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, 2000

                                      OR

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

                       Commission File Number: 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 1179
    (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, 2000,  15,883,749  shares of the  Registrant's  common
stock, par value $.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,  2000  and
           December 31, 1999................................................. 1

           Consolidated  Statements of Operations for the three months and
           nine months ended September 30, 2000 and September 30, 1999....... 2

           Consolidated Statements of Cash Flows for the nine months ended
           September 30, 2000 and September 30, 1999......................... 3

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

Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations............................................. 7

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...................................................................32

<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                              SEPTEMBER 30,   DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)                     2000           1999
                                                              ------------    -----------
<S>                                                          <C>             <C>
ASSETS
Cash and interest-bearing deposits                            $    53,792     $   69,557
Accounts receivable                                                33,437         32,367
Loans held for sale, net                                           53,845         89,036
Accrued interest receivable                                        14,136         63,309
Capitalized mortgage servicing rights                              40,077         45,927
Interest-only and residual certificates                           239,132        224,659
Equipment, net                                                     16,226         21,721
Prepaid and other assets                                           22,520          5,428
Deferred tax asset                                                 12,071           --
Goodwill                                                            1,938          4,831
                                                              -----------     ----------
   Total assets                                               $   487,174     $  556,835
                                                              ===========     ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable                                                  $       527     $    1,195
Warehouse financing and other borrowings                           82,094        109,019
Senior Notes                                                      149,545        149,474
Accounts payable and accrued expenses                              45,899         43,607
Investor payable                                                   60,942         82,204
Advance payment by borrowers for taxes and insurance               13,933         13,784
Deferred tax liability                                               --           10,411
                                                              -----------    -----------
   Total liabilities                                              352,940        409,694
                                                              -----------    -----------

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 49,000,000 shares;
  16,000,549 shares issued and 15,883,749 shares outstanding
   at September 30, 2000 and December 31, 1999                        160            160
Additional paid-in capital                                         99,472         99,472
Retained earnings                                                  35,920         48,827
Treasury stock, at cost (116,800 shares)                           (1,318)        (1,318)
                                                              -----------      ----------
  Total stockholders' equity                                      134,234        147,141
                                                              -----------      ----------
    Total liabilities and stockholders' equity               $    487,174     $  556,835
                                                              ===========      ==========

          See accompanying notes to consolidated financial statements.

                                       1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

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

                                                  THREE MONTHS ENDED           NINE MONTHS ENDED
                                                      SEPTEMBER 30,               SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)      2000        1999            2000           1999
                                                 --------     --------        -------        -------
<S>                                           <C>         <C>                <C>           <C>
REVENUES
  Net gain on sale of mortgage loans           $  14,570   $     9,911        $ 40,498      $ 57,915
  Interest                                         2,721         8,619          20,825        24,732
  Servicing fees                                   2,959         4,219          10,763        11,575
  Origination and other fees                       7,375         6,937          20,428        22,426
                                                 --------     --------         --------      --------
        Total revenues                            27,625        29,686          92,514       116,648
                                                 --------     --------         --------      --------
EXPENSES
  Payroll and related costs                        13,534       16,123          44,794        49,709
  Interest expense                                  7,450        6,205          23,781        18,454
  General and administrative (Note 3)              12,261       17,516          32,467        45,510
  Debt modification charges                         3,088          -             3,088           -
  Restructuring charges                             6,677          -             6,677           -
                                                 --------     --------         --------      --------
          Total expenses                           43,010       39,844         110,807       113,673
                                                 --------     --------         --------      --------

(Loss) income before income
   tax (benefit) expense                          (15,385)     (10,158)        (18,293)        2,975
Income taxes (benefit) expense                     (4,179)      (4,063)         (5,386)        1,111
                                                 ---------     --------        --------     ---------
Net (loss) income                             $   (11,206)  $   (6,095)      $ (12,907)     $  1,864
                                                 =========     ========        ========     =========

PER SHARE DATA
   Net (loss) income per common
     share - basic and diluted                $     (0.70)   $   (0.39)      $   (0.81)     $   0.12
                                                 ========      ========        ========     =========
   Weighted-average number
     of shares outstanding                     15,920,869   15,438,640      15,920,869    15,385,672
                                               ===========  ===========     ===========  ===========


          See accompanying notes to consolidated financial statements.

                                       2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                             NINE MONTHS ENDED
                                                                                SEPTEMBER 30,
(DOLLARS IN THOUSANDS)                                                      2000           1999
                                                                          --------       --------
<S>                                                                    <C>             <C>
Cash flows from operating activities:
   Net (loss) income                                                    $  (12,907)     $   1,864
   Adjustments to reconcile net income to net cash used in
    operating activities:
     Provision for loan and recourse losses                                    614             76
     Depreciation and amortization                                           9,717          4,196
     Settlement issuance of common stock to the Trust                           -           4,777
     Deferred tax benefit                                                  (22,482)        (8,640)
     Capitalized mortgage servicing rights, net of amortization              5,850         (2,881)
     Deferred origination costs                                                653            (48)
     Interest-only and residual certificates received in
       Securitization transactions, net                                    (14,473)       (18,870)
     Changes in operating assets and liabilities:
       Increase in accounts receivable                                      (1,070)        (7,208)
       Decrease (increase) in loans held for sale, net                      34,533        (14,742)
       Decrease (increase) in accrued interest receivable                   49,173        (11,300)
       (Increase) decrease in prepaid and other assets                     (17,689)           358
       Increase in accounts payable and accrued expenses                     2,280         16,677
       (Decrease) increase in investor payable                             (21,262)         7,551
       Increase in advance payments by borrowers for taxes and insurance       149          4,087
                                                                           --------       --------
  Net cash provided by(used in) operating activities                        13,086        (24,103)
                                                                           --------       --------
Cash flows from investing activities:
   Purchase of equipment                                                    (1,258)        (6,506)
                                                                           --------       --------
         Net cash used in investing activities                              (1,258)        (6,506)
                                                                           --------       --------
Cash flows from financing activities:
   (Repayments) proceeds from warehouse financing and other borrowing      (26,925)        40,352
   (Decrease) increase in bank payable, net                                   (668)            83
                                                                           --------       --------
         Net cash (used in) provided by financing activities               (27,593)        40,435
                                                                           --------       --------
         Net (decrease) increase in cash and interest-bearing deposits     (15,765)         9,826

Cash and interest-bearing deposits at beginning of period                   69,557         59,183
                                                                           --------       --------
Cash and interest-bearing deposits at end of period                      $  53,792      $  69,009
                                                                           ========       ========
Supplemental Information:
Cash paid during the period for:
   Interest                                                              $  26,512      $  29,901
                                                                           ========       ========
Income taxes                                                             $   2,133      $   9,750
                                                                           ========       ========

          See accompanying notes to consolidated financial statements.

                                       3
</TABLE>
<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 generally accepted accounting principles 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 generally accepted accounting  principles 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, 1999. The results of operations for the
three- and  nine-month  periods  ended  September  30, 2000 are not  necessarily
indicative of the results that will be expected for the entire year.

     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  have been made.  Certain  prior
period amounts in the financial  statements  have been  reclassified  to conform
with the current year presentation.

(2) RESTRUCTURING AND DEBT MODIFICATION CHARGES

   In  August   2000,   Delta   announced   a   corporate   restructuring   (the
"Restructuring") in its continuing efforts to improve operating efficiencies and
to address its  negative  cash flow from  operations.  The  Company  reduced its
workforce by approximately 17%,  consolidated some of its regional offices,  and
reduced the base salaries of its senior management (by  approximately  13%), and
certain  members of its  general  staff.  The  Company  recorded a $6.7  million
pre-tax charge for the Restructuring.  After cash payment for  personnel related
costs, the balance  of  the  restructuring  liability  at September 30, 2000 was
$1.7 million.

   In August  2000,  the Company  also  announced  an  agreement  to  modify its
outstanding $150 million  aggregate  principal amount of 9 1/2% senior notes due
2004 (the "Senior Notes")(the "Debt Modification").  With the consent of greater
than fifty percent of its Senior Note holders,  a negative  pledge in the Senior
Notes Indenture has been modified,  which previously  prevented the Company from
selling or otherwise  obtaining  financing  against any of its  interest-only or
residual  certifications  ("Residual  Assets").  In consideration for the Senior
Note  holders'  consent,  the  Company has agreed to offer  current  Senior Note
holders the option of exchanging  their existing  securities  ("the "Old Notes")
for new  senior  notes  (the "New  Notes")  through an  exchange  offering  (the
"Exchange Offering") which is expected to be consummated in the fourth

                                       4


quarter of 2000.  The New  Notes will  be secured  by  at  least $165 million of
the Company's  residual  certificates.  The New Notes will have the same coupon,
face  amount and  maturity  date as the Old  Notes.  In  addition,  the New Note
holders will receive 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.  All of the other terms
of the New Notes will be  substantially  similar to the Old Notes.  The  Company
recorded a $3.1 million  pre-tax  charge in the third quarter of 2000 related to
professional fees for the Debt Modification.

