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,
            2002

                                       OR

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

                         Commission File Number: 1-12109

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

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

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

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

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


      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  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, 2002,  15,904,049  shares of the  Registrant's  common
stock, par value $0.01 per share, were outstanding.

<PAGE>
                               INDEX TO FORM 10-Q

PART I   - FINANCIAL INFORMATION                                        Page No.

Item 1.    Financial Statements (unaudited)

           Consolidated Balance Sheets as of September 30, 2002 and
           December 31, 2001.................................................. 1

           Consolidated Statements of Operations for the three and nine
           months ended September 30, 2002 and September 30, 2001............. 2

           Consolidated Statements of Cash Flows for the nine months
           ended September 30, 2002 and September 30, 2001.................... 3

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

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

Item 4.    Controls and Procedures............................................35

PART II  - OTHER INFORMATION

Item 1.    Legal Proceedings..................................................35

Item 2.    Changes in Securities and Use of Proceeds..........................37

Item 3.    Defaults Upon Senior Securities....................................37

Item 4.    Submission of Matters to a Vote of Security Holders................37

Item 5.    Other Information..................................................37

Item 6.    Exhibits and Current Reports on Form 8-K.......................... 37

Signatures....................................................................39

Certifications pursuant to the Sarbanes-Oxley Act of 2002.....................40

<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
<TABLE>
<S>                                              <C>             <C>

                                                  SEPTEMBER 30,   DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)         2002            2001
                                                   ----------      -----------
ASSETS
Cash and interest-bearing deposits                 $  3,896     $     6,410
Accounts receivable                                   4,294           4,062
Loans held for sale, net                             31,177          94,407
Accrued interest receivable                               8             812
Excess cash flow certificates, net                   23,235          16,765
Equipment, net                                        2,884           4,998
Prepaid and other assets                              2,659             752
Deferred tax asset, net                               5,600           5,600
                                                   --------        --------
   Total assets                                    $ 73,753       $ 133,806
                                                   ========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable                                       $    610           1,267
Warehouse financing and other borrowings             20,359          89,628
Senior Notes                                         10,844          10,844
Accounts payable and accrued expenses                17,166          20,217
                                                   --------        --------
   Total liabilities                                 48,979         121,956
                                                   --------        --------

STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $.01 par value.
   Authorized 150,000 Shares, 139,156 shares
   outstanding at September 30, 2002 and
   December 31, 2001                                 13,916          13,916
Common stock, $.01 par value. Authorized
   49,000,000 shares;  16,020,849 shares
   issued and 15,904,049 shares outstanding
   at September 30, 2002 and 16,000,542 shares
   issued and 15,883,749 shares outstanding at
   December 31, 2001                                    160             160
Additional paid-in capital                           99,481          99,472
Retained deficit                                    (87,465)       (100,380)
Treasury stock, at cost (116,800 shares)             (1,318)         (1,318)
                                                   ---------       ---------
   Total stockholders' equity                        24,774          11,850
                                                   ---------       ---------
     Total liabilities and stockholders' equity    $ 73,753         133,806
                                                   =========       =========
</TABLE>
          See accompanying notes to consolidated financial statements.
                                       1
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<S>                                              <C>            <C>               <C>            <C>
                                                     THREE MONTHS ENDED               NINE MONTHS ENDED
                                                        SEPTEMBER 30,                   SEPTEMBER 30,
                                                   ----------------------          ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)       2002           2001             2002            2001
                                                   -------        -------          -------        -------
REVENUES
   Net gain on sale of mortgage loans             $ 15,716          2,570           42,779         23,773
   Interest                                          2,267       (16,075)            9,394       (25,621)
   Servicing fees                                       --             --               --          2,983
   Net origination fees and other income             3,723          3,141           10,641         10,529
                                                  --------       --------          -------       --------
       Total revenues                               21,706       (10,364)           62,814         11,664
                                                  --------       --------          -------       --------
EXPENSES
   Payroll and related costs                        10,211          9,945           29,987         33,228
   Interest expense                                  1,223          2,928            4,239         14,749
   General and administrative                        5,710          7,125           17,557         42,518
   Restructuring and other special charges              --          1,432               --          2,678
                                                  --------       --------          -------       --------
       Total expenses                               17,144         21,430           51,783         93,173
                                                  --------       --------          -------       --------

Income (loss) before income tax expense
    (benefit) and extraordinary item                 4,562       (31,794)           11,031       (81,509)
Provision for income tax (benefit) expense         (2,136)          1,861          (1,884)          2,426
                                                  --------      ---------          -------       --------
Income (loss) before extraordinary item              6,698       (33,655)           12,915       (83,935)

Extraordinary item, net of tax -
     Loss on early extinguishment of debt               --       (19,255)               --       (19,255)
                                                  --------      ---------          -------      ---------
       Net income (loss)                          $  6,698       (52,910)           12,915      (103,190)
                                                  ========      =========          =======      =========

Basic earnings per common share:
    Income (loss) before extraordinary item       $   0.42     $   (2.12)          $  0.81      $  (5.28)
    Extraordinary item, net of tax                     --          (1.21)               --         (1.21)
                                                  --------     ----------          -------      ---------
    Net income (loss) per share                   $   0.42         (3.33)          $  0.81      $  (6.49)
                                                  ========     ==========          =======      =========
Diluted earnings per common share:
     Income (loss) before extraordinary item      $   0.39     $   (2.12)          $  0.76      $  (5.28)
     Extraordinary item, net of tax                     --         (1.21)               --         (1.21)
                                                  --------     ----------          -------      ---------
     Net income (loss) per share                  $   0.39         (3.33)             0.76         (6.49)
                                                  ========     ==========          =======      =========

Basic -weighted average number of
  shares outstanding                             15,904,049     15,883,749       15,892,012     15,883,749
                                                 ==========     ==========       ==========     ==========
Diluted -weighted average number of
  shares outstanding                             17,112,868     15,902,309       16,966,217     15,908,496
                                                 ==========     ==========       ==========     ==========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       2
<PAGE>


                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<S>                                                                         <C>             <C>
                                                                          NINE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS)                                                        2002              2001
                                                                            -------           -------
Cash flows from operating activities:
    Net income (loss)                                                        $12,915         (103,190)
    Adjustments to reconcile net income (loss) to net cash used
      in operating activities:
       Provision for loan and recourse losses                                    453            2,293
       Depreciation and amortization                                           2,585            7,260
       Extraordinary loss on early extinguishment of debt                         --           19,255
       Deferred origination costs                                                571               12
       Excess cash flow certificates received in
          securitization transactions, net                                    (6,470)          50,472

Changes in operating assets and liabilities:
    (Increase) decrease in accounts receivable                                  (232)          17,101
    Decrease (increase) in loans held for sale, net                           62,263          (91,613)
    Decrease in accrued interest receivable                                      804            9,906

     (Increase) decrease in prepaid and other assets                          (1,907)          32,556
    Decrease in accounts payable and accrued expenses                         (3,108)            (188)
    Decrease in investor payable                                                  --          (69,489)
    Decrease in advance payments by borrowers for taxes and insurance             --          (12,940)
                                                                            ---------        ---------
              Net cash provided by (used in) operating activities             67,874         (138,565)
                                                                            ---------        ---------

Cash flows from investing activities:
    (Purchase) disposition of equipment                                         (471)           1,749
                                                                            ---------        ---------
              Net cash (used in) provided by investing activities               (471)           1,749
                                                                            ---------        ---------

Cash flows from financing activities:
    (Repayments of) proceeds from warehouse financing and
        other borrowings                                                     (69,269)          78,514
    (Decrease) increase in bank payable, net                                    (657)             426
    Proceeds from exercise of stock options                                        9               --
                                                                           ----------        ---------
              Net cash used in financing activities                          (69,917)         (78,940)
                                                                           ----------        ---------


Net decrease in cash and interest-bearing deposits                            (2,514)         (57,876)
Cash and interest-bearing deposits at beginning of period                      6,410           62,270
                                                                            ---------        ---------
Cash and interest-bearing deposits at end of period                        $   3,896            4,394
                                                                            =========        =========

SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
    Interest                                                               $   4,531           11,551
                                                                           =========         ========
    Income taxes                                                           $     208               80
                                                                           =========         ========

</TABLE>
           See accompanying notes to consolidated financial statements


                                       3
<PAGE>



                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)   BASIS OF PRESENTATION

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

   The accompanying  unaudited  consolidated  financial  statements  include the
accounts of Delta and its wholly owned subsidiaries.  In consolidation,  we have
eliminated all significant inter-company accounts and transactions.

   We have prepared the accompanying unaudited consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America (GAAP) for interim financial information and the instructions to Form
10-Q.  Certain  information  and  footnote   disclosures  normally  included  in
financial  statements  prepared in accordance  with GAAP have been  condensed or
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.  You should read 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"  in
conjunction with our audited consolidated financial statements and related notes
for the year ended  December 31, 2001.  The results of operations for the three-
and nine-month periods ended September 30, 2002 is not necessarily indicative of
the results that will be expected for the entire year.

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

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

   In 2000, we began a corporate  restructuring  - by reducing our workforce and
modifying  the terms of the  indenture  governing our senior notes due 2004 (the
"senior  notes")  - as part  of our  continuing  efforts  to  improve  operating
efficiencies  and to address our negative  cash flow from  operations.  Entering
2001,  management  still had several  concerns,  which we believed  needed to be
addressed for us to remain a viable company. Our principal concerns were:

  o   the   cash drain created by our ongoing monthly  delinquency and servicing
      advance  requirements  as servicer  for  securitization  trusts  (known as
      "securitization advances");
  o   the high   cost of  servicing a seasoned  loan  portfolio,  including  the
      capital charges associated with making securitization advances;
  o   our   ability to make  timely  interest  payments on our senior  notes and
      senior secured notes due 2004 (the "senior secured notes"); and
  o   our ability to effectuate a successful  business  model given the overhang
      of corporate ratings of "Caa2" by Moody's and "CC" by Fitch.

   Therefore  in the first  quarter of 2001,  we embarked  upon a business  plan
aimed at alleviating

                                       4

some of these concerns and issues.

   CORPORATE RESTRUCTURING

   In  January  2001,  we  entered  into  an  agreement  with  Ocwen   Financial
Corporation ("Ocwen") to transfer our servicing portfolio to Ocwen. In May 2001,
we physically  transferred our entire servicing portfolio to Ocwen, and laid-off
the majority of our servicing  staff - a total of 128  employees.  We recorded a
$0.5 million pre-tax charge relating to this restructuring  which is included in
the  line  item  called   "restructuring  and  other  special  charges"  on  our
consolidated statements of operations. This charge relates to employee severance
associated with closing our servicing operations. We no longer service loans nor
do we have a servicing operation.

   We have  accrued  restructuring  charges  related  to the write down of lease
obligations  of $0.2 million and $0.6 million at September 30, 2002 and December
31, 2001,  respectively.  There were no additional  accruals recorded during the
nine months ended September 30, 2002.

   DEBT MODIFICATION AND DEBT RESTRUCTURING

   In  August  2000,  we  announced  an  agreement  to  modify  the terms of the
indenture governing our senior notes (the "Debt Modification"). With the consent
of the holders of greater than fifty percent of our senior notes,  we modified a
negative  pledge  covenant in the senior notes  indenture,  which had previously
prevented us from selling or otherwise  obtaining  financing by using our excess
cashflow   certificates  as  collateral.   In   consideration   for  the  senior
noteholders'  consent,  we agreed,  in an exchange  offer (the  "First  Exchange
Offer"),  to offer then current  holders the  opportunity to exchange their then
existing senior notes for (a) new senior secured notes and (b) ten-year warrants
to buy  approximately 1.6 million shares of common stock, at an initial exercise
price of $9.10 per share,  subject to upward or downward  adjustment  in certain
circumstances.  The senior  secured notes have the same coupon,  face amount and
maturity  date as the senior  notes and up until the Second  Debt  Restructuring
(see  below)  were  secured  by at least $165  million  of our  excess  cashflow
certificates.  The First Exchange Offer was  consummated in December 2000,  with
holders of  approximately  $148.2  million  (of $150  million)  of senior  notes
tendering in the exchange.

   In February  2001,  we entered  into a letter of intent  with the  beneficial
holders of over fifty percent of our senior  secured notes to  restructure,  and
ultimately   extinguish,   the   senior   secured   notes  (the   "Second   Debt
Restructuring").  In  March  2001,  we  obtained  the  formal  consent  of these
beneficial  holders of the senior  secured notes through a consent  solicitation
that modified certain provisions of the senior secured notes indenture to, among
other things,  allow for the release of two excess  cashflow  certificates  then
securing the senior secured notes.  We were able to first finance and ultimately
sell the excess cashflow certificates underlying five securitizations (including
two excess cashflow  certificates  that were released as part of the Second Debt
Restructuring) for a $15 million cash purchase price to provide working capital.

   In  consideration  for their  consent,  we agreed to offer the holders of the
senior  secured notes (and the senior  notes),  an opportunity to exchange their
Notes for new  securities  described  immediately  below (the  "Second  Exchange
Offer").  The Second Exchange Offer was consummated on August 29, 2001, pursuant
to which  holders  of  approximately  $138.1  million  (of  $148.2  million)  in
principal  amount of our senior secured notes and $1.1 million (of $1.8 million)
in principal amount of our senior notes,  exchanged their Notes for commensurate

                                       5

interests in:

  o   voting  membership  interests in Delta Funding  Residual  Exchange Company
      LLC, a newly-formed  limited liability company  (unaffiliated with us), to
      which we transferred  all of the  mortgage-related  securities  previously
      securing the senior secured notes (primarily  comprised of excess cashflow
      certificates);

  o   shares of  common stock  of a  newly-formed  management  corporation  that
      will manage the LLC's assets; and

  o   shares of our  newly-issued  Series A preferred  stock having an aggregate
      preference amount of $13.9 million.

