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, 2001

                                       OR

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

                         Commission File Number: 1-12109

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

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

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

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

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


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

                                Yes [ x ] No [ ]

      As of June 30, 2001, 15,883,749 shares of the Registrant's common stock,
par value $.01 per share, were outstanding.


<PAGE>


                               INDEX TO FORM 10-Q

                                                           Page No.

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements (unaudited)

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

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

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

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

Item 2.   Management's   Discussion   and  Analysis  of  Financial
          Condition and Results of Operations..............................8

Item 3.   Quantitative  and  Qualitative  Disclosures  About
          Market Risk.....................................................24


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings...............................................25

Item 2.   Changes in Securities and Use of Proceeds.......................28

Item 3.   Defaults Upon Senior Securities.................................28

Item 4.   Submission of Matters to a Vote of Security Holders.............28

Item 5.   Other Information...............................................28

Item 6.   Exhibits and Current Reports on Form 8-K....................... 29

Signatures................................................................30

<PAGE>
                      (1) PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                  JUNE 30,    DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)      2001          2000
                                                ----------    -----------
ASSETS
Cash and interest-bearing deposits                 $4,230       62,270
Accounts receivable                                 3,644       20,502
Loans held for sale, net                           79,686       82,698
Accrued interest receivable                           497       10,388
Interest-only and residual certificates, net      186,475      216,907
Equipment, net                                      7,595       15,034
Prepaid and other assets                            5,200       37,846
Deferred tax asset, net                             5,600        5,600
                                                 --------      -------
   Total assets                                  $292,927      451,245
                                                 ========      =======

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable                                       $  987          927
Warehouse financing and other borrowings           65,210       88,632
Senior Notes                                      149,622      149,571
Accounts payable and accrued expenses              29,664       31,962
Investor payable                                        -       69,489
Advance payment by borrowers for taxes                  -       12,940
and insurance
                                                  -------      -------
   Total liabilities                              245,483      353,521
                                                  =======      =======

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized
 49,000,000 shares; 16,000,549 shares issued and
 15,883,749 shares outstanding at June 30, 2001
   and December 31, 2000                              160          160
Additional paid-in capital                         99,472       99,472
Retained earnings                                 (50,870)        (590)
Treasury stock, at cost (116,800 shares)           (1,318)      (1,318)
                                                 --------      -------
   Total stockholders' equity                      47,444       97,724
                                                 --------      -------
    Total liabilities and stockholders' equity   $292,927      451,245
                                                 ========      =======


          See accompanying notes to consolidated financial statements.

                                       1
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


                                                           THREE MONTHS ENDED         SIX MONTHS ENDED
                                                               JUNE 30,                    JUNE 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)              2001         2000           2001        2000
                                                         -------      -------        -------     -------
<S>                                                   <C>             <C>           <C>          <C>
REVENUES
  Net gain on sale of mortgage loans                   $ 14,320        11,274        19,697       25,928
  Interest                                                5,243         7,567        (9,546)      18,104
  Servicing fees                                            770         3,738         2,983        7,804
  Origination fees                                        4,732         6,365         8,894       13,053
                                                         ------        ------        ------       ------
    Total revenues                                       25,065        28,944        22,028       64,889
                                                         ------        ------        ------       ------
EXPENSES
  Payroll and related costs                               11,959       15,699        23,283       31,260
  Interest expense                                         5,992        8,528        11,821       16,331
  General and administrative                              23,562       10,750        35,393       20,206
  Restructuring and other special charges                    (13)           -         1,246            -
                                                          -------      ------        ------       ------
    Total expenses                                        41,500       34,977        71,743       67,797
                                                          -------      ------        ------       ------
Loss before income
  tax expense (benefit)                                  (16,435)      (6,033)      (49,715)      (2,908)
Income taxes expense (benefit)                                93       (2,506)          565       (1,207)
                                                         --------      -------      --------      -------
Net loss                                               $ (16,528)      (3,527)      (50,280)      (1,701)
                                                         ========      =======      ========      =======
 PER SHARE DATA
   Net loss per common
    share - basic and diluted                             $(1.04)       (0.22)        (3.16)       (0.11)
                                                           ======       ======        ======       ======
   Weighted-average number
    of shares outstanding                              15,902,309   15,920,869    15,911,589   15,920,869
                                                       ==========   ==========    ==========   ==========

          See accompanying notes to consolidated financial statements.

                                       2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                              SIX MONTHS ENDED
                                                                                   JUNE 30,
(DOLLARS IN THOUSANDS)                                                      2001          2000
                                                                          -------        -------
<S>                                                                     <C>             <C>

Cash flows from operating activities:
    Net loss                                                             $(50,280)       (1,701)
    Adjustments to reconcile net income to net cash used in
       operating activities:
        Provision for loan and recourse losses                              2,293           542
        Depreciation and amortization                                       6,007         3,664
        Deferred tax benefit                                                    -        (3,298)
        Capitalized mortgage servicing rights, net of amortization              -         3,055
        Deferred origination costs                                            (84)          499
        Interest-only and residual certificates received in
            securitization transactions, net                               30,432       (13,430)
        Changes in operating assets and liabilities:
            Decrease (increase) in accounts receivable                     16,260        (7,447)
            Decrease in loans held for sale, net                            1,596        23,033
            Decrease accrued interest receivable                            9,891        50,086
            Decrease (increase) in prepaid and other assets                32,451       (14,640)
            Decrease in accounts payable and accrued expenses              (2,298)      (13,357)
            Decrease in investor payable                                  (69,489)      (11,308)
            (Decrease) increase in advance payments by borrowers for
                taxes and insurance                                       (12,940)        1,057
                                                                          --------      -------
                Net cash (used in) provided by operating activities       (36,161)       16,755
                                                                          --------      -------
Cash flows from investing activities:
    Disposition (Purchase) of equipment                                     1,483        (1,069)
                                                                        ---------       -------
                Net cash used in investing activities                       1,483        (1,069)
                                                                        ----------      --------
Cash flows from financing activities:
    Repayments from warehouse financing and other borrowings              (23,422)      (26,437)
    Increase (decrease) in bank payable, net                                   60          (578)
                                                                        ----------    ---------
                Net cash used in financing activities                     (23,362)      (27,015)
                                                                        ----------    ---------
                Net decrease in cash and interest-bearing deposits        (58,040)      (11,329)

Cash and interest-bearing deposits at beginning of period                  62,270        69,557
                                                                          --------     --------
Cash and interest-bearing deposits at end of period                     $   4,230        58,228
                                                                          ========      =======

Supplemental Information:
Cash paid during the period for:
    Interest                                                            $  11,551        15,540
                                                                           =======      =======
Income taxes                                                            $      80         2,101
                                                                           =======      =======
          See accompanying notes to consolidated financial statements.


