 65,625 36,461 53,176 87,825
Mortgage warehouse lines of credit
7,938 156,688 121,624 88,312 -
Total assets 3,600,596 3,726,762 2,239,656 1,829,632 1,412,257
CMO bonds payable (3) 424,800 432,677 561,441 805,493 971,356
Repurchase agreements 2,804,946 2,754,166 1,315,334 637,599 235,553
Total liabilities 3,403,125 3,473,730 2,062,219 1,708,197 1,291,893
Shareholders' equity (1) 270,149 253,032 177,437 121,435 120,364
Number of shares outstanding
20,078,013 19,331,932 16,507,100 13,542,137 13,529,700
Book value per share (1) $ 13.45 $ 13.09 $ 10.75 $ 8.97 $ 8.90

(1) Excludes unrealized gain/loss on available-for-sale mortgage
securities.
(2) Mortgage investments are shown at fair value as of December 31, 1994
and at amortized cost as of December 31, 1993 and prior.
(3) This debt is non-recourse to the Company.



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

Resource Mortgage Capital, Inc. (the "Company") originates,
purchases, services and securitizes residential mortgage loans
(collectively, the mortgage operations) and invests in a portfolio of
residential mortgage securities. The Company's primary strategy is to
use its mortgage operations to create investments for its portfolio.
The Company's principal sources of income are net interest income on
its investment portfolio, gains on the securitization and sale of
mortgage loans and the interest spread realized while the mortgage
loans are being accumulated for sale or securitization.

The Company's results were negatively impacted during 1994 by the
rapid increase in interest rates and the resulting lower level of
overall mortgage loan originations in the market. As a result of the
rapid increase in interest rates during 1994, the Company experienced
a decrease in the net spread earned on the adjustable-rate mortgage
securities, which constitute a significant portion of the portfolio of
mortgage investments. Lower anticipated mortgage loan origination
volume is expected to substantially reduce the gain on securitization
or sale of mortgage assets during 1995.

Results of Operations 1994 1993 1992
(amounts in thousands except per share information)

Net margin on mortgage assets $ 46,488 $ 45,019 $ 32,655
Net gain on sales 25,599 25,985 26,991
General and administrative expenses 21,284 15,211 9,610
Net income 52,257 54,127 38,169
Net income per share 2.64 3.12 2.73

Dividends declared 54,822 53,835 38,197
Dividends declared per share 2.76 3.06 2.60

Principal balance of mortgage loans funded
2,861,443 4,093,714 5,334,174

1994 compared to 1993. The decrease in the Company's net income
during 1994 as compared to 1993 is primarily the result of the
increase in general and administrative expenses which offset the
increase in net margin.

Net margin on mortgage assets increased to $46.5 million for 1994
from $45.0 million for 1993. This increase resulted primarily from
the overall growth of the portfolio partially offset by a decrease in
the net interest spread on the portfolio, from 1.55% for 1993 to 1.15%
for 1994.

The gain on sale of mortgage assets decreased to $25.6 million for
1994 from $26.0 million for 1993. This decrease resulted primarily
from lower mortgage loan funding levels by the Company as a result of
a decrease in overall mortgage loan originations in the market. Lower
funding levels resulted in lower gain on sale relating to loans
securitized or sold. The decrease in the gain on sale of mortgage
loans securitized or sold was partially offset by an increase in gain
on sale of portfolio investments.

The Company incurred $21.3 million of general and administrative
expenses during 1994 as compared with $15.2 million during 1993. The
increase in general and administrative expenses is due primarily to
the development of the Company's mortgage loan origination
capabilities, the growth of the underwriting and risk management
departments and the acquisition of a mortgage servicing company. The
underwriting and risk management departments were expanded when the
Company began funding mortgage loans without a commitment for mortgage
pool insurance in 1993. General and administrative expenses were $4.8
million for the three months ended December 31, 1994, which represents
an 11% decline as compared with $5.4 million for the three months
ended September 30, 1994. The Company will continue to take steps to
control general and administrative expenses in line with the
anticipated lower volume of mortgage loan fundings.



Net income on a per share basis declined as the result of the
issuance of common stock by the Company during 1994.

1993 compared to 1992. The increase in the Company's earnings
during 1993 as compared to 1992 is primarily the result of (i) the
increase in net margin on mortgage assets and (ii) the decrease in
valuation adjustments. The increase in earnings was partially offset
by (i) a decrease in the net gain on sale of mortgage assets and (ii)
the increase in general and administrative expenses.

Net margin on mortgage assets increased to $45.0 million for 1993
from $32.7 million for 1992. This increase resulted primarily from
the overall growth of the portfolio. The Company was able to increase
the size of its portfolio primarily through the use of proceeds from
common stock issued during 1993.

The principal amount of mortgage loans securitized or sold
decreased to $3.4 billion during 1993 from $5.4 billion during the
same period in 1992. As a result of the decrease in principal amount
of mortgage loans securitized or sold, the Company's net gains on
sales of mortgage assets decreased to $26.0 million for 1993 from
$27.0 million for 1992. Although the principal amount of mortgage
loans securitized decreased during 1993, the percentage gain realized
on such sales or securitizations increased and generally offset the
effects of such decline in volume.

While the Company did not incur management fee expense in 1993 due
to the termination of its prior management agreement, the Company
incurred $15.2 million of general and administrative expenses for
1993. In comparison, the Company incurred management fee expense of
$4.9 million and general and administrative expenses of $9.6 million
during 1992. The increase in general and administrative expenses is
due primarily to (i) the addition of an underwriting department in
1993 and (ii) the change to self management in June 1992.

During 1993 and 1992, the Company recorded valuation adjustments to
certain mortgage investments of $2.4 million and $7.3 million,
respectively. These valuation adjustments were based on expectations
that future prepayment speeds would result in the Company receiving
less cash on certain investments than its amortized cost basis in such
investments.



The following table summarizes the average balances of the
Company's interest-earning assets and their average effective yields,
along with the Company's average interest-bearing liabilities and the
related average effective interest rates, for each of the years
presented.

Average Balances and Effective Interest Rates

(amounts in thousands)
Year Ended December 31, 1994 1993 1992
Average Eff. Average Eff. Average Eff.
Balance Rate Balance Rate Balance Rate
Interest-earning assets:
Collateral for CMOs (1)
$ 375,147 8.99% $ 432,715 9.14% $ 590,779 9.77%
Adjustable-rate mortgage securities
2,310,047 5.39 1,534,073 4.96 850,151 5.88
Fixed-rate mortgage securities
205,305 7.31 184,087 7.62 49,804 9.23
Other mortgage securities
72,934 19.76 43,045 19.22 47,181 16.28
Mortgage warehouse participations
60,024 6.19 112,537 5.08 105,170 5.57
Total portfolio-related assets
3,023,457 6.33 2,306,457 6.23 1,643,085 7.66
Mortgage loans in warehouse
550,586 6.52 460,479 6.22 349,429 6.95
Total interest-earning assets
$ 3,574,043 6.36% $ 2,766,936 6.23% $ 1,992,514 7.53%

Interest-bearing liabilities:(2)
Portfolio-related liabilities:
CMOs $ 380,099 8.28% $ 439,488 8.46% $ 603,052 9.18%
Repurchase agreements:
Adjustable-rate mortgage securities
2,179,775 4.67 1,443,092 3.62 773,578 4.24
Fixed-rate mortgage securities
192,738 5.23 173,126 4.90 36,470 5.26
Other mortgage securities
6,722 4.86 6,668 3.72 11,167 4.63
Commercial paper
55,353 3.92 106,464 3.25 100,057 3.78
Total portfolio-related liabilities
2,814,687 5.18 2,168,838 4.68 1,524,324 6.19
Warehouse-related liabilities:
Repurchase agreements
422,979 5.38 308,148 4.50 236,728 5.31
Notes payable
68,883 7.02 80,220 5.36 83,398 5.67
Total warehouse-related liabilities
491,862 5.61 388,368 4.68 320,126 5.40
Total interest-bearing liabilities
3,306,549 5.24% $ 2,557,206 4.68% 1,844,450 6.06%
Net interest spread 1.12% 1.55% 1.47%
Net yield on average interest earning assets
1.51% 1.90% 1.93%

(1) Average balances exclude funds held by trustees of $8,855,
$16,325 and $26,338 for the years ended December 31, 1994, 1993, and
1992, respectively.
(2) "Collateralized mortgage obligations: Other" expense and "Other"
expense as shown on the consolidated statements of operations as
interest expense are excluded from the calculations of effective
interest rates on interest-bearing liabilities.

The decrease in net interest spread is primarily the result of the
decrease in the spread on adjustable-rate mortgage securities.
Adjustable-rate mortgage securities reset throughout the year,
generally on a semiannual basis. These securities are subject to
certain periodic and lifetime interest rate caps. Due to the nature
of the periodic caps, semiannual rate increases are generally limited
to 1%. As a result of the rapidly increasing interest rate
environment during 1994, the interest rate on certain repurchase
borrowings, which are not subject to caps, increased at a faster rate
than the interest rate earned on the adjustable-rate mortgage
securities which collateralize these borrowings, decreasing the net
interest spread on these securities. Additionally, the decrease in
the spread on adjustable-rate mortgage securities resulted from the
increase in securities retained in the portfolio during late 1993 and
early 1994 with low initial pass-through rates (i.e., a teaser rate).
As of December 31, 1994, adjustable-rate mortgage securities in the
Company's portfolio were "teased" approximately 1.45% on a weighted
average basis. In future periods the rate the Company earns on
adjustable-rate securities will increase approximately 0.50% during
each three month period until these securities become fully indexed or
are limited by their lifetime interest rate caps. The spread on
adjustable-rate mortgage securities may increase to the extent the
rates on the related repurchase borrowings increase more slowly than
the resets on these securities. Conversely, the spread on these
securities could decrease further should the rates on the related
repurchase borrowings continue to increase faster than the interest
rates reset on these securities.


The following tables summarize the amount of change in interest income
and interest expense due to changes in interest rates versus changes
in volume:

1994 to 1993 1993 to 1992
(amounts in thousands) Rate Volume Total Rate Volume Total

Collateral for CMOs
$ (635) $(5,184) $(5,819) $(3,529) $(14,627) $(18,156)
Adjustable-rate mortgage securities
7,166 41,347 48,513 (6,302) 32,377 26,075
Fixed-rate mortgage securities
(547) 1,512 965 (652) 10,090 9,438
Other mortgage securities
239 5,901 6,140 1,151 (557) 594
Mortgage warehouse participations
1,760 (3,763) (2,003) (693) 558 (135)
Mortgage loans in warehouse
1,434 5,820 7,254 (2,151) 6,503 4,352

Total interest income
9,417 45,633 55,050 (12,176) 34,344 22,168

Collateralized mortgage obligations
(810) (4,931) (5,741) (4,078) (14,100) (18,178)
Repurchase agreements:
Adjustable-rate mortgage securities
17,958 31,586 49,544 (3,952) 23,336 19,384
Fixed-rate mortgage securities
596 1,002 1,598 (122) 6,692 6,570
Other mortgage securities
77 2 79 (88) (181) (269)
Mortgage loans in warehouse
3,973 5,943 9,916 (1,326) 2,635 1,309
Notes payable 989 (450) 539 (253) (175) (428)
Commercial paper 958 (2,253) (1,295) (593) 272 (321)

Total interest expense
23,741 30,899 54,640 (10,412) 18,479 8,067

Net interest on mortgage assets
$(14,324) $14,734 $ 410 $ (1,764) $15,865 $ 14,101

Note: The change in interest income and interest expense due to
changes in both volume and rate, which cannot be segregated, has been
allocated proportionately to the change due to volume and the change
due to rate.

Portfolio Activity

The Company's investment strategy is to create a diversified
portfolio of mortgage securities that in the aggregate generate stable
income in a variety of interest rate and prepayment rate environments
and preserve the capital base of the Company. However, the rapid
increase in short-term interest rates has reduced the portfolio income
since the first quarter of 1994, and further rapid increases in short-
term interest rates could lead to further reductions in the portfolio
net margin. In addition, the rapid increase in interest rates has
reduced the fair value of the Company's mortgage assets as of December
31, 1994 to an amount which is approximately $72.7 million below the
Company's basis in such assets. The decrease in fair value is due
primarily to the impact of the periodic cap on ARM securities which
generally limit the semi-annual interest rate resets to 1%. The
Company anticipates that the value of ARM securities will
substantially recover when interest rates stabilize.