   The LLC is controlled by the former  noteholders that now hold all the voting
membership  interests  in the LLC.  As part of the  transaction,  we  obtained a
non-voting  membership  interest in the LLC, which entitles us to receive 15% of
the net cash flows from the LLC for the first  three years  (through  June 2004)
and, thereafter, 10% of the net cash flows from the LLC. The net cash flows from
the LLC are equal to the total cash flows  generated  by the assets  held by the
LLC for a  particular  period,  less (a) all  expenses  of the LLC,  (b) certain
related income tax payments,  and (c) New York State Banking  Department subsidy
payments. We began receiving  distributions from the LLC in the first quarter of
2002 from a fourth quarter 2001 distribution.

   As part of the Second Exchange Offer, all tendering  noteholders waived their
right to receive  any future  interest  coupon  payments on the  tendered  notes
beginning with the August 2001 interest coupon payment.  With the closing of the
Second  Exchange  Offer,  we paid the August 2001 interest coupon payment on the
approximately  $10.8 million of notes that did not tender in the Second Exchange
Offer.  By  extinguishing  substantially  all of our long-term  debt, the rating
agencies that  previously  rated us and our long-term debt have withdrawn  their
corporate ratings.

(3) 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  (loss)  from  continuing
operations.
<TABLE>
<S>                                          <C>            <C>               <C>            <C>
                                                  THREE MONTHS ENDED                NINE MONTHS ENDED
                                                     SEPTEMBER 30,                    SEPTEMBER 30,
                                                  -------------------              -------------------
 (DOLLARS IN THOUSANDS, EXCEPT EPS DATA)          2002           2001              2002           2001
--------------------------------------------------------------------------------------------------------
Net income (loss) from operations                 $6,698      $(33,655)           $12,915      $(83,935)
Basic - weighted-average shares               15,904,049     15,883,749        15,892,012     15,883,749
Basic EPS                                          $0.42        $(2.12)             $0.81        $(5.28)

Basic - weighted-average shares               15,904,049     15,883,749        15,892,012     15,883,749
Incremental shares-options                     1,208,819         18,560         1,074,205         24,747
--------------------------------------------------------------------------------------------------------
Diluted - weighted-average shares             17,112,868     15,902,309        16,966,217     15,908,496
Diluted EPS                                        $0.39        $(2.12)             $0.76        $(5.28)
</TABLE>

 (4) IMPACT OF NEW ACCOUNTING STANDARDS

   In July 2001,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of

                                       6

Financial  Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets,"  which  requires that goodwill and  intangible  assets with  indefinite
useful lives no longer be  amortized,  but instead be tested for  impairment  at
least  annually in  accordance  with the provision of SFAS No. 142. SFAS No. 142
also requires that  intangible  assets with estimable  useful lives be amortized
over their respective estimated useful lives to their estimated residual values.
The amortizing  intangible  assets will also be reviewed for impairment at least
annually.  SFAS No. 142 is applicable to fiscal years  beginning  after December
15, 2001 and is required to be applied at the  beginning of the entity's  fiscal
year.  There was no impact on our  financial  condition or results of operations
upon adoption of SFAS No. 142 on January 1, 2002.

   In June 2001,  FASB  issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations,"  which  requires  that the fair value of a liability  for an asset
retirement  obligation  be recognized in the period in which it is incurred if a
reasonable  estimate of fair value can be made. The associated  asset retirement
costs are to be  capitalized  as part of the carrying  amount of the  long-lived
asset and depreciated  over the life of the asset.  The liability is accreted at
the end of each period through charges to operating  expense.  If the obligation
is settled for other than the carrying amount of the liability, the Company will
recognize  a gain or loss on  settlement.  The  provisions  of SFAS No.  143 are
effective for fiscal years  beginning  after June 15, 2002.  Management does not
expect  the  adoption  of SFAS No.  143 will  have an  impact  on the  financial
position, results of operations, or cash flows of the Company.

   In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which replaces SFAS No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
of." The  provisions  of SFAS No. 144 are  effective  for  financial  statements
issued for fiscal years beginning after December 15, 2001 and, generally, are to
be applied  prospectively.  There was no impact on our  financial  condition  or
results of operations upon adoption of SFAS No. 144 on January 1, 2002.

   In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB  Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  The  Statement   updates,   clarifies  and  simplifies   existing
accounting  pronouncements.  SFAS No. 145 rescinds SFAS No. 4, "Reporting  Gains
and Losses from  Extinguishment  of Debt,"  which  required all gains and losses
from extinguishment of debt to be aggregated and, if material,  classified as an
extraordinary  item, net of related income tax effect. As a result, the criteria
in Accounting  Principles Board Opinion (APB) No. 30,  "Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," will now be used to classify those gains and
losses.  SFAS No.  64,  "Extinguishments  of Debt Made to  Satisfy  Sinking-Fund
Requirements," amended SFAS No. 4, and is no longer necessary because SFAS No. 4
has been rescinded. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to
require that certain lease  modifications  that have economic effects similar to
sale-leaseback   transactions   be   accounted   for  in  the  same   manner  as
sale-leaseback  transactions.  This amendment is consistent with the FASB's goal
of requiring  similar  accounting  treatment for transactions  that have similar
economic  effects.  SFAS No. 145 also makes  technical  corrections  to existing
pronouncements.  While those  corrections are not substantive in nature, in some
instances,  they may change accounting practice.  The provisions of SFAS No. 145
are effective for fiscal years beginning after May 15, 2002.  Early  application
of SFAS No. 145 is encouraged. There will be

                                       7

no material  impact on our  financial condition  or  results of  operations upon
adoption of SFAS No. 145.

   In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which addresses financial accounting and reporting
for costs associated with exit or disposal  activities.  It nullifies EITF Issue
No. 94-3,  "Liability  Recognition for Certain Employee Termination Benefits and
Other  Costs  to  Exit  an  Activity  (including  Certain  Costs  Incurred  in a
Restructuring)."  The principal  difference  between SFAS No. 146 and EITF Issue
No. 94-3 relates to the recognition of a liability for a cost associated with an
exit or disposal activity.  SFAS No. 146 requires that a liability be recognized
for those costs only when the liability is incurred,  that is, when it meets the
definition of a liability in the FASB's conceptual framework. In contrast, under
EITF Issue No. 94-3, a company  recognized a liability  for an exit cost when it
committed  to an exit  plan.  SFAS No.  146 also  establishes  fair value as the
objective for initial  measurement  of  liabilities  related to exit or disposal
activities.  Thus, the Statement affirms FASB's view that fair value is the most
relevant and faithful  representation  of the  economics  of a  transaction.  We
expect  that the  adoption  of SFAS No.  146 on  January 1, 2003 will not have a
material impact on our consolidated balance sheet or results of operations.


                                       8
<PAGE>


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

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

SUMMARY OF CRITICAL ACCOUNTING POLICIES

   EXCESS  CASHFLOW  CERTIFICATES.  Our excess cashflow  certificates  primarily
consist of the right to  receive  the  future  excess  cash flows from a pool of
securitized  mortgage  loans.  Our  interest  in  these  certificates  generally
consists of the following:
  o   The interest  spread between the coupon on the  underlying  mortgage loans
      and the cost of financing (which, when we sell NIM notes, is only received
      after the NIM Notes are paid in full);
  o   On our 2002 securitizations,  prepayment penalties received from borrowers
      who payoff their loans early in their life (which, when we sell NIM notes,
      is only received after the NIM Notes are paid in full ); and
  o   Overcollateralization, which is designed to protect the securities sold to
      the  securitization   pass-through  investors  from  credit  loss  on  the
      underlying  mortgage  loans (and which we describe in greater detail below
      under "Securitization").

   The excess cash flow we receive is highly  dependent  upon the interest  rate
environment to the extent basis risk exists between the  securitization  trust's
assets and liabilities. For instance, in this quarter's securitization, the cost
of financing for the securitized  loans is indexed against 1 month LIBOR meaning
that each month the  interest  rate  received  by the pass  through  certificate
holders may adjust  (upwards or downwards) as 1 month LIBOR  changes(liability),
while  a  significant   amount  of  the   underlying   mortgage   loans  in  the
securitization  trust have a fixed note rate for at least 3 years (asset).  As a
result,  as rates rise and fall,  the amount of our excess  cash flows will fall
and rise,  which in turn  will  increase  or  decrease  the value of our  excess
cashflow certificates.

   In each of our securitizations in which we sold NIM note(s), we purchased, on
behalf of the NIM owner trust,  an interest  rate cap for the benefit of the NIM
noteholder(s), which helps mitigate the basis risk for the approximate time that
the NIM notes are outstanding.

   We believe the  accounting  estimates  related to the valuation of our excess
cashflow  certificates  is a  "critical  accounting  estimate"  because  it  can
materially effect net income and require us to forecast interest rates, mortgage
principal  payments,  prepayments,  and loan loss  assumptions  which are highly
uncertain and require a large degree of judgment.  The rate used to discount the
projected  cash flows is also critical in the  valuation of our excess  cashflow
certificates.  Management uses internal,  historical collateral performance data
and  published  forward  LIBOR  curves  when  modeling  future  expected  excess
cashflows.  We believe the value of our excess  cashflows  certificates is fair,
but can provide no  assurance  that future  prepayment  and loss  experience  or
changes in their required market  discount rate will not require  write-downs of
the excess cashflow certificate asset. Write-downs would reduce income of future
periods.

                                       9

GENERAL

   Delta Financial Corporation (together with its subsidiaries,  "Delta" or "we"
or "the  Company") is a specialty  consumer  finance  company  that  originates,
securitizes,  and  sells  (and,  prior  to May  2001,  serviced)  non-conforming
mortgage  loans,  which are  primarily  secured  by first  mortgages  on one- to
four-family  residential  properties.  Throughout  our  20  years  of  operating
history,  we have focused on lending to individuals who generally do not satisfy
the  credit,   documentation  or  other  underwriting   standards  set  by  more
traditional sources of mortgage credit, including those entities that make loans
in compliance  with  conventional  mortgage  lending  guidelines  established by
Fannie Mae and Freddie Mac. We make loans to these  borrowers  for such purposes
as debt consolidation, refinancing, education and home improvements.

   Our mortgage business has two principal  components.  First, we make mortgage
loans,  which is a cash and expense outlay for us, because our cost to originate
a loan  exceeds the fees we collect at the time we originate  that loan.  At the
time we  originate a loan,  and prior to the time we sell that loan,  we finance
that loan by borrowing under warehouse lines of credit.  Second,  we sell loans,
either  through  securitization  or on a whole loan basis,  to generate cash and
non-cash  revenues,  recording  the  premiums  received as  revenue.  We use the
proceeds from these sales to repay our warehouse lines of credit and for working
capital.

   ORIGINATION   OF  MORTGAGE   LOANS.   We  make  mortgage  loans  through  two
distribution  channels -  wholesale  (or broker)  and  retail.  We receive  loan
applications  both directly from borrowers and from licensed  independent  third
party  mortgage  brokers  and  other  real  estate   professionals   who  submit
applications  on a borrower's  behalf.  We process and underwrite the submission
and, if the loan comports with our underwriting  criteria,  approve the loan and
lend the money to the borrower.  While we generally collect points and fees from
the borrower  when a loan closes,  our cost to  originate a loan  typically  far
outweighs any fees we may collect from the borrower.

   Through our  wholesale  distribution  channel,  we originate  mortgage  loans
indirectly through licensed mortgage brokers and other real estate professionals
who submit loan  applications  on behalf of  borrowers  ("brokered  loans").  We
currently originate the majority of our brokered loans in 20 states, through our
network of approximately 1,500 brokers.

   Through  our  retail  distribution  channel,  we  develop  retail  loan leads
("retail loans") primarily through our telemarketing system and our network of 7
retail offices and 4 origination  centers  located in eight states.  In 2001, we
closed four  under-performing  retail offices - two in Florida,  one in Ohio and
one in Indiana - and opened an origination  center in Pittsburgh,  Pennsylvania.
In September 2002, we converted our Charlotte, North Carolina retail office into
an origination  center and in October 2002, we opened an additional  origination
center in Phoenix, Arizona.

   For the three months ended  September 30, 2002, we originated  $214.4 million
of loans, an increase of 46% over the $146.6 million of loans  originated in the
comparable period in 2001. Of these amounts,  approximately  $126.7 million were
brokered loans and $87.7 million were retail loans during the three months ended
September 30, 2002,  compared to $83.4 million and $63.2 million,  respectively,
during the three months ended September 30, 2001.

   POOLING OF LOANS PRIOR TO SALE.  After we close or fund a loan,  we typically
pledge  the loan as  collateral  under a  warehouse  line of  credit  to  obtain
financing  against that loan.  By doing so,

                                       10

we replenish our capital so we can make new loans. Typically, loans are financed
on warehouse lines of credit for only a limited time - generally,  not more than
three  months - until such time as we can pool enough loans and sell the pool of
loans either through  securitization or on a whole loan basis. During this time,
we earn  interest  paid by the borrower as income,  but this income is offset in
part by the interest we pay to the  warehouse  creditors  for  providing us with
financing.

   SALE OF LOANS.  We derive the  majority of our  revenues  and cash flows from
selling mortgage loans (and related interests including securitization servicing
rights on newly-originated pools of mortgage loans) through securitization or on
a  whole  loan  basis.  During  the  third  quarter  of  2002,  we  completed  a
securitization  of $250 million of mortgage  loans,  delivering  $200 million of
mortgage  loans to the  securitization  trust during the quarter.  A pre-funding
mechanism  contained in the  securitization  structure allowed us to deliver the
additional $50 million of mortgage  loans in October 2002. The revenues,  net of
related  expenses,  on the  additional  $50  million of  mortgage  loans will be
recognized  in  our  fourth  quarter  results,  when  the  loans  were  actually
transferred to the  securitization  trust.  Additionally in the third quarter of
2002,   we  sold   $18.5   million   of   mortgage   loans  on  a  whole   loan,
servicing-released basis.

