SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

      [X]  QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES
           EXCHANGE ACT OF 1934
           For the quarterly period ended September 30, 2001

                                       OR

      [ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(D) OF
           THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ________ to ___________

                         Commission File Number: 1-12109

                           DELTA FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                 11-3336165
           --------                                 ----------
      (State or other jurisdiction of            (I.R.S. Employer
      incorporation or organization)             Identification No.)

       1000 WOODBURY ROAD, SUITE 200, WOODBURY, NEW YORK 11797
    (Address of registrant's principal executive offices including ZIP Code)

                                (516) 364 - 8500
                                ----------------
              (Registrant's telephone number, including area code)

                                    NO CHANGE
(Former name,former address and former fiscal year,if changed since last report)


      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  and Exchange Act
of 1934  during the  preceding  12 months (or for such  shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days

                                Yes [ x ] No [ ]

      As of September 30, 2001,  15,883,749  shares of the  Registrant's  common
stock, par value $0.01 per share, were outstanding.


<PAGE>
                               INDEX TO FORM 10-Q

                                                                      Page No.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Consolidated Balance Sheets as of September 30, 2001 and
         December 31, 2000.................................................  1

         Consolidated Statements of Operations for the three months and
         nine months ended September 30, 2001 and September 30, 2000.......  2

         Consolidated Statements of Cash Flows for the nine months
         ended September 30, 2001 and September 30, 2000...................  3

         Notes to Consolidated Financial Statements........................  4

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.........................................  9

Item 3.  Quantitative and Qualitative Disclosures About Market Risk ....... 27


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings................................................. 28

Item 2.  Changes in Securities and Use of Proceeds......................... 31

Item 3.  Defaults Upon Senior Securities................................... 31

Item 4.  Submission of Matters to a Vote of Security Holders............... 31

Item 5.  Other Information................................................. 31

Item 6.  Exhibits and Current Reports on Form 8-K.......................... 31

Signatures................................................................. 33


<PAGE>

                      (1)...PART I - FINANCIAL INFORMATION

                   ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<S>                                                        <C>                <C>
                                                            SEPTEMBER 30,      DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)                    2001               2000
                                                              ----------         -----------
ASSETS
Cash and interest-bearing deposits                             $  4,394          $  62,270
Accounts receivable                                               2,970             20,502
Loans held for sale, net                                        172,399             82,698
Accrued interest receivable                                         482             10,388
Interest-only and residual certificates, net                     13,345            216,907
Equipment, net                                                    6,085             15,034
Prepaid and other assets                                            747             37,846
Deferred tax asset, net                                           5,600              5,600
                                                               --------           --------
    Total assets                                               $206,022          $ 451,245
                                                               ========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank payable                                                   $  1,353          $     927
Warehouse financing and other borrowings                        167,146             88,632
Senior Notes                                                     10,844            149,571
Accounts payable and accrued expenses                            18,229             31,962
Investor payable                                                      -             69,489
Advance payment by borrowers for taxes and insurance                  -             12,940
                                                               --------           --------
    Total liabilities                                           197,572            353,521
                                                                =======            =======

Stockholders' Equity:
Preferred stock, $.01 par value. Authorized 150,000
   shares; 139,156 shares and 0 shares Series A issued
   and outstanding at September 30, 2001 and
   December 31, 2000, respectively                               13,916                  -
Common stock, $.01 par value. Authorized 49,000,000
   shares; 16,000,549 shares issued and 15,883,749 shares
   outstanding at September 30, 2001 and December 31,
   2000, respectively                                               160                160
Additional paid-in capital                                       99,472             99,472
Retained deficit                                               (103,780)              (590)
Treasury stock, at cost (116,800 shares)                         (1,318)            (1,318)
                                                               --------           --------
    Total stockholders' equity                                    8,450             97,724
                                                               --------           --------
      Total liabilities and stockholders' equity               $206,022           $451,245
                                                               ========           ========

                See accompanying notes to consolidated financial statements.
</TABLE>
                                       1
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<S>                                                   <C>             <C>                <C>             <C>

                                                       THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                           SEPTEMBER 30,                      SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)           2001           2000                2001           2000
                                                       -------        -------             -------        -------
REVENUES
   Net gain on sale of mortgage loans               $    2,331      $  14,570          $   22,028    $    40,498
   Interest                                            (16,075)         2,721             (25,621)        20,825
   Servicing fees                                            -          2,959               2,983         10,763
   Origination fees                                      3,380          7,375              12,274         20,428
                                                     ---------       --------             -------        -------
       Total revenues                                  (10,364)        27,625              11,664         92,514
                                                     ----------      --------             -------        -------
EXPENSES
   Payroll and related costs                             9,945         13,534              33,228         44,794
   Interest expense                                      2,928          7,450              14,749         23,781
   General and administrative                            8,557         12,261              43,950         32,467
   Debt modification charges                                 -          3,088                   -          3,088
   Restructuring and other special charges                   -          6,677               1,246          6,677
                                                       -------        -------              ------        -------
       Total expenses                                   21,430         43,010              93,173        110,807
                                                       -------        -------              ------        -------

Loss before income
    tax expense (benefit) and
    extraordinary item                                 (31,794)       (15,385)            (81,509)       (18,293)
Income taxes expense (benefit)                           1,861         (4,179)              2,426         (5,386)
                                                     ---------       ---------         ----------       ---------
Loss before extraordinary item                         (33,655)       (11,206)            (83,935)       (12,907)

Extraordinary item, net of tax -
   loss on early extinguishment of debt                (19,255)             -             (19,255)             -
                                                       ---------     ---------          ----------     ----------
Net loss                                           $   (52,910)    $  (11,206)        $  (103,190)   $   (12,907)
                                                       ========      =========          ==========     ==========

BASIC EARNINGS PER SHARE:
  Loss before extraordinary item                   $     (2.12)    $    (0.71)        $     (5.28)   $     (0.81)
  Extraordinary item, net of tax                   $     (1.21)    $        -         $     (1.21)   $         -
                                                      =========      =========          ==========     ==========
  Net loss per share                               $     (3.33)    $    (0.71)        $     (6.49)   $     (0.81)
                                                      =========      =========          ==========     ==========


DILUTED EARNINGS PER SHARE:
   Loss before extraordinary item                  $     (2.12)    $    (0.70)        $     (5.28)   $     (0.81)
   Extraordinary item, net of tax                        (1.21)             -               (1.21)             -
                                                      ---------      ---------          ----------     ----------
   Net loss per share                              $     (3.33)    $    (0.70)        $     (6.49)   $     (0.81)
                                                      =========      =========          ==========     ==========

          See accompanying notes to consolidated financial statements.
</TABLE>
                                       2
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<S>                                                                       <C>              <C>

                                                                                 NINE MONTHS ENDED
                                                                                    SEPTEMBER 30,
(DOLLARS IN THOUSANDS)                                                          2001             2000
                                                                              -------           -------
Cash flows from operating activities:
  Net loss                                                                 $ (103,190)       $ (12,907)
  Adjustments to reconcile net income to net cash used in
    operating activities:
     Provision for loan and recourse losses                                     2,293              614
     Depreciation and amortization                                              7,260            9,717
     Extraordinary loss on early extinguishment of debt                        19,255                -
     Deferred tax benefit                                                           -          (22,482)
     Capitalized mortgage servicing rights, net of amortization                     -            5,850
     Deferred origination costs                                                    12              653
     Interest-only and residual certificates received in
       securitization transactions, net                                        50,472          (14,473)
     Changes in operating assets and liabilities:
       Decrease (increase) in accounts receivable                              16,934           (1,070)
       (Increase) decrease in loans held for sale, net                        (91,613)          34,533
       Decrease in accrued interest receivable                                  9,906           49,173
       Decrease (increase) in prepaid and other assets                         32,556          (17,689)
       (Decrease) increase in accounts payable and accrued expenses               (21)           2,280
       Decrease in investor payable                                           (69,489)         (21,262)
       (Decrease) increase in advance payments by borrowers for
          taxes and insurance                                                 (12,940)             149
                                                                             ----------        --------
          Net cash (used in) provided by operating activities                (138,565)          13,086
                                                                             ----------        --------

Cash flows from investing activities:
  Disposition (purchase) of equipment                                           1,749           (1,258)
                                                                              --------         --------
         Net cash used in investing activities                                  1,749           (1,258)
                                                                              --------         --------

Cash flows from financing activities:
  Proceeds (repayments) from warehouse financing & other borrowings, net       78,514          (26,925)
  Increase (decrease) in bank payable, net                                        426             (668)
                                                                              -------          --------
           Net cash provided by (used in) financing activities                 78,940          (27,593)
                                                                              -------          --------
           Net decrease in cash and interest-bearing deposits                 (57,876)         (15,765)

Cash and interest-bearing deposits at beginning of period                      62,270           69,557
                                                                              --------        ---------
Cash and interest-bearing deposits at end of period                          $  4,394         $ 53,792
                                                                              ========        =========

Supplemental Information:
Cash paid during the period for:
  Interest                                                                   $ 13,391         $ 26,512
                                                                              ========         ========
  Income taxes                                                               $    744         $  2,133
                                                                              ========         ========


          See accompanying notes to consolidated financial statements.
</TABLE>
                                       3
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)BASIS OF PRESENTATION

   Delta  Financial  Corporation  (the  "Company"  or  "Delta")  is  a  Delaware
corporation, which was organized in August 1996.

   The accompanying  unaudited  consolidated  financial  statements  include the
accounts of the  Company  and its wholly  owned  subsidiaries.  All  significant
inter-company accounts and transactions have been eliminated in consolidation.

   The  accompanying  unaudited  consolidated  financial  statements  have  been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States of  America  (GAAP) for  interim  financial  information  and the
instructions to Form 10-Q. Certain information and footnote disclosures normally
included in  financial  statements  prepared in  accordance  with GAAP have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange  Commission.   The  accompanying   unaudited   consolidated   financial
statements  and  the  information  included  under  the  heading   "Management's
Discussion and Analysis of Financial Condition and Results of Operations" should
be read in conjunction with the audited  consolidated  financial  statements and
related notes of the Company for the year ended  December 31, 2000.  The results
of operations for the three- and nine-month  periods ended September 30, 2001 is
not  necessarily  indicative of the results that will be expected for the entire
year.

   We have  made  all  adjustments  that  are,  in the  opinion  of  management,
considered  necessary  for a fair  presentation  of the  financial  position and
results of operations for the interim periods  presented.  We have  reclassified
certain  prior  period  amounts in the  financial  statements  to conform to the
current year presentation.

(2)SUMMARY OF REGULATORY SETTLEMENTS

   In September  1999,  the Company  settled  allegations  by the New York State
Banking  Department  (the "NYSBD") and a lawsuit by the New York State Office of
the Attorney  General (the  "NYOAG")  alleging  that Delta had violated  various
state and federal  lending  laws.  The global  settlement  was evidenced by that
certain (a)  Remediation  Agreement by and between  Delta Funding and the NYSBD,
dated as of September 17, 1999 and (b) Stipulated  Order on Consent by and among
Delta Funding, Delta Financial and the NYOAG, dated as of September 17, 1999. As
part of the  Settlement,  Delta,  among other  things,  implemented  agreed upon
changes to its lending practices; is providing reduced loan payments aggregating
$7.25 million to certain  borrowers  identified by the NYSBD;  and has created a
fund managed by the NYSBD and  financed by the grant of 525,000  shares of Delta
Financial's common stock.

   Each month, on behalf of borrowers designated by the NYSBD, the Company makes
subsidy payments to the related  securitization  trusts.  These subsidy payments
fund the  differential  between the original  loan payments and the reduced loan
payments. As part of an exchange offer the Company completed in August 2001 (see
"-Corporate Restructuring,  Debt Modification,  and Debt Restructuring"),  Delta
Funding Residual Exchange Company,  LLC (the "LLC") - a newly-formed entity, the
voting  membership  interests  of which are owned by the  former  holders of the
Company's
                                       4

Senior  Secured  Notes and  Senior  Notes  due  2004  (the "Notes") who tendered
their   Notes  for  such   membership  interests  and   other  securities  -  is
obligated to satisfy these payment  subsidies out of the cashflows  generated by
the interest-only and residual  certificates it owns (which formerly secured the
Senior  Secured  Notes).  Management  believes  the  LLC  will  have  sufficient
cashflows from its assets to satisfy these payment  subsidies.  However,  in the
event the LLC's cashflows are insufficient to pay this  obligation,  the Company
remains  primarily  responsible to satisfy its obligations under the Remediation
Agreement.