                                      3
</TABLE>
<PAGE>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

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

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

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

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

(2) SUMMARY OF REGULATORY SETTLEMENTS

     In September  1999, the Company  settled  allegations by the New York State
Banking  Department  (the "NYSBD") and a lawsuit by the New York State Office of
the Attorney  General (the  "NYOAG")  alleging  that Delta had violated  various
state and federal  lending  laws.  The global  settlement  was evidenced by that
certain (a)  Remediation  Agreement by and between  Delta Funding and the NYSBD,
dated as of September 17, 1999 and (b) Stipulated  Order on Consent by and among
Delta Funding, Delta Financial and the NYOAG, dated as of September 17, 1999. As
part of the  Settlement,  Delta,  among other  things,  implemented  agreed upon
changes to its lending practices; is providing reduced loan payments aggregating
$7.25 million to certain  borrowers  identified by the NYSBD;  and has created a
fund managed by the NYSBD and  financed by the grant of 525,000  shares of Delta
Financial's  common  stock with an agreed  upon fixed  value of $9.10 per share,
which approximates the stock's book value. Each month, on behalf of the affected
borrowers,  the Company is making subsidy payments to the related securitization
trusts.  These subsidy payments fund the differential  between the original loan
payments  and the  reduced  loan  payments.  As a result of our  payments to the
securitization  trusts,  each month the  amount of our  current  liability  will
decrease from  the  original $7.25 million.   The  proceeds of the funds will be
used to pay  borrowers  and to finance a variety  of  consumer  educational  and
counseling   programs.    The Company  does  not


                                       4


manage the fund created  forthis  purpose.  The number of shares of common stock
deposited in the fund does not adjust to account for  fluctuations in the market
price of Delta's  common  stock.  Changes to the market price of these shares of
common  stock  deposited  in the fund do not have any  impact  on the  Company's
financial  statements.  The  Company  did  not  make  any  additional  financial
commitments between the settlement date and March 2000.

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

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

    CORPORATE RESTRUCTURING

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

     The following  table sets forth the  components  of the  Company's  accrual
restructuring charges:
<TABLE>
<S>                               <C>                  <C>         <C>           <C>
                                     BALANCE AT                                    BALANCE AT
(DOLLARS IN THOUSANDS)            DECEMBER 31, 2000   INCREASES    DECREASES     JUNE 30, 2001
-----------------------------------------------------------------------------------------------
Write down of lease obligations          $1,163            -         (290)            873

Employment termination payments             180          473         (623)             30
-----------------------------------------------------------------------------------------------
Total Accrual Restructuring Charges      $1,343          473         (913)            903
-----------------------------------------------------------------------------------------------
</TABLE>

   DEBT MODIFICATION AND DEBT RESTRUCTURING

     In August  2000,  the Company  announced  an agreement to modify its Senior
Notes(the "Debt  Modification").  With the consent of greater than fifty percent
of its Senior Note holders,  the Company  modified a negative pledge covenant in
the Senior Notes Indenture,  which previously prevented the Company from selling
or otherwise  obtaining  financing  against any of its interest-only or residual
certificates   (the  "Residual   Assets").   In  consideration  for  the  Senior
Noteholders'  consent,  the Company agreed,  in an exchange offer (the "Exchange
Offer"),  to offer then current Senior  Noteholders the option to exchange their
then existing Senior Notes for (a) new senior secured notes (the "Senior Secured
Notes") and (b) ten-year  warrants to buy  approximately  1.6 million  shares of
Common Stock, at an initial exercise price of $9.10 per share,  subject to

                                       5


upward or downward adjustment in certain circumstances. The Senior Secured Notes
have the same coupon face amount and  maturity  date as the Senior Notes and, up
until the Second Debt  Restructuring  (see below) were  secured by at least $165
million of the Company's  Residual Assets. The Exchange Offer was consummated in
December  2000,  with  holders of  greater  than $148  million  of Senior  Notes
tendering in the exchange.

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

     In consideration for their consent, the Company agreed to offer the holders
of the Senior Secured Note and the Senior Notes (collectively,  the "Notes"), an
opportunity  to exchange  their Notes for the Company's  newly issued  preferred
stock and membership  interests in a newly formed LLC, to which the Company will
transfer all of the  mortgage-related  securities  currently securing the Senior
Secured  Notes (the "Second  Exchange  Offer").  The Second  Exchange  Offer was
launched on July 23, 2001 and will remain open until August 20, 2001. As part of
the exchange offer, all tendering  Noteholders will waive their right to receive
the August 1st  interest  coupon.  As such,  the Company did not make the coupon
payment  due  on  August  1,  2001  on  the  Notes.  If the  exchange  offer  is
consummated, substantially all of the Notes will be eliminated and, with it, the
Company's  obligations to make the August 1st interest payment relating to those
tendered Notes. Delta believes that, upon successful  consummation of the Second
Exchange  Offer  (which  requires  at least 95% of the  holders  agreeing to the
exchange),  Moody's  and Fitch  will  withdraw  their  corporate  ratings on the
Company  as the  underlying  debt will have been  largely  extinguished.  If the
exchange offer is not consummated, the Company will likely default on its August
1st interest payment.

     The  exchange  offer  is  conditioned  upon at  least  95% of the  existing
Noteholders  tendering  their  Notes,  although  the  Company  has the option of
waiving  this  condition  to the  exchange  offer.  If  the  exchange  offer  is
consummated,  following such  consummation,  only Noteholders who fail to tender
their Notes in the exchange will receive  their August 1, 2001 interest  coupon.
The  indentures  governing  the Notes  provide the Company  with a 30-day  grace
period within which to make the interest payment, without triggering an event of
default  under such  indentures.  Non-tendering  Noteholders,  however,  will no
longer have any collateral  securing their Notes;  nor will they be protected by
any of the restrictive  covenants in the indentures  governing the Notes,  which
previously limited our ability to engage in certain  activities,  like incurring
additional debt or disposing our assets.  Further,  the trading market for Notes
not tendered in the exchange  offer is likely to be  significantly  more limited
than it is currently.

     Management  believes that its transfer of servicing to Ocwen and the Second
Debt  Restructuring are essential steps in its ongoing effort to restructure its
operations  and reduce its  negative  cash flow  associated  with its  servicing
operations and Senior Secured Notes.

                                       6


(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.
<TABLE>
<S>                                                 <C>          <C>          <C>          <C>
                                                         THREE MONTHS ENDED          SIX MONTHS ENDED
                                                               JUNE 30,                  JUNE 30,
                                                        -------------------      ---------------------
 (DOLLARS IN THOUSANDS, EXCEPT EPS DATA)                2001           2000       2001           2000
------------------------------------------------------------------------------------------------------
Net loss                                              $(16,528)     $(3,527)    $(50,280)     $(1,701)
Weighted-average shares - basic                     15,902,309   15,920,869   15,911,589   15,920,869
Basic EPS                                               $(1.04)      $(0.22)      $(3.16)      $(0.11)

Weighted-average shares - basic                     15,902,309   15,920,869   15,911,589   15,920,869
Incremental shares-options                                 ---          ---          ---          693
-------------------------------------------------------------------------------------------------------
Weighted-average shares - diluted                   15,902,309   15,920,869   15,911,589   15,921,562
Diluted EPS                                             $(1.04)      $(0.22)      $(3.16)      $(0.11)
</TABLE>

(5) IMPACT OF NEW ACCOUNTING STANDARDS

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

     In September 2000, the FASB issued SFAS No. 140,  "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments of Liabilities." SFAS No.
140,  which  replaces SFAS No. 125,  "Accounting  for Transfers and Servicing of
Financial Assets and  Extinguishments of Liabilities,"  provides  accounting and
reporting  standards  for  securitizations  and other  transfers of assets.  The
Standard is based on the  application  of a financial  components  approach that
focuses  on  control,  and  provides  consistent  standards  for  distinguishing
transfers of  financial  assets that are sales from  transfers  that are secured
borrowings.  The Standard  requires  disclosure of information about securitized
assets, including principal outstanding of securitized and other managed assets,
accounting  policies,  key assumptions  related to the determination of the fair
value of retained  interests,  delinquencies  and credit losses.  The accounting
requirements  of the Standard  are  effective  for  transfers  and  servicing of
financial assets and  extinguishments  of liabilities  occurring after March 31,
2001,  and  must  be  applied   prospectively.   The   disclosures   related  to
securitization  transactions are required for fiscal years ending after December
15, 2000, and comparative  disclosures  for prior periods are not required.  The
implementation  of SFAS  No.  140  does  not  have an  impact  on our  financial
statements.

