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 March 31, 2003

                                       OR

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

                         Commission File Number: 1-12109

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

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


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

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

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


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

                                Yes [ x ] No [ ]

      As of March 31, 2003,  16,186,789 shares of the Registrant's common stock,
par value $0.01 per share, were outstanding.


<PAGE>
                               INDEX TO FORM 10-Q

                                                                        Page No.

PART I  -  FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)

           Consolidated Balance Sheets as of March 31, 2003 and
           December 31, 2002.................................................. 1

           Consolidated Statements of Operations for the three months ended
           March 31, 2003 and March 31, 2002.................................. 2

           Consolidated Statements of Cash Flows for the three months ended
           March 31, 2003 and March 31, 2002.................................. 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........ 31

Item 4.    Control and Procedures............................................ 32

PART II  - OTHER INFORMATION

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

Item 2.    Changes in Securities and Use of Proceeds..........................35

Item 3.    Defaults Upon Senior Securities....................................35

Item 4.    Submission of Matters to a Vote of Security Holders................35

Item 5.    Other Information..................................................35

Item 6.    Exhibits and Current Reports on Form 8-K...........................35

Signatures....................................................................36

Certifications................................................................37

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

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

                                                               MARCH 31,        DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)                    2003               2002
                                                              ----------         -----------
ASSETS                                                        (UNAUDITED)        (AUDITED)
Cash and interest-bearing deposits                            $   3,127              3,405
Accounts receivable                                               1,936              1,700
Loans held for sale, net                                         69,974             33,984
Excess cash flow certificates, net                               25,976             24,565
Equipment, net                                                    2,460              2,553
Prepaid and other assets                                          2,068              1,737
Deferred tax asset, net                                           5,600              5,600
                                                              ---------          ---------
    Total assets                                              $ 111,141             73,544
                                                              =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable                                                  $   1,146              1,369
Warehouse financing and other borrowings                         46,338             16,352
Senior notes                                                     10,844             10,844
Accounts payable and accrued expenses                            13,486             12,327
Income taxes payable                                              3,130              3,155
                                                              ---------          ---------
    Total liabilities                                            74,944             44,047
                                                              ---------          ---------

STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $.01 par value. Authorized 150,000
   shares, 139,156 shares outstanding at March 31, 2003
   and December 31, 2002                                         13,916             13,916
Common stock, $.01 par value. Authorized  49,000,000
   shares; 16,303,589 and 16,022,349 shares issued and
   16,186,789 and 15,905,549 shares outstanding at
   March 31, 2003 and December 31, 2002, respectively               163                160
Additional paid-in capital                                       99,482             99,482
Accumulated deficit                                             (76,046)           (82,743)
Treasury stock, at cost (116,800 shares)                         (1,318)            (1,318)
                                                              ----------         ----------
    Total stockholders' equity                                   36,197             29,497
                                                              ----------         ----------
      Total liabilities and stockholders' equity              $ 111,141             73,544
                                                              ==========         ========+=
</TABLE>

         See accompanying notes to consolidated financial statements.


                                        1
<PAGE>
                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<S>                                                 <C>                <C>
                                                         THREE MONTHS ENDED
                                                              MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)         2003               2002
                                                  -----------        -----------


REVENUES
   Net gain on sale of mortgage loans               $ 18,165            12,338
   Interest                                            2,810             3,902
   Net origination fees and other income               5,571             3,404
                                                     -------           -------
      Total revenues                                  26,546            19,644
                                                     -------           -------

EXPENSES
   Payroll and related costs                          12,729             9,677
   Interest expense                                    1,079             1,547
   General and administrative                          5,773             6,055
                                                     -------           -------
Total expenses                                        19,581            17,279
                                                     -------           -------

Income before income tax expense                       6,965             2,365
Income tax expense                                       268               120
                                                     -------           -------
      Net income                                    $  6,697             2,245
                                                     =======           =======

PER SHARE DATA:
   Basic- net income per common share               $  0.42               0.14
                                                    =======            =======
   Diluted - net income per common share            $  0.36               0.14
                                                    =======            =======

   Weighted-average number of shares
       outstanding - Basic                        15,921,173        15,883,749
                                                  ==========        ==========
   Weighted-average number of shares
       outstanding - Diluted                      18,489,825        16,406,317
                                                  ==========        ==========

</TABLE>

         See accompanying notes to consolidated financial statements.


                                       2
<PAGE>

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

<TABLE>
<S>                                                                  <C>                   <C>
                                                                             THREE MONTHS ENDED
                                                                                   MARCH 31,
(DOLLARS IN THOUSANDS)                                                      2003             2002
                                                                          -------          -------
Cash flows from operating activities:
   Net income                                                         $    6,697            2,245
   Adjustments to reconcile net income to net cash provided by
   (used in) operating activities:
      Provision for loan and recourse losses                                  64              441
      Depreciation and amortization                                          435              994
      Deferred origination costs                                            (275)             225
Excess cashflow certificates received in
         securitization transactions, net                                 (1,411)          (1,657)
      Changes in operating assets and liabilities:
         Increase in accounts receivable                                    (236)            (145)
         (Increase) decrease in loans held for sale, net                 (35,715)          28,987
         (Increase) decrease in prepaid and other assets                    (331)             261
         Increase (decrease) in warehouse lines of credit                 30,535          (32,052)
         Increase (decrease) in accounts payable and accrued expenses      1,095             (740)
         (Decrease) increase in income taxes payable                         (25)             139
                                                                        --------          -------
Net cash provided by (used in) operating activities                          833           (1,302)
                                                                        --------          -------

Cash flows from investing activities:
         Purchase of equipment                                              (342)             (13)
                                                                        --------          --------
Net cash used in investing activities                                       (342)             (13)
                                                                        --------          --------
Cash flows from financing activities:
      Decrease in bank payable                                              (223)            (162)
      Repayments of other borrowings                                        (549)            (942)
      Proceeds from exercise of warrants                                       3                -
                                                                        --------          --------
Net cash used in financing activities                                       (769)          (1,104)
                                                                        --------          --------

Net decrease in cash and interest-bearing deposits                          (278)          (2,419)

Cash and interest-bearing deposits at beginning of period                  3,405            6,410
                                                                        --------          --------
Cash and interest-bearing deposits at end of period                   $    3,127            3,991
                                                                        ========          ========
Supplemental Information:
Cash paid during the period for:
   Interest                                                           $    1,301            1,807
                                                                        ========          ========
   Income taxes                                                       $      293                7
                                                                        ========          ========
</TABLE>


         See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

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

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

   We have prepared the accompanying unaudited consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America (GAAP) for interim financial information and the instructions to Form
10-Q.  Certain  information  and  footnote   disclosures  normally  included  in
financial  statements  prepared in accordance  with GAAP have been  condensed or
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.  You should read the accompanying  unaudited  consolidated financial
statements  and  the  information  included  under  the  heading   "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  in
conjunction with our audited consolidated financial statements and related notes
for the year ended  December 31, 2002,  which were filed with the Securities and
Exchange Commission with our most recent annual report on Form 10-K. The results
of operations for the three-month period ended March 31, 2003 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) STOCK OPTION PLANS

   We apply  the  intrinsic-value-based   method  of  accounting  prescribed  by
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations, including Financial Accounting Standards
Board  ("FASB")  Interpretation  No. 44,  ACCOUNTING  FOR  CERTAIN  TRANSACTIONS
INVOLVING STOCK COMPENSATION, AN INTERPRETATION OF APB OPINION NO. 25, issued in
March 2000,  to account for our  fixed-plan  stock  options.  Under this method,
compensation expense is recorded on the date of grant only if the current market
price  of the  underlying  stock  exceeded  the  exercise  price.  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 123,  ACCOUNTING FOR  STOCK-BASED
COMPENSATION,   established  accounting  and  disclosure  requirements  using  a
fair-value-based  method of accounting  for  stock-based  employee  compensation
plans.  As allowed by SFAS No.  123,  we have  elected to  continue to apply the
intrinsic-value-based  method of accounting  described  above,  and have adopted
only the  disclosure  requirements  of SFAS No.  123.  In April  2003,  the FASB
announced it will, in the future,  require all companies to expense the value of
employee  stock options but has not decided how to measure the fair value of the
options.  As such, the financial  statement  impact of stock option expensing is
not known as this time. The following table illustrates the effect on net income
if the

                                       4

fair-value-based method had been applied.

<TABLE>
<S>                                        <C>           <C>
                                               THREE MONTHS ENDED
    (Dollars in thousands,                      MARCH      MARCH
    except share data)                        31, 2003   31, 2002
                                             ---------  ---------
    Net income, as reported                 $   6,697     2,245
    Deduct total stock-based
       employee compensation
       expense determined under
       fair-value-based method
       for all awards, net of tax               (110)     (117)
                                             ---------  ---------
             Pro forma net income           $   6,587     2,128
                                             =========  =========

Earnings per share:

             Basic - as reported            $    0.42      0.14
                                             =========  =========
             Basic - pro forma              $    0.41      0.13
                                             =========  =========
             Diluted -as reported           $    0.36      0.14
                                             =========  =========
             Diluted - pro forma            $    0.36      .013
                                             =========  =========
</TABLE>

(3) LOANS HELD FOR SALE, NET

   Our inventory  consists of first and second  mortgages,  which had a weighted
average interest rate of 8.52% at March 31, 2003 and 8.45% at December 31, 2002.
These  mortgages are being held,  at the lower of cost or estimated  fair value,
for future sale.  Certain of these  mortgages  are pledged as  collateral  for a
portion of the warehouse  financing and other borrowings.  Mortgages are payable
in monthly  installments  of principal  and interest and have terms varying from
five to thirty years.

