U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[X]  Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
     of 1934

For the quarterly period ended September 30, 1998

[_]  Transition report under Section 13 or 15 (d) of the Exchange Act

For the transition period from ________  to  _____________

Commission file number  33-98178

                     Matzel & Mumford Mortgage Funding, Inc.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

            New Jersey                                        22-33-82016
   State or Other Jurisdiction of                         ( I.R.S.  Employer
   Incorporation or Organization)                          Identification No.)

                                100 Village Court
                            Hazlet, New Jersey, 07730
                    (Address of Principal Executive Offices)

                                 (732) 888-1055
                (Issuer's Telephone Number, Including Area Code)

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

Yes __X__      No _____

                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes _____      No _____

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 500 shares common stock, no par value
as of September 30, 1998

           Transitional Small Business Disclosure Format  (check one):

Yes ______      No __X__




<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.
                                FORM 10-QSB INDEX

                                                                            PAGE
PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements ...........................................     1

Matzel & Mumford Mortgage Funding, Inc.

          Balance Sheets as of September 30, 1998 (unaudited) and December
          31, 1997 .......................................................

          Statements of Operations and Retained Earnings for the Nine
          Months ended September 30, 1998 (unaudited) ....................

          Statements of Operations and Retained Earnings for the Three
          Months ended September 30, 1998 (unaudited) ....................

          Statement of Cash Flows for the Nine Months Ended September 30,
          1998 (unaudited) ...............................................

          Notes to Financial Statements (unaudited) ......................


Matzel & Mumford at South Brunswick, L.L.C.

          Balance Sheets as of September 30, 1998 (unaudited) and December
          31, 1997 .......................................................

          Statements of Operations and Retained Earnings for the Nine
          Months ended September 30, 1998 (unaudited) ....................

          Statements of Operations and Retained Earnings for the Three
          Months ended September 30, 1998 (unaudited) ....................

          Statement of Cash Flows for the Nine Months Ended September 30,
          1998 (unaudited) ...............................................

          Notes to Financial Statements (unaudited) ......................


Matzel & Mumford at Freehold, L.L.C.

          Balance Sheets as of September 30, 1998 (unaudited) and December
          31, 1997 .......................................................

          Statements of Operations and Partners' Capital for the Nine
          Months ended September 30, 1998 (unaudited) ....................

          Statements of Operations and Retained Earnings for the Three
          Months ended September 30, 1998 (unaudited) ....................

          Statement of Cash Flows for the Nine Months Ended September 30,
          1998 (unaudited) ...............................................

          Notes to Financial Statements (unaudited) ......................


Item 2.   Management's Plan of Operation .................................



<PAGE>


PART II.  OTHER INFORMATION

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

Item 2.   Changes in Securities ..........................................

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

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

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

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







<PAGE>

                          PART I. FINANCIAL INFORMATION


Item 1.   Financial Statements.




<PAGE>


                   MATZEL & MUMFORD MORTGAGE FUNDING, INC

                            FINANCIAL STATEMENTS

                  FOR THE QUARTER ENDED SEPTEMBER 30, 1998








<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          INDEX TO FINANCIAL STATEMENTS







                                                                           Page

Balance Sheets  ..........................................................   1

Statement of Operations and Retained Earnings ............................ 2 - 3

Statement of Cash Flows ..................................................   4

Notes to the Financial Statements ........................................ 5 - 6



<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC

                                 BALANCE SHEETS

                  AS OF SEPTEMBER 30,1998 AND DECEMBER 31, 1997


<TABLE>
<CAPTION>
                                                               9/30/98        12/31/97
                                                             -----------    -----------
                                                             (unaudited)     (audited)
<S>                                                          <C>            <C>
                                     ASSETS
Cash                                                         $   623,710    $   945,616
Prepaid income taxes                                                 100
Mortgages receivable                                           3,435,865      3,096,545
Deferred costs, net                                              154,156        186,049
                                                             -----------    -----------

TOTAL ASSETS                                                 $ 4,213,831    $ 4,228,210
                                                             ===========    ===========




                      LIABILITIES AND STOCKHOLDERS' EQUITY


Accounts Payable                                                            $       125
Notes Payable                                                $ 3,750,000      3,750,000
                                                             -----------    -----------

TOTAL LIABILITIES                                              3,750,000      3,750,125
                                                             -----------    -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S EQUITY
   Common stock, no par value, 5,000 shares authorized
     500 shares issued and outstanding                            10,000         10,000
   Additional paid-in capital                                    490,000        490,000
   Retained earnings                                             (36,169)       (21,915)
                                                             -----------    -----------
TOTAL STOCKHOLDERS' EQUITY                                       463,831        478,085
                                                             -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 4,213,831    $ 4,226,400
                                                             ===========    ===========
</TABLE>