     In July 2001, the FASB issued SFAS No. 141,  "Business  Combinations,"  and
SFAS No.

                                       7


142,  "Goodwill  and   Other  Intangible    Assets."   These   Statements   will
change the  accounting  for business  combinations  and  goodwill.  SFAS No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated after June 30, 2001. SFAS No. 142 changes the accounting
for goodwill,  including  goodwill recorded in past business  combinations.  The
previous  accounting  principles  governing  goodwill  generated from a business
combination  will cease upon adoption of SFAS No. 142. The adoption of SFAS Nos.
141 and 142 will not materially effect the Company's consolidated balance sheets
or  consolidated  statements  of  operations.  SFAS Nos. 141 and 142 will become
effective on July 1, 2001 and January 1, 2002, respectively, for the Company.

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

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

GENERAL

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

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

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

     RETAIL  LOANS.  The Company  develops  retail loan leads  ("Retail  Loans")
primarily through its telemarketing  system and its network of 10 retail offices
located in Illinois,  Indiana,  Missouri, North Carolina, Ohio (3), Pennsylvania
(2),  Tennessee,  and a call center in New York. In 2001, the Company closed two
under-performing retail offices in Florida and one in Ohio.

                                       8


     For the three  months  ended June 30,  2001 the Company  originated  $165.1
million of loans, a decrease of 37% over the $263.6 million of loans  originated
and purchased in the comparable period in 2000. Of these amounts,  approximately
$82.6 million were  originated  through its network of brokers and $82.5 million
were  originated  through its retail  network during the three months ended June
30, 2001.  During the three  months  ended June 30, 2000 the Company  originated
$160.3  million  through its network of brokers  and $77.6  million  through its
retail network, and purchased $25.7 million from its network of correspondents.

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

     SALE OF  LOANS.  We  generally  sell  loans in one of two  manners - either
through  securitization or on a whole loan basis. In the second quarter of 2001,
we securitized  $165 million of mortgage loans,  and sold $21 million on a whole
loan basis. We plan to continue to utilize a combination of  securitization  and
whole loan sales in the foreseeable future.

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

CERTAIN ACCOUNTING CONSIDERATIONS

     As a  fundamental  part  of its  business  and  financing  strategy,  Delta
typically  sells  the  majority  of  its  loans  through   securitization  to  a
securitization  trust and derives a substantial portion of its income from these
sales. In a securitization,  the Company sells a pool of loans it has originated
or purchased to a REMIC trust for a cash  purchase  price.  The trust,  in turn,
finances  the  purchase  of the  pool  of  loans  it  has  acquired  by  selling
"pass-through  certificates,"  or bonds,  which  represent  undivided  ownership
interests in the trust. Holders of the pass-through certificates are entitled to
receive  monthly  distributions  of all  principal  received  on the  underlying
mortgages  and a specified  amount of  interest,  determined  at the time of the
offering.

     When  the  Company  sells a pool of  loans to a  securitization  trust,  it
receives  the  following  economic  interests in the trust:  (a) the  difference
between  the  interest  payments  due on the  loans  sold to the  trust  and the
interest rate paid to the pass-through certificateholders,  less the contractual
servicing  fee  and  other  costs  and  expenses  of  administering  the  trust,
represented  by  interest-only  and  residual  certificates,  and (b) (i) a cash
premium for  selling  the right to service the loans on behalf of the trust,  or
(ii) on those securitizations in which the Company retains

                                       9


servicing   rights, the  right to service  the loans  on behalf of the trust and
earn a servicing fee, as well as other ancillary servicing related fees directly
from the borrowers on the underlying loans.

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

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

     Upon the  securitization  of a pool of loans, the Company (i) recognizes in
income,  as origination  fees, the unamortized  origination fees included in the
investment in the loans sold, and (ii)  recognizes a gain on sale of loans equal
to (a) the difference between cash received from the trust and the investment in
the loans  remaining  after the  allocation  of portions of that  investment  to
record interest-only and residual certificates (and, where applicable,  mortgage
servicing  rights)  received  in the  securitization,  and (b) the cash  premium
received from selling the right to service the loans on behalf of the trust. The
majority of the net gain on sale of mortgage  loans  results from the fair value
of the  interest-only  and  residual  certificates  retained by the Company in a
securitization  for  each  period  and the  market  value  of the  interest-only
certificates sold in connection with each securitization.

     The Company has sold the interest-only  certificates created in each of its
most recent  securitizations  for cash  proceeds and intends to continue to sell
the  interest-only  certificate as long as the sale  effectively  maximizes cash
flow and profitability.

     The interest-only and residual  certificates that the Company receives upon
the  securitization of a pool of loans are accounted for as trading  securities.
The amount initially allocated to the interest-only and residual certificates at
the date of a  securitization  reflects the fair value of those  interests.  The
amount recorded for the certificates is reduced for distributions  thereon which
the Company receives from the trust,  and is adjusted for subsequent  changes in
the fair value of interest-only  and residual  certificates held by the Company,
which are reflected in the  statement of  operations.  The Company  assesses the
fair  value of  interest-only  and  residual  certificates  based  upon  updated
estimates of prepayment and default rates  relating to loan groups  comprised of
loans of similar  types,  terms,  credit  quality,  interest  rates,  geographic
location and value of loan  collateral,  which  represent the  predominant  risk
characteristics that would affect prepayments and default rates.

     The Company did complete a  securitization  of mortgage loans in the second
quarter of 2001, in addition to selling whole loans for a cash premium.

                                       10


 FAIR VALUE ADJUSTMENTS

     Prepayments of loans and estimates of future prepayment rates,  among other
factors, significantly affect the fair values of both interest-only and residual
certificates.  The Company  continually  reviews its  assumption,  including its
prepayment  assumptions,  in light of Company and industry  experience and makes
adjustments to those assumptions when such experience indicates.

     The Company makes the following  underlying  assumptions in determining the
fair value of its interest-only and residual certificates are as follows:

  (a) Prepayment rate assumptions are based upon the Company's on-going analysis
      of industry and Company pool trends, the most recent  adjustments to these
      assumptions were made in the  third quarter of 2000 and the fourth quarter
      of  1999.  The following   table  shows  the  changes  to  the  prepayment
      assumptions at each of these dates and the  assumptions  used prior to the
      1999 fourth quarter change:

-------------------------------------------------------------------------------
                              Month One Speed             Peak Speed *
-------------------------------------------------------------------------------
Loan Type           9/30/00   12/31/99   Prior    9/30/00  12/31/99   Prior
-------------------------------------------------------------------------------
Fixed Rate Loans       4.0%       4.0%    4.8%        23%       31%     31%
-------------------------------------------------------------------------------
Six-Mo. LIBOR ARMS    10.0%      10.0%   10.0%        50%       50%     50%
-------------------------------------------------------------------------------
Hybrid ARMS            4.0%       4.0%    6.0%        50%       50%     50%
-------------------------------------------------------------------------------
*   Since the  second  quarter  of  1998,  the Company  has  utilized a "vector"
curve,  instead  of a "ramp"  curve,  which the  Company  believes  will be more
representative of future loan prepayment experience.

