<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  June 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 July 31, 1998, 14,424,166 shares of common stock of New Century Financial
Corporation were outstanding.

                                       1
<PAGE>
 
               NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
                                   FORM 10-Q
                          QUARTER ENDED JUNE 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        12
 
PART II   -    OTHER INFORMATION
 
     Item 1.   Legal Proceedings                                    20
 
     Item 2.   Changes in Securities and Use of Proceeds            20
 
     Item 3.   Defaults Upon Senior Securities                      20
 
     Item 4.   Submission of Matters to a Vote of
               Security Holders                                     20
 
     Item 5.   Other Information                                    21
 
     Item 6.   Exhibits and Reports on Form 8-K                     21
 
SIGNATURES                                                          22
 
EXHIBIT INDEX                                                       23

                                       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 assumption of servicing responsibilities
from Comerica will have a positive impact on servicing income, 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, 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, the Company's ability
to access funding sources, 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 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)
                                                                  June 30, 1998     December 31, 1997
                                                                  -----------------------------------
<S>                                                                    <C>                   <C> 
ASSETS:
Cash and cash equivalents.....................................         $  8,422              $ 12,701
Loans receivable held for sale, net (notes 2 and 4)...........          281,053               276,506
Residual interests in securitizations (note 3)................          107,158                97,260
Accrued interest receivable...................................            3,344                 3,974
Office property and equipment.................................            4,812                 4,289
Prepaid expenses and other assets.............................           16,099                 3,398
                                                                       --------              --------
                                                                                             
TOTAL ASSETS                                                           $420,888              $398,128
                                                                       ========              ========              
LIABILITIES AND STOCKHOLDERS' EQUITY:                                                        
Warehouse and aggregation lines of credit (note 4)............         $255,284              $255,363
Residual financing............................................           54,604                53,427
Notes payable.................................................            2,957                 3,222
Income taxes payable..........................................            1,182                 1,789
Accounts payable and accrued liabilities......................           17,247                15,454
Deferred income taxes.........................................           13,037                 8,037
                                                                       --------              --------
  Total liabilities...........................................          344,311               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 14,398,186 shares at June 30, 1998                                   
 and 14,165,974 shares at December 31, 1997...................              144                   142
Additional paid-in capital....................................           44,874                43,486
Retained earnings, restricted.................................           32,721                18,996
                                                                       --------              --------
                                                                         77,739                62,624
Deferred compensation costs...................................           (1,162                (1,788)
                                                                       --------              --------
Total stockholders' equity....................................           76,577                60,836
                                                                       --------              --------
                                                                                             
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $420,888              $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> 
 
                                     Six Months Ended     Three Months Ended
                                         June 30,              June 30,
                                   ------------------------------------------
                                     1998        1997      1998        1997
                                   ------------------------------------------
<S>                                <C>         <C>        <C>         <C>
Revenues:                       
 Gain on sale of loans...........  $52,100     $27,110    $27,781     $17,098
 Interest income.................   23,379       7,344     13,186       5,073
 Servicing income................    8,475       1,164      4,539         862
                                   ------------------------------------------
  Total revenues.................   83,954      35,618     45,506      23,033
                                   ------------------------------------------
                                
Expenses:                       
 Personnel.......................   21,072       9,697     11,173       6,152
 Interest........................   19,590       5,715     10,881       3,907
 General and administrative......   13,159       4,494      7,175       2,540
 Advertising and promotion.......    4,294       2,032      2,099       1,190
 Servicing.......................    1,311         623        740         389
 Professional services...........      688         264        427         108
                                   ------------------------------------------
  Total expenses.................   60,114      22,825     32,495      14,286
                                
Earnings before income taxes.....   23,840      12,793     13,011       8,747
                                
Income taxes.....................   10,115       5,373      5,519       3,674
                                   ------------------------------------------
                                
Net earnings ....................  $13,725     $ 7,420    $ 7,492     $ 5,073
                                   ==========================================
                                
Basic earnings per share.........  $  0.98     $  3.07    $  0.53     $  1.15
                                   ==========================================
                                
Diluted earnings per share.......  $  0.92     $  0.71    $  0.50     $  0.46
                                   ==========================================
</TABLE> 

See accompanying notes to unaudited consolidated financial statements.
 

