AMRESCO INC, S-3/A, 1996-10-23

AMRESCO INC
S-3/A, 1996-10-23
INVESTMENT ADVICE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996

REGISTRATION NO. 333-13823

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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PRE-EFFECTIVE AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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AMRESCO, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 59-1781257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
L. KEITH BLACKWELL
700 NORTH PEARL STREET VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SUITE 2400, LB 342 700 NORTH PEARL STREET
DALLAS, TEXAS 75201-7424 SUITE 2400, LB 342
(214) 953-7700 DALLAS, TEXAS 75201-7424
(Address, including zip code, and telephone number, (214) 953-7700
including FAX: (214) 953-7757
area code, of registrant's principal executive (Name, address, including zip code, and telephone
offices) number,
including area code, of agent for service)
</TABLE>

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Copies to:

<TABLE>
<S> <C>
MICHAEL M. BOONE ROBERT C. SCHWARTZ
HAYNES AND BOONE, LLP SMITH, GAMBRELL & RUSSELL
SUITE 3100 SUITE 1800
901 MAIN STREET 3343 PEACHTREE ROAD, N.E.
DALLAS, TEXAS 75202-3789 ATLANTA, GEORGIA 30326-1010
(214) 651-5000 (404) 264-2620
FAX: (214) 651-5940 FAX: (404) 264-2652
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED OCTOBER 23, 1996

[AMRESCO LOGO]

7,760,000 SHARES OF COMMON STOCK

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Of the 7,760,000 shares of Common Stock, par value $0.05 per share
("Common Stock"), of AMRESCO, INC. (the "Company") offered hereby (the
"Offering"), 1,828,148 are being offered by the Company and 5,931,852 are being
offered by certain stockholders of the Company (the "Selling Stockholders"). The
Company will not receive any of the net proceeds from the sale of the shares of
Common Stock by the Selling Stockholders.

The Common Stock is traded on the Nasdaq National Market under the symbol
"AMMB." On October 22, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $21.875 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total (3)......................... $ $ $ $
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</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters.

(2) Before deducting expenses payable by the Company (including certain expenses
payable on behalf of the Selling Stockholders) estimated at $450,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 1,164,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

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The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the shares of Common Stock will be made on or about ,
1996.

THE ROBINSON-HUMPHREY COMPANY, INC.
PIPER JAFFRAY INC.
RAYMOND JAMES & ASSOCIATES, INC.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
MORGAN KEEGAN & COMPANY, INC.

, 1996

<PAGE> 3

[Map of United States indicating: (i) the location of the corporate
headquarters, (ii) international offices in Toronto and London, (iii) office
locations by business lines and (iv) states with Quality branch offices.]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of these
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at the principal offices of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such documents may also be obtained at the Web
site maintained by the Commission (http://www.sec.gov). The Company's Common
Stock is quoted on the Nasdaq National Market and such reports, proxy statements
and other information may be inspected at the National Association of Securities
Dealers, Inc., 1735 K. Street N.W., Washington, D.C. 20006. The Company's 8.75%
Senior Notes, Series 1996-A due 1999 and its 10% Senior Subordinated Notes due
2003 are listed on the New York Stock Exchange. Reports and other information
concerning the Company can be inspected at the offices of such Exchange, 20
Broad Street, New York, New York 10005.

The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in the
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference.

Unless otherwise indicated, currency amounts in this Prospectus are stated
in United States dollars ("$" or "dollars").

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1995, (ii) Current Report on Form 8-K dated February 2, 1996, (iii) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, (iv) Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, and (v) Current Report on Form
8-K dated July 19, 1996.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference herein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed superseded or modified for purposes of this Prospectus to the extent that
a statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to the Company, 700 North Pearl Street, Suite
2400, LB 342, Dallas, Texas 75201-7424, Attention: L. Keith Blackwell, Vice
President, General Counsel and Secretary. Telephone requests may be directed to
L. Keith Blackwell, Vice President, General Counsel and Secretary of the
Company, at (214) 953-7700.

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<PAGE> 5

SUMMARY

Certain terms used in this Prospectus are defined in the "Glossary"
included herein.

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus does not give effect to
the exercise of the Underwriters' over-allotment option in respect to the Common
Stock.

Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The matters described in "Risk
Factors" and certain other factors noted throughout this Prospectus and in any
exhibits to the Registration Statement of which this Prospectus is a part,
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.

THE COMPANY

General. The Company is a leading specialty financial services company
engaged in residential mortgage acquisition and securitization, Asset Portfolio
acquisition and resolution, commercial mortgage banking and institutional real
estate investment advisory services. The residential capital markets business
involves acquiring, warehousing and securitizing portfolios of B&C loans. On
October 9, 1996, the Company signed the Quality Purchase Agreement pursuant to
which the Company agreed to purchase substantially all of the assets of Quality.
Quality originates B&C loans through a retail system comprised of approximately
50 offices in 31 states. See "Quality Acquisition." The Asset Portfolio
acquisition and resolution business involves acquiring at a substantial discount
to Face Value and managing and resolving Asset Portfolios to maximize cash
recoveries. The Company manages and resolves Asset Portfolios acquired by the
Company alone, acquired by the Company with co-investors and owned by third
parties. The commercial mortgage banking business involves the origination,
underwriting, placement, sale, securitization and servicing of commercial real
estate mortgages. The Company's institutional investment advisory subsidiary
provides real estate investment advice to various institutional investors
(primarily pension funds).

History. The Company is the product of the December 1993 merger of two
Asset Portfolio management and resolution service companies: BEI and the former
Asset Portfolio management and resolution unit of NationsBank of Texas. BEI was
a publicly held company that was engaged in the real estate and asset management
services businesses. The BEI Merger created one of the largest Asset Portfolio
management and resolution service companies in the United States. Since 1987,
the Company and its predecessors have managed over $30.0 billion (Face Value) of
Asset Portfolios. Since the BEI Merger, the Company has expanded its operations
into the residential and commercial mortgage banking and real estate pension
advisory businesses.

Business Strategy. The Company's original business of managing and
resolving Asset Portfolios for third parties developed as a result of the
takeover of failed thrifts and banks by the federal government's deposit
insurance agencies in the late 1980s. In 1994, the Company implemented a growth
strategy to expand its business lines and to take advantage of business
opportunities in those specialty finance markets that capitalize on the
Company's competitive strengths and reputation. The key elements of the
Company's business strategy now include:

- growing its participation in the acquisition and securitization of B&C
loans through AMRESCO Residential and entering the B&C loan origination
business with its acquisition of Quality;

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- increasing the amount that the Company invests for its own account in
Asset Portfolios and continuing to provide high quality management and
resolution services to co-investors and other third-party owners of Asset
Portfolios;

- expanding its presence in the commercial mortgage banking market through
greater market penetration and by increasing its participation in the
market for securitization of commercial mortgages;

- developing its institutional real estate investment advisory business to
complement the Company's existing business lines; and

- acquiring additional businesses which complement the Company's existing
core capabilities in specialty financial services.

The Company will continue to identify, develop and market specialized
financial products that combine and take advantage of the various complementary
skills existing within the Company's business groups as well as expand its
cross-marketing of products and services among its business lines.

RESIDENTIAL CAPITAL MARKETS

General. The Company acquires, warehouses and securitizes portfolios of B&C
loans. Borrowers under such loans may not satisfy the more rigid underwriting
standards of the traditional residential mortgage lending market for a number of
reasons, such as blemished credit histories (from past loan delinquencies or
bankruptcy), inability to provide income verification data or lack of
established credit history. The Company believes that this market is large and
is underserved by traditional lenders. Therefore, there is less competition in
this market and interest rates are higher than on mortgage loans for more
creditworthy borrowers. The Company believes that the higher interest rates
offered by the B&C loan market are attractive even after taking into account the
potentially greater credit risk associated with such borrowers.

During 1996, the Company has securitized approximately $1.1 billion in
residential mortgages in four public offerings of asset-backed securities. To
date, the Company has purchased portfolios of residential mortgages exclusively
from other financial services companies. Loan acquisitions are funded through
warehouse credit facilities arranged by the Company until the Company
accumulates in excess of $250.0 million principal amount of loans. The loans are
then conveyed to a special purpose trust that sells into the secondary market
various tranches of rated collateralized mortgage-backed securities representing
undivided interests in the revenue streams generated by the loans. Subordinated
Certificates issued by the trust are purchased by the Company. The Company
either retains these Subordinated Certificates or pools and sells them in
private sales. The Company does not service any residential loans it acquires.
The securities publicly sold to date by the Company have been rated "AAA" by
Standard & Poor's and "Aaa" by Moody's Investors Service, Inc. To achieve these
ratings the Company has used a combination of over-collateralization techniques
and financial guaranty insurance.

Quality Acquisition. On October 9, 1996, the Company entered into the
Quality Purchase Agreement whereby the Company will acquire substantially all
the assets of Quality for $65.0 million in cash and the assumption of warehouse
indebtedness existing as of closing. Quality originates B&C loans through a
nationwide network of approximately 50 offices in 31 states. These offices
enable Quality to maintain local relationships with over 4,500 Quality-approved
mortgage brokers. Since commencing its current line of business in 1992, Quality
has originated over $5.0 billion of residential loans through September 30,
1996. All of these loans have been sold into the secondary market or
securitized. The Company's strategy is to continue to develop Quality as an
originator of B&C loans, which will enhance and complement the Company's ability
to securitize and sell such loans in the secondary market. The Company currently
anticipates that the Quality Acquisition will be completed on or about October
25, 1996. See "Quality Acquisition."

ASSET ACQUISITION AND RESOLUTION

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Asset Portfolios owned by third parties. Asset Portfolios generally include
secured loans of varying qualities and collateral types. The majority of the
loans in the Asset Portfolios in which the Company invests are in payment
default at the time of acquisition. Although some Asset Portfolios include
foreclosed real estate and other collateral, the Company generally seeks Asset
Portfolios that do not include such assets. The Company does not invest in Asset
Portfolios with known environmental liabilities. Asset Portfolios purchased by
the Company for its own account are generally comprised of collateralized
business loans, the resolution of which may be based either on cash flow of a
business or on real estate and other collateral securing the loan.
Collateralized business loans acquired by the Company generally have smaller
Face Values and often are more quickly resolved than traditional real estate
loans. Asset Portfolios purchased by the Company with co-investors generally
include loans for which resolution is tied primarily to the real estate securing
the loan. While the majority of the Asset Portfolios are located in the United
States, the Company has opened offices in Toronto and London through which it
pursues Asset Portfolio acquisition opportunities and manages its investments in
Canada and Western Europe. The Company may open other offices and seek strategic
alliances in other international markets. The Company also intends to continue
to invest in Subordinated Certificates.

Asset Portfolio Investment. The Company invests in Asset Portfolios by
purchasing them alone or with co-investors. The Face Values of Asset Portfolios
acquired solely by the Company have ranged between approximately $0.5 million
and approximately $96.8 million, whereas Asset Portfolios owned by it with co-
investors have ranged up to approximately $426.8 million, with investments by
the Company ranging from approximately $0.1 million to $17.6 million. The
Company generally funds its share of any investment with a combination of
borrowings under its existing credit lines and internal cash flow. At June 30,
1996, the Face Value of the Company's total investment in wholly-owned Asset
Portfolios aggregated approximately $440.6 million, which was composed of
approximately $341.8 million (77.6%) of collateralized business loans,
approximately $76.5 million (17.4%) of asset-backed securities, approximately
$12.5 million (2.8%) of real estate and approximately $9.8 million (2.2%) of
real estate loans.

The Company intends to organize investment funds to be marketed to
institutional investors that would invest in Subordinated Certificates of
residential and commercial mortgage securitizations. The Company believes that
because of its experience in evaluating and underwriting higher risk loans, it
can take advantage of investment opportunities that are presented by such
Subordinated Certificates. In the future, the majority of the Company's
investment in Subordinated Certificates will be through these funds. As a
policy, the Company will not sell to these funds Subordinated Certificates
created in securitizations organized by the Company.

Third Party Asset Management and Resolution Services. The Company provides
asset management and resolution services to third parties pursuant to contracts
with owners of Asset Portfolios (including partnerships, joint ventures and
other groups in which the Company is a co-investor). Management of Asset
Portfolios includes developing loan resolution strategies and resolving loans,
overseeing and managing collateral condition and performance, and providing
routine accounting services. Servicing contracts provide incentives for the
Company to resolve Asset Portfolios in order to maximize returns to third party
owners.

COMMERCIAL MORTGAGE BANKING

General. The Company performs a wide range of commercial mortgage banking
services, including originating, underwriting, placing, selling and servicing
commercial real estate loans through Holliday Fenoglio, ACC and AMRESCO
Services.

Commercial Mortgage Banking Business. Holliday Fenoglio primarily serves
commercial real estate developers and owners by originating commercial real
estate loans through its own commission-based mortgage bankers in its offices
located in Atlanta, Boca Raton, Buffalo, Dallas, Houston, New York City, Orange
County (California), Orlando and Portland (Oregon). Holliday Fenoglio originated
approximately $2.1 billion of commercial real estate mortgages during 1995 and
approximately $1.1 billion during the six months ended June 30, 1996. The loans
originated by Holliday Fenoglio generally are funded by institutional lenders,
principally insurance companies, and by Conduit Purchasers, with Holliday
Fenoglio retaining the Primary Servicer rights on more than 20.0% of such loans.
The Company believes that Holliday Fenoglio's

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relationship and credibility with its institutional lender network provide the
Company with a competitive advantage in the commercial mortgage banking
industry.

ACC, which originated and underwrote approximately $447.1 million of
commercial real estate mortgages during 1995 and approximately $105.2 million
during the six months ended June 30, 1996, is a mortgage banker that originates
and underwrites commercial real estate loans that are funded primarily by
Conduit Purchasers and Fannie Mae. Accordingly, ACC unlike Holliday Fenoglio,
makes certain representations and warranties concerning the loans it originates.
These representations cover title to the property, lien priority, environmental
reviews and certain other matters. ACC targets mortgage loans for commercial
real estate properties suitable for sale to Conduit Purchasers that accumulate
loans for securitization programs. ACC serves its market directly through ACC's
offices located in Dallas, Miami, Washington, D.C. and Winston-Salem, as well as
through a network of approximately 38 independent mortgage brokers located
throughout the United States. ACC has recently established a financing and
advisory relationship with a major Wall Street investment bank whereby ACC will
originate commercial mortgages, which will be funded and securitized by a
partnership through which ACC shares in the accumulation and securitization
profits and risks. ACC is approved by Fannie Mae to participate in its DUS
program, which ACC believes makes it a more competitive loan originator and
underwriter of multifamily mortgages. ACC is also an approved lender in the
Freddie Mac multifamily sales/servicer program in the states of Florida, North
Carolina and South Carolina. Through June 30, 1996, approximately 20.0% of the
loans underwritten by ACC were originated by Holliday Fenoglio, with Holliday
Fenoglio and ACC each receiving fees for their respective services.

Commercial Loan Servicing Business. The Company serves as a Primary
Servicer for whole loans and as a Master/Full Servicer for securitized pools of
commercial mortgages through AMRESCO Services. At June 30, 1996, the Company
acted as servicer with respect to approximately $10.9 billion of loans. The
dominant users of commercial loan servicers are commercial mortgage-backed bond
trusts and similar securitized commercial asset-backed loan portfolios made up
of numerous passive investors. The revenue stream from servicing contracts on
commercial mortgages is relatively predictable as prepayment penalties in
commercial mortgages discourage early loan payoffs, a risk that is more
significant to servicers of residential mortgage portfolios.

INSTITUTIONAL REAL ESTATE INVESTMENT ADVISORY

The Company provides real estate investment advice to various institutional
investors (primarily pension funds) seeking to invest a portion of their funds
in real estate and related investments. Although the Company is paid acquisition
and disposition fees by some of its clients, its principal form of revenue from
this activity is asset management fees, which are based on the cash flow of the
investments under management or are negotiated at the time of the client's
investment in a property.

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The Company is a Delaware corporation. The Company's principal executive
offices are located at 700 N. Pearl Street, Suite 2400, Dallas, Texas 75201-7424
and its telephone number at that address is (214) 953-7700.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the
Company.......................... 1,828,148 shares
Common Stock Offered by the Selling
Stockholders..................... 5,931,852 shares
Common Stock Outstanding after the
Offering......................... 29,017,645 shares(1)
Nasdaq National Market Symbol...... AMMB
Use of Proceeds.................... The net proceeds from the sale of the Common Stock
offered hereby by the Company will be used to reduce the
Company's outstanding borrowings under the Revolving
Loan Agreement (including $65.0 million of borrowings
necessary to fund the purchase of Quality). After
application of such net proceeds, approximately $
million will be available for borrowing under the
Revolving Loan Agreement to be used for general
corporate purposes, which may include funding
investments in Asset Portfolios, Subordinated
Certificates and other financial instruments, acquiring
new businesses or making strategic investments in
companies that complement the Company's business lines
and strategies. See "Use of Proceeds."
</TABLE>

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(1) Does not include (i) 1,872,533 shares of Common Stock issuable upon exercise
of outstanding stock options or 1,665,498 shares available for future grants
under the Company's Stock Option and Award Plan at September 30, 1996 or
(ii) 3,600,000 shares of Common Stock issuable upon conversion of the
Convertible Subordinated Debentures. See "Other Recent
Developments -- Redemption of Convertible Subordinated Debentures" and Note
11 of Notes to the Company's Consolidated Financial Statements.

RISK FACTORS

Prior to making an investment decision, prospective purchasers should
consider all of the information set forth in this Prospectus and should evaluate
the statements set forth in "Risk Factors" beginning on page 13.

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SUMMARY HISTORICAL FINANCIAL AND OTHER DATA

The summary data presented below under the captions "Summary Income
Statement" and "Summary Balance Sheet Data" for and as of the end of each of the
fiscal years in the three-year period ended December 31, 1995 are derived from
the consolidated financial statements of the Company audited by Deloitte &
Touche LLP, which are included herein. In the opinion of management of the
Company, the data presented for the six months ended June 30, 1996 and 1995,
which are derived from the Company's unaudited consolidated financial
statements, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for such periods. Results for the six months ended June 30, 1996 are
not necessarily indicative of results for the entire fiscal year. See "Other
Recent Developments -- Third Quarter 1996 Results" for certain unaudited
financial data of the Company for the quarter ended September 30, 1996.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1996 1995 1995(1) 1994(1) 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees..... $ 18,037 $ 18,441 $ 41,295 $ 93,764 $ 118,552
Interest and other investment income..... 43,247 14,569 40,105 14,215 3,440
Mortgage banking fees.................... 14,937 8,324 24,382 6,176
Gain on sale of loans and investments,
net.................................... 5,789 46 1,382 839
Other revenues........................... 1,699 2,279 3,322 14,797 409
------- ------- ------- ------- --------
Total revenues.................... 83,709 43,659 110,486 129,791 122,401
Operating expenses, excluding interest
expense.................................. 50,268 30,840 73,307 92,337 77,970
Interest expense........................... 13,495 1,278 6,921 1,768 754
------- ------- ------- ------- --------
Income from continuing operations
before income taxes...................... 19,946 11,541 30,258 35,686 43,677
Income tax expense......................... 7,803 4,307 11,593 14,753 17,371
------- ------- ------- ------- --------
Income from continuing operations.......... 12,143 7,234 18,665 20,933 26,306
Gain (loss) from discontinued operations... 2,425 2,425 (2,185) (2,088)
------- ------- ------- ------- --------
Net income................................. $ 12,143 $ 9,659 $ 21,090 $ 18,748 $ 24,218
======= ======= ======= ======= ========
Earnings per share from continuing
operations:
Primary.................................. $ 0.44 $ 0.30 $ 0.76 $ 0.88 $ 2.33
Fully-diluted............................ 0.42 0.30 0.75 0.88 2.33
Earnings per share:
Primary.................................. $ 0.44 $ 0.40 $ 0.86 $ 0.79 $ 2.15
Fully-diluted............................ 0.42 0.40 0.85 0.79 2.15
Weighted average number of common shares
outstanding and common share
equivalents.............................. 27,469,186 24,305,838 24,654,321 23,679,239 11,288,688
</TABLE>

(Footnote appears on following page.)

9
<PAGE> 11

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 14,650 $ 18,683 $ 16,139 $ 20,446 $ 43,442
Mortgage loans held for sale...................... 190,257 3,000 160,843
Investments:
Loans........................................... 164,656 80,569 138,180 32,631 33,795
Partnerships and joint ventures................. 32,246 44,021 34,694 22,491 2,503
Asset-backed and other securities............... 55,687 6,426 46,187 3,481
Real estate..................................... 16,050 7,393 5,686 14,054 2,504
Total assets...................................... 603,911 229,403 521,713 172,340 163,653
Notes payable..................................... 96,135 67,300 89,442 15,500 22,113
Warehouse loans payable........................... 181,024 2,856 153,158
Nonrecourse debt.................................. 25,856 8,622 38,354 959 6,000
Senior subordinated debt.......................... 57,500
Convertible subordinated debt..................... 45,000 45,000
Total indebtedness................................ 405,515 78,778 325,954 16,459 28,113
Stockholders' equity.............................. 174,196 123,388 160,794 113,586 91,699
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------
1996 1995 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA(1):
Face Value of assets under management (at
period end)............................. $ 3,181,538 $3,174,959 $3,693,900 $3,031,800 $5,754,400
Commercial mortgage loans originated:
Face Value.............................. $ 1,184,015 $ 982,608 $2,573,400 $ 610,000
Number of loans......................... 195 169 444 106
Commercial mortgage loans serviced (at
period end):
Face Value.............................. $10,932,252 $2,812,414 $9,919,596 $2,555,000
Number of loans......................... 6,770 793 7,226 592
</TABLE>

- ---------------

(1) Summary Income Statement and Other Data for the fiscal years ended December
31, 1995 and 1994 reflect data for Holliday Fenoglio beginning August 1,
1994 and EQS beginning October 27, 1995, the effective date of their
acquisitions by the Company.

10
<PAGE> 12

SUMMARY PRO FORMA FINANCIAL DATA

The summary pro forma financial data presented below for and as of the six
months ended June 30, 1996 and for the year ended December 31, 1995 were
prepared by management of the Company utilizing the assumptions described in
"Unaudited Pro Forma Condensed Consolidated Financial Statements for the Quality
Acquisition."

The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual results of operations and financial
position of the Company would have been assuming the transaction had been
completed as set forth in "Unaudited Pro Forma Condensed Consolidated Financial
Statements for the Quality Acquisition," nor do they purport to represent the
Company's results of operations for future periods.

<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA
THE SIX MONTHS FOR THE YEAR
ENDED ENDED
JUNE 30, 1996 DECEMBER 31, 1995
-------------- -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees...................... $ 18,037 $ 41,295
Interest and other investment income...................... 56,469 74,826
Mortgage banking fees..................................... 14,937 24,382
Gain on sale of loans and investments and loan origination
fees, net.............................................. 23,883 54,701
Loss on sale of real estate held for sale................. (994) (6,269)
Other revenues............................................ 2,496 5,311
----------- -----------
Total revenues.................................... 114,828 194,246
Operating expenses, excluding interest expense.............. 84,821 125,025
Interest expense............................................ 22,549 31,972
----------- -----------
Income from continuing operations before taxes.............. 7,458 37,249
Income tax expense.......................................... 2,918 14,272
----------- -----------
Income from continuing operations........................... 4,540 22,977
Gain from discontinued operations........................... 2,425
----------- -----------
Net income.................................................. $ 4,540 $ 25,402
=========== ===========
Earnings per share from continuing operations:
Primary................................................... $ 0.15 $ 0.87
Fully-diluted............................................. 0.17 0.86
Earnings per share:
Primary................................................... $ 0.15 $ 0.96
Fully-diluted............................................. 0.17 0.95
Weighted average number of common shares outstanding and
common share equivalents.................................. 29,297,334 26,482,469
</TABLE>

11
<PAGE> 13

<TABLE>
<CAPTION>
PRO FORMA
AS OF
JUNE 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 23,358
Mortgage loans held for sale.............................................. 296,922
Advances and wet fundings................................................. 19,094
Investments:
Loans................................................................... 164,656
Partnerships and joint ventures......................................... 32,246
Asset-backed and other securities....................................... 82,402
Real estate............................................................. 18,762
Total assets.............................................................. 826,325
Notes payable............................................................. 148,672
Warehouse loans payable................................................... 330,390
Senior subordinated debt.................................................. 57,500
Convertible subordinated debt............................................. 45,000
Total indebtedness........................................................ 581,562
Stockholders' equity...................................................... 212,515
</TABLE>

12
<PAGE> 14

RISK FACTORS

Investors should carefully consider the following matters in connection
with an investment in the Common Stock in addition to the other information
contained or incorporated by reference in this Prospectus. Information contained
or incorporated by reference in this Prospectus may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may," "will," "expect," "intend," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology. The
following matters and certain other factors noted throughout this Prospectus and
any exhibits to the Registration Statement of which this Prospectus is a part,
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.

CHANGE IN BUSINESS MIX AND MANAGEMENT OF GROWTH

In early 1994, the Company made the strategic decision to diversify its
business lines. The Company has entered the residential capital markets,
commercial mortgage banking and institutional real estate investment advisory
businesses through a combination of acquisitions and the internal startup of new
business lines, as well as increased its investments in Asset Portfolios. These
businesses contributed a substantial portion of the Company's revenue and
operating income in 1995, and the Company expects they will continue to
contribute a substantial portion of its revenue and operating income for the
foreseeable future. The rapid entry of the Company into these business lines has
resulted in increased demands on the Company's personnel and systems. As part of
its business strategy, the Company intends to acquire additional businesses
which complement the Company's core capabilities in specialty financial
services. The Company must successfully continue its assimilation of multiple
acquired businesses with differing markets, customer bases, financial products,
systems and managements. The Company's ability to support, manage and control
continued growth is dependent upon, among other things, its ability to hire,
train, supervise and manage its workforce and to continue to develop the skills
necessary for the Company to compete successfully in its new business lines.
There can be no assurance that the Company will successfully meet all of these
challenges.

On October 9, 1996, the Company entered into the Quality Purchase Agreement
pursuant to which the Company will acquire substantially all the assets of
Quality and thereby enter the retail B&C loan origination business. In addition
to the risks associated with diversifying into new business lines described
above, the Quality Acquisition presents several other specific risks. Quality
has experienced declining loan volumes, a high rate of employee turnover,
including high level management, and increased competition. The Company must
stabilize Quality's work force, strengthen Quality's senior and middle
management, upgrade Quality's information and data processing systems and
successfully integrate a nationwide retail B&C loan origination business with
its existing business lines. There can be no assurance that the Company will be
successful in all of these efforts.

NEED FOR ADDITIONAL FINANCING

General. The Company's ability to execute its business strategy depends to
a significant degree on its ability to obtain additional indebtedness and equity
capital. Other than as described in this Prospectus, the Company has no
commitments for additional borrowings or sales of equity capital and there can
be no assurance that the Company will be successful in consummating any such
future financing transactions on terms satisfactory to the Company, if at all.
Factors which could affect the Company's access to the capital markets, or the
costs of such capital, include changes in interest rates, general economic
conditions and the perception in the capital markets of the Company's business,
results of operations, leverage, financial condition and business prospects.
Each of these factors is to a large extent subject to economic, financial,
competitive and other factors beyond the Company's control. In addition,
covenants under the Company's current and future debt securities and credit
facilities may significantly restrict the Company's ability to incur additional
indebtedness and to issue Preferred Stock. The Company's ability to repay its
outstanding indebtedness at maturity may depend on its ability to refinance such
indebtedness, which could be adversely affected if the

13
<PAGE> 15

Company does not have access to the capital markets for the sale of additional
debt or equity securities through public offerings or private placements on
terms reasonably satisfactory to the Company.

Dependence on Warehouse Financing. The Company's commercial and residential
mortgage securitization businesses depend upon warehouse facilities with
financial institutions or institutional lenders to finance the Company's
purchase of loans on a short-term basis pending sale or securitization.
Implementation of the Company's growth strategy requires continued availability
of warehouse facilities and may require increases in the capacity of warehouse
facilities. There can be no assurance that such financing will be available on
terms reasonably satisfactory to the Company. The inability of the Company to
arrange additional warehouse facilities or to extend or replace existing
facilities when they expire would have a material adverse effect on the
Company's business, financial condition and results of operations and on the
Company's outstanding securities.

RISKS OF SECURITIZATION

Significance of Securitization. The Company currently believes that it will
become increasingly dependent upon its ability to securitize mortgage loans by
pooling and subsequently selling them in the secondary market in order to
generate revenues, earnings and cash flows. Accordingly, adverse changes in the
secondary mortgage market could impair the Company's ability to originate,
purchase and sell mortgage loans on a favorable or timely basis. Any such
impairment could have a material adverse effect upon the Company's business and
results of operations. The Company endeavors to effect public securitizations of
its loans on at least a quarterly basis. However, market and other
considerations, including the conformity of loans to insurance company and
rating agency requirements, could affect the timing of such transactions. Any
delay in the sale of loans beyond a quarter end would delay any expected gain on
sale beyond the given quarter and adversely affect the Company's reported
earnings for such quarter.

Importance of Credit Enhancement. In order to optimize access to the
secondary market for residential mortgage-backed securities, the Company may
rely on monoline insurance companies to provide, in exchange for premiums, a
guarantee on outstanding senior interests in the related securitization trusts
to enable it to obtain a "AAA/Aaa" rating for such interests. Any unwillingness
of monoline insurance companies to guarantee the senior interests in the
Company's loan pools could have a material adverse effect on the Company's
financial position, expected gain on sale and results of operations.

Retained Risks of Securitized Loans. The Company makes various
representations with respect to the loans that it pools and securitizes. The
Company's representations rely in part on similar representations made by the
originators of such loans when they were purchased by the Company. Accordingly,
the Company has a claim against the originator in the event of a breach of any
of these representations made by the originators. However, the Company's ability
to recover on any such claim is dependent on the financial condition of the
originator. There can be no assurance that the Company will not experience a
material loss in respect of any of these contingencies.

Investment in Subordinated Certificates. The Company derives a significant
portion of its reported income from its investment in Subordinated Certificates
created in securitizations completed by the Company. The earnings on such
Subordinated Certificates represent the excess of the interest and principal
paid by a borrower on a loan over the interest and principal passed through to
the investor acquiring an interest in such loan, less the normal servicing and
other fees and credit losses realized. When such loans are pooled, the Company
recognizes as a gain the estimated fair value of the Subordinated Certificates,
net of the Company's upfront costs of purchasing and securitizing the underlying
loans. The estimated fair value of the Subordinated Certificates is computed
using prepayment, default and interest rate assumptions that the Company
believes market participants would use for similar instruments at the time of
sale. Accordingly, no assurance can be given that these securities could in fact
be sold or recovered at their stated values on the balance sheet, if at all.

Contingent Risks. Although the Company sells substantially all the mortgage
loans which it originates or purchases, the Company retains some degree of
credit risk on substantially all loans sold. During the period of time that
loans are held pending sale, the Company is subject to the various business
risks associated with the lending business including the risk of borrower
default, the risk of foreclosure and the risk that a rapid increase

14
<PAGE> 16

in interest rates would result in a decline in the value of loans to potential
purchasers. The documents governing the Company's securitization program require
the Company to establish deposit accounts or build over-collateralization levels
through retention of distributions otherwise payable to the holders of the
Subordinated Certificates. Such amounts serve as credit enhancement for the
related trust and are therefore available to fund losses realized on loans held
by such trust. In addition, documents governing the Company's securitization
program require the Company to commit to repurchase or replace loans which do
not conform to the representations and warranties made by the Company at the
time of sale.

RISKS RELATED TO B&C LOANS

The B&C loan market is comprised of credit-impaired borrowers who generally
have significant equity in their homes and whose borrowing needs are not
currently met by traditional financial institutions. Loans made to such
borrowers may entail a higher risk of delinquency and higher losses than loans
made to more creditworthy borrowers. While the Company believes that the
underwriting criteria and collection methods it employs enable it to reduce the
higher risks inherent in loans made to credit-impaired borrowers, no assurance
can be given that such criteria or methods will afford adequate protection
against higher delinquencies, foreclosures or losses than anticipated and, as a
result, the Company's financial condition or results of operation could be
adversely affected.

CYCLICALITY OF AND COMPETITION IN THE ASSET ACQUISITION AND RESOLUTION BUSINESS

The Asset Portfolio acquisition and resolution business is affected by
long-term cycles in the general economy. In addition, the volume of domestic
Asset Portfolios available for purchase by investors or management by third
party servicers such as the Company has generally declined since 1993. The
Company cannot predict what will be a normal annual volume of Asset Portfolios
to be sold or outsourced for management and resolution. Moreover, future Asset
Portfolio purchases will depend on the availability of Asset Portfolios offered
for sale, the availability of capital and the Company's ability to submit
successful bids to purchase Asset Portfolios. The acquisition of Asset
Portfolios has become highly competitive in the United States. This may require
the Company to acquire Asset Portfolios at higher prices thereby lowering profit
margins on the resolutions of such Asset Portfolios. Under certain circumstances
the Company may choose not to bid for Asset Portfolios which it believes cannot
be acquired at attractive prices. As a result of all the above factors, Asset
Portfolio purchases may vary significantly from quarter to quarter.

GENERAL ECONOMIC CONDITIONS

Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate may adversely affect certain segments of the
Company's business. Although such economic conditions may increase the number of
nonperforming loans available for sale to or for management by the Company, such
conditions could adversely affect the resolution of Asset Portfolios held by the
Company for its own account or managed for others, lead to a decline in prices
or demand for collateral underlying Asset Portfolios or, in the case of Asset
Portfolios held for the Company's own account, increase the cost of capital
invested by the Company and the length of time that capital is invested in a
particular Asset Portfolio, thereby negatively impacting the rate of return
realized from such Asset Portfolio. Economic downturns and rising interest rates
also may reduce the number of loan originations by the Company's commercial
mortgage banking business and negatively impact its commercial and residential
mortgage securitization activity.

In addition, periods of economic slowdown or recession, whether general,
regional or industry-related, may increase the risk of default on residential
mortgage loans and may have an adverse effect on the Company's business,
financial condition and results of operations. Such periods also may be
accompanied by decreased consumer demand for residential mortgages, resulting in
declining values of homes securing outstanding loans, thereby weakening
collateral coverage and increasing the possibility of losses in the event of
default. Significant increases in homes for sale during recessionary economic
periods may depress the prices at which foreclosed homes may be sold or delay
the timing of such sales. There can be no assurance that the housing markets
will be adequate for the sale of foreclosed homes and any material deterioration
of such markets could reduce recoveries from the sale of repossession inventory.

15
<PAGE> 17

CERTAIN COMMERCIAL LOAN ORIGINATION AND SERVICING RISKS

When borrowers are delinquent in making monthly payments on commercial
mortgage loans serviced by the Company, the Company is required to advance
interest payments with respect to such delinquent loans to the extent that the
Company deems such advances ultimately recoverable. These advances require
funding from the Company's capital resources but have priority of repayment from
collections or recoveries on the loans in the related pool in the succeeding
month. In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees and officers of the Company (including its appraisers), incomplete
documentation and failures by the Company to comply with various laws and
regulations applicable to its business. The Company believes that liability with
respect to any currently asserted claims or legal actions is not likely to be
material to the Company's consolidated financial position or results of
operations; however, any claims asserted in the future may result in legal
expenses or liabilities which could have a material adverse effect on the
Company's financial position and results of operations.

As a participant in the Fannie Mae DUS program, the Company must accept a
first loss risk on loans originated by the Company. In addition, the Company
must also make certain representations and warranties concerning loans
originated by the Company and sold to Conduit Purchasers or Fannie Mae. These
representations cover such matters as title to the property, lien priority,
environmental reviews and certain other matters.

ASSET PERFORMANCE ASSUMPTIONS

The Company's business, financial condition, results of operations and
liquidity depend, to a material extent, on the performance of loans owned
directly or backing securities purchased and sold by the Company. The carrying
value of the Company's Asset Portfolios and certain other assets has been
determined in part using estimates of future cash flows based on assumptions
concerning future default and prepayment rates that are consistent with the
Company's historical experience and market conditions and present value discount
rates that the Company believes would be requested by an unrelated purchaser of
an identical stream of estimated cash flows. Management believes that the
Company's estimates of cash flows were reasonable at the time such estimates
were made. However, the actual rates of default and/or prepayment on such assets
may exceed those estimated and consequently may adversely affect anticipated
future cash flows, results of operations and reported earnings. The Company
periodically reviews its loss and prepayment assumptions in relation to current
performance of the loans and market conditions and, if necessary, provides for
the impairment of the respective asset. The Company's business, financial
condition and results of operations could be materially adversely affected by
such adjustments in the future. No assurance can be given that loan losses and
prepayments will not exceed the Company's estimates or that such assets could be
sold at their stated value on the balance sheet, if at all.

INTEREST RATES

Since certain of the Company's borrowings, including borrowings under the
Revolving Loan Agreement, are at variable rates of interest, the Company may be
impacted by increases in interest rates. In addition, the value of its
interest-earning assets and liabilities may be directly affected by the level of
and fluctuations in interest rates. The Company monitors the interest rate
environment and employs prefunding or other hedging strategies designed to
mitigate the impact of changes in interest rates. However, there can be no
assurance that the profitability of the Company would not be adversely affected
during any period of changes in interest rates. A significant decline in
interest rates could result in increased prepayment of outstanding loans.

A substantial and sustained increase in interest rates could adversely
affect the ability of the Company to originate loans and could reduce the gains
recognized by the Company upon their securitization and sale. A significant
decline in interest rates could decrease the size of the Company's residential
Subordinated Certificates by increasing the level of loan prepayments.
Fluctuating interest rates also may affect the net interest income earned by the
Company resulting from the difference between the yield to the Company on

16
<PAGE> 18

mortgage loans held pending sale and the interest paid by the Company for funds
borrowed under the Company's warehouse credit facilities or otherwise. In
addition, inverse or flattened interest yield curves could have an adverse
impact on the earnings of the Company because the loans pooled and sold by the
Company have long-term rates while the senior interests in the related trusts
are priced on the basis of intermediate rates.

GOVERNMENT REGULATION

The operations of the Company are subject to regulation by federal, state
and local government authorities, as well as to various laws and judicial and
administrative decisions, that impose requirements and restrictions affecting,
among other things, the Company's loan originations, credit activities, maximum
interest rates, finance and other charges, disclosures to customers, the terms
of secured transactions, collection, repossession and claims handling
procedures, multiple qualification and licensing requirements for doing business
in various jurisdictions, and other trade practices. Although the Company
believes that it is in compliance in all material respects with applicable
local, state and federal laws, rules and regulations, there can be no assurance
that more restrictive laws, rules or regulations will not be adopted in the
future that could make compliance more difficult or expensive, restrict the
Company's ability to originate, purchase or sell loans, further limit or
restrict the amount of interest and other charges earned on loans originated or
purchased by the Company, further limit or restrict the terms of loan
agreements, or otherwise adversely affect the business or prospects of the
Company. There are also, among other risks, uncertainties concerning the
business practice of paying back points to residential mortgage brokers.

RISKS OF HEDGING TRANSACTIONS

The Company has in the past and may in the future enter into interest rate
or foreign currency financial instruments used for hedging purposes. While
intended to reduce the effects of volatility in interest rate or foreign
currency price movements, such transactions could cause the Company to recognize
losses depending on the terms of the instrument and the interest rate or foreign
currency price movement. See Note 14 of Notes to the Company's Consolidated
Financial Statements included herein.

FOREIGN OPERATIONS

The Company's asset management and resolution business has entered into,
and intends to continue to enter into, contracts to purchase and to manage and
resolve Asset Portfolios located in Canada and Western Europe and may in the
future expand into other foreign countries. Foreign operations are subject to
various special risks, including currency translation risks and currency
exchange rate fluctuations (which the Company intends to mitigate with currency
hedging arrangements as available and economical) and exchange controls. Changes
in foreign exchange rates may have an adverse effect on the Company's financial
condition and results of operations. In addition, earnings of foreign operations
are subject to foreign income taxes that reduce cash flow available to meet debt
service requirements and other obligations of the Company, which may be payable
even if the Company has no earnings on a consolidated basis.

COMPETITION

All of the business lines in which the Company operates are highly
competitive. Some of the Company's principal competitors in certain business
lines are substantially larger and better capitalized than the Company. Because
of these resources, these companies may be better able than the Company to
obtain new customers, to acquire Asset Portfolios, to pursue new business
opportunities or to survive periods of industry consolidation. Moreover, there
cannot be any assurance that Asset Portfolio purchasers/owners for whom the
Company provides Asset Portfolio management services will not build their own
management and resolution staffs and reduce or eliminate their outsourcing of
these services.

The Company is experiencing greater competition in its residential capital
markets business. The Company has experienced increasing competition from other
Conduit Purchasers in the acquisition of B&C

17
<PAGE> 19

loan portfolios. In addition, the Company expects to encounter significant
competition in the B&C loan origination market, which it will enter through the
Quality Acquisition.

The Company believes that its ability to acquire Asset Portfolios for its
own account will be important to its future growth. Acquisitions of Asset
Portfolios are often based on competitive bidding, where there are dangers of
bidding too low (which generates no business), as well as of bidding too high
(which could win the Asset Portfolio at an economically unattractive price). In
addition, the increasing competition in this business line has caused the
Company to experience decreasing profit margins in its Asset Portfolio business
in order to remain a competitive bidder for Asset Portfolios and has caused the
Company to redeploy its capital in other more profitable product lines.

The Company also encounters significant competition in its other business
lines. The commercial mortgage banking business is highly fragmented with
certain large national competitors and significant localized competition. In
addition, within the commercial loan origination and residential mortgage
securitization business, access to and the cost of capital are critical to the
Company's ability to compete. The Company must compete with numerous
competitors, many of whom have superior access to capital sources and can
arrange or obtain lower cost capital for customers.

ANTI-TAKEOVER CONSIDERATIONS

The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws include a number of provisions that may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with the Company's Board of Directors rather
than pursue non-negotiated takeover attempts. These provisions include a
staggered Board of Directors, authorized "blank check" preferred stock,
supermajority voting requirements on certain matters and prohibitions against
certain business combinations. The Indentures governing the Convertible
Subordinated Debentures, the Senior Subordinated Notes, and the Senior Notes
require the Company to repurchase all outstanding Convertible Subordinated
Debentures, Senior Subordinated Notes and Senior Notes in the event of certain
change of control transactions. These anti-takeover provisions could have the
effect of discouraging or making more difficult a merger, tender offer, other
business combination or proxy contest, even if such event would be favorable to
the interests of the stockholders. See "Description of Capital Stock -- Delaware
Law and Certain Corporate Provisions."

18
<PAGE> 20

QUALITY ACQUISITION

THE QUALITY PURCHASE AGREEMENT

The Quality Purchase Agreement provides that the Company will purchase
substantially all of the assets of Quality, including certain subsidiaries, all
cash on hand, mortgage loans held, foreclosed residential real property held,
all accounts receivable, certain Subordinated Certificates retained from certain
prior securitizations of its loans, three office buildings in Irvine, California
and all furniture, fixtures and equipment on Quality's balance sheet as of the
date of closing. The Company will assume certain contracts and obligations,
principally short-term leases associated with Quality's branch offices,
obligations under Quality's health insurance plans and indebtedness incurred by
Quality in connection with all loans held by Quality and conveyed to the Company
at closing as well as indebtedness incurred with respect of the Subordinated
Certificates acquired by the Company. The purchase price is $65.0 million in
cash plus the assumption of warehouse indebtedness existing as of closing. The
Company will finance the Quality Acquisition through borrowings under the
Revolving Loan Agreement and intends to use the net proceeds of the sale of its
shares of Common Stock in the Offering, in part, to repay such borrowings.

It is currently anticipated that the Quality Acquisition will be
consummated on or about October 25, 1996. The Quality Acquisition is subject to
certain customary conditions to closing, including regulatory approvals and
confirmation of the sellers' representations at closing. See "Unaudited Pro
Forma Condensed Consolidated Financial Statements for the Quality Acquisition"
and "Use of Proceeds." No assurance can be given that the Quality Acquisition
will be consummated.

BUSINESS DESCRIPTION

Quality, which is based in Irvine, California, is an independent originator
of B&C loans. Quality originates B&C loans through a nationwide network of
approximately 50 branch offices in 31 states. Each branch office provides a
local "back office" for independent mortgage brokers. These offices enable
Quality to maintain local relationships with over 4,500 Quality-approved
mortgage brokers. At September 30, 1996, Quality employed approximately 450
people. The Company believes that the Quality Acquisition will enable the
Company to expand further its residential mortgage banking business and to
establish a substantial position as an originator of B&C loans. Quality has
originated, funded and sold in excess of $5.0 billion in such loans since
October 1, 1992.

Quality was incorporated in 1984 and, in 1991, was acquired by Calmac
Funding ("Calmac") for the purpose of commencing operations as an originator and
seller of B&C loans. Calmac arranged for DLJ Mortgage Capital, Inc. ("DLJ
Mortgage") to provide various lines of credit and to act as a Conduit Purchaser
for Quality's loan production, in exchange for which DLJ Mortgage received a 49%
equity interest in Quality. Since 1992, Quality has sold substantially all of
its loan volume to DLJ Mortgage through whole loan sales at prices below that
which the Company believes it could obtain in the future.

The Company believes that Quality's branch structure and approach to
origination allow Quality to have a local market presence without incurring high
fixed employee costs. The Company also believes that the large independent
broker network allows Quality to obtain some of the economic efficiencies
associated with a wholesale mortgage origination business without paying premium
prices for closed loans.

Although independent mortgage brokers are Quality's primary source for loan
production, in July 1995 Quality augmented its mortgage production sources by
establishing two new complementary divisions -- retail telemarketing and
wholesale conduit. These divisions were established to diversify Quality's
production capacity and to capture the relatively high origination fees
associated with B&C loan production. The retail telemarketing division markets
loan programs to homeowners through direct-response marketing. The wholesale
conduit division purchases closed loans directly from loan originators. At June
1, 1996, Quality had 85 approved partner institutions and had purchased loans
from 51 institutions. These new divisions currently account for approximately
2.0% of Quality's loan production, but the Company anticipates that these new
sources of production will grow in the future.

19
<PAGE> 21

When Quality initiated its B&C loan origination business, practically all
of its loan production was in California. Through the aggressive growth of its
nationwide branch network, Quality has substantially increased its loan
production in states other than California, thereby achieving substantial
geographic diversification. In calendar 1995, originations in California
accounted for approximately 29.3% of total loan originations and no other state
accounted for more than 6.9% of total originations. During the six months ended
June 30, 1996, originations in California accounted for approximately 24.2% of
total originations.

Quality underwrites and funds substantially all mortgage loans in its own
name. Quality employs appraisers who conduct a majority of all appraisal
reviews. Other appraisal reviews are performed by independent appraisers
approved by Quality, and are subsequently reviewed by Quality. Substantially all
of the loans that are originated by Quality are secured by first mortgages on
residential properties. Quality generally has not retained any mortgage
servicing rights or realized any of the operational or financial benefits of
securitizing its own loans.

During the twelve-months ended December 31, 1995, Quality closed and funded
approximately $1.4 billion in loans that were originated by approximately 4,200
brokers. During that same period, the Company's management believes that Quality
reviewed over 40,000 mortgage loan applications, of which approximately 38% were
approved and funded. The single and ten highest producing independent brokers
accounted for approximately 2.3% and 8.6%, respectively, of Quality's loan
originations during this twelve month period.

COMPANY STRATEGY AFTER THE ACQUISITION

One of the Company's current growth initiatives within its residential
capital markets business is to diversify its loan production sources. The
Company believes that the Quality Acquisition will provide an internal loan
production source that will significantly augment and balance its traditional
bulk purchases of third-party originated loans. This initiative is especially
important in the face of increasing competition for B&C loans.

Upon completion of the Quality Acquisition, the Company intends to promptly
rebuild Quality's senior management, which has suffered substantial attrition
during the past year. The Company is in the process of identifying a new senior
management team for the Quality business, which will include a combination of
Quality personnel, current Company personnel and newly-hired experienced
industry managers. The Company will also quickly move to strengthen the
management of Quality's extensive branch network. In addition, the Company
intends to restructure Quality's compensation and benefit framework in order to
reduce high employee turnover.

The Company expects to engage in extensive process reengineering and
upgrading of Quality's management information and data processing systems. The
Company believes that it can capture certain efficiencies through the
integration of Quality's systems with the Company's existing management
information and data processing systems. The Company is also in the process of
identifying a number of expense reductions that can be implemented in the near
future.

The Company believes that the Quality Acquisition can enhance the growth
and profitability of the Company's residential mortgage securitization business.
First, the Company will focus on rebuilding Quality's loan production volume.
The Company believes that it can achieve this goal through improving management
and employee morale and by offering more competitive loan products through its
independent broker network, which will be made possible by the Company's lower
cost of funds and by capturing securitization profits. Second, the Company
intends to institute new underwriting guidelines to increase the credit quality
of the loan product.

The Company also believes that capital investments in Quality's management
information and data processing systems and various identified cost containment
actions will yield material expense savings, permitting Quality to become more
cost competitive. One significant and immediate cost saving will result from the
termination of Quality's consulting contract with Calmac, pursuant to which
Calmac was paid approximately $3.2 million during the fiscal year ended
September 30, 1995. While the Company does not

20
<PAGE> 22

anticipate any material reductions in Quality's work force, the Company believes
that financial benefits from layoffs effected by Quality in late June 1996 will
be more fully reflected in future periods.

For the six months ended June 30, 1996, Quality recorded a charge to
operations, totaling $7.5 million, to recognize an impairment loss on certain of
its investments. Because the assets associated with this adjustment are included
in the acquisition, no adjustment has been made to remove the effects of the
recording of this impairment loss.

The unaudited pro forma condensed consolidated financial statements for the
Quality Acquisition reflect the elimination of revenue from prepayment charges
and late payment fees attributable to rights not being acquired. The Company
believes that prepayment charges on loans made after the acquisition will become
a meaningful source of cash flow and revenue. The Company does not currently
anticipate retaining late payment fees as Quality has done in the past. Instead,
it expects to pass these fees on to the loan servicers. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements for the Quality Acquisition."

21
<PAGE> 23

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS FOR THE QUALITY ACQUISITION

The historical condensed consolidated financial statements consist of the
operations and financial position of the Company and Quality as of and for the
six months ended June 30, 1996 and the operations of the Company for the year
ended December 31, 1995 combined with the operations of Quality for the year
ended September 30, 1995, Quality's most recent fiscal year end.

The unaudited pro forma condensed consolidated balance sheet is presented
as if the Company had acquired substantially all of the assets of Quality as of
June 30, 1996 and the unaudited pro forma condensed consolidated statements of
income are presented as if the assets had been acquired on the first day of the
period presented. These presentations are made as if the Company had (i)
acquired substantially all of the assets and assumed the operating liabilities
of Quality, (ii) financed the Quality Acquisition with indebtedness incurred
under the Revolving Loan Agreement and (iii) issued an additional 1,828,148
shares of Common Stock, the proceeds of which were used to retire a portion of
the indebtedness incurred to fund the Quality Acquisition. The Company will
acquire any residential loans owned by Quality on the closing date and assume
the related warehouse indebtedness. Quality's mortgage warehouse is generally
funded by such indebtedness. The warehouse facility fluctuates significantly
based on loan origination volume and the timing of loan sales, consequently the
total assets acquired may vary substantially. These unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the historical consolidated financial statements and notes thereto of the
Company and Quality included herein. In management's opinion, all adjustments
necessary to reflect the effects of the acquisition of the assets and assumption
of liabilities of Quality and the capitalization of the acquisition have been
made.

The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual results of operations and financial
position of the Company would have been assuming the transaction had been
completed as set forth above, nor do they purport to represent the Company's
results of operations for future periods.

22
<PAGE> 24

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996

<TABLE>
<CAPTION>
(A) (B)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
COMPANY QUALITY ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents....................... $ 14,650 $ 8,708 $ 23,358
Temporary investments........................... 32,921 32,921
Accounts receivable and interest................ 18,469 654 19,123
Mortgage loans held for sale.................... 190,257 106,665 296,922
Advances and wet fundings....................... 19,094 19,094
Investments:
Loans......................................... 164,656 164,656
Partnerships and joint ventures............... 32,246 32,246
Asset-backed and other securities............. 55,687 26,715 82,402
Real estate................................... 16,050 2,712 18,762
Deferred income taxes........................... 12,201 7,277 $ (7,277)(C) 12,201
Premises and equipment, net..................... 6,373 8,114 14,487
Intangible assets............................... 52,394 45,883(D) 98,277
Other assets.................................... 8,007 3,869 11,876
--------- --------- --------- ---------
Total assets.......................... $ 603,911 $ 183,808 $ 38,606 $ 826,325
========= ========= ========= =========
Liabilities:
Accounts payable................................ $ 8,502 $ 4,048 $ 4,000(E) $ 16,550
Accrued employee compensation and benefits...... 9,522 9,522
Notes payable................................... 121,991 65,000(F) 148,672
(38,319)(G)
Warehouse loans payable......................... 181,024 149,366 330,390
Senior subordinated debt........................ 57,500 57,500
Convertible subordinated debt................... 45,000 45,000
Income taxes payable and deferred tax
liability..................................... 2,983 1,484 (1,484)(C) 2,983
Other liabilities............................... 3,193 3,193
--------- --------- --------- ---------
Total liabilities............................... 429,715 154,898 29,197 613,810
--------- --------- --------- ---------
Stockholders' equity:
Preferred stock.................................
Common stock.................................... 1,345 1 91(G) 1,436
(1)(C)
Capital in excess of par........................ 107,655 2,137 38,228(G) 145,883
(2,137)(C)
Reductions for employee stock................... (1,500) (1,500)
Treasury stock.................................. (160) (160)
Net unrealized gains (losses)................... (977) (977)
Retained earnings............................... 67,833 26,772 (26,772)(C) 67,833
--------- --------- --------- ---------
Total stockholders' equity...................... 174,196 28,910 9,409 212,515
--------- --------- --------- ---------
Total liabilities and stockholders' equity...... $ 603,911 $ 183,808 $ 38,606 $ 826,325
========= ========= ========= =========
</TABLE>

23
<PAGE> 25

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(A) Represents the historical unaudited condensed consolidated balance sheet of
the Company as of June 30, 1996.

(B) Represents the historical unaudited condensed consolidated balance sheet of
Quality as of June 30, 1996.

(D) Represents the estimated excess of purchase price over net assets acquired.
For purposes of these unaudited pro forma condensed consolidated financial
statements an estimated useful life of 15 years is utilized in calculating
amortization expense.

(E) Represents anticipated costs of the acquisition including professional
services and severance payments.

(F) Represents the anticipated indebtedness to be incurred to fund the
acquisition of Quality by the Company based on a purchase price of $65,000.

(G) Reflects the issuance of an additional 1,828,148 shares of Common Stock to
be sold by the Company. The proceeds, less estimated costs of the
registration of $3,500, are utilized to retire a portion of the additional
indebtedness incurred to fund the Quality Acquisition. For purposes of
these unaudited pro forma condensed consolidated financial statements, the
closing price of the Common Stock on September 30, 1996 of $22.875 was
used.

24
<PAGE> 26

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
(A) (B)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
COMPANY QUALITY ADJUSTMENTS COMPANY
----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Asset management and resolution fees....... $ 41,295 $ 41,295
Loan origination fees, net................. $ 12,642 12,642
Interest and other investment income....... 40,105 34,721 74,826
Mortgage banking fees...................... 24,382 24,382
Gain on sale of loans and investments,
net..................................... 1,382 40,677 42,059
Prepayment and late fees................... 14,281 $ (14,281)(C)
Loss on sale of real estate held for
sale.................................... (6,269) (6,269)
Other revenues............................. 3,322 1,989 5,311
----------- -------- --------- -----------
Total revenues..................... 110,486 98,041 (14,281) 194,246
----------- -------- --------- -----------
Expenses:
Personnel.................................. 52,852 33,423 (3,151)(D) 83,124
General and administrative................. 16,087 13,277 29,364
Interest................................... 6,921 23,114 1,937(E) 31,972
Depreciation and amortization.............. 2,294 1,436 2,819(F) 6,549
Provision for loss on investments.......... 3,914 3,914
Profit participation....................... 2,074 2,074
----------- -------- --------- -----------
Total expenses..................... 80,228 75,164 1,605 156,997
----------- -------- --------- -----------
Income from continuing operations before
income tax expense......................... 30,258 22,877 (15,886) 37,249
Income tax expense........................... 11,593 9,757 (7,078)(G) 14,272
----------- -------- --------- -----------
Income from continuing operations............ 18,665 13,120 (8,808) 22,977
Gain from discontinued operations, net of
taxes...................................... 2,425 2,425
----------- -------- --------- -----------
Net income................................... $ 21,090 $ 13,120 $ (8,808) $ 25,402
=========== ======== ========= ===========
Earnings per share from continuing
operations:
Primary................................. $ 0.76 $ 0.87(I)
Fully-diluted........................... 0.75 0.86(I)
Earnings per share:
Primary................................. $ 0.86 $ 0.96(I)
Fully-diluted........................... 0.85 0.95(I)
Weighted average number of common shares
outstanding and common share
equivalents................................ 24,654,321 26,482,469
</TABLE>

25
<PAGE> 27

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
(A) (B)
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
COMPANY QUALITY ADJUSTMENTS COMPANY
----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Asset management and resolution fees....... $ 18,037 $ 18,037
Interest and other investment income....... 43,247 $ 13,222 56,469
Mortgage banking fees...................... 14,937 14,937
Gain on sale of loans and investments,
net..................................... 5,789 18,094 23,883
Prepayment and late fees................... 9,894 $ (9,894)(C)
Loss on sale of real estate................ (994) (994)
Other revenues............................. 1,699 797 2,496
----------- -------- --------- -----------
Total revenues..................... 83,709 41,013 (9,894) 114,828
----------- -------- --------- -----------
Expenses:
Personnel.................................. 35,631 15,753 (941)(D) 50,443
General and administrative................. 13,445 10,100 23,545
Interest................................... 13,495 8,085 969(E) 22,549
Depreciation and amortization.............. 1,160 930 1,198(F) 3,288
Provision for losses on investments........ 7,513 7,513(H)
Profit participation....................... 32 32
----------- -------- --------- -----------
Total expenses..................... 63,763 42,381 1,226 107,370
----------- -------- --------- -----------
Net income (loss) before income tax
expense.................................... 19,946 (1,368) (11,120) 7,458
Income tax expense (benefit)................. 7,803 (931) (3,954)(G) 2,918
----------- -------- --------- -----------
Net income (loss)............................ $ 12,143 $ (437) $ (7,166) $ 4,540
=========== ======== ========= ===========
Earnings per share:
Primary.................................... $ 0.44 $ 0.15(I)
Fully-diluted.............................. 0.42 0.17(I)
Weighted average number of common shares
outstanding and common share equivalents... 27,469,186 29,297,334
</TABLE>

26
<PAGE> 28

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(A) Represents the historical condensed consolidated statement of income of the
Company for the period indicated.

(B) Represents the historical condensed statement of income of Quality for the
period indicated.

(C) Reflects the removal of revenues related to accumulated rights to receive
prepayment fees and late fees which are not being acquired. The Company
does not expect to retain the rights to receive late fees. However, the
Company will receive prepayment fees on new loans originated.

(D) Represents the removal of contract services fees paid to the selling
shareholder as this agreement will be terminated as a condition to the
acquisition.

(E) Represents interest expense on the additional indebtedness to be incurred to
fund the acquisition.

(F) Represents an adjustment to depreciation expense as a result of changes to
property and equipment as a result of the acquisition and an adjustment to
record amortization expense of $3,055 and $1,528 for the year ended
December 31, 1995 and for the six months ended June 30, 1996, respectively,
as a result of recording the acquired intangible assets of $45,883 and
utilizing an amortization period of 15 years.

(G) Reflects an adjustment to income tax expense to reflect the Company's
effective tax rate for the period.

(H) For the six months ended June 30, 1996, Quality recorded a charge to
operations, totaling $7,513, to recognize an impairment loss on certain of
its investments. As the assets associated with this adjustment are included
in the acquisition, no adjustment has been made to remove the effects of
the recording of this impairment loss.

(I) Assuming the issuance of the additional 1,164,000 shares of Common Stock
issuable upon exercise of the Underwriters' over-allotment option (assuming
an offering price of $22.875 per share, the closing price on September 30,
1996) and those proceeds being used to repay the indebtedness of the
Company, the pro forma earnings per share would be as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
<S> <C> <C>
Earnings per share from continuing operations:
Primary.................................................... $0.90 $0.18
Fully-diluted.............................................. 0.89 0.19
Earnings per share:
Primary.................................................... $0.99 $0.18
Fully-diluted.............................................. 0.98 0.19
Weighted average number of common shares outstanding and
common share equivalents................................... 27,646,469 30,461,334
</TABLE>

27
<PAGE> 29

OTHER RECENT DEVELOPMENTS

REDEMPTION OF CONVERTIBLE SUBORDINATED DEBENTURES

The Company currently anticipates calling for redemption all of the
outstanding Convertible Subordinated Debentures. The redemption price would be
108.0% of the face amount of each Convertible Subordinated Debenture (or $1,080
per $1,000 principal amount) plus accrued and unpaid interest to the redemption
date. The Convertible Subordinated Debentures may be converted into Common Stock
at a conversion price of $12.50 per share of Common Stock for each $1,000
principal amount (or 80 shares of Common Stock for each $1,000 principal
amount). On October 22, 1996, the last reported sale price of the Common Stock
on the Nasdaq National Market was $21.875 per share. Assuming conversion of all
$45.0 million principal amount of the Convertible Subordinated Debentures, the
Company would issue 3,600,000 shares of its Common Stock.

THIRD QUARTER 1996 RESULTS

On October 21, 1996, the Company announced its third quarter earnings
results. A summary of the information released appears in the table below. The
information set forth below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included in this
Prospectus. The financial and operating data presented below are not audited and
are not necessarily indicative of the results that may be expected for future
periods.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees................ $ 9,177 $ 8,310 $ 27,214 $27,279
Interest and other investment income................ 22,481 9,877 65,728 24,446
Mortgage banking fees............................... 10,095 5,753 25,032 14,077
Gain on sale of investments, net.................... 3,177 928 8,966 973
Other revenues...................................... 556 428 2,255 5,302
------- ------- -------- -------
Total revenues.............................. 45,486 25,296 129,195 72,077
Operating expenses, excluding interest expense........ 23,782 15,371 74,050 49,334
Interest expense...................................... 7,983 1,495 21,478 2,771
------- ------- -------- -------
Income from continuing operations before income
taxes............................................... 13,721 8,430 33,667 19,972
Income tax expense.................................... 5,165 3,234 12,968 7,542
------- ------- -------- -------
Income from continuing operations..................... 8,556 5,196 20,699 12,430
Gain from discontinued operations, net................ 2,425
------- ------- -------- -------
Net income............................................ $ 8,556 $ 5,196 $ 20,699 $14,855
======= ======= ======== =======
Earnings per share from continuing operations:
Primary............................................. $ 0.31 $ 0.21 $ 0.75 $ 0.51
Fully-diluted....................................... 0.29 0.21 0.71 0.51
Earnings per share:
Primary............................................. $ 0.31 $ 0.21 $ 0.75 $ 0.61
Fully-diluted....................................... 0.29 0.21 0.71 0.61
Weighted average number of common shares outstanding
and common share equivalents........................ 28,005 24,678 27,648 24,430
</TABLE>

The Company earned $8.6 million during the quarter ended September 30,
1996, a 65% increase from the same period in 1995 and a 16% increase relative to
the quarter ended June 30, 1996. Revenues for the third quarter were $45.5
million compared to $25.3 million for the same period in 1995, an 80% increase.
The third

28
<PAGE> 30

quarter performance brought income from continuing operations for the first nine
months of 1996 to $20.7 million, or 67% higher than the $12.4 million during the
same period of 1995.