 (3) 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  ("NYSOAG")  alleging that Delta had violated various state
and federal lending laws. The global settlement was evidenced by (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;  agreed to provide reduced loan payments  aggregating  $7.25
million to certain  borrowers  identified  by the NYSBD;  and  created a fund of
approximately  $4.75  million  financed by the grant of 525,000  shares of Delta
Financial's  common stock valued at a constant assumed price of $9.10 per share,
which  approximated book value. The proceeds of the fund will be used, for among
other  things,  payments  to  borrowers,  and to pay for a variety  of  consumer
educational and counseling programs.

   In March 2000, the Company finalized an agreement with the U.S. Department of
Justice (the "DOJ"), the Federal Trade Commission (the "FTC") and the Department
of Housing and Urban Development  ("HUD"),  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.

(4) IMPACT OF NEW ACCOUNTING STANDARDS

   In June  2000,  the  FASB  issued  SFAS  No.  138,  "Accounting  for  Certain
Derivative  Instruments  and  Certain Hedging  Activities - an amendment of FASB
Statement  No. 133." This statement  amends  and supersedes  certain  paragraphs
of SFAS  No.  133.  The  effective  date for SFAS  No. 138 is for  fiscal  years
beginning  after June  15, 2000.  SFAS No. 138  and 133 apply to  quarterly  and
annual financial  statements.  The Company  does not believe that  there will be
a  material  change to  the impact of  its  hedging  strategy  on its  financial
condition or results of operations upon the adoption of SFAS No. 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 replaces SFAS No. 125 and revises the standards for accounting and reporting
for  securitizations  and other transfers of financial assets and extinguishment
of  liabilities.  SFAS No. 140 is  effective  for  transfers  and  servicing  of
financial assets and  extinguishments  of liabilities  occurring after

                                       5


March  31,  2000. SFAS No. 140 is effective for recognition and reclassification
of collateral and for disclosures  relating to  securitization transactions  and
collateral for fiscal years ending after  December 31, 2000. Management  of  the
Company currently  believes the implementation of SFAS  No. 140 will not have  a
material impact on the Company's  financial condition or results of operation.


(5) 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 net income.
<TABLE>
<CAPTION>
<S>                                      <C>          <C>          <C>         <C>

                                              THREE MONTHS ENDED        NINE MONTHS ENDED
                                                 SEPTEMBER 30,             SEPTEMBER 30,
                                              ------------------        -----------------
(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)       2000          1999        2000         1999
-------------------------------------------------------------------------------------------
Net (loss) income                           $(11,206)     $(6,095)    $(12,907)      $1,864
Weighted-average shares - basic           15,920,869   15,438,640   15,920,869   15,385,672
Basic EPS                                     $(0.70)      $(0.39)      $(0.81)       $0.12

Weighted-average shares - basic           15,920,869   15,438,640   15,920,869   15,385,672
Incremental shares-options                     ---         27,817          452       25,700
-------------------------------------------------------------------------------------------
Weighted-average shares - diluted         15,920,869   15,466,457   15,921,321   15,411,372
Diluted EPS                                   $(0.70)      $(0.39)      $(0.81)       $0.12
</TABLE>

                                       6

<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,  acquiring, selling and servicing non-conforming home equity loans.
Throughout its 18 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.

   Through  its  wholly-owned  subsidiary,  Delta  Funding  Corporation  ("Delta
Funding"),  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 also  purchases
loans from  mortgage  bankers and smaller  financial  institutions  that satisfy
Delta's underwriting guidelines  ("Correspondent Loans"). However, in July 2000,
the Company decided to discontinue its correspondent  operations to focus on its
less  cash  intensive  broker  and  retail  channels.  Delta  Funding  currently
originates  the  majority  of its loans in 24  states,  through  its  network of
approximately 1,500 brokers.

   Through its  wholly-owned  subsidiary,  Fidelity  Mortgage  Inc., the Company
develops retail loan leads ("Retail Loans")  primarily through its telemarketing
system and its network of 14 retail offices located in eight states.  During the
nine months ended  September 30, 2000, the Company closed two retail offices (in
Atlanta,  Georgia and Tampa,  Florida), and opened a new retail origination call
center at its office in Woodbury, New York.

   In July 2000, the Company  received $2 million in connection with the sale of
one of its domain names previously used as an internet address.

   In August 2000,  Delta announced a corporate  restructuring in its continuing
efforts to improve its operating  efficiencies  and to address its negative cash
flow from operations (See Restructuring and Debt Modification Charges, Note 2 of
the Notes to Consolidated Financial Statements).

   In August  2000,  the  Company  also  announced  an  agreement  to modify its
outstanding $150 million  aggregate  principal amount of 9 1/2% senior notes duE
2004 (See  Restructuring and Debt Modification  Charges,  Note 2 of the Notes to
Consolidated Financial Statements).

                                       7


   In August 2000, the Company entered into a residual financing  agreement with
a lender  to  finance  approximately  $17  million  of its  Residual  Assets  in
accordance with its Debt Modification.

   In June 1999, the Company announced a settlement in principle with the NYOAG,
which was to provide for  retrospective  relief to certain borrowers in the form
of reduced monthly obligations aggregating $6 million and prospective changes to
some of the  Company's  lending  practices.  The NYOAG took  issue with  Delta's
lending  practices,  specifically  which loans  should and should not be made by
Delta.  The  settlement in principle was later expanded to include the NYSBD and
the  DOJ,  which  had  raised  similar  concerns  relating  to  Delta's  lending
practices.  In September 1999, the Company  finalized its  settlements  with the
NYSBD and the NYOAG,  but only after the NYOAG filed suit against the Company in
August  1999,  as evidenced  by (1) a  Remediation  Agreement by and between the
Company and the NYSBD,  and (2) a  Stipulated  Order on Consent by and among the
Company and the NYOAG.

   As part of the final global  settlement,  the Company  agreed to, among other
things, implement agreed upon changes to its lending practices;  provide reduced
loan payments  aggregating $7.25 million to certain borrowers  identified by the
NYSBD;  and create a reversionary  fund (the "Fund"),  administered by a trustee
named by the NYSBD,  financed by the grant by Delta of 525,000 shares of Delta's
common  stock,  valued at an assumed  constant  price of $9.10 per share,  which
approximated the book value of the shares.  All proceeds raised through the Fund
shall be used for  restitution  and/or to pay for a variety of  educational  and
counseling programs at the discretion of the NYSBD.

   The Company  recorded a $6.0 million  pre-tax charge in the second quarter of
1999 when it reached a settlement in principle with the NYOAG. Subsequently,  an
additional $6.0 million pre-tax charge was recorded in the third quarter of 1999
when the Company reached a global  settlement with the NYSBD and the NYOAG.  The
Company  finalized its agreement with the DOJ in March 2000. The DOJ settlement,
which parallels the NYSBD and NYOAG  settlement  agreements,  was also signed by
the FTC and HUD. See "Legal Proceedings" for a discussion of the settlement.

      For the three months ended September 30, 2000, the Company  originated and
purchased  $198  million of loans,  a decrease  of 45% over the $361  million of
loans  originated  and  purchased  in the  comparable  period in 1999.  Of these
amounts,  approximately  $137  million  were  originated  through its network of
brokers,  $60 million were originated  through its retail network and $1 million
were purchased from its network of  correspondents  (although the Company closed
its correspondent division July 1, 2000, it had a previous forward commitment to
purchase  these loans  subsequent to July 1, 2000) during the three months ended
September  30,  2000.  For the  same  period  in  1999,  comparable  amounts  of
originations  through its broker and retail  networks,  and  purchases  from its
correspondent   network,  were  $222  million,  $80  million  and  $59  million,
respectively.

                                       8


   The Company  originated  and purchased $749 million of mortgage loans for the
nine months ended  September  30, 2000,  representing  a 37% decrease from $1.18
billion of mortgage loans originated and purchased for the comparable  period in
1999. Of these amounts,  approximately  $477 million were originated through its
network of brokers,  $203 million were originated through its retail network and
$69 million were  purchased from its network of  correspondents  during the nine
months ended September 30, 2000 compared to $715 million,  $249 million and $216
million,  respectively, for the same period in 1999. The decrease in origination
volume  for the  comparable  three and nine  month  periods  was the result of a
decline in correspondent  purchases,  which was due to the Company's decision in
July 2000 to discontinue its  correspondent  operations to focus  exclusively on
its less cash  intensive  broker  and  retail  channels  and a  general  overall
industry decline in mortgage originations resulting from higher interest rates.

