UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-Q

(Mark One)

              (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

                                     1-11785

                      SOUTHERN PACIFIC FUNDING CORPORATION
             (Exact name of registrant as specified in its charter)


         California                                      33-0636924
         ----------                                      ----------
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                     Identification No.)

4949 Meadows Road, Suite 600, Lake Oswego, OR                     97035
---------------------------------------------                     -----
(Address of principal executive offices)                      (Zip Code)

                                 (503) 303-5400
                                 --------------

              (Registrant's telephone number, including area code)
            ONE CENTERPOINTE DRIVE, SUITE 500, LAKE OSWEGO, OR 97035
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether  registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports,  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. (X) Yes ( ) No

                      APPLICABLE ONLY TO CORPORATE ISSUERS;

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of May 1, 1998: 20,741,700 shares.
<PAGE>


                      SOUTHERN PACIFIC FUNDING CORPORATION
                                    FORM 10-Q
                     THREE MONTH PERIOD ENDED MARCH 31, 1998


<TABLE>
TABLE OF CONTENTS                                                                        PAGE

PART I  FINANCIAL INFORMATION
<S>                                                                                     <C>

         Item 1 - Financial Statements

                         Condensed Consolidated Balance Sheets
                         At March 31, 1998 and December 31, 1997                         2

                         Condensed Consolidated Statements of Earnings for the
                         Three month periods ended March 31, 1998 and 1997               3

                         Condensed Consolidated Statements of Cash Flows for the
                         Three month periods ended March 31, 1998 and 1997               4

                         Notes to Condensed Consolidated Financial Statements            5

         Item 2 - Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                          9

         Item 3 - Quantitative and Qualitative Disclosures About
                  Market Risk                                                           15

PART II OTHER INFORMATION

         Item 1 - Legal Proceedings                                                     15

         Item 6 - Exhibits and Reports on Form 8-K                                      15

                 Signatures                                                             16
</TABLE>


                                        1
<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                      SOUTHERN PACIFIC FUNDING CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
                                                                                MARCH 31,             DECEMBER 31,
                                                                                  1998                    1997
                                                                             --------------          --------------
                                                                              (UNAUDITED)

ASSETS
<S>                                                                           <C>                    <C>        
Cash                                                                          $  13,733,516          $   7,886,412
Loans held for sale                                                             244,797,845            264,384,993
Interest-only and residual certificates                                         327,358,369            274,631,779
Mortgage servicing rights                                                         4,759,470              2,524,564
Accrued interest receivable                                                       3,388,110              4,568,977
Premises and equipment, net                                                      11,239,579              7,660,691
Goodwill, net                                                                     6,438,502              6,615,080
Other assets                                                                     36,482,153             21,072,897
                                                                              -------------          -------------
      Total assets                                                            $ 648,197,544          $ 589,345,393
                                                                              =============          =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Borrowings under warehouse lines of credit                                    $ 230,896,358          $ 205,031,055
Notes payable                                                                     4,865,162              3,431,972
Deferred tax liability                                                           57,101,044             48,074,988
Long term debt                                                                  175,000,000            175,000,000
Other liabilities                                                                28,634,005             18,652,471
                                                                              -------------          -------------
      Total liabilities                                                         496,496,569            450,190,486

Shareholders' equity:
Preferred stock, $.01 par value,
      5,000,000 shares authorized; none issued or
      outstanding at March 31, 1998 and
      December 31, 1997                                                                   -                      -
Common stock, no par value,
      50,000,000 shares authorized; 20,735,200
      and 20,760,450 shares issued and outstanding
      at March 31, 1998 and December 31, 1997 respectively                       53,742,987             54,100,622
Contributed capital                                                                 247,500                247,500
Cumulative comprehensive earnings-Translation adjustment                            128,464                 (8,745)
Retained earnings                                                                97,582,024             84,815,530
                                                                              -------------          -------------
      Total shareholders' equity                                                151,700,975            139,154,907
                                                                              -------------          -------------
      Total liabilities and shareholders' equity                              $ 648,197,544          $ 589,345,393
                                                                              =============          =============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                        2
<PAGE>


