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 June 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 June 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

                                                                        Page No.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

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

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

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

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

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


PART II- OTHER INFORMATION

Item 1.  Legal Proceedings..................................................33

Item 2.  Changes in Securities and Use of Proceeds..........................36

Item 3.  Defaults Upon Senior Securities....................................36

Item 4.  Submission of Matters to a Vote of Security Holders................36

Item 5.  Other Information..................................................36

Item 6.  Exhibits and Current Reports on Form 8-K.......................... 36

Signatures..................................................................37

Certification of President and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002...............................38

Certification of Executive Vice President and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002...................39
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

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

                                                    JUNE 30,      DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)         2002            2001
                                                   ----------      -----------
ASSETS
Cash and interest-bearing deposits                 $  2,908           6,410
Accounts receivable                                   4,578           4,062
Loans held for sale, net                             34,022          94,407
Accrued interest receivable                              69             812
Excess cash flow certificates, net                   20,765          16,765
Equipment, net                                        3,372           4,998
Prepaid and other assets                                859             752
Deferred tax asset, net                               5,600           5,600
                                                   --------        --------
   Total assets                                    $ 72,173       $ 133,806
                                                   ========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Bank payable                                       $    810           1,267
Warehouse financing and other borrowings             23,389          89,628
Senior Notes                                         10,844          10,844
Accounts payable and accrued expenses                19,054          20,217
                                                   --------        --------
   Total liabilities                                 54,097         121,956
                                                   --------        --------

Stockholders' Equity:
Preferred stock, Series A, $.01 par value.
  Authorized 150,000 Shares, 139,156 shares
  outstanding at June 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 June 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                                    (94,163)       (100,380)
Treasury stock, at cost (116,800 shares)             (1,318)         (1,318)
                                                    --------        --------
   Total stockholders' equity                        18,076          11,850
                                                    --------        --------
     Total liabilities and stockholders' equity    $ 72,173         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>         <C>

                                                  THREE MONTHS ENDED           SIX MONTHS ENDED
                                                       JUNE 30,                    JUNE 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)     2002         2001            2002         2001
                                                 ------       ------          ------       ------
REVENUES
  Net gain on sale of mortgage loans         $    14,725      15,160           27,063       21,203
  Interest                                         3,225       5,243            7,127      (9,546)
  Servicing fees                                      --         770               --        2,983
  Net origination fees and other income            3,569       3,892            6,918        7,388
                                                 -------     -------         --------    ---------
      Total revenues                              21,519      25,065           41,108       22,028
                                                 -------     -------         --------    ---------
EXPENSES
  Payroll and related costs                       10,099      11,959           19,776       23,283
  Interest expense                                 1,469       5,992            3,016       11,821
  General and administrative                       5,847      23,562           11,847       35,393
  Restructuring and other special charges             --        (13)               --        1,246
                                                 -------     -------        ---------     --------
      Total expenses                              17,415      41,500           34,639       71,743
                                                --------     -------         --------     --------

Income (loss) before income
   tax expense                                     4,104    (16,435)            6,469     (49,715)
Provision for income tax expense                     132          93              252          565
                                                --------    --------         --------    ---------
      Net income (loss)                     $      3,972    (16,528)            6,217     (50,280)
                                              ==========   =========         ========    =========

PER SHARE DATA:
Basic - net income (loss) per share         $       0.25      (1.04)             0.39       (3.17)
                                              ==========   =========         ========    =========
Diluted - net income (loss) per share       $       0.23      (1.04)             0.37       (3.17)
                                              ==========   =========         ========    =========
Basic -weighted average number of
  shares outstanding                          15,888,014  15,883,749       15,885,893   15,883,749
                                              ==========  ==========       ==========   ==========
Diluted -weighted average number of
  shares outstanding                          16,941,584  15,883,749       16,855,349   15,883,749
                                              ==========  ==========       ==========   ==========
</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>
                                                                                    SIX MONTHS ENDED
                                                                                        JUNE 30,
(DOLLARS IN THOUSANDS)                                                           2002             2001
                                                                                -------          ------
Cash flows from operating activities:
    Net income (loss)                                                        $   6,217          (50,280)
    Adjustments to reconcile net income (loss) to net cash used in
      operating activities:
       Provision for loan and recourse losses                                      441            2,293
       Depreciation and amortization                                             1,810            6,007
       Deferred origination costs                                                  529              (84)
       Excess cash flow certificates received in
          securitization transactions, net                                      (4,000)          30,432
       Changes in operating assets and liabilities:
          (Increase) decrease in accounts receivable                              (516)          16,012
          Decrease in loans held for sale, net                                  59,460            1,596
          Decrease accrued interest receivable                                     743            9,891
           (Increase) decrease in prepaid and other assets                        (107)          32,451
          Decrease in accounts payable and accrued expenses                     (1,208)          (2,050)
          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               63,369          (36,161)
                                                                              ---------         --------
Cash flows from investing activities:
    (Purchase) disposition of equipment                                           (184)           1,483
                                                                             ----------       ----------
              Net cash (used in) provided by investing activities                 (184)           1,483
                                                                             ----------       ----------
Cash flows from financing activities:
    Repayments from warehouse financing and other borrowings                   (66,239)         (23,422)
    (Decrease) increase in bank payable, net                                      (457)              60
    Proceeds from exercise of stock options                                          9               --
                                                                             ----------       ----------
              Net cash used in financing activities                            (66,687)         (23,362)
                                                                             ----------       ----------
              Net decrease in cash and interest-bearing deposits                (3,502)         (58,040)