Primary earnings per share for the third quarter were $0.31, compared to
the prior year's third quarter of $0.21 and the second quarter's $0.27.
Fully-diluted earnings per share were $0.29 compared to $0.21 for the 1996
second quarter, a 38% increase. Third quarter 1996 earnings include $0.04 per
share in gains on the securitization and sale of B&C loans compared to $0.07 per
share earned in the second quarter in gains on securitizations and sales.

In August, the Company's residential capital markets business completed a
securitization of B&C loans, totaling $311.0 million. Year-to-date loan
securitization volume totals $1.1 billion. The Company's asset acquisition and
resolution business invested $27.4 million and $101.8 million in Asset
Portfolios during the quarter and nine months ended September 30, 1996,
respectively. The commercial mortgage banking business originated and sold
$945.0 million in new mortgage loans in the third quarter of 1996 compared to
$599.0 million during the same period in 1995 and $713.0 million during the
second quarter of 1996.

29
<PAGE> 31

USE OF PROCEEDS

The net proceeds to the Company from the sale by the Company of 1,828,148
shares of its Common Stock offered hereby (after deducting underwriting
discounts and estimated expenses of the Offering) will be approximately $
million (approximately $ million if the Underwriters' over-allotment option
is exercised in full). The Company will not receive any of the proceeds from the
shares of Common Stock sold by the Selling Stockholders. See "Selling
Stockholders."

The Company intends to use the net proceeds it receives to reduce the
Company's outstanding borrowings under the Revolving Loan Agreement, which had
an outstanding balance of approximately $61.4 million at September 30, 1996
(approximately $126.4 million on a pro forma basis for the Quality Acquisition).
For the six months ended June 30, 1996, the weighted average interest rate on
indebtedness under the Revolving Loan Agreement was 7.3% per annum. The
indebtedness under the Revolving Loan Agreement was incurred primarily in
connection with investments in Asset Portfolios, the Quality Acquisition (on a
pro forma basis) and other general corporate purposes. After application of the
net proceeds to the Company of the Offering, approximately $ million
(approximately $ million on a pro forma basis) would be available for
reborrowing under the Revolving Loan Agreement as of September 30, 1996 which
could be used for general corporate purposes, including funding investments in
Asset Portfolios, Subordinated Certificates and other financial instruments,
acquiring new businesses or making strategic investments in companies that
complement the Company's businesses. Other than as disclosed in this Prospectus,
the Company has no understandings or agreements in respect of any material
acquisition. See "Quality Acquisition" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

30
<PAGE> 32

PRICE RANGE OF AND DIVIDENDS ON COMMON STOCK

The Common Stock is quoted on the Nasdaq National Market under the symbol
"AMMB." The following table shows, for the calendar periods indicated, the range
of high and low last sale price per share for the Common Stock as quoted on the
Nasdaq National Market and the cash dividends per share.

<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PER SHARE
------- ------- ---------
<S> <C> <C> <C>
1994
First Quarter.................................................. $ 8.500 $ 6.500 $ 0.050
Second Quarter................................................. 8.000 6.750 0.050
Third Quarter.................................................. 8.250 7.000 0.050
Fourth Quarter................................................. 8.750 5.500 0.050
1995
First Quarter.................................................. $ 7.125 $ 5.875 $ 0.050
Second Quarter................................................. 9.375 6.750 0.050
Third Quarter.................................................. 13.375 8.750 0.050
Fourth Quarter................................................. 13.375 9.750 0.050(1)
1996
First Quarter.................................................. $14.625 $11.750 $ --
Second Quarter................................................. 19.375 14.500 --
Third Quarter.................................................. 24.750 17.000 --
Fourth Quarter (through October 22, 1996)...................... 23.250 21.750 --
</TABLE>

- ---------------

(1) The Company discontinued paying cash dividends effective October 1995.

The last reported sale price of the Common Stock on October 22, 1996, was
$21.875 per share. At September 30, 1996, the Company had approximately 2,900
stockholders of record.

Effective October 1995, the Company discontinued paying cash dividends. The
Board of Directors determined to retain all earnings to support anticipated
growth in the current operations of the Company and to finance future expansion.
The agreements governing certain of the Company's outstanding indebtedness
restrict the payment of cash dividends unless certain earnings tests are
satisfied. Future declarations and payments of dividends, if any, will be
determined in light of then-current conditions, including the Company's
earnings, operations, capital requirements, liquidity, financial condition,
restrictions in financing agreements and other factors deemed relevant by the
Board of Directors.

31
<PAGE> 33

CAPITALIZATION

The following table presents the capitalization of the Company at June 30,
1996, (i) on a historical basis, (ii) as adjusted for the Quality Acquisition
and (iii) as further adjusted to give effect to the Offering by the Company and
the application of the Company's share of the net proceeds of the Offering to
repay indebtedness under the Revolving Loan Agreement. This table should be read
in conjunction with "Use of Proceeds," the Company's Consolidated Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
<S> <C> <C> <C>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Debt(1):
Notes payable.............................................. $ 96,135 $ 161,135
Warehouse loans payable.................................... 181,024 330,390 $ 330,390
Nonrecourse debt........................................... 25,856 25,856 25,856
Senior Subordinated Notes.................................. 57,500 57,500 57,500
Convertible Subordinated Debentures........................ 45,000 45,000 45,000
-------- --------- ---------
Total debt................................................... 405,515 619,881
Stockholders' equity:
Common Stock, par value $0.05 per share; 50,000,000
authorized shares and 26,901,621 issued shares(2)....... 1,345 1,345
Capital in excess of par................................... 107,655 107,655
Reductions for employee stock.............................. (1,500) (1,500) (1,500)
Treasury stock, 24,339 shares.............................. (160) (160) (160)
Net unrealized gains (losses).............................. (977) (977) (977)
Retained earnings.......................................... 67,833 67,833 67,833
-------- --------- ---------
Total stockholders' equity................................... 174,196 174,196
-------- --------- ---------
Total capitalization......................................... $579,711 $ 794,077 $
======== ========= =========
</TABLE>

- ---------------

(1) Since June 30, 1996 through September 30, 1996, the Company has issued $57.5
million of Senior Notes, incurred $200.5 million of additional indebtedness
under the Warehouse Agreements and paid down $1.8 million of indebtedness
under the Revolving Loan Agreement. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 7 of Notes to the
Company's Consolidated Financial Statements.

(2) Does not include an aggregate of 2,160,409 shares of Common Stock reserved
for issuance upon the exercise of outstanding stock options, 3,600,000
shares reserved for issuance upon conversion of the Convertible Subordinated
Debentures or 1,665,498 shares available for future grants of options and
restricted stock under the Company's Stock Option and Award Plan. Since June
30, 1996 through September 30, 1996, options for an aggregate of 287,876
shares have been exercised and no shares of restricted stock have been
issued under the Company's Stock Option and Award Plan. See "Other Recent
Developments -- Redemption of Convertible Subordinated Debentures" and Note
11 of Notes to the Company's Consolidated Financial Statements.

32
<PAGE> 34

SUMMARY HISTORICAL FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------
1996 1995 1995(1) 1994(1) 1993
----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Revenues:
Asset management and resolution fees..... $ 18,037 $ 18,441 $ 41,295 $ 93,764 $ 118,552
Interest and other investment income..... 43,247 14,569 40,105 14,215 3,440
Mortgage banking fees.................... 14,937 8,324 24,382 6,176
Gain on sale of loans and investments,
net.................................... 5,789 46 1,382 839
Other revenues........................... 1,699 2,279 3,322 14,797 409
---------- ---------- ---------- ---------- ----------
Total revenues.................... 83,709 43,659 110,486 129,791 122,401
Operating expenses, excluding interest
expense.................................. 50,268 30,840 73,307 92,337 77,970
Interest expense........................... 13,495 1,278 6,921 1,768 754
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes...................... 19,946 11,541 30,258 35,686 43,677
Income tax expense......................... 7,803 4,307 11,593 14,753 17,371
---------- ---------- ---------- ---------- ----------
Income from continuing operations.......... 12,143 7,234 18,665 20,933 26,306
Gain (loss) from discontinued operations... 2,425 2,425 (2,185) (2,088)
---------- ---------- ---------- ---------- ----------
Net income................................. $ 12,143 $ 9,659 $ 21,090 $ 18,748 $ 24,218
========== ========== ========== ========== ==========
Earnings per share from continuing
operations:
Primary.................................. $ 0.44 $ 0.30 $ 0.76 $ 0.88 $ 2.33
Fully-diluted............................ 0.42 0.30 0.75 0.88 2.33
Earnings per share:
Primary.................................. $ 0.44 $ 0.40 $ 0.86 $ 0.79 $ 2.15
Fully-diluted............................ 0.42 0.40 0.85 0.79 2.15
Weighted average number of common shares
outstanding and common share
equivalents.............................. 27,469,186 24,305,838 24,654,321 23,679,239 11,288,688
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------------- --------------------------------------
1996 1995 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 14,650 $ 18,683 $ 16,139 $ 20,446 $ 43,442
Mortgage loans held for sale............... 190,257 3,000 160,843
Investments:
Loans.................................... 164,656 80,569 138,180 32,631 33,795
Partnerships and joint ventures.......... 32,246 44,021 34,694 22,491 2,503
Asset-backed and other securities........ 55,687 6,426 46,187 3,481
Real estate.............................. 16,050 7,393 5,686 14,054 2,504
Total assets............................... 603,911 229,403 521,713 172,340 163,653
Notes payable.............................. 96,135 67,300 89,442 15,500 22,113
Warehouse loans payable.................... 181,024 2,856 153,158
Nonrecourse debt........................... 25,856 8,622 38,354 959 6,000
Senior subordinated debt................... 57,500
Convertible subordinated debt.............. 45,000 45,000
Total indebtedness......................... 405,515 78,778 325,954 16,459 28,113
Stockholders' equity....................... 174,196 123,388 160,794 113,586 91,699
</TABLE>

33
<PAGE> 35

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------
1996 1995 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA(1):
Face Value of assets under management
(at period end).......................... $ 3,181,538 $3,174,959 $3,693,900 $3,031,800 $5,754,400
Commercial mortgage loans originated:
Face Value............................... $ 1,184,015 $ 982,608 $2,573,400 $ 610,000
Number of loans.......................... 195 169 444 106
Commercial mortgage loans serviced
(at period end):
Face Value............................... $10,932,252 $2,812,414 $9,919,596 $2,555,000
Number of loans.......................... 6,770 793 7,226 592
</TABLE>

- ---------------

34
<PAGE> 36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is engaged primarily in the businesses of residential mortgage
acquisition and securitization, Asset Portfolio acquisition and resolution,
commercial mortgage banking and institutional investment advisory services. The
Company's business may be affected by many factors, including fluctuations in
real estate and other asset values, the availability and price of commercial and
residential mortgages and Asset Portfolios to be purchased, and the level of and
fluctuations in interest rates, changes in the securitization market and
competition. In addition, the Company's operations require continued access to
short and long term sources of financing.

On December 31, 1993, AMRESCO, INC., formerly BEI, merged with Holdings.
The merger was accounted for as a "reverse acquisition" whereby Holdings was
deemed to have acquired BEI for financial reporting purposes. However, BEI,
renamed AMRESCO, INC., remains the continuing legal entity and registrant for
Commission filing purposes. Consistent with the reverse acquisition accounting
treatment, the historical financial statements of AMRESCO, INC. presented for
the year ended December 31, 1993 are the consolidated financial statements of
Holdings and differ from the consolidated financial statements of BEI as
previously reported. The results of operations of BEI have been included in the
Company's financial statements from the date of acquisition.

In 1994, the Company concluded all of its significant asset management
relationships with government agencies and financial institutions and began to
shift its focus toward investment activities and the development of new lines of
financial service businesses. Since the BEI Merger, the Company has extended its
business lines to offer a full range of residential and commercial mortgage
banking services, including the development of capital markets activities,
increased substantially the amount it invests in Asset Portfolios, developed its
institutional investment advisory business and disposed of certain non-core
business lines. These significant changes in the composition of the Company's
business are reflected in the Company's results of operations and may limit the
comparability of the Company's results from period to period.

AMRESCO Residential represented approximately 20% of revenues and 29% of
operating profit (before corporate, other and intercompany eliminations) of the
Company for the first six months of 1996. The Company believes that there are
significant opportunities in the B&C loan market, and consequently expects
AMRESCO Residential to represent an increasing proportion of revenues and
operating income of the entire Company for the foreseeable future.

The following discussion and analysis presents the significant changes in
financial condition and results of continuing operations of the Company by
primary business lines for the six months ended June 30, 1996 and 1995 and for
the years ended December 31, 1995, 1994 and 1993. The results of operations of
acquired businesses are included in the Company's Consolidated Financial
Statements from the date of acquisition. This discussion should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto included in this Prospectus.

35
<PAGE> 37

The following is a summary of the Company's results of operations by
primary business line for the six months ended June 30, 1996 and 1995 and for
the years ended December 31, 1995, 1994 and 1993.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1996 1995 1995 1994 1993
-------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Residential capital markets............ $ 16,866 $ 2,307
Asset acquisition and resolution....... 44,762 $34,704 81,144 $110,637 $122,944
Commercial mortgage banking............ 20,394 8,767 26,573 6,460
Institutional investment advisory...... 1,974 452
Corporate, other and intercompany
eliminations........................ (287) 188 10 12,694 (543)
-------- ------- -------- -------- --------
Total revenues................. 83,709 43,659 110,486 129,791 122,401
-------- ------- -------- -------- --------
Operating expenses:
Residential capital markets............ 6,623 1,694
Asset acquisition and resolution....... 23,447 16,770 37,691 52,741 51,678
Commercial mortgage banking............ 17,204 7,626 20,550 6,237
Institutional investment advisory...... 1,820 444
Corporate, other and intercompany
eliminations........................ 14,669 7,722 19,849 35,127 27,046
-------- ------- -------- -------- --------
Total operating expenses....... 63,763 32,118 80,228 94,105 78,724
-------- ------- -------- -------- --------
Operating profit:
Residential capital markets............ 10,243 613
Asset acquisition and resolution....... 21,315 17,934 43,453 57,896 71,266
Commercial mortgage banking............ 3,190 1,141 6,023 223
Institutional investment advisory...... 154 8
Corporate, other and intercompany
eliminations........................ (14,956) (7,534) (19,839) (22,433) (27,589)
-------- ------- -------- -------- --------
Total operating profit......... 19,946 11,541 30,258 35,686 43,677
Income tax expense....................... 7,803 4,307 11,593 14,753 17,371
-------- ------- -------- -------- --------
Income from continuing operations........ 12,143 7,234 18,665 20,933 26,306
Gain (loss) from discontinued
operations............................. 2,425 2,425 (2,185) (2,088)
-------- ------- -------- -------- --------
Net income............................... $ 12,143 $ 9,659 $ 21,090 $ 18,748 $ 24,218
======== ======= ======== ======== ========
</TABLE>

RESULTS OF OPERATIONS

Revenues from the Company's residential capital markets activities consist
of interest earned on residential mortgage loans purchased, gains on the
securitization and sale of such loans and other related securities and accrued
earnings on Subordinated Certificates purchased from securitization trusts. The
gains on securitization and sale of mortgage loans and other related securities
represent the amount by which the proceeds received (including the estimated
value of any Subordinated Certificates retained) exceed the basis of the assets
sold and the cost of securitization. When loans are securitized and sold, the
Subordinated Certificates retained are valued at the discounted present value of
the cash flow expected to be realized over the anticipated average life of the
assets sold less future estimated credit losses, estimated prepayments and
normal servicing and other fees relating to the assets sold. The discounted
present value of such Subordinated Certificates is computed using management's
assumptions of market discount rates (currently approximately 20%), prepayment
rates, default rates and other costs.

Revenues from the Company's asset management and resolution activities
primarily consist of fees charged for the management of Asset Portfolios
comprised of performing, nonperforming or underperforming commercial,
industrial, agricultural and real estate loans and for the successful resolution
of the assets within

36
<PAGE> 38

such Asset Portfolios. The asset base of each Asset Portfolio declines over the
life of the Asset Portfolio, thus reducing asset management fees as assets
within the Asset Portfolio are resolved. These fees are subject to fluctuation
based on the consideration received, timing of the sale or collection of the
managed assets and the attainment of specified earnings levels on behalf of
investors or investment partners. Certain direct costs incurred, primarily
through 1994, in the management of assets for the FDIC were paid by the Company
and billed to the FDIC.

The original cost of an investment in an Asset Portfolio is allocated to
individual assets within that Asset Portfolio based on their relative fair value
to the total purchase price. The difference between gross estimated cash flows
from loans and asset-backed and other securities and its present value is
accrued using the level yield method. The level yield method recognizes income
as the product of the recorded investment and the expected rate of return. The
expected rate of return is based upon estimated cash flows of the investments.
The recorded investment is reduced based on cash collections allocated to
principal. The Company periodically evaluates the recoverability of the recorded
investments by reviewing the estimated remaining amount and timing of cash flows
and adjusts, if necessary, investments or expected rates of return. The Company
accounts for its investments in partnerships and joint ventures using the equity
method which generally results in the pass-through of its pro rata share of
earnings as if it had a direct investment in the underlying loans. Loans,
partnerships and joint ventures, and real estate are carried at the lower of
cost or estimated fair value. The Company's investments in asset-backed and
other securities are classified as available for sale and are carried at
estimated fair value determined by discounting estimated cash flows at current
market rates. Any unrealized gains (losses) on asset-backed and other securities
are excluded from earnings and reported as a separate component of stockholders'
equity, net of tax effects.

Revenues from the Company's commercial mortgage banking activities are
earned from the origination and underwriting of commercial real estate mortgage
loans, the placement of such loans with permanent investors and the servicing of
loans. Loan placement and servicing fees, commitment fees and real estate
brokerage commissions are recognized as earned. Placement and servicing expenses
are charged to expense as incurred.

Revenues from the Company's institutional investment advisory business are
earned from providing real estate investment advisory services, including
acquisition, portfolio/asset management and disposition services, to
institutional and corporate investors.

Other revenues consist of consulting revenues earned on due diligence,
gains on sales of other assets and other miscellaneous income. Additionally,
1994 included a $10.0 million conclusion fee on a management contract with a
financial institution.

In December 1994, the Company elected to dispose of the operations of its
data processing and home banking subsidiary. The loss from such discontinued
operations totaled approximately $2.2 million and $2.1 million for the years
ended December 31, 1994 and 1993, respectively. The subsidiary was sold on June
16, 1995 for a net gain of $2.4 million, or $0.10 per share.

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

The Company reported revenues for the six months ended June 30, 1996 of
$83.7 million, a 92% increase from the same period in 1995. Operating profit
increased 73% over the same period in 1995 primarily due to the inclusion of
residential capital markets operations which were initiated in September 1995.
Commercial mortgage banking posted a 180% increase in operating profit, and
asset acquisition and resolution operating profit rose 19%. Fully-diluted
earnings per share from continuing operations for the six months ended June 30,
1996 were $0.42, compared to $0.30 for the same period in 1995, a 40% increase.

Residential Capital Markets. The Company initiated the operation of the
residential capital markets business in September 1995. Revenues for the six
months ended June 30, 1996 consisted of $11.3 million in interest and other
investment income and $5.6 million in gains on securitizations and sale of
residential mortgage loans. Interest and other investment income primarily
consisted of interest earned on mortgage loans held for sale which averaged
$171.2 million during the six months ended June 30, 1996, compared to no such

37
<PAGE> 39

loans during the same period of 1995. The $5.6 million in gains was realized on
three securitizations and sales of a total of $799.5 million in residential
mortgage loans during the first six months of 1996.

Expenses for the six months ended June 30, 1996 were comprised of $5.3
million in interest expense, $0.7 million in personnel expense and $0.6 million
in other general and administrative expense. The $5.3 million interest expense
relates to borrowings under warehouse loans payable which funded the acquisition
of the mortgage loans held for sale.

Asset Acquisition and Resolution. Revenues for the first six months of 1996
were comprised of $16.1 million in asset management and resolution fees, $27.4
million in interest and other investment income, $1.1 million in other revenues
and $0.2 million in gain from sale of investments. The $10.1 million, or 29%,
increase in revenues from the same period of 1995 was primarily comprised of a
$12.8 million increase in interest and other investment income due to an
increase in aggregate investments of $102.2 million from June 30, 1995 and $0.5
million in reversed reserves on accounts receivable related to the expired RTC
asset management contract collections during the period, which increases were
offset in part by a $2.8 million decrease in asset management and resolution
fees due to the conclusion of significant government contracts during early 1995
due to a shift from primarily managing and investing in partnerships and joint
ventures to investing in wholly-owned Asset Portfolios.

Expenses for the six months ended June 30, 1996 were comprised of $10.7
million in personnel costs, $7.8 million in interest expense and $4.9 million in
other general and administrative expenses. The $6.7 million, or 40%, increase in
expenses over the same period in 1995 was primarily due to a $5.0 million
increase in interest expense and a $1.6 million increase in other general and
administrative expenses. The increase in interest expense was due to the
financing incurred for a $102.2 million increase in aggregate investments.

Commercial Mortgage Banking. Revenues for the six months ended June 30,
1996 consisted of $14.9 million in origination, underwriting and servicing
revenues and $5.5 million in investment and other income. Origination,
underwriting and servicing revenues increased $6.4 million and interest and
other investment income increased $5.2 million due to the inclusion of the
operations of the commercial loan servicing business acquired in October 1995
and increases in the loan originations and servicing volumes of the Company's
previously existing commercial mortgage banking operations.

Expenses for the six months ended June 30, 1996 were comprised of $12.6
million in personnel expense, $3.8 million in other general and administrative
expense and $0.8 million in interest expense. The $9.6 million increase in
expenses is primarily due to a $6.6 million increase in personnel expenses, a
$2.2 million increase in other general and administrative expense and a $0.8
million increase in interest expense. Expenses increased primarily due to the
inclusion of operations of the commercial loan servicing business acquired
during October 1995 and the growth in commercial mortgage banking operations
which were initiated late in 1994.

Institutional Investment Advisory. The Company acquired substantially all
of the assets of Acacia in November 1995. Revenues for the first six months of
1996 totaled $2.0 million and were earned in conjunction with providing real
estate investment advisory services to institutional and corporate investors,
including acquisition, portfolio/asset management and disposition services.
Expenses of $1.8 million were incurred, including $1.3 million in personnel
expense and $0.5 million in other general and administrative expenses.

Corporate and Other. Net revenues in this category for the six months ended
June 30, 1996 and 1995 were nominal. Expenses for the six months ended June 30,
1996 were $14.7 million, compared to $7.7 million during the same period in
1995, a 90% increase. The $6.9 million increase was primarily due to increases
in personnel costs and other overhead related to expanded operations since the
second quarter of 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

The Company reported 1995 revenues of $110.5 million, a 15% decrease from
1994. Operating profit also decreased 15% over the same period. Revenues and
operating profit in 1994 included $10.0 million and $6.0 million, respectively,
related to the conclusion of an asset management contract. After adjustment for
this onetime conclusion fee, 1995 revenues decreased 8% while operating profits
increased 2%. Commercial

38
<PAGE> 40

mortgage banking posted a significant increase in operating profit, while asset
acquisition and resolution operating profit fell 25%. Fully-diluted earnings per
share from continuing operations for 1995 was $0.75 compared to $0.73 for 1994
after elimination of the onetime contract conclusion fee in 1994, a 3% increase.

Residential Capital Markets. The Company initiated the operations of the
residential capital markets business in September 1995. Revenues for the year
ended December 31, 1995 consisted of $2.3 million in interest and other
investment income. Interest and other investment income primarily consists of
interest earned on mortgage loans held for sale which totaled $142.7 million at
December 31, 1995.

Expenses for the year ended December 31, 1995 were comprised of $1.1
million in interest expense, $0.4 million in personnel expense and $0.2 million
in other general and administrative expenses. The $1.1 million interest expense
relates to borrowings under warehouse loans payable which funded the acquisition
of mortgage loans held for sale.

Asset Acquisition and Resolution. Revenues for 1995 were comprised of $20.6
million in asset management fees, $19.5 million in resolution fees, $36.9
million in interest and other investment income and $4.1 million in other
revenues, primarily consulting revenues and gains on sales of investments. The
$29.5 million, or 27%, decrease in revenues from 1994 was comprised of a $21.2
million decrease in management fees and a $32.4 million decrease in resolution
fees due to the conclusion of significant institutional and government contracts
during 1994 and early 1995. These declines were partially offset by a $23.0
million increase in interest and other investment income due to an increase in
aggregate investments of $138.6 million from December 31, 1994 and a $1.1
million increase in other revenues.

Expenses for the year ended December 31, 1995 were comprised of $21.1
million in personnel costs, $5.0 million in other general and administrative
expenses, $9.5 million in interest and $2.1 million in profit participation
expenses. The $15.1 million, or 29%, decrease in expenses was primarily due to
an $18.5 million decrease in personnel expenses and a $5.8 million decrease in
other general and administrative expenses, which decreases were partially offset
by a $7.2 million increase in interest expense and a $2.0 million increase in
profit participation expenses. Personnel and other general and administrative
expenses decreased as significant institutional and government contracts
concluded during 1994, including a related $3.7 million reduction in estimate of
accounts receivable bad debt reserve and other accrued expenses related to
certain concluding asset management contracts. The increase in interest expense
was due to the financing incurred for a $138.6 million increase in aggregate
investments at December 31, 1995 compared to December 31, 1994. The increase in
profit participation expense is primarily due to the $4.0 million received
related to certain expired RTC contracts, approximately 40% of which was owed to
a joint venture partner.

Commercial Mortgage Banking. Revenues for the year ended December 31, 1995
consisted of $24.4 million in origination, underwriting and servicing revenues,
$2.1 million in interest and other investment income and $0.1 million in other
income. Interest and other investment income increased $1.9 million and mortgage
banking revenues increased $18.2 million primarily due to the inclusion for an
entire year of the operations of Holliday Fenoglio, which was purchased in
August 1994, commencement of ACC's underwriting activities in the fourth quarter
of 1994 and the inclusion of securitized commercial loan servicing contracts
acquired from EQS in the fourth quarter of 1995.

Expenses for the year ended December 31, 1995 were comprised of $16.1
million in personnel expense, $4.1 million in other general and administrative
expense, and $0.3 million in interest expense. The $14.3 million increase is
primarily due to a $11.2 million increase in personnel expenses, a $2.8 million
increase in other general and administrative expense and a $0.3 million increase
in interest expense. Expenses increased due to the inclusion of operations of
Holliday Fenoglio, ACC and the contracts acquired from EQS.

Institutional Real Estate Investment Advisory. After the acquisition of
substantially all of the assets of Acacia in November 1995, revenues of $0.5
million were earned as the result of providing real estate investment advisory
services to institutional and corporate investors, including acquisition,
portfolio/asset management and disposition services. Expenses of $0.4 million
were incurred, including $0.2 million in personnel expense and $0.2 million in
other general and administrative expenses.

39
<PAGE> 41

Corporate and Other. Revenues for the year ended December 31, 1995 were
nominal, compared to $12.7 million in 1994. The $12.7 million decrease in
revenues was primarily due to the $10.0 million conclusion fee on a significant
institutional asset management contract terminated in 1994 and $3.8 million
relating to the inclusion in 1994 of operations and sale of a subsidiary
acquired with BEI for the period prior to its sale in the first quarter of 1994.

Expenses for the year ended December 31, 1995 were $19.8 million, compared
to $35.1 million during 1994, a 44% decrease. The $15.3 million decrease was
primarily due to the inclusion of $6.0 million of expenses in 1994 related to
the conclusion of a significant institutional asset management contract as well
as reduced incentive compensation and severance costs.

Income Taxes. The Company must have future taxable income to realize
recorded deferred tax assets, including net operating loss carryforward tax
benefits obtained in the BEI Merger. Certain of these benefits expire beginning
in 1998 and are subject to annual utilization limitations. Management believes
that recorded deferred tax assets will be realized in the normal course of
business. The decrease in the effective income tax rate for the year ended
December 31, 1995 was primarily due to permanent tax differences related to
mortgages sold by a partnership in which the Company owns an interest for which
the acquired tax basis exceeded the book basis.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The Company reported 1994 revenues of $129.8 million, a 6% increase from
1993, while operating profit decreased 18% over the same period. Revenues and
operating profit in 1994 included $10.0 million and $6.0 million, respectively,
related to the early conclusion of an asset management contract. The operations
of BEI are included from the date of acquisition, December 31, 1993. The
Company's commercial mortgage banking operations were initiated during 1994 with
the acquisition of Holliday Fenoglio in August 1994 and the commencement of
business by ACC during the fourth quarter of 1994. Additionally, during 1994,
the focus of the asset acquisition and resolution business began changing from
managing assets for institutional and governmental entities to the direct
ownership of Asset Portfolios acquired from nongovernmental sellers and the
management of Asset Portfolios for private third parties.

Asset Acquisition and Resolution. Revenues for the year ended December 31,
1994 included $41.8 million in management fees, $52.0 million in resolution
fees, $13.9 million in interest and other investment income and $2.9 million in
other revenues. Management fees decreased $8.9 million and resolution fees
declined $15.9 million during 1994 principally due to only eight months of
operations under a significant institutional asset management contract, as well
as reduced revenues from the government sector contracts as the contracts
continued to conclude. These declines were offset by a $9.7 million increase in
interest and investment income and gains on sales of assets and other revenues
of $2.8 million.

Expenses of $52.7 million for the year ended December 31, 1994 included
$39.6 million in personnel expenses, $10.7 million in other general and
administrative expenses, $2.3 million in interest expense and $0.1 million in
profit participations. The $1.1 million increase over the same period of 1993
was primarily due to a $6.6 million increase in other general and administrative
expenses and a $1.2 million increase in interest expense, which increases were
partially offset by a $3.8 million decline in personnel expenses and a $2.9
million decrease in profit participations. The increase in other general and
administrative expenses was primarily due to the inclusion of BEI operations in
1994. The increase in interest expense was due to the incurrence of debt to
facilitate increased investments. The decrease in personnel expense was
primarily related to a reduction in the number of personnel due to the
conclusion of personnel-intensive institutional and government asset management
contracts. The decrease in profit participations of $3.0 million was primarily
due to the modification of an asset management contract effective April 1, 1993
that effected an exchange of profit participation in the Company's income before
taxes for a rebate of fees.

Commercial Mortgage Banking. Revenues of $6.4 million and expenses of $6.2
million were due to the acquisition of Holliday Fenoglio and the commencement of
business by ACC during 1994. Revenues in 1994 consisted of $0.2 million in
interest income and $6.2 million in commercial mortgage banking revenues,

40
<PAGE> 42

primarily origination, underwriting and servicing revenues. Expenses in 1994
consisted of $4.9 million in personnel expenses and $1.3 million in other
general and administrative expenses.

Corporate and Other. Other revenues for the year ended December 31, 1994
were $12.7 million, compared to a loss of $0.5 million in 1993. The $13.2
million increase in revenues was primarily due to the $10.0 million conclusion
fee on an institutional asset management contract and the $3.8 million in
revenue relating to the inclusion in 1994 of operations and sale of a subsidiary
acquired with BEI for the period prior to its sale in the first quarter of 1994.
Expenses for the year ended December 31, 1994 increased $8.1 million over 1993
to $35.1 million primarily due to the inclusion of $6.0 million of expenses
related to the conclusion of an institutional asset management contract in 1994.

Pro Forma Income Summary. Pro forma combined revenues for 1994 totaled
$139.3 million compared to $168.4 million for 1993, assuming the BEI Merger and
the Holliday Fenoglio acquisition had been consummated as of January 1, 1993.
The $29.1 million, or 17%, decrease was primarily due to a decrease in BEI
revenues of $15.3 million and a decrease in Holdings revenues of $13.8 million.
The decline in revenues was primarily related to the conclusion of certain asset
management contracts during 1994 and the sale of certain Company subsidiaries in
the first quarter of 1994. Pro forma income from continuing operations for 1994
totaled $21.8 million compared to $28.0 million for 1993, after removing the
impact of merger expenses, net gain on sales of subsidiaries and discontinued
operations, for a decrease of $6.2 million, or 22%. Earnings per share from
continuing operations were $0.91 for 1994, compared to $1.23 for the previous
year, a decrease of $0.32, or 26%.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $14.7 million and $16.1 million at June
30, 1996 and December 31, 1995, respectively. Cash flows from operating
activities plus principal cash collections on investments totaled $50.8 million
for the first six months of 1996, compared to $27.3 million for the same period
of 1995. The increase in cash flows from these activities resulted primarily
from increased investments.

The following table is a summary of cash flow activity (dollars in
millions):

<TABLE>
<CAPTION>
TWELVE MONTHS
SIX MONTHS ENDED
ENDED JUNE 30, DECEMBER 31,
----------------- ------------------
1996 1995 1995 1994
------ ------ ------- ------
<S> <C> <C> <C> <C>
Cash provided by operations and principal
collections on investments................... $ 50.8 $ 27.3 $ 77.9 $ 69.8
Cash provided by (used for) new capital and
borrowings, net.............................. 49.1 62.3 334.6 (11.7)
Cash used for purchase of investments.......... (86.6) (92.8) (221.8) (62.6)
Cash used for purchase of mortgage loans,
net.......................................... (68.8) (3.0) (160.8)
Cash used for purchase of subsidiaries......... (3.1) (3.1) (22.3) (17.8)
Interest coverage ratio(1)..................... 2.8x 11.4x 6.0x 24.4x
</TABLE>

- ---------------

(1) Interest coverage ratio means the ratio of earnings before interest, income
taxes, depreciation and amortization to cash interest expense.

41
<PAGE> 43

The following table shows the components of the Company's capital structure
as of June 30, 1996 and as of December 31, 1995 (dollars in millions):

<TABLE>
<CAPTION>
JUNE
30, % OF DECEMBER 31, % OF
1996(2) TOTAL 1995 TOTAL
------- ----- ------------ -----
<S> <C> <C> <C> <C>
Notes payable (excluding investment line(1))...... $ 89.1 16.3% $105.9 22.8%
Mortgage warehouse debt........................... 181.0 33.1 153.2 33.0
Senior Subordinated Notes......................... 57.5 10.5
Subordinated Convertible Debentures............... 45.0 8.2 45.0 9.6
Stockholders' equity.............................. 174.2 31.9 160.8 34.6
</TABLE>

- ---------------

(1) The investment line under which $32.9 million and $21.9 million was
outstanding as of June 30, 1996 and December 31, 1995, respectively, is used
solely to acquire short term investments of high grade government securities
that secure the loan.

(2) Subsequent to June 30, 1996, the Company issued $57.5 million of Senior
Notes.

The following discussion summarizes the key components of the Company's
ongoing capital resources:

Parent Capital Arrangements. On August 12, 1996, the lenders' commitment
under the Revolving Loan Agreement was increased to $200.0 million. The interest
rate may be selected by the Company and tied to either the NationsBank of Texas'
variable rate (8.25% at June 30, 1996) or, for advances on a term basis up to
approximately 180 days, a rate equal to an adjusted LIBOR rate (5.5% at June 30,
1996 for a term of 30 days), or, on borrowings funded in foreign currency, an
adjusted currency rate (7.3% at June 30, 1996). At June 30, 1996, there was a
balance of $22.0 million at 7.0%, $19.0 million at 6.9%, $11.8 million at 7.3%,
$9.2 million at 7.4% and $1.2 million at 8.25%, for a total of $63.2 million
outstanding. The total balance outstanding at September 30, 1996 was $61.4
million. The Revolving Loan Agreement is secured by substantially all of the
assets of the Company not pledged under other credit facilities, including stock
of a majority of the Company's subsidiaries. The Revolving Loan Agreement
requires the Company to meet certain financial tests, including minimum
consolidated tangible net worth, maximum consolidated funded debt to
consolidated capitalization ratio, minimum fixed charge coverage ratio, minimum
interest coverage ratio, maximum consolidated funded debt to consolidated
earnings before interest, income taxes, depreciation and amortization ("EBITDA")
ratio and maximum corporate facility outstanding to consolidated EBITDA ratio.
The Revolving Loan Agreement contains covenants that, among other things, will
limit the incurrence of additional indebtedness, investments, asset sales, loans
to stockholders, dividends, transactions with affiliates, acquisitions, mergers
and consolidations, liens and encumbrances and other matters customarily
restricted in such agreements. The Revolving Loan Agreement matures on May 31,
1998.

Since November 1995, the Company has completed three offerings of debt
instruments: (i) $45.0 million principal amount of Convertible Subordinated
Debentures, bearing interest at 8% per annum and due 2005, (ii) $57.5 million
principal amount of Senior Subordinated Notes, bearing interest at 10% per annum
and due 2003 and (iii) $57.5 million principal amount of Senior Notes bearing
interest at 8.75% per annum and due 1999. The net proceeds of this indebtedness
were used to repay indebtedness incurred under the Revolving Loan Agreement (or
its predecessor). In addition, the Company completed a public offering of
2,300,000 shares of its Common Stock in December 1995. The net proceeds
(approximately $25.1 million) were also used to repay indebtedness under the
predecessor to the Revolving Loan Agreement. The Company currently anticipates
calling for redemption all of the outstanding Convertible Subordinated
Debentures. See "Other Recent Developments -- Redemption of Convertible
Subordinated Debentures."

AMRESCO Residential. ARMC has arranged various warehouse facilities to
support its acquisition of loan portfolios. Currently ARMC has three such
facilities which are described below.

ARMC has arranged a warehouse facility (the "Prudential Warehouse
Facility") with Prudential Securities Realty Funding Corporation ("Prudential").
The Prudential Warehouse Facility is currently a $400.0 million credit facility
used to finance the acquisition and warehousing of certain residential mortgage
loans. At June 30, 1996, a total of $43.6 million was outstanding under the
Prudential Warehouse Facility

42
<PAGE> 44

bearing interest at 6.3% per annum. The Prudential Warehouse Facility is secured
by all residential mortgage loans acquired using funds obtained under this
facility.

CS First Boston Mortgage Capital Corp. has agreed to provide ARMC with a
repurchase facility in an amount not to exceed $500.0 million (the "Repurchase
Facility"), to finance the acquisition and warehousing of certain residential
mortgage loans. As of June 30, 1996, $133.5 million was outstanding under the
Repurchase Facility bearing interest at 6.4% per annum. This facility is secured
by the mortgages acquired using funds obtained under the facility.

ARMC has also entered into a warehouse credit facility with Morgan Stanley
& Co. Incorporated with a maximum borrowing capacity of $200.0 million. No
indebtedness is outstanding under this facility.

On June 28, 1996, ARMC received approximately $39.8 million of proceeds
from the sale of certain Subordinated Certificates retained by the Company in
connection with the securitization and sale of residential mortgage loans. The
proceeds from this sale were used to reduce outstanding borrowings under the
Revolving Loan Agreement. Although ARMC intends, from time to time, to continue
to pursue opportunities to sell other Subordinated Certificates to generate
additional borrowing capacity under its Revolving Loan Agreement and reduce the
Company's capital exposure with respect to Subordinated Certificates, no
assurance can be given that such opportunities will be available in the future.

ACC. On April 28, 1995, ACC entered into a $25.0 million warehouse line of
credit agreement with NationsBank of Texas (as subsequently amended, the
"NationsBank Warehouse Facility") to support its commercial mortgage origination
and underwriting activities. This facility is secured by loans originated
through borrowings under this facility and bears interest at either the prime
rate announced from time to time by NationsBank of Texas or an Adjusted LIBOR
Rate (as defined in the facility) plus 1.65% or 2.0% based upon certain
enumerated factors. The Company is a guarantor of certain of ACC's obligations
under this facility. A total of $1.2 million bearing interest at 6.9% per annum
was outstanding at June 30, 1996. The NationsBank Warehouse Facility matures on
January 25, 1997.

On August 15, 1995, ACC entered into a warehouse line of credit agreement
with Residential Funding Corporation (as subsequently amended, the "RFC
Warehouse Facility") to facilitate multifamily mortgage loan underwriting and
origination. This facility is secured by the loans originated through borrowings
under this facility and the stated interest rate for this line is an adjusted
30-day LIBOR rate plus 3.0% or less as determined solely by the lender (8.3% at
June 30, 1996). At June 30, 1996, an advance of $2.8 million was outstanding.
Each borrowing under the RFC Warehouse Facility is generally due 60 to 80 days
after funding.

During the third quarter of 1996, the Company entered into repurchase
agreements totaling $54.8 million to finance the purchase of commercial mortgage
loans held for securitization. The Company anticipates that these repurchase
agreements will be refinanced through a warehouse loan facility in the fourth
quarter in a joint venture.

AMRESCO MBS I, Inc. On December 19, 1995, AMRESCO MBS I, Inc. entered into
a non-recourse Global Master Repurchase Agreement to support the purchase of
certain commercial mortgage pass-through certificates. A total of $16.3 million
was outstanding under this facility at June 30, 1996. This facility bears
interest at a rate of 30-day LIBOR plus 1.4% (6.9% at June 30, 1996). This
facility is secured by the Company's investments in certain asset-backed
securities. This facility matures on December 18, 1996.

During the next twelve months, the Company intends to pursue (i) expansion
of current businesses, including AMRESCO Residential, (ii) additional
investments in Asset Portfolios, both for its own account and as an investor
with various capital partners who acquire such investments, and (iii)
acquisitions of new businesses. The funds for such expansion, investments and
acquisitions are anticipated to be provided by cash flows and borrowings under
the Company's Revolving Loan Agreement. As a result, interest expense for 1997
is expected to be higher than interest expense for 1996.

The Company believes its funds on hand of $14.7 million at June 30, 1996,
cash flow from operations, its unused borrowing capacity under its credit lines
($914.5 million at June 30, 1996, excluding availability under a
lender-discretionary mortgage warehouse line which has no stated limit) and its
continuing ability to obtain financing should be sufficient to meet its
anticipated operating needs and capital expenditures, as well as

43
<PAGE> 45

planned new acquisitions and investments, for at least the next twelve months.
The magnitude of the Company's acquisition and investment program will be
governed by the availability of capital.

IMPACT OF NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," issued by the Financial Accounting Standards
Board, which is effective for fiscal years beginning after December 15, 1995,
requires that an employer's financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for them. The Company continues to measure compensation costs
using APB Opinion No. 25, "Accounting for Stock Issued to Employees," and will
therefore include pro forma disclosures in the notes to the financial statements
for all awards granted after December 31, 1994. The Company will disclose the
pro forma net income and pro forma earnings per share as if the fair value based
accounting methods in SFAS No. 123 had been used to account for stock-based
compensation cost in future financial statement presentations.

SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," issued by the Financial Accounting Standards
Board, is effective for transfers of financial assets and extinguishment of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. The Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
The Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Management does not believe the impact of the adoption of this Statement will
have a material impact on its financial position or results of operations.

INFLATION

The Company has generally been able to offset cost increases with increases
in revenues. Accordingly, management does not believe that inflation has had a
material effect on its results of operations to date. However, there can be no
assurance that the Company's business will not be adversely affected by
inflation in the future.

44
<PAGE> 46

BUSINESS

GENERAL

The Company is a leading specialty financial services company engaged in
residential mortgage acquisition and securitization, Asset Portfolio acquisition
and resolution, commercial mortgage banking and institutional real estate
investment advisory services. The residential capital markets business involves
acquiring, warehousing and securitizing portfolios of B&C loans. On October 9,
1996, the Company signed the Quality Purchase Agreement pursuant to which the
Company agreed to purchase substantially all of the assets of Quality. Quality
originates B&C loans through a retail system comprised of approximately 50
offices in 31 states. See "Quality Acquisition." The Asset Portfolio acquisition
and resolution business involves acquiring at a substantial discount to Face
Value and managing and resolving Asset Portfolios to maximize cash recoveries.
The Company manages and resolves Asset Portfolios acquired by the Company alone,
acquired by the Company with co-investors and owned by third parties. The
commercial mortgage banking business involves the origination, underwriting,
placement, sale, securitization and servicing of commercial real estate
mortgages. The Company's institutional investment advisory subsidiary provides
real estate investment advice to various institutional investors (primarily
pension funds).

BACKGROUND

- growing its participation in the acquisition and securitization of B&C
loans through AMRESCO Residential and entering the B&C loan origination
business with its acquisition of Quality;

- expanding its presence in the commercial mortgage banking market through
greater market penetration and by increasing its participation in the
market for securitization of commercial mortgages;

- developing its institutional real estate investment advisory business to
complement the Company's existing business lines; and

- acquiring additional businesses which complement the Company's existing
core capabilities in specialty financial services.

45
<PAGE> 47

RESIDENTIAL CAPITAL MARKETS

Through AMRESCO Residential, the Company acquires, warehouses and
securitizes portfolios of residential mortgages of borrowers who do not qualify
for conventional loans or whose borrowing needs are not met by traditional
residential mortgage lenders (B&C loans). Such borrowers may not satisfy the
more rigid underwriting standards of the traditional residential mortgage
lending market for a number of reasons, such as blemished credit histories (from
past loan delinquencies or bankruptcy), inability to provide income verification
data or lack of established credit history. The Company believes that this
market is large and is underserved by traditional lenders. Therefore, there is
less competition in this market and interest rates are higher than on mortgage
loans for more creditworthy borrowers. The Company primarily purchases first
lien mortgages. The Company believes that the higher interest rates offered by
the B&C loan market are attractive even after discounting for the potentially
greater credit risk associated with such borrowers.

During 1996 through the date of this Prospectus, the Company has
securitized approximately $1.1 billion in residential mortgages in four public
offerings of asset-backed securities. To date, the Company has purchased
portfolios of residential mortgages exclusively from other financial services
companies. Acquisitions are funded through warehouse credit facilities arranged
by the Company until the Company accumulates in excess of $250.0 million
principal amount of loans. The loans are then conveyed to a special purpose
trust that sells into the secondary market various tranches of rated
collateralized mortgage-backed securities representing undivided interests in
the revenue streams generated by the loans. Subordinated Certificates issued by
the trust are purchased by the Company. The Company either retains these
Subordinated Certificates or pools and sells them in private sales. The Company
does not service any residential loans it acquires. The securities publicly sold
to date by the Company have been rated "AAA" by Standard & Poor's and "Aaa" by
Moody's Investors Service, Inc. To achieve these ratings the Company has used a
combination of over-collateralization techniques and financial guaranty
insurance.

On October 9, 1996, the Company entered into the Quality Purchase Agreement
whereby the Company will acquire substantially all the assets of Quality for
$65.0 million in cash and the assumption of warehouse indebtedness existing as
of closing. Quality originates B&C loans through a nationwide network of
approximately 50 offices in 31 states. These offices enable Quality to maintain
local relationships with over 4,500 Quality-approved mortgage brokers. Since
commencing its current line of business in 1992, Quality has originated over
$5.0 billion of residential loans through September 30, 1996. All of these loans
have been sold into the secondary market or securitized. The Company's strategy
is to continue to develop Quality as an originator of B&C loans, which will
enhance and complement the Company's ability to securitize and sell such loans
in the secondary market. The Company currently anticipates completing this
acquisition on or about October 25, 1996. See "Quality Acquisition."

The Company pools the loans it purchases to create asset-backed securities
which it sells on a quarterly or more frequent basis, depending on the
availability of loans, profitability and other relevant factors. Securitization
is used by companies as a cost-competitive source of capital compared to
traditional corporate debt financing alternatives. The Company seeks to utilize
securitization structures that minimize the Company's capital requirements,
while still providing income to the Company. For example, the Company may sell
certificates for senior interests in a securitization, but retain subordinated
or interest-only certificates, some of which it may later elect to sell. The
Company then would have limited capital at risk, but would retain a portion of
the cash flow from the securitization. The Company also may seek to place
bundled residential mortgages through private securitization transactions such
as joint ventures with insurance companies and pension funds. The Company
utilizes the net proceeds from securitizations to purchase additional
residential mortgages and to pay down outstanding warehouse facilities. The
Company, through AMRESCO Residential, uses warehouse facilities with financial
institutions to finance its purchase of loans on a short-term basis pending
securitization. At September 30, 1996, AMRESCO Residential had an aggregate
borrowing capacity of $1.1 billion under three warehouse facilities of which
$783.5 million was available.

In its securitizations, the Company transfers residential mortgages to
newly-formed securitization trusts, which issue one or more classes of
asset-backed securities. The asset-backed securities are simultaneously sold to
investors (except for certain Subordinated Certificates which are purchased by
the Company and which are

46
<PAGE> 48

included in "Asset-Backed and Other Securities" in the Company's Consolidated
Financial Statements included herein). Each month, collections of principal and
interest on the residential mortgages are used by the trustee of the
securitization trusts to pay the holders of the related asset-backed securities,
to build over-collateralization by using excess interest to pay down principal
on such securities and to pay expenses, with any remaining cash flows paid to
the Subordinated Certificates. These remaining cash flows on Subordinated
Certificates purchased by the Company represent a substantial portion of the
Company's revenues. See "Risk Factors -- Change in Business Mix and Management
of Growth" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."

The Company arranges for credit enhancement to achieve a desired credit
rating on the asset-backed securities issued. The credit enhancement generally
involves four primary components: (i) a financial guaranty insurance policy;
(ii) servicer advances of scheduled interest and principal on delinquent loans;
(iii) over-collateralization of the securities; and (iv) use of Subordinated
Certificates to absorb losses.

The financial guarantee insurance policies used to date have been issued by
Financial Security Assurance, Inc. ("FSA") and MBIA Insurance Corporation
("MBIA"), which insure payments of principal and interest due on rated
asset-backed securities. Both FSA and MBIA and their respective subsidiaries
principally insure publicly and privately offered, asset-backed, collateralized
and municipal securities.

A significant portion of the credit enhancement for the securities results
from the use of interest collected on the loans that exceeds the sum of the
interest payable to the holders of the senior asset-backed securities, the
monthly servicing fees and other amounts to pay down the principal on the
asset-backed securities. The application of cash collections in this manner
causes the security principal balance to decline more quickly than the principal
balance of the underlying collateral, thus causing over-collateralization. This
over-collateralization provides not only additional principal protection to the
security holders, but also a higher level of assets earning interest relative to
the level of senior securities on which interest must be paid. Initial and
ongoing target levels of over-collateralization must be achieved and maintained
on each securitization.

Once target levels of over-collateralization are achieved, distributions
otherwise payable to Subordinated Certificates are used on a monthly basis to
absorb any losses and maintain ongoing target over-collateralization levels. If
such cash flow is insufficient to absorb losses in a given period, a draw is
required under the financial guarantee insurance policy. In future periods, this
cash flow must be used to repay any such draws. Each insured securitization
trust has certain portfolio performance tests relating to levels of delinquency,
defaults and net losses on the loans in such trust. If any of these levels are
exceeded, the amount required to be used for additional over-collateralization
and not passed through to the Subordinated Certificates may be increased.

The Company initially retains the Subordinated Certificates. In June 1996,
the Company successfully completed the private sale of certain Subordinated
Certificates for approximately $39.8 million. Although the Company intends, from
time to time, to continue to pursue opportunities to sell other Subordinated
Certificates to generate additional borrowing capacity under the Revolving Loan
Agreement and reduce the Company's capital exposure with respect to such
retained certificates, no assurance can be given that such opportunities will be
available in the future.

The Company does not service the loans acquired or securitized by it. When
the originator does not retain servicing rights, the Company selects third-party
servicers experienced in servicing B&C loans. The Company closely monitors the
performance of its loan servicers. Servicers are required to advance to the
securitization trust each month scheduled principal and interest due on
delinquent loans. The Company limits it servicer selection to those companies it
believes are sufficiently capitalized to meet these advance obligations. The
advancement of scheduled principal and interest contributes to the timely
payment of principal and interest on the securities.

ASSET ACQUISITION AND RESOLUTION BUSINESS

General. The Company manages and resolves Asset Portfolios acquired at
substantial discounts to Face Value by the Company alone and by the Company with
co-investors. The Company also manages and resolves Asset Portfolios owned by
third parties. Management of Asset Portfolios includes resolving loans and

47
<PAGE> 49

providing routine accounting services, monitoring collections of interest and
principal (if any), confirming (or advancing) insurance premiums and tax
payments due on collateral and generally overseeing and managing, if necessary,
collateral condition and performance. Asset Portfolios generally include secured
loans of varying qualities and collateral types. The majority of the loans in
the Asset Portfolios in which the Company invests are in payment default at the
time of acquisition. Although some Asset Portfolios include foreclosed real
estate and other collateral, the Company generally seeks Asset Portfolios that
do not include such assets. The Company does not invest in Asset Portfolios with
known environmental liabilities. Asset Portfolios purchased by the Company for
its own account are generally comprised of collateralized business loans, the
resolution of which may be based either on cash flow of a business or on real
estate and other collateral securing the loan. Collateralized business loans
acquired by the Company generally have smaller Face Values and often are more
quickly resolved than traditional real estate loans. Asset Portfolios purchased
by the Company with co-investors generally include loans for which resolution is
tied primarily to the real estate securing the loan.

The Company obtains information on available Asset Portfolios from many
sources. Repeat business and referrals from Asset Portfolio sellers with whom
the Company previously has transacted business are an important and frequent
source of Asset Portfolios. The Company has developed relationships in which it
is a preferred Asset Portfolio purchaser from certain sellers. The Company
believes that it receives many Asset Portfolio solicitations that result
primarily from the Company's reputation as an active portfolio purchaser. Other
important sources of business include referrals from co-investors who seek the
Company's participation in Asset Portfolio purchases, focused contacts initiated
by senior management, public advertising of Asset Portfolios for sale and the
Company's nationwide presence.

Although the need for asset management and resolution services by
governmental agencies has substantially declined in recent years, the Company
believes that a permanent market for Asset Portfolio acquisition, management and
resolution services has emerged within the private sector. The Company believes
that many financial institutions now recognize that it is advantageous to use
outside contractors to manage and resolve Asset Portfolios for a variety of
reasons, including a desire to reduce overhead costs, inadequate staffing to
handle large volumes of Asset Portfolios or a need to avoid management and
personnel distractions with the intensive and time-consuming job of resolving
Asset Portfolios. These financial institutions include multinational, money
center, super regional and regional banking institutions in the United States,
Canada and Europe, as well as insurance companies in the United States.
Moreover, financial institutions have embraced the concept of packaging and
selling Asset Portfolios to investors as a means of disposing of nonperforming
and underperforming loans and improving the financial institution's balance
sheet. Consolidations within the banking industry have reinforced this trend.
Insurance companies, which historically have avoided outsourcing Asset Portfolio
management or selling Asset Portfolios, also are emerging as sellers of Asset
Portfolios due in part to the implementation of risk-based capital rules for
insurance companies. Additionally, there is a market for management and
resolution services for delinquent or nonperforming loans within performing
securitized loan pools. The Company believes that the significant volume of
annual performing loan securitizations makes this an attractive market in which
to participate.

The Company believes that opportunities for the acquisition, management and
resolution of Asset Portfolios are becoming increasingly evident in certain
international markets and that lenders in these markets are adopting many of the
Asset Portfolio management and resolution outsourcing techniques currently
utilized in the United States. Accordingly, the Company has opened offices in
Toronto (August 1994) employing 17 persons and London (October 1995) employing 6
persons, each at June 30, 1996, in order to take advantage of both investment
and servicing opportunities in Canada, the United Kingdom and certain other
Western European nations. The Company believes that the international markets
are less competitive and, as a result, provide more attractive investments and
greater profit margins. The Company may open other offices and seek strategic
alliances in other international markets. The Company had $248.5 million (Face
Value) in Canadian Asset Portfolios and $87.9 million (Face Value) in United
Kingdom Asset Portfolios under management as of June 30, 1996.

Because of the significant decline in Asset Portfolio management and
resolution services required by governmental agencies and the trend toward
outright sales of Asset Portfolios, the Company shifted its strategic focus to
becoming an active Asset Portfolio investor for its own account and a
co-investor with other

48
<PAGE> 50

Asset Portfolio buyers. The Company believes that as a direct investor in Asset
Portfolios it has a significant competitive advantage relative to the Company's
competitors in the management and resolution business. Moreover, the Company
believes that direct investment permits the Company to take advantage of the
profit opportunities of Asset Portfolio investing. The Company believes that it
can gain market share in the Asset Portfolio acquisition, management and
resolution business due to its financial strength, experience in managing and
resolving Asset Portfolios, national reputation and strategic relationships with
sellers and purchasers of Asset Portfolios, including financial institutions,
large corporate buyers, investment banking firms and sophisticated private
investors.

For the six months ended June 30, 1996 and the year ended December 31,
1995, $44.8 million (53.5%) and $81.1 million (73.4%), respectively, of the
Company's gross revenues were attributable to its Asset Portfolio acquisition
and resolution business. The following table reflects the ownership composition
of the Asset Portfolios (based on their Face Value) under management by the
Company as of the dates indicated and further reflects the decline in the
management of Asset Portfolios for governmental agencies and the increase in the
Company's investment in Asset Portfolios since December 31, 1993. Certain
reclassifications of prior period amounts have been conformed to the current
year presentation.

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF JUNE 30, -----------------------------------------------------------
1996 1995 1994 1993
----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wholly-owned by the Company(1).... $ 440.6 13.9% $ 354.3 9.6% $ 140.4 4.6% $ 90.4 1.6%
Owned by the Company with co-
investors(2).................... 1,262.6 39.7 1,558.1 42.2 1,675.9 55.3 392.4 6.8
Owned by third parties:
Securitized mortgage pools...... 730.3 22.9 738.3 20.0 315.0 10.4 268.8 4.7
Government and other owners..... 748.0 23.5 1,043.2 28.2 900.5 29.7 5,002.8 86.9
-------- ----- -------- ----- -------- ----- -------- -----
Total under management... $3,181.5 100.0% $3,693.9 100.0% $3,031.8 100.0% $5,754.4 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>

- ---------------

(1) Includes $76.5 million, $66.8 million, $13.9 million and $0.0 million of
asset-backed securities, and $12.5 million, $1.7 million, $0.6 million and
$0.0 million of real estate as of June 30, 1996 and as of December 31, 1995,
1994 and 1993, respectively.

(2) Includes the securitized Asset Portfolios managed by the Company in which
the Company has invested, which aggregated $644.6 million, $775.3 million,
$973.8 million and $354.3 million as of June 30, 1996 and as of December 31,
1995, 1994 and 1993, respectively.

The following table reflects, by ownership category, the number of Asset
Portfolios managed by the Company and the number of assets included in such
portfolios as of June 30, 1996:

<TABLE>
<CAPTION>
NUMBER OF ASSET NUMBER OF
PORTFOLIOS ASSETS
--------------- ---------------
<S> <C> <C>
Wholly-owned by the Company............................. 42 1,176
Owned by the Company with co-investors.................. 29 1,149
Owned by third parties:
Securitized mortgage pools............................ 13 859
Government and other owners........................... 11 1,233
--
-----
Total under management........................ 95 4,417
== =====
</TABLE>

49
<PAGE> 51

The following table reflects the Company's investment (at carrying value)
in Asset Portfolios as of the dates indicated below:

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
JUNE 30, ------------------------
1996 1995 1994 1993
-------- ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Wholly-owned by the Company(1)....................... $192.6 $170.5 $34.4 $33.8
Owned by the Company with co-investors(2)............ 31.8 34.3 33.7 2.5
------ ------ ----- -----
Total...................................... $224.4 $204.8 $68.1 $36.3
====== ====== ===== =====
</TABLE>

- ---------------

(1) Includes $35.2 million, $33.9 million, $3.5 million and $0.0 million of
asset-backed securities, and $12.6 million, $0.5 million, $0.0 million and
$0.0 million of real estate as of June 30, 1996 and as of December 31, 1995,
1994 and 1993, respectively.

(2) Includes the securitized Asset Portfolios managed by the Company in which
the Company has invested, which aggregated $8.4 million, $8.9 million, $7.9
million and $1.7 million as of June 30, 1996 and as of December 31, 1995,
1994 and 1993, respectively.

Asset Portfolio Investment. The Company invests in Asset Portfolios by
purchasing them alone or with co-investors. As of June 30, 1996, the Company's
weighted average investment in all Asset Portfolios in which it was a
co-investor was 5.9% of the aggregate purchase price of such Asset Portfolios.
The Company generally funds its share of any investment with a combination of
borrowings under its then existing credit line and internal cash flow. Future
Asset Portfolio purchases will depend on the availability of Asset Portfolios
offered for sale, the availability of capital and the Company's ability to
submit successful offers to purchase Asset Portfolios. As a result, Asset
Portfolio purchases may vary significantly from quarter to quarter. The
following table reflects the Company's total purchases (at cost) of Asset
Portfolios by fiscal quarter over the past nine quarters:

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30,
1996 1996 1995 1995 1995 1995 1994 1994 1994
-------- --------- -------- --------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wholly-owned by the
Company(1)............... $48,066 $24,548 $76,749 $45,987 $62,499 $15,539 $21,014 $ 6,941
Owned by the Company with
co-investors(2).......... 581 5,452 325 8,480 6,294 7,900 $11,306 8,948
------- ------- ------- ------- ------- ------- ------- ------- -------
Total.............. $48,066 $25,129 $82,201 $46,312 $70,979 $21,833 $28,914 $11,306 $15,889
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

- ---------------

(1) Includes $2,822, $27,520, $13,248, $2,875 and $3,497 in the quarters ended
June 30, 1996, December 31, 1995, September 30, 1995, June 30, 1995 and June
30, 1994, respectively, for purchases of asset-backed securities, but does
not include any real estate assets.

(2) Includes $4,000, $1,601 and $2,000 of investments in securitized mortgage
pools purchased in the quarters ended December 31, 1994, June 30, 1994 and
March 31, 1994, respectively.

Prior to making an offer to purchase an Asset Portfolio, the Company
conducts an extensive investigation and evaluation of the individual loans
generally comprising 100% of the aggregate Face Value of all the loans therein,
except in rare instances where an unusually large number of smaller assets are
being purchased. This examination typically consists of analyzing the
information made available by the Asset Portfolio seller (generally, the
respective credit and collateral files for the loans), reviewing other relevant
material that may be available (including tax and judgment records), and
analyzing the underlying collateral (including conducting site inspections,
obtaining value opinions from third parties and consulting with any of the
Company's asset managers who have experience with the local market for such
assets). The Company also reviews information on the local economy and real
estate markets in the area in which the loan collateral is located. Because of
its broad, nationwide experience in managing assets, the Company often is able
to draw on its asset management experience in the specific market in which an
asset is located. Unlike the original lender,

50
<PAGE> 52

the Company values Asset Portfolio loans based on the present value of estimated
total cash flow from resolution, with the expectation that the loans will be
resolved prior to scheduled maturity. Generally, the Company does not refinance
or renew purchased loans or grant new credit.

Asset Portfolio evaluations are conducted almost exclusively by the
Company's employees who specialize in analysis of nonperforming and
underperforming loans, often with further specialization based on geographic or
collateral-specific factors. Most of these employees have previously served the
Company (and some continue to serve) as asset managers with responsibility for
resolving such loans. Their asset management experience aids these individuals,
working together in teams, in making informed judgments about the status of each
loan and the underlying collateral, the probable cash flows from the loan, the
likely resolution of the loan and the time and expense required for such
resolution. The Company's personnel document these evaluations in standardized
Company formats.

Upon completion of evaluation forms, the Company compiles a database of
information about the loans in the Asset Portfolio. The primary focus of the
database is the anticipated recovery amount, timing and cost of the resolution
of the Asset Portfolio. Using its proprietary modeling system and loan
information database, the Company then determines the amount it will offer. The
offer is structured to achieve certain minimum rates of return. As of June 30,
1996, the Company had paid an average purchase price of 54% of the aggregate
Face Value on all of its Asset Portfolios.

