<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  March 31, 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:    (714)  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 April 30, 1997, 14,411,110 shares of common stock of New Century Financial
Corporation were outstanding.
<PAGE>
 
              NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
                                   FORM 10-Q
                         QUARTER ENDED MARCH 31, 1998

                                     INDEX
<TABLE>
<CAPTION>
 
PART I            -    FINANCIAL INFORMATION                           PAGE
<S>                    <C>                                             <C>
 
     Item 1.           Financial Statements                               4
 
     Item 2.           Management's Discussion and Analysis of
                       Financial Condition and Results of Operations     11
 
PART II            -   OTHER INFORMATION
 
     Item 1.           Legal Proceedings                                 17
 
     Item 2.           Changes in Securities and Use of Proceeds         17
 
     Item 3.           Defaults Upon Senior Securities                   17
 
     Item 4.           Submission of Matters to a Vote of
                       Security Holders                                  17
 
     Item 5.           Other Information                                 17
 
     Item 6.           Exhibits and Reports on Form 8-K                  17
 
SIGNATURES                                                               18
 
EXHIBIT INDEX                                                            19
</TABLE>

                                       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 expected gradual improvement in the Company's cash flow
and the expectation that the Company's existing credit facilities and capital
resources will be adequate to fund its existing operations and that the Company
will be able to expand its credit facilities to finance increased production.
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, the Company's limited operating
history, the Company's ability to sustain and manage its rate of growth, the
impact of increasing competition in the subprime mortgage banking industry, the
Company's ability to access funding sources, 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> 
                                                                            March 31, 1998    December 31,1997
                                                                            ----------------------------------
<S>                                                                         <C>               <C>
ASSETS:
Cash and cash equivalents................................................   $  9,173,000          $ 12,701,000            
Loans receivable held for sale, net (notes 2 and 4)......................    257,094,000           276,506,000
Residual interests in securitizations (note 3)...........................    124,101,000            97,260,000
Accrued interest receivable..............................................      2,373,000             3,974,000
Office property and equipment............................................      4,725,000             4,289,000
Prepaid expenses and other assets........................................      6,983,000             3,398,000
                                                                            ----------------------------------

TOTAL ASSETS                                                                $404,449,000          $398,128,000
                                                                            ==================================

LIABILITIES AND STOCKHOLDERS' EQUITY:

Warehouse and aggregation lines of credit (note 4).......................   $236,216,000          $255,363,000
Residual financing.......................................................     71,086,000            53,427,000
Notes payable............................................................      2,906,000             3,222,000
Income taxes payable.....................................................      1,938,000             1,789,000
Accounts payable and accrued liabilities.................................     12,444,000            15,454,000
Deferred income taxes....................................................     10,537,000             8,037,000
                                                                           -----------------------------------
        Total liabilities................................................    335,127,000           337,292,000

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 14,402,360 and 14,165,974 shares
    at March 31, 1998 and December 31, 1997, respectively................        144,000               142,000
Additional paid-in capital...............................................     45,314,000            43,486,000
Retained earnings, restricted............................................     25,229,000            18,996,000
                                                                           -----------------------------------
                                                                              70,687,000            62,624,000
Deferred compensation costs..............................................     (1,365,000)           (1,788,000)
                                                                           -----------------------------------
        Total stockholders' equity.......................................     69,322,000            60,836,000
                                                                            ----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $404,449,000          $398,128,000
                                                                            ==================================

</TABLE> 

See accompanying notes to unaudited consolidated financial statements.

