<PAGE>
 
                                 UNITED STATES

                      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, 1998
                                              ------------------

                                      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   000-22633
                                              ---------  

                       NEW CENTURY FINANCIAL CORPORATION
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)


          DELAWARE                                        33-0683629
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

           18400 VON KARMAN, SUITE 1000, IRVINE,  CALIFORNIA  92612
           --------------------------------------------------------
           (Address of principal executive offices)      (Zip code)

Registrant's telephone number, including area code:    (949)  440-7030
                                                       ---------------

 
           --------------------------------------------------------       
           (Former name, former address and former fiscal year, if 
                          changed since last report)


Indicate by check mark whether  the registrant  (1)  has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 October 31, 1998, 14,468,916 shares of common stock of New Century
Financial Corporation were outstanding.
<PAGE>
 
              NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
                                   FORM 10-Q
                       QUARTER ENDED SEPTEMBER 30, 1998

                                     INDEX

PART I             -   FINANCIAL INFORMATION                            PAGE

     Item 1.           Financial Statements                               4
 
     Item 2.           Management's Discussion and Analysis of
                       Financial Condition and Results of Operations     13
 
PART II            -   OTHER INFORMATION
 
     Item 1.           Legal Proceedings                                 25
 
     Item 2.           Changes in Securities and Use of Proceeds         25
 
     Item 3.           Defaults Upon Senior Securities                   25
 
     Item 4.           Submission of Matters to a Vote of
                       Security Holders                                  25
 
     Item 5.           Other Information                                 25
 
     Item 6.           Exhibits and Reports on Form 8-K                  25
 
SIGNATURES                                                               26
                   
EXHIBIT INDEX                                                            27

                                       2
<PAGE>
 
Certain information included in this Form 10-Q may include "forward-looking"
statements under federal securities laws, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby.  Such
statements include the expectation that the U.S. Bancorp transaction will close
in the fourth quarter, the expectation that the Company's current liquidity,
credit facilities and capital resources will be sufficient to fund its
operations for the foreseeable future, the expectation that the Company will
continue to expand its credit facilities to finance its increasing levels of
loan production, the intent to add new credit facilities, as well as expand
these credit facilities, in order to finance future securitization transactions,
the expectation that the proceeds from the U.S. Bancorp investment will provide
the Company greater flexibility in its secondary marketing strategy, the
expectation that the Company will be able to implement its Year 2000 Plan on
schedule, the expectation that the budget for implementation of the Year 2000
Plan will be adequate, and the belief that any liability with respect to its
legal actions, individually or in the aggregate, will not have a material
adverse effect on the Company's financial position or results of operations.
There are many important factors that could cause the Company's actual results
to differ materially from expected results in the forward-looking statements.
Such factors include, but are not limited to, denial of regulatory approval for
the U.S. Bancorp transaction or inability of the parties to satisfy the other
closing conditions, the Company's ability to access funding sources in an
environment of tightening credit for sub-prime lenders, volatility in the market
for whole loans, the condition of the market for mortgage-backed securities, the
Company's limited operating history, the Company's ability to sustain and manage
its rate of growth, the impact of competition in the subprime mortgage banking
industry, the Company's ability to handle efficiently its expanded servicing
responsibilities, and other risks identified in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and its other filings with the
Securities and Exchange Commission.

                                       3
<PAGE>

                         Item 1.  Financial Statements

              New Century Financial Corporation and Subsidiaries
                          Consolidated Balance Sheets
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                    (In thousands)
                                                              September 30,   December 31,
                                                                  1998            1997
                                                              -------------   ------------
<S>                                                           <C>             <C> 
ASSETS:                                                      
Cash and cash equivalents....................................    $ 23,242        $ 12,701
Loans receivable held for sale, net (notes 2 and 4)..........     341,449         276,506
Residual interests in securitizations (note 3)...............     159,134          97,260
Originated mortgage servicing rights (note 3)................       2,693             -
Accrued interest receivable..................................       2,543           3,974
Office property and equipment................................       5,228           4,289
Prepaid expenses and other assets............................      11,301           3,398
                                                                 --------        --------
TOTAL ASSETS.................................................    $545,590        $398,128
                                                                 ========        ========
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY:                        
                                                             
Warehouse and aggregation lines of credit (note 4)...........    $339,169        $255,363
Residual financing...........................................      84,992          53,427
Notes payable................................................       3,831           3,222
Income taxes payable.........................................       1,663           1,789
Accounts payable and accrued liabilities.....................      14,754          15,454
Deferred income taxes........................................      15,537           8,037
                                                                 --------        --------
        Total liabilities....................................     459,946         337,292
                                                             
Stockholders' equity:                                        
Preferred stock, $.01 par value. Authorized 7,500,000 shares;
    0 shares issued and outstanding..........................         -               -
Common stock, $.01 par value. Authorized 45,000,000 shares;  
    issued and outstanding 14,459,966 shares at September 30,
    1998 and 14,165,974 shares at December 31, 1997..........         145             142
Additional paid-in capital...................................      45,114          43,486
Retained earnings, restricted................................      41,329          18,996
                                                                 --------        --------
                                                                   86,588          62,624
Deferred compensation costs..................................        (944)         (1,788)
                                                                 --------        --------
        Total stockholders' equity...........................      85,644          60,836
                                                                 --------        --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................    $545,590        $398,128
                                                                 ========        ========
</TABLE> 

See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>

              New Century Financial Corporation and Subsidiaries
                      Consolidated Statements of Earnings
                                  (Unaudited)
                     (In thousands, except per share data)

<TABLE> 
<CAPTION> 
                                          Nine Months Ended   Three Months Ended
                                            September 30,        September 30,
                                          ------------------  ------------------
                                            1998      1997      1998      1997
                                          --------  --------  --------  --------
<S>                                       <C>       <C>       <C>       <C> 
Revenues:                                                                       
  Gain on sale of loans.................  $ 82,657   $51,504   $30,557   $24,394
  Interest income.......................    34,531    13,657    11,152     6,313
  Servicing income......................    15,068     2,957     6,593     1,793
                                          --------   -------   -------   -------
    Total revenues......................   132,256    68,118    48,302    32,500
                                          --------   -------   -------   -------

Expenses:                                                                       
  Personnel.............................    34,021    17,904    12,949     8,207
  Interest..............................    29,275    11,207     9,685     5,492
  General and administrative............    20,869     9,202     7,710     4,708
  Advertising and promotion.............     6,662     3,459     2,368     1,427
  Servicing.............................     1,341       988        30       365
  Professional services.................     1,314       427       626       163
                                          --------   -------   -------   -------
    Total expenses......................    93,482    43,187    33,368    20,362
                                                                                
Earnings before income taxes............    38,774    24,931    14,934    12,138
                                                                                
Income taxes............................    16,441    10,471     6,326     5,098
                                          --------   -------   -------   -------
                                                                                
Net earnings............................  $ 22,333   $14,460   $ 8,608   $ 7,040
                                          ========   =======   =======   =======
                                                                                
Basic earnings per share................  $   1.58   $  1.52   $  0.61   $  0.50
                                          ========   =======   =======   =======
                                                                                
Diluted earnings per share..............  $   1.48   $  1.16   $  0.57   $  0.46
                                          ========   =======   =======   =======
</TABLE> 

See accompanying notes to unaudited consolidated financial statements.