The Company has pursued its strategy of concentrating on its
mortgage operations to create investments for its portfolio. In many
instances the Company's investment strategy involves not only the
creation or acquisition of the asset, but also the related borrowing
to finance a portion of that asset.

1994 Compared to 1993 The net margin on the Company's portfolio of
mortgage investments increased to $39.2 million for 1994 from $34.6
million for 1993. This increase resulted from the overall growth of
mortgage assets partially offset by a decrease in the net interest
spread on the portfolio.



The size of the Company's portfolio of mortgage investments at
December 31, 1994 has increased as compared to December 31, 1993,
through the addition of investments created through the Company's
mortgage operations and the purchase of mortgage investments. During
1994, the Company added approximately $537.0 million principal amount
of adjustable-rate mortgage securities, $0.9 million principal amount
of fixed-rate mortgage securities, $15.3 million of other mortgage
securities and $78.2 million of collateral for CMOs, net of $70.9
million of associated borrowings, to its portfolio through its
mortgage operations. Also during 1994, the Company purchased
approximately $274.0 million principal amount of adjustable-rate
mortgage securities, $34.3 million principal amount of fixed-rate
mortgage securities, $24.8 million of other mortgage securities and
$34.3 million of collateral for CMOs, net of $31.4 million of
associated borrowings, for its portfolio. A portion of these
securities were financed through repurchase agreements with investment
banking firms. Additionally, during 1994, the Company sold $208.6
million principal amount of adjustable-rate mortgage securities and
$28.2 million of other mortgage securities from its portfolio. During
1993, the Company sold $72.5 million principal amount of adjustable-
rate mortgage securities and $184.3 million principal amount of fixed-
rate mortgage securities from its portfolio. The Company realized net
gains of $7.7 million and $1.4 million on the sale of mortgage
securities for 1994 and 1993, respectively.

During 1994, the Company purchased additional interest rate cap
agreements to limit its exposure to the lifetime interest rate cap on
its adjustable-rate mortgage securities. At December 31, 1994, the
Company had purchased cap agreements with an aggregate notional amount
of $1.4 billion. Pursuant to these agreements, the Company will
receive additional cash flows if the applicable index increases above
certain specified levels. The amortization of the cost of the cap
agreements will reduce interest income on adjustable-rate mortgage
securities over the lives of the agreements.

1993 compared to 1992 The size of the Company's portfolio of
mortgage investments at December 31, 1993 increased as compared to
December 31, 1992, through the addition of investments created through
the Company's operations and the purchase of mortgage investments.
During 1993, the Company added approximately $728.3 million of
adjustable-rate mortgage securities, $202.3 million of fixed-rate
mortgage securities and $12.2 million of other mortgage securities to
its portfolio through its mortgage operations. During 1993, the
Company retained $102.2 million principal amount of mortgage loans as
collateral for CMOs. Also during 1993, the Company purchased
approximately $279.5 million of adjustable-rate mortgage securities,
$57.8 million of fixed-rate mortgage securities and $31.1 million of
other mortgage securities for its portfolio. A portion of these
securities were financed through repurchase agreements with investment
banking firms. Additionally, during 1993, the Company sold $72.5
million and $184.3 million principal amount of adjustable-rate and
fixed-rate mortgage securities, respectively, from its portfolio.
During 1992, the Company sold $282.1 million of adjustable-rate
mortgage securities, $19.1 million of other mortgage securities and
$38.4 million of collateral for CMOs, net of $37.3 million of
associated borrowings, from its portfolio. The Company realized net
gains of $1.4 million during 1993 and $1.7 million during 1992 on the
sale of mortgage securities.

The net margin on the Company's portfolio of mortgage investments
increased to $34.6 million for 1993 from $25.7 million for 1992. This
increase resulted from the overall growth of mortgage investments.
Portfolio results for 1993 and 1992 were partially offset by valuation
adjustments to certain mortgage investments of $2.4 million and $7.3
million, respectively, based on expectations that future prepayment
speeds would result in the Company receiving less cash on certain
investments than its amortized cost basis in such investments.

During 1993, the Company purchased additional interest rate cap
agreements to limit its exposure to the lifetime interest rate cap on
its adjustable-rate mortgage securities. At December 31, 1993, the
Company had purchased cap agreements with an aggregate notional amount
of $1.3 billion. Pursuant to these agreements, the Company will
receive additional cash flows if the applicable index increases above
certain specified levels. The amortization of the cost of the cap
agreements will reduce interest income on adjustable-rate mortgage
securities over the lives of the agreements.

Mortgage Operations

The Company originates, purchases and services single-family
mortgage loans. The Company also originates multi-family mortgage
loans. When a sufficient volume of mortgage loans is accumulated, the
Company sells or securitizes these mortgage loans through the issuance
of CMOs or pass-through securities. During the accumulation period,
the Company finances its funding of mortgage loans through warehouse
lines of credit or through repurchase agreements.


The following table summarizes mortgage operations activity for 1994,
1993 and 1992.

(amounts in thousands) 1994 1993 1992

Principal amount of loans funded
$ 2,861,443 $ 4,002,385 $ 5,311,406
Principal amount securitized or sold
3,100,595 3,332,200 5,374,543
Investments added to portfolio from mortgage
operations, net of associated borrowings
57,268 54,528 77,475

1994 Compared to 1993 The decrease in the funding volume of mortgage
loans for 1994 as compared to 1993 is a result of the lower overall
mortgage loan originations in the market. The gain on securitizations
and sales of mortgage loans decreased to $17.9 million for 1994 from
$24.6 million for 1993, resulting primarily from increased competition
in the market and lower funding volume.

During 1994, the Company began originating certain single-family
mortgage loans through a network of mortgage brokers. As the Company
developed these mortgage loan origination capabilities, general and
administrative expenses have increased. The Company plans to
securitize these new loan products through the issuance of CMOs, and,
therefore, no gain on sale will be recognized on these
securitizations. Instead, profits from these securitizations will be
recognized over time as part of net margin income. With respect to
mortgage loans where the Company does not retain a portion of the
credit risk, the Company will generally continue its strategy of
either selling these loans in whole loan form or securitizing them
using a senior subordinated structure. The Company will recognize a
gain or loss on sale of mortgage assets as a result of such sales or
securitizations.

During 1994, the Company acquired a mortgage servicing company with
a servicing portfolio of approximately $600 million. Through this
acquisition, the Company plans to service a portion of the mortgage
loans it originates or purchases as discussed above. The addition of
this servicing capability gives the Company complete control over the
entire mortgage process on originated mortgage loans, from
underwriting and origination to servicing and securitization.

As a result of low origination volume during the year, the Company
terminated its multi-family operations during 1994. During 1994 and
1993, the Company funded multi-family mortgage loans with an aggregate
principal balance of $20.6 million and $91.3 million, respectively.
At December 31, 1994, mortgage loans in warehouse included multi-
family mortgage loans with an aggregate principal balance of $30.9
million and the Company had commitments outstanding to fund an
additional $51.4 million in such mortgage loans.

1993 Compared to 1992 The decrease in the funding volume of single-
family loans for 1993 as compared to 1992 reflects generally (i) the
greater competition in the secondary mortgage market and (ii) the
underwriting and pricing changes of the mortgage pool insurers. The
Company's net gains on securitizations and sales of mortgage loans
decreased to $24.6 million for 1993 from $25.3 million for 1992.
Although the principal amount of mortgage loans securitized decreased
during 1993, the percentage gain realized on such sales or
securitizations increased and generally offset the effects of such
decline in volume. This higher profitability was partially offset by
increased general and administrative costs related to the
establishment of an internal underwriting department as the Company
began to underwrite mortgage loans funded without a commitment for
mortgage pool insurance. The Company expects that its general and
administrative costs will continue to increase as a greater percentage
of the mortgage loans are underwritten by the Company. The Company
had outstanding commitments to fund single-family mortgage loans
totaling $381.7 million and $431.1 million at December 31, 1993 and
1992, respectively.

As of December 31, 1993 and December 31, 1992, the Company had
$13.2 million and $11.6 million, respectively, of deferred net gains
related to the securitization of certain convertible ARM loans which
the Company has agreed to purchase upon their conversion to a fixed-
rate of interest. The deferred income will be recognized over the
remaining conversion period until the conversion option expires, which
is five years after the origination of each mortgage loan.



Other Matters

The Company has exposure to losses related to delinquent loans in
warehouse. Additionally, with certain types of credit enhancement,
the Company retains a portion of the credit risk after securitization.
Such credit loss exposure is generally limited to an amount equal to a
fixed percentage of the principal balance of the pool of mortgage
loans at the time of securitization. Upon securitization, the Company
may also be exposed to losses due to fraud during the origination of a
mortgage loan or special hazards. The Company establishes discounts
and reserves for estimated potential losses. At December 31, 1994,
these discounts and reserves totaled $36.0 million.

The Company and its qualified REIT subsidiaries (collectively,
"Resource REIT") have elected to be treated as a real estate
investment trust for federal income tax purposes, and therefore is
required to distribute annually substantially all of its taxable
income. Resource REIT estimates that its taxable income for 1994 and
1993 was approximately $48.4 million and $61.5 million, respectively.
Taxable income differs from the financial statement net income which
is determined in accordance with generally accepted accounting
principles. A portion of the dividends paid in 1994 will be allocated
to satisfy tax distribution requirements of the previous year.
Resource REIT determines its dividend relative to its anticipated
taxable income for the year. Excess inclusion income can arise from
Resource REIT's holdings of residual interests in real estate mortgage
investment conduits and in certain other types of mortgage-backed
security structures created after 1991. In the unlikely event that
the Company's excess inclusion income is greater than its taxable
income, the Company's distribution would be based on the Company's
excess inclusion income. In 1994 and 1993, the Company's excess
inclusion income was approximately 24% and 18%, respectively of its
taxable income.

Liquidity and Capital Resources

The Company uses its cash flow from operations, issuance of CMOs or
pass-through securities, other borrowings and capital resources to
meet its working capital needs. Historically, these sources of cash
flow have provided sufficient liquidity for the conduct of the
Company's operations. However, given the decline in the market value
of the Company's mortgage assets during 1994, primarily related to the
decline in the market value of its adjustable-rate mortgage
securities, the Company's available liquidity has been reduced. To the
extent the market value of the Company's mortgage assets continues to
decline, the Company may be forced to sell certain mortgage assets in
order to maintain liquidity. If required, these sales could be made at
prices lower than the carrying value of such assets, which could
result in losses.

The Company's borrowings may bear fixed or variable interest rates,
may require additional collateral in the event that the value of the
existing collateral declines, and may be due on demand or upon the
occurrence of certain events. If borrowing costs are higher than the
yields on the mortgage assets purchased with such funds, the Company's
ability to acquire mortgage assets may be substantially reduced and it
may experience losses.

The Company borrows funds on a short-term basis to support the
accumulation of mortgage loans prior to the sale of such mortgage
loans or the issuance of mortgage securities. These short-term
borrowings consist of the Company's warehouse lines of credit and
repurchase agreements and are paid down as the Company securitizes or
sells mortgage loans. The Company has a $150 million credit facility
to finance the purchase of mortgage loans that expires in May 1996.
This facility includes a sub-agreement which allows the Company to
borrow up to $30 million for working capital purposes. The Company
also has various committed repurchase agreements totaling $325 million
maturing in June and August 1995 relating to mortgage loans in
warehouse. The Company expects that these credit facilities will be
renewed, if necessary, at their respective expiration dates, although
there can be no assurance of such renewal. At December 31, 1994, the
Company had borrowed $496.2 million under these credit facilities.
The lines of credit contain certain financial covenants which the
Company met as of December 31, 1994. However, changes in asset levels
or results of operations could result in the violation of one or more
covenants in the future.