                                       4

<PAGE>
              New Century Financial Corporation and Subsidiaries
                      Consolidated Statements of Earnings
                                  (Unaudited)

<TABLE> 
<CAPTION> 

                                           Three Months Ended March 31,
                                           ----------------------------
                                                1998           1997
                                           ----------------------------
<S>                                        <C>              <C>
Revenues:
  Gain on sale of loans..................    $24,319,000    $10,012,000
  Interest income........................     10,193,000      2,271,000
  Servicing income.......................      3,936,000        302,000
                                           ----------------------------
    Total revenues.......................     38,448,000     12,585,000
                                           ----------------------------


Expenses:
  Personnel..............................      9,899,000      3,545,000
  Interest...............................      8,709,000      1,808,000
  General and administrative.............      5,984,000      1,954,000
  Advertising and promotion..............      2,195,000        842,000
  Servicing..............................        571,000        234,000
  Professional services..................        261,000        156,000
                                           ----------------------------
    Total expenses.......................     27,619,000      8,539,000

Earnings before income taxes.............     10,829,000      4,046,000

Income taxes.............................      4,596,000      1,699,000
                                           ----------------------------

Net earnings.............................    $ 6,233,000    $ 2,347,000
                                           ============================

Basic earnings per share.................    $      0.45    $      4.44
                                           ============================

Diluted earnings per share...............    $      0.42    $      0.25
                                           ============================

</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> 

                                                                                            Three Months Ended March 31,
                                                                                             1998                  1997
                                                                                         --------------------------------
<S>                                                                                      <C>                <C> 
Cash flows from operating activities:
Net earnings..................................................................           $   6,233,000      $   2,347,000
Adjustments to reconcile net earnings to net cash used in
  operating activities:
  Depreciation and amortization...............................................                 901,000            158,000
  Deferred income taxes.......................................................               2,500,000          1,631,000
  NIR gains...................................................................             (23,763,000)       (10,398,000)
  Initial deposits to over-collateralization accounts.........................              (6,201,000)        (2,973,000)
  Deposits to over-collateralization accounts.................................              (7,569,000)          (311,000)
  Release of cash from over-collateralization accounts........................               6,149,000            311,000
  Amortization of NIRs........................................................               4,543,000            128,000
  Provision for losses........................................................               1,708,000            495,000
  Loans originated or acquired for sale.......................................            (654,285,000)      (251,652,000)
  Loan sales, net.............................................................             661,743,000        194,848,000
  Principal payments on loans receivable held for sale........................              10,246,000          1,257,000
  Increase in accrued interest receivable.....................................               1,601,000            422,000
  (Increase) decrease in prepaid expenses and other assets....................                (468,000)           122,000
  Increase (decrease) in warehouse and aggregation lines of credit............             (19,147,000)        54,875,000
  Increase (decrease) in income taxes payable.................................                 149,000           (708,000)
  Increase (decrease) in accounts payable and other liabilities...............              (3,010,000)         1,638,000
                                                                                         --------------------------------
Net cash used in operating activities.........................................             (18,670,000)        (7,810,000)
                                                                                         --------------------------------
Cash flows from investing activities:
  Purchase of office property and equipment...................................                (906,000)          (525,000)
  Acquisition of Primewest....................................................              (1,500,000)                 -
                                                                                         --------------------------------
Net cash used in investing activities.........................................              (2,406,000)          (525,000)

Cash flows from financing activities:
  Net proceeds from notes payable.............................................                (316,000)         1,793,000
  Net proceeds from residual financing........................................              17,659,000          7,248,000
  Proceeds from issuance of stock.............................................                 205,000                  -
                                                                                         --------------------------------
Net cash provided by financing activities.....................................              17,548,000          9,041,000
                                                                                         --------------------------------
Net increase (decrease) in cash and cash equivalents..........................              (3,528,000)           706,000

Cash and cash equivalents, beginning of period................................              12,701,000          3,041,000
                                                                                         --------------------------------
Cash and cash equivalents, end of period......................................           $   9,173,000      $   3,747,000
                                                                                         ================================
Supplemental cash flow disclosure:
  Interest paid...............................................................           $   9,042,000        $ 1,730,000
  Income taxes paid...........................................................           $   1,949,000        $   776,000

Supplemental non-cash financing activity:
  Stock issued in connection with acquisition of Primewest....................           $   2,000,000        $         -

</TABLE> 
See accompanying notes to unaudited consolidated financial statements.