When an Asset Portfolio is acquired (whether for the Company's own account
or with co-investors), the Company assumes the management of the loans in that
portfolio. Management includes responsibility both for servicing and for
resolving such loans. The Company's asset managers are given the supporting due
diligence information and projections relating to each newly acquired loan for
which the manager assumes management responsibility. Because asset managers are
actively involved in the Asset Portfolio evaluation process, it is not unusual
for an asset manager to be given management responsibility for the specific
loans that the asset manager assisted in evaluating in the due diligence or
pricing processes. The Company believes that by combining the resolution and
evaluation activities it achieves efficiency in loan resolution and accuracy in
loan evaluations.

Asset resolutions are typically accomplished through (i) negotiating with
debtors a discounted payoff, which may be accomplished through a refinancing by
the obligor with a lender other than the Company, or (ii) foreclosure and sale
of the collateral. The Company generally seeks consensual resolution of each
loan, having found that a negotiated resolution usually maximizes the Company's
or investor's rate of return. Historically, the Company has resolved the
majority of the assets within an Asset Portfolio within 18 months of
acquisition. The goal of the Company's asset resolution process is to maximize
in a timely manner the cash recovery on each loan in an Asset Portfolio.

In evaluating Asset Portfolios, the Company takes into account
concentrations of collateral located in specific regions of the United States,
Canada and the United Kingdom. As of June 30, 1996, the geographic dispersion of
each primary asset securing the loans in the Asset Portfolios in which the
Company had invested (whether for its own account or with co-investors) was as
follows:

<TABLE>
<CAPTION>
NUMBER
FACE VALUE % OF TOTAL OF ASSETS % OF TOTAL
---------- ---------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Northeast................................... $ 400.0 23.5% 986 42.4%
West........................................ 660.0 38.7 455 19.6
Southwest................................... 163.2 9.6 252 10.8
Midwest..................................... 77.0 4.5 79 3.4
Southeast................................... 291.8 17.1 423 18.2
-------- ----- ----- -----
United States Subtotal.................... 1,592.0 93.4 2,195 94.4
Canada...................................... 23.3 1.4 78 3.4
UK.......................................... 87.9 5.2 52 2.2
-------- ----- ----- -----
Total............................. $1,703.2 100.0% 2,325 100.0%
======== ===== ===== =====
</TABLE>

51
<PAGE> 53

The Company invests in both Asset Portfolios composed of collateralized
business loans and in Asset Portfolios composed of real estate collateralized
loans. Asset Portfolios purchased by the Company alone have tended to be
primarily composed of collateralized business loans, because many such Asset
Portfolios are within the size range generally sought by the Company. Asset
Portfolios composed primarily of real estate loans typically are larger and the
Company's investments in such portfolios usually are made with co-investors. At
June 30, 1996, the Face Value of the Company's total investment in wholly-owned
Asset Portfolios aggregated approximately $440.6 million, which was composed of
approximately $341.8 million (77.6%) of collateralized business loans,
approximately $9.8 million (2.2%) of real estate loans, approximately $76.5
million (17.4%) of asset-backed securities and approximately $12.5 million
(2.8%) of real estate.

In addition, as of June 30, 1996, the Asset Portfolios in which the Company
had invested (whether for its own account or with co-investors) included
approximately 2,325 individual assets. The Company has found that the market for
smaller portfolios is less competitive, because larger Asset Portfolio buyers
often elect not to consider these portfolios. In a recent industry trend, some
Asset Portfolio sellers are soliciting bids on portfolios consisting of small
groups of loans.

The Company also purchases Subordinated Certificates (typically composed of
problem loans to which the Company can apply its resolution expertise). The
Company believes that acceptance of this risk is similar to its Asset Portfolio
acquisition business, and that the risk is acceptable because the Company has
significant expertise in understanding loan valuations and will manage the loan
resolutions.

Investment Funds. The Company intends to expand its investing activities by
marketing to institutional investors the opportunity to invest in Subordinated
Certificates of residential and commercial mortgage securitizations through
investment funds being organized by the Company. The Company anticipates that
its equity investment would range between 10% and 20% of the total funds
invested. The Company believes that it can apply to the underlying collateral
the valuation and underwriting expertise available in its Asset Portfolio
acquisition and resolution, commercial mortgage banking and residential capital
markets business groups, and thus take advantage of investment opportunities
that are presented by such Subordinated Certificates. The Company also believes
that acquiring Subordinated Certificates will generate opportunities for the
Company's asset management and servicing group. The majority of the Company's
investment in these Subordinated Certificates in the future will be through
these funds. As a policy, the Company will not sell to these funds Subordinated
Certificates created in securitizations organized by the Company. The funds will
be marketed through the Company's pension advisory group.

Asset management and resolution contracts relating to Asset Portfolios
managed by the Company for third parties have a finite duration, typically three
to five years, and, at June 30, 1996, covered Asset Portfolios with an aggregate
Face Value of approximately $1.5 billion. These contracts generally provide for
the payment of (i) a fixed annual management fee (generally between 50 and 75
basis points based on the Face Value or original purchase price of the loans)
with revenues declining as assets under management decrease, (ii) a resolution
fee (generally between 50 and 150 basis points based on the net cash collections
on loans and assets) and (iii) a negotiated incentive fee for the successful
resolution of loans or assets which is earned after a predetermined rate of
return for the portfolio owner or co-investor is achieved. Older Asset
Portfolios serviced by the Company are composed primarily of assets which were
sold by the RTC and the FDIC and generally contain relatively small loan
balances. As these portfolios are resolved, they are being replaced by Asset
Portfolios with relatively larger loan balances. This permits the Company to
achieve increased servicing efficiencies.

As part of its third-party asset management and resolution business, the
Company aggressively pursues contracts to serve as the designated Special
Servicer for pools of securitized commercial mortgages. After a loan within a
securitized pool of performing loans becomes delinquent or nonperforming, the
Master Servicer

52
<PAGE> 54

or Primary Servicer of the pool will contractually transfer responsibility for
resolution of that loan to the pool's designated Special Servicer. Special
Servicers earn an annual fee (typically approximately 50 basis points of the
Face Value of the delinquent or nonperforming loans subject to Special
Servicing), plus a 75 to 100 basis points resolution fee based on the total cash
flow from resolution of each such loan as it is received. As of June 30, 1996,
the Company was the designated Special Servicer for securitized pools holding
over $8.0 billion (Face Value) of loans, $730.3 million (Face Value) of which
had been assigned to the Company for resolution in its capacity as Special
Servicer. The Company believes that its willingness to purchase participating
interests in the delinquent or nonperforming portion of a securitized portfolio
provides the Company a significant competitive advantage in pursuing Master/Full
and Special Servicer contracts.

COMMERCIAL MORTGAGE BANKING BUSINESS

General. The Company performs a wide range of commercial mortgage banking
services, including originating, underwriting, placement, selling and servicing
commercial real estate loans through its Holliday Fenoglio, ACC and AMRESCO
Services commercial mortgage banking units. For the year ended December 31, 1995
and the six month period ended June 30, 1996, $26.6 million (24.1%) and $20.4
million (24.4%), respectively, of the Company's gross revenues were attributable
to the Company's commercial mortgage banking business.

The Company believes that the commercial real estate mortgage banking
business offers significant growth opportunities. There are an estimated $1.0
trillion of commercial real estate mortgages outstanding within the United
States and the Company estimates that $125.0 billion to $150.0 billion in
commercial real estate mortgages are refinanced each year in addition to
mortgage financing of new construction. Originations of loans for new
construction projects are cyclical and are influenced by various factors
including interest rates, general economic conditions and demand patterns in
individual real estate markets. The commercial mortgage banking industry is
fragmented, composed primarily of small local or regional firms. The Company
anticipates that expensive technological demands, increasingly standardized
underwriting requirements, more demanding borrowers and lenders and the
emergence of a market for securitized commercial real estate mortgage pools will
likely push the commercial mortgage banking industry toward greater
consolidation. The Company believes that well-capitalized, full service,
nationwide mortgage banking firms offering a variety of mortgage banking and
loan management services will emerge from this consolidation. The Company's
objective is to improve its position as a major nationwide full service mortgage
banker to the commercial real estate industry. The Company intends to achieve
this goal through the internal development of its commercial mortgage banking
group and through strategic acquisitions of commercial mortgage bankers which
either serve key real estate markets in the United States or provide niche or
specialized services that enhance the Company's product line.

Commercial Mortgage Banking Business. As a leading full service commercial
mortgage broker and banker with offices in key markets throughout the United
States, the Company provides a wide range of real estate capital markets
services to owners and developers of the full range of commercial real estate
properties. The typical consumers of commercial real estate mortgage banking
services are both real estate developers and owners (as borrowers) and
investor/lenders (as funding sources). Due to the more specialized nature of
commercial mortgage lending and the smaller universe of lenders serving this
market (in each case relative to the residential mortgage market), borrowers
rely on commercial mortgage brokers and bankers to find competitive lenders, and
these lenders (particularly insurance companies and pension plans, which do not
generally have origination staffs located in multiple branches) rely on mortgage
brokers and bankers to source potential borrowers. Lenders generally include
banks, pension funds and insurance companies. In originating loans, Holliday
Fenoglio and ACC each work closely with both the borrower and potential lenders
from the time a loan prospect is first contacted, through the application and
proposal process and throughout the documentation of the loan to final funding.
Holliday Fenoglio and ACC each typically perform extensive due diligence and
market analysis for the lenders in this process.

Holliday Fenoglio was one of the largest commercial mortgage bankers in the
United States in 1995 (based on origination volume) and primarily serves
commercial real estate developers and owners by originating commercial real
estate loans. Holliday Fenoglio originated approximately $2.1 billion of commer-

53
<PAGE> 55

cial real estate loans during 1995 and approximately $1.1 billion during the six
months ended June 30, 1996. Holliday Fenoglio principally targets developers and
owners of higher-quality commercial and multifamily real estate properties.
Holliday Fenoglio services prospective borrowers through its own
commission-based mortgage bankers in its offices located in Atlanta, Boca Raton,
Buffalo, Dallas, Houston, New York City, Orange County (California), Orlando and
Portland (Oregon). The loans originated by Holliday Fenoglio generally are
funded by institutional lenders, primarily insurance companies, and by Conduit
Purchasers, with Holliday Fenoglio retaining the Primary Servicer rights on
approximately 20% of such loans. The Company believes that Holliday Fenoglio's
relationship and credibility with its institutional lender network provide the
Company a competitive advantage in the commercial mortgage banking industry.

ACC, which originated approximately $447.1 million of mortgages during 1995
and approximately $105.2 million of mortgages during the six months ended June
30, 1996, is a mortgage banker that originates and underwrites commercial real
estate loans that are funded primarily by Conduit Purchasers. Accordingly, ACC
unlike Holliday Fenoglio, makes certain representations and warranties
concerning the loans it originates. These representations cover title to the
property, lien priority, environmental reviews and certain other matters. ACC
targets mortgage loans for commercial real estate properties that are suitable
for sale to Conduit Purchasers that accumulate loans for securitization
programs. ACC has established a financing and advisory relationship with a major
Wall Street investment bank whereby ACC will originate commercial mortgages,
which will be funded and securitized by a partnership. Through this
relationship, ACC will share in both the risk and the profit opportunities of a
Conduit Purchaser. By aligning its economic interest with the Conduit Purchaser
and jointly underwriting all loans purchased, the Company believes it can
significantly reduce the amount of time necessary to commit to a loan (by
avoiding duplicate underwriting evaluations) thereby enhancing its
competitiveness in this market. ACC serves its market directly through ACC's
offices located in Dallas, Miami, Washington, D.C. and Winston-Salem as well as
through a network of approximately 38 independent mortgage brokers located
throughout the United States. Through June 30, 1996, approximately 20.0% of the
loans underwritten by ACC were originated by Holliday Fenoglio, with Holliday
Fenoglio and ACC each receiving fees for their respective services.

The Company believes that it has certain additional significant advantages
in the commercial mortgage banking marketplace. First, through its relationships
with certain institutional investors, the Company is able to underwrite and sell
commercial mortgage loans, particularly in instances where the borrower needs
relatively quick access to funding for a particular project. Through a warehouse
credit facility arranged in early 1995, the Company is able to underwrite and
fund a loan and hold that loan for resale to a buyer. Second, because of the
Company's extensive experience in real estate markets, the Company believes it
can carefully evaluate the risks of such underwriting transactions in order to
minimize financial exposure to the Company in underwriting and/or warehousing a
loan.

ACC is approved by Fannie Mae to participate in its Delegated Underwriting
and Servicing ("DUS") program. An approved DUS lender is delegated the authority
to approve, commit and close loans for multifamily mortgages on a national basis
with the assurance that Fannie Mae will purchase the loans. In contrast to a
"prior approval" lender, DUS lenders do not need to obtain the approval of
Fannie Mae prior to making the loan. In return for the delegated authority to
make loans and the subsequent purchase of such loans by Fannie Mae, DUS lenders
must maintain a significant capital base, and retain a certain level of credit
risk on the loans they make. The DUS lender takes first loss risk up to 5% of
the loan amount, and above 5% Fannie Mae and the DUS lender share the loss, with
the DUS lender's maximum loss capped at 20% of the loan amount.

ACC is one of only 28 currently approved DUS lenders. While all DUS lenders
operate on a national basis, the Company believes that ten such lenders account
for the majority of DUS volume. The Company believes that ACC, as one of the few
DUS lenders, has certain competitive advantages in the multifamily mortgage
origination business. These advantages include the competitive pricing afforded
by Fannie Mae's position as the largest purchaser of housing related mortgages
in the nation and the ability to commit and close mortgages without the delay
and the accompanying market risks of such delay for an approval process by the
mortgage purchaser. For these reasons, the Company expects Fannie Mae loan
originations to become a

54
<PAGE> 56

significant part of its commercial mortgage banking activities. Holliday
Fenoglio is expected to be a significant source of such loan originations.

ACC is also a member of the Freddie Mac multifamily seller/servicer program
in Florida, North Carolina and South Carolina and intends to expand into other
states. Through this program, the Company sells to Freddie Mac and services
multifamily apartment mortgages in these states.

The Company generally earns a fee of between 50 and 100 basis points of the
loan amount for originated or underwritten loans, plus certain additional
processing fees. From time to time, the Company also originates nontraditional
financing involving hybrid forms of debt, equity participations and other
creative financing structures. Fees for equity or joint venture structures are
typically higher.

The table that follows reflects the loan origination activity, loan
origination and underwriting fee revenue and number of loan origination offices
for the six months ended June 30, 1996 and the year ended December 31, 1995:

<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Loan origination:
Dollar volume........................................ $ 1,184.0 $ 2,573.4
Number of loans...................................... 195 444
Loan origination and underwriting fees earned.......... $ 9.8 $ 20.6
Number of loan origination offices..................... 11 11
</TABLE>

The Company has established relationships with over 200 institutional
lenders that include insurance companies, pension plans and Conduit Purchasers.
In 1995, the Company placed 444 loans with approximately 80 different lenders.
For the six months ended June 30, 1996, the Company placed 195 loans with
approximately 50 different lenders. Forty-four institutional lenders have
retained the Company as their respective exclusive or semi-exclusive loan
originator in selected cities and regions.

Commercial Loan Servicing Business. The Company serves as a Primary
Servicer for whole loans and as a Master/Full Servicer for securitized pools of
commercial mortgages through AMRESCO Services. At June 30, 1996, the Company
acted as servicer with respect to approximately $10.9 billion of loans. See
"-- Asset Acquisition and Resolution Business -- Third Party Asset Management
and Resolution Services." The dominant users of commercial loan servicers are
commercial mortgage-backed bond trusts and similar securitized asset-backed loan
portfolios made up of numerous passive investors. Other lenders often contract
with the originating mortgage banker or other third-party servicer to manage
collection, accounting and other activities with respect to the loan. The
revenue stream from servicing contracts on commercial mortgages is relatively
predictable as prepayment penalties in commercial mortgages discourage early
loan payoffs, a risk that is more significant to servicers of residential
mortgage portfolios.

Primary Servicing involves collecting monthly mortgage payments,
maintaining escrow accounts for the payment of ad valorem taxes and insurance
premiums on behalf of borrowers, remitting payments of principal and interest
promptly to investors in the underlying mortgages, reporting to those investors
on financial transactions related to such mortgages and generally administering
the loans. The Primary Servicer also must cause properties to be inspected
periodically, determine the adequacy of insurance coverage on each property,
monitor delinquent accounts for payment and, in cases of extreme delinquency,
institute and complete either appropriate forbearance arrangements or
foreclosure proceedings on behalf of investors. Primary Servicer rates are
determined by a bidding and negotiating process. At June 30, 1996, the Face
Value of the Company's Primary Servicing portfolio totaled approximately $3.1
billion.

Master Servicing involves providing administrative and reporting services
to securitized pools of mortgage-backed securities. Typically, mortgages
underlying mortgage-backed securities are serviced by a number of Primary
Servicers. Under most master servicing arrangements, the Primary Servicers
retain

55
<PAGE> 57

principal responsibility for administering the mortgage loans and the Master
Servicer acts as an intermediary in overseeing the work of the Primary
Servicers, monitoring their compliance with the issuer's standards and
consolidating their respective periodic accounting reports for transmission to
the issuer of the related securities. The Company occasionally is designated as
the Full Servicer for a pool of mortgages, in which case the Company acts as
Master, Primary and Special Servicer for the pool. Master/Full Servicers are
typically paid fees based on the Face Value of loans under management, and the
compensation is determined by a bidding and negotiating process. At June 30,
1996, the Face Value of the Company's Master/Full Servicing portfolio totaled
approximately $7.8 billion. The average life of these securitized pools is
expected to be approximately eight years.

The market for servicing performing loan pools constitutes a much larger
potential market than the market for servicing nonperforming and underperforming
assets. The Company believes that by gaining access to these pools in a servicer
capacity, opportunities exist for the Company to originate loan refinancings as
outstanding loans mature. In addition, the Company's ability to also act as
Special Servicer is a competitive advantage. The Company, therefore, has
targeted the market for performing loan management services as a growth area for
the Company. The Company has previously participated in this market as a Primary
Servicer of commercial real estate loans for loans originated by the Company's
mortgage banking unit and for loans owned by investor clients.

Special Situation Lending. The Company has teamed with a major Wall Street
investment bank to provide financing to commercial real estate and business
borrowers for short-term financing or in situations where conventional financing
is unavailable. The Company will consider financing for asset acquisitions and
special use projects, "bridge" financing, bankruptcy and post-bankruptcy
financing, financings to accommodate discounted payoffs, debt restructurings and
"turnaround" situations, acquisitions of Asset Portfolios and the acquisition of
creditor positions in litigation or bankruptcy cases. These loans are generally
collateral-based, including commercial real estate, machinery and equipment. The
Company often approaches the winning bidder for an Asset Portfolio on which the
Company also bid to fund the winner's purchase. The Company believes it often
has a significant advantage in this lending market, because the Company
understands the unique characteristics of the market and has already evaluated
the specific Asset Portfolios. Typically special situation loans have a term of
six to 36 months and provide higher interest rate opportunities than
conventional loans. Through June 30, 1996, the Company had arranged $55.0
million of such loans with the Company funding $12.9 million of such loans and
the investment bank funding the balance.

INSTITUTIONAL REAL ESTATE INVESTMENT ADVISORY SERVICES

The Company believes that a market exists for quality real estate advisory
services to pension plans and other institutional investors in commercial real
estate. The Company believes that through the targeted hiring of high quality
personnel with proven track records and the purchase of advisory contracts from
other advisors, the Company can become a major provider of real estate advisory
services to institutional real estate investors, such as pension plans. The
Company's acquisition of substantially all of the advisory contracts and the
hiring of pension advisory personnel of Acacia was the first step in the
implementation of this strategy. The Company principally provides investment
advice to various institutional investors (primarily pension funds) seeking to
invest a portion of their funds in real estate and related investments. The
investors establish certain investment parameters with the Company (e.g., amount
of funds available for investment, type of property, geographic mix, form of
investment (loan, partnership, direct ownership), target rate of return and
investment term). The Company then seeks investment opportunities it believes
meet the investors' parameters. The investors exercise varying degrees of
control over the Company's investment decisions. Depending on the amount of
discretion granted by the client, the Company also will make a recommendation,
or the final decision, concerning whether to sell a particular property and will
direct the work necessary to complete the sale. Although the Company is paid
acquisition and disposition fees by some of its clients, its principal source of
revenue is asset management fees, which are based on the cash flow of the
investments under management or are negotiated at the time of the client's
investment in a property.

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<PAGE> 58

As more fully described above in "-- Asset Acquisition and Resolution
Business -- Asset Portfolio Investment," the Company intends to organize and
market investment funds that will invest in Subordinated Certificates. The
Company intends to market these funds through the institutional investment
advisory group.

COMPETITION

The Company's competition varies by business line and geographic market.
Generally, competition within each of the business lines within which the
Company competes is fragmented, with national, local and regional competitors,
none of which dominates a particular business line. Certain of the Company's
competitors within each of its business lines are larger and have greater
financial resources than the Company.

The Company recently has encountered increased competition in the market
for B&C loans as more originators and Conduit Purchasers enter this market. This
could impact origination and acquisition volume and profit margins. Certain of
the Company's larger, national competitors have access to greater financial
resources and lower costs of capital. In addition, the Company believes that its
ability to acquire Asset Portfolios for its own account will be important to its
future growth. Recently, the Company has encountered increased competition in
the market for Asset Portfolios which could cause the Company to experience
decreasing profit margins in this business line in order to remain a competitive
bidder for Asset Portfolios. In addition, declining profit margins presented by
current bidding opportunities has caused the Company to redeploy its capital in
more profitable product lines. Asset Portfolio acquisitions also require
significant capital.

The Company also encounters significant competition in its other business
lines. The commercial mortgage banking business is highly fragmented with
certain large national competitors and significant localized competition. In
addition, within the commercial loan origination and residential mortgage
securitization business access to, and the cost of, capital are critical to the
Company's ability to compete. The Company must compete with numerous
competitors, many of which have superior access to capital sources and can
arrange or obtain lower cost capital for customers.

LEGAL PROCEEDINGS

The Company is involved from time to time in various legal proceedings
arising in the ordinary course of business. In connection with the Company's
loan servicing, asset management and resolution activities, the Company is
indemnified to varying degrees by the party on whose behalf the Company is
acting. The Company also maintains insurance that management believes is
adequate for the Company's operations. None of the legal proceedings in which
the Company is currently involved, either individually or in the aggregate (and
after consideration of available indemnities and insurance), is expected to have
a material adverse effect on the Company's business or financial condition.

EMPLOYEES

At June 30, 1996, the Company and its subsidiaries employed 795 persons. Of
that total, 317 persons were employed in the Company's asset acquisition and
resolution group, 310 in the Company's commercial mortgage banking and services
group, 14 in its residential capital markets, 23 in its institutional real
estate investment advisory business and 131 in general administration. The
Company believes that its employee relations are generally good.

PROPERTIES

The Company leases approximately 130,000 square feet in the North Tower of
the Plaza of the Americas in Dallas, Texas for its centralized corporate
functions including executive, business development and marketing, accounting,
legal, human resources and support. This lease has an initial termination date
of October 31, 2006 and has an initial annual base rent of approximately $1.5
million. The Company also leases space for branch offices pursuant to leases
with varying terms.

57
<PAGE> 59

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages and a brief account of the business
experience of each person who is a director or executive officer of the Company.

<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME AGE OCCUPATION DURING THE PAST FIVE YEARS
---- --- ---------------------------------------
<S> <C> <C>
Robert L. Adair III........... 53 Mr. Adair serves as director, President and Chief
Operating Officer of the Company (since December 1993).
Mr. Adair previously served as Executive Vice President
and director of BEI (1989 to December 1993). His term as a
director expires in 1997.
L. Keith Blackwell............ 55 Mr. Blackwell serves as Vice President (since February
1996), General Counsel and Secretary (since January 1994)
of the Company and previously served as General Counsel
and Secretary of Holdings (December 1993). Mr. Blackwell
previously was an investor and consultant (May 1992 to
December 1993) and served as Executive Vice President,
General Counsel and Secretary of First Gibraltar Bank,
FSB, a Federal savings bank (December 1988 to May 1992).
James P. Cotton, Jr........... 57 Mr. Cotton serves as a director of the Company (since
December 1993). His term expires in 1998. Mr. Cotton
previously served as Chairman of the Board of BEI (1986 to
December 1993). Mr. Cotton also serves as Chairman of the
Board and Chief Executive Officer of USBA Holdings, Ltd.,
a provider of products and services to financial
institutions (since 1990).
Richard L. Cravey............. 51 Mr. Cravey serves as a director of the Company. His term
expires in 1999. Mr. Cravey previously served in the
following positions: Chairman of the Board and Chief
Executive Officer of the Company (December 1993 to May
1994) and Chairman of the Board of Holdings (1992 to
December 1993). Mr. Cravey also holds the following
positions: Founder and Managing Director of Cravey, Green
& Wahlen Incorporated, a private risk capital investment
firm (since 1985), its investment management affiliate,
CGW Southeast Management Company (since 1991) and its
affiliates, CGW Southeast I, Inc. (the general partner of
CGW Southeast Partners I, L.P.) and CGW Southeast II, Inc.
(the general partner of CGW Southeast Partners II, L.P.)
(since 1991); and Director of Cameron Ashley Building
Products, Inc., a national distributor of home building
products (since 1994).
Barry L. Edwards.............. 49 Mr. Edwards serves as Executive Vice President and Chief
Financial Officer of the Company (since November 1994).
Mr. Edwards previously served as Vice President and
Treasurer of Liberty Corporation, an insurance holding
company (1979 to November 1994).
Gerald E. Eickhoff............ 50 Mr. Eickhoff serves as a director of the Company. His term
expires in 1999. Mr. Eickhoff also is a private investor
(since December 1993). He previously served as President,
Chief Executive Officer and director of BEI (1986 to
December 1993).
</TABLE>

58
<PAGE> 60

<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME AGE OCCUPATION DURING THE PAST FIVE YEARS
---- --- ---------------------------------------
<S> <C> <C>
Harold E. Holliday, Jr........ 49 Mr. Holliday serves as President -- Commercial Mortgage
Bank of the Company (since February 1996). He previously
served as Chairman of the Board and Chief Executive
Officer of Holliday Fenoglio (since August 1994). Mr.
Holliday previously served as President of Holliday,
Fenoglio, Dockerty & Gibson, Inc., a mortgage banking
company (for more than five years prior to August 1994).
Amy J. Jorgensen.............. 43 Ms. Jorgensen serves as a director of the Company (since
1995). Her term expires in 1998. Ms. Jorgensen also serves
as Managing Director of Greenbriar Associates LLC, which
provides advice and executes transactions relating to real
estate assets and companies (since 1995). Ms. Jorgensen
previously served as President of the Jorgensen Company, a
consultant for real estate strategy and finance (April
1992 to September 1995) and as Managing Director in the
Real Estate Department of Morgan Stanley & Co.
Incorporated (1986 to February 1992).
Robert H. Lutz, Jr............ 47 Mr. Lutz serves as Chairman of the Board and Chief
Executive Officer of the Company (since May 1994). His
term as a director expires in 1999. Mr. Lutz previously
served as President of Allegiance Realty, a real estate
management company (November 1991 to May 1994) and
Executive Vice President of Cousins Properties (February
1990 to October 1991). Mr. Lutz is also a director of
Bristol Hotel Company (since 1995).
Michael N. Maberry............ 53 Mr. Maberry serves as President of ACC (since April 1994).
Mr. Maberry previously was a shareholder in the law firm
of Winstead, Secrest & Minick (April 1989 to April 1994).
John J. McDonough............. 60 Mr. McDonough serves as a director of the Company (since
1994). His term expires in 1997. Mr. McDonough also serves
or has served in the following positions: President and
Chief Executive Officer of McDonough Capital Company LLC,
a company through which Mr. McDonough conducts personal
and family investments (since February 1995); Chairman of
the Board of SoftNet Systems, Inc., a company that
develops, markets, installs and services information and
document management systems (since June 1995); Vice
Chairman and Chief Executive Officer (1993 to February
1995) of DENTSPLY International, Inc., a manufacturer of
dental supplies, dental equipment and medical x-ray
products; Chairman of the Board (1992 to 1993), Director
(1983 to 1992), Chief Executive Officer (1983 to 1993),
and President (1983 to 1991) of GENDEX Corporation, a
manufacturer of dental equipment and medical x-ray
products, which merged with DENTSPLY in June 1993;
Director (since 1992) of Newell Co., a New York Stock
Exchange-listed manufacturer of products for the
do-it-yourself hardware and housewares market; and
Director of AmNet Systems, Inc., a company that develops,
markets and installs electronic information and document
management for the healthcare industry (since 1995).
</TABLE>

59
<PAGE> 61

<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL
NAME AGE OCCUPATION DURING THE PAST FIVE YEARS
---- --- ---------------------------------------
<S> <C> <C>
Scott J. Reading.............. 52 Mr. Reading serves as President of AMRESCO Residential
Credit Corporation (since August 1995). Mr. Reading
previously served as Managing Director of Household
Financial Services, Inc., a division of Household
International, Inc., a diversified financial services
company (June 1991 to August 1995).
Bruce W. Schnitzer............ 52 Mr. Schnitzer serves as a director of the Company. His
term expires in 1997. Mr. Schnitzer previously served as
Vice Chairman of the Board of BEI (1986 to December 1993).
Mr. Schnitzer also serves as Chairman of Wand Partners
Inc., an investment advisory company (since 1987);
Director of Penncorp Financial Group, Inc. (since 1990);
Director of Chartwell Re Corporation (since 1992);
Director of Nestor, Inc. (since 1994); and Chairman of New
London Capital PLC (since 1993).
Edwin A. Wahlen, Jr........... 48 Mr. Wahlen serves as a director of the Company (since May
1996). His term as director expires in 1998. Mr. Wahlen
also holds the following positions: Founder and Managing
Director of Cravey, Green & Wahlen Incorporated, a private
risk capital investment firm (since 1985), its investment
management affiliate, CGW Southeast Management Company
(since 1991) and its affiliates, CGW Southeast I, Inc.
(the general partner of CGW Southeast Partners I, L.P.)
and CGW Southeast II, Inc. (the general partner of CGW
Southeast Partners II, L.P.) (since 1991); and Director of
Cameron Ashley Building Products, Inc., a national
distributor of home building products (since 1996).
</TABLE>

60
<PAGE> 62

SELLING STOCKHOLDERS

The following table sets forth certain information regarding the Common
Stock owned as of September 30, 1996, and as adjusted to reflect the sale of the
shares of Common Stock, by the Selling Stockholders set forth below
(collectively, the "Selling Stockholders").

The shares of Common Stock set forth below are held in two limited
partnerships, CGW Southeast Partners I, L.P. ("CGWI") and CGW Southeast Partners
II, L.P. ("CGWII"). Immediately prior to the closing of this Offering, the
shares of Common Stock (i) held by both partnerships will be distributed to
their respective partners as a liquidating distribution of CGWI's and CGWII's
holdings in the Company and (ii) to be distributed to the respective general
partner of CGWI and CGWII will be distributed to the stockholders and executive
officers of such general partners. Except as otherwise indicated, all shares
shown in the table below are held with sole voting and investment power.

<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- NUMBER OF --------------------------
SHARES PERCENT OF SHARES BEING SHARES PERCENT OF
BENEFICIALLY SHARES OFFERED BENEFICIALLY SHARES
SELLING STOCKHOLDERS OWNED OUTSTANDING FOR SALE OWNED OUTSTANDING
-------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Angela Z. Allen IRA(1).................. 6,938 * 3,469 3,469 *
John Gregory Berylson................... 6,937 * 3,468 3,469 *
Donald W. Burton........................ 2,311 * 1,155 1,156 *
Frankel, Hardwick, Tanenbaum & Fink..... 6,937 * 6,937 -0- -0-
Larence Park............................ 6,937 * 6,937 -0- -0-
Jack M. Berdy........................... 13,873 * 13,873 -0- -0-
Crandall C. Bowles...................... 9,248 * 9,248 -0- -0-
Collins Family Partnership.............. 13,873 * 6,936 6,937 *
Willard W. Geiger....................... 6,937 * 6,937 -0- *
Frances C. Hart......................... 9,248 * 9,248 -0- -0-
Donald R. Landgraf Trust................ 6,937 * 3,468 3,469 *
Terri A. Mallory........................ 11,562 * 5,781 5,781 *
PGF&M Venture 89........................ 4,626 * 4,626 -0- -0-
SQ Concepts............................. 9,248 * 4,624 4,624 *
Brooks Schoen........................... 2,311 * 2,311 -0- -0-
Charles C. Schoen, III.................. 6,937 * 3,468 3,469 *
G. Bickley Stevens, II.................. 1,156 * 578 578 *
Wallace P. Whitley...................... 11,562 * 11,562 -0- -0-
Stanley C. Weiss........................ 2,311 * 1,155 1,156 *
Citibank N.A. as Trustee of the Delta
Master Trust.......................... 462,422 1.7 462,422 -0- -0-
National Life Insurance Company......... 92,485 * 92,485 -0- -0-
BellSouth Master Pension Trust(2)....... 3,069,465 11.3 3,069,465 -0- -0-
Landmark Equity Partners III, L.P....... 924,846 3.4 924,846 -0- -0-
Ontario Municipal Employees Retirement
Board................................. 462,422 1.7 462,422 -0- -0-
Palmer & Coy/Carswell Inc. ............. 2,313 * 2,313 -0- -0-
Richard L. Cravey(3)(4)................. 532,160 2.0 266,080 266,080 *
William A. Davies(3).................... 9,251 * 9,251 -0- -0-
William S. Green(3)(5).................. 470,505 1.7 235,253 235,252 *
Bart A. McLean(3)....................... 4,626 * 4,626 -0- -0-
Edwin A. Wahlen, Jr.(3)(6).............. 532,160 2.0 266,080 266,080 *
LeSelect WSG/DGG
Interests, L.P.(5).................... 61,657 * 30,828 30,829 *
</TABLE>

- ---------------

* Less than 1%

(Footnotes appear on following page)

61
<PAGE> 63

(1) Angela Z. Allen, the beneficiary of the Angela Z. Allen IRA, also owns
directly 3,469 shares of Common Stock.

(2) The business address for the BellSouth Master Pension Trust is 1155
Peachtree St., Atlanta, Georgia 30367.

(3) Messrs. Cravey, Davies, Green, McLean and Wahlen are all managing directors
of CGW Southeast Management Company, an investment management company, and
its affiliates, CGW Southeast I, Inc. (the general partner of CGWI) and CGW
Southeast II, Inc. (the general partner of CGWII). Prior to the distribution
of the Common Stock, CGWI held an aggregate of 4,370,248 shares of Common
Stock and CGWII held an aggregate of 2,415,918 shares of Common Stock. The
business address for CGWI, CGWII and Messrs. Cravey, Davies, Green, McLean
and Wahlen is Twelve Piedmont Center, Suite 210, Atlanta, Georgia 30305.
Messrs. Cravey, Davies, Green, McLean and Wahlen may be deemed to
beneficially own the shares of Common Stock held of record by CGWI and CGWII
prior to the distribution of said shares to the respective partners because
they are managing directors of the respective corporate general partner and
may therefore be deemed to share voting and investment power with respect to
the shares owned of record by each partnership. In addition, prior to the
distribution, each such limited partnership may be deemed to beneficially
own the shares owned by the other as a result of such common control.
Messrs. Cravey, Davies, Green, McLean and Wahlen disclaim beneficial
ownership of such shares, other than shares allocable to them individually.
See "--Certain Transactions with the Selling Stockholders" below for a
description of certain other prior or existing relationships between the
Company and certain of these Selling Stockholders.

(4) See "Management" for a description of certain of Mr. Cravey's current and
prior relationships with the Company.

(5) Mr. Green was a director of the Company from December 1993 through May 1996.
LeSelect WSG/DGG Interests, L.P. is a partnership controlled by Mr. Green.
Mr. Green may be deemed to beneficially own the shares of Common Stock held
by LeSelect WSG/DGG Interests, L.P., and vice-versa, due to such control.

(6) Mr. Wahlen was elected a director of the Company in May 1996.

CERTAIN TRANSACTIONS WITH THE SELLING STOCKHOLDERS

CGWI, CGWII, Mr. James P. Cotton, Jr. and Mr. Gerald E. Eickhoff entered
into a voting agreement (the "Voting Agreement") on December 29, 1993, pursuant
to which the parties thereto agreed to vote for four designees nominated by CGWI
and GCWII and for four designees collectively nominated by Messrs. Cotton and
Eickhoff. The Voting Agreement also provides that CGWI and CGWII and Messrs.
Cotton and Eickhoff have the right to reject, upon a showing of reasonable
cause, any of the other party's nominees. The Voting Agreement shall terminate
upon completion of the sale of the shares of Common Stock of GCWI and CGWII
offered hereby.

See "Description of Capital Stock -- Registration Rights" for a description
of certain registration rights held by CGWI and CGWII.

Pursuant to the terms of certain agreements for consulting services between
the Company and CGWI and CGWII in effect until December 31, 1996, CGWI and CGWII
have been engaged to render certain advisory and consulting services to the
Company in connection with corporate finance matters. The agreements currently
provide for base payments of $30,000 per month to CGWI and CGWII, with
additional payments of up to $30,000 per month being allowed in the discretion
of the Compensation Committee. The Company has approved discretionary payments
of $360,000, $295,000 and $360,000 for 1993, 1994 and 1995, respectively.
Messrs. Cravey, Davies, Green, McLean and Wahlen are each managing directors of
the corporate general partner of CGWI and CGWII.

62
<PAGE> 64

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $0.05 per share, and 5,000,000 shares of Preferred Stock, par value $1.00
per share. As of September 30, 1996, the Company had issued and outstanding
27,189,497 shares of Common Stock and no shares of Preferred Stock. As of such
date, there were approximately 2,900 holders of record of the outstanding shares
of Common Stock.

The following summary of the Company's Common Stock and Preferred Stock is
qualified in its entirety by reference to the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), its Amended
and Restated Bylaws (the "Bylaws"), and the Delaware General Corporation Law, as
amended (the "DGCL").

COMMON STOCK

Subject to such preferential rights as may be granted by the Board of
Directors in connection with any issuances of Preferred Stock, holders of shares
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors in its discretion from funds legally available therefor. From
October 1993 through October 1995, the Company paid a quarterly dividend of
$0.05 per share on shares of Common Stock. In October 1995, the Company
announced that it would discontinue its policy of paying cash dividends. The
Board of Directors determined to retain all earnings to support anticipated
growth in the current operations of the Company and to finance future expansion.
The Company's Revolving Loan Agreement, Indenture governing the Senior Notes,
the Senior Subordinated Notes Indenture and the Convertible Subordinated
Debenture Indenture restrict the payment of cash dividends unless certain
earnings tests are satisfied. Additional restrictions on the payment of cash
dividends may be imposed in connection with future issuances of Preferred Stock
and indebtedness by the Company. Further declarations and payments of cash
dividends, if any, will also be determined in light of then-current conditions,
including the Company's earnings, operations, capital requirements, liquidity,
financial condition, restrictions in financing agreements and other factors
deemed relevant by the Board of Directors. Upon the liquidation, dissolution or
winding up of the Company, after payment of creditors, the remaining net assets
of the Company will be distributed pro rata to the holders of Common Stock,
subject to any liquidation preference of the holders of Preferred Stock. There
are no preemptive rights, conversion rights, or redemption or sinking fund
provisions with respect to the shares of Common Stock. All of the outstanding
shares of Common Stock are duly and validly authorized and issued, fully paid
and nonassessable.

Holders of Common Stock are entitled to one vote per share of Common Stock
held of record on all such matters submitted to a vote of the stockholders.
Holders of the shares of Common Stock do not have cumulative voting rights. As a
result, the holders of a majority of the outstanding shares of Common Stock
voting for the election of directors can elect all the directors, and, in such
event, the holders of the remaining shares of Common Stock will not be able to
elect any persons to the Board of Directors.

PREFERRED STOCK

The Board of Directors may, without approval of the Company's stockholders,
from time to time, authorize the issuance of Preferred Stock in one or more
series for such consideration and, within certain limits, with such relative
rights, preferences and limitations as the Board of Directors may determine. The
relative rights, preferences and limitations that the Board of Directors has the
authority to determine as to any such series of Preferred Stock include, among
other things, dividend rights, voting rights, conversion rights, redemption
rights and liquidation preferences. Because the Board of Directors has the power
to establish the relative rights, preferences and limitations of each series of
Preferred Stock, it may afford to the holders of any such series, preferences
and rights senior to the rights of the holders of shares of Common Stock.
Although the Board of Directors has no intention at the present time of doing
so, it could cause the issuance of Preferred Stock that could discourage an
acquisition attempt or other transactions that some, or majority of, the
stockholders might believe to be in their best interests or in which the
stockholders might receive a premium for their shares of Common Stock over the
market price of such shares.

63
<PAGE> 65

ANTI-TAKEOVER CONSIDERATIONS

The Company is subject to the provisions of Section 203 of the DGCL. In
general, this statute prohibits a publicly-held Delaware corporation from
engaging, under certain circumstances, in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless either
(i) prior to the date at which the stockholder became an interested stockholder
the Board of Directors approved either the business combination or the
transaction in which the person becomes an interested stockholder, (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of the transaction in which the
stockholder becomes an interested stockholder or (iii) the business combination
is approved by the Board of Directors and by two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder) at a meeting of the stockholders (and not by written consent) held
on or subsequent to the date on which the person became an "interested
stockholder" of the business combination. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or is an affiliate or
associate of the corporation and, together with affiliates and associates, at
any time within the prior three years did own) 15% or more of the corporation's
voting stock. Section 203 defines a "business combination" to include, without
limitation, mergers, consolidations, stock sales and asset based transactions
and other transactions resulting in a financial benefit to the interested
stockholder.

The Company's Certificate of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (i) the classification of the Board of
Directors into three classes, each class serving for staggered three-year terms;
(ii) the authority of the Board of Directors to determine the size of the Board
of Directors, subject to certain minimums and maximums; (iii) the authority of
certain members of the Board of Directors to fill vacancies on the Board of
Directors; (iv) a requirement that special meetings of stockholders may be
called only by the Board of Directors, the Chairman of the Board or holders of
at least one-tenth of all the shares entitled to vote at the meeting; (v) the
elimination of stockholder action by written consent; (vi) the authority of the
Board of Directors to issue series of Preferred Stock with such voting rights
and other powers as the Board of Directors may determine; (vii) the requirement
that the Article in the Certificate of Incorporation creating the staggered
board may only be amended by the vote of at least 66 2/3% of the voting
securities of the Company; (viii) the prohibition on amending or rescinding,
before December 31, 1996, the section of the Bylaws related to the filling of
vacancies on the Board of Directors and (ix) a requirement that any business
combination between the Company and a beneficial owner of more than five percent
of any class of an equity security of the Company must be approved by the
holders of a majority of the Company's securities, excluding those securities
held by such beneficial owner, voted at a meeting called for the purpose of
approving such business combination.

The Indentures governing the Convertible Subordinated Debentures, the
Senior Subordinated Notes and the Senior Notes require the Company to offer to
repurchase all outstanding Debentures, Senior Subordinated Notes and Senior
Notes in the event of certain change of control transactions.

INDEMNIFICATION AND LIMITED LIABILITY

The Company's Certificate of Incorporation and Bylaws require the Company
to indemnify the directors and officers of the Company to the fullest extent
permitted by law. In addition, as permitted by the DGCL, the Company's
Certificate of Incorporation and Bylaws provide that no director of the Company
will be personally liable to the Company or its stockholders for monetary
damages for such director's breach of duty as a director. This limitation of
liability does not relieve directors from liability for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) any liability under Section 174 of the DGCL for unlawful
distributions or (iv) any transaction from which the director derived an
improper personal benefit. This provision of the Certificate of Incorporation
will limit the remedies available to a stockholder who is dissatisfied with a
decision of the Board of Directors protected by this provision, and such
stockholder's only

64
<PAGE> 66

remedy in that circumstance may be to bring a suit to prevent the action of the
Board of Directors. In many situations, this remedy may not be effective,
including instances when stockholders are not aware of a transaction or an event
prior to action of the Board of Directors in respect of such transaction or
event.

Subject to certain limitations, the Company's officers and directors are
insured against losses arising from claims made against them for wrongful acts
which they may become obligated to pay or for which the Company may be required
to indemnify them.

REGISTRATION RIGHTS

The Company has entered into an agreement granting registration rights (the
"Registration Rights Agreement") with certain holders of Common Stock. Pursuant
to the Registration Rights Agreement, these holders may exercise demand or
"piggyback" registration rights with respect to shares of Common Stock held by
them. The Company is obligated to register stock on only two occasions pursuant
to the demand registration rights. The Registration Rights Agreement has a term
of three years (ending on December 31, 1996) for demand registration rights and
five years (ending on December 31, 1998) for "piggyback" registration rights.
These registration rights are subject to certain conditions and limitations,
including the right of underwriters to restrict the number of shares offered in
a registration.

OTHER MATTERS

The Common Stock is listed on Nasdaq National Market under the symbol
"AMMB." Sun Trust Bank, Atlanta, Georgia, is the transfer agent and registrar
for the Common Stock.

65
<PAGE> 67

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc., Piper
Jaffray Inc., Raymond James & Associates, Inc., Montgomery Securities, J.C.
Bradford & Co. and Morgan Keegan & Company, Inc. are acting as representatives
(collectively, the "Representatives"), have severally agreed to purchase from
the Company and the Selling Stockholders, and the Company and the Selling
Stockholders have agreed to sell to the Underwriters, the number of shares of
Common Stock set forth opposite their respective names below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
The Robinson-Humphrey Company, Inc. ...................................
Piper Jaffray Inc. ....................................................
Raymond James & Associates, Inc. ......................................
Montgomery Securities..................................................
J.C. Bradford & Co. ...................................................
Morgan Keegan & Company, Inc. .........................................
---------
Total........................................................ 7,760,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the Price to Public set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share in sales to certain other
dealers. After the Offering, the Price to Public and other selling terms may be
changed.

The Company, each of its directors and executive officers and the Selling
Stockholders have agreed that they will not offer, sell or otherwise dispose of
any shares of Common Stock (other than the shares offered by the Company and the
Selling Stockholders in this offering), subject to certain exceptions, for a
period of 120 days from the date of this Prospectus without the prior written
consent of the Representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to 1,164,000 additional shares
of Common Stock to cover over-allotments, if any, at the public offering price
less the underwriting discount, as set forth on the cover page of this
Prospectus. If the Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
7,760,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments in connection with the sale of the
shares of Common Stock offered hereby.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.

In connection with the Offering, certain underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act, during the two business day period
before commencement of offers of sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; however if
all independent bids are lowered below the passive market marker's bid, such bid
must then be lowered when certain purchase limits are exceeded.

66
<PAGE> 68

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by L. Keith Blackwell, General Counsel of the Company. Mr. Blackwell
currently owns beneficially 2,777 shares of Common Stock (excluding 7,108
unvested shares allocated under the Company's restricted stock plan) and holds
options to purchase 37,510 shares of Common Stock. Certain other legal matters
will be passed upon for the Company by Haynes and Boone, LLP, Dallas, Texas.
Certain legal matters relating to the Common Stock offered hereby will be passed
upon for the Underwriters by Smith, Gambrell & Russell, Atlanta, Georgia.

EXPERTS

The financial statements of the Company as of December 31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995 included
in this Prospectus, and from which the related Summary Financial and Other Data
have been derived, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein. Such financial statements
and "Summary Historical Financial and Other Data" have been included herein and
elsewhere in the Registration Statement in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.

The consolidated balance sheets of Quality as of September 30, 1994 and
1995, and the consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1995,
included in this Prospectus, have been included herein in reliance of the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.

67
<PAGE> 69

GLOSSARY

The following are certain defined terms which may be used in this
Prospectus and any accompanying Prospectus:

"ACACIA" means Acacia Realty Advisors, Inc.

"ACC" means AMRESCO Capital Corporation, a subsidiary of the Company.

"AMRESCO RESIDENTIAL" means, collectively, ARMC and AMRESCO Residential
Credit Corporation, subsidiaries of the Company.

"AMRESCO SERVICES" means a division of AMRESCO Management, Inc., a
subsidiary of the Company.

"ARMC" means AMRESCO Residential Mortgage Corporation, a subsidiary of the
Company.

"ASSET PORTFOLIO" means a pool or portfolio of performing, nonperforming or
underperforming commercial, industrial, agricultural and/or real estate loans.

"B&C LOAN" means a residential mortgage loan to borrowers who do not
qualify for conventional loans or whose borrowing needs are not met by
traditional residential mortgage lenders. Such borrowers may not satisfy the
more rigid underwriting standards of the traditional residential mortgage
lending market for a number of reasons, such as blemished credit histories (from
past loan delinquencies or bankruptcy), inability to provide income verification
data or lack of established credit history.

"BEI" means BEI Holdings, Ltd.

"BEI MERGER" means the merger of Holdings with and into a subsidiary of BEI
on December 31, 1993.

"COMPANY" means, unless otherwise stated in this Prospectus or unless the
context otherwise requires, the Company and each of its subsidiaries.

"CONDUIT PURCHASERS" means investment bankers and other financial
intermediaries who purchase or otherwise accumulate pools or portfolios of loans
having common features (e.g., real estate mortgages, etc.), with the intent of
securitizing such loan assets and selling them to a trust that obtains its funds
by selling undivided interests in the revenue streams generated by the loans to
public or private investors.

"CONVERTIBLE SUBORDINATED DEBENTURES" means the Company's 8% Convertible
Subordinated Debentures due 2005.

"CONVERTIBLE SUBORDINATED DEBENTURE INDENTURE" means that certain Indenture
dated November 27, 1995, as amended, governing the Convertible Subordinated
Debentures.

"CREDIT AGREEMENTS" means the Revolving Loan Agreement and the Warehouse
Agreements.

"CREDIT ENHANCEMENT" means the method by which a seller of asset-backed
securities achieves a higher credit rating with respect to such securities than
the credit rating of the assets collateralizing such securities. Credit
enhancement is often achieved through the use of financial guaranty insurance
policies.

"DUS" means the Delegated Underwriting and Servicing program established by
Fannie Mae that permits a DUS approved lender to commit and close loans for
multifamily mortgages for resale to Fannie Mae without Fannie Mae's prior
approval of such loans.

"EQS" means, collectively, EQ Services, Inc. and Equitable Real Estate
Investment Management, Inc.

"FACE VALUE" means, with respect to any loan or Asset Portfolio, the
aggregate unpaid principal balance of a loan or loans.

"FANNIE MAE" means the Federal National Mortgage Association.

"FDIC" means the Federal Deposit Insurance Corporation.

"FREDDIE MAC" means the Federal Home Loan Mortgage Corporation.

"FULL SERVICER" means an entity which serves as Primary Servicer, Master
Servicer and Special Servicer on an Asset Portfolio.

"HOLDINGS" means AMRESCO Holdings, Inc.

"HOLLIDAY FENOGLIO" means Holliday Fenoglio, Inc., a subsidiary of the
Company.

68
<PAGE> 70

"MASTER SERVICER" means an entity which provides administrative services
with respect to securitized pools of mortgage-backed securities.

"NATIONSBANK CONTRACT" means the asset management contract, as amended,
originally dated July 1, 1992, among the Company, NationsBank Corporation and
certain of its bank subsidiaries.

"NATIONSBANK OF TEXAS" means NationsBank of Texas, N.A.

"PRIMARY SERVICER" means an entity which provides various administrative
services with respect to loans such as collecting monthly mortgage payments,
maintaining escrow accounts for the payment of ad valorem taxes and insurance
premiums on behalf of borrowers, remitting payments of principal and interest
promptly to investors in mortgages or the Master Servicer of a pool and
reporting to those investors or the Master Servicer on financial transactions
related to such mortgages.

"QUALITY" means Quality Mortgage USA, Inc., a California corporation.

"QUALITY ACQUISITION" means the Company's purchase of substantially all the
assets, and the assumption of certain liabilities, of Quality Mortgage USA, Inc.
See "Quality Acquisition."

"QUALITY PURCHASE AGREEMENT" means that certain agreement dated October 9,
1996 by and among ARMC and Quality, Calmac Funding, Russell and Rebecca Jedinak,
DLJ Mortgage Capital, Inc., and DLJ Quality Partners, L.P.

"REVOLVING LOAN AGREEMENT" means the First Amended and Restated Revolving
Loan Agreement dated as of April 25, 1996 and as subsequently amended, among the
Company, NationsBank of Texas, as Agent, and the lenders which are parties
thereto from time to time.

"RTC" means the Resolution Trust Corporation.

"SECURITIZATION" and "SECURITIZED" mean a transaction in which loans
originated or purchased by an entity are sold to special purpose entities
organized for the purpose of issuing asset-backed securities.

"SENIOR NOTES" means the Company's Senior Notes, Series 1996-A Due 1999.

"SENIOR SUBORDINATED NOTES" means the Company's 10% Senior Subordinated
Notes due 2003.

"SENIOR SUBORDINATED NOTES INDENTURE" means the Indenture dated February 2,
1996, governing the Senior Subordinated Notes.

"SPECIAL SERVICER" means an entity which provides asset management and
resolution services with respect to nonperforming or underperforming loans
within a pool of performing loans and/or mortgages.

"SUBORDINATED CERTIFICATES" means the unrated and uninsured tranches of
collateralized residential or commercial mortgage-backed securities.

"WAREHOUSE" means a type of lending arrangement whereby loans funded or
purchased and held for sale are financed by financial institutions or
institutional lenders on a short-term basis and secured by the underlying loans.

"WAREHOUSE AGREEMENTS" mean all warehouse loan facilities entered into by
the Company from time to time.

69
<PAGE> 71

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMRESCO, INC. AND SUBSIDIARIES

Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets, December 31, 1994 and 1995, and June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
and the Six Months Ended June 30, 1995 and 1996 (unaudited)......................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995 and the Six Months Ended June 30, 1996 (unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995................................................................................ F-6
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1996
(unaudited)......................................................................... F-7
Notes to Consolidated Financial Statements............................................ F-8

QUALITY MORTGAGE USA, INC.