  (b) A default reserve  for both fixed- and  adjustable-rate  loans sold to the
      securitization trusts  of 3.50% of  the  amount  initially  securitized at
      December 31, 2000  compared  to  3.10% at  December  31, 1999 and 2.00% at
      December 31, 1998; and

  (c) Under the "cash-out"  method,  an  annual  discount rate of 13.0% was used
      in determining the present value of cash flows from residual certificates,
      which represent the predominant  form of retained  interest,  at March 31,
      2001 and December 31, 2000, up from 12% prior thereto.  An annual discount
      rate of 18% is used during the duration of the Net Interest Margin ("NIM")
      transaction on a portion of the Company's residual certificates.

     In the third  quarter of 2000,  the Company  lowered its  prepayment  speed
assumptions  mainly by reducing the peak speed on its fixed rate product,  which
comprises  the  majority of the  Company's  servicing  portfolio.  In the fourth
quarter of 1999, the Company lowered its prepayment speed assumption along parts
of the prepayment rate vector curve while leaving the peak speeds intact.

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

                                       11


     In the third and fourth  quarters of 2000, the Company changed the discount
rate it uses in  determining  the  present  value of cash  flows  from  residual
certificates, as follows:

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

     b. In the fourth quarter of 2000,  the Company  raised the annual  discount
rate it uses in  determining  the  present  value of cash  flows  from  "senior"
residual  certificates  (I.E.,  those  residuals  that are not  subject to a NIM
Transaction) to 13% from 12%, and recorded a $7.1 million valuation  adjustment.
This adjustment  reflects what management  believes is an increase in volatility
concerning the other underlying  assumptions used in estimating  expected future
cash flows due to greater  uncertainty  surrounding  current  and future  market
conditions,  including without limitation,  inflation,  recession,  home prices,
interest rates and equity markets.

RESULTS OF OPERATIONS

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

GENERAL

     The  Company's  net loss for the three months ended June 30, 2001 was $16.5
million,  or $1.04 per share,  compared to a net loss of $3.5 million,  or $0.22
per share,  for the three months ended June 30, 2000.  Excluding  the net charge
for non-recurring  items, the Company's net loss for the three months ended June
30,  2001  would have been $1.3  million or $0.08 per share.  The net charge for
non-recurring  items  primarily  related  to (1) the  costs  of  maintaining  an
unprofitable  servicing  platform until it was transferred to Ocwen in May 2001,
plus the associated costs of transferring the servicing portfolio,  (2) a change
in the useful life of computer-related equipment from five years to three years,
and (3) debt  restructuring  costs  associated  with the Second  Exchange Offer.
Comments  regarding  the  components  of net loss are detailed in the  following
paragraphs.

REVENUES

     Total  revenues  decreased  $3.8 million,  or 13%, to $25.1 million for the
three months ended June 30, 2001,  from $28.9 million for the comparable  period
in 2000. The decrease in revenue was primarily  attributable  to lower servicing
fees, due to the sale of the Company's servicing  operations to Ocwen, and lower
origination fees and interest income relating to the aforementioned  decrease in
total loan  production.  This decrease was  partially  offset by higher net gain
recognized on the sale of mortgage loans.

     The  Company  originated  $165.1  million of  mortgage  loans for the three
months ended June 30, 2001,  representing  a 37% decrease from $263.6 million of
mortgage loans originated and

                                       12


purchased for  the  comparable  period in 2000.   The  Company  securitized  and
sold  $185.7  million of loans  during  the three  months  ended June 30,  2001,
compared to $275.0 million securitized and sold during the same period in 2000.

     NET GAIN ON SALE OF  MORTGAGE  LOANS.  Net gain on sale of  mortgage  loans
represents (1) the sum of (a) the fair value of the  interest-only  and residual
certificates retained by the Company in a securitization for each period and the
market value of the  interest-only  certificates  sold in  connection  with each
securitization,  (b) the fair value of  capitalized  mortgage  servicing  rights
associated  with loans  securitized  in each period and/or the premium  received
from selling mortgage  servicing rights in connection with each  securitization,
and (c)  premiums  earned  on the  sale of whole  loans on a  servicing-released
basis,  (2) less the (x) premiums paid to originate or acquire  mortgage  loans,
(y)  costs  associated  with  securitizations  and (z)  any  hedge  loss  (gain)
associated with a particular securitization.

     Net gain on sale of mortgage loans increased $3.0 million, or 27%, to $14.3
million for the three  months ended June 30,  2001,  from $11.3  million for the
comparable  period in 2000.  This  increase was primarily due a higher amount of
gross  excess  spread  expected  to be  earned  over  the  life of the  loans as
calculated  by the  weighted  average  coupon  on the  pool  of  mortgage  loans
securitized  less the total cost of funds on the  securitization  (primarily the
interest rate paid to  pass-through  asset backed  investors).  The  pass-though
interest rate  decreased in the second  quarter 2001  primarily  because (1) the
U.S.  Treasury  securities  which  are  used  as  the  benchmark  to  price  the
pass-through  certificates issued by the securitization  trust were lower during
the three months ended June 30, 2001, as compared to the same period in 2000 and
(2) asset-backed investors who purchased the pass-through certificates issued by
the  securitization  trust during the three months ended June 30, 2001,  did not
demand  as high of a spread  over  treasuries  on a  comparable  basis as in the
corresponding  period  in 2000.  The  increase  was  partially  offset  by a 32%
decrease in the amount of loans  securitized  or sold to $185.7 million in 2001,
compared to $275.0  million of loans  securitized  or sold in 2000. The weighted
average net gain on sale ratio was 7.7% for the three months ended June 30, 2001
compared to 4.1% for the comparable period in 2000.

     INTEREST INCOME.  Interest income  primarily  represents the sum of (1) the
difference  between the  distributions the Company receives on its interest-only
and residual certificates and the adjustments recorded to reflect changes in the
fair  value  of the  interest-only  and  residual  certificates,  (2) the  gross
interest  earned  on loans  held  for  sale,  and (3)  interest  earned  on cash
collection balances.

     Interest  income  decreased  $2.4 million,  or 32%, to $5.2 million for the
three months ended June 30, 2001, from $7.6 million for the comparable period in
2000. The decrease in interest income was primarily due to (1) a 37% decrease in
loan  production for the three months ended June 30, 2001,  compared to the same
period in 2000,  which  results in a lower amount of mortgage  loans  generating
interest  income while held for sale, (2) a lower average  mortgage  coupon rate
charged to the borrower of 10.4% from 11.2% reflecting a lower economic interest
rate environment, and (3) a decrease in interest earned on interest-bearing cash
accounts received by the Company as servicer on its securitizations. The Company
will continue to earn less interest income on its interest-bearing accounts on a
go-forward basis due to the transfer of servicing to Ocwen in May 2001.

                                       13


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

     Servicing  fees  decreased  $2.9  million,  or 78%, to $0.8 million for the
three months ended June 30, 2001, from $3.7 million for the comparable period in
2000.  This decrease was the result of the  Company's  agreement to transfer its
servicing   portfolio  to  Ocwen  in  January  2001,  pursuant  to  which  Ocwen
immediately  began  receiving all servicing  related fees and, in turn,  paid to
Delta an interim servicing fee until the servicing  portfolio was transferred to
Ocwen in May 2001.

     ORIGINATION  FEES.  Origination  fees represent fees earned on Brokered and
Retail  originated  loans.  Origination fees decreased $1.7 million,  or 27%, to
$4.7 million for the three months ended June 30, 2001, from $6.4 million for the
comparable  period in 2000.  The  decrease  was  primarily  the  result of a 37%
decrease in loans originated loans.