   The proceeds of the stock fund will be used to pay borrowers and to finance a
variety of consumer  educational and counseling  programs.  The Company does not
manage the fund created for this  purpose.  The number of shares of common stock
deposited in the fund does not adjust to account for  fluctuations in the market
price of Delta's  common  stock.  Changes to the market price of these shares of
common  stock  deposited  in the fund do not have any  impact  on the  Company's
financial  statements.  The  Company  did  not  make  any  additional  financial
commitments between the settlement date and March 2000.

   In March 2000, the Company finalized an agreement with the U.S. Department of
Justice,  the Federal Trade  Commission  and the Department of Housing and Urban
Development, to complete the global settlement it had reached with the NYSBD and
NYOAG. The Federal  agreement  mandates some additional  compliance  efforts for
Delta, but it does not require any additional financial commitment by Delta.

(3)CORPORATE RESTRUCTURING, DEBT MODIFICATION, AND DEBT RESTRUCTURING

   CORPORATE RESTRUCTURING

   In January 2001,  Delta  announced that it had entered into an agreement with
Ocwen  Financial  Corporation  ("Ocwen") to transfer its servicing  portfolio to
Ocwen.  In May 2001, the Company  physically  transferred  its entire  servicing
portfolio  to Ocwen,  and  laid-off the  majority of its  servicing  staff.  The
Company recorded $0.5 million pre-tax charge related to this restructuring which
is  included  in  restructuring  charges  in  the  consolidated   statements  of
operations.  The Company  terminated  128 employees at the time of its servicing
transfer to Ocwen.  This charge relates to employee  severance  associated  with
closing the Company's servicing  operations.  The Company no longer services any
loans nor does it have a servicing operation.

   The  following  table  sets forth the  components  of the  Company's  accrual
restructuring charges:
<TABLE>
<S>                                             <C>          <C>       <C>                   <C>

                                     ACCRUAL BALANCE AT    ACCRUAL     EXPENSE   ACCRUAL BALANCE AT
(DOLLARS IN THOUSANDS)                DECEMBER 31, 2000   INCREASE   RECOGNIZED  SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------------
Write down of lease obligations                  $1,163          -        (442)                 721

Employment termination payments                     180        473        (642)                  11

----------------------------------------------------------------------------------------------------
Total Accrual Restructuring Charges              $1,343        473      (1,084)                 732
----------------------------------------------------------------------------------------------------
</TABLE>
                                       5

   DEBT MODIFICATION AND DEBT RESTRUCTURING

   In August 2000, the Company announced an agreement to modify its Senior Notes
(the "Debt Modification"). With the consent of greater than fifty percent of its
Senior Note  holders,  the Company  modified a negative  pledge  covenant in the
Senior Notes Indenture,  which previously  prevented the Company from selling or
otherwise  obtaining  financing  against  any of its  interest-only  or residual
certificates (collectively,  the "Residual Certificates "). In consideration for
the Senior Noteholders'  consent,  the Company agreed, in an exchange offer (the
"First Exchange Offer"),  to offer then current Senior Noteholders the option to
exchange their then existing  Senior Notes for (a) new senior secured notes (the
"Senior  Secured  Notes") and (b)  ten-year  warrants to buy  approximately  1.6
million shares of Common Stock, at an initial exercise price of $9.10 per share,
subject to upward or downward  adjustment in certain  circumstances.  The Senior
Secured Notes have the same coupon,  face amount and maturity date as the Senior
Notes and, up until the Second Debt Restructuring (see below) were secured by at
least $165 million of the Company's  Residual  Certificates.  The First Exchange
Offer was  consummated  in  December  2000,  with  holders of greater  than $148
million of Senior Notes tendering in the exchange.

   In  February  2001,  the  Company  entered  into a letter of intent  with the
beneficial  holders  of over  fifty  percent  of its  Senior  Secured  Notes  to
restructure,  and ultimately  extinguish,  the Senior Secured Notes (the "Second
Debt Restructuring").  In March 2001, the Company obtained the formal consent of
these  beneficial  holders  of  the  Senior  Secured  Notes  through  a  Consent
Solicitation  that  modified  certain  provisions  of the Senior  Secured  Notes
Indenture to, among other things, allow for the release of two interest-only and
residual  certificates  then securing the Senior Secured Notes.  The Company was
able to first finance and ultimately sell the Residual  Certificates  underlying
five securitizations  (including two Residual Certificates that were released as
part of the Second Debt  Restructuring) for a $15 million cash purchase price to
provide for working capital.

   In consideration  for their consent,  the Company agreed to offer the holders
of the Senior  Secured Notes and the Senior Notes,  an  opportunity  to exchange
their  Notes for the  Company's  newly  issued  preferred  stock and  membership
interests  in a newly  formed LLC, to which the Company  transferred  all of the
mortgage-related  securities then securing the Senior Secured Notes (the "Second
Exchange  Offer")  primarily  comprised  of  Residual  Certificates.  The Second
Exchange Offer was launched on July 23, 2001 and consummated on August 29, 2001.
As part of the Second Exchange  Offer,  all tendering  Noteholders  waived their
right to receive  any future  interest  coupon  payments on the  tendered  Notes
beginning with the August 2001 interest coupon payment.  With the closing of the
Second Exchange Offer,  the Company paid the August 2001 interest coupon payment
on the  approximately  $10.8  million of Notes that did not tender in the Second
Exchange Offer.

   In the Second  Exchange  Offer,  holders of  approximately  $138.1 million in
principal  amount of Delta's  Senior Secured Notes and $1.1 million in principal
amount of Delta's Senior Notes, exchanged their Notes for commensurate interests
in (1) the voting  membership  interests  in a  newly-formed  limited  liability
company  -LLC,  to which the  Company  transferred  all of the  mortgage-related
securities  previously  securing the Senior Secured Notes;  (2) shares of common
stock of a  newly-formed  management  corporation  that  will  manage  the LLC's
assets; and (3) shares of the Company's  newly-issued  preferred stock having an
aggregate preference amount of

                                        6

$13.9  million.  As  part  of  the  transaction,  Delta  obtained  a  non-voting
membership  interest in the LLC,  which entitles Delta to receive 15% of the net
cash  flows  from the LLC for the first  three  years  (through  June 2004) and,
thereafter,  10% of the net cash flows from the LLC. The net cashflows  from the
LLC are equal to the total cashflows generated by the assets held by the LLC for
a  particular  period,  less (a) all  expenses of the LLC,  (b) certain  related
income tax payments, and (c) the NYSBD subsidy payments.  Distributions from the
LLC will be paid  approximately on a quarterly  basis,  commencing in the fourth
quarter of 2001. By extinguishing  substantially all of the Company's  long-term
debt, the rating  agencies that  previously  rated the Company and its long-term
debt have withdrawn their corporate ratings.

   Management  believes  that its  transfer of servicing to Ocwen and the Second
Exchange Offer were essential steps in its continuing  effort to restructure its
operations  and reduce its  negative  cashflow  previously  associated  with its
servicing operations and the Notes.

(4)EARNINGS PER SHARE

   The  following  is  a  reconciliation   of  the  denominators   used  in  the
computations of basic and diluted Earnings Per Share ("EPS").  The numerator for
calculating both basic and diluted EPS is loss from continuing operations.

<TABLE>
<S>                                           <C>             <C>           <C>            <C>

                                                   THREE MONTHS ENDED             NINE MONTHS ENDED
                                                      SEPTEMBER 30,                 SEPTEMBER 30,
                                                  -------------------            -------------------
(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)           2001           2000            2001           2000
-----------------------------------------------------------------------------------------------------
Loss from continuing operations               $(33,655)      $(11,206)       $(83,935)      $(12,907)
Weighted-average shares - basic              15,883,749     15,883,749      15,883,749     15,883,749
Basic EPS                                       $(2.12)        $(0.71)         $(5.28)        $(0.81)

Weighted-average shares - basic              15,883,749     15,883,749      15,883,749     15,883,749
Incremental shares-options                       18,560         37,120          24,747         37,572
-----------------------------------------------------------------------------------------------------
Weighted-average shares - diluted            15,902,309     15,920,869      15,908,496     15,921,321
Diluted EPS                                     $(2.12)        $(0.70)         $(5.28)        $(0.81)
</TABLE>

(5)IMPACT OF NEW ACCOUNTING STANDARDS

   In  June  2000,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards  (SFAS) No. 138,  "Accounting  for
Certain Derivative  Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133." This statement supersedes and amends certain paragraphs
of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The effective date for SFAS No. 138 is for fiscal years beginning after June 15,
2000. SFAS Nos. 138 and 133 apply to quarterly and annual financial  statements.
There  was  no  impact  on the  Company's  financial  condition  or  results  of
operations upon adoption of SFAS Nos. 138 and 133.

   In September  2000, the FASB issued SFAS No. 140,  "Accounting  for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities." SFAS No.
140,  which  replaces SFAS No. 125,  "Accounting  for Transfers and Servicing of
Financial Assets and  Extinguishments of Liabilities,"  provides  accounting and
reporting  standards  for  securitizations  and other  transfers of assets.  The
Standard is based on the  application  of a financial  component

                                       7

approach  that  focuses  on  control,  and  provides  consistent  standards  for
distinguishing  transfers of financial assets that are sales from transfers that
are secured  borrowings.  The Standard requires  disclosure of information about
securitized  assets,  including  principal  outstanding of securitized and other
managed  assets,   accounting   policies,   key   assumptions   related  to  the
determination of the fair value of retained interests,  delinquencies and credit
losses.  Certain provisions of this Statement,  including relevant  disclosures,
are  effective  for fiscal years ending after  December 15, 2000.  The remaining
provisions  were effective for transfer  transactions  occurring after March 31,
2001.  SFAS No. 140 does not require  restatement of prior  periods.  In July of
2001, FASB Technical  Bulletin No. 01-1,  "Effective Date for Certain  Financial
Institutions of Certain  Provisions of Statement 140 Related to the Isolation of
Transferred  Financial  Assets," was issued which delays the effective  date for
the isolation  standards and related guidance under SFAS No. 140 to transfers of
financial assets  occurring after December 31, 2001,  instead of March 31, 2001.
The  implementation of SFAS No. 140 provisions did not have a material impact on
our financial  condition or results of  operations.  The  implementation  of the
remaining provisions, subsequent to December 31, 2001, is not expected to have a
material impact on our financial condition or results of operations.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible  Assets." SFAS No. 141 requires that the
purchase  method of accounting be used for all business  combinations  initiated
after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets
acquired in a purchase  method business  combination  must meet to be recognized
and  reported  apart from  goodwill.  SFAS No. 142  requires  that  goodwill and
intangible  assets with  indefinite  useful  lives no longer be  amortized,  but
instead  be tested for  impairment  at least  annually  in  accordance  with the
provision of SFAS No. 142.  SFAS No. 142 also requires  that  intangible  assets
with estimable useful lives be amortized over their respective  estimated useful
lives to their estimated residual values. The amortizing  intangible assets will
also be reviewed for impairment at least annually. SFAS No. 142 is applicable to
fiscal years  beginning after December 15, 2001 and is required to be applied at
the beginning of the entity's  fiscal year.  There was no material impact on the
Company's financial condition or results of operations upon adoption of SFAS No.
141 on July 1, 2001.  The Company does not believe that there will be a material
impact on the  Company's  financial  condition  or  results of  operations  upon
adoption of SFAS No. 142 on January 1, 2002.

   In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
of Disposal of Long-Lived Assets," which replaces SFAS No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
Of." The  provisions  of SFAS No. 144 are  effective  for  financial  statements
issued for fiscal years beginning after December 15, 2001 and, generally, are to
be applied  prospectively.  The Company  does not  believe  that there will be a
material  impact on the Company's  financial  condition or results of operations
upon adoption of SFAS No. 144.

                                       8

<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING  DISCUSSION  SHOULD BE READ IN CONJUNCTION  WITH THE  CONSOLIDATED
FINANCIAL  STATEMENTS  OF THE COMPANY  AND  ACCOMPANYING  NOTES TO  CONSOLIDATED
FINANCIAL STATEMENTS SET FORTH THEREIN.