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

                            March 31, 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 three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.

Recent Accounting Developments - In February 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 132 (SFAS
132), "Employers' Disclosures about Pension and Other Post-retirement Benefits."
SFAS 132 amends the disclosure requirements of SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
and SFAS No. 106, "Employers' Accounting for Retirement Benefits Other than
Pensions."  SFAS 132 standardizes the disclosure requirements of SFAS Nos. 87
and 106 to the extent practicable and recommends a parallel format for
presenting information about pensions and other retirement benefits.  SFAS 132
is effective for fiscal years beginning after December 15, 1997.  SFAS 132 will
result in disclosure changes only.

Residual interests in securitizations - Residual interests in securitizations
(Residuals) are recorded as a result of the sale of loans through
securitizations.  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
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.

                                       7
<PAGE>
 
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
Trust 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 Company allocates its basis in the mortgage loans between the portion of the
mortgage loans 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.

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 described above, the Company must
estimate the future rates of prepayments,

                                       8
<PAGE>
 
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 0.73% default rate estimate. The Company's
default rate estimates result in cumulative loss estimates as a percentage of
the original principal balance of the mortgage loans of 1.91% to 2.08%. 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 3.15 and 4.28 years.

Due to the uncertainty associated with estimating future cash flows caused by
the lack of historical performance data on the collateral 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.  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.

2.   Loans Receivable Held for Sale

A summary of loans receivable held for sale, at the lower of cost or market at
March 31, 1998 and December 31, 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
 
                                                                 March 31,          December 31,
                                                                   1998                1997
                                                                 ---------          ------------ 
<S>                                                              <C>                <C>
     Mortgage loans receivable.............................      $256,502           $275,814
     Net deferred origination costs........................           592                692
                                                                 --------           --------
                                                                 $257,094           $276,506
                                                                 ========           ========
 </TABLE>

3.   Residual Interests in Securitizations

Residual interests in securitizations consist of the following components at
March 31, 1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>

                                                                 March 31,          December 31,
                                                                   1998                1997
                                                                 -------            -----------
<S>                                                              <C>                <C>
Overcollateralization amount...............................      $ 28,845            $ 21,224
Net interest receivable (NIR)..............................        98,256              79,036      
                                                                 --------            --------
                                                                 $127,101            $100,260
General valuation allowance................................        (3,000)             (3,000)
                                                                 --------            --------
                                                                 $124,101            $ 97,260
                                                                 ========            ========
</TABLE>

                                       9
<PAGE>
 
The following  table summarizes activity in the NIR interests at March 31, 1998
and  1997 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                   1998               1997
                                                                 --------           --------
<S>                                                              <C>                <C>
     Balance, beginning of period...........................     $79,036            $   ---
     NIR gains..............................................      23,763             10,398
     NIR amortization.......................................      (4,543)              (128)
                                                                 -------            -------
     Balance, end of period.................................     $98,256            $10,270
                                                                 =======            =======
</TABLE>
4.   Warehouse and Aggregation Lines of Credit

Warehouse and aggregation lines of credit consist of the following at March 31,
1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
 
                                                                  March 31,         December 31,
                                                                    1998               1997
                                                                 ---------          ------------
<S>                                                              <C>                <C>
     A $260 million line of credit expiring in May 1998
     secured by loans receivable held for sale, bearing
     interest based on one month LIBOR (5.69% at
     March 31, 1998)........................................     $157,529           $182,280
 
     A $4 million unsecured working capital line
     of credit expiring 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 (5.69% at
     March 31, 1998).  The agreement may be terminated
     by the lender giving 28 days written notice............       66,319             55,064

     A $100 million master repurchase agreement bearing
     interest based on one month LIBOR (5.69% at
     March 31, 1998).  The agreement may be terminated
     by the lender giving 28 days written notice............        5,030                ---

     A $250 million master repurchase agreement expiring
     in March 1998, bearing interest based on one month
     LIBOR (5.69% at March 31, 1998)........................        7,338             15,873
                                                                 --------           --------
                                                                 $236,216           $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 requirements, restrict dividends and maintain certain levels of net worth,
specific liquidity requirements, debt-to-net-worth ratios and compliance with
regulatory and investor requirements.  At March 31, 1998, the Company was in
compliance with these financial and other covenants.