EXPENSES

     Total expenses increased by $6.5 million,  or 19%, to $41.5 million for the
three months ended June 30, 2001,  from $35.0 million for the comparable  period
in 2000. The increase primarily resulted from non-recurring  charges principally
incurred in connection  with (1) the  disposition  and transfer of the Company's
servicing  platform  to  Ocwen  in May  2001,  and (2) a  change  in  accounting
estimates  regarding  the  life  expectancy  of the  Company's  computer-related
equipment.  The Company also recorded a reserve for its non-performing  mortgage
loans.  This  increase  in  expenses  was  partially  offset  with a decrease in
personnel costs and interest expense due to the Company's restructuring.

     PAYROLL AND RELATED  COSTS.  Payroll and related  costs  include  salaries,
benefits  and  payroll  taxes  for all  employees.  Payroll  and  related  costs
decreased by $3.7  million,  or 24%, to $12.0 million for the three months ended
June 30,  2001,  from  $15.7  million  for the  comparable  period in 2000.  The
decrease was primarily the result of (i) the downsizing  effected by the Company
as  part  of its  overall  restructuring  and  related  to its  transfer  of its
servicing,  and (ii) a lower  amount of  commissions  paid as loan  originations
decreased in 2001  compared to 2000. As of June 30, 2001,  the Company  employed
594  full- and  part-time  employees,  compared  to 1,063  full-  and  part-time
employees as of June 30, 2000.

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

     Interest expense decreased by $2.5 million, or 29%, to $6.0 million for the
three months ended June 30, 2001 from $8.5 million for the comparable  period in
2000. The decrease was primarily due to lower loan production, which resulted in
lower warehouse financing,  and lower financing costs. In addition,  the average
one-month  LIBOR  rate,  which is the  benchmark  index  used to  determine  the
Company's  cost of borrowed  funds,  decreased on average to 4.3% for the second
quarter 2001, compared to an average of 6.5% for the second quarter 2000.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
consist  primarily of costs  attributable to the disposition and transfer of the
Company's servicing

                                       14


platform,   office   rent,   insurance,   telephone,    depreciation,   goodwill
amortization, legal reserves and fees, license fees, accounting fees, travel and
entertainment  expenses,  advertising and promotional expenses and the provision
for loan losses on the inventory of loans held for sale and recourse loans.

     General and administrative  expenses  increased $12.9 million,  or 121%, to
$23.6  million for the three months ended June 30, 2001,  from $10.7 million for
the   comparable   period  in  2000.  The  increase   primarily   resulted  from
non-recurring  charges totaling $15.2 million on an after tax basis. The charges
are primarily related to (1) the costs of maintaining an unprofitable  servicing
platform  until it was  transferred  to Ocwen in May 2001,  plus the  associated
costs of  transferring  the  portfolio,  totaling  $10.7 million on an after tax
basis, (2) a change in the useful life of  computer-related  equipment from five
years to three years  totaling $3.6 million on an after tax basis,  and (3) debt
restructuring  costs  associated with the Company's  current debt exchange offer
totaling $0.9 million on an after tax basis. In addition, the Company incurred a
$1.5 million  charge for  reserves  primarily  against a pool of  non-performing
loans, which the Company ultimately sold in July 2001 and recognized such loss.

     INCOME TAXES.  Deferred tax assets and  liabilities  are  recognized on the
income  reported in the financial  statements  regardless of when such taxes are
paid.  These deferred taxes are measured by applying  current enacted tax rates.
The Company  recorded a tax  provision of $0.1 million and a tax benefit of $2.5
million for the three months ended June 30, 2001 and 2000, respectively.

SIX MONTHS ENDED JUNE 30,2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000

  GENERAL

     The  Company's  net loss for the six months  ended June 30,  2001 was $50.3
million, or $3.16 per share,  compared to net loss of $1.7 million, or $0.11 per
share,  for the six months  ended June 30,  2000.  Excluding  the net charge for
non-recurring  items,  the  Company's net loss for the six months ended June 30,
2001 would have been $9.7  million or $0.61 per share.  Comments  regarding  the
components of net loss are detailed in the following paragraphs.

  REVENUES

     Total revenues  decreased  $42.9 million,  or 66%, to $22.0 million for the
six months ended June 30, 2001, from $64.9 million for the comparable  period in
2000.  The  decrease  in revenue  was  primarily  attributable  to a decrease in
interest  income due to a write-down in the first  quarter of five  residuals in
the amount of $25.4  million.  In addition,  the decrease is also due to a lower
net gain recognized on the sale of mortgage loans,  lower  origination  fees and
interest  income due to a decrease  in total loan  production,  as well as lower
servicing fees due to the sale of its servicing operations to Ocwen.

     The Company  originated $335.8 million of mortgage loans for the six months
ended June 30, 2001, representing a 39% decrease from $550.8 million of mortgage
loans  originated and purchased for the  comparable  period in 2000. The Company
securitized  and sold $330.0  million in loans  during the six months ended June
30, 2001 compared to $565.0  million  securitized  or sold in the  corresponding
period in 2000, representing a 42% decrease.

     NET GAIN ON SALE OF  MORTGAGE  LOANS.  Net gain on sale of  mortgage  loans
decreased  $6.2

                                       15


million,  or   24%, to   $19.7  million  for the six months ended June 30, 2001,
from $25.9 million for the comparable period in 2000. The decrease was primarily
due to a 42%  decrease  in the  amount  of loans  securitized  or sold to $330.0
million in 2001,  compared  to $565.0  million of loans  securitized  or sold in
2000,  . The  decrease on a comparable  basis was  partially  offset by a higher
weighted  average  net gain on sale ratio of 6.0% for the six months  ended June
30, 2001 compared to 4.6% for the comparable period in 2000, and the Company not
paying any premiums to acquire loans in the first half of 2001,  compared to the
$1.5  million  it paid  during the first half of 2000.  The  Company  closed its
correspondent channel in June 2000.

     INTEREST  INCOME.  Interest  income  decreased  $27.6 million,  or 153%, to
$(9.5)  million for the six months ended June 30, 2001,  from $18.1  million for
the comparable period in 2000. The decrease in interest income was primarily due
to (1) the Company's $25.4 million write down of residual  certificates sold for
a cash purchase price of $15 million under a sale agreement the Company  entered
into in the first quarter of 2001, (2) a 39% decrease in loan production for the
six months  ended June 30,  2001,  compared  to the same  period in 2000,  which
results in a lower amount of mortgage  loans  generating  interest  income while
held for sale, (3) a lower average  mortgage coupon rate charged to the borrower
of 10.8% from 11.1% reflecting a lower economic interest rate  environment,  and
(4) a decrease in interest earned on interest bearing cash accounts  received by
the Company as servicer on its  securitizations.  The company  will  continue to
earn less interest income on its interest bearing accounts on a go-forward basis
due to the transfer of servicing to Ocwen in May 2001.

     SERVICING  FEES.  Servicing fees  decreased  $4.8 million,  or 62%, to $3.0
million  for the six  months  ended June 30,  2001,  from $7.8  million  for the
comparable  period  in 2000.  This  decrease  was the  result  of the  Company's
agreement to transfer its servicing portfolio to Ocwen in January 2001, pursuant
to which Ocwen  immediately  began receiving all servicing  related fees and, in
turn, paid to Delta an interim servicing fee, until the servicing  portfolio was
transferred to Ocwen in May 2001.

     ORIGINATION FEES.  Origination fees decreased $4.2 million, or 32%, to $8.9
million  for the six months  ended June 30,  2001,  from $13.1  million  for the
comparable period in 2000. The decrease was primarily the result of 42% decrease
in loan originations.