                      SOUTHERN PACIFIC FUNDING CORPORATION

                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)


<TABLE>
                                                             THREE MONTHS ENDED
                                                                  MARCH 31,
                                                         1998                1997
                                                   -----------------    --------------

Revenues:

<S>                                                   <C>                 <C>         
      Gains on sales of loans                         $ 44,368,916        $ 28,073,459
      Interest income                                   14,774,462           6,439,257
      Securities valuation and other income              4,069,750           2,454,733

                                                   ----------------     ---------------
                   Total revenues                       63,213,128          36,967,449
                                                   ----------------     ---------------

Expenses:

      Interest                                          12,626,472           3,620,045
      Personnel and commission expense                  18,545,197           7,105,972
      General and administrative expense                10,218,394           4,618,408

                                                   ----------------     ---------------
                   Total expenses                       41,390,063          15,344,425

Earnings before taxes                                   21,823,065          21,623,024
Income taxes                                             9,056,571           8,974,995

                                                   ================     ===============
                   Net earnings                       $ 12,766,494        $ 12,648,029
                                                   ================     ===============

NET EARNINGS PER SHARE:
      Basic                                                 $ 0.62              $ 0.61
                                                   ================     ===============

      Diluted                                               $ 0.54              $ 0.53
                                                   ================     ===============


WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
      Basic                                             20,744,168          20,737,500

      Diluted                                           25,215,803          25,292,622
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                        3
<PAGE>
                      SOUTHERN PACIFIC FUNDING CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
                                                                                       THREE MONTHS ENDED
                                                                                            MARCH 31,
                                                                                 1998                      1997
                                                                          --------------------     ---------------------

<S>                                                                              <C>                       <C>         
Cash flows from operating activities:
Net earnings                                                                     $ 12,766,494              $ 12,648,029
Adjustments to reconcile net income to net
cash used in operating activities:
      Depreciation and amortization                                                 1,302,284                   429,978
      Translation adjustment                                                          137,209                         -
      Changes in certain assets and  liabilities,  net of effect of
        acquisitions and contribution transaction:
      Mortgage loans held for sale                                                 19,587,148                30,033,012
      Net change in interest only and residual certificates                       (52,726,590)              (40,931,655)
      Accrued interest receivable                                                   1,180,867                 1,740,393
      Deferred tax liability                                                        9,026,056                 9,864,945
      Other assets                                                                (15,409,256)               (2,468,359)
      Other liabilities                                                             9,981,534                   110,598
      Capitalized mortgage servicing rights                                        (2,382,904)                        -

                                                                          --------------------     ---------------------
Net cash (used in) provided by operating activities                               (16,537,158)               11,426,941
                                                                          --------------------     ---------------------

Cash flows used in investing activities:
      Purchases of premises and equipment                                          (4,491,007)               (1,191,212)

                                                                          --------------------     ---------------------
Net cash used in investing activities                                              (4,491,007)               (1,191,212)
                                                                          --------------------     ---------------------

Cash flows from financing activities:
   Net changes in:
      Borrowings under warehouse lines of credit                                   25,865,303                13,758,688
      Repurchase of Common Stock                                                     (489,185)                        -
      Proceeds from issuance of Common Stock                                          131,550                         -
      Proceeds from issuance of note payable                                        1,367,601                         -

                                                                          --------------------     ---------------------
Net cash provided by financing activities                                          26,875,269                13,758,688
                                                                          --------------------     ---------------------

Net change in cash                                                                  5,847,104                23,994,417
Cash at beginning of period                                                         7,886,412                14,175,566

                                                                          ====================     =====================
Cash at end of period                                                            $ 13,733,516              $ 38,169,983
                                                                          ====================     =====================
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
                      SOUTHERN PACIFIC FUNDING CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE A - BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared,
without  audit,  pursuant to the rules and  regulations  of the  Securities  and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.   It  is  suggested  that  these  consolidated  financial
statements be read in conjunction  with the Company's  December 31, 1997 audited
consolidated  financial  statements and notes thereto  included in the Company's
1997 Form 10-K.