                                       10
<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
engaged in the business of originating, purchasing, selling and servicing
subprime mortgage loans secured primarily by first mortgages on single family
residences.  The Company originates and purchases loans  through its Wholesale
and Retail Divisions, and has acquired loans through bulk acquisitions.  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.

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.  Loan sales through 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, and in those cases where a 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, in both cases
subject to certain delinquency or credit loss tests, as defined by the rating
agencies or the bond insurance companies.

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 March 31,
1998, $309.7 million, or 46.8%, of the Company's loan sales were in the form of
securitizations.

                                       11
<PAGE>
 
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 and typically 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 Three Months
                                                        Ended March 31,
                                                      --------------------
                                                        1998        1997
                                                      ---------   --------
<S>                                                   <C>         <C>
Securitizations....................................    $309,660   $ 99,132
Whole loan sales...................................     352,083     95,716
                                                       --------   --------
   Total                                               $661,743   $194,848
                                                       ========   ========
 
</TABLE>

In the three months ended March 31, 1998, the Company securitized $309.7
million, or 46.8% of total loan sales, excluding approximately $15.0 million in
loans that were securitized through a pre-funding arrangement which settled in
April 1998. During the quarter ended March 31, 1998, the Company repurchased
through arms-length negotiations $12.2 million in loans which it had previously
sold on a whole loan basis, which were immediately securitized. 

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 months ended March 31, 1998 to the three
months ended March 31, 1997.

As of March 31, 1998, the Company's Wholesale Division operated through 41 sales
offices and 4 regional operating centers located in 26 states.  The number of
account executives in the Wholesale Division grew to 127 at March 31, 1998, from
46 at March 31, 1997.  The Company's Retail Division operated through 87 sales
offices located in 27 states.  The number of loan officers grew to 318 at March
31, 1998, from 105 at March 31, 1997.   In January 1998,  the Company completed
the acquisition of Primewest Funding, a correspondent lender of the Company.
Retail loan originations and purchases reported for the quarter ended March 31,
1998 include loans originated through Primewest Funding subsequent to the
acquisition.

                                       12
<PAGE>
 
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997

The Company originated and purchased $655.0 million in loans for the three
months ended March 31, 1998, compared to $250.6 million for the three months
ended March 31, 1997.  Loans originated and purchased through the Company's
Wholesale Division were $420.6 million, or 64.2%, of total originations and
purchases for the three months ended March 31, 1998.  Loans originated through
the Company's Retail Division were $209.8 million, or 32.0%, of total
originations and purchases for the three month period.  Second mortgage loans
originated were $24.6 million, or 3.8%, of total originations and purchases for
the three month period.  For the same period in 1997, Wholesale, Retail and
second mortgage originations and purchases totaled $176.2 million, or 70.3%,
$70.3 million, or 28.0%,  and $4.1 million, or 1.7%, respectively, of total
originations and purchases.

Total revenues for the three months ended March 31, 1998 increased to $38.4
million, from $12.6 million for the three months ended March 31, 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 $24.3 million for the
three months ended March 31, 1998, from $10.0 million for the three months ended
March 31, 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>
 
                                             Three Months Ended March 31,
                                                 1998            1997
                                            --------------   -------------
<S>                                         <C>              <C>
Gain from whole loan sale transactions         $ 16,182         $ 4,250
Non-cash gain from securitizations               23,763          10,398
Securitization expenses                          (1,521)           (683)
Accrued interest                                 (2,441)           (661)
Provision for losses                             (1,708)           (495)
Non-refundable loan fees                         10,526           3,311
Premiums paid                                    (7,482)         (1,803)
Origination costs                               (13,000)         (4,171)
Hedging gains/losses                                ---            (134)
                                                -------         -------
 
Gain on sale of loans                          $ 24,319         $10,012
                                               ========         =======
</TABLE>

The assumptions used to record the gain on loans securitized in the quarter
ended March 31, 1998 resulted in a weighted average life of 3.55 years and a
cumulative loss estimate of 2.00% 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 released from the OC Account.