   During the nine months  ended  September  30,  2002,  we  securitized  $575.0
million,  (excluding  the $50 million of mortgage  loans that were  delivered in
October 2002 as part of the Company's  third quarter  securitization),  and sold
$92.4 million of mortgage loans on a whole loan,  servicing-released  basis.  We
plan to continue to utilize a combination of securitization and whole loan sales
for the foreseeable future.

   SECURITIZATION.  Securitizations  effectively  provide  us with a  source  of
long-term financing. In conjunction with securitization transactions, trusts are
created in the form of off-balance sheet qualified special purpose entities,  or
QSPEs.  These  trusts  are  established  for the  limited  purpose of buying and
reselling  mortgage loans.  Typically each quarter,  we pool together loans, and
sell  these  loans  to these  securitization  trusts.  We  carry no  contractual
obligation related to these trusts or the loans sold to them, nor do we have any
direct or contingent  liability  related to the trusts,  except for the standard
representations  and  warranties  made in conjunction  with each  securitization
trust.  Furthermore,  we provide no guarantees to investors with respect to cash
flow or performance for these trusts. These entities represent qualified special
purpose  entities and are therefore  not  consolidated  for financial  reporting
purposes in accordance with SFAS No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities".

   The securitization  trust raises money to purchase the mortgage loans from us
by  selling  securities  to the  public  - known  as  asset-backed  pass-through
securities  that  are  secured  by  the  pool  of  mortgage  loans  held  by the
securitization  trust.  These  asset-backed  securities or senior  certificates,
which are usually purchased for cash by insurance companies, mutual funds and/or
other institutional investors, represent senior interests in the cash flows from
the mortgage loans in the trust.

   The  securitization  trust issues  senior  certificates,  which  entitles the
holders  of these  senior  certificates  to  receive  the  principal  collected,
including  prepayments  of  principal,  on the mortgage  loans in the trust.  In
addition,  holders  receive a portion of the  interest on the loans in the trust
equal to the pass-through  interest rate on the remaining principal balance. The
securitization  trust also issues a subordinate  certificate or BIO  certificate
(referred  to  as  an  excess  cashflow   certificate),   and  a  P  certificate
(representing  the right to receive  prepayment  penalties  from  borrowers  who
payoff their loans early in their life). Each month, the P certificate

                                       11

holder is entitled to receive  prepayment  penalties received from borrowers who
payoff their loans early in their life.

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such  excess  cashflow  certificates  are  applied  in a  "waterfall"  manner as
follows:
  o   first,  to cover any losses on the mortgage loans in the related  mortgage
      loan pool,  because the excess  cashflow  certificates  are subordinate in
      right of  payment  to all other  securities  issued by the  securitization
      trust;
  o   second, to  reimburse  the bond insurer,  if any, of the related series of
      pass-through  certificates  for  amounts  paid  by or  otherwise  owing to
      that insurer;
  o   third, to build or maintain the overcollateralization provision (described
      in more detail  immediately  below) for that  securitization  trust at the
      required level by being applied as an accelerated  payment of principal to
      the holders of the pass-through certificates of the related series;
  o   fourth,  to  reimburse  holders of the  subordinated  certificates  of the
      related series of  pass-through  certificates  for unpaid interest and for
      any losses previously allocated to those certificates; and
  o   fifth, to pay interest on the related pass-through  certificates which was
      not paid because of the imposition of a cap on their  pass-through rates -
      these payments being called basis risk shortfall amounts.

   The  overcollateralization  provision or O/C is a credit enhancement which is
designed  to protect  the  securities  sold to the  securitization  pass-through
investors  from  credit  loss  on  the  underlying  mortgage  loans.  In  short,
overcollateralization  is when the amount of collateral  (I.E.,  mortgage loans)
owned  by  a  securitization  trust  exceeds  the  aggregate  amount  of  senior
pass-through  certificates.  The  O/C is  created  to  absorb  losses  that  the
securitization   trust  may  suffer,   as  loans  are   liquidated  at  a  loss.
Historically,  we built up the O/C  typically  over the first 18-24  months of a
securitization (with the specific timing depending upon the structure, amount of
excess spread,  and  performance of the  securitization),  by utilizing the cash
flows from the excess  cashflow  certificates  to make  additional  payments  of
principal to the holders of the pass-through certificates until the required O/C
level was reached.  Beginning with each of our 2002 securitizations,  we created
the O/C by initially  selling  pass-through  securities  totaling  approximately
98.5% of the total amount of mortgage  loans sold to the trust.  In doing so, we
create the full amount of the O/C required by the trust up front, at the time we
complete  the   securitization,   instead  of  over  time.  For  example,  if  a
securitization  trust contains  collateral of $100 million of mortgage loans, we
sell approximately $98.5 million in senior pass-through  certificates.  Prior to
our  2002   securitization   transactions,   we  typically  issued  pass-through
certificates  for a par purchase  price,  or a slight discount to par - with par
representing the aggregate  principal  balance of the mortgage loans backing the
asset-backed  securities.  For  example,  if  a  securitization  trust  contains
collateral of $100 million of mortgage  loans,  we typically  received  close to
$100 million in proceeds from the sales of these  certificates,  depending  upon
the structure we utilize for the securitization.

   The O/C is generally  expressed as a percentage of the initial  mortgage loan
or collateral

                                       12

principal  balance  sold  to  the  securitization  trust.  The  required  O/C is
initially  determined by either the rating agencies and/or the bond insurer,  if
any, using various factors including (1)  characteristics  of the mortgage loans
sold to the trust (I.E.,  FICO scores and loan to value ratios),  (2) the amount
of excess spread between the interest rate on the pool of mortgage loans sold to
the securitization  trust and the interest paid to the pass-through  certificate
holders, less the servicing fee, and other related expenses such as trustee fees
and  bond  insurer  fee,  if  any,  and  (3)  the  structure  of the  underlying
securitization.

   Our  securitizations  have typically required an O/C of between 1.5% and 3.0%
of the initial mortgage loans sold to the securitization trust. The required O/C
can increase or decrease  throughout the life of the transaction  depending upon
subordination  levels,  delinquency and or loss tests and is subject to minimums
and maximums, as defined by the rating agencies and or the bond insurer insuring
the  securitization.  On our  securitizations  prior  to  2002,  after  the  O/C
requirement is reached, the cash flows from the excess cashflow certificates are
then  distributed to us as the holder of the excess  cashflow  certificates,  in
accordance  with  the  "waterfall"  described  above.  Over  time,  if the  cash
collected  during the periods  exceeds  the amount  necessary  to  maintain  the
required O/C and all other required distributions have been met, and there is no
shortfall  in the related  required  O/C,  the excess is then  released to us as
holder of the excess cashflow certificate.

   In each of our more recent  securitizations  prior to our 2002 transactions -
in which  the  overcollateralization  limits  were  created  by the  cash  flows
generated   by   the   excess   cashflow   certificates   until   the   required
overcollateralization  limits  are  met  - we  derived  the  following  economic
interests:

  o   we  received  a cash  purchase  price  from the  sale of an  interest-only
      certificate  sold in connection with a  securitization.  This  certificate
      entitles  the holder to a recurring  interest  payment  over a  guaranteed
      period of 36 months, and reduces the cash flows we would otherwise receive
      as owner of the excess cashflow certificates;

  o   we  received a cash  premium  from  selling the right to service the loans
      being securitized. This right entitles the contractual servicer to service
      the loans on behalf of the  securitization  trust,  and earn a contractual
      servicing  fee, and ancillary  servicing fees (which  includes  prepayment
      penalties for certain securitization  servicing rights we previously sold)
      in such capacity; and

  o   we  retained  an  excess  cashflow  certificate.  Although  the cash flows
      generated by excess cashflow  certificates  are received over time,  under
      existing  accounting  rules,  we must  report as income at the time of the
      securitization  the present value of all projected cash flows we expect to
      receive in the future from these excess cashflow  certificates  based upon
      an  assumed   discount  rate.  Our  valuation  of  these  excess  cashflow
      certificates  is  primarily  based on (1) our  estimate  of the  amount of
      expected  losses  or  defaults  that  will  take  place on the  underlying
      mortgage  loans  over the life of the  mortgage  loans,  (2) the  expected
      amount  of  prepayments  on the  mortgage  loans  due  to  the  underlying
      borrowers of the mortgage  loans paying off their  mortgage  loan prior to
      the loan's stated  maturity,  and (3) the London  Inter-Bank  Offered Rate
      ("LIBOR") forward curve (using current LIBOR as the floor rate).

   We began utilizing a new securitization structure in 2002. In lieu of selling
an interest-only certificate,  we sold a net interest margin certificate or NIM.
The NIM is generally structured

                                       13

where we sell the excess cashflow  certificate to a QSPE or owner trust (the NIM
trust) and the NIM trust in turn issues (1) interest-bearing NIM note(s) (backed
by the  excess  cashflow  certificate),  and (2)  NIM  owner  trust  certificate
evidencing  ownership in the NIM trust. We sell this excess cashflow certificate
without recourse except that we provide normal representations and warranties to
the NIM trust.  One or more investors  purchase the NIM note(s) and the proceeds
from the sale of the  note(s),  along  with a owner  trust  certificate  that is
subordinate to the note(s),  represent the  consideration  to us for the sale of
the  excess   cashflow   certificate.   In  addition,   for  each  of  our  2002
securitizations we sold the P certificate to separate QSPEs or owner trusts (the
prepayment penalty trusts), the proceeds from which (representing all prepayment
penalties  collected by the prepayment  penalty trust) are used to repay the NIM
note(s).

   The NIM note(s) entitles the holder to be paid a specified interest rate, and
further   provides  for  all  cash  flows   generated  by  the  excess  cashflow
certificates,  including the cash flows  generated from the  prepayment  penalty
trust to be used to pay all principal and interest on the NIM note(s) until paid
in full  (estimated  to be  approximately  22-25  months  from  the date the NIM
note(s)  were  issued).  As part of the NIM  transaction,  we received  the cash
proceeds from the sale of the NIM note(s) and a subordinate  interest in the NIM
owner  trust and  prepayment  penalty  trust,  represented  by the  owner  trust
certificates.  These  owner  trust  certificates  entitle  us to all cash  flows
generated by the excess cashflow certificates and P certificate after the holder
of the NIM note(s)  has been paid in full.  As such,  we classify  the NIM owner
trust certificate and prepayment  penalty owner trust certificate on our balance
sheet as excess cashflow  certificates and value the NIM owner trust certificate
and prepayment  penalty owner trust  certificate using the same assumptions that
we utilize in valuing excess cashflow certificates.

   As part of the NIM  transaction,  we were required to "fully fund" the O/C at
closing  - as  opposed  to  having  it  build  up  over  time  as we had in past
securitizations  - which is why we sold senior  pass-through  certificates  that
were approximately  1.25% less than the collateral in the securitization  trust.
We use a portion of the  proceeds we receive from selling NIM note(s) to make up
for the difference  between (1) the value of the mortgage loans sold and (2) the
proceeds from selling the senior pass-through certificates.

   In the  securitizations  that we issued in 2002,  we  derived  the  following
economic interests:

  o   we received a cash purchase  price from the sale of the NIM note(s) issued
      by a NIM trust, to which we sold the excess cashflow certificates;

  o   we retained a NIM owner trust  certificate,  which  entitles us to receive
      cash  flows  generated  by the  excess  cashflow  certificates  and  the P
      certificate issued in connection with the securitization  after the holder
      of the NIM note(s) has been paid in full; and

  o  we received a cash  premium  from selling the right to service the loans
      being securitized.

   At the time we completed the 2002  securitizations,  we recognized as revenue
each of the three economic interests  described above, which was recorded as net
gain on sale of mortgage loans on our consolidated statement of operations.


                                       14

   A  summary  of the gain on sale and cash flow  from our  third  quarter  2002
securitization is presented below:
<TABLE>
<S>     <C>                                                       <C>

   GAIN ON SALE SUMMARY
   --------------------

         Loans Sold (in thousands)                                  $ 200,010
                                                                    =========

         NIM Proceeds, Net of the Upfront Overcollateralization         6.19%
         Excess Cashflow Certificate (owner trust certificates)         1.00%
         Mortgage Servicing Rights                                      0.85%
         Less:  Transaction Costs                                      (0.63%)
                                                                    ----------
              Net gain on sale recorded                                 7.41%
                                                                    =========

     CASH FLOW SUMMARY
     -----------------
         NIM Proceeds, Net of the Upfront Overcollateralization         6.19%
         Mortgage Servicing Rights                                      0.85%
         Less: Transaction Costs                                       (0.63%)
                                                                    ----------
              Net Cash Flow at Closing                                  6.41%
                                                                    =========
</TABLE>

   Our  net   investment  in  the  pool  of  loans  sold  at  the  date  of  the
securitization  represents  the amount  originally  paid to originate the loans,
adjusted for the following:

  o   any direct loan origination costs incurred (an increase in the investment)
      and loan  origination  fees  received (a decrease  in the  investment)  in
      connection with the loans, which are treated as a component of the initial
      investment in loans;

  o   the   principal  payments  received,  and the amortization of the net loan
      fees  or  costs,  during  the  period  we  held the  loans  prior to their
      securitization; and

  o   any gains (a decrease  in the  investment)  or losses (an  increase in the
      investment) we incur on any hedging  instruments that we may have utilized
      to hedge  against  the  effects of changes in  interest  rates  during the
      period we hold the loans prior to their securitization. (See "-Hedging,").