The Company finances adjustable-rate mortgage securities and
certain other mortgage assets through repurchase agreements.
Repurchase agreements allow the Company to sell mortgage assets for
cash together with a simultaneous agreement to repurchase the same
mortgage assets on a specified date for an increased price, which is
equal to the original sales price plus an interest component. At
December 31, 1994, the Company had outstanding obligations of $2.4
billion under such repurchase agreements, of which $2.2 billion,
$181.9 million and $6.6 million were secured by adjustable-rate
mortgage securities, fixed-rate mortgage securities and other mortgage
securities, respectively. Increases in either short-term interest
rates or long-term interest rates could negatively impact the
valuation of these mortgage assets and may limit the Company's
borrowing ability or cause various lenders to initiate margin calls.
Additionally, certain of the Company's adjustable-rate mortgage
securities are AA or AAA rated classes that are subordinate to related
AAA rated classes from the same series of securities. Such AA or AAA
rated classes have less liquidity than securities that are not
subordinated, and the value of such classes is more dependent on the
credit rating of the related insurer or the credit performance of the
underlying mortgage loans. As a result of such a downgrade of an
insurer, or the deterioration of the credit quality of the underlying
mortgage collateral, the Company may be required to sell certain
mortgage assets in order to maintain liquidity. If required, these
sales could be made at prices lower than the carrying value of the
assets, which could result in losses. Additionally, the Company owns
approximately $72.5 million of its CMOs and has financed such CMOs
with $70.9 million of short-term debt. The Company plans to sell the
majority of these CMOs during the first half of 1995. For financial
statement presentation purposes, the Company has classified the $70.9
million of short-term debt as CMOs outstanding.

A substantial portion of the assets of the Company are pledged to
secure indebtedness incurred by the Company. Accordingly, those assets
would not be available for distribution to any general creditors or
the stockholders of the Company in the event of the Company's
liquidation, except to the extent that the value of such assets
exceeds the amount of the indebtedness they secure.

During 1994, the Company issued $50 million in unsecured notes
maturing between 1999 and 2001. The proceeds from this issuance were
used for general corporate purposes. The note agreements contain
certain financial covenants which the Company met as of December 31,
1994. However, changes in asset levels or results of operations could
result in the violation of one or more covenants in the future.

The REIT provisions of the Internal Revenue Code require Resource
REIT to distribute to shareholders substantially all of its taxable
income, thereby restricting its ability to retain earnings. The
Company may issue additional common stock or other securities in the
future in order to fund growth in its operations, growth in its
portfolio of mortgage investments, or for other purposes.

During 1994, the Company issued 746,081 additional shares of common
stock through its Dividend Reinvestment Plan. Total net proceeds of
$19.7 million were used for general corporate purposes.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company and the
related notes, together with the Independent Auditors' Report thereon
are set forth on pages F-3 through F-17 of 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 as to directors and executive
officers of the Company is incorporated herein by reference to the
definitive proxy statement to be filed pursuant to Regulation 14A.

Item 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by
reference to the definitive proxy statement to be filed pursuant to
Regulation 14A.


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 to be filed pursuant to
Regulation 14A.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by
reference to the definitive proxy statement to be filed pursuant to
Regulation 14A.

Part IV

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

(a) Documents filed as part of this report:

1. and 2. Financial Statements and Financial Statement Schedule

The information required by this section of Item 14 is set forth in
the Consolidated Financial Statements and Independent Auditors' Report
beginning at page F-1 of this Form 10-K. The index to the Financial
Statements and Schedule is set forth at page F-2 of this Form 10-K.

3. Exhibits

Exhibit
Number Exhibit
3.1 Articles of Incorporation of the Registrant, as amended (A)
3.2 Amended Bylaws of the Registrant (B)
10.1 Selected Portions of the Registrant's Seller/Servicer Guide (C)
10.2 Program Servicing Agreement between the Registrant and Ryland
Mortgage Company, as amended (F)
10.3 Dividend Reinvestment and Stock Purchase Plan (D)
10.4 1992 Stock Incentive Plan (E)
10.5 Executive Deferred Compensation Plan (G)
10.6 Employment Agreement: Thomas H. Potts (filed herewith)
21.1 List of subsidiaries and consolidated entities of the Company
(filed herewith)
23.1 Consent of KPMG Peat Marwick LLP (filed herewith)

(b) Reports on Form 8-K
None

(A) Incorporated herein by reference to the Company's Registration
Statement on Form S-3 (No. 33-53494) filed October 20, 1992.
(B) Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1992, as amended.
(C) Incorporated herein by reference to Saxon Mortgage Securities
Corporation's Registration Statement on Form S-11 (No. 33-57204)
filed January 21, 1993.
(D) Incorporated herein by reference to Exhibits to the Company's
Registration Statement on Form S-3 (No. 33-52071)
(E) Incorporated herein by reference to the Proxy Statement dated
July 13, 1992 for the Special Meeting of Stockholders held
August 17, 1992.
(F) Incorporated by reference to Exhibits the Company's Annual
Report on Form 10-K for the year ended December 31, 1991 (File
No. 1-9819) dated February 18, 1992.
(G) Incorporated by reference to Exhibits the Company's Annual
Report on Form 10-K for the year ended December 31, 1993 (File
No. 1-9819) dated March 21, 1994.





SIGNATURES


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


RESOURCE MORTGAGE CAPITAL, INC.
(Registrant)



March 31, 1995 Thomas H. Potts
---------------
Thomas H. Potts
President
(Principal Executive Officer)


March 31, 1995 Lynn K. Geurin
--------------
Lynn K. Geurin
Executive Vice President
and Chief Financial Officer
(Principal Accounting and
Financial 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


Thomas H. Potts Director March 31, 1995
---------------
Thomas H. Potts



J. Sidney Davenport, IV Director March 31, 1995
-----------------------
J. Sidney Davenport, IV


Richard C. Leone Director March 31, 1995
----------------
Richard C. Leone


Paul S. Reid Director March 31, 1995
Paul S. Reid


Donald B. Vaden Director March 31, 1995
Donald B. Vaden





EXHIBIT INDEX


Sequentially
Exhibit Numbered
Numbered Exhibit Page

10.6 Employment Agreement: Thomas H. Potts

21.1 List of subsidiaries.

23.1 Consent of KPMG Peat Marwick LLP






RESOURCE MORTGAGE CAPITAL, INC.


CONSOLIDATED FINANCIAL STATEMENTS AND

INDEPENDENT AUDITORS' REPORT

For Inclusion in Form 10-K

Annual Report Filed with

Securities and Exchange Commission

December 31, 1994






RESOURCE MORTGAGE CAPITAL, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE





Financial Statements: Page

Independent Auditors' Report F-3
Consolidated Balance Sheets -- December 31, 1994 and 1993 F-4
Consolidated Statements of Operations -- For the years ended
December 31, 1994, 1993 and 1992 F-5
Consolidated Statements of Shareholders' Equity -- For the
years ended December 31, 1994, 1993 and 1992 F-6
Consolidated Statements of Cash Flows -- For the years ended
December 31, 1994, 1993 and 1992 F-7
Notes to Consolidated Financial Statements --
December 31, 1994, 1993 and 1992 F-8

Summary of Quarterly Results F-18

Schedule IV - Mortgage Loans on Real Estate F-19

All other schedules are omitted because they are not applicable or not
required.





INDEPENDENT AUDITORS' REPORT




The Board of Directors
Resource Mortgage Capital, Inc.:


We have audited the accompanying financial statements of Resource
Mortgage Capital, Inc. and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as
listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Resource Mortgage Capital, Inc. and subsidiaries as of December 31,
1994 and 1993, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1994, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the
information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, on
January 1, 1994.


KPMG PEAT MARWICK LLP

Richmond, Virginia
February 7, 1995




CONSOLIDATED BALANCE SHEETS
RESOURCE MORTGAGE CAPITAL, INC.

December 31, 1994 and 1993

(amounts in thousands except share data)

ASSETS 1994 1993

Mortgage investments:
Collateral for CMOs $ 441,222 $ 434,698
Adjustable-rate mortgage securities, net
2,321,388 2,021,196
Fixed-rate mortgage securities, net 194,078 214,128
Other mortgage securities, net 64,293 65,625
Mortgage warehouse lines of credit 7,938 156,688
3,028,919 2,892,335

Mortgage loans in warehouse 518,131 777,769
Cash 6,340 1,549
Accrued interest receivable 19,019 13,466
Other assets 28,187 41,643
$ 3,600,596 $ 3,726,762

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Collateralized mortgage obligations $ 424,800 $ 432,677
Repurchase agreements 2,804,946 2,754,166
Notes payable 135,110 87,451
Commercial paper - 148,672
Accrued interest payable 11,450 14,695
Deferred income 12,117 13,214
Other liabilities 14,702 22,855
3,403,125 3,473,730

SHAREHOLDERS' EQUITY

Common stock: par value $.01 per share, 50,000,000 shares authorized
20,078,013 and 19,331,932 issued and outstanding, respectively
201 193
Additional paid-in capital 279,296 259,622
Net unrealized loss on available-for-sale mortgage securities
(72,678) -
Retained deficit (9,348) (6,783)
197,471 253,032
$ 3,600,596 $ 3,726,762
See notes to consolidated financial statements.



CONSOLIDATED STATEMENTS OF OPERATIONS

RESOURCE MORTGAGE CAPITAL, INC.

Years ended December 31, 1994, 1993 and 1992

(amounts in thousands except share data)
1994 1993 1992

Interest income:
Collateral for CMOs $ 33,719 $ 39,538 $57,694
Adjustable-rate mortgage securities
124,572 76,059 49,984
Fixed-rate mortgage securities 14,998 14,033 4,595
Other mortgage securities 14,415 8,275 7,681
Mortgage warehouse lines of credit 3,716 5,719 5,854
Mortgage loans in warehouse 35,886 28,632 24,280
227,306 172,256 150,088

Interest and CMO-related expense:
Collateralized mortgage obligations:
Interest 31,458 37,198 55,376
Other 1,382 2,067 3,524
Repurchase agreements 134,791 74,822 47,828
Notes payable 6,189 4,299 4,727
Commercial paper 1,986 3,465 3,786
Other 5,012 5,386 2,192
180,818 127,237 117,433

Net margin on mortgage assets 46,488 45,019 32,655

Valuation adjustments on mortgage assets - (2,400) (7,348)
Gain on sale of mortgage assets, net of associated costs
25,599 25,985 26,991
Other income 1,454 734 426
Management fees - - (4,945)
General and administrative expenses (21,284) (15,211) (9,610)

Net income $ 52,257 $ 54,127 $ 38,169

Net income per share $ 2.64 $ 3.12 $ 2.73

Weighted average number of
common shares outstanding 19,829,609 17,364,309 13,999,047

See notes to consolidated financial statements.




CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY

RESOURCE MORTGAGE CAPITAL, INC.

Years ended December 31, 1994, 1993 and 1992

(amounts in thousands except share data)
Net
unrealized
loss on
available-
Additional for-sale
Number of Common paid-in mortgage Retained
shares stock capital securities deficit Total

Balance at December 31, 1991
3,542,137 $ 135 $ 128,347 $ - $ (7,047) $ 121,435

Issuance of common stock
2,763,931 28 53,542 - - 53,570

Options exercised
201,032 2 2,458 - - 2,460

Net income - 1992
- - - - 38,169 38,169

Dividends declared - $ 2.60 per share
- - - - (38,197) (38,197)

Balance at December 31, 1992
16,507,100 165 184,347 - (7,075) 177,437

Issuance of common stock
2,824,832 28 75,275 - - 75,303

Net income - 1993
- - - - 54,127 54,127

Dividends declared - $ 3.06 per share
- - - - (53,835) (53,835)

Balance at December 31, 1993
19,331,932 193 259,622 - (6,783) 253,032

Issuance of common stock
746,081 8 19,674 - - 19,682

Net income - 1994
- - - - 52,257 52,257

Net change in unrealized loss on
available-for-sale mortgage securities
- - - (72,678) - (72,678)

Dividends declared - $ 2.76 per share
- - - - (54,822) (54,822)

Balance at December 31, 1994
20,078,013 $ 201 $ 279,296 $ (72,678) $ (9,348) $ 197,471

See notes to consolidated financial statements.