                                    -1-


<PAGE>


                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS

                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998

                                   (UNAUDITED)


Revenue                                                               $ 150,268

Interest expense                                                        146,199
                                                                      ---------
Income (loss) before G & A and amortization                               4,069

General & administrative expenses

Amortization                                                             10,631
                                                                      ---------
Net Income                                                               (6,562)

Retained Earnings, beginning of period                                $ (29,607)

Retained Earnings, end of period                                      $ (36,169)
                                                                      =========

                                       -2-


<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                  STATEMENT OF OPERATIONS AND RETAINED EARNINGS

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

                                   (UNAUDITED)


Revenue                                                               $ 465,066

Interest expense                                                        434,224
                                                                      ---------
Income (loss) before G & A and amortization                              30,842

General & administrative expenses                                        13,203

Amortization                                                             31,893
                                                                      ---------
Net Income                                                              (14,254)

Retained Earnings, beginning of period                                $ (21,915)

Retained Earnings, end of period                                      $ (36,169)
                                                                      =========



                                       -3-


<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                             STATEMENT OF CASH FLOWS

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                         $ (14,254)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Amortization                                                      31,893
       Increase in mortgages receivable                                (339,320)
       Increase in prepaid income taxes                                    (100)
       Increase in accounts payable                                        (125)
                                                                      ---------

NET CASH USED IN OPERATING ACTIVITIES                                  (321,906)

DECREASE IN CASH                                                       (321,906)

CASH,  Beginning of period                                              945,616

CASH,  End of period                                                  $ 623,710
                                                                      =========

                                      -4-

<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

         NATURE OF BUSINESS

         Matzel & Mumford Mortgage Funding, Inc. (the "Company") is a New Jersey
         corporation formed for the purpose of financing loans to real estate
         development companies controlled by the principals of The Matzel &
         Mumford Organization, Inc. ("MMO") which are engaged in the business of
         developing single-family residential housing communities. The Company
         closed a public offering of its intermediate term secured notes (the
         "Notes") on May 15, 1996 with issuing $3,750,000 principal amount of
         Notes. The offering proceeds, along with the additional paid in capital
         in excess of organizational expenses, will be used to make loans
         primarily for projects in the early stages of development. The Company
         has committed to maintain at least 90% of the offering proceeds in
         secured loans, subject to certain conditions.

         The Company intends to charge interest on the loans at a rate of 16% or
         more and will also assess each borrower an administrative fee. Debt
         service payments on the project loans, together with the administrative
         fee, are intended to service the 15% interest due on the Notes, the .5%
         loan servicing fee payable to MMO, and other expenses.

         The Company filed a registration statement with respect to its Notes
         offering under the Securities and Exchange Act of 1933, as amended. The
         Company's registration statement was declared effective by the
         Securities and Exchange Commission on February 7, 1996.

         DEFERRED COSTS

         Deferred costs include legal, accounting and filing fees incurred in
         connection with the Company's public offering.

         INCOME TAXES

         The stockholders of the Company have elected "S" corporation status for
         federal and state income tax purposes.

                                      -5-


<PAGE>

                     MATZEL & MUMFORD MORTGAGE FUNDING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES(Continued)

         ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the disclosure of contingent assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenues and expenses during the period. Actual results
         could differ from those estimates.

NOTE 2 - MORTGAGES RECEIVABLE

         Mortgages receivable represent loans made to affiliated entities
         bearing interest at a rate of 16%. The loans have maturity dates
         ranging from twelve to twenty four months.



                                       -6-


<PAGE>



                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                              FINANCIAL STATEMENTS

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998



<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          INDEX TO FINANCIAL STATEMENTS



                                                                            Page

Balance Sheets ...........................................................   1

Statement of Operations and Retained Earnings ............................ 2 - 3

Statement of Cash Flows...................................................   4

Notes to the Financial Statements ........................................ 5 - 9



<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                                 BALANCE SHEETS

                 AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997


                                                          09/30/98    12/31/97
                                                         (unaudited)  (audited)
                                                         ----------   ----------
                                     ASSETS
Cash                                                     $   29,312   $   53,028
Performance Bond                                            201,856      188,600
Note receivable                                              38,700
Inventories                                               8,576,251    8,776,775
                                                         ----------   ----------

TOTAL ASSETS                                             $8,846,119   $9,018,403
                                                         ==========   ==========




                      LIABILITIES AND STOCKHOLDERS' EQUITY


Mortgage payable- M&M Mortgage Funding                                $2,496,545
Mortgage payable                                         $6,774,852    5,046,744
Note payable                                                 90,000      300,000
Accounts payable                                            654,123      163,174
Accrued expenses                                            288,977
Customer deposits                                           646,462      581,526
Due to affiliate                                             89,332      422,194
                                                         ----------   ----------