Cash and interest-bearing deposits at beginning of period                        6,410           62,270
                                                                             ----------         --------
Cash and interest-bearing deposits at end of period                          $   2,908            4,230
                                                                             ==========         ========


Supplemental Information:
Cash paid during the period for:
    Interest                                                                 $   2,916           11,551
                                                                             ==========         ========

    Income taxes                                                             $     121               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 six-month  periods ended June 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) SUMMARY OF REGULATORY SETTLEMENTS

   In  September  1999,  we settled  allegations  by the New York State  Banking
Department  (the  "NYSBD")  and a lawsuit  by the New York  State  Office of the
Attorney  General (the "NYOAG")  alleging that we had violated various state and
federal  lending laws. The global  settlement was evidenced by (a) a Remediation
Agreement by and between Delta Funding and the NYSBD,  dated as of September 17,
1999 and (b) a  Stipulated  Order on Consent by and among Delta  Funding,  Delta
Financial  and  the  NYOAG,  dated  as of  September  17,  1999.  As part of the
Settlement,  we,  among other  things,  implemented  agreed upon  changes to our
lending practices; are providing reduced loan payments aggregating $7.25 million
to certain borrowers identified by the NYSBD; and have created a fund managed by
the  NYSBD and  financed  by the grant of  525,000  shares of Delta  Financial's
common  stock,  with an  agreed  upon  fixed  value of  $9.10  per  share  which
approximates the stock's book value at the time of the settlement.

      Each  month,  on behalf of  borrowers  designated  by the  NYSBD,  we make
subsidy payments to the related  securitization  trusts.  These subsidy payments
fund the  differential  between the original  loan payments and the reduced loan
payments.  As part of the second exchange offer we completed in August 2001 (see
Note   No.   3   "-Corporate   Restructuring,   Debt   Modification,   and  Debt
Restructuring"),  Delta Funding Residual Exchange  Company,  LLC (the "LLC") (an
unaffiliated  entity  to us) - a  newly-formed  entity,  the  voting  membership
interests of which are

                                       4

owned by the former  holders of our senior  secured  notes and senior  notes due
2004 (the "Notes") who tendered  their Notes for such  membership  interests and
other  securities - is obligated to satisfy these  payment  subsidies out of the
cash flows  generated by the mortgage  related  securities  (primarily  from the
excess cashflow  certificates)  it owns.  Management  believes the LLC will have
sufficient  cash  flows  from its assets to  satisfy  these  payment  subsidies.
However,  if the LLC's cash flows are  insufficient to pay this  obligation,  we
remain responsible to satisfy our obligations under the Remediation Agreement.

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

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

(3) 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 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

                                       5

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 $0.3  million and $0.6 million at June 30, 2002 and December 31,
2001,  respectively.  There was no additional  accruals  recorded during the six
months ended June 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 greater than $148 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
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

                                       6

  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) the NYSBD  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.

(4) EARNINGS PER SHARE

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

                                                  THREE MONTHS ENDED                SIX MONTHS ENDED
                                                       JUNE 30,                         JUNE 30,
                                                 -------------------              --------------------
(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)          2002           2001              2002           2001
-------------------------------------------------------------------------------------------------------
Net income (loss)                              $3,972      $(16,528)            $6,217      $(50,280)
Basic - weighted-average shares            15,888,014     15,883,749        15,885,893     15,883,749
Basic EPS                                       $0.25        $(1.04)             $0.39        $(3.17)

Basic - weighted-average shares            15,888,014     15,883,749        15,885,893     15,883,749
Incremental shares-options                  1,053,570             --           969,456             --
-------------------------------------------------------------------------------------------------------
Diluted - weighted-average shares          16,941,584     15,883,749        16,855,349     15,883,749
Diluted EPS                                     $0.23        $(1.04)             $0.37        $(3.17)

</TABLE>

(5) IMPACT OF NEW ACCOUNTING STANDARDS

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

                                       7

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 to 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
of Disposal of Long-Lived Assets," which replaces SFAS No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
of." The  provisions  of SFAS No. 144 are  effective  for  financial  statements
issued for fiscal years beginning after December 15, 2001 and, generally, are to
be applied  prospectively.  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 no material impact on our financial
condition or results of operations upon adoption of SFAS No. 145.

                                       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

SECURITIZATION AND SALE OF MORTGAGE LOANS

   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.  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".

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  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;

        o  credit losses on the mortgage loans;

        o  the London Inter-Bank Offered  Rate ("LIBOR")  forward  curve  (using
           current LIBOR as the floor rate); and

        o  a discount rate used to calculate present value.