   The following  table sets forth  information  relating to the delinquency and
loss experience of the mortgage loans serviced by the Company (primarily for the
securitization  trusts,  as  described  below) for the  periods  indicated.  The
Company is not the holder of the  securitization  loans,  but generally  retains
interest-only or residual  certificates issued by the securitization  trusts and
the servicing  rights,  of which the value of each may be adversely  affected by
defaults.

                                       9

<PAGE>
                                         -------------------------------------
(Dollars in thousands)                     9 MONTHS ENDED    6 MONTHS ENDED
                                            SEPTEMBER 30,       JUNE 30,
                                                 2000              2000
                                             ------------     ------------
Total Outstanding Principal Balance
  (at period end)......................      $  3,574,790     $  3,816,818
Average Outstanding(1).................      $  3,715,636     $  3,745,443
DELINQUENCY (at period end)
30-59 Days:
  Principal Balance....................      $    235,990     $    208,674
  Percent of Delinquency(2)............             6.60%            5.47%
60-89 Days:
  Principal Balance....................      $    106,974     $    103,347
  Percent of Delinquency(2)............             2.99%            2.71%
90 Days or More:
  Principal Balance....................      $     69,827     $     54,718
  Percent of Delinquency(2)............             1.95%            1.43%
Total Delinquencies:
  Principal Balance....................      $    412,791     $    366,739
  Percent of Delinquency(2)............            11.54%            9.61%
FORECLOSURES
  Principal Balance....................      $    207,029     $    190,059
  Percent of Foreclosures by Dollar(2).             5.79%            4.98%
REO (at period end)....................      $     51,421     $     47,098
   Percent of REO......................             1.44%            1.23%
Net Losses on Liquidated Loans.........      $    (18,759)    $    (11,061)
Percentage of Net Losses on Liquidated Loans
  (based on Average Outstanding Balance)(3)        (0.67%)          (0.59%)
---------------
(1)Calculated by summing the actual  outstanding  principal  balances at the end
   of each  month and  dividing  the total  principal  balance  by the number of
   months in the applicable period.
(2)Percentages are expressed based upon the total outstanding  principal balance
   at the end of the indicated period.
(3)Annualized.

   The  Company  believes  it  will  continue  to see a  higher  trend  in  both
delinquencies  and losses on an  absolute  dollar and  percentage  basis for the
foreseeable future primarily due to a combination of (a) the continued seasoning
of the  Company's  servicing  portfolio  and  (b) a  continued  reduction,  on a
relative  basis in the size of the  increase in its  servicing  portfolio.  This
latter trend is due to both a lower absolute dollar amount of loan  originations
and a lower absolute dollar amount on its servicing portfolio as a result of the
sale of its servicing rights  associated with the loans  securitized  during the
second and third quarters of 2000.


FAIR VALUE ADJUSTMENTS

   The  fair  values  of  both  interest-only  and  residual   certificates  and
capitalized mortgage servicing rights are significantly affected by, among other
factors,  prepayments  of loans and estimates of future  prepayment  rates.  The
Company continually  reviews its prepayment

                                       10

assumptions in light of company and industry  experience  and  makes adjustments
to those assumptions when such experience indicates.

   The Company makes assumptions  concerning prepayment rates and defaults based
upon the  seasoning  of its existing  securitization  loan  portfolio.  The most
recent  adjustments to these  assumptions were made in the third quarter of 2000
and the fourth  quarter of 1999.  The  following  table shows the changes to the
prepayment  assumptions at each of these dates and the assumptions used prior to
the 1999 fourth quarter change.

-----------------------------------------------------------------------------
                            MONTH ONE SPEED               PEAK SPEED
-----------------------------------------------------------------------------
LOAN TYPE               9/30/00  12/31/99  PRIOR    9/30/00  12/31/99  PRIOR
-----------------------------------------------------------------------------
Fixed Rate Loans          4.0%      4.0%     4.8%      23%      31%      31%
-----------------------------------------------------------------------------
Six-Mo. LIBOR ARMS       10.0%     10.0%    10.0%      50%      50%      50%
-----------------------------------------------------------------------------
Hybrid ARMS               4.0%      4.0%     6.0%      50%      50%      50%
-----------------------------------------------------------------------------

   In the third  quarter of 2000,  the  Company  lowered  its  prepayment  speed
assumptions  mainly by reducing the peak speed on its fixed rate product,  which
comprises  the  majority of the  Company's  servicing  portfolio.  In the fourth
quarter of 1999, the Company lowered its prepayment speed assumption along parts
of the  prepayment  rate vector curve while leaving the peak speeds  intact.  In
addition,  the Company increased its loss reserve initially established for both
fixed and adjustable-rate loans sold to the securitizations trusts from 2.20% to
approximately  3.10% in the  fourth  quarter  of 1999 and to 3.50% in the  third
quarter of 2000 of the issuance amount securitized.

   The prepayment rate assumption was revised primarily to reflect the Company's
actual loan performance  experience over the past several  quarters.  Management
believes that industry  consolidation and a higher interest rate environment has
and will continue to deter borrowers from refinancing  their mortgage loans. The
loan loss reserve assumption was revised to reflect management's belief that (i)
slower  prepayment  speeds,  (ii) anticipated flat to slightly  moderate rise in
home  values as  compared  to the past few years  and  (iii)  the  inability  of
borrowers to refinance  their  mortgages  to avoid  default  because of industry
consolidation  and  higher  interest  rates  may have an  adverse  effect on the
Company's non-performing loans.

   The Company primarily  utilizes an annual discount rate of 12% in determining
the present value of cash flows from residual certificates, using the "cash-out"
method,  which are the predominant form of retained  interests at both September
30, 2000 and December  31,  1999.  However,  in the third  quarter of 2000,  the
Company  increased the discount rate during the duration of NIM transaction on a
portion of its  residual  certificates  to 18% (from 12%) and  recorded  an $8.8
million  valuation  adjustment.  This  adjustment  reflects a  reduction  in the
present  value  on those  residual  certificates  it  anticipates  selling  in a
proposed net interest margin ("NIM')  transaction in the fourth quarter of 2000.
The Company increased the discount rate on these residual  certificates,  during
the period that the senior NIM  securities are  outstanding,  to account for the
potential  higher risk  associated with the residual cash flows the Company will
retain from a certificated  interest in the NIM trust,  which is subordinated to
the  senior  security  sold in the NIM  transaction.  The  discount  rate on the
Company's  remaining  residual  certificates  (the residuals not sold in the NIM
transaction or "senior residuals") remained unchanged at 12%.

                                       11


   In the second quarter of 2000, the Company recorded a $3.7 million  valuation
adjustment   to  its  interest   income  for  its  interest  only  and  residual
certificates  in  accordance  with SFAS 115,  due to the  increase in  one-month
LIBOR. Some of the Company's interest only and residual  certificates are backed
by  floating  rate  securities,  which are  susceptible  to  interest  rate risk
associated with movement in short-term interest rates.

      The Company uses the same  prepayment  assumptions  in estimating the fair
value of its mortgage servicing rights.


RESULTS OF OPERATIONS
THREE  MONTHS  ENDED  SEPTEMBER  30, 2000  COMPARED TO THE THREE  MONTHS ENDED
SEPTEMBER 30, 1999

GENERAL

   The  Company's  net loss for the three  months ended  September  30, 2000 was
$11.2  million,  or $0.70 per share,  compared to net loss of $6.1  million,  or
$0.39 per share,  for the three months ended  September 30, 1999.  Excluding (i)
non-recurring  charges  associated  with a  corporate  restructuring  and a debt
modification,  (ii) a  reduction  in the  carrying  value  of a  portion  of the
Company's residual  certificates  related to an increase in the discount rate of
such certificates in connection with the Company's  proposed Net Interest Margin
("NIM") transaction  expected to be completed in the fourth quarter of 2000, and
(iii) non-recurring  income due to the sale of one of the Company's domain names
, the Company's  net income for the three months ended  September 30, 2000 would
have been $0.8 million, or $0.05 per share.  Excluding a one-time charge related
to the  remaining $6 million of the $12 million  settlement  entered into by the
Company with the NYSBD,  NYOAG and the DOJ, the Company's net loss for the three
months  ended  September  30,  1999 would have been $2.5  million,  or $0.16 per
share.  Results  for the  three  months  ended  September  30,  1999  were  also
negatively  impacted  by  the  Company's  decision  not  to  execute  a  regular
securitization  in the third quarter of 1999,  resulting in a smaller than usual
net  gain-on-sale  of mortgage loans.  Comments  regarding the components of net
income are detailed in the following paragraphs.