   We allocate our basis in the mortgage loans and excess cashflow  certificates
between the portion of the mortgage loans and excess cashflow  certificates sold
through securitization and the portion retained (the NIM owner trust certificate
and prepayment penalty owner trust  certificate,  in 2002) based on the relative
fair values of those  portions on the date of sale.  We may  recognize  gains or
losses  attributable  to the  changes  in  fair  value  of the  excess  cashflow
certificates,  which are recorded at estimated  fair value and  accounted for as
"trading"  securities.  Since there is no active market for such excess cashflow
certificates,  we  determine  the  estimated  fair value of the excess  cashflow
certificates by discounting the future expected cash flows.

   WHOLE LOAN SALES. We also sell loans,  without retaining the right to service
the loans, in exchange for a cash premium.  This is recorded as income under net
gain on sale of  mortgage  loans at the time of sale.  In the third  quarter  of
2002, we sold $18.5  million loans on a whole loan basis for an average  premium
(net of reserve) of 4.5% of the principal amount of mortgage loans sold.

   OTHER. In addition to the income and cash flows we earn from  securitizations
and whole loan sales, we also earn income and generate cash flows from:

                                       15

  o   the net  interest  spread  earned  on  mortgage  loans  while  we hold the
      mortgage loans for sale (the  difference  between the interest rate on the
      mortgage loan paid by the underlying  borrower less the financing costs we
      pay to our warehouse lenders to fund our loans);

  o   net loan origination fees on brokered loans and retail loans; and

  o   retained excess cashflow certificates and distributions from Delta Funding
      Residual   Exchange   Company,   LLC   (described   above  in  "-Corporate
      Restructuring, Debt Modification and Debt Restructuring").

   CORPORATE  RESTRUCTURING,   DEBT  MODIFICATION  AND  DEBT  RESTRUCTURING.  As
discussed in more detail in "Corporate Restructuring, Debt Modification and Debt
Restructuring"  we engaged in a series of  transactions  beginning in 2000,  and
concluding  in  the  third  quarter  of  2001,  aimed  at  improving   operating
efficiencies  and reducing our negative cash flow. We spent much of 2001 working
on  two  transactions  in  particular,  which  we  believe  were  of  tantamount
importance  in this regard - selling our servicing  portfolio and  extinguishing
most of our long term debt.

  o   In May 2001,  we  completed  the  transfer of our  servicing  portfolio to
      Ocwen,  which freed us from the  significant  cash drain  associated  with
      making  securitization  advances  (and the capital costs  associated  with
      making  such  advances),  and of  servicing  a highly  seasoned  portfolio
      following  three  successive   quarters  of  selling  the   securitization
      servicing rights for newly originated mortgage loans;

  o   In  August  2001,  we   completed   our  Second   Exchange  Offer,   which
      extinguished   substantially   all  of   our   long-term   debt,   leaving
      approximately  $10.8  million  out of  $150  million  of our  Notes  still
      outstanding.  This debt  extinguishment  helped us  threefold.  First,  it
      eliminated  nearly  $140   million  of  principal   which   we   otherwise
      would  have had to repay in 2004.  Second,  it  eliminated  more  than $13
      million of yearly  interest  expense  that we would have had to pay to the
      former  noteholders  had they still held their Notes.  Third,  the ratings
      agencies  that  previously  rated us and our Notes  have  withdrawn  their
      corporate ratings.

   We believe that our  transfer of  servicing to Ocwen and the Second  Exchange
Offer  were  essential  steps  in  our  continuing  effort  to  restructure  our
operations  and reduce our negative  cash flow  previously  associated  with our
servicing  operations and the Notes. There can be no assurances,  however,  that
these or other factors  described herein will not have a material adverse effect
on our results of operations and financial  condition.  (See  "-Forward  Looking
Statements and Risk Factors).

EXCESS CASHFLOW CERTIFICATES, NET

   We  classify   excess  cashflow   certificates   that  we  receive  upon  the
securitization of a pool of loans as "trading  securities." The amount initially
allocated to the excess cashflow  certificates  at the date of a  securitization
reflects  their  fair  value.  The  amount  recorded  for  the  excess  cashflow
certificates  is  reduced  for  distributions  which we receive as the holder of
these excess cashflow  certificates,  and is adjusted for subsequent  changes in
the fair value of the excess cashflow certificates we hold.

   At the time each securitization  transaction closes, we determine the present
value  of  the  related  excess  cashflow   certificates  (which,  in  our  2002
securitizations  includes BIO  certificates

                                       16

and NIM owner trust  certificates),  using certain assumptions we make regarding
the underlying mortgage loans. The excess cashflow  certificate is then recorded
on our  consolidated  financial  statements  at an  estimated  fair  value.  Our
estimates primarily include the following:

     o   future rate of prepayment of the mortgage  loans - the expected  amount
         of prepayments on the mortgage loans due to the underlying borrowers of
         the mortgage  loans paying off their  mortgage loan prior to the loan's
         expected maturity;

     o   credit  losses on  the  mortgage  loans - our estimate of the amount of
         expected  losses or  defaults  that will take  place on the  underlying
         mortgage  loans over the life of the mortgage  loans because the excess
         cashflow  certificates are subordinate in right of payment to all other
         securities issued by the securitization trust. Consequently, any losses
         sustained on mortgage  loans  comprising  a  particular  securitization
         trust are first absorbed by the excess cashflow certificates;

     o   the LIBOR forward  curve (using  current LIBOR as the floor rate) - our
         estimate of future  interest  rates which affects both the rate paid to
         the floating rate  pass-through  security  investors  (primarily  the 1
         month LIBOR index) and the  adjustable  rate mortgage loans sold to the
         securitization  trust  (which  provide for a fixed rate of interest for
         the  first 24 or 36  months  and a 6 month  variable  rate of  interest
         thereafter using the 6 month LIBOR index); and

     o   a discount rate used to calculate present value.

   The value of each excess  cashflow  certificate  represents  the cash flow we
expect to  receive  in the  future  from such  certificate  based  upon our best
estimate.  We  monitor  the  performance  of the loans  underlying  each  excess
cashflow  certificate,  and any changes in our estimates (and consequent changes
in value of the excess  cashflow  certificates)  is  reflected  in the line item
called "interest  income" in the quarter in which we make any such change in our
estimate. Although we believe that the assumptions we use are reasonable,  there
can be no assurance as to the accuracy of the assumptions or estimates.

   In determining the fair value of each of the excess cashflow certificates, we
make the following underlying  assumptions  regarding mortgage loan prepayments,
mortgage loan default rates, the LIBOR forward curve and discount rates:

(a)   PREPAYMENTS.  We  base our  prepayment  rate assumptions upon our on-going
      analysis of the  performance of mortgage pools we previously  securitized,
      and the  performance  of similar pools of mortgage  loans  securitized  by
      others in the industry. We apply different prepayment speed assumptions to
      different  loan  product  types  because it has been our  experience  that
      different  loan  product  types  exhibit  different  prepayment  patterns.
      Generally,  our loans can be grouped  into two loan  products - fixed rate
      loans and  adjustable  rate loans.  With fixed rate loans,  an  underlying
      borrower's  interest rate remains fixed  throughout  the life of the loan.
      Our  adjustable  rate  loans  are  really a  "hybrid"  between  fixed  and
      adjustable rate loans, in that the rate generally  remains fixed typically
      for the first three years of the loan,  and then adjusts  typically  every
      six months thereafter.  Within each product type, other factors can affect
      prepayment rate assumptions. Some of these factors, for instance, include:

                                       17


      o     whether or not a loan contains a prepayment penalty - an amount that
            a borrower  must pay to a lender if the  borrower  prepays  the loan
            within  a  certain  time  after  the  loan  was  originated.   Loans
            containing a prepayment  penalty  typically do not prepay as quickly
            as those without such a penalty;

      o     as  is   customary  with  adjustable  rate   mortgage   loans,   the
            introductory  interest rate charged to the borrower is  artificially
            lower, between one and two full percentage points, than the rate for
            which the borrower would have otherwise qualified.  Generally,  once
            the  adjustable  rate  mortgage   begins   adjusting  on  the  first
            adjustment  date, the interest rate payable on that loan  increases,
            at times fairly  substantially.  This  interest rate increase can be
            exacerbated if there is an absolute increase in interest rates. As a
            result of these  increases and the  potential for future  increases,
            adjustable  rate mortgage  loans  typically are more  susceptible to
            early prepayments.

      There are several  reasons why a loan will prepay  prior to its  maturity,
      including (but not limited to):

            o   a decrease in interest rates;

            o   improvement in  the  borrower's credit profile, which  may allow
                them to qualify for a lower interest rate loan;

            o   competition in the mortgage  market,  which may  result in lower
                interest rates being offered;

            o   the borrower's sale of his or her home; and

            o   a default  by the  borrower,  resulting  in  foreclosure  by the
                lender.
      It is unusual  for a borrower  to prepay a mortgage  loan during the first
      few months because of the following:

            o   it typically  takes  at  least several months after the mortgage
                loans are riginated for any of the above events to occur;

            o   there are costs involved with refinancing a loan; and

            o   the borrower does not want to incur prepayment penalties.

      The  following  table shows our most  recent  changes to the month one and
      peak speed components of our prepayment assumptions - in the third quarter
      of 2001 and, prior to that, in the third quarter 2000:

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

                                       18

      A higher prepayment speed means that the mortgage loans prepay faster than
      anticipated  and, as such, we will earn less income in connection with the
      mortgage loans and receive less excess  cashflow in the future because the
      mortgage  loans have paid off;  conversely,  if we have slower  prepayment
      speeds,  the mortgage loans remain outstanding for longer than anticipated
      and, as such, we earn more income and more excess cashflow in the future.

(b)   DEFAULT  RATE. At September 30, 2002 and September 30, 2001, on each newly
      issued  securitization,  we apply a default  reserve  for both  fixed- and
      adjustable-rate  loans sold to the securitization trusts totaling 5.00% of
      the amount initially  securitized.  We apply a default or loss rate to the
      excess cashflow  certificate  because it is the "first-loss"  piece and is
      subordinated  in right of  payment to all other  securities  issued by the
      securitization  trust. If defaults are higher than we anticipate,  we will
      receive less income and less excess  cashflow than expected in the future;
      conversely,  if defaults are lower than we expected,  we will receive more
      income and more excess cashflow than expected in the future.

(c)   LIBOR FORWARD  CURVE.  The LIBOR  forward curve is used to project  future
      interest  rates,  which  affects both the rate paid to the  floating  rate
      pass-through  security  investors  (primarily the 1 month LIBOR index) and
      the  adjustable  rate mortgage loans sold to the  securitization  trust (a
      fixed rate of interest for either the first 24 or 36 months than a 6 month
      variable rate of interest  thereafter using the 6 month LIBOR index). As a
      result of the change in LIBOR,  if excess spread is less than  anticipated
      we will receive less income and less excess  cashflow than expected in the
      future; conversely, if excess spread is greater than anticipated,  we will
      receive more income and more excess  cashflow than expected in the future.
      In each of our securitizations in which we sold NIM note(s), we purchased,
      on behalf of the NIM owner trust,  an interest rate cap for the benefit of
      the NIM  noteholder(s),  which  helps  mitigate  the  basis  risk  for the
      approximate time that the NIM notes are outstanding.

(d)   DISCOUNT  RATE. We use a discount rate that we believe  reflects the risks
      associated  with our excess  cashflow  certificates.  While quoted  market
      prices on comparable  excess cashflow  certificates are not available,  we
      compare  our  valuation  assumptions  and  performance  experience  to our
      competitors' in the non-conforming  mortgage  industry.  Our discount rate
      takes  into  account  the  asset  quality  and  the   performance  of  our
      securitized  mortgage  loans  compared to that of the  industry  and other
      characteristics of our securitized loans. We quantify the risks associated
      with our excess  cashflow  certificates by comparing the asset quality and
      payment and loss  performance  experience  of the  underlying  securitized
      mortgage pools to comparable  industry  performance.  The discount rate we
      use to  determine  the present  value of cash flows from  excess  cashflow
      certificates reflects increased uncertainty surrounding current and future
      market conditions,  including without limitation,  uncertainty  concerning
      inflation, recession, home prices, interest rates and equity markets.

      We utilized a discount rate of 15% at September 30, 2002 and September 30,
      2001 on all  excess  cashflow  certificates.  Prior to the  quarter  ended
      September 30, 2001, we used an 18% discount rate on a NIM  transaction  we
      consummated  in November  2000.  We increased  the discount  rate on these
      excess  cashflow  certificates  during  the  period  that the

                                       19

      senior NIM securities remained outstanding, to account for the potentially
      higher  risk  associated  with the  residual  cash  flows  expected  to be
      received  by the  holder of the  certificated  interest  in the NIM trust,
      which was  subordinated to the multiple senior  securities sold in the NIM
      transaction.  As part of the  Second  Exchange  Offer,  all of the  excess
      cashflow   certificates  that  were  subject  to  the  November  2000  NIM
      transaction  were transferred to the LLC. We did not increase the discount
      rate on the excess cashflow  certificates from our latest  securitizations
      despite  issuing NIM  securities  because the NIM  securities  in the most
      recent transactions were:

      o  issued from a single  securitization  as compared to the November  2000
         NIM   transaction,   which  was   backed  by  a   combination   of  six
         securitizations  issued between September 1997 and March 1999 resulting
         in more  volatility or variability  in  determining  the timing of cash
         flows to be received by the NIM; and

      o  issued from a new  securitization  as compared to the November 2000 NIM
         transaction,  which  was  backed  by  several  seasoned  securitization
         trusts.  The predictability in determining the timing of cash flows for
         the first  two  years on a newly  issued  securitization  is  typically
         higher than  securitizations  that have been  outstanding for a greater
         period of time because defaults or losses to the trust within the first
         few years of issuance are typically lower and more predictable compared
         to a  securitization  that has been  outstanding for a longer period of
         time (a more seasoned transaction). Additionally, prepayment speeds are
         more predictable compared to more seasoned transactions, which is aided
         by the presence of prepayment penalties,  which typically expire within
         the first few years  after a mortgage  loan is  originated.  Therefore,
         there is a higher  probability in determining  the timing of cash flows
         to the NIM investor on a new issuance  securitization  as compared to a
         seasoned transaction.