CONSOLIDATED STATEMENTS OF CASH FLOWS

RESOURCE MORTGAGE CAPITAL, INC.
Years ended December 31, 1994, 1993 and 1992
(amounts in thousands)
1994 1993 1992
Operating activities:
Net income $ 52,257 $ 54,127 $ 38,169
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Amortization 8,006 6,763 4,190
Net decrease (increase) in mortgage loans in warehouse
258,841 (654,437) 46,108
Net (increase) decrease in accrued interest, other
liabilities and other assets
(2,456) (18,514) 19,932
Net gain from sales of mortgage investments
(7,685) (1,420) (1,710)
Other (2,092) 5,927 8,298
Net cash provided by (used for) operating activities
306,871 (607,554) 114,987

Investing activities:
Collateral for CMOs:
Purchases of mortgage loans subsequently securitized
(77,917) (104,650) (171,783)
Principal payments on collateral
120,088 226,198 384,222
Net change in funds held by trustees
12,917 12,909 (7,347)
55,088 134,457 205,092

Purchase of CMOs, net (1,890) - 1,113
Purchase of other mortgage investments
(890,170) (1,346,580) (1,004,765)
Principal payments on other mortgage investments
436,351 141,926 63,084
Proceeds from sales of other mortgage investments
251,454 263,931 302,394
Capital expenditures (1,990) (675) (1,595)
Net cash used for investing activities
(151,157) (806,941) (434,677)

Financing activities:
Collateralized mortgage obligations:
Proceeds from issuance of securities
68,972 107,670 169,494
Principal payments on securities
(131,452) (235,807) (374,460)
(62,480) (128,137) (204,966)

(Proceeds from) repayments of borrowings, net
(48,283) 1,526,456 502,166
Proceeds from stock offerings 19,682 75,303 55,080
Dividends paid (59,842) (58,713) (32,219)
Net cash (used for) provided by financing activities
(150,923) 1,414,909 320,061

Net increase in cash 4,791 414 371
Cash at beginning of year 1,549 1,135 764
Cash at end of year $ 6,340 $ 1,549 $ 1,135

See notes to consolidated financial statements.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RESOURCE MORTGAGE CAPITAL, INC.

December 31, 1994, 1993 and 1992

(amounts in thousands except share data)

NOTE 1 - THE COMPANY

The Company originates, purchases, services and securitizes
residential mortgage loans (collectively, mortgage operations) and
invests in a portfolio of residential mortgage securities. The
Company's primary strategy is to use its mortgage operations to create
investments for its portfolio.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Resource
Mortgage Capital, Inc., its wholly owned subsidiaries (together,
Resource Mortgage), and certain other entities (collectively, the
Company). All significant intercompany balances and transactions have
been eliminated in consolidation.

Certain amounts for 1993 and 1992 have been reclassified to conform to
the presentation for 1994.

Federal income taxes

Resource Mortgage has elected to be taxed as a real estate investment
trust (REIT) under the Internal Revenue Code. As a result, Resource
Mortgage generally will not be subject to federal income taxation at
the corporate level to the extent that it distributes at least 95
percent of its taxable income to its shareholders and complies with
certain other requirements. Accordingly, no provision has been made
for income taxes for Resource Mortgage and its qualified REIT
subsidiaries in the accompanying consolidated financial statements.

Mortgage Assets

On January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Pursuant to the requirements of this
statement, the Company has classified all of its mortgage securities
as available-for-sale. Mortgage securities at December 31, 1994 are
therefore reported at fair value. Also, pursuant to this statement,
prior period financial statements have not been restated to reflect
the change in accounting principle. Mortgage securities at December
31, 1993 are therefore reported at amortized cost. There was no
cumulative effect on net income of adopting this statement as of
January 1, 1994.

Mortgage loans in warehouse are carried at the lower of aggregate cost
or market value.

Income on certain other mortgage securities is accrued using the
effective yield method based upon estimates of future net cash flows
to be received over the estimated remaining lives of the mortgage
securities. Estimated effective yields are changed prospectively
consistent with changes in current interest rates and current
prepayment assumptions on the underlying mortgage collateral used by
various dealers in mortgage-backed securities. Reductions in carrying
value are made when the total projected cash flow is less than the
Company's basis, based on either the dealers' prepayment assumptions
or, if it would accelerate such adjustments, management's expectations
of interest rates and future prepayment rates. These reductions are
recorded as valuation adjustments on mortgage assets.



Price premiums and discounts

Price premiums and discounts on mortgage investments and
collateralized mortgage obligations (CMOs) are deferred as an
adjustment to the basis of the related investment or obligation and
are amortized into interest income or expense, respectively, over the
life of the related investment or obligation using the effective yield
method adjusted for the effects of prepayments.

Deferred issuance costs

Costs incurred in connection with the issuance of CMOs are deferred
and amortized over the estimated lives of the CMOs using the interest
method adjusted for the effects of prepayments. These costs are
included in other assets in the consolidated balance sheets.

Deferred income

The Company defers the gains related to sales of convertible
adjustable-rate mortgage loans which the Company is obligated to
repurchase in the event of conversion to a fixed-rate mortgage loan.
The deferred gains are recognized ratably over the conversion period,
generally five years.

Net income per share

Net income per share is computed based on the weighted average number
of common shares outstanding during the periods.

Hedging transactions

The Company may enter into forward delivery contracts and into
financial futures and options contracts for the purpose of reducing
exposure to the effect of changes in interest rates on mortgage loans
which the Company has funded or has committed to fund. Gains and
losses on such contracts relating to mortgage loans are either (i)
recognized when the loans are sold, or (ii) deferred as an adjustment
of the carrying value of the related mortgage loans and amortized into
interest income using the effective yield method over the expected
life of the mortgage loans when securitized and retained in the
Company's portfolio.

The Company may enter into financial futures and options contracts in
order to reduce exposure to the effect of changes in short-term
interest rates on a portion of its variable-rate debt. Gains and
losses on these contracts are deferred as an adjustment to the
carrying value of the debt and are amortized into interest expense
over the period to which such contracts relate. Cash flows from
hedging transactions are included with the cash flows related to the
hedged item in the consolidated statements of cash flows.

Interest rate cap agreements

The Company may enter into interest rate cap agreements to limit the
Company's risks related to certain mortgage investments should short-
term interest rates rise above specified levels. The amortization of
the cost of such cap agreements will reduce interest income on the
related investment over the lives of the cap agreements. The
remaining unamortized cost of the cap agreements is included with the
related investment in the consolidated balance sheets.

Fair value

Mortgage securities at December 31, 1994 are reported at fair value.
Estimates of fair value for most securities are based on market prices
provided by certain dealers. Estimates of fair value for certain
other securities are determined by calculating the present value of
the projected net cash flows of the instruments using appropriate
discount rates. The discount rates used are based on management's
estimates of market rates, and the net cash flows are projected
utilizing the current interest rate environment and forecasted
prepayment rates. Estimates of fair value for other financial
instruments are based primarily on management's judgement. Required
fair value information is presented in Note 3. The carrying value of
liabilities considered to be financial instruments approximates fair
value at December 31, 1994 and 1993.


NOTE 3 - MORTGAGE ASSETS

MORTGAGE INVESTMENTS

Collateral for CMOs

Collateral for CMOs consists of adjustable-rate and fixed-rate
mortgage loans secured by first liens on single-family and multi-
family residential housing and fixed-rate mortgage securities
guaranteed by U.S. government agencies. All collateral for CMOs is
pledged to secure repayment of the related CMOs. All principal and
interest on the collateral is remitted directly to a trustee and,
together with any reinvestment income earned thereon, is available for
payment on the CMOs. The Company's exposure to loss on collateral for
CMOs is limited to its net investment, as CMOs are nonrecourse to the
Company.

The components of collateral for CMOs are summarized as follows at
December 31:

1994 1993
Mortgage collateral $ 430,054 $ 415,378
Funds held by trustees 4,008 12,010
Accrued interest receivable 3,239 3,206
Unamortized premiums and discounts, net
3,921 4,104
Collateral for CMOs $ 441,222 $ 434,698

The mortgage collateral, together with certain funds held by trustees,
collateralized 35 series of CMOs at December 31, 1994. As of December
31, 1993, the net investment in CMOs (collateral for CMOs of $434,698
plus deferred issuance costs of $2,208 less CMOs of $432,677) had an
estimated fair value of $14,127. The average effective rate of
interest income for all CMO collateral was 9.0%, 9.1% and 9.8% for the
years ended December 31, 1994, 1993 and 1992, respectively.

Adjustable-rate mortgage securities

Adjustable-rate mortgage securities (ARMs) consist of mortgage
certificates secured by adjustable-rate mortgages on single-family
residential housing. The fair value of adjustable-rate mortgage
securities was $2,040,390 at December 31, 1993. The average effective
rate of interest income for adjustable-rate mortgage securities was
5.4%, 5.0%, and 5.9% for the years ended December 31, 1994, 1993 and
1992, respectively.

Fixed-rate mortgage securities

Fixed-rate mortgage securities consist of securities collateralized by
mortgage loans that have a fixed rate of interest for at least one
year from the balance sheet date. The aggregate effective rate of
interest income was 7.3%, 7.6%, and 9.2% for the years ended December
31, 1994, 1993 and 1992, respectively. The fair value of fixed-rate
mortgage securities was $217,711 at December 31, 1993.

Other mortgage securities

Other mortgage securities include primarily mortgage derivative
securities and mortgage residual interests. Mortgage derivative
securities are classes of CMOs, mortgage pass-through certificates, or
mortgage certificates that pay to the holder substantially all
interest (i.e., an interest-only security), or substantially all
principal (i.e., a principal-only security). Mortgage residual
interests represent the right to receive the excess of (i) the cash
flow from the collateral pledged to secure related mortgage-backed
securities, together with any reinvestment income thereon, over (ii)
the amount required for principal and interest payments on the
mortgage-backed securities or repurchase arrangements, together with
any related administrative expenses.



At December 31, 1994 and 1993, the carrying value of the Company's
mortgage derivative securities was $28,791 and $37,816, respectively.
The aggregate effective yield for the mortgage derivative securities
was 25.1%, 30.1% and 29.3% for the years ended December 31, 1994, 1993
and 1992, respectively. At December 31, 1994 and 1993, the carrying
value of the Company's mortgage residual interests was $35,502 and
$27,809, respectively. The aggregate effective yield for the mortgage
residual interests was 16.1%, 11.1% and 12.3% for the years ended
December 31, 1994, 1993 and 1992, respectively.

The fair value of other mortgage securities was estimated to be
$61,743 at December 31, 1993. The estimated undiscounted cash flows
of other mortgage securities exceeded their respective carrying values
at December 31, 1994 and 1993. The average effective rate of interest
income for other mortgage securities was 19.8%, 19.2%, and 16.3% for
the years ended December 31, 1994, 1993 and 1992, respectively.

In 1993 and 1992, the Company recorded valuation adjustments of $2,400
and $7,348, respectively, relating to certain other mortgage
securities. These adjustments were recorded because the expectation
of future prepayment rates would result in the Company receiving less
cash on those investments than its amortized basis in the investments.
No such adjustments were deemed necessary in 1994.

Mortgage warehouse lines of credit

The Company provides warehouse lines of credit to various mortgage
companies. These revolving lines of credit provide funds to
established mortgage banking companies to carry mortgage loans from
the time of settlement until the loans are sold to permanent
investors. These lines of credit are secured by the related mortgage
loans.

At December 31, 1994 and 1993, the Company had $35,000 and $185,000,
respectively, of such lines of credit outstanding. At December 31,
1994 and 1993 the Company had advanced $7,938 and $156,688,
respectively, at a weighted average interest rate of 8.7% and 5.1%,
respectively, pursuant to such lines of credit. The carrying amount
of the mortgage warehouse lines of credit approximated fair value at
December 31, 1994 and 1993.

Discount on mortgage securities

On certain mortgage securities collateralized by mortgage loans funded
by the Company for which mortgage pool insurance is used as the
primary source of credit enhancement, the Company has limited exposure
to certain risks not covered by such insurance. An estimate of
possible losses is made at the time loans are securitized and
securities are retained in the portfolio at a discount to compensate
the Company for this risk. Such discount results in a reduction in
gain on sale of mortgage assets in the statement of operations. The
estimate is based on management's judgment, and is evaluated
periodically for factors such as geographic location and industry loss
experience and adjusted accordingly. At December 31, 1994 the
discount totaled $16,706 of which $14,452 was included in adjustable-
rate mortgage securities, net, $1,448 was included in fixed-rate
mortgage securities, net, and $806 was included in other mortgage
securities, net. At December 31, 1993 the discount totaled $19,682 of
which $17,240 was included in adjustable-rate mortgage securities, net
and $2,442 was included in fixed-rate mortgage securities, net.



Available-for-sale mortgage securities

The Company has classified all of its mortgage securities as
available-for-sale. The following tables summarize the Company's
mortgage securities held at December 31, 1994 and mortgage securities
sold during 1994. The basis of securities sold is computed using the
specific identification method.