TOTAL LIABILITIES                                         8,543,746    9,010,183
                                                         ----------   ----------

PARTNERS' CAPITAL                                           302,373        8,220
                                                         ----------   ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL                  $8,846,119   $9,018,403
                                                         ==========   ==========

                                      -1-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998



Sales                                                                 $5,468,004

Cost of sales                                                          4,836,618
                                                                      ----------

Gross profit                                                             631,386

Selling, general and administrative expenses                             417,844
                                                                      ----------

Income from operations                                                   213,542

Interest income                                                            3,090
                                                                      ----------

Net income (loss)                                                        216,632

Member's capital, Beginning of period                                     85,741
                                                                      ----------

Member's capital, End of Period                                       $  302,373
                                                                      ==========


                                      -2-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998


Sales                                                                $10,920,106

Cost of sales                                                          9,823,603
                                                                     -----------

Gross profit                                                           1,096,503

Selling, general and administrative expenses                             811,878
                                                                     -----------

Income from operations                                                   284,625

Interest income                                                            9,528
                                                                     -----------

Net income (loss)                                                        294,153

Member's capital, Beginning of period                                      8,220
                                                                     -----------

Member's capital, End of Period                                      $   302,373
                                                                     ===========


                                       -3-

<PAGE>


                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                            STATEMENTS OF CASH FLOWS

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

                                   (UNAUDITED)



CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                    294,153
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Increase in performance bonds                                    (13,256)
       Decrease in inventories                                          200,524
       Increase in notes receivable                                     (38,700)
       Increase (decrease) in accounts payable                          490,949
       Increase (decrease) in accrued expenses                          288,977
       Increase (decrease) in customer deposits                          64,936
                                                                   ------------

NET CASH USED IN OPERATING ACTIVITIES                                 1,287,583
                                                                   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgages payable                               14,829,148
       Payments on mortgages payable                                (15,597,585)
       Payments on notes payable                                       (210,000)
       Proceeds to affiliate                                           (332,862)
                                                                   ------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                            (1,311,299)
                                                                   ------------

DECREASE IN CASH                                                        (23,716)

CASH,  Beginning of period                                               53,028
                                                                   ------------

CASH,  End of period                                               $     29,312
                                                                   ============


                                      -4-

<PAGE>


                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

         NATURE OF BUSINESS AND ORGANIZATION

         Matzel & Mumford at South Brunswick, L.L.C. ("M & M at "South
         Brunswick") is a New Jersey limited liability company formed for the
         purpose of purchasing land in the Township of South Brunswick, New
         Jersey and developing and constructing 91 single-family homes on that
         land.

         REVENUE RECOGNITION

         Revenues arising from home sales will be recognized under the full
         accrual method. Under this method, income is recognized when all terms
         relating to the sale of a unit are complete, consideration is
         exchanged, and title is conveyed to the buyer.

         INVENTORIES

         Inventories are stated at the lower of cost or estimated net realizable
         value, which is determined by reducing the anticipated net sales
         proceeds by the estimated costs necessary to complete or improve the
         property to the condition used in arriving at the anticipated selling
         price.

         Inventory costs are comprised of direct unit and allocated costs.
         Development costs are capitalized until the property is complete and
         title has been conveyed to the buyer. Development costs generally
         include land and improvements, house construction, project overhead,
         interest and a portion of construction management fees. Interest
         incurred is capitalized based upon interest on specifically related
         debt.

         A portion of the construction management fees paid to a related party
         is capitalized by the Company.

         MEMBERS CAPITAL

         The two managing members have pledged a total of $1,000 in capital
         contributions.

                                       -5-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

         INCOME TAXES

         The Company is organized and operates as a limited liability company
         which is not subject to Federal or state income taxes. Accordingly, no
         provision for income taxes has been made. The earnings or losses of the
         Company are included on each member's tax return, according to the
         terms of the operating agreement.

         ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the period. Actual results could differ from those
         estimates.

NOTE 2 - INVENTORIES

         Inventories relating to the development of single-family homes consist
         of the following at September 30, 1998:

                 Land                          $2,360,070
                 Land improvements and        
                   construction costs           4,394,581
                 Project overhead                 507,016
                 Financing costs                1,112,032
                 Sales and marketing              202,552
                                               ----------
                                               $8,576,251
                                               ==========
                                        
         All expenses incurred for development of the project are capitalized.
         Selling expenses which do not benefit future periods and general and
         administrative expenses are treated as period costs and are expensed as
         incurred. Interest and management fees capitalized during the period
         ended September 30, 1998 are $1,893,399.