                                       5
<PAGE>

              New Century Financial Corporation and Subsidiaries
                     Consolidated Statements of Cash Flows
                                  (Unaudited)
<TABLE> 
<CAPTION> 
                                                                           (In thousands)
                                                                          Nine Months Ended 
                                                                           September 30,
                                                                         1998          1997
                                                                      -----------   -----------
<S>                                                                   <C>           <C> 
Cash flows from operating activities:                               
Net earnings........................................................  $    22,333   $    14,460
Adjustments to reconcile net earnings to net cash provided by                       
  (used in) operating activities:                                                   
  Depreciation and amortization.....................................        3,413         1,681
  Deferred income taxes.............................................        7,500        10,117
  NIR gains.........................................................     (101,655)      (64,899)
  Servicing gains...................................................       (2,693)           -
  Initial deposits to over-collateralization accounts...............      (23,175)      (16,859)
  Deposits to over-collateralization accounts.......................      (18,731)       (4,437)
  Release of cash from over-collateralization accounts..............       16,808         4,437
  Net proceeds from NIMS transaction................................       53,819            -
  Amortization of NIRs..............................................        8,854         1,982
  General valuation allowances for NIRs.............................        7,500            -
  Provision for losses..............................................       10,096         2,130
  Loans originated or acquired for sale.............................   (2,392,162)   (1,263,848)
  Loan sales, net...................................................    2,287,516     1,000,269
  Principal payments on loans receivable held for sale..............       30,392         5,818
  (Increase) decrease in accrued interest receivable................        1,431        (1,230)
  Increase in prepaid expenses and other assets.....................       (5,289)         (169)
  Increase in warehouse and aggregation lines of credit.............       83,806       234,739
  Decrease in income taxes payable..................................         (126)         (839)
  Increase (decrease) in accounts payable and other liabilities.....       (1,485)        3,439
                                                                      -----------   -----------
Net cash used in operating activities...............................      (11,848)      (73,209)
                                                                      -----------   -----------

Cash flows from investing activities:                                                
  Purchase of office property and equipment.........................       (2,585)       (2,476)
  Purchase of securities available for sale.........................           -         (5,014)
  Purchase of interest-only (I/O) certificates......................       (5,756)           -
  Acquisition of Primewest..........................................       (1,500)           -
                                                                      -----------   -----------
Net cash used in investing activities...............................       (9,841)       (7,490)
                                                                                     
Cash flows from financing activities:                                                
  Net proceeds from notes payable...................................          609           674
  Net proceeds from residual financing..............................       31,565        43,413
  Net proceeds from issuance of stock...............................           56        36,173
                                                                      -----------   -----------
Net cash provided by financing activities...........................       32,230        80,260
                                                                      -----------   -----------
Net increase (decrease) in cash and cash equivalents................       10,541          (439)
Cash and cash equivalents, beginning of period......................       12,701         3,041
                                                                      -----------   -----------
Cash and cash equivalents, end of period............................  $    23,242   $     2,602
                                                                      ===========   ===========
Supplemental cash flow disclosure:                                                  
  Interest paid.....................................................  $    29,069   $    10,593
  Income taxes paid.................................................  $     9,071   $     1,193
Supplemental non-cash financing activity:                                           
  Stock issued in connection with acquisition of Primewest..........  $     2,000   $        -
  Restricted stock issued...........................................  $       173   $     2,775
</TABLE> 
See accompanying notes to unaudited consolidated financial statements.

                                      6 
<PAGE>
 
              NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
                                        
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                          September 30, 1998 and 1997
                                        
1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.  Operating results for the nine months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.

Recent Accounting Developments - In October 1998, the FASB issued Statement of 
Financial Accounting Standards No. 134 (SFAS No. 134), "Accounting for Mortgage-
Backed Securities after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise."  SFAS No. 134 amends SFAS No. 65 to require that 
after the securitization of mortgage loans held for sale, an entity engaged in 
mortgage banking activities classify in accordance with the provisions of SFAS 
No. 115 the resulting mortgage-backed securities or other retained interests 
based on its ability and intent to sell or hold those investments.  However, a 
mortgage banking enterprise must classify as trading any retained mortgage-
backed securities that it commits to sell before or during the securitization
process. This Statement is effective for the first quarter beginning after
December 15, 1998. Management is in the process of determining the impact of the
adoption of this statement on the Company's financial condition or results of
operations.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 (SFAS No. 133), "Accounting for Derivative Securities and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments imbedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction,
or (iii) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available for sale
security, or a foreign currency-denominated forecasted transaction.

Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge.  Those methods must be
consistent with the entity's approach to managing risk.  Management is in the
process of assessing the impact of implementing SFAS No. 133.

Residual interests in securitizations - Residual interests in securitizations
(Residuals) are recorded as a result of the sale of loans through
securitizations and the sale of residual interests in securitizations through
Net Interest Margin Securities (NIMS).  The securitizations are generally
structured as follows:  First, the Company sells a portfolio of mortgage loans
to a special purpose entity (SPS) which has been established for the limited
purpose of buying and reselling the Company's mortgage loans.  The SPS then
transfers the same mortgage loans to a Real Estate Mortgage Investment Conduit
or Owners Trust (the REMIC or Trust), and the Trust in turn issues interest-
bearing asset-backed securities (the Certificates) generally in an amount equal
to the aggregate 

                                       7
<PAGE>
 
principal balance of the mortgage loans. The Company typically sells these
certificates at face value and without recourse except that representations and
warranties customary to the mortgage banking industry are provided by the
Company to the Trust. One or more investors purchase these Certificates and the
proceeds from the sale of the Certificates are used as consideration to purchase
the mortgage loans from the Company. In addition, the Company may provide a
credit enhancement for the benefit of the investors in the form of additional
collateral (over-collateralization account or OC Account) held by the Trust. The
OC Account is required by the servicing agreement to be maintained at certain
levels.