    At March 31, 2002, we recorded a charge to interest income to reflect a fair
value  adjustment to our excess  cashflow  certificates,  totaling $2.1 million,
relating to the timing of excess cashflows that are to be received by the excess
cashflow    certificate    after   the    release   or    "stepdown"    of   the
overcollateralization account.

   The following  table  summarizes  the excess  cashflow  activity for the nine
months ended September 30, 2002 and 2001 (dollars in thousands):
                                                          2002        2001
                                                        --------    --------
      Balance, beginning of period                      $16,765    $216,907
      New excess cashflow certificates                    8,059       7,031
      Cash received from excess cashflow certificates      (995)     (8,713)
      Net accretion excess cashflow certificates          1,491      11,949
      Fair Value Adjustment                              (2,085)    (20,337)
      Sales                                               --       (193,492)
                                                       ---------   ---------
      Balance, end of period                             23,235      13,345
                                                       =========   =========

   Our valuation of retained  excess cashflow  certificates is highly  dependent
upon  the  reasonableness  of our  assumptions  and  the  predictiveness  of the
relationships  that drive the results of our valuation model. The assumptions we
utilize,  described above, are complex, as we must make judgment calls about the
effect of matters that are inherently uncertain.  As the number of variables and
assumptions  affecting  the  possible  future  resolution  of the  uncertainties
increase, those judgments become even more complex.

                                       20

   In  volatile  markets,  like those we have  experienced  in 2001 and in 2002,
there is increased risk that our actual results may vary  significantly from our
assumed results. And the greater the time period over which the uncertainty will
exist, the greater the potential volatility for our valuation assumptions.

   For example,  assumptions  regarding prepayment speeds,  defaults,  and LIBOR
rates are used in estimating fair values of our excess cashflow certificates. If
loans  prepay  faster  than  estimated,  or loan loss  levels  are  higher  than
anticipated,  or LIBOR is higher than  anticipated,  we may be required to write
down the value of such  certificates.  While we believe that our assumptions are
reasonable  estimates using our historical loan  performance and the performance
of similar  mortgage  pools from other lenders - in addition to accessing  other
public  information  about  market  factors such as interest  rates,  inflation,
recession,  unemployment  and real estate  market  values,  among other things -
these are just  estimates  and it is virtually  impossible to predict the actual
level of prepayments and losses, which are also driven by consumer behavior.

DEFERRED TAX ASSET

   As of  September  30,  2002,  we  carried a deferred  tax asset,  net of $5.6
million on our  consolidated  financial  statements  -  comprised  primarily  of
federal  and state net  operating  losses or "NOLs"  less the tax  impact  and a
valuation allowance.

   As of September 30, 2002, we have a gross deferred tax asset of $49.8 million
(assuming a 40% effective tax rate) and a valuation  allowance of $44.2 million.
We established this valuation  allowance in 2001, in the midst of two successive
years of posting  significant  losses (2000 and 2001),  and the modest amount of
earnings we projected to earn over the ensuing several  quarters.  We believe it
was appropriate to establish this valuation allowance under GAAP. Since then, we
have now  posted 4  consecutive  quarters  of  profitability.  If we are able to
continue to record earnings over the next several quarters, we expect to:

   o  utilize  a  larger  amount of the gross  deferred  tax asset to offset the
      majority of such earnings; and

   o  potentially  decrease the  amount  of,  and/or  eliminate,  the  valuation
      allowance in accordance with GAAP.

   As of September 30, 2002,  federal and state NOL carryforwards  totaled $95.2
million, with $9.9 million expiring in 2019, $11.9 million expiring in 2020, and
$73.4 million expiring in 2021.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001

GENERAL

   Our net  income  for the  three  months  ended  September  30,  2002 was $6.7
million, or $0.42 per share, basic and $0.39 per share,  diluted,  compared to a
net loss of $52.9 million, or $3.33 per share, basic and diluted,  for the three
months ended September 30, 2001.

                                       21

   Our net income for the three  months  ended  September  30,  2002  includes a
special  tax  benefit of $2.2  million,  or $0.14 per share  basic and $0.13 per
share diluted,  which primarily relates to us obtaining favorable resolutions to
tax issues for which we had  previously  reserved.  Our net income for the three
month period  excluding this special tax benefit was $4.5 million,  or $0.28 per
share basic and $0.26 per share diluted.

    The  third  quarter  2001  net  loss was  primarily  attributable  to (1) an
extraordinary  loss,  net of tax,  totaling  $19.3  million,  or $1.21 per share
(basic  and   diluted)  and   professional   fees   associated   with  our  debt
extinguishment  in August 2001 totaling $1.4 million,  or $0.09 per share (basic
and  diluted);  (2) a fair value  adjustment to our  remaining  excess  cashflow
certificates  related to changes in our  valuation  assumptions  totaling  $19.7
million, or $1.24 per share (basic and diluted); and (3) our not securitizing in
the third  quarter  2001,  which  significantly  reduced  our  revenues  for the
quarter.

   Comments regarding the components of net income are detailed in the following
paragraphs.

REVENUES

   Total  revenues  increased  $32.1  million,  or 309% to $21.7 million for the
three months ended  September  30,  2002,  from a loss of $10.4  million for the
comparable  period in 2001. During the three months ended September 30, 2001, we
recorded a charge to interest  income to reflect a fair value  adjustment to our
excess  cashflow  certificates  and earned a lower net gain on sale of mortgages
due to us not executing a securitization.

   We  originated  $214.4  million of mortgage  loans for the three months ended
September 30, 2002,  representing a 46% increase from $146.6 million of mortgage
loans  originated  for the  comparable  period in 2001.  We  securitized  $200.0
million  (net of $50.0  million  pre-funding)  of mortgage  loans and sold $18.5
million of mortgage loans on a servicing-released  basis during the three months
ended September 30, 2002. We sold $59.0 million of loans on a servicing-released
basis and did not execute a securitization during the same period in 2001.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
represents  (1) the sum of (a) the fair value of the  non-cash  excess  cashflow
certificates  retained by us in a  securitization  for each period,  (b) (i) the
cash  premium   purchase  price  we  receive  in  connection   with  selling  an
interest-only  certificate in a securitization for each period, or (ii) the cash
purchase  price we  receive  in  connection  with  selling  a NIM  note,  net of
overcollateralization  amount  and  interest  rate  cap,  (c) the  cash  premium
received  from  selling  mortgage  servicing  rights  in  connection  with  each
securitization,  and (d) the cash premiums  earned from selling whole loans on a
servicing-released   basis,   (2)   less   the   (i)   costs   associated   with
securitizations,  (ii)  any  hedge  loss  (gain)  associated  with a  particular
securitization, and (iii) any loss associated with loans sold at a discount.

   Net gain on sale of mortgage loans increased $13.1 million, or 504%, to $15.7
million for the three months ended September 30, 2002, from $2.6 million for the
comparable  period in 2001. The Company did not execute a securitization  in the
2001  quarter  due to adverse  market  conditions  resulting  from the events of
September  11,  2001,  the  results of which  significantly  reduced its revenue
during this period.  During the same period in 2001,  the Company  recorded cash
premiums earned on whole loan sales totaling $2.6 million.  For the three months
ended  September  30,  2002,  87% of the net  gain on  sale  of  mortgage  loans
represented cash proceeds.

                                       22

   INTEREST  INCOME.  Interest  income  primarily  represents the sum of (1) the
gross  interest we earn on loans held for sale, (2) the cash we receive from our
excess  cashflow  certificates,  (3) the  non-cash  mark-to-market  or  non-cash
valuation  adjustments to our excess cashflow certificates to reflect changes in
fair value,  (4) the interest  earned on bank  accounts,  and (5)  miscellaneous
interest  income  including  prepayment  penalties  received  on  certain of our
securitizations prior to 2002.

   Interest  income  increased  $18.4 million,  or 114%, to $2.3 million for the
three months ended  September 30, 2002,  from ($16.1) million for the comparable
period in 2001.  During the three months ended September 30, 2001, we recorded a
charge  of $19.7  million  reflecting  a fair  value  adjustment  to our  excess
cashflow certificates related to changes we made in the valuation assumptions we
used to estimate fair value (see "-Fair Value Adjustments").

   NET ORIGINATION FEES AND OTHER INCOME.  Net origination fees and other income
represent (1) fees earned on broker and retail  originated  loans,  (2) premiums
paid to originate  mortgage  loans,  (3)  distributions  from the Delta  Funding
Residual Exchange Company, LLC and (4) other miscellaneous income, if any.

   Net origination fees and other income increased $0.6 million, or 19%, to $3.7
million for the three months ended September 30, 2002, from $3.1 million for the
comparable  period in 2001.  The increase was  primarily the result of (1) a 52%
increase  in  broker  origination  loans  and  (2)  a  38%  increase  in  retail
origination  loans,  partially  offset by a decrease in average net originations
fees, particularly in the broker originations.

EXPENSES

   Total  expenses  decreased by $4.3 million,  or 20%, to $17.1 million for the
three months ended  September 30, 2002,  from $21.4  million for the  comparable
period in 2001.  The decrease  was  primarily  related to (1) the  significantly
lower interest expense  resulting from our  extinguishing  approximately  $139.2
million  of  Notes  in the  Second  Exchange  Offer  in  2001  (see  "-Corporate
Restructuring,  Debt  Modification and Debt  Restructuring"),  (2) our recording
lower  warehouse  financing  costs due to lower borrowing costs during 2002, and
(3) the decrease in general and  administrative  expenses and  restructuring and
other special charges due to our restructuring.

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

   Payroll and related costs increased by $0.3 million,  or 3%, to $10.2 million
for the three  months  ended  September  30,  2002,  from $9.9  million  for the
comparable  period in 2001.  As of September  30, 2002 the Company  employed 661
full- and part-time employees,  compared to 614 full- and part-time employees as
of September 30, 2001.

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

   Interest expense  decreased by $1.7 million,  or 59%, to $1.2 million for the
three  months  ended  September  30, 2002 from $2.9  million for the  comparable
period in 2001. The decrease was primarily due to (i) our  extinguishing  $139.2
million of Notes, and the  corresponding  interest expense related thereto,  and
(ii) lower warehouse  financing costs due to lower borrowing

                                       23

costs.  The average  one-month LIBOR rate,  which is the benchmark index used to
determine our cost of borrowed funds, decreased on average to 1.8% for the three
months ended  September  30,  2002,  compared to an average of 3.5% for the same
period in 2001.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
consist  primarily of office rent,  insurance,  telephone,  depreciation,  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 $1.4 million,  or 20%, to $5.7
million for the three months ended September 30, 2002, from $7.1 million for the
comparable period in 2001. The decrease primarily resulted from the cost savings
related to the Company's corporate restructuring.

   RESTRUCTURING AND OTHER SPECIAL CHARGES. In 2001, we recorded $1.4 million of
restructuring  and other special charges relating to professional  fees incurred
in   connection   with  the  Second   Exchange   Offer  2001  (see   "-Corporate
Restructuring, Debt Modification and Debt Restructuring").

   INCOME TAXES.  Deferred tax assets and liabilities are recognized  based upon
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. We recorded a special tax benefit of $2.2 million related to us obtaining
favorable  resolution to tax issues for which we had previously  reserved and do
not  expect  to  recur.  This was  offset  by a tax  provision  of $0.1  million
primarily  related to excess  inclusion  income generated by our excess cashflow
certificates,  for the period ended  September 30, 2002 and $1.9 million for the
same  period in 2001.  Excess  inclusion  income  (also  referred to as "phantom
income") cannot be offset by our NOL's under the REMIC tax laws. It is primarily
caused by the REMIC  securitization  trust  utilizing cash, that otherwise would
have  been  paid to us as holder of the  excess  cashflow  certificate,  to make
payments   to   other   security    holders,    to   create   and/or    maintain
overcollateralization  by artificially  paying down the principal balance of the
asset-backed securities.

   Going  forward,  we expect  to  continue  to incur a modest  amount of excess
inclusion income, which we will be unable to offset with our NOL's.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001

  GENERAL

   Our net  income  for the nine  months  ended  September  30,  2002 was  $12.9
million, or $0.81 per share, basic and $0.76 per share, diluted, compared to net
loss of $103.2  million,  or $6.49 per share,  basic and  diluted,  for the nine
months ended September 30, 2001.

   Our net  income for the nine  months  ended  September  30,  2002  includes a
special  tax  benefit of $2.2  million,  or $0.14 per share  basic and $0.13 per
share diluted,  which primarily relates to us obtaining favorable resolutions to
tax issues  for which we had  previously  reserved.  Our net income for the nine
month period excluding this special tax benefit was $10.7 million,  or $0.67 per
share basic and $.63 per share diluted.

   Comments regarding the components of net income are detailed in the following
paragraphs.

                                       24

  REVENUES

   Total revenues  increased  $51.1  million,  or 437%, to $62.8 million for the
nine months ended  September  30, 2002,  from $11.7  million for the  comparable
period in 2001.  In 2001,  we recorded a $25.4 million write down of five excess
cashflow  certificates  sold for a cash purchase price  significantly  below our
carrying value of such excess cashflow certificates.  In addition, we recorded a
fair value  adjustment  to our remaining  excess  cashflow  certificates  due to
changes in our valuation  assumptions  totaling $19.7  million.  The increase in
revenues  during the period was also  attributable  to a higher net gain on sale
due to us completing  securitizations,  net of pre-funding, of $575.0 million in
2002,  compared  to $165.0  million in 2001.  These  increases  in revenue  were
partially  offset by a decrease in  interest  income  from our  retained  excess
cashflow  certificates,  as we transferred the majority of these certificates as
part of our Second  Exchange Offer in 2001 and by us not receiving any servicing
fees  following  the transfer of our  servicing  portfolio to Ocwen in May 2001.
(See "-Corporate Restructuring, Debt Modification and Debt Restructuring").