In the opinion of management,  all adjustments  (consisting of normal  recurring
adjustments)  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.

In preparing  the condensed  consolidated  financial  statements,  management is
required to make estimates and assumptions  that affect the reported  amounts of
assets and liabilities as of the dates of the balance sheets,  contingent assets
and  liabilities  and revenues and  expenses for the periods  presented.  Actual
results could differ significantly from those estimates.


NOTE B - HEDGING TRANSACTIONS

        The Company  regularly  securitizes  and sells  fixed and  variable-rate
mortgage loans. To offset the effects of interest rate fluctuations on the value
of its  fixed-rate  loans held for sale, the Company in certain cases will hedge
its interest  rate risk related to loans held for sale by selling U.S.  Treasury
securities short or in the forward market.

        As of March 31, 1998 and 1997,  the Company had open hedge  positions of
$86.1  million  and $35.2  million  respectively,  related  to the sales of U.S.
Treasury securities in the forward market. The proceeds from the short sales are
shown net of the related  liability in the accompanying  balance sheets at March
31, 1998 and 1997.


NOTE C - COMMITMENTS AND CONTINGENCIES

FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

        The Company is a party to financial  instruments  with off balance sheet
risk in the normal  course of  business.  These  financial  instruments  include
agreements to fund fixed and variable-rate  mortgage loans and loans in process.
For agreements to fund fixed-rate

                                        5
<PAGE>
                      SOUTHERN PACIFIC FUNDING CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


loans, the contract amounts represent exposure to loss from market  fluctuations
as well as credit loss.  The Company  controls the credit risk of its agreements
to fund fixed and  variable-rate  loans  through  credit  approvals,  limits and
monitoring procedures.

     Agreements  to fund mortgage  loans are  agreements to lend to customers as
long as there is no violation of any  condition  established  in the  contracts.
Such  agreements  generally  have fixed  expiration  dates or other  termination
clauses.  Since some  agreements  may expire without being drawn upon, the total
agreement amounts do not necessarily  represent future cash requirements.  As of
March  31,  1998,  the  Company  had  agreements  to fund  fixed  rate  loans of
approximately $39.3 million.

SALES OF LOANS AND SERVICING RIGHTS

     In the  ordinary  course of  business,  the company is exposed to liability
from  representations and warranties made to purchasers and insurers of mortgage
loans and the purchasers of servicing rights. Under certain  circumstances,  the
company is required to repurchase mortgage loans if there has been a breach of a
representation or warranty.  For loans that have been  securitized,  the Company
includes  an  estimate of credit loss in  determining  its  discounted  recourse
liability.  On a periodic basis, the Company reviews its assumptions in light of
historical  experience and economic trends to evaluate their  reasonableness  in
measuring the fair value of recorded assets.

     The Company's servicing agreement with Advanta provides that if the Company
desires to terminate the agreement  without cause upon 90 days' written  notice,
the  Company  will be  required  to pay  Advanta an amount  equal to 1.0% of the
aggregate  principal  balance of the mortgage loans being serviced by Advanta at
that time. The agreement  also provides that a transfer  service fee of $100 per
loan  shall be paid to  Advanta  for any  mortgage  loans for which the  Company
transfers  servicing from Advanta to another  servicer  without  terminating the
agreement.