GENERAL
   Delta Financial  Corporation  (the "Company" or "Delta"),  through its wholly
owned  subsidiaries,  engages in the consumer  finance  business by originating,
securitizing,  and selling (and,  prior to May 2001,  servicing)  non-conforming
home equity loans. Throughout its 19 years of operating history, the Company has
focused on lending to individuals  who generally have impaired or limited credit
profiles   or  higher   debt-to-income   ratios  for  such   purposes   as  debt
consolidation, home improvement, mortgage refinancing or education.

   The Company has two principal components to its mortgage business. First, the
Company  provides  mortgage loans to individual  borrowers,  which is a cash and
expense outlay for the Company, because its cost to originate a loan exceeds the
fees the Company  collects at the time of origination for that loan. At the time
the Company  originates  a loan,  and prior to the time it sells that loan,  the
Company finances that loan using a warehouse line of credit. Second, the Company
sells loans, either through securitization or on a whole loan basis, to generate
cash and non-cash  revenues.  The Company uses the proceeds  from these sales to
repay its warehouse line of credit and for working capital.

   BROKERED LOANS. The Company  originates home equity loans indirectly  through
licensed  mortgage brokers and other real estate  professionals  who submit loan
applications  on behalf of the borrower  ("Brokered  Loans") and,  prior to July
2000,  purchased loans from mortgage bankers and smaller financial  institutions
that satisfied Delta's  underwriting  guidelines  ("Correspondent  Loans").  The
Company  discontinued its correspondent  operations in July 2000 to focus on its
less  cash  intensive  broker  and  retail  channels.  Delta  Funding  currently
originates  the  majority  of its  loans in 20 states  through  its  network  of
approximately 1,500 brokers.

   RETAIL  LOANS.  The  Company  develops  retail  loan leads  ("Retail  Loans")
primarily through its telemarketing  system and its network of 11 retail offices
located in seven states. In 2001, the Company closed two under-performing retail
offices in Florida and one in Ohio. In October 2001, the Company closed a retail
office in Indiana.  In the third quarter of 2001,  the Company opened its second
retail call center in Pittsburgh, Pennsylvania.

   For the three months ended September 30, 2001 the Company  originated  $146.6
million of loans, a decrease of 26% over the $197.9 million of loans  originated
and purchased in the comparable period in 2000. Of these amounts,  approximately
$83.4 million were  originated  through its network of brokers and $63.2 million
were  originated  through  its  retail  network  during the three  months  ended
September 30, 2001. During the three months ended September 30, 2000 the Company
originated  $130.7  million  through its  network of brokers  and $65.7  million
through its retail  network,  and  purchased  $1.5  million  from its network of
correspondents.

   POOLING OF LOANS PRIOR TO SALE.  After the Company closes or funds a loan, it
typically

                                       9

pledges  the loan as  collateral  under a  warehouse  line of  credit  to obtain
financing for that loan. By doing so, the Company  replenishes its capital so it
can make new loans.  Loans are typically  financed on a warehouse line of credit
for only a limited time,  until such time as the Company can "pool" enough loans
and sell the pool of loans  either  through  securitization  or on a  whole-loan
basis.  During this time,  the Company  earns  interest  paid by the borrower as
income,  but  this  income  is  offset  in part by the  interest  it pays to the
warehouse creditor for providing it with financing.

   SALE OF LOANS.  The  Company  generally  sells  loans in one of two  manners,
either through  securitization or on a whole loan basis. In the third quarter of
2001, the Company did not  securitize,  due both to the events of September 11th
and the  aftershock  effects on the capital  markets  (including  the market for
asset-backed  securities,  like those issued in the Company's  securitizations).
The Company did, however, sell $59 million of loans on a whole loan basis in the
third quarter of 2001, and successfully  completed a $180 million  secuitization
in October  2001.  The Company  plans to continue  to utilize a  combination  of
securitization and whole loan sales for the foreseeable future.

   In May 2001, the New York Stock Exchange  ("NYSE") delisted Delta Financial's
Common  Stock.  The Exchange  stated that it took this action  because Delta was
unable to meet the NYSE's continued  listing  standards of maintaining a minimum
of $15 million in market  capitalization  and a minimum share price of $1 over a
30-day trading  period.  When Delta's Common Stock was delisted in May, it began
trading on the Over The Counter Bulletin Board ("OTCBB") under the ticker symbol
"DLTO."

CERTAIN ACCOUNTING CONSIDERATIONS

   As a fundamental part of its business and financing strategy, Delta typically
sells the majority of the loans it originates through securitization and derives
a substantial  portion of its income from these sales. In a securitization,  the
Company  sells a pool of loans it has  originated  to a REMIC  trust  for a cash
purchase price.  The trust, in turn,  finances the purchase of the pool of loans
it has acquired by selling "pass-through certificates" or bonds, which represent
undivided  ownership  interests  in  the  trust.  Holders  of  the  pass-through
certificates  are entitled to receive  monthly  distributions  of all  principal
received  on the  underlying  mortgages  and a  specified  amount  of  interest,
determined at the time of the  offering.  When the Company sells a pool of loans
to  a  securitization  trust,  it  typically  receives  the  following  economic
interests  in the  securitization  trust:  (a) the  difference  between  (1) the
interest  payments due on the loans sold to the trust for so long as they remain
outstanding  and (2) the interest paid to the  pass-through  certificateholders,
less losses incurred on the underlying mortgage loans, the contractual servicing
fee and other costs and  expenses of  administering  the  securitization  trust,
represented by Residual Certificates, (b) a cash purchase price from the sale of
an interest-only certificate sold at the time of securitization,  and (c) a cash
premium   for  selling  the  right  to  service  the  loans  on  behalf  of  the
securitization  trust (or, in the  alternative,  if the  Company  were to retain
servicing rights, the right to service the loans on behalf of the trust and earn
a servicing  fee for so long as the loans remain  outstanding,  as well as other
ancillary  servicing-related  fees directly from the borrowers on the underlying
loans. However, because the Company closed its servicing

                                       10

operations in May 2001, on a go-forward basis, it expects only to receive a cash
premium from selling the right to service loans on behalf of new  securitization
trusts.)

   The  Company's  net  investment  in the pool of loans sold at the date of the
securitization  represents  the amount  originally  paid to originate  the loans
adjusted for (i) any direct loan  origination  costs  incurred (an increase) and
loan origination fees received (a decrease) in connection with the loans,  which
are treated as a  component  of the initial  investment  in loans,  and (ii) the
principal payments received, and the amortization of the net loan fees or costs,
during the period the Company held the loans prior to their securitization.  The
Company's  investment  in the loans also reflects  adjustments  for any gains (a
decrease  in the  investment)  or losses (an  increase  in the  investment)  the
Company  has  incurred  on any  hedging  instruments  which the Company may have
utilized to hedge  against the effects of changes in interest  rates  during the
period it holds the loans prior to their securitization (see "-Hedging").

   Upon the  securitization  of a pool of loans,  the Company (i)  recognizes in
income,  as origination  fees, the unamortized  origination fees included in the
investment in the loans sold, and (ii)  recognizes a gain on sale of loans equal
to (a) the  difference  between  (1) cash  received  from the  trust and (2) the
investment  in the loans  remaining  after the  allocation  of  portions of that
investment  to  record  the  Residual  Certificate  (recorded  on the  Company's
financial  statements under the  interest-only and residual  certificates,  net)
(and,   where   applicable,   mortgage   servicing   rights)   received  in  the
securitization,  (b) the cash premium received from selling the right to service
the  loans on  behalf  of the  trust,  and (c) less the  costs  associated  with
securitization.  The majority of the net gain on sale of mortgage  loans through
the  securitization  results  from:  (1) the cash  purchase  price  received  in
connection with the sale of an interest-only certificate, and (2) the fair value
of the Residual  Certificates  retained by the Company in a  securitization  for
each period.

   The Company has sold an interest-only certificate created in each of its last
16 securitizations for cash proceeds and, subject to market conditions,  intends
to continue to sell an interest-only certificate as long as the sale effectively
maximizes cash flow and profitability.

   The Residual  Certificates that the Company receives upon the  securitization
of a pool of loans are accounted for as a trading security. The amount initially
allocated to the Residual Certificates at the date of a securitization  reflects
the  fair  value  of  that  interest.  The  amount  recorded  for  the  Residual
Certificates  is reduced for  distributions  thereon which the Company  receives
from the trust,  and is  adjusted  for  subsequent  changes in the fair value of
Residual Certificates held by the Company,  which are reflected in the statement
of operations.

   The Company did not complete a securitization  of mortgage loans in the third
quarter of 2001 due to the events that  occurred on September 11, 2001 and their
impact on the capital  markets and, in particular,  the market for  asset-backed
securities. The Company did, however, sell whole loans for a cash premium in the
third quarter of 2001.

   In October 2001, the Company completed a securitization of mortgage loans.

 FAIR VALUE ADJUSTMENTS

     At the time each securitization  transaction closes, the Company determines
the present value of the related Residual Certificates using certain assumptions
regarding the underlying mortgage

                                       11

loans  made  by  management  at the  time  the  loans  are  sold.  The  Residual
Certificate  is then  recorded  at an  estimated  fair  value.  These  estimates
primarily include:

    o future rate of prepayment;

    o credit losses;

    o discount rate used to calculate present value; and

    o the LIBOR  forward  curve (using  current  LIBOR as the floor rate).

   The value of each Residual  Certificate  represents the future  expected cash
flow from such certificate  based upon  management's  best estimate.  Management
monitors the performance of the loans underlying each Residual Certificate,  and
any changes in the estimates  (and  consequent  changes in value of the Residual
Certificates)  is reflected in interest  income in the quarter in which any such
change in estimate is made. Although management believes that the assumptions it
uses  are  reasonable,  there  can be no  assurance  as to the  accuracy  of the
assumptions or estimates.

   In  determining  the fair  value of each of the  Residual  Certificates,  the
Company makes the following underlying assumptions:

  (a) Prepayment rate assumptions are based upon the Company's on-going analysis
      of industry and Company pool trends,  the most recent adjustments to these
      assumptions  were made in the third quarter of 2001 and, prior to that, in
      the third  quarter  2000.  The  following  table  shows the changes to the
      prepayment assumptions at each of these dates:

   LOAN TYPE          AT SEPTEMBER 30, 2001     AT  SEPTEMBER 30, 2000
   ---------          ---------------------     ----------------------
   Fixed Rate:
      At Month 1            4.00%                      4.00%
      Peak Speed*          30.00%                     23.00%
   Adjustable Rate:
      At Month 1            4.00%                      4.00%
      Peak Speed*          75.00%                     50.00%

* Since the second quarter of 1998,  the Company has utilized a "vector"  curve,
  instead  of  a  "ramp"  curve,   which  the  Company  believes  will  be  more
  representative of future loan prepayment experience.

  (b) A default reserve for  both fixed- and  adjustable-rate  loans sold to the
      securitization  trusts of 5.00% of the  amount  initially  securitized  at
      September 30, 2001 compared to 3.50% at December 31, 2000; and

  (c) A  discount  rate  of  15%  at   September  30,  2001  compared  to 12% at
      September 30, 2000 on "senior" Residual Certificates (i.e., those Residual
      Certificates  that are not  subject to a Net  Interest  Margin,  or "NIM,"
      Transaction).  Prior to the quarter ending September 30, 2001, some of the
      Company's  Residual  Certificates  were subject to a NIM Transaction,  for
      which the  Company  applied an 18%  discount  rate.  As part of the Second
      Exchange  Offer,  all of the  Residual  Certificates  subject  to the  NIM
      Transaction  were  transferred to the LLC. As such, at September 30, 2001,
      the Company retains only "senior" Residual Certificates.

                                       12

      In the third quarter of 2000,  the Company had increased the discount rate
      its uses on those Residual Certificates included in the NIM Transaction to
      18% (from 12%) and  recorded an $8.8  million  valuation  adjustment.  The
      adjustment  reflected a reduction in the present  value of those  Residual
      Certificates  sold  in  connection  with  the  Company's  NIM  transaction
      completed  in the  fourth  quarter  of 2000.  The  Company  increased  the
      discount rate on these  Residual  Certificates  during the period that the
      senior NIM securities will be outstanding,  to account for the potentially
      higher  risk  associated  with the  residual  cash  flows  expected  to be
      received  by the  holder of the  certificated  interest  in the NIM trust,
      which is subordinated to the senior security sold in the NIM transaction.