    Loans Held for Sale, net, are summarized as follows:
<TABLE>
<S>                                  <C>                      <C>
(DOLLARS IN THOUSANDS)                 March 31, 2003     December 31, 2002
------------------------------------------------------------------------------
Loans held for sale                   $    69,885              34,170
Net deferred origination cost                 524                 249
Valuation allowance                          (435)               (435)
------------------------------------------------------------------------------
Loans held for sale, net              $    69,974              33,984
------------------------------------------------------------------------------
</TABLE>





                                       5

(4) EXCESS CASHFLOW CERTIFICATES, NET

    The activity related to our excess cashflow certificates is as follows:
<TABLE>
<S>                                                <C>                  <C>
(DOLLARS IN THOUSANDS)                             March 31, 2003    December 31, 2002
--------------------------------------------------------------------------------------
Balance, beginning of year                          $   24,565           16,765
New excess cashflow certificates                         2,611           10,499
Cash received from excess cashflow certificates         (1,896)          (2,588)
Net accretion of excess cashflow certificates              696            1,974
Fair value adjustments                                      --           (2,085)
--------------------------------------------------------------------------------------
Balance, end of year                                $   25,976           24,565
--------------------------------------------------------------------------------------
</TABLE>

(5) WAREHOUSE FINANCING AND OTHER BORROWINGS

    At  March  31,  2003 and  December  31,  2002,  we had two warehouse  credit
facilities for a combined amount of $400.0 million. The lines are collateralized
by  specific  mortgage  receivables,  which  are  equal to or  greater  than the
outstanding balances under the line at any point in time.

   The  following  table  summarizes  certain  information  regarding  warehouse
financing and other borrowings at the relevant times:

(DOLLARS IN MILLIONS)
<TABLE>
<S>                         <C>       <C>               <C>          <C>    <C>        <C>
                                                               BALANCE
                             Facility                          -------               Expiration
Facility Description          Amount       Rate          3/31/03    12/31/02            Date
---------------------------------------------------------------------------------------------------
Warehouse line of credit     $200.0    LIBOR + 1.125%    $ 30.9        --               May 2003
Warehouse line of credit     $200.0    LIBOR + 1.125%      13.4       13.8              May 2003
Capital leases                 n/a     3.76% - 12.50%       2.0        2.6   Apr 2003 - Jun 2006
---------------------------------------------------------------------------------------------------
Total                        $400.0                      $ 46.3       16.4
---------------------------------------------------------------------------------------------------
</TABLE>

   In May 2003, we extended one of our warehouse lines of credit and allowed the
second warehouse line of credit to expire,  replacing it with a new $200 million
warehouse line of credit from a new creditor. Both warehouse lines of credit are
due to expire in May 2004, have interest rates of London Inter-Bank Offered Rate
("LIBOR") + 1.125%,  and are  collateralized by specific  mortgage  receivables,
which are equal to or greater than the  outstanding  balances  under the line at
any point in time.

   We are required to comply with various  operating and financial  covenants as
provided in our warehouse  agreements,  which are  customary  for  agreements of
their  type.  The  continued  availability  of funds  provided to us under these
agreements is subject to, among other conditions,  our continued compliance with
these covenants. We believe we are in compliance with such covenants as of March
31, 2003.

(6) 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.

                                       6

   For the three months ended March 31:
<TABLE>
<S>                                          <C>                 <C>
(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)           2003                2002
------------------------------------------------------------------------------
Net Income                                    $    6,697               2,245
Weighted-average shares                       15,921,173          15,883,749
Basic EPS                                     $     0.42                0.14
Weighted-average shares                       15,921,173          15,883,749
Incremental shares-options                     2,568,652             522,568
------------------------------------------------------------------------------
                                              18,489,825          16,406,317
Diluted EPS                                   $     0.36                0.14
------------------------------------------------------------------------------
</TABLE>

(7) WARRANTS

   In December 2000, as part of our first  exchange  offer,  we issued  ten-year
warrants to buy  approximately  1.6 million  shares of our common  stock,  at an
initial  exercise  price of $9.10 per  share,  subject  to  upward  or  downward
adjustment in certain  circumstances.  In December  2002, the exercise price for
the warrants was adjusted downward to $0.01 per share in accordance with Section
6 of the warrant  agreement,  dated  December  21, 2000,  by and between  Mellon
Investor  Services  LLP, as warrant  agent and us. During the three months ended
March 31, 2003, approximately 281,240 warrants were exercised.

(8) IMPACT OF NEW ACCOUNTING STANDARDS

    In April 2003, the FASB issued SFAS No. 149,  "Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities."  SFAS No. 149 amends SFAS No.
133,  "Accounting  for  Derivatives  Instruments  and Hedging  Activities,"  for
certain  decisions made by the Board as part of the  Derivatives  Implementation
Group  process.  This  statement  is  effective  for  contracts  entered into or
modified after June 30, 2003 and hedging relationships designated after June 30,
2003. Management does not expect that the provisions of SFAS No. 149 will impact
our results of operations or financial condition.



                                        7
<PAGE>

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

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

SUMMARY OF CRITICAL ACCOUNTING POLICIES

   EXCESS  CASHFLOW  CERTIFICATES.  Our excess cashflow  certificates  primarily
consist of the right to  receive  the  future  excess  cash flows from a pool of
securitized  mortgage  loans.  Our  interest  in  these  certificates  generally
consists of the following:

   o  The interest  spread between the coupon on the  underlying  mortgage loans
      and the cost of financing (which, when we sell Net Interest Margin ("NIM")
      notes, is only received after the NIM notes are paid in full);
   o  On our 2002 securitizations,  prepayment penalties received from borrowers
      who payoff their loans early in their life (which, when we sell NIM notes,
      is only received after the NIM notes are paid in full ); and
   o  Overcollateralization, which is designed to protect the securities sold to
      the  securitization   pass-through  investors  from  credit  loss  on  the
      underlying  mortgage  loans (and which we describe in greater detail under
      "Securitizations").

   The excess cash flow we receive is highly  dependent  upon the interest  rate
environment,  to the extent  that basis risk exists  between the  securitization
trust's assets and  liabilities.  For instance,  in each of our  securitizations
that we issued since 2002,  the cost of financing for the  securitized  loans is
indexed  against 1 month  LIBOR,  meaning  that each month,  the  interest  rate
received  by the  pass  through  certificate  holders  may  adjust  (upwards  or
downwards)  as 1 month  LIBOR  changes  (liability),  while the  majority of the
underlying mortgage loans in the securitization trust have a fixed note rate for
at least 3 years (asset). As a result, as rates rise and fall, the amount of our
excess  cash flows will fall and rise,  which in turn will  increase or decrease
the value of our excess cashflow certificates.

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

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

                                       8

GENERAL

   Delta Financial Corporation (together with its subsidiaries,  "Delta" or "we"
or the "Company"),  is a specialty  consumer  finance  company that  originates,
securitizes,  and sells  non-conforming  mortgage  loans,  which  are  primarily
secured  by  first  mortgages  on one- to  four-family  residential  properties.
Throughout  our  21-year  operating  history,  we have  focused  on  lending  to
individuals  who  generally  do not satisfy the credit,  documentation  or other
underwriting  standards  set by more  traditional  sources of  mortgage  credit,
including  those  entities  that  make  loans in  compliance  with  conventional
mortgage lending  guidelines  established by Fannie Mae and Freddie Mac. We make
loans to these borrowers for such purposes as debt  consolidation,  refinancing,
education  and home  improvements.  Our  corporate  offices  are located at 1000
Woodbury Road,  Woodbury,  NY 11797 and we can be contacted at (516) 364-8500 or
through our  internet  web site at  http://www.deltafinancial.com.  (Information
contained on our website does not constitute  part of this report.) Our Exchange
Act  filings can be accessed  on the  Investor  Relations  page of our web site,
through a link to EDGAR.

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

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

    INDEPENDENT  MORTGAGE  BROKER  (WHOLESALE)  CHANNEL.  Through our  wholesale
distribution channel, we originate mortgage loans indirectly through independent
mortgage   brokers  and  other  real  estate   professionals   who  submit  loan
applications on behalf of borrowers.  We currently originate the majority of our
wholesale  loans in 26  states,  through  our  network  of  approximately  1,500
brokers.  The broker's role is to source the business,  identify the  applicant,
assist in completing the loan  application,  gather  necessary  information  and
documents  and serve as the  liaison  between us and the  borrower  through  the
entire origination  process. We review,  process and underwrite the applications
submitted by the broker, approve or deny the application,  set the interest rate
and  other  terms  of  the  loan  and,  upon  acceptance  by  the  borrower  and
satisfaction  of all conditions  imposed by us as the lender,  lend the money to
the borrower.  Because  brokers conduct their own marketing and employ their own
personnel to complete loan  applications  (and hence charge a broker fee that is
commensurate   with  their  services)  and  maintain   contact  with  borrowers,
originating  loans  through our broker  network  allows us to increase  our loan
volume without incurring the higher marketing and employee costs associated with
increased retail originations.