LITIGATION

     The Company, its subsidiary Oceanmark Financial  Corporation and members of
its board of directors are  defendants in a lawsuit in US District Court for the
southern  district of Florida.  Oceanmark  Bank,  F.S.B.  is the plaintiff.  The
Company  was served on March 9, 1998.  The  complaint  relates to the  Company's
acquisition  of  mortgages  and notes of  Oceanmark  Bank  beginning in 1995 and
ending with the Company's  acquisition  of the mortgage  operations of Oceanmark
Bank and certain  residual  assets in May 1997, as well as events  subsequent to
the May 1997  acquisition.  The  complaint  alleges,  among other  things,  that
employees of  Oceanmark  Bank  conspired  with the Company to lower the purchase
price of the assets sold to the Company by Oceanmark  Bank. The plaintiff  seeks
relief under theories of  racketeering,  securities  fraud,  breach of contract,
breach of

                                        6
<PAGE>
                      SOUTHERN PACIFIC FUNDING CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


fiduciary  duty,  conspiracy,  and  negligence  and  requests  compensatory  and
punitive damages totaling $75 million.

     The Company's  management  believes  that the Oceanmark  claims are without
merit and  intends  to defend  the  Company's  position  vigorously.  Management
believes  that the  resolution  of this matter will not have a material  adverse
effect on the Company's financial condition, results of operations or liquidity.

     SPFC  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 condition or results of operations.


NOTE D - NET EARNINGS PER SHARE

     The  following   illustrates  the  reconciliation  of  the  numerators  and
denominators of the basic and diluted earnings per share (EPS) computations:

<TABLE>
                                                  Three months ended March 31, 1998
                                           ----------------------------------------------
                                                              Weighted
                                               Net             average          Per share
                                            earnings           shares            amount
                                            --------          ---------         ---------
<S>                                         <C>                <C>                    <C>  
Basic EPS
Net   earnings   available   to   common
shareholders                                $12,766,494        20,744,168             $0.62
Effect of dilutive securities:
   Stock options                                                1,320,375
   Convertible subordinated notes               730,248         3,151,260
                                          --------------    --------------
Diluted EPS                                 $13,496,742        25,215,803             $0.54
                                          ==============    ==============    ==============

                                                  Three months ended March 31, 1998
                                           ----------------------------------------------
                                                              Weighted
                                               Net             average          Per share
                                            earnings           shares            amount
                                            --------          ---------         ---------
Basic EPS
Net   earnings   available   to   common
shareholders                                $12,648,029        20,737,500             $0.61
Effect of dilutive securities:
   Stock options                                                1,403,862
   Convertible subordinated notes               633,446         3,151,260
                                          --------------    --------------
Diluted EPS                                 $13,281,475        25,292,622             $0.53
                                          ==============    ==============    ==============
</TABLE>


                                        7
<PAGE>
                      SOUTHERN PACIFIC FUNDING CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE E - COMPREHENSIVE INCOME

     Comprehensive  income was  $12,903,703 and $12,648,029 for the three months
ended March 31, 1998 and March 31, 1997, respectively.


                                        8
<PAGE>


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

     The following should be read in conjunction with the Selected  Consolidated
Financial  Data and  Consolidated  Financial  Statements  of the Company and the
accompanying  notes  included in Item 1 of the Form 10-Q.  This report  contains
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements are based on current expectations and are subject to
risks, uncertainties and assumptions. Such risks and uncertainties include those
related to economic  conditions,  changes in  valuations  of  interest-only  and
residual  certificates,  the financial and securities markets,  acquisitions and
the  integration  of  acquired  businesses,  operations  in the United  Kingdom,
changes  in  government   regulations  including  regulatory  fees,  changes  in
prevailing interest rates, management of interest rate fluctuations,  the market
for whole loan sales, prepayment speeds, delinquencies and default rates, demand
for the Company's  services,  the Company's financing needs, the degree to which
the Company is leveraged and other risks identified in the Company's  Securities
and Exchange  Commission  filings,  including  Item 7 of the Company's 1997 Form
10-K. Should one or more of these risks or uncertainties materialize,  or should
underlying assumptions prove incorrect,  actual results may vary materially from
those anticipated, estimated or projected.

     Given  these  uncertainties,  investors  are  cautioned  not to place undue
reliance on the forward-looking statements. The Company disclaims any obligation
to update any such factors or to publicly  announce the result of any  revisions
to any of the  forward-looking  statements  contained  in the  report to reflect
future events or developments.