                                       5
<PAGE>
 
<TABLE> 
<CAPTION> 

              New Century Financial Corporation and Subsidiaries
                     Consolidated Statements of Cash Flows
                                  (Unaudited)
                                                                                 (In thousands)
                                                                           Six Months Ended June 30,
                                                                              1998           1997  
                                                                           ------------------------- 
<S>                                                                        <C>             <C> 
Cash flows from operating activities:
Net earnings..........................................................     $    13,725     $   7,420
Adjustments to reconcile net earnings to net 
 cash provided by (used in) operating activities:
 Depreciation and amortization.........................................          1,908           562
 Deferred income taxes.................................................          5,000         5,190
 NIR gains.............................................................        (51,767)      (32,169)
 Initial deposits to over-collateralization accounts...................        (11,834)      (10,559)
 Deposits to over-collateralization accounts...........................        (11,844)       (1,313)
 Release of cash from over-collateralization accounts..................         10,406         1,313 
 Net proceeds from NIMS transaction....................................         53,819             -
 Amortization of NIRs..................................................          6,078           455
 General valuation allowances for NIRs.................................          1,000             -
 Provision for losses..................................................          5,446         1,385
 Loans originated or acquired for sale.................................     (1,474,059)     (686,786)
 Loan sales, net.......................................................      1,442,846       555,129
 Principal payments on loans receivable held for sale..................         20,728         2,894 
 (Increase) decrease in accrued interest receivable....................            630          (114)
 Increase in prepaid expenses and other assets.........................         (8,646)       (2,442)
 Increase (decrease) in warehouse and aggregation lines of credit......            (79)      123,027 
 Decrease in income taxes payable......................................           (607)         (795)
 Increase in accounts payable and other liabilities....................          1,194         8,888
                                                                           ------------------------- 
Net cash provided by (used in) operating activities.....................          3,944       (27,915)
                                                                           ------------------------- 
Cash flows from investing activities:
 Purchase of office property and equipment.............................         (1,557)       (1,341)
 Purchase of interest-only (I/O) certificates..........................         (5,756)            -
 Acquisition of Primewest..............................................         (1,642)            -
                                                                           -------------------------
Net cash used in investing activities..................................         (8,955)       (1,341)
Cash flows from financing activities:
 Net proceeds from notes payable.......................................           (265)          871
 Net proceeds from residual financing..................................          1,177        23,392
 Net proceeds from issuance of stock/acquisition of treasury stock.....           (180)        5,095
                                                                           -------------------------
Net cash provided by financing activities.............................             732        29,358
                                                                           -------------------------
Net increase (decrease) in cash and cash equivalents..................          (4,279)          102
Cash and cash equivalents, beginning of period........................          12,701         3,041
                                                                           -------------------------
Cash and cash equivalents, end of period..............................     $     8,422     $   3,143
                                                                           =========================
Supplemental cash flow disclosure:
 Interest paid.........................................................    $    19,885     $   5,264
 Income taxes paid.....................................................    $     5,724     $     978
 Stock subscription receivable.........................................    $         -     $  32,045
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)

                             June 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 six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.

Recent Accounting Developments -  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 

                                       7
<PAGE>
 
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 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

                                       8
<PAGE>
 
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 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 

                                       9
<PAGE>
 
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 0.73% annual 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 4.49 years
for its mortgage loans.

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. 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 second quarter of 1998, particularly prepayment trends in the 6 month
LIBOR product, the Company added $1.0 million to this allowance, despite the
fact that actual cash flows exceeded modeled cash flows during the six months
ended June 30, 1998.