Securities held at December 31, 1994
Amortized Gross Gross
cost basis Fair value unrealized gain unrealized loss
Collateral for CMOs
$ 433,136 $ 441,222 $ 8,491 $ (405)

Adjustable-rate mortgage securities
2,398,809 2,321,388 8,240 (85,661)

Fixed-rate mortgage securities
198,517 194,078 1,494 (5,933)

Other mortgage securities
63,197 64,293 13,648 (12,552)

$ 3,093,659 $ 3,020,981 $ 31,873 $ (104,551)

Securities sold during 1994
Amortized Proceeds Gross realized Gross realized
cost basis from sale gain loss
Collateral for CMOs
$ - $ - $ - $ -

Adjustable-rate mortgage securities
211,054 208,735 1,044 (3,363)

Fixed-rate mortgage securities
- - - -

Other mortgage securities
28,195 38,199 10,391 (387)

$ 239,249 $ 246,934 $ 11,435 $ (3,750)

MORTGAGE LOANS IN WAREHOUSE

The Company purchases and originates fixed-rate and adjustable-rate
loans secured by first mortgages or first deeds of trust on single-
family attached or detached residential properties and originates
fixed-rate loans secured by first mortgages or deeds of trust on
multi-family residential properties. Approximately 40% of the
properties collateralizing mortgage loans in warehouse at December 31,
1994 were located in California. The Company funded mortgage loans
with an aggregate principal balance of $2,861,443, $4,093,714, and
$5,334,174 during 1994, 1993 and 1992, respectively.

As of December 31, 1994, the Company had entered into commitments to
fund single-family mortgage loans of approximately $127,940. These
commitments generally had original terms of not more than 60 days.
Additionally, the Company had entered into commitments to fund multi-
family mortgage loans of approximately $51,392. These had original
terms of not more than two years.

The fair value of mortgage loans in warehouse is estimated to be
$518,806 and $779,325 at December 31, 1994 and 1993, respectively.
These estimates are determined by applying an estimated weighted
average price based on actual mortgage loan transactions and dealer
quotes. The fair value of commitments approximates the commitment
price.

NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS

On December 31, 1994 the Company adopted Statement of Financial
Accounting Standards No. 119, Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments. This statement
excludes on-balance sheet instruments, including mortgage derivative
securities which are discussed in Note 3. All of the Company's
derivative financial instruments are for purposes other than trading.
The Company has credit risk to the extent that the counterparties to
the derivative financial instruments do not perform their obligation
under the 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 agreement.



The Company purchases London InterBank Offered Rate (LIBOR) and One-
year Constant Maturity Treasury Index (CMT) based interest-rate cap
agreements to limit its exposure to the lifetime interest rate caps on
certain of its adjustable-rate mortgage securities. Under these
agreements, the Company will receive additional cash flow should the
related index increase above the contract rates of the cap agreements
which range from 6.6% to 11.5%. The aggregate notional amount of the
cap agreements is $1,475,000 and the cap agreements expire from 1996
to 2004. The amortization of the cost of the cap agreements will
reduce interest income on the adjustable-rate mortgage securities over
the lives of the agreements. The fair value of these agreements was
$23,697 at December 31, 1994.

The Company may hedge its mortgage loans in warehouse and existing
commitments to fund mortgage loans to limit its exposure to adverse
market movements. As of December 31, 1994, the Company had
outstanding for hedging purposes forward delivery contracts with an
aggregate gross contract amount of $106,700, financial futures
contracts with an aggregate gross contract amount of $727,800 and
options with an aggregate gross contract amount of $3,582,000. At
December 31, 1994, the estimated fair value of the outstanding forward
delivery contracts, futures contracts and options was $622. Deferred
hedging gains, net, totaled $2,976 at December 31, 1994.

The Company may enter into various interest rate swap agreements to
limit its exposure to adverse changes in financing rates of certain
mortgage securities. At December 31, 1994 the Company had entered
into five such agreements with an aggregate notional amount of
$348,480 expiring during the period May 1995 to May 1997. Under four
of these agreements, the Company pays the counterparty the excess of a
fixed rate ranging from 4.7% to 6.1% over one month LIBOR.
Conversely, the Company receives cash flow to the extent one month
LIBOR exceeds these fixed rates. Under the fifth agreement, the
Company pays the counterparty the excess of one month LIBOR over 5.2%.
Conversely, the Company receives cash flow to the extent that 5.2%
exceeds one month LIBOR. The Company uses the revised or swapped
interest rate to record interest expense on the related financing
obligation. As of December 31, 1994, the fair value of these
agreements was $980.

NOTE 5 - COLLATERALIZED MORTGAGE OBLIGATIONS

Each series of a CMO may consist of various classes. Payments
received on the mortgage collateral and any reinvestment income
thereon are used to make payments on the CMOs. (See Note 3.) The
obligations under the CMOs are payable solely from the collateral for
CMOs and are otherwise non-recourse to the Company. The maturity of
each class is directly affected by the rate of principal prepayments
on the related mortgage collateral. Each series is also subject to
redemption according to specific terms of the respective indentures.
As a result, the actual maturity of any class of a CMO series is
likely to occur earlier than its stated maturity.

At December 31, 1994 and 1993, the Company had outstanding, $341,231
and $408,483, respectively, of fixed-rate CMO classes with interest
rates ranging from 6.5% to 11.4%. At December 31, 1994 and 1993, the
Company had outstanding $67,623 and $7,875, respectively, of variable-
rate CMO classes with interest rates of 6.4% and 3.9%, respectively.
The variable rates are based on one and six month LIBOR. The total
number of CMO series outstanding as of December 31, 1994 and 1993 was
35 and 34, respectively. Stated maturities for these series ranged
from 1998 to 2027 and 1998 to 2024 at December 31, 1994 and 1993,
respectively.

At December 31, 1994 and 1993, premium on CMOs was $12,304 and
$12,101, respectively, and was included in collateralized mortgage
obligations in the consolidated balance sheets.

At December 31, 1994 and 1993, accrued interest payable on CMOs was
$3,642 and $4,218, respectively, which is included in collateralized
mortgage obligations in the consolidated balance sheets. The average
effective rate of interest expense for CMOs was 8.3%, 8.5% and 9.2%
for the years ended December 31, 1994, 1993 and 1992, respectively.

NOTE 6 - REPURCHASE AGREEMENTS

The Company utilizes repurchase agreements to finance certain of its
mortgage assets. These repurchase agreements may be secured by
adjustable-rate mortgage securities, fixed-rate mortgage securities,
mortgage loans, and by certain other mortgage securities. These
agreements bear interest at rates indexed to LIBOR. At December 31,
1994, substantially all repurchase agreements had maturities within
thirty days. If the counterparty to the repurchase agreement fails to
return the collateral, the ultimate realization of the security by the
Company may be delayed or limited.



The following table summarizes the Company's repurchase agreements
outstanding at December 31, 1994 and 1993:

Borrowings
Amount Weighted Average Carrying Value
Outstanding Annual Rate of Collateral
December 31, 1994:
Repurchase agreements secured by:
Mortgage loans in warehouse
$ 420,455 6.24% $ 443,801
Adjustable-rate mortgage securities
2,196,008 6.12% 2,266,365
Fixed-rate mortgage securities
181,880 5.13% 192,284
Other mortgage securities
6,603 6.17% 14,466
Total repurchase agreements
$ 2,804,946 $ 2,916,916

December 31, 1993:
Repurchase agreements secured by:
Mortgage loans in warehouse
$ 586,275 4.36% $ 648,733
Adjustable-rate mortgage securities
1,951,441 3.67% 2,005,644
Fixed-rate mortgage securities
204,365 5.09% 209,372
Other mortgage securities
12,085 3.75% 29,105
Total repurchase agreements
$ 2,754,166 $ 2,892,854

The following information relates to repurchase agreements
collateralized by mortgage assets with any individual counterparty
into which the Company had entered at December 31, 1994 in which the
excess market value of assets over the repurchase obligation exceeds
10% of the stockholders' equity.


Counterparty Excess Market Value
Weighted Average of Assets Over
Days to Maturity from Repurchase
December 31, 1994 Obligation
Lehman Government Securities Inc. 20 $ 40,287
The First Boston Corporation 20 36,510
Donaldson, Lufkin & Jenrette 22 22,268

At December 31, 1994 the Company had various committed repurchase
agreements totaling $325,000 maturing in June and August, 1995
relating to mortgage loans in warehouse. The Company has arranged a
separate $75,000 credit facility for the origination of multi-family
loans. The Company expects that these credit facilities will be
renewed, if necessary, at their respective expiration dates, although
there can be no assurance of such renewal.

NOTE 7 - NOTES PAYABLE

At December 31, 1994 the Company had a $150,000 credit facility to
finance the purchase of mortgage loans that expires in February 1995.
This facility includes a sub-agreement which allows the Company to
borrow up to $30,000 for working capital purposes. The Company
expects that these credit facilities will be renewed, if necessary, at
their respective expiration dates, although there can be no assurance
of such renewal.



The following table summarizes amounts outstanding under the above
referenced facilities at December 31, 1994 and 1993:
Borrowings
Amount Weighted Average Carrying Value
Outstanding Annual Rate of Collateral
December 31, 1994:
Secured by:
Mortgage loans $ 61,226 6.00% $ 71,192
Loan servicing rights
7,300 2.00% 8,046
Warehouse lines of credit
7,867 1.50% 8,100
Interest rate cap agreements
7,255 9.78% 23,697
$ 83,648 $ 111,035
December 31, 1993:
Secured by:
Mortgage loans $ 87,451 5.00% $ 129,036

During 1994, the Company issued two series of unsecured notes totaling
$50,000. The Series A 9.56% notes totaling $15,000 are payable in
five annual installments commencing October 15, 1995. The Series B
10.03% notes totaling $35,000 are payable in four annual installments
commencing October 15, 1998. The aggregate maturities of these notes
for the five years after December 31, 1994 are $3,000, $3,000, $3,000,
$11,750 and $11,750, respectively. The Company also issued four
unsecured notes payable in conjunction with the acquisition of Cram
Mortgage Service, Inc. (See Note 11.) These notes had an aggregate
outstanding principal balance of $1,462 at December 31, 1994. These
notes accrue interest at 8.0% and are payable in quarterly
installments from January 1, 1995 to October 1, 1999. The aggregate
maturities of these notes for the five years after December 31, 1994
are $100, $100, $100, $100 and $1,062, respectively.

NOTE 8 - COMMERCIAL PAPER

At December 31, 1993, the Company had outstanding $148,672 of
commercial paper with a weighted average interest rate of 3.3%. The
remaining maturity was 3 days. Commercial paper had historically been
used to finance mortgage warehouse lines of credit. The Company
ceased issuing commercial paper during 1994.

NOTE 9 - ALLOWANCE FOR LOSSES

The Company has limited exposure to losses due to fraud during the
origination of a mortgage loan. The Company may also have exposure to
losses related to delinquent loans in warehouse. The Company has
established a loss allowance for such losses. In certain instances,
to the extent the Company incurs a loss on a purchased loan, the
Company may have recourse back to the seller of such loan. For fraud
loss exposure, an estimate for losses is made at the time loans are
sold or securitized, and the loss allowance is adjusted accordingly
through a reduction in gain on sale of mortgage assets. This estimate
is based on management's judgment and the allowance is evaluated
periodically. For delinquent loan loss exposure, an estimate for
losses is made based on the excess carrying value of delinquent loans
over fair value considering mortgage insurance. The loss allowance is
included in the consolidated balance sheets in other liabilities.

The change in the allowance during 1994 and 1993 is summarized below:

Balance December 31, 1992 $ 4,104
Provision 1,992
Losses charged off (809)
Balance December 31, 1993 5,287
Provision 5,227
Losses charged off (4,439)
Balance December 31, 1994 $ 6,075



NOTE 10 - DEFERRED INCOME

At December 31, 1994 and 1993, the Company had deferred income of
$12,117 and $13,214, respectively, related to the sale of convertible
ARMs which the Company is obligated to repurchase at par if the ARMs
convert to a fixed-rate mortgage loan. Upon conversion, the net
interest rate of the mortgage loan will be 1/8% higher than the
Company's then current par coupon. The deferred amounts are net of
related costs and taxes of $6,847 and $7,815 at December 31, 1994
respectively.

NOTE 11 - ACQUISITION

On September 30, 1994, the Company acquired all of the outstanding
common stock of Cram Mortgage Service, Inc., subsequently renamed to
Meritech Mortgage Services, Inc. (Meritech), for a purchase price of
$7,174. The Company will use mortgage loan servicing capabilities
provided by Meritech to service a portion of the mortgage loans funded
by the Company.