Report of Independent Accountants..................................................... F-26
Consolidated Balance Sheets, September 30, 1994 and 1995.............................. F-27
Consolidated Statements of Income for the Years Ended September 30, 1993, 1994 and
1995................................................................................ F-28
Consolidated Statements of Stockholders' Equity for the Years Ended September 30,
1993, 1994 and 1995................................................................. F-29
Consolidated Statements of Cash Flows for the Years Ended September 30, 1993, 1994
and 1995............................................................................ F-30
Notes to Consolidated Financial Statements............................................ F-31
Consolidated Balance Sheets, June 30, 1995 and 1996 (unaudited)....................... F-40
Consolidated Statements of Income for the Six Months Ended June 30, 1995 and 1996
(unaudited)......................................................................... F-41
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1996
(unaudited)......................................................................... F-42
Notes to Consolidated Financial Statements (unaudited)................................ F-43
</TABLE>

F-1
<PAGE> 72

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of AMRESCO, INC.:

We have audited the accompanying consolidated balance sheets of AMRESCO,
INC. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1993, 1994 and 1995. These financial statements are the
responsibility of AMRESCO, INC.'s management. Our responsibility is to express
an opinion on these financial statements 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, such consolidated financial statements present fairly, in
all material respects, the financial position of AMRESCO, INC. and subsidiaries
as of December 31, 1994 and 1995, and the results of their operations and their
cash flows for the years ended December 31, 1993, 1994 and 1995, in conformity
with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Dallas, Texas
February 6, 1996

F-2
<PAGE> 73

AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 20,446 $ 16,139 $ 14,650
Temporary investments (Note 7)............................... 21,942 32,921
Accounts receivable, net of reserves of $4,929, $1,737 and
$1,182,
respectively............................................... 20,682 20,158 18,469
Mortgage loans held for sale (Notes 4 and 7)................. 160,843 190,257
Investments (Note 7):
Loans (Note 4)............................................. 32,631 138,180 164,656
Partnerships and joint ventures............................ 22,491 34,694 32,246
Asset-backed and other securities (Note 5)................. 3,481 46,187 55,687
Real estate................................................ 14,054 5,686 16,050
Deferred income taxes (Note 8)............................... 17,207 12,184 12,201
Premises and equipment, net of accumulated depreciation of
$1,082, $2,335 and $3,518, respectively.................... 4,301 5,904 6,373
Intangible assets, net of accumulated amortization of $1,226,
$4,136 and $6,780, respectively (Note 2)................... 30,668 51,878 52,394
Other assets (Note 6)........................................ 6,379 7,918 8,007
-------- -------- --------
TOTAL ASSETS................................................. $172,340 $521,713 $603,911
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable........................................... $ 12,045 $ 14,124 $ 8,502
Accrued employee compensation and benefits (Note 12)....... 18,460 10,487 9,522
Notes payable (Note 7)..................................... 16,459 127,796 121,991
Warehouse loan payable (Note 7)............................ 153,158 181,024
Senior Subordinated Notes (Note 7)......................... 57,500
Convertible debt (Note 7).................................. 45,000 45,000
Income taxes payable (Note 8).............................. 1,219 2,897 2,983
Net liabilities of discontinued operations (Note 10)....... 954
Other liabilities (Note 9)................................. 9,617 7,457 3,193
-------- -------- --------
TOTAL LIABILITIES.................................. 58,754 360,919 429,715
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (Note 11):
Preferred stock, $1.00 par value, authorized 5,000,000
shares; none outstanding
Common stock, $0.05 par value, authorized 50,000,000
shares; 23,592,647, 26,689,331 and 26,901,621 issued in
1994, 1995 and 1996, respectively....................... 1,180 1,334 1,345
Capital in excess of par................................... 74,691 106,054 107,655
Reductions for employee stock.............................. (429) (2,238) (1,500)
Treasury stock, $0.05 par value, 24,339 shares in 1995 and
1996.................................................... (160) (160)
Unrealized gains (losses) (Note 5)......................... (62) 114 (977)
Retained earnings.......................................... 38,206 55,690 67,833
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY......................... 113,586 160,794 174,196
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $172,340 $521,713 $603,911
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 74

AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Asset management and resolution fees (Note
3)........................................ $ 118,552 $ 93,764 $ 41,295 $ 18,441 $ 18,037
Interest and other investment income......... 3,440 14,215 40,105 14,569 43,247
Mortgage banking fees........................ 6,176 24,382 8,324 14,937
Gain on sale of loans and investments, net... 1,382 46 5,789
Other revenues (Note 3)...................... 409 15,636 3,322 2,279 1,699
---------- ---------- ---------- ---------- ----------
Total revenues....................... 122,401 129,791 110,486 43,659 83,709
---------- ---------- ---------- ---------- ----------
EXPENSES:
Personnel (Note 12).......................... 63,618 68,143 52,852 22,976 35,631
General and administrative................... 9,417 22,908 16,910 6,956 13,445
Interest (Note 7)............................ 754 1,768 6,921 1,278 13,495
Depreciation................................. 1,898 1,211 1,471 546 1,160
Profit participations........................ 3,037 75 2,074 362 32
---------- ---------- ---------- ---------- ----------
Total expenses....................... 78,724 94,105 80,228 32,118 63,763
---------- ---------- ---------- ---------- ----------
Income from continuing operations before income
taxes........................................ 43,677 35,686 30,258 11,541 19,946
Income tax expense (Note 8).................... 17,371 14,753 11,593 4,307 7,803
---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS................................... 26,306 20,933 18,665 7,234 12,143
Gain (loss) from discontinued operations, net
of income taxes (Note 10).................... (2,088) (2,185) 2,425 2,425
---------- ---------- ---------- ---------- ----------
NET INCOME..................................... $ 24,218 $ 18,748 $ 21,090 $ 9,659 $ 12,143
========== ========== ========== ========== ==========
Earnings per share from continuing operations:
Primary...................................... $ 2.33 $ 0.88 $ 0.76 $ 0.30 $ 0.44
Fully-diluted................................ $ 2.33 $ 0.88 $ 0.75 $ 0.30 $ 0.42
Earnings per share:
Primary...................................... $ 2.15 $ 0.79 $ 0.86 $ 0.40 $ 0.44
Fully-diluted................................ $ 2.15 $ 0.79 $ 0.85 $ 0.40 $ 0.42
Weighted average number of common shares
outstanding and common share equivalents..... 11,288,688 23,679,239 24,654,321 24,305,838 27,469,186
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 75

AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
$0.05 PAR VALUE
CONVERTIBLE COMMON ------------------- CAPITAL IN
PREFERRED STOCK, NUMBER OF EXCESS OF
STOCK NO PAR SHARES AMOUNT PAR
--------- -------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
JANUARY 1, 1993........................................................... $12,696 $ 3,090 $ $
Cancellation of stock and notes receivable (Note 11)...................... (179)
Employee stock compensation (Note 11)..................................... 1,188
Dividends paid ($.35 per share)...........................................
Conversion of convertible preferred stock (Note 2)........................ (12,696) 12,696
Conversion of common stock (Note 2)....................................... (16,795) 11,120,530 556 16,239
Issuance of common stock for acquisition (Note 2)......................... 11,189,287 560 50,873
Net income................................................................
------- -------- ---------- ------ --------
DECEMBER 31, 1993......................................................... 22,309,817 1,116 67,112
------- -------- ---------- ------ --------
Exercise of stock options (Note 11)....................................... 711,590 35 1,560
Issuance of common stock for acquisition (Note 2)......................... 571,240 29 4,291
Tax benefits from employee stock compensation............................. 1,728
Repayments of notes receivable for officer's shares (Note 11).............
Dividends paid ($.20 per share)...........................................
Foreign currency translation adjustments..................................
Net income................................................................
------- -------- ---------- ------ --------
DECEMBER 31, 1994......................................................... 23,592,647 1,180 74,691
------- -------- ---------- ------ --------
Common stock offering (Note 11)........................................... 2,300,000 115 24,995
Exercise of stock options (Note 11)....................................... 434,480 22 1,234
Issuance of common stock for earnout (Note 2)............................. 112,002 5 772
Issuance of common stock for unearned stock compensation (Note 11)........ 250,202 12 2,385
Amortization of unearned stock compensation (Note 11).....................
Tax benefits from employee stock compensation............................. 1,977
Repayment of notes receivable for officers' shares (Note 11)..............
Settlement of notes receivable for officers' shares with common stock
(14,339 shares).........................................................
Acquisition of treasury stock (10,000 shares).............................
Dividends paid ($0.15 per share)..........................................
Foreign currency translation adjustments..................................
Unrealized gain on investments available for sale, net (Note 5)...........
Net income................................................................
------- -------- ---------- ------ --------
DECEMBER 31, 1995......................................................... 26,689,331 1,334 106,054
------- -------- ---------- ------ --------
PERIOD JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED)
Exercise of stock options................................................. 164,384 8 704
Issuance of common stock for earnout...................................... 57,186 3 774
Cancellation of common stock restricted for unearned stock compensation... (9,280) (79)
Amortization of unearned stock compensation...............................
Tax benefits from employee stock compensation............................. 202
Foreign currency translation adjustments..................................
Unrealized loss on securities available for sale, net.....................
Net income................................................................
------- -------- ---------- ------ --------
JUNE 30, 1996 (unaudited)................................................. $ $ 26,901,621 $1,345 $107,655
======= ======== ========== ====== ========

REDUCTIONS NET
FOR UNREALIZED
EMPLOYEE TREASURY GAINS RETAINED
STOCK STOCK (LOSSES) EARNINGS
-------- ------ ------ -------
<S> <C> <C> <C> <C>
JANUARY 1, 1993........................................................... $ (786) $ $ $ 3,735
Cancellation of stock and notes receivable (Note 11)...................... 179
Employee stock compensation (Note 11).....................................
Dividends paid ($.35 per share)........................................... (3,875)
Conversion of convertible preferred stock (Note 2)........................
Conversion of common stock (Note 2).......................................
Issuance of common stock for acquisition (Note 2).........................
Net income................................................................ 24,218
-------- ------ ------ -------
DECEMBER 31, 1993......................................................... (607) 24,078
-------- ------ ------ -------
Exercise of stock options (Note 11).......................................
Issuance of common stock for acquisition (Note 2).........................
Tax benefits from employee stock compensation.............................
Repayments of notes receivable for officer's shares (Note 11)............. 178
Dividends paid ($.20 per share)........................................... (4,620)
Foreign currency translation adjustments.................................. (62)
Net income................................................................ 18,748
-------- ------ ------ -------
DECEMBER 31, 1994......................................................... (429) (62) 38,206
-------- ------ ------ -------
Common stock offering (Note 11)...........................................
Exercise of stock options (Note 11).......................................
Issuance of common stock for earnout (Note 2).............................
Issuance of common stock for unearned stock compensation (Note 11)........ (2,397)
Amortization of unearned stock compensation (Note 11)..................... 279
Tax benefits from employee stock compensation.............................
Repayment of notes receivable for officers' shares (Note 11).............. 220
Settlement of notes receivable for officers' shares with common stock
(14,339 shares)......................................................... 89 (89)
Acquisition of treasury stock (10,000 shares)............................. (71)
Dividends paid ($0.15 per share).......................................... (3,606)
Foreign currency translation adjustments.................................. 111
Unrealized gain on investments available for sale, net (Note 5)........... 65
Net income................................................................ 21,090
-------- ------ ------ -------
DECEMBER 31, 1995......................................................... (2,238) (160) 114 55,690
-------- ------ ------ -------
PERIOD JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED)
Exercise of stock options.................................................
Issuance of common stock for earnout......................................
Cancellation of common stock restricted for unearned stock compensation... 79
Amortization of unearned stock compensation............................... 659
Tax benefits from employee stock compensation.............................
Foreign currency translation adjustments.................................. (243)
Unrealized loss on securities available for sale, net..................... (848)
Net income................................................................ 12,143
-------- ------ ------ -------
JUNE 30, 1996 (unaudited)................................................. $ (1,500) $ (160) $ (977) $67,833
======== ====== ====== =======

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
JANUARY 1, 1993........................................................... $ 18,735
Cancellation of stock and notes receivable (Note 11)......................
Employee stock compensation (Note 11)..................................... 1,188
Dividends paid ($.35 per share)........................................... (3,875)
Conversion of convertible preferred stock (Note 2)........................
Conversion of common stock (Note 2).......................................
Issuance of common stock for acquisition (Note 2)......................... 51,433
Net income................................................................ 24,218
---------
DECEMBER 31, 1993......................................................... 91,699
---------
Exercise of stock options (Note 11)....................................... 1,595
Issuance of common stock for acquisition (Note 2)......................... 4,320
Tax benefits from employee stock compensation............................. 1,728
Repayments of notes receivable for officer's shares (Note 11)............. 178
Dividends paid ($.20 per share)........................................... (4,620)
Foreign currency translation adjustments.................................. (62)
Net income................................................................ 18,748
---------
DECEMBER 31, 1994......................................................... 113,586
---------
Common stock offering (Note 11)........................................... 25,110
Exercise of stock options (Note 11)....................................... 1,256
Issuance of common stock for earnout (Note 2)............................. 777
Issuance of common stock for unearned stock compensation (Note 11)........
Amortization of unearned stock compensation (Note 11)..................... 279
Tax benefits from employee stock compensation............................. 1,977
Repayment of notes receivable for officers' shares (Note 11).............. 220
Settlement of notes receivable for officers' shares with common stock
(14,339 shares).........................................................
Acquisition of treasury stock (10,000 shares)............................. (71)
Dividends paid ($0.15 per share).......................................... (3,606)
Foreign currency translation adjustments.................................. 111
Unrealized gain on investments available for sale, net (Note 5)........... 65
Net income................................................................ 21,090
---------
DECEMBER 31, 1995......................................................... 160,794
---------
PERIOD JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED)
Exercise of stock options................................................. 712
Issuance of common stock for earnout...................................... 777
Cancellation of common stock restricted for unearned stock compensation...
Amortization of unearned stock compensation............................... 659
Tax benefits from employee stock compensation............................. 202
Foreign currency translation adjustments.................................. (243)
Unrealized loss on securities available for sale, net..................... (848)
Net income................................................................ 12,143
---------
JUNE 30, 1996 (unaudited)................................................. $ 174,196
=========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 76

AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income....................................................................... $ 24,218 $ 18,748 $ 21,090
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 2,955 3,028 4,334
Provision for loss (gain on sale) of discontinued operation.................. 1,645 (2,425)
Write-off of intangible related to contract conclusion....................... 2,827
Deferred tax provision (benefit)............................................. (1,650) 966 5,023
Loss from disposition of premises and equipment.............................. 198 67
Employee stock compensation.................................................. 1,188 279
Increase (decrease) in cash for changes in (exclusive of assets and
liabilities acquired in business combinations):
Accounts receivable........................................................ 3,287 17,855 4,757
Purchase of mortgage loans held for sale and related securities, net....... (160,843)
Proceeds from warehouse loans payable, net................................. 153,158
Other assets............................................................... (3,848) 1,908 (3,990)
Accounts payable........................................................... (4,924) (4,768) (2,272)
Income taxes payable....................................................... (2,699) 678 61
Other liabilities.......................................................... 17,391 (4,137) (11,577)
-------- -------- ---------
Net cash provided by operating activities................................ 35,918 38,948 7,662
-------- -------- ---------
INVESTING ACTIVITIES:
Purchase of temporary investments, net......................................... (21,942)
Purchase of investments........................................................ (36,894) (59,099) (166,180)
Collections on investments..................................................... 3,099 30,815 57,208
Purchase of investments available for sale..................................... (3,481) (55,665)
Collections on investments available for sale.................................. 13,067
Cash used for purchase of subsidiaries......................................... (17,830) (22,323)
Proceeds from sales of subsidiaries............................................ 1,385 6,250
Cash and cash equivalents acquired through BEI merger.......................... 18,521
Purchase of premises and equipment............................................. (852) (2,141) (2,384)
-------- -------- ---------
Net cash used in investing activities.................................... (16,126) (50,351) (191,969)
-------- -------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable and other debt..................................... 42,426 19,894 565,311
Repayment of notes payable and other debt...................................... (19,129) (31,547) (408,974)
Payment of dividends........................................................... (3,875) (3,441) (4,785)
Proceeds from common stock offering............................................ 25,110
Stock options exercised........................................................ 1,595 1,256
Tax benefit of employee stock compensation..................................... 1,728 1,977
Tax effect of unrealized gains and losses...................................... (44)
Acquisition of treasury stock.................................................. (71)
Repayment of notes receivable for officers' shares............................. 178 220
-------- -------- ---------
Net cash provided by (used in) financing activities...................... 19,422 (11,593) 180,000
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents............................. 39,214 (22,996) (4,307)
Cash and cash equivalents, beginning of period................................... 4,228 43,442 20,446
-------- -------- ---------
Cash and cash equivalents, end of period......................................... $ 43,442 $ 20,446 $ 16,139
======== ======== =========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................................................. $ 678 $ 1,533 $ 5,494
Income taxes paid.............................................................. 23,460 8,507 4,813
Conversion of convertible preferred stock to common stock...................... 12,696
Common stock issued for purchase of mortgage banking subsidiary and related
earnout...................................................................... 4,320 777
Accrued earnout payment for purchase of mortgage banking subsidiary............ 3,883 3,883
Common stock issued for unearned stock compensation............................ 2,397
Notes receivable received in connection with sales of subsidiaries............. 818
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 77

AMRESCO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1995 1996
-------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................................. $ 9,659 $ 12,143
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................................... 1,763 3,980
Gain on sale of discontinued operation.................................................. (2,425)
Gain on sale of mortgage loans and related securities................................... (5,591)
Deferred tax benefit.................................................................... 1,853 499
Loss from disposition of premises and equipment......................................... 72
Employee stock compensation............................................................. 74 659
Increase (decrease) in cash for changes in:
Accounts receivable................................................................... 12,108 1,689
Accrued interest receivable........................................................... (2,944)
Purchase of mortgage loans held for sale and related securities, net.................. (3,000) (68,823)
Proceeds from warehouse loans payable, net............................................ 27,866
Other assets.......................................................................... 1,841 (825)
Accounts payable...................................................................... 88 (1,739)
Income taxes payable.................................................................. 771 86
Other liabilities..................................................................... (20,195) (5,472)
-------- ---------
Net cash provided by (used in) operating activities................................. 2,609 (38,472)
-------- ---------
INVESTING ACTIVITIES:
Purchase of temporary investments, net.................................................... (10,979)
Purchase of investments................................................................... (92,811) (82,332)
Collections on investments................................................................ 24,681 47,940
Purchase of investments available for sale................................................ (4,255)
Collections on investments available for sale............................................. 1,560
Cash used for purchase of subsidiaries.................................................... (3,106) (3,106)
Proceeds from sale of interest in securitizations......................................... 39,775
Proceeds from sales of subsidiaries....................................................... 6,250
Purchase of premises and equipment........................................................ (932) (1,629)
-------- ---------
Net cash used in investing activities............................................... (65,918) (13,026)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from notes payable and other debt................................................ 98,831 325,491
Repayment of notes payable and other debt................................................. (36,512) (276,396)
Payment of dividends...................................................................... (2,371)
Stock options exercised................................................................... 902 712
Tax benefit of employee stock compensation................................................ 678 202
Acquisition of treasury stock............................................................. (71)
Repayment of notes receivable for officers' shares........................................ 89
-------- ---------
Net cash provided by financing activities........................................... 61,546 50,009
-------- ---------
Net decrease in cash and cash equivalents................................................... (1,763) (1,489)
Cash and cash equivalents, beginning of period.............................................. 20,446 16,139
-------- ---------
Cash and cash equivalents, end of period.................................................... $ 18,683 $ 14,650
======== =========
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................................................. $ 1,524 $ 14,260
Income taxes paid......................................................................... 1,683 4,507
Exchange of loans for interest in securitization.......................................... 47,578
Common stock issued for purchase of mortgage banking subsidiary and related earnout....... 777 777
Common stock issued (canceled) for unearned stock compensation............................ 649 (79)
Accounts payable recorded in connection with acquisitions................................. 1,295
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE> 78

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation -- On December 31, 1993, AMRESCO, INC., formerly BEI
Holdings, Ltd. (BEI), merged with AMRESCO Holdings, Inc. (Holdings). The merger
was accounted for as a "reverse acquisition" whereby Holdings was deemed to have
acquired BEI for financial reporting purposes. However, BEI, renamed AMRESCO,
INC. on May 23, 1994, remains the continuing legal entity and registrant for
Securities and Exchange Commission filing purposes. Consistent with the reverse
acquisition accounting treatment, the historical financial statements of
AMRESCO, INC. presented for the year ended December 31, 1993, are the
consolidated financial statements of Holdings and differ from the consolidated
financial statements of BEI as previously reported. The operations of BEI have
been included in the financial statements from the date of acquisition. AMRESCO,
INC. (the "Company") is engaged primarily in the business of investment
acquisition, asset management and resolution, loan origination/underwriting,
residential mortgage loan purchasing and securitization, commercial loan
servicing and institutional real estate investment advising. The Company's
business may be affected by many factors, including real estate and other asset
values, the level of and fluctuations in interest rates, changes in the
securitization market and competition. In addition, the Company's operations
require continued access to short and long term sources of financing.

Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company, its subsidiaries and its controlled joint
ventures. Significant intercompany accounts and transactions have been
eliminated in consolidation.

Interim Financial Statements (Unaudited) -- The accompanying financial
statements for the interim periods ended June 30, 1995 and 1996 and related
disclosures are unaudited and have been prepared in accordance with generally
accepted accounting principles for condensed interim financial statements and
Article 10 of Regulation S-X. In the opinion of the Company, all adjustments
necessary to fairly present the financial position, results of operations, and
cash flows have been reflected in the financial statements for the periods ended
June 30, 1995 and 1996.

Revenue and Expense Recognition -- Asset management and resolution fees
from management contracts are based on the amount of assets under management and
the net proceeds from the resolution of such assets, respectively, and are
recognized as earned. Expenses incurred in managing and administering the assets
subject to management contracts are charged to expense as incurred. Loan
placement fees, commitment fees, loan servicing fees and real estate brokerage
commissions are recognized as earned. Placement and servicing expenses are
charged to expense as incurred. Revenues from the Company's institutional
investment advisor business are earned from providing real estate investment
advisory services to institutional and corporate investors, including
acquisition, portfolio/asset management and disposition services.

Cash Equivalents -- Cash equivalents include all highly liquid investments
with a maturity of three months or less when purchased.

Temporary Investments -- Temporary investments consist of short-term
investments such as Treasury bills, federal agency securities and commercial
paper with a maturity of three months or less. The Company has the intent and
ability to hold these investments to maturity and are carried at amortized cost.
Because of the short maturities, cost estimates fair value. All temporary
investments are pledged as collateral under the investment loan agreement. See
Note 7.

Receivables -- Receivables are recognized as earned according to the
respective management contracts. Included in accounts receivable are other
amounts due as reimbursement for certain expenses incurred, or for funds
advanced on behalf of customers. The Company's exposure to credit loss in the
event that payment is not received for revenue recognized equals the balance of
accounts receivable in the balance sheet.

F-8
<PAGE> 79

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Mortgage Loans Held for Sale -- Mortgage loans held for sale are carried at
the lower of cost or market. Market is determined on an individual loan basis
based upon the estimated fair value of similar loans for the month of expected
delivery.

Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights" (an amendment of SFAS No. 65), which is effective for
the fiscal year 1996, requires mortgage banking enterprises to recognize as
separate assets rights to service mortgage loans for others, whether such rights
are originated by the Company's own mortgage banking activities or purchased
from others. The Company adopted SFAS No. 122 effective January 1, 1996, and the
impact of such adoption was insignificant to its financial condition and results
of operations.

Investments -- The Company classifies its investments as: loans,
partnerships and joint ventures, asset-backed and other securities, and real
estate. The original cost of an investment portfolio is allocated to individual
assets within that portfolio based on their relative fair value to the total
purchase price. The difference between gross estimated cash flows from loans and
asset-backed and other securities and its cost is accrued using the level yield
method. The Company accounts for its investments in partnerships and joint
ventures using the equity method which generally results in the pass-through of
the Company's pro rata share of earnings as if the Company had a direct
investment in the underlying loans. Loans, partnerships and joint ventures, and
real estate are carried at the lower of cost or estimated fair value. The
Company's investments in asset-backed and other securities are classified as
available for sale and are carried at estimated fair value determined by
discounting estimated cash flows at current market rates. Any unrealized gains
or losses on asset-backed and other securities are excluded from earnings and
reported as a separate component of shareholders' equity, net of tax effects.
Any permanent impairment in the value of a security will be included in
earnings.

SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118 requires creditors to evaluate the collectibility of
both contractual interest and principal of loans when assessing the need for a
loss accrual. Impairment is measured based on the present value of the expected
future cash flows discounted at the loan's effective interest rate, or the fair
value of the collateral, less estimated selling costs, if the loan is collateral
dependent and foreclosure is probable. As of January 1, 1995, the Company
adopted the provisions of SFAS No. 114 and SFAS No. 118. Because substantially
all of the Company's loans at January 1, 1995, had been purchased at a
substantial discount, the adoption had an insignificant impact on the Company's
financial condition and results of operations.

Securitization and Sale of Assets -- Revenues from the Company's
residential capital markets activities consist of interest earned on residential
mortgage loans purchased, gains on the securitization and sale of such loans and
other related securities, accrued earnings on certificates purchased or retained
from securitization trusts and gains on sales, if any, of such retained
certificates. The gains on the securitization and sale of mortgage loans and
other related securities represent the amount by which the proceeds received
(including the estimated value of any certificates retained) exceed the sum of
the basis of the assets sold and the cost of securitization. When assets are
securitized and sold, the certificates retained are valued at the discounted
present value of the cash flow expected to be realized over the anticipated
average life of the assets sold less future estimated credit losses and normal
servicing and other fees relating to the assets sold. The discounted

F-9
<PAGE> 80

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

present value of such certificates is computed using management's assumptions of
market discount rates (currently approximately 20%), prepayment rates, default
rates and other costs.

Interest income on mortgage loans held for sale and retained interests in
securitizations is recorded as earned. Interest income represents the interest
earned on the loans during the warehousing period (the period prior to their
securitization) and the recognition of interest income on the securities
retained after securitization, which generally is the recognition of the
increased time value of the discounted estimated cash flows.

Premises and Equipment -- Premises and equipment, primarily furniture and
fixtures, are stated at cost less accumulated depreciation. The related assets
are depreciated using the straight-line method over their estimated service
lives, which range from three to twenty years. Improvements to leased property
are amortized over the life of the lease or the life of the improvement,
whichever is shorter.

Intangible Assets -- Intangible assets represent the excess of purchase
price over the fair market value of net assets acquired in connection with the
purchases described in Note 2, as well as capitalized debt issuance costs. These
intangible assets, principally goodwill, servicing rights and contracts
acquired, are amortized using the straight-line method over periods ranging from
one to fifteen years. The Company periodically assesses the recoverability of
intangible assets and estimates the remaining useful life by reviewing projected
results of acquired operations, servicing rights and contracts.

SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which is effective for fiscal years
beginning after December 15, 1995, requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. SFAS No. 121 also requires
that long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
Company adopted SFAS No. 121 effective January 1, 1996, and the impact of such
adoption was insignificant to its financial condition and results of operations.

Income Taxes -- Deferred income taxes are recorded for temporary
differences between the bases of assets and liabilities as recognized by tax
laws and their carrying value as reported in the financial statements.

Earnings per Share -- Earnings per share is computed by dividing net income
by the weighted average number of common shares and common share equivalents
outstanding. The weighted average number of shares outstanding for the year
ended December 31, 1993, is based on the number of BEI shares of common stock
and equivalents exchanged for Holdings shares (see Note 2) and assumes the
retroactive conversion of the preferred stock.

SFAS No. 123, "Accounting for Stock-Based Compensation", which is effective
for fiscal years beginning after December 15, 1995, requires that an employer's
financial statements include certain disclosures about stock-based employee
compensation arrangements regardless of the method used to account for them.
Management expects to continue to measure compensation costs using APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and will therefore include
pro forma disclosures in the notes to the financial statements for all awards
granted after December 31, 1994. The Company will disclose the pro forma net
income and pro forma earnings per share as if the fair value based accounting
method in SFAS No. 123 had been used to account for stock-based compensation
cost in future financial statement presentations.

Foreign Operations -- Assets and liabilities of the foreign subsidiaries
are translated into United States dollars at the prevailing exchange rate on the
balance sheet date. Revenue and expense accounts for these subsidiaries are
translated using the weighted average exchange rate during the period. These
translation

F-10
<PAGE> 81

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

methods give rise to cumulative foreign currency translation adjustments which
are reported as a component of equity.

Derivative Financial Instruments -- Derivative financial instruments are
utilized by the Company to reduce interest rate and foreign exchange risks. The
Company has established a control environment which includes policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instruments activities. The Company does not hold or issue
derivative financial instruments for speculative or trading purposes. Income and
expense from derivative financial instruments are recorded in the same category
as that arising from the related asset or liability being hedged. Gains and
losses resulting from effective hedges of existing assets, liabilities or firm
commitments are deferred and recognized when the offsetting gains and losses are
recognized on the related hedged items.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of certain assets,
liabilities, revenues and expenses. Actual results may differ from such
estimates.

Reclassifications -- Certain reclassifications of prior year amounts have
been made to conform to the current year presentation. In particular,
reimbursable expenses, previously shown as assistance revenue and reimbursable
costs, are now shown net for the periods presented.

2. ACQUISITIONS

On December 31, 1993, BEI merged with Holdings. The merger was accomplished
first by converting each outstanding share of Holdings' convertible preferred
stock into 4.91 shares of Holdings common stock. Each share of Holdings' common
stock was then exchanged for 10.03 shares of BEI common stock for a total of
11,120,530 shares, resulting in Holdings becoming a subsidiary of BEI. During
1994, the Company sold to outside parties substantially all of the assets of its
EnterChange subsidiaries, acquired December 31, 1993 with the acquisition of
BEI, for approximately $1,500,000 in cash and $818,000 in promissory notes.

Effective August 1, 1994, the Company acquired substantially all of the
assets of Holliday Fenoglio Dockerty & Gibson, Inc. and certain of its
affiliates ("Holliday Fenoglio"), which are originators and servicers of
commercial mortgages, for a maximum of approximately $33,000,000, based upon an
initial payment of $17,280,000 in cash and $4,320,000 in stock, and three
additional annual earnout payments if targeted earnings are met or exceeded in
1994, 1995 and 1996. For each of the periods ended December 31, 1994 and 1995,
$3,883,000 was accrued for the respective year's earnout payment. The
transaction has been accounted for as an asset purchase. The purchase price,
determined based on the cash paid, the fair market value of the Company stock
issued and direct acquisition costs, was allocated to the Holliday Fenoglio
assets acquired based on the fair market value at the date of acquisition. The
Holliday Fenoglio assets purchased, including acquisition costs, as of August 1,
1994, were as follows (in thousands):

<TABLE>
<S> <C>
Premises and equipment..................................................... $ 1,015
Loan servicing rights...................................................... 2,200
Goodwill and non-compete agreements........................................ 18,907
Other assets............................................................... 78
-------
Net assets acquired.............................................. $22,200
=======
</TABLE>

Effective June 30, 1995, a wholly-owned subsidiary of the Company acquired
substantially all of the assets of CKSRS Housing Group, Ltd., ("CKSRS") a Miami,
Florida-based commercial mortgage banking company specializing in the
origination, sale and servicing of multifamily mortgages in Florida for
$1,278,000.

On October 27, 1995, the Company, through its wholly-owned subsidiary
AMRESCO Management, Inc., completed the acquisition of the third-party
securitized, commercial mortgage loan Master Servicer and

F-11
<PAGE> 82

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Special Servicer businesses of EQ Services, Inc. and Equitable Real Estate
Investment Management, Inc. (collectively "EQS") for $16,864,000. Effective
November 20, 1995, the Company, through its wholly-owned subsidiary AMRESCO
Advisors, Inc., completed the purchase of substantially all of the pension fund
advisory contracts and certain other assets of Acacia Realty Advisors, Inc.
("Acacia") for $4,180,000. AMRESCO Advisors, Inc. provides real estate
investment advisory services to pension and other institutional investors in
respect of investments in office, industrial and distressed real estate
properties. AMRESCO Advisors, Inc. is a registered investment advisor with the
Securities and Exchange Commission under the Investment Advisors Act of 1940.
The purchases were allocated as follows (in thousands):

<TABLE>
<CAPTION>
AMRESCO AMRESCO
MANAGEMENT, ADVISORS,
INC. INC.
----------- ---------
<S> <C> <C>
Servicing contracts and other intangibles................... $14,500 $4,300
Accounts receivable......................................... 1,832
Equipment, furniture and fixtures........................... 500 200
Other assets................................................ 32 30
Accrued other liabilities................................... (350)
------- ------
Net assets acquired............................... $16,864 $4,180
======= ======
</TABLE>

The allocations of the purchase price are based on the best available
information and are subject to adjustment.

The following pro forma consolidated results of operations for the twelve
months ended December 31, 1993 and 1994 are presented as if the acquisitions of
Holliday Fenoglio and BEI occurred at the beginning of the period presented (in
thousands, except per share data):

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Revenues....................................................... $168,367 $139,275
Income from continuing operations.............................. 28,001 21,846
Earnings per share from continuing operations.................. 1.23 0.91
</TABLE>

The pro forma effect of the acquisitions of EQS, Acacia and CKSRS in 1995
would have an insignificant impact on the consolidated results of operations of
the Company for the years ended December 31, 1993, 1994 and 1995.

3. ASSET MANAGEMENT CONTRACTS

The Company provides asset management and resolution services for private
investors, financial institutions, and government agencies. Generally, the
contracts provide for the payment of a fixed management fee which is reduced
proportionately as managed assets decrease, a resolution fee using specified
percentage rates based on net cash collections and an incentive fee for
resolution of certain assets. Asset management and resolution contracts are of a
finite duration, typically 3-5 years. Unless new assets are added to these
contracts during their terms, the amount of total assets under management
decreases over the terms of these contracts.

On August 31, 1994, the Company and NationsBank Corporation concluded their
asset management contract ("NationsBank Contract"). The NationsBank Contract had
an original term expiring in June 1997 and, as provided, the Company received an
early conclusion fee of $10,000,000 which is included in 1994 other revenues.
One-time expenses related to the NationsBank Contract conclusion included
incentive compensation of $1,200,000 and $2,800,000 for related intangible
write-offs. A significant management contract with the FDIC expired on January
31, 1995. During 1994 all the existing asset management contracts with the RTC

F-12
<PAGE> 83

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expired, and in December, 1995, the Company received a $4,000,000 final
settlement from the RTC for certain contracts.

4. INVESTMENT IN LOANS

Ninety-seven percent of the Company's loans held for investment are loans
purchased at substantial discounts from the principal amount, with the remaining
three percent comprised of other high-yield loans and other notes receivable. At
December 31, 1995 the Company had mortgage loans held for securitization with a
book value of $142,749,000 included in mortgage loans held for sale. These loans
are carried at cost, which does not exceed market. These loans were securitized
and sold for a gain in January, 1996. All of the Company's loans are collateral
under the Company's notes payable and other debt.

5. ASSET-BACKED AND OTHER SECURITIES

Securities available for sale, carried at estimated fair value, at December
31, 1994 and 1995, are as follows (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1994:
Asset-backed securities.................. $ 3,481 $ 3,481
======= ========
1995:
Asset-backed securities.................. $33,930 $325 $ (217) $ 34,038
Interest-only securities................. 12,149 12,149
------- ---- ------ --------
Total............................ $46,079 $325 $ (217) $ 46,187
======= ==== ====== ========
</TABLE>

Maturities of asset-backed securities are not presented because the loans
underlying such securities are subject to prepayment. All of the Company's
asset-backed and other securities are collateral under the Company's notes
payable and other debt.

Proceeds from the sales of an available for sale investment security during
1995 were $13,760,000, with a gross realized gain of $428,000.

6. OTHER ASSETS

The following table summarizes the components of other assets at December
31, 1994 and 1995 (in thousands):

<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Deferred compensation agreements with former officers.............. $1,629 $1,848
Prepaid expenses................................................... 412 1,605
Notes receivable................................................... 525 525
Income taxes receivable............................................ 1,135
Other.............................................................. 2,678 3,940
------ ------
Total other assets....................................... $6,379 $7,918
====== ======
</TABLE>

Deferred compensation agreements include notes from two former officers of
BEI, who are currently directors, which were executed prior to its acquisition
by the Company. The amounts due represent the present value of non-interest
bearing notes due in 2006 and 2007 for advances for premiums on split-dollar
life insurance policies owned by the two directors. Cash surrender values of
approximately $850,000 and

F-13
<PAGE> 84

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$1,738,000 at December 31, 1994 and 1995, respectively, collateralize these
notes, and the Company is a beneficiary under the life insurance policies to the
extent of total premiums advanced. Included in other liabilities at December 31,
1994 and 1995 is $1,331,000 and $1,191,000, respectively, representing the
present value of the Company's obligation to make future premium payments on
such life insurance policies. Notes receivable are unsecured notes from these
former officers due in 1996 and bearing interest at 8.5%.

7. NOTES PAYABLE AND OTHER DEBT

Notes payable and other debt at December 31, 1994 and 1995 and June 30,
1996, consist of the following (in thousands):

DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
NOTES PAYABLE:
$200,000,000 revolving credit line agreement with a
syndicate of lenders for:
Advances on 30-day terms at 6.94% to 7.35%............. $ 62,014
Advances at a prime rate of 8.25%...................... 1,200
$150,000,000 revolving credit line agreement with a
syndicate of lenders for:
Advances on 30 day terms at 7.6224% to 7.75%........... $ 61,000
Advances at a prime rate of 8.5%....................... 6,500
$75,000,000 revolving credit line agreement with
NationsBank of Texas, N.A. (the "Bank") for:
Advance on a 182 day term at a 8.375%.................. $ 8,000
Advance at a prime rate of 8.5%........................ 7,500
$80,000,000 revolving investment loan agreement with the
Bank................................................... 21,942 32,921
Nonrecourse debt payable to two financial services
companies.............................................. 959 38,354 25,856
------- -------- --------
Total notes payable............................... $16,459 $127,796 $ 121,991
======= ======== ========
</TABLE>

On September 29, 1995, the Company entered into a $150,000,000 revolving
loan agreement with a syndicate of lenders, led by the Bank which matures on
September 29, 1997. By its terms, the revolving loan agreement has two primary
components, $50,000,000 available under a corporate facility and $100,000,000
available under a portfolio facility. The syndicate's current commitment under
the revolving loan agreement is limited to a total of $105,000,000; $35,000,000
under the corporate facility and $70,000,000 under the portfolio facility. The
additional amounts under the revolving loan agreement would become available to
the Company upon the participation by additional financial institutions in the
syndicate for the loan and upon an increase in the Company's borrowing base
under this agreement. There can be no assurance that such events will occur. The
borrowing terms, including interest, may be selected by the Company and tied to
either the Bank's variable rate (8.50% at December 31, 1995) or, for advances on
a term basis up to approximately 180 days, a rate equal to an adjusted LIBOR
rate (5.53% at December 31, 1995). Interest is payable quarterly and at the end
of each advance period. The revolving loan agreement is secured by substantially
all of the assets of the Company not pledged under other credit facilities,
including stock of a majority of the Company's subsidiaries held by the Company.
The revolving loan agreement requires the Company to meet certain financial
tests, including minimum consolidated tangible net worth, maximum consolidated
funded debt to consolidated capitalization ratio, minimum fixed charge coverage
ratio, minimum interest coverage ratio, maximum consolidated funded debt to
consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") ratio and maximum corporate facility outstanding to consolidated
EBITDA ratio. The revolving loan agreement contains covenants that, among other
things, will limit the incurrence of additional indebtedness, investments, asset
sales, loans to shareholders, dividends, transactions with affiliates,
acquisitions, mergers and consolidations, liens and encumbrances and other
matters customarily restricted in such agreements. The Company has outstanding
letters of credit totaling $239,000 at December 31, 1995, which

F-14
<PAGE> 85

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reduce the available revolving line. The available borrowing capacity under this
facility at December 31, 1995, was $37,300,000.

Prior to entering into the revolving loan agreement described above,
Holdings maintained a $75,000,000 line of credit with the Bank which bore
interest at their prime rate. This line of credit was terminated with the
$150,000,000 revolving credit agreement.

Effective June 13, 1996, the Company entered into a First Amendment of the
First Amended and Restated Revolving Loan Agreement (the "Revolving Loan
Agreement") with a syndicate of lenders, led by NationsBank of Texas N.A., which
matures on May 31, 1998 and replaced its September 29, 1995, revolving loan
agreement. The syndicates' current commitment under the $200,000,000 revolving
loan agreement was limited to a total of $185,000,000 at June 30, 1996. The
additional $15,000,000 under the revolving loan agreement became available to
the Company on August 12, 1996.

Prior to entering into the $75,000,000 revolving credit agreement, Holdings
maintained a $35,000,000 line of credit with the Bank which bore interest at
their prime rate plus 0.5%. This line of credit was terminated with the
$75,000,000 revolving credit agreement.

On January 20, 1995, the Company entered into a $35,000,000 revolving
investment loan agreement with the Bank. Effective March 5, 1996, this revolving
investment loan agreement was increased to $80,000,000. Proceeds of the loan are
used to acquire short-term investments which secure the loan. Interest is
computed based on market rates adjusted for the Company's credited funds at the
Bank.

On July 27, 1995, two wholly-owned subsidiaries of the Company jointly
entered into a $27,500,000 nonrecourse term loan agreement with a financial
services company to finance investments in portfolios. The loan, with an
outstanding balance of $17,760,000 at December 31, 1995, is collateralized by a
security interest in the investments in asset portfolios of the subsidiaries
with a net book value at December 31, 1995, of $35,527,000. The stated interest
rate for this debt is the financial company's floating prime rate plus 1.5% (10%
at December 31, 1995); however, the borrowing entities may elect to have up to
three tranches of debt bear interest at adjusted LIBOR rate plus 3% (8.53% at
December 31, 1995 for a term of 180 days), with the term of each tranche to be
up to 180 days. Interest is payable monthly. Principal payments are due monthly
and are equal to 90% of the net portfolio cash flow for the preceding month.
Additional principal reductions may be required on a quarterly basis to meet
minimum principal payment requirements. The loan is nonrecourse to the Company
and matures on July 31, 1998. As part of the agreement, the borrowing entities
and the Company are subject to both positive and negative covenants.

On December 19, 1995, a wholly-owned subsidiary of the Company entered into
a $20,593,000 Global Master Repurchase Agreement with a financial services
company to support the purchase of certain commercial mortgage pass-through
certificates. The agreement bears interest at a rate based on 30-day LIBOR plus
1.4% (7.12% at December 31, 1995) payable monthly. This facility is secured by
the commercial mortgage pass-through certificates and repayment of principal is
based on cash flow from such securities. At December 31, 1995, the balance
outstanding under this facility was $20,593,000, secured by assets with a book
value of $27,520,000.

DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
WAREHOUSE LOANS PAYABLE (IN THOUSANDS):
$25,000,000 Warehouse loans payable at 6.94% to 8.25%...... $ 8,987 $ 3,969
Warehouse loans payable to two financial services
companies:
Advances on 60 day terms at 6.35%....................... 144,171 177,055
-------- ---------
Total Warehouse Loans Payable...................... $153,158 $ 181,024
======== =========
</TABLE>

On April 28, 1995, a wholly-owned subsidiary of the Company entered into a
$25,000,000 revolving credit loan agreement with the Bank to facilitate mortgage
loan underwriting and origination. The stated interest rate for this line is the
Bank's floating prime rate (8.5% at December 31, 1995); however, the Company may
elect

F-15
<PAGE> 86

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to have up to three tranches of debt bear interest at adjusted 30-day LIBOR rate
plus 2% (7.72% at December 31, 1995 for a term of 30 days), and interest is
payable monthly. Principal payments on the note are due monthly, and are equal
to the aggregate amount of all principal payments received by the borrowing
entity with respect to mortgage loan underwriting and origination. The loan is
collateralized by the mortgage loans and the borrowing entity/servicers
collection accounts. At December 31, 1995, the balance outstanding under this
facility was $8,987,000, secured by assets totaling $9,474,000. The available
borrowing capacity under this facility at December 31, 1995, was $16,013,000.

On August 15, 1995, a wholly-owned subsidiary of the Company entered into a
mortgage warehouse agreement with a funding corporation to facilitate
multi-family mortgage loan underwriting and origination. The stated interest
rate for this line is an adjusted 30-day LIBOR rate plus 3% (8.72% at December
31, 1995), and interest and principal are payable upon the receipt of the
proceeds of the sale or other disposition of related mortgage loans. The loan is
secured by the mortgage loans originated by the Company and held for sale under
the facility. The Company is a guarantor on this facility. At December 31, 1995,
the balance outstanding under this facility was $8,570,000, secured by assets
totaling $8,620,000.

Effective November 1, 1995, a wholly-owned subsidiary of the Company
entered into a $100,000,000 warehouse line of credit, increased to $150,000,000
on November 30, 1995, with Prudential Securities Realty Funding Corporation
("Prudential") to finance the acquisition warehousing of residential mortgage
loans. This facility was secured by the loans purchased through borrowings under
this facility and held for sale. The stated interest rate for this line was
LIBOR plus 0.875% (which can be adjusted retroactively under certain
circumstances to LIBOR plus 2.4%). At December 31, 1995, the balance outstanding
under this facility was $135,601,000, secured by assets totaling $142,749,000.
On January 26, 1996, the mortgages purchased with borrowings under this facility
were securitized and sold and such borrowings were repaid in their entirety and
the facility was terminated. The Company anticipates that it will incur
additional borrowings under similar facilities in connection with loans
purchased for securitization in the future (see Note 15).

Pursuant to a Commitment Letter dated May 29, 1996, CS First Boston
Mortgage Capital Corp. agreed to provide AMRESCO Residential Mortgage
Corporation, a subsidiary of the Company, with a repurchase facility in an
amount not to exceed $500,000,000 (the "Repurchase Facility"), which
supplements, forms a part of and is subject to a Global Master Repurchase
Agreement dated May 28, 1996 to finance the acquisition and warehousing of
residential mortgage loans. As of June 28, 1996, $133,500,000 was outstanding
under the Repurchase Facility. Indebtedness under the Repurchase Facility bears
interest at a rate of LIBOR (5.50% at June 28, 1996 for a term of 90 days) plus
0.85% to 2.1% based upon the purchase price, market value and unpaid principal
amount of mortgage loans related to each repurchase transaction. Indebtedness
under the Repurchase Facility is secured by a first priority security interest
in the mortgage loans acquired with funds advanced under the Repurchase
Facility.

DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
OTHER DEBT (IN THOUSANDS):
Senior Subordinated Notes at 10%, due January 15, 2003.... $ 57,500
Convertible Subordinated Debt at 8%, due December 15,
2005................................................... $ 45,000 45,000
-------- ---------
Total Other Debt.................................. $ 45,000 $ 102,500
======== =========
</TABLE>

On November 27, 1995, the Company completed an offering conducted in Europe
of $45,000,000 aggregate principal amount of Convertible Subordinated
Debentures. The net proceeds (aggregating approximately $43,000,000) from such
offering were used to repay borrowings under the revolving credit line. The
Convertible Subordinated Debentures bear interest at 8% per annum and will
mature on December 15, 2005. There is no sinking fund or amortization of
principal prior to maturity. The capitalized debt offering costs are included in
intangibles and amortized over ten years. The Convertible Subordinated
Debentures are not

F-16
<PAGE> 87

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redeemable prior to December 15, 1996. The Convertible Subordinated Debentures
are convertible at the option of the holders into shares of Common Stock at a
conversion price of $12.50 per share (equivalent to a conversion rate of 80
shares of Common Stock per $1,000 principal amount of Convertible Subordinated
Debentures), subject to adjustment in certain events. The Convertible
Subordinated Debentures are unsecured obligations of the Company and
subordinated to all existing and future Senior Indebtedness (as defined in the
Convertible Subordinated Debenture Indenture) of the Company. The Convertible
Subordinated Debentures contain certain rights of the holder to require the
repurchase of the Convertible Subordinated Debentures (i) upon a Fundamental
Change (as defined in the Convertible Subordinated Debenture Indenture) and (ii)
if the Company is not able to maintain a Net Worth (as defined in the
Convertible Subordinated Debenture Indenture) of approximately $141.0 million
plus the net proceeds to the Company from any offering of common stock by the
Company subsequent to December 31, 1995. There are certain other covenants
restricting dividends on and redemptions of capital stock.

A subsidiary of the Company had a nonrecourse subordinated note payable to
a financial services company collateralized by a second security interest in the
investment in asset portfolio which was fully repaid at January 31, 1995. The
note required basic interest at the 90-day LIBOR plus 4.5% (11% at December 31,
1994) payable monthly. Principal payments were due monthly, equal to 10% of the
net portfolio cash flow with the remaining outstanding balance due December 30,
1996. The note was nonrecourse to the borrowing entity and the Company. After
repayment of the outstanding principal and basic interest, contingent interest
to provide the lender a 15% compounded rate was due from any available net
portfolio cash flow. Additionally, after the above payments were made, and the
subsidiary had recovered $6,337,000 (representing its equity in the asset
portfolio at December 31, 1993, the date of the loan, and capitalized costs),
the lender became entitled to receive 6% of the net portfolio cash flow. During
1995, the Company paid $222,000 to the lender for its 6% share of net portfolio
cash flow.

On January 30, 1996, the Company completed an offering of $57,500,000
aggregate principal amount of Senior Subordinated Notes. The net proceeds
(aggregating approximately $54,900,000) from such offering were used to repay
borrowings under the revolving credit line. The Senior Subordinated Notes bear
interest at 10% per annum and will mature on January 15, 2003. There is no
sinking fund or amortization of principal prior to maturity. The capitalized
debt offering costs are included in intangibles and amortized over seven years.
The Senior Subordinated Notes are not redeemable prior to January 15, 2001. The
Senior Subordinated Notes are unsecured general obligations of the Company and
subordinated to all existing and future Senior Indebtedness (as defined in
Senior Subordinated Notes Indenture) of the Company. There are certain covenants
restricting dividends on and redemptions of capital stock.

On September 7, 1995, the Company entered into an interest rate swap
agreement to hedge a portion of its 30-day LIBOR floating rate debt. The swap
agreement has a notional amount of $25,000,000 and requires payment of interest
by the Company at a fixed rate of 5.8% and receipt of interest by the Company at
a floating rate equal to 30-day LIBOR.

Effective February 23, 1996, and as amended on March 22, 1996, a
wholly-owned subsidiary of the Company entered into a $220,000,000 warehouse
line of credit with Prudential to finance the acquisition and warehousing of
residential mortgage loans. This facility is secured by the loans purchased
through borrowings under this facility and held for sale. The stated interest
rate for this line is LIBOR plus 0.85%. This facility matured on April 30, 1996.
Effective February 26, 1996, a wholly-owned subsidiary of the Company entered
into a $400,000,000 warehouse line of credit with Prudential to finance the
acquisition and warehousing of residential mortgage loans. This facility is
secured by the loans purchased through borrowings under this facility and held
for sale. The stated interest rate for this line is LIBOR plus 0.85%. This
facility matured on July 31, 1996. The combined amounts outstanding under
mortgage warehouse lines of credit with Prudential cannot exceed $220,000,000 at
any time.

F-17
<PAGE> 88

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On July 16, 1996, the Company completed a sale of $57,500,000 principal
amount of Senior Notes. The net proceeds (aggregating approximately $55,775,000)
from such sale were used to repay borrowings under the Revolving Loan Agreement.
The Senior Notes bear interest at a rate of 8.75% per annum and will mature on
July 1, 1999. There is no sinking fund or amortization of principal prior to
maturity. The capitalized debt offering costs will be included in intangibles
and amortized over three years. The Senior Notes will not be redeemable prior to
July 1, 1999. The Senior Notes will be unsecured senior obligations of the
Company and subordinated to the rights of holders of secured unsubordinated
indebtedness of the Company to the extent of the value of the collateral
securing such indebtedness. There are certain limited restrictions on the
ability of the Company to, among other things, create or incur any additional
senior debt, pay dividends or make certain other restricted payments.

Substantially all of the assets of the Company, including stock of a
majority of the Company's subsidiaries, are pledged to secure notes payable and
other debt.

As of December 31, 1995, the aggregate amounts of notes payable and other
debt that were scheduled to mature during the next five years were as follows
(in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998 1999 2000 THEREAFTER
-------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Notes payable and other debt... $239,136 $15,487 $17,761 $ -- $ -- $ 53,570
</TABLE>

8. INCOME TAXES

Income tax expense (benefit) consists of the following for the years ended
December 31, 1993, 1994 and 1995 (in thousands):

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.............................................. $14,533 $ 9,665 $ 6,040
State................................................ 3,096 2,609 2,147
------- ------- -------
Total current tax expense.................... 17,629 12,274 8,187
Deferred tax expense (benefit)......................... (1,650) 966 5,023
------- ------- -------
Total income tax expense..................... $15,979 $13,240 $13,210
======= ======= =======
</TABLE>

A reconciliation of income taxes on reported pretax income at statutory
rates to actual income tax expense for the years ended December 31, 1993, 1994
and 1995, is as follows (in thousands):

<TABLE>
<CAPTION>
1993 1994 1995
--------------- --------------- ---------------
DOLLARS RATE DOLLARS RATE DOLLARS RATE
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory rates............... $14,069 35% $11,196 35% $12,005 35%
State income taxes, net of Federal tax
benefit................................... 1,910 5% 1,606 5% 1,205 4%
Other....................................... 438 1%
------- ------- -------
Total income tax expense.......... $15,979 40% $13,240 41% $13,210 39%
======= ======= =======
Income tax expense attributable to
continuing operations..................... $17,371 $14,753 $11,593
Income tax expense (benefit) attributable to
discontinued operations................... (1,392) (1,513) 1,617
------- ------- -------
Total income tax expense.......... $15,979 $13,240 $13,210
======= ======= =======
</TABLE>

F-18
<PAGE> 89

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax assets at December 31, 1994 and 1995, consist of the
tax effects of temporary differences related to the following (in thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Allowance for uncollectible accounts receivable.................. $ 1,386 $ 594
Equipment, furniture and fixtures................................ 235
Intangible assets................................................ 2,691 1,759
Investment in subsidiaries....................................... 930 477
Accrued employee compensation.................................... 3,261 2,085
Net operating loss carryforwards................................. 6,775 5,334
AMT credit carryforwards......................................... 602 602
Other............................................................ 2,002 2,008
------- -------
Deferred tax asset before valuation allowance.......... 17,882 12,859
Valuation allowance.............................................. (675) (675)
------- -------
Net deferred tax asset................................. $17,207 $12,184
======= =======
</TABLE>

As a result of the acquisition of BEI, the Company has available for its
use BEI's net operating loss carryforwards existing at the acquisition date. The
Company is limited to utilizing approximately $4,246,000 of such losses
annually. The following are the expiration dates and the approximate net
operating loss carry forwards at December 31, 1995 (in thousands):

<TABLE>
<CAPTION>
EXPIRATION DATE AMOUNT
--------------- ------
<S> <C>
1998.......................................... $ 2,448
1999.......................................... 1,333
2001.......................................... 3,516
2002.......................................... 2,071
2003.......................................... 1,459
2006.......................................... 372
2007.......................................... 2,867
-------
$14,066
=======
</TABLE>

Realization of deferred tax assets is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not, that
all of the deferred tax asset, net of applicable valuation allowance, will be
realized. The amount of the deferred tax asset considered realizable could be
reduced or increased if estimates of future taxable income during the
carryforward period are reduced or increased.

F-19
<PAGE> 90

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. OTHER LIABILITIES

The following table summarizes the components of other liabilities at
December 31, 1994 and 1995 (in thousands):

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Accrued interest................................................... $ 325 $ 1,752
Deferred compensation obligations (Note 6)......................... 1,331 1,191
Dividends payable.................................................. 1,179
Payable to partners................................................ 3,907 2,349
Other.............................................................. 2,875 2,165
------ ------
Total other liabilities.................................. $ 9,617 $ 7,457
====== ======
</TABLE>

On October 25, 1995, the Company announced the discontinuation of its
policy of paying cash dividends. The Board of Directors has determined the
Company should retain all earnings to support current operations and finance
future expansions.

Payable to partners represents amounts owed to Esther Ritz Corporation
("Ritz") and other partners for their shares of the undistributed earnings of
various joint ventures and partnerships. The consolidated balance sheets at
December 31, 1994 and 1995, include the accounts of BEI-Ritz Joint Venture #1
and BEI-Ritz Joint Venture #2 (the "Joint Ventures") of which the Company owns a
controlling interest. The Joint Ventures were formed in 1991 between BEI and
Ritz to participate in the bidding for contracts for the management and
disposition of assets owned by the RTC. The Joint Ventures make distributions to
the Company and to Ritz as cash is collected on the RTC contracts. The related
contracts concluded during 1994 and a final settlement with the RTC was reached
in December 1995.

10. DISCONTINUED OPERATION

The Company adopted a plan on December 1, 1994, to discontinue its data
processing operations for the banking and asset management industry and to sell
substantially all of the assets of the related subsidiary by June 30, 1995. The
net liabilities of the subsidiary at December 31, 1994, were as follows (in
thousands):

<TABLE>
<S> <C>
Accounts receivable........................................................ $ 666
Premises and equipment and other assets.................................... 341
Liabilities................................................................ (718)
Reserve for losses on discontinued operations.............................. (1,243)
-------
Net liabilities of discontinued subsidiary....................... $ (954)
=======
</TABLE>

Gross revenues applicable to the discontinued operations were $5,500,000
and $4,542,000 for the year ended December 31, 1993, and the eleven months ended
November 30, 1994, respectively. The loss from discontinued operations for the
year ended December 31, 1993 and the eleven months ended November 30, 1994 was
$2,088,000 and $1,287,000, respectively, net of $1,392,000 and $891,000 income
tax benefit, respectively. The loss from the discontinued operations for the
period December 1, 1994, to December 31, 1994, was $95,000, net of $63,000
income tax benefit. The loss on the disposal of discontinued operations for the
year ended December 31, 1994, was $898,000, net of income tax benefit of
$622,000.

F-20
<PAGE> 91

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On June 16, 1995, the Company sold substantially all of the assets of its
data processing operations for the banking and asset management industry for
$6,250,000 in cash with a gain of $2,425,000, or $0.10 per share, net of certain
transaction costs and a $1,617,000 provision for income taxes. The book values
of the net assets sold in the transaction were as follows (in thousands):

<TABLE>
<S> <C>
Cash......................................................................... $ 283
Accounts receivable.......................................................... 293
Premises and equipment....................................................... 302
Other assets................................................................. 65
Liabilities.................................................................. (199)
-----
Net assets of discontinued subsidiary.............................. $ 744
=====
</TABLE>

11. COMMON STOCK

The Company has a stock option and award plan for the benefit of key
individuals, including its directors, officers and key employees. In connection
with the merger of BEI and Holdings (see Note 2), certain granted options became
fully vested. The plan is administered by a committee of the Board of Directors.
The plan was adjusted to reflect the conversion of each share of Holdings common
stock into 10.03 shares of the Company's stock for the year ended December 31,
1993. Stock option activity under the plan for the years ended December 31,
1993, 1994 and 1995, is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Options outstanding at January 1, 1993................... 411,230 $ 0.60
Granted................................................ 431,290 $ 3.50
Canceled............................................... (70,210) $ 0.60
Acquired company options outstanding................... 1,321,790 $2.25 to $ 4.50
---------
Options outstanding at December 31, 1993................. 2,094,100 $0.60 to $ 4.50
Granted................................................ 500,000 $7.00 to $ 8.94
Exercised.............................................. (711,590) $0.60 to $ 3.50
Forfeited.............................................. (10,060) $ 3.50
---------
Options outstanding at December 31, 1994................. 1,872,450 $0.60 to $ 4.50
Granted................................................ 872,160 $6.88 to $11.38
Exercised.............................................. (434,480) $0.60 to $ 6.88
Forfeited.............................................. (8,337) $2.75 to $ 3.75
---------
Options outstanding at December 31, 1995................. 2,301,793 $0.60 to $11.38
=========
Options exercisable at December 31, 1995................. 1,382,691 $0.60 to $11.38
=========
Options available for grant at December 31, 1995......... 1,766,833
=========
</TABLE>

At December 31, 1995, the Company has reserved a total of 4,068,626 shares
of common stock for exercise of stock options.

A stock subscription agreement and related stockholders' agreement (the
"Stockholder Agreements") were entered into by the Company with various officers
and other parties (the "Subscribers") on December 9, 1992. The purchase price
was based on $.60 per share (after effect of the conversion into Company stock).
Certain executive officers purchased common stock with cash and promissory
notes. The notes accrue interest at 6% per annum and are due and payable in
December 2002 or within one year of termination of employment. The shares are
subject to certain restrictions and repurchase rights pursuant to the
Stockholder Agreements. In the event of termination of employment prior to
December 2002, the Company could cancel unvested

F-21
<PAGE> 92

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares by canceling related indebtedness based on the original issue price.
Originally, 50% of the notes were vested based upon performance and the
remainder were time notes. As a result of the merger with BEI, the performance
notes were converted into time notes. The conversion of the notes resulted in
additional compensation expense recorded during 1993 of $1,188,000. In addition,
the shares are now fully vested. The notes are secured by the stock acquired and
are nonrecourse to the Subscribers. The notes are classified as a reduction of
stockholders' equity for financial reporting purposes. At December 31, 1994 and
1995, reductions for employee stock included notes receivable for officers'
shares of $429,000 and $120,000, respectively. During 1993, $179,000 in notes
receivable for officers' shares and the related common stock were canceled.
During 1994, a $178,000 note receivable was repaid. During 1995, $309,000 in
officers' notes receivable were collected, including $220,000 in cash and
$89,000 in common stock.

During 1995, the Company issued 250,202 shares of restricted common stock
at prices ranging from $6.88 per share to $11.38 per share under the Company's
stock option and award plan. During 1995, $279,000 in unearned stock
compensation was amortized as compensation expense. At December 31, 1995,
reductions for employee stock included unearned stock compensation of
$2,118,000. Also, during 1995 the Company initiated an employee stock purchase
plan under which employees of the Company, through payroll deductions, can
purchase common stock of the Company for 85% of the then-current market price.

On December 13, 1995, the Company completed a registered public offering of
2,000,000 shares of Common Stock. Subsequent thereto, the Company sold an
additional 300,000 shares of Common Stock upon exercise of the Underwriters'
over-allotment option. The net proceeds from such offering aggregating
approximately $25,110,000 were used to repay borrowings under the revolving
credit line. The price to the public was $11.75 per share and the price to the
Company was $11.10 per share (after an underwriting discount of $0.65 per
share). In addition to the offering of shares of Common Stock by the Company,
two institutional shareholders sold an aggregate of 2,300,000 shares of Common
Stock (including 300,000 shares sold pursuant to the exercise of the
underwriters' over-allotment option). The Company did not receive any proceeds
from the sale of these shares. Assuming issuance of 2,300,000 shares of common
stock at the beginning of each of the periods January 1, 1995 and 1994 and
application of related net proceeds to the repayment of borrowings bearing an
average interest cost of 8.1%, pro forma per share amounts of income from
continuing operations and net income would be $0.85 and $0.77, respectively, for
the year ended December 31, 1994, and $0.74 and $0.83, respectively for the year
ended December 31, 1995.

12. EMPLOYEE COMPENSATION AND BENEFITS

Accrued employee compensation and benefits at December 31, 1994 and 1995,
include amounts for incentive compensation, severance and benefits. Certain
employees are eligible to receive a bonus from a pool computed on 15% to 25% of
pretax income over predetermined minimum earning levels. In addition, certain
employees are covered by severance plans in the event their employment is
terminated due to reductions in the workforce. The Company accrues for such
costs over the service period. At December 31, 1994 and 1995, a total of
$5,144,000 and $1,423,000, respectively, was accrued for costs incurred or
expected to be incurred under the severance plans of continuing operations.

The AMRESCO Retirement Savings and Profit Sharing Plan (the "Plan")
qualifies under Section 401(k) of the Internal Revenue Code and incorporates
both a savings component and a profit sharing component for eligible employees.
As determined each year by the Board of Directors, the Company may match the
employee contribution up to 6% of their base pay based on the Company's
performance. For 1995, the matching contribution was set at $.50 for each $1.00
contributed by the employees. In addition to the matching savings contribution,
the Company provides an annual contribution to the profit sharing retirement
component of the Plan on behalf of all eligible employees. This portion of the
Plan has been amended to assure that the Company is not required to make an
employer profit sharing contribution to the Plan. However, it is anticipated
that some level of profit sharing contribution will continue in future periods.
For the

F-22
<PAGE> 93

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

years ended December 31, 1993, 1994 and 1995, the Company made profit sharing
contributions of $1,700,000, $1,312,000 and $1,218,000, respectively. Allocation
of the Company's contribution will be based on a percentage of an employee's
weighted total pay. Weighted total pay places a stronger emphasis on the age of
the employee and provides an increasingly larger profit sharing contribution as
an employee nears retirement.

13. COMMITMENTS AND CONTINGENCIES

The Company is committed to pay additional consideration to former owners
of an acquired subsidiary based on financial performance during 1995 and 1996.
See Note 2.

The Company has entered into non-cancelable operating leases covering
office facilities which expire at various dates through 2006. Certain of the
lease agreements provide for minimum annual rentals with provisions to increase
the rents to cover increases in real estate taxes and other expenses of the
lessor. The Company also has leases on equipment, some of which are
non-cancelable, which expire on various dates through 1999. The total rent
expense for the years ended December 31, 1993, 1994 and 1995, was approximately
$3,116,000, $4,386,000, and $3,655,000, respectively. The future minimum annual
rental commitments under non-cancelable agreements having a remaining term in
excess of one year at December 31, 1995, are as follows (in thousands):

<TABLE>
<S> <C>
Year Ended December 31,
1996.............................................. $3,249
1997.............................................. 3,592
1998.............................................. 3,178
1999.............................................. 2,540
2000.............................................. 1,789
Thereafter........................................ 9,981
</TABLE>

The Company is a defendant in various legal actions. In the opinion of
management, such actions will not materially affect the financial position,
results of operations or cash flows of the Company.

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to hedge against changes in interest rates.
These financial instruments include commitments to sell certain mortgage loans
and interest rate swap agreements. These instruments involve, to varying
degrees, elements of interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition. The Company controls the
risk of its hedging agreements, interest rate swap agreements and forward
contracts through approvals, limits and monitoring procedures.

14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company may reduce its exposure to fluctuations in interest rates by
creating offsetting positions through the use of derivative financial
instruments, particularly forward contracts and interest rate swaps. The Company
currently does not use derivative financial instruments for trading or
speculative purposes, nor is the Company party to highly-leveraged derivatives.
The notional amount of interest rate swaps is the underlying principal amount
used in determining the interest payments exchanged over the life of the swap.
The notional amounts are not a measure of the Company's exposure through its use
of derivatives.

The Company had two forward contracts at December 31, 1995, to sell a total
of $70,000,000 7.5% residential mortgage loans at contracted forward prices.
Both of the Company's forward contracts are hedges against interest rate
exposures and a change in a forward contract's value would be offset with an
equivalent but opposite change in the hedged residential mortgage loans. These
contracts matured on January 16, 1996.

F-23
<PAGE> 94

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest rate swap agreements are used to reduce interest rate risks and
costs inherent in the Company's outstanding debt. The Company enters into these
agreements to change the fixed/variable interest rate mix of the debt portfolio
to reduce the Company's aggregate risk to movements in interest rates.
Accordingly, the Company enters into agreements to effectively convert
variable-rate debt to fixed-rate debt to reduce the Company's risk of incurring
higher interest costs due to rising interest rates. During 1995, the Company
entered into a $25,000,000 interest rate swap agreement thereby allowing the
Company to establish fixed interest rates on a portion of its outstanding debt.
During 1995, there were no deferred gains or losses related to the swap
agreement. This swap agreement matures September 7, 1997. See Note 7.

The Company continually monitors the market risk of its forward and
interest rate swap contracts. The Company uses commercial rating agencies to
evaluate the credit quality of the counterparties, all of whom are major
international financial institutions. The Company does not anticipate a loss
resulting from any credit risk of these institutions.

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirement of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................. $ 20,446 $ 20,446 $ 16,139 $ 16,139
Temporary investments..................... 21,942 21,942
Accounts receivable....................... 20,682 20,682 20,158 20,158
Mortgage loans held for sale.............. 160,843 161,841
Investments:
Loans.................................. 32,631 38,000 138,180 147,000
Partnerships and joint ventures........ 22,491 25,200 34,694 38,000
Asset-backed securities................ 3,481 3,500 46,187 46,187
Liabilities:
Accounts payable.......................... 12,045 12,045 14,124 14,124
Notes payable and other debt.............. 16,459 16,459 325,954 326,354
Off-Balance Sheet:
Interest rate swap........................ (251)
Forward contracts......................... (998)
Letters of credit ($833 and $239,
respectively).......................... -- --
</TABLE>

The fair values of investments, notes payable and other debt are estimated
based on present values of estimated cash flows using current entry-value
interest rates applicable to each category of such financial instruments.
Mortgage loans held for sale are valued at their contracted sales prices. The
carrying amount of cash and cash equivalents, temporary investments, accounts
receivable, net of reserves, and accounts payable approximates fair value. The
Company has reviewed its exposure on standby letters of credit and has
determined that the fair value of such exposure is not material. The fair values
of the interest rate swap and forward contracts are estimated using market
quotes. The fair value estimates presented herein are based on

F-24
<PAGE> 95

AMRESCO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pertinent information available to management as of December 31, 1994 and 1995.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the date presented,
and therefore, current estimates of fair value may differ significantly from the
amounts presented herein.

15. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of unaudited quarterly results of operations,
revised to reflect discontinued operations, for the years ended December 31,
1994 and 1995 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues from continuing operations............. $34,140 $33,899 $39,783 $21,969
Income from continuing operations before income
taxes......................................... 9,244 9,307 14,979 2,156
Income from continuing operations............... 5,358 5,425 8,873 1,277
Loss from discontinued operations............... (422) (316) (238) (1,209)
Net income...................................... 4,936 5,109 8,635 68
Earnings per share from continuing operations:
Primary....................................... 0.23 0.23 0.37 0.05
Fully-diluted................................. 0.23 0.23 0.37 0.05
Earnings per share:
Primary....................................... 0.21 0.22 0.36 0.00
Fully-diluted................................. 0.21 0.22 0.36 0.00
</TABLE>

Nonrecurring revenues of $10,000,000 related to the conclusion of the
NationsBank Contract were recorded during the third quarter of 1994.
Nonrecurring accruals for the loss on discontinued operations were made during
the fourth quarter of 1994.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues from continuing operations............. $20,177 $23,482 $25,416 $41,411
Income from continuing operations before income
taxes......................................... 5,336 6,205 8,430 10,287
Income from continuing operations............... 3,155 4,079 5,196 6,235
Gain from sale of discontinued operations....... 2,425
Net income...................................... 3,155 6,504 5,196 6,235
Earnings per share from continuing operations:
Primary....................................... 0.13 0.17 0.21 0.25
Fully-diluted................................. 0.13 0.17 0.21 0.24
Earnings per share:
Primary....................................... 0.13 0.27 0.21 0.25
Fully-diluted................................. 0.13 0.27 0.21 0.24
</TABLE>

A nonrecurring gain on the sale of a discontinued operation was recorded
during the second quarter of 1995. Included in revenues for the fourth quarter
of 1995 are $4,000,000 related to an expired RTC contract.

F-25
<PAGE> 96

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Quality Mortgage USA, Inc.

We have audited the accompanying consolidated balance sheets of Quality
Mortgage USA, Inc. as of September 30, 1994 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated 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 consolidated financial position of
Quality Mortgage USA, Inc. as of September 30, 1994 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Newport Beach, California
December 15, 1995

F-26
<PAGE> 97

QUALITY MORTGAGE USA, INC.