REVENUES

   Total revenues decreased $2.1 million,  or 7%, to $27.6 million for the three
months ended September 30, 2000 compared to $29.7 million for the same period in
1999.  The  decrease  in revenue  was  primarily  attributable  to a decrease in
interest income and servicing fees. This was partially  offset by an increase in
net gain on sale of mortgage loans and origination and other fees.

   The Company  originated  and purchased $198 million of mortgage loans for the
three months ended  September  30, 2000,  representing  a 45% decrease from $361
million of mortgage loans originated and purchased for the comparable  period in
1999.  The  Company  securitized  and sold $200  million  in loans (and sold the
related  servicing  rights)  during the three  months ended  September  30, 2000
compared  to $360  million  sold to a  mortgage  loan  conduit  facility  in the
corresponding period in 1999, representing a 44% decrease. The Company also sold
$11.7 million of loans on a whole loan  servicing  released basis for the period
ended  September  30,  2000.  The  Company  did not  sell  whole  loans  for the
comparable  period  in 1999.  The total  loans

                                       12


serviced increased 1% to $3.57  billion at September 30, 2000 from $3.52 billion
at September 30, 1999.

   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  interest-only  and residual
certificates retained by the Company in a securitization for each period and the
market value of the  interest-only  certificates  sold in  connection  with each
securitization,  (b) the fair value of retained  capitalized  mortgage servicing
rights  associated with loans securitized in each period and the market value of
capitalized   mortgage   servicing   rights   sold  in   connection   with  each
securitization,  and (c)  premiums  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  increased $4.7 million,  or 47%, to $14.6
million for the three months ended September 30, 2000, from $9.9 million for the
comparable  period in 1999.  This  increase was  primarily due the Company's not
executing a  securitization  in the third quarter of 1999.  The Company  instead
opted to sell its loan production into a conduit facility, where the net gain on
sale  was  lower  than  if  the  Company  would  have  sold  its  loans  through
securitization.  Net gain on sale of mortgage loans sold to the conduit facility
primarily  reflected the interest rate risk  associated  with funding fixed rate
mortgage  loans using a variable  interest  rate over the expected  lives of the
mortgage loans.  Net gain on sale of mortgage loans was also higher in the third
quarter of 2000 because a higher  amount of gross excess  spread  expected to be
earned over the life of the loans as calculated by the weighted  average  coupon
on the pool of mortgage  loans  securitized  less the total cost of funds on the
securitization.  The  increase  in the  weighted  average  coupon  for the third
quarter of 2000 is primarily the result of the Company  increasing  the interest
rates it charges to borrowers by  approximately  0.50% in the second  quarter of
2000.  The  decrease  in the  total  cost of  funds  on the  securitization  was
primarily  attributable to lower spreads demanded by asset-backed  investors who
purchased  the  pass-through  certificates  issued by the  securitization  trust
during the three months ended September 30, 2000.  Also  attributing to a higher
net  gain on sale of  mortgage  loans in the  third  quarter  of 2000 was  lower
aggregate  premiums  paid to acquire  loans,  resulting  from both a decrease in
amount of loans purchased  through the  correspondent  channel and lower average
premiums paid to  correspondents.  The Company also lowered its prepayment speed
assumptions  in the third quarter of 2000,  while at the same time increased its
loss reserve initially established for both fixed and adjustable-rate loans sold
to the  securitizations  trusts  (see "Fair  Value  Adjustments").  The  changes
largely offset each other and, therefore,  did not materially affect net gain on
sale of mortgage loans. The weighted average net gain on sale ratio was 6.9% for
the three months ended  September 30, 2000  compared to 2.8% for the  comparable
period in 1999.

   INTEREST  INCOME.  Interest  income  primarily  represents the sum of (1) the
difference  between the  distributions the Company receives on its interest-only
and residual certificates and the adjustments recorded to reflect changes in the
fair  value  of the  interest-only  and  residual  certificates,  (2) the  gross
interest  earned on loans  held for sale  (other  than for  loans  sold into the
mortgage loan conduit,  in which case it is the net interest  spread),  (3) with
respect to loans sold into the mortgage  loan conduit,  the net interest  margin
earned  (excess  servicing)  between the

                                       13


weighted  average   rate  on  the mortgage  loans less  the  conduit's  variable
funding  rate  plus  administrative  fees,  and  (4)  interest  earned  on  cash
collection balances.

   Interest income decreased $5.9 million, or 68%, to $2.7 million for the three
months ended September 30, 2000, from $8.6 million for the comparable  period in
1999.  The decrease in interest  income was primarily due to (i) an $8.8 million
reduction in the present  value on some of the Company's  residual  certificates
due to a discount  rate  increase to 18% from 12% on a portion of the  Company's
residual  certificates in connection with the Company's proposed NIM transaction
expected  to be  completed  in the  fourth  quarter  of 2000  (see  "Fair  Value
Adjustment")  and  (ii)  a  decrease  in the  amount  of  loans  held  prior  to
securitization,  reflecting  lower  overall loan  production in the three months
ended  September 30, 2000.  This was partially  offset by (a) a higher  mortgage
coupon rate of 11.9% compared to 10.6%,  reflecting a higher  economic  interest
rate  environment  and (b) the accounting for loans sold through a mortgage loan
conduit (special purpose vehicle) prior to  securitization  in the third quarter
of 1999,  in which the  Company  earned and  recorded  the net  interest  margin
between  the  interest  rate  earned on the pool of  mortgage  loans sold to the
mortgage  loan  conduit  and the conduit  financing  rate,  less  administrative
expenses. The Company did not utilize a mortgage loan conduit in 2000.

   SERVICING  FEES.  Servicing  fees  represent  all  contractual  and ancillary
servicing  revenue received by the Company less (1) the offsetting  amortization
of the capitalized  mortgage servicing rights,  and any adjustments  recorded to
reflect valuation allowances for the impairment in mortgage servicing rights and
(2) prepaid interest shortfalls.

   Servicing fees decreased $1.2 million,  or 30%, to $3.0 million for the three
months ended September 30, 2000, from $4.2 million for the comparable  period in
1999. The decrease in servicing  income is primarily due to lower ancillary fees
collected  (primarily  prepayment  penalties as mortgage loan  prepayments  were
comparably  lower  in  the  third  quarter  of  2000)  together  with  a  higher
amortization of the capitalized  mortgage  servicing rights.  This was partially
offset by an increase in contractual  servicing  income.  The average balance of
the mortgage loans  serviced by the Company  increased 5.5% to $3.66 billion for
the three  months  ended  September  30,  2000 from $3.47  billion for the three
months ended September 30, 1999.

   ORIGINATION AND OTHER FEES.  Origination fees primarily represent fees earned
on brokered and retail originated loans as well as non-related origination fees.

   Origination and other fees increased $0.5 million, or 6%, to $7.4 million for
the three months ended  September 30, 2000, from $6.9 million for the comparable
period in 1999.  The  increase  is  primarily  due to the sale of the  Company's
domain name in July 2000. This was offset by a 39% decrease in broker originated
loans and a 25% decrease in retail originated loans.


EXPENSES

   Total  expenses  increased by $3.2  million,  or 8%, to $43.0 million for the
three months ended  September 30, 2000,  from $39.8  million for the  comparable
period in 1999. The increase was primarily the result of  non-recurring  charges
related to a corporate  restructuring  and a debt modification in addition to an
increase in interest expense. This was partially offset by a decrease in general
and  administrative  costs and a decrease in personnel costs attributable to the

                                       14


Company's  previously  announced  initiative  to lower costs through a corporate
restructuring that included a workforce reduction. In the third quarter of 1999,
the Company  expensed  the  remaining  $6 million of the $12 million  settlement
entered into by the Company with the NYSBD, NYOAG and DOJ.

   PAYROLL AND RELATED  COSTS.  Payroll and related  costs  include  salaries,
benefits and payroll taxes for all employees.

