SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

      [X]   QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the  quarterly  period ended  September 30, 1999

                                      OR

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

                         Commission File Number: 1-12109

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

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


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

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

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


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

                               Yes [ x ] No [ ]

      As of September 30, 1999,  15,883,749  shares of the  Registrant's  common
stock, par value $.01 per share, were outstanding.

<PAGE>


                              INDEX TO FORM 10-Q

                                                                      Page No.

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Consolidated  Balance  Sheets  as of  September  30,  1999  and
         December 31, 1998................................................. 2

         Consolidated  Statements of Operations for the three months and
         nine months ended September 30, 1999 and September 30, 1998....... 3

         Consolidated Statements of Cash Flows for the nine months ended
         September 30, 1999 and September 30, 1998......................... 4

         Notes to Consolidated Financial Statements........................ 5

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

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


PART II - OTHER INFORMATION

Item 1.     Legal Proceedings..............................................26

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

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

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

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

Item 6.     Exhibits and Current Reports on Form 8-K.......................28

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

                                       1

<PAGE>

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

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                             SEPTEMBER 30,      DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)                    1999               1998
                                                             -------------      ------------
<S>                                                          <C>                <C>
ASSETS
Cash and interest-bearing deposits                           $      55,027            49,152
Accounts receivable                                                 29,757            22,549
Loans held for sale, net                                           101,937            87,170
Accrued interest and late charges receivable                        58,197            46,897
Capitalized mortgage servicing rights                               36,371            33,490
Interest-only and residual certificates                            222,673           203,803
Equipment, net                                                      20,226            16,962
Cash held for advance payments                                      13,982            10,031
Prepaid and other assets                                             5,481             5,839
Goodwill                                                             5,126             6,014
                                                             --------------     ------------
    Total assets                                             $     548,777           481,907
                                                             ==============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Bank payable                                                 $       1,479             1,396
Warehouse financing and other borrowings                           120,625            80,273
Senior Notes                                                       149,452           149,387
Accounts payable and accrued expenses                               37,696            20,966
Investor payable                                                    71,341            63,790
Advance payment by borrowers for taxes and insurance                13,646             9,559
Deferred tax liability                                              10,209            18,848
                                                            --------------      ------------
    Total liabilities                                              404,448           344,219
                                                            --------------      ------------

STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 49,000,000 shares;
  16,000,549 shares issued and 15,883,749 shares outstanding
  at September 30, 1999 and 15,475,549 shares issued and
  15,358,749 shares outstanding at December 31, 1998                   160               155
Additional paid-in capital                                          99,472            94,700
Retained earnings                                                   46,015            44,151
Treasury stock, at cost (116,800 shares at September 30,
1999 and December 31, 1998, respectively)                          (1,318)           (1,318)
                                                            --------------      ------------
   Total stockholders' equity                                      144,329           137,688
                                                            --------------      ------------
     Total liabilities and stockholders' equity              $     548,777           481,907
                                                            ==============      ============


          See accompanying notes to consolidated financial statements.

                                        2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

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


                                                 THREE MONTHS ENDED           NINE MONTHS ENDED
                                                    SEPTEMBER 30,               SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)     1999           1998            1999         1998
                                                -------        -------         -------      -------
<S>                                         <C>              <C>            <C>           <C>

REVENUES
  Net gain on sale of mortgage loans        $    9,911         17,459            57,915        68,531
  Interest                                       8,619         10,569            24,732         6,841
  Servicing fees                                 4,219          3,764            11,575         6,598
  Origination fees                               6,937          6,295            22,426        17,953
                                              ---------      ---------         ---------      --------
      Total revenues                            29,686         38,087           116,648        99,923
                                              ---------      ---------         ---------      --------
EXPENSES
  Payroll and related costs                     16,123         15,257            49,709        41,759
  Interest expense                               6,205          8,521            18,454        23,213
  General and administrative (1)                17,516          9,216            45,510        24,793
                                              ---------      ---------         ---------      --------
      Total expenses                            39,844         32,994           113,673        89,765
                                              ---------      ---------         ---------      --------

(Loss) income before income
   tax (benefit) expense                       (10,158)         5,093             2,975        10,158
Provision for income taxes (benefit)            (4,063)         1,987             1,111         3,703
                                              ---------      ---------         ---------      --------
Net (loss) income                            $  (6,095)         3,106             1,864         6,455
                                              =========      =========         =========      ========

PER SHARE DATA
    Net (loss) income per common
      share - basic and diluted              $   (0.39)          0.20              0.12          0.42
                                               ========      =========         =========     =========
    Weighted-average number
      of shares outstanding                 15,438,640     15,414,210        15,385,672    15,387,923
                                           ============   ============      ============  ============

-----------------
<FN>
(1) The  nine-month  period ended  September  30, 1999  includes a $12.0 million
    pre-tax  charge for the global  settlement  with the New York State  Banking
    Department  (the  "NY Banking Department") and  the  New  York Office of the
    Attorney  General (the  "NYOAG").  The  Company  recorded  a  $6.0   million
    pre-tax charge in the second  quarter of 1999 when it reached  a  settlement
    in  principle  with  the NYOAG.  Subsequently,  an additional  $6.0  million
    pre-tax charge was recorded  in  the  third quarter of 1999 when the Company
    reached  a  global  settlement with the NY Banking Department and the  NYOAG.
    See  "Legal Proceedings"  herein for a more detailed discussion of the
    settlement.
</FN>
          See accompanying notes to consolidated financial statements.

                                       3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                              NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,
(DOLLARS IN THOUSANDS)                                                        1999           1998
                                                                            -------        -------
<S>                                                                     <C>             <C>
Cash flows from operating activities:
   Net income                                                           $     1,864          6,455
   Adjustments to reconcile net income to net cash used in
    operating activities:
     Provision for loan and recourse losses                                      76             75
     Depreciation and amortization                                            4,196          3,091
     Settlement issuance of common stock to the Trust                         4,777             --
     Deferred tax benefit                                                    (8,640)          (837)
     Capitalized mortgage servicing rights, net of amortization              (2,881)        (7,821)
     Deferred origination costs                                                 (48)         1,108
     Interest-only and residual certificates received in
      Securitization transactions, net                                      (18,870)       (30,030)
   Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable                             (7,208)         5,022
      Increase in loans held for sale, net                                  (14,742)        (9,775)
      Increase in accrued interest and late charges receivable              (11,300)       (11,920)
      Increase in cash held for advance payments                             (3,951)        (5,255)
      Decrease (increase) in prepaid and other assets                           358           (321)
      Increase (decrease) in accounts payable and accrued expenses           16,677         (1,238)
      Increase in investor payable                                            7,551         13,007
      Increase in advance payments by borrowers for taxes and insurance       4,087          3,860
                                                                        -------------    ----------
        Net cash used in operating activities                               (28,054)       (34,579)
                                                                        -------------    ----------
Cash flows from investing activities:
   Purchase of equipment                                                     (6,506)        (7,554)
                                                                        -------------    ----------
           Net cash used in investing activities                             (6,506)        (7,554)
                                                                        -------------    ----------
Cash flows from financing activities:
   Proceeds from warehouse financing and other borrowings, net               40,352         53,800
   Increase (decrease) in bank payable, net                                      83           (429)
   Purchase of treasury stock                                                    --         (1,199)
   Proceeds from exercise of stock options                                       --             25
                                                                        -------------    ----------
           Net cash provided by financing activities                         40,435         52,197
                                                                        -------------    ----------
           Net increase in cash and interest-bearing deposits                 5,875         10,064

Cash and interest-bearing deposits at beginning of period                    49,152         32,858
                                                                        -------------   -----------
Cash and interest-bearing deposits at end of period                     $    55,027      $  42,922
                                                                        =============   ===========

Supplemental Information:
Cash paid during the period for:
Interest                                                                $    20,901         26,850
                                                                        =============   ===========
Income taxes                                                            $     9,750          4,591
                                                                        =============   ===========

          See accompanying notes to consolidated financial statements.

                                       4

</TABLE>
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    ORGANIZATION

   Delta  Financial  Corporation  (the  "Company"  or  "Delta")  is  a  Delaware
corporation which was organized in August 1996. On October 31, 1996, the Company
acquired  all of the  outstanding  common  stock  of Delta  Funding  Corporation
("Delta Funding"), a New York corporation which had been organized on January 8,
1982 for the  purpose  of  originating,  selling,  servicing  and  investing  in
residential  first and  second  mortgages.  On  November  1, 1996,  the  Company
completed an initial public  offering of 4,600,000  shares of common stock,  par
value $.01 per share.