At the closing of each securitization, the Company removes from its consolidated
balance sheet the mortgage loans held for sale and adds to its consolidated
balance sheet (i) the cash received, and (ii) the estimated fair value of the
portion of the mortgage loans retained from the securitizations (Residuals),
which consist of (a) the OC Account and (b) the net interest receivable (NIR).
The NIR represents the discounted estimated cash flows to be received by the
Company in the future.  The excess of the cash received and the assets retained
by the Company over the carrying value of the loans sold, less transaction
costs, equals the net gain on sale of mortgage loans recorded by the Company.

The NIMS are generally structured as follows.  First, the Company contributes
the Residuals to a special purpose entity (SPS) which has been established for
the limited purpose of receiving and selling asset-backed residual interests in
securitization certificates.  Next, the SPS transfers the Residuals to an owner
trust (the Trust) and the Trust in turn issues interest-bearing asset-backed
securities (the bonds and certificates).  The Company sells these Residuals
without recourse except that normal representations and warranties are provided
by the Company to the Trust.  One or more investors purchase the bonds and
certificates and the proceeds from the sale of the bonds and certificates, along
with a residual interest certificate that is subordinate to the bonds and
certificates, represent the consideration to the Company for the sale of the
Residuals.

At the closing of each NIMS, the Company removes from its consolidated balance
sheet the carrying value of the Residuals sold and adds to its consolidated
balance sheet (i) the cash received, and (ii) the estimated fair value of the
portion of the Residuals retained, which consists of the net interest receivable
(NIR).  The excess of the cash received and assets retained over the carrying
value of the Residuals sold, less transaction costs, equals the net gain on the
sale of Residuals recorded by the Company.

The Company allocates its basis in the mortgage loans and residual interests
between the portion of the mortgage loans and residual interests sold through
the Certificates and the Residuals based on the relative fair values of those
portions on the date of sale.  The Company may recognize gains or losses
attributable to the changes in the fair value of the Residuals, which are
recorded at estimated fair value and accounted for as "held-for-trading"
securities.  The Company is not aware of an active market for the purchase or
sale of Residuals and, accordingly, the Company determines the estimated fair
value of the Residuals by discounting the expected cash flows released from the
OC Account (the cash out method) using a discount rate commensurate with the
risks involved.  The Company has utilized an effective discount rate of
approximately 12% on the estimated cash flows released from the OC Account to
value the Residuals through securitization 

                                       8
<PAGE>
 
and approximately 15% on the estimated cash flows released from the Trust to
value Residuals through NIMS.

The Company receives periodic servicing fees for the servicing and collection of
the mortgage loans as master servicer of the securitized loans.  In addition,
the Company is entitled to the cash flows from the Residuals that represent
collections on the mortgage loans in excess of the amounts required to pay the
Certificate principal and interest, the servicing fees and certain other fees
such as trustee and custodial fees.  At the end of each collection period, the
aggregate cash collections from the mortgage loans are allocated first to the
base servicing fees and certain other fees such as trustee and custodial fees
for the period, then to the Certificateholders for interest at the pass-through
rate on the Certificates plus principal as defined in the servicing agreements.
If the amount of cash required for the above allocations exceeds the amount
collected during the collection period, the shortfall is drawn from the OC
Account.  If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related OC Account,
the excess is released to the Company.  If the OC Account balance is not at the
required credit enhancement level, the excess cash collected is retained in the
OC Account until the specified level is achieved.  The cash and collateral in
the OC Account is restricted from use by the Company.  Pursuant to certain
servicing agreements, cash held in the OC Accounts may be used to make
accelerated principal paydowns on the Certificates to create additional excess
collateral in the OC Account which is held by the Trusts on behalf of the
Company as the Residual holder.  The specified credit enhancement levels are
defined in the servicing agreements as the OC Account balance expressed
generally as a percentage of the current collateral principal balance.

The Annual Percentage Rate (APR) on the mortgage loans is relatively high in
comparison to the pass-through rate on the Certificates.  Accordingly, the
Residuals described above are a significant asset of the Company.  In
determining the value of the Residuals, the Company must estimate the future
rates of prepayments, prepayment penalties to be received by the Company,
delinquencies, defaults and default loss severity as they affect the amount and
timing of the estimated cash flows.  The Company uses a 0.45% to 0.80% annual
default rate estimate for first trust deeds and 1.00% for second trust deeds.
The Company's default rate estimates result in cumulative loss estimates as a
percentage of the original principal balance of the mortgage loans of 1.61% to
2.08% for first trust deeds and 2.88% for second trust deeds.  These estimates
are based on historical loss data for comparable loans and the specific
characteristics of the loans originated by the Company.  The Company estimates
prepayments by evaluating historical prepayment performance of comparable
mortgage loans and the impact of trends in the industry.  The Company has used a
prepayment curve to estimate the prepayment characteristics of the mortgage
loans.  The rate of increase, duration, severity and decrease of the curve
depends on the age and nature of the mortgage loans, primarily whether the
mortgage loans are fixed or adjustable and the interest rate adjustment
characteristics of the mortgage loans (6 month, 1 year, 2 year, 3 year or 5 year
adjustment periods).  The Company's prepayment curve and default estimates have
resulted in weighted average lives of between 3.07 and 4.49 years for its
mortgage loans.

                                       9
<PAGE>
 
Due to the uncertainty associated with estimating future cash flows caused by
the lack of historical performance data on the mortgage loans and the absence of
an active market for the purchase and sale of Residuals, the Company established
a general valuation allowance of $3.0 million for the Residuals during the year
ended December 31, 1997 and added $1.0 million to the allowance in the second
quarter of 1998. The general valuation allowance is based on the Company's
periodic evaluation of the Residuals, which takes into consideration trends in
actual cash flow performance, industry and economic developments, as well as
other relevant factors. As a result of its evaluation of the Residuals during
the third quarter of 1998, particularly prepayment trends in the 6 month LIBOR
product, the Company added $6.5 million to this allowance. 

2.   Loans Receivable Held for Sale

A summary of loans receivable held for sale, at the lower of cost or market at
September 30, 1998 and December 31, 1997 follows (dollars in thousands):

<TABLE>
<CAPTION>
                                               September 30,     December 31,
                                                   1998              1997
                                               -------------     ------------
<S>                                            <C>               <C>
     Mortgage loans receivable..............     $340,857          $275,814
     Net deferred origination costs.........          592               692
                                                 --------          --------
                                                 $341,449          $276,506
                                                 ========          ========
</TABLE>

3.   Residual Interests in Securitizations

Residual interests in securitizations consist of the following components at
September 30, 1998 and December 31, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
                                              September 30,   December 31,
                                                 1998            1997
                                              -------------   ------------ 
<S>                                           <C>             <C>   
Overcollateralization amount..............      $ 29,343       $ 21,224
Interest-only certificates................         5,294            ---
Net interest receivable (NIR).............       134,997         79,036    
                                                --------        ------- 
                                                 169,634        100,260
General valuation allowance...............       (10,500)        (3,000)
                                                --------        -------
                                                $159,134       $ 97,260
                                                ========       ========
</TABLE>