   Payroll and related costs decreased by $2.6 million, or 16%, to $13.5 million
for the three  months  ended  September  30,  2000,  from $16.1  million for the
comparable period in 1999. The decrease was primarily the result of a decline in
staffing in the Company's broker and retail divisions and in commissions paid to
these employees due to a decrease in loans originated,  and an overall reduction
in  the  Company's  workforce  as  part  of  a  previously  announced  corporate
restructuring  that  also  included  consolidating  some  regional  offices  and
reducing  the  compensation  of senior  management  and  certain  members of the
general  staff.  As of September  30, 2000,  the Company  employed 881 full- and
part-time  employees,  compared to 1,190  full- and  part-time  employees  as of
September 30, 1999.

   INTEREST  EXPENSE.  Interest  expense includes the borrowing costs to finance
loan originations and purchases,  equipment  financing and the Company's overall
operations under the Senior Notes and the Company's credit facilities.

   Interest expense  increased by $1.2 million,  or 20%, to $7.4 million for the
three  months  ended  September  30, 2000 from $6.2  million for the  comparable
period in 1999.  The increase was primarily  attributable  to the accounting for
loans sold through a mortgage loan conduit prior to the Company's securitization
during the third quarter of 1999,  in which the Company  earned and recorded the
net interest  margin  between the  interest  rate earned on the pool of mortgage
loans sold to the mortgage  loan conduit and the conduit  financing  rate,  less
administrative  expenses.  Typically,  interest expense related to the Company's
other  warehouse  financings and  borrowings  are recorded  directly to interest
expense.  The Company did not utilize its mortgage loan conduit during the third
quarter of 2000. In addition,  there was an increase in the cost of funds on the
Company's credit  facilities,  which were tied to one-month LIBOR. The one-month
LIBOR index  increased to an average  interest rate of 6.6% for the three months
ended September 30, 2000,  compared to an average  interest rate of 5.3% for the
comparable period in 1999.

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

   General and administrative  expenses decreased $5.2 million, or 30%, to $12.3
million for the three months ended  September  30, 2000,  from $17.5 million for
the  comparable  period in 1999.  The decrease was  primarily  the result of the
remaining $6 million - of the total $12 million settlement expensed in the third
quarter of 1999 associated with Company's  settlement with the NYSBD,  NYOAG and
DOJ.

   DEBT MODIFICATION  CHARGES.  During the three months ended September 30, 2000
the Company recorded $3.1 million of debt modification charges primarily related
to legal fees, and

                                       15


senior  note   holder's  financial  advisor  fees  associated    with  the  Debt
Modification and proposed  Exchange  Offering (see Corporate  Restructuring  and
Debt Modification).

   RESTRUCTURING  CHARGES.  During 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 relate to employee severance associated with
the layoffs,  and a reduction to both goodwill and office  equipment  write-offs
(see- Corporate Restructuring and Debt Modification).

   Income Taxes. Income taxes are accounted for under SFAS No. 109,  "Accounting
for 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 benefit of $4.2  million and $4.1 million for the
three months ended September 30, 2000 and 1999, respectively.


NINE  MONTHS  ENDED  SEPTEMBER  30, 2000  COMPARED  TO THE NINE  MONTHS  ENDED
SEPTEMBER 30, 1999

GENERAL

   The Company's net loss for the nine months ended September 30, 2000 was $12.9
million,  or $0.81 per share,  compared to net income of $1.9 million,  or $0.12
per share, for the nine months ended September 30, 1999. Excluding non-recurring
items  related  to (1)  restructuring  and debt  modification  charges,  (2) the
reduction in the present value on a portion of the Company's  residual asset and
(3) non-recurring  income associated with the sale of Company's domain name, the
Company's  would have reported net income of $1.3  million,  or $0.08 per share,
for the nine months ended  September 30, 2000.  Excluding a one-time $12 million
charge  related to the  settlement  entered  into by the Company with the NYSBD,
NYOAG and DOJ, the Company's net income for the nine months ended  September 30,
1999 would have been $9.1  million,  or $0.59 per  share.  Results  for the nine
months ended September 30, 1999 were also  negatively  impacted by the Company's
decision not to execute a regular  securitization  in the third quarter of 1999,
resulting in a smaller than usual net  gain-on-sale of mortgage loans.  Comments
regarding the components of net income are detailed in the following paragraphs.

REVENUES

   Total revenues decreased $24.1 million, or 21%, to $92.5 million for the nine
months ended September 30, 2000,  from $116.6 million for the comparable  period
in 1999. The decrease in revenue was primarily attributable to a decrease in the
net gain on the sale of mortgage  loans,  interest  income,  servicing  fees and
origination and other fees.

   The Company  originated  and purchased $749 million of mortgage loans for the
nine months ended  September  30, 2000,  representing  a 37% decrease from $1.18
billion of mortgage loans originated and purchased for the comparable  period in
1999.  The  Company  securitized  $765  million in loans  (and sold the  related
servicing  rights  on  its  2000  second  and  third  quarter   securitizations,
respectively)  during the nine months ended  September 30, 2000,  representing a
36% decrease from two securitizations and a loan sale through a conduit facility
totaling  $1.20

                                       16


billion  during  the  nine  months  ended  September 30, 1999. The  Company also
sold $11.7  million of loans on a whole loan  servicing  released  basis for the
nine months ended  September 30, 2000.  The Company did not sell whole loans for
the  comparable  period in 1999.  Total  loans  serviced  increased  1% to $3.57
billion at September 30, 2000 from $3.52 billion at September 30, 1999.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
decreased  $17.4  million,  or 30%, to $40.5  million for the nine months  ended
September 30, 2000,  from $57.9 million for the comparable  period in 1999. This
decrease  was  primarily  due  to (i) a 35%  decrease  in the  amount  of  loans
securitized or sold, (ii) a lower gross excess spread expected to be earned over
the life of the loans as calculated by the weighted  average  coupon on the pool
of mortgage loans securitized less the total cost of funds on the securitization
- the  Company  experienced  a higher  cost of funds for the first six months of
2000  compared  to the same  period  in 1999 due to wider  spreads  demanded  by
asset-backed  investors  who purchase the  pass-through  certificates  issued by
securitization  trusts,  and (iii) a revision to the Company's loan loss reserve
assumption  in the fourth  quarter of 1999 (see "Fair  Value  Adjustment").  The
decrease was partially  offset by (i) the Company not executing a securitization
in the third quarter of 1999 and instead opting to sell its loan production into
a conduit  facility,  where the net gain on sale was lower  than if the  Company
would  have sold its  loans  through  securitization  and (ii)  lower  aggregate
premiums  paid to acquire  loans,  resulting  from both a decrease  in amount of
loans purchased  through the  correspondent  channel and lower average  premiums
paid  to   correspondents.   The  Company  also  lowered  its  prepayment  speed
assumptions  in the third quarter of 2000,  while at the same time increased its
loss reserve initially established for both fixed and adjustable-rate loans sold
to the securitizations trusts (see "Fair Value Adjustment"). The changes largely
offset each other and, therefore,  did not materially affect net gain on sale of
mortgage  loans.  The  weighted  average net gain on sale ratio was 5.2% for the
nine months ended September 30, 2000 compared to 5.0% for the comparable  period
in 1999.

   INTEREST  INCOME.  Interest income  decreased $3.9 million,  or 16%, to $20.8
million for the nine months ended September 30, 2000, from $24.7 million for the
comparable  period in 1999. The decrease in interest income was primarily due to
(i) a  reduction  in  the  present  value  on  some  of the  Company's  residual
certificates  in the third  quarter of 2000 due to a discount rate increase from
12% to 18% on a portion of the  Company's  residual  certificates  in connection
with the  Company's  proposed  NIM  transaction  expected to be completed in the
fourth  quarter of 2000 (see "Fair  Value  Adjustment"),  (ii) a decrease in the
amount of loans held prior to  securitization,  reflecting  lower  overall  loan
production  in the nine months ended  September 30, 2000 and (iii) a higher fair
value  adjustment  during the second  quarter of 2000 due to an  increase in one
month LIBOR (see "Fair Value  Adjustment").  This was partially  offset by (i) a
higher weighted average mortgage coupon rate in 2000 compared to 1999 reflecting
a higher economic interest rate environment,  (ii) the accounting for loans sold
through  a  mortgage   loan  conduit   (special   purpose   vehicle)   prior  to
securitization  in 1999, in which the Company earns and records the net interest
margin  between the interest  rate earned on the pool of mortgage  loans sold to
the mortgage loan conduit and the conduit  financing rate,  less  administrative
expenses and (iii) a higher fair value  adjustment  during the first  quarter of
1999,  including a $3.8 million reduction in the Company's value of residual and
interest-only certificates related to an increase in its loan loss reserve.