                                       9

   RETAIL LOAN  CHANNEL.  Through our retail  distribution  channel,  we develop
retail loan leads ("retail loans") primarily  through our  telemarketing  system
and our  network  of 7 retail  offices  and 4  origination  centers  (which  are
typically  staffed with considerably more loan officers and cover a broader area
than retail offices) located in eight states. We continually  monitor our retail
operations  and evaluate  current and potential  retail  offices on the basis of
selected demographic statistics, marketing analyses and other criteria developed
by us.  Typically,  contact with the customer is initially  handled  through our
telemarketing center. On the basis of an initial screening conducted at the time
of the call, our telemarketer  makes a preliminary  determination of whether the
customer and the property meet our lending  criteria.  If the customer does meet
our  criteria,  the  telemarketer  will forward the customer to one of our local
branches or  origination  centers.  The mortgage  analyst at the local branch or
origination center may complete the application over the telephone,  or schedule
an  appointment  in the retail  loan  office  most  conveniently  located to the
customer or in the  customer's  home,  depending on the  customer's  needs.  The
mortgage  analyst  assists the  applicant in  completing  the loan  application,
ensures that an  appraisal  has been  ordered  from an  independent  third party
appraisal  company,  orders  a credit  report  from an  independent,  nationally
recognized   credit  reporting  agency  and  performs  various  other  tasks  in
connection  with the completion of the loan package.  Our mortgage  analysts are
trained to structure loans that meet the applicant's  needs while satisfying our
lending  guidelines.  The loan package is  underwritten  for loan  approval on a
centralized basis. If the loan package is approved, we will fund the loan.

   For the three  months  ended March 31, 2003,  we  originated  $323 million of
loans,  an  increase  of 70% over the $190  million of loans  originated  in the
comparable  period in 2002. Of these  amounts,  approximately  $175 million were
brokered loans and $148 million were retail loans,  compared to $123 million and
$67 million,  respectively,  during the three  months  ended March 31, 2002.  In
addition,  loan  production in the first quarter of 2003 increased 25% from $258
million  in the fourth  quarter  of 2002.  The  fourth  quarter  production  was
comprised of $145 million of brokered loans and $113 million of retail loans.

   POOLING OF LOANS PRIOR TO SALE.  After we close or fund a loan,  we typically
pledge  the loan as  collateral  under a  warehouse  line of  credit  to  obtain
financing  against that loan.  By doing so, we  replenish  our capital so we can
make new loans. Typically,  loans are financed on a warehouse line of credit for
only a limited time - generally, not more than three months - until such time as
we  can  pool  enough  loans  and  sell  the  pool  of  loans   either   through
securitization or on a whole-loan basis. During this time, we earn interest paid
by the borrower as income,  but this income is offset in part by the interest we
pay to the warehouse creditor for providing us with financing.

   SALE OF LOANS.  We derive the  majority of our  revenues  and cash flows from
selling  mortgage loans through one of two outlets:  (i)  securitization,  which
involves  the  public  offering  by  a  securitization   trust  of  asset-backed
pass-through   securities  (and  related  interests   including   securitization
servicing rights on  newly-originated  pools of mortgage loans);  and (ii) whole
loan  sales,   which  includes  the  sale  of  pools  of  individual   loans  to
institutional  investors,  banks,  and consumer  finance-related  companies on a
servicing  released basis. We select the outlet depending on market  conditions,
relative  profitability and cash flows. We generally realize higher gain on sale
when we securitize than we do when we sell whole loans. We apply the

                                       10

proceeds from loan sales,  whether through  securitizations or whole loan basis,
to repay our  warehouse  lines of credit - in order to make  available  capacity
under these  facilities  for future  funding of mortgage loans - and utilize any
additional funds for working capital.

   Going forward,  we expect to continue to use a combination of securitizations
and whole loan sales,  with the amounts of each dependent upon conditions in the
marketplace and our goal of maximizing earnings and liquidity.

   The  following  table sets forth  certain  information  regarding  loans sold
through  the  Company's  securitizations  and on a whole loan  basis  during the
quarter ended March 31, 2003, (dollars in thousands):
<TABLE>
<S>                                               <C>                <C>
                                                      AMOUNT      PERCENTAGE
                                      ______________________________________
     Loan securitizations                          $ 261,000          96%
     Whole loan sales                                 12,220           4%
                                             ----------------------------
     Total securitizations and loans sold          $ 273,220         100%
                                             ============================
</TABLE>


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

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

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

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such  excess  cashflow  certificates  are  applied  in a  "waterfall"  manner as
follows:

                                       11

   o  first,  to cover any losses on the mortgage loans in the related  mortgage
      loan pool,  because the excess  cashflow  certificates  are subordinate in
      right of  payment  to all other  securities  issued by the  securitization
      trust;
   o  second,  to  reimburse the bond insurer,  if any, of the related series of
      pass-through  certificates  for amounts paid by or otherwise owing to that
      insurer;
   o  third, to build or maintain the overcollateralization provision (described
      in more detail  immediately  below) for that  securitization  trust at the
      required level by being applied as an accelerated  payment of principal to
      the holders of the pass-through certificates of the related series;
   o  fourth,  to  reimburse  holders of the  subordinated  certificates  of the
      related series of  pass-through  certificates  for unpaid interest and for
      any losses previously allocated to those certificates; and
   o  fifth, to pay interest on the related pass-through  certificates which was
      not paid because of the imposition of a cap on their  pass-through rates -
      these payments being called basis risk shortfall amounts.

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

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

                                       12

   Our securitizations  have typically required an O/C of between 1.25% and 3.0%
of the initial mortgage loans sold to the securitization trust. The required O/C
can increase or decrease  throughout the life of the transaction  depending upon
subordination  levels,  delinquency and/or loss tests and is subject to minimums
and maximums, as defined by the rating agencies and/or the bond insurer insuring
the  securitization.  On our  securitizations  prior  to  2002,  after  the  O/C
requirement is reached, the cash flows from the excess cashflow certificates are
then  distributed to us as the holder of the excess  cashflow  certificates,  in
accordance  with  the  "waterfall"  described  above.  Over  time,  if the  cash
collected  during the periods  exceeds  the amount  necessary  to  maintain  the
required O/C and all other required distributions have been met, and there is no
shortfall  in the related  required  O/C,  the excess is then  released to us as
holder of the excess cashflow certificate.

   We began utilizing a new  securitization  structure in 2002,pursuant to which
we  sold a net  interest  margin  certificate  or  NIM.  The  NIM  is  generally
structured  where we sell the  excess  cashflow  certificate  and P  certificate
(which  entitles  the  holder  to  all  prepayment  penalties  collected  by the
securitization trust) to a QSPE or owner trust (the NIM trust) and the NIM trust
in turn issues (1)  interest-bearing  NIM note(s) (backed by the excess cashflow
certificate and P certificate), and (2) a NIM owner trust certificate evidencing
ownership  in the NIM  trust.  We sell the  excess  cashflow  certificate  and P
certificate  without recourse except that we provide normal  representations and
warranties to the NIM trust. One or more investors  purchase the NIM note(s) and
the proceeds from the sale of the note(s),  along with a owner trust certificate
that is subordinate to the note(s),  represent the  consideration  to us for the
sale of the excess cashflow certificate.

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

   As part of the NIM  transaction,  we were required to "fully fund" the O/C at
closing  - as  opposed  to  having  it  build  up  over  time  as we had in past
securitizations - which is why we sold senior pass-through certificates totaling
approximately 1.5% less than the collateral in the securitization  trust. We use
a portion of the proceeds we receive from selling NIM note(s) to make up for the
difference between (1) the value of the mortgage loans sold and (2) the proceeds
from selling the senior pass-through certificates.

