Resource Mortgage Capital Corp. started life as RAC Mortgage Investment Corp. in 1988, when it was managed by Ryland Acceptance Corp. In 1992, it changed to its present name and decided to be self-managed - not a bad call as the last big refinancing wave was just getting under way.

But last year, the real estate investment trust showed the same slack performance as the rest of the industry, experiencing a slump in earnings and stock price. Since then, it has been steadily recovering. In fact, its improved prospects have attracted the attention of PaineWebber Inc. analyst Gary J. Gordon, who has initiated coverage with a "buy" recommendation.

Mr. Gordon's interest in Resource Mortgage is another indication that the mortgage business is experiencing a revival. Mortgage banking stocks have generally been strong in recent months; some smaller new issues have found their way to market; and the market for loan production assets has awakened after slumbering more than a year.

Mr. Gordon said that Resource, based in Glen Allen, Va., has made a significant shift in strategy. It previously tried to make a profit both from originating and investing in loans. Now it is using loan originations to supply itself with investment product, a process Mr. Gordon said should stabilize revenues.

But it's worth noting that the company is also changing its mix of investments away from the plain-vanilla home loan, another move that is becoming a theme in the industry.

"Resource is now focusing its lending on apartment and manufactured home lending," Mr. Gordon said, "because it believes the risk-adjusted yields on these loans are better than on single-family mortgage loans, after adjusting for origination, credit, and servicing costs."

Resource sold its Saxon Mortgage unit this year to Dominion Resources, agreeing to stay out of wholesale subprime lending for five years. But it can still do retail lending and bulk purchases of loans.

The company is relatively new to manufactured housing, having gotten into the business last year. Its loans are marketed through dealers from regional offices in Michigan, North Carolina, Georgia, and Texas. Its competitors are giants such as BankAmerica and Associates.

According to Mr. Gordon, it is competing with such heavyweights in these ways:

*Offering lower rates on better-quality loans.

*Providing loan products that competitors do not offer, such as three- year and five-year fixed-adjustable hybrids.

*Financing dealer inventories.

Mr. Gordon said he believes Resource can maintain average annual growth of 8% over the next five years. "We give Resource a good chance of continuing to identify lending niches that offer above-average yields because it has done so in the past," he said.

He is also expecting improvements in funding efficiency and said Resource may eventually obtain an investment-grade debt rating that would let it fund cheaply with commercial paper.

While Resource, as a REIT, can retain very little in earnings, Mr. Gordon said it has generally been able to raise equity capital at a price above book value, which eventually increases earnings per share.

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