GENERAL

     The  Company is engaged in the  business  of  originating,  purchasing  and
selling mortgage loans secured primarily by one-to-four family  residences.  The
majority of the Company's  loans are made to owners of single family  residences
who  use the  loan  proceeds  for  mortgage  refinancing,  home  purchase,  debt
consolidation,  home improvements and educational expenditures.  The Company has
experienced  significant  growth in loan production  primarily due to geographic
expansion,  further penetration into established markets and the addition of new
loan production sources.

     The Company's  primary  source of revenue is the  recognition of gains from
the sale of interests in loans through  securitizations.  The Company recognizes
gains  from the sale of  senior  interests  in  loans as the  excess  of the net
proceeds  received  on the  sale and the fair  value  of the  interest-only  and
residual  certificates  retained by the Company over the Company's basis in such
loans.  The fair value of the  interest-only  and  residual  certificates  is an
estimate of the present  value of the future cash flows from such  certificates,
which are subject to the prepayment and loss  characteristics  of the underlying
loans. The

                                       9
<PAGE>


Company  securitized and sold senior interests in loans with principal  balances
of $640.4  million and $343.8  million  during the three  months ended March 31,
1998  and  1997,  respectively.  The  Company  sold  loans  through  whole  loan
transactions  with  principal  balances of $18.4 million and $3.4 million during
the three  months  ended  March 31,  1998 and 1997,  respectively.  The  Company
anticipates  that it will continue to sell senior interests in a majority of its
loans through  securitization  transactions and will strategically sell loans in
whole loan transactions when such transactions are economically advantageous.


FINANCIAL CONDITION

MARCH 31, 1998

     Loans held for sale  decreased  $19.6 million or 7.4% to $244.8  million at
March 31, 1998 from $264.4  million at December 31, 1997.  The decrease in loans
held for sale resulted primarily from the sale of loans into  securitizations of
$640.4  million,  including  $85.1 million by the Company's  subsidiaries in the
U.K. Mortgage loans held for sale by the U.K.  subsidiaries at December 31, 1997
was $36.1 million  higher than the amount held as of March 31, 1998,  reflective
of the  accumulation of inventory for the  securitization  during the 1998 first
quarter.

     Interest-only and residual certificates increased $52.8 million or 19.2% to
$327.4 million at March 31, 1998 from $274.6 million at December 31, 1997.  This
increase  resulted  primarily  from  interest-only  and  residual   certificates
generated  from new  securitizations  in the U.S and the U.K.  during  the three
months ended March 31, 1998.

     Net premises and equipment increased $3.5 million or 45.5% to $11.2 million
at March 31, 1998 from $7.7 million at December 31, 1997.  This growth  reflects
the  acquisition of computer and office  equipment for the move to the Company's
new corporate  headquarters,  the continued expansion of branch loan origination
offices and the start up of the Company's new servicing operations center during
the three months ended March 31, 1998.

     Other assets increased $15.4 million or 73.0% to $36.5 million at March 31,
1998 from $21.1  million at December 31,  1997.  Other  assets  include  prepaid
expenses,  accounts  receivable,  bond issuance  costs and a receivable  from an
affiliate of $19.9  million at March 31, 1998 that is secured by mortgage  loans
which are financed by the Company through its warehouse lines.

     Borrowings under warehouse lines of credit increased $25.9 million or 12.6%
to $230.9  million at March 31,  1998 from $205.0  million at December  31, 1997
associated  with the net use of cash in  operations  and the increase in cash of
$5.8 million at March 31, 1998.

                                       10
<PAGE>


     Other liabilities increased $9.9 million or 52.9% to $28.6 million at March
31, 1998 from $18.7  million at December 31, 1997  primarily due to increases in
accrued interest payable on long term debt and accrued payroll liabilities.