   In our 1st quarter 2003  securitization,  we derived the  following  economic
interests:

  o   we received a cash purchase  price from the sale of the NIM note(s) issued
      by a NIM trust, to which we sold the excess cashflow certificates;
  o   we  received  a cash  purchase  price  from the  sale of an  interest-only
      certificate,  which
                                       13

      entitles  the holder to receive  payments of interest at a  pre-determined
      rate and over a fixed  period  of time - I.E.,  the first 30 months of the
      securitization transaction in this case;
  o   we retained a NIM   owner trust certificate,  which entitles us to receive
      cash  flows  generated  by the  excess  cashflow  certificates  and  the P
      certificate issued in connection with the securitization  after the holder
      of the NIM  note(s)  has  been  paid in  full.  Although  the  cash  flows
      generated by excess cashflow  certificates  are received over time,  under
      existing  accounting  rules,  we must  report as income at the time of the
      securitization  the present value of all projected cash flows we expect to
      receive in the future from these excess cashflow  certificates  based upon
      an  assumed   discount  rate.  Our  valuation  of  these  excess  cashflow
      certificates  is  primarily  based on (1) our  estimate  of the  amount of
      expected  losses  or  defaults  that  will  take  place on the  underlying
      mortgage  loans  over the life of the  mortgage  loans,  (2) the  expected
      amount  of  prepayments  on the  mortgage  loans  due  to  the  underlying
      borrowers of the mortgage  loans paying off their  mortgage  loan prior to
      the  loan's  stated  maturity,  (3) the  London  Inter-Bank  Offered  Rate
      ("LIBOR")  forward curve (using current LIBOR as the floor rate) and (4) a
      discount rate; and
  o   we  received a cash  premium  from  selling the right to service the loans
      being securitized. This right entitles the contractual servicer to service
      the loans on behalf of the  securitization  trust,  and earn a contractual
      servicing  fee, and ancillary  servicing fees (which  includes  prepayment
      penalties for certain securitization  servicing rights we previously sold)
      in such capacity.

   At the time we completed the 1st quarter 2003  securitization,  we recognized
as revenue each of the economic  interests  described above, which were recorded
as net  gain  on  sale  of  mortgage  loans  on our  consolidated  statement  of
operations.

   A summary of the gain on sale and cash flow we received  from our 1st quarter
2003  securitization  is presented below.  "Loans Sold" represents the amount of
loans actually transferred to the securitization trusts during the period.
<TABLE>
<S>                                                           <C>
   GAIN ON SALE SUMMARY
      Loans Sold (in thousands)                                $261,000
                                                               ========
      NIM Proceeds, Net of Up Front Overcollateralization         5.28%
      Interest Only Certificate Proceeds                         0.45 %
      Excess Cashflow Certificate (owner trust certificate)      1.00 %
      Mortgage Servicing Rights                                  0.65 %
      Less:  Transaction Costs                                  (0.63)%
                                                                -------
           Net Gain on Sale Recorded                             6.75 %
                                                                =======

                                       14

   CASH FLOW SUMMARY
      NIM Proceeds, Net of Up Front Overcollateralization        5.28 %
      Interest Only Certificate Proceeds                         0.45 %
      Mortgage Servicing Rights                                  0.65 %
      Less: Transaction Costs                                   (0.63)%
                                                                -------
      Net Cash Flow at Closing                                   5.75 %
                                                                =======
</TABLE>

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

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

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

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

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

   Each  securitization  trust has the  benefit of either a  financial  guaranty
insurance  policy  from a monoline  insurance  company or a  senior-subordinated
securitization  structure,  which insures the timely payment of interest and the
ultimate payment of principal of the credit-enhanced  investor  certificate,  or
both (known as a  "hybrid").  In  "senior-subordinated"  structures,  the senior
certificate  holders are  protected  from losses by  subordinated  certificates,
which absorb any such losses first. In addition to such credit enhancement,  the
excess  cash  flows  that  would  otherwise  be paid to the holder of the excess
cashflow  certificate is used when and if it subsequently  becomes  necessary to
obtain or maintain required overcollateralization limits.  Overcollateralization
is used to  absorb  losses  prior to  making a claim on the  financial  guaranty
insurance policy or the subordinated certificates.

   WHOLE LOAN SALES. We also sell loans,  without retaining the right to service
the loans, in exchange for a cash premium. The premiums we receive from the loan
sales are  recorded as revenue  under net gain on sale of mortgage  loans at the
time of sale.  The cash  premiums  ranged  between 2.6% to 5.8% of the principal
amount of mortgage loans sold in the first quarter of 2003.

                                       15

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

  o   the net  interest  spread  earned  on  mortgage  loans  while  we hold the
      mortgage loans for sale (the  difference  between the interest rate on the
      mortgage loan paid by the underlying  borrower less the financing costs we
      pay to our warehouse lender to fund our loans);
  o   net loan  origination  fees on brokered loans and retail loans;  and
  o   retained  excess cashflow  certificates;  and
  o   distributions  from  the  Delta Funding Residual Exchange Company LLC (the
      "LLC"),  a  limited  liability  company  (unaffiliated  to us).  We have a
      non-voting  membership  interest in the LLC,  which entitles us to receive
      15% of the net cash flows from the LLC through June 2004 and,  thereafter,
      10% of the net cash flows from the LLC.

EXCESS CASHFLOW CERTIFICATES, NET

   Our excess cashflow  certificates  primarily  consist of the right to receive
the future  excess cash flows from a pool of  securitized  mortgage  loans.  Our
interest in these certificates generally consists of the following:

  o   The interest  spread between the coupon on the  underlying  mortgage loans
      and the cost of financing (which, when we sell NIM notes, is only received
      after the NIM Notes are paid in full);
  o   The  prepayment  penalties  received from borrowers who payoff their loans
      early in their life (which, when we sell NIM notes, is only received after
      the NIM Notes are paid in full); and
  o   Overcollateralization, which is designed to protect the securities sold to
      the  securitization   pass-through  investors  from  credit  loss  on  the
      underlying  mortgage  loans (and which we describe in greater detail above
      under "Securitization").

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

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

   We believe the  accounting  estimates  related to the valuation of our excess
cashflow  certificates  is a  "critical  accounting  estimate"  because  it  can
materially  affect  net income  and  requires  us to  forecast  interest  rates,
mortgage principal  payments,  prepayments,  and loan loss assumptions which are
highly  uncertain  and  require  a large  degree of  judgment.  The rate used to
discount the projected cash flow is also critical in the valuation of our excess
cashflow

                                       16

certificates.  Management uses internal,  historical collateral performance data
and  published  forward  LIBOR  curves  when  modeling  future  expected  excess
cashflows. We believe the value of our excess cashflow certificates is fair, but
can provide no assurance that future prepayment and loss experience,  changes in
the LIBOR  rate,  or changes in their  required  market  discount  rate will not
require write-downs of the excess cashflow certificate asset.  Write-downs would
reduce income of future periods.

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

   At the time each securitization  transaction closes, we determine the present
value of the related excess cashflow certificates (which, in the securitizations
we have  issued  since  2002  includes  NIM owner  trust  certificates,  and the
underlying BIO certificates and P  certificates),  using certain  assumptions we
make regarding the underlying mortgage loans. The excess cashflow certificate is
then recorded on our  consolidated  financial  statements  at an estimated  fair
value. Our estimates primarily include the following:

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

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

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

     o  a discount rate used to calculate present value.

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

   In determining the fair value of each of the excess cashflow certificates, we
make the

                                       17

following underlying  assumptions regarding mortgage loan prepayments,  mortgage
loan default rates, the LIBOR forward curve and discount rates:

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

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

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

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

      o  a decrease in interest rates;

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

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

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

      o  the borrower's need for additional monies; and

      o  a default by the borrower, resulting in foreclosure by the lender.

      It is unusual  for a borrower  to prepay a mortgage  loan during the first
      few months because of the following:

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

                                       18

      o  there are costs involved with refinancing a loan; and

      o  the borrower does not want to incur prepayment penalties.

      The following table shows our current prepayment assumptions for the month
      one and peak speed. The assumptions have not changed since September 2001:

      LOAN TYPE         MONTH ONE         PEAK SPEED
      ---------         ---------         ----------
      Fixed Rate          4.00%              30.00%
      Adjustable Rate     4.00%              75.00%

      If mortgage loans prepay faster than anticipated, we will earn less income
      in connection with the mortgage loans and receive less excess cash flow in
      the  future  because  the  mortgage  loans have paid off.  Conversely,  if
      mortgage  loans prepay  slower than  anticipated,  we earn more income and
      more excess cash flow in the future.

 (B)  DEFAULT  RATE.  At March 31, 2003 and March 31, 2002, on each newly issued
      securitization,   we  apply  a  default   reserve   for  both  fixed-  and
      adjustable-rate  loans sold to the securitization trusts totaling 5.00% of
      the amount initially  securitized.  We apply a default or loss rate to the
      excess cashflow  certificate  because it is the "first-loss"  piece and is
      subordinated  in right of  payment to all other  securities  issued by the
      securitization  trust. If defaults are higher than we anticipate,  we will
      receive less income and less excess cash flow than expected in the future;
      conversely,  if defaults are lower than we expected,  we will receive more
      income and more excess cash flow than expected in the future.

 (C)  LIBOR FORWARD  CURVE.  The LIBOR  forward curve is used to project  future
      interest  rates,  which  affects both the rate paid to the  floating  rate
      pass-through  security  investors  (primarily the 1 month LIBOR index) and
      the  adjustable  rate mortgage loans sold to the  securitization  trust (a
      fixed rate of interest for either the first 24 or 36 months then a 6 month
      variable rate of interest  thereafter  using the 6 month LIBOR  index).  A
      significant   portion  of  our  loans  are  fixed  rate  mortgages  and  a
      significant  amount of these fixed rate loans are backed by floating  rate
      securities   (I.E.,  1  month  LIBOR).   As  such,  our  excess   cashflow
      certificates  are subject to significant  basis risk and a change in LIBOR
      will,  therefore,  impact  our  excess  spread.  If LIBOR  is  lower  than
      anticipated  we will  receive  more income and more excess cash flows than
      expected in the future;  conversely,  if LIBOR is higher than expected, we
      will receive  less income and less excess cash flows than  expected in the
      future. In each of our  securitizations  in which we sold NIM note(s),  we
      purchased,  on behalf of the NIM owner trust, an interest rate cap for the
      benefit of the NIM noteholder(s),  which helps mitigate the basis risk for
      the approximate time that the NIM notes are outstanding.