                                       10
<PAGE>
 
The following table summarizes activity in the NIR amounts for the nine-month
periods ended September 30, 1998 and  1997 (dollars in thousands):

<TABLE>
<CAPTION>
                                                      1998        1997
                                                    --------    ------- 
<S>                                                 <C>         <C>
     Balance, beginning of period...............    $ 79,036    $   ---
     Sale of NIR through NIMS...................     (36,840)       ---
     NIR gains..................................     101,655     64,899
     NIR amortization...........................      (8,854)    (1,982)
                                                    --------    -------
     Balance, end of period.....................    $134,997    $62,917
                                                    ========    =======
</TABLE>

Mortgage servicing rights represent the carrying value of the Company's
servicing portfolio. The Company is designated as the master servicer for its 
securitizations and receives a monthly fee based on the outstanding principal 
balance of the mortgage loans serviced. The Company has recorded a servicing 
asset, which is measured by recognizing the difference between the monthly fee 
received and adequate compensation deemed by the Company in performance of the 
servicing. Prior to July 1, 1998, the Company contracted with outside sub-
servicers to perform certain of its servicing responsibilities and paid a fee
for such services. Beginning with the third quarter of 1998, the Company assumed
a substantial portion of those responsibilities, and has therefore recognized a
servicing asset. The following table summarizes activity in the Mortgage
Servicing Rights for the nine-month period ended September 30, 1998 (dollars in
thousands):

     Balance, beginning of period...............    $  ---
     Additions..................................     2,693
     Amortization...............................       ---
                                                    ------
     Balance, end of period.....................    $2,693
                                                    ======

                                       11
<PAGE>
 
4.   Warehouse and Aggregation Lines of Credit

Warehouse and aggregation lines of credit consist of the following at September
30, 1998 and December 31, 1997 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                           September 30,   December 31,
                                                                               1998            1997
                                                                           -------------   ------------
<S>                                                                        <C>             <C>
     A $320 million line of credit expiring in May 1999,
     secured by loans receivable held for sale, bearing
     interest based on one month LIBOR (5.38% at
     September 30, 1998).........................................            $161,816        $182,280
                                                                                        
     A $4 million unsecured working capital line                                        
     of credit which expired in May 1998, bearing                                       
     interest based on the bank's prime rate.....................                 ---           2,146
                                                                                        
     A $600 million master repurchase agreement bearing                                 
     interest based on one month LIBOR (5.38% at                                        
     September 30, 1998).  The agreement may be terminated                              
     by the lender giving 28 days written notice.................             177,353          55,064
                                                                                        
     A $250 million master repurchase agreement which                                   
     expired in March 1998, bearing interest based on one                               
     month LIBOR ................................................                 ---          15,873
                                                                             --------        --------
                                                                             $339,169        $255,363
                                                                             ========        ========
</TABLE>

The warehouse and aggregation line of credit agreements contain certain
restrictive financial and other covenants which require the Company to, among
other things, restrict dividends, maintain certain net worth and liquidity
levels, remain below specified debt-to-net-worth ratios and comply with
regulatory and investor requirements.  At September 30, 1998, the Company was in
compliance with these financial and other covenants.

                                       12
<PAGE>
 
Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

General

New Century Financial Corporation (the Company) is a specialty finance company
that originates, purchases, sells and services subprime mortgage loans secured
primarily by first mortgages on single family residences.  The Company
originates and purchases loans through its Wholesale and Retail Divisions.  The
Company's borrowers generally have substantial equity in the property securing
the loan, but have impaired or limited credit profiles or higher debt-to-income
ratios than traditional mortgage lenders allow.  The Company's borrowers also
include individuals who, due to self-employment or other circumstances, have
difficulty verifying their income, as well as individuals who prefer the prompt
and personalized service provided by the Company.

On October 19, 1998, the Company announced the signing of an agreement with U.S.
Bancorp, the parent company of U.S. Bank National Association, pursuant to which
U.S. Bancorp will contribute $20 million in new capital in exchange for
convertible preferred stock of the Company.  This agreement is pending
regulatory approval and the satisfaction of other customary closing conditions,
and is expected to close in the middle of the fourth quarter of 1998.

Loan Sales and Securitizations

The Company's loan sale strategy includes both securitizations and whole loan
sales in order to advance the Company's goal of enhancing profits while managing
cash flows.  Securitizations permit the Company to enhance operating profits and
to benefit from future cash flows generated by the residual interests retained
by the Company.  Whole loan sale transactions enable the Company to generate
current cash flow, protect against the potential volatility of the
securitization market and reduce the risks inherent in retaining residual
interests in securitizations.

The Company's primary source of revenue is the recognition of gains from the
sale of its loans through whole loan sales and securitizations.  In a whole loan
sale, the Company recognizes and receives a cash gain upon sale.  In a
securitization, the Company recognizes a gain on sale at the time the loans are
sold, but receives corresponding cash flows, represented by the over-
collateralization amount (OC) and the Net Interest Receivable (NIR) (combined,
the Residuals), over the actual life of the loans.

The Company has, to date, elected to fund the required OC at the closing of each
securitization for all but two securitizations.  The over-collateralization
requirement ranges from two to four percent of the initial securitization bond
debt principal balance or four to six percent of the remaining principal balance
after thirty to thirty-six months of principal amortization.  When funding all
of the OC Account up front, the Company begins to receive cash flow from the
Residual immediately.  In those cases where only a 

                                       13
<PAGE>
 
portion of the OC Account is funded up front, the Company will begin to receive
cash flow from the Residual more quickly than in cases where no initial funding
is undertaken. Cash flows from the Residuals are subject to certain delinquency
or credit loss tests, as defined by the rating agencies or the bond insurance
companies.

The Company also completed its first NIMS transaction in the second quarter of
1998.  The Company sold residual interests in securitizations and retained a
residual interest in the NIMS.  The transaction resulted in net cash proceeds of
$5.0 million, as well as the paydown of approximately $49 million in residual
financing.

In connection with the origination and purchase of loans, the Company may either
receive or pay origination fees.  These fees, referred to as "points" or
"premiums" in the mortgage industry, are dependent on the source of loan
production.  Typically, they correspond to the amount of further processing
required for a loan to be funded and are determined as a percentage of the loan
amount.  The points received from the origination of loans and the premiums paid
to originate and acquire loans are included in the gain recognized from the sale
of loans in the income statement.