   The value of each excess cashflow certificate represents the present value of
the cash flows 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.

                                       9

GENERAL

   Delta  Financial  Corporation  (together  with its  subsidiaries,  "Delta" or
"we"), 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.  We use the proceeds from these sales to repay our warehouse
lines of credit and for working  capital,  recording the premiums  received from
the loan sales and securitizations as revenue.

   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 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
11  retail   offices   located  in  seven  states.   In  2001,  we  closed  four
under-performing retail offices - two in Florida, one in Ohio and one in Indiana
- and opened our second retail call center in Pittsburgh, Pennsylvania.

   For the three months ended June 30, 2002,  we  originated  $210.1  million of
loans,  an increase of 27% over the $165.1  million of loans  originated  in the
comparable period in 2001. Of these amounts,  approximately  $141.0 million were
brokered loans and $69.1 million were retail loans during the three months ended
June 30, 2002, compared to $82.6 million and $82.5 million, respectively, during
the three months ended June 30, 2001.  Loan  production in the second quarter of
2002  increased 11% from $190.0  million in the first quarter of 2002. The first
quarter  production  was comprised of $122.8 million of brokered loans and $67.2
million of retail loans.

   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. In the second quarter of 2002, we securitized $200.0 million
and sold $35.4 million of mortgage  loans,  on a whole loan  servicing  released
basis.  During the six months ended June 30, 2002, we securitized $375.0 million
and sold $74.1 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.  As described above, we typically complete securitizations on
a quarterly  basis.  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 by insurance companies,  mutual funds
and/or other  institutional  investors,  represent  senior interests in the cash
flows  from the  mortgage  loans in the  trust.  Following  the  securitization,
holders of these senior certificates 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.  These securities
are typically sold 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 receive close to $100
million  in  proceeds  from the sales of these  securities,  depending  upon the
structure we utilize for the securitization.

   The securitization trust also issues a certificate  (referred to as an excess
cashflow  certificate),  which  entitles  the holder to receive  the  difference
between  the  interest   payments  due  on  the  mortgage   loans  sold  to  the
securitization  trust and the interest payments due, at the pass-through  rates,
to the holders of the pass-through  securities,  less the contractual  servicing
fee and other costs and expenses of administering the securitization  trust. For
any monthly distribution,  the holder of an excess cashflow certificate receives
payments only after 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 as follows:

  o   first,  to cover any losses on the mortgage loans in the related  mortgage
      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  (described in more
      detail  immediately below) for that  securitization  trust at the required
      level by being  applied  as an  accelerated

                                       11

      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.

   Overcollateralization  occurs when additional  payments of principal are made
to the holders of the  pass-through  certificates in order to establish a spread
between the principal amount of the trust's  outstanding loans and the amount of
outstanding pass-through certificates.  Pooling and Servicing Agreements,  which
govern our securitizations,  require  overcollateralization  and the "waterfall"
described above to provide credit enhancement (I.E., a source of funds to absorb
losses) for the senior securities issued by the securitization trust and for the
bond insurer, if any.

   Our securitizations  typically require  overcollateralization of between 1.5%
and 3.0% of the initial  securitization  principal amount  securitized (known as
the "overcollateralization  limit").  Historically, our securitizations provided
for the overcollateralization limits to be funded by the cash flows generated by
the  excess  cashflow  certificates.  Once  the  overcollateralization  limit is
reached - which typically  occurs between 18-24 months after the completion of a
securitization,  with the  specific  timing  depending  upon the  structure  and
performance of the  securitization - these cash flows are then distributed to us
as the holder of the excess  cashflow  certificates.  Cash flows from our excess
cashflow  certificates  are subject to certain  delinquency  or loss  tests,  as
defined  by  the  rating   agencies  and  or  the  bond  insurer   insuring  the
securitization.    Over    time,    we    receive    distributions    from   the
overcollateralization  account  subject to the performance of the mortgage loans
in each securitization.

   In each of our more recent  securitizations  prior to our 2002 transactions -
in  which  the  overcollateralization  limits  were  funded  by the  cash  flows
generated by the excess cashflow certificates over the first several months of a
securitization - 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 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,  and (2) the expected
      amount  of  prepayments  on the  mortgage  loans  due  to  the  underlying

                                       12

      borrowers of the mortgage  loans paying off their  mortgage  loan prior to
      the loan's stated maturity.

   We utilized a new  securitization  structure in the first and second quarters
of 2002. In lieu of selling an interest-only certificate, we sold a net interest
margin  certificate  or NIM. The NIM is generally  structured  where we sell the
excess cashflow certificate to a qualified special purpose entity 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.

   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  to be used to pay all  principal  and  interest on the NIM note(s)
until  paid in  full.  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
owner  trust,  represented  by the owner  trust  certificate.  This owner  trust
certificate  entitles  us to all cash flows  generated  by the  excess  cashflow
certificates after the holder of the NIM note(s) has been paid in full. As such,
we classify the NIM owner trust  certificate  on our balance  sheet as an excess
cashflow  certificate and value the NIM 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
overcollateralization  amount at closing - as opposed to having it build up over
time as we had in past  securitizations.  We used a portion of the cash proceeds
from the NIM note(s) to do so.