 (D)  DISCOUNT  RATE. We use a discount rate that we believe  reflects the risks
      associated  with our excess  cashflow  certificates.  While quoted  market
      prices on comparable  excess cashflow  certificates are not available,  we
      compare  our  valuation  assumptions  and  performance  experience  to our
      competitors in the  non-conforming  mortgage  industry.  Our discount rate
      takes  into  account  the  asset  quality  and  the   performance  of  our
      securitized  mortgage  loans  compared to that of the  industry  and other
      characteristics of our securitized loans. We quantify the risks associated
      with our excess  cashflow  certificates by comparing the asset quality and
      payment and loss  performance  experience

                                       19

      of the  underlying  securitized  mortgage  pools  to  comparable  industry
      performance.  The discount  rate we use to determine  the present value of
      cash  flows  from  excess   cashflow   certificates   reflects   increased
      uncertainty  surrounding  current and future market conditions,  including
      without limitation,  uncertainty  concerning  inflation,  recession,  home
      prices, interest rates and equity markets.

      We utilized a discount rate of 15% at March 31, 2003 and March 31, 2002 on
      all excess cashflow certificates.

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

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

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

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

DEFERRED TAX ASSET

   As of March 31, 2003, we carried a deferred tax asset, net of $5.6 million on
our consolidated financial statements - comprised primarily of federal and state
net operating losses or "NOLs" less the tax impact and a valuation allowance.

   As of March 31, 2003, we have a gross deferred tax asset of $45.4 million and
a valuation  allowance of $39.8 million. We established this valuation allowance
in 2001,  in the midst of two  successive  years of posting  significant  losses
(2000 and 2001), and the modest amount of earnings we had projected to earn over
the ensuing  several  quarters.  We believe it was appropriate to establish this
valuation  allowance in accordance with GAAP. Since then, we have now posted six
consecutive  quarters  of  profitability.  If we are able to  continue to record
positive  earnings  over the next several  quarters and  demonstrate  a reliable
future earnings stream, we expect to:

                                       20

   o  utilize a larger amount of the gross  deferred tax asset to offset the tax
      that would otherwise be recorded on the majority of such earnings; and

   o  potentially  reduce  the  amount  of,  and/or  eliminate,   the  valuation
      allowance in accordance  with GAAP (upon any reduction or  elimination  of
      the valuation  allowance net earnings and retained earnings will increase;
      however, in subsequent quarters net earnings and retained earnings will be
      reduced by the amount of the tax provision).

   As of March 31,  2003,  Federal and State net  operating  loss  carryforwards
("NOLs") totaled $66.4 million, expiring in 2021.

   Our deferred tax asset of $45.4 million  consists  primarily of NOLs,  net of
tax,  of $26.6  million,  and the excess of the tax basis over book basis on our
excess cashflow certificates, net of tax, of $17.0 million.

RESULTS OF OPERATIONS

THREE  MONTHS  ENDED MARCH 31, 2003  COMPARED TO THE THREE  MONTHS ENDED MARCH
31, 2002

GENERAL

   Our net income for the three months ended March 31, 2003 was $6.7 million, or
$0.42 per share basic and $0.36 per share diluted,  compared to $2.2 million, or
$0.14 per share basic and  diluted,  for the three  months ended March 31, 2002.
Comments  regarding  the  components of net income are detailed in the following
paragraphs.

REVENUES

   Total revenues increased $6.9 million,  to $26.5 million for the three months
ended March 31, 2003, from $19.6 million for the comparable  period in 2002. The
increase in revenue  was  primarily  attributable  to us  securitizing  a higher
amount of mortgage loans during the period ended March 31, 2003, compared to the
same period in 2002 and the consequent  increase in net gain on sale of mortgage
loans.

   We  originated  $323.0  million of mortgage  loans for the three months ended
March 31,  2003,  representing  a 70% increase  from $190.0  million of mortgage
loans  originated  for the comparable  period in 2002. We  securitized  and sold
$273.2  million of loans during the three months ended March 31, 2003,  compared
to $213.7 million of loans during the same period in 2002.

   NET GAIN ON SALE OF MORTGAGE  LOANS.  Net gain on sale of  mortgage  loans is
represented by the following:

   (1)  the sum of :

        (a) the cash purchase price we receive in connection with selling one or
            more  of  the   following   securities   in   connection   with  our
            securitization(s)  for a particular  period:  (i) a NIM note, net of
            overcollateralization  amount and  interest  rate cap and/or (ii) an
            interest-only certificate;

        (b) the fair  value of the  non-cash  excess  cashflow  certificates  we
            retain in a securitization for each period;

                                       21

        (c) the cash premium received from selling mortgage  servicing rights in
            connection with each securitization; and

        (d) the  cash   premium   earned   from   selling   whole   loans  on  a
            servicing-released basis,

   (2)  less the (i) costs associated with securitizations,  (ii) any hedge loss
        (gain) associated with a particular  securitization,  and (iii) any loss
        associated with loans sold at a discount.

   Net gain on sale of mortgage loans  increased $5.9 million,  or 48%, to $18.2
million for the three months ended March 31,  2003,  from $12.3  million for the
comparable period in 2002. This increase was primarily due to an increase in the
amount of loans  securitized  and sold compared to the first quarter of 2002. We
securitized  $261.0 million of mortgage loans and sold $12.2 million of mortgage
loans on a  servicing-released  basis in the first quarter of 2003,  compared to
$175.0 million of mortgage loans securitized and $38.7 million of mortgage loans
sold on a  servicing-released  basis  during  the  same  period  in  2002.  Loan
production  totaled  $323.0  million in the first  quarter of 2003,  compared to
$190.0 million during the same period in 2002. The weighted  average net gain on
sale ratio for the three  months ended March 31,  2003,  and for the  comparable
period in 2002, was 6.66% and 5.77%, respectively. The weighted-average net gain
on sale ratio is calculated by dividing the net gain on sale by the total amount
of loans securitized and sold.

   INTEREST INCOME. Interest income primarily represents the sum of:

      (1) the gross interest we earn on loans held for sale;

      (2) the cash we receive from our excess cashflow certificates;

      (3) the non-cash mark-to-market or non-cash  valuation  adjustments to our
          excess cashflow certificates to reflect changes in fair value;

      (4) cash interest earned on bank accounts; and

      (5) miscellaneous  interest income including prepayment penalties received
          on certain of our securitizations prior to 2002.

   Interest income decreased $1.1 million, or 28%, to $2.8 million for the three
months ended March 31,  2003,  from $3.9  million for the  comparable  period in
2002.  The decrease in interest  income was  primarily  due to a lower  weighted
average interest rate on loans held for sale (and,  consequently,  less interest
earned on loans held for sale) in the first quarter of 2003 compared to the same
period in 2002 - 8.60% and 9.70%, respectively.  In addition, at March 31, 2002,
we recorded a charge to interest  income to reflect a fair value  adjustment  to
our excess cashflow certificates,  totaling $2.1 million, relating to the timing
of excess cash flows that are to be received by the excess cashflow  certificate
after the release or "stepdown" of the overcollateralization account.

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

   Net origination fees and other income increased $2.2 million, or 65%, to $5.6
million for the three  months  ended March 31,  2003,  from $3.4 million for the
comparable  period in 2002.  The

                                       22

increase  was  primarily  the result of higher  mortgage  loan  production,  and
consequently higher fees (associated with the higher loan production) during the
first quarter of 2003, compared to the same period in 2002.


EXPENSES

   Total  expenses  increased by $2.3 million,  or 13%, to $19.6 million for the
three months ended March 31, 2003, from $17.3 million for the comparable  period
in 2002. The increase was primarily  related to higher payroll and related costs
associated with an increase in our mortgage loan production.

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

   Payroll and related costs increased by $3.0 million, or 31%, to $12.7 million
for the three months ended March 31, 2003,  from $9.7 million for the comparable
period in 2002. The increase was primarily the result of higher commissions paid
and more employees,  related to the increase in our loan production. As of March
31, 2003, we employed 695 full- and part-time  employees,  compared to 609 full-
and part-time employees as of March 31, 2002.

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

   Interest expense  decreased by $0.4 million,  or 27%, to $1.1 million for the
three months ended March 31, 2003 from $1.5 million for the comparable period in
2002. The decrease was primarily due to lower  warehouse  financing costs due to
lower borrowing costs - the average one-month LIBOR rate, which is the benchmark
index used to determine our cost of borrowed funds, decreased on average to 1.3%
for the first quarter 2003, compared to an average of 1.8% for the first quarter
2002.

   INCOME TAXES.  Deferred tax assets and liabilities are recognized  based upon
the income  reported in the financial  statements  regardless of when such taxes
are paid.  These  deferred  taxes are measured by applying  current  enacted tax
rates.