                                       17


   SERVICING  FEES.  Servicing  fees  decreased  $0.8  million,  or 7%, to $10.8
million for the nine months ended September 30, 2000, from $11.6 million for the
comparable  period in 1999. The decrease in servicing income is primarily due to
lower ancillary fees collected (primarily  prepayment penalties as mortgage loan
prepayments  were  comparable  lower in the third quarter of 2000) together with
higher amortization of capitalized mortgage servicing rights. This was partially
offset  by an  increase  in  the  aggregate  size  of  the  Company's  servicing
portfolio.  The average  balance of the mortgage  loans  serviced by the Company
increased 13% to $3.72 billion for the nine months ended September 30, 2000 from
$3.28 billion during the comparable period in 1999.

   ORIGINATION  AND OTHER  FEES.  Origination  and  other  fees  decreased  $2.0
million,  or 9%, to $20.4 million for the nine months ended  September 30, 2000,
from $22.4 million for the comparable period in 1999. The decrease was primarily
the result of a 33% decrease in broker  originated  loans and an 18% decrease in
retail  originated loans. This was partially offset by the sale of the Company's
domain name in July 2000.

EXPENSES

   Total  expenses  decreased by $2.9 million,  or 3%, to $110.8 million for the
nine months ended  September 30, 2000,  from $113.7  million for the  comparable
period in 1999.  This was  primarily  the  result of a decrease  in general  and
administrative  costs  (primarily  relating  to  the  $12  million  the  Company
expensed,  in the nine months  ended  September  30,  1999,  for the  settlement
entered  into by the  Company  with the NYSBD,  NYOAG and DOJ) and a decrease in
personnel costs attributable to the Company's previously announced initiative to
lower costs through a corporate  restructuring in the third quarter of 2000 that
included a workforce reduction.  This was partially offset by third quarter 2000
non-recurring   charges  related  to  the  corporate   restructuring   and  debt
modification, in addition to an increase in interest expense.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  decreased  by $4.9
million,  or 10%, to $44.8 million for the nine months ended September 30, 2000,
from $49.7 million for the comparable period in 1999. The decrease was primarily
the result of a decline in staffing in the Company's broker and retail divisions
and  in  commissions  paid  to  these  employees  due  to a  decrease  in  loans
originated,  and an overall  reduction in the  Company's  workforce as part of a
previously  announced corporate  restructuring that also included  consolidating
some offices and  reducing the  compensation  of senior  management  and certain
members of the  general  staff.  In  addition,  there was a decrease  in bonuses
related to  executive  employees.  This was  partially  offset by an increase in
employee  fringe  benefits.  As of September 30, 2000, the Company  employed 881
full- and part-time  employees,  compared to 1,190 full- and part-time employees
as of September 30, 1999.

   INTEREST  EXPENSE.  Interest  expense  increased by $5.3 million,  or 29%, to
$23.8  million for the nine months ended  September  30, 2000 from $18.5 million
for the comparable  period in 1999. The increase was primarily  attributable  to
the  accounting  for loans sold through a mortgage  loan conduit  prior to their
securitization  during the nine months ended  September  30, 1999,  in which the
Company  earned and recorded the net interest  margin  between the interest rate
earned on the pool of mortgage  loans sold to the mortgage  loan conduit and the
conduit  financing  rate,  less  administrative  expenses.  Typically,  interest
expense related to the Company's  other  warehouse

                                       18


financing  and  borrowings  are  recorded  directly  to  interest  expense.  The
Company did not utilize its mortgage  loan conduit  during the nine months ended
September 30, 2000.  In addition,  there was an increase in the cost of funds on
the  Company's  credit  facilities,  which  were tied to  one-month  LIBOR.  The
one-month LIBOR index increased to an average  interest rate of 6.3% in the nine
months ended  September 30, 2000,  compared to an average  interest rate of 5.1%
for the comparable period in 1999.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
decreased  $13.0  million,  or 29%, to $32.5  million for the nine months  ended
September 30, 2000,  from $45.5 million for the  comparable  period in 1999. The
decrease was primarily the result of the $12 million settlement with the Company
and the NYSBD, NYOAG and DOJ for the nine months ended September 30, 1999.

    DEBT MODIFICATION CHARGES.  During the three months ended September 30, 2000
the Company recorded $3.1 million of debt modification charges primarily related
to legal fees, and senior note holder's  financial  advisor fees associated with
the  Debt   Modification   and  proposed   Exchange   Offering  (see   Corporate
Restructuring and Debt Modification).

   RESTRUCTURING  CHARGES.  During 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 relate to employee severance associated with
the layoffs,  and a reduction to both goodwill and office  equipment  write-offs
(see- Corporate Restructuring and Debt Modification).

   INCOME  TAXES.  The Company  recorded a tax benefit of $5.4 million and a tax
provision of $1.1 million for the nine months ended September 30, 2000 and 1999,
respectively.


FINANCIAL CONDITION

SEPTEMBER 30, 2000 COMPARED TO DECEMBER 31, 1999

   Cash and interest-bearing  deposits decreased $15.8 million, or 23%, to $53.8
million at September  30,  2000,  from $69.6  million at December 31, 1999.  The
decrease was primarily the result of lower  prepayments  which caused a decrease
in monies  held in  securitization  trust  accounts  by the  Company,  acting as
servicer for its ongoing securitization program.

   Loans held for sale, net decreased $35.2 million, or 40%, to $53.8 million at
September 30, 2000,  from $89.0 million at December 31, 1999.  This decrease was
primarily due to the net difference  between loan originations and loans sold or
securitized during the nine months ended September 30, 2000.

   Accrued interest receivable decreased $49.2 million, or 78%, to $14.1 million
at September 30, 2000,  from $63.3  million at December 31, 1999.  This decrease
was  primarily  due to the sale of its  interest  receivable  asset  through two
securitizations  in the  first  two  quarters  of 2000,  partially  offset by an
increase  in  reimbursable  interest  advances  made by the  Company,  acting as
servicer on its securitizations.

   Capitalized  mortgage  servicing  rights  decreased $5.8 million,  or 13%, to
$40.1  million at September  30, 2000,  from $45.9 million at December 31, 1999.
This decrease was primarily due

                                       19


to  the  normal  amortization  of  the  capitalized  mortgage  servicing rights,
which was not offset in the second and third  quarter of 2000 with new  recorded
capitalized  mortgage servicing rights usually associated with a securitization.
The Company  sold its  contractual  right to service the loans on its second and
third quarter 2000 securitizations for a cash premium.

   Interest-only and residual  certificates  increased $14.4 million,  or 6%, to
$239.1 million at September 30, 2000,  from $224.7 million at December 31, 1999.
This increase is primarily  attributable  to the  Company's  receipt of residual
certificates  valued and recorded at $27.0 million from loans securitized during
the nine months ended September 30, 2000. This was partially offset by valuation
adjustment  related to reduction in the present  value on some of the  Company's
residual  certificates  due to a  discount  rate  increase  to 18% from 12% on a
portion of the Company's residual  certificates in connection with the Company's
proposed NIM transaction expected to be completed in the fourth quarter of 2000.

   Equipment,  net decreased $5.5 million, or 25%, to $16.2 million at September
30, 2000,  from $21.7  million at December 31, 1999.  This decrease is primarily
attributable  to the Company's  writedown of its asset related to the previously
announced restructuring of its operations.

   Prepaid and other assets  increased $17.1 million,  or 315%, to $22.5 million
at September 30, 2000, from $5.4 million at December 31, 1999. This increase was
primarily  attributable to the Company's  investment in new affiliate  companies
(qualified  special  purpose  entities  used  for  the two  interest  receivable
securitizations).

      The Company has a Deferred  tax asset of $12.1  million at  September  30,
2000. The Company did not have a Deferred tax asset at December 31, 1999.

      Goodwill decreased $2.9 million,  or 60%, to $1.9 million at September 30,
2000,  from $4.8  million at December  31,  1999.  This  decrease  is  primarily
attributable  to the Company's  writedown of its asset related to the previously
announced restructuring of its operations.

   Warehouse financing and other borrowings  decreased $26.9 million, or 25%, to
$82.1  million at  September  30, 2000,  from $109.0 at December 31, 1999.  This
decrease was  primarily  attributable  to the repayment in full of the Company's
bank syndicate working capital line in June 2000,  partially offset primarily by
the Company's incurrence of $17 million of residual financing.

   The aggregate principal balance of the Senior Notes totaled $149.5 million at
September 30, 2000 and December 31, 1999, net of unamortized bond discount.  The
Senior Notes accrued interest at a rate of 9.5% per annum, payable semi-annually
on February 1 and August 1 (See  Restructuring  and Debt  Modification  Charges,
Note 2 of the Notes to Consolidated Financial Statements).