EXPENSES

     Total expenses  increased by $3.9 million,  or 6%, to $71.7 million for the
six months ended June 30, 2001, from $67.8 million for the comparable  period in
2000. The increase  primarily resulted from  non-recurring  charges  principally
incurred in connection  with (1) the  disposition  and transfer of the Company's
servicing  platform  to  Ocwen  in May  2001,  and (2) a  change  in  accounting
estimates  regarding  the  life  expectancy  of the  Company's  computer-related
equipment.  The Company also recorded a reserve for its non-performing  mortgage
loans. This increase in expenses was partially offset by a decrease in personnel
costs (due to the Company's restructuring) and interest expense.

     PAYROLL AND RELATED  COSTS.  Payroll and related  costs  decreased  by $8.0
million,  or 26%, to $23.3 million for the six months ended June 30, 2001,  from
$31.3 million for the comparable  period in 2000. The decrease was primarily the
result of (i) the  downsizing  effected  by the

                                       16


Company as part of its overall  restructuring and related to its transfer of its
servicing,  and (ii) a lower amount of  commissions  paid due to the decrease in
originations.  As of June 30, 2001, the Company employed 594 full- and part-time
employees, compared to 1,063 full- and part-time employees as of June 30, 2000.

     INTEREST EXPENSE.  Interest expense  decreased by $4.5 million,  or 28%, to
$11.8  million for the six months ended June 30, 2001 from $16.3 million for the
comparable period in 2000. The decrease was primarily attributable to lower loan
production,  which resulted in lower  warehouse  financing,  and lower financing
costs. In addition,  the average  one-month  LIBOR rate,  which is the benchmark
used to determine the Company's cost of borrowed funds,  decreased on average to
4.9% for the six months ended June 30, 2001,  compared to an average of 6.2% for
the six months ended June 30, 2000.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased $15.2 million,  or 75%, to $35.4 million for the six months ended June
30, 2001,  from $20.2 million for the  comparable  period in 2000.  The increase
primarily resulted from non-recurring charges primarily related to (1) the costs
of maintaining an  unprofitable  servicing  platform until it was transferred to
Ocwen in May 2001, plus the associated costs of transferring the portfolio,  (2)
a change in the useful  life of  computer-related  equipment  from five years to
three years,  and (3) debt  restructuring  costs  associated  with the Company's
current debt exchange  offer. In addition,  the Company  recorded a $1.5 million
charge related to a fair value adjustment to a pool of non-performing loans that
the Company sold in July 2001.

     INCOME  TAXES.  The Company  recorded a tax provision of $0.6 million and a
tax  benefit of $1.2  million  for the six months  ended June 30, 2001 and 2000,
respectively.

PART II FINANCIAL CONDITION

ITEM 1 - JUNE 30, 2001 COMPARED TO DECEMBER 31, 2000

     Cash and interest-bearing deposits decreased $58.1 million, or 93%, to $4.2
million at June 30, 2001, from $62.3 million at December 31, 2000. This decrease
was primarily related to the transfer of the servicing portfolio, which resulted
in the transfer of all the securitization trusts' collection accounts to Ocwen.

     Accounts  receivable  decreased  $16.9 million,  or 82%, to $3.6 million at
June 30,  2001,  from $20.5  million at December  31,  2000.  This  decrease was
primarily  due to the sale of the Company's  servicing  advance  receivables  to
Ocwen,  and  write-down of any  servicing  advance  receivable  determined to be
uncollectable, in connection with the Company's transfer of servicing.

     Loans held for sale, net decreased $3.0 million, or 4%, to $79.7 million at
June 30,  2001,  from $82.7  million at December  31,  2000.  This  decrease was
primarily  due to  the  net  difference  between  loan  originations  and  loans
securitized  or whole loan sales during the six months  ended June 30, 2001.  In
addition,  the Company  established a $1.5 million  provision for loan losses in
May 2001 related to a fair value  adjustment to a pool of  non-performing  loans
that the Company sold in July 2001.  Based on  management's  review of its loans
held for sale portfolio it was

                                       17


determined  that an increase in the  provision was required in order to properly
reflect the market value of its inventory.

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

     Interest-only and residual certificates decreased $30.4 million, or 14%, to
$186.5 million at June 30, 2001,  from $216.9 million at December 31, 2000. This
decrease primarily reflects a $25.4 million write down of the Company's residual
certificates  sold under a sale  agreement  entered into in the first quarter of
2001 for a $15 million cash  purchase  price,  which  represented  a significant
discount to the Company's carrying value of such residual certificates. This was
partially offset by the net accretion of the Company's residual  certificates as
part of its  mark-to-market  fair value  adjustment in accordance with SFAS 115.
The  Company  also  received a  certificate  valued at $7.0  million  from loans
securitized during the six months ended June 30, 2001.

     Equipment, net, decreased $7.4 million, or 49%, to $7.6 million at June 30,
2001, from $15.0 million at December 31, 2000. This decrease  primarily reflects
the Company's  change to its  estimated  life on computer  equipment  during the
second quarter of 2001,  the  disposition  of servicing  assets  relating to the
Company's transfer of servicing and the closing of some branches.

     Prepaid and other assets  decreased $32.6 million,  or 86%, to $5.2 million
at June 30, 2001,  from $37.8  million at December 31, 2000.  This  decrease was
primarily  attributable to (1) the extinguishment of the Company's  wholly-owned
special  purpose  entities  (and the equity  (capital) in such  special  purpose
entity)   used  as  the   issuers  for   delinquency   and   servicing   advance
securitizations,  in  connection  with the sale of servicing to Ocwen,  upon the
Company's  repurchase of such securitization using the proceeds it received from
selling the underlying  delinquency and servicing advance  receivables to Ocwen,
and (2) the  Company's  payment of its Senior Note  interest  coupon in February
2001,  which was held in escrow,  and therefore  reflected as a prepaid asset at
December 31, 2000.

     Warehouse  financing and other borrowings  decreased $23.4 million, or 26%,
to $65.2  million  at June 30,  2001,  from $88.6 at  December  31,  2000.  This
decrease was primarily  attributable  to a lower amount of monies borrowed under
the Company's warehouse facility.

     The aggregate  principal balance of the Senior Notes totaled $149.6 million
at June 30, 2001 and December 31, 2000,  net of unamortized  bond discount.  The
Senior Notes accrue interest at a rate of 9.5% per annum, payable  semi-annually
on February 1 and August 1.

     Investor payable  decreased , to $0 at June 30, 2001, from $69.5 million at
December 31, 2000. The decrease was the direct result of the Company's servicing
portfolio transfer to Ocwen. The Company had previously  recorded,  as servicer,
the  amount of  principal  collected  at the end of a  reporting  period and the
accrued interest that was due the securtization trusts in the following period.

                                       18


 LIQUIDITY AND CAPITAL RESOURCES

     In the past,  the Company has  operated  generally  on a negative  cashflow
basis. If it can increase loan originations to a sufficient level so as to bring
down its overall  cost to  originate  loans,  the Company  believes  that it can
generate  positive  cashflow within  approximately  twelve months. To do so, the
Company must generate  sufficient cash from (1)  securitizing  and selling whole
loans,  (2)  origination  fees on newly closed loans,  and (3) cashflow from the
excess cashflow  certificates it retains in connection with its securitizations.
However,  there can be no  assurance  that the  Company  will  begin  generating
positive cashflow within twelve months or at all. In addition,  the Company must
successfully  complete  the  Second  Exchange  Offer in order to  remain a going
concern.  If it is unable to consummate the Second Exchange  Offer,  the Company
will likely file for bankruptcy.

      Currently, the Company's primary cash requirements include the funding of:

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

      o interest expense on warehouse and other financing;

      o fees, expenses,  and tax payments incurred in connection with
        our securitization program; and

      o general ongoing administrative and operating expenses.