2.   Loans Receivable Held for Sale

A summary of loans receivable held for sale, at the lower of cost or market at
June 30, 1998 and December 31, 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
 
                                                          June 30,  December 31,
                                                            1998       1997    
                                                          --------  -----------
     <S>                                                  <C>          <C>     
     Mortgage loans receivable....................        $280,461     $275,814
     Net deferred origination costs...............             592          692
                                                          --------     --------
                                                          $281,053     $276,506
                                                          ========     ========
 
</TABLE>

                                       10
<PAGE>
 
3.   Residual Interests in Securitizations

Residual interests in securitizations consist of the following components at
June 30, 1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
 
                                                        June 30,  December 31,
                                                         1998        1997     
                                                        --------  ----------- 
<S>                                                     <C>          <C>      
Overcollateralization amount.........................   $ 17,517     $ 21,224 
Interest-only certificates...........................      5,756          ---
Net interest receivable (NIR)........................     87,885       79,036
                                                        --------     -------- 
                                                         111,158      100,260 
General valuation allowance..........................     (4,000)      (3,000)
                                                         -------     -------- 
                                                        $107,158     $ 97,260 
                                                        ========     ======== 
</TABLE>

The following  table summarizes activity in the NIR amounts for the six month
period ended June 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.....................................................     51,767     32,169
     NIR amortization..............................................     (6,078)      (455)
                                                                      --------    -------
     Balance, end of period........................................   $ 87,885    $31,714
                                                                      ========    =======
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                          June 30,  December 31,
                                                            1998        1997
                                                          --------  ------------
<S>                                                       <C>       <C>
     A $310 million line of credit expiring in May 1999             
     secured by loans receivable held for sale, bearing             
     interest based on one month LIBOR (5.66% at                    
     June 30, 1998).....................................  $166,915      $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 (5.66% at                    
     June 30, 1998).  The agreement may be terminated               
     by the lender giving 28 days written notice........    86,988        55,064
                                                                    
     A $100 million master repurchase agreement bearing             
     interest based on one month LIBOR (5.66% at                    
     June 30, 1998).  The agreement may be terminated               
     by the lender giving 28 days written notice........     1,381           ---
                                                                    
     A $250 million master repurchase agreement which               
     expired in March 1998, bearing interest based on               
     one month LIBOR ...................................       ---        15,873
                                                          --------      --------
                                                          $255,284      $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 June 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, and
has in the past 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.  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 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.

                                       13
<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.  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 Six Months  
                                     Ended June 30,         Ended June 30,    
                                  --------------------   ---------------------
                                    1998        1997         1998        1997 
                                  --------   ---------   ----------   --------
<S>                               <C>         <C>        <C>          <C>     
Securitizations.................  $370,371    $232,211   $  680,030    331,343
Whole loan sales................   410,732     128,070      762,816    223,786
                                  --------    --------   ----------   --------
   Total                          $781,103    $360,281   $1,442,846   $555,129
                                  ========    ========   ==========   ========
 
</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 June 30,
1998, $370.4 million, or 47.4%, of the Company's loan sales were in the form of
securitizations.  In the six months ended June 30, 1998, the Company securitized
$680.0 million, or 47.1% of total loan sales, excluding approximately $118.0
million in loans that were securitized through a pre-funding arrangement which
settled in July 1998.

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 six months ended June 30, 1998 to the
three and six months ended June 30, 1997.

As of June 30, 1998, the Company's Wholesale Division operated through 45 sales
offices and four regional operating centers located in 27 states.  The number of
account executives in the Wholesale Division grew to 132 at June 30, 1998, from
58 at June 30, 1997.  The Company's Retail Division operated through 91 sales
offices located in 27 states.  The number of loan officers grew to 355 at June
30, 1998, from 149 at June 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 quarter ended
June 30, 1998 include loans originated through Primewest subsequent to the
acquisition.

                                       14
<PAGE>
 
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

The Company originated and purchased $1.5 billion in loans for the six months
ended June 30, 1998, compared to $683.6 million for the six months ended June
30, 1997.  Loans originated and purchased through the Company's Wholesale
Division were $1.0 billion, or 69.2%, of total originations and purchases for
the six months ended June 30, 1998.  Loans originated through the Company's
Retail Division (including Primewest) were $453.6 million, or 30.8%, of total
originations and purchases for the six month period. Primewest accounted for
$33.8 million of this total.  For the same period in 1997, Wholesale and Retail
originations and purchases totaled $486.4 million, or 71.2%, and $197.2 million,
or 28.8%, respectively, of total originations and purchases.