   On February  11,  1997,  the Company  acquired  Fidelity  Mortgage  Inc.  and
Fidelity  Mortgage  (Florida),  Inc.  (together  referred to herein as "Fidelity
Mortgage"), retail residential mortgage origination companies, for a combination
of  cash  and  stock  with a value  of $6.3  million.  These  transactions  were
accounted for under the purchase method of accounting.  Accordingly, the results
of operations of Fidelity  Mortgage from February 11, 1997 have been included in
the  Company's  consolidated  financial  statements.  In  connection  with these
acquisitions, the Company recorded goodwill of approximately $6.3 million, which
is being  amortized on a  straight-line  basis over seven  years.  On October 1,
1997,  the  acquired  operations  were merged and have  continued  to operate as
Fidelity  Mortgage.  As a result of meeting certain  production  targets for the
twelve-month  period  ended June 30, 1998,  the sellers were paid an  additional
$1.2 million of purchase price in the form of, and at a fair value equivalent to
101,361   shares  of  the  Company's   stock  in  August  1998.  The  additional
consideration  has been  recorded as  additional  goodwill and will be amortized
over the remaining life of the goodwill.

(2)    BASIS OF PRESENTATION

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

   The  accompanying  unaudited  consolidated  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Certain information and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission. The accompanying unaudited consolidated financial statements and the
information included under the heading "Management's  Discussion and Analysis of
Financial  Condition and Results of  Operations"  should be read in  conjunction
with the consolidated  financial statements and related notes of the Company for
the year ended  December 31, 1998.  The results of operations for the three- and
nine-month  periods ended September 30, 1999 are not  necessarily  indicative of
the results that will be expected for the entire year.

     All  adjustments  that  are,  in  the  opinion  of  management,  considered
necessary  for a fair  presentation  of the  financial  position  and results of
operations  for the interim  periods  presented

                                       5

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

 (3) EARNINGS PER SHARE

   The  following  is  a  reconciliation   of  the  denominators   used  in  the
computations  of basic and diluted  earnings per share (EPS).  The numerator for
calculating both basic and diluted EPS is net income.
<TABLE>
<CAPTION>

                                             THREE MONTHS ENDED         NINE MONTHS ENDED
                                                SEPTEMBER 30,              SEPTEMBER 30,

                                            -------------------        --------------------
(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)      1999          1998           1999        1998
<S>                                     <C>          <C>             <C>         <C>
-------------------------------------------------------------------------------------------
Net (loss) income                          $(6,095)       $3,106          $1,864      $6,455
Weighted-average shares - basic         15,438,640    15,414,210      15,385,672  15,387,923
Basic EPS                                   $(0.39)        $0.20           $0.12       $0.42

Weighted-average shares - basic         15,438,640    15,414,210      15,385,672  15,387,923
Incremental shares-options                  27,817            --          25,700      31,341
-------------------------------------------------------------------------------------------
Weighted-average shares - diluted       15,466,457    15,414,210      15,411,372  15,419,264
Diluted EPS                                 $(0.39)        $0.20           $0.12       $0.42
</TABLE>



(4) STOCK REPURCHASE PLAN

   On May 7, 1998,  the  Company's  Board of  Directors  authorized a program to
repurchase  up to two  hundred  thousand  (200,000)  shares  of its  issued  and
outstanding  common stock.  No time limit has been placed on the duration of the
stock repurchase program.  Subject to applicable securities laws, such purchases
will be made at times and in amounts as the Company deems appropriate and may be
discontinued  at any time. The  repurchases may be effected from time to time in
accordance with applicable  securities  laws,  through  solicited or unsolicited
transactions in the open market,  on the New York Stock Exchange or in privately
negotiated  transactions,  subject to  availability  of shares at prices  deemed
appropriate by the Company.  Repurchased  shares will be held as treasury shares
available  for  general  corporate  purposes,  including,  but not  limited  to,
satisfying the Company's contingent share obligations to the former shareholders
of Fidelity  Mortgage,  and in connection with Delta Financial's  employee stock
plans.

   Given the consumer  finance  sector-wide  focus on liquidity  and  conserving
capital,  the Board of Directors decided in November 1998 to suspend repurchases
under  the  program  and no  subsequent  decision  has been  made to  recommence
repurchases.  As such,  during the nine months ended  September  30,  1999,  the
Company  did not  repurchase  any  shares of its  common  stock  under its stock
repurchase plan. At September 30, 1999, the total number of treasury shares held
by the Company equaled 116,800.

                                       6

<PAGE>

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

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

GENERAL

   Delta  Financial  Corporation  (the  "Company"  or  "Delta")  engages  in the
consumer  finance  business by  originating,  acquiring,  selling and  servicing
non-conforming home equity loans.  Throughout its 17 years of operating history,
the Company has focused on lending to individuals who generally have impaired or
limited  credit  profiles or higher  debt-to-income  ratios for such purposes as
debt consolidation, home improvement, mortgage refinancing or education.

   Through  its  wholly-owned  subsidiary,  Delta  Funding  Corporation  ("Delta
Funding"),  the Company originates home equity loans indirectly through licensed
mortgage   brokers  and  other  real  estate   professionals   who  submit  loan
applications  on behalf of the borrower  ("Brokered  Loans") and also  purchases
loans from  mortgage  bankers and smaller  financial  institutions  that satisfy
Delta's underwriting guidelines ("Correspondent Loans"). Delta Funding currently
originates  and  purchases  the majority of its loans in 24 states,  through its
network of approximately 1,400 brokers and correspondents.

   Through its  wholly-owned  subsidiary,  Fidelity  Mortgage  Inc., the Company
develops retail loan leads ("Retail Loans")  primarily through its telemarketing
system and its network of 15 retail  offices  located in nine states.  Through a
strategic  alliance  between  DFC  Funding  of Canada  Limited,  a  wholly-owned
subsidiary of Delta Funding, and MCAP Mortgage Corporation,  a Canadian mortgage
loan originator,  the Company  originated loans in Canada.  In February 1999 the
Company decided to close its Canadian  business to focus exclusively on its U.S.
based business.

   For the three months ended  September 30, 1999,  the Company  originated  and
purchased  $361.0  million of loans,  a decrease of 24% from  $476.2  million of
loans  originated  and  purchased  in the  comparable  period in 1998.  Of these
amounts,  approximately  $222.2 million were  originated  through its network of
brokers,  $79.4  million were  originated  through its retail  network and $59.4
million were purchased from its network of  correspondents  for the three months
ended  September 30, 1999 compared to $228.2  million,  $67.0 million and $177.7
million,  respectively,  for the same period in 1998. In addition,  $3.3 million
was  originated  through its  Canadian  network  during the three  months  ended
September  30,  1998.  The  decrease  in  year-over-year  loan  originations  is
primarily the result of a decline in correspondent  purchases as the Company has
strategically  shifted its loan production mix to a greater percentage of broker
and retail  originations.  This production shift reflects the Company's strategy
to focus on its broker and retail  channels,  which are less cash intensive than
correspondent loan purchases.

   The following  table sets forth  information  relating to the delinquency and
loss experience of the mortgage loans serviced by the Company (primarily for the
securitization  trusts,  as  described  below) for the  periods  indicated.  The
Company is not the holder of the  securitization  loans,  but

                                        7


generally  retains interest-only or residual  certificates issued by the
securitization  trusts, as well as the  servicing  rights,  the  value  of each
of which  may be  adversely affected by defaults.



                                                         THREE MONTHS ENDED

                                                  ------------------------------
(DOLLARS IN THOUSANDS)                             SEPTEMBER 30,       JUNE 30,
                                                       1999              1999
                                                  --------------   -------------
Total Outstanding Principal Balance
  (at period end)..............................  $   3,518,142     $ 3,358,818
Average Outstanding(1).........................      3,470,468       3,288,247
DELINQUENCY (at period end) 30-59 Days:
  Principal Balance............................  $     181,180     $   155,321
  Percent of Delinquency(2)....................          5.15%           4.62%
60-89 Days:
  Principal Balance............................  $      70,552     $    58,528
  Percent of Delinquency(2)....................          2.00%           1.74%
90 Days or More:
  Principal Balance............................  $      55,913     $    51,654
  Percent of Delinquency(2)....................          1.59%           1.54%
Total Delinquencies:
  Principal Balance............................  $     307,645     $   265,503
  Percent of Delinquency(2)....................          8.74%           7.90%
FORECLOSURES
  Principal Balance............................  $     170,061     $   161,073
  Percent of Foreclosures by Dollar(2).........          4.83%           4.80%
REO (at period end)............................  $      31,900     $    27,907
   Percent of REO..............................          0.91%           0.83%
Net Losses on Liquidated Loans.................  $      (4,147)    $    (3,255)
Percentage of Net Losses on Liquidated Loans
  (based on Average Outstanding Balance)(3)....         (0.48%)         (0.40%)
---------------
(1)Calculated by summing the actual  outstanding  principal  balances at the end
   of each  month and  dividing  the total  principal  balance  by the number of
   months in the applicable period.
(2)Percentages are expressed based upon the total outstanding  principal balance
   at the end of the indicated period.
(3)Annualized.