   In the  securitization  that we issued in the first and  second  quarters  of
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 certificate;
  o   we received a  cash  premium  from selling  the right to service the loans
      being securitized; and
  o   we retained a NIM owner trust  certificate,  which  entitles us to receive
      cash  flows  generated  by the  excess  cashflow  certificates  issued  in
      connection with the securitization after the holder of the NIM note(s) has
      been paid in full.

   At the time we completed the first and second  quarter 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.

                                       13
<PAGE>

   A  summary  of the gain on sale and cash flow from our  second  quarter  2002
securitization is presented below:

   GAIN ON SALE SUMMARY

      Loans Sold (thousands)                                   $ 200,000

      NIM Proceeds, net of Overcollateralization Account           5.15%
      Excess Cashflow Certificate (owner trust certificate)        1.29%
      Mortgage Servicing Rights                                    0.89%
      Less:  Transaction Costs                                    (0.78%)
                                                                ---------
           Net gain on sale recorded                               6.55%
                                                                =========

   CASH FLOW SUMMARY
      NIM Proceeds, net of Overcollateralization Account           5.15%
      Mortgage Servicing Rights                                    0.89%
      Less: Transaction Costs                                     (0.78%)
                                                                ---------
         Net Cash Flow at Closing                                  5.26%
                                                                =========

   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,"
      beginning on page 30).

   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, 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 second  quarter of
2002, we sold $35.4  million loans on a whole loan basis for an average  premium
(net of reserve) of 4.60% 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:

                                       14

  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 "-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"  beginning  on page 5, 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," beginning on page 31).

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

                                       15

related excess cashflow 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;

    o  credit losses on the mortgage loans;

    o  the London Inter-Bank Offered Rate  ("LIBOR")  forward  curve  (using
       current LIBOR as the floor rate); 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:

         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

                                       16

            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 originated 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:
<TABLE>
<S>        <C>                     <C>                  <C>

            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%
</TABLE>


  (B) DEFAULT RATE. A default reserve for both fixed- and adjustable-rate  loans
      sold  to the  securitization  trusts  of  5.00%  of the  amount  initially
      securitized at June 30, 2002 compared to 3.50% at June 30, 2001.

      Our loan loss assumption reflects our belief that:

       o  prepayment speeds  generally will  be slower in the future than in the
          past;

       o  the  rise in  home  values  will  be  flat  or  slightly  moderate  as
          compared to the past few years; and

       o  borrowers will therefore be less able to refinance their mortgages  to
          avoid  default   which  may  have  an  adverse   effect  on  the  non-
          performing loans in the  securitizations  trusts underlying our excess
          excess cashflow certificates.

                                       17

  (C) LIBOR FORWARD CURVE.  The London  Interbank Offer Rate, or LIBOR,  forward
      curve is used to project  future  interest  rates,  which affects our cash
      flow  projections  for each  security.  The projected  cash flows are then
      discounted  at 15% (see  "-Discount  Rate"  below) to  establish  the fair
      market value of our excess cashflow certificates.

  (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.  We believe that the
      practice of many companies in the  non-conventional  mortgage industry has
      been to add a spread for risk to the  all-in  cost of  securitizations  to
      determine their discount rate. From these comparisons,  we have identified
      a  spread  that  we  add  to  the  all-in  cost  of  our   mortgage   loan
      securitization trusts' investor certificates.  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 June 30,  2002  compared to 13% at
      June 30, 2001 on all excess  cashflow  certificates,  except those that at
      June 30, 2001 were subject to a NIM transaction we consummated in November
      2000,  for which we used an 18% discount  rate.  We increased the discount
      rate on these  excess  cashflow  certificates  during the period  that the
      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  two
      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

                                       18

         transaction). 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 six months
ended June 30, 2002 and 2001 (dollars in thousands):
<TABLE>
<S>                                                    <C>         <C>
                                                        June 30,    June 30,
                                                          2002        2001
                                                        --------    --------
      Balance, beginning of period                      $16,765     216,907
      New excess cashflow certificates                    6,059       7,031
      Cash received from excess cashflow certificates      (729)     (7,333)
      Net accretion excess cashflow certificates            755      10,933
      Fair Value Adjustment                              (2,085)       (661)
      Sales                                                  --      40,402
                                                         -------    --------
      Balance, end of period                             20,765     186,475
</TABLE>

      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.

      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 June 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.

                                       19

   As of June 30, 2002, we have a gross  deferred tax asset of $50.0 million and
a valuation  allowance  of $44.4  million.  Following  two  successive  years of
posting  significant  losses,  and the modest  amount of earnings we have earned
over the past few quarters  and project to earn over the next several  quarters,
we believe it was appropriate to establish this valuation  allowance under GAAP.
If we are able to continue to record earnings in upcoming years, 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 June 30,  2002,  federal  and state NOLs  carryforwards  totaled  $98.7
million,  with $13.7 million  expiring in 2019,  $12.4 million expiring in 2020,
and $72.6 million expiring in 2021.