Of the $7,174 purchase price, approximately $5,687 was paid in cash
with the remaining $1,487 paid through the issuance of notes to the
sellers, due in installments through October 1, 1999. The acquisition
was accounted for as a purchase, and accordingly, the purchase price
was allocated to the assets and liabilities acquired based on their
estimated fair values as of the date of acquisition. There was no
goodwill as a result of the purchase. Meritech's results of
operations are not material to the Company's consolidated financial
statements and pro forma financial information has therefore not been
presented.

NOTE 12 - COMMON STOCK AND RELATED MATTERS

During 1994, the Company issued 746,081 new shares of common stock for
net proceeds of $19,682. Dividends declared represent ordinary income
to the shareholder for federal income tax purposes.

Pursuant to the Company's 1993 Stock Incentive Plan (the Incentive
Plan), the Compensation Committee of the Board of Directors may grant
to eligible employees of the Company, its subsidiaries and affiliates
for a period of ten years beginning June 17, 1993 stock options, stock
appreciation rights (SARs) and restricted stock awards. An aggregate
of 675,000 shares of common stock are available for distribution
pursuant to stock options, SARs and restricted stock. The shares of
common stock subject to any option or SAR that terminates without a
payment being made in the form of common stock would become available
for distribution pursuant to the Incentive Plan. The Compensation
Committee of the Board of Directors may also grant dividend equivalent
rights (DERs) in connection with the grant of options or SARs. These
SARs and related DERs generally become exercisable as to 20 percent of
the granted amounts each year after the date of the grant.

The following table presents a summary of the SARs outstanding at
December 31, 1994 and 1993.

SARs Exercise Price
December 31, 1992 223,000 $ 8 3/4 - 17 7/8
Granted 45,910 29
Forfeiture (6,000) 8 3/4
SARs exercised (26,600) 8 3/4 - 17 7/8
December 31, 1993 236,310 8 3/4 - 29
Granted 48,460 23 5/8
Forfeiture (47,632) 8 3/4 - 29
SARs exercised (25,178) 8 3/4 - 29
December 31, 1994 211,960 $ 8 3/4 - 29

The Company expensed $8, $1,640 and $404 for SARs and DERs during
1994, 1993 and 1992, respectively. There were no stock options
outstanding as of December 31, 1994. The number of SARs exercisable
at December 31, 1994 and 1993 was 83,300 and 96,100, respectively.

The Company is authorized to issue up to 50,000,000 shares of
preferred stock. No shares of preferred stock have been issued.

NOTE 13 - EMPLOYEE SAVINGS PLAN

The Company provides an employee savings plan under Section 401(k) of
the Internal Revenue Code. The employee savings plan allows eligible
employees to defer up to 12% of their income on a pretax basis. The
Company matched the employees' contribution, up to 6% of the
employees' income. The Company may also make discretionary
contributions based on the profitability of the Company. The total
expense related to the Company's matching and discretionary
contributions in 1994, 1993 and 1992 was $331, $108 and $78,
respectively. The Company does not provide post-employment or post-
retirement benefits to its employees.

NOTE 14 - CONTINGENCIES

The Company makes various representations and warranties relating to
the sale or securitization of mortgage loans. To the extent the
Company were to breach any of these representations or warranties, and
such breach could not be cured within the allowable time period, the
Company would be required to repurchase such mortgage loans, and could
incur losses. In the opinion of management, no material losses are
expected to result from any such representations and warranties.

NOTE 15 - SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
INFORMATION

Year Ended December 31,
1994 1993 1992

Supplemental disclosure of cash flow information:

Cash paid for interest $ 177,943 $ 115,608 $ 112,192

Supplemental disclosure of non-cash activities:
Purchase of collateral for CMOs
$ (54,204) $ - $ -
Assumption of CMOs 52,314 - -
Purchase of CMOs, net $ (1,890) $ - $ -

Proceeds from sale of collateral for CMOs
$ - $ - $ 38,447
Repayment of collateralized mortgage obligations
- - (37,334)
Proceeds from sale of CMOs, net $ - $ - $ 1,113

Common stock issued for exercise of stock options
$ - $ - $ 950



Summary of Quarterly Results

(unaudited)
(amounts in thousands except share data)

Year ended December 31, 1994
First Quarter Second Quarter Third Quarter Fourth Quarter

Operating results:
Total revenues
$ 58,365 $ 61,841 $ 65,699 $ 68,454
Net margin on mortgage assets
13,262 11,561 12,567 9,098
Net income 15,500 15,369 12,952 8,436
Net income per share
0.80 0.78 0.64 0.42
Cash dividends declared per share
0.52(1) 0.78 0.78 0.68
Mortgage loans funded
958,772 905,538 598,935 398,198

Year ended December 31, 1993
First Quarter Second Quarter Third Quarter Fourth Quarter

Operating results:
Total revenues
$ 45,051 $ 46,452 $ 52,221 $ 55,251
Net margin on mortgage assets
10,510 10,594 11,356 12,559
Net income
12,499 12,558 13,848 15,222
Net income per share
0.76 0.76 0.80 0.80
Cash dividends declared per share
0.50 0.75 0.77 1.04 (1)
Mortgage loans funded
863,585 847,509 1,192,022 1,190,598

(1) The January 1994 dividend which was declared in December 1993 is
included in the dividends for the fourth quarter of 1993.


RESOURCE MORTGAGE CAPITAL, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1994
(amounts in thousands except number of loans)

Carrying Principal Amount
Number Final Amount of of Loans Subject
of Maturity Mortgage to Delinquent
Description Loans Int. Rate Date Loans Principal or Interest

Outstanding principal
balance of
Mortgage Loans

$0 - $50 208 3.75% - 12.25% Varies $ 8,115 $ 80
51 - 100 839 3.00% - 13.75% Varies 67,145 1,352
101 - 150 785 3.38% - 12.75% Varies 101,099 2,472
151 - 200 467 2.88% - 13.13% Varies 84,363 1,176
201 - 250 279 3.38% - 12.13% Varies 64,770 1,365
251 - 300 163 3.38% - 10.88% Varies 46,643 571
301 - 350 95 3.63% - 12.13% Varies 31,465 -
351 - 400 59 3.75% - 10.50% Varies 22,873 721
401 450 36 3.75% - 10.00% Varies 16,014 873
451 - 500 31 3.75% - 10.88% Varies 15,323 -
Over $ 500 62 3.75% - 10.60% Varies 60,321 552
3,024 $ 518,131 $ 9,162

All mortgage loans in warehouse are conventional mortgage loans
secured by single-family or multi-family dwellings with initial
maturities of 15 to 30 years. Of the carrying amount, $89,986 or
17.4% are fixed-rate and $428,145 or 82.6% are adjustable-rate
mortgage loans in warehouse. The Company believes that its mortgage
pool insurance and allowance are adequate to cover any exposure on
delinquent mortgage loans in warehouse. A summary of activity of
mortgage loans for the years ended December 31, 1994, 1993 and 1992 is
as follows:

Balance at December 31, 1991 $ 169,626
Mortgage loans funded 5,342,167
Collection of principal (2,388)
Mortgage loans sold (5,385,778)

Balance at December 31, 1992 123,627
Mortgage loans funded 4,132,101
Collection of principal (5,516)
Mortgage loans sold (3,472,443)

Balance at December 31, 1993 777,769
Mortgage loans funded 2,861,443
Collection of principal (20,486)
Mortgage loans sold (3,100,595)
Balance at December 31, 1994 $ 518,131


The geographic distribution of the Company's mortgage loans in
warehouse at December 31, 1994 is as follows:


State Number of Loans Principal Amount

Alabama 8 $ 615
Arizona 76 15,705
Arkansas 1 73
California 1,226 253,740
Colorado 105 15,683
Connecticut 18 3,254
Delaware 3 369
District of Columbia 29 3,572
Florida 263 29,537
Georgia 84 10,831
Hawaii 15 2,901
Idaho 7 725
Illinois 125 16,420
Indiana 12 1,125
Kansas 9 808
Louisiana 2 3,252
Maryland 191 31,700
Massachusetts 22 3,044
Michigan 16 1,643
Minnesota 10 3,079
Mississippi 1 69
Missouri 11 1,536
Montana 1 134
Nebraska 2 158
Nevada 19 2,121
New Hampshire 3 479
New Jersey 86 11,943
New Mexico 10 1,348
New York 61 10,228
North Carolina 60 5,927
North Dakota 1 66
Ohio 13 2,927
Oklahoma 6 421
Oregon 63 7,858
Pennsylvania 52 6,770
Rhode Island 2 252
South Carolina 30 3,339
South Dakota 1 67
Tennessee 14 1,331
Texas 82 18,764
Utah 32 3,946
Virginia 146 23,417
Vermont 2 181
Washington 97 13,345
Wisconsin 6 1,475
West Virginia 1 94

Premium 1,859

Total 3,024 $ 518,131



Exhibit 10.6

EMPLOYMENT AGREEMENT


EMPLOYMENT AGREEMENT, dated as of September 30, 1994, between Resource
Mortgage Capital, Inc. (the "Company") and Thomas H. Potts (the
"Executive").

WHEREAS, the Company wishes to employ the Executive, and the Executive
has agreed to be employed by the Company, on the terms and conditions
herein provided.

NOW, THEREFORE, in consideration of the mutual covenants and
representations herein contained and the mutual benefits derived
herefrom, the parties hereto agree as follows:

1.FULL-TIME EMPLOYMENT OF EXECUTIVE DUTIES AND STATUS.

(a)The Company hereby engages the Executive as President, a full-time
executive position, for the period (the "Employment Period") specified
in Section 4(a) hereof, and the Executive accepts such employment, on
the terms and conditions set forth in this Agreement. Throughout the
Employment Period, the Executive shall faithfully exercise such
authority and perform such executive duties as are commensurate with
the authority and duties of President of the Company and such other
reasonable duties as may otherwise be assigned to him from time to
time by the Company.

(b)Throughout the Employment Period, the Executive shall (i) devote
his full business time and efforts to the business of the Company and
will not engage in consulting work or any trade or business for his
own account or for or on behalf of any other person, firm or
corporation which competes, conflicts or interferes with the
performance of his duties hereunder in any way and (ii) accept such
additional office or offices to which he may be appointed by the
Company, provided that the performance of the duties of such office or
offices shall generally be consistent with the scope of the duties
provided for in Section 1(a) hereof. Notwithstanding the foregoing,
the Executive may serve on the board of directors of other companies,
provided that such other companies are not in a similar line of
business as the Company.

(c)Throughout the Employment Period, the Executive shall be entitled
to vacation, leave of absence, and leave for illness or temporary
disability in accordance with the policies of the Company in effect
from time to time for its executive officers. Vacation leave and
leave of absence, if taken by the Executive, shall be taken at such
times as are reasonably acceptable to the Company. Any leave on
account of illness or temporary disability which is short of Total
Disability (as defined in Section 4(c)(ii) hereof) shall not
constitute a breach by the Executive of his agreements hereunder even
though leave on account of a Total Disability may be deemed to result
in a termination of the Employment Period under the applicable
provisions of this Agreement.

2.COMPENSATION AND GENERAL BENEFITS. As full compensation for his
services to the Company, the Executive shall, during the Employment
Period, be compensated as follows:

(a) The Company shall pay to the Executive a salary (the "Salary")
based upon a per annum rate of Two-Hundred and Fifty Thousand Dollars
($250,000). The Salary shall be payable in periodic equal
installments not less frequently than monthly, less such sums as may
be required to be deducted or withheld under the provisions of
federal, state and local law, plus increases in Salary, if any, as may
be approved from time to time by the Company. Salary shall be subject
to normal periodic review at least annually for increases based on the
salary policies of the Company and the Executive's contributions to
the enterprise.

(b) Throughout the Employment Period, the Executive shall be entitled
to participate in such pension, profit sharing, stock incentive, bonus
or incentive compensation, stock option, stock appreciation, stock
purchase, incentive, group and individual disability, group and
individual life, survivor income, sickness, accident, dental, medical
and health benefits and other plans of the Company or additional
benefit programs, plans or arrangements of the Company which may be
established by the Company for similarly situated employees or its
executive officers, as and to the extent any such benefit programs,
plans and arrangements are or may from time to time be in effect, as
determined by the Company and pursuant to the terms hereof and as and
to the extent that the Executive is eligible to participate in such
plans under the terms of such plans. With respect to any existing
benefits or plans, including bonus plans and stock appreciation rights
plans, the Company covenants that it will not (with respect to the
Executive) alter the existing method of calculating the benefits or
amounts thereunder described on Exhibit A, if the effect of any such
change would be to reduce the amounts or benefits payable or available
to the Executive.