   On June 23, 1999,  the Company  announced a settlement in principle  with the
office of the Attorney  General for the State of New York  ("NYOAG").  The NYOAG
took issue with Delta's lending  practices,  specifically which loans should and
should not be made by Delta.  The  Banking  Department  of the State of New York
("NY Banking  Department")  and the U.S.  Department  of Justice (the "DOJ") had
raised similar  concerns  relating to Delta's lending  practices.  On August 16,
1999,  the Company  entered into an  agreement in principle  with the NY Banking
Department, NYOAG and the DOJ with respect to their concerns. In September 1999,
the Company  finalized its  settlements  with the NY Banking  Department and the
NYOAG (but only after the NYOAG filed suit against the Company in August 1999).

   As part of the global  settlement  (in lieu of the  previously  announced  $6
million  settlement

                                        8


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

   The  nine-month  period ended  September  30, 1999  includes a $12.0  million
pre-tax charge for the global settlement with the NY Banking  Department and the
NYOAG.  The Company recorded a $6.0 million pre-tax charge in the second quarter
of 1999 when it reached a settlement in principle with the NYOAG.  Subsequently,
an additional  $6.0 million  pre-tax charge was recorded in the third quarter of
1999 when the Company reached a global settlement with the NY Banking Department
and the NYOAG. See "Legal  Proceedings" herein for a more detailed discussion of
the settlement.


FAIR VALUE ADJUSTMENTS

    In accordance with Statement of Financial  Accounting Standards ("SFAS") No.
125,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishment  of Liabilities",  upon the sale or  securitization  of a loan, a
gain on sale and a corresponding  asset is recognized for any  interest-only and
residual  certificates and capitalized  mortgage  servicing rights. The carrying
amount of the interest-only and residual certificates is classified as a trading
security  and,  as such,  they are  recorded  at their fair  value.  The Company
implemented SFAS No. 134,  "Accounting for Mortgage-Backed  Securities after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
in the first  quarter  of 1999.  The  implementation  of SFAS 134 did not have a
material impact on the Company's  financial  condition or results of operations.
For capitalized  mortgage servicing rights, a valuation allowance is recorded if
the fair value of such rights is less than the carrying amount.

   The  fair  values  of  both  interest-only  and  residual   certificates  and
capitalized mortgage servicing rights are significantly affected by, among other
factors,  prepayments  of loans and estimates of future  prepayment  rates.  The
Company continually  reviews its prepayment  assumptions in light of company and
industry  experience  and  makes  adjustments  to those  assumptions  when  such
experience indicates.

   The Company's review of its prepayment experience and assumptions at June 30,
1998  indicated  that  the  prepayment  rates  during  1998,   particularly  for
adjustable-rate  mortgages ("ARMs"), and in particular during the second quarter
of  1998,  were  higher  than  those  historically  experienced,  or  previously
projected,  by the  Company.  The  Company  believes  that  these  increases  in
prepayment rates were attributable to the continuation, for a longer period than
historically  experienced,  of low interest rates,  together with changes,  to a
flatter or inverted curve, of the relationship  between long-term and short-term
interest rates (the "yield curve").

   As  a  result,  at  June  30,  1998,  the  Company  adjusted  its  prepayment
assumptions, increasing

                                       9

the  maximum  prepayment rates  for  all loans, and  changing the  rate at which
prepayments  are assumed to increase  from the initial  rate to the maximum rate
from a  straight-line  build-up to a "vector"  curve.  These revised  prepayment
assumptions  were  used to  estimate  the fair  value of the  interest-only  and
residual  certificates and capitalized mortgage servicing rights retained by the
Company in securitizations  completed prior to the second quarter of 1998. These
revised prepayment assumptions were also used in initially valuing and recording
the interest-only and residual  certificates and capitalized  mortgage servicing
rights retained by the Company in its  securitizations  completed  subsequent to
the first quarter of 1998.

   During  the second  quarter of 1998,  the  Company  recorded a $15.5  million
reduction in the carrying amount of its interest-only and residual certificates,
and also  recorded  a $1.9  million  reduction  in the  carrying  amount  of its
capitalized mortgage servicing rights to reflect a provision for impairment (the
"fair value adjustments").  Both impairment  provisions resulted from reductions
in the Company's  estimates of the fair value of those assets. The reductions in
the  estimated  fair  value  resulted  from  the  aforementioned  change  in the
prepayment  assumptions used by the Company to estimate the future cash flows to
be derived from the  interest-only  and residual  certificates  and the mortgage
servicing rights.

   The Company assumes prepayment rates and defaults based upon the seasoning of
its existing  securitization  loan  portfolio.  The following table compares the
prepayment  assumptions  used subsequent to the first quarter of 1998 (the "new"
assumptions)  with those used at December 31, 1997 and through the first quarter
of 1998 ( the "old" assumptions):

--------------------------------------------------------------------------------
     LOAN TYPE                 CURVE           MONTH 1 SPEED         PEAK SPEED
                            DESCRIPTION
--------------------------------------------------------------------------------
                             NEW    OLD        NEW       OLD        NEW      OLD
--------------------------------------------------------------------------------
Loans Fixed Rate          Vector    Ramp      4.8%       4.8%       31%      24%

Six-Month LIBOR ARMs      Vector    Ramp     10.0%       5.6%       50%      28%

Hybrid ARMs               Vector    Ramp      6.0%       5.6%       50%      28%
--------------------------------------------------------------------------------

   In addition,  in the first  quarter of 1999,  the Company  increased its loss
reserve initially  established for both fixed- and adjustable-rate loans sold to
the  securitizations  trusts from 2.00% to  approximately  2.20% of the issuance
amount  securitized.  The  Company  made  this  change to  better  reflect  what
management  believes  its loss  experience  will be, as the Company  experienced
significantly  slower  prepayment  rates in the  first  quarter  of 1999  which,
coupled with an  anticipated  flat to slightly  moderate  rise in home values as
compared  to the past few  years,  may have an adverse  effect on the  Company's
non-performing  loans.  This change  resulted in  approximately  a $3.8  million
reduction in the Company's value of the residual and interest-only certificates.
An annual  discount rate of 12.0% was utilized in determining  the present value
of cash flows from residual certificates, using the "cash-out" method, which are
the  predominant  form of  retained  interests  at both  September  30, 1999 and
December 31, 1998.

                                       10


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

   To date, aggregate actual cash flows from the Company's securitization trusts
have either met or exceeded management's expectations.



RESULTS OF OPERATIONS
THREE  MONTHS  ENDED  SEPTEMBER  30, 1999  COMPARED TO THE  THREE  MONTHS  ENDED
SEPTEMBER 30, 1998

GENERAL

   The  Company's  net loss for the three  months ended  September  30, 1999 was
$(6.1) million, or $(0.39) per share, compared to net income of $3.1 million, or
$0.20 per share,  for the three months  ended  September  30, 1998.  Excluding a
one-time  charge  relating  to the  Company's  settlement  with  the NY  Banking
Department  and the NYOAG,  the  Company's  net loss for the three  months ended
September  30, 1999 would have been  reduced to $(2.5)  million,  or $(0.16) per
share.  Comments  regarding the  components of net (loss) income are detailed in
the following paragraphs.

REVENUES

   Total  revenues for the three months ended  September  30, 1999  decreased by
$8.4 million,  or 22%, to $29.7  million from $38.1  million for the  comparable
period in 1998. The decrease in revenue was primarily attributable to a decrease
in the net gain on sale recognized on the sale of mortgage loans and to a lesser
extent, a decrease in interest income.  This was partially offset by an increase
in servicing fees and origination fees.

   The Company originated and purchased $361.0 million of mortgage loans for the
three months ended  September  30, 1999,  representing  a 24% decrease  from the
$476.2 million of mortgage  loans  originated and purchased for the three months
ended  September 30, 1998. The Company  completed a loan sale through a mortgage
loan conduit facility for $360.0 million during the three months ended September
30,  1999  compared  with  a  securitization  totaling  $475.0  million  in  the
corresponding period in 1998, representing a 24% decrease.  Total loans serviced
at September  30, 1999  increased  30% to $3.52  billion  from $2.69  billion at
September 30, 1998.