   We  recorded a tax  provision  of $0.3  million and $0.1  million,  primarily
related  to  excess   inclusion   income   generated  by  our  excess   cashflow
certificates,  for the  periods  ended  March 31,  2003 and 2002,  respectively.
Excess  inclusion income cannot be offset by our NOL's under the REMIC tax laws.
It is primarily  caused by the REMIC  securitization  trust utilizing cash, that
otherwise  would  have  been  paid  to us  as  holder  of  the  excess  cashflow
certificate,  to make  payments  to other  security  holders,  to create  and/or
maintain overcollateralization by artificially paying down the principal balance
of the asset-backed securities.

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

FINANCIAL CONDITION

MARCH 31, 2003 COMPARED TO DECEMBER 31, 2002

   Loans held for sale, net increased  $36.0 million,  or 106%, to $70.0 million
at March 31, 2003,  from $34.0  million at December 31,  2002.  This  represents
mortgage  loans  held  in

                                       23

inventory awaiting either a whole loan sale or securitization. This increase was
primarily  due to  the  net  difference  between  loan  originations  and  loans
securitized or sold during the three months ended March 31, 2003.

   Excess  cashflow  certificates,  net increased $1.4 million,  or 6%, to $26.0
million  at March 31,  2003,  from $24.6  million at  December  31,  2002.  This
increase was  primarily due to us recording a new excess  cashflow  certificate,
totaling $2.6 million from loans  securitized in the first quarter of 2003. This
increase  was  partially  offset  by the  change  in fair  value of such  excess
cashflow  certificates-  which  incorporates  any change in value  (accretion or
reduction) in the carrying  value of the excess  cashflow  certificates  and the
cash  distributions  we received from such excess  cashflow  certificates.  (See
"-Footnote 4 of the Notes to Consolidated Financial Statements - Excess Cashflow
Certificates, Net")

   Prepaid and other assets  increased $0.4 million,  or 24%, to $2.1 million at
March 31,  2003,  from $1.7  million at December  31,  2002.  This  increase was
primarily attributable to the renewal of insurance policies.

   Warehouse financing and other borrowings increased $29.9 million, or 182%, to
$46.3 million at March 31, 2003,  from $16.4 at December 31, 2002. This increase
was primarily  attributable  to a higher amount of mortgage  loans held for sale
(mortgage  loans  held  in  inventory  awaiting  either  a  whole  loan  sale or
securitization) to be financed under our warehouse credit facilities.

   Accounts payable and accrued expense increased $1.2 million, or 10%, to $13.5
million at March 31, 2003 from $12.3 million at December 31, 2002. This increase
was primarily the result of timing of various operating accruals and payables.

   Stockholders'  equity  increased  $6.7  million,  or 23%, to $36.2 million at
March 31, 2003 from $29.5 million at December 31, 2002. This increase represents
our positive earnings for the period.

LIQUIDITY AND CAPITAL RESOURCES

   We  require  substantial  amounts  of  cash to fund  our  loan  originations,
securitization  activities and  operations.  We have  organically  increased our
working capital over the last six quarters.  In the past,  however,  we operated
generally on a negative cash flow basis.  Embedded in our current cost structure
are many fixed  costs,  which are not likely to be  significantly  affected by a
relatively  substantial  increase in loan  originations.  If we can  continue to
increase our loan  production  to generate  sufficient  cash  revenues  from our
securitizations and sales of such loans to offset our current cost structure and
cash uses,  we believe we can continue to generate  positive  cash flow in 2003.
However, there can be no assurance that we will be successful in this regard. To
do so, we must generate sufficient cash from:

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

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

  o   origination fees on newly closed loans;

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

                                       24


  o   interest   income  we  receive  on  our  loans  held  for  sale  prior  to
      securitization and/or whole loans sales; and

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

   There can be no assurance, however, that we will continue generating positive
cash flow in 2003 or at all.

   Currently,  our primary uses of cash requirements include the funding of:

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

  o   scheduled principal paydowns on other financing;

  o   expenses incurred in connection with our securitization program;

  o   tax payments on excess inclusion income generated from our excess cashflow
      certificates; and

  o   general ongoing administrative and operating expenses,  including the cost
      to originate loans.

   Historically,  we have  financed our  operations  utilizing  various  secured
credit financing  facilities,  issuance of corporate debt (i.e.,  senior notes),
issuance of equity, and the sale of interest-only  certificates and/or NIM notes
(sold in conjunction  with each of our  securitizations)  to offset our negative
operating cash flow and support our originations,  securitizations,  and general
operating expenses.

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

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

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

  o   sales of whole loans;

  o   cash flows from retained excess cashflow certificates;

  o   distributions from the LLC;

  o   origination fees, interest income and other cash revenues; and

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

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

   To  accumulate  loans  for  securitization  or  sale,  we  borrow  money on a
short-term  basis through  warehouse lines of credit.  We have relied upon a few
lenders to provide the primary credit  facilities for our loan  originations and
at March 31, 2003, we had two  warehouse  facilities  for this purpose,  both of
which were due to expire in May 2003.  We renewed  one  warehouse  facility  and
allowed the second  warehouse  facility to expire,  replacing it with a new $200
million  warehouse  facility  from a new  creditor.  Both  $200  million  credit
facilities have a variable rate of

                                       25

interest and are due to expire in May 2004.  There can be no  assurance  that we
will be able to either  renew or replace  these  warehouse  facilities  at their
maturities at terms satisfactory to us or at all.

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

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

  o   Ten-year  warrants to  purchase  approximately  1.3 million  shares of our
      common stock, currently at an exercise price of $0.01 per share; and

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

   We are required to comply with various  operating and financial  covenants as
provided in our warehouse  agreements,  which are  customary  for  agreements of
their  type.  The  continued  availability  of funds  provided to us under these
agreements is subject to, among other conditions,  our continued compliance with
these  covenants.  Additionally,  we are  required  to comply  with  restrictive
covenants in connection with our Series A preferred  stock and our warrants.  We
believe we are in compliance with such covenants as of March 31, 2003.

   We have  repurchase  agreements  with certain of the  institutions  that have
purchased mortgage loans from us. Currently,  some of the agreements provide for
the repurchase by us of any of the mortgage  loans that go to foreclosure  sale.
At the foreclosure sale, we will repurchase the mortgage, if necessary, and make
the institution  whole.  The dollar amount of loans that were sold with recourse
and are still  outstanding  totaled  $2.5  million  at March  31,  2003 and $2.6
million at December 31, 2002.  Included in accounts  payable is an allowance for
recourse  losses of $1.3  million at March 31, 2003 and $1.2 million at December
31, 2002, respectively.

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

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


                                       26


INTEREST RATE RISK

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

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

   Fluctuating  interest rates also may affect the net interest  income we earn,
resulting from the difference between the yield we receive on loans held pending
sales  and the  interest  paid by us for  funds  borrowed  under  our  warehouse
facility. We may, however, undertake to hedge our exposure to this risk by using
various hedging strategies,  including Fannie Mae mortgage securities,  treasury
rate lock contracts and/or interest rate swaps. (See  "--Hedging").  Fluctuating
interest  rates also may  significantly  affect net interest  income (the excess
cash flows from our excess cashflow certificates) as certain of our asset-backed
securities are priced based on one-month  LIBOR,  but the collateral  that backs
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 "- Excess Cashflow Certificate, Net")

HEDGING

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

   We originate mortgage loans and then sell them through a combination of whole
loan sales and securitizations. Between the time we originate the mortgage loans
and sell them in the

                                       27

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

   The cost of funds is generally  composed of two  components  - the  benchmark
interest rate (i.e.,  the treasury rate or the interest rate swap with a similar
duration  and  average  life) and the spread or profit  margin  required  by the
investors.  We had previously used a "Treasury Rate Lock" and 15-year Fannie Mae
mortgage  securities  ("FNMA  Securities")  to hedge our cost of funds exposure.
However  recently,  the  securitizations  are priced to the  investor  using the
interest  rate swaps curve.  As such,  our cost of funds is more closely tied to
interest  rate swaps and, to the extent we hedge,  we will  likely use  interest
rate  swaps to hedge our  mortgage  loans in  inventory  pending  securitization
pricing.  While none of the above are perfect hedges,  we believe  interest rate
swaps  will  demonstrate  the  highest  correlation  to our  cost of  funds on a
go-forward basis.

   We make  decisions  concerning the nature of our hedging  transactions  based
upon various factors including,  without  limitation,  market conditions and the
expected  volume of  mortgage  originations.  We may enter  into  these  hedging
strategies  through one of our warehouse  lenders and/or an investment bank that
underwrites our  securitizations.  These  strategies are designated as hedges on
our financial  statements and are closed out when we sell the associated  loans.
We will  review  continually  the  frequency  and  effectiveness  of our hedging
strategy to mitigate risk pending a securitization or loan sale.