(c) The Company shall reimburse the Executive from time to time for
all reasonable and customary business expenses incurred by him in the
performance of his duties hereunder, provided that the Executive shall
submit vouchers and other supporting data to substantiate the amount
of said expenses.

(d) If the Company purchases and maintains at any time during the term
of this Agreement one or more life insurance or disability policies on
the life or health and well being of the Executive, in addition to any
policies purchased pursuant to Section 2(b) hereof, in whatever amount
or amounts which the Company deems desirable, then the Company shall
be the beneficiary of said policy or policies; provided, however, that
any such policies that are or have been purchased by or on behalf of
the Executive through the application of any of the Executive's
deferred compensation plans from the Company shall have as
beneficiaries such persons or entities as the Executive may choose.
The Executive shall cooperate with the Company and submit to annual
check-ups and such other reasonable medical examinations as are
necessary to enable the Company to purchase and maintain in full force
and effect such additional insurance policy or policies and shall
furnish such medical information as may be reasonably requested.

3.NON-COMPETITION; CONFIDENTIAL INFORMATION; PUBLIC STATEMENTS.

(a) NON-COMPETITION. The Executive and the Company recognize that
due to the Executive's engagement hereunder and the relationship of
the Executive to the Company, the Executive will have access to and
will acquire, and has assisted in and may assist in developing,
confidential and proprietary information relating to the business and
operations of the Company and its affiliates, including, without
limiting the generality of the foregoing, information with respect to
the Company's and its affiliates' present and prospective mortgage
conduit operations, real property holding operations, any other real
estate related or real estate financing related business operations,
models, systems, portfolio, brokers, financing sources, servicing
operations, agents, accounts, deposits, loans and marketing methods.
The Executive acknowledges that such information has been and will
continue to be of central importance to the business of the Company
and its affiliates and that disclosure of it to, or its use by, others
could cause substantial loss to the Company. The Executive and the
Company also recognize that an important part of the Executive's
duties may be to develop goodwill for the Company and its affiliates
through his personal contact with customers, agents and others having
business relationships with the Company and its affiliates, and that
there is a danger that this goodwill, a proprietary asset of the
Company and its affiliates, may follow the Executive if and when his
relationship with the Company is terminated. The Executive
accordingly agrees that, at all times during the Employment Period and
for the periods thereafter listed below, the Executive shall not, in
any capacity whatsoever:

(i) for the first 24 months after the termination of his employment,
directly or indirectly, divert or aid others in diverting any trade or
line of business which the Company was enjoying at the date of such
termination;

(ii) for the first 24 months after termination of his employment,
solicit or otherwise contact any customer or patron, or potential
customer or patron, of the Company whom he had serviced, solicited or
otherwise contacted on the Company's behalf during the last six months
of his employment at the Company, for the purpose of diverting their
business from the Company to himself or to another person or entity;


(iii) for the first 24 months after the termination of his employment,
either directly or indirectly entice or aid or cooperate with others
in soliciting or enticing any Company employee to leave the Company's
employ;

(iv) without limiting the term of his general obligation to honor the
Confidential Information so long as it remains protectable, for the
first 24 months after termination of his employment with the Company
(A) by the Company for "cause" (as defined in Section 4(c)(i) hereof),
or (B) by the Executive without "Good Reason" (as defined in Section
4(e)(iii) hereof), accept employment from, nor directly or indirectly
engage in, any business wherein the loyal and diligent performance of
the duties and responsibilities of such new employment or business
will inherently call upon him to use or to disclose or to base
judgments upon Confidential Information of the Company or its
affiliates or to utilize the goodwill of the Company in making sales
for a competitor of the Company;

(v) for 18 months after termination of Executive's employment, own,
manage, invest in (other than passive investments of up to 1% of the
outstanding equity securities of any publicly traded company), engage
in, operate, control, or in any way participate in, or receive the
economic or other benefit of, any business activity which is the same
as or substantially similar to the Company's business as such business
now exists or may be constituted during the Employment Period and any
extension hereof, anywhere within the continental United States.

(b) CONFIDENTIAL INFORMATION.

(i) At all times during the Employment Period and at all times
following termination thereof, the Executive shall keep confidential
and not disclose, directly or indirectly, and shall not use for the
benefit of himself or any other individual, corporation, partnership,
or other entity except in connection with and furtherance of the
business and the affairs of the Company, any Confidential Information
(as defined below) relating to any aspect of the business of the
Company which is now known or which may become known to him, unless
and until it has become public knowledge or has come into the
possession of others by legal and equitable means. For purposes of
this Agreement, "Confidential Information" means any common law trade
secret or other item constituting "Trade Secrets" under the Virginia
Uniform Trade Secrets Act, Section 59.1-336, Developed Information (as
defined below) or other information, whether in written, oral or other
form, that is unique, confidential or proprietary to the Company or
its affiliates.

(ii) For purposes of this Agreement, "Developed Information" shall
mean all Trade Secrets and unique, confidential and proprietary
information conceived, developed, designed, devised or otherwise
created, modified or improved by the Executive or in whole or in part,
in connection with the performance of his services for the Company
hereunder during the Employment Period or resulting from the
Executive's use of or access to the Company's facilities or resources,
including its Confidential Information. The "Developed Information"
shall be deemed to comprise a portion of the Confidential Information.

(iii) The Executive acknowledges that all Confidential Information is
the property of the Company or its affiliates, and upon expiration of
the Employment Period or earlier termination of this Agreement or
earlier at the request of the Company, the Executive shall deliver to
the Company all records, notes, reference items, memoranda, records,
and other documents or materials, and all copies thereof (including
but not limited to such items stored by computer memory or other
media) which constitute or incorporate the Confidential Information
which are in the Executive's possession or under his control.

(c)OWNERSHIP OF DEVELOPED INFORMATION. The Executive covenants and
agrees that all right, title and interest in any Developed Information
shall be and remain the exclusive property of the Company. The
Executive agrees to immediately disclose to the Company all Developed
Information, and to assign to the Company any right, title and
interest which he may have in the Developed Information. The
Executive agrees to execute any instruments and to do all things
reasonably requested by the Company, both during and after the
Employment Period, to vest the Company with all ownership rights in
the Developed Information. If any Developed Information can be
protected by copyrights (i) as to that Developed Information which
falls within the definition of "work made for hire," as defined in 17
U.S.C. Section 101, the copyright to such Developed Information shall
be owned solely, completely and exclusively by the Company, and
(ii) as to that Developed Information which does not constitute "work
made for hire," the copyright to such Developed Information shall be
deemed to be assigned and transferred completely and exclusively by
the Executive to the Company.

(d)ACKNOWLEDGMENT. The Executive acknowledges that he has carefully
read and reviewed the restrictions set forth in Sections 3(a), (b) and
(c) hereof, and having done so he agrees that those restrictions,
including but not limited to the time period and other restrictions,
are fair and reasonable and are reasonably required for the protection
of the legitimate business interests of the Company.

(e) INVALIDITY, ETC. If any covenant, provision, or agreement
contained in any part of Sections 3(a), (b) or (c) hereof is found by
a court having jurisdiction to be unreasonable in duration, geographic
scope or character of restrictions, the covenant, provision or
agreement shall not be rendered unenforceable thereby, but rather the
duration, geographical scope or character of restrictions of such
covenant, provision or agreement shall be deemed reduced or modified
with retroactive effect to render such covenant or agreement
reasonable and such covenant or agreement shall be enforced as
modified. If the court having jurisdiction will not review the
covenant, provision or agreement, the parties agree to negotiate in
good faith in an attempt to agree to a revision having an effect as
close as permitted by law to the provision declared unenforceable.
The Executive agrees that if a court having jurisdiction determines,
despite the express intent of the Executive, that any portion of the
restrictive covenants contained in Sections 3(a), (b) or (c) hereof
are not enforceable, the remaining provisions shall be valid and
enforceable.

(f) EQUITABLE RELIEF. The Executive recognizes and acknowledges that
if he breaches the provisions of Sections 3(a), (b) or (c) hereof,
damages to the Company would be difficult if not impossible to
ascertain, and because of the immediate and irreparable damage and
loss that may be caused to the Company for which it would have no
adequate remedy, it is therefore agreed that the Company, in addition
to and without limiting any other remedy or right it may have, shall
be entitled to have an injunction or other equitable relief in any
court of competent jurisdiction, enjoining any such breach. The
existence of this right shall not preclude the applicability or
exercise of any other rights and remedies at law or in equity which
the Company may have.

(g) ACCOUNTING FOR PROFITS. The Executive covenants and agrees that
if he violates any covenants or agreements under this Section, the
Company shall be entitled to an accounting and repayment of all
profits, compensations, royalties, commissions, remuneration or
benefits which he directly or indirectly shall have realized or may
realize relating to, growing out of or in connection with any such
violations; such remedy shall be in addition to and not in limitation
of any injunctive relief or other rights or remedies to which the
Company is or may be entitled at law or in equity or otherwise under
this Agreement.

(h)COMPANY BREACH. The Executive and the Company agree that the
Executive shall not be bound by the obligations of Section 3 of the
Agreement if the Company breaches any of its material obligations
under this Agreement and fails to cure such breach after notice from
the Executive and a period of up to 90 days to cure the same.

(i)PUBLIC STATEMENTS. The Executive and the Company recognize that,
due to the relationship of the Executive and the Company and such
relationship's susceptibility to public comment which may be injurious
to the Executive or the Company, or both, it is necessary for the
protection of both parties that neither party make any disparaging
public statements concerning the termination of this Agreement and the
arrangements made pursuant hereto. The Executive and the Company
accordingly agree that neither the Executive nor the Company will make
any disparaging public comments about the other at any time following
the termination of this Agreement.

4. EMPLOYMENT PERIOD.

(a) DURATION. The Employment Period shall commence on the date of
this Agreement and shall continue until the earliest of (i) the close
of business on the day immediately preceding the seventh anniversary
of this Agreement, (the "Expiration Date"), or (ii) termination of the
Executive's employment by the Company with "cause" (as defined in
Section 4(c)(i) hereof); (iii) termination of the Executive's
employment by the Company for any reason other than cause; (iv) the
Executive's resignation, or (v) the death or Total Disability of the
Executive.

(b) PAYMENTS UPON TERMINATION.

(i) If the Executive's employment is terminated by the Company for
any reason other than "cause" (as defined in Section 4(c)(i) hereof),
or due to the Total Disability (as defined in Section 4(c)(ii) hereof)
or death of the Executive at any time during the Employment Period or
by the Executive for "Good Reason" (as defined in Section 4(c)(iii)
hereof), then the Company shall pay to, or provide for, as the case
may be, the Executive, through the Expiration Date at the times
otherwise provided in this Agreement as if the Executive's employment
had not been terminated:

(A) his Salary as if he had remained employed as in effect immediately
prior to the date of termination; and

(B) the sickness and health insurance coverage that is at least as
favorable to the Executive as the coverage in effect on the date of
termination.

In addition, the Company shall pay to, or provide for, as the case may
be, the employee benefits (including, but not limited to, coverage
under any disability, group life, and accident insurance programs and
split-dollar life insurance arrangements or programs) in effect on the
date of termination as to which the Executive would have been entitled
under this Agreement if he had remained in the employ of the Company
through the Expiration Date.

The Executive shall use his best efforts to discharge his legal
obligation to mitigate the amount of Salary payments provided for in
this Section 4(b) by actively seeking employment, unless the
Executive's right to such payments is the result of his death or
disability. The amount of any Salary payment provided for in this
Section 4(b) shall be reduced by any compensation or remuneration
earned as the result of employment by another employer after the date
of termination and during such severance period. The obligation to
mitigate shall not apply to any benefits due the Executive under
Section 2(b) of this Agreement.

(ii) If the Executive's employment is terminated (A) by the Company
for "cause" or (B) by the Executive by resignation without "Good
Reason" other than disability, then the Company shall have no further
liability to the Executive, except for the Salary which has accrued
through the date of termination (which amounts shall be paid by the
Company within thirty (30) days of such termination), and the
Executive shall be subject to those forfeiture and indemnification
obligations described in Section 7 hereof.