   Investor  payable  decreased  $21.3  million,  or 26%,  to $60.9  million  at
September 30, 2000,  from $82.2  million at December 31, 1999.  The decrease was
primarily the result of lower prepayments, which caused a decrease in the amount
payable to investors.  Investor payable is comprised of all principal  collected
on mortgage loans and accrued interest. Variability in this account is primarily
due to the principal payments collected within a given collection period.

   The Company does not have a Deferred tax liability at September 30, 2000. The
Company had a Deferred tax liability of $10.4 million at December 31, 1999.

                                       20


LIQUIDITY AND CAPITAL RESOURCES

    The Company has primarily operated on a negative cash flow basis in the past
and anticipates that it will continue to have a negative operating cash flow for
the  foreseeable  future  due  primarily  to (1)  the  monthly  delinquency  and
servicing  advances  the Company is  required to make as servicer in  accordance
with its underlying  securitization  program,  and (2) lower projected aggregate
cash   inflows  from  the   Company's   retained   interest-only   and  residual
certificates.   The  lower   projected   inflows  on  the   Company's   retained
interest-only  and  residual  certificates  are  due  to  (i) a NIM  transaction
expected to be  completed  in the fourth  quarter of 2000 that will  provide the
Company with cash up-front from selling a portion of its residual asset,  but as
a result reduce the cash proceeds from the residual asset in the future and (ii)
expected  timing  differences  between the Company's  retained  interests in (A)
older securitization  trusts generating less cash flowsper month per deal as the
related mortgage pool pays down and (b) newer securitization trusts not yet cash
flowing until initial  reserve  requirements  are satisfied.  As initial reserve
requirements on some newer deals are reached,  the Company will begin to receive
additional   cash  inflows  from  its   retained   interest-only   and  residual
certificates which,  coupled with (a) the Company's  continued  concentration on
its less  cash-intensive  broker  and  retail  originations,  and (b) its recent
history of utilizing securitization  structures that have allowed the Company to
sell senior  interest-only  certificates and/or mortgage servicing rights for an
up front cash  purchase  price,  may help offset the  operating  cash deficit in
future  quarters.  However,  market  conditions and various other  possibilities
identified  below under "Risk  Factors"  could impact the  Company's  cash flows
potentially resulting in a more significant negative cash flow.

   For the nine months ended  September 30, 2000, the Company had a cash deficit
of  $15.8  million  compared  to  positive  cash  flow of $9.8  million  for the
comparable period in 1999. The decrease in cash flow was primarily  attributable
to the monthly  delinquency  and  servicing  advances the Company is required to
make as  servicer in  accordance  with its  securitization  program as well as a
decrease in cash flows from the Company's  retained  interest-only  and residual
certificates, and reduction in cash received on the sale of interest only assets
at the  time of  securitization.  These  interest  and  servicing  advances  are
reimbursable to the Company as the borrowers repay their  obligations over time.
As such,  the exact  timing of these  reimbursements  cannot be  predicted  with
certainty.

   Currently, the Company's primary cash requirements include the funding of (1)
loan  originations  pending their pooling and sale, (2) interest  expense on its
Senior Notes and warehouse and other financings,  (3) fees,  expenses,  interest
(delinquency) advances,  servicing-related advances and tax payments incurred in
connection with its securitization  program, and (4) ongoing  administrative and
other operating expenses.

   The Company must be able to sell loans and obtain adequate credit  facilities
and other  sources of funding in order to  continue  to  originate  and  service
loans.  Historically,  the Company has utilized various financing facilities and
an equity financing to offset negative operating cash flows and support its loan
originations,  securitizations and general operating expenses. In July 1997, the
Company completed an offering of the Senior Notes. A portion of the Senior Notes

                                       21


proceeds were used to pay down various  financing  facilities with the remainder
used to fund the  Company's  loan  originations  and its ongoing  securitization
program. The Company's primary sources of liquidity continue to be warehouse and
other  financing  facilities,   securitizations  (of  mortgage  loans,  interest
(delinquency)   advances  and  servicing   advances)  and,   subject  to  market
conditions,  sales of whole loans, mortgage servicing rights and debt and equity
securities.  The  Company  also  anticipates,   subject  to  market  conditions,
utilizing NIM transactions  and/or other financing  against its residual assets,
following  its  modification  of a negative  pledge in the Senior  Notes,  which
permits the Company to now sell and/or obtain financing against a portion of its
residual and interest-only certificates.

   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
and purchases. The Company had two warehouse facilities as of September 30, 2000
for this purpose. The first warehouse facility is a $200 million credit facility
that has a variable  rate of interest  and a final  maturity  date of  September
2001.  There can be no  assurance  that the  Company  will be able to renew this
warehouse facility at its maturity. The second warehouse line provides for daily
fundings  with a  variable  rate of  interest.  This  second  warehouse  line is
uncommitted  and as such  there  can be no  assurances  that  this  line  may be
available  in the  future.  The Company is  currently  in the process of seeking
additional warehouse lines of credit. Again, there can be no assurances that the
Company will be successful in its attempt to secure an additional warehouse line
of credit.

   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 to,  among  other  conditions,  the
Company's  continued  compliance with these covenants.  Management believes that
the Company is in compliance with all such covenants  under these  agreements as
of September 30, 2000.

   The Company  purchased a total of 116,800  shares of its common  stock during
the year ended December 31, 1998, under the Company's stock repurchase  program,
at a total cost of $1.3 million. All of the repurchased shares were purchased in
open market transactions at then prevailing market prices. During the first nine
months of 2000, no additional shares were repurchased.


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 purchase and  originate  loans.  A significant
decline in interest rates could increase the level of loan  prepayments  thereby
decreasing  the size of the Company's loan  servicing  portfolio.

                                       22


To  the  extent  servicing rights  and  interest-only  and  residual classes  of
certificates  have been  capitalized  on the books of the  Company,  higher than
anticipated  rates of loan  prepayments  or losses could  require the Company to
write down the value of such  servicing  rights and  interest-only  and residual
certificates,  adversely impacting 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 effectively  mitigate  interest rate risk
in the future.

    Periods of  unexpected  or rapid  changes in interest  rates,  and/or  other
volatility or uncertainty  regarding  interest rates,  can also adversely affect
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  assets  received by the  Company  through
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,  even though the Company undertakes to
hedge its exposure to this risk by using  treasury  rate lock  contracts  and/or
FNMA mortgage securities. (See "--Hedging"). Fluctuating interest rates may also
affect net interest income as certain of the Company's  asset-backed  securities
are priced off of 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 2 or 3 years, and then adjusts thereafter
every six months - which creates basis risk (See "--Fair Value Adjustments").


HEDGING

   The  Company  originates  and  purchases  mortgage  loans and then sells them
primarily through securitizations. At the time of securitization and delivery of
the  loans,  the  Company  recognizes  gain on sale based on a number of factors
including the  difference,  or "spread,"  between the interest rate on the loans
and the interest rate paid to asset-backed  investors who purchase  pass-through
certificates issued by securitization trusts. Historically, the rate paid on the
pass-through certificates generally was related to the interest rate on treasury
securities with maturities  corresponding  to the anticipated life of the loans.
If interest rates rise between the time the Company  originates or purchases the
loans and the time the  loans  are sold at  securitization,  the  excess  spread
narrows,  resulting in a loss in value of the loans.  Historically,  the Company
has generally  attempted to protect  against such losses and to reduce  interest
rate risk on loans  originated and purchased that have not yet been  securitized
through a strategy that included the use of treasury  rate lock  contracts  with
various  durations  (which are similar to selling a combination of United States
Treasury securities),  which equate to a duration similar to the duration of the
underlying loans. The nature and quantity of hedging transactions are determined
by the Company based upon various factors including, without limitation,  market
conditions and the expected volume of mortgage  originations and purchases.  The
Company has typically  entered into treasury rate lock contracts  through one of
its warehouse  lenders and/or one of the investment  bankers that underwrite the
Company's  securitizations.  These  contracts  are

                                       23


designated as  hedges  in  the  Company's  records and  are  closed out when the
associated loans are sold through securitization.

   If the value of the hedges  decrease,  offsetting an increase in the value of
the loans, the Company,  upon settlement with its hedge  counterparty,  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  and its
corresponding interest-only and residual certificates.  Conversely, if the value
of the hedges  increase,  offsetting  a decrease in the value of the loans,  the
Company,  upon  settlement with its hedge  counterparty,  will receive the hedge
gain in cash and  realize the  corresponding  decrease in the value of the loans
through a reduction in the value of the corresponding interest-only and residual
certificates.