The following table sets forth loan sales for the periods indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                               For the Quarter       For the Nine Months   
                                             Ended September 30,     Ended September 30,
                                             -------------------   ------------------------
                                               1998       1997        1998          1997
                                             --------   --------   ----------    ----------
<S>                                          <C>        <C>          <C>         <C>
Securitizations...........................   $596,472   $404,242   $1,276,483    $  735,585
Whole loan sales..........................    248,200    104,715    1,011,033       264,684
                                             --------   --------   ----------    ----------
   Total                                     $844,672   $508,957   $2,287,516    $1,000,269
                                             ========   ========   ==========    ==========
</TABLE>

As a result of timing differences in receiving cash from whole loan sales versus
securitizations, the relative percentage of whole loan sales to securitizations
will affect the Company's operating cash flow.  For the quarter ended September
30, 1998, $596.5 million, or 70.6%, of the Company's loan sales were in the form
of securitizations.  In the nine months ended September 30, 1998, the Company
securitized $1.3 billion, or 55.8% of total loan sales, excluding approximately
$74.4 million in loans that were securitized through a pre-funding arrangement
which settled in October 1998.

Recent Developments in the Secondary Market

     Whole Loan Sales

In the second half of 1998, whole loan prices fell to levels significantly lower
than the prices received by the Company in earlier periods.  The Company does
not know whether these lower prices will persist. As long as they do, however,
they will affect the Company's secondary marketing strategy, cash flow and
profitability.

From an economic perspective, under current market conditions the Company
believes that it would benefit from securitizing a greater portion of its loan
production since the Company believes it can prudently recognize gain on sale
from securitizations at a level 

                                       14
<PAGE>
 
higher than whole loan sale prices. However, from a cash flow perspective, the
Company would need to sell a greater proportion of loans in whole loan sales in
order to generate the same level of cash gains as were generated in recent
periods.

If and when the U.S. Bank transaction closes and the Company receives the $20.0
million cash infusion, the Company will have added flexibility to choose between
whole loan sales and securitizations based upon achieving the highest economic
return on its loan sales.  If the U.S. Bank transaction is not consummated, the
Company may need to alter its secondary marketing strategy in succeeding months
to generate sufficient cash from whole loan sales to fund the Company's
continuing operations and expansion.  Under current whole loan sale pricing
conditions, this strategy could reduce the Company's overall margins, thereby
causing a material adverse effect on the Company's results of operations.

     Securitizations

Although the Company did not experience adverse market conditions with respect
to its third quarter securitizations compared to the first two quarters of 1998,
it is anticipated that in the fourth quarter changes in the yields of
investments competitive with the Company's mortgage-backed securities (such as
mid-term treasuries) and other changes in the financial markets will result in
the Company offering higher yields on its mortgage-backed securities and
structuring the securities to provide investors with additional protections.
The higher yields will reduce the Company's interest rate margins and
potentially affect the Company's results of operations.  The Company is unable
to predict whether or for how long these market conditions will continue.

Results of Operations

The Company began lending operations in February 1996.  Since inception, the
Company has been expanding the number of sales offices and markets it serves.
The Company's considerable growth during 1997 has a significant effect on the
comparison of results for the three and nine months ended September 30, 1998 to
the three and nine months ended September 30, 1997.

As of September 30, 1998, the Company's Wholesale Division operated through 58
sales offices and four regional operating centers located in 33 states.  The
number of account executives in the Wholesale Division grew to 188 at September
30, 1998, from 90 at September 30, 1997.  The Company's Retail Division operates
through 84 sales offices located in 29 states.  The number of loan officers grew
to 405 at September 30, 1998, from 243 at September 30, 1997.   In January 1998,
the Company completed the acquisition of Primewest Funding (Primewest), a
correspondent lender of the Company.  Retail loan originations and purchases
reported for the period ended September 30, 1998 include loans originated
through Primewest subsequent to the acquisition.

                                       15
<PAGE>

Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
 
The Company originated and purchased $2.4 billion in loans for the nine months
ended September 30, 1998, compared to $1.3 billion for the nine months ended
September 30, 1997.  Loans originated and purchased through the Company's
Wholesale Division were $1.7 billion, or 70.9%, of total originations and
purchases for the nine months ended September 30, 1998.  Loans originated
through the Company's Retail Division (including Primewest) were $695.6 million,
or 29.1%, of total originations and purchases for the nine-month period.
Primewest accounted for $65.2 million of this total.  For the same period in
1997, Wholesale and Retail originations and purchases totaled $880.9 million, or
70.0%, and $376.7 million, or 30.0%, respectively, of total originations and
purchases.

Total revenues for the nine months ended September 30, 1998 increased to $132.3
million, from $68.1 million for the nine months ended September 30, 1997.  This
increase was due primarily to the increase in loan originations and purchases
and sales in 1998.  Gain on sale of loans increased to $82.7 million for the
nine months ended September 30, 1998, from $51.5 million for the nine months
ended September 30, 1997, due to the increase in loan sales in 1998.

The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):

<TABLE>
<CAPTION>
                                            Nine Months Ended September 30,
                                                1998           1997
                                            -------------------------------
<S>                                            <C>            <C>
Gain from whole loan sale transactions         $ 47,297       $ 12,203
Non-cash gain from securitizations              101,655         64,899
Non-cash gain on servicing rights                 2,693            ---
Securitization expenses                          (7,974)        (3,807)
Accrued interest                                 (6,390)        (4,740)
Provision for losses                            (10,096)        (2,130)
General valuation allowance for NIR              (7,500)           ---
Non-refundable loan fees                         35,170         15,266
Premiums paid                                   (24,274)       (12,368)
Origination costs                               (43,750)       (16,966)
Hedging losses                                   (4,174)          (853)
                                               --------       --------
Gain on sale of loans                          $ 82,657       $ 51,504
                                               ========       ========
</TABLE>

Whole loan sales increased to $1.0 billion for the nine months ended September
30, 1998, from $264.7 million for the corresponding period in 1997.  This
increase is the result of the increase in loan originations and purchases.  The
Company incurred hedging losses in the nine months ended September 30, 1998 as a
result of transactions relating to hedging the fixed rate portion of the
Company's commitments to originate and purchase loans and its inventory of loans
receivable held for sale.

Interest income increased to $34.5 million for the nine months ended September
30, 1998, from $13.7 million for the same period in 1997, primarily due to
increased interest income from loans held for sale.  Interest income is earned
on loans held in inventory for sale.  Such interest income accrues during
periods when loans are accumulated for future sales, and increases as loan
originations and purchases increase.  The increase in interest income for the
nine months ended September 30, 1998 is the result of a higher average 

                                       16
<PAGE>
 
inventory of loans held for sale compared to the corresponding period in 1997,
primarily as a result of (i) increased loan originations and purchases and (ii)
the closing of the majority of the third quarter loan sales in the last month of
the third quarter in 1998.