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1995

ASSETS

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents....................................... $ 19,149,278 $ 19,912,703
Advances and wet fundings....................................... 12,545,988 25,814,662
Investments, net................................................ 8,115,504 4,194,470
Mortgage loans held for sale, net............................... 147,183,263 197,216,733
Interest receivable............................................. 647,510 1,566,896
Real estate held for sale, net.................................. 8,695,679 3,555,041
Second trust deed receivables................................... 360,208 1,171,330
Other assets.................................................... 2,372,112 1,705,608
Property and equipment, net..................................... 6,481,475 8,284,924
Deferred tax asset.............................................. 4,129,419 7,277,263
------------ ------------
Total assets.......................................... $209,680,436 $270,699,630
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Related party notes payable................................... $161,938,552 $230,947,747
Accounts payable and accrued expenses......................... 7,052,415 7,335,756
Income taxes payable.......................................... 3,048,631 3,955,915
Deferred tax liability........................................ 647,175 621,373
------------ ------------
Total liabilities..................................... 172,686,773 242,860,791
------------ ------------
Commitments and contingencies
Stockholders' equity:
Series A common stock, no par value, 200 shares authorized,
issued and outstanding..................................... 198 198
Additional paid-in capital.................................... 1,999,900 2,137,398
Retained earnings............................................. 34,993,565 25,701,243
------------ ------------
Total stockholders' equity............................ 36,993,663 27,838,839
------------ ------------
Total liabilities and stockholders' equity............ $209,680,436 $270,699,630
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-27
<PAGE> 98

QUALITY MORTGAGE USA, INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995

<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Loan origination fees, net........................ $17,730,971 $19,611,880 $12,641,985
Interest.......................................... 12,933,549 18,555,495 34,721,394
Gain on sale of mortgage loans.................... 31,814,823 51,040,622 40,676,945
Prepayment fees................................... 866,131 3,828,432 9,643,739
Late fees......................................... 922,279 2,237,300 4,636,992
Trust deed revenues............................... 11,064 1,567,147
Gain (loss) on sale of real estate held for
sale........................................... 36,816 (4,398,734) (6,268,944)
Other............................................. 112,579 329,806 422,127
----------- ----------- -----------
64,417,148 91,215,865 98,041,385
----------- ----------- -----------
Operating expenses:
Interest.......................................... 6,184,908 10,240,173 23,113,640
Commissions....................................... 3,067,252 5,161,164 5,837,811
Salaries.......................................... 11,357,468 23,271,379 27,585,478
Professional and consulting fees.................. 2,469,936 3,293,756 3,906,046
Selling, general and administrative............... 2,556,057 6,507,248 7,645,938
Provision for losses on investments............... 3,914,364
Provision for losses on mortgage loans held for
sale........................................... 2,200,000
Provision for losses on real estate held for
sale........................................... 2,597,411
Rent and other occupancy costs.................... 879,369 1,307,284 1,724,583
Depreciation and amortization..................... 487,770 967,168 1,436,406
----------- ----------- -----------
27,002,760 55,545,583 75,164,266
----------- ----------- -----------
Income before provision for income taxes............ 37,414,388 35,670,282 22,877,119
Provision for income taxes.......................... 16,841,250 17,423,788 9,756,946
----------- ----------- -----------
Net income.......................................... $20,573,138 $18,246,494 $13,120,173
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-28
<PAGE> 99

QUALITY MORTGAGE USA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995

<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- --------------- ------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ----------- ------ ------ ------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1,
1992................... 100 $100 $1,999,900 $ 4,799,785 $ 6,799,785
Dividends paid........... (2,830,747) (2,830,747)
Issuance of preferred
stock as common stock
dividend............... 100 $ 5,458,750 (5,458,750)
Net income............... 20,573,138 20,573,138
---- ----------- --- ---- ----- --------- ---------- ------------ ------------
Balances, September 30,
1993................... 100 5,458,750 100 100 1,999,900 17,083,426 24,542,176
Dividends paid........... (336,355) (336,355)
Redemption of preferred
stock.................. (100) (5,458,750) (5,458,750)
Common stock split....... 2
Issuance of common
stock.................. 98 98 98
Net income............... 18,246,494 18,246,494
---- ----------- --- ---- ----- --------- ---------- ------------ ------------
Balances, September 30,
1994................... 200 198 1,999,900 34,993,565 36,993,663
Dividends paid........... (22,412,495) (22,412,495)
Issuance of common
stock.................. 6.87 $ 137,498 137,498
Common stock reacquired
pursuant to the terms
of a separation
agreement.............. (6.87) (137,498) 137,498
Net income............... 13,120,173 13,120,173
---- ----------- --- ---- ----- --------- ---------- ------------ ------------
Balances, September 30,
1995................... 200 $198 $ $2,137,398 $ 25,701,243 $ 27,838,839
==== =========== === ==== ===== ========= ========== ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-29
<PAGE> 100

QUALITY MORTGAGE USA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995

<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 20,573,138 $ 18,246,494 $ 13,120,173
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization.................. 487,770 967,168 1,436,406
(Gain) loss on sale of real estate held for
sale......................................... (36,816) 4,398,734 6,268,944
Provision for losses on investments, mortgage
loans and real estate held for sale.......... 4,797,411 3,914,364
Increase in advances and wet fundings.......... (563,032) (11,982,956) (13,268,674)
(Increase) decrease in mortgage loans held for
sale......................................... (38,171,754) 33,565,148 (50,033,470)
(Increase) decrease in interest receivable..... (184,803) 249,227 (919,386)
Increase in second trust deed receivables...... (285,158) (811,122)
(Increase) decrease in other assets............ (2,479,074) (129,464) 666,504
Decrease (increase) in deferred taxes, net..... 106,366 (3,482,244) (3,173,646)
Increase in accounts payable and accrued
expenses..................................... 1,173,540 4,653,766 283,341
(Decrease) increase in income taxes payable.... (2,241,622) 3,048,631 907,284
Increase in deferred revenue................... 832,553
------------ ------------ ------------
Net cash (used) provided by operating
activities.............................. (20,503,734) 54,046,757 (41,609,282)
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in investments classified as
held-to-maturity............................... (8,115,504) 7,502,142
Increase in investments classified as
available-for-sale............................. (1,328,472)
Capital expenditures.............................. (5,315,555) (2,070,477) (3,239,854)
Purchase of real estate held for sale............. (4,335,367) (36,226,778) (24,133,326)
Proceeds from sale of real estate................. 1,152,326 23,754,810 23,005,019
------------ ------------ ------------
Net cash (used) provided by investing
activities.............................. (8,498,596) (22,657,949) 1,805,509
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) on related party notes
payable........................................ 39,301,904 (23,993,512) 62,842,195
Dividends paid.................................... (2,830,747) (336,355) (22,412,495)
Redemption of preferred stock..................... (5,458,750)
Proceeds from sale of stock....................... 98 137,498
------------ ------------ ------------
Net cash provided (used) by financing
activities.............................. 36,471,157 (29,788,519) 40,567,198
------------ ------------ ------------
Net increase in cash and cash
equivalents............................. 7,468,827 1,600,289 763,425
Cash and cash equivalents, beginning of year........ 10,080,162 17,548,989 19,149,278
------------ ------------ ------------
Cash and cash equivalents, end of year.............. $ 17,548,989 $ 19,149,278 $ 19,912,703
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest....................................... $ 6,098,501 $ 10,405,577 $ 22,635,519
============ ============ ============
Income taxes................................... $ 19,891,867 $ 13,941,964 $ 7,761,000
============ ============ ============
</TABLE>

During the year ended September 30, 1995, the Company partially financed
its purchase of investments classified as available-for-sale with a related
party note payable of $6,167,000.

The accompanying notes are an integral part of these consolidated financial
statements.

F-30
<PAGE> 101

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1994 AND 1995 AND
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995

1. ORGANIZATION AND BASIS OF PRESENTATION:

Quality Mortgage USA, Inc., a California corporation, originates, purchases
and sells primarily "B" and "C" grade residential mortgage loans collateralized
by one to four single family homes throughout the United States and is approved
as a nonsupervised mortgagee by the United States Department of Housing and
Urban Development. The aggregate amount of loans originated or purchased during
the years ended September 30, 1993, 1994 and 1995 was approximately $1.192
billion, $1.314 billion and $1.607 billion, respectively. The common stock of
Quality Mortgage USA, Inc. is owned 51% by Calmac Funding ("Calmac"), a Nevada
corporation, and 49% by DLJ Mortgage Capital, Inc. ("DLJ"), a Delaware
corporation.

The accompanying consolidated financial statements include the accounts of
Quality Mortgage USA, Inc. and all of its wholly-owned subsidiaries
(collectively, the "Company") as follows:

- QMI Properties, Inc., a California corporation, owns and operates the
Company's corporate office facilities in Irvine, California.

- Save-More Insurance Services, Inc., a California corporation, acts as an
insurance agent selling homeowners, property and various other insurance
products primarily to mortgagees of Quality Mortgage USA, Inc.

- Commonwealth Trust Deed Services, Inc., a California corporation, acts as
a trustee for foreclosed mortgage loans collateralized by California
property originated or acquired by Quality Mortgage USA, Inc.

- Quality Trustee, Inc., a California corporation, performs certain trust
deed recording services on foreclosed mortgage loans originated or
acquired by Quality Mortgage USA, Inc.

All significant intercompany balances and transactions have been
eliminated.

2. SIGNIFICANT ACCOUNTING POLICIES:

Cash and Equivalents

Cash and cash equivalents consist of cash in banks, money market and mutual
funds and short-term investments with maturities of three months or less on the
date of acquisition. The carrying amount of cash equivalents approximates fair
value.

Advances and Wet Fundings

Advances and wet fundings consist of funds advanced for the purpose of
funding mortgage loans in certain states which require loan proceeds to be
transferred to the closing agent or escrow company prior to the loan closing.
Execution of these loan transactions normally occur three to five days following
distribution of the loan funds.

Investments

In May 1993, the Financial Accounting Standards Board issued Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities." This
Statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for investments in
debt securities, and requires that these investments be classified as either
held-to-maturity, available-for-sale or trading securities. The Statement is
effective for fiscal years beginning after December 15, 1993 and the

F-31
<PAGE> 102

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company elected to adopt this Statement on October 1, 1994. The adoption of this
Statement was not material to the Company's 1995 financial statements.

Investments consist of government agency debt, Class C mortgage
pass-through certificates and interest only strips with maturities exceeding
three months on the date of acquisition. The Company classified the investments
as held-to-maturity, except for the Class C mortgage pass-through certificates
which are classified as available-for-sale. The Company assesses whether there
has been an impairment in the value of investments by considering factors such
as related fair market values and estimated future cash flows.

Mortgage Loans Held For Sale

Mortgage loans held for sale are stated at the lower of aggregate cost or
aggregate estimated fair value, with fair value primarily based upon outstanding
commitments that the Company has received from investors for the purchase of
such mortgages. Interest income is recognized using the actuarial interest
method. Gains or losses on sales of mortgage loans are recorded at the time in
which all risks and rewards have been transferred to the buyer.

Real Estate Held For Sale

Real estate held for sale consists of residential real estate located
primarily in Southern California and is stated at the lower of cost or estimated
net realizable value.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets which range from three to thirty years.
Leasehold improvements are amortized on the straight-line method over the
estimated useful life of the asset or the terms of the lease, whichever is
shorter. Maintenance and repairs are expensed as incurred while renewals and
betterments are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation, and any resulting gain or loss is included in operations.

Loan Origination Fees

Loan origination fees consist of amounts received in connection with the
origination of residential mortgage loans and are presented net of related
direct loan origination costs. Loan origination fees and direct loan origination
costs for mortgage loans held for sale are deferred until the related loans are
sold.

Income Taxes

The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

F-32
<PAGE> 103

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Management Estimates

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

Risks and Uncertainties

Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of second trust deed notes. As
of September 30, 1994 and 1995, substantially all of these notes were
collateralized by properties located in California.

At September 30, 1994 and 1995, the Company had amounts on deposit with
financial institutions that were in excess of the federally insured limit of
$100,000. In October 1994 and 1995, the Company invested the majority of these
balances in United States Treasury Bills and mutual funds.

Impact of New Accounting Standards

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
is effective for financial statements for fiscal years beginning after December
15, 1995. Management believes that adoption of this standard will not have a
material effect on the financial position or results of operations of the
Company.

In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS 122"), which is effective for fiscal years beginning after
December 15, 1995. The Company intends to adopt the provisions of SFAS 122 in
fiscal year 1996. SFAS 122 eliminates the accounting distinction between rights
to service mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. The Statement also
requires that impairment of capitalized mortgage servicing rights be measured
based on the fair value of those rights. Management believes that the adoption
of this pronouncement will not significantly impact the Company's consolidated
financial statements.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. Management is currently studying the
effects of adopting this standard.

Reclassifications

Certain prior period amounts have been reclassified to conform with the
current period presentation.

3. CASH AND CASH EQUIVALENTS:

Cash and cash equivalents consist of the following at September 30:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Short-term investments.................................... $14,431,502 $ 9,855,902
Other cash deposits....................................... 4,717,776 10,056,801
----------- -----------
$19,149,278 $19,912,703
=========== ===========
</TABLE>

F-33
<PAGE> 104

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Short-term investments consist of a United States Treasury Bill, government
money market funds and Treasury money market funds. The maturity date for The
United States Treasury Bill held at September 30, 1995 is November 11, 1995.

4. INVESTMENTS:

Investments, net consist of the following at September 30:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Treasury securities........................................... $8,115,504
Class C mortgage pass-through certificates, due in December
2024........................................................ $3,581,108
Interest only strips, due in October and December 2024........ 613,362
---------- ----------
$8,115,504 $4,194,470
========== ==========
</TABLE>

In December 1994, the Company purchased Class C mortgage pass-through
certificates with a face value of $11,012,293 for $7,495,472, the then estimated
fair market value of the certificates, from DLJ. In conjunction with this
purchase, the Company borrowed $6,167,000 from DLJ under substantially the same
terms as described in Note 8. Subsequent to the purchase of the certificates,
the Company wrote down its investment by $3,914,364 as management believed an
other-than-temporary impairment had occurred.

5. MORTGAGE LOANS HELD FOR SALE:

Mortgage loans held for sale, net consist of the following at September 30:

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Principal balance outstanding........................... $149,243,064 $199,044,085
Premium paid on purchased loans......................... 735,882 1,171,330
Deferred loan fees, net................................. (595,683) (798,682)
Allowance for estimated losses.......................... (2,200,000) (2,200,000)
------------ ------------
$147,183,263 $197,216,733
============ ============
Weighted average interest rate.......................... 9.95% 11.19%
============ ============
</TABLE>

Premium paid on purchased loans represents the amount above par that the
Company paid for certain loans that are held for sale as discussed in Note 8.

Deferred loan fees, net represent loan origination fees received in
connection with the origination of residential mortgage loans, and are net of
direct loan origination costs, related to mortgage loans held for sale. Such
fees and costs are deferred until the related loans are sold.

6. REAL ESTATE HELD FOR SALE:

Through various Pooling and Servicing Agreements between Lomas Mortgage
USA, Inc. (the "Servicer"), DLJ and Bankers Trust Company, the Company is
provided with a first right of refusal to purchase mortgaged property acquired
or about to be acquired by foreclosure from the Servicer. Under the agreement,
the Company will forfeit the right to acquire properties from a particular trust
if the Company elects not to purchase any two mortgaged properties. The Pooling
and Servicing Agreements provide that the purchase price for any mortgaged
property acquired by the Company be equal to the sum of the outstanding
principal balance of the related mortgage loan plus accrued interest thereon and
the amount of any unreimbursed advances. During April 1995, the Company
discontinued its policy of purchasing mortgaged property acquired or about to be
acquired by foreclosure by the Servicer.

F-34
<PAGE> 105

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of September 30, 1995, the Company has thirty-two properties primarily
located in Southern California that are held for sale with an aggregate basis of
$5,169,902, net of a $1,614,861 reserve to reduce their carrying value to the
estimated net realizable value. Estimated net realizable value is equal to the
appraised value of the individual properties less sales commissions and other
anticipated costs of disposition.

The Company may provide mortgage loans to purchasers in order to facilitate
the sale of the Company's real estate held for sale. As of September 30, 1994
and 1995, the Company had loans outstanding of $656,201 and $4,913,057,
respectively, collateralized by first trust deeds in the respective property, to
purchasers of the Company's real estate held for sale. Such amounts are included
in mortgage loans held for sale, net on the accompanying balance sheets.

The Company also provided second trust deeds in conjunction with the sale
transactions described above totalling $360,208 and $1,719,679 as of September
30, 1994 and 1995, respectively.

7. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following at September 30:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Office buildings.......................................... $ 3,823,854 $ 5,905,635
Computer hardware and software............................ 2,283,531 2,782,184
Office machinery and equipment............................ 1,104,753 1,538,306
Furniture and fixtures.................................... 474,780 637,178
Leasehold improvements.................................... 256,708 320,178
----------- -----------
7,943,626 11,183,481
Less, accumulated depreciation and amortization......... (1,462,151) (2,898,557)
----------- -----------
$ 6,481,475 $ 8,284,924
=========== ===========
</TABLE>

8. RELATED PARTY TRANSACTIONS:

DLJ Repurchase Agreement

The Company has entered into a Whole Loan Master Repurchase Agreement with
DLJ (the "DLJ Agreement") whereby the Company sells substantially all mortgage
loans originated and acquired during the year. The aggregate amount of loans
sold to DLJ during the year ended September 30, 1993, 1994 and 1995 was
approximately $965 million, $1.320 billion and $1.421 billion, respectively,
which resulted in gains of $31.8 million, $51.2 million and $39.6 million,
respectively. Under the DLJ Agreement, the Company sells loans servicing
released. However, the Company retains the rights to receive prepayment
penalties and late charges as they are collected by the Servicer assigned by
DLJ.

Under the terms of the DLJ Agreement, the Company is required to maintain
minimum balances of $5,500,000 in custodial bank accounts with Bankers Trust
Company (the "Custodian") which serve as collateral against any breach of
representations and warranties of the Company with respect to mortgage loans
held for sale. The Company had $6,618,017 and $5,786,022 on deposit in these
accounts at September 30, 1994 and 1995, respectively.

The Company has a line of credit under the DLJ agreement which provides for
up to $300,000,000, of which advances at September 30, 1994 and 1995 totalled
$149,392,564 and $198,966,085, respectively. Repayment of principal and interest
are due and payable at the earlier of six months from the advance date or the
sale of the related loans. The interest rate on advances is equal to DLJ's cost
of funds plus .125%, not to exceed the thirty-day LIBOR rate plus 1.375%. The
effective interest rates as of September 30, 1994 and 1995 were 6.75% and 7.75%,
respectively. Borrowings are collateralized by the underlying mortgage loans.

F-35
<PAGE> 106

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Wet Funding Line

In July 1994, the Company executed a separate Whole Loan Financing
Facility, Tri-Party Custody Agreement, Pledge Agreement and Promissory Note
(together, the "Financing Program") with DLJ and the Custodian. Under the
Financing Program, the Company can borrow up to $100,000,000 for the purpose of
funding mortgage loans whose loan documents have not yet been shipped to the
Custodian. Advances are ultimately collateralized with mortgage loans originated
in the Company's name. Interest rates on advances made pursuant to the Financing
Program vary and are mutually agreed upon. As of September 30, 1994 and 1995,
the effective interest rates approximated the rates on the DLJ line of credit.
At September 30, 1994 and 1995, $12,545,988 and $25,814,662 were outstanding
under this Financing Program, respectively.

Consulting Agreement

The Company has a five-year consulting agreement with Calmac whereby Calmac
will provide marketing, administrative, cost containment and expense reduction
services to the Company. The provisions of the agreement stipulate minimum
amounts be paid over the term of the agreement and, under certain conditions,
upon termination. The Company records such payments as professional and
consulting fees.

EFI Purchase Agreement

The Company has a Whole Loan Master Repurchase Agreement with Express
Funding, Inc. ("EFI"), a related entity which is 100% owned by an officer of the
Company. Under this agreement, the Company will purchase substantially all
mortgage loans originated by EFI at market prices generally in excess of par
value. The Company subsequently sells these loans to DLJ pursuant to the terms
of the DLJ Agreement. During the years ended September 30, 1993, 1994 and 1995,
the Company purchased a total of $2,506,800, $117,500,502, and $490,984,561,
respectively, of mortgage loans from EFI. Total premiums paid on mortgage loans
purchased from EFI totalled $73,000, $3,525,000 and $6,206,855 for the years
ended September 30, 1993, 1994 and 1995, respectively.

Other

During the year ended September 30, 1995, the Company paid $266,503 for
appraisal services provided by an entity owned by Calmac.

9. INCOME TAXES:

The following table presents the current and deferred income tax provision
(benefit) for federal and state income taxes for the years ended September 30:

<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal................................... $12,388,195 $16,153,785 $ 9,340,300
State..................................... 4,453,055 4,752,246 3,590,293
Deferred:
Federal................................... (2,990,824) (2,205,756)
State..................................... (491,419) (967,891)
----------- ----------- -----------
$16,841,250 $17,423,788 $ 9,756,946
=========== =========== ===========
</TABLE>

The difference between the federal statutory tax rate and the Company's
effective tax rate is the result primarily of state income taxes, net of their
federal effect.

F-36
<PAGE> 107

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant temporary differences that give rise to the deferred tax
benefit consist primarily of state income taxes and reserves for real estate and
mortgage loans held for sale, as well as income from investments.

The components of the deferred income tax asset and (liability) at
September 30 are as follows:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued salaries.......................................... $ 180,143 $ 137,470
State taxes............................................... 1,663,286 743,585
REO reserve............................................... 1,198,652 750,426
Mortgage reserve.......................................... 789,990 1,022,340
Litigation reserve........................................ 232,350 348,525
Investment income......................................... 3,964,534
Fair market value adjustment.............................. 273,420
Other..................................................... 64,998 36,963
---------- ----------
$4,129,419 $7,277,263
========== ==========
Deferred tax liabilities:
Loan origination costs.................................... $ 474,980 $ 612,326
Other..................................................... 172,195 9,047
---------- ----------
$ 647,175 $ 621,373
========== ==========
</TABLE>

The Company did not record a valuation allowance against the deferred
income tax assets in 1994 or 1995.

10. COMMON AND PREFERRED STOCK:

During the year ended September 30, 1993, the Company amended its Articles
of Incorporation to authorize 200 shares of voting Class A common stock, 10
shares of nonvoting Class B common stock and 100 shares of preferred stock. All
previously outstanding common shares were reconstituted as Class A common stock.

Concurrently, the Board declared a $5,458,750 common stock dividend payable
in Series A preferred stock and the Company issued 100 shares of Series A
preferred stock to the sole common stockholder. The preferred stockholders are
entitled to cumulative quarterly dividends at the rate 9% per annum based on the
liquidation preference of $54,588 per share. During the year ended September 30,
1994, the Company redeemed all 100 shares of Series A preferred stock for
$5,458,750.

During the year ended September 30, 1994, the Board of Directors approved a
stock split which converted each share of the Company's Class A common stock
into 1.02 shares. Immediately thereafter, the Company issued 98 shares of Class
A common stock to DLJ for $98 pursuant to a Stock Purchase Agreement.

During the year ended September 30, 1995, the Company issued 6.87 shares of
Class B common stock to an officer of the Company for cash of $137,498. In
connection with such officer's separation agreement, these shares were
reacquired by the Company.

F-37
<PAGE> 108

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The estimated fair value of the Company's financial instruments has been
determined by the Company using appropriate market information and valuation
methodologies. Considerable judgment is required to develop the estimates of
fair value thus, the estimates provided herein are not necessarily indicative of
the amounts that could be realized in a current market exchange. Estimated fair
values at September 30, 1994 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
1994 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(IN 000'S)
<S> <C> <C> <C> <C>
Financial assets:
Cash and equivalents...................... $ 19,149 $ 19,149 $ 19,913 $ 19,913
Investments............................... 8,116 8,116 4,194 4,194
Mortgage loans held for sale.............. 147,183 151,529 197,217 203,330
Financial liabilities:
Related party notes payable............... 161,939 161,939 230,948 230,948
</TABLE>

Fair value of related party notes payable is estimated using rates
currently available to the Company with similar terms.

12. COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is a defendant in certain lawsuits involving litigation related
to the business in which it is engaged. Although the ultimate outcome of such
matters is uncertain, the Company believes, based on the opinions of in-house
and external counsel, that any liability which may result from disposition of
these lawsuits will not have a material effect on the Company's consolidated
financial statements or results of operations.

Operating Leases

The Company leases various branch office locations under operating leases.
Lease terms range from six to thirty-six months and the majority of the
Company's operating leases include options to extend the lease term. Future
minimum lease payments at September 30, 1995 under these obligations are as
follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDING SEPTEMBER 30,
- ----------------------------------
<S> <C>
1996.......................................................... $496,213
1997.......................................................... 47,154
1998.......................................................... 12,777
--------
$556,144
========
</TABLE>

Subsequent to September 30, 1995, the Company entered into additional
operating leases with similar terms for office space.

Loan Servicing Agreements

The Company has a servicing agreement with Lomas Mortgage USA, Inc.
("Lomas"), DLJ and Bankers Trust Company under which Lomas services mortgage
loans originated by the Company. Annual servicing fees retained by Lomas
pursuant to this agreement are .40% to .48% of each mortgage loan's

F-38
<PAGE> 109

QUALITY MORTGAGE USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding principal balance. The agreement has no stated expiration date but
can be terminated by the Company or by Lomas with thirty days written notice.

During the year ended September 30, 1994, the Company entered into a
separate Services Agreement with Lomas whereby Lomas employed personnel to
exclusively perform special services related to mortgage loans which were
delinquent and/or in default and had been referred for foreclosure. Under the
terms of the Services Agreement, the Company shall pay Lomas its costs and
expenses incurred in the performance of such services based on an operating
budget approved by both parties.

Custody Agreement

The Company has a mortgage loan custody agreement with Bankers Trust
Company to hold mortgage notes for the Company for a specified fee. The
agreement has no stated expiration date but can be terminated by the Company or
by Bankers Trust Company with 90 days written notice.

Loans Serviced

In July 1995, the Company began servicing mortgage loans. At September 30,
1995, the Company services loans with principal balances totalling approximately
$35,579,936. The average annual servicing fee received by the Company was
approximately 50 basis points times the principal balance serviced.

Custodial funds amounted to $542,469 at September 30, 1995. Such funds,
which are maintained by the Company on behalf of various parties, are deposited
in trust bank accounts and are excluded from assets and liabilities in the
accompanying balance sheets.

F-39
<PAGE> 110

QUALITY MORTGAGE USA, INC.

CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND 1996
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents....................................... $ 14,401,165 $ 8,707,506
Advances and wet fundings....................................... 17,634,616 19,094,035
Investments, net................................................ 13,898,565 26,715,045
Mortgage loans held for sale, net............................... 290,285,523 106,664,365
Interest receivable............................................. 2,287,887 654,077
Real estate held for sale, net.................................. 6,227,239 2,711,946
Second trust deed receivables................................... 1,664,265 1,748,558
Other assets.................................................... 572,488 2,121,238
Property and equipment, net..................................... 8,386,721 8,113,839
Deferred tax asset.............................................. 4,355,419 7,277,263
------------ ------------
Total assets.......................................... $359,713,888 $183,807,872
============ ============
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Liabilities:
Related party notes payable................................... $314,428,032 $149,365,677
Accounts payable and accrued expenses......................... 7,453,562 4,047,585
Income taxes payable.......................................... 2,300,200 863,165
Deferred tax liability........................................ 647,175 621,373
------------ ------------
Total liabilities..................................... 324,828,969 154,897,800
------------ ------------
Commitments and contingencies
Stockholders' equity:
Series A common stock, no par value, 200 shares authorized,
issued and outstanding..................................... 198 198
Class B common stock, no par value............................ 137,498 137,498
Additional paid-in capital.................................... 1,999,900 1,999,900
Retained earnings............................................. 32,747,323 26,772,476
------------ ------------
Total stockholders' equity............................ 34,884,919 28,910,072
------------ ------------
Total liabilities and stockholders' equity............ $359,713,888 $183,807,872
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-40
<PAGE> 111

QUALITY MORTGAGE USA, INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue:
Gain on sale of mortgage loans and loan origination fees, net... $23,792,682 $18,094,248
Interest........................................................ 18,669,692 13,222,011
Prepayment fees................................................. 4,463,834 6,940,877
Late fees....................................................... 2,404,147 2,953,000
Trust deed revenues............................................. 897,789 512,806
Loss on sale of real estate held for sale....................... (3,498,860) (993,783)
Other........................................................... 205,843 283,726
----------- -----------
46,935,127 41,012,885
----------- -----------
Operating expenses:
Interest........................................................ 13,600,634 8,085,282
Commissions..................................................... 2,634,619 3,142,848
Salaries........................................................ 11,855,026 12,609,795
Professional and consulting fees................................ 1,119,864 2,055,628
Selling, general and administrative............................. 4,045,228 6,780,613
Provision for losses on investments............................. 7,513,450
Provision for losses on real estate held for sale............... 982,550
Rent and other occupancy costs.................................. 833,581 1,263,310
Depreciation and amortization................................... 723,135 930,203
----------- -----------
35,794,637 42,381,129
----------- -----------
Income (loss) before provision (benefit) for income taxes......... 11,140,490 (1,368,244)
Provision (benefit) for income taxes.............................. 4,944,446 (931,096)
----------- -----------
Net income (loss)................................................. $ 6,196,044 $ (437,148)
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-41
<PAGE> 112

QUALITY MORTGAGE USA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 6,196,044 $ (437,148)
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization............................. 723,135 930,203
Decrease in advances and wet fundings..................... 6,502,691 5,525,607
(Increase) decrease in mortgage loans held for sale....... (26,615,472) 77,434,408
(Increase) decrease in interest receivable................ (413,420) 879,697
Decrease (increase) in other assets....................... 7,734,575 (2,322,073)
Increase in deferred taxes, net........................... (226,000) (237,009)
Increase (decrease) in accounts payable and accrued
expenses................................................ 710,710 (2,402,385)
Increase (decrease) in income taxes payable............... 1,457,036 (813,382)
----------- ------------
Net cash (used) provided by operating activities..... (3,930,701) 78,557,918
----------- ------------
Cash flows from investing activities:
Decrease (increase) in investments........................... 15,246,199 (3,437,566)
Capital expenditures......................................... (2,654,316) (788,947)
----------- ------------
Net cash provided (used) by investing activities..... 12,591,883 (4,226,513)
----------- ------------
Cash flows from financing activities:
Net borrowings (payments) on related party notes payable..... 11,791,642 (68,442,678)
Dividends paid............................................... (8,841,162)
Proceeds from sale of stock.................................. 137,498
----------- ------------
Net cash provided (used) by financing activities..... 3,087,978 (68,442,678)
----------- ------------
Net increase in cash and cash equivalents............ 11,749,160 5,888,727
Cash and cash equivalents, beginning of year................... 2,652,005 2,818,779
----------- ------------
Cash and cash equivalents, end of year......................... $14,401,165 $ 8,707,506
=========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-42
<PAGE> 113

QUALITY MORTGAGE USA, INC.

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION:

Quality Mortgage USA, Inc., a California corporation, originates, purchases
and sells primarily "B" and "C" grade residential mortgage loans collateralized
by one to four single family homes throughout the United States and is approved
as a nonsupervised mortgagee by the United States Department of Housing and
Urban Development. The common stock of Quality Mortgage USA, Inc. is owned 51%
by Calmac Funding ("Calmac"), a Nevada corporation, and 49% by DLJ Mortgage
Capital, Inc. ("DLJ"), a Delaware corporation.

The accompanying consolidated financial statements include the accounts of
Quality Mortgage USA, Inc. and all of its wholly-owned subsidiaries
(collectively, the "Company") as follows:

- - QMI Properties, Inc., a California corporation, owns and operates the
Company's corporate office facilities in Irvine, California.

- - Save-More Insurance Services, Inc., a California corporation, acts as an
insurance agent selling homeowners, property and various other insurance
products primarily to mortgagees of Quality Mortgage USA, Inc.

- - Commonwealth Trust Deed Services, Inc., a California corporation, acts as a
trustee for foreclosed mortgage loans collateralized by California property
originated or acquired by Quality Mortgage USA, Inc.

- - Quality Trustee, Inc., a California corporation, performs certain trust deed
recording services on foreclosed mortgage loans originated or acquired by
Quality Mortgage USA, Inc.

All significant intercompany balances and transactions have been
eliminated.

The financial statements as of June 30, 1995 and 1996, and for the six
months then ended, are unaudited but include all adjustments (consisting of
normal recurring accruals only) which management considers necessary to present
fairly the Company's financial position as of June 30, 1995 and 1996, and the
results of operations and cash flows for the six months then ended. The results
of operations and cash flows for the six months ended June 30, 1995 and 1996 are
not necessarily indicative of results for the respective fiscal years or for
other interim periods.

The financial statements for the six months ended June 30, 1995 and 1996
have been presented in this prospectus to conform to the presentation of
AMRESCO, Inc. ("AMRESCO") (see Note 4 below). Summarized financial information
for the three months in the Company's first fiscal quarters ended December 31,
1994 and 1995 are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1994 1995
----------- ----------
<S> <C> <C>
Gain on sale of mortgage loans and loan origination fees,
net.......................................................... $12,066,204 $9,792,500
Net income..................................................... $ 418,187 $1,508,234
</TABLE>

2. INVESTMENTS

During the six months ended June 30, 1996, the Company wrote down its
investment in certain Class C and Class R mortgage pass-through certificates,
acquired in fiscal 1995 and 1996, by $7,513,450 as management believed an
other-than-temporary impairment had occurred.

F-43
<PAGE> 114

3. CONTINGENCIES

The Company is a defendant in lawsuits involving claims related to the
business in which it is engaged. Among such lawsuits are certain class actions
alleging, among other things, fraud, breach of fiduciary duty and violation of
state and federal law. The focus of such class actions involves the
industry-wide practice of paying yield spread premiums to mortgage brokers.
Although the ultimate outcome of any of the matters of litigation in which the
Company is involved is uncertain, the Company believes, based on the opinions of
in-house and external counsel, that any liability which may result from
disposition of these lawsuits will not have a material effect on the Company's
consolidated financial position or results of operations.

4. SUBSEQUENT EVENTS

On October 9, 1996, the Company entered into an agreement with AMRESCO
whereby a subsidiary of AMRESCO will acquire substantially all the Company's
assets for $65.0 million in cash and the assumption of certain of the Company's
indebtedness and other liabilities existing as of closing, excluding such items
as those related to tax and litigation matters. The Company anticipates that
this transaction will be completed on or about October 25, 1996.

F-44
<PAGE> 115
================================================================================

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT ITS DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Summary............................... 4
Risk Factors.......................... 13
Quality Acquisition................... 19
Unaudited Pro Forma Condensed
Consolidated Financial Statements
for the Quality Acquisition......... 22
Other Recent Developments............. 28
Use of Proceeds....................... 30
Price Range of and Dividends on Common
Stock............................... 31
Capitalization........................ 32
Summary Historical Financial and Other
Data................................ 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 45
Management............................ 58
Selling Stockholders.................. 61
Description of Capital Stock.......... 63
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Glossary.............................. 68
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

================================================================================

7,760,000 SHARES

[AMRESCO LOGO]

COMMON STOCK

---------------------------

PROSPECTUS

---------------------------

THE ROBINSON-HUMPHREY
COMPANY, INC.

PIPER JAFFRAY INC.

RAYMOND JAMES &
ASSOCIATES, INC.

MONTGOMERY SECURITIES

J.C. BRADFORD & CO.

MORGAN KEEGAN &
COMPANY, INC.
, 1996

================================================================================
<PAGE> 116

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 60,508
NASD Filing Fee................................................... 20,468
Nasdaq National Market Listing Fee................................ 17,500
Printing Expenses................................................. 175,000
Accounting Fees and Expenses...................................... 65,000
Legal Fees and Expenses of the Company............................ 80,000
Legal Fees and Expenses of the Selling Stockholders............... 15,000
Blue Sky Fees and Expenses (including counsel fees)............... 10,000
Fees of Transfer Agent and Registrar.............................. 1,000
Miscellaneous Expenses............................................ 5,524
--------
TOTAL................................................... $450,000
========
</TABLE>

All of the above expenses except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing fee
are estimated. All of such expenses will be borne by the Company.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and the Company's Amended and Restated Bylaws (the "Bylaws")
provide that the Company shall indemnify, to the full extent permitted by law,
any person against liabilities arising from their service as directors,
officers, employees or agents of the Company. Section 145 of the DGCL empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnify for such
expenses which the court shall deem proper.

Section 145 further provides that indemnification provided for by Section
145 shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled, and that the corporation is empowered to purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.

II-1
<PAGE> 117

The Certificate and the Bylaws provide that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this provision related to director's
liability shall not adversely affect any right or protection of a director of
the Company existing immediately prior to such repeal or modification. Further,
if the DGCL shall be repealed or modified, the elimination of liability of a
director provided in the Certificate and the Bylaws shall be to the fullest
extent permitted by the DGCL as so amended.

Reference is also made to the indemnification provisions contained in the
Underwriting Agreement (a form of which will be filed as Exhibit 1.1 hereto)
with respect to undertakings to indemnify the Company, its directors, officers
and controlling persons within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), against certain liabilities, including
liabilities under the Securities Act or otherwise.

Pursuant to Registration Rights Agreements with certain stockholders of the
Company, the Company has agreed to indemnify such stockholders (including the
Selling Stockholders) against certain liabilities, including liabilities under
the Securities Act or otherwise. For the undertaking with respect to
indemnification, see Item 17 herein.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1** -- Asset Purchase Agreement dated October 9, 1996 by and among AMRESCO
Residential Mortgage Corporation, on the one hand, and Quality
Mortgage USA, Inc., Calmac Funding, Inc., DLJ Mortgage Capital, Inc.,
DLJ Quality Partners, L.P., Russell Jedinak and Rebecca Jeninak, on
the other hand.
4.1 -- Restated Certificate of Incorporation, as amended, filed as Exhibit
3.1 to the Registrant's Form 10-Q for the quarter ended September 30,
1995, as amended by Form 10-Q/A No. 1 dated October 25, 1995, which
exhibit is incorporated herein by reference.
4.2 -- Amended and Restated Bylaws as of May 23, 1994, filed as Exhibit 3(f)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, which exhibit is incorporated herein by
reference.
4.3 -- First Amended and Restated Revolving Loan Agreement, dated as of
April 25, 1996, among the Company and Other Entities Designated
Within as Borrowers and NationsBank of Texas, N.A. as Agent and
NationsBank of Texas, N.A. and Other Entities Designated Within as
Lenders, filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996, which exhibit
is incorporated herein by reference.
4.4 -- Specimen Common Stock Certificate filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-3 (No. 33-63683), which
exhibit is incorporated herein by reference.
4.5 -- Indenture, dated as of November 27, 1995, between the Company and
First Interstate Bank of Texas, National Association in respect of
the Company's 8% Convertible Subordinated Debentures due 2005, filed
as Exhibit 4.5 to the Company's Registration Statement on Form S-3
(No. 33-63683), which exhibit is incorporated herein by reference.
</TABLE>

II-2
<PAGE> 118

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
4.6 -- Indenture, dated as of January 15, 1996, between the Company and Bank
One, Columbus, N.A., as trustee, filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated February 2, 1996, which
exhibit is incorporated herein by reference.
4.7 -- Indenture, dated as of July 1, 1996, between the Company and Comerica
Bank, as trustee, filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated July 19, 1996, which exhibit is incorporated
herein by reference.
4.8* -- First Supplemental Indenture dated as of April 1, 1996 to Indenture
dated as of November 27, 1995 by and between the Company and First
Interstate Bank of Texas, National Association.
4.9 -- First Amendment to First Amended and Restated Revolving Loan
Agreement, dated as of June 13, 1996, among the Company and Other
Entities Designated Within as borrowers and NationsBank of Texas,
N.A. as Agent and NationsBank of Texas, N.A. and Other Entities
Designated Within as Lenders filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996, which exhibit is incorporated herein by reference.
4.10 -- Officers' Certificate and Company Order dated as of July 19, 1996,
establishing the terms of the Senior Notes filed as Exhibit 4.2 to
the Company's Current Report on Form 8-K dated July 19, 1996, which
exhibit is incorporated herein by reference.
5.1** -- Opinion of L. Keith Blackwell, General Counsel of the Company, as to
the validity of Common Stock to be offered.
23.1** -- Consent of L. Keith Blackwell, contained in the opinion filed as
Exhibit 5.1.
23.2** -- Consent of Deloitte & Touche LLP.
23.3** -- Consent of Coopers & Lybrand L.L.P.
24.1* -- Power of Attorney of the Directors and certain Executive Officers of
the Company.
</TABLE>

- ---------------

* Previously filed.

** Filed herewith.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE> 119

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 120

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 23rd day of October, 1996.

AMRESCO, INC.

By: /s/ L. KEITH BLACKWELL
------------------------------------
L. Keith Blackwell
Vice President, General Counsel
and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the 23rd day of October, 1996:

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Robert H. Lutz, Jr.* Chairman of the Board and
- --------------------------------------------- Chief Executive Officer
Robert H. Lutz, Jr.

Robert L. Adair III* Director, President and Chief Operating
- --------------------------------------------- Officer
Robert L. Adair III

Barry L. Edwards* Executive Vice President and (Principal
- --------------------------------------------- Financial Officer)
Barry L. Edwards

James P. Cotton, Jr.* Director
- ---------------------------------------------
James P. Cotton, Jr.
Director
- ---------------------------------------------
Richard L. Cravey

Gerald E. Eickhoff* Director
- ---------------------------------------------
Gerald E. Eickhoff

Amy J. Jorgensen* Director
- ---------------------------------------------
Amy J. Jorgensen

John J. McDonough* Director
- ---------------------------------------------
John J. McDonough

Bruce W. Schnitzer* Director
- ---------------------------------------------
Bruce W. Schnitzer

Edwin A. Wahlen, Jr.* Director
- ---------------------------------------------
Edwin A. Wahlen, Jr.

Ronald B. Kirkland* Vice President and Chief Accounting Officer
- --------------------------------------------- (Principal Accounting Officer)
Ronald B. Kirkland
</TABLE>

II-5
<PAGE> 121

L. Keith Blackwell, by signing his name hereto, does sign and execute this
Pre-Effective Amendment No. 1 to the Registration Statement on behalf of each of
the above-named officers and directors of the Registrant on this 23rd day of
October, 1996, pursuant to powers of attorneys executed on behalf of the
Registrant and each of such officers and directors, and previously filed with
the Securities and Exchange Commission.

* /s/ L. KEITH BLACKWELL
- ------------------------------------
L. Keith Blackwell
Attorney-in-Fact

II-6
<PAGE> 122

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE
- ---------- ------- ------------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement.
2.1** -- Asset Purchase Agreement dated October 9, 1996 by and among AMRESCO
Residential Mortgage Corporation, on the one hand, and Quality
Mortgage USA, Inc., Calmac Funding, Inc., DLJ Mortgage Capital, Inc.,
DLJ Quality Partners, L.P., Russell Jedinak and Rebecca Jeninak, on
the other hand.
4.1 -- Restated Certificate of Incorporation, as amended, filed as Exhibit
3.1 to the Registrant's Form 10-Q for the quarter ended September 30,
1995, as amended by Form 10-Q/A No. 1 dated October 25, 1995, which
exhibit is incorporated herein by reference.
4.2 -- Amended and Restated Bylaws as of May 23, 1994, filed as Exhibit 3(f)
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, which exhibit is incorporated herein by
reference.
4.3 -- First Amended and Restated Revolving Loan Agreement, dated as of
April 25, 1996, among the Company and Other Entities Designated
Within as Borrowers and NationsBank of Texas, N.A. as Agent and
NationsBank of Texas, N.A. and Other Entities Designated Within as
Lenders, filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996, which exhibit
is incorporated herein by reference.
4.4 -- Specimen Common Stock Certificate filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-3 (No. 33-63683), which
exhibit is incorporated herein by reference.
4.5 -- Indenture, dated as of November 27, 1995, between the Company and
First Interstate Bank of Texas, National Association in respect of
the Company's 8% Convertible Subordinated Debentures due 2005, filed
as Exhibit 4.5 to the Company's Registration Statement on Form S-3
(No. 33-63683), which exhibit is incorporated herein by reference.
4.6 -- Indenture, dated as of January 15, 1996, between the Company and Bank
One, Columbus, N.A., as trustee, filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K dated February 2, 1996, which
exhibit is incorporated herein by reference.
4.7 -- Indenture, dated as of July 1, 1996, between the Company and Comerica
Bank, as trustee, filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated July 19, 1996, which exhibit is incorporated
herein by reference.
4.8* -- First Supplemental Indenture dated as of April 1, 1996 to Indenture
dated as of November 27, 1995 by and between the Company and First
Interstate Bank of Texas, National Association.
4.9 -- First Amendment to First Amended and Restated Revolving Loan
Agreement, dated as of June 13, 1996, among the Company and Other
Entities Designated Within as borrowers and NationsBank of Texas,
N.A. as Agent and NationsBank of Texas, N.A. and Other Entities
Designated Within as Lenders filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996, which exhibit is incorporated herein by reference.
4.10 -- Officers' Certificate and Company Order dated as of July 19, 1996,
establishing the terms of the Senior Notes filed as Exhibit 4.2 to
the Company's Current Report on Form 8-K dated July 19, 1996, which
exhibit is incorporated herein by reference.
</TABLE>

<PAGE> 123

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE
- --------- ------- -----------
<C> <S> <C>
5.1** -- Opinion of L. Keith Blackwell, General Counsel of the Company, as to
the validity of Common Stock to be offered.
23.1** -- Form of Consent of L. Keith Blackwell, contained in the opinion filed
as Exhibit 5.1.
23.2** -- Consent of Deloitte & Touche LLP.
23.3** -- Consent of Coopers & Lybrand L.L.P.
24.1* -- Power of Attorney of the Directors and certain Executive Officers of
the Company.
</TABLE>

- ---------------

* Previously filed.
** Filed herewith.

<PAGE> 1

EXHIBIT 2.1

ASSET PURCHASE AGREEMENT

among

QUALITY MORTGAGE USA, INC.
CALMAC FUNDING
DLJ MORTGAGE CAPITAL, INC.
DLJ QUALITY PARTNERS, L.P.
RUSSELL JEDINAK
REBECCA JEDINAK

and

AMRESCO RESIDENTIAL MORTGAGE CORPORATION

October 9, 1996
<PAGE> 2
TABLE OF CONTENTS

PAGE

ARTICLE 1 Purchase and Sale of the Assets . . . . . . . . . . . . 2
1.1 Purchase and Sale of the Assets . . . . . . . . . . . . 2
1.2 Consideration for Purchase and Sale . . . . . . . . . . 2
(a) Closing Payment . . . . . . . . . . . . . . . . . 2
(b) Buyer's Assumption of Liabilities . . . . . . . . 2
(c) Buyer's Assumption of Contracts . . . . . . . . . 2
1.3 The Company's Retention of Liabilities . . . . . . . . . 3
1.4 Allocation of Closing Payment . . . . . . . . . . . . . 3
1.5 Escrow for Purchase Price Adjustment . . . . . . . . . . 3

ARTICLE 2 Closing The Transaction . . . . . . . . . . . . . . . . 4
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Sellers' Deliveries at Closing . . . . . . . . . . . . . 5
(a) Bill of Sale . . . . . . . . . . . . . . . . . . 5
(b) Real Property . . . . . . . . . . . . . . . . . . 5
(i) Title Policies . . . . . . . . . . . . . . 5
(ii) Deeds, Etc. . . . . . . . . . . . . . . . 5
(iii) Surveys . . . . . . . . . . . . . . . . . 5
(c) Account Transfer Documents . . . . . . . . . . . 5
(d) Other Instruments . . . . . . . . . . . . . . . . 6
(e) Consents . . . . . . . . . . . . . . . . . . . . 6
(f) Closing Certificates . . . . . . . . . . . . . . 6
(g) Proceedings and Documents . . . . . . . . . . . . 6
(h) Good Standing Certificates . . . . . . . . . . . 6
(i) Certificates of No Tax Due . . . . . . . . . . . 6
(j) Estoppel Certificates . . . . . . . . . . . . . . 7
(k) Lien Releases . . . . . . . . . . . . . . . . . . 7
(l) Name Change . . . . . . . . . . . . . . . . . . . 7
(m) Opinions of Sellers' Counsels . . . . . . . . . . 7
(n) Certificates and Notes . . . . . . . . . . . . . 7
(o) Sales Tax Certification . . . . . . . . . . . . . 8
(p) Releases . . . . . . . . . . . . . . . . . . . . 8
(q) Articles, Resolutions, and Incumbency . . . . . . 8
(r) Corporate Records . . . . . . . . . . . . . . . . 8
(s) Other Instruments . . . . . . . . . . . . . . . . 8
2.3 Buyer's Deliveries at Closing. . . . . . . . . . . . . . 8
(a) The Closing Payment . . . . . . . . . . . . . . . 8
(b) Closing Certificate . . . . . . . . . . . . . . . 8

i
<PAGE> 3
TABLE OF CONTENTS (Cont'd)

Page(s)

(c) Consents. . . . . . . . . . . . . . . . . . . . . 8
(d) Opinion of Buyer's Counsel . . . . . . . . . . . . 8
(e) Articles, Resolutions and Incumbency . . . . . . . 9
(f) Payment for DLJ Lien Release . . . . . . . . . . . 9
(g) Other Instruments . . . . . . . . . . . . . . . . . 9
2.4 Related Agreements . . . . . . . . . . . . . . . . . . . . 9
(a) Assignment and Assumption Agreements . . . . . . . 9
(b) Noncompetition Agreements . . . . . . . . . . . . . 9
(c) Credit Agreement . . . . . . . . . . . . . . . . . 9
(d) Escrow Agreement . . . . . . . . . . . . . . . . 10

ARTICLE 3 Conditions To Consummating The Transaction . . . . . . . 10
3.1 Joint Conditions . . . . . . . . . . . . . . . . . . . . 10
(a) HSR Act . . . . . . . . . . . . . . . . . . . . . 10
(b) No Litigation . . . . . . . . . . . . . . . . . . 10
(c) Related Agreements . . . . . . . . . . . . . . . 10
3.2 Buyer's Conditions . . . . . . . . . . . . . . . . . . . 10
(a) Sellers' Representations True . . . . . . . . . . 10
(b) Sellers' Compliance with Agreement . . . . . . . 11
(c) Sellers' Consents . . . . . . . . . . . . . . . . 11
(d) Permits . . . . . . . . . . . . . . . . . . . . . 11
(e) Express Acquisition . . . . . . . . . . . . . . . 11
(f) Agent for Service of Process . . . . . . . . . . 12
(g) Corporate Records . . . . . . . . . . . . . . . . 12
3.3 Sellers' Conditions to Closing . . . . . . . . . . . . . 12
(a) Buyer's Representations True . . . . . . . . . . 12
(b) Buyer's Compliance with Agreement . . . . . . . . 12
(c) Buyer Consents . . . . . . . . . . . . . . . . . 12

ARTICLE 4 Joint Covenants to Satisfy Conditions and Consummate the
Transaction . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Defending the Agreement . . . . . . . . . . . . . . . . 12
4.2 Lifting Injunctions . . . . . . . . . . . . . . . . . . 13
4.3 Other Actions . . . . . . . . . . . . . . . . . . . . . 13
4.4 HSR Act Filings . . . . . . . . . . . . . . . . . . . . 13
4.5 Scheduled Closing . . . . . . . . . . . . . . . . . . . 13
4.6 Cooperation. . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE 5 Termination . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Reasons for Termination . . . . . . . . . . . . . . . . 13
(a) By Mutual Consent . . . . . . . . . . . . . . . . 13
(b) By the Buyer . . . . . . . . . . . . . . . . . . 13
(c) By Sellers . . . . . . . . . . . . . . . . . . . 14

ii
<PAGE> 4
TABLE OF CONTENTS (Cont'd)

Page(s)

(d) Drop-Dead Date . . . . . . . . . . . . . . . . . 14
5.2 Notice of Problems . . . . . . . . . . . . . . . . . . . 14
5.3 Buyer Termination Procedure . . . . . . . . . . . . . . 14
5.4 Sellers' Termination Procedure . . . . . . . . . . . . . 14
5.5 Effect of Termination . . . . . . . . . . . . . . . . . 15

ARTICLE 6 Representations and Warranties of Sellers . . . . . . . 15
6.1 Sellers; Entry Into Agreements . . . . . . . . . . . . . 15
(a) Organization and Good Standing . . . . . . . . . 15
(b) Corporate Power and Authority; Validity and
Authorization . . . . . . . . . . . . . . . . . 16
(c) Subsidiaries . . . . . . . . . . . . . . . . . . 17
(d) No Conflict . . . . . . . . . . . . . . . . . . . 17
(e) Sellers' Consents Required . . . . . . . . . . . 17
(f) HSR Act . . . . . . . . . . . . . . . . . . . . . 17
6.2 Financial Information . . . . . . . . . . . . . . . . . 18
(a) Financial Statements; Books and Records . . . . . 18
(b) Conduct of Business . . . . . . . . . . . . . . . 19
(c) No Adverse Change . . . . . . . . . . . . . . . . 20
(d) Acquired Assets . . . . . . . . . . . . . . . . . 20
6.3 Assets . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Personal Property . . . . . . . . . . . . . . . . 20
(i) Title . . . . . . . . . . . . . . . . . . 20
(ii) Notes and Accounts Receivable . . . . . . 21
(iii) Bank Accounts . . . . . . . . . . . . . . 21
(b) Real Property . . . . . . . . . . . . . . . . . . 21
(i) Fee Simple . . . . . . . . . . . . . . . . 21
(ii) Leases; Easements and Other Interests . . 21
(iii) Eminent Domain . . . . . . . . . . . . . . 22
(iv) Improvements . . . . . . . . . . . . . . . 22
(v) Real Property and Leased Premises Taxes . 23
(c) Intellectual Property . . . . . . . . . . . . . . 23
(i) Intellectual Property . . . . . . . . . . 23
(ii) Ownership . . . . . . . . . . . . . . . . 23
(iii) Trademarks . . . . . . . . . . . . . . . . 24
(iv) Trade Secrets . . . . . . . . . . . . . . 24
(d) Contracts . . . . . . . . . . . . . . . . . . . . 24
(e) Necessary Assets . . . . . . . . . . . . . . . . 25
6.4 Liabilities . . . . . . . . . . . . . . . . . . . . . . 25
(a) No Liabilities . . . . . . . . . . . . . . . . . 25
(b) Tax Matters . . . . . . . . . . . . . . . . . . . 25
(c) Litigation . . . . . . . . . . . . . . . . . . . 27
(d) Employee Liabilities . . . . . . . . . . . . . . 28

iii
<PAGE> 5
TABLE OF CONTENTS (Cont'd)

Page(s)

6.5 Business . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Mortgage Banking Licenses and Qualifications . . 28
(b) Mortgage Loans . . . . . . . . . . . . . . . . . 28
(c) Enforceability . . . . . . . . . . . . . . . . . 29
(d) Title to Certain Mortgage Loans; Mortgage Loan
Conveyance Agreements . . . . . . . . . . 30
(e) No Recourse . . . . . . . . . . . . . . . . . . . 30
(f) Compliance with Mortgage Banking Regulations . . 31
(g) Physical Damage . . . . . . . . . . . . . . . . . 31
(h) Tax Identification . . . . . . . . . . . . . . . 32
(i) ARMs and Conversion Loans . . . . . . . . . . . . 32
(j) Mortgage Servicing . . . . . . . . . . . . . . . 32
(k) Subordinated and Residual Securitization
Certificates . . . . . . . . . . . . . . . . . . 33
(l) Insurance Operations . . . . . . . . . . . . . . 33
(m) Insurance . . . . . . . . . . . . . . . . . . . . 34
(n) Employees . . . . . . . . . . . . . . . . . . . . 34
(o) Worker's Compensation . . . . . . . . . . . . . . 35
(p) ERISA . . . . . . . . . . . . . . . . . . . . . . 35
(q) Affiliated Transactions . . . . . . . . . . . . . 35
(r) Legal Requirements . . . . . . . . . . . . . . . 35
(i) Compliance with Laws . . . . . . . . . . . 35
(ii) Certain Acts . . . . . . . . . . . . . . . 35
(iii) Bulk Sales . . . . . . . . . . . . . . . . 36
(s) Environmental Matters . . . . . . . . . . . . . . 36
(i) Compliance . . . . . . . . . . . . . . . . 36
(ii) Environmental Claims . . . . . . . . . . . 36
6.6 Other . . . . . . . . . . . . . . . . . . . . . . . . . 37
(a) Documents Delivered . . . . . . . . . . . . . . . 37
(b) No Brokers Fees; No Commissions . . . . . . . . . 37
(c) Full Disclosure . . . . . . . . . . . . . . . . . 37
6.7 DLJ Stockholders' Knowledge . . . . . . . . . . . . . . 37
6.8 Calmac's and the Jedinaks' Knowledge . . . . . . . . . . 37

ARTICLE 7 Representations and Warranties of Buyer . . . . . . . . 38
7.1 Entry Into Agreements . . . . . . . . . . . . . . . . . 38
(a) Organization and Good Standing . . . . . . . . . 38
(b) Corporate Power and Authority; Validity and
Authorization . . . . . . . . . . . . . . . . . . 38
7.2 Conflicts and Consents . . . . . . . . . . . . . . . . . 38
(a) No Conflict . . . . . . . . . . . . . . . . . . . 38
(b) Buyer Consents Obtained . . . . . . . . . . . . . 38
7.3 No Brokers Fees; No commissions . . . . . . . . . . . . 39
7.4 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . 39

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TABLE OF CONTENTS (Cont'd)

Page(s)

ARTICLE 8 Covenants of Sellers . . . . . . . . . . . . . . . . . . 39
8.1 Conduct of Businesses of the Company and the
Subsidiaries Pending Closing . . . . . . . . . . 39
8.2 Access to Information and Employees . . . . . . . . . . 40
8.3 No Solicitation . . . . . . . . . . . . . . . . . . . . 40
8.4 Financial Statements . . . . . . . . . . . . . . . . . . 40
8.5 Express Acquisition . . . . . . . . . . . . . . . . . . 40
8.6 Maintain Organization . . . . . . . . . . . . . . . . . 40
8.7 401k Plan Termination . . . . . . . . . . . . . . . . . 41
8.8 Cancellation of Jamboree Lease . . . . . . . . . . . . . 41
8.9 Assist in Obtaining Licenses, Etc . . . . . . . . . . . 41
8.10 Sellers' Consents . . . . . . . . . . . . . . . . . . . 41
8.11 Buyer Registration Statement . . . . . . . . . . . . . . 41

ARTICLE 9 Post-Closing Agreements . . . . . . . . . . . . . . . . 41
9.1 Further Actions . . . . . . . . . . . . . . . . . . . . 41
9.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . 42
9.3 Inspection of Records . . . . . . . . . . . . . . . . . 42
9.4 Agent for Service of Process . . . . . . . . . . . . . . 43
9.5 Use of Names . . . . . . . . . . . . . . . . . . . . . . 43
9.6 Employees . . . . . . . . . . . . . . . . . . . . . . . 43
9.7 Mortgage Loan Reporting . . . . . . . . . . . . . . . . 44
9.8 Maintain Insurance . . . . . . . . . . . . . . . . . . . 44
9.9 Non-Solicitation by Buyer . . . . . . . . . . . . . . . 44
9.10 Payment of Bonuses . . . . . . . . . . . . . . . . . . . 44
9.11 DLJ Stockholders' Nonsolicitation . . . . . . . . . . . 44

ARTICLE 10 Indemnification . . . . . . . . . . . . . . . . . . . . 45
10.1 Survival; Etc. . . . . . . . . . . . . . . . . . . . . . 45
(a) Contents of this Agreement . . . . . . . . . . . 45
(b) No Effect on Liability . . . . . . . . . . . . . 45
(c) Survival . . . . . . . . . . . . . . . . . . . . 46
(d) Commencing Actions . . . . . . . . . . . . . . . 46
(e) Allocation of Losses Among Sellers . . . . . . . 46
10.2 Indemnities . . . . . . . . . . . . . . . . . . . . . . 46
(a) Indemnification of Buyer and Buyerparent . . . . 46
(b) Indemnification of the Sellers . . . . . . . . . 47
(c) Duty to Mitigate; Insurance . . . . . . . . . . . 48
10.3 Limitations on Indemnities . . . . . . . . . . . . . . . 48
(a) Materiality . . . . . . . . . . . . . . . . . . . 48
(b) Cap . . . . . . . . . . . . . . . . . . . . . . . 49

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TABLE OF CONTENTS (Cont'd)

Page(s)

(c) Exclusions. . . . . . . . . . . . . . . . . . . . 49
10.4 Notice and Opportunity to Defend . . . . . . . . . . . . 49
(a) Notice, Etc . . . . . . . . . . . . . . . . . . . 49
(b) Defense Costs . . . . . . . . . . . . . . . . . . 50
(c) Third Party Claims . . . . . . . . . . . . . . . 50
10.5 Delays or Omissions . . . . . . . . . . . . . . . . . . 50
10.6 Governing Law; Attorneys' Fees . . . . . . . . . . . . . 50
10.7 Dispute Resolution . . . . . . . . . . . . . . . . . . . 51
(a) Arbitration . . . . . . . . . . . . . . . . . . . 51
(b) Emergency Relief . . . . . . . . . . . . . . . . 53

ARTICLE 11 Miscellaneous . . . . . . . . . . . . . . . . . . . . . 53
11.1 Successors and Assigns . . . . . . . . . . . . . . . . . 53
11.2 Entire Agreement; Amendment . . . . . . . . . . . . . . 53
11.3 Press Release . . . . . . . . . . . . . . . . . . . . . 53
11.4 Notices, Etc . . . . . . . . . . . . . . . . . . . . . . 54
11.5 No Third Party Beneficiary, Etc. . . . . . . . . . . . . 56
11.6 Reformation; Severability . . . . . . . . . . . . . . . 56
11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . 56
11.8 Titles and Subtitles . . . . . . . . . . . . . . . . . . 56
11.9 Power of Attorney . . . . . . . . . . . . . . . . . . . 56
11.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 57

EXHIBIT 1.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 60

EXHIBIT 1.1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 63

EXHIBIT 1.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

EXHIBIT 2.2(f)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 65

EXHIBIT 2.2(f)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 66

EXHIBIT 2.2(f)(3) . . . . . . . . . . . . . . . . . . . . . . . . . 67

EXHIBIT 2.3(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 69

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<PAGE> 8
ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
October 9, 1996, by and among AMRESCO Residential Mortgage Corporation, a
Delaware corporation ("Buyer") (f/k/a "AMRESCO B&C, Inc."), on the one hand,
and Quality Mortgage USA, Inc., a California corporation (the "Company"); the
stockholders of the Company: Calmac Funding, a Nevada corporation ("Calmac"),
DLJ Mortgage Capital, Inc., a Delaware corporation ("DLJ") and DLJ Quality
Partners, L.P., a Delaware limited partnership ("DLJ Partners" and together
with DLJ, the "DLJ Stockholders"); and Russell Jedinak and Rebecca Jedinak,
residents of Las Vegas, Nevada and the sole stockholders of Calmac
(collectively, the "Jedinaks"), on the other hand. Calmac and the DLJ
Stockholders are sometimes collectively referred to herein as the
"Stockholders." The Company, the Stockholders and the Jedinaks are sometimes
collectively referred to herein as the "Sellers."

R E C I T A L S

A. Buyer desires to purchase and the Company desires to sell substantially
all of the assets, properties and rights of the Company used in, related
to or constituting the business of originating, purchasing, selling,
delivering and servicing residential mortgage loans as currently
conducted by the Company and the Subsidiaries (defined below) (said
business being the "Mortgage Business"). In connection therewith, Buyer
has agreed to assume certain liabilities and contractual obligations of
the Company.

B. Each Seller acknowledges that it has received adequate consideration for
entering into this Agreement and performing its obligations hereunder,
and that it will be benefitted by the transactions contemplated herein.
The parties acknowledge that Buyer would not have entered into this
Agreement without the participation, on the terms set forth herein, of
each Seller.

C. Sellers have delivered to Buyer a Disclosure Schedule (herein so called)
of even date herewith referred to herein. The Disclosure Schedule and
the Exhibits (herein so called) referred to herein are a part hereof.

A G R E E M E N T

Based on the recitals set forth above and the promises contained herein,
the parties agree as follows:

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<PAGE> 9

ARTICLE 1.