     Historically,  the Company has utilized various financing  facilities,  the
issuance  of debt,  like the senior  notes,  and an equity  financing  to offset
negative operating cashflow and support its loan originations,  securitizations,
servicing  and general  operating  expenses.  The Company's  primary  sources of
liquidity  continue to be  warehouse,  residual and other  financing  facilities
(E.G.,  capital  leasing),  securitizations  of mortgage loans,  and, subject to
market conditions,  sales of whole loans, mortgage servicing rights and residual
assets,  proceeds from excess cashflow certificates and the issuance of debt and
equity securities.  The Company also anticipates,  subject to market conditions,
utilizing net interest margin securitizations and/or other financing against our
residual assets. If the Company is not able to obtain financing,  it will not be
able to originate new loans and its business and results of  operations  will be
materially and adversely affected.

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

                                       19


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

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

INTEREST RATE RISK

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

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

     Fluctuating  interest rates also may affect the net interest  income earned
by the Company resulting from the difference between the yield to the Company on
loans held pending sales and the interest paid by the Company for funds borrowed
under the Company's  warehouse  facilities,  although the Company  undertakes to
hedge its exposure to this risk by using  treasury  rate lock  contracts  and/or
FNMA mortgage securities. (See "--Hedging"). Fluctuating interest rates also

                                       20

may  affect  net  interest  income  as  certain  of the  Company's  asset-backed
securities are priced based on one-month  LIBOR,  but the collateral  underlying
such securities are comprised of mortgage loans with either fixed interest rates
or  "hybrid"  interest  rates - fixed for the  initial two or three years of the
mortgage loan,  and  adjusting thereafter every six months - which creates basis
risk (See "--Fair Value Adjustments").

HEDGING

     The  Company  originates  mortgage  loans  and then  sells  them  through a
combination  of whole  loan  sales  and  securitizations.  Between  the time the
Company  originates  the mortgage and sells the mortgage  loans in the secondary
market, the Company may hedge the risk of fluctuations in interest.  The risk to
the Company  begins  after the Company  originates  mortgage  loans and prior to
selling or securitizing  such mortgage  loans.  Since the Company has closed and
funded a mortgage  loan at a specified  interest  rate and  recorded an expected
gain at the time of sale of that  mortgage  loan,  the  Company  is exposed to a
higher  interest rate  environment due to market  conditions.  A higher interest
rate market  implies a higher cost of funds to the Company  which  decreases the
net spread the Company  would earn  between the mortgage  interest  rate on each
mortgage loan less the cost of funds. As a result,  the Company may experience a
lower gain on sale.

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

                                       21


Company's securitizations. These  strategies  are  designated as  hedges  in the
Company's  books and  records and are closed out when the  associated  loans are
sold.

     If the value of the hedges decrease, offsetting an increase in the value of
the loans, the Company,  upon settlement with its hedge  counterparty,  will pay
the hedge loss in cash and then realize the corresponding  increase in the value
of the loans as part of its net gain on sale of mortgage  loans  through  either
its  corresponding   interest-only  and  residual  certificates  or  whole  loan
premiums. Conversely, if the value of the hedges increase, offsetting a decrease
in the  value  of the  loans,  the  Company,  upon  settlement  with  its  hedge
counterparty,  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   interest-only  and  residual  certificates  or  whole  loan
premiums.

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

     The Company did not hedge during the six months  ended June 30,  2001.  The
Company recorded a hedge loss of $0.1 during the six months ended June 30, 2000.

INFLATION

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

IMPACT OF NEW ACCOUNTING STANDARDS

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

RISK FACTORS

     Except  for  historical   information  contained  herein,  certain  matters
discussed in this Form 10-Q are  "forward-looking  statements" as defined in the
Private  Securities  Litigation Reform Act ("PSLRA") of 1995, which involve risk
and  uncertainties   that  exist  in  the  Company's   operations  and  business
environment, and are subject to change on various important factors. The Company
wishes  to take  advantage  of the  "safe  harbor"  provisions  of the  PSLRA by
cautioning  readers that  numerous  important  factors  discussed  below,  among
others,  in some cases have caused,  and in the future could cause the Company's
actual results to differ materially from those expressed in any  forward-looking
statements  made by, or on behalf of, the Company.  The following  include some,
but not all, of the factors or uncertainties  that could cause actual results to
differ from projections:
     o  The  Company's  ability or  inability  to  consummate  all facets of the
        Second Debt  Restructuring,  including  without  limitation,  the Second
        Exchange Offer.

     o  The Company's  ability or inability to increase its loan originations to
        specified levels (and subsequent sale or  securitization  of such loans)
        to offset the Company's current cost structure.

     o  The Company's ability or inability to continue to access lines of credit
        at  favorable  terms  and  conditions,   including  without  limitation,
        warehouse and other credit facilities  used to finance newly  originated
        mortgage loans held for sale.

                                       22


     o  The  Company's   ability  or  inability  to  continue  its  practice  of
        securitization  of mortgage  loans held for sale, as well as its ability
        to utilize optimal  securitization  structures at favorable terms to the
        Company.

     o  The Company's  ability or inability to continue  monetizing its residual
        assets, including without limitation, selling, financing or securitizing
        (through NIM transactions) such assets.

     o  Costs associated with litigation,  compliance with the NYSBD Remediation
        Agreement and NYOAG Stipulated Order on Consent, and rapid or unforeseen
        escalation of the cost of regulatory compliance, generally including but
        not limited to,  adoption of new, or changes in state or federal lending
        laws and regulations  and the application of such laws and  regulations,
        licenses,  environmental  compliance,  adoption  of new,  or  changes in
        accounting  policies and practices and the  application  of such polices
        and practices.  Failure to comply with various federal,  state and local
        regulations,   accounting  policies,   environmental   compliance,   and
        compliance  with  the  Remediation  Agreement  and  Stipulated  Order on
        Consent  can  lead  to  loss  of  approved  status,  certain  rights  of
        rescission for mortgage loans,  class action lawsuits and administrative
        enforcement action against the Company.

     o  A general economic  slowdown.  Periods of economic slowdown or recession
        may be accompanied by decreased demand for consumer credit and declining
        real estate values.  Because of the Company's  focus on  credit-impaired
        borrowers, the actual rate of delinquencies,  foreclosures and losses on
        loans  affected by the borrowers  reduced  ability to use home equity to
        support  borrowings could be higher than those generally  experienced in
        the  mortgage  lending  industry.  Any  sustained  period  of  increased
        delinquencies,  foreclosure,  losses or increased  costs could adversely
        affect  the  Company's  ability  to  securitize  or  sell  loans  in the
        secondary market.

     o  The effects of interest rate  fluctuations and the Company's  ability or
        inability to hedge  effectively  against such  fluctuations  in interest
        rates, the effect of changes in monetary and fiscal  policies,  laws and
        regulations,  other  activities of  governments,  agencies,  and similar
        organizations,  social and economic conditions,  unforeseen inflationary
        pressures and monetary fluctuation.

     o  Increased  competition  within the  Company's  markets has taken on many
        forms,  such as  convenience  in  obtaining  a loan,  customer  service,
        marketing and distribution channels,  loan origination fees and interest
        rates. The Company is currently  competing with large finance  companies
        and conforming mortgage originators many of whom have greater financial,
        technological and marketing resources.