      In the fourth quarter of 2000, the Company had increased the discount rate
      it  used  in  determining  the  present  value  of its  "senior"  Residual
      Certificates  to 13% from  12%,  and  recorded  a $7.1  million  valuation
      adjustment.  The adjustment reflected an increase in volatility concerning
      the other underlying  assumptions used in estimating  expected future cash
      flows due to greater  uncertainty  surrounding  current and future  market
      conditions,  including  without  limitation,  inflation,  recession,  home
      prices, interest rates and equity markets.

   The Company revised its prepayment  rate assumption  primarily to reflect the
Company's actual loan performance experience and the current and future expected
interest rate environment  (lower interest rates).  The Company revised its loan
loss reserve assumption to reflect  management's belief that losses may increase
due to (i) increased delinquencies on the Company's underlying mortgage loans as
well as increased delinquencies  throughout all credit-related  industries (i.e.
other  mortgage-related  products and credit cards),  (ii) a potential recession
and increased  unemployment,  and (iii)  anticipated flat to a slight decline in
home values as compared to the past few years.  Lastly,  the Company revised its
discount  rate to  reflect  current  market  conditions  and the rate of  return
management  believes to be appropriate given the inherent risk and volatility of
its Residual Certificates.

   At September 30, 2001,  the Company  recorded a charge to interest  income to
reflect a fair value adjustment to its remaining Residual  Certificates totaling
$19.7 million.

RESULTS OF OPERATIONS

THREE  MONTHS  ENDED  SEPTEMBER  30, 2001  COMPARED  TO THE  THREE MONTHS ENDED
SEPTEMBER 30, 2000

GENERAL

   The Company's loss before  extraordinary item was $33.6 million, or $2.12 per
share (basic and diluted), for the quarter ended September 30, 2001, compared to
a net loss of $11.2  million,  or $0.71  per  share  basic  and  $0.70 per share
diluted,  for the quarter ended September 30, 2000. The extraordinary  item, net
of tax for the  quarter  ended  September  30,  2001,  totaled  a loss of  $19.3
million,  or $1.21 per share  (basic and  diluted).  For the three  months ended
September 30, 2001 the net loss includes (i) an extraordinary  item, net of tax,
totaling a loss of $19.3  million,  or $1.21 per share (basic and diluted),  and
non-recurring  charges of $1.4 million,  or $0.09 per share (basic and diluted),
relating to  professional  fees incurred in connection  with the Second Exchange
Offer and (ii) a charge (loss) to interest income of $19.7 million, or $1.24 per
share

                                       13

(basic  and  diluted),  reflecting  a fair  value  adjustment  to the  Company's
remaining  Residual  Certificates,  due to the Company  changing  the  valuation
assumptions  it uses to  estimate  fair value (see  "Fair  Value  Adjustments").
Results for the three  months  ended  September  30,  2001 also were  negatively
impacted by the Company's not securitizating in the quarter, which significantly
reduced its revenues for the quarter.

   The net loss for the three  months  ended  September  30, 2000  included  (i)
non-recurring  charges of $7.1  million or $0.45 per share  (basic and  diluted)
associated  with  a  corporate  restructuring  and a debt  modification,  (ii) a
reduction  of $6.4  million,  or $0.40 per share  (basic  and  diluted),  in the
carrying value of a portion of the Company's Residual  Certificates,  due to the
Company  increasing  the  discount  rate it  utilized  in valuing  the  Residual
Certificates  underlying the Company's NIM Transaction,  and (iii) non-recurring
income of $1.5 million or $0.10 per share (basic and diluted) from the Company's
sale of one of its domain names.

  REVENUES

   Total revenues  decreased $38.0 million,  or 138%, to $(10.4) million for the
three months ended  September 30, 2001,  from $27.6  million for the  comparable
three-month  period in 2000. The decrease in revenue was primarily  attributable
to lower interest  income related to the Company  recording a charge to interest
income  to  reflect  a  fair  value   adjustment  to  its   remaining   Residual
Certificates,  lower  net gain on sale of  mortgages  due to the  Company's  not
executing a securitization in the quarter,  lower origination fees relating to a
decrease in the amount of loan  originations and no servicing fees earned due to
the sale of the Company's servicing operations to Ocwen in May 2001.

   The Company  originated $146.6 million of mortgage loans for the three months
ended  September 30, 2001,  representing  a 26% decrease from $197.9  million of
mortgage loans  originated and purchased for the comparable  period in 2000. The
events of September 11, 2001 had a direct  adverse  impact on the amount of loan
originations  for the month of September  2001.  The Company sold $59 million of
loans on a whole loan basis during the three months  ended  September  30, 2001,
representing a 72% decrease from $211.7 million sold through  securitization and
on a whole loan basis during the same period in 2000.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
represents (1) the sum of (a) the fair value of the non-cash  interest-only  and
residual  certificates  retained  by the  Company in a  securitization  for each
period, (b) the cash premium purchase price received in connection with the sale
of an interest-only  certificate sold in a securitization  for each period,  (c)
the cash premium received from selling  mortgage  servicing rights in connection
with each  securitization,  and/or  the fair value of the  non-cash  capitalized
mortgage  servicing rights  associated with loans securitized in each period (if
we retain  mortgage  servicing  rights , which the Company  does not  anticipate
doing in the future) and (d) the cash premium  earned on the sale of whole loans
on a  servicing-released  basis,  (2) less the (x) premiums paid to originate or
acquire mortgage loans, (y) costs  associated with  securitizations  and (z) any
hedge loss (gain) associated with a particular securitization.

   Net gain on sale of mortgage loans decreased  $12.2 million,  or 84%, to $2.3
million for the three months ended  September  30, 2001,  from $14.6 million for
the  comparable  period in 2000.  This decrease was primarily due to the Company
not executing a securitization  in the quarter due

                                       14

to adverse  market  conditions  resulting from the events of September 11, 2001,
the results of which significantly reduced its revenue for the quarter.

   INTEREST.  Interest  primarily  represents  the  sum of (1)  the  gross  cash
interest earned on loans held for sale, (2) the cash received from the Company's
interest-only  and residual  certificates,  (3) the non-cash  mark-to-market  or
non-cash  valuation  adjustments  to the  Company's  interest-only  and residual
certificates to reflect  changes in fair value,  and (4) cash interest earned on
bank accounts.

   Interest  decreased  $18.8 million,  to $(16.1)  million for the three months
ended  September  30,  2001,  from $2.7 million for the  comparable  three-month
period in 2000.  The  decrease in  interest  income was  primarily  due to (i) a
charge of $19.7  million  reflecting a fair value  adjustment  to the  Company's
remaining  Residual  Certificates  related to the Company changing the valuation
assumptions it uses to estimate fair value (see "-Fair Value Adjustments"), (ii)
a 26% decrease in loan production for the three months ended September 30, 2001,
compared  to the same  period  in 2000,  which  resulted  in a lower  amount  of
mortgage  loans  generating  interest  income while held in inventory  pending a
securitization  or whole loan sale,  (iii) a lower average  mortgage coupon rate
charged to borrowers of 10.3% from 11.9%  reflecting a lower  economic  interest
rate  environment,  and (iv) a decrease in interest  earned on interest  bearing
cash accounts  received by the Company as servicer on its  securitizations.  The
Company  will  continue to earn less  interest  income on its  interest  bearing
accounts on a go-forward  basis  because a  substantial  amount of such deposits
were transferred to Ocwen in connection with the Company's sale of its servicing
portfolio to Ocwen in May 2001.

   SERVICING  FEES.  Servicing  fees  represent  all  contractual  and ancillary
servicing  revenue  received by the Company less the offsetting  amortization of
the capitalized  mortgage  servicing  rights,  and any  adjustments  recorded to
reflect valuation allowances for the impairment in mortgage servicing rights.

   Servicing fees  decreased $3.0 million,  or 100%, to $0 million for the three
months  ended   September  30,  2001,  from  $3.0  million  for  the  comparable
three-month  period in 2000.  This decrease was the result of the Company's sale
of its entire servicing portfolio to Ocwen in May 2001.

   ORIGINATION  FEES.  Origination  fees  represent  fees earned on brokered and
retail  originated  loans and other  income.  Origination  fees  decreased  $4.0
million,  or 54%, to $3.4 million for the three months ended September 30, 2001,
from $7.4 million for the  comparable  three-month  period in 2000. The decrease
was primarily due to (i) the sale of the Company's domain name in July 2000, and
(ii) a 26% decrease in loans originated.

EXPENSES

   Total expenses  decreased by $21.6 million,  or 50%, to $21.4 million for the
three months ended  September 30, 2001,  from $43.0  million for the  comparable
period in 2000.  The  decrease was  primarily  related to  nonrecurring  charges
incurred in  connection  with the  Company's  corporate  restructuring  and Debt
Modification  completed in the third  quarter of 2000.  The decrease in expenses
was  also  the  result  of  a  decrease  in  interest   expense  relating  to  a
significantly  lower  amount of  interest  due on the Notes  resulting  from the
Company

                                       15

extinguishing approximately $139.2 million of Notes in the Second Exchange Offer
(see "-Corporate  Restructuring,  Debt Modification and Debt Restructuring"),  a
lower interest rate  environment,  and a decrease in general and  administrative
and personnel costs due to the Company's corporate restructuring.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  include  salaries,
benefits  and  payroll  taxes  for all  employees.  Payroll  and  related  costs
decreased  by $3.6  million,  or 27%, to $9.9 million for the three months ended
September 30, 2001,  from $13.5 million for the  comparable  period in 2000. The
decrease was  primarily  the result of (i) the  downsizing,  effectuated  by the
Company, as part of its overall corporate  restructuring beginning in the second
half of 2000 and  culminating  with the sale of its  servicing  operation in May
2001 (as of September  30, 2001,  the Company  employed 614 full- and  part-time
employees,  compared to 881 full- and  part-time  employees as of September  30,
2000),  and  (ii)  a  lower  amount  of  commissions  paid  due  to  lower  loan
originations in the third quarter of 2001 compared to the third quarter of 2000.

   INTEREST EXPENSE.  Interest  expense  includes  the borrowing costs under its
warehouse credit facility to finance loan originations, equipment financing  and
the Notes.

   Interest expense  decreased by $4.5 million,  or 61%, to $2.9 million for the
three  months  ended  September  30, 2001 from $7.4  million for the  comparable
period in 2000. The decrease was primarily due to (i) the Company  extinguishing
$139.2 million of Notes, and the corresponding interest expense related thereto,
(ii) lower  warehouse  financing costs due to lower borrowing costs (the average
one-month  LIBOR  rate,  which is the  benchmark  index  used to  determine  the
Company's  cost of borrowed  funds,  decreased  on average to 3.5% for the third
quarter 2001,  compared to an average of 6.6% for the third quarter  2000),  and
(iii) lower loan production which resulted in less warehouse financing,  and the
corresponding interest expense associated related thereto.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
consist primarily of costs  attributable to office rent,  insurance,  telephone,
depreciation,  goodwill  amortization,  legal  reserves and fees,  license fees,
accounting fees, travel and entertainment expenses,  advertising and promotional
expenses,  the provision for loan losses on the inventory of loans held for sale
and recourse loans, and the disposition and transfer of the Company's  servicing
platform.

   General and administrative  expenses decreased $3.7 million,  or 30%, to $8.6
million for the three months ended  September  30, 2001,  from $12.3 million for
the  comparable  period in 2000. The decrease  primarily  resulted from the cost
savings  related  to  the  Company's  corporate  restructuring,   including  the
disposition  of its  servicing  portfolio in May 2001,  and the capital  charges
previously   associated  with  the  Company's  interest  and  servicing  advance
securitizations prior to the sale of the servicing portfolio.

   DEBT MODIFICATION  CHARGES.  During the three months ended September 30, 2000
the Company recorded $3.1 million of debt modification charges primarily related
to professional  fees,  including  without  limitation legal and accounting fees
related  to  the  Debt   Modification  (see  "-Corporate   Restructuring,   Debt
Modification  and  Debt  Restructuring").

                                       16

   RESTRUCTURING AND OTHER SPECIAL CHARGES. For the three months ended September
30,  2000  the  Company   recorded  $6.7  million  of  charges  related  to  the
restructuring  of its operations.  These charges  primarily  related to employee
severance  associated  with the layoffs,  and a reduction  to both  goodwill and
office   equipment   write-offs   (see   "-Corporate   Restructuring   and  Debt
Modification").  The Company did not record restructuring  charges for the three
months ended September 30, 2001.