Purchase and Sale of the Assets

1.1 Purchase and Sale of the Assets. Upon the terms and subject to
the conditions contained herein, and on the basis of the representations,
warranties, covenants and agreements set forth herein, at the Closing (defined
below), the Company shall sell, convey, transfer, assign and deliver to Buyer,
free and clear of Liens (defined below) and Retained Liabilities (defined
below), and Buyer shall purchase from the Company, substantially all of the
assets, properties and rights of the Company, whether or not reflected in the
Company Financial Statements (defined below) or the Express Financial
Statements (defined below) held by the Company or Express (defined below) at
the Closing Date (defined below) and used in, related to or constituting the
Mortgage Business (the "Acquired Assets"). The Acquired Assets include, but
are not limited to, the assets, properties and rights identified on Exhibit
1.1(a) to this Agreement. Notwithstanding the foregoing, the Acquired Assets
shall not include those assets identified on Exhibit 1.1(b) to this Agreement
or on an addendum to Exhibit 1.1(b) hereto executed by the parties hereto on or
prior to the Closing Date as "Retained Assets" (herein so called).

1.2 Consideration for Purchase and Sale.

(a) Closing Payment. At the Closing, as consideration for the
purchase and sale of the Acquired Assets, Buyer shall pay to the Company
$65,000,000 in immediately-available funds (the "Closing Payment"); provided,
however, that $62,000,000 of the Closing Payment will be paid in
immediately-available funds at the Closing and $3,000,000 of the Closing
Payment will be held in escrow as provided in Section 1.5 (Escrow for Purchase
Price Adjustment); provided further, that Buyer shall deliver by wire transfer
$1,520,518 of the Closing Payment (the "DLJ Fee") to an account designated in
writing by the DLJ Stockholders, which amount shall be deemed to be payment by
the Company to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ
Securities") of its obligations under the letter agreement dated March 18, 1996
among DLJ Securities and the Stockholders. The Closing Payment shall be
effected by wire transfer to an account or accounts designated in writing by
the Company to Buyer not later than the second business day prior to the
Closing Date.

(b) Buyer's Assumption of Liabilities. At the Closing, the
Company shall assign and Buyer shall assume only the liabilities specifically
set forth on Exhibit 1.2(b) to this Agreement (collectively, the "Assumed
Liabilities").

(c) Buyer's Assumption of Contracts. At the Closing, the
Company shall assign and Buyer shall assume the contracts listed on Exhibit
1.2(c) to this Agreement or on an addendum to Exhibit 1.2(c) executed by the
parties hereto on or prior to the Closing Date (collectively, the "Assumed
Contracts").

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<PAGE> 10
1.3 The Company's Retention of Liabilities. Notwithstanding any
other provision of this Agreement, Buyer shall not assume, succeed to, be
liable for, be subject to or be obligated for, nor shall the Acquired Assets be
subject to, any liabilities, claims, contracts or obligations of any nature
whatsoever, whether known, unknown, absolute, accrued or contingent, or
otherwise which the Company is, or could become, subject to or liable for,
other than the Assumed Liabilities and the Assumed Contracts (the "Retained
Liabilities").

The Retained Liabilities are all liabilities, claims and obligations of
any nature whatsoever that are not specifically assumed by Buyer under this
Agreement or the Related Agreements (defined below), including but not limited
to liabilities, claims and obligations arising prior to Closing from or based
on contract, breach of contract, warranty, tort, strict liability, employment,
Environmental Claims (defined below), Taxes (defined below), law, violation of
law, the transfer of the Acquired Assets, or the operation of the Mortgage
Business. Notwithstanding Buyer's assumption of the Assumed Contracts, the
Retained Liabilities shall include any liabilities, claims or obligations based
on the Company's nonperformance or breach of, or misrepresentation under, the
Assumed Contracts prior to the Closing Date.

1.4 Allocation of Closing Payment. The Closing Payment (including
the assumption by Buyer of the Assumed Liabilities) shall be allocated among
the Acquired Assets for tax purposes in accordance with the Disclosure Schedule
to this Section, such Disclosure Schedule to be prepared by Buyer and approved
by Sellers prior to the Closing. Sellers and Buyer will follow and use such
allocation in all income, sales registration and other tax returns, filings or
other related reports made by them to any governmental agencies. To the extent
that disclosures of this allocation are required to be made by the parties to
the Internal Revenue Service ("IRS") under the provisions of Section 1060 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any regulations
thereunder, Buyer and Sellers will disclose such reports to the other prior to
filing with the IRS.

1.5 Escrow for Purchase Price Adjustment. At the Closing, Buyer
shall deliver $3,000,000 (the "Escrow Amount") of the Closing Payment to an
escrow agent mutually satisfactory to Buyer and the Company (the "Escrow
Agent"), pursuant to that certain Escrow Agreement (herein so called) mutually
satisfactory to Buyer and the Company, and dated as of the Closing Date by and
among the Escrow Agent, Buyer and the Company. The Escrow Agreement shall
provide that after the determination of the Carrying Cost (defined below) any
of the Escrow Amount in excess of the Carrying Cost (plus accrued interest, if
any) shall be released by the Escrow Agent to the Company. For the purposes of
this Agreement, "Carrying Cost" shall mean the estimated net present value
(discounted at Buyer's cost of funds) of the interest expense payable on any
funds assumed to be borrowed by Buyer to pay income taxes while owning the R
Pieces (defined below) based on good faith, reasonable assumptions with respect
to the projected income and deductions, credits or losses over the lives of the
R Pieces and taking into consideration potential cash distributions or refunds
with respect to the R Pieces. For purposes of this Agreement, the "R Pieces"
collectively shall mean the subordinate and

3
<PAGE> 11
residual certificates from DLJ's securitizations of mortgage loans purchased
from the Company and the Subsidiaries prior to the Closing Date (excluding
those relating to the DLJ Mortgage Acceptance Corp. Mortgage Pass-Through
Certificates, Series 1996-QB and 1996-QJ, the S1994-13 Class I, II and III
Certificates and S1994-16 Class I, III and III Certificates). The Carrying
Cost does not include any taxes, penalties or interest assessed by any taxing
authority attributable to the R Pieces prior to the Closing (whether or not
paid, payable or refundable at the Closing Date), which taxes, penalties and
interest (if any) shall be deemed Retained Liabilities hereunder.

The Company agrees that if the Carrying Cost is greater than the Escrow
Amount, then (subject to the Company's right to retain the R Pieces as
described below) the Company shall pay such excess to Buyer in
immediately-available funds not later than the third business day after Buyer
notifies the Company in writing of the amount of the Carrying Cost. The
amounts paid by the Company pursuant to this Section (or by the Sellers
pursuant to Section 10.2(a) (Indemnification of Buyer and Buyerparent) if the
Company breaches its obligation to pay an amount in excess of the Escrow
Amount) shall not be subject to the one-time basket set forth in Section
10.3(a) (Materiality) or the limitation set forth in Section 10.3(b) (Cap).

After the Carrying Cost has been calculated, the Company may elect to
retain the R Pieces by delivering written notice to Buyer to that effect. If
the Company elects to retain the R Pieces, then the Escrow Amount shall be
delivered to the Company and the R Pieces then will be deemed for all purposes
to be and to have been Retained Assets hereunder at all times.

Buyer and the Company will mutually engage (at the Sellers' expense) an
accounting or other appropriate firm selected by Buyer and reasonably
acceptable to the Company (the "Auditor") to calculate the Carrying Cost. The
Auditor's calculation of the Carrying Cost shall be based on good faith
reasonable assumptions determined by the Auditor, which determination shall be
conclusive.

ARTICLE 2.

Closing The Transaction

2.1 Closing. On the third business day after the satisfaction or
waiver of the conditions (other than execution or delivery of agreements,
certificates, legal opinions or other instruments to be delivered at Closing)
contained herein, and unless this Agreement has been terminated pursuant to the
provisions of Article 5 (Termination), the consummation of the transactions
provided for herein (the "Closing") shall take place at the office of Latham &
Watkins, located at 650 Town Center Drive, Twentieth Floor, Costa Mesa,
California 92626 at 9:00 A.M., local time. The time and date of the Closing
are referred to herein as the "Closing Date."

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<PAGE> 12
2.2 Sellers' Deliveries at Closing. At the Closing, the Sellers (as
indicated) shall deliver, or cause to be delivered, to Buyer the following
items:

(a) Bill of Sale. A bill of sale, duly executed by the
Company, in substantially the form attached as Exhibit 2.2(a) to this Agreement
(the "Bill of Sale"), dated as of the Closing Date, evidencing the transfer to
Buyer of those Acquired Assets that are not Real Property (defined below).

(b) Real Property.

(i) Title Policies. The Company shall deliver an
owner's title insurance policy with respect to each of the properties owned by
the Company that are located at 16800 Aston Street, 16802 Aston Street. and
17200 Jamboree Boulevard, Irvine, California (collectively, the "Irvine
Properties") in the customary form, insuring Buyer and issued as of the Closing
Date by a title insurance company reasonably satisfactory to Buyer, in such
amount as may be reasonably satisfactory to Buyer, showing fee simple title
thereto to be vested in Buyer, with such customary extended coverages or
endorsements as Buyer may reasonably request. Buyer shall pay the title policy
premiums incurred by the Company.

(ii) Deeds, Etc. The Company shall deliver grant deeds
for each piece of real property owned by the Company (including without
limitation the Irvine Properties), a certificate in compliance with the Foreign
Investment in Real Property Tax Act ("FIRPTA") certifying that the Company is
not a person or entity subject to withholding under FIRPTA, and all other
documents required by the title insurance company issuing the policies
referenced in the immediately-preceding paragraph, executed by the Company,
together with any necessary transfer declarations. The Company shall deliver
Phase I environmental audits on each of the Irvine Properties, conducted by an
environmental consulting firm reasonably satisfactory to Buyer. Buyer shall
pay the reasonable out of pocket expenses actually incurred by the Company to
obtain any new Phase I environmental audits.

(iii) Surveys. The Company shall deliver surveys of the
Irvine Properties, dated not earlier than 10 days prior to the Closing Date
prepared by a licensed surveyor, and certified to Buyer, Buyer's lenders and
the title insurance company as having been prepared in accordance with American
Land Title Association land survey standards, and showing all material
improvements to be within lot, sidelot, rearlot and setback lines, and showing
no material encroachments onto the Irvine Properties. Buyer shall pay the
reasonable out-of-pocket expenses actually incurred by the Company to obtain
the surveys described in this Section.

(c) Account Transfer Documents. The Company shall deliver
duly executed Powers of Attorney in substantially the form attached hereto as
Exhibit 2.2(c) and such other instruments as may be necessary to authorize
Buyer and its designees to become signatories on each of the bank accounts of
the Company and the Subsidiaries (defined below), including but

5
<PAGE> 13
not limited to the lockbox accounts and Custodial Accounts (defined below) of
the Company and the Subsidiaries (collectively, the "Accounts"), and letters
from the Company and the Subsidiaries to the institutions holding the Accounts
authorizing and directing such institutions to remove such signatories on the
Accounts as Buyer may direct.

(d) Other Instruments. Any other duly executed instruments of
assignment necessary to evidence the transfer to Buyer of the Acquired Assets,
along with the duly endorsed original instruments (if any) representing,
evidencing or constituting such Acquired Assets (including but not limited to
patent, trademark and copyright registrations and applications, certificates
of title, certificates of origin, instruments and transferrable Licenses
(defined below)) in recordable form where required and in the form required by
the applicable governmental agencies.

(e) Consents. The Sellers shall deliver copies of all
Sellers' Consents (defined below) obtained by Sellers.

(f) Closing Certificates. The Company shall deliver to Buyer
a closing certificate executed by the Company in the form attached hereto as
Exhibit 2.2(f)(1). The DLJ Stockholders shall deliver to Buyer a closing
certificate executed by the DLJ Stockholders in the form attached hereto as
Exhibit 2.2(f)(2). Calmac and the Jedinaks shall deliver to Buyer a closing
certificate executed by Calmac and the Jedinaks in the form attached hereto as
Exhibit 2.2(f)(3). The closing certificates referred to in this Section 2.2(f)
are collectively referred to herein as the "Stockholders' Closing
Certificates."

(g) Proceedings and Documents. The applicable Sellers shall
deliver copies, certified or otherwise identified to Buyer's satisfaction, of
all corporate documents that Buyer shall reasonably request, including
resolutions of the board of directors of the Company and resolutions of the
respective Stockholders, dated on or before the date hereof to authorize this
Agreement, the Related Agreements (defined below) and the transactions and
other acts contemplated either by this Agreement or the Related Agreements.

(h) Good Standing Certificates. The Company shall deliver
certificates (i) from the Secretaries of State of each respective jurisdiction
of organization, evidencing that the Company and the Subsidiaries are existing
and in good standing under the laws of their respective jurisdictions of
organization and (ii) from each state listed on the Disclosure Schedule to
Section 6.1(a) (Organization, Standing and Corporate Power and Authority)
evidencing that the Company and the Subsidiaries (defined below) are qualified
to do business and are in good standing as a foreign entity in such states.

(i) Certificates of No Tax Due. A certificate, letter or other
instrument from the Office of the Franchise Tax Board of the State of
California, dated within five days prior to

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<PAGE> 14
the Closing Date, evidencing that the Company and each Subsidiary has paid all
franchise, sales and other state taxes due and owing.

(j) Estoppel Certificates. The Company shall deliver estoppel
certificates satisfactory to Buyer and dated not more than seven days prior to
the Closing Date, signed by Wendover Funding Inc. ("Wendover") and DLJ with
respect to any Assumed Contract or contract relating to an Acquired Asset to
which Wendover or DLJ is a party, in each case confirming that there are no
defaults, outstanding claims or demands against the Company or any Subsidiary
relating to (as applicable) the Special Servicing Agreement dated as of April
1, 1996 and the related letter agreement dated as of April 26, 1996 and Special
Servicing Agreement dated as of August 1, 1996 and the related letter agreement
dated as of August 29, 1996, each between the Company and Wendover, the Whole
Loan Master Repurchase Agreement dated as of January 17, 1992, as amended, the
Whole Loan Financing Program dated as of June 28, 1994, and the Master
Repurchase Agreement dated as of June 4, 1996, each between the Company and
DLJ, and any such Assumed Contract or agreement relating to an Acquired Asset.

(k) Lien Releases. Releases of all liens and other
encumbrances and security interests of any of the Sellers in any of the
Acquired Assets, including without limitation UCC-3 termination statements;
provided, however, that liens of DLJ on the mortgage loans that constitute
Acquired Assets shall be released upon Buyer's repayment of the amounts owed to
DLJ that relate to such liens.

(l) Name Change. An amendment to the articles of
incorporation of each of the Company and Quality Mortgage Acceptance Corp.
("QMAC") (and to each qualification to do business as a foreign corporation of
the Company and QMAC in those states where the Company or QMAC has obtained
such qualification) whereby each of the Company and QMAC has changed its name
to a name that is approved in advance in writing by Buyer and that is not
similar to "Quality Mortgage USA, Inc." and "Quality Mortgage Acceptance Corp."

(m) Opinions of Sellers' Counsels. Calmac shall deliver an
opinion of Mayer, Brown & Platt, counsel to Calmac and the Jedinaks, and the
DLJ Stockholders shall deliver an opinion of Latham & Watkins, counsel to the
DLJ Stockholders, each dated as of the Closing Date and in each case in form
and substance reasonably satisfactory to Buyer regarding the matters set forth
in Exhibit 2.2(m)(1) and Exhibit 2.2(m)(2), respectively.

(n) Certificates and Notes. The Company shall deliver
certificates representing all the shares of capital stock of the Subsidiaries
that constitute Acquired Assets, certificates representing interests in
securitizations that constitute Acquired Assets, and notes evidencing the
Mortgage Loans (defined below) that constitute Acquired Assets (other than
notes and certificates subject to finance agreements which notes are held by
the lender and cannot be delivered).

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<PAGE> 15
(o) Sales Tax Certification. The Company shall deliver a
certificate signed by the Company, certifying that the Company and the
Subsidiaries have not within the past 12 months completed more than two sales
of assets within the meaning of Section 6006.5(b) of the California Tax Code
and the applicable regulations.

(p) Releases. Sellers shall deliver to Buyer fully effective
releases (the "Releases") executed by each Seller, releasing any and all claims
of such Sellers against or in respect of the Acquired Assets, including without
limitation the Subsidiaries, in a form substantially similar to Exhibit 2.2(p).

(q) Articles, Resolutions, and Incumbency. The Company shall
deliver (i) copies of its Articles of Incorporation and Bylaws, certified by
the Company's Secretary, (ii) copies of the resolutions of the Board of
Directors and shareholders of the Company authorizing and approving this
Agreement and the consummation of the transactions contemplated by this
Agreement, and (iii) an incumbency certificate relating to each person
executing on behalf of the Company any document executed and delivered to Buyer
by the Company pursuant to the terms hereof.

(r) Corporate Records. The Company shall deliver the minute
books and stock transfer records for each Subsidiary (the "Corporate Records")

(s) Other Instruments. Such other instruments, documents or
information that Buyer reasonably requests in connection herewith and the
transactions contemplated hereby, in form and substance reasonably satisfactory
to Buyer.

2.3 Buyer's Deliveries at Closing. At the Closing, Buyer shall
deliver the following items to the applicable Sellers.

(a) The Closing Payment. The Closing Payment (less the Escrow
Amount and the DLJ Fee) to the Company and the Escrow Amount to the Escrow
Agent and the DLJ Fee to DLJ Securities.

(b) Closing Certificate. Buyer shall deliver to the Company a
closing certificate executed by Buyer (the "Buyer Closing Certificate") in the
form attached hereto as Exhibit 2.3(a).

(d) Opinion of Buyer's Counsel. An opinion of L. Keith
Blackwell, Esq., General Counsel of Buyer, dated as of the Closing Date, in
form and substance reasonably satisfactory to the Stockholders regarding the
matters set forth in Exhibit 2.3(d) hereto.

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<PAGE> 16
(e) Articles, Resolutions and Incumbency. Buyer shall deliver
(i) copies of its Articles of Incorporation and Bylaws, certified by Buyer's
Secretary, (ii) copies of the resolutions of the Board of Directors and sole
stockholder of Buyer authorizing and approving this Agreement and the
consummation of the transactions contemplated by this Agreement, and (iii) an
incumbency certificate relating to each person executing on behalf of Buyer any
document executed and delivered to the Company by Buyer pursuant to the terms
hereof.

(f) Payment for DLJ Lien Release. If not previously paid, all
amounts necessary to satisfy and release the Liens of DLJ in the Mortgage Loans
(defined below).

(g) Other Instruments. Such other instruments, documents or
information that any Seller reasonably requests in connection herewith and the
transactions contemplated hereby, in form and substance reasonably satisfactory
to such Seller.

2.4 Related Agreements. The parties, as appropriate, shall execute
and deliver at Closing, the following documents:

(a) Assignment and Assumption Agreements. Assignment and
assumption agreements, the form of which is attached hereto as Exhibit 2.4(a),
effective as of the Closing Date, between the Company on the one hand and Buyer
on the other hand, evidencing the assignment and assumption of the Assumed
Contracts.

If the Sellers fail to obtain the Sellers' Consent of any third party to
the assignment and assumption of any Assumed Contract, then such contract (an
"Unassignable Contract") shall not be an Assumed Contract and Buyer, at its
option, may require at the Closing that the Company take, whereupon the Company
shall take, such commercially reasonable steps on terms reasonably satisfactory
to the Company as may be necessary (including, without limitation, entering
into additional agreements and indemnities on terms reasonably satisfactory to
the parties thereto) to maintain such Unassignable Contract in full force and
effect and to provide to Buyer the economic benefits of such Unassignable
Contract and to cause Buyer to become liable for the Company's liabilities and
obligations thereunder, as if such Unassignable Contract had been assigned to
Buyer as an Assumed Contract.

(b) Noncompetition Agreements. Separate noncompetition
agreements, effective as of the Closing Date, between Buyer on the one hand and
Calmac, the Company and each of the Jedinaks, on the other hand, the form of
which is attached hereto as Exhibit 2.4(b) (the "Noncompetition Agreements");
and

(c) Credit Agreement. An agreement, effective as of the
Closing Date, between the Company and DLJ, pursuant to which DLJ will provide a
credit line in respect of those certain subordinate certificates that
constitute a part of the Acquired Assets, for at least

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<PAGE> 17
90 days after the Closing Date, in the form of a standard master repurchase
agreement satisfactory to the parties thereto (the "Credit Agreement").

(d) Escrow Agreement. The Escrow Agreement.

The foregoing agreements, any attachments thereto, and any other
agreements executed in connection with this Agreement and named or described in
this Agreement are collectively referred to as the "Related Agreements."

ARTICLE 3.

Conditions To Consummating The Transaction

3.1 Joint Conditions. The obligations of each party to consummate
the transactions provided for in this Agreement and the Related Agreements are
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:

(a) HSR Act. The waiting period prescribed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1974 and the rules and
regulations promulgated thereunder (the "HSR Act") shall have expired or been
terminated and Buyer and Sellers each shall have paid 50% of the HSR Act filing
fee required in connection with the HSR Act filing made by Buyer and Sellers
(or their "ultimate parent entities" (as such term is defined in the HSR Act))
in connection with Buyer's purchase of the Acquired Assets from the Company.

(b) No Litigation. No action, suit or proceeding (other than
such an action, suit or proceeding directly or indirectly instituted by a party
hereto seeking to terminate this Agreement) shall be threatened or pending, and
no injunction, order, decree or ruling shall be in effect, seeking to restrain
or prohibit, or to obtain damages or other relief in connection with, the
execution and delivery hereof or any Related Agreement or the consummation of
the transactions contemplated hereby or any Related Agreement.

(c) Related Agreements. The parties shall have entered into
the agreements identified in Section 2.4 (Related Agreements).

3.2 Buyer's Conditions. The obligations of Buyer to consummate the
transactions contemplated by this Agreement and the Related Agreements are
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions.

(a) Sellers' Representations True. The representations and
warranties made in this Agreement or any Related Agreement by the Company or
any other Seller shall be true and correct at the Closing Date, except as
affected by the transactions contemplated hereby, and the respective Sellers
shall have delivered Closing Certificates to that effect pursuant to Section
2.2(f) (Closing Certificates). Notwithstanding the foregoing, Buyer shall only
be permitted to terminate this Agreement based on a representation or warranty
of the Company or

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<PAGE> 18
any Seller being untrue or incorrect if such breach or any fact giving rise to
such breach (together with all other breaches of such representations and
warranties) has caused or is reasonably likely to cause (individually or in the
aggregate) a material adverse change in the condition (financial or other),
results of operations or cash flows of the Mortgage Business (a "Material
Adverse Effect"). For purposes of this Agreement and the Related Agreements, a
Material Adverse Effect shall be deemed to have occurred only if such breach or
fact (together with all other breaches of such representations and warranties
or of Section 3.2(c) (Consents)) has caused or is reasonably likely to cause
(individually or in the aggregate) damage to the Mortgage Business in an amount
in excess of $5.0 million.

(b) Sellers' Compliance with Agreement. Sellers, in all
material respects, shall have performed each agreement, and shall have
complied with each covenant, to be performed or complied with by them, or any
of them, on or prior to the Closing Date under this Agreement or any Related
Agreement, and the Stockholders and the Jedinaks shall have delivered the
Stockholders' Closing Certificates to that effect; provided, however, that
notwithstanding the foregoing, Sellers' failure to perform or comply with
Section 8.4 (Financial Statements) or Section 8.6 (Maintain Organization) shall
fail to satisfy the condition set forth in this Section only if such failure to
perform or comply has, or is reasonably likely to, adversely affect the
Mortgage Business in a material respect.

(c) Sellers' Consents. Sellers shall have obtained the
Sellers' Consents. Notwithstanding the foregoing, only failures to obtain
Sellers' Consents that in the aggregate would have a Material Adverse Effect
shall fail to satisfy the condition set forth in this Section 3.2(c) and allow
Buyer to terminate this Agreement.

(d) Permits. Buyer shall have obtained all governmental
approvals, licenses and permits, or binding commitments from the United States
Department of Housing and Urban Development ("HUD"), the United States
Department of Veterans' Affairs ("VA"), and such states as Buyer deems
necessary to issue, transfer or consent to a change of control with respect to,
all governmental approvals, licenses and permits necessary for Buyer to conduct
the Mortgage Business in the manner that the Mortgage Business has been, and is
proposed to be, conducted (the "Permits"); provided, however, that if Buyer is
unable to obtain any one or more Permit, this condition shall be satisfied if
Buyer and the Company have entered into one or more subcontracting or loan
purchase arrangements, on terms reasonably satisfactory to the parties thereto,
under the Company's existing Permits.

(e) Express Acquisition. The Company shall have exercised its
rights under that certain Option and Agreement to Purchase dated as of
September 20, 1995 between the Company and Thomas Hood (the "Express Option")
and shall have purchased pursuant to the Express Option all of the issued and
outstanding shares of capital stock of Express Funding, Inc., a Nevada
corporation ("Express").

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<PAGE> 19
(f) Agent for Service of Process. On or prior to the Closing
Date, the Company, Calmac and each of the Jedinaks shall have duly and
irrevocably appointed, constituted and engaged The Corporation Trust Company of
Nevada in Reno, Nevada ("CT Corporation") as such individuals' agent for
service of process in accordance with Section 10.6 (Governing Law; Attorneys'
Fees).

(g) Corporate Records. The Corporate Records shall have been
completed, including without limitation by causing the appropriate individuals
to execute documents or instruments, by completing all minutes and records of
resolutions or other actions of the boards of directors, committees thereof, or
stockholders, and by completing all stock issuance and transfer records. Any
changes in the Corporate Records from those previously delivered or made
available to Buyer for review shall not contain disclosure regarding any matter
that has caused or is reasonably likely to cause a Material Adverse Effect.

3.3 Sellers' Conditions to Closing. The obligations of Sellers to
consummate the transactions contemplated by this Agreement and the Related
Agreements are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:

(a) Buyer's Representations True. The representations and
warranties made by Buyer herein shall be true and correct in all material
respects at the Closing Date except as affected by the transactions
contemplated hereby, and Buyer shall have delivered the Buyer Closing
Certificate to that effect.

(b) Buyer's Compliance with Agreement. Buyer, in all material
respects, shall have performed each agreement, and complied with each covenant
to be performed or complied with by it on or prior to the Closing Date under
this Agreement or any Related Agreement, and Buyer shall have delivered the
Buyer Closing Certificate to that effect.

ARTICLE 4.

Joint Covenants to Satisfy
Conditions and Consummate the Transaction

Each party shall use his, her or its commercially reasonable best
efforts to satisfy the conditions to the obligations of the parties hereunder,
and to consummate and make effective as promptly as practicable the
transactions provided for herein including:

4.1 Defending the Agreement. Defending lawsuits or other legal
proceedings challenging this Agreement or any Related Agreement or the
consummation of the transactions provided for in this Agreement or any Related
Agreement.

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<PAGE> 20
4.2 Lifting Injunctions. Using commercially reasonable best efforts
to lift or rescind any injunction, restraining order or other order adversely
affecting the ability of the parties to consummate the transactions provided
for in this Agreement or any Related Agreement.

4.3 Other Actions. Taking such other commercially reasonable actions
that are necessary, appropriate or advisable, unless responsibility for taking
such actions has been delegated to certain parties in any other provision of
this Agreement.

4.4 HSR Act Filings. Sellers shall make their HSR Act filings
(including causing any filings by any ultimate parent entities as required
under the HSR Act) and provide any additional information that the Federal
Trade Commission or the Justice Department requests as promptly as practicable,
and perform all other acts required of them under the HSR Act. Buyer shall
make its HSR Act filings (including causing any filings by any ultimate parent
entities as required under the HSR Act) and provide any additional information
that the Federal Trade Commission or the Justice Department requests as
promptly as practicable, and perform all other acts required of it under the
HSR Act.

4.5 Scheduled Closing. The parties shall use commercially reasonable
efforts to cause the Closing to be held on the later of (a) October 15, 1996
and (b) the third business day (or earlier to the extent practicable) after the
date on which the waiting period prescribed by the HSR Act shall have expired
or been terminated.

4.6 Cooperation. The parties shall reasonably cooperate with one
another in connection with the foregoing.

ARTICLE 5.

Termination

5.1 Reasons for Termination. This Agreement may be terminated before
the Closing:

(a) By Mutual Consent. By the mutual written consent of the
parties.

(b) By the Buyer. Subject to the materiality standards (if
any) set forth in the subsections under Section 3.2 (Buyer's Conditions), by
Buyer after compliance with the procedure set forth in this Article, if (i) any
of the Sellers' representations or warranties contained herein is untrue or
incorrect as of the date this Agreement is executed or any of the Sellers'
representations and warranties contained herein becomes untrue or incorrect,
(ii) any Seller fails to perform any of his or its covenants or agreements
contained herein, or would be in breach of his or its covenants upon execution
of any Related Agreement or (iii) any of Buyer's conditions to the consummation
of the transactions provided for herein shall have become impossible to
satisfy.

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<PAGE> 21
(c) By Sellers. By Sellers acting jointly, after compliance
with the procedure set forth in this Article, if (i) any of Buyer's
representations or warranties contained herein is or becomes untrue or
incorrect in any material respect or (ii) Buyer fails to perform its covenants
or agreements contained herein, or would be in breach of his or its covenants
upon execution of any Related Agreement, in any material respect.

(d) Drop-Dead Date. By Buyer, or by Sellers acting jointly,
if the Closing shall not have occurred by November 15, 1996; provided, however,
such date shall be extended by the number of days, if any, necessary to respond
to a second request for information under the HSR Act or to cure any matter
that is the subject of a notice under Section 5.3 (Buyer Termination Procedure)
or Section 5.4 (Sellers' Termination Procedure); provided further, that a party
may terminate this Agreement pursuant to this Section only if such party has in
all material respects performed such party's covenants or agreements to the
extent such covenants or agreements were required to be performed prior to the
date of such termination.

5.2 Notice of Problems. Each party will promptly give written notice
to the other parties when any of them becomes aware of the occurrence or
failure to occur, or the impending or threatened occurrence or failure to
occur, of any fact or event that would cause or constitute, or would be likely
to cause or constitute (i) any of its representations or warranties contained
herein being or becoming materially untrue or incorrect, (ii) its material
failure to perform any of its covenants or agreements contained herein or (iii)
any of its Delegated Conditions, or any condition to the obligation of the
parties contained in Section 3.1 (Joint Conditions), being or becoming
impossible to satisfy.

No such notice shall affect the representations, warranties, covenants,
agreements or conditions of the parties hereunder, or prevent any party from
relying on the representations and warranties contained herein.

5.3 Buyer Termination Procedure. Subject to the materiality
standards (if any) set forth in the subsections under Section 3.2 (Buyer's
Conditions), if Buyer discovers, by reason of a notice given pursuant to this
Agreement or otherwise, that (i) any of Sellers' representations or warranties
is or has become untrue or incorrect, (ii) any Seller has failed to perform any
of his or its covenants or agreements contained herein or (iii) any of the
conditions to Buyer's obligations to consummate the transactions provided for
herein has become impossible to satisfy, then Buyer may deliver a notice to
Sellers of such event, specifying the factual basis therefor in reasonable
detail. Sellers shall have the right to cure any matter referred to in clause
(i) or (ii) of this Section within 10 business days following the date of
delivery of such notice. Upon such notice and, in the case of clause (i) or
(ii), upon Sellers' failure to cure, Buyer may terminate this Agreement by
giving a notice of termination to Sellers.

5.4 Sellers' Termination Procedure. If Sellers discover, by reason
of a notice given pursuant to this Agreement or otherwise, that (i) any of
Buyer's representations or warranties is

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<PAGE> 22
or has become untrue or incorrect in a material respect or (ii) Buyer has
failed to perform any of its covenants or agreements contained herein in any
material respect, then the Sellers may deliver a notice to the Buyer of such
event, specifying the factual basis therefor in reasonable detail. Buyer shall
have the right to cure any matter referred to in clause (i) or (ii) of this
Section within 10 business days following the date of delivery of such notice.
Upon such notice and, in the case of clause (i) or (ii) upon Buyer's failure to
cure, Sellers acting jointly, may terminate this Agreement by giving a notice
of termination to Buyer.

5.5 Effect of Termination. Upon termination of this Agreement
pursuant to this Article, no party shall have any liability or continuing
obligation to another party arising out of this Agreement, or out of actions
taken in connection with this Agreement, except that Sections 10.5 (Delays or
Omissions, Etc.), 10.6 (Governing Laws; Attorneys' Fees), and 10.7 (Dispute
Resolution) and Article 11 (Miscellaneous) shall survive termination of this
Agreement. Notwithstanding the foregoing, termination of this Agreement shall
not relieve any party from its liability for (i) the failure, prior to
termination, of such party to perform or comply with its covenants or
agreements or (ii) the representations or warranties made by such party being
materially untrue or incorrect when made.

ARTICLE 6.

Representations and Warranties of Sellers

The Company has delivered a Disclosure Schedule (including exhibits
thereto) to Buyer setting forth certain information, the disclosure of which is
required or appropriate in relation to any or all of the following
representations and warranties. The mere inclusion of information in the
Disclosure Schedule shall not be deemed an admission by the Company that such
item would cause the representation or warranty to which it relates to be
untrue or incorrect, or that such information is material or evidence of
materiality for purposes of this Agreement. Specific information set forth in
the Disclosure Schedule (whether or not specific reference to a representation
or warranty is made) shall be deemed to be an exception to each applicable
representation and warranty set forth in this Article 6.

Except as set forth in Sections 6.1(b) (Corporate Power and Authority;
Validity and Authorization), 6.1(f) (HSR Act), 6.5(r) (Legal Requirements),
6.6(b) (No Brokers Fees; No Commissions), 6.7 (DLJ Stockholders' Knowledge) and
6.8 (Calmac's and the Jedinaks' Knowledge) below, the Company makes to Buyer
the following representations and warranties:

6.1 Sellers; Entry Into Agreements.

(a) Organization and Good Standing. The Company is a
corporation duly organized and validly existing under the laws of the State of
California and is in good standing under such laws. Express is a corporation
duly organized and validly existing under the laws of

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<PAGE> 23
the State of Nevada and is in good standing under such laws. Save-More
Insurance Services, Inc. ("Save-More") is a corporation duly organized and
validly existing under the laws of the State of California and is in good
standing under such laws. Commonwealth Trust Deed Services, Inc.
("Commonwealth") is a corporation duly organized and validly existing under the
laws of the State of California and is in good standing under such laws.
Quality Trustee Services, Inc. ("Quality Trustee") is a corporation duly
organized and validly existing under the laws of the State of Missouri and is
in good standing under such laws. Quality Funding, Inc. ("Quality Funding") is
a corporation duly organized and validly existing under the laws of the State
of Hawaii and is in good standing under such laws. Express, Save-More,
Commonwealth, Quality Trustee and Quality Funding are sometimes collectively
referred to herein as the "Subsidiaries." The Company and the Subsidiaries have
all requisite corporate power and authority to own, lease and operate all
properties and assets owned or leased by it and to conduct their businesses as
previously and currently conducted by them. The Subsidiaries are qualified to
do business and are in good standing as a foreign corporation in each
jurisdiction in which they are required to be so qualified. The Disclosure
Schedule lists all jurisdictions in which any Subsidiary is qualified to do
business as a foreign corporation. Attached to the Disclosure Schedule are
complete and correct copies of the Certificate of Incorporation and the Bylaws
of each Subsidiary as currently in effect.

(b) Corporate Power and Authority; Validity and Authorization.
The Company has full corporate power and authority to execute, deliver and
perform this Agreement, the Related Agreements and the other instruments called
for by this Agreement to which it is a party. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.

Each Stockholder represents that it has full corporate power and
authority to execute, deliver and perform this Agreement, the Related
Agreements and the other instruments called for by this Agreement to which such
Stockholder is a party and this Agreement has been duly authorized, executed
and delivered by such Stockholder; provided, however, that as to this sentence,
each Stockholder represents and warrants only as to such Stockholder's power
and authority. The Jedinaks represent and warrant that each has full power,
authority and capacity to execute, deliver and perform this Agreement and each
Related Agreement to which either Jedinak is a party. No Stockholder has
knowledge of any defect in any other Stockholder's or either Jedinak's power,
authority or capacity that could impair the enforceability of this Agreement
and the applicable Related Agreements against any other Stockholder or either
Jedinak. This Agreement has been duly executed and delivered by each Seller
and constitutes the legal, valid and binding obligation of each of the
foregoing, enforceable against them in accordance with its terms.

Each Seller represents that when the Related Agreements and the other
instruments called for by this Agreement to which such Seller is a party are
executed and delivered at the Closing,

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<PAGE> 24
such agreements will have been duly authorized, executed and delivered by such
Seller pursuant to full requisite capacity to execute, deliver and perform such
Related Agreements and the other instruments called for by this Agreement to
which such Seller is a party and will constitute the legal, valid and binding
obligations of such Seller enforceable against such Seller with their terms.

(c) Subsidiaries. Except as set forth on the Disclosure
Schedule, the Company and the Subsidiaries do not own, control, or have voting
rights with respect to, directly or indirectly, any interest in any other
corporation, partnership, association or other business entity and neither the
Company nor any Subsidiary is a party to any agreement (other than this
Agreement) relating to the acquisition of such an interest.

(d) No Conflict. Except as set forth on the Disclosure
Schedule, neither the execution, delivery or performance of this Agreement or
the Related Agreements, nor the consummation of the transactions contemplated
hereby or thereby will (i) result in any violation of the terms of, (ii)
contravene or conflict with, (iii) accelerate the performance of the
obligations required under, (iv) constitute a default under, (v) give any right
of termination or cancellation under or (vi) give any right to make any change
in any of the liabilities or obligations under, the articles of incorporation
or bylaws of the Company or any Subsidiary, any Order (defined below), or any
Assumed Contract. Neither the execution, delivery and performance of this
Agreement or the Related Agreements by the Sellers, nor the consummation of the
transactions contemplated hereby or thereby by the Sellers, will result in the
creation of any Lien (defined below) upon any of the Acquired Assets.

(e) Sellers' Consents Required. The Disclosure Schedule lists
all consents, approvals or authorizations of third parties, required in
connection with each party's (other than Buyer's) valid execution, delivery or
performance of this Agreement and the Related Agreements or the consummation of
any of the transactions contemplated hereby or thereby on the part of any of
them (collectively, the "Sellers' Consents"), including but not limited to the
consents required under the Assumed Contracts (defined below) and the transfer
of Licenses (defined below). The Stockholders have taken all other corporate
or partnership action necessary for the consummation by the Company of the
transactions contemplated by this Agreement or the Related Agreements.

(f) HSR Act. Calmac, the Jedinaks and the Company have made
all filings required under the HSR Act, have fully complied with the provisions
of the HSR Act and the rules and regulations promulgated thereunder, and have
fully complied with all requests for information from the Federal Trade
Commission and the Department of Justice. The information contained in such
filings under the HSR Act is accurate and complete and such filings do not
include any incorrect statements or omit to include any information necessary
to make the statements therein not misleading. The copies of such filings
under the HSR Act that have been

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<PAGE> 25
provided to Buyer are true and complete copies of such filings (except that
certain confidential financial information of Calmac and the Jedinaks has been
redacted from such copies).

6.2 Financial Information.

(a) Financial Statements; Books and Records. Included in the
Disclosure Schedule are true and correct copies of (i) the audited,
consolidated balance sheets for the Company and the Subsidiaries (other than
Express) at September 30, 1995, 1994 and 1993 and the related statements of
profit and loss and cash flows for the one-year periods then ended, (ii) the
unaudited, consolidated balance sheet for the Company and the Subsidiaries
(other than Express) at June 30, 1996 (together with related notes and
schedules, collectively, the "Preliminary Balance Sheet") and the related
statements of profit and loss and cash flows for the three-month and nine-month
periods then ended, (iii) the unaudited, consolidated balance sheets for the
Company and the Subsidiaries (other than Express) at July 31, 1996 and August
31, 1996 and the related statements of profit and loss and cash flows for the
one-month and fiscal year-to-date periods then ended, (iv) where applicable,
the foregoing presented on a divisional basis and (v) when delivered pursuant
to this Agreement, similar financial statements for each additional month
ending more than 15 days before the Closing (collectively with the Preliminary
Balance Sheet, the "Company Financial Statements").

The Company Financial Statements fairly present the financial position
of the Company and the Subsidiaries (other than Express) as of the dates
thereof and the results of the Company's operations and cash flows for the
periods then ended, in accordance with GAAP (as defined below), except for the
variances from GAAP set forth in the notes to the Company Financial Statements
or on the Disclosure Schedule (and except, in the case of the unaudited
financial statements, for normal year-end adjustments). The Company and each
Subsidiary maintains a standard system of accounting, including without
limitation internal controls, established and administered in accordance with
GAAP, except for the variances from GAAP set forth in the notes to the Company
Financial Statements or on the Disclosure Schedule.

Included in the Disclosure Schedule are true and correct copies of (i)
the audited, consolidated balance sheets for Express at December 31, 1995, 1994
and 1993 and the related statements of profit and loss and cash flows for the
one-year periods then ended, (ii) the unaudited, consolidated balance sheet for
Express at June 30, 1996 and the related statements of profit and loss and cash
flows for the three-month and six-month periods then ended and (iii) when
delivered pursuant to this Agreement, similar financial statements for each
additional month ending before the Closing (collectively, the "Express
Financial Statements"). The Express Financial Statements fairly present the
financial position of Express as of the dates thereof and the results of
Express' operations and cash flows for the periods then ended, in accordance
with GAAP, except for the variances from GAAP set forth on the Disclosure
Schedule.

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<PAGE> 26
The Company's and each Subsidiary's books and records including without
limitation, all financial records and business records (i) are complete and
correct in all respects and all transactions to which the Company and each
Subsidiary is or has been a party are accurately reflected therein, (ii)
reflect all discounts, returns and allowances granted by the Company and each
Subsidiary with respect to the periods covered thereby, (iii) have been
maintained in accordance with customary and sound business practices in the
Company's and each Subsidiary's industry, (iv) form the basis for the Company
Financial Statements and Express Financial Statements, as applicable, and (v)
accurately reflect the assets, liabilities, financial position, results of
operations and cash flows of the Company and each Subsidiary. All
computer-generated reports and other computer output included in the Company's
and each Subsidiary's books and records are complete and correct and were
prepared in accordance with sound business practices based upon authentic data.
Each Subsidiary's management information systems are adequate for the
preservation of relevant information and the preparation of accurate reports.

"GAAP" shall mean those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods so as to properly reflect the financial
position, results of operations and operating cash flow on a consolidated basis
of the Company, except that any accounting principle or practice required to be
changed by the Accounting Principles Board or Financial Accounting Standards
Board (or other appropriate board or committee) in order to continue as a
generally accepted accounting principle or practice may be so changed.

(b) Conduct of Business. Except as set forth in the
Disclosure Schedule, since June 30, 1996, neither the Company nor any
Subsidiary has (i) changed its authorized or issued capital stock; granted any
stock option or right to purchase shares of capital stock; issued any security
convertible into such capital stock; granted any registration rights;
purchased, redeemed, retired, or otherwise acquired any shares of any such
capital stock; or declared or paid any dividend, payment or distribution in
respect of shares of capital stock (other than the dividend of the office
building and property on Jamboree Boulevard in Irvine, California); (ii)
amended its organizational documents; (iii) sold or transferred any assets,
including without limitation mortgage loans, other than (x) sales of mortgage
loans that have been sold at auction to parties other than any Seller or any
affiliate of any Seller and that were sold in the ordinary course of business
and consistent with past practices or (y) any other asset sale not exceeding
$10,000 individually or $100,000 in the aggregate, in each case that were made
in the ordinary course of business and consistent with past practices; (iv)
mortgaged, pledged or subjected to any Lien or other encumbrance, any assets
(other than the mortgage loans pledged to DLJ); (v) incurred or become subject
to any debt, liability (including repurchase obligations) or lease obligation,
other than current liabilities incurred in the ordinary course of business
(other than such liabilities to DLJ) that do not exceed $100,000 individually
or $500,000 in the aggregate; (vi) incurred obligations or entered into
contracts outside of the ordinary course of business (except in

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<PAGE> 27
connection with this Agreement and the Related Agreements); (vii) suffered any
damage, destruction or loss of any assets in the aggregate in excess of
$100,000, excluding losses on mortgage loans and real estate owned, which
losses were incurred in the ordinary course of business and consistent with
past loss experience; provided, however, that no such loss shall exceed $25,000
before reserves or other reductions; (viii) waived or relinquished any rights
or canceled or compromised any debt or claim owing to it, in either case
without adequate consideration or not in the ordinary course of business; (ix)
made any change in its accounting methods or practices; (x) made any change in
its billing and collection practices and procedures; (xi) paid any bonuses or
made any increase in the compensation, commissions or benefits payable or to
become payable to any of its officers, directors, employees or agents over the
amounts paid or payable as of such date (other than bonuses to the Company's
employees at July 31, 1996 (excluding the Jedinaks) that did not exceed 5% of
the quarterly payroll and that otherwise were in the ordinary course of
business and consistent with past practices), or entered into or terminated any
employment, deferred compensation, severance or bonus agreement with any of
such parties, or made any loan, or commitment to loan, monies to any such
parties, other than customary cash travel advances which do not exceed $5,000
in the aggregate; (xii) entered into any transaction with any Affiliate
(defined below) of the Company (other than borrowings from DLJ and mortgage
loan sales to, or securitizations with, DLJ that were in the ordinary course of
business and consistent with past practices); (xiii) made any capital
expenditures in excess of $5,000 on a single basis or $25,000 in the aggregate;
(xiv) paid any federal or state income tax liability other than in the ordinary
course of business and consistent with past practices, including without
limitation any liability in respect of the approximately $3.0 million phantom
income tax liability with respect to REMICs; or (xv) agreed to do any of the
foregoing.

(c) No Adverse Change. Since the date of the most recent
Company Financial Statements and Express Financial Statements delivered prior
to the date hereof, the Company and the Subsidiaries have conducted their
businesses only in the ordinary course consistent with past practice and there
has been no Material Adverse Effect.

(d) Acquired Assets. When conveyed to Buyer at the Closing
the Acquired Assets will include all assets set forth on Exhibit 1.1(a) held by
the Company on the date of this Agreement, subject only to subsequent
acquisitions and dispositions in the ordinary course of business or otherwise
as permitted in this Agreement.

6.3 Assets.

(a) Personal Property.

(i) Title. The Company or applicable Subsidiary has
good and marketable title to all assets that are personalty (the "Personal
Property") (other than the leased Personal Property described below). There is
no Lien on any of the Personal Property. With respect to any Personal Property
that is leased, the Company or applicable Subsidiary is in

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<PAGE> 28
compliance with each such lease and is the sole holder of a valid and
subsisting leasehold interest, free and clear of any Liens. The Disclosure
Schedule lists all items of leased Personal Property (the "Equipment Leases").

(ii) Notes and Accounts Receivable. All notes
(excluding the Mortgage Loans) payable to, and accounts receivable of, the
Company and the Subsidiaries that are Acquired Assets (the "Accounts
Receivable") were created in the ordinary course of business and have been
collected or are collectible in the amounts thereof reflected in the books and
records of the Company and the Subsidiaries, net of reserves or contractual
allowances reflected in the Company Financial Statements or the Express
Financial Statements, as applicable. Payments to the Company and the
Subsidiaries in respect of Accounts Receivable are deposited, upon receipt,
directly into the Accounts and such amounts can only be withdrawn therefrom by
the Company and its duly authorized agents or Express and its duly authorized
agents, as the case may be. None of the Accounts Receivable is subject to any
counterclaim or set off. All of such Accounts Receivable arose out of bona
fide, arms-length transactions.

(iii) Bank Accounts. The Disclosure Schedule sets forth
the names of all banks, trust companies, savings and loan associations and
other financial institutions at which the Company or any Subsidiary maintains
accounts of any nature (including but not limited to the Accounts, the numbers
of such accounts and the names of all persons authorized to draw thereon or to
make withdrawals therefrom.

(b) Real Property.

(i) Fee Simple. Except as set forth in the Disclosure
Schedule, the Company or applicable Subsidiary has good, indefeasible and
marketable title in fee simple to all real property owned by the Company or the
Subsidiaries that constitutes part of the Acquired Assets (the "Real
Property"), including but not limited to those properties reflected on the
Company Financial Statements and the Express Financial Statements, and to the
buildings, structures and improvements thereon, in each case free and clear of
all security interests, liens (choate or inchoate), encumbrances, mortgages,
pledges, equities, charges, assessments, easements, covenants, restrictions,
reservations, defects in title, encroachments and other burdens, whether
arising by contract or under law, other than (x) inchoate statutory liens for
amounts not yet payable and (y) the lien of DLJ with respect to foreclosed real
properties financed by DLJ (collectively, "Liens") and other than matters
customarily excepted from the coverage of an ALTA title insurance policy,
whether or not the same render the title to such Real Property unmarketable.
Neither the Company nor any Subsidiary has granted any leases on, and there are
no tenancies on, the Real Property. The Disclosure Schedule sets forth a
complete description by metes and bounds or lot, block and section of the
Irvine Properties.

(ii) Leases; Easements and Other Interests. The
Disclosure Schedule sets forth (A) a description of the land, premises,
buildings, structures and improvements covered

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<PAGE> 29
by each lease of real property that constitutes part of the Acquired Assets and
(B) a list of all other contracts and instruments, whether or not in writing,
relating to or affecting real property that constitutes part of the Acquired
Assets. The interests described in items (A) and (B) above are collectively
referred to herein as the "Leased Premises" and the leases, easements,
concessions, contracts and instruments described in items (A) and (B) above are
referred to herein as the "Real Estate Contracts."

The Company or applicable Subsidiary is the sole holder of valid and
subsisting leasehold interests in the Leased Premises leased thereby free and
clear of any Liens. All lease or rental payments and other amounts due and
payable in connection with the Real Estate Contracts are current, there are no
defaults by the Company or any Subsidiary with respect thereto and no event has
occurred that with the passing of time or the giving of notice or both would
constitute a default thereunder. All options in favor of the Company or
applicable Subsidiary to purchase any of the Leased Premises, if any, are in
full force and effect. The Company or applicable Subsidiary has the right to
quiet enjoyment of the Leased Premises for the full term of the related Real
Estate Contract and any renewal option related thereto, and no leasehold or
other interest of the Company or applicable Subsidiary in such real property is
subject or subordinate to any Lien, whether or not the same renders the title
to such real property or lease unmarketable, except as specifically set forth
in the Disclosure Schedule.

(iii) Eminent Domain. Neither the whole nor any portion
of any Real Property or Leased Premises has been condemned, taken by right of
eminent domain, requisitioned or otherwise taken by any public authority, and
no such condemnation, taking by right of eminent domain, requisition or taking
has been overtly threatened or, to the Company's knowledge, contemplated, and
the Company has not received, and does not know of, any notice regarding any
such action.

(iv) Improvements. Except as set forth on the
Disclosure Schedule, none of the improvements included in the Irvine Properties
are (A) in violation of any building line or use or occupancy restriction,
limitation, condition or covenant of record or any zoning or building law, code
or ordinance or public utility or other easement or (B) encroaches on the
property rights of any other person or entity. Each facility located on the
Irvine Properties currently is served by gas, electricity, water, sewage and
waste disposal and other utilities adequate to operate such facility, and none
of the utility companies serving any such facility has overtly threatened the
Company or any Subsidiary with any reduction in service. Such utilities either
enter the Irvine Properties through adjoining public streets or, if they pass
through adjoining private land, do so in accordance with valid, permanent
public or private easements which, following the Closing, will inure to the
benefit of Buyer, its successors and assigns. All of said utilities are
installed and operating and all installation and connection charges have been
paid for in full. The continued maintenance and operation of the Irvine
Properties as currently maintained and operated is not dependent on facilities,
equipment or other assets located at property other than the Irvine
Properties, which facilities, equipment or assets may become

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<PAGE> 30
unavailable. The continued maintenance and operation of any other property is
not dependent on facilities, equipment or other assets located on the Irvine
Properties. No building or other improvement not part of the Irvine Properties
relies on the Irvine Properties or any part thereof or any interest therein to
fulfill any governmental requirement. No building or other improvement on the
Irvine Properties relies on any property not included within the Irvine
Properties to fulfill any governmental requirement.

(v) Real Property and Leased Premises Taxes. There are
no challenges or appeals pending regarding the amount of the Taxes on, or the
assessed valuation of, the Real Property or the Leased Premises, and no special
arrangements or agreements exist with any governmental authority with respect
thereto (the representations and warranties contained in this paragraph (v)
shall not be deemed to be breached by any prospective general increase in real
estate tax rates). There is no tax assessment (in addition to the normal,
annual general real estate tax assessment) pending or overtly threatened with
respect to any portion of the Real Property or, to the extent the Company or
any Subsidiary is liable for payment therefor, the Leased Premises.

(i) Intellectual Property. The term "Intellectual
Property" shall include the names "Quality Mortgage USA, Inc.," "Express
Funding, Inc.,""Save-More Insurance Services, Inc.," "Commonwealth Trust Deed
Services, Inc.," "Quality Trustee Services, Inc." "Quality Funding, Inc.," and
"Quality Mortgage Acceptance Corp." and all fictitious business names, trade
names, registered and unregistered trademarks, service marks and applications
owned, used or licensed by the Company or any Subsidiary (collectively "Marks")
and all know-how, trade secrets, confidential information, software (including
without limitation the Quality Loan Processing System program, but including
licensed retail or "off-the-shelf" software only to the extent of the license
held by the Company) and all data used in connection therewith or processed
thereby, technical information, process technology, plans, drawings and blue
prints owned, used or licensed by the Company or any Subsidiary as licensee or
licensor (collectively "Trade Secrets"). The Intellectual Property also
includes all such rights and assets of the Company and the Subsidiaries under
the Assumed Contracts. Neither the Company nor any Subsidiary owns, licenses
(either as licensor or licensee) or uses any registered or unregistered
copyrights or any patent or patent application.

(ii) Ownership. Except as listed in the Disclosure
Schedule, the Company or a Subsidiary is the owner of all right, title and
interest in and to the Intellectual Property free and clear of all Liens.
Following Closing, Buyer shall be the sole owner of all right, title and
interest in the Intellectual Property free and clear of all liens. The
Intellectual Property includes all such property necessary for the operation of
the Mortgage Business of the Company and the Subsidiaries (x) as they currently
are or have been conducted and (y) without violating or infringing upon the
rights of any third party. Without limiting the foregoing, the

23
<PAGE> 31
Company and the Subsidiaries are properly licensed to use all computer software
(and copies thereof) used by them. Except as listed in the Disclosure
Schedule, no right, license or consent of, or payment to, any third party will
be required after consummation of the transactions contemplated by this
Agreement for the continued use of the Intellectual Property by the Company and
the Subsidiaries.

(iii) Trademarks. The Disclosure Schedule contains an
accurate and complete listing and summary of all material registered Marks,
including application and registration dates and numbers, and jurisdiction
thereof, if any. Except as set forth on the Disclosure Schedule, the Sellers
are not aware of any potentially interfering mark or application therefor of
any third party; no Mark is infringed or has been challenged or is or has been
overtly threatened in any way; and none of the Marks used by the Company or the
Subsidiaries infringe or are alleged in any legal proceeding to infringe any
business name, trade name, trademark or service mark of any third party.

(iv) Trade Secrets. The Company and the Subsidiaries
have taken all reasonable precautions to protect the secrecy, confidentiality
and value of the Trade Secrets. Except as set forth on the Disclosure
Schedule, no Trade Secret is subject to any adverse claim nor has any Trade
Secret been challenged or overtly threatened in any way. None of the Trade
Secrets infringe or are alleged to infringe any proprietary right of any third
party.

(d) Contracts.

(i) All of the Assumed Contracts are legal, valid and
binding on the parties thereto and in full force and effect. No party to any
of the Assumed Contracts is in violation of or default under any of the Assumed
Contracts. No event, occurrence or condition exists which, with the lapse of
time, the giving of notice, or both, or the happening of any further event or
condition, would become a violation or default by the Company or any
Subsidiary, or any other party thereto, under any Assumed Contract. There are
no outstanding, and to the Company's knowledge, overtly threatened disputes or
disagreements with respect to any of the Assumed Contracts. Neither the
Company nor any Subsidiary has released any rights under any Assumed Contract.
The Company and the Subsidiaries are not subject to any legal obligations to
renegotiate, nor is there any right to renegotiate, any Assumed Contract. The
Company and the Subsidiaries are not subject to any liability, or claim
therefor, for or with respect to price adjustment under any Assumed Contract
with the United States Government or any agency thereof, including any
liability for defective pricing.

(ii) Except as set forth on the Disclosure Schedule, the
Assumed Contracts constitute all of the contracts, leases and agreements
necessary for the conduct of the businesses of the Company and the Subsidiaries
in the manner and to the extent conducted by the Company and the Subsidiaries.
All rights of the Company and the Subsidiaries under the Assumed Contracts will
be enforceable by Buyer after the Closing without the consent or

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<PAGE> 32
agreement of any other party, except consents and agreements specifically
described in the Disclosure Schedule.

(iii) The Sellers have delivered or made available to
Buyer true and complete copies of each Assumed Contract. There are no
unwritten amendments to, or waivers under, any Assumed Contract.

(e) Necessary Assets. The Acquired Assets constitute all of
the assets, rights, and properties used in, or reasonably necessary for, the
conduct of the Mortgage Business in the manner and to the extent currently
conducted by the Company and the Subsidiaries. The Acquired Assets are
adequate to enable Buyer to continue to conduct the Mortgage Business on the
Closing Date in the manner and to the extent currently conducted by the Company
and the Subsidiaries, and include all items of property that are located on the
Real Property, that are used as though owned, that the Company and the
Subsidiaries purport to own or that are reflected in the Company Financial
Statements or the Express Financial Statements. Notwithstanding the foregoing,
Buyer will need to obtain adequate warehouse and other finance lines and its
own Licenses and Permits in those states in which Buyer or the operating
affiliate of Buyer does not have its own Licenses and Permits.

6.4 Liabilities.

(a) No Liabilities. No Subsidiary has any debt, guaranty,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, whether due or to become due, and whether known or unknown, and
there is no basis for the assertion against it of any such debt, guaranty,
liability or obligation except (i) to the extent set forth or reserved against
in full in the Company Financial Statements or the Express Financial
Statements, as applicable, and (ii) current liabilities incurred in the
ordinary course of business since June 30, 1995.

(b) Tax Matters. Except as listed in the Disclosure Schedule:

(i) Each of the Company and Express has filed all Tax
Returns (defined below) that it was required to file on its behalf and on
behalf of the Subsidiaries. All such Tax Returns were correct and complete in
all respects. All Taxes due and payable by the Company or any Subsidiary
(whether or not shown on any Tax Return, whether known or unknown, asserted or
unasserted) on or before the Closing with respect to taxable periods ending on
or before the Closing have been paid or will be paid prior to Closing (except
as set forth in Section 6.2(b)(xiv)). Neither the Company nor any Subsidiary
is a party to any tax sharing or other agreement that will require any payment
with respect to Taxes. Neither the Company nor any Subsidiary currently is the
beneficiary of any extension of time within which to file any Tax Return.
Neither the Company nor any Subsidiary has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency or the collection of Taxes.

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<PAGE> 33
(ii) No taxing authority or other governmental unit has
claimed, raised, discussed, proposed or overtly threatened any assessment,
deficiency, adjustment, dispute or claim concerning any Tax Return or any Tax
liability of any of the Company or any Subsidiary. There is no unpaid
assessment, deficiency or adjustment concerning any Tax Return or Tax liability
of any of the Company or any Subsidiary other than those for which an adequate
reserve has been established and which are reflected in the Company Financial
Statements. Except as disclosed on the Disclosure Schedule, none of the Tax
Returns of the Company or any Subsidiary have been selected for or are now
under audit or examination by any taxing authority or other governmental unit,
and there are no suits, actions, proceedings or investigations pending or
overtly threatened against the Company or any Subsidiary with respect to any
Taxes.

(iii) Except as disclosed on the Disclosure Schedule,
each of the Company and the Subsidiaries has withheld and timely deposited or
paid all Taxes required to have been withheld and reserved or paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.

(iv) None of the Company or any Subsidiary has filed a
consent under Sec. 341(f) of the Code concerning collapsible corporations.
None of the Company or any Subsidiary has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that would be
characterized as "excess parachute payments" under Code Sec. 280G of the Code.
None of the assets of the Company or any Subsidiary (A) is property which is
required to be treated as being owned by any other person pursuant to the
so-called "safe harbor lease" provisions of former Code Sec. 168(f)(8) of the
Code; (B) directly or indirectly secures any debt the interest on which is tax
exempt under Code Sec. 103(a) of the Code; or (C) is "tax-exempt use property"
within the meaning of Code Sec. 168(h) of the Code. Each of the Company and
the Subsidiaries has disclosed on its federal income Tax Returns or qualified
amended returns (or statements attached thereto) all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Code Sec. 6662. Neither the Company nor any Subsidiary
(A) is a party to any Tax allocation or sharing agreement; (B) has been a
member of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company); or (C) has any
liability for the Taxes of any person (other than any of the Company and the
Subsidiaries) under Treas. Reg. sec. 1.1502-6 or any similar provision of
state, local or foreign law), as a member of a consolidated group, transferee
or successor, by contract or otherwise. Neither any Stockholder, the Company
nor any Subsidiary is a person other than a United States person within the
meaning of the Code and the transaction contemplated herein is not subject to
the withholding provisions of Code Sec. 3406 of the Code or subchapter A of
Chapter 3 of the Code.

(v) Any unpaid Taxes of the Company and the
Subsidiaries, including all Taxes not yet due for any and all periods through
the Closing Date, whether known or unknown, asserted or unasserted (A) do not
exceed the reserve for Tax liability (other than any

26
<PAGE> 34
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) included in the Company Financial Statements and the
Express Financial Statements and (B) do not exceed those reserves as adjusted
for the passage of time through the Closing Date in accordance with GAAP and
the Company's customary accounting methods.

As used herein, the term "Taxes" means all federal, state, local,
foreign and other governmental net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, unemployment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatever, together with any
interest and any penalties, additions to tax or additional amounts with respect
thereto, and the term "Tax" means any one of the foregoing Taxes; the term "Tax
Returns" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes; the term "Code" means the
Internal Revenue Code of 1986, as amended (all citations to the Code, or to the
Treasury Regulations promulgated thereunder, shall include any amendments or
any substitute or successor provisions thereto).

(i) Except as set forth on the Disclosure Schedule,
there is no pending action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative (including the
Equal Employment Opportunity Commission and similar state or federal agencies),
investigative or informal) (A) that has been commenced by or against the
Company or any Subsidiary in respect of, or that otherwise relates to or may
affect, any Subsidiary, the Acquired Assets, the Assumed Contracts, this
Agreement, any Related Agreement or the transactions contemplated herein or
therein or (B) that has been commenced by or against any Stockholder in respect
of, or that otherwise relates to or may affect any Subsidiary, the Acquired
Assets, the Assumed Contracts, this Agreement, any Related Agreement or the
transactions contemplated herein or therein (collectively, the "Proceedings").
No Proceeding has been overtly threatened. No event has occurred (including
without limitation the commission or omission of any act) that may give rise to
or serve as a basis for the commencement of any Proceeding.