Servicing income increased to $15.1 million for the nine months ended September
30, 1998, from $3.0 million for the nine months ended September 30, 1997.  This
increase resulted primarily from the increase in the servicing portfolio of
loans securitized, from $697.3 million at September 30, 1997 to $2.2 billion at
September 30, 1998.  The increase was also due partly to whole loan sales made
on a servicing retained basis, which represented another $479.6 million in loans
serviced as of September 30, 1998.  In July 1998, the Company assumed all of the
sub-servicing responsibilities previously performed by Comerica.

Total expenses increased to $93.5 million for the nine months ended September
30, 1998, from $43.2 million for the nine months ended September 30, 1997.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse and aggregation borrowings.  All other expense
components increased from 1997 to 1998 due primarily to (1) higher loan
origination volume in the nine months ended September 30, 1998 compared to the
same period in 1997; (2) an increase in staffing from 885 employees at September
30, 1997 to 1,595 employees at September 30, 1998; and (3) the addition of 26
wholesale sales offices and 22 retail sales offices from September 30, 1997 to
September 30, 1998.

Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997

The Company originated and purchased $914.3 million in loans for the three
months ended September 30, 1998, compared to $574.0 million for the three months
ended September 30, 1997.  Loans originated and purchased through the Company's
Wholesale Division were $672.3 million, or 73.5%, of total originations and
purchases for the three months ended September 30, 1998.  Loans originated
through the Company's Retail Division were $242.0 million, or 26.5%, of total
originations and purchases for the three month period.  For the same period in
1997, Wholesale and Retail originations and purchases totaled $394.4 million, or
68.7% and $179.6 million, or 31.3%, respectively, of total originations and
purchases.

Total revenues for the three months ended September 30, 1998 increased to $48.3
million, from $32.5 million for the three months ended September 30, 1997.  This
increase was due primarily to the increase in loan originations and purchases
and sales in 1998.  Gain on sale of loans increased to $30.6 million for the
three months ended September 30, 1998, from $24.4 million for the three months
ended September 30, 1997, due to the increase in loan sales in 1998.

                                       17
<PAGE>

The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
 
<TABLE>
<CAPTION>
                                            Three Months Ended September 30,
                                                 1998            1997
                                            --------------------------------
<S>                                            <C>              <C>
Gain from whole loan sale transactions         $ 11,026         $ 3,342
Non-cash gain from securitizations               49,888          32,729
Non-cash gain on servicing rights                 2,693             ---
Securitization expenses                          (3,406)         (1,834)
Accrued interest                                 (3,497)         (2,275)
Provision for losses                             (4,650)           (745)
General valuation allowance for NIRs             (6,500)            ---
Non-refundable loan fees                         11,975           6,907
Premiums paid                                    (8,446)         (6,311)
Origination costs                               (16,000)         (6,700)
Hedging losses                                   (2,526)           (719)
                                               --------         -------
Gain on sale of loans                          $ 30,557         $24,394
                                               ========         =======
</TABLE>                                                    

The assumptions used to record the gain on loans securitized in the quarter
ended September 30, 1998 resulted in a weighted average life of 3.51 years and a
cumulative loss estimate of 1.97% of the original principal balance.  An
effective discount rate of approximately 12.0% was used to estimate the present
value of the estimated cash flows to be released from the OC Account.

During the quarter ended September 30, 1998, the cash flows from the Company's
residual interests in securitizations were $6.4 million, which is $297,000, or
approximately 4.9%, in excess of the cash flows estimated to be received in this
period.  For the quarter ended September 30, 1997, cash flows from residual
interests in securitizations were $4.4 million, which was slightly below
estimated cash flows.

Whole loan sales increased to $248.2 million for the three months ended
September 30, 1998, from $104.7 million for the corresponding period in 1997.
This increase is the result of the increase in loan originations and purchases.

Interest income increased to $11.2 million for the three months ended September
30, 1998, from $6.3 million for the same period in 1997, primarily due to
increased interest income from loans held for sale.  Interest income is earned
on loans held in inventory for sale.  Such interest income accrues during
periods when loans are accumulated for future sales, and increases as loan
originations and purchases increase.  The increase in interest income for the
three months ended September 30, 1998 is the result of a higher average
inventory of loans held for sale compared to the corresponding period in 1997,
primarily as a result of (i) increased loan originations and purchases and (ii)
the closing of the majority of the third quarter loan sales in the third month
of the quarter in 1998.

Servicing income increased to $6.6 million for the three months ended September
30, 1998, from $1.8 million for the three months ended September 30, 1997.  This
increase resulted from the increase in securitizations, pursuant to which the
Company retains ownership of the servicing rights.  Servicing income reflects
servicing fees received on loans sold or securitized by the Company, as well as
income recognized on residual cash flows from securitizations.  As of September
30, 1998, the Company had securitized over $2.4 billion in loans and retained
the servicing rights.  As of September 30, 1997, the Company had securitized
only $735.6 million in loans.  In addition, the Company has increased the volume
of servicing-retained whole loan sales, the portfolio of which 

                                       18
<PAGE>
 
totaled $479.6 million at September 30, 1998. There were no loans serviced under
servicing retained loan sales at September 30, 1997.

Total expenses increased to $33.4 million for the three months ended September
30, 1998, from $20.4 million for the three months ended September 30, 1997.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse and aggregation borrowings.  All other expense
components increased from 1997 to 1998 due primarily to (1) higher loan
origination volume in the quarter ended September 30, 1998 compared to the same
period in 1997; (2) an increase in staffing from 885 employees at September 30,
1997 to 1,595 employees at September 30, 1998; and (3) the addition of 26
wholesale sales offices and 22 retail sales offices from September 30, 1997 to
September 30, 1998.

Liquidity and Capital Resources

The Company requires access to short-term warehouse and aggregation credit
facilities in order to fund loan originations and purchases pending the
securitization and sale of such loans.  As of September 30, 1998, the Company
had a $320.0 million warehouse line of credit led by U.S. Bank National
Association which expires in May 1999 and bears interest at a rate equal to the
one month LIBOR plus 1.25%.  At September 30, 1998, the balance outstanding
under the warehouse line of credit was $161.8 million.

Borrowings under the warehouse line are secured by mortgages funded through the
facility. Within seven days of funding, the Company is required to deposit the
mortgage note and file with U.S. Bank to be held as collateral. If the file is
incomplete, U.S. Bank ceases to count the loan in calculating the Company's
borrowing base. As a consequence, the Company effectively must use its own cash
to finance such loans until the file defect can be cured and the loan can be
resubmitted under the warehouse line. If the Company is unable to control this
"zero collateral" balance, it could have a material adverse effect on the
Company's liquidity. As of September 30, 1998, the Company's "zero collateral"
balance was not material, and did not pose a threat to the Company's liquidity.