   INCOME  TAXES.  Deferred tax assets and  liabilities  are  recognized  on the
income  reported in the financial  statements  regardless of when such taxes are
paid.  These deferred taxes are measured by applying  current enacted tax rates.
The Company recorded a tax provision of $1.9 million primarily related to excess
inclusion income earned within the REMIC  securitization  transactions and a tax
benefit of $4.2 million for the three months ended  September 30, 2001 and 2000,
respectively.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2000

GENERAL

   The  Company's  loss  before  extraordinary  item for the nine  months  ended
September  30, 2001 was $83.9  million,  or $5.28 per share (basic and diluted),
compared to a net loss of $12.9 million, or $0.81 per share (basic and diluted),
for the nine months ended September 30, 2000. The extraordinary item, net of tax
for the nine months ended  September 30, 2001 totaled a loss of $19.3 million or
$1.21 per share (basic and  diluted).  For the nine months ended  September  30,
2001, the net loss included (1) a $25.4  million,  or $1.60 per share (basic and
diluted),  write down of Residual  Certificates relating to a sale agreement the
Company entered into in the first quarter of 2001 (that closed in May 2001), for
a cash purchase price of $15 million which  reflected a significant  discount to
the Company's carrying value of such residual certificates;  (2) a charge (loss)
to interest  income of $19.7  million or $1.24 per share  (basic and diluted) in
the third quarter, reflecting a fair value adjustment to the Company's remaining
Residual Certificates,  due to the Company changing the valuation assumptions it
uses to estimate fair value (see "-Fair Value Adjustments"), (3) a non-recurring
charge of $10.7  million or $0.67 per share (basic and diluted)  relating to the
Company's  disposition and transfer of its servicing platform in May 2001, (4) a
non-recurring  charge of $3.6  million or $0.23 per share (basic and diluted) in
the second quarter  relating to a change in accounting  estimates  regarding the
life expectancy of the Company's computer-related equipment, (5) a non-recurring
charge of $1.4  million  or $0.09 per share  (basic  and  diluted)  in the third
quarter  relating to  professional  fees incurred in connection  with the Second
Exchange  Offer and (6) a charge of $1.5  million or $0.09 per share  (basic and
diluted) in the second  quarter  for  establishing  a reserve for the  Company's
non-performing  mortgage loans.  Results for the nine months ended September 30,
2001 were also negatively impacted by the Company not executing a securitization
in either the first or third quarters,  which significantly reduced its revenues
for  the  nine  months  ended  September  30,  2001  and  by a  lower  level  of
originations, compared to the comparable period in 2000.

   The net loss for the nine  months  ended  September  30,  2000  included  (i)
non-recurring  charges of $6.9  million or $0.43 per share  (basic and  diluted)
associated  with  a  corporate  restructuring  and a debt  modification,  (ii) a
reduction of $6.2 million or $0.39 per share (basic

                                       17

and  diluted)  in the  carrying  value of a portion  of the  Company's  Residual
Certificates,  due to the Company  increasing  the discount  rate it utilized in
valuing the Residual Certificates underlying the Company's NIM transaction,  and
(iii)  non-recurring  income of $2.1  million,  or $0.13 per  share  (basic  and
diluted), from the Company's sale of one of its domain names.

REVENUES

   Total revenues decreased $80.8 million, or 87%, to $11.7 million for the nine
months ended September 30, 2001, from $92.5 million for the comparable period in
2000.  The  decrease  in revenue  was  primarily  attributable  to a decrease in
interest  income due to (1) a $25.4  million  write-down in the first quarter of
five Residual Certificates,  and (2) a $19.7 million charge in the third quarter
reflecting  a  fair  value  adjustment  to  the  Company's   remaining  Residual
Certificates,  due to the Company changing the valuation  assumptions it uses to
estimate fair value (see "-Fair Value Adjustments").  In addition,  the decrease
was also due to a lower net gain recognized on the sale of mortgage loans, lower
origination fees and interest income due to a decrease in total loan production,
as well as lower  servicing fees due to the Company's  agreement in January 2001
to  transfer  its  servicing  portfolio  to  Ocwen ,  pursuant  to  which  Ocwen
immediately  began  receiving all servicing  related fees and, in turn,  paid to
Delta an interim servicing fee, until the servicing portfolio was transferred to
Ocwen in May 2001.

   The Company  originated  $482.5 million of mortgage loans for the nine months
ended  September 30, 2001,  representing  a 36% decrease from $748.6  million of
mortgage loans  originated and purchased for the comparable  period in 2000. The
events of September 11, 2001 had a direct  adverse  impact on the amount of loan
originations  for the month of September 2001. The Company  securitized and sold
$389.0 million in loans during the nine months ended September 30, 2001 compared
to  $776.7  million  securitized  or sold in the  corresponding  period in 2000,
representing a 50% decrease.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
decreased  $18.5  million,  or 46%, to $22.0  million for the nine months  ended
September 30, 2001,  from $40.5 million for the  comparable  period in 2000. The
decrease was primarily due to a 50% decrease in the amount of loans  securitized
or sold to  $389.0  million  in  2001,  compared  to  $776.7  million  of  loans
securitized or sold in 2000.  The decrease in loans  securitized or sold was due
to (1) the Company not securitizing  loans in either the first or third quarters
of 2001,  and (2) in an overall  36%  decrease in total loan  production  in the
first nine months of 2001, compared to 2001. The decrease in net gain on sale on
a comparable  basis was partially  offset by the Company not paying any premiums
to acquire loans in 2001,  because the Company closed its correspondent  channel
in June 2000,  compared  to the $1.6  million  it paid  during the first half of
2000.  The weighted  average net gain on sale ratio was 5.7% for the nine months
ended September 30, 2001 compared to 5.2% for the comparable period in 2000.

   INTEREST.  Interest decreased $46.4 million,  or 223%, to $(25.6) million for
the nine months ended  September 30, 2001, from $20.8 million for the comparable
period in 2000.  The decrease in interest  income was  primarily  due to (1) the
Company's  $25.4  million  write down of Residual  Certificates  sold for a cash
purchase price of $15 million under a sale agreement the Company entered into in
the first quarter of 2001,  (2) a charge to interest  income of $19.7 million in
the third quarter, reflecting a fair value adjustment to the Company's remaining
Residual

                                       18

Certificates,  due to the Company changing the valuation  assumptions it uses to
estimate fair value (see "-Fair Value Adjustments"),  (3) a 36% decrease in loan
production  for the nine months ended  September 30, 2001,  compared to the same
period in 2000,  which resulted in a lower amount of mortgage  loans  generating
interest  income while held for sale, (4) a lower average  mortgage  coupon rate
charged to the borrower of 10.7% from 11.3% reflecting a lower economic interest
rate environment, and (5) a decrease in interest earned on interest bearing cash
accounts received by the Company as servicer on its securitizations. The Company
will continue to earn less interest income on its interest bearing accounts on a
go-forward   basis  because  the  substantial   amount  of  such  deposits  were
transferred  to Ocwen in  connection  with the  Company's  sale of its servicing
portfolio to Ocwen in May 2001.

   SERVICING  FEES.  Servicing  fees  decreased  $7.8  million,  or 72%, to $3.0
million for the nine months ended September 30, 2001, from $10.8 million for the
comparable  period  in 2000.  This  decrease  was the  result  of the  Company's
agreement to transfer its servicing portfolio to Ocwen in January 2001, pursuant
to which Ocwen  immediately  began receiving all servicing  related fees and, in
turn, paid to Delta an interim servicing fee, until the servicing  portfolio was
transferred to Ocwen in May 2001.

   ORIGINATION FEES.  Origination fees decreased $8.1 million,  or 40%, to $12.3
million for the nine months ended September 30, 2001, from $20.4 million for the
comparable  period in 2000.  The  decrease  was  primarily  the  result of a 36%
decrease in loan  originations  and the Company's  sale of a domain name in July
2000.

EXPENSES

   Total expenses  decreased by $17.6 million,  or 16%, to $93.2 million for the
nine months ended  September 30, 2001,  from $110.8  million for the  comparable
period in 2000. The decrease was primarily due to a decrease in personnel  costs
(due to the Company's restructuring and the sale of its servicing portfolio) and
a decrease in interest expense.  The decrease in expenses was also the result of
the Company  incurring  higher  expenses for the nine months ended September 30,
2000 relating to nonrecurring charges associated with a corporate  restructuring
and Debt Modification in the third quarter of 2000. The decrease in expenses was
partially offset by  non-recurring  charges  principally  incurred in connection
with (1) the  disposition  and transfer of the Company's  servicing  platform to
Ocwen in May  2001,  (2) a change in  accounting  estimates  regarding  the life
expectancy of the Company's  computer-related equipment in the second quarter of
2001, and (3) the Company  recording a reserve for its  non-performing  mortgage
loans in the second quarter of 2000.

   PAYROLL AND RELATED  COSTS.  Payroll and  related  costs  decreased  by $11.6
million,  or 26%, to $33.2 million for the nine months ended September 30, 2001,
from $44.8 million for the comparable period in 2000. The decrease was primarily
the result of (i) the  downsizing,  effectuated  by the Company,  as part of its
overall  corporate  restructuring  beginning  in the  second  half of  2000  and
culminating  with  the  sale  of its  servicing  operation  in May  2001  (as of
September  30, 2001,  the Company  employed 614 full- and  part-time  employees,
compared to 881 full- and part-time  employees as of September  30,  2000),  and
(ii) a lower amount of commissions paid due to the decrease in originations.

                                       19

   INTEREST  EXPENSE.  Interest  expense  decreased by $9.0 million,  or 38%, to
$14.8  million for the nine months ended  September  30, 2001 from $23.8 million
for the comparable  period in 2000. The decrease was primarily  attributable  to
the  Company  extinguishing  $139.2  million  of  Notes,  and the  corresponding
reduction  interest  expense  related  thereto,  lower  loan  production,  which
resulted in lower warehouse  financing,  and lower financing costs. In addition,
the average  one-month LIBOR rate,  which is the benchmark used to determine the
Company's  cost of  borrowed  funds,  decreased  on average to 4.4% for the nine
months ended  September  30,  2001,  compared to an average of 6.3% for the nine
months ended September 30, 2000.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
increased  $11.5  million,  or 35%, to $44.0  million for the nine months  ended
September 30, 2001,  from $32.5 million for the  comparable  period in 2000. The
increase primarily  resulted from non-recurring  charges related to (1) the cost
of maintaining an  unprofitable  servicing  platform until it was transferred to
Ocwen in May 2001,  plus the  associated  costs of  transferring  the  servicing
portfolio  to  Ocwen,  (2) a  change  in the  useful  life  of  computer-related
equipment from five years to three years,  and (3) a fair value  adjustment to a
pool of non-performing loans that the Company sold in July 2001. The increase in
G&A expenses was partially  offset by the cost savings  related to the Company's
corporate  restructuring including the disposition of its servicing portfolio to
Ocwen in May 2001 and the capital charges associated with the Company's interest
and  servicing  advance  securitizations  prior  to the  sale  of the  servicing
portfolio.

   DEBT  MODIFICATION  CHARGES.  During the nine months ended September 30, 2000
the Company recorded $3.1 million of debt modification charges primarily related
to professional  fees,  including without  limitation legal and accounting fees,
related  to  the  Debt   Modification  (See  "-Corporate   Restructuring,   Debt
Modification  and  Debt  Restructuring").

   RESTRUCTURING  AND  OTHER  SPECIAL  CHARGES.  During  the nine  months  ended
September 30, 2001, the Company recorded $1.2 million of charges relating to the
disposition  of  branches  and  severance  costs  associated  with  closing  the
Company's servicing operation.  During the nine months ended September 30, 2000,
the Company recorded $6.7 million of charges related to the restructuring of its
operations. These charges primarily relate to employee severance associated with
the layoffs,  and a reduction to both goodwill and office  equipment  write-offs
(see - "Corporate Restructuring, Debt Modification and Debt Restructuring"). For
the nine months ended September 30, 2001, the Company  recorded a charge of $1.2
million related to the restructuring of its operations.

   INCOME TAXES. The Company recorded a tax provision of $2.4 million  primarily
related to excess inclusion income earned within the REMIC  securitization and a
tax benefit of $5.4  million for the nine months  ended  September  30, 2001 and
2000, respectively.

FINANCIAL CONDITION

SEPTEMBER 30, 2001 COMPARED TO DECEMBER 31, 2000

   Cash and  interest-bearing  deposits decreased $57.9 million, or 93%, to $4.4
million at September  30, 2001,  from $62.3  million at December 31, 2000.  This
decrease  was  primarily

                                       20

related to the Company's transfer of its servicing portfolio,  which resulted in
the transfer of all the securitization trusts' collection accounts to Ocwen.