RESULTS OF OPERATIONS

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

GENERAL

   Our net income for the three months ended June 30, 2002 was $4.0 million,  or
$0.25 per share, basic and $0.23 per share,  diluted,  compared to a net loss of
$16.5 million, or $1.04 per share, basic and diluted, for the three months ended
June 30, 2001.  Comments  regarding the components of net income are detailed in
the following paragraphs.

REVENUES

   Total revenues decreased $3.6 million,  or 14% to $21.5 million for the three
months  ended June 30, 2002,  from $25.1  million for the  comparable  period in
2001.  The  decrease in revenue was  primarily  attributable  to lower  interest
income from our excess  cashflow  certificates as we transferred the majority of
these certificates as part of our Second Exchange Offer in 2001. In addition, we
did  not  receive  any  servicing  fees  due to the  transfer  of our  servicing
portfolio  to  Ocwen  in May  of  2001.  (See  "-Corporate  Restructuring,  Debt
Modification and Debt Restructuring").

   We  originated  $210.1  million of mortgage  loans for the three months ended
June 30, 2002, representing a 27% increase from $165.1 million of mortgage loans
originated for the comparable period in 2001. We securitized  $200.0 million and
sold $35.4  million of loans,  on a  servicing-released  basis  during the three
months ended June 30, 2002, compared to $165.0 million and $20.7,  respectively,
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) the cash
premium  purchase price we receive in connection  with selling an  interest-only
certificate in a securitization  for each period, (c) the cash purchase price we
receive in  connection  with  selling a NIM note,  net of  overcollateralization
amount  and  interest  rate cap,  (d) the cash  premium  received  from  selling
mortgage  servicing  rights in connection with each  securitization,  and/or the
fair value of the non-cash capitalized mortgage servicing rights associated with
loans securitized in each period,  and (e) the cash premiums earned from selling
whole loans on a  servicing-released  basis,  (2) less the (i) costs  associated

                                       20

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  decreased  $0.5 million,  or 3%, to $14.7
million for the three  months ended June 30,  2002,  from $15.2  million for the
comparable period in 2001. This decrease was primarily due to lower gain on sale
percentage  recognized  on the  fair  value  of our  non  cash  excess  cashflow
certificates  during the second  quarter in 2002  compared to the same period in
2001. This was due to change in assumptions  used to value the certificate  (See
"-Excess  Cashflow  Certificates,  net").  This decrease was partially offset by
higher cash  proceeds  recognized  on  securitization,  net of related  expenses
compared to same period in 2001. In addition,  the Company  recorded higher cash
premiums  earned on whole loan sales for the three  months  ended June 30, 2002.
For the  three  months  ended  June  30,  2002,  83% of the net  gain on sale of
mortgage loans  represented  cash proceeds as compared to 54% of the net gain on
sale of mortgage loans in the same period in 2001.

   INTEREST  INCOME.  Interest  income  primarily  represents the sum of (1) the
gross cash 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, and (4) the cash interest earned on bank accounts.

   Interest income decreased $2.0 million, or 38%, to $3.2 million for the three
months ended June 30, 2002, from $5.2 million for the comparable period in 2001.
The decrease in interest  income was  primarily  due to lower  revenues from our
retained 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 three months ended June 30,
2002, as a result of us transferring our entire servicing  portfolio to Ocwen in
May of 2001.  For the three months ended June 30, 2001,  servicing  fees totaled
$0.8 million.

   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 and (3) other miscellaneous income, if any.

   Net origination fees and other income decreased $0.3 million,  or 8%, to $3.6
million for the three  months  ended June 30,  2002,  from $3.9  million for the
comparable  period in 2001.  During the three  months  ended  June 30,  2002 our
production mix represented 62% of broker loans and 38% of retail loans, compared
to 50% and 50%,  respectively,  in the same period in 2001.  The  production mix
resulted in a decrease in  origination  fees since the  increase in broker loans
generated  higher  broker  premium  fees and the  decrease  in the retail  loans
created lower origination fees.

                                       21

EXPENSES

   Total expenses  decreased by $24.1 million,  or 58%, to $17.4 million for the
three months ended June 30, 2002,  from $41.5 million for the comparable  period
in 2001.  The Company  recorded  several  charges in the second  quarter of 2001
relating  to,  among  other  things,  its  corporate  and  debt   restructuring,
including: (1) the Company's disposition and transfer of its servicing portfolio
to Ocwen in May 2001,  (2) capital  charges  associated  with  repurchasing  our
interest  and  servicing  advance  securitizations  prior to the transfer of the
servicing  portfolio,  (3) a change in accounting  estimates  regarding the life
expectancy of the  Company's  computer-related  equipment,  and (4) a charge for
reserves  primarily  against a pool of non-performing  loans,  which the Company
ultimately  sold in July 2001.  In addition,  expenses  were lower in the second
quarter of 2002 due to 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,  the  Company  recorded  lower  warehouse  financing  costs due to lower
borrowing costs during 2002.