RESULTS OF OPERATIONS

Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997

     Total  revenues  increased  $26.2 million or 70.8% to $63.2 million for the
quarter  ended March 31,  1998 from $37 million for the quarter  ended March 31,
1997.  During the same period,  the Company's  total  expenses  increased  $26.1
million  or  170.6% to $41.4  million  from  $15.3  million.  As a  result,  the
Company's earnings increased $.2 million or 1.6% to $12.8 million in the quarter
ended March 31, 1998 from $12.6 million in 1997.  Expenses for the quarter ended
March 31,  1998  included  $1.8  million  associated  with the  start-up  of the
Company's new servicing operations center in Santa Rosa, California.

     The increase in revenues was  primarily  attributable  to the  expansion of
loan  originations  that  facilitated  the  increase in interest  income and the
securitization  and sale of whole  loans.  During  the  first  quarter  of 1998,
Wholesale  Division loan production  increased $146.4 million or 74.1% to $344.1
million   compared  to  $197.7  million  in  the  comparable   period  in  1997.
Correspondent  purchases  of loans  decreased  $61.3  million  or 68.1% to $28.8
million compared to $90.1 million  reflecting the Company's  decision during the
first  quarter  of  1998 to  curtail  this  channel  of  loan  origination.  The
origination of loans by the Consumer Division increased $61.7 million or 630% to
$71.5 million  compared to $9.8 million.  Loan  originations  from the Strategic
Alliance program increased to $153 million from $19.5 million.  Loans originated
in the United  Kingdom were $49.9 million and were  negligible  during the first
quarter of 1997. As a result,  total residential loan originations and purchases
increased  $330.2  million or 104.2% to $647.2  million for the first quarter of
1998 from $317 million during the first quarter of 1997.

     Gains on sales of loans  increased $16.3 million or 58% to $44.4 million on
sales and securitizations of $640.4 million for the quarter ended March 31, 1998
from $28.1 million on sales and  securitizations  of $343.8  million  during the
quarter ended March 31, 1997.  Total loans of $555.3 million were securitized in
the United States during the first quarter of 1998 compared to $343.8 million of
loans  securitized in the comparable period of 1997, with a weighted average net
gain on securitization of 7.3% and 8.1%,  respectively.  The decrease in the net
gain on a percentage  basis is attributable to periodic changes that the Company
has made in the assumptions that it utilizes to value  residuals.  The Company's
U.K.  subsidiaries  completed their first  securitization  of $85.1 million at a
weighted average net gain of 3.65% during the three months ended March 31, 1998.

     Interest  income  increased  $8.4 million or 131.3% to $14.8 million in the
first  quarter of 1998 from $6.4 million in the  comparable  period in 1997 as a
result of the higher

                                       11
<PAGE>


average balance of loans held for sale in 1998 generated from the increased loan
production during the period.

     Securities  valuation and other income  increased  $1.6 million or 64.0% to
$4.1 million in the first  quarter of 1998 from $2.5  million in the  comparable
period of 1997. This increase was primarily the result of a $1.3 million or 309%
increase in  prepayment  income to $1.8  million in the quarter  ended March 31,
1998 from $.5 million in the comparable period in 1997.

     Interest  expense  increased  $9 million or 250% to $12.6  million  for the
quarter  ended March 31, 1998 from $3.6  million  for the  comparable  period in
1997. The increase in interest  expense was  attributable  to the interest costs
associated  with  higher  borrowings  under  warehouse  lines of credit  used to
finance the increased loan  origination  and purchase  volume during the quarter
ended March 31, 1998.  The increase in interest  expense during the three months
ended March 31, 1998 also reflected the expense  attributable to $100 million in
senior notes issued in November 1997.

     Personnel and commission expense increased $11.4 million or 160.6% to $18.5
million in the quarter ended March 31, 1998 from $7.1 million in the  comparable
period in 1997. The increase in personnel and  commission  expense was primarily
due to increased  staffing  levels related to the Wholesale  Division's  growth,
including $4.6 million during the quarter ended March 31, 1998  associated  with
new  operating  subsidiaries  that were  acquired  or formed  subsequent  to the
quarter  ended March 31,  1997.  As of March 31,  1998 the  Company  operated 58
regional  and  satellite  offices and employed  1,061  persons as compared to 22
regional and satellite offices and 513 employees as of March 31, 1997.