   Accounts  receivable  decreased  $17.5  million,  or 85%, to $3.0  million at
September 30, 2001,  from $20.5 million at December 31, 2000.  This decrease was
primarily  due to the sale of the Company's  servicing  advance  receivables  to
Ocwen,  and  write-down of any  servicing  advance  receivable  determined to be
uncollectable, in connection with the Company's transfer of servicing to Ocwen.

   Loans held for sale, net increased $89.7 million,  or 108%, to $172.4 million
at September 30, 2001,  from $82.7  million at December 31, 2000.  This increase
was  primarily due to the Company not  executing a  securitization  in the third
quarter of 2001.

   Accrued interest decreased $9.9 million, or 95%, to $0.5 million at September
30, 2001,  from $10.4 million at December 31, 2000.  This decrease was primarily
due to the sale of interest receivable assets (monthly delinquency  advances) to
Ocwen, in connection with the Company's transfer of servicing.

   Interest-only and residual  interest-only and residual certificates decreased
$203.6  million,  or 94%, to $13.3 million at June 30, 2001, from $216.9 million
at December 31, 2000.  This  decrease was  primarily  due to (i) the transfer of
$153.0 million of Residual Certificates to the LLC in connection with the Second
Exchange Offer, (ii) the sale by the Company of five of its Residual Certifcates
with a carrying value of $40.4 million pursuant to a sale agreement entered into
in the first half of 2001, in which the Company  received a cash purchase  price
of $15 million (which  represented a $25.4 million  write-down that was recorded
as a reduction in interest in the Company's  Statement of  Operations),  (iii) a
$19.7  million  fair  value  adjustment  in the  third  quarter  of  2001 to the
Company's remaining Residual Certificates,  as the Company changed the valuation
assumptions it uses to estimate fair value (see "-Fair Value  Adjustments")  and
(iv) a fair  value  mark-to-market  adjustment  of  its  Residual  Certificates,
reflecting   the  cash   distributions   received  by  the  Company   from  such
certificates.  This decrease was partially offset by the Company recording a new
Residual Certificate, totaling $7.0 million from loans securitized in the second
quarter of 2001.

    Equipment, net, decreased $8.9 million, or 59%, to $6.1 million at September
30,  2001,  from $15.0  million at December 31, 2000.  This  decrease  primarily
reflects the  Company's  change to its  estimated  life on its  computer-related
equipment   during   the   second   quarter   of  2001,   the   disposition   of
servicing-related equipment relating to the Company's transfer of servicing, and
the closing of some retail loan origination centers.

   Prepaid and other assets decreased $37.1 million,  or 98%, to $0.7 million at
September 30, 2001,  from $37.8 million at December 31, 2000.  This decrease was
primarily  attributable to (i) the extinguishment of the Company's  wholly-owned
special  purpose  entities  (and the equity  (capital) in such  special  purpose
entity)   used  as  the   issuers  for   delinquency   and   servicing   advance
securitizations,  in  connection  with the sale of servicing to Ocwen,  upon the
Company's  repurchase of such securitization using the proceeds it received from
selling the underlying  delinquency and servicing advance  receivables to Ocwen,
(ii) the Company's  payment of its Senior Note interest coupon in February 2001,
which was held in escrow, and therefore reflected as a prepaid asset at December
31, 2000, (iii) the transfer of a  non-performing loan trust to the

                                       21

LLC as part of the Second Exchange Offer, and (iv) in connection with the Second
Exchange Offer, the Company's recognition of previously  capitalized Senior Note
issuance costs.

   Warehouse financing and other borrowings  increased $78.5 million, or 89%, to
$167.1  million at  September  30, 2001,  from $88.6 at December 31, 2000.  This
increase was primarily  attributable to a higher amount of monies borrowed under
the Company's  warehouse credit facility,  as the Company did not securitize its
loans in the quarter ending September 30, 2001.

   Senior Notes decreased  $138.8 million,  or 93% to $10.8 million at September
30, 2001 from $149.6  million at December 31, 2000.  This decrease was primarily
attributable to the  extinguishment  of substantially all the Company's Notes in
the Second Exchange Offer (see "-Corporate Restructuring, Debt Modification, and
Debt Restructuring").

   Accounts Payable and Accrued Expense decreased $13.8 million, or 43% to $18.2
million at September  30, 2001 from $32.0  million at December  31,  2000.  This
decrease was primarily  attributable to (1) the reversal of an accrual  interest
coupon  payment  previously  recorded  related to the current Senior Secured and
Senior Notes semi-annual  interest payment. As part of the Second Exchange Offer
the tendering Noteholders agreed not to receive the August 2001 interest payment
and any other future interest  payment related to the Notes being tendered,  (2)
the LLC's  obligation to satisfy the Company's  NYSBD subsidy  payments from the
proceeds  of the  Residual  Certificates  transferred  to the LLC as part of the
Second Exchange Offer.

   Investor payable decreased to $0 at September 30, 2001, from $69.5 million at
December 31, 2000. The decrease was the result of the Company  transferring  its
servicing portfolio to Ocwen.  Investor payable previously  reflected the amount
of principal collected at the end of a reporting period and the accrued interest
that was due the securitization trusts in the following period by the Company as
servicer.

   Advance  payments by  borrowers  for taxes and  insurance  decreased to $0 at
September 30, 2001,  from $12.9  million at December 31, 2000.  The decrease was
the result of the Company transferring its servicing portfolio to Ocwen. Advance
payments  previously  reflected the payments  collected and held in escrow trust
accounts by the Company, as servicer, before distribution to third parties.

LIQUIDITY AND CAPITAL RESOURCES

   In the past, the Company has operated generally on a negative cashflow basis.
If the  Company  is  successful  in  increasing  loan  originations  to a  level
sufficient  to bring down its  overall  cost to  originate  loans,  the  Company
believes that it can generate positive  cashflow within the foreseeable  future.
However, there can be no assurance the Company will be successful. To do so, the
Company must generate  sufficient cash from (1)  securitizing  and selling whole
loans,  (2)  origination  fees on newly closed loans,  and (3) cashflow from the
excess cashflow interest-only and residual certificates it retains in connection
with its  securitizations.  However,  there can be no assurance that the Company
will begin generating positive cashflow within twelve months or at all.

   Currently, the Company's primary cash requirements include the funding of:
   o loan originations pending their pooling and sale, net of warehouse
     financing;
   o interest expense on warehouse, the Notes and other financing;

                                       22

   o fees, expenses, and tax payments incurred in connection with our
     securitization program; and
   o general ongoing administrative and operating expenses.
   o Historically,  the  Company  has utilized various financing facilities, the
     issuance of debt, like the senior notes,  and an equity financing to offset
     negative   operating   cashflow   and   support   its  loan   originations,
     securitizations,  servicing and general operating  expenses.  The Company's
     primary sources of liquidity continues to be warehouse,  residual and other
     financing facilities (E.G.,  capital leasing),  securitizations of mortgage
     loans, and, subject to market  conditions,  sales of whole loans,  mortgage
     servicing  rights  and  Residual   Certificates,   proceeds  from  Residual
     Certificates  and the issuance of debt and equity  securities.  The Company
     also  anticipates,  subject to market  conditions,  utilizing  net interest
     margin  securitizations  and/or  other  financing   collateralized  by  its
     Residual Certificates.  If the Company is not able to obtain financing,  it
     will not be able to  originate  new loans and its  business  and results of
     operations will be materially and adversely affected.

   As part of its Second Debt Restructuring,  the Company obtained approximately
$2.5  million  of  residual   financing  secured  by  certain  of  its  Residual
Certificates  at the time of the  signing  of the  Letter of Intent in  February
2001.  In March 2001,  the Company  entered  into a sale  agreement to sell five
Residual  Certificates  for a cash purchase price of $15 million.  At that time,
the  Company  received  approximately  an  additional  $7.1  million of "bridge"
residual  financing  secured  primarily  by  the  Residual  Certificates  to  be
purchased (for a total of $9.6 million of "bridge" residual financing). The sale
agreement  specified  that the cash purchase  price of $15 million would be paid
when the Company  physically  transferred its servicing to Ocwen, which occurred
in May 2001, at which point the Company  received the agreed upon purchase price
of $15 million.  The Company used these proceeds to repay the residual financing
and will use the balance of the  proceeds,  together  with the initial  residual
financing, for working capital. Because these Residual Certificates were sold at
a  significant   discount  to  the  Company's   book  value  for  such  Residual
Certificates,  the Company recorded $25.4 million pre-tax non-cash charge in the
first quarter of 2001.

   To  accumulate  loans for  securitization,  the  Company  borrows  money on a
short-term basis through warehouse lines of credit.  The Company has relied upon
a  few  lenders  to  provide  the  primary   credit   facilities  for  its  loan
originations.  The Company has one  warehouse  facility as of September 30, 2001
for this purpose.  The warehouse facility is a $200 million credit facility that
has a variable  rate of interest and expires on December 31, 2001.  There can be
no assurance that the Company will be able to renew this  warehouse  facility at
its  maturity at terms  satisfactory  to the  Company or at all.  The Company is
currently in the process of seeking  additional  warehouse lines of credit,  but
there can be no assurance  that the Company will be successful in its attempt to
secure an additional  warehouse line of credit on terms reasonably  satisfactory
to the Company, if at all.

   The  Company is  required  to comply with  various  operating  and  financial
covenants as provided in the agreements  described above which are customary for
agreements of their type.  The continued  availability  of funds provided to the
Company  under these  agreements  is subject

                                       23

to,  among other  conditions,  the  Company's  continued  compliance  with these
covenants.  The Company  believes it is in compliance  with such covenants as of
September 30, 2001.

INTEREST RATE RISK

   The   Company's   primary   market  risk  exposure  is  interest  rate  risk.
Profitability  may be  directly  affected by the level of, and  fluctuation  in,
interest  rates,  which affect the  Company's  ability to earn a spread  between
interest  received on its loans and the costs of its borrowings,  which are tied
to various United States  Treasury  maturities,  commercial  paper rates and the
London  Inter-Bank  Offered Rate ("LIBOR").  The profitability of the Company is
likely to be adversely affected during any period of unexpected or rapid changes
in interest rates. A substantial and sustained  increase in interest rates could
adversely affect the Company's ability to originate loans. A significant decline
in  interest  rates  could  increase  the  level  of  loan  prepayments  thereby
decreasing  the size of the loan  servicing  portfolio  underlying the Company's
securitizations.  To the extent Residual  Certificates  have been capitalized on
the financial  statements of the Company,  higher than anticipated rates of loan
prepayments  or losses could require the Company to write down the value of such
Residual Certificates,  adversely impacting the Company's earnings. In an effort
to mitigate the effect of interest rate risk, the Company  periodically  reviews
its various mortgage products and identifies and modifies those that have proven
historically more susceptible to prepayments. However, there can be no assurance
that such modifications to its product line will mitigate  effectively  interest
rate risk in the future.

   Periods of  unexpected  or rapid  changes in  interest  rates,  and/or  other
volatility or uncertainty  regarding  interest rates,  also can affect adversely
the Company by increasing the likelihood that asset-backed investors will demand
higher spreads than normal to offset the volatility  and/or  uncertainty,  which
decreases  the value of the  Residual  Certificates  received  by the Company in
connection with a securitization.

   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
loans held pending sales and the interest paid by the Company for funds borrowed
under the Company's  warehouse  facilities,  although the Company  undertakes to
hedge  its  exposure  to this  risk by using  FNMA  mortgage  securities  and/or
treasury rate lock contracts. (See "--Hedging"). Fluctuating interest rates also
may  affect  net  interest  income  as  certain  of the  Company's  asset-backed
securities are priced based on one-month  LIBOR,  but the collateral  underlying
such securities are comprised of mortgage loans with either fixed interest rates
or  "hybrid"  interest  rates - fixed for the  initial two or three years of the
mortgage loan, and adjusting  thereafter  every six months - which creates basis
risk (See "--Fair Value Adjustments").