   NET  GAIN ON SALE OF  MORTGAGE  LOANS.  Net  gain on sale of  mortgage  loans
represents  (1) the sum of (a)  the  fair  value  of the  residual  certificates
retained  by the  Company  in a  securitization  and  the  market  value  of the
interest-only  certificates sold in connection with each securitization,  or the
excess  servicing  receivable  (net interest  margin)  retained (the  difference
between  the  weighted  average  interest  rate on the  mortgage  loans less the
variable funding rate; present valued using the same underlying assumptions used
in determining the fair market value of the residual  certificates) in the loans
sold to a conduit  for each  period (b) the fair value of  capitalized  mortgage
servicing  rights  associated  with loans  securitized  in each period,  and (c)
premiums earned on the sale of whole loans on a  servicing-released  basis,  (2)
less the (x) premiums  paid to originate or acquire  mortgage  loans,  (y) costs
associated with  securitizations and (z) any hedge loss (gain) associated with a
particular securitization or loans sold.

                                       11


   Net gain on sale of mortgage  loans for the three months ended  September 30,
1999  decreased by $7.5 million,  or 43%, to $9.9 million from $17.4 million for
the comparable period in 1998. This decrease was primarily due to a 24% decrease
in the amount of loans securitized and to a lower gain on sale of the loans sold
to a conduit primarily reflecting the interest rate risk associated with funding
fixed rate mortgage loans using a variable interest rate over the expected lives
of the mortgage  loans.  This was  partially  offset by lower  premiums  paid to
acquire loans  resulting  from both a decrease in the amount of loans  purchased
through the correspondent  channel and a decrease in the average premium paid to
correspondents.  The  weighted  average  net gain on sale ratio was 2.8% for the
three  months  ended  September  30, 1999  compared to 3.7% for the three months
ended September 30, 1998.

   INTEREST  INCOME.  Interest  income  primarily  represents the sum of (1) the
difference  between the  distributions the Company receives on its interest-only
and residual certificates and the adjustments recorded to reflect changes in the
fair  value  of the  interest-only  and  residual  certificates,  (2) the  gross
interest  earned  on loans  held for  sale,  (other  than  loans  sold  into the
conduit),  (3) with  respect to loans sold into the  conduit,  the net  interest
margin  earned  (excess  servicing)  between the  weighted  average  rate on the
mortgage  loans less the  conduit's  variable  funding rate plus  administrative
fees, and (4) interest earned on cash collection balances.

   Interest  income for the three months ended  September 30, 1999  decreased by
$2.0  million to $8.6  million from $10.6  million in the  comparable  period in
1998.  The decrease in interest  income was primarily due to the  accounting for
loans sold by the Company  through a mortgage  loan  conduit  facility  prior to
their  securitization.  For such  conduit-related  sales,  the Company earns and
records the net interest  margin between the interest rate earned on the pool of
mortgage loans sold to the mortgage loan conduit and the conduit financing rate,
plus administrative expenses,  during the three months ended September 30, 1999.
Typically,  interest expense related to the Company's other warehouse  financing
and borrowings are recorded directly to interest expense.

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

   Servicing  fees for the three months ended  September  30, 1999  increased by
$0.4 million, or 11%, to $4.2 million from $3.8 million in the comparable period
in 1998. This increase was primarily due to an increase in the aggregate size of
the Company's  servicing  portfolio.  The average  balance of the mortgage loans
serviced increased 34% to $3.47 billion for the three months ended September 30,
1999 from $2.59 billion during the comparable period in 1998.

   ORIGINATION  FEES.  Origination  fees  represent  fees  earned on retail  and
brokered originated loans. Origination fees for the three months ended September
30, 1999 increased by $0.6 million, or 10%, to $6.9 million from $6.3 million in
the  comparable  period in 1998.  The  increase  is  primarily  the result of an
increase in the rate of  origination  fees  earned,  coupled with an increase in
retail  originated  loans,  partially  offset  by a  slight  decline  in  broker
originated loans.

                                       12


EXPENSES

   Total  expenses for three months ended  September 30, 1999  increased by $6.8
million,  or 21%, to $39.8 million from $33.0 million for the comparable  period
in 1998.  The  increase in expenses was  primarily  the result of an increase in
general and  administrative  primarily related to the Company's  settlement with
the NY Banking Department and the NYOAG, and personnel costs associated with the
Company's expanded retail, broker and servicing divisions, partially offset by a
decrease in interest expense.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  include  salaries,
benefits and payroll taxes for all employees.  Payroll and related costs for the
three months ended September 30, 1999 increased by $0.8 million, or 5%, to $16.1
million from $15.3 million for the comparable  period in 1998.  This increase is
primarily due to staff  increases  related to growth in the Company's  servicing
portfolio and in the Company's loan  originations  associated with the Company's
broker and retail  divisions.  As of September  30, 1999,  the Company  employed
1,190 full- and  part-time  employees,  368 of which are  employees  of Fidelity
Mortgage,  compared to 1,041 full- and  part-time  employees as of September 30,
1998.

   INTEREST  EXPENSE.  Interest  expense includes the borrowing costs to finance
loan  originations  and  purchases  under the $150 million  aggregate  principal
amount of 9.5% Senior  Notes due 2004 issued in July 1997 (the  "Senior  Notes")
and the Company's credit facilities.

   Interest  expense for the three months ended  September 30, 1999 decreased by
$2.3  million,  or 27%, to $6.2  million  from $8.5  million for the  comparable
period in 1998.  The  decrease in  interest  expense  was  primarily  due to the
accounting  for  loans  sold  through a  mortgage  loan  conduit  prior to their
securitization,  in which the Company earns and records the net interest  margin
between the interest rate earned on the pool of mortgage  loans sold to mortgage
loans  conduit and the variable  funding  rate,  plus  administrative  expenses,
during the three months ended September 30, 1999.  Typically,  interest  expense
related to the Company's other  warehouse  financing and borrowings are recorded
directly to interest expense.  In addition,  there was a decrease in the cost of
funds on the Company's  credit  facilities  which were tied to one-month  London
Inter-Bank  Offering Rate  ("LIBOR").  The one-month LIBOR index decreased to an
average  interest  rate of 5.3% in the three  months ended  September  30, 1999,
compared to an average interest rate of 5.6% for the comparable period in 1998.

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

   General and administrative  expenses for the three months ended September 30,
1999 increased $8.3 million,  or 90%, to $17.5 million from $9.2 million for the
comparable  period in 1998. This increase was primarily  attributable to (1) the
Company's  settlement  with the NY Banking  Department and the NYOAG,  and legal
costs  associated  with the  settlement,  and (2) an  increase  in  depreciation
expense and  management and consulting  fees,  reflecting the Company's  ongoing
investment in technology.

                                       13


   INCOME TAXES. Income taxes are accounted for under SFAS No. 109,  "Accounting
for Income  Taxes."  Deferred tax assets and  liabilities  are recognized on the
income  reported in the financial  statements  regardless of when such taxes are
paid. These deferred taxes are measured by applying current enacted tax rates.

   The Company recorded a tax benefit of $(4.1) million and a tax provision $2.0
million  for the  three  month  periods  ended  September  30,  1999  and  1998,
respectively.



NINE  MONTHS  ENDED  SEPTEMBER  30, 1999  COMPARED  TO THE NINE  MONTHS  ENDED
SEPTEMBER 30, 1998

GENERAL

   The  Company's  net income for the nine months ended  September  30, 1999 was
$1.9 million, or $0.12 per share,  compared to $6.5 million, or $0.42 per share,
for the nine months  ended  September  30,  1998.  Excluding  a one-time  charge
relating to the  Company's  settlement  with the NY Banking  Department  and the
NYOAG,  the  Company's  net income for the nine months ended  September 30, 1999
would  have been  $9.1  million,  or $0.59 per  share.  Comments  regarding  the
components of net income are detailed in the following paragraphs.

REVENUES

   Total  revenues for the nine months  ended  September  30, 1999  increased by
$16.7  million,  or 17%, to $116.6 million from $99.9 million for the comparable
period in 1998. The increase in revenue was primarily attributable to fair value
adjustments the Company made to its interest-only and residual  certificates and
capitalized  mortgage servicing rights in the second quarter of 1998 (See "-Fair
Value Adjustments"), an increase in servicing fees and origination fees, and was
partially  offset  by a  decrease  in the net  gain  recognized  on the  sale of
mortgage loans.