   We  originated  $614.5  million of mortgage  loans for the nine months  ended
September 30, 2002,  representing a 27% increase from $482.5 million of mortgage
loans  originated  for the  comparable  period in 2001. We  securitized  (net of
pre-funding)  and sold  $667.4  million in loans  during the nine  months  ended
September 30, 2002,  representing a 72% increase from $389.0 million securitized
or sold in the comparable period in 2001.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
increased  $19.0  million,  or 80%, to $42.8  million for the nine months  ended
September 30, 2002,  from $23.8 million for the comparable  period in 2001. This
increase  was  primarily  due  to  (i)  an  increase  in  the  amount  of  loans
securitized,  net of  pre-funding,  compared to 2001 and (ii) us  securitizing a
higher  percentage  of mortgage  loans in 2002,  instead of selling  whole loans
servicing-released,  which  typically  results  in a  higher  net  gain  on sale
percentage  than whole loan sales. We securitized  (net of  pre-funding)  $575.0
million and sold $92.4 million of mortgage loans on a  servicing-released  basis
in 2002,  compared to $165.0 million of loans  securitized and $224.0 million of
mortgage loans sold during the same period in 2001.

   INTEREST INCOME.  Interest income  increased $35.0 million,  or 137%, to $9.4
million for the nine months ended  September 30, 2002,  from $(25.6) million for
the  comparable  period in 2001. In 2001, we recorded a $25.4 million write down
of  five  excess   cashflow   certificates   sold  for  a  cash  purchase  price
significantly below our carrying value of such excess cashflow certificates.  In
addition,  we recorded a fair value  adjustment to our remaining excess cashflow
certificates due to changes in our valuation assumptions totaling $19.7 million.
The  increase  was  also  attributed  to a higher  average  loan  balance  (and,
consequently,  more interest  earned on loans held for sale) in 2002 compared to
the same period in 2001.  The  increase  was  partially  offset by a decrease in
revenues from our excess cashflow  certificates,  as we transferred the majority
of  these  certificates  as part  of our  Second  Exchange  Offer  in 2001  (See
"-Corporate Restructuring, Debt Modification and Debt Restructuring").

   SERVICING  FEES.  Servicing  fees  represent  all  contractual  and ancillary
servicing  revenue  we  receive,   less  the  offsetting   amortization  of  the
capitalized  mortgage servicing rights, and any adjustments  recorded to reflect
valuation allowances for the impairment in mortgage servicing rights. We did not
receive any servicing fees during the nine months ended September 30, 2002,

                                       25

as a result of us transferring our entire servicing portfolio to Ocwen in May of
2001. For the nine months ended September 30, 2001,  servicing fees totaled $3.0
million.

EXPENSES

   Total expenses  decreased by $41.4 million,  or 44%, to $51.8 million for the
nine months ended  September  30, 2002,  from $93.2  million for the  comparable
period  in  2001.  The  nine  months  ended  September  2001  included  expenses
associated  primarily  with: (1) our  disposition  and transfer of our servicing
portfolio to Ocwen in May 2001, (2) capital charges associated with repurchasing
our  interest and  servicing  advance  securitizations  prior to the sale of the
servicing  portfolio,  (3) a change in accounting  estimates  regarding the life
expectancy  of our  computer-related  equipment  in 2001,  and (4) a charge  for
reserves  primarily against a pool of non-performing  loans, which we ultimately
sold in July 2001. In addition,  in 2002, we had a significantly  lower interest
expense resulting from our extinguishing  approximately  $139.2 million of Notes
in the Second Exchange Offer (see "-Corporate  Restructuring,  Debt Modification
and Debt  Restructuring").  Lastly, we recorded lower warehouse  financing costs
due to lower borrowing costs during 2002.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  decreased  by $3.2
million,  or 10%, to $30.0 million for the nine months ended September 30, 2002,
from $33.2 million for the comparable period in 2001. The decrease was primarily
the  result  of a  downsizing  effectuated,  as  part of our  overall  corporate
restructuring, related to our transfer of our servicing operations in May 2001.

   INTEREST  EXPENSE.  Interest expense  decreased by $10.5 million,  or 71%, to
$4.2 million for the nine months ended September 30, 2002 from $14.7 million for
the  comparable  period  in 2001.  The  decrease  was  primarily  due to (i) our
extinguishing  $139.2 million of Notes, and the  corresponding  interest expense
related thereto, and (ii) lower warehouse financing costs due to lower borrowing
costs.  The average  one-month LIBOR rate,  which is the benchmark index used to
determine our cost of borrowed funds,  decreased on average to 1.8% for the nine
months ended  September  30,  2002,  compared to an average of 4.4% for the same
period in 2001.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
decreased  $24.9  million,  or 59%, to $17.6  million for the nine months  ended
September 30, 2002,  from $42.5 million for the  comparable  period in 2001. The
nine months ended September 2001 included expenses primarily associated with (1)
our disposition and transfer of our servicing portfolio in May 2001 to Ocwen (2)
capital charges  previously  associated with our interest and servicing  advance
securitizations  prior to the sale of the servicing  portfolio,  (3) a change in
accounting  estimates  regarding  the life  expectancy  of our  computer-related
equipment,   and  (4)  a  charge  for  reserves  primarily  against  a  pool  of
non-performing loans, which we ultimately sold in July 2001.

   RESTRUCTURING AND OTHER SPECIAL CHARGES. In 2001, we recorded $2.7 million of
restructuring  and other special charges relating to professional  fees incurred
in   connection   with  the  Second   Exchange   Offer  2001  (see   "-Corporate
Restructuring,  Debt Modification and Debt  Restructuring") and charges relating
to the  disposition of branches and severance  costs  associated with closing of
our servicing operation.

                                       26

   INCOME TAXES.  During the nine months ended September 30, 2002, we recorded a
special tax benefit of $2.2 million related to us obtaining favorable resolution
to tax issues for which we had  previously  reserved and do not expect to recur.
This was offset by a tax provision of $0.3 million  primarily  related to excess
inclusion income generated by our excess cashflow  certificates,  for the period
ended September 30, 2002 and $2.4 million for the same period in 2001.

FINANCIAL CONDITION

SEPTEMBER 30, 2002 COMPARED TO DECEMBER 31, 2001

   CASH  AND  INTEREST-BEARING  DEPOSITS.  Cash  and  interest-bearing  deposits
decreased $2.5 million, or 39%, to $3.9 million at September 30, 2002, from $6.4
million at December  31, 2001.  The  decrease is  primarily  due to us utilizing
operating cash to fund our production of mortgage loans.

   LOANS HELD FOR SALE,  NET. Loans held for sale, net decreased  $63.2 million,
or 67%, to $31.2 million at September  30, 2002,  from $94.4 million at December
31, 2001.  This  represents  mortgage loans held in inventory  awaiting either a
whole loan sale or  securitization.  This  decrease was primarily due to the net
difference  between loan  originations and loans  securitized or sold during the
nine months ended September 30, 2002.

    ACCRUED  INTEREST  RECEIVABLE.  Accrued interest  receivable  decreased $0.8
million,  or 100%,  to $8 thousand at September  30, 2002,  from $0.8 million at
December 31, 2001.  This decrease was  primarily  due us  collecting  short-term
interest at time of mortgage loan closing in 2002,  compared to 2001 when we did
not and therefore accrued for short-term interest earned, but not yet collected,
as interest is paid in arrears by the borrower.

   EXCESS  CASHFLOW  CERTIFICATES,   NET.  Excess  cashflow  certificates,   net
increased  $6.4 million,  or 38%, to $23.2  million at September 30, 2002,  from
$16.8  million at December  31, 2001.  This  increase  was  primarily  due to us
recording  new excess  cashflow  certificates,  totaling $8.1 million from loans
securitized  in  2002.  This  increase  was  partially  offset  by a fair  value
mark-to-market  adjustment of our excess cashflow  certificates,  reflecting the
change in fair value of such excess cashflow certificates.

   EQUIPMENT,  NET.  Equipment,  net,  decreased  $2.1 million,  or 42%, to $2.9
million at  September  30, 2002,  from $5.0  million at December 31, 2001.  This
decrease primarily reflects the periodic depreciation of our fixed assets.

   PREPAID AND OTHER ASSETS. Prepaid and other assets increased by $1.9 million,
or 238%,  to $2.7 million at September  30, 2002,  from $0.8 million at December
31, 2001. This increase is primarily due to the capitalization of securitization
costs  associated with the $50.0 million  pre-funding  that was completed during
the fourth  quarter of 2002.  The third quarter  securitization  structure had a
pre-funding  mechanism  which  allowed us to deliver and close on  approximately
$200.0 million by September 30, 2002,  and deliver the additional  $50.0 million
of mortgage loans in October 2002.

   WAREHOUSE  FINANCING  AND OTHER  BORROWINGS.  Warehouse  financing  and other
borrowings  decreased  $69.2 million,  or 77%, to $20.4 million at September 30,
2002,  from $89.6  million at December 31,  2001.  This  decrease was  primarily
attributable  to a lower amount of mortgage

                                       27

loans held for sale (mortgage  loans held in inventory  awaiting  either a whole
loan  sale  or  securitization)  to  be  financed  under  our  warehouse  credit
facilities.

   SENIOR  NOTES.  Senior notes  totaled $10.8 million at September 30, 2002 and
December 31, 2001. The senior notes accrue interest at a rate of 9.5% per annum,
payable semi-annually on February 1 and August 1.

   ACCOUNTS  PAYABLE AND ACCRUED  EXPENSE.  Accounts payable and accrued expense
decreased  $3.0  million,  or 15%, to $17.2  million at September  30, 2002 from
$20.2 million at December 31, 2001.  This decrease was primarily  related to our
obtaining favorable resolutions to tax issues in the amount of $2.2 million, for
which we had previously reserved.  The decrease was also the result of timing of
various operating accruals and payables.

LIQUIDITY AND CAPITAL RESOURCES

   We  require  substantial  amounts  of  cash to fund  our  loan  originations,
securitization  activities and operations.  We have  historically  operated on a
negative  cash flow  basis due  primarily  to  increases  in the  volume of loan
originations  and the  growth of our  securitization  program.  During the first
three  quarters  of 2002,  we reduced  our  negative  cash flow and  essentially
generated slightly positive cash flow from operations.  Two significant  factors
contributed to this phenomena.  First, the  securitization  market was extremely
favorable, which resulted in better securitization execution (I.E., a lower cost
of funds).  This  provided us with a wider spread  between our cost of funds and
the  coupons  on  the  mortgage  loans  underlying  our  securitizations,  which
translated   into   better-than-expected   cash   proceeds   at  the   time   of
securitization. Second, we sold more loans in securitization and on a whole loan
basis than we originated.  Had these two factors not been present, we would have
continued to operate on a slightly  negative  cash flow basis,  because while we
increased  originations,  we did  not do so  sufficiently  to  offset  our  cost
structure.

   Embedded in our current cost  structure  are many fixed costs,  which are not
likely to be significantly affected by a relatively substantial increase in loan
originations.  If we  continue  to  increase  our loan  production  to  generate
sufficient additional revenues from our securitizations and loan sales to offset
our current cost structure and negative cash flow, we believe we can continue to
generate  positive cash flow within the foreseeable  future, as we have thus far
this year. There can be no assurance,  however, that we will continue generating
positive cash flow within the foreseeable future or at all.

   Currently,  our  primary  sources  of cash - the  vast  majority  of which we
typically generate towards the end of the quarter when we securitize and/or sell
our mortgage loans on whole loan basis - include:

   o  the  premiums  we  receive  from   selling   NIM   (and/or  interest-only)
      certificates  and  mortgage   servicing  rights  in  connection  with  our
      securitizations;

   o  the premiums we receive from selling whole loans, servicing released;

   o  origination fees on newly closed loans;

   o  cash flows  from  excess  cashflow  certificates  we retain in  connection
      with our securitizations;

                                       28

   o  the  interest  income  we   receive  on our loans  held for sale  prior to
      securitization; and

   o  distributions from the LLC (an unaffiliated entity to us).

   Currently,   our    primary  uses  of  cash,  which  are  generally  incurred
continuously throughout the quarter include:

  o   the  equity  in our  mortgage  loans  held for sale,  for which we receive
      financing on from our warehouse  lender up to only 98% of the total amount
      of the mortgage loan's principal  balance (E.G., the warehouse lender will
      provide  financing  to us equal  to  $98,000  on a  mortgage  loan  with a
      principal  balance of $100,000,  leaving us with our $2,000 tied up in the
      equity of the mortgage loan);

  o   interest expense  on  warehouse  lines of credit, the  remaining notes and
      other financing;

  o   scheduled principal paydowns on other financing;

  o   fees, expenses,  and tax payments on excess  inclusion income  incurred in
      connection with our securitization program; and

  o   general ongoing administrative and operating expenses.

   Because of the timing of our cash inflows and cash uses, we typically  expend
cash throughout the quarter and replenish it towards the end of the quarter.