HEDGING

   The  Company  originates  mortgage  loans  and  then  sells  them  through  a
combination  of whole  loan  sales  and  securitizations.  Between  the time the
Company  originates  the mortgage and sells the mortgage  loans in the secondary
market,  the Company may hedge the risk of fluctuations  in interest rates.  The
risk to the Company begins after the Company originates mortgage loans and prior
to selling or securitizing such mortgage loans. Since the Company has closed and
funded a mortgage

                                       24

loan at a specified  interest  rate and recorded an expected gain at the time of
sale of that  mortgage  loan,  the Company is exposed to a higher  interest rate
environment  due to market  conditions.  A higher interest rate market implies a
higher cost of funds to the Company  which  decreases the net spread the Company
would earn between the mortgage  interest  rate on each  mortgage  loan less the
cost of funds. As a result, the Company may experience a lower gain on sale.

   The Company's cost of funds generally has two  components,  the Treasury rate
with a similar  duration and average life and the spread to Treasuries or profit
margin  required  by the  investors.  Management  determines  at its  discretion
whether or not to hedge the fair value of its mortgage  loans in inventory  that
are pending sale. Historically, it has been the Company's objective to hedge the
fair value of its mortgage  loans during  periods of  uncertainty or volatility.
Prior to the fourth quarter of 2000,  Delta previously had used a "Treasury Rate
Lock" to hedge its cost of funds exposure. However, in the third quarter of 1998
and  again in the  second  quarter  of  1999,  asset-backed  investors  demanded
substantially  wider spreads over treasuries than  historically  experienced for
newly issued  asset-backed  securities,  which resulted in a hedge loss to Delta
that was not offset by a higher  gain on sale.  In  response,  beginning  in the
fourth quarter 2000,  management made the determination  that a more appropriate
strategy  to use as a hedging  vehicle,  when the Company  employed  its hedging
strategy,   was  to  short  sell  15-year  FNMA   mortgage   securities   ("FNMA
Securities"),  in lieu of the previous  treasury rate lock contracts.  It did so
based on its belief  that  changes in the fair market  value of FNMA  Securities
will be more  similarly  correlated  to changes in the fair market  value of its
mortgage  loans  because  both  are  considered  "spread  product"  -  the  FNMA
Securities incorporate both an underlying treasury rate with similar duration to
the Company's  mortgage  loans plus a general  spread meant to take into account
additional  risks  such as  early  repayment  or  extension  risk,  etc.  - that
management  believes  make them more likely to respond  similarly to a change in
interest rates than AAA United States Treasury  securities ("U.S.  Treasuries"),
which do not have a "spread"  component.  While neither of the above are perfect
hedges,  FNMA securities have demonstrated a closer correlation to the Company's
cost of funds  over  the  past few  years,  especially  during  periods  of high
interest rate  volatility  and market  uncertainty.  The Company  determines the
nature  and  quantity  of  hedging   transactions  based  upon  various  factors
including,  without  limitation,  market  conditions and the expected  volume of
mortgage  originations and purchases.  The Company will enter into these hedging
strategies  through one of its warehouse  lenders  and/or one of the  investment
bankers that  underwrite  the Company's  securitizations.  These  strategies are
designated as hedges in the Company's  books and records and are closed out when
the associated loans are sold.

   If the value of the hedges  decrease,  offsetting an increase in the value of
the loans, the Company, upon settlement with its hedge counterpart, will pay the
hedge loss in cash and then realize the  corresponding  increase in the value of
the loans as part of its net gain on sale of mortgage  loans through  either its
corresponding Residual Certificates or whole loan premiums.  Conversely,  if the
value of the hedges  increase,  offsetting a decrease in the value of the loans,
the Company, upon settlement with its hedge counterpart,  will receive the hedge
gain in cash and  realize the  corresponding  decrease in the value of the loans
through  a  reduction  in  either  the  value  of  the  corresponding   Residual
Certificates or whole loan premiums.

   The Company  will  continue  to review its hedging  strategy in order to best
mitigate risk pending securitization or loan sales.

                                       25

   The Company did not hedge  during the nine months ended  September  30, 2001.
The Company recorded a hedge loss of $1.4 during the nine months ended September
30, 2000.

INFLATION

   Inflation  affects  the  Company  most  significantly  in the  area  of  loan
originations and can have a substantial effect on interest rates. Interest rates
normally  increase  during periods of high inflation and decrease during periods
of low inflation. (See "--Interest Rate Risk.")

IMPACT OF NEW ACCOUNTING STANDARDS

   For  discussion  regarding the impact of new accounting  standards,  refer to
Note 5 of Notes to the Consolidated Financial Statements.

RISK FACTORS

   Except for historical information contained herein, certain matters discussed
in this Form 10-Q are  "forward-looking  statements"  as defined in the  Private
Securities  Litigation  Reform Act  ("PSLRA")  of 1995,  which  involve risk and
uncertainties that exist in the Company's  operations and business  environment,
and are subject to change on various  important  factors.  The Company wishes to
take  advantage  of the "safe  harbor"  provisions  of the  PSLRA by  cautioning
readers that numerous  important factors discussed below,  among others, in some
cases have caused, and in the future could cause the Company's actual results to
differ  materially from those expressed in any  forward-looking  statements made
by, or on behalf of, the Company.  The following  include some,  but not all, of
the  factors or  uncertainties  that could cause  actual  results to differ from
projections:

   o  The Company's  ability or inability to increase its loan  originations  to
      specified levels (and subsequent sale or  securitization of such loans) to
      offset the Company's current cost structure.
   o  The  Company's  ability or inability to continue to access lines of credit
      at favorable terms and conditions, including without limitation, warehouse
      and other credit  facilities  used to finance  newly  originated  mortgage
      loans held for sale.
   o  The   Company's   ability  or   inability  to  continue  its  practice  of
      securitization  of mortgage loans held for sale, as well as its ability to
      utilize  optimal  securitization  structures  at  favorable  terms  to the
      Company.
   o  The  Company's  ability or inability to continue  monetizing  its Residual
      Certificates,   including  without  limitation,   selling,   financing  or
      securitizing (through NIM transactions) such assets.
   o  Costs  associated with litigation,  compliance with the NYSBD  Remediation
      Agreement and NYOAG Stipulated  Order on Consent,  and rapid or unforeseen
      escalation of the cost of regulatory  compliance,  generally including but
      not  limited to,  adoption of new, or changes in state or federal  lending
      laws and  regulations  and the  application of such laws and  regulations,
      licenses,  environmental  compliance,  adoption  of  new,  or  changes  in
      accounting  policies and practices and the application of such polices and
      practices.  Failure  to  comply  with  various  federal,  state  and local
      regulations, accounting policies, environmental compliance, and compliance
      with the Remediation Agreement and

                                       26

      Stipulated Order on Consent can lead to loss of approved  status,  certain
      rights of  rescission  for  mortgage  loans,  class  action  lawsuits  and
      administrative enforcement action against the Company.
    o A  general  economic  slowdown.  Periods of economic slowdown or recession
      may   be  accompanied   by   decreased  demand  for   consumer  credit and
      declining  real  estate  values.   Because  of  the  Company's   focus  on
      credit-impaired borrowers, the actual rate of delinquencies,  foreclosures
      and losses on loans affected by the borrowers  reduced ability to use home
      equity  to  support  borrowings  could  be  higher  than  those  generally
      experienced  in the mortgage  lending  industry.  Any sustained  period of
      increased  delinquencies,  foreclosure,  losses or  increased  costs could
      adversely affect the Company's  ability to securitize or sell loans in the
      secondary market.
    o The effects of interest rate  fluctuations  and the  Company's  ability or
      inability  to hedge  effectively  against  such  fluctuations  in interest
      rates,  the effect of changes in monetary  and fiscal  policies,  laws and
      regulations,  other  activities  of  governments,  agencies,  and  similar
      organizations,  social and economic  conditions,  unforeseen  inflationary
      pressures and monetary fluctuation.
    o Increased  competition  within  the  Company's  markets  has taken on many
      forms,  such  as  convenience  in  obtaining  a  loan,  customer  service,
      marketing and  distribution  channels,  loan origination fees and interest
      rates. The Company is currently competing with large finance companies and
      conforming  mortgage  originators  many of whom  have  greater  financial,
      technological and marketing resources.
    o Unpredictable  delays  or  difficulties  in  development  of  new  product
      programs.
    o The unanticipated expenses of assimilating  newly-acquired businesses into
      the Company's  structure,  as well as the impact of unusual  expenses from
      ongoing   evaluations   of   business   strategies,    asset   valuations,
      acquisitions, divestitures and organizational structures.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The  Company  originates  mortgage  loans and then sells the  mortgage  loans
through a combination of whole loan sales and securitizations.  As a result, the
primary market risk to which the Company is subject to is interest rate risk. In
turn,   interest  rates  are  highly   sensitive  to  many  factors,   including
governmental monetary and tax policies,  domestic and international economic and
political considerations and other factors beyond the Company's control. Changes
in the  general  interest  rate levels  between the time the Company  originates
mortgage  loans and the time  when the  Company  sells  such  mortgage  loans in
securitization transactions can affect the value of the Company's mortgage loans
held for sale and,  consequently,  the  Company's  net gain on sale  revenue  by
affecting the "excess  spread"  between the interest rate on the mortgage  loans
and the interest rate paid to asset-backed  investors who purchase  pass-through
interest-only and residual certificates issued by the securitization  trusts. If
interest  rates rise between the time the Company  originates  the loans and the
time the Company  sells the loans in a  securitization  transaction,  the excess
spread generally narrows,  resulting in a loss in value of the loans and a lower
net gain on sale for the Company.

   A hypothetical 10 basis point increase in interest rates,  which historically
has resulted in  approximately  a 10 basis point  decrease in the excess spread,
would be expected to reduce the

                                       27

Company's  net gain on sale by  approximately  25 basis  points.  Many  factors,
however, can affect the sensitivity analysis described above including,  without
limitation,   the  structure  and  credit   enhancement  used  in  a  particular
securitization,  the Company's  prepayment,  loss and discount rate assumptions,
and the spread over treasuries  demanded by asset-backed  investors who purchase
the Companies asset-backed securities.

   To reduce its financial  exposure to changes in interest  rates,  the Company
generally  hedges its mortgage  loans held for sale by selling  FNMA  Securities
(see  "-Hedging").  The Company's hedging strategy has largely been an effective
tool  to  manage  the   Company's   interest   rate  risk  on  loans   prior  to
securitization,  by providing  the Company with a cash gain (or loss) to largely
offset the reduced (increase) excess spread (and resultant lower (or higher) net
gain on sale) from an increase  (decrease) in interest  rates.  A hedge may not,
however, perform its intended purpose of offsetting changes in net gain on sale.

   Changes in interest rates also could adversely  affect the Company's  ability
to  purchase  and  originate  loans  and/or  could  affect  the  level  of  loan
prepayments thereby impacting the size of the Company's loan servicing portfolio
and the value of the  Company's  interest  only and residual  interest-only  and
residual certificates and capitalized mortgage servicing rights. (See "-Interest
Rate Risk").