     General and administrative  expense,  which consists primarily of occupancy
and other operating expenses,  increased $5.6 million or 121.7% to $10.2 million
in the quarter ended March 31, 1998 from $4.6 million in the  comparable  period
in 1997.  The  increase  in general and  administrative  expense  included  $1.8
million from the startup of the Company's servicing operations facility and $2.5
million from new operating subsidiaries during the quarter ended March 31, 1998.
Additional  increases in expenses were incurred in association with the increase
in the number of regional and satellite  offices and increased loan  origination
and purchase volume.


LIQUIDITY AND CAPITAL RESOURCES

     The Company funds its cash  requirements  primarily  through capital market
transactions   and  warehouse   financing  as  well  as  whole  loan  sales  and
securitizations.  The Company  anticipates that it will continue  operating on a
negative  cash  flow  basis  as  long as it  continues  to  sell  loans  through
securitizations   and  it  continues  to  retain   interest-only   and  residual
certificates on the loans sold. To reduce this negative cash flow, the

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Company  plans to sell loans  through  whole loan  transactions  and  finance or
resecuritize   some  of  its  existing   retained   interest-only  and  residual
certificates.

     The Company  relies in part upon  short-term  warehouse  facilities to fund
loan originations and purchases. The Company has entered into four warehouse and
purchase  facilities.  Under these facilities,  the Company has available $1.025
billion  warehouse  lines of credit secured by the loans the Company  originates
and purchases which are scheduled to expire between May 1998 and December 1998.

     The  Company is required to comply with  various  operating  and  financial
covenants as defined in the agreements governing the warehouse facilities.  Such
covenants  include  restrictions  on (i) changes in the Company's  business that
would  materially  and  adversely  affect the  Company's  ability to perform its
obligations  under the  facilities,  (ii)  selling  any asset  other than in the
ordinary  course of business,  (iii)  guaranteeing  the debt  obligations of any
other entity, (iv) the use of proceeds from such facilities,  including delivery
standard,  LTV  ("loan-to-value")  and product mix and (v) the Company's minimum
net worth,  debt to net worth ratio,  profitability  and minimum  borrowing base
requirements.  The continued availability of funds provided to the Company under
the  facilities  is  subject  to the  Company's  continued  compliance  with the
operating  and financial  covenants  contained in such  agreements;  the Company
remained in compliance  with the  covenants  during the three months ended March
31, 1998.

     During the quarter  ended March 31, 1998,  the Company  securitized  $640.4
million in loans.  The  Company  expects to continue to depend on its ability to
securitize loans in the secondary market to generate cash proceeds for repayment
of its warehouse lines and to create credit  availability to purchase additional
loans. Several factors affect the Company's ability to complete  securitizations
of  its  loans,  including  conditions  in  the  securities  markets  generally,
conditions  in the  asset-backed  securities  market  specifically,  the  credit
quality of the Company's  portfolio of loans and the Company's ability to obtain
credit  enhancement.  Adverse  changes in such factors may affect the  Company's
results of operations,  financial  condition and ability to generate  sufficient
cash flows  needed to continue  originating  and  purchasing  loans at increased
levels.


CASH FLOWS

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997

     Operating  Activities.  Cash used in operating  activities  increased $27.9
million to $16.5  million for the three  months ended March 31, 1998 as compared
to the $11.4 million provided by operating activities for the three months ended
March 31, 1997. For the three months ended March 31, 1998, the Company used cash
of $51.0 million for interest-only and residual  certificates  compared to $42.7
million  used in the three  months  ended  March 31,  1997,  an increase of $8.3
million or 19.4%.  Operating  cash provided by the net change in mortgage  loans
held for sale decreased by $10.4 million to $19.6

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million for the three  months  ended  March 31, 1998 from $30.0  million for the
three  months  ended  March 31,  1997.  The  increase in the net change in other
assets of $12.9 million was the other principal increase in the use of operating
cash during the three months ended March 31, 1998.