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

   Payroll and related costs decreased by $1.9 million, or 16%, to $10.1 million
for the three months ended June 30, 2002,  from $12.0 million for the comparable
period in 2001.  The  decrease  was  primarily  the  result of a  downsizing  we
effectuated,  as part of our  overall  corporate  restructuring,  related to our
transfer of servicing operation in May 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 $4.5 million,  or 75%, to $1.5 million for the
three months ended June 30, 2002 from $6.0 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 three  months ended June 30, 2002,
compared to an average of 4.3% 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 $17.8 million, or 75%, to $5.8
million for the three  months ended June 30,  2002,  from $23.6  million for the
comparable  period  in  2001.  The  second  quarter  of 2001  included  expenses
primarily  associated  from the (1)  Company's  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
transfer  of the  servicing  portfolio,  (3) a change  in  accounting  estimates
regarding the life expectancy of the Company's computer-related equipment, (4) a
charge for reserves primarily against a pool of non-performing  loans, which the
Company  ultimately sold in July 2001 and (5) debt restructuring cost associated
with the Company's Second Exchange Offer.

                                       22

   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 tax provision of $0.1 million  primarily  related to excess
inclusion income generated by our excess cashflow  certificates,  for the period
ended June 30, 2002 and 2001,  respectively.  Excess  inclusion 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.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001

  GENERAL

   The  Company's  net income for the six  months  ended June 30,  2002 was $6.2
million,  or $0.39 per share,  basic and $0.37 diluted,  compared to net loss of
$50.3 million,  or $3.17 per share, basic and diluted,  for the six months ended
June 30, 2001. Comments regarding the components of net loss are detailed in the
following paragraphs.

  REVENUES

   Total revenues increased $19.1 million,  or 87%, to $41.1 million for the six
months  ended June 30, 2002,  from $22.0  million for the  comparable  period in
2001.  The increase in revenue was primarily  attributable  to our $25.4 million
write down of five excess cashflow certificates sold in 2001 for a cash purchase
price   significantly   below  our  carrying  value  of  such  excess   cashflow
certificates.  In addition,  the increase was also  attributable to a higher net
gain on sale in 2002 when we completed  securitizations totaling $375.0 million,
compared to 2001,  when we completed  securitizations  totaling  $165.0 million.
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").

   The Company  originated  $400.1  million of mortgage loans for the six months
ended June 30, 2002, representing a 19% increase from $335.8 million of mortgage
loans originated for the comparable period in 2001. The Company  securitized and
sold  $449.1  million  in loans  during  the six  months  ended  June 30,  2002,
representing  a 36%  increase  from $330.0  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  $5.9 million,  or 28%, to $27.1 million for the six months ended June
30, 2002,  from $21.2 million for the comparable  period in 2001.  This increase
was primarily due to (i) an increase in the amount of loans securitized and sold
compared to 2001 and (ii) our selling a higher  percentage  of whole loan sales,
instead of securitizing  (which  typically  results in a higher net gain on sale
percentage  than whole loan sales),  during 2001. We securitized  $375.0 million
and sold $74.1 million of mortgage loans on a servicing-released  basis in 2002,
compared to $165.0 million of loans

                                       23

securitized  and $165.0 million of mortgage loans sold during the same period in
2001.

   INTEREST INCOME.  Interest income  increased $16.6 million,  or 175%, to $7.1
million for the six months  ended June 30,  2002,  from  $(9.5)  million for the
comparable  period in 2001. The increase in interest income was primarily due to
a $25.4 million write down of excess cashflow certificates in 2001 in connection
with the sale of such  certificates  for a cash purchase price of $15.0 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.  We did not  receive  any  servicing  fees during the six
months ended June 30, 2002, as a result of us transferring  our entire servicing
portfolio  to Ocwen in May of 2001.  For the six  months  ended  June 30,  2001,
servicing fees totaled $3.0 million.

   NET  ORIGINATION  FEES AND OTHER  INCOME.  Origination  fees  decreased  $0.5
million,  or 7%, to $6.9 million for the six months  ended June 30,  2002,  from
$7.4 million for the comparable period in 2001. During the six months ended June
30,  2002,  we had a production  mix of 66% broker  loans and 34% retail  loans,
compared  to 56%  and  44%,  respectively,  in the  same  period  in  2001.  The
production mix resulted in a decrease in origination  fees since the increase in
broker loans generated higher broker premium fees and the decrease in the retail
loans created lower origination fees.