(iii) Notwithstanding any other provision of this Section 4(b), if
the Executive violates any covenant, term or condition of this
Agreement the Company shall be entitled, in addition to any other
remedies it may have under Section 4(b)(ii) above or elsewhere
hereunder or at law or in equity, to offset the amount of any payment
otherwise due to the Executive pursuant to this Section 4(b) against
any loss or damage incurred by the Company as a result of the
Executive's violation of said covenant, term or condition.

(c)DEFINITIONS. When used in this Agreement, the words "cause",
"total disability" and "Good Reason" shall have the respective
meanings set forth below:

(i) The term "cause" means: (A) the Executive's material failure
to perform his employment duties hereunder after written notice to the
Executive by the Company specifying such failure, and a reasonable
period of not more than 90 days to remedy such failure, (B) the
Executive's breach of the covenants or agreements contained in
Sections 3(a), (b) or (c) hereof, (C) the Executive's conviction of a
felony or any crime involving moral turpitude, fraud or
misrepresentation, whether or not related to the business or property
of the Company, (D) any act of the Executive against the Company
intended to enrich the Executive in derogation of his duties to the
Company, (E) any willful or purposeful act or omission taken in bad
faith of the Executive having the effect of injuring the business or
business relationships of the Company, or (F) the Executive's breach
of his duty of loyalty to the Company. The Company shall have the
right to suspend the Executive's employment with the Company (and the
Executive shall thereupon have no rights or duties hereunder) in the
event the Executive is indicted of any of the crimes described in (C)
above, pending resolution of all cases involving the Executive and his
ultimate conviction or acquittal with respect thereto. The Company
shall during any period of suspension continue to pay or provide for
sickness and health insurance coverage that is at least as favorable
to the Executive as the coverage in effect on the date of suspension,
but shall not be obligated to pay any Salary or other benefits to the
Executive during such period. In the event the Executive is not
convicted, he shall be paid all back wages and unpaid benefits
relating to the period of suspension. In the event the Executive is
convicted, his employment shall be terminated as herein provided,
effective on and as of the date of initial suspension of the
Executive.

(ii) The term "total disability" ("Total Disability") means total
disability as defined in the Company's group and individual disability
plans, if any. If the Company does not have in existence such plans,
then Total Disability shall mean:

The inability to perform the duties required hereunder for a
continuous period of ninety (90) days or more during the Employment
Period due to "mental incompetence" or "physical disability" as
hereinafter defined. The Executive shall be considered to be mentally
incompetent and/or physically disabled: (A) if he is under a legal
decree of incompetency (the date of such decree being deemed the date
on which such mental incompetence occurred for purposes of this
Section 4(c)); or (B) because of a "Medical Determination of Mental
and/or Physical Disability." A Medical Determination of Mental and/or
Physical Disability shall mean the written determination by: (1) the
physician regularly attending the Executive, and (2) a physician
selected by the Company, that because of a medically determinable
mental and/or physical disability the Executive is unable to perform
each of the material duties of the Executive, and such mental and/or
physical disability is determined or reasonably expected to last
ninety (90) days or longer after the date of determination, based on
medically available information. If the two physicians do not agree,
they shall jointly choose a third consulting physician and the written
opinion of the majority of these three (3) physicians shall be
conclusive as to such mental and/or physical disability and shall be
binding on the parties. The date of any written opinion which is
conclusive as to the mental and/or physical disability shall be deemed
the date on which such mental and/or physical disability commenced for
purposes of this Section 4(c), if the written opinion concludes that
the Executive is mentally and/or physically disabled. In conjunction
with determining mental and/or physical disability for purposes of
this Agreement, the Executive consents to any such examinations which
are relevant to a determination of whether he is mentally and/or
physically disabled, and which is required by any two (2) of the
aforesaid physicians, and to furnish such medical information as may
be reasonably requested. All physicians selected hereunder shall be
Board-certified in the specialty most closely related to the nature of
the mental and/or physical disability alleged to exist.

For purposes of determining whether the Executive is mentally
incompetent or physically disabled for the ninety (90)-day period
specified in this Section 4(c), such disability shall be deemed to
continue from the date of any legal decree of incompetency, or written
opinion which is conclusive as to the mental and/or physical
disability, through the date the legal decree expires or is otherwise
revoked or removed, or the date on which the mental and/or physical
disability has ceased, as the case may be, as set forth in a written
opinion prepared by the physicians described in this Section 4(c)
pursuant to the procedures provided herein.

(iii) The term "Good Reason" shall mean and be limited to those
circumstances where (i) the Company creates working conditions that a
reasonable person in the Executive's position would consider
intolerable, provided that such working conditions are not generally
applicable to other executives of the Company, and/or (ii) the
Executive is, after notice of objection from the Executive, directed
by the Company, either directly or indirectly, to take or refrain from
taking any action that would violate any law or regulation, and/or
(iii) the Executive's position or job responsibilities are
substantially and adversely modified by the Company, and/or (iv) the
Company breaches any of its material obligations under this Agreement
and fails to cure the same after written notice from the Executive and
the expiration of a period of up to 90 days to cure such breach.

5.RESTRICTIONS RELATING TO STOCK. The Executive agrees not to
transfer, or permit any shares beneficially owned by any person or
entity controlled by him to transfer, any of his capital stock or
other equity interests in the Company (whether directly or indirectly,
by pledge, gift or otherwise), in such quantities sufficient to
trigger a change in control as defined in the Note Purchase Agreement
dated September 30, 1994, without the prior written consent of the
Company. Notwithstanding the foregoing, the Company acknowledges that
certain shares of stock of the Company are pledged to secure one or
more of the Executive's margin loans with respect to Company stock
outstanding as of the date of this Agreement, in the principal amount
of approximately $3,275,000. The Executive agrees to reduce the
principal amount of such margin loans with respect to Company stock to
$1,000,000 in principal amount through the application of at least 50%
of the dividends received on the stock of the Company owned by the
Executive or the Executive's spouse, exclusive of any dividends
relating to such stock held in IRA accounts or in any of the Company's
benefit plans after signing this Agreement, and the Company
acknowledges that shares of the Company's stock may thereafter from
time to time be pledged by the Executive to secure such $1,000,000
margin loan for Company stock.

6.CHANGE IN CONTROL COVENANTS. The Executive covenants and agrees
that, during the Employment Period, he will not take any action, and
will not cause or permit any other person or entity to take any
action, which results or is likely to result, directly or indirectly,
in the occurrence of a "Change in Control" pursuant to clauses (c) or
(d) of the definition of such term, as used in each Note Purchase
Agreement of even date herewith between the Company and various
institutional investors with respect to the issuance and sale by the
Company on the date hereof of its 9.56% Series A Senior Notes due
October 15, 1999, in the aggregate principal amount of Fifteen Million
Dollars ($15,000,000), and its 10.03% Series B Senior Notes due
October 15, 2001, in the aggregate principal amount of Thirty-Five
Million Dollars ($35,000,000).

7.INDEMNIFICATION. In the event a put is exercised under the Note
Purchase Agreement because of (i) a termination of the Executive's
employment pursuant to Section 4(b)(ii) (termination by the Company
for Cause or by the Executive without Good Reason other than
disability), or (ii) a transfer of stock by the Executive under
circumstances prohibited by Section 5 hereof, the Executive shall
forfeit any Stock Appreciation Rights, Stock Options and similar
rights. In addition, the Executive shall be liable to the Company for
all costs, expenses and damages proximately caused by the occurrence
of any "Change in Control" (as such term is used in Section 6 above)
following any such termination pursuant to Section 4(b)(ii) or
transfer prohibited by Section 5 hereof if a put is exercised under
the Note Purchase Agreement.

8.NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and
if sent by registered or certified mail to the Executive at the last
address he has filed in writing with the Company at its principal
executive offices.

9.BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be effective as
of the date hereof and shall be binding upon and inure to the benefit
of, the parties hereto and their respective heirs, successors,
assigns, and personal representatives as the case may be. The
Executive may not assign any rights or duties under this Agreement.
As used herein, the successors of the Company shall include, but not
be limited to, any successor by way of merger, consolidation, sale of
all or substantially all of the assets, or similar reorganization.
The Executive specifically acknowledges that the Business of the
Company may at some future time be reorganized and operated in the
form of a corporation (the "Successor"). The Executive further
acknowledges and agrees that the Company may assign all of its rights
and interests under this Agreement to the Successor, and that the
Executive shall be bound and obligated to perform all of her covenants
and agreements set forth herein for the benefit of the Successor as if
the Successor had been the original beneficiary thereof.

10.ENTIRE AGREEMENT. This Agreement (together with all stock option
agreements, stock options, stock appreciation rights agreements and
stock appreciation rights held by or for the benefit of the Executive
on the date hereof) constitutes the entire understanding of the
Executive and the Company with respect to the subject matter hereof
and supersedes any and all prior understandings written or oral. This
Agreement may not be changed, modified or discharged orally, but only
by an instrument in writing signed by the parties.

11.ENFORCEABILITY. This Agreement has been duly authorized, executed
and delivered and constitutes the valid and binding obligations of the
parties hereto, enforceable in accordance with its terms.

12.GOVERNING LAW. The validity and construction of this Agreement or
any of its provisions shall be determined under the internal laws of
the Commonwealth of Virginia, without giving effect to its conflicts
of laws provisions.

13.HEADINGS. The headings used in this Agreement are for convenience
only and shall not control or affect the meaning or construction of
any provision of this Agreement.

14.SEVERABILITY. Except as provided in Section 3(e) hereof, if any
one or more of the terms or provisions of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in
part, or in any respect or in the event that any one or more of the
provisions of this Agreement operated or would prospectively operate
to invalidate this Agreement, then and in either of those events, such
provision or provisions only shall be deemed null and void and shall
not affect any other provision of this Agreement and the remaining
provisions of this Agreement shall remain operative and in full force
and effect and shall in no way be affected, prejudiced or disturbed
thereby.

IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.

ATTEST: RESOURCE MORTGAGE CAPITAL, INC.


W. Lance Andeson By:/s/ Lynn K. Geurin 3/28/95 (SEAL)
---------------- ----------------------------

WITNESS: THOMAS H. POTTS



W. Lance Anderson Thomas H. Potts 3/28/95 (SEAL)
----------------- ---------------------------------


Exhibit 21.1

RESOURCE MORTGAGE CAPITAL, INC.

LIST OF SUBSIDIARIES AND CONSOLIDATED ENTITIES



At December 31, 1993, the consolidated subsidiaries of Resource
Mortgage Capital, Inc. were as follows:

Company Parent State of Incorporation


Resource Finance Co. One Resource Mortgage Capital, Inc. Virginia

N.D. Holding Co. Resource Finance Co. One Virginia

Resource Finance Co. Two Resource Finance Co. One Virginia

SHF Corp. Resource Finance Co. One Virginia

Saxon Mortgage Capital Corporation
Resource Mortgage Capital, Inc. Virginia

Multi-Family Capital Resources, Inc.
Resource Mortgage Capital, Inc. Virginia

Multi-Family Capital Access One, Inc
Multi-Family Capital Resources, Inc.
Virginia

TC Acquisiton, Inc. Resource Mortgage Capital, Inc. Virginia

Merit Securties Corporation
Resource Mortgage Capital, Inc. Virginia


At December 31, 1993, the other entities consolidated with Resource
Mortgage Capital, Inc. were as follows:

SMFC Holding, Inc. N/A Delaware

SMFC Funding Corporation SMFC Holding, Inc. Virginia

Saxon Mortgage Management Corporation
SMFC Holding, Inc. Virginia

Saxon Mortgage Securities Corporation
Saxon Mortgage Funding Corporation
Virginia

Meritech Mortgage Services, Inc.
Saxon Mortgage Funding Corporation
Texas

Saxon Mortgage Management LP
N/A N/A

Saxon Mortgage, Inc. Saxon Mortgage Management LP Virginia


Exhibit 23.1

Accountants' Consent




The Board of Directors
Resource Mortgage Capital, Inc.:




We consent to incorporation by reference in the registration
statements (No. 33-50705 and 33-52071) on Form S-3 of Resource
Mortgage Capital, Inc. of our report dated February 7, 1995, relating
to the consolidated balance shet of Resource Mortgage Capital, Inc.
and subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and cash
flows and related schedules for each of the years in the three-year
period ended December 31, 1994, which report appears in the December
31, 1994 Form 10-K of Resource Mortgage Capital, Inc.


KPMG PEAT MARWICK LLP

Richmond, Virginia
March 31, 1995