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

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

                                       23


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

     A  hypothetical   10  basis  point  increase  in  interest   rates,   which
historically  has  resulted in  approximately  a 10 basis point  decrease in the
excess  spread,  would be expected to reduce the  Company's  net gain on sale by
approximately 25 basis points. Many factors, however, can affect the sensitivity
analysis described above including, without limitation, the structure and credit
enhancement used in a particular securitization,  the Company's prepayment, loss
and  discount  rate  assumptions,  and the spread  over  treasuries  demanded by
asset-backed investors who purchase the Companies asset-backed securities.

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

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

                                       24


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

     o  In or about  November  1998,  Delta  received  notice that it had been
        named in a lawsuit  filed in the United  States  District  Court for the
        Eastern  District of New York.  In December  1998,  plaintiffs  filed an
        amended  complaint  alleging that Delta had violated the Home Equity and
        Ownership  Protection Act  ("HOEPA"),  the Truth in Lending Act ("TILA")
        and New York State General  Business Lawss 349. The complaint  seeks (a)
        certification  of  a  class  of  plaintiffs,  (b)  declaratory  judgment
        permitting  rescission,  (c) unspecified actual,  statutory,  treble and
        punitive damages  (including  attorneys'  fees), (d) certain  injunctive
        relief, and (e) declaratory  judgment declaring the loan transactions as
        void and unconscionable.  On December 7, 1998,  plaintiff filed a motion
        seeking  a  temporary  restraining  order  and  preliminary  injunction,
        enjoining Delta from conducting foreclosure sales on 11 properties.  The
        District  Court  Judge  ruled that in order to  consider  such a motion,
        plaintiff  must  move to  intervene  on  behalf  of these 11  borrowers.
        Thereafter,  plaintiff  moved to  intervene  on  behalf of 3 of these 11
        borrowers  and  sought  the  injunctive  relief on their  behalf.  Delta
        opposed the  motions.  On December 14,  1998,  the District  Court Judge
        granted the motion to intervene  and on December 23, 1998,  the District
        Court  Judge  issued  a  preliminary  injunction  enjoining  Delta  from
        proceeding with the foreclosure sales of the three inventory properties.
        Delta has filed a motion for  reconsideration  of the  December 23, 1998
        order.  In January  1999,  Delta  filed an answer to  plaintiffs'  first
        amended  complaint.  In July 1999,  plaintiffs  were granted  leave,  on
        consent, to file a second amended complaint.  In August 1999, plaintiffs
        filed a  second  amended  complaint  that,  among  other  things,  added
        additional  parties but contained  the same causes of action  alleged in
        the first amended complaint.  In September 1999, Delta filed a motion to
        dismiss  the  complaint,  which was opposed by  plaintiffs  and, in June
        2000,  was denied in part and granted in part by the Court.  In or about
        October  1999,  plaintiffs  filed a motion  seeking an order  preventing
        Delta, its attorneys and/or the NYSBD from issuing notices to certain of
        Delta's  borrowers,  in accordance with a settlement  agreement  entered
        into by and between  Delta and the NYSBD.  In or about  October 1999 and
        November 1999, respectively, Delta and the NYSBD submitted opposition to
        plaintiffs'  motion.  In March  2000,  the Court  issued  an order  that
        permits  Delta to issue an  approved  form of the notice.  In  September
        1999,  plaintiffs  filed a motion  for  class  certification,  which was
        opposed by Delta in February  2000,  and  ultimately  withdrawn  without
        prejudice by  plaintiffs  in January  2001.  Delta  believes that it has
        meritorious  defenses  and  intends  to defend  this  suit,  but  cannot

                                       25

        estimate with any certainty its ultimate  legal or financial  liability,
        if any, with respect to the alleged claims.

     o  In or about November 1998, Delta received notice that  it had been named
        in a lawsuit filed in the United States District  Court for the Southern
        District  of of New York,  alleging  that  it was liable on two  limited
        guaranties of loans to a commercial  real estate development  project in
        Palm Beach County Florida. The  complaint seeks compensatory damages for
        amounts  claimed  due under  the  limited  guaranties  in the  amount of
        approximately  $1.4  million  plus  interest and   attorneys'  fees.  In
        January 1999, Delta answered the complaint.  In  October 1999, plaintiff
        filed a motion for summary  judgment,  which  Delta  opposed in November
        1999.  The motion has  been fully  briefed and  submitted  to the Court.
        Delta believes that  it has  meritorious  defenses and intends to defend
        this suit, but  cannot estimate with any certainty its ultimate legal or
        financial liability, if any, with respect to the alleged claims.

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

     o  In or about July 1999, Delta received notice that it had been named in a
        lawsuit  filed in the  United  States  District  Court  for the  Western
        District of New York,  alleging that amounts collected and maintained by
        it in certain  borrowers'  tax and insurance  escrow  accounts  exceeded
        certain statutory (RESPA) and/or contractual (the respective  borrowers'
        mortgage agreements) ceilings.  The complaint seeks (a) certification of
        a class of  plaintiffs,  (b)  declaratory  relief  finding  that Delta's
        practices violate  applicable  statutes and/or the mortgage  agreements,
        (c) injunctive  relief,  and (d) unspecified  compensatory  and punitive
        damages  (including  attorneys'  fees).  In October 1999,  Delta filed a
        motion to dismiss the complaint. In or about November 1999, the case was
        transferred  to the  United  States  District  Court  for  the  Northern
        District of Illinois.  In February 2000, the plaintiff  opposed  Delta's
        motion to dismiss.

                                       26


        In March 2000, the Court granted  Delta's motion to dismiss in part, and
        denied it in part.  Delta believes that it has meritorious  defenses and
        intends to defend this suit, but cannot  estimate with any certainty its
        ultimate  legal or  financial  liability,  if any,  with  respect to the
        alleged claims.

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

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

     o  In or about April 2000,  Delta received notice that it had been named in
        a lawsuit  filed in the Supreme  Court of the State of New York,  Nassau
        County,  alleging that Delta

                                       27


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

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS. 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 15,  2001.  At the
meeting,  Sidney A.  Miller  and  Martin D.  Payson  were  elected as a Class II
Director  for a term of three  years.  Hugh  Miller, Richard  Blass,   Arnold B.
Pollard and  Margaret Williams continue  to  serve as  members of  the Board  of
Directors.

               Votes cast in favor of Mr. Miller's selection totaled 11,261,786,
               while 309,396 votes were withheld.

               Votes cast in favor of Mr. Payson's selection totaled 11,263,401,
               while 307,781 votes were withheld.

     The  stockholders  also voted to ratify the  appointment of KPMG LLP as the
Company's  independent  auditors  for the fiscal year ending  December 31, 2001.
Votes  cast in favor of this  ratification  were  11,542,032,  while  votes cast
against were 28,050 and abstentions totaled 1,100.

     The  stockholders  also  voted to  approve  and adopt  the Delta  Financial
Corporation  2001 Stock  Option Plan.  Votes cast in favor of this  ratification
were 11,043,324,  while votes cast against were 524,983 and abstentions  totaled
2,875.

ITEM 5.  OTHER INFORMATION.

     In  May  2001,  the  New  York  Stock  Exchange   ("NYSE")  delisted  Delta
Financial's  Common Stock.  The Exchange stated that it took this action because
Delta was unable to meet the NYSE's continued listing standards of maintaining a
minimum of $15 million in market  capitalization and a

                                       28


minimum  share  price  of  $1 over  a 30-day trading period. When Delta's Common
Stock was  delisted  in May, it began  trading on the Over The Counter  Bulletin
Board ("OTCBB") under the ticker symbol "DLTO."

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

(a)   Exhibits:  None

(b)   Reports on Form 8-K:  None

                                       29


<PAGE>
                                   SIGNATURES

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


                                             DELTA FINANCIAL CORPORATION
                                                    (Registrant)

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


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



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