EXPENSES

      Total expenses  decreased by $37.1  million,  or 52%, to $34.6 million for
the six months ended June 30, 2002, from $71.7 million for the comparable period
in 2001. The first half of 2001 included expenses associated primarily with: (1)
the Company's  disposition  and transfer of its 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 the
Company's  computer-related  equipment  in 2001,  and (4) a charge for  reserves
primarily against a pool of non-performing  loans,  which the Company 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 $3.5
million,  or 15%, to $19.8 million for the six months ended June 30, 2002,  from
$23.3 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 $8.8 million, or 75%, to $3.0
million  for the six months  ended  June 30,  2002 from  $11.8  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

                                       24

to determine  our cost of borrowed  funds,  decreased on average to 1.8% for the
six months  ended  June 30,  2002,  compared  to an average of 4.9% for the same
period in 2001.

   GENERAL AND ADMINISTRATIVE  EXPENSES.    General  and administrative expenses
decreased $23.6 million,  or 67%, to $11.8 million for the six months ended June
30, 2002,  from $35.4 million for the comparable  period in 2001. The first half
of  2001  included  expenses   primarily   associated  with  (1)  the  Company's
disposition  and  transfer of its  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  the  Company's
computer-related  equipment,  (4) a charge for reserves primarily against a pool
of non-performing  loans, which the Company ultimately sold in July 2001 and (5)
debt restructuring cost associated with the Company's Debt Exchange Offer.

   INCOME  TAXES.   We   recorded  a  tax  provision  of $0.3  million  and $0.6
million,  primarily  related to excess  inclusion income generated by our excess
cashflow   certificates,   for  the  period   ended  June  30,  2002  and  2001,
respectively.

FINANCIAL CONDITION

JUNE 30, 2002 COMPARED TO DECEMBER 31, 2001

   CASH  AND  INTEREST-BEARING  DEPOSITS.  Cash  and  interest-bearing  deposits
decreased  $3.5  million,  or 55%, to $2.9 million at June 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  $60.4 million,
or 64%, to $34.0  million at June 30, 2002,  from $94.4  million at December 31,
2001.  This  decrease  was  primarily  due to the net  difference  between  loan
originations and loans  securitized or sold during the six months ended June 30,
2002.

   ACCRUED  INTEREST  RECEIVABLE.  Accrued  interest  receivable  decreased $0.7
million, or 92%, to $0.1 million at June 30, 2002, from $0.8 million at December
31, 2001.  This  decrease was  primarily due to a lower amount of loans held for
sale at June 30, 2002 compared to December 31, 2001.

   EXCESS  CASHFLOW  CERTIFICATES,   NET.  Excess  cashflow  certificates,   net
increased  $4.0 million,  or 24%, to $20.8 million at June 30, 2002,  from $16.8
million at December 31, 2001.  This  increase was  primarily due to us recording
new excess cashflow  certificates,  totaling $6.1 million from loans securitized
in the first two quarters of 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  $1.6 million,  or 32%, to $3.4
million at June 30, 2002,  from $5.0 million at December 31, 2001. This decrease
primarily reflects the periodic depreciation of our fixed assets.

   WAREHOUSE  FINANCING  AND OTHER  BORROWINGS.  Warehouse  financing  and other
borrowings  decreased $66.2 million,  or 74%, to $23.4 million at June 30, 2002,
from  $89.6   million  at  December  31,  2001.   This  decrease  was  primarily
attributable  to a lower amount of monies  borrowed  under our warehouse  credit
facilities, which are used to fund our loans held for sale.

                                       25

   SENIOR  NOTES.  Senior  notes  totaled  $10.8  million  at June 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  $1.1  million,  or 5%, to $19.1  million at June 30,  2002 from $20.2
million at December 31, 2001.  This  decrease was primarily 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.  The Company has historically operated
on a negative  cash flow basis due  primarily  to increase in the volume of loan
originations  and the growth of its  securitization  program.  During the second
quarter of 2002,  the Company  reduced  its  negative  cash flow and  achieved a
positive cash flow from  operations.  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 generate  positive cash flow within the foreseeable
future, as we did this quarter. There can be no assurance, however, that we will
be 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; 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 the funding of:

     o  loan  originations  pending  their  pooling and sale,  net of  warehouse
        financing;

     o  interest  expense on warehouse lines of credit,  the remaining notes and
        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-

                                       26

only certificates (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;

     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);

                                       27

        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
June 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.

   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 June 30, 2002.

   We have  repurchase  agreements  with certain of the  institutions  that have
purchased  mortgages.   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 $3.1 million at June 30, 2002 and $4.8 million at June 30, 2001. We
have an allowance for recourse  losses of $1.3 million at June 30, 2002 and $1.7
million at June 30, 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

                                       28

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 and identify and modify those
that have proven  historically more susceptible to prepayments.  However,  there
can be no assurance that these  modifications  to our product line will mitigate
effectively interest rate risk in the future.

   Periods of  unexpected  or rapid  changes in  interest  rates,  and/or  other
volatility or uncertainty regarding interest rates, also can 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

                                       29

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 mortgage  originations.  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 during the quarters ended June 30, 2002 and 2001.

                                       30

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 5 of Notes to the Consolidated Financial Statements.