(ii) Except as set forth on the Disclosure Schedule,
there is no award, decision, injunction, judgment, order, ruling, subpoena,
writ or verdict of any court, arbitrator or government agency or
instrumentality (A) to which any Subsidiary, the Acquired Assets, the Assumed
Contracts, this Agreement, any Related Agreement or the transactions
contemplated herein or therein is subject or by which any of the foregoing may
be affected or (B) to which any Stockholder is subject and that relates to or
may affect any Subsidiary, the Acquired Assets, the Assumed Contracts, this
Agreement, any Related Agreement or the transactions contemplated herein and
therein (collectively, the "Orders").

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<PAGE> 35
(iii) The Disclosure Schedule sets forth a description of
each Proceeding pending or overtly threatened at the date hereof.

(d) Employee Liabilities. The Disclosure Schedule accurately
lists the base salary, hire date, accrued vacation and sick time the Company or
any Subsidiary owes to each employee or independent contractor of the Company
or any Subsidiary as of the date hereof.

6.5 Business.

(a) Mortgage Banking Licenses and Qualifications.

(i) The Subsidiaries have all certifications,
authorizations, licenses, permits, approvals, governmental licenses,
exemptions, classifications and registrations that are necessary to conduct the
Mortgage Business (collectively, the "Licenses"), to the extent such business
has been or is being conducted by or through the Subsidiaries. The Disclosure
Schedule lists every License held by the Subsidiaries that is in effect, has
been applied for or is pending and identifies those Licenses and applications
for Licenses that will be impaired as a result of Buyer's purchase of the
Acquired Assets (including the capital stock of the Subsidiaries) and describes
any action required to be taken to ensure that all such Licenses that are
transferrable will be enforceable by Buyer or the Subsidiaries after the
Closing. Sellers have made available to Buyer the originals, or if the
originals are not available, then true and complete copies of, all of the
Licenses held by the Subsidiaries.

(ii) All Licenses are in full force and effect. No
event has occurred that may constitute or result in a violation of a License,
or result in the revocation, suspension, modification or nonrenewal of any
License. Neither the Company nor any Subsidiary has received any notice of any
actual, alleged or potential violation, revocation, suspension, modification or
nonrenewal of any License. Each of the Subsidiaries has complied with all
Licenses, and there is no overtly threatened suspension, cancellation or
invalidation of, or penalties (including fines or refunds) under, any License.

(iii) Each broker or correspondent involved in the
origination of Mortgage Loans (defined below) had all such Licenses necessary
to conduct such activities at the time so conducted.

(iv) Each of the Company and the Subsidiaries is
approved and qualified and in good standing under all applicable federal, state
and local laws and regulations thereunder as a mortgage lender, eligible to
originate, purchase, hold, sell and service mortgage loans (to the extent
necessary to carry on the Mortgage Business).

(b) Mortgage Loans. The Disclosure Schedule lists as of the
most recent date practicable prior to the date of this Agreement and the
Closing Date each closed mortgage loan

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<PAGE> 36
that constitutes part of the Acquired Assets (each a "Mortgage Loan"),
describing (in the form of a typical mortgage loan schedule) for each such
Mortgage Loan the borrower, original principal balance, funding date and
collateral location. Except as set forth on the Disclosure Schedule, all (A)
Mortgage Loans, (B) other mortgage loans for which any Subsidiary may be
subject to recourse under any whole loan sale, securitization, pooling and
servicing agreement, servicing agreement or other agreement, (C) mortgage loans
sold into securitizations wherein any Subsidiary has made representations and
warranties on which any Subsidiary has any continuing contingent liability and
(D) mortgage loans underlying the Acquired Assets consisting of the 1996 QB and
QJ subordinate residual certificates, the S1994-13 Class I, II and III
certificates and the S1994-16 Class I, II and III certificates (the items
described in (A) through (D) are referred to collectively herein as the
"Recourse Mortgage Loans") are (i) evidenced by a promissory note or notes, or
other evidence of indebtedness, with respect to such Mortgage Loan (a "Note"),
properly payable or endorsed to the Company or a Subsidiary or an assignee of
the Company or a Subsidiary (as applicable), secured by a mortgage, deed of
trust or other security instrument creating a lien on real property and any
other property described therein which secures such Note, together with any
assignment, reinstatement, extension, endorsement or modification thereof (a
"Mortgage") properly assigned to the Company or a Subsidiary or an assignee of
the Company or a Subsidiary (as applicable), (ii) duly secured by a Mortgage
in full force and effect, with customary terms in accordance with industry
practice, which grants the holder thereof a first priority lien or junior lien
on the subject property (including any improvements thereon), each such
Mortgage constituting a security interest that has been duly perfected and
maintained (or is in the process of perfection in due course) as a first lien
subject only to taxes and assessments not yet delinquent and to such other
matters as are evidenced by a lender's title insurance policy, (iii)
accompanied by a hazard insurance policy (and a flood insurance policy and
certification where required under the terms of the National Flood Insurance
Act of 1968 and the Flood Disaster Protection Act of 1973, each as amended)
covering improvements on the premises subject to such Mortgage, with a loss
payee clause in favor of the Company or a Subsidiary or an assignee of the
Company or a Subsidiary, such insurance policy covering such risks as are
customarily insured against in accordance with industry practice, and (iv)
evidenced by such other files and documents as are customary in industry
practice. Prior to the Closing Date, the Disclosure Schedule will be updated
to disclose (as of a date not more than 3 days prior to the Closing Date) for
each Mortgage Loan that constitutes part of the Acquired Assets (x) the
then-outstanding principal balance and (y) the payment status of each such
Mortgage Loan.

(c) Enforceability. All Recourse Mortgage Loans are valid and
legally binding obligations of the borrowers thereunder, have been duly
executed by a borrower of legal capacity, are enforceable in accordance with
their terms (except as enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding in equity or at law), (ii) state laws
requiring creditors to proceed against the collateral before pursuing the
borrower and (iii) state laws on deficiencies), and conform to all applicable
federal, state and local laws, rules and regulations with respect to the
origination,

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insuring, purchase, sale, pooling, servicing, subservicing, master servicing or
filing of claims in connection with a mortgage loan (collectively, the
"Regulations"). Neither the operation of any of the terms of any mortgage
loan, including without limitation mortgage loans that constitute part of the
Acquired Assets, nor the exercise of any right thereunder, has rendered or will
render the related Mortgage or Note unenforceable, in whole or in part, or
subject it to any right of rescission, setoff, counterclaim or defense, and no
such right of rescission, setoff, counterclaim or defense has been asserted
with respect thereto. The file or files containing the photostatic copy or
copies on other media, and to the extent required by the Regulations, original
documents of the Mortgage, the Note and other loan documents with respect to
each such mortgage loan, as well as the related credit and closing packages,
disclosures, custodial documents, and all other files, books, records, and
documents reasonably necessary or customary in accordance with industry
practice for the sale and servicing of such mortgage loan (the "Loan
Documents"), including without limitation mortgage loans that constitute a part
of the Acquired Assets are in compliance in all material respects with
applicable Regulations and are complete in all material respects.

(d) Title to Certain Mortgage Loans; Mortgage Loan Conveyance
Agreements. Except as set forth on the Disclosure Schedule, all Mortgage Loans
are owned by the Company or such Subsidiary, as the case may be, free and clear
of all Liens (other than a Lien in favor of DLJ, which shall be released at or
prior to Closing upon repayment by Buyer of the amounts owed to DLJ by the
Company on such Mortgage Loans). Such Mortgage Loans have been duly recorded
or submitted for recordation in due course in the appropriate filing office in
the name of the Company or such Subsidiary as mortgagee. Neither the Company
nor any Subsidiary has, with respect to any such Mortgage Loan, released any
security therefor, except upon receipt of reasonable consideration for such
release, or accepted prepayment of any such Mortgage Loan which has not been
promptly applied to such Mortgage Loan. The Disclosure Schedule lists all
agreements, contracts and other documents or instruments to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
to sell or convey any of the mortgage loans currently held by the Company or
any Subsidiary to any party or reacquire any mortgage loans under any
repurchase agreement, reverse repurchase agreement or similar agreement. Each
such agreement listed on the Disclosure Schedule shall be terminated prior to
the Closing without penalty, liability or other obligation of the Subsidiaries,
except for any agreements providing for the sale of Mortgage Loans to Buyer.

(e) No Recourse. No Subsidiary has any obligation to
repurchase, reimburse, indemnify or hold harmless any person based solely on
the default under or the foreclosure or sale of the collateral for, any
mortgage loan at any time originated, held, owned, sold, transferred or
otherwise conveyed by the Company or any Subsidiary, without regard to a breach
or default of any contractual representation, warranty, undertaking,
misfeasance or malfeasance by the Company or such Subsidiary, as the case may
be. The Disclosure Schedule describes each contract containing any
representation, warranty or undertaking by the Company or any

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Subsidiary that could obligate any Subsidiary to repurchase, reimburse,
indemnify or hold harmless any person in respect of any such mortgage loan.

(f) Compliance with Mortgage Banking Regulations. With
respect to each Recourse Mortgage Loan, the Company and each subsidiary and
each prior and current originator of any such loan, has been and is in
compliance in all material respects with all Regulations, orders, writs,
decrees, injunctions and other requirements of any court or governmental
authorities applicable to any of them, including without limitation any
applicable local, state or federal law or ordinance, and any regulations or
orders issued thereunder, governing or pertaining to fair housing or unlawful
discrimination in residential lending (including without limitation
anti-redlining, equal credit opportunity, and fair credit reporting),
truth-in-lending (including without limitation specific regulations relating to
Section 32 Loans), real estate settlement procedures, adjustable rate
mortgages, adjustable rate mortgage disclosures or consumer credit (including
without limitation the federal Consumer Credit Protection Act, the federal
Truth-in-lending Act and Regulation Z thereunder, the federal Real Estate
Settlement Procedures Act of 1974 and Regulation X thereunder, and the federal
Equal Credit Opportunity Act and Regulation B thereunder, all applicable usury
and interest limitations laws and all similar state laws (collectively,
"Consumer Credit Laws"). Without limiting the generality of the foregoing, the
Company and the Subsidiaries and each prior and current servicer and originator
of the Recourse Mortgage Loans, including without limitation mortgage loans
that constitute part of the Acquired Assets, has been and is in compliance in
all respects with all servicer and other requirements of HUD, FHA, VA and FNMA
which are applicable to it. No broker or correspondent involved in the
origination of Recourse Mortgage Loans, including without limitation mortgage
loans that constitute part of the Acquired Assets, has violated in any material
respect any Consumer Credit Laws, including without limitation servicer and
other applicable requirements of HUD, FHA, VA and FNMA.

No broker or correspondent involved in the origination of Mortgage Loans
has failed to remain in good standing with the Company and the Subsidiaries,
has failed to obtain all Licenses necessary to conduct the activities conducted
by such broker or correspondent in connection therewith or is subject to any
claim or administrative proceeding filed against such broker or correspondent
based upon the business activities conducted by such broker or correspondent in
connection therewith.

(g) Physical Damage. Except as set forth on the Disclosure
Schedule, to the Company's knowledge there exists no physical damage to the
collateral securing the Mortgage Loans, whether from fire, flood, windstorm,
earthquake, tornado, hurricane or any other similar casualty, which physical
damage is not substantially covered by effective insurance and which physical
damage would or would reasonably be expected to cause any such Mortgage Loan to
become delinquent or adversely affect the value or marketability of any such
Mortgage Loan or the collateral securing such Mortgage Loan.

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(h) Tax Identification. All tax identifications for the
individual mortgagor under a Mortgage Loan (or evidence that reasonable
attempts have been made to obtain such in accordance with applicable
regulations) are contained in the Loan Documents relating to each such Mortgage
Loan. All of such tax identifications are correct and complete in all material
respects, and property descriptions contained in any loan documents are legally
sufficient.

(i) ARMs and Conversion Loans. If the Loan Documents relating
to any Mortgage Loan grant the related mortgagor the right to convert the
Mortgage Loan to a fixed rate Mortgage Loan and the related mortgagor
previously has exercised such right, or if such Loan Documents provide that the
interest rate or installment or payment amount of the Note may be adjusted
prospectively, then: (i) all of the terms of the Loan Documents may be enforced
by the holder thereof, its successors and assigns, subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity
(whether applied in a proceeding in equity or at law), (ii) any such
adjustments will not, or did not, affect the priority of the lien of the
related Mortgage or Note and (iii) all adjustments have been made (and the
resulting interest rates and payment amounts are correct), and the respective
mortgagors advised thereof, in accordance with the applicable regulations. No
mortgagor has made or overtly threatened to make, any claim or complaint that
any adjustment was inappropriately made or inappropriately omitted. All
adjustments were properly disclosed under, and are enforceable under, the
Regulations.

(j) Mortgage Servicing. The Disclosure Schedule lists all
mortgage loan servicing agreements and pooling and servicing agreements to
which any Subsidiary is a party (the "Mortgage Servicing Agreements"). The
Mortgage Servicing Agreements and the Regulations set forth all the terms and
conditions of each Subsidiary's rights against and obligations to the other
parties to such Mortgage Servicing Agreements with respect to mortgage loans,
and there are no written or oral agreements that modify or amend any such
Mortgage Servicing Agreement. All of the Mortgage Servicing Agreements are
valid and binding contracts of the applicable Subsidiary, are in full force and
effect, and are enforceable in accordance with their terms, except as
enforcement thereof may be limited by general principles of equity (whether
applied in a court of law or a court of equity) and by bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. There is no default or breach under, or dispute regarding
the material terms of, or claim of default or breach by any party under, any
Mortgage Servicing Agreement, and no event has occurred which with the passage
of time or the giving of notice of both would constitute a default or breach by
any party under any such Mortgage Servicing Agreement or would permit
termination, modification or acceleration of any such Mortgage Servicing
Agreement. There is no pending or overtly threatened cancellation of any
Mortgage Servicing Agreement, and the Company has not received indication that
any party intends to terminate or is considering terminating its servicing
relationship with any Subsidiary. No sanctions or penalties have been imposed
on any Subsidiary under any Mortgage Servicing Agreement or any Regulation.

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Each Subsidiary that services mortgage loans has full authority to
maintain Custodial Accounts for all of the mortgage loans, as required by
applicable law, and has established Custodial Accounts for all Escrow Funds
relating to any servicing rights. Such Custodial Accounts comply in all
respects with all laws and regulations and any terms of the mortgage loans.
Except as set forth on the Disclosure Schedule, there are no pooling,
participation, servicing or other agreements to which any Subsidiary is a party
which obligate it to make servicing advances with respect to defaulted or
delinquent mortgage loans. The Disclosure Schedule contains a true and correct
list of all of the audits and investigations of any Subsidiary by any agency,
investor or insurer commenced since October 1, 1992, the results of which
audits and investigations claimed a failure to comply with applicable laws,
regulations, guidelines or other standards.

"Custodial Accounts" shall mean all escrow, impound, suspense (loan
level and other) and custodial accounts maintained with respect to the mortgage
loans for purposes of receiving and disbursing payments of principal, interest,
taxes, insurance, assessments and similar charges (and interest, if any,
accrued on such funds for the benefit of mortgagors) relating to mortgage
loans.

"Escrow Funds" shall mean all amounts held in Custodial Accounts, with
respect to mortgage loans held for the purpose of paying property taxes, hazard
insurance premiums, assessments and other such items as provided in the
Mortgage and applicable laws and regulations.

(k) Subordinated and Residual Securitization Certificates.
All interests in securitized transactions that constitute part of the Acquired
Assets are owned by the Company or the Subsidiaries and are listed in the
Disclosure Schedule. The values reflected in the Company Financial Statements
and the Express Financial Statements for the subordinated and residual
securitization certificates that have been retained by the Company or any of
its Subsidiaries have been properly calculated in accordance with GAAP and
standard industry practices. The Company is the sole owner of the certificates
and is in possession of the originals thereof. No Lien exists against such
interests, except as set forth in the Disclosure Schedule.

(l) Insurance Operations. Each Subsidiary has all approvals,
certifications, authorizations, licenses, permits, governmental licenses,
exemptions, classifications and registrations (the "Insurance Approvals"),
necessary to conduct the business of insurance and insurance brokering, to the
extent such business has been or is being conducted by any Subsidiary. The
Disclosure Schedule lists every Insurance Approval that is in effect, has been
applied for or is pending and identifies those Insurance Approvals and
applications for Insurance Approvals that will be impaired as a result of
Buyer's purchase of the Acquired Assets (including the capital stock of the
Subsidiaries) and describes any action required to be taken to ensure that such
Insurance Approvals will be enforceable by Buyer or the Subsidiaries after the
Closing. Sellers have delivered to Buyer the originals, or if the originals
are not available, then true and complete copies of, all of the Insurance
Approvals. All Insurance Approvals are in full force and

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effect. No event has occurred that may constitute or result in a violation of
an Insurance Approval, or result in the revocation, suspension, modification or
nonrenewal of any Insurance Approval. No Seller or Subsidiary has received any
notice of any actual, alleged or potential violation, revocation, suspension,
modification or nonrenewal of any Insurance Approval. Each of the Company and
the Subsidiaries has complied with all Insurance Approvals, and the Company has
not received notice of any overtly threatened suspension, cancellation or
invalidation of, or penalties (including fines or refunds) under any Insurance
Approval.

(m) Insurance. Each Subsidiary (or the Company on behalf of
each Subsidiary) maintains insurance with financially sound and reputable
insurers on its assets, and upon its business and operations, against loss or
damage, risks, hazards and liabilities of the kinds customarily insured against
by corporations similarly situated and engaged in the same or similar
businesses in adequate amounts under valid and enforceable policies ("the
Policies"). The premiums due and owing with respect to the Policies have been
paid, premiums not yet due have been adequately accrued for, and no Seller or
Subsidiary has received any notice of cancellation or of intention not to renew
any such Policy. The Disclosure Schedule contains a list of the Policies,
copies of which have been provided to Buyer, and lists their term and premium,
and a brief description of each, as well as a description of each claim
currently pending under any such Policy or any Prior Policy (defined below).
The Disclosure Schedule sets forth a description of each other insurance policy
or insurance contract relating to the Company, the Subsidiaries and their
respective businesses, whether issued in the name of the Company or any
Subsidiary, pursuant to which any Subsidiary is or may hereafter be entitled to
assert claims for insurance coverage (the "Prior Policies"). The Company and
each Subsidiary has timely pursued all rights to recover under the Policies and
the Prior Policies; provided, however, the representation and warranty set
forth in this sentence shall not be deemed to be breached unless a Subsidiary
suffers any Loss in excess of $100,000 after the Closing and, because the
Sellers failed to timely preserve rights under such Policies or Prior Policies,
Buyer or the Subsidiary is unable to recover insurance under such Policies or
Prior Policies.

(n) Employees The Company and the Subsidiaries are not
subject to any collective bargaining agreement. No union representation
question exists and, to the best of the Company's knowledge, there has been no
union organization effort since October 1, 1994, respecting the employees of
the Company or any Subsidiary.

Except as set forth on the Disclosure Schedule, the employment of each
of the Subsidiaries' employees is terminable at will without cost to any
Subsidiary or severance obligations except for payment of accrued salaries or
wages and vacation pay. No employee of the Company or any Subsidiary is a
party with the Company or any Seller to any non-competition agreement or
similar agreement. No employee or former employee has any right to be rehired
by any Subsidiary prior to the hiring of a person not previously employed by
such Subsidiary.

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(o) Worker's Compensation. The Subsidiaries subscribe to, or
are otherwise insured under, the worker's compensation or similar statute in
each state in which any Subsidiary has any employees. The Disclosure Schedule
describes all claims filed by employees of any Subsidiary in respect of
employment-related injury or illness since October 1, 1994. Neither the
Company nor any Subsidiary has received any report or notice from the
Occupational Safety and Health Administration.

(p) ERISA. No Subsidiary is or has been a party to,
participant in or contributed to any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
except that employees of Subsidiaries may participate in the Quality Mortgage
USA, Inc. 401(K) Plan (the "401K Plan") on the terms specified therein.

(q) Affiliated Transactions. The Disclosure Schedule sets
forth a summary of (x) all transactions or series of transactions to which any
Subsidiary is party involving the payment or receipt of in excess of $10,000 in
value that are pending and (y) all assets or properties of the Company or any
Subsidiary, and in which, in either case, any Seller, Associate or Affiliate
(as such terms are defined in Rule 405 promulgated pursuant to the Securities
Act of 1933 (the "Securities Act")) has a financial interest, excluding the
Company's ownership of the stock of the Subsidiaries. Except as set forth on
the Disclosure Schedule, the Jedinaks do not, directly or indirectly, own any
interest in any entity that is a competitor, customer or supplier of, or has
any existing contractual relationship with, any Subsidiary.

(r) Legal Requirements.

(i) Compliance with Laws. Neither any Seller nor any
Subsidiary has violated any term of any judgment, writ, decree, order, law,
statute, rule or regulation to which he or it is subject or a party and which
pertains to the Mortgage Business, or by which any of the Acquired Assets
(including without limitation the Subsidiaries) are bound or affected
(collectively, "Legal Requirements"). No event has occurred that may
constitute or result in a violation of a Legal Requirement. No Seller or
Subsidiary has received notice of any actual, alleged or potential violation of
a Legal Requirement.

(ii) Certain Acts. Neither any Subsidiary nor any of
their former or current officers, directors, employees, agents or
representatives has made or agreed to make, directly or indirectly, with
respect to the businesses or assets of any Subsidiary and the Subsidiaries, any
(i) bribes or kickbacks, illegal political contributions, payments from
corporate funds not recorded on the books and records of the Company and the
Subsidiaries, or funds to governmental officials (or any such official's family
members or Affiliates) for the purpose of affecting their action or the action
of the government they represent, to obtain favorable treatment in securing
business or licenses or to obtain special concessions, or illegal payments from
corporate funds to obtain or retain business or (ii) payments from corporate
funds to

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governmental officials for the purpose of affecting their action or the action
of the government they represent, to obtain favorable treatment in securing
business or licenses or to obtain special concessions.

(iii) Bulk Sales This Agreement and the Related
Agreements and the transactions contemplated hereby and thereby are exempt from
Section 6101 et seq. (Bulk Sales) of the California Commercial Code.

(s) Environmental Matters.

(i) Compliance. The Company (in respect of the Irvine
Properties only) and each Subsidiary is in compliance with all applicable
Environmental Laws (defined below) and neither the Company nor any Subsidiary
has received any communication (written or oral), from any person that alleges
that the Company or any Subsidiary is not in compliance with applicable
Environmental Laws. As used herein, "Environmental Laws" mean all laws or
orders relating to the regulation or protection of human health, safety or the
environment (including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata), including, without
limitation, laws and regulations relating to releases or overtly threatened
releases of hazardous materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
recycling or handling of hazardous materials.

(ii) Environmental Claims. There is no Environmental
Claim (defined below) pending or overtly threatened or likely to be overtly
threatened (i) against the Company (in respect of the Irvine Properties only)
or any Subsidiary, (ii) against any person or entity whose liability for any
Environmental Claim the Company (in respect of the Irvine Properties only) or
any Subsidiary has or may have retained or assumed either contractually or by
operation of law, or (iii) against any real or personal property or operations
which are now or have been previously owned, leased, operated or managed, in
whole or in part, by the Company (in respect of the Irvine Properties only) or
any Subsidiary.

As used herein, "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, Liens, investigations, proceedings or notices of compliance
or violation (written or oral) by any person or entity (including any
governmental authority) alleging potential liability (including, without
limitation, potential liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or release or overtly
threatened release into the environment, of any hazardous material at any
location, whether owned, operated, leased or managed by the Seller with respect
to the business of the Company or any Subsidiary; or (b) circumstances
reasonably forming the basis of any violation, or alleged violation, of any
Environmental Law; or (c) any and all claims by any third

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party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or release of any
hazardous materials.

6.6 Other.

(a) Documents Delivered. The Corporate Records contain
records of all meetings held of, and corporate action taken by, the respective
boards of directors and stockholders of each Subsidiary, and any committee or
representative thereof and such records are accurate and complete in all
material respects. No meeting has been held and no action has been taken, by
any such board of directors or equity security holders for which accurate and
complete records have not been prepared and included in the Corporate Records.
At the Closing, all of the Corporate Records will be in the possession of the
Subsidiaries. The minute books and stock transfer records of the Company that
have been made available to Buyer and its agents are complete and correct in
all material respects.

(b) No Brokers Fees; No Commissions. All negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by Sellers directly with Buyer without any act by Sellers that would
give rise to any claim against Buyer, the Subsidiaries or any of their
Affiliates for a brokerage commission, finder's fee or other similar payment.

(c) Full Disclosure. Neither this Agreement nor any Related
Agreement, Exhibit or Disclosure Schedule delivered herewith contains any
untrue statement made by any Seller of a fact.

6.7 DLJ Stockholders' Knowledge. To the DLJ Stockholders' actual
knowledge, the representations and warranties made by the Company in this
Agreement are true and correct in all material respects, as supplemented by the
Disclosure Schedule. The DLJ Stockholders are not required to make any filing
under the HSR Act.

6.8 Calmac's and the Jedinaks' Knowledge. To Calmac's and the
Jedinaks' actual knowledge, the representations and warranties made by the
Company in this Agreement are true and correct in all material respects, as
supplemented by the Disclosure Schedule.

The phrase "in all material respects" as used in Sections 6.6(a), 6.7
and 6.8 shall be disregarded for all purposes under any other applicable
provision of this Agreement that includes a materiality modifier or its
equivalent.

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ARTICLE 7.

Representations and Warranties of Buyer

Buyer represents and warrants to Sellers as follows:

7.1 Entry Into Agreements.

(a) Organization and Good Standing. Buyer is a corporation
duly organized and validly existing under the laws of the State of Delaware and
is in good standing under such laws.

(b) Corporate Power and Authority; Validity and Authorization.
Buyer has full corporate power and authority to execute, deliver and perform
this Agreement and the Related Agreements. This Agreement has been duly
authorized, executed and delivered by Buyer. This Agreement constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.

When the Related Agreements to which Buyer is a party are delivered at
the Closing, such agreements will have been duly authorized, executed and
delivered by Buyer, and will constitute the legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their terms.

7.2 Conflicts and Consents.

(a) No Conflict. The execution, delivery and performance of
this Agreement and the Related Agreements, and the consummation of the
transactions contemplated hereby and thereby will not result in any violation
of the terms of and will not contravene, conflict with, accelerate the
performance of the obligations required under, or constitute a default under,
the Certificate of Incorporation or Bylaws of Buyer, or any agreement,
judgment, decree, order, law, rule or regulation or other restriction
applicable to it, or to which it is a party or by which Buyer or its property
or assets is bound, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of Buyer.

(b) Buyer Consents Obtained. Other than the approval referred
to in Section 3.1(a) (HSR Act) and except for the Permits, no consents,
approvals or authorizations of third parties are required in connection with
Buyer's valid execution, delivery, or performance hereof and the Related
Agreements or the consummation of any of the transactions contemplated hereby
or thereby on the part of it (collectively, the "Buyer Consents"), and has
taken all other action necessary for the consummation by Buyer of the
transactions contemplated by this Agreement or the Related Agreements.

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7.3 No Brokers Fees; No commissions. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried on by
Buyer directly with the Sellers without any act by Buyer that would give rise
to any claim against the Sellers or their Affiliates for a brokerage
commission, finder's fee or other similar payment.

7.4 HSR Act. Buyer has made all filings required under the HSR Act,
has fully complied with the provisions of the HSR Act and the rules and
regulations promulgated thereunder, and has fully complied with all requests
for information from the Federal Trade Commission and the Department of
Justice. The information contained in Buyer's filings under the HSR Act is
accurate and complete and such filings do not include any incorrect statements
or omit to include any information necessary to make the statements therein not
misleading. The copies of Buyer's filings under the HSR Act that have been
provided to Seller are true and complete copies of such filings.

ARTICLE 8.

Covenants of Sellers

From the execution hereof until the Closing, the Stockholders jointly
and severally, and until the Closing occurs the Company and Express jointly and
severally with the Stockholders, covenant and agree as follows:

8.1 Conduct of Businesses of the Company and the Subsidiaries Pending
Closing. Unless otherwise expressly contemplated by this Agreement or approved
in writing by Buyer, the businesses and operations of the Company and the
Subsidiaries shall be conducted only in, and the Company and the Subsidiaries
shall not take any action except in, the ordinary course of business and
consistent with past practices, including the payment, in accordance with past
payment practices, of all accounts payable of the Company or any of its
Subsidiaries. Without limitation, neither the Company nor the Subsidiaries
shall (i) dispose of any assets, including without limitation mortgage loans,
other than sales of mortgage loans at auction to parties other than any Seller
or any Affiliate of any Seller in the ordinary course of business and
consistent with past practices, (ii) incur or become subject to any debt,
liability (including repurchase obligations) or lease obligation, other than
current liabilities incurred in the ordinary course of business (other than
such liabilities to DLJ) that do not exceed $25,000 individually, or $500,000
in the aggregate, (iii) pay any bonuses to or alter the compensation or benefit
of any director, officer, employee, person or entity (other than bonuses to the
Company's employees (but not Calmac, the Jedinaks or any Affiliate of Calmac or
the Jedinaks) for the quarter ended September 30, 1996 that do not exceed 5% of
the quarterly payroll on an aggregate basis and that otherwise are in the
ordinary course of business and consistent with past practices), (iv) declare
any dividend or other distribution on the capital stock of the Company or any
Subsidiary, (v) enter into any transaction or agreement with any Affiliate or
associate of the Company or any Subsidiary, (vi) institute any planned
reduction in force, (vii) pay any federal or state income

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taxes in respect of the approximately $3.0 million phantom income tax liability
relating to the REMICs, (viii) close any branch office of the Company or any
Subsidiary, (ix) take any action that will cause any of the Company's
representations or warranties to be untrue or incorrect, or (x) omit any action
that the Company or any Subsidiary would take in the ordinary course of
business, which omission will cause the Company's representations or warranties
to be untrue or incorrect.

8.2 Access to Information and Employees. Sellers shall permit, upon
reasonable notice during normal business hours, Buyer and its Representatives
(defined below) to visit and inspect any of the properties of the Company or
the Subsidiaries, including books and records, and to discuss the affairs,
finances and accounts of the Company and the Subsidiaries and the Buyer's
prospects, plans and intentions with Company's and Subsidiary's officers,
employees, brokers and independent public accountants, as often as any such
person may deem necessary or desirable and reasonably request.

In this Agreement, "Representatives" means, collectively, a
party's directors, officers, employees, stockholders, partners, financial
parties in interest, agents, advisors, attorneys, accountants, consultants,
Affiliates, financing sources and representatives of any such source,
representatives, and any person or entity being considered for any such role.

8.3 No Solicitation. Sellers shall not, directly or indirectly,
through any Representatives or otherwise, solicit, accept, or entertain offers
from, negotiate with or in any manner encourage, accept or consider any
proposal of, or enter into any agreement with any person other than Buyer
relating to the acquisition of the Company or any Subsidiary or any stock,
business or substantial asset of the Company or any Subsidiary, whether through
purchase, merger, consolidation or other business combination. If any Seller
receives any contact, inquiry or proposal regarding the foregoing, then such
Seller shall notify the party making such proposal that the Sellers are
contractually prohibited from engaging in such discussions.

8.4 Financial Statements. The Company shall deliver to Buyer not
later than the 15th business day of each succeeding month, financial statements
of the Company and of Express of the kind described in Section 6.2 (Financial
Information) for the month ended September 30, 1996 and each subsequent month
before the Closing.

8.5 Express Acquisition. Sellers shall cause the Company to exercise
its rights under the Express Option.

8.6 Maintain Organization. Sellers shall cause the Company to take
such action as may be necessary to maintain, preserve, renew and keep in favor
and effect the existence, rights and franchises of the Mortgage Business and
will use its best efforts to maintain, preserve and renew the Mortgage Business
and the Acquired Assets (including without limitation the Subsidiaries) intact,
and to preserve, protect and maintain for Buyer the good will of the

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employees and brokers of the Mortgage Business, to keep available to Buyer the
present officers, employees and brokers of the Mortgage Business, and to
preserve for Buyer the present relationships with payors, suppliers, referral
sources, customers and clients of the Mortgage Business and others having
business relationships with the Mortgage Business. Sellers will consult with
Buyer on strategies for maintaining and preserving the Mortgage Business and
effecting an orderly transition to Buyer's ownership of the Mortgage Business
and the Acquired Assets.

8.7 401k Plan Termination. The Company shall terminate the 401k Plan
in accordance with applicable law.

8.8 Cancellation of Jamboree Lease. The Company shall effect the
termination of its lease in respect of the Jamboree Boulevard Property and the
return to the Company of the deposit in the amount of $40,000 held by the
landlord in respect of said lease on the Jamboree Boulevard property.

8.9 Assist in Obtaining Licenses, Etc. Sellers shall reasonably
assist Buyer in obtaining all Permits necessary for Buyer to operate the
Mortgage Business and, in lieu of obtaining any or all of said Permits, Sellers
shall reasonably assist Buyer in entering into satisfactory subcontracting or
loan purchase arrangements with the Company under the Company's existing
Permits, as determined by Buyer, on terms reasonably satisfactory to the
parties thereto.

8.10 Sellers' Consents. Sellers shall use commercially reasonable
efforts to obtain the Sellers' Consents.

8.11 Buyer Registration Statement. The Stockholders and the Jedinaks
shall reasonably cooperate, and shall cause their respective Representatives
(defined below) to cooperate, with Buyer and Buyerparent in connection with
Buyerparent's preparation and filing of a Registration Statement on Form S-3
and the consummation of a public offering of common stock of AMRESCO, INC.
("Buyerparent") pursuant to such Registration Statement.

ARTICLE 9.

Post-Closing Agreements

After the Closing, the respective Sellers (as indicated below) on the
one hand, and Buyer on the other, covenant and agree as follows:

9.1 Further Actions. The Sellers each shall execute and deliver at
their own expense, such further instruments of transfer and conveyance,
documents and certificates as may be reasonably requested by Buyer in order to
more effectively convey and transfer to Buyer the

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Acquired Assets, to aid and assist in reducing to possession or exercising
rights with respect to the Acquired Assets, or to consummate any of the
transactions contemplated by this Agreement.

Sellers shall as promptly as practical, but in no event later than three
business days after receipt deliver to Buyer any cash, checks, mail, packages,
notices and other similar communications they receive (in their respective
roles as Stockholders, directors, officers, employees or agents of the Company
or any Subsidiary) that relate to the Mortgage Business (other than the
Retained Assets) or constitute Acquired Assets. Each Seller shall endorse in
favor of Buyer any checks or other instruments of payment that by their terms
are payable to such Seller but that relate to the Mortgage Business (other than
the Retained Assets) or constitute Acquired Assets. Sellers shall immediately
forward to Buyer any telephone calls and any telecopy, telegraph or other
communications received by them in respect of the Mortgage Business (other than
the Retained Assets).

Buyer shall as promptly as practical, but in no event later than three
business days after receipt deliver to the Company any cash, checks, mail,
packages, notices and other similar communications Buyer receives that relate
to the Retained Assets. Buyer shall endorse in favor of the Company any checks
or other instruments of payment that relate to the Retained Assets. Buyer shall
immediately forward to the Company any telephone calls and any telecopy,
telegraph or other communications received by Buyer in respect of the Retained
Assets.

9.2 Cooperation. Sellers shall use their commercially reasonable
efforts to aid Buyer in establishing itself as the new owner and operator of
the Mortgage Business and, in connection therewith, shall use their best
efforts to maintain the goodwill and reputation of the Mortgage Business with
all suppliers, customers, distributors, creditors and others having business
relations with the Company and the Subsidiaries and in the business community
generally. Sellers shall reasonably cooperate, and shall cause their
respective Representatives to reasonably cooperate, with Buyer and Buyerparent
in connection with Buyerparent's preparation and filing of a Registration
Statement on Form S-3 and the consummation of a public offering of common stock
of Buyerparent pursuant to such Registration Statement. Buyer shall reasonably
cooperate, and shall cause its respective Representatives to reasonably
cooperate, with Sellers in connection with any action, arbitration, audit,
hearing, investigation, litigation or suit (whether civil, criminal,
administrative, investigative or informal) arising after the Closing relating
to the business or operations of the Mortgage Business prior to the Closing,
including the business or operations of the Subsidiaries prior to the Closing.

9.3 Inspection of Records. The Company and Subsidiaries shall each
retain and make their respective books and records (including work papers in
the possession of their respective accountants) available for inspection and
copying by the other parties and their representatives, for reasonable business
purposes at all reasonable times during normal business hours, for a seven-year
period after the Closing Date, with respect to all transactions of the Company
and the Subsidiaries occurring prior to and those relating to the Closing, and
the historical financial

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condition, assets, liabilities, operations and cash flows of the Company and
the Subsidiaries for such periods. Buyer shall provide the Company's
Representatives reasonable access to books and records concerning the Company,
the Mortgage Business and the Acquired Assets in connection with the audit of
the Company's financial statements for periods prior to Closing and for other
reasonable purposes.

9.4 Agent for Service of Process. Until December 31, 2003, Calmac
and the Jedinaks shall maintain in full force and effect their respective
appointment of CT Corporation as their respective agent for service of process
in Reno, Nevada.

9.5 Use of Names. Sellers shall not use the names "Quality Mortgage
USA, Inc.," "Express Funding, Inc.,""Save-More Insurance Services, Inc.,"
"Commonwealth Trust Deed Services, Inc.," "Quality Funding, Inc.," and "Quality
Mortgage Acceptance Corp." (collectively, the "Names"), any name using the term
"Quality," any similar names or any other name ever used by the Company or any
Subsidiary in the conduct of the Mortgage Business or related activities of the
Company and the Subsidiaries. Sellers shall cooperate with Buyer in enabling
Buyer to utilize the Names.

9.6 Employees. The Company shall terminate its employees as of the
Closing Date. Buyer may, but shall not be obligated to, make offers of
employment to any of the employees of the Company as of the Closing Date.
Buyer and the Company shall coordinate the timing of the Company's notices of
termination and the Buyer's offers of employment to minimize the disruptive
effect thereof on the employees.

(a) With respect to any employees of the Company who accept
Buyer's offer of employment, Buyer shall hire such employees at their
then-current rate of compensation and shall assume and be responsible for all
costs and liabilities (including without limitation accrued but unused vacation
time, paid time off and severance pay) associated with such employees. For all
such employees who accept Buyer's offer of employment, such employment shall
commence as of the Closing Date and shall be deemed for all purposes to have
occurred with no interruption, break in service of termination of employment.

(b) With respect to any employees of the Company not employed
by Buyer as of the Closing Date, Buyer shall assume and be responsible for the
cost of all accrued but unused vacation time, paid time off and severance pay
associated with the termination of the employees by the Company, including
severance payments, if any, arising out of Sellers' failure to give notice
under the WARN Act (defined below).

(c) Buyer shall assume and be responsible for all liabilities
in connection with claims incurred under (i) the Company's Metrahealth health
benefits plan and the Company's dental and life insurance coverage plans for
employees, each as currently in effect or (ii) any Subsidiary's employee
welfare benefit plans (as defined in Section 3(1) of ERISA) to the extent

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any of such Subsidiaries' employee welfare benefit plans are continued after
the Closing Date by Buyer.

(d) Buyer and Sellers shall perform their respective
undertakings with respect to retention and severance payments as set forth in
the respective letter agreements with certain managers of the Company, which
letter agreements shall be in a form mutually satisfactory to Calmac, Buyer and
DLJ.

(e) The Company shall comply with all notice and other
requirements under the Workers Adjustment and Retraining Notification Act (the
"WARN Act").

9.7 Mortgage Loan Reporting. Buyer will use commercially reasonable
efforts to prepare and submit for all periods beginning on or after January 1,
1996 (a) Form 1098s, Form 1099s, Form W-2s and personal property tax reports
and (ii) all reports required pursuant to the Home Mortgage Disclosure Act. At
Buyer's request, the Company will reasonably cooperate with Buyer to assist
Buyer in preparing such forms and reports. Such reasonable cooperation may
include making the records identified as Retained Assets available to Buyer in
Orange County, California. Buyer will reasonably assist Sellers in completing
the financial statements and reports required to be filed with HUD.

9.8 Maintain Insurance. The Company shall reasonably cooperate with
Buyer to maintain the Company's existing health, dental and life insurance
coverage for employees in place through December 31, 1996 at Buyer's expense.

9.9 Non-Solicitation by Buyer. Buyer and its Affiliates shall not
solicit borrowers to refinance loans previously sold or securitized by the
Company; provided, however, that the limitation set forth in this Section shall
not apply to (a) solicitations that are directed to the general public at large
(including without limitation mass mailings based on commercially acquired
mailing lists and newspaper, radio and television advertisements) or (b)
responses to unsolicited requests or inquiries made by a borrower or an agent
of a borrower.

9.10 Payment of Bonuses. In the event that the Closing shall occur
prior to November 1, 1996 and the Company shall not have previously paid the
regular quarterly bonuses to employees for the quarter ended September 30,
1996, Buyer shall pay to the employees bonuses consistent in amount with past
practice (and in no event exceeding 5% of the quarterly payroll). Calmac may
furnish to the Company a list of proposed bonuses.

9.11 DLJ Stockholders' Nonsolicitation.

(a) For a period ending on the second anniversary of the
Closing Date (such period being the "Term"), the DLJ Stockholders shall not,
directly or indirectly, either for the DLJ Stockholders or any other person,
(A) induce or attempt to induce any employee of Buyer

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or any subsidiary of the Buyer to leave the employ of Buyer or any subsidiary
of Buyer, (B) in any way interfere with the relationship between Buyer or any
subsidiary of Buyer and any employee thereof, or (C) employ, or otherwise
engage as an employee, independent contractor, or otherwise, any employee of
Buyer or any subsidiary of Buyer. Notwithstanding anything in this Agreement
to the contrary, the DLJ Stockholders shall not be prohibited from engaging in
general solicitations for employees by such means as, without limitation,
placing classified ads or other advertisements in newspapers or magazines in
general circulation or participating in job fairs, or hiring any employees of
Buyer or any subsidiary of Buyer responding to such general solicitations.

(b) The DLJ Stockholders acknowledge that (a) the businesses
of the Company and the Subsidiaries are national in scope; (b) their products
and services are marketed throughout the United States; (c) the Company and the
Subsidiaries compete with other residential mortgage origination businesses
that are or could be located in any part of the United States; (d) Buyer has
required that the DLJ Stockholders make the covenants set forth in this Section
as a condition to Buyer's acquisition of the Acquired Assets; (e) the
provisions of this Section are reasonable and necessary to protect and preserve
the Mortgage Business and the Acquired Assets of the Company and the
Subsidiaries; and (f) the Mortgage Business and the Acquired Assets would be
irreparably damaged if the DLJ Stockholders were to breach the covenants set
forth in this Section.

ARTICLE 10.

Indemnification

10.1 Survival; Etc.

(a) Contents of this Agreement. The representations,
warranties, covenants and agreements made in any Related Agreement, Exhibit or
Disclosure Schedule shall be deemed representations, warranties, covenants and
agreements made herein.

(b) No Effect on Liability. None of (i) the consummation of
the transactions contemplated by this Agreement or the Related Agreements, (ii)
the delay or omission of any party to exercise any of its rights under this
Agreement or any Related Agreement or (iii) any investigation or disclosure
that any party makes, any notice that any party gives, or any knowledge that
any party obtains as a result thereof, or otherwise, shall (A) affect the
liability of the parties to one another for Breaches (defined below) of this
Agreement or any Related Agreement or (B) prevent any party from relying on the
representations or warranties contained in this Agreement or any Related
Agreement.

As used herein, a party's "Breach" shall mean any representation or
warranty being untrue when made by such party, any breach of any of such
party's covenants or agreements or any

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other cause of action against such party arising from this Agreement, the
Related Agreements, any Exhibits hereto or thereto, the Disclosure Schedule or
the transactions contemplated in any such document.

(c) Survival. The representations and warranties of Buyer
and the Sellers made in this Agreement or any Related Agreement shall survive
the Closing and shall continue through April 30, 1998 except for the specific
representations and warranties and for the periods set forth in Section 10.1(d)
(Commencing Actions) below, which shall continue through the dates indicated
therein.

(d) Commencing Actions. If the Closing occurs, then any
action against any party to this Agreement for misrepresentations herein that
is not commenced pursuant to Section 10.7 (Dispute Resolution) on or before
April 30, 1998 shall be deemed waived, and no person shall have any remedy
against any party for any such misrepresentations; provided, however, that such
actions by Buyer or Buyerparent against the Sellers for misrepresentations (i)
in Section 6.4(b) (Tax Matters) shall be deemed waived if not commenced
pursuant to Section 10.7 (Dispute Resolution) on or prior to December 31, 2003,
and (ii) in Sections 6.4(c) (Litigation), 6.5(a) (Mortgage Banking Licenses and
Qualifications), 6.5(b) (Mortgage Loans), 6.5(c) (Enforceability), 6.5(d)
(Title to Certain Mortgage Loans; Mortgage Loan Conveyance Agreements), 6.5(e)
(No Recourse), or 6.5(f) (Compliance with Mortgage Banking Regulations) shall
be deemed waived if not commenced pursuant to Section 10.7 (Dispute Resolution)
on or before December 31, 1999.

(e) Allocation of Losses Among Sellers. Subject to the
limitations on Losses contained in Section 10.3 (Limitations on Indemnities)
herein, Calmac and the Jedinaks shall be responsible for paying (in the
aggregate) 55% of any Losses and the DLJ Stockholders shall be responsible for
paying 45% of any Losses; provided, however, that each Seller shall be 100%
responsible for any Losses that arise out of a breach of a representation or
warranty made by such Seller (other than the representations and warranties
also made by the Company) and the Sellers not making such representation or
warranty shall have no obligation with respect thereto. Without limiting the
foregoing, the Company shall be jointly and severally liable for 100% of any
Losses, subject to the limitations set forth in Section 10.3 (Limitations on
Indemnities). Any amounts paid by the Company with respect to any Losses shall
be deemed to have been paid 55% by the Jedinaks and 45% by the DLJ
Stockholders.

10.2 Indemnities.

(a) Indemnification of Buyer and Buyerparent. Subject to the
other provisions of this Article, after the Closing the Sellers shall jointly
(but not severally) defend, indemnify and hold Buyer and Buyerparent, together
with their respective directors, officers, employees, stockholders,
subsidiaries, agents, advisors, attorneys, accountants, consultants and
affiliates (collectively, the "Buyer Indemnitees"), harmless from and against,
and promptly reimburse the

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Buyer Indemnitees for, any loss, expense, damage, deficiency, liability, claim
or obligation, including investigative costs, costs of defense, settlement
costs (subject to approval as provided below) and attorneys' fees
(collectively, "Losses") that any Buyer Indemnitee incurs or to which any Buyer
Indemnitee becomes subject, which Losses arise out of or in connection with (i)
any Breach by any Seller of this Agreement or any Related Agreement, (ii) any
claim asserted by any third party that, assuming the truth thereof, would
constitute a Breach by any Seller of this Agreement or any Related Agreement,
(iii) the Proceedings, whether or not listed on the Disclosure Schedule to
Section 6.4(c) (Litigation), (iv) any violation by any Subsidiary of any
Consumer Credit Law on or prior to the Closing Date, or (v) the Retained
Liabilities (irrespective of whether the facts and circumstances giving rise to
any such Retained Liability are set forth on the Disclosure Schedule). Buyer
agrees that the indemnification provided by this Section 10.2(a) (as limited by
Section 10.3) shall be Buyer's sole and exclusive remedy for any Losses arising
out of or in connection with this Agreement and the Related Agreements.

The Sellers shall promptly pay to the Buyer Indemnitees the amount of
all Losses after the amount of any such Loss and such Seller's liability
therefor is established by (a) agreement in writing between Buyer and such
Seller, or (b) arbitration pursuant to Section 10.7 (Dispute Resolution) (any
Loss so determined is referred to herein as an "Established Loss"). If the
Sellers do not pay to the Buyer Indemnitees the amount of any Established Loss
on or before the 30th day after the determination described in item (a) or (b)
above, then on the 31st day after each determination, the amount of the
Established Loss payable by each delinquent Seller shall bear interest at a
rate of interest per annum that shall, from day to day, equal the lesser of (i)
the variable rate of interest published in the Money Rates section of the Wall
Street Journal (or the comparable section of such newspaper) as the prime rate
of interest on corporate loans at large United States money center commercial
banks plus five percent (5%) and (ii) the maximum rate allowed under applicable
law.

The parties hereto acknowledge and agree that the Sellers'
indemnification obligations under this Section are for the exclusive benefit of
Buyer and Buyerparent, enforceable only by them, and such indemnification
obligations shall not constitute rights or assets of any other person or
entity.

(b) Indemnification of the Sellers. Subject to the other
provisions of this Article and after the Closing, Buyer shall defend, indemnify
and hold the Sellers, together with their respective directors, officers,
employees, stockholders, subsidiaries, agents, advisors, attorneys,
accountants, consultants and affiliates (collectively, "Seller Indemnitees"),
harmless from and against, and promptly reimburse them for, any Losses that any
Seller Indemnitee incurs or to which any Seller Indemnitee becomes subject,
which Losses arise out of or in connection with (i) any Breach by Buyer of this
Agreement or any Related Agreement, (ii) any claim asserted by any third party
that, assuming the truth thereof, would constitute a Breach by Buyer of this
Agreement or any Related Agreement and (iii) the operation of the Mortgage
Business on or after the Closing.

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Buyer shall promptly pay to the Seller Indemnitees the aggregate amount
of all Losses after the amount of any such Loss and Buyer's liability therefor
is established by (a) agreement in writing between the Sellers and Buyer or (b)
arbitration pursuant to Section 10.7 (Dispute Resolution) (any Loss so
determined is referred to herein as an "Established Seller Loss"). If Buyer
does not pay to the Seller Indemnitees the aggregate amount of any Established
Seller Loss on or before the 30th day after the determination described in item
(a) or (b) above, then on the 31st day after such determination, the amount of
the Established Seller Loss shall bear interest at a rate of interest per annum
that shall, from day to day, equal the lesser of (i) the variable rate of
interest published in the Money Rates section of the Wall Street Journal (or
the comparable section of such newspaper) as the prime rate of interest on
corporate loans at large United States money center commercial banks plus five
percent (5%) and (ii) the maximum rate allowed under applicable law.

(c) Duty to Mitigate; Insurance. Buyer Indemnitees and Seller
Indemnitees shall use commercially reasonable efforts to mitigate Losses,
including without limitation by adjusting interest rates and terms of mortgage
loans to a commercially reasonable extent or by refinancing loans on
commercially reasonable terms under commercially appropriate circumstances.
Buyer shall use commercially reasonable efforts to recover insurance that may
be available to Buyer in request of Losses incurred by any Buyer Indemnitee;
provided, however, that Buyer shall not be required to delay recovering
indemnification hereunder by virtue of the possibility that such insurance
proceeds may be recovered. If any Seller indemnifies any Buyer Indemnitee for
any Loss that may be covered by insurance of Buyer, then upon such Seller's
reasonable request Buyer shall assign to such Seller (without warranty) Buyer's
right (if any) to recover under such insurance for such Loss (up to the amount
actually paid as indemnity by such Seller).

10.3 Limitations on Indemnities.

(a) Materiality. Notwithstanding anything to the contrary in
this Article, (i) neither the Buyer nor the Sellers shall have any
indemnification obligation for any individual Loss with a value of less than
$10,000 (provided, however, this limitation shall not apply to any such Loss in
respect of any Recourse Mortgage Loan) and (ii) neither Buyer nor the Sellers
shall have any indemnification obligations for individual Losses with values of
at least $10,000 (and Losses incurred by Buyer under $10,000 in respect of any
Recourse Mortgage Loan) until the beneficiaries of such indemnity collectively
have incurred such Losses with an aggregate value of at least $500,000. The
first $500,000 of such Losses described in Section 10.3(a)(ii) incurred by
Buyer shall be deemed a one-time basket for which Buyer and Buyerparent shall
not be entitled to seek indemnification from Sellers. The first $500,000 of
such Losses described in Section 10.3(a)(ii) incurred by the Sellers (excluding
Losses incurred by Sellers resulting from a breach by Buyer of subsections (a),
(b) or (c) of Section 9.6 (Employees), as to which the limitation in this
Section 10.3(a) shall not apply) shall be deemed a one-time basket for which
the Sellers shall not be entitled to seek indemnification from Buyer. For
purposes of this Article,

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all Losses from multiple claims in an action, arbitration, audit, hearing
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) shall be aggregated and the aggregate amount of such
Losses shall be deemed to be an individual Loss under this Section.

(b) Cap.

(i) Notwithstanding anything to the contrary in this
Article, the maximum aggregate indemnification obligation of the Sellers is
$10,000,000 (the "Maximum Indemnified Amount") allocated in accordance with
Section 10.1(e).

(ii) Notwithstanding anything to the contrary in this
Article (other than Section 10.3(c) (Exclusions) below), Buyer shall not have
any liability to the Sellers for indemnifiable Losses after Buyer has paid to
the Sellers in the aggregate the sum of $10,000,000 as indemnity pursuant to
claims made under Section 10.2(b) (Indemnification of the Sellers) for Losses
incurred by the Sellers.

(c) Exclusions. The limitations in this Section shall not
apply to claims for (i) Sellers' failure to deliver possession or title to the
Acquired Assets, as provided herein, (ii) fraud by any Seller in connection
with the consummation of the transactions described herein, which fraud is
determined by a trier of fact pursuant to Section 10.7 (Dispute Resolution)
below.

10.4 Notice and Opportunity to Defend.

(a) Notice, Etc. If any party (the "Indemnified Party")
receives notice of any third-party claim or commencement of any third-party
action or proceeding (an "Asserted Liability") with respect to which any other
party (an "Indemnifying Party") is obligated to provide indemnification
pursuant to Section 10.2(a) (Indemnification of Buyer and Buyerparent) or
Section 10.2(b) (Indemnification of the Sellers), the Indemnified Party shall
promptly give all Indemnifying Parties notice thereof. The Indemnified Party's
failure so to notify an Indemnifying Party shall not cause the Indemnified
Party to lose its right to indemnification under this Article, except to the
extent that such failure materially prejudices the Indemnifying Party's ability
to defend against an Asserted Liability that such Indemnified Party has the
right to defend against hereunder (and except as otherwise set forth in this
Article). Such notice shall describe the Asserted Liability in reasonable
detail, and if practicable shall indicate the amount (which may be estimated)
of the Losses that have been or may be asserted by the Indemnified Party. Each
of the Indemnifying Parties may defend against an Asserted Liability on behalf
of the Indemnified Party utilizing counsel reasonably acceptable to the
Indemnified Party, unless (i) the Indemnified Party reasonably objects to such
assumption on the grounds that counsel for such Indemnifying Parties cannot
represent both the Indemnified Party and the Indemnifying Parties because such
representation would be reasonably likely to result in a conflict of interest
or because there may be defenses available to the Indemnified Party that are
not available to such Indemnifying Parties, (ii) the Indemnifying Party is not
capable (by reason of insufficient

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financial capacity, bankruptcy, receivership, liquidation, managerial deadlock,
managerial neglect or similar events) of maintaining a reasonable defense of
such action or proceeding, or (iii) the action or proceeding seeks injunctive
or other equitable relief against the Indemnified Party.

(b) Defense Costs. If any Indemnifying Party defends an
Asserted Liability, it shall do so at its own expense and shall not be
responsible for the costs of defense, investigative costs, attorney's fees or
other expenses incurred to defend the Asserted Liability (collectively,
"Defense Costs") of the Indemnified Party (which may continue to defend, at its
own expense). Notwithstanding the foregoing, if the person or entity asserting
the Asserted Liability against the Indemnified Party claims or seeks amounts in
excess of the amount set forth in Section 10.3(b) (Cap), then the Indemnifying
Party shall remain liable for the Costs of Defense incurred by the Indemnified
Party, notwithstanding the limitation contained in Section 10.3(b) (Cap). If
the Indemnified Party assumes the defense of an Asserted Liability by reason of
clauses (i), (ii) or (iii) of Subsection (a) above, or because the Indemnifying
Party has not elected to assume the defense, then such Indemnifying Party shall
indemnify the Indemnified Party for its Defense Costs; provided, however, the
Indemnifying Parties shall not be liable for the costs of more than one counsel
for all Indemnified Parties in any one jurisdiction. An Indemnifying Party may
settle any Asserted Liability only with the consent of the Indemnified Party,
which consent shall not be unreasonably withheld.

(c) Third Party Claims. The parties shall reasonably
cooperate and cause their respective Representatives to reasonably cooperate
with each other with respect to the defense of any claims or litigation made or
commenced by third parties subsequent to the Closing Date with respect to which
indemnification is not available (for any reason) under this Article; provided
that the party requesting cooperation shall reimburse the other party for the
other party's reasonable out-of-pocket costs and expenses of furnishing such
reasonable cooperation.

10.5 Delays or Omissions, Etc.. Except as provided in Section 10.1
(Survival; Etc.) and Section 10.4(a) (Notice, Etc.), no delay or omission to
exercise any right, power or remedy inuring to any party upon any breach or
default of any party under this Agreement or any Related Agreement shall impair
any such right, power or remedy of such party nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Neither the exercise of nor the failure
to exercise any remedy under this Agreement or any Related Agreement will
constitute an election of remedies or limit in any manner enforcement of any
remedies. All remedies either under this Agreement or any Related Agreement or
by law or otherwise afforded to the parties shall be cumulative and not
alternative.

10.6 Governing Law; Attorneys' Fees. This Agreement and the Related
Agreements shall be governed by, construed, interpreted and applied in
accordance with the laws of the State

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of California, without giving effect to any conflict of laws rules that would
refer the matter to the laws of another jurisdiction.

Subject to Section 10.7 (Dispute Resolution), each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court sitting in Orange County, California and, if such court does not have
jurisdiction, of the courts of the State of California in Orange County, for
the purposes of any action arising out of this Agreement or any of the Related
Agreements, or the subject matter hereof or thereof, brought by any other
party.

Calmac and the Jedinaks each agree that until December 31, 2003, service
of all writs, process and summonses in any suit, action arbitration or
proceeding brought in the United States under this Agreement or any Related
Agreement to which Calmac or either Jedinak is a party may be made upon CT
Corporation at its offices located at One East First Street, Reno, Nevada,
89501 (or any subsequent address of CT Corporation) and the Jedinaks each
hereby irrevocably appoint CT Corporation at its offices located at One East
First Street, Reno, Nevada, 89501 (or any subsequent address of CT Corporation)
their respective true and lawful attorney-in-fact in their name, place and
stead to accept such service of any and all such writs, process and summonses,
and agree that the failure of CT Corporation to give each of Calmac and the
Jedinaks any notice of such service of process shall nor impair or affect the
validity of such service or of any judgment based thereon.

Subject to Section 10.7 (Dispute Resolution), to the extent permitted by
applicable law, each party hereby waives and agrees not to assert, by way of
motion, as a defense or otherwise in any such action, any claim (i) that it is
not subject to the jurisdiction of the above-named courts, (ii) that the action
is brought in an inconvenient forum, (iii) that it is immune from any legal
process with respect to itself or its property, (iv) that the venue of the
suit, action or proceeding is improper or (v) that this Agreement or any
Related Agreement, or the subject matter hereof or thereof, may not be enforced
in or by such courts.

The prevailing party in any action or proceeding relating to this
Agreement or any Related Agreement shall be entitled to recover reasonable
attorneys' fees and other costs from the non-prevailing parties, in addition to
any other relief to which such prevailing party may be entitled.

10.7 Dispute Resolution.

(a) Arbitration. All disputes and controversies of every kind
and nature between the parties hereto arising out of or in connection with this
Agreement (including without limitation this Article 10) or the Related
Agreements as to the construction, validity, interpretation or meaning,
performance, non-performance, enforcement, operation, or breach, shall be
submitted to arbitration pursuant to the following procedures:

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<PAGE> 59
(i) After a dispute or controversy arises, either party
may, in a written notice delivered to the other party, demand such arbitration.
Such notice shall designate the name of the arbitrator (who shall be an
impartial person) appointed by such party demanding arbitration, together with
a statement of the matter in controversy.

(ii) Within 30 days after receipt of such demand, the
other party shall, in a written notice delivered to the other party, name such
party's arbitrator (who shall be an impartial person). If such party fails to
name an arbitrator, then the second arbitrator shall be named by the American
Arbitration Association (the "AAA"). The two arbitrators so selected shall
name a third arbitrator (who shall be an impartial person) within 30 days, or
in lieu of such agreement on a third arbitrator by the two arbitrators so
appointed, the third arbitrator shall be appointed by the AAA. If any
arbitrator appointed hereunder shall die, resign, refuse, or become unable to
act before an arbitration decision is rendered, then the vacancy shall be
filled by the methods set forth in this Section for the original appointment of
such arbitrator.

(iii) Each party shall bear its own arbitration costs and
expenses. The arbitration hearing shall be held in Orange County, California
at a location designated by a majority of the arbitrators. The Commercial
Arbitration Rules of the American Arbitration Association shall be incorporated
by reference at such hearing, the substantive laws of the State of California
(excluding conflict of laws provisions) shall apply.

(iv) The arbitration hearing shall be concluded within
ten (10) days unless otherwise ordered by the arbitrators and the written award
thereon shall be made within fifteen (15) days after the close of submission of
evidence. An award rendered by a majority of the arbitrators appointed
pursuant hereto shall be final and binding on all parties to the proceeding,
shall resolve the question of costs of the arbitrators and all related matters,
and judgment on such award may be entered and enforced by either party in any
court of competent jurisdiction.

(v) Except as set forth in Section 10.7(b) (Emergency
Relief), the parties stipulate that the provisions of this Section shall be a
complete defense to any suit, action or proceeding instituted in any federal,
state or local court or before any administrative tribunal with respect to any
controversy or dispute arising out of this Agreement or any of the Related
Agreements. The arbitration provisions hereof shall, with respect to such
controversy or dispute, survive the termination or expiration of this Agreement
or the Related Agreements.

Neither any party hereto nor the arbitrators may disclose the existence
or results of any arbitration hereunder without the prior written consent of
the other party; nor will any party hereto disclose to any third party any
confidential information disclosed by any other party hereto in the course of
an arbitration hereunder without the prior written consent of such other party.
Notwithstanding the foregoing, the parties acknowledge that Buyer and
Buyerparent may disclose the existence or results of an arbitration hereunder,
as well as information otherwise required to

52
<PAGE> 60
be disclosed by deposition, subpoena or other court or governmental action in
connection with Buyer's and Buyerparent's obligations under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, and in connection with Buyer's and Buyerparent's registration of
offerings of securities under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

(b) Emergency Relief. Notwithstanding anything in this
Section 10.7 (Dispute Resolution) to the contrary and subject to the provisions
of Section 10.6 (Governing Law; Attorneys' Fees), either party may seek from a
court any provisional remedy that may be necessary to protect any rights or
property of such party pending the establishment of the arbitral tribunal or
its determination of the merits of the controversy.

ARTICLE 11.

Miscellaneous

11.1 Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the permitted assigns, successors, heirs,
executors and administrators of the parties hereto. This Agreement may not be
assigned without the written consent of all other parties; provided, however,
Buyer may assign all of its rights and obligations hereunder to one of its
Affiliates with net a worth greater than or equal to that of Buyer; and further
provided that prior to the Closing no assignment may be made except to an
Affiliate with sufficient funds to satisfy Buyer's obligations under this
Agreement.

11.2 Entire Agreement; Amendment. This Agreement (including the
Schedules and Exhibits hereto) and the Related Agreements constitute the full
and entire understanding and agreement between the parties and supersede any
other agreement, written or oral, with regard to the subject matter hereof.
This Agreement supersedes (i) that certain Letter of Intent dated August 28,
1996 among certain of the parties hereto (the "Letter of Intent") and (ii) any
preexisting agreement regarding confidentiality between any of the parties
hereto. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the parties hereto.