   Historically,  we have  financed our  operations  utilizing  various  secured
credit financing  facilities,  issuance of corporate debt (I.E.,  senior notes),
issuance of equity, and the sale of interest-only  certificates and/or NIM (sold
in conjunction with each of our  securizations) to offset our negative operating
cash flow and support our originations, securitizations, servicing (prior to May
2001) and general operating  expenses.  Over the past few years, we have engaged
in a series of transactions to further address our negative cash flow, including
the following:

  o   in 2000, completing  three  securitizations of interest  (delinquency) and
      servicing  advances,  in which we sold our rights to be reimbursed for our
      outstanding  delinquency  and servicing  advances that we made as servicer
      for a cash purchase price. We used the proceeds from these securitizations
      to (1) repay a $25  million  working  capital  sub-line of our former bank
      syndicate  warehouse facility that expired in June 2000, which was secured
      by our delinquency and servicing advance receivables,  and (2) for working
      capital  to  finance  our   operations,   including  the  funding  of  new
      delinquency  and  servicing  advances.  We  ultimately  repurchased  these
      securitizations  in 2001,  in  connection  with the sale of  servicing  to
      Ocwen,  using  the  proceeds  we  received  from  selling  the  underlying
      delinquency and servicing advance receivables to Ocwen;

  o   modifying  our  senior  notes  in  2000 as part of  the Debt  Modification
      (see    "-Corporate    Restructuring,    Debt    Modification   and   Debt
      Restructuring"),  which  enabled  us to  monetize  a portion of our excess
      cashflow  certificates,   first  by  obtaining  $17  million  in  residual
      financing  in  August  2000,  secured  by  some  of  our  excess  cashflow
      certificates.  Shortly  thereafter,  in November  2000, we sold six excess
      cashflow  certificates  through a private  placement NIM transaction to an
      owner trust that issued senior certificates to institutional investors for
      a cash purchase. The net proceeds of the NIM transaction,  after expenses,
      was used  entirely  to repay the $17  million  of  residual  financing  we
      borrowed in August 2000 and to create a $7.125 million cash escrow account
      to be used to pay the  semi-annual  interest  payment  due on the notes in
      February 2001;

                                       29

  o   as part of  our  Second Debt Restructuring,  at the time of the signing of
      the Letter of Intent in  February  2001,  we obtained  approximately  $2.5
      million of residual  financing  secured by several of our excess  cashflow
      certificates.   We  received  approximately  $7.1  million  of  additional
      residual   financing  secured  primarily  by  additional  excess  cashflow
      certificates  following the  consummation of the consent  solicitation and
      the execution of the third  supplemental  indenture in March 2001. Also in
      March 2001, we entered into a sale agreement to sell five excess  cashflow
      certificates  for a $15.0 million cash purchase  price.  As customary with
      sales of similar assets, the cash settlement did not occur until the pools
      of mortgage loans  underlying the six excess  cashflow  certificates  were
      transferred  to an agreed  upon  servicer  to service the pool of mortgage
      loans for the benefit of the purchaser. The purchaser of these five excess
      cashflow certificates  provided bridge financing,  in the form of residual
      financing described above, until the transfer of servicing in May 2001. We
      used these  proceeds to repay the residual  financing  and have been using
      the balance of the proceeds, together with the initial residual financing,
      for working capital.  Because these excess cashflow certificates were sold
      at a  significant  discount  to our book  value for such  excess  cashflow
      certificates,  we recorded $25.4 million  pre-tax  non-cash  charge in the
      first quarter of 2001.

   Currently, our primary sources of liquidity continue to be, subject to market
conditions:

      o  on-balance  sheet  warehouse  financing  and  other  secured  financing
         facilities (e.g., capital leasing);

      o  securitizations  of mortgage  loans and our  corresponding  sale of NIM
         and/or  interest-only  certificates  (depending upon the securitization
         structure) and mortgage servicing rights;

      o  sales of whole loans;

      o  cash flows from retained excess cashflow certificates;

      o  distributions  from  the  LLC (an  unaffiliated   entity  to  us)  (see
         "-Corporate     Restructuring,     Debt     Modification    and    Debt
         Restructuring"); and

      o  utilizing NIM  securitizations and/or selling or financing our retained
         excess cashflow certificates.

   If we are not able to obtain financing,  we will not be able to originate new
loans  and our  business  and  results  of  operations  will be  materially  and
adversely affected.

   To  accumulate  loans  for  securitization  or  sale,  we  borrow  money on a
short-term  basis through  warehouse lines of credit.  We have relied upon a few
lenders to provide the primary credit facilities for our loan  originations.  At
September  30, 2002 we had two $200  million  committed  credit  line  warehouse
facilities  each with a variable  interest rate and a maturity date of May 2003.
There  can be no  assurance  that  we will be  able  to  renew  these  warehouse
facilities at their maturity, or obtain new ones, at terms satisfactory to us or
at all.

   In addition to our common stock,  we currently have the following  securities
outstanding:

   o  Series A preferred stock having an aggregate  preference of $13.9 million,
      for  which  we  are  required  to  pay  10%  annual   dividends,   payable
      semi-annually, commencing in July 2003;

                                       30

   o  Ten-year  warrants to  purchase  approximately  1.6 million  shares of our
      common stock,  currently at an exercise price of $9.10 per share,  subject
      to upward or downward adjustment in certain circumstances; and

   o  Approximately  $10.8 million of senior notes due 2004,  paying 9.5% annual
      interest, payable semi-annually.

   We are required to comply with various  operating and financial  covenants as
provided in our warehouse  agreements,  which are  customary  for  agreements of
their  type.  The  continued  availability  of funds  provided to us under these
agreements is subject to, among other conditions,  our continued compliance with
these  covenants.  Additionally,  we are  required  to comply  with  restrictive
covenants in connection with our Series A preferred  stock and our warrants.  We
believe we are in compliance with such covenants as of September 30, 2002.

   We have repurchase  agreements with certain  institutions that have purchased
mortgages  loans from us.  Currently,  some of the  agreements  provide  for the
repurchase by us of any of the mortgage  loans that go to  foreclosure  sale. At
the foreclosure  sale, we will repurchase the mortgage,  if necessary,  and make
the  institution  whole.  The  dollar  amount  of  loans,  which  were sold with
recourse, is $2.9 million at September 30, 2002 and $3.5 million at December 31,
2001. We have an allowance for recourse  losses of $1.3 million at September 30,
2002 and $1.4 million at December 31, 2001, respectively.

   We  may,  from  time  to  time,  if  opportunities  arise  that we deem to be
appropriate,  repurchase  in the open market some of our  outstanding  preferred
stock and/or senior notes. The funds for any such repurchases  would be expected
to come from our existing cash.  There is no assurance  that we will  effectuate
any such repurchases or the terms thereof.

   Subject to our  ability to execute  our  business  strategy  and the  various
uncertainties described above (and described in more detail in "-Forward Looking
Statements and Risk Factors" below),  we anticipate that we will have sufficient
cash  flows,  short-term  funding and capital  resources  to meet our  liquidity
obligations for the foreseeable future.

INTEREST RATE RISK

    Our primary market risk exposure is interest rate risk. Profitability may be
directly  affected by the level of, and fluctuation  in,  interest rates,  which
affect our ability to earn a spread between  interest  received on our loans and
the  costs of our  borrowings,  which  are tied to  various  interest  rate swap
maturities,  commercial paper rates and LIBOR. Our profitability 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 our ability to originate  loans. A significant  decline in interest rates
could increase the level of loan prepayments  thereby decreasing the size of the
loan servicing portfolio  underlying our  securitizations.  To the extent excess
cashflow certificates have been capitalized on our financial statements,  higher
than  anticipated  rates of loan prepayments or losses could require us to write
down the value of such excess  cashflow  certificates,  adversely  impacting our
earnings.  In an  effort to  mitigate  the  effect of  interest  rate  risk,  we
periodically  review our various  mortgage  products using  historical  data and
identify and modify those products,  on a go-forward basis, that we believe have
been more adversely  impacted due to changes in interest rates.  However,  there
can be no assurance that these  modifications  to our product line will mitigate
effectively interest rate risk in the future.

                                       31

   Periods of  unexpected  or rapid  changes in  interest  rates,  and/or  other
volatility or uncertainty regarding interest rates, also can adversely affect us
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 excess  cashflow  certificates  we receive in connection with a
securitization.

   Fluctuating  interest rates also may affect the net interest  income we earn,
resulting from the difference between the yield we receive on loans held pending
sales  and the  interest  paid by us for  funds  borrowed  under  our  warehouse
facility. We do, however,  undertake to hedge our exposure to this risk by using
various hedging strategies,  including Fannie Mae mortgage securities,  treasury
rate lock contracts and/or interest rate swaps. (See  "--Hedging").  Fluctuating
interest  rates  also  may  affect  net  interest   income  as  certain  of  our
asset-backed  securities are priced based on one-month LIBOR, but the collateral
underlying  such  securities  are comprised of mortgage  loans with either fixed
interest  rates or "hybrid"  interest rates - fixed for the initial two or three
years of the mortgage  loan, and adjusting  thereafter  every six months - which
creates basis risk.

HEDGING

   We adopted SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities,"  as of January 1, 2001.  The Standard  requires that all derivative
instruments  be  recorded  in the  balance  sheet at fair  value.  However,  the
accounting  for changes in fair value of the  derivative  instrument  depends on
whether  the  derivative  instrument  qualifies  as a hedge.  If the  derivative
instrument  does not qualify as a hedge,  changes in fair value are  reported in
earnings when they occur. If the derivative instrument qualifies as a hedge, the
accounting treatment varies based on the type of risk being hedged. There was no
impact on our financial  condition or results of operations upon the adoption of
SFAS No. 133, as amended.

   We originate mortgage loans and then sell them through a combination of whole
loan sales and  securitizations.  Between the time we originate the mortgage and
sell it in the  secondary  market,  we may  hedge  the risk of  fluctuations  in
interest  rates.  Our risk begins  subsequent to originating  mortgage loans and
prior to selling or  securitizing  such mortgage  loans.  Since we have a closed
(and funded) mortgage loan at a specified interest rate with an expected gain at
time of sale,  our  exposure is to a higher  interest  rate  environment  due to
market  conditions.  A higher  interest rate market  implies that we will have a
higher cost of funds,  which  decreases the net spread we would earn between the
mortgage  interest  rate on each  mortgage  loan  less the cost of  funds.  As a
result, we may experience a lower gain on sale.

   The cost of funds is generally composed of two components,  the interest rate
swap with a similar  duration  and average  life and the swaps  spread or profit
margin required by the investors.  We had previously used a "Treasury Rate Lock"
and 15-year Fannie Mae mortgage securities ("FNMA Securities") to hedge our cost
of funds  exposure.  However  recently,  the  securitizations  are priced to the
investor using the interest rate swaps curve. As such, our cost of funds is more
closely tied to interest  rate swaps and we will likely use interest  rate swaps
to hedge our mortgage loans in inventory pending  securitization  pricing. While
none of the above are  perfect  hedges,  we  believe  interest  rate  swaps will
demonstrate the highest  correlation to our cost of funds on a go-forward basis.
We determine the nature and quantity of hedging  transactions based upon various
factors including, without limitation, market conditions and the expected volume
of

                                       32

mortgage  originations.  If we decide to hedge, we will enter into these hedging
strategies  through one of our warehouse  lenders  and/or one of the  investment
bankers that underwrite our securitizations.  These strategies are designated as
hedges  on our  financial  statements  and are  closed  out  when  we  sell  the
associated loans.

   If the value of the hedges  decrease,  offsetting an increase in the value of
the loans,  upon settlement with our hedge  counterparty,  we will pay the hedge
loss in cash and then  realize  the  corresponding  increase in the value of the
loans as part of our net  gain on sale of  mortgage  loans  through  either  the
excess cashflow  certificates we retain from  securitization  or from whole loan
sale premiums.  Conversely,  if the value of the hedges  increase,  offsetting a
decrease in the value of the loans, upon settlement with our hedge counterparty,
we will receive the hedge gain in cash and realize the corresponding decrease in
the  value  of the  loans  through  a  reduction  in  either  the  value  of the
corresponding excess cashflow certificates or whole loan sale premiums.

   We believe our hedging  strategy has largely been an effective tool to manage
our interest rate risk on loans prior to securitization,  by providing us with a
cash gain (or loss) to largely offset the reduced (increased) 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.

   We make  decisions  concerning the nature of our hedging  transactions  based
upon various factors including,  without  limitation,  market conditions and the
expected  volume of  mortgage  originations.  We may enter  into  these  hedging
strategies  through one of our warehouse  lenders and/or an investment bank that
underwrites our  securitizations.  We will review  continually the frequency and
effectiveness  of our hedging strategy to mitigate risk pending a securitization
or loan sale.

   If a hedging  transaction  is deemed to be  appropriate,  and can be properly
documented  and  mathematically  shown  to meet  the  appropriate  effectiveness
criteria,  we will account for these  hedges as fair value hedges in  accordance
with SFAS No. 133, as amended.

   We will continue to review our hedging strategy to best mitigate risk pending
securitization or loan sales.

   We did not  hedge  over the  past  several  quarters,  including  during  the
quarters ended September 30, 2002 and 2001. We have not yet engaged in a hedging
transaction in the 4th quarter, but may do so depending upon market conditions.

INFLATION

   Inflation most significantly  affects our loan originations and values of our
excess cashflow  certificates,  because of the substantial  effect inflation can
have 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.