As of September 30, 1998, the Company also had a $600.0 million aggregation
facility with Salomon Smith Barney (Salomon), which is subject to renewal by
Salomon on a monthly basis and bears interest at a rate generally equal to the
one month LIBOR plus 1.25%. At September 30, 1998, the balance outstanding under
the aggregation facility was $177.4 million.

The Company's $250.0 million aggregation facility with Greenwich Capital matured
on March 31, 1998 and the Company opted not to renew the facility.  During the
quarter ended September 30, 1998, the Company also opted not to renew its $100.0
million refinance aggregation facility with Salomon.

The Company utilizes the U.S. Bank warehouse line to finance the actual funding
of its loan originations and purchases. After loans are funded by the Company
using the  warehouse line and all loan documentation is complete, the loans are
generally transferred to the aggregation facility.  The aggregation facility is
paid down with the proceeds of 

                                       19
<PAGE>
 
loan sales and securitizations. The Company expects to continue to expand its
credit facilities to finance its increasing levels of loan production.

The Company also has residual financing arrangements with Salomon, whereby
Salomon provides financing of the Company's residual interests in
securitizations as well as its residual interest from the NIMS transaction.  The
amount of residual financing provided upon each securitization is determined
pursuant to formulas set forth in the respective agreements and is generally
subject to repayment as a result of changes in the formula used by Salomon to
determine the market value of the residual interest.  The facilities bear
interest at a rate based on the one month LIBOR. At September 30, 1998, the
balance outstanding under these facilities was $85.0 million.

The Company's business requires substantial cash to support its operating
activities and growth plans.  As a result, the Company is dependent on the U.S.
Bank warehouse facility and the Salomon aggregation line and residual financing
facility in order to finance its continued operations.  If either Salomon or
U.S. Bank decided to terminate or not to renew its credit facility with the
Company, the loss of borrowing capacity would have a material adverse impact on
the Company's results of operations unless the Company found a suitable
alternative source. At present, the Company believes that its business
relationships with both Salomon and U.S. Bank are strong.

The Company's negative cash flow position is primarily a function of its
securitization strategy and rapid growth.  The Company records a residual
interest in securitization and recognizes a gain on sale when it effects a
securitization, but only receives the cash representing such gain over the life
of the loans securitized.  In order to support its loan origination, purchase
and securitization programs, the Company is required to make significant cash
investments that include the funding of: (1) fees paid to brokers and
correspondents in connection with generating loans through wholesale lending
activities; (2) fees and expenses incurred in connection with the securitization
and sale of loans including over-collateralization requirements for
securitization; (3) commissions paid to sales employees to originate loans; (4)
any difference between the amount funded per loan and the amount advanced under
the current warehouse facility; and (5) income tax payments arising from the
recognition of gain on sale of loans.  The Company also requires cash to fund
ongoing operating and administrative expenses, including capital expenditures
and debt service.  The Company's sources of operating cash flow include: (1) the
premium advance component of the aggregation facility; (2) premiums obtained in
whole loan sales; (3) mortgage origination income and fees; (4) interest income
on loans held for sale; (5) excess cash flow from securitization trusts; and (6)
servicing income.  As a result of its strategy to grow its loan origination,
purchase and securitization programs, the Company expects that its operating
uses of cash may continue to exceed its operating sources of cash.

The Company has a discretionary, non-revolving $5.0 million line of credit with
an affiliate of U.S. Bank secured by the Company's furniture and equipment.
Advances under this facility are made periodically at the discretion of the
lender, and bear interest at a fixed rate established at the time of each
advance for a term of three years.  As of September 30, 1998, the balance
outstanding under this facility was $3.8 million, and the weighted-average
interest rate was 9.0%.

                                       20
<PAGE>
 
The Company had a $4.0 million unsecured line of credit with U.S. Bank for
working capital purposes, which was terminated in June 1998.  The new terms of
the U.S. Bank warehouse line allow borrowings secured by the Company's
servicing-related advances, as well as additional borrowing capacity on the
Company's inventory of loans receivable held for sale.  These new terms
effectively replaced the working capital line of credit.

The Company also finances office property and equipment through a $7.5 million,
non-revolving operating lease with GE Capital. Advances under the lease are made
periodically and a financing rate is established at the time of each advance. As
of September 30, 1998, the Company had been advanced $5.3 million under this
facility.

In order to provide further financing of office property and equipment, in
June 1998 the Company established a $5.0 million, non-revolving operating
lease with AT&T.  Advances under the lease are made periodically and a financing
rate is established at the time of each advance. As of September 30, 1998, the
Company had been advanced $1.1 million under this facility.

If and when the Company receives the $20.0 million cash investment from U.S.
Bancorp, the proceeds will be used to repay outstanding borrowings under the
warehouse line of credit.  Long-term, the proceeds will provide the Company with
working capital, fund growth in the Company's operations and provide the Company
with greater flexibility in its secondary marketing strategy.

Subject to the various uncertainties described above, the Company anticipates
that its current liquidity, credit facilities and capital resources will be
sufficient to fund its operations for the foreseeable future.

The Year 2000 Issue

The Year 2000 issue is the result of computer hardware and software being
designed with the year field being set for two digits instead of four digits.
Computer programs and systems with this problem will be unable to properly
distinguish between the year 2000 and the year 1900.  As a result the programs
could fail or yield incorrect results.

The Company's business, as well of those of its principal vendors, is dependent
on the ability of a variety of software and hardware systems to function.  Less
visible, but also important, are the many non-information technology (Non-IT)
systems which have computer chips embedded in them.  Failure of one or more of
these IT and Non-IT systems of the Company or an important vendor could disrupt
the Company's operations and cause a material adverse impact on the Company's
business, results of operations and financial condition.

The Company's Year 2000 Strategy

The Company has established a plan (the "Y2K Plan" or the "Plan") to prepare for
the Year 2000 issue by (i) evaluating the Company's exposure to Year 2000
problems, (ii) having its major systems certified and tested as Year 2000 ready,
(iii) obtaining 

                                       21
<PAGE>
 
certifications from its major vendors of their Year 2000 readiness, and (iv)
establishing contingency plans. The Company's goal is to complete implementation
of the Plan by August 31, 1999.

Progress Report

In order to spearhead the Year 2000 effort, the Company has established a Year
2000 Task Group (the "Group") that has begun the process implementing the Plan.
The Group has divided the Plan implementation process into four categories: 1)
Hardware, 2) Non-Information Technology (e.g., telephone systems, pagers, etc.),
3) Software, and 4) Outside Vendors.


Hardware - The Group is contacting the manufacturers of most of the Company's
--------                                                                     
material hardware systems in order to obtain certification of Year 2000
readiness.  Because the Company was not formed until late 1995 and did not
commence lending operations until February 1996, most of the Company's hardware
systems are relatively new and were manufactured to be Year 2000 ready.  The
Group currently expects that the process of obtaining certificates of compliance
and of updating those systems that are not Year 2000 ready will be completed by
the end of the first quarter of 1999.