Total revenues for the six months ended June 30, 1998 increased to $84.0
million, from $35.6 million for the six months ended June 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 $52.1 million for the six
months ended June 30, 1998, from $27.1 million for the six months ended June 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>
 
                                                 Six Months Ended June 30,  
                                                    1998         1997       
                                                --------------------------  
<S>                                               <C>             <C>           
Gain from whole loan sale transactions            $ 36,271        $  8,862  
Non-cash gain from securitizations                  51,767          32,169  
Securitization expenses                             (4,568)         (1,973) 
Accrued interest                                    (2,893)         (2,465) 
Provision for losses                                (5,446)         (1,385) 
General valuation allowance for NIRs                (1,000)             --
Non-refundable loan fees                            23,195           8,359  
Premiums paid                                      (15,828)         (6,057) 
Origination costs                                  (27,750)        (10,266) 
Hedging losses                                      (1,648)           (134) 
                                                  --------        --------  
Gain on sale of loans                             $ 52,100        $ 27,110  
                                                  ========        ========  
</TABLE>

Whole loan sales increased to $762.8 million for the six months ended June 30,
1998, from $223.8 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 six months ended June 30, 1998 as a result of
transactions relating to hedging the fixed rate portion of the Company's
pipeline and inventory of loans receivable held for sale.

Interest income increased to $23.4 million for the six months ended June 30,
1998, from $7.3 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 six months ended
June 30, 1998 is the result of a higher average inventory of loans 

                                       15
<PAGE>
 
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 second quarter loan sales in the third month of the second
quarter in 1998.

Servicing income increased to $8.5 million for the six months ended June 30,
1998, from $1.2 million for the six months ended June 30, 1997.  This increase
resulted primarily from the increase in the servicing portfolio of loans
securitized, from $306.0 million at June 30, 1997 to $1.8 billion at June 30,
1998.  The increase was also due partly to whole loan sales made on a servicing
retained basis, which represented another $276.4 million in loans serviced as of
June 30, 1998.  In July 1998, the Company assumed all of the sub-servicing
responsibilities previously performed by Comerica.  The Company expects the
assumption of these duties to have a positive impact on servicing income in
future periods.

Total expenses increased to $60.1 million for the six months ended June 30,
1998, from $22.8 million for the six months ended June 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 six
months ended June 30, 1998 compared to the same period in 1997; (2) an increase
in staffing from 623 employees at June 30, 1997 to 1,423 employees at June 30,
1998; and (3) the addition of 24 wholesale sales offices and 47 retail sales
offices from June 30, 1997 to June 30, 1998.

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

The Company originated and purchased $818.9 million in loans for the three
months ended June 30, 1998, compared to $433.0 million for the three months
ended June 30, 1997.  Loans originated and purchased through the Company's
Wholesale Division were $587.4 million, or 71.7%, of total originations and
purchases for the three months ended June 30, 1998.  Loans originated through
the Company's Retail Division were $231.5 million, or 28.3%, of total
originations and purchases for the three month period.  For the same period in
1997, Wholesale and Retail originations and purchases totaled $310.2 million, or
71.6% and $122.8 million, or 28.4%, respectively, of total originations and
purchases.

Total revenues for the three months ended June 30, 1998 increased to $45.5
million, from $23.0 million for the three months ended June 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 $27.8 million for the
three months ended June 30, 1998, from $17.1 million for the three months ended
June 30, 1997, due to the increase in loan sales in 1998.