     Investment  Activities.  Net cash used in investing activities increased to
$4.5 million for the three months ended March 31, 1998 from $1.2 million for the
three months ended March 31, 1997.  This increase  reflected the  acquisition of
additional   premises  and   equipment   associated   with  the   Company's  new
headquarters,   offices,   servicing   operations  center  and  expanded  branch
operations.

     Financing  Activities.  Net cash provided by financing activities increased
$13.1  million  to $26.9  million  for the three  months  ended  March 31,  1998
compared to $13.8  million for the three months  ended March 31, 1997  resulting
from the increased borrowings under warehouse lines of credit.


RECENT ACCOUNTING DEVELOPMENTS

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise and Related Information". This Statement establishes standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements and requires that  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to  shareholders.  This Statement is effective for fiscal years beginning
after  December  15,  1997.  In the  initial  year of  application,  comparative
information for earlier years is to be restated.


YEAR 2000

     The Year 2000 issue relates to a flaw in many  electronic  data  processing
systems which prevents them from processing year-date data accurately beyond the
year 1999. This is the result of using a two-digit  representation for the year,
for example "99" for "1999".  This approach assumed that the first two digits of
the abbreviated  date is "19".  However,  when the computer  reaches 2000 it may
interpret "00" as the year 1900,  possibly causing inaccurate data processing or
processing to stop altogether. The Company has reviewed its exposure to the Year
2000 issue with respect to its data  processing  systems and determined the cost
of Year 2000  compliance  will be  immaterial  to its  financial  condition  and
results of  operations.  Additionally,  the Company has reviewed its exposure to
the Year 2000 issue with  respect to  material  vendors  such as Advanta  and is
monitoring Advanta's Year 2000 compliance program to ensure timely completion.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     No information is required under this item.

PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS

     The Company, its subsidiary Oceanmark Financial  Corporation and members of
its board of directors are  defendants in a lawsuit in US District Court for the
southern  district of Florida.  Oceanmark  Bank,  F.S.B.  is the plaintiff.  The
Company  was served on March 9, 1998.  The  complaint  relates to the  Company's
acquisition  of  mortgages  and notes of  Oceanmark  Bank  beginning in 1995 and
ending with the Company's  acquisition  of the mortgage  operations of Oceanmark
Bank and certain  residual  assets in May 1997, as well as events  subsequent to
the May 1997  acquisition.  The  complaint  alleges,  among other  things,  that
employees of  Oceanmark  Bank  conspired  with the Company to lower the purchase
price of the assets sold to the Company by Oceanmark  Bank. The plaintiff  seeks
relief under theories of  racketeering,  securities  fraud,  breach of contract,
breach of fiduciary duty,  conspiracy,  and negligence and requests compensatory
and punitive damages totaling $75 million.

     The Company's  management  believes  that the Oceanmark  claims are without
merit and  intends  to defend  the  Company's  position  vigorously.  Management
believes  that the  resolution  of this matter will not have a material  adverse
effect on the Company's financial condition, results of operations or liquidity.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits

             11.0 - Statement  regarding  computation  of net earnings per share
             27.1 - Financial Data Schedule  (EDGAR Filing only)
             27.2 - Restated 1Q97 Financial Data Schedule (EDGAR Filing only)

        (b)  Reports on Form 8-K
             There were no reports  filed on Form 8-K during the  quarter  ended
             March 31, 1998.


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                                   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 thereunto duly authorized.




                                          Southern Pacific Funding Corporation
                                          ------------------------------------
                                                         (Registrant)


                                          By: /s/ Peter F. Makowiecki
                                             Peter F. Makowiecki
                                             Chief Financial Officer
                                             (principal financial and principal
                                             accounting officer)


Dated:  May 15, 1998

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