   The Company  originated and purchased $1.18 million of mortgage loans for the
nine months ended  September 30, 1999,  which  represented a decrease of 8% from
the $1.31 billion of mortgage loans originated and purchased for the nine months
ended September 30, 1998. The Company completed two  securitizations  and a loan
sale through a conduit  facility  totaling  $1.20 billion during the nine months
ended  September  30, 1999  compared  to three  securitizations  totaling  $1.32
billion in the corresponding period in 1998, representing an 8% decrease.  Total
loans  serviced at September 30, 1999  increased 31% to $3.52 billion from $2.69
billion at September 30, 1998.

   NET GAIN ON SALE OF MORTGAGE  LOANS.  Net gain on sale of mortgage  loans for
the nine months ended September 30, 1999 decreased by $10.6 million,  or 15%, to
$57.9  million  from  $68.5  million  for the  comparable  period in 1998.  This
decrease was primarily due to an 8% decrease in the amount of loans  securitized
and to a lower  gain on sale  associated  with  loans  sold to a  mortgage  loan
conduit  in the  third  quarter  of 1999,  reflecting  the  interest  rate  risk
associated with funding fixed rate mortgage loans using a variable interest rate
over the expected lives of the mortgage loans. The decrease was partially offset
by lower  aggregate  premiums  paid to  acquire  loans,  resulting  from  both a
decrease in the amount of loans purchased through the correspondent  channel and
lower average premiums paid to correspondents.  The weighted average net gain on
sale ratio for the nine months  ended  September  30, 1999 was 5.0%

                                       14


compared to 5.2% for the nine months ended September 30, 1998.

   INTEREST INCOME. Interest income for the nine months ended September 30, 1999
increased by $17.9 million to $24.7 million from $6.8 million in the  comparable
period in 1998. The increase in interest  income was primarily due to fair value
adjustments   made  in  1998  to  the  Company's   interest-only   and  residual
certificates,  including a $15.5 million reduction in the second quarter of 1998
related to the change in prepayment assumptions (see "-Fair Value Adjustments").
In addition,  there was an increase in interest  income related to higher levels
of  interest-only  and residual  certificates.  This was partially offset by the
accounting for loans sold by the Company  through a mortgage loan conduit during
the nine months ended September 30, 1999. For such  conduit-related  sales,  the
Company  earns  and  records  the  net interest margin between the interest rate
earned on the pool of mortgage  loans sold to the mortgage  loan conduit and the
variable funding rate, plus administrative expenses. Typically, interest expense
related to the Company's other  warehouse  financing and borrowings are recorded
directly to interest expense.

   SERVICING  FEES.  Servicing fees for the nine months ended September 30, 1999
increased  by $5.0  million,  or 76%, to $11.6  million from $6.6 million in the
comparable  period in 1998. This increase was primarily due to (1) the recording
of a $1.9 million  impairment  provision  for the Company's  mortgage  servicing
rights during the second quarter of 1998 (See "-Fair Value Adjustments") and (2)
an increase in the aggregate  size of the  Company's  servicing  portfolio.  The
average  balance of the mortgage loans  serviced  increased 43% to $3.28 billion
for the nine  months  ended  September  30, 1999 from $2.29  billion  during the
comparable period in 1998.

   ORIGINATION  FEES.  Origination  fees for the nine months ended September 30,
1999  increased by $4.4 million,  or 24%, to $22.4 million from $18.0 million in
the comparable period in 1998. The increase is primarily the result of (1) a 46%
increase in retail  originated loans and (2) a 21% increase in broker originated
loans.


EXPENSES

   Total  expenses for nine months ended  September 30, 1999  increased by $23.9
million,  or 27%, to $113.7 million from $89.8 million for the comparable period
in 1998.  The  increase in expenses was the result of an increase in general and
administrative  expenses primarily related to the Company's  settlement with the
NY  Banking  Department  and the  NYOAG,  and  legal  fees  associated  with the
settlement,  as well as personnel costs  associated with the Company's  expanded
retail,  broker and  servicing  divisions,  partially  offset by a  decrease  in
interest expense.

   PAYROLL AND  RELATED  COSTS.  Payroll  and related  costs for the nine months
ended  September 30, 1999  increased by $7.9  million,  or 19%, to $49.7 million
from $41.8 million for the comparable period in 1998. This increase is primarily
due to staff increases  related to growth in the Company's  servicing  portfolio
and in the Company's loan originations  associated with the Company's broker and
retail divisions. As of September 30, 1999, the Company employed 1,190 full- and
part-time employees,  368 of which are employees of Fidelity Mortgage,  compared
to 1,041 full- and part-time employees as of September 30, 1998.

   INTEREST  EXPENSE.  Interest  expense for the nine months ended September 30,
1999 decreased by $4.7 million,  or 20%, to $18.5 million from $23.2 million for
the comparable  period in 1998.  The decrease in interest  expense was primarily
due to the  accounting  for loans sold through a

                                       15


mortgage  loan conduit  prior to their  securitization  in the third  quarter of
1999, in which the Company earns and records the net interest margin between the
interest  rate earned on the pool of mortgage  loans sold to the  mortgage  loan
conduit   and  the  conduit  financing  rate,   plus  administrative   expenses.
Typically, interest expense related to the Company's other  warehouse  financing
and borrowings  are  recorded  directly to interest expense. In addition,  there
was a decrease in the cost of funds on  the Company's credit  facilities,  which
were tied to one-month LIBOR. The one-month LIBOR index  decreased to an average
interest  rate of 5.1% in the nine months ended September 30, 1999,  compared to
an average  interest rate of 5.6% for the comparable period in 1998.

   GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses for
the nine months ended  September 30, 1999 increased  $20.7  million,  or 83%, to
$45.5  million  from  $24.8  million  for the  comparable  period in 1998.  This
increase was primarily  attributable to (1) the Company's settlement with the NY
Banking  Department and the NYOAG,  and the associated  legal costs,  and (2) an
increase in depreciation expense and management and consulting fees,  reflecting
the Company's ongoing investment in technology.

   INCOME  TAXES.  The Company  recorded a tax  provision  of $1.1 million and
$3.7 million for the periods ended September 30, 1999 and 1998, respectively.


FINANCIAL CONDITION

SEPTEMBER 30, 1999 COMPARED TO DECEMBER 31, 1998

   Cash and  interest-bearing  deposits increased $5.8 million, or 12%, to $55.0
million at September  30,  1999,  from $49.2  million at December 31, 1998.  The
increase was the result of additional  monies held in restricted  trust accounts
by the Company, acting as servicer for its ongoing securitization program.

   Accounts  receivable  increased  $7.3  million,  or 32%, to $29.8  million at
September 30, 1999,  from $22.5  million at December 31, 1998.  The increase was
attributable  to an  increase in  reimbursable  servicing  advances  made by the
Company, acting as servicer on its securitizations,  related to a higher average
servicing  portfolio.  The Company's  servicing portfolio increased 19% to $3.52
billion as of September 30, 1999 from $2.95 billion as of December 31, 1998.

   Loans held for sale, net increased  $14.7 million,  or 17%, to $101.9 million
at September 30, 1999,  from $87.2  million at December 31, 1998.  This increase
was  primarily due to the net  difference  between loan  originations  and loans
securitized or sold during the nine months ended September 30, 1999.

   Accrued interest and late charges receivable increased $11.3 million, or 24%,
to $58.2 million at September 30, 1999, from $46.9 million at December 31, 1998.
This  increase was  primarily  due to a larger loan  servicing  portfolio  which
resulted in increased reimbursable interest advances made by the Company, acting
as servicer on its securitizations.

   Capitalized mortgage servicing rights increased $2.9 million, or 9%, to $36.4
million at September  30, 1999,  from $33.5  million at December 31, 1998.  This
increase was directly attributable to the Company's capitalizing the fair market
value  of the  servicing  assets,  totaling  $9.2  million,  resulting  from the
Company's  completion  of two  securitizations  during  the  nine

                                       16


months ended  September  30, 1999, partially  offset  by   the  amortization  of
capitalized mortgage servicing rights.

   Interest-only and residual  certificates  increased $18.9 million,  or 9%, to
$222.7 million at September 30, 1999,  from $203.8 million at December 31, 1998.
This increase is primarily  attributable  to the  Company's  receipt of residual
certificates  valued and recorded at $40.7 million from its  securitizations and
conduit loan sales during the nine months ended  September  30, 1999,  partially
offset  by  normal  amortization  due  to  cash  distributions  and  fair  value
adjustments.

   Equipment, net, increased $3.2 million, or 19%, to $20.2 million at September
30, 1999,  from $17.0  million at December 31, 1998.  The increase was primarily
due to capital expenditures related to new technology and expansion.