                                       33

FORWARD-LOOKING STATEMENTS AND 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 our  operations and business  environment,  and are
subject to change on various important factors. We wish 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 our actual  results to differ  materially  from those
expressed in any  forward-looking  statements made by us, or on our behalf.  The
following include some, but not all, of the factors or uncertainties  that could
cause actual results to differ from projections:

   o  Our  ability or  inability  to increase our loan originations to specified
      levels (and subsequent sale or securitization of such loans) to offset our
      current cost structure and negative cash flow;

   o  Our ability or inability to continue our practice of securitizing mortgage
      loans  held  for  sale,  as  well  as  our  ability  to  utilize   optimal
      securitization  structures  (including  the  sale of NIM or  interest-only
      certificates,   and  the  sale  of  servicing   rights,  at  the  time  of
      securitization) at terms favorable to us;

   o  Our  ability  or  inability  to  continue  to  access  lines of  credit at
      favorable terms and conditions,  including without  limitation,  warehouse
      and other  credit  facilities  used to finance  newly-originated  mortgage
      loans held for sale;

   o  Our  ability or  inability  to  continue  monetizing  our excess  cashflow
      certificates,   including  without  limitation,   selling,   financing  or
      securitizing (through NIM transactions) such assets;

   o  The effect that the  adoption   of  new,  or changes in federal,  state or
      local lending laws and  regulations  and the  application of such laws and
      regulations may have on our ability to originate loans within a particular
      area.  Many  states  and local  municipalities  have  adopted  and/or  are
      considering  adopting  laws that are  intended  to  further  regulate  our
      industry.  Many  of  these  laws  and  regulations  seek to  impose  broad
      restrictions on certain  commonly  accepted lending  practices,  including
      some of our practices.  In some cases, the  restrictions  and/or costs and
      risks associated with complying with the laws have been so onerous that we
      have decided to not lend in a state (I.E., Georgia) or municipality (I.E.,
      Oakland).  In those cases where we continue to do  business,  our costs of
      complying with a variety of potentially  inconsistent  federal,  state and
      local laws has  increased  our  compliance  costs,  as well as the risk of
      litigation or  administrative  action associated with complying with these
      proposed and enacted  federal,  state and local laws,  particularly  those
      aspects of such  proposed  and enacted laws that  contain  subjective  (as
      opposed to objective) requirements, among other things.

   o  Costs  associated  with  litigation and rapid or unforeseen  escalation of
      the cost of regulatory compliance, generally including but not limited to,
      adoption of new, or changes in federal,  state or local  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

                                       34

      and/or  environmental  compliance  can  lead to loss of  approved  status,
      certain rights of rescission for mortgage loans, class action lawsuits and
      administrative enforcement action against us;

   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 our 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 our ability to securitize
      or sell loans in the secondary market;

   o  The effects of interest rate  fluctuations and our 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 our 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. We are
      currently  competing with large finance companies and conforming  mortgage
      originators  many  of  whom  have  greater  financial,  technological  and
      marketing resources;

   o  Unpredictable   delays or   difficulties  in  development  of new  product
      programs;

   o  The unanticipated expenses of assimilating  newly-acquired businesses into
      our  structure,  as well as the impact of unusual  expenses  from  ongoing
      evaluations  of  business  strategies,  asset  valuations,   acquisitions,
      divestitures and organizational structures; and

   o  Regulatory actions which may have an adverse impact on our lending.

ITEM 4.  CONTROLS AND PROCEDURES

   Our chief  executive  officer  and chief  financial  officer,  based on their
evaluation of our disclosure  controls and  procedures  within the past 90 days,
have concluded that such  disclosure  controls and procedures  were effective to
ensure that  material  information  relating  to the Company and  required to be
disclosed  by us has been made known to them and has been  recorded,  processed,
summarized and reported timely.  There have not been any significant  changes in
our internal controls or in other factors that could significantly  affect these
controls subsequent to the date of evaluation.

PART II - OTHER INFORMATION

   ITEM 1.  LEGAL PROCEEDINGS

   Because  the nature of our  business  involves  the  collection  of  numerous
accounts,  the validity of liens and  compliance  with various state and federal
lending  laws,  we are subject,  in the normal  course of business,  to numerous
claims  and  legal  proceedings,  including  several  lawsuits  styled

                                       35

as class actions. We summarize updates to the status of these actions below.

   o  In or about March 1999,  we received  notice that we had been named in a
      lawsuit  filed in the  Supreme  Court of the State of New  York,  New York
      County,   alleging  that  we  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,  we filed an answer to the  complaint.  In September  1999, we
      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, we filed a motion to change venue and plaintiffs opposed the motion.
      In July 1999, the Court denied the motion to change venue. We appealed and
      in March 2000, the Appellate Court granted our appeal to change venue from
      New York  County to Nassau  County.  In August  1999,  plaintiffs  filed a
      motion for class certification, which we opposed in July 2000. In or about
      September   2000,   the  Court  granted   plaintiffs'   motion  for  class
      certification,  from which we appealed, and the appellate court upheld the
      lower  court's  decision.  In or about  June  2001,  we filed a motion for
      summary  judgment to dismiss the complaint,  which was denied by the Court
      in October 2001.  We have  appealed  that decision as well,  and the trial
      court agreed to stay  discovery  in the action  pending the result of that
      appeal.  The  appeal has been fully  briefed  and was argued in  September
      2002.  We believe that we have  meritorious  defenses and intend to defend
      this suit,  but cannot  estimate with any certainty our ultimate  legal or
      financial liability, if any, with respect to the alleged claims.

   o  In or about  July 1999,  we  received  notice that  we 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 us 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 our practices  violated
      applicable statutes and/or the mortgage agreements, (c) injunctive relief,
      and  (d)  unspecified   compensatory  and  punitive   damages   (including
      attorneys'  fees).  In  October  1999,  we 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 our motion to dismiss. In March 2000,
      the Court granted our motion to dismiss in part, and denied it in part. In
      February 2002, we executed a settlement agreement with plaintiffs pursuant
      to which we denied all wrongdoing, but agreed to resolve the litigation on
      a class-wide  basis. A fairness hearing was held June 2002, at which point
      the Court approved the settlement.  The settlement was fully  administered
      and the case concluded during the third quarter of 2002.

   o  In  November 1999, we  received notice that we 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 our initial public offering
      in 1996  and our  reports  subsequently  filed  with  the  Securities  and
      Exchange  Commission.   The  complaint  alleges  that  the  scope  of  the
      violations alleged in the consumer lawsuits and regulatory actions brought
      in or around  1999  indicate a

                                       36

      pervasive pattern of action and risk that should have been more thoroughly
      disclosed  to  investors  in our  common  stock.  In May  2000,  the Court
      consolidated this case and several other lawsuits that purportedly contain
      the same or similar  allegations  against us and in August 2000 plaintiffs
      filed their Consolidated  Amended  Complaint.  In October 2000, we filed a
      motion to dismiss  the  Complaint  in its  entirety,  which was opposed by
      plaintiffs in November 2000, and denied by the Court in September 2001. In
      October 2002, we executed a settlement  agreement with  plaintiffs and our
      insurer,  pursuant  to which we denied  all  wrongdoing,  and our  insurer
      agreed to resolve the litigation on a class-wide basis with plaintiffs. We
      expect that a fairness  hearing will be scheduled  within the next several
      months,  at which time we further  anticipate  that the Court will approve
      the  settlement.  In the event that the  settlement  is not  approved,  we
      believe that we have meritorious  defenses and intend to defend this suit,
      but cannot  estimate with any  certainty  our ultimate  legal or financial
      liability, if any, with respect to the alleged claims.

   o  In or  about April 2000,  we received  notice  that we had been named in a
      lawsuit  filed in the  Supreme  Court of the  State  of New  York,  Nassau
      County,  alleging  that  we had  improperly  charged  and  collected  from
      borrowers  certain fees when they paid off their  mortgage  loans with us.
      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.  We answered the  complaint in June 2000. In
      March 2001, we filed a motion for summary  judgment,  which was opposed by
      plaintiffs in March 2001, and we filed reply papers in April 2001. In June
      2001,  our  motion for  summary  judgment  dismissing  the  complaint  was
      granted. In August 2001,  plaintiffs  appealed the decision.  In September
      2002, we executed a settlement agreement with plaintiffs pursuant to which
      we denied  all  wrongdoing,  but  agreed to resolve  the  litigation  on a
      class-wide  basis. We anticipate that a fairness hearing will be scheduled
      in the upcoming months, at which time we further anticipate that the Court
      will approve the settlement.  In the event the settlement is not approved,
      we believe  that we have  meritorious  defenses  and intend to defend this
      suit,  but  cannot  estimate  with any  certainty  our  ultimate  legal or
      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:

                                       37

EXH.
  NO.  DESCRIPTION
 ---   ----------

 10.1  Employment Agreement dated September 12, 2002 between the Registrant
       and Sidney A. Miller

 (b)   Reports on Form 8-K:   None

                                       38
<PAGE>


                                   SIGNATURES

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


                                                DELTA FINANCIAL CORPORATION
                                                            (Registrant)

Dated: November 13, 2002
                                                By:  /S/ HUGH MILLER
                                                   -----------------------------
                                                     Hugh Miller
                                                     PRESIDENT &
                                                     CHIEF EXECUTIVE OFFICER


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


                                       39
<PAGE>


                                  CERTIFICATION


      I, Hugh Miller,  Chief Executive  Officer of Delta  Financial  Corporation
(the "Company"), certify that:

  1.  I have reviewed this quarterly report on Form 10-Q of the Company;

  2.  Based on my knowledge,  this quarterly  report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

  3.  Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  quarterly  report,  fairly  present in all
      material respects the financial condition,  results of operations and cash
      flows  of the  Company  as of,  and for,  the  periods  presented  in this
      quarterly report;

  4.  The  Company's  other  certifying  officers  and  I  are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in  Exchange  Act Rules  13a-14 and 15d-14) for the Company and we
      have:

      (a)   designed  such  disclosure  controls and  procedures  to ensure that
            material  information   relating  to  the  Company,   including  its
            consolidated  subsidiaries,  is made  known to us by  others  within
            those  entities,  particularly  during  the  period  in  which  this
            quarterly report is being prepared;

      (b)   evaluated the effectiveness of the Company's disclosure controls and
            procedures  as of a date  within 90 days prior to the filing date of
            this quarterly report (the "Evaluation Date"); and

      (c)   presented  in  this  quarterly   report  our conclusions  about  the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

  5.  The Company's other certifying officers and I have disclosed, based on our
      most recent evaluation,  to the Company's auditors and the audit committee
      of the Company's board of directors (or persons  performing the equivalent
      function):

     (a) all  significant  deficiencies  in the design or  operation of internal
         controls which could adversely affect the Company's  ability to record,
         process,  summarize and report  financial data and have  identified for
         the Company's  auditors any material  weaknesses in internal  controls;
         and

     (b) any fraud, whether or not  material,  that involves management or other
         employees   who   have  a   significant  role in the Company's internal
         controls; and

                                       40

  6.  The  Company's  other  certifying  officers  and I have  indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

      Date: November 13, 2002

                                                By:/S/ HUGH MILLER
                                                   -----------------------------
                                                   Hugh Miller
                                                   CHIEF EXECUTIVE OFFICER




                                       41
<PAGE>

                                  CERTIFICATION


      I, Richard Blass,  Chief Financial Officer of Delta Financial  Corporation
(the "Company"), certify that:

  1.  I have reviewed this quarterly report on Form 10-Q of the Company;

  2   Based on my knowledge,  this quarterly  report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

  3.  Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  quarterly  report,  fairly  present in all
      material respects the financial condition,  results of operations and cash
      flows  of the  Company  as of,  and for,  the  periods  presented  in this
      quarterly report;

  4.  The  Company's  other  certifying  officers  and  I  are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in  Exchange  Act Rules  13a-14 and 15d-14) for the Company and we
      have:

      (c)   designed  such  disclosure  controls and  procedures  to ensure that
            material  information   relating  to  the  Company,   including  its
            consolidated  subsidiaries,  is made  known to us by  others  within
            those  entities,  particularly  during  the  period  in  which  this
            quarterly report is being prepared;

      (d)   evaluated the effectiveness of the Company's disclosure controls and
            procedures  as of a date  within 90 days prior to the filing date of
            this quarterly report (the "Evaluation Date"); and

      (e)   presented  in   this  quarterly   report our  conclusions  about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

  5.  The Company's other certifying officers and I have disclosed, based on our
      most recent evaluation,  to the Company's auditors and the audit committee
      of the Company's board of directors (or persons  performing the equivalent
      function):

      (f)  all  significant   deficiencies   in  the   design  or  operation  of
           internal  controls which could adversely affect the Company's ability
           to record,  process,  summarize  and report  financial  data and have
           identified  for the  Company's  auditors any material  weaknesses  in
           internal controls; and

      (g)  any fraud,  whether  or  not  material,  that  involves management or
           other employees who have a significant role in the Company's internal
           controls; and

                                       42

  6.  The  Company's  other  certifying  officers  and I have  indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

      Date: November 13, 2002


                                                By: /S/ RICHARD BLASS
                                                   -----------------------------
                                                   Richard Blass
                                                   CHIEF FINANCIAL OFFICER




                                       43
<PAGE>


             CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
            PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


   I, Hugh Miller,  President  and Chief  Executive  Officer of Delta  Financial
Corporation (the "Company"),  pursuant to Section 906 of the  Sarbanes-Oxley Act
of 2002, do hereby certify as follows:

1.   The  quarterly report on Form 10-Q of the  Company  for  the  period  ended
     September 30, 2002 fully complies with the requirements of Section 13(a) or
     15(d) of the Securities Exchange Act of 1934; and

2.   The  information   contained  in  such  Form 10-Q fairly  presents,  in all
     material respects, the financial condition and results of operations of the
     Company.

IN WITNESS WHEREOF,  I have executed this Certification this 13 day of November,
2002.


                                     /s/HUGH MILLER
                                    -------------------------------------
                                     Hugh Miller
                                     PRESIDENT AND CHIEF EXECUTIVE
                                     OFFICER



                                       44
<PAGE>


      CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
            PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


   I, Richard Blass,  Executive Vice  President and Chief  Financial  Officer of
Delta  Financial  Corporation  (the  "Company"),  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, do hereby certify as follows:

1. The  quarterly  report  on Form  10-Q of the  Company  for the  period  ended
   September 30, 2002 fully complies with the  requirements  of Section 13(a) or
   15(d) of the Securities Exchange Act of 1934; and

2. The information  contained in such Form 10-Q fairly presents, in all material
   respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF,  I have executed this Certification this 13 day of November,
2002.


                                     /s/RICHARD BLASS
                                    -------------------------------------
                                     Richard Blass
                                     EXECUTIVE VICE PRESIDENT AND
                                     CHIEF FINANCIAL OFFICER








                                       45