   Up to and including the second quarter of 1998, the Company believed that its
hedging  strategy of using  treasury rate lock  contracts was the most effective
way to manage its  interest  rate risk on loans  held  prior to  securitization.
However,  in the third quarter of 1998,  asset-backed  investors,  responding to
lower  treasury  yields  and  global  financial  market   volatility,   demanded
substantially  wider spreads over treasuries than  historically  experienced for
newly issued asset-backed  securities.  As a result,  Delta's $8.8 million hedge
loss resulting from lower interest rates was not offset by a higher gain on sale
as the Company had historically seen.

   Given the Company's belief that the volatile market  experienced in the third
quarter of 1998 would likely  continue  well into the fourth  quarter,  and as a
result, that the spreads demanded by asset-backed securitization investors would
be difficult to predict,  as  asset-backed  securitization  investors  were more
interested in absolute yields,  instead of spreads over treasuries - the Company
did not hedge any of its warehoused loans pending  securitization  in the fourth
quarter of 1998.

   As the  asset-backed  securitization  market improved in the first quarter of
1999, and spreads over treasuries became largely more  predictable,  the Company
resumed its hedging strategy of selling treasury rate-lock contracts to mitigate
its interest  rate risk  pending  securitization.  The Company has  continued to
utilize  treasury  rate  contracts  through and including the nine months ending
September  30,  2000,  although  the  second  quarter  of 2000 saw  asset-backed
investors  once again demand wider  spreads over  treasuries  than  historically
experienced, which once again negatively impacted the Company's gain on sale. In
response, and to better manage its basis risk, the Company has implemented a new
hedging  strategy  in fourth  quarter of 2000 that  involves  its  selling  FNMA
mortgage  securities,  which the Company believes now more accurately  correlate
with the spreads demanded in the asset-backed markets.

   For the nine months ended September 30, 2000 and 1999, the Company recorded a
hedge loss of $1.4 million and a hedge gain of $3.9 million respectively,  which
largely offset a change in the value of mortgage loans being hedged,  as part of
its gain on sale of loans.

                                       24


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 4 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 continue to access lines of credit at
   favorable terms and conditions or otherwise,  including  without  limitation,
   warehouse  and other  credit  facilities  used to  finance  newly  originated
   mortgage loans held for sale, interest and delinquency advances, residual and
   other assets.

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  Costs  associated  with  litigation,  compliance with  the  NYSBD Remediation
   Agreement,  NYOAG   Stipulated   Order  on  Consent  and/or  the  DOJ/HUD/FTC
   Settlement  Agreement,  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  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.

                                       25


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.

                                       26

<PAGE>
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   The primary  market  risk to which the  Company is exposed is  interest  rate
risk, which is highly sensitive to many factors, including governmental monetary
and  tax   policies,   domestic  and   international   economic  and   political
considerations  and other factors beyond the control of the Company.  Changes in
the general level of interest rates between the time when the Company originates
or purchases  mortgage  loans and the time when the Company  sells such mortgage
loans at  securitization  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
certificates issued by the securitization trusts. If interest rates rise between
the time the Company  originates  or purchases  the loans and the time the loans
are sold at securitization,  the excess spread generally narrows, resulting in a
loss in value of the loans and a lower net gain on sale reported by 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 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 entering into treasury rate
lock contracts (see "-Hedging"). The Company's hedging strategy has been for the
most part 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  certificates  and
capitalized mortgage servicing rights. (See "-Interest Rate Risk").

<PAGE>
PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   Because the nature of the  Company's  business  involves  the  collection  of
numerous  accounts,  the validity of liens and compliance with various state and
federal lending laws, the Company is subject,  in the normal course of business,
to numerous claims and legal  proceedings.  The Company'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 are summarized below.

o     In or about  November 1998, the Company  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  the  Company  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.  The Company  opposed the motions.  On   December 14, 1998,
      the  District   Court  Judge  granted  the  motion  to  intervene  and  on
      December  23,  1998,    the  District  Court  Judge  issued a  preliminary
      injunction  enjoining the Company from  proceeding  with   the foreclosure
      sales  of the  three  intervenors'  properties.  The  Company  has filed a
      motion for  reconsideration  of the December 23, 1998 order.  In   January
      1999,  the  Company  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,  the Company  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.  Also in
      September  1999,  plaintiffs  filed a   motion  for  class  certification,
      which was opposed by Delta in February  2000,  and   is now fully  briefed
      and filed pending  hearing.  In or about October 1999,  plaintiffs   filed
      a motion seeking an order  preventing the Company,  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 the
      Company  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.  The Company  believes   that it has
      meritorious  defenses  and  intends  to

                                       28


      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,  the  Company  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,    the  Company  filed an answer to the
      complaint.  In September 1999, the Company 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,  the  Company had
      filed a motion to change   venue and  Plaintiff's  opposed the motion.  In
      July 1999,  the Court  denied the   motion to change  venue.  The  Company
      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 the  Company
      opposed in July 2000. In   September  2000, the Court granted  plaintiffs'
      motion  for  class  certification.  The  Company    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,  the  Company  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 the Company's  practices violate applicable   statutes
      and/or  the  mortgage     agreements,   (c)  injunctive  relief,  and  (d)
      unspecified    compensatory  and punitive  damages  (including  attorneys'
      fees).  In October  1999,  the  Company  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 the Company's  motion to dismiss.
      In March  2000,  the   Court  granted the  Company's  motion to dismiss in
      part,  and  denied  it    in  part.  The  Company  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 the Company
      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 (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

                                       29


      the NYOAG,  dated as of   September 17, 1999.  As part of the  Settlement,
      Delta agreed to, among   other  things,  implement  agreed upon changes to
      its lending practices;  provide   reduced loan payments  aggregating $7.25
      million to certain borrowers  identified   by the NYSBD; and create a fund
      of  approximately  $4.75 million financed by   the grant of 525,000 shares
      of Delta  Financial's  common stock valued at   a constant  assumed priced
      of $9.10 per share,  which  approximates book   value. The proceeds of the
      fund 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 the Company.

      The Remediation  Agreement and Stipulated  Order on Consent  supersede the
      Company's  previously  announced  settlements with the NYSBD and NYOAG. In
      March 2000, the Company  finalized a settlement  agreement with the United
      States Department of Justice, the Federal Trade Commission (the "FTC") and
      the  Department  of Housing and Urban  Renewal  ("HUD"),  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, the   Company  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.  In August  2000,
      plaintiffs  filed an   amended  consolidated  complaint.  In October 2000,
      the Company filed a   motion to dismiss.  The Company believes that it has
      meritorious  defenses  and  intends   to defend  these  suits,  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,  the  Company  received  notice that it had been
      named in a lawsuit  filed in the   Supreme Court of the State of New York,
      Nassau  County,  alleging  that  the Company 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.  The  Company
      answered the  complaint in June 2000.  The   Company  believes that it has
      meritorious  defenses  and  intends  to defend    this  suit,  but  cannot
      estimate   with any certainty its ultimate  legal or

                                       30


      financial  liability, if any, with respect to the alleged claims.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS. None

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:             10.1  Second Supplemental Indenture by and
                                       among the Company, its subsidiary-
                                       guarantors and the Bank of New York, as
                                       Indenture Trustee, dated as of
                                       October 16, 2000

                                 27.1  Financial Data Schedule - Nine Months
                                       Ended September 30, 2000


       (b) Reports on Form 8-K:  On August 4, 2000, the Company filed a Current
                                 Report on Form 8-K in which it reported that it
                                 had  reached  an  agreement  to modify its
                                 outstanding  $150 million 9 1/2% senior notes
                                 due 2004 and filed as an exhibit that certain
                                 First Supplemental Indenture by and among the
                                 Company, its subsidiary-guarantors and the
                                 Bank of New York, as Indenture  Trustee, dated
                                 as of August 1, 2000


                                       31
<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)

      Date:  November 14, 2000
                                        By: /S/ HUGH MILLER
                                            --------------------------
                                            Hugh Miller
                                            PRESIDENT & CHIEF EXECUTIVE OFFICER


                                        By  /S/ RICHARD BLASS
                                            --------------------------
                                            Richard Blass
                                            SENIOR VICE PRESIDENT AND
                                            CHIEF FINANCIAL OFFICER

                                       32

<PAGE>

                                  EXHIBIT INDEX

EXHIBIT
NUMBER      DESCRIPTION

10.1        Second  Supplemental   Indenture  by  and  among  the  Company,  its
            subsidiary-guarantors  and  the  Bank  of  New  York,  as  Indenture
            Trustee, dated as of October 16, 2000
27.1        Financial Data Schedule - Nine Months Ended September 30, 2000