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

   We believe our hedging  strategy has  historically  largely been an effective
tool to manage  our  interest  rate risk on loans  prior to  securitization,  by
providing  us  with  a cash  gain  (or  loss)  to  largely  offset  the  reduced
(increased)  excess spread and resultant lower (or higher) net gain on sale from
an increase (decrease) in interest rates. A hedge may not, however,  perform its
intended purpose of offsetting changes in net gain on sale.

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

   We did not hedge during the quarter  ended March 31, 2003 nor during the year
ended December 31, 2002,  primarily due to the  considerable  uncertainty in the
United States economy  resulting  from an overall  weakened  economy,  depressed
stock market,  threat of war, among other things,  that has caused U.S. interest
rates to remain at or near 40 year historical lows.

                                       28

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


INFLATION

   Inflation most significantly  affects our loan originations and values of our
excess cashflow  certificates,  because of the substantial  effect inflation can
have on interest rates.  Interest rates normally increase during periods of high
inflation and decrease during periods of low inflation.  (See  "--Interest  Rate
Risk").

IMPACT OF NEW ACCOUNTING STANDARDS

   For  discussion  regarding the impact of new accounting  standards,  refer to
Note 8 of Notes to the Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

   Except for historical information contained herein, certain matters discussed
in this Form 10-Q are  "forward-looking  statements"  as defined in the  Private
Securities  Litigation  Reform Act  ("PSLRA")  of 1995,  which  involve risk and
uncertainties  that exist in our  operations and business  environment,  and are
subject to change on various important factors. A forward-looking  statement may
contain words such as "anticipate that," "believes," "continue to," "estimates,"
"expects to," "hopes," "intends," "plans," "to be," "will be," "will continue to
be," or  similar  words.  Such  statements  are  subject  to the  "safe  harbor"
provisions  of the PSLRA.  We caution  readers that numerous  important  factors
discussed  below,  among  others,  in some cases have caused,  and in the future
could cause our actual results to differ  materially from those expressed in any
forward-looking  statements made by us, or on our behalf.  The following include
some,  but not all, of the  factors or  uncertainties  that could  cause  actual
results to differ from  projections:

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

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

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

  o   The potential effect that possible  conflicts with other sovereign nations
      or terrorist acts and/or threats,  may have on the capital markets, and in
      particular the asset-backed market;

  o   The effect that the  adoption of new,  or changes  in,  federal,  state or
      local lending laws and  regulations  and the  application of such laws and
      regulations may have on our ability to originate loans within a particular
      area,  or  ultimately  sell those  loans  through  securitization  or on a
      whole-loan basis. Many states and local municipalities have adopted and/or
      are  considering  adopting laws that are intended to further  regulate our

                                       29

      industry.  Many  of  these  laws  and  regulations  seek to  impose  broad
      restrictions on certain  commonly  accepted lending  practices,  including
      some of our practices.  In some cases, the  restrictions  and/or costs and
      risks associated with complying with the laws have been so onerous that we
      have decided to not lend in a state (I.E., Georgia, before it was amended)
      or municipality  (I.E.,  Oakland).  In those cases where we continue to do
      business,   our  costs  of  complying   with  a  variety  of   potentially
      inconsistent  federal,  state and local laws has increased our  compliance
      costs,  as  well  as the  risk  of  litigation  or  administrative  action
      associated with complying with these proposed and enacted  federal,  state
      and local laws,  particularly  those  aspects of such proposed and enacted
      laws that contain subjective (as opposed to objective) requirements, among
      other things.  In addition,  enacted  federal,  state and local laws could
      impact  overcollateralization  requirements  set by the ratings  agencies,
      which  could   decrease  the  cash   proceeds  we  may  receive  from  our
      securitizations.

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

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

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

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

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

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

  o   The unanticipated expenses of assimilating  newly-acquired businesses into
      our  structure,
                                       30

      as well as the impact of unusual  expenses  from  ongoing  evaluations  of
      business  strategies,  asset  valuations,  acquisitions,  divestitures and
      organizational structures; and

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   We  originate  mortgage  loans and then  sell the  mortgage  loans  through a
combination of whole loan sales and  securitizations.  As a result,  our primary
market risk is interest rate risk. In turn,  interest rates are highly sensitive
to many factors, including:

o   governmental monetary and tax policies;

o   domestic and international economic and political considerations; and

o   other factors beyond our control.

   Changes in the general  interest  rate levels  between the time we  originate
mortgage loans and the time when we sell such mortgage  loans in  securitization
transactions  can  affect  the value of our  mortgage  loans  held for sale and,
consequently,  our 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 we originate the
loans and the time we sell 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 us. Since we close and fund  mortgage  loans at a specified
interest  rate with an  expected  gain on sale to be booked at the time of their
sale,  our exposure to decreases in the fair value of the mortgage  loans arises
when  moving  from a lower  to a  higher  interest  rate  environment.  A higher
interest  rate  environment  results in our having  higher  cost of funds.  This
decreases both the fair value of the mortgage loans,  and the net spread we earn
between the mortgage  interest  rate on each mortgage loan and our cost of funds
under  available  warehouse  lines of credit  used to finance the loans prior to
their sale in a  securitization  transaction.  As a result,  we may experience a
lower gain on sale.

   The following table  illustrates the impact on our earnings  resulting from a
hypothetical 10 basis point change in interest rates. Historically, such a basis
point  increase  has resulted in an  approximately  10 basis point change in the
excess  spread or "yield." The product of 10 basis  points in yield  (0.10%) and
the  duration of 2.5 years  equals a 25.0 basis point or 0.25% change in the net
gain on sale as shown below.
<TABLE>
<S>                            <C>                  <C>                  <C>
                           10 BASIS POINT DECREASE IN                10 BASIS POINT INCREASE IN
DESCRIPTION                     INTEREST RATES            BASE             INTEREST RATES
-----------------------------------------------------------------------------------------------
Securitization amount           $100,000,000         $100,000,000         $100,000,000
Net gain on sale %              5.25%                5.00%                4.75%
Net gain                        $5,250,000           $5,000,000           $4,750,000
</TABLE>

The  table  below  demonstrates  the  sensitivity,  at March  31,  2003,  of the
estimated fair value of our excess cashflow  certificates caused by an immediate
10% and 20%,  respectively,  adverse  change  in the key  assumptions  we use to
estimate fair value:

                                       31

<TABLE>
<S>                                             <C>                  <C>
                                           Fair value of excess      Impact to
(Dollars in thousands)                     cashflow certificates     earnings

Fair value as of 03/31/03:                      $ 25,976
10% increase in prepayment speed                  20,659              $5,317
20% increase in prepayment speed                  17,583               8,393

10% increase in credit losses                     20,057               5,919
20% increase in credit losses                     14,459              11,517

10% increase in discount rates                    24,346               1,630
20% increase in discount rates                    22,910               3,066

10% increase in one- & six-month LIBOR            22,820               3,156
20% increase in one- & six-month LIBOR            19,841               6,135
</TABLE>

   These  sensitivities  are  hypothetical  and are presented  for  illustrative
purposes only.  Changes in the fair value resulting from a change in assumptions
generally  cannot be  extrapolated  because  the  relationship  of the change in
assumption to the resulting change in fair value may not be linear.  Each change
in assumptions presented above was calculated independently without changing any
other assumption.  However, in reality,  changes in one assumption may result in
changes  in  another   assumption,   which  may   magnify  or   counteract   the
sensitivities. For example, a change in market interest rates may simultaneously
impact prepayment speeds,  credit losses and the discount rate. It is impossible
to  predict  how  one  change  in  a  particular  assumption  may  impact  other
assumptions.

   To reduce our financial  exposure to changes in interest  rates, we may hedge
our mortgage loans held for sale through hedging products that are correlated to
the pass-though certificates issued in connection with the securitization of our
mortgage loans (I.E., interest rate swaps) (See "-Hedging"). Changes in interest
rates also could  adversely  affect our ability to originate  loans and/or could
affect  the level of loan  prepayments  thereby  impacting  the size of the loan
portfolio  underlying our excess cashflow  certificates and,  consequently,  the
value of our  excess  cashflow  certificates.  (See  "-Interest  Rate  Risk" and
"-Forward -Looking Statements and Risk Factors").