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  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  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  monetizing  our excess  cashflow
        certificates,   including  without  limitation,  selling,  financing  or
        securitizing (through NIM transactions) such assets;

     o  Costs associated with litigation,  compliance with the NYSBD Remediation
        Agreement and NYOAG Stipulated Order on Consent, and rapid or unforeseen
        escalation of the cost of regulatory compliance, generally including but
        not limited to,  adoption of new, or changes in 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,  environmental compliance,  and
        compliance  with  the  Remediation  Agreement  and  Stipulated  Order on
        Consent  can  lead  to  loss  of  approved  status,  certain  rights  of

                                       31

        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; and

     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.

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.  Our lending  practices  have been the subject of
several  lawsuits  styled as class  actions  and of  investigations  by  various
regulatory  agencies  including  the  NYSBD,  the  NYOAG and the  United  States
Department  of Justice  (the  "DOJ").  The  current  status of these  actions is
summarized below.

     o  In or about November 1998, 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.  In  December  1998,  plaintiffs  filed an amended
        complaint  alleging  that we had violated the Home  Ownership and Equity
        Protection Act ("HOEPA"), the Truth in Lending Act ("TILA") and New York
        State General Business Lawss. 349. The complaint seeks (a) certification
        of  a  class  of  plaintiffs,   (b)  declaratory   judgment   permitting
        rescission,  (c)  unspecified  actual,  statutory,  treble and  punitive
        damages (including  attorneys' fees), (d) certain injunctive relief, and
        (e)  declaratory  judgment  declaring the loan  transactions as void and
        unconscionable.  On December 7, 1998, plaintiff filed a motion seeking a
        temporary
                                       32

        restraining  order   and     preliminary    injunction,   enjoining   us
        from conducting  foreclosure sales on 11 properties.  The District Court
        Judge ruled that in order to consider such a motion, plaintiff must move
        to  intervene  on behalf of these 11  borrowers.  Thereafter,  plaintiff
        moved to  intervene  on behalf  of 3 of these 11  borrowers  and  sought
        injunctive relief on their behalf.  We opposed the motions.  On December
        14, 1998,  the District  Court Judge granted the motion to intervene and
        on December 23,  1998,  the  District  Court Judge issued a  preliminary
        injunction that enjoined us from  proceeding with the foreclosure  sales
        of  the  three   intervenors'   properties.   We  filed  a  motion   for
        reconsideration  of the December  23, 1998 order.  In January  1999,  we
        filed an answer to plaintiffs'  first amended  complaint.  In July 1999,
        plaintiffs  were granted  leave,  on consent,  to file a second  amended
        complaint.  In August 1999,  plaintiffs filed a second amended complaint
        that,  among other things,  added  additional  parties but contained the
        same  causes  of  action  alleged  in the first  amended  complaint.  In
        September  1999, we filed a motion to dismiss the  complaint,  which was
        opposed by plaintiffs  and, in June 2000, was denied in part and granted
        in part by the  Court.  In or about  October  1999,  plaintiffs  filed a
        motion seeking an order  preventing  us, our attorneys  and/or the NYSBD
        from issuing  notices to certain of our borrowers,  in accordance with a
        settlement agreement entered into by and between Delta and the NYSBD. In
        or about October 1999 and November 1999, respectively,  we and the NYSBD
        submitted  opposition to  plaintiffs'  motion.  In March 2000, the Court
        issued  an order  that  permitted  us to issue an  approved  form of the
        notice.  In  September  1999,   plaintiffs  filed  a  motion  for  class
        certification,  which we opposed in February  2000,  and was  ultimately
        withdrawn  without  prejudice by plaintiffs in January 2001. 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 in May 2002 and we are
        awaiting a  decision  from the  Court.  We  believe  that the Court will
        approve  the  settlement,  but if it does not,  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 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 filed a Notice
        of Appeal. 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,

                                       33

        and the trial court agreed to stay the action pending the result of that
        appeal.  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 Company and  plaintiffs'  counsel are in the process of
        administering the settlement.

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

     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

                                       34


        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 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. 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 August  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.

    The annual meeting of stockholders  was held on May 7, 2002. At the meeting,
Hugh.Miller  and Margaret A.  Williams were elected as Class III Directors for a
term of three years.  Sidney A.  Miller,  Martin D.  Payson,  Richard  Blass and
Arnold B. Pollard continue to serve as members of the Board of Directors.

            Votes cast in favor of Mr. Miller's  selection  totaled  14,459,420,
            while 42,890 votes were withheld.

            Votes cast in favor of Ms. Williams's  selection totaled 14,223,120,
            while 279,190 votes were withheld.

                                       35

   The  stockholders  also  voted to ratify the  appointment  of KPMG LLP as the
Company's  independent  auditors  for the fiscal year ending  December 31, 2002.
Votes  cast in favor of this  ratification  were  14,483,135,  while  votes cast
against were 18,875 and abstentions totaled 300.

ITEM 5.  OTHER INFORMATION.  None

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

(a)   Exhibits:  None

(b)   Reports on Form 8-K:   None

                                       36
<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: August 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

                                       37
<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 June
   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 August,
2002.


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

                                       38
<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 June
   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 August,
2002.


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



                                       39