                                       16
<PAGE>
 
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
 
                                             Three Months Ended June 30,
                                                 1998           1997
                                            -------------   -------------
<S>                                         <C>             <C>
Gain from whole loan sale transactions           $ 20,089         $ 4,611
Non-cash gain from securitizations                 28,004          21,772
Securitization expenses                            (3,047)         (1,290)
Accrued interest                                     (452)         (1,804)
Provision for losses                               (3,738)           (890)
General valuation allowance for NIRs               (1,000)             -- 
Non-refundable loan fees                           12,669           5,048
Premiums paid                                      (8,346)         (4,254)
Origination costs                                 (14,750)         (6,095)
Hedging losses                                     (1,648)            ---
                                                 --------         -------
Gain on sale of loans                            $ 27,781         $17,098
                                                 ========         ======= 
</TABLE>

The assumptions used to record the gain on loans securitized in the quarter
ended June 30, 1998 resulted in a weighted average life of 4.49 years and a
cumulative loss estimate of 1.99% 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 June 30, 1998, the cash flows from the Company's
residual interests in securitizations were $6.9 million, which is $209,000, or
approximately 3.1%, in excess of the cash flows estimated to be received in this
period.  For the quarter ended June 30, 1997, cash flows from residual interests
in securitizations were $1.3 million, which was approximately equal to estimated
cash flows.

Whole loan sales increased to $410.7 million for the three months ended June 30,
1998, from $128.1 million for the corresponding period in 1997.  This increase
is the result of the increase in loan originations and purchases.

Interest income increased to $13.2 million for the three months ended June 30,
1998, from $5.1 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
June 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 second quarter loan sales in the third month of the quarter in 1998.

Servicing income increased to $4.5 million for the three months ended June 30,
1998, from $862,000 for the three months ended June 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 June 30, 1998,
the Company had securitized over $1.8 billion in 

                                       17
<PAGE>
 
loans and retained the servicing rights. As of June 30, 1997, the Company had
securitized only $331.3 million in loans. In addition, the Company has increased
the volume of servicing-retained whole loan sales, the portfolio of which
totaled $276.4 million at June 30, 1998. There were no loans serviced under
servicing retained loan sales at June 30, 1997.

Total expenses increased to $32.5 million for the three months ended June 30,
1998, from $14.3 million for the three months ended June 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 June 30, 1998 compared to the same period in 1997; (2) an increase
in staffing from 623 employees at June 30, 1997 to 1,423 employees at June 30,
1998; and (3) the addition of 24 wholesale sales offices and 47 retail sales
offices from June 30, 1997 to June 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 June 30, 1998, the Company had a
$310.0 million warehouse line of credit led by U.S. Bank National Association
(formerly First Bank National Association) which expires in May 1999 and bears
interest at a rate equal to the one month LIBOR plus 1.25%.  At June 30, 1998,
the balance outstanding under the warehouse line of credit was $166.9 million.
As of June 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 June 30, 1998, the balance outstanding under the
aggregation facility was $87.0 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.  As of June 30, 1998, the Company also had a $100.0
million refinance aggregation facility with 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 June 30, 1998, the balance outstanding under
the refinance aggregation facility was $1.4 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  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. At June 30, 1998, the balance 

                                       18
<PAGE>
 
outstanding under these facilities was $54.6 million. The Company intends to add
new credit facilities, as well as expand these credit facilities, in order to
finance future securitization transactions.

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) 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 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 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. For the
six months ended June 30, 1998, the Company's operations provided approximately
$3.9 million in cash, which is primarily attributable to the NIMS transaction,
partially offset by the cash investments discussed above, and the cash invested
in the OC Accounts. 

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 June 30, 1998, the balance
outstanding under this facility was $3.0 million, and the weighted-average
interest rate was 9.0%.

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 has 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 June 30, 1998, the Company had been advanced $4.9 million
under this facility.

                                       19
<PAGE>
 
In June 1998, the Company established a $5.0 million, non-revolving operating
lease with AT&T 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 June 30, 1998, the Company had
not yet utilized this facility.