   Cash held for  advance  payments  increased  $4.0  million,  or 40%, to $14.0
million at September  30,  1999,  from $10.0  million at December 31, 1998.  The
increase  was  primarily  due  to a  higher  average  loan  servicing  portfolio
resulting in  additional  monies held in escrow  trust  accounts by the Company,
acting as a servicer.

     Warehouse  financing and other borrowings  increased $40.3 million, or 50%,
to $120.6 million at September 30, 1999,  from $80.3 at December 31, 1998.  This
increase was primarily  attributable to the increase in loans held for sale, and
to an  increase  in  financing  using  capital  leases  to  fund  the  Company's
investment in technology.

   The aggregate principal balance of the Senior Notes totaled $149.5 million at
September  30, 1999  compared to $149.4  million at December  31,  1998,  net of
unamortized  bond discount.  The Senior Notes accrue  interest at a rate of 9.5%
per annum, payable semi-annually on February 1 and August 1.

   Accounts  payable and accrued  expenses  increased $16.7 million,  or 80%, to
$37.7  million at September  30, 1999,  from $21.0 million at December 31, 1998.
This  increase  was  primarily  attributable  to the  accrual  of the  Company's
settlement  with the NY Banking  Department  and the NYOAG,  in  addition to the
timing of various other operating accruals and payables.

   Investor  payable  increased  $7.5  million,  or 12%,  to  $71.3  million  at
September 30, 1999,  from $63.8 million at December 31, 1998.  This increase was
primarily due to the 19% increase in the Company's  portfolio of serviced  loans
to $3.52  billion at September 30, 1999 from $2.95 billion at December 31, 1998.
Investor  payable is comprised of all principal  collected on mortgage loans and
accrued interest.  Variability in this account is primarily due to the principal
payments collected within a given collection period.

   Advance payments by borrowers for taxes and insurance increased $4.0 million,
or 42%, to $13.6  million at September  30, 1999,  from $9.6 million at December
31, 1998.  This  increase is primarily  due to a higher  average loan  servicing
portfolio  and the timing of  payments  collected  and  disbursed  resulting  in
additional  monies held in escrow  trust  accounts  by the  Company  acting as a
servicer.

   Deferred tax liability  decreased  $8.6 million,  or 46%, to $10.2 million at
September 30, 1999,  from $18.8 million at December 31, 1999.  This decrease was
primarily due to income tax payments of $9.8 million.

                                       17


   Stockholders'  equity  increased  $6.6 million,  or 5%, to $144.3  million at
September 30, 1999,  from $137.7 million at December 31, 1998. This increase was
primarily due to the issuance of 525,000 shares of the Company's common stock at
$9.10 per share  related to Company's  legal  settlement  and net income of $1.9
million for the nine months ending September 30, 1999.


LIQUIDITY AND CAPITAL RESOURCES

   The  Company's  strategy is to maintain a neutral to slightly  negative  cash
flow position for the foreseeable  future,  as a result of aggregate annual cash
inflows from the Company's  retained  interest-only  and residual  certificates,
advantageous  securitization structures,  which have allowed the Company to sell
senior  interest-only   certificates,   and  a  greater  concentration  on  less
cash-intensive broker and retail originations.  However, market conditions could
impact the  Company's  cash flows  potentially  resulting in a more  significant
negative cash flow.  Since the second  quarter of 1997, the Company has sold the
senior  interest-only  certificates in each of its  securitizations  and, in the
Company's six most recent  securitizations,  it has  successfully  increased the
amount of senior interest-only  certificates  offered to investors,  compared to
prior securitizations, which has also enhanced cash flow.

   For the nine months  ended  September  30,  1999,  the  Company had  negative
operating cash flow of $28.1 million compared to a negative  operating cash flow
of $34.6 million for the  comparable  period in 1998.  The reduction in negative
operating  cash  flow was  primarily  due to the  Company's  de-emphasis  of the
correspondent loan production channel, thereby decreasing the amount of premiums
paid to  correspondents  and an  increase  in the cash flows from the  Company's
retained  interest-only and residual  certificates.  The reduction was partially
offset by the  Company's  decision  not to execute a  securitization  during the
third quarter of 1999 in which the Company typically  generates cash through the
sale of its senior interest-only certificates,  an increase in investor payable,
an increase in tax payments and a one-time tax refund  during the first  quarter
of 1998.

   Currently, the Company's primary cash requirements include the funding of (1)
mortgage  originations  and purchases  pending  their pooling and sale,  (2) the
points and expenses paid in connection  with the  acquisition  of  correspondent
loans,  (3)  interest  expense  on its  Senior  Notes  and  warehouse  and other
financings, (4) fees, expenses, delinquency advances, servicing-related advances
and tax payments incurred in connection with its securitization program, and (5)
ongoing administrative and other operating expenses, including fees and expenses
associated with the Company's  settlement of claims by the NY Banking Department
and the NYOAG. The Company must be able to sell loans and obtain adequate credit
facilities  and other  sources of funding in order to continue to originate  and
purchase loans.

   Historically,  the Company has utilized various  financing  facilities and an
equity  financing  to offset  negative  operating  cash  flows and  support  the
continued  growth of its loan  originations and purchases,  securitizations  and
general operating expenses.  On July 23, 1997, the Company completed an offering
of the Senior  Notes.  A portion of the Senior Notes  proceeds  were used to pay
down various financing  facilities with the remainder used to fund the Company's
growth  in  loan  originations  and  purchases  and its  ongoing  securitization
program. The Company's primary

                                       18


sources of liquidity continue to be warehouse and  other  financing  facilities,
securitizations and, subject to market conditions, sales of whole loans and
additional debt and equity securities.

     To accumulate loans for securitization, the Company  borrows  money  on   a
short-term basis through warehouse lines of credit.  The Company has relied upon
a few lenders to provide the primary credit facilities for its loan originations
and purchases. The Company had six warehouse facilities as of September 30, 1999
for this purpose.  One warehouse  facility is a $200.0 million  committed credit
line with a variable  rate of interest and a maturity  date of March 2000.  This
facility's  maturity  date was extended  from February 1999 to March 2000 during
the three months ended March 31, 1999. The Company's second warehouse  facility,
a syndicated  $100.0  million  committed  revolving line with a variable rate of
interest,  was  renewed in June 1999 and  extended  to mature in June 2000.  The
Company's  third warehouse  facility is a renewal of a committed  $200.0 million
mortgage  loan conduit with a variable  rate of interest and a maturity  date of
September  2000. In addition,  this facility has been  temporarily  increased to
$400.0 million until December 26, 1999. The Company's fourth warehouse  facility
is a $200.0  million  committed  credit  facility  that has a  variable  rate of
interest  and a maturity  date of April  2000.  The  Company's  fifth  warehouse
facility is a $250.0 million  committed credit facility that has a variable rate
of interest and a maturity date of April 2000. During the third quarter of 1999,
the Company  obtained an additional  warehouse  facility  with a $200.0  million
committed  credit line that has a variable  rate of interest and a maturity date
of September 2000. As of September 30, 1999, the first warehouse facility had an
outstanding  balance of $99.9  million,  the second  warehouse  facility  had an
outstanding  balance of $7.5  million and the third  warehouse  facility  had an
outstanding balance of $360.0 million.

   The  Company is  required  to comply with  various  operating  and  financial
covenants as provided in the agreements  described above which are customary for
agreements  of their  type.  The  Company  does not  believe  that its  existing
financial  covenants  will  restrict its  operations  or growth.  The  continued
availability of funds provided to the Company under these  agreements is subject
to the Company's continued compliance with these covenants.  Management believes
that the Company is in compliance with all such covenants under these agreements
as of September 30, 1999.

   The Company  purchased a total of 116,800  shares of its common  stock during
the year ended December 31, 1998, under the Company's stock repurchase  program,
at a total cost of $1.3 million. All of the repurchased shares were purchased in
open market transactions at then prevailing market prices. During the first nine
months of 1999, no additional shares were repurchased.


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

RISK FACTORS

   Except for historical information contained herein, certain matters discussed
in this Form 10-
                                       19


Q  are  "forward-looking  statements"  as  defined  in  the  Private  Securities
Litigation  Reform Act ("PSLRA") of 1995,  which involve risk and  uncertainties
that exist in the Company's operations and business environment, and are subject
to change on various important factors.  The Company wishes to take advantage of
the "safe harbor"  provisions  of the PSLRA by cautioning  readers that numerous
important factors discussed below,  among others, in some cases have caused, and
in the future could cause the Company's actual results to differ materially from
those expressed in any forward-looking  statements made by, or on behalf of, the
Company.   The  following   include  some,  but  not  all,  of  the  factors  or
uncertainties that could cause actual results to differ from projections:

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

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

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

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

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

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

                                       20


      financial, technological and marketing resources.