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   Because the nature of Delta's  business  involves the  collection of numerous
accounts,  the validity of liens and  compliance  with various state and federal
lending laws,  Delta is subject,  in the normal course of business,  to numerous
claims and legal proceedings. Delta's lending practices have been the subject of
several  lawsuits  styled as class  actions  and of  investigations  by  various
regulatory  agencies  including  the New  York  State  Banking  Department  (the
"NYSBD"),  the  Office  of the  Attorney  General  of the State of New York (the
"NYOAG") and the United States  Department  of Justice (the "DOJ").  The current
status of these actions is summarized below.

    o In or about November 1998, Delta received notice that it had been named in
      a lawsuit  filed in the  United  States  District  Court  for the  Eastern
      District  of New York.  In  December  1998,  plaintiffs  filed an  amended
      complaint  alleging  that Delta had violated the Home Equity and Ownership
      Protection Act  ("HOEPA"),  the Truth in Lending Act ("TILA") and New York
      State General Business Lawss.349. The complaint seeks (a) certification of
      a class of plaintiffs, (b) declaratory judgment permitting rescission, (c)
      unspecified  actual,  statutory,  treble and punitive  damages  (including
      attorneys'  fees),  (d) certain  injunctive  relief,  and (e)  declaratory
      judgment  declaring the loan transactions as void and  unconscionable.  On
      December 7, 1998, plaintiff filed a motion seeking a temporary restraining
      order  and  preliminary   injunction,   enjoining  Delta  from  conducting
      foreclosure sales on 11 properties. The District Court Judge ruled that in
      order to  consider  such a motion,  plaintiff  must move to  intervene  on
      behalf of these 11 borrowers.  Thereafter, plaintiff moved to intervene on
      behalf of 3 of these 11  borrowers  and  sought the  injunctive  relief on
      their  behalf.  Delta  opposed the  motions.  On December  14,  1998,  the
      District  Court Judge  granted the motion to intervene and on December 23,
      1998,  the

                                       28

      District Court Judge issued a preliminary  injunction  that enjoined Delta
      from  proceeding  with  the  foreclosure  sales  of  the  three  inventory
      properties.  Delta has filed a motion for  reconsideration of the December
      23,  1998 order.  In January  1999,  Delta filed an answer to  plaintiffs'
      first amended complaint.  In July 1999,  plaintiffs were granted leave, on
      consent,  to file a second amended complaint.  In August 1999,  plaintiffs
      filed  a  second  amended  complaint  that,  among  other  things,   added
      additional  parties but contained the same causes of action alleged in the
      first  amended  complaint.  In  September  1999,  Delta  filed a motion to
      dismiss the complaint,  which was opposed by plaintiffs and, in June 2000,
      was denied in part and granted in part by the Court.  In or about  October
      1999,  plaintiffs  filed a motion seeking an order  preventing  Delta, its
      attorneys  and/or  the NYSBD  from  issuing  notices to certain of Delta's
      borrowers,  in accordance with a settlement  agreement entered into by and
      between Delta and the NYSBD.  In or about October 1999 and November  1999,
      respectively,  Delta and the NYSBD  submitted  opposition  to  plaintiffs'
      motion.  In March 2000,  the Court issued an order that  permits  Delta to
      issue an approved form of the notice. In September 1999,  plaintiffs filed
      a motion for class  certification,  which was opposed by Delta in February
      2000, and ultimately  withdrawn without prejudice by plaintiffs in January
      2001.  Delta  believes  that it has  meritorious  defenses  and intends to
      defend this suit,  but cannot  estimate  with any  certainty  its ultimate
      legal or financial liability, if any, with respect to the alleged claims.

    o In or about March 1999,  Delta received notice that it had been named in a
      lawsuit  filed in the  Supreme  Court of the State of New  York,  New York
      County,  alleging  that Delta had  improperly  charged  certain  borrowers
      processing  fees.  The  complaint  seeks (a)  certification  of a class of
      plaintiffs,  (b) an  accounting,  and  (c)  unspecified  compensatory  and
      punitive  damages  (including  attorneys'  fees),  based upon  alleged (i)
      unjust  enrichment,  (ii) fraud, and (iii) deceptive trade  practices.  In
      April 1999,  Delta filed an answer to the  complaint.  In September  1999,
      Delta  filed a motion to  dismiss  the  complaint,  which was  opposed  by
      plaintiffs,  and in February 2000, the Court denied the motion to dismiss.
      In April 1999, Delta filed a motion to change venue and plaintiffs opposed
      the motion.  In July 1999,  the Court  denied the motion to change  venue.
      Delta  appealed and in March 2000,  the Appellate  Court  granted  Delta's
      appeal to change  venue from New York County to Nassau  County.  In August
      1999,  plaintiffs  filed a motion  for class  certification,  which  Delta
      opposed  in July  2000.  In or about  September  2000,  the Court  granted
      plaintiffs'  motion  for class  certification,  from which  Delta  filed a
      Notice of Appeal.  In or about June 2001, Delta filed a motion for summary
      judgment  to  dismiss  the  complaint,  which  was  denied by the Court in
      October 2001. Delta believes that it has meritorious  defenses and intends
      to defend this suit,  but cannot  estimate with any certainty its ultimate
      legal or financial liability, if any, with respect to the alleged claims.

    o In or about July 1999,  Delta received  notice that it had been named in a
      lawsuit filed in the United States District Court for the Western District
      of New York,  alleging  that amounts  collected  and  maintained  by it in
      certain  borrowers' tax and insurance  escrow  accounts  exceeded  certain
      statutory (RESPA) and/or contractual (the respective  borrowers'  mortgage
      agreements) ceilings.  The complaint seeks (a) certification of a class of
      plaintiffs,  (b) declaratory relief finding that Delta's practices violate
      applicable statutes and/or the mortgage agreements, (c) injunctive relief,
      and  (d)  unspecified

                                       29

      compensatory and punitive damages (including  attorneys' fees). In October
      1999, Delta filed a motion to dismiss the complaint.  In or about November
      1999, the case was transferred to the United States District Court for the
      Northern  District of Illinois.  In February 2000,  the plaintiff  opposed
      Delta's motion to dismiss. In March 2000, the Court granted Delta's motion
      to dismiss  in part,  and denied it in part.  Delta  believes  that it has
      meritorious  defenses and intends to defend this suit, but cannot estimate
      with any certainty its ultimate legal or financial liability, if any, with
      respect to the alleged claims.

    o In or about August 1999, the NYOAG filed a lawsuit  against Delta alleging
      violations of (a) RESPA (by paying yield spread  premiums),  (b) HOEPA and
      TILA,  (c) ECOA,  (d) New York Executive  Lawss.  296-a,  and (e) New York
      Executive  Lawss.  63(12).  In September 1999, Delta and the NYOAG settled
      the lawsuit,  as part of a global settlement by and among Delta, the NYOAG
      and the NYSBD,  evidenced by that certain (a) Remediation Agreement by and
      between  Delta  and the  NYSBD,  dated as of  September  17,  1999 and (b)
      Stipulated  Order on Consent by and among Delta,  Delta  Financial and the
      NYOAG,  dated as of September 17, 1999. As part of the Settlement,  Delta,
      among other  things,  has  implemented  agreed upon changes to its lending
      practices; is providing reduced loan payments aggregating $7.25 million to
      certain borrowers identified by the NYSBD; and has created a fund financed
      by the grant of 525,000  shares of Delta  Financial's  common  stock;  the
      proceeds of which will be used,  for among other things,  to pay borrowers
      and for a variety of consumer  educational and counseling  programs.  As a
      result,  the NYOAG  lawsuit  has been  dismissed  as  against  Delta.  The
      Remediation  Agreement and Stipulated Order on Consent  supersede  Delta's
      previously  announced  settlements  with the NYSBD and the NYOAG. In March
      2000,  Delta  finalized  a  settlement  agreement  with the United  States
      Department of Justice,  the Federal Trade Commission and the Department of
      Housing  and Urban  Renewal,  to  complete  the global  settlement  it had
      reached  with the NYSBD and NYOAG.  The Federal  agreement  mandates  some
      additional  compliance  efforts  for Delta,  but it does not  require  any
      additional financial commitment.

    o In  November  1999,  Delta  received  notice  that it had been  named in a
      lawsuit filed in the United States District Court for the Eastern District
      of  New  York,  seeking  certification  as a  class  action  and  alleging
      violations of the federal securities laws in connection with the Company's
      initial public  offering in 1996 and its reports  subsequently  filed with
      the Securities  and Exchange  Commission.  The complaint  alleges that the
      scope of the  violations  alleged  recently in the  consumer  lawsuits and
      regulatory  actions  indicate a pervasive  pattern of action and risk that
      should have been more  thoroughly  disclosed to investors in the Company's
      common stock.  In May 2000, the Court  consolidated  this case and several
      other lawsuits that  purportedly  contain the same or similar  allegations
      against  Delta and in August  2000  plaintiffs  filed  their  Consolidated
      Amended  Complaint.  In October 2000,  Delta filed a motion to dismiss the
      Complaint in its  entirety,  which was opposed by  plaintiffs  in November
      2000,  and denied by the Court in September  2001.  Delta believes that it
      has  meritorious  defenses  and  intends to defend  this suit,  but cannot
      estimate with any certainty its ultimate legal or financial liability,  if
      any, with respect to the alleged claims.

    o In or about April 2000,  Delta received notice that it had been named in a
      lawsuit  filed in

                                       30

      the Supreme Court of the State of New York,  Nassau County,  alleging that
      Delta has improperly  charged and collected  from  borrowers  certain fees
      when they paid off their  mortgage loans with Delta.  The complaint  seeks
      (a) certification of a class of plaintiffs, (b) declaratory relief finding
      that the payoff  statements  used  include  unauthorized  charges  and are
      deceptive  and  unfair,   (c)  injunctive   relief,  and  (d)  unspecified
      compensatory, statutory and punitive damages (including legal fees), based
      upon alleged  violations of Real Property Law 274-a,  unfair and deceptive
      practices,  money had and received and unjust enrichment,  and conversion.
      Delta  answered the complaint in June 2000.  In March 2001,  Delta filed a
      motion for  summary  judgment,  which was opposed by  plaintiffs  in March
      2001,  and Delta filed reply papers in April 2001.  In June 2001,  Delta's
      motion for summary  judgment  dismissing  the  complaint  was granted.  In
      August 2001, plaintiffs served a Notice Appeal. Delta believes that it has
      meritorious  defenses and intends to defend this suit, but cannot estimate
      with any certainty its ultimate legal or financial liability, if any, with
      respect to the alleged claims.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

   As  part of the  Second  Exchange  Offer  consummated  in  August  2001,  the
Indenture  governing  the  Company's  9 1/2% Senior  Secured  Notes due 2004 was
amended to remove (a) all the collateral  previously securing the notes, and (b)
most of the restrictive  covenants that  previously  limited (for the benefit of
the  Senior  Secured  Noteholders)  the  Company's  ability to engage in certain
activities, such as incurring additional debt or disposing of assets.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES. None

ITEM 4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS. None

ITEM 5.  OTHER INFORMATION.  None

ITEM 6.  EXHIBITS AND CURRENT REPORTS ON FORM 8-K.

(a)   Exhibits:

      None

(b)   Reports on Form 8-K:

   On August 30, 2001,  the Company filed a Current Report on Form 8-K, in which
it reported that it consummated the exchange offer (the "Exchange Offer") of its
$150 million aggregate  principal amount of 9 1/2% Senior Secured Notes due 2004
and 9 1/2% Senior Notes due 2004 (collectively, the "Notes") for:

    o shares of the Company's newly-issued Series A preferred stock;
    o voting  LLC  membership  interests  in  Delta  Funding  Residual  Exchange
      Company,  LLC (the "LLC"),  a  newly-formed  entity,  to which the Company
      transferred the mortgage-related securities previously securing the Senior
      Secured Notes; and
    o shares  of  common  stock of a  newly-formed  corporation,  Delta  Funding
      Residual

                                       31

      Management,  Inc., which will manage the  mortgage-related  assets held by
      the LLC for the benefit of the tendering Noteholders;

and that the holders of approximately  $139.2 million in principal amount of the
Notes tendered their Notes in the exchange offer.

   On August 3, 2001,  the Company filed a Current  Report on Form 8-K, in which
it reported that the Company received the consent of the beneficial holders (the
"Holders")  of a majority  in  principal  amount of the  Company's 9 1/2% Senior
Secured Notes due 2004 to amend the Indenture governing the Senior Secured Notes
to extend the Company's  time to consummate  the exchange offer - set forth in a
non-binding letter of intent, dated February 23, 2001, which the Company entered
into with the Holders of the Notes - on or before August 31, 2001.

   On July 3, 2001,  the Company filed a Current Report on Form 8-K, in which it
reported  that:  (a) it filed  with  the SEC an  amendment  to its  registration
statement on Form S-4 (SEC File No.33-60188),  together with an amendment to its
annual  report  on Form  10-K for the  year  ended  December  31,  2000,  and an
amendment to its quarterly  report on Form 10- Q for the quarter ended March 31,
2001; (b) it would launch the exchange  offer within the ensuing  weeks;  (c) it
would  proceed  with the  exchange  offer if at least 95% of the holders  tender
their Notes in the exchange; and (d) if it was unable to consummate the exchange
offer, it would likely not have sufficient funds to both make interest  payments
due on the  notes in  August  2001  and  thereafter,  and  comply  with  certain
covenants in its warehouse agreement, and otherwise operate its business.


                                       32


<PAGE>
                                   SIGNATURES

   Pursuant to the  requirements  of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                    DELTA FINANCIAL CORPORATION
                                              (Registrant)

Dated:  November 14, 2001
                                    By:  /S/ HUGH MILLER
                                       ---------------------------
                                         Hugh Miller
                                         PRESIDENT & CHIEF EXECUTIVE OFFICER


                                    By:  /S/RICHARD BLASS
                                      ----------------------
                                         Richard Blass
                                         EXECUTIVE VICE PRESIDENT & CHIEF
                                         FINANCIAL OFFICER





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