11.3 Press Release. Prior to the Closing, none of the parties hereto,
nor any of their Representatives shall, without the prior written consent of
the others, which shall not be unreasonably withheld, make any statement,
public announcement or release to the press or any other third party with
respect to their discussions or this Agreement or permit any of its employees
or agents to make any such statement, announcement or release, until such time
as either party may be required by law, regulation or order to make disclosure.

The parties hereto also agree to notify each other promptly of any
disclosure with respect to such discussions or this Agreement which is required
by law, regulation or otherwise and to

53
<PAGE> 61
coordinate the disclosure of any information so required. If any party to this
Agreement becomes legally compelled by deposition, subpoena, or other court or
governmental action to disclose any of the information described in this
Section, then such party will give the other parties prompt notice to that
effect, and will cooperate with the other parties if the other parties seek to
obtain a protective order concerning the information described in this Section.
The legally compelled party will disclose only such information as its counsel
shall advise is legally required.

Notwithstanding the foregoing, the parties acknowledge that Buyer and
Buyerparent may disclose these discussions and this Agreement in connection
with Buyer's and Buyerparent's obligations under the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, and in
connection with Buyer's and Buyerparent's registration of offerings of
securities under the Securities Act, and the rules and regulations promulgated
thereunder.

11.4 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by certified or
registered mail, postage prepaid with return receipt requested, telecopy (with
hardcopy delivered by overnight courier service), or delivered by hand,
messenger or overnight courier service, and shall be deemed given when received
at the addresses of the parties set forth below, or at such other address
furnished in writing to the other parties hereto.

If to Calmac: P.O. Box 19060
Las Vegas, Nevada 89132
Attention: Russell Jedinak
Rebecca Jedinak
(702) 732-7997 (fax)

with a copy to: Mayer, Brown & Platt
350 South Grand Avenue
Los Angeles, CA 90071
Attention: Ken Kohler
(213) 625-0248 (fax)

If to the DLJ Stockholders: c/o DLJ
277 Park Avenue
New York, NY 10172
Attention: Counsel's Office
(212) 892-7272 (fax)

with a copy to: Latham & Watkins
Suite 5800
233 South Wacker Drive

54
<PAGE> 62
Chicago, IL 60606-6401
Attention: Mark A. Stegemoeller
(312) 993-9767 (fax)

and

Latham & Watkins
650 Town Center Drive, 20th floor
Costa Mesa, CA 92626
Attention: Cary K. Hyden
(714) 755-8290 (fax)

If to the Jedinaks: c/o Calmac Funding
P.O. Box 19060
Las Vegas, NV 89132
(702) 732-7997 (fax)

with a copy to: Mayer, Brown & Platt
350 South Grand Avenue
Los Angeles, CA 90071
Attention: Ken Kohler
(213) 625-0248 (fax)

If to the Company (prior to Closing): 16800 Aston Street
Irvine, CA 92606
Attention: President
(714) 440-1996 (fax)

If to the Company (after Closing): P.O. Box 19060
Las Vegas, Nevada 89132
Attention: Russell Jedinak
Rebecca Jedinak
(702) 732-7997 (fax)

and

c/o DLJ
277 Park Avenue
New York, NY 10172
Attention: Counsel's Office
(212) 892-7272 (fax)

55
<PAGE> 63
If to Buyer: c/o AMRESCO, INC.
Suite 2400
700 North Pearl Street
Dallas, TX 75201
Attention: General Counsel
(214) 753-7757 (fax)

with a copy to: Haynes and Boone, LLP
Suite 3100
901 Main Street
Dallas, Texas 75202
Attention: William L. Boeing
(214) 651-5940 (fax)

11.5 No Third Party Beneficiary, Etc. There shall be no third party
beneficiary of this Agreement, except that Buyerparent shall be entitled to the
benefits of this Agreement as though a party hereto. Neither the availability
of, nor any limit on, any remedy hereunder limit the remedies of any party
hereto against third parties. Buyer's assumption of the Assumed Contracts and
the Assumed Liabilities shall not create any right of third parties against
Buyer relating to events occurring prior to the Closing.

11.6 Reformation; Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, such provision shall be
reformed to best effectuate the intent of the parties and permit enforcement
thereof, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. If such
provision is not capable of reformation, it shall be severed from this
agreement and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.

11.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Any counterpart may be delivered
by facsimile; provided that attachment thereof shall constitute the
representation and warranty of the person delivering such signature that such
person has full power and authority to attach such signature and to deliver
this Agreement. Any facsimile signature shall be replaced with an original
signature as promptly as practicable.

11.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement. References to "Sections"
herein are references to sections of this Agreement. The words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision.

11.9 Power of Attorney. Effective upon the Closing Date, the Company
hereby irrevocably constitutes and appoints Buyer and its successors, assigns
and designees as its true and lawful attorney-in-fact, with full power of
substitution, in the name of Buyer or Sellers, on

56
<PAGE> 64
behalf of and for the benefit of Buyer, to collect all accounts receivable and
other items being transferred, conveyed and assigned to Buyer as provided
herein; to endorse, without recourse, checks, notes and other instruments
relating to the Acquired Assets in the name of Sellers (subject to Article 10
hereof); to institute and prosecute, in the name of Sellers, all proceedings
which Buyer may deem proper in order to collect, assert or enforce any claim,
right or title of any kind in or to the Acquired Assets; to defend and
compromise any and all actions, suits or proceedings in respect of any of the
Acquired Assets; and to do all such acts and things in relation to the Acquired
Assets as Buyer may deem advisable. Sellers agree that the foregoing powers
are coupled with an interest and shall be irrevocable by Sellers. Sellers
further agree that Buyer shall retain for its own account any amounts collected
pursuant to the foregoing powers. If Sellers receive any payments on account
of the Acquired Assets to which Buyer is entitled hereunder, Sellers shall
promptly notify Buyer thereof, hold such amounts to which Buyer is entitled in
trust for Buyer and promptly transfer and deliver to Buyer any cash or other
property received by Sellers, directly or indirectly, at any time after the
Closing Date in respect of any accounts receivable or otherwise relating to the
assets, properties, rights or businesses transferred, conveyed and assigned to
Buyer as provided herein. If Buyer receives any payments to which Sellers are
entitled hereunder, Buyer shall promptly notify the Sellers thereof, hold such
amounts to which Sellers are entitled in trust for the Sellers and promptly
transfer and deliver to the Sellers any such cash or other such property
received by Buyer.

11.10 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement, the Related Agreements and the transactions contemplated herein or
therein, including without limitation all fees and expenses of agents,
representatives, counsel and accountants. The Sellers shall not utilize assets
of the Company or any Subsidiary to pay such expenses.

* * * * *

57
<PAGE> 65
This Agreement has been executed and delivered as of the date first
written above.

The Company:

Quality Mortgage USA, Inc.

By: /s/ JUDE LOPEZ
-----------------------------------
Jude Lopez
Vice President

The Stockholders:
----------------

Calmac Funding

By: /s/ RUSSELL M. JEDINAK
-----------------------------------
Russell M. Jedinak
President

DLJ Mortgage Capital, Inc.

By: /s/ LEON M. POLLACK
-----------------------------------
Leon M. Pollack
President

DLJ Quality Partners, L.P.

By: DLJ Mortgage Capital, Inc.,
General Partner

By: /s/ LEON M. POLLACK
-----------------------------------
Leon M. Pollack
President

58
<PAGE> 66

The Jedinaks:
------------

Russell M. Jedinak

/s/ RUSSELL M. JEDINAK
---------------------------------

Spouse: /s/ REBECCA JEDINAK
---------------------------------
Rebecca Jedinak

Rebecca Jedinak

/s/ REBECCA JEDINAK
---------------------------------

Spouse: /s/ RUSSELL M. JEDINAK
---------------------------------
Russell M. Jedinak

Buyer:
-----

AMRESCO Residential Mortgage Corporation

By: /s/ SCOTT J. READING
---------------------------------
Scott J. Reading
President

59
<PAGE> 67
EXHIBIT 1.1(a)

Acquired Assets. The Acquired Assets include, without limitation, the
following items:

A. the Subsidiaries (including Express), as evidenced by
certificates representing all the issued and outstanding
shares of capital stock of each such Subsidiary, duly
endorsed for transfer to Buyer;

B. the Mortgage Loans, with the underlying Notes duly
endorsed for assignment, with all servicing rights
released to Buyer held by the Company or any Subsidiary on
the Closing Date;

C. all furniture, furnishings, fixtures, equipment (including
office equipment), machinery, appliances, parts, computer
hardware, automobiles and trucks and all other tangible
personal property of every description and kind and all
replacement parts therefor, including without limitation
any of the foregoing that has been fully depreciated and
any such items stored or utilized at the Jamboree Property
(collectively, the "Equipment"), including, but not
limited to, the items referenced on Schedule 1.1C hereto
(which will be furnished prior to the Closing), and all
inventory of goods and supplies used or maintained in
connection with the Mortgage Business or located on any of
the Real Property or the Leased Premises, including, but
not limited to, order forms, loan applications, billing
forms, letterhead, consumables and office supplies;

D. all Real Property (including real estate owned),
including, but not limited to, the Real Property described
on Schedule 1.1D hereto (which will be furnished prior to
the Closing), including the structures and improvements
located therein and all fixtures and fixed assets attached
thereto or located therein, including machinery and
equipment situated thereon or forming a part thereof,
together with all appurtenances, easements, rights-of-way
and other rights or interests related thereto and the
leasehold interests and leasehold improvements in the
Leased Premises, including, but not limited to, the Leased
Premises described on Schedule 1.1D hereto;

E. all leasehold interests and leasehold improvements created
by all leases of personal property;

F. all Accounts Receivable, instruments and chattel paper;

G. all deposits (including the funds deposited in respect of
the Jamboree Property lease) and rights with respect
thereto;

<PAGE> 68
H. to the extent transferrable, all licenses (including
without limitation the Licenses, but excluding mortgage
lending licenses held by the Company), permits,
registrations, certificates, consents, accreditations,
approvals and franchises, together with assignments
thereof, if required, and all waivers, if any, of any
requirements pertaining to the above-listed items, to the
extent they are legally transferable by the Company;

I. the Intellectual Property;

J. the Assumed Contracts;

K. all customer lists, customer records and information;

L. all books and records, including without limitation
payroll, employee benefit, accounts receivable and
payable, maintenance, and asset history records, ledgers,
and books of original entry, all insurance records and
OSHA and EPA files;

M. all rights in connection with prepaid expenses with
respect to the Acquired Assets;

N. all letters of credit issued to the Company or any
Subsidiary;

O. all computer software and programs, including all
documentation, machine readable codes, printed listings of
codes, source codes with respect to such software and
programs and licenses and leases of software;

P. all sales and other data, policies and procedures, files
and records, manuals, invoices, customer lists, client
lists, broker lists, accounting records, business records,
operating data and other data, sales and promotional
materials, catalogues and advertising literature, but
excluding audio and video recordings of presentations in
which a Jedinak is a primary speaker;

Q. all telephone numbers of the Company and the Subsidiaries
and all lock boxes to which the Company's and the
Subsidiaries' account debtors remit payments;

R. all cash on hand and in banks, cash equivalents (exclusive
of letters of credit issued by customers of the Company
and the Subsidiaries), investments, and cash in transit
to the Company's and the Subsidiaries' bank accounts;

2
<PAGE> 69
S. any right (other than those relating to any Retained
Liability that does not also constitute a Loss that is
indemnifiable by the Sellers) the Company or any
Subsidiary has, had or may have to recover against persons
who are not parties to this Agreement for any event or
circumstance for which Buyer or Buyerparent could seek
indemnification pursuant to Section 10.2(a)
(Indemnification of Buyer and Buyerparent), including but
not limited to rights of the Company or any Subsidiary
under insurance policies, rights of indemnification,
rights of contribution, joint and several liability,
strict liability, contributory negligence or other rights
("Recovery Rights"). Recovery Rights include but are not
limited to rights to recover under insurance policies or
other contracts or from other parties for environmental
damages at the Real Property or Leased Premises, products
liabilities, failures of title, business interruptions or
warranty claims;

T. All subordinate and residual certificates from DLJ's
securitizations of mortgage loans purchased from the
Company and the Subsidiaries prior to the Closing Date;

U. special servicing rights and rights to prepayment
penalties on all Mortgage Loans serviced by Wendover;

V. prepayment penalties, late payment fees and other fees and
charges relating to the DLJ Mortgage Acceptance Corp.
Mortgage Pass-Through Certificates, Series 1996-QB and
1996-QJ;

W. all keys to any Real Property and Licensed Premises;

X. all plans and surveys, plats, specifications, engineer's
drawings and architectural renderings and similar items
related to the Acquired Assets, including, without
limitation, those relating to utilities, easements and
roads; and

Y. all accounts receivable in respect of advances by the
Company on loans held in securitizations or in
foreclosure;

Z. all accrued but unpaid interest receivable on Mortgage
Loans; and

AA. all funds held in escrow by the Company on serviced loans
in trust or otherwise.

3
<PAGE> 70
EXHIBIT 1.1(b)

Retained Assets. The Retained Assets shall consist of the following:

A. The Company's corporate charter, minute and stock record
books, and corporate seal;

B. To the extent receivable after the Closing Date, all
prepayment penalties and late payment fees coming due on
all Mortgage Loans included in all of DLJ's
securitizations of Mortgage Loans purchased from the
Company and the Subsidiaries prior to the Closing Date,
excluding those relating to the DLJ Mortgage Acceptance
Corp. Mortgage Pass-Through Certificates, Series 1996-QB
and 1996- QJ;

C. any software for which a license is required and in
respect of which the Company or any Subsidiary does not
hold a proper license;

D. Any federal or state tax refunds relating to the Company's
tax returns or Express' tax returns for the periods ending
on or before the Closing Date.

E. Any insurance proceeds received by the Company or any of
the Subsidiaries with respect to any Retained Assets or
any of the Subsidiaries with respect to any Retained
Assets or Retained Liabilities.

F. All loan files for (i) mortgage loans which are funded and
sold or securitized prior to the Closing Date and (ii)
inactive and unfunded mortgage loans.

G. All files, bound volumes and closing binders relating to
closed mortgage loan sales and securitizations by DLJ
Mortgage Acceptance Corp. Copies of the files, bound
volumes and closing binders relating to the DLJ Mortgage
Acceptance Corp. - Mortgage Pass-Through Certificates,
Series 1996-QB and QJ will be provided to Buyer.

H. Records Management and Service Agreement dated as of May
12, 1993 by and between the Company and Iron Mountain.

<PAGE> 71
EXHIBIT 1.2

Assumed Liabilities. The Assumed Liabilities shall consist of the
following:

A. All operating payables created in the ordinary course of
business (excluding payables in respect of Taxes incurred
or accrued prior to October 1, 1996) incurred or accrued
on or prior to the Closing Date (other than the
pre-Closing obligations excluded from item B below);

B. All obligations under the Assumed Contracts (other than
liabilities, claims, contracts or obligations of any
nature whatsoever, whether known, unknown, absolute,
accrued or contingent, or otherwise which the Company is,
or could become, subject to or liable for, that arise out
of the Company's nonperformance or breach of, or
misrepresentation under, the Assumed Contracts prior to
the Closing Date); and

C. All sales or transfer taxes payable with respect to the
transactions contemplated in this Agreement or the Related
Agreements to which Buyer is a party.

Assumed Contracts. The Assumed Contracts shall consist of the
following:

[see the attached list]

<PAGE> 72

EXHIBIT 2.2(a)

GENERAL ASSIGNMENT AND BILL OF SALE

GENERAL ASSIGNMENT AND BILL OF SALE dated as of October ___, 1996,
from QUALITY MORTGAGE USA, INC., a California corporation (the "Seller") to
AMRESCO Residential Mortgage Corporation, a Delaware corporation ("Buyer").

RECITALS:

A. Seller, certain other parties and Buyer have previously
entered into an Asset Purchase Agreement dated as of October 9, 1996 (the
"Asset Purchase Agreement").

B. Pursuant to the Asset Purchase Agreement, Seller has agreed to
sell and convey to Buyer the Acquired Assets (herein so called) set forth on
Exhibit 1.1 attached hereto.

C. This Bill of Sale is executed and delivered pursuant to
Section 2.2(a) of the Asset Purchase Agreement.

W I T N E S S E T H

In consideration of the premises and agreements contained herein and
in the Asset Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer
hereby act and agree as follows:

1. CONVEYANCE OF ASSETS. Seller hereby grants, bargains, sells,
conveys, transfers, assigns, sets over and delivers unto Buyer and its
successors and assigns the Acquired Assets that are not Real Property (as
defined and described in the Asset Purchase Agreement), TO HAVE AND TO HOLD the
Acquired Assets that are not Real Property and all rights, titles and interests
therein with all appurtenances thereto, unto Buyer, its successors and assigns
forever.

2. ADDITIONAL RIGHTS AND OBLIGATIONS OF THE PARTIES. Seller and
Buyer hereby agree and acknowledge that this Bill of Sale is being entered into
and delivered pursuant to and subject to the terms and conditions set forth in
the Asset Purchase Agreement, that additional rights and obligations of the
parties are expressly provided for therein, and that the execution and delivery
of this Bill of Sale shall not impair or diminish any of the rights or
obligations of any of the parties to the Asset Purchase Agreement, as set forth
therein.

3. COUNTERPARTS. This Bill of Sale may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Any counterpart may be delivered
by facsimile; provided that attachment thereof shall constitute the
representation and warranty of the person delivering such signature that such
person has full power and authority to attach such signature and to deliver
this Bill of Sale. Any facsimile signature shall be replaced with an original
signature as promptly as practicable.

<PAGE> 73
4. DESCRIPTIVE HEADINGS. The titles of the paragraphs and
subparagraphs of this Bill of Sale are for convenience of reference only and
are not to be considered in construing this Bill of Sale. References to
"Sections" herein are references to sections of this Bill of Sale. The words
"herein," "hereof," "hereto" and "hereunder" and other words of similar import
refer to this Bill of Sale as a whole and not to any particular Article,
Section or other subdivision.

5. REASONABLE EFFORTS; COOPERATION. The parties shall use their
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the provisions
contained herein and to cooperate with each other in connection with the
foregoing.

6. FURTHER ASSURANCES. From time to time, as and when requested
by Buyer, Seller shall execute and deliver, or cause to be executed and
delivered, such documents and instruments and shall take, or cause to be taken,
such further or other actions as may be reasonably necessary to carry out the
purposes set forth herein, without unreasonable expense to Seller.

7. GOVERNING LAW. This Bill of Sale shall be governed by,
construed, interpreted and applied in accordance with the laws of the State of
California, without giving effect to any conflict of laws rules that would
refer the matter to the laws of another jurisdiction.

Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court sitting in Orange County,
California and, if such court does not have jurisdiction, of the courts of the
State of California in Orange County, for the purposes of any action arising
out of this Bill of Sale or the subject matter hereof, brought by any other
party.

To the extent permitted by applicable law, each party hereby waives
and agrees not to assert, by way of motion, as a defense or otherwise in any
such action, any claim (i) that it is not subject to the jurisdiction of the
above- named courts, (ii) that the action is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or its
property, (iv) that the venue of the suit, action or proceeding is improper or
(v) that this Bill of Sale or the subject matter hereof may not be enforced in
or by such courts.

The prevailing party in any action or proceeding relating to this Bill
of Sale shall be entitled to recover reasonable attorneys' fees and other costs
from the non-prevailing parties, in addition to any other relief to which such
prevailing party may be entitled.

8. BINDING EFFECT. The provisions hereof shall inure to the
benefit of, and be binding upon, the permitted assigns, successors, heirs,
executors and administrators of the parties hereto. This Bill of Sale may not
be assigned without the written consent of all other parties; provided,
however, Buyer may assign all of its rights and obligations hereunder to one of
its Affiliates.

9. DEFINITIONS. Capitalized terms not expressly defined in this
Bill of Sale shall have the meanings assigned to them in the Asset Purchase
Agreement.

* * * * *

2
<PAGE> 74
This Bill of Sale has been executed as of the date first written
above.

Sellers:
-------

QUALITY MORTGAGE USA, INC.

By:
-------------------------------
Printed Name:
---------------------
Title:
----------------------------

Buyer:
-----

AMRESCO Residential Mortgage
Corporation

By:
-------------------------------
Printed Name:
---------------------
Title:

3
<PAGE> 75
EXHIBIT 2.2(f)(1)

THE COMPANY'S CLOSING CERTIFICATE

This Closing Certificate (the "Certificate") is delivered pursuant to
Section 2.2(f) (Closing Certificates) of that certain Asset Purchase Agreement
(the "Agreement") entered into as of October 9, 1996, by and among AMRESCO
Residential Mortgage Corporation, a Delaware corporation ("Buyer"), on the one
hand, and Quality Mortgage USA, Inc., a California corporation (the "Company");
the stockholders of the Company: Calmac Funding, a Nevada corporation
("Calmac"), DLJ Mortgage Capital, Inc., a Delaware corporation ("DLJ") and DLJ
Quality Partners, L.P., a Delaware limited partnership ("DLJ Partners" and
together with DLJ, the "DLJ Stockholders"); and Russell Jedinak and Rebecca
Jedinak, residents of Las Vegas, Nevada and the sole stockholders of Calmac
(collectively, the "Jedinaks"), on the other hand. Calmac and the DLJ
Stockholders are sometimes collectively referred to herein as the
"Stockholders." The Company, the Stockholders and the Jedinaks are sometimes
collectively referred to herein as the "Sellers." The undersigned hereby
certifies, and represents and warrants to Buyer and AMRESCO, INC., a Delaware
corporation ("Buyerparent"), as follows:

1 Representations. The representations made by the Company in the
Agreement are true and correct in all respects as of the date hereof, except as
affected by the transactions contemplated by the Agreement or the Related
Agreements (as defined in the Agreement).

2 Covenants. The Sellers in all respects have performed or
complied with, and have caused the Company and the Subsidiaries to perform or
comply with, each covenant and agreement to be performed by each of them on or
prior to the Closing Date (as defined in the Agreement) under the Agreement or
any Related Agreement.

Executed as of , 1996.
--------- --
Quality Mortgage USA, Inc.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

<PAGE> 76
EXHIBIT 2.2(f)(2)

DLJ STOCKHOLDERS' CLOSING CERTIFICATE

This Closing Certificate (the "Certificate") is delivered pursuant to
Section 2.2(f) (Closing Certificates) of that certain Asset Purchase Agreement
(the "Agreement") entered into as of October 9, 1996, by and among AMRESCO
Residential Mortgage Corporation, a Delaware corporation ("Buyer"), on the one
hand, and Quality Mortgage USA, Inc., a California corporation (the "Company");
the stockholders of the Company: Calmac Funding, a Nevada corporation
("Calmac"), DLJ Mortgage Capital, Inc., a Delaware corporation ("DLJ") and DLJ
Quality Partners, L.P., a Delaware limited partnership ("DLJ Partners" and
together with DLJ, the "DLJ Stockholders"); and Russell Jedinak and Rebecca
Jedinak, residents of Las Vegas, Nevada and the sole stockholders of Calmac
(collectively, the "Jedinaks"), on the other hand. Calmac and the DLJ
Stockholders are sometimes collectively referred to herein as the
"Stockholders." The Company, the Stockholders and the Jedinaks are sometimes
collectively referred to herein as the "Sellers." The undersigned hereby
certify, and represent and warrant to Buyer and AMRESCO, INC., a Delaware
corporation ("Buyerparent"), as follows:

1 Representations. The representations made by the DLJ
Stockholders in the Agreement are true and correct in all respects as of the
date hereof, except as affected by the transactions contemplated by the
Agreement or the Related Agreements (as defined in the Agreement).

2 Covenants. The Sellers in all material respects have performed
or complied with, and have caused the Company and the Subsidiaries to perform
or comply with, each covenant and agreement to be performed by each of them on
or prior to the Closing Date (as defined in the Agreement) under the Agreement
or any Related Agreement.

Executed as of , 1996.
---------- --

DLJ Mortgage Capital, Inc.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

DLJ Quality Partners, L.P.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

<PAGE> 77
EXHIBIT 2.2(f)(3)

CALMAC'S AND THE JEDINAK'S CLOSING CERTIFICATE

1 Representations. The representations made by Calmac and the
Jedinaks in the Agreement are true and correct in all respects as of the date
hereof, except as affected by the transactions contemplated by the Agreement or
the Related Agreements (as defined in the Agreement).

Executed as of , 1996.
--------- --

Calmac Funding, Inc.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

<PAGE> 78
Russell Jedinak

--------------------------------------

Spouse:
------------------------------
Rebecca Jedinak

Rebecca Jedinak

--------------------------------------

Spouse:
------------------------------
Russell Jedinak

2
<PAGE> 79

EXHIBIT 2.2(m)(1)

OPINION OF MAYER, BROWN & PLATT TO SELLERS

The Opinion Letter may be governed by the Legal Opinion Accord of the
ABA Section of Business Law (1991). Capitalized terms used but not described
herein shall have the meanings assigned thereto in the Asset Purchase Agreement
(the "Agreement").

1. The Company, Calmac and each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own
its properties and to engage in its business as presently conducted or
contemplated. [Reference may be made to an agreed- upon description of the
business.]

2. The Agreement has been duly authorized by all necessary corporate
action on behalf of the Company and Calmac and has been duly executed and
delivered by the Company, Calmac, Russell Jedinak and Rebecca Jedinak. Each
Related Agreement has been duly authorized by all necessary corporate action on
behalf of (as applicable) the Company and Calmac and has been duly executed and
delivered by (as applicable) the Company, Calmac, Russell Jedinak and Rebecca
Jedinak. [Legal capacity of natural persons may be assumed.]

3. The Agreement is a valid and binding obligation of the Company,
Calmac, Russell Jedinak and Rebecca Jedinak, enforceable against the Company,
Calmac, Russell Jedinak and Rebecca Jedinak in accordance with its terms. Each
Related Agreement is a valid and binding obligation of the Company, Calmac,
Russell Jedinak and Rebecca Jedinak (as applicable), enforceable against the
Company, Calmac, Russell Jedinak and Rebecca Jedinak in accordance with the
respective terms of such agreements.

4. The authorized capital stock of each Subsidiary consists of _____
shares of common stock, ____ par value, of which _____ shares are issued and
outstanding. All of the issued and outstanding shares of capital stock of the
Subsidiaries (the "Stock") have been duly authorized and validly issued and are
fully paid and nonassessable. None of the shares of the Stock were issued in
violation of preemptive rights of any person or entity. There are no
outstanding preemptive, conversion or other rights, or other options, warrants
or agreements granted by, issued by, or binding upon, any Subsidiary for the
issuance, purchase, redemption or acquisition of its equity securities. No
person or entity (including any holder of outstanding shares of capital stock
of any Subsidiary) has any preemptive or other rights to subscribe for or
otherwise acquire any shares of capital stock of any Subsidiary. [The first two
sentences may be based on counsel's review of the relevant corporate records.
The remainder may be based on such records and on officer's certificates signed
by senior executive officers of Quality Mortgage USA, Inc.]

5. The Company owns of record all of the Stock. Upon the delivery to
Buyer of certificates representing the Stock and upon consummation of the
transactions described in the Agreement, the Buyer will acquire good and valid
title to all of the Stock, free and clear of all adverse

<PAGE> 80
claims. [The elements of Buyer's bona fide purchaser status and Buyer's lack of
knowledge of adverse claims may be assumed.]

6. Neither the execution and delivery of the Agreement or any Related
Agreement to which the Company, Calmac, Russell Jedinak or Rebecca Jedinak is a
party, nor the consummation of any or all of the transactions contemplated
thereby (a) violates any provision of the certificate of incorporation or
bylaws (or other governing instrument) of the Company, Calmac or any
Subsidiary, (b) after giving effect to the third-party consents obtained by the
Sellers and delivered to Buyer, (i) breaches or constitutes a default (or an
event that, with notice or lapse of time or both, would constitute a breach or
default) under, or results in the termination of, or accelerates the
performance required by, or excuses performance by any person or entity of any
of its obligations under, or causes the acceleration of the maturity of any
debt or obligation pursuant to, any Assumed Contract [listed on a schedule to
such opinion], or (ii) results in a creation or imposition of any Lien upon the
Acquired Assets by operation of the terms of any such listed Assumed Contract,
or (c) violates any California or federal statute, law, regulation or rule, or
any judgment, decree or order of any court or governmental body known by such
counsel to be applicable to the Company, Calmac, any Subsidiary, Russell
Jedinak or Rebecca Jedinak. Following the consummation of the transactions
described in the Agreement and after giving effect to the third-party consents
obtained by the Sellers and delivered to Buyer, the Assumed Contracts will be
valid and enforceable in accordance with their terms by Buyer and the
applicable Subsidiaries to the same extent that they were enforceable by the
Company and the Subsidiaries prior to such consummation.

7. Except for requirements of the HSR Act, no consent, approval or
authorization of, or declaration, filing or registration with, any California
or federal governmental body is required in connection with the execution,
delivery and performance by Calmac, the Company or the Jedinaks of the
Agreement or any Related Agreements to which any such Seller is a party or the
consummation of the transactions contemplated in such agreements.

8. The Company, Calmac, the Subsidiaries, Russell Jedinak and Rebecca
Jedinak have fully complied, to the extent applicable, with the Uniform
Commercial Code--Bulk Sales division of the California Codes in connection with
the transactions provided for in the Agreement and the Related Agreements.

9. Except as listed on a schedule to such opinion, there is no action,
suit, proceeding, litigation, or other investigation to the best of counsel's
knowledge after due inquiry, but without independent investigation, pending or
threatened (i) against the Company, Calmac, any Subsidiary, Russell Jedinak or
Rebecca Jedinak, or (ii) against any officers or directors of the Company or
any Subsidiary, with respect to any Subsidiary, the Acquired Assets, the
Assumed Contracts or the transactions contemplated by the Agreement and the
Related Agreements. Except as listed on a schedule to such opinion, such
counsel knows of no order, writ, injunction, judgment or decree of any court or
government agency or instrumentality to which the Company, Calmac, any
Subsidiary, Russell Jedinak or Rebecca Jedinak is a party relating to or
affecting any Subsidiary, the Acquired Assets, the Assumed Contracts or the
transactions contemplated by the Agreement and the Related Agreements.

- 2 -
<PAGE> 81

Counsel need not express any opinion as to any provision of the
Agreement or any Related Agreement that purports to affect the jurisdiction or
venue of courts, to provide that remedies are cumulative, to provide that
decisions by a party are conclusive, to provide remedies inconsistent with the
Uniform Commercial Code (to the extent that the Uniform Commercial Code is
applicable thereto), to affect or establish evidentiary standards or limitation
periods or otherwise grant or limit rights or remedies of parties to such
agreements or of third parties in judicial, administrative or similar
proceedings, to sever unenforceable provisions, to require arbitration or to
provide for the award or payment of a party's attorneys' fees by another party.

- 3 -
<PAGE> 82
EXHIBIT 2.2(m)(2)

OPINION OF LATHAM AND WATKINS TO SELLERS

1. Each of DLJ Mortgage Capital, Inc. and Donaldson, Lufkin & Jenrette,
Inc. is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and to engage in its business as presently
conducted or contemplated.

2. DLJ Quality Partners, L.P. is a limited partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own its properties and to
engage in its business as presently conducted or contemplated.

3. The Agreement has been duly authorized by all necessary corporate or
other action on behalf of DLJ Mortgage Capital, Inc., DLJ Quality Partners,
L.P., and Donaldson, Lufkin & Jenrette, Inc. and has been duly executed and
delivered by DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P., and
Donaldson, Lufkin & Jenrette, Inc. Each Related Agreement has been duly
authorized by all necessary corporate or other action on behalf of (as
applicable) DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P., and
Donaldson, Lufkin & Jenrette, Inc. and has been duly executed and delivered by
(as applicable) DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P., and
Donaldson, Lufkin & Jenrette, Inc.

4. The Agreement is a valid and binding obligation of DLJ Mortgage
Capital, Inc., DLJ Quality Partners, L.P., and Donaldson, Lufkin & Jenrette,
Inc., enforceable against DLJ Mortgage Capital, Inc., DLJ Quality Partners,
L.P., and Donaldson, Lufkin & Jenrette, Inc. in accordance with its terms.
Each Related Agreement is a valid and binding obligation of DLJ Mortgage
Capital, Inc., DLJ Quality Partners, L.P., and Donaldson, Lufkin & Jenrette,
Inc. (as applicable), enforceable against DLJ Mortgage Capital, Inc., DLJ
Quality Partners, L.P., and Donaldson, Lufkin & Jenrette, Inc. in accordance
with the respective terms of such agreements.

5. Neither the execution and delivery of the Agreement or any Related
Agreement to which the DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P.,
and Donaldson, Lufkin & Jenrette, Inc. is a party, nor the consummation of any
or all of the transactions contemplated thereby (a) violates any provision of
the certificate of incorporation, bylaws, certificate of limited partnership,
agreement of limited partnership or other governing instrument of DLJ Mortgage
Capital, Inc., DLJ Quality Partners, L.P., or Donaldson, Lufkin & Jenrette,
Inc., (b) after giving effect to the third- party consents obtained by the
Sellers and delivered to Buyer, (i) breaches or constitutes a default (or an
event that, with notice or lapse of time or both, would constitute a breach or
default) under, or results in the termination of, or accelerates the
performance required by, or excuses performance by any person or entity of any
of its obligations under, or causes the acceleration of the maturity of any
debt or obligation pursuant to, any Assumed Contract, or (ii)

<PAGE> 83
results in a creation or imposition of any Lien upon the Acquired Assets, or
(c) violates any statute, law, regulation or rule, or any judgment, decree or
order of any court or governmental body applicable to the Company, any
Subsidiary, DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P., or
Donaldson, Lufkin & Jenrette, Inc., Following the consummation of the
transactions described in the Agreement and after giving effect to the
third-party consents obtained by the Sellers and delivered to Buyer, the
Assumed Contracts will be valid and enforceable in accordance with their terms
by Buyer and the applicable Subsidiaries.

6. Except for requirements of the HSR Act, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
body is required in connection with the execution, delivery and performance of
the Agreement or any Related Agreements to which any Seller is a party or the
consummation of the transactions contemplated in such agreements.

7. There is no action, suit, proceeding, litigation, or other
investigation pending or, to the best of counsel's knowledge after due inquiry,
threatened (i) against DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P.,
or Donaldson, Lufkin & Jenrette, Inc., or (ii) against any officers or
directors of DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P., or
Donaldson, Lufkin & Jenrette, Inc., with respect to any Subsidiary, the
Acquired Assets, the Assumed Contracts or the transactions contemplated by the
Agreement and the Related Agreements. There is no order, writ, injunction,
judgment or decree of any court or government agency or instrumentality to
which DLJ Mortgage Capital, Inc., DLJ Quality Partners, L.P., or Donaldson,
Lufkin & Jenrette, Inc. is a party relating to or affecting any Subsidiary, the
Acquired Assets, the Assumed Contracts or the transactions contemplated by the
Agreement and the Related Agreements.

2
<PAGE> 84

EXHIBIT 2.2(p)

RELEASE

This RELEASE (the "Release") is made as of ____________ ___, 1996, by
and among QUALITY MORTGAGE USA, INC., a California corporation (the "Company"),
Calmac Funding, a Nevada corporation, DLJ Mortgage Capital, Inc., a Delaware
corporation, DLJ Quality Partners, L.P., a Delaware limited partnership, and
Russell Jedinak and Rebecca Jedinak, residents of Las Vegas, Nevada
(collectively, the "Sellers") to AMRESCO Residential Mortgage Corporation, a
Delaware corporation ("Buyer").

RECITALS:

A. Sellers and Buyer have previously entered into an Asset
Purchase Agreement dated as of October 9, 1996 (the "Asset Purchase
Agreement").

B. Pursuant to the Asset Purchase Agreement, the Company has
agreed to sell and convey to Buyer the Acquired Assets (as defined in the Asset
Purchase Agreement).

C. As an inducement to Buyer to enter into the Asset Purchase
Agreement and as a condition to Buyer's consummation of the Asset Purchase
Agreement, the Company has agreed to enter into and deliver this Agreement in
consideration of Buyer's entering into the Asset Purchase Agreement and the
significant consideration payable to the Company under the Asset Purchase
Agreement.

D. This Release is being delivered pursuant to Section 2.2(p) of
the Asset Purchase Agreement.

AGREEMENT:

In consideration of the premises and of the agreements contained
herein and in the Asset Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby expressly
acknowledged, and pursuant to the terms of the Asset Purchase Agreement, the
parties hereto agree as follows:

1. RELEASE.

(a) Sellers, individually and collectively, and for
themselves and their successors and assigns forever, do hereby
unconditionally and irrevocably compromise, settle, remise, acquit and
fully and forever release and discharge Buyer and its successors,
assigns, officers, directors, employees and agents, and the
Subsidiaries (as defined in the Asset Purchase Agreement) and their
successors, assigns, officers, directors, employees and agents
(collectively, the "Released Parties") from any and all claims,
counterclaims, set-offs, debts, demands, choses in action,
obligations, remedies, suits, damages and

<PAGE> 85
liabilities (collectively, the "Sellers' Claims") arising from,
related to or in respect of the Acquired Assets, including without
limitation the Subsidiaries (as defined in the Asset Purchase
Agreement), whether now known, suspected or claimed, whether arising
under common law, in equity or under statute, which Sellers or their
successors or assigns ever had, now have, or in the future may claim
to have against the Released Parties and which may have arisen at any
time on or prior to the date hereof and may arise at any time in the
future, but excluding any claims in respect of any breach by the Buyer
of its obligations under the Asset Purchase Agreement or any Related
Agreement.

(b) Sellers covenant and agree never to commence,
voluntarily aid in any way, prosecute or cause to be commenced or
prosecuted against the Released Parties any action or other proceeding
based upon any of the released Sellers' Claims which may have arisen
at any time on or prior to the date hereof and may arise at any time
in the future.

(c) Sellers and Buyer hereby acknowledge that they
understand and agree that the execution of this Release does not
constitute in any manner whatsoever an admission of liability on the
part of any parties hereto for any matters covered by this Release,
but that such liability is specifically denied.

2. INTERCOMPANY INDEBTEDNESS. Sellers also specifically, without
limitation, acknowledge and agree, individually and collectively, that this
Release shall terminate any and all intercompany indebtedness, advances or
equivalent accounts owed by the Subsidiaries to any of the Sellers.

3. ADDITIONAL RIGHTS AND OBLIGATIONS. Sellers and Buyer hereby
agree and acknowledge that this Release is being entered into pursuant to and
subject to the terms and conditions set forth in the Asset Purchase Agreement
and that additional rights and obligations of the parties are expressly
provided for therein, and that the execution and delivery of this Release shall
not impair or diminish any of the rights or obligations of any of the parties
to the Asset Purchase Agreement as set forth therein.

4. COUNTERPARTS. This Release may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Any counterpart may be delivered
by facsimile; provided that attachment thereof shall constitute the
representation and warranty of the person delivering such signature that such
person has full power and authority to attach such signature and to deliver
this Release. Any facsimile signature shall be replaced with an original
signature as promptly as practicable.

5. DESCRIPTIVE HEADINGS. The titles of the paragraphs and
subparagraphs of this Release are for convenience of reference only and are not
to be considered in construing this Release. References to "Sections" herein
are references to sections of this Release. The words "herein," "hereof,"
"hereto" and "hereunder" and other words of similar import refer to this
Release as a whole and not to any particular Article, Section or other
subdivision.

2
<PAGE> 86
6. REASONABLE EFFORTS; COOPERATION. The parties shall use their
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the provisions
contained herein and to cooperate with each other in connection with the
foregoing.

7. FURTHER ASSURANCES. The parties agree to take such further
actions and execute and deliver such other documents, certificates, agreements
and other instruments as may be reasonably necessary or desirable in order to
consummate or implement this Release.

8. GOVERNING LAW. This Release shall be governed by, construed,
interpreted and applied in accordance with the laws of the State of California,
without giving effect to any conflict of laws rules that would refer the matter
to the laws of another jurisdiction.

Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court sitting in Orange County,
California and, if such court does not have jurisdiction, of the courts of the
State of California in Orange County, for the purposes of any action arising
out of this Release or the subject matter hereof, brought by any other party.

To the extent permitted by applicable law, each party hereby waives
and agrees not to assert, by way of motion, as a defense or otherwise in any
such action, any claim (i) that it is not subject to the jurisdiction of the
above- named courts, (ii) that the action is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or its
property, (iv) that the venue of the suit, action or proceeding is improper or
(v) that this Release or the subject matter hereof may not be enforced in or by
such courts.

The prevailing party in any action or proceeding relating to this
Release shall be entitled to recover reasonable attorneys' fees and other costs
from the non-prevailing parties, in addition to any other relief to which such
prevailing party may be entitled.

9. BINDING EFFECT. The provisions hereof shall inure to the
benefit of, and be binding upon, the permitted assigns, successors, heirs,
executors and administrators of the parties hereto. This Release may not be
assigned without the written consent of all other parties; provided, however,
Buyer may assign all of its rights and obligations hereunder to one of its
Affiliates.

10. DEFINITIONS. Capitalized terms not expressly defined in
this Release shall have the meanings assigned to them in the Asset Purchase
Agreement.

* * * * *

3
<PAGE> 87
This Release has been executed as of the date first written above.

Sellers:

QUALITY MORTGAGE USA, INC.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

Calmac Funding

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

DLJ Mortgage Capital, Inc.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

DLJ Quality Partners, L.P.

By: DLJ Mortgage Capital, Inc.
General Partner

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

4
<PAGE> 88
Russell Jedinak

----------------------------------------

Spouse:
---------------------------------
Rebecca Jedinak

Rebecca Jedinak

----------------------------------------

Spouse:
---------------------------------
Russell Jedinak

Buyer:

AMRESCO Residential Mortgage Corporation

By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------

5
<PAGE> 89
EXHIBIT 2.3(a)

BUYER CLOSING CERTIFICATE

This Closing Certificate (the "Certificate") is delivered pursuant to
Section 2.3(a) (Closing Certificate) of that certain Asset Purchase Agreement
(the "Agreement") entered into as of October 9, 1996, by and among AMRESCO
Residential Mortgage Corporation, a Delaware corporation ("Buyer"), on the one
hand, and Quality Mortgage USA, Inc., a California corporation (the "Company");
the stockholders of the Company: Calmac Funding, a Nevada corporation
("Calmac"), DLJ Mortgage Capital, Inc., a Delaware corporation ("DLJ") and DLJ
Quality Partners, L.P., a Delaware limited partnership ("DLJ Partners" and
together with DLJ, the "DLJ Stockholders"); and Russell Jedinak and Rebecca
Jedinak, residents of Las Vegas, Nevada and the sole stockholders of Calmac
(collectively, the "Jedinaks"), on the other hand. The undersigned hereby
certifies, and represents and warrants to the Company, as follows:

1 Representations. The representations made by Buyer in the
Agreement are true and correct in all respects as of the date hereof, except as
affected by the transactions contemplated by the Agreement or the Related
Agreements (as defined in the Agreement).

2 Covenants. Buyer in all material respects has performed or
complied with each covenant and agreement to be performed by Buyer on or prior
to the Closing Date (as defined in the Agreement) under the Agreement or any
Related Agreement.

Executed as of , 1996.
--------- --

AMRESCO Residential Mortgage Corporation

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

<PAGE> 90

EXHIBIT 2.3(d)

OPINION OF GENERAL COUNSEL OF BUYER

1. Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to own its properties and to engage in its business as presently
conducted or contemplated.

3. The Agreement has been duly authorized by all necessary corporate
action on the part of Buyer and has been duly executed and delivered by Buyer.
Each Related Agreement to which Buyer it is a party has been duly authorized by
all necessary corporate action on the part of Buyer and has been duly executed
and delivered by Buyer.

4. The Agreement and each Related Agreement to which Buyer is a party is
enforceable against Buyer, subject to the General Qualifications.

8. Except for requirements of the HSR Act and except for the Permits, no
consent, approval or authorization of, or declaration, filing or registration
with, any governmental body is required in connection with the execution,
delivery and performance of the Agreement or any Related Agreements to which
Buyer is a party or the consummation of the transactions contemplated in such
agreements.
<PAGE> 91

EXHIBIT 2.4(a)

ASSIGNMENT AND ASSUMPTION AGREEMENT

This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is made as
of October ___, 1996, by and among QUALITY MORTGAGE USA, INC., a California
corporation (the "Seller"), to AMRESCO Residential Mortgage Corporation, a
Delaware corporation ("Buyer").

RECITALS:

A. Seller, certain other parties and Buyer have previously
entered into an Asset Purchase Agreement dated as of October 9, 1996 (the
"Asset Purchase Agreement").

B. Pursuant to the Asset Purchase Agreement, Seller has agreed to
sell and convey to Buyer the Acquired Assets (as defined and described in the
Asset Purchase Agreement), which include certain assets, properties, or
interests of the Seller defined therein as the "Assumed Contracts."

C. Pursuant to the Asset Purchase Agreement, Buyer has agreed to
assume the Assumed Liabilities (as defined and described in the Asset Purchase
Agreement).

D. This Agreement is being delivered pursuant to Section 2.4(a)
of the Asset Purchase Agreement.

AGREEMENT:

1. ASSIGNMENT. Seller, for itself and its successors and assigns
forever, hereby assigns, transfers and conveys to Buyer all of its rights in,
related to or arising out of, the Assumed Contracts.

2. ASSUMPTION. Buyer, for itself and its successors and assigns
forever, hereby accepts and assumes the due and punctual performance, discharge
and observation of, and shall perform, discharge and observe, all of Seller's
obligations in, related to, or arising out of the Assumed Contracts and the
Assumed Liabilities to the extent such obligations are required to be
performed, discharged or observed after the date hereof.

3. ADDITIONAL RIGHTS AND OBLIGATIONS. Seller and Buyer hereby
agree and acknowledge that this Agreement is being entered into pursuant to and
subject to the terms and conditions set forth in the Asset Purchase Agreement
and that additional rights and obligations

<PAGE> 92
of the parties are expressly provided for therein, and that the execution and
delivery of this Agreement shall not impair or diminish any of the rights or
obligations of any of the parties to the Asset Purchase Agreement as set forth
therein.

4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Any counterpart may be delivered
by facsimile; provided that attachment thereof shall constitute the
representation and warranty of the person delivering such signature that such
person has full power and authority to attach such signature and to deliver
this Agreement. Any facsimile signature shall be replaced with an original
signature as promptly as practicable.

5. DESCRIPTIVE HEADINGS. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement. References to "Sections"
herein are references to sections of this Agreement. The words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision.

6. REASONABLE EFFORTS; COOPERATION. The parties shall use their
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the provisions
contained herein and to cooperate with each other in connection with the
foregoing.

8. GOVERNING LAW. This Agreement shall be governed by,
construed, interpreted and applied in accordance with the laws of the State of
California, without giving effect to any conflict of laws rules that would
refer the matter to the laws of another jurisdiction.

Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court sitting in Orange County,
California and, if such court does not have jurisdiction, of the courts of the
State of California in Orange County, for the purposes of any action arising
out of this Agreement or the subject matter hereof, brought by any other party.

To the extent permitted by applicable law, each party hereby waives
and agrees not to assert, by way of motion, as a defense or otherwise in any
such action, any claim (i) that it is not subject to the jurisdiction of the
above- named courts, (ii) that the action is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or its
property, (iv) that the venue of the suit, action or proceeding is improper or
(v) that this Agreement or the subject matter hereof may not be enforced in or
by such courts.

The prevailing party in any action or proceeding relating to this
Agreement shall be entitled to recover reasonable attorneys' fees and other
costs from the non-prevailing parties, in addition to any other relief to which
such prevailing party may be entitled.

2
<PAGE> 93
9. BINDING EFFECT. The provisions hereof shall inure to the
benefit of, and be binding upon, the permitted assigns, successors, heirs,
executors and administrators of the parties hereto. This Agreement may not be
assigned without the written consent of all other parties; provided, however,
Buyer may assign all of its rights and obligations hereunder to one of its
Affiliates.

10. DEFINITIONS. Capitalized terms not expressly defined in this
Agreement shall have the meanings assigned to them in the Asset Purchase
Agreement.

* * * * *

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<PAGE> 94
This Agreement has been executed as of the date first written above.

Seller:
------

QUALITY MORTGAGE USA, INC.

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

Buyer:
-----

AMRESCO Residential Mortgage Corporation

By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------

4
<PAGE> 95

EXHIBIT 2.4(b)

[FORM FOR QUALITY, CALMAC AND THE JEDINAKS]

NONCOMPETITION AGREEMENT

This NONCOMPETITION AGREEMENT (this "Agreement") is made as of October
__, 1996, by and between AMRESCO Residential Mortgage Corporation, a Delaware
corporation ("Buyer"), and Quality Mortgage USA, Inc., a California corporation
("Quality").

R E C I T A L S

A. Buyer, Quality and certain other parties have previously
entered into an Asset Purchase Agreement dated as of October 9, 1996 (the
"Asset Purchase Agreement").

B. Pursuant to the Asset Purchase Agreement, Quality and certain
other parties have agreed to sell and convey to Buyer the Acquired Assets.

C. As an inducement to Buyer to enter into the Asset Purchase
Agreement and as a condition to Buyer's consummation of the Asset Purchase
Agreement, Quality has agreed to enter into and deliver this Agreement in
consideration of Buyer's entering into the Asset Purchase Agreement and the
significant consideration payable to Quality under the Asset Purchase
Agreement.

D. This Agreement is being executed and delivered pursuant to
Section 2.4(b) of the Asset Purchase Agreement.

A G R E E M E N T

Based on the recitals set forth above and the promises contained in
this Agreement, the parties agree as follows:

1. Definitions.

Capitalized terms not expressly defined in this Agreement shall have
the meanings assigned to them in the Asset Purchase Agreement.

2. Acknowledgments by Seller.

Quality acknowledges that (a) as the owner of the assets being
conveyed to Buyer, Quality is familiar with the following, any and all of which
constitute confidential information of the Company or the Subsidiaries
(collectively the "Confidential Information"): (i) any and all trade secrets
specifically concerning the Mortgage Business and the Acquired Assets,
including data, know-how, formulae, compositions, processes, designs, graphs,
drawings, samples, inventions and ideas,
<PAGE> 96
past, current and planned research and development, current and planned
marketing and sales methods and processes, customer lists, current or prior
loan applicants, broker lists, current or prior borrowers, current and
anticipated customer requirements, price lists, market studies, business plans,
computer software and programs (including object code and source code),
computer software and database technologies, systems, structures and
architectures (and related processes, formulae, compositions, improvements,
devices, know-how, inventions, discoveries, concepts, ideas, designs, methods
and information) of Quality or the Subsidiaries and any other information,
whether or not documented in any manner, of Quality or the Subsidiaries that is
a trade secret within the meaning of applicable trade secret law; (ii) any and
all proprietary information concerning the businesses and affairs of Quality
and the Subsidiaries (other than historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented; and (iii) any and
all analyses, compilations, studies and summaries prepared by or for Quality or
the Subsidiaries containing or based, in whole or in part, on any information
included in the foregoing; (b) the businesses of Quality and the Subsidiaries
is national in scope; (c) their products and services are marketed throughout
the United States; (d) Quality and the Subsidiaries compete with other
single-family residential mortgage origination businesses that are or could be
located in any part of the United States; (e) Buyer has required that Quality
make the covenants set forth in Sections 3 and 4 hereof as a condition to
Buyer's acquisition of the Acquired Assets; (f) Sections 3 and 4 hereof are
reasonable and necessary to protect and preserve the Mortgage Business and the
Acquired Assets; and (g) the Mortgage Business and the Acquired Assets would be
irreparably damaged if Quality were to breach the covenants set forth in
Sections 3 and 4 hereof.

3. Confidential Information. Quality acknowledges and agrees that all
Confidential Information known or obtained by Quality, whether before or after
the date hereof, constitutes a part of the Mortgage Business being acquired by
Buyer and is an Acquired Asset. Therefore, Quality agrees that Quality shall
not, at any time, disclose to any unauthorized individual, corporation
(including any non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
labor union, governmental or quasi- governmental authority of any nature, or
other entity (collectively, a "Person") or use for its own account or for the
benefit of any third party any Confidential Information, whether or not such
information is embodied in writing or other physical form, without Buyer's
prior written consent, unless and to the extent that the Confidential
Information is or becomes generally known to and available for use by the
public other than as a result of Quality's fault or the fault of any other
Person bound by a duty of confidentiality to Buyer or the Subsidiaries;
provided, however, that if Quality becomes legally compelled by deposition,
subpoena or other court or governmental action to disclose any of the
Confidential Information, then Quality will give Buyer prompt notice to that
effect, and will cooperate with Buyer if Buyer seeks to obtain a protective
order concerning the Confidential Information. Quality will disclose only such
Confidential Information as its counsel shall advise is legally required.
Quality

<PAGE> 97
agrees to deliver to Buyer, at any time Buyer may request, all documents,
memoranda, plans, records, reports, and other documentation, models,
components, devices, or computer software, whether embodied in a disk or in
other form (and all copies of all of the foregoing), relating to the Mortgage
Business or Acquired Assets.

4. Noncompetition.

As an inducement for Buyer to enter into and consummate the Asset
Purchase Agreement, Seller agrees that:

(a) For a period ending on the second anniversary of the
date hereof (such period being the "Term"):

(i) Quality shall not, directly or indirectly,
engage or invest in, own, manage, operate, finance, control,
or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or
in any manner connected with, lend Quality's name or any
similar name to, lend Quality's credit to, or render services
or advice to, any business whose products or activities
compete in whole or in part with the products or activities of
the Mortgage Business (including the conduct of a mortgage
conduit business or a mortgage telemarketing operation
targeted at brokers), anywhere within the United States.
Quality may engage through one office location in a retail
residential mortgage origination business that does not make
use of any of the Confidential Information. Quality agrees
that this covenant is reasonable with respect to its duration,
geographical area, and scope.

(ii) Quality shall not, directly or indirectly,
either for itself or any other person, (A) induce or attempt
to induce any employee of the Buyer or any subsidiary of the
Buyer to leave the employ of the Buyer or any subsidiary of
the Buyer, (B) in any way interfere with the relationship
between the Buyer or any subsidiary of the Buyer and any
employee thereof, (C) employ, or otherwise engage as an
employee, independent contractor, or otherwise, any person
known by Quality to be an employee of the Buyer or any
subsidiary of the Buyer, or (D) induce or attempt to induce
any broker, customer, supplier, licensee, or business relation
of the Buyer or any subsidiary of the Buyer to cease doing
business with the Buyer or any subsidiary of the Buyer, or in
any way interfere with the relationship between any broker,
customer, current or prior loan applicant, current or former
borrower, supplier, licensee, or business relation of the
Buyer or any subsidiary of the Buyer.

(iii) Quality shall not, directly or indirectly,
either for itself or any other person, do business with or
solicit the business of any person known to Quality to be a
customer of, or broker or potential broker for,

3
<PAGE> 98
the Mortgage Business, whether or not Quality had personal
contact with such person, with respect to products, services
or other business activities which compete in whole or in part
with the products, services or other business activities of
the Mortgage Business (other than the retail origination
business specifically permitted under Section 4(a)(i) hereof;

(iv) Quality shall not, directly or indirectly,
either for itself or any other person, solicit borrowers to
refinance loans previously sold or securitized by Buyer or its
Affiliates (including AMRESCO, INC. and its subsidiaries);
provided, however, that the limitation set forth in this
Section shall not apply to (a) solicitations that are directed
to the general public at large (including without limitation
mass mailings based on commercially acquired mailing lists and
newspaper, radio and television advertisements) or (b)
responses to unsolicited requests or inquiries made by a
borrower or an agent of a borrower.

(b) In the event of a material breach by Quality of any
covenant set forth in Subsection 4(a) of this Agreement, the term of
such covenant shall be extended by the period of the duration of such
breach;

(c) Quality shall not, at any time during or after the
Term, disparage Buyer, the Mortgage Business or any Subsidiary, or any
of their respective stockholders, directors, officers, employees,
brokers or agents; and

[(d) [Jedinaks only] Each of the Jedinaks shall, during
the Term, within ten days after accepting any employment, advise Buyer
and the Company of the identity of any employer of such Jedinak. Each
of the Jedinaks acknowledges that Buyer or the Company may serve
notice upon each such employer that such Jedinak is bound by this
Agreement and furnish each such employer with a copy of this Agreement
or relevant portions thereof.]

5. Compensation.

The consideration being paid to Quality pursuant to the Asset Purchase
Agreement includes consideration for this Agreement.

6. Remedies.

If Quality breaches the covenants set forth in Sections 3 and 4
hereof, then Buyer or any Subsidiary shall be entitled to the following
remedies:

(a) Damages from Quality;

(b) In addition to its right to damages and any other
rights it may have, to obtain injunctive or other equitable relief to
restrain any breach or threatened breach or otherwise to specifically
enforce the provisions of

4
<PAGE> 99
Sections 3 and 4 hereof, it being agreed that money damages alone
would be inadequate to compensate the Buyer or any Subsidiary and
would be an inadequate remedy for such breach; and

7. Successors and Assigns.

The provisions hereof shall inure to the benefit of, and be binding
upon, the permitted assigns, successors, heirs, executors and administrators of
the parties hereto. This Agreement may not be assigned without the written
consent of all other parties; provided, however, Buyer may assign all of its
rights and obligations hereunder to one of its Affiliates.

8. Waiver.

The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement will operate
as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.

9. Governing Law.

This Agreement shall be governed by, construed, interpreted and
applied in accordance with the laws of the State of California, without giving
effect to any conflict of laws rules that would refer the matter to the laws of
another jurisdiction.

Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court sitting in Orange County,
California and, if such court does not have jurisdiction, of the courts of the
State of California in Orange County, for the purposes of any action arising
out of this Agreement or the subject matter hereof, brought by any other party.

5
<PAGE> 100
any legal process with respect to itself or its property, (iv) that the venue
of the suit, action or proceeding is improper or (v) that this Agreement or the
subject matter hereof may not be enforced in or by such courts.

10. Reformation.

If a court of competent jurisdiction determines that the limitations
as to time, geographical area or scope of activity to be restrained contained
in this Agreement are not reasonable and impose a greater restraint than is
necessary to protect the goodwill or other business interests of Buyer and the
Subsidiaries, then the parties agree that such court should (and Quality will
request such court to) reform this Agreement to the extent necessary to cause
the limitations contained in this Agreement as to time, geographical area and
scope of activity to be restrained to be reasonable and to impose a restraint
that is not greater than necessary to protect the goodwill or other business
interests of Buyer and the Subsidiaries and such court then shall enforce this
Agreement as reformed.

11. Entire Agreement.

This Agreement, the Asset Purchase Agreement (including the Schedules
and Exhibits thereto) and the other Related Agreements constitute the full and
entire understanding and agreement between the parties and supersede any other
agreement, written or oral, with regard to the subject matter hereof. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instrument
signed by the parties hereto.

12. Notices, Etc.

All notices and other communications required or permitted hereunder
shall be in writing and shall be mailed by certified or registered mail,
postage prepaid, return receipt requested, or delivered by hand, messenger,
scheduled overnight courier, or telecopy (hard copy to follow by scheduled
overnight courier) and shall be deemed given when received at the addresses set
forth below, or at such other address furnished in writing to the other parties
hereto.

6
<PAGE> 101
If to Quality: P.O. Box 19060
Las Vegas, Nevada 89132
Attention: Russell Jedinak
Rebecca Jedinak
(702) 732-7997 (fax)

and
c/o DLJ Mortgage Capital
277 Park Avenue
New York, NY 10172
Attention: Counsel's Office
(212) 892-7272 (fax)

with a copy to: Mayer, Brown & Platt
350 South Grand Avenue
Los Angeles, CA 90071
Attention: Ken Kohler
(213) 625-0248 (fax)

If to Buyer: c/o AMRESCO, INC.
Suite 2400
700 North Pearl Street
Dallas, TX 75201
Attention: General Counsel
(214) 753-7757 (fax)

13. Counterparts.

This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument. Any counterpart may be delivered by facsimile; provided
that attachment thereof shall constitute the representation and warranty of the
person delivering such signature that such person has full power and authority
to attach such signature and to deliver this Agreement. Any facsimile
signature shall be replaced with an original signature as promptly as
practicable.

14. Titles and Subtitles.

The titles of the paragraphs and subparagraphs of this Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement. References to "Sections" herein are references to sections of
this Agreement. The words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.

* * * * *

7
<PAGE> 102
This Agreement has been executed and delivered as of the date first
written above.

AMRESCO Residential Mortgage Corporation

By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------

QUALITY MORTGAGE USA, INC.

By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------

<PAGE> 1
[AMRESCO, INC. LETTERHEAD]

EXHIBIT 5.1

October 23, 1996

AMRESCO, INC.
700 North Pearl Street
Suite 2400, LB 342
Dallas, Texas 75201-7424

Re: Registration on Form S-3 of 8,924,000 shares of Common Stock, par
value $0.05 per share, of AMRESCO, INC.

Gentlemen:

I am general counsel of AMRESCO, INC., a Delaware corporation (the
"Company"), in connection with the registration and sale of up to 8,924,000
shares of Common Stock, par value $0.05 per share, of the Company (the
"Shares"), composed of Shares (the "Company Shares") to be issued and sold by
the Company and Shares (the "Selling Stockholders' Shares") to be sold by
certain Selling Stockholders (the "Selling Shareholders") pursuant to the
Underwriting Agreement (the "Underwriting Agreement") to be entered into among
the Company, the Selling Stockholders and The Robinson-Humphrey Company, Inc.,
Piper Jaffray Inc., Raymond James & Associates, Inc., Montgomery Securities,
J.C. Bradford & Co. and Morgan Keegan & Company, Inc., as the Representatives
of the several Underwriters to be named in a schedule to the Underwriting
Agreement (the "Underwriters").

I have examined such documents, records and matters of law as I have
deemed necessary for purposes of this opinion. Based on the foregoing, I am of
the opinion that (i) the Company Shares are duly authorized and, when issued
and delivered to the Underwriters pursuant to the Underwriting Agreement
against payment of the consideration therefor as provided therein, will be
validly issued, fully paid and nonassessable, and (ii) the Selling
Stockholders' Shares are duly authorized, validly issued, fully paid and
nonassessable.

In rendering the foregoing opinion, I have relied as to certain factual
matters upon certificates of officers of the Company, the Selling Stockholders
and public officials, and I have not independently checked or verified the
accuracy of the statements contained therein.

I hereby consent to the filing of this opinion as Exhibit 5.1 to
Registration Statement No. 333-13823 on Form S-3 and any amendments thereto
filed by the Company to effect registration of the Shares under the Securities
Act of 1933, as amended, and to the reference to me under the caption "Legal
Matters" in the Prospectus constituting a part of such Registration Statement.

Very truly yours,

/s/ L. KEITH BLACKWELL

L. Keith Blackwell
Vice President, General Counsel and Secretary

<PAGE> 1

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in and the incorporation by reference in this
Pre-Effective Amendment No. 1 to Registration Statement No. 333-13823 of
AMRESCO, INC. and Subsidiaries on Form S-3 of our report dated February 6, 1996,
appearing in the Annual Report on Form 10-K of AMRESCO, INC. and Subsidiaries
for the year ended December 31, 1995, and to the reference to us under the
headings "Summary Financial and Other Data" and "Experts" in the Prospectus,
which is part of this Registration Statement.

DELOITTE & TOUCHE LLP

Dallas, Texas

October 23, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement of AMRESCO, INC.
on Form S-3 (File No. 333-13823) of our report dated December 15, 1995, on our
audits of the consolidated financial statements of Quality Mortgage USA, Inc. We
also consent to the reference to our firm under the caption "Experts."

COOPERS & LYBRAND L.L.P.
Newport Beach, California

October 23, 1996