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

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

   *  Year  2000  Compliance  and  Technology  Enhancements.   The   Company  is
      utilizing  both  internal  and external  resources  to identify,  correct,
      reprogram  or  replace,  and test its  systems  for year 2000  compliance.
      Although to date, the Company has been completing its Year 2000 compliance
      efforts  on time,  there can be no  assurance  that the  Company  will not
      experience  unexpected  delay.  There  can also be no  assurance  that the
      systems of other  companies  on which the  Company's  systems rely will be
      timely reprogrammed for year 2000 compliance.

INFORMATION SERVICES YEAR 2000 PROJECT

   The Year 2000 issue centers on the inability of certain computer hardware and
software systems and associated  applications to correctly recognize and process
dates beyond December 31, 1999. Many computer programs used by the Company,  its
suppliers and outside service  providers were developed using only six digits to
define  the date  field (two  fields  each for the month,  day and year) and may
recognize "00" as the year 1900, rather than the year 2000. Due to the nature of
financial information, if corrective action is not taken, calculations that rely
on the integrity of the date field for the  processing of  information  could be
significantly misstated.

STATE OF READINESS

   The  Company  has  implemented  a  detailed  Year 2000 Plan (the  "Plan")  to
evaluate  the Year 2000  readiness  of the  computer  systems  that  support the
operation of the Company including vendor computer systems.  This Plan concluded
in August 1999 with all systems year 2000 compliant.

   The Plan includes  upgrading the origination  system software,  upgrading the
loan servicing software, upgrading the accounting system software, upgrading the
wide area network software,  assessing the proper integration of all systems and
communicating with vendors and liquidity  providers to ascertain their Year 2000
compliance.

   To date,  the Company  believes  its internal  control  systems are Year 2000
compliant  and vendors and liquidity  providers  have been  contacted  regarding
their  readiness.  Results of system  tests  conducted  by the Company and other
service  providers  will  continue to be carefully  monitored to ensure that all
issues have been identified and addressed.

   The Company  believes it has developed an effective  Plan to address the Year
2000 issue and that based on the  available  information,  the  execution of the
Plan will not have any significant or material  impact to the Company's  ability
to  operate  before,  during  or after  the  transition  to the

                                       21

new  millennium.  However,  the  Company  has  no  control  over  the process of
third  parties in  addressing  their own Year 2000 issues and, if the  necessary
changes  are not  effected  or are  not  completed  in a  timely  manner,  or if
unanticipated  problems  arise,  there may be a material impact on the Company's
financial condition and result of operations.

COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

   The Company's costs to resolve the Year 2000 issue are not expected to have a
material  financial  impact on the Company and are expected to be less than $1.0
million, which the Company intends to fund from its current operations. To date,
the Company has paid and expensed approximately $0.7 million. However, as stated
above,  there can be no assurance that all such costs have been  identified,  or
that there may not be some  unforeseen  cost  which may have a material  adverse
effect on the Company's financial condition and results of operations.

RISK OF YEAR 2000 ISSUES

   To date,  the Company has not identified any system which presents a material
risk of failing to be Year 2000  complaint  in a timely  manner,  or for which a
suitable  alternative cannot be implemented.  However, as the Company progresses
with its Plan and continues its testing,  systems or equipment may be identified
which  present a material risk of business  interruption.  Such  disruption  may
include the inability to process customer accounting transactions; the inability
to process  loan  applications;  the  inability  to  reconcile  and record daily
activity;  the  inability to track  delinquencies;  or the inability to generate
checks  or to  clear  funds.  In  addition,  if any of the  Company's  liquidity
providers  should fail to achieve the Year 2000 compliance and they experience a
disruption of their own  businesses  which prevents them from  fulfilling  their
obligations, the Company may be materially impacted.

   To the extent that the risks  posed by the Year 2000 issue,  which are beyond
the  Company's   control,   are  pervasive  in  data  processing,   utility  and
telecommunication  services worldwide, the Company cannot predict with certainty
that it will remain  materially  unaffected  by issues  related to the Year 2000
problem.

CONTINGENCY PLANS

   As part of the Plan implemented by the Company, periodic assessments are made
to  determine  that all Year  2000  issues  will be  addressed  prior to the new
millennium.  If this  assessment  determines  that any systems are not Year 2000
compliant,  and will not become Year 2000 compliant in a timely  manner,  then a
contingency  plan to implement a suitable  alternative  will be put in place. At
this time all systems are believed to be compliant and no contingency plan is in
place.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

SFAS NO. 133

   In June 1998, the Financial  Accounting  Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  SFAS
No.  133   establishes

                                       22


accounting  and  reporting   standards  for   derivative  instruments   and  for
hedging  activities.  It requires that any entity  recognize all  derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a  derivative  (that is,  gains and losses)  depends on the  intended use of the
derivative and the resulting designation. In July 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective  Date of FASB Statement No. 133." SFAS No.137 delays the effective
date of SFAS No. 133, for one year,  to all fiscal  quarters of all fiscal years
beginning  after  June 15,  2000.  The delay  applies  to  quarterly  and annual
financial  statements.  SFAS No. 137 is  effective  upon  issuance  and does not
require  restatement  of prior  periods.  Management  of the  Company  currently
believes the  implementation  of SFAS No. 133 will not have a material impact on
the Company's financial condition or results of operations.

                                       23

<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The primary  market  risk to which the  Company is exposed is  interest  rate
risk, which is highly sensitive to many factors, including governmental monetary
and  tax   policies,   domestic  and   international   economic  and   political
considerations  and other factors beyond the control of the Company.  Changes in
the general level of interest  rates between the time the Company  originates or
purchases  mortgage  loans and the time the Company sells such mortgage loans at
securitization  can affect the value of the  Company's  mortgage  loans held for
sale and, consequently,  the Company's net gain on sale revenue by affecting the
"excess spread" between the interest rate on the mortgage loans and the interest
rate paid to  asset-backed  investors  who  purchase  pass-through  certificates
issued by the securitization trusts. If interest rates rise between the time the
Company  originates  or  purchases  the loans and the time the loans are sold at
securitization,  the excess  spread  generally  narrows,  resulting in a loss in
value of the loans and a lower net gain on sale.

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

   To reduce its financial  exposure to changes in interest  rates,  the Company
generally hedges its mortgage loans held for sale by entering into treasury rate
lock contracts (see "-Hedging"). The Company's hedging strategy has largely been
an effective  tool to manage the Company's  interest rate risk on loans prior to
securitization,  by providing  the Company with a cash gain (or loss) to largely
offset the reduced  (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  primarily  due to a less then  perfect  correlation  between  the  hedging
instrument used to hedge the securities issued by the securitization trust.

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


INTEREST RATE RISK

    Among the  Company's  primary  market risk  exposure is interest  rate risk.
Profitability  may be  directly  affected by the level of, and  fluctuation  in,
interest  rates,  which affect the  Company's  ability to earn a spread  between
interest  received on its loans and the costs of its borrowings,  which are tied
to various United States Treasury maturities,  commercial paper rates and LIBOR.
The  profitability of the Company is likely to be adversely  affected during any
period of  unexpected  or rapid changes in interest  rates.  A  substantial  and
sustained  increase  in  interest

                                       24


rates  could  adversely   affect   the  Company's   ability   to   purchase  and
originate  loans.  A significant  decline in interest  rates could  increase the
level of loan  prepayments  thereby  decreasing  the size of the Company's  loan
servicing  portfolio.  To the  extent  servicing  rights and  interest-only  and
residual  classes  of  certificates  have been  capitalized  on the books of the
Company,  higher than  anticipated  rates of loan  prepayments  or losses  could
require  the  Company  to write  down the  value of such  servicing  rights  and
interest-  only and residual  certificates,  adversely  impacting  earnings.  As
previously  discussed,  the fair value  adjustments that the Company recorded in
the second quarter of 1998 were primarily  attributable to the Company's  change
in prepayment assumptions to reflect higher than originally anticipated rates of
prepayments  (see  "--Fair  Value  Adjustments").  In an effort to mitigate  the
effect of interest  rate risk,  the Company has  reviewed  its various  mortgage
products and has  identified  and modified  those that have proven  historically
more  susceptible to prepayments.  However,  there can be no assurance that such
modifications to its product line will effectively  mitigate  interest rate risk
in the future.