During the quarter ended March 31, 1998, the Company received $6.1 million in
cash flows, which is $497,000, or approximately 8.8%, in excess of the cash
flows estimated to be received by the Company in this period. For the quarter
ended March 31, 1997, the

                                       13
<PAGE>
 
Company received $311,000 in cash flows, which was $58,000 in excess of
estimated cash flows.

Whole loan sales increased to $352.0 million for the three months ended March
31, 1998, from $95.7 million for the corresponding period in 1997.  This
increase is the result of the increase in loan originations and purchases.

Interest income increased to $10.2 million for the three months ended March 31,
1998, from $2.3 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
March 31, 1998 is the result of a higher average inventory of loans held for
sale compared to the corresponding period in 1997.  The average inventory of
loans held for sale as of March 31, 1998, based on quarter-end balances, was
$266.8 million, compared to $85.6 million for the corresponding period in 1997.

Servicing income increased to $3.9 million for the three months ended March 31,
1998, from $302,000 for the three months ended March 31, 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 March 31, 1998,
the Company had securitized over $1.4 billion in loans and retained the
servicing rights.  As of March 31, 1997, the Company had securitized only $99.1
million in loans.  In addition, the Company completed its first servicing-
retained whole loan sale totaling $221.2 million in December 1997, which
contributed to the increase in servicing income in the first quarter of 1998.

Total expenses increased to $27.6 million for the three months ended March 31,
1998, from $8.5 million for the three months ended March 31, 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 March 31, 1998 compared to the same period in 1997; (2) an
increase in staffing from 462 employees at March 31, 1997 to 1,310 employees at
March 31, 1998; and (3) the addition of 24 wholesale sales offices and 57 retail
sales offices from March 31, 1997 to March 31, 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 pooling
and sale of such loans.  As of March 31, 1998, the Company had a $260.0 million
warehouse line of credit led by U.S. Bank National Association (formerly First
Bank National Association) which expires in May 1998 and bears interest at a
rate equal to the one month LIBOR plus 1.25%. This line of credit was
subsequently increased to $290.0 million in April 1998 under the same terms and
conditions.  At March 31, 1998, the balance outstanding under

                                       14
<PAGE>
 
the warehouse line of credit was $157.5 million. As of March 31, 1998, the
Company also had a $600.0 million aggregation facility with Salomon Brothers,
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 March 31, 1998, the
balance outstanding under the aggregation facility was $66.3 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. At March 31,
1998, the balance outstanding under the Greenwich aggregation facility was $7.3
million, which was repaid in April 1998. As of March 31, 1998, the Company also
had a $100.0 million refinance aggregation facility with Salomon Brothers, 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 March 31, 1998, the
balance outstanding under the refinance aggregation facility was $5.0 million.

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 U.S. Bank warehouse line and all loan documentation is complete, the
loans are generally transferred to one of the aggregation facilities.  The
aggregation facilities are paid down with the proceeds of loan sales and
securitizations.  The Company expects to continue to expand its credit
facilities to finance its increasing levels of loan production.

The Company has residual financing arrangements with the lead underwriters of
its securitizations, whereby the lead underwriters provide financing of the
Company's residual interests in securitizations.  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 the lead underwriter to determine the
market value of the residual interest.  The facilities bear interest at a rate
based on the one month LIBOR.  The Company intends to add new credit facilities,
as well as expand these credit facilities, in order to finance future
securitization transactions.  At March 31, 1998, the balance outstanding under
these facilities was $71.1 million.