Non-Information Technology - The Group is also in the process of contacting the
--------------------------                                                     
vendors of its principal Non-IT systems in order to obtain certificates of Year
2000 readiness.  The Company's material Non-IT systems include its telephone,
paging, voicemail, telemarketing and faxing systems.  Because most of these
systems were purchased after 1995, the majority of these systems were designed
and manufactured to be Year 2000 ready. The Group currently expects to
complete the process of bringing the rest of these systems into Year 2000
readiness during the first quarter of 1999.

Software - The Group is in the process of evaluating all material software
--------                                                                  
applications for Year 2000 readiness.  Because most of the Company's material
software applications were purchased in the last three years, most of this
software was designed to be Year 2000 ready. The evaluation and testing process
is scheduled to be completed during the fourth quarter of 1998 and will be
reported to the Company's management during January 1999. The Group currently
expects to complete the process of bringing non-compliant software into Year
2000 readiness by the end of the first quarter of 1999.

Outside Vendors - The Group has identified its outside vendor relationships as a
---------------                                                                
significant area of uncertainty with respect to Year 2000 readiness.  The
Company is dependent on many vendors, both for the origination of loans and for
their subsequent sale or securitization.  If one or more of the Company's
principal vendors experiences significant business disruption as a result of the
Year 2000 issue, it could have a material adverse effect on the Company's
business, results of operations and financial condition.

For example, if the Company's warehouse line of credit is not functioning
properly, the Company may be unable to fund loans.  Similarly, if other major
origination-related vendors such as credit reporting agencies, title companies,
appraisers and county 

                                       22
<PAGE>
 
recorders are not operating, the Company's ability to originate loans could be
significantly impaired.

In order to mitigate the risks related to outside vendors, the Group is
developing a detailed questionnaire to be distributed to the Company's principal
vendors during the first quarter of 1999.  Based on the responses, the Group may
need to develop contingency plans to replace those vendors whose ability to
certify Year 2000 readiness is in doubt.  The Group expects that the process of
evaluating and working with outside vendors will continue into the second
quarter of 1999.

Contingency Planning

The Group is in the process of formulating a contingency plan in the event that
any material system or vendor will not be Year 2000 ready in a timely manner.
This contingency plan is scheduled to be substantially complete by the end of
the second quarter of 1999, although it will be reviewed and refined thereafter
as the Group continues to evaluate the Company's systems and vendors.

Costs

The Company has budgeted up to $1,000,000 for implementation of the Plan to
cover the costs of evaluating systems, upgrading or replacing non-compliant
systems and hiring an outside Year 2000 consultant.  Although the Group believes
this amount will be sufficient to meet the costs of the Company's Year 2000
readiness efforts, there can be no assurance that the costs to implement the
Plan will not significantly exceed the Company's current estimates. To date, 
expenditures for Year 2000 readiness have been nominal.

Risks

At present, the Company perceives that its greatest Year 2000 risks relate to
its dependence on outside vendors.  Even if the Company can satisfy itself that
the principal IT and Non-IT systems of its main vendors are Year 2000 ready,
those vendors in turn rely on a myriad of suppliers to operate their businesses.
It is conceivable that Year 2000-related failures far removed from the Company
could trigger a chain event that could materially harm the Company's business.

A separate and equally difficult risk posed to the Company by the Year 2000
issue is that disruptions in its customers' financial condition will reduce
demand for its products. If consumer confidence is impaired, loan originations
might decline.  Similarly, if the financial institutions who are purchasers of
the Company's whole loans or mortgage-backed securities suffer business
disruptions from Year 2000-related problems, the secondary market demand and
pricing for the Company's loans may decline.

In short, while the Company is committed to attempt to prevent Year 2000-related
harms, there can be no assurance that Year 2000 problems will not have a
material adverse effect on the Company's business, results of operations or
financial condition.

                                       23
<PAGE>
 
PART II - OTHER INFORMATION

Item 1.        Legal Proceedings

            The Company occasionally becomes involved in litigation arising in
            the normal course of business. Management believes that any
            liability with respect to such legal actions, individually or in the
            aggregate, will not have a material adverse effect on the Company's
            financial position or results of operations.

Item 2.        Change in Securities and Use of Proceeds

            None.

Item 3.        Defaults Upon Senior Securities

            None.

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

            None.

Item 5.        Other Information

            None.

Item 6. (a) Exhibits required by Item 601 of Regulation S-K

            See "Exhibit Index."

        (b) Reports on Form 8-K

            The Company did not file any Reports on Form 8-K during the third
            quarter.

                                       24
<PAGE>
 
                                  SIGNATURES
                                        
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                             NEW CENTURY FINANCIAL CORPORATION



DATE:   November 13, 1998      By: /s/ BRAD A MORRICE
                                  -----------------------------------
                                  Brad A. Morrice
                                  President


DATE:   November 13, 1998      By: /s/ EDWARD F. GOTSCHALL
                                  ----------------------------------- 
                                  Edward F. Gotschall
                                  Chief Financial Officer
                                  (Principal Financial and Accounting Officer)

                                       25
<PAGE>
 
                                 EXHIBIT INDEX
                                        
Exhibit      Description of                                         Sequentially
Number          Exhibit                                            Numbered Page
------       --------------                                        -------------

* 3.1    First Amended and Restated Certificate of Incorporation
          of the Company

* 3.2    First Amended and Restated Bylaws of the Company

* 4.1    Specimen Stock Certificate

 10.1    First Amendment to Third Amended and Restated Credit
          Agreement by and between the Company and U.S. Bank
          National Association, dated as of July 27, 1998.

 10.2    Letter Agreement between the Company and Salomon Brothers
          Realty Corp., dated as of August 12, 1998, terminating 
          the Refinance Line of Credit.

 10.3    Agreement to Increase Commitment Amount by and among the
          Company, U.S. Bank National Association and First Union 
          National Bank, dated as of September 1, 1998.

 10.4    Agreement to Increase Commitment Amount by and among the
          Company, U.S. Bank National Association and Guaranty 
          Federal Bank, FSB, dated as of September 1, 1998.

 10.5    Second Amendment to Third Amended and Restated Credit 
          Agreement by and between the Company and U.S. Bank 
          National Association, dated as of September 30, 1998.

 11.1    Statement re Computation of  Per Share Earnings                    

 27.1    Financial Data Schedule                                            

*  Incorporated by reference from the Company's Amendment No. 1 to Form S-1
   Registration Statement (No. 333-25483) filed with the SEC on June 2, 1997.

                                       26