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

                                       20
<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

     The Company held its Annual Meeting of Stockholders on May 18, 1998.  At
     the meeting, the stockholders approved the following matters:

       1.   The election of three directors for three-year terms ending in 2001;

       2.   The approval of an amendment to the Company's 1995 Stock Option Plan
            to increase the number of shares authorized to be issued under the
            Plan from 2,000,000 shares to 2,500,000 shares;

       3.   The approval of the Company's Employee Stock Purchase Plan; and
       4.   The approval of KPMG Peat Marwick LLP as independent auditors of the
            Company for the fiscal year ending December 31, 1998.

     The number of votes cast for or withheld and the number of abstentions and
     broker non-votes as to each matter voted upon at the meeting are as
     follows:
<TABLE>
<CAPTION>
 
 
               ITEM                 FOR      WITHHELD
               ----                 ---      --------

   1.  Election of Directors:
       ----------------------
        <S>                      <C>           <C> 
        Fredric J. Forster       14,212,853     7,900
        Edward F. Gotschall      14,212,853     7,900
        Martin F. Ryan           14,212,853     7,900
</TABLE> 

                                       21
<PAGE>
 
<TABLE> 
<CAPTION>  
                                      FOR       AGAINST   ABSTAIN     BROKER
                                      ---       -------   -------    ---------
                                                                     NON-VOTES
                                                                     ---------
     <S>                           <C>         <C>        <C>        <C> 
     2. Approval of Stock Option
        Plan Amendment             11,439,193  1,264,267   94,148    1,423,145

     3. Approval of Employee
        Stock Purchase Plan        12,228,789    452,466   92,045    1,447,453
 
     4. Approval of Independent
        Auditors                   14,208,820      1,912   10,021          ---
</TABLE> 


Item 5.            Other Information

               The Company hereby advises stockholders that a stockholder
               proposal submitted pursuant to Rule 14a-8 under the Securities
               Exchange Act of 1934 for inclusion in the Company's proxy
               statement and form of proxy for the 1999 Annual Meeting of
               Stockholders must be received by the Company by December 8, 1998.
               Such a proposal must also comply with the requirements as to form
               and substance established by the Securities and Exchange
               Commission for such proposals. A stockholder otherwise desiring
               to bring discussion before an annual meeting of stockholders
               (including any proposal relating to the nomination of a director
               to be elected to the Board of Directors) must submit a proposal
               that is received at the principal executive offices of the
               Company not less than 60 nor more than ninety days prior to such
               annual meeting. For example, if the Company's 1999 Annual Meeting
               of Stockholders is held on May 17, 1999, then notice of a
               proposal submitted other than pursuant to Rule 14a-8 must be
               received by the Company after February 16, 1999 but on or before
               March 18, 1999.

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
               second quarter.

                                       22
<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:    August 13, 1998              By:  /s/ BRAD A. MORRICE
                                          ------------------------------------
                                          Brad A. Morrice                     
                                          President                           
                                                                              
                                                                              
DATE:    August 13, 1998              By: /s/ EDWARD F. GOTSCHALL
                                          ------------------------------------
                                          Edward F. Gotschall                 
                                          C.O.O. - Finance                    
                                          (Principal Financial and Accounting 
                                          Officer)          

                                       23
<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     Agreement to Add Lender between the Company, U.S. 
           Bank National Association and NationsBank of Texas, 
           N.A., dated as of April 29, 1998

  10.2     Fourth Amendment to Second Amended and Restated 
           Credit Agreement by and between the Company and 
           U.S. Bank National Association, dated as of 
           May 1, 1998

**10.3     Amended and Restated 1995 Stock Option Plan 
           reflecting First Amendment to Plan adopted 
           March 19, 1998 and approved by stockholders 
           May 18, 1998

  10.4     Third Amended and Restated Credit Agreement by and 
           between the Company and U.S. Bank National 
           Association, dated as of May 29, 1998

  10.5     Termination Agreement by and among the Company, 
           Comerica Mortgage Corporation and Comerica 
           Incorporated, dated as of June 26, 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.

** Incorporated by reference from the Company's Form S-8 Registration
   Statement (No. 333-53665) filed with the SEC on May 27, 1998.