The Company's business requires substantial cash to support its operating
activities and growth plans.  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) the 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 sub-servicing
expenses incurred in the servicing of the Company's loans, capital expenditures
and debt service.  The Company's sources of operating cash flow include: (1) the
premium advance component of the aggregation facilities; (2) premiums

                                       15
<PAGE>
 
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) cash 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.
For the quarter ended March 31, 1998, the Company's operations used
approximately $18.7 million in cash, which is attributable to the cash
investments discussed above, and the cash invested in the OC Accounts. For
purposes of calculating cash used in operating activities, residual financing is
excluded.

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 March 31, 1998, the balance
outstanding under this facility was $2.9 million, and the weighted-average
interest rate was 9.1%.

The Company has established a $4.0 million unsecured line of credit with U.S.
Bank for working capital purposes.  In June 1997, the bank issued a letter of
credit in connection with the lease of the Company's corporate offices.  This
letter of credit in the amount of $1.2 million reduces the advances available
under the working capital facility. As of March 31, 1998, the balance
outstanding on the working capital line of credit was zero.

In October 1997, the Company established a $5.25 million, non-revolving
operating lease with GE Capital for purposes of financing office property and
equipment.  Advances under the lease are made periodically and a financing rate
is established at the time of each advance.  As of March 31, 1998, the Company
had been advanced $4.7 million under this facility.

The Company's business requires substantial cash to support its operating
activities and growth plans.  Securitizations of the Company's loans, as well as
continued growth in loan production volume, create negative operating cash flow
primarily as a result of (1) the difference between the cash required to fund
loans and the financing received under the warehouse line of credit, and (2) the
Company's securitization strategy, pursuant to which cash flows are received
over the life of the loans securitized.

The Company anticipates that its current liquidity, credit facilities and
capital resources will be sufficient to fund its operations for the foreseeable
future.

                                       16
<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 filed a Report on Form 8-K with the Securities and
              Exchange Commission on January 26, 1998 reporting the Company's
              acquisition on January 12, 1998 of PWF Corporation. No financial
              statements were required to be filed with the Report.

                                       17
<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: May 13, 1998              By: /s/ BRAD A. MORRICE
                                    ---------------------------
                                    Brad A. Morrice
                                    President


DATE: May 13, 1998              By: /s/ EDWARD F. GOTSCHALL
                                    ---------------------------
                                    Edward F. Gotschall
                                    C.O.O. - Finance
                                    (Principal Financial and Accounting Officer)

                                       18
<PAGE>
 
<TABLE> 
<CAPTION> 
                                 EXHIBIT INDEX
                                        
Exhibit    Description of                                       Sequentially
Number        Exhibit                                           Numbered Page
------     ------------                                         -------------
<S>        <C>                                                  <C>   
*   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    Merger Agreement, dated as of December 17, 1997,
           by and among New Century, NC Acquisition Corp.,
           PWF, Kirk Redding and Paul Akers

** 10.2    First Amendment to Merger Agreement, dated
           January 12, 1998, by and among New Century,
           NC Acquisition Corp., PWF, Kirk Redding and
           Paul Akers

***10.3    Third Amendment to Second Amended and Restated
           Credit Agreement and Amendment to Pledge and
           Security Agreement by and between New Century
           Mortgage Corporation and First Bank National
           Association, dated February 27, 1998
 
   10.4    First Amendment to Founding Managers' Incentive
           Compensation Plan, dated March 19, 1998                     20
 
   10.5    Letter Agreement dated March 31, 1998 among Salomon
           Brothers Realty Corp., Salomon Brothers Inc and
           New Century Mortgage Corporation                            22
 
   11.1    Statement re Computation of  Per Share Earnings             38
 
   27.1    Financial Data Schedule                                     39
</TABLE>

*     Incorporated by reference from the Company's Form S-1 Registration
      Statement (No. 333-25483) as filed with the SEC on June 3, 1997.

**    Incorporated by reference from the Company's Form 8-K as filed with
      the SEC on January 26, 1998.

***   Incorporated by reference from the Company's Annual Report on Form 10-K
      for the fiscal year ended December 31, 1997.

                                       19