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

                                       25
<PAGE>


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

   *  In or about  November 1998, the Company  received  notice that it had been
      named in a  lawsuit  filed in the  United  States  District  Court for the
      Eastern  District  of New York.  In  December  1998,  plaintiffs  filed an
      amended  complaint  alleging that the Company had violated the Home Equity
      and Ownership Protection Act ("HOEPA"),  the Truth in Lending Act ("TILA")
      and New York State General  Business 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 Delta from conducting  foreclosure  sales on 11 properties.  The
      District  Court  Judge  ruled  that in order to  consider  such a  motion,
      plaintiff  must  move to  intervene  on  behalf  of  these  11  borrowers.
      Thereafter,  plaintiff  moved  to  intervene  on  behalf  of 3 of these 11
      borrowers and sought the  injunctive  relief on their behalf.  The Company
      opposed the  motions.  On December  14,  1998,  the  District  Court Judge
      granted the motion to intervene  and on December  23,  1998,  the District
      Court Judge issued a  preliminary  injunction  enjoining  the Company from
      proceeding   with  the  foreclosure   sales  of  the  three   intervenors'
      properties.  The  Company  has filed a motion for  reconsideration  of the
      December 23, 1998 order.  In January 1999,  the Company filed an answer to
      plaintiffs' first amended complaint. In July 1999, plaintiffs were granted
      leave,  on consent,  to file a second amended  complaint.  In August 1999,
      plaintiffs  filed a second  amended  complaint  that,  among other things,
      added  additional  parties but contained the same causes of action alleged
      in the first amended  complaint.  In September  1999,  the Company filed a
      motion to dismiss the complaint.  Also in September 1999, plaintiffs filed
      a motion for class certification;  which Delta will respond to in or about
      December  1999,  after class  discovery is completed.  In or about October
      1999,  plaintiffs  filed a motion seeking an order preventing the Company,
      its attorneys  and/or  the  New York  State  Banking   Department (the "NY
      Banking Department")from issuing notices to certain of Delta's borrowers,
      in accordance with a settlement  agreement  entered  into by  and  between
      the  Company and the NY Banking Department. In or about October  1999  and
      November 1999, respectively, Delta and the NY Banking Department submitted
      opposition  to  plaintiffs'  motion. The  Company  believes  that  it  has
      meritorious defenses and intends to defend this suit,  but cannot estimate
      with any  certainty  its  ultimate  legal  or financial

                                       26

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

   *  In or about  March  1999,  the  Company  received  notice that it had been
      named in a lawsuit  filed in the  Supreme  Court of the State of New York,
      New York  County,  alleging  that  Delta had  improperly  charged  certain
      borrowers  processing  fees. The complaint  seeks (a)  certification  of a
      class of plaintiffs,  (b) an accounting,  and (c) unspecified compensatory
      and punitive damages  (including  attorneys' fees), based upon alleged (i)
      unjust  enrichment,  (ii) fraud, and (iii) deceptive trade  practices.  In
      April 1999, the Company filed an answer to the complaint.  In August 1999,
      plaintiffs filed a motion for class certification.  In September 1999, the
      Company  filed a motion to dismiss  the  complaint,  which was  opposed by
      plaintiffs.  The Company's response to the motion for class  certification
      is not due until  after class  discovery  is  completed  and its motion to
      dismiss is decided.  The Company believes that it has meritorious defenses
      and intends to defend this suit,  but cannot  estimate  with any certainty
      its ultimate  legal or financial  liability,  if any,  with respect to the
      alleged claims.


   *  In or about July 1999, the  Company received notice that it had been named
      in a lawsuit  filed in the United  States  District  Court for the Western
      District of New York, alleging that amounts collected and maintained by it
      in certain  borrowers' tax and insurance escrow accounts  exceeded certain
      statutory (RESPA) and/or contractual (the respective  borrowers'  mortgage
      agreements) ceilings.  The complaint seeks (a) certification of a class of
      plaintiffs,  (b) declaratory  relief finding that the Company's  practices
      violate applicable statutes and/or the mortgage agreements, (c) injunctive
      relief,  and (d) unspecified  compensatory and punitive damages (including
      attorneys'  fees).  In October 1999, the Company filed a motion to dismiss
      the complaint.  The Company believes that it has meritorious  defenses and
      intends to defend this suit,  but cannot  estimate  with any certainty its
      ultimate legal or financial liability, if any, with respect to the alleged
      claims.

   *  In or about August 1999, the  Office of the Attorney General for the State
      of New York (the  "NYOAG")  filed a lawsuit  against the Company  alleging
      violations of (a) RESPA (by paying yield spread  premiums),  (b) HOEPA and
      TILA,  (c) ECOA,  (d) New York  Executive Law ss. 296-a,  and (e) New York
      Executive Law ss. 63(12).  In September 1999,  Delta and the NYOAG settled
      the lawsuit,  as part of a global settlement by and among Delta, the NYOAG
      and the NY Banking Department,  evidenced by that certain  (a) Remediation
      Agreement by and between  Delta  and the  NY Banking Department,  dated as
      of  September  17,  1999 and (b) Stipulated  Order on Consent by and among
      Delta,  Delta  Financial and the NYOAG, dated as of September 17, 1999. As
      part of  the  Settlement,  Delta  will,  among   other  things,  implement
      agreed  upon  changes  to  its  lending  practices;  provide  reduced loan
      payments  aggregating  $7.25 million to certain  borrowers  identified  by
      the  NY Banking Department;  and  create  a  fund  of approximately  $4.75
      million to be financed by the grant of 525,000 shares of Delta Financial's
      common stock valued at a constant assumed priced of $9.10 per share, which
      approximates book value. The proceeds of the fund will be used,  for among
      other  things, to pay for a variety of consumer educational and counseling
      programs. As a result, the NYOAG lawsuit has

                                       27

      been dismissed as against the Company.
      The Remediation  Agreement and Stipulated  Order on Consent  supersede the
      Company's  previously  announced  settlements  with the  NYOAG  and the NY
      Banking Dept.  The Company  contemplates  the United States  Department of
      Justice (the "DOJ") joining this global  settlement and is negotiating the
      terms of a settlement agreement with the DOJ in that regard.

   In November  1999,  the Company  received  notice that it had been named in a
lawsuit filed in the United States  District  Court for the Eastern  District of
New York, seeking certification as a class action and alleging violations of the
federal securities laws in connection with the Company's initial public offering
in 1996 and its reports  subsequently  filed with the  Securities  and  Exchange
Commission.  The  complaint  alleges  that the scope of the  violations  alleged
recently in the consumer  lawsuits and regulatory  actions  indicate a pervasive
pattern of action and risk that should have been more  thoroughly  disclosed  to
investors in the Company's  common  stock.  The Company has learned of two other
lawsuits  that  purportedly  contain  the  same  or  similar  allegations, WHICH
have apparently also been filed against the Company.  The Company  believes that
it has  meritorious  defenses  and intends to defend  these  suits,  but has not
answered  yet and cannot  estimate  with any  certainty  its  ultimate  legal or
financial liability, if any, with respect to the alleged claims.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

   In September 1999, in connection with a settlement  entered into by and among
the Company, the NY Banking Department and the NYOAG, the Company issued 525,000
shares of Delta Financial's  common stock valued at a constant assumed priced of
$9.10 per share,  which  approximates  book value. The unregistered  shares were
deposited  into a trust  maintained by the NY Banking  Department,  the proceeds
from which will be used for,  among other  things,  restitution,  education  and
counseling,  at the discretion of the NY Banking Department,  in accordance with
the settlement agreement.

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:            11.1 Statement re: Computation of Per Share
                                      Earnings

                               27.1 Financial Data Schedule - Nine Months
                                      Ended September 30, 1999

                                       28


     (b)Reports on Form 8-K:   On September  22, 1999,  the Company filed
                               a Current Report on Form  8-K in which it
                               reported the completion of settlement
                               agreements  with  the  NY  Banking Department and
                               the  NYOAG, and filed as exhibits  copies of that
                               certain (1) Remediation Agreement by and  between
                               Delta  Funding  Corporation  and the  NY  Banking
                               Department, dated as  of  September 17, 1999  and
                               (2) Stipulated  Order  on  Consent  by  and among
                               Delta Funding  Corporation,  Delta  Financial
                               Corporation  and the NYOAG, dated as of September
                               17, 1999.

                                       29

<PAGE>

                                   SIGNATURES

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


                                         DELTA FINANCIAL CORPORATION
                                                 (Registrant)

     Date:  November 15, 1999
                                         By:/S/ HUGH MILLER
                                            ------------------------------------
                                            Hugh Miller
                                            PRESIDENT & CHIEF EXECUTIVE OFFICER


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


                                       30


<PAGE>

                                EXHIBIT INDEX

EXHIBIT
NUMBER      DESCRIPTION
-------     -----------

11.1        Statement re: Computation of  Per Share Earnings.

27.1        Financial Data Schedule - Nine Months Ended September 30, 1999