ITEM 4.  CONTROLS AND PROCEDURES

   During  the 90 days  prior to the  filing  date of this  report,  management,
including the Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness and operation of the Company's disclosure controls and procedures.
The Company's Chief Executive Officer and Chief Financial Officer concluded that
these  disclosure  controls  and  procedures  were  effective,  in all  material
respects, to ensure that information required to be disclosed in the reports the
Company  files and submits  under the  Securities  and Exchange Act is recorded,
processed,  summarized  and  reported as and when  required.  There have been no
significant  changes in the Company's internal controls or in other factors that
could  significantly  affect these internal controls following the date that the
Company  performed its  evaluation.  There were no

                                       32

significant  deficiencies or material weaknesses identified during the course of
this evaluation and therefore, no corrective actions were taken.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   Because  the nature of our  business  involves  the  collection  of  numerous
accounts,  the validity of liens and  compliance  with various state and federal
lending  laws,  we are subject,  in the normal  course of business,  to numerous
claims and legal  proceedings,  including  class actions.  The current status of
these class actions is summarized below.

o  In or about  November  1998,  we received  notice that we had been named in a
   lawsuit filed in the United States District Court for the Eastern District of
   New York. In December 1998,  plaintiffs filed an amended  complaint  alleging
   that we had violated the Home Ownership and Equity  Protection Act ("HOEPA"),
   the Truth in Lending Act ("TILA") and New York State General Business Law ss.
   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 us from conducting foreclosure sales on 11 properties. The District
   Court  Judge ruled that in order to consider  such a motion,  plaintiff  must
   move to  intervene  on behalf of these 11  borrowers.  Thereafter,  plaintiff
   moved to intervene on behalf of 3 of these 11 borrowers and sought injunctive
   relief on their  behalf.  We opposed the motions.  On December 14, 1998,  the
   District  Court Judge  granted the motion to  intervene  and on December  23,
   1998, the District Court Judge issued a preliminary  injunction that enjoined
   us from  proceeding  with the  foreclosure  sales of the  three  intervenors'
   properties.  We filed a motion for  reconsideration  of the December 23, 1998
   order.  In January  1999,  we filed an answer to  plaintiffs'  first  amended
   complaint. In July 1999, plaintiffs were granted leave, on consent, to file a
   second amended complaint.  In August 1999,  plaintiffs filed a second amended
   complaint that, among other things,  added  additional  parties but contained
   the same  causes  of  action  alleged  in the  first  amended  complaint.  In
   September 1999, we filed a motion to dismiss the complaint, which was opposed
   by  plaintiffs  and, in June 2000,  was denied in part and granted in part by
   the Court.  In or about October 1999,  plaintiffs  filed a motion  seeking an
   order  preventing us, our attorneys  and/or the NYSBD from issuing notices to
   certain of our borrowers,  in accordance with a settlement  agreement entered
   into by and  between  Delta  and the  NYSBD.  In or  about  October  1999 and
   November  1999,  respectively,  we and  the  NYSBD  submitted  opposition  to
   plaintiffs'  motion.  In March 2000, the Court issued an order that permitted
   us to issue an approved  form of the notice.  In September  1999,  plaintiffs
   filed a motion for class  certification,  which we opposed in February  2000,
   and was ultimately withdrawn without prejudice by plaintiffs in January 2001.
   In  February  2002,  we  executed a  settlement  agreement  with  plaintiffs,
   pursuant  to which we  denied  all  wrongdoing,  but  agreed to  resolve  the
   litigation  on a  class-wide  basis.  The Court  preliminarily  approved  the
   settlement  and a fairness  hearing was held in May 2002.  We are  awaiting a
   decision  from the Court on the fairness  hearing.  We believe that the Court
   will  approve the  settlement,  but if it does not,  we believe  that we have
   meritorious defenses and intend to defend this suit, but

                                       33

   cannot estimate with any certainty our ultimate legal or financial liability,
   if any, with respect to the alleged claims.

o  In or about  March  1999,  we  received  notice  that we had been  named in a
   lawsuit filed in the Supreme Court of the State of New York, New York County,
   alleging that we had improperly  charged certain  borrowers  processing fees.
   The  complaint  seeks  (a)  certification  of a class of  plaintiffs,  (b) an
   accounting,  and (c) unspecified compensatory and punitive damages (including
   attorneys' fees), based upon alleged (i) unjust  enrichment,  (ii) fraud, and
   (iii)  deceptive  trade  practices.  In April 1999, we filed an answer to the
   complaint.  In September  1999,  we filed a motion to dismiss the  complaint,
   which was opposed by  plaintiffs,  and in February 2000, the Court denied the
   motion to  dismiss.  In April  1999,  we filed a motion  to change  venue and
   plaintiffs  opposed the motion.  In July 1999, the Court denied the motion to
   change venue.  We appealed and in March 2000, the Appellate Court granted our
   appeal to change venue from New York County to Nassau County. In August 1999,
   plaintiffs filed a motion for class  certification,  which we opposed in July
   2000. In or about  September 2000, the Court granted  plaintiffs'  motion for
   class certification,  from which we appealed.  The Appellate Court denied our
   appeal in December 2001. In or about June 2001, we filed a motion for summary
   judgment to dismiss the  complaint,  which was denied by the Court in October
   2001. We appealed that decision, but the appellate court denied our appeal in
   November  2002.  We filed a motion to reargue  in  December  2002,  which was
   denied by the Court in January 2003. Discovery will now continue in the lower
   court. We believe that we have meritorious defenses and intend to defend this
   suit, but cannot  estimate with any certainty our ultimate legal or financial
   liability, if any, with respect to the alleged claims.

o  In  November  1999,  we  received  notice that we had been named in a lawsuit
   filed in the United  States  District  Court for the Eastern  District of New
   York, seeking  certification as a class action and alleging violations of the
   federal  securities  laws in connection  with our initial public  offering in
   1996 and our reports  subsequently  filed with the  Securities  and  Exchange
   Commission. The complaint alleges that the scope of the violations alleged in
   the  consumer  lawsuits  and  regulatory  actions  brought in or around  1999
   indicate a  pervasive  pattern of action and risk that  should have been more
   thoroughly disclosed to investors in our common stock. In May 2000, the Court
   consolidated  this case and several other lawsuits that  purportedly  contain
   the same or  similar  allegations  against us and in August  2000  plaintiffs
   filed their  Consolidated  Amended  Complaint.  In October  2000,  we filed a
   motion to  dismiss  the  Complaint  in its  entirety,  which was  opposed  by
   plaintiffs in November  2000,  and denied by the Court in September  2001. We
   reached an agreement in principal with plaintiffs' counsel and our insurer to
   settle the action on a class-wide  basis in or about August 2002 and executed
   a  settlement  agreement  in January  2003  (pursuant  to which we denied all
   wrongdoing). The Court approved the settlement at a fairness hearing in April
   2003, and the settlement will be administered in the coming months.

o  In or about  April  2000,  we  received  notice  that we had been  named in a
   lawsuit filed in the Supreme Court of the State of New York,  Nassau  County,
   alleging that we had improperly  charged and collected from borrowers certain
   fees when they paid off their mortgage loans with us. The complaint seeks (a)
   certification of a class of plaintiffs,  (b) declaratory  relief finding that
   the payoff statements used include unauthorized charges and are deceptive and

                                       34

   unfair, (c) injunctive relief,  and (d) unspecified  compensatory,  statutory
   and punitive damages (including legal fees), based upon alleged violations of
   Real  Property  Law 274-a,  unfair  and  deceptive  practices,  money had and
   received and unjust enrichment,  and conversion. We answered the complaint in
   June 2000. In March 2001, we filed a motion for summary  judgment,  which was
   opposed by plaintiffs in March 2001, and we filed reply papers in April 2001.
   In June 2001,  our motion for summary  judgment  dismissing the complaint was
   granted. In August 2001, plaintiffs appealed the decision. In September 2002,
   we  executed a  settlement  agreement  with  plaintiffs  pursuant to which we
   denied all  wrongdoing,  but agreed to resolve the litigation on a class-wide
   basis.  In May 2003,  the court  preliminarily  approved the  settlement  and
   scheduled a fairness hearing for July 2003, at which point we anticipate that
   the Court will approve the  settlement.  In the event that the  settlement is
   not  approved,  we believe  that we have  meritorious  defenses and intend to
   defend this suit,  but cannot  estimate with any certainty our ultimate legal
   or financial liability, if any, with respect to the alleged claims.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

During the three  months ended March 31, 2003,  approximately  281,240  warrants
(out of the 1.6 million warrants issued in December 2000 in connection our first
exchange offer) were exercised, for an aggregate exercise price of approximately
$2,800.   The  issuance  of  these  shares  was  exempt  from  the  registration
requirements of the Securities Act of 1993, as amended, pursuant to Section 4(2)
thereof.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.  None

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

ITEM 5.  OTHER INFORMATION.  None

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

(a) Exhibits:

<TABLE>
<S>    <C> <C>  <C>
EXH.
NO.    FILED     DESCRIPTION
---    ----      ----------

10.11   *   --   Tenth  Amendment  to Lease  Agreement   between  Delta  Funding
                 Corporation and the Tilles Investment Company, dated April 10, 2003
99.1    *   --   Certification  pursuant to Section 906 of the Sarbanes-Oxley Act 2002
99.2    *   --   Certification  pursuant to Section 906 of the Sarbanes-Oxley Act 2002
---------------
(*) Filed herewith
</TABLE>

(b)   Reports on Form 8-K:   None


                                       35
<PAGE>


                                   SIGNATURES

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


                                      DELTA FINANCIAL CORPORATION
                                            (Registrant)

Dated: May 15, 2003
                                      By:   /S/ HUGH MILLER
                                         ---------------------------------------
                                             Hugh Miller
                                             PRESIDENT & CHIEF EXECUTIVE OFFICER


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


                                       36
<PAGE>


                                  CERTIFICATION


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

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

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

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

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

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

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

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

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

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

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

                                       37

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

      Date: May 15, 2003

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



                                       38
<PAGE>


                                  CERTIFICATION


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

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

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

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

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

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

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

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

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

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

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

                                       39

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

      Date: May 15, 2003


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

                                       40