                                       -6-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 3 - NOTE PAYABLE

         On June 16, 1997, the Company entered into a financing arrangement with
         an individual in the amount of $300,000 bearing interest at 15.00%.
         Repayment of principal calls for $10,000 per closing, for closings 11
         through 40, but no later than June 15, 1999. The first interest payment
         commences on six months from the date of the note and then every three
         months thereafter. The note is collateralized by a financial guarantee
         bond, which is guaranteed by the managing member's of the Company.

         The fair value of the note payable approximates fair value of
         instruments with similar terms and average maturities.

NOTE 4 - MORTGAGES PAYABLE

         September 30, 1998
         -----------------------------------------------------------------------
         Construction - related party (a)
         Land, construction and model (b)                           $  1,896,501
         1st mortgage (c                                               4,878,351
         -----------------------------------------------------------------------

                                                                    $  6,774,852
         -----------------------------------------------------------------------

         (a)  The Company had a mortgage payable to Matzel & Mumford Mortgage
              Funding, Inc., an entity controlled by members of M & M at South
              Brunswick. The note was in the maximum amount of $3,400,000 and
              is to fund the construction of twelve houses in phase one.
              Interest is payable 16.00% and principal is payable with each
              closing at the rate of 105% of the amount funded for each unit.
              Interest payments are payable quarterly until June 18, 1999, when
              the outstanding principal balance is due. At September 30, 1998
              the note has been repaid in full.

         (b)  The Company has a commitment from a bank for land acquisition and
              construction not to exceed $6,400,000 as follows:

                  Note A in the maximum amount of $4,000,000 is to fund land
                  acquisition and improvements. The note has been extended for
                  an additional two months through November 28, 1998 and bears
                  interest at a rate of prime plus 1.5%.


                                      -7-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 4 - MORTGAGES PAYABLE (Continued)

                  Interest is payable monthly and principal is payable with each
                  closing at the rate of 120% of the cost of the related land
                  and site improvements or $120,000. The loan is collateralized
                  by a first mortgage on the land and improvements of phase one
                  (40 lots) of the project and is guaranteed by the managing
                  member's of the Company. At September 30, 1998, the Note has
                  been repaid in full.

                  Note B, a revolver, in the maximum amount of $2,500,000 is
                  fund the construction of sold homes. The note has a term of 18
                  months and bears interest at a rate of prime plus 1.5%.
                  Interest is payable monthly and principal is payable with the
                  closing of each home. The loan is collateralized by a first
                  mortgage on the units being constructed. The note balance is
                  $1,896,501 as of September 30, 1998.

                  Note C in the amount of $500,000 is fund the construction of
                  two model homes. The note has a term of 18 months expiring
                  July 1998 and bears interest at a rate of prime plus 1.5%.
                  Interest is payable monthly and principal is payable with the
                  closing of each model home. The loan is collateralized by the
                  model homes being constructed. As of September 30, 1998 the
                  Note has been repaid in full.

         The fair value of the mortgages approximates fair value of instruments
         with similar terms and average maturities.

         c)   The Company has a commitment from a bank for land acquisition and
              construction not to exceed $7,200,000 for phase two as follows:

                  The maximum amount of $3,400,000 is to fund land acquisition
                  and improvements and was used to payoff Matzel & Mumford
                  Mortgage Funding's first mortgage on the property. The note
                  bears interest at a rate of prime plus 3/8% and has a term for
                  24 months which matures on June 14, 2000. Interest is payable
                  monthly and principal is payable with each closing at the rate
                  of 120% of the cost of the related land and site improvements
                  or $80,000. The loan is collateralized by a first mortgage on
                  the land and improvements of phase two (51 lots) of the
                  project and is guaranteed by the managing member's of the

                                       -8-


<PAGE>

                   MATZEL & MUMFORD AT SOUTH BRUNSWICK, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 4 - MORTGAGES PAYABLE (Continued)


                  Company. At September 30, 1998, the Note has a balance of
                  $3,400,000.

                  The construction revolver is in the maximum amount of
                  $3,800,000 is fund the construction of sold homes. The note
                  has a term of 24 months and bears interest at a rate of prime
                  plus 3/8%. Interest is payable monthly and principal is
                  payable with the closing of each home. The loan is
                  collateralized by a first mortgage on the units being
                  constructed. The note balance is $1,478,351 as of September
                  30, 1998.


NOTE 5 - RELATED PARTY TRANSACTIONS

         The Company has an agreement with MMO whereby MMO provides construction
         management services at a fee of 3% of the gross selling price of each
         house. MMO is entitled to receive monthly draws of $30,000 per month.
         Since inception, the Company has incurred $800,000 in management fees
         of which $468,393 have been capitalized in inventories at September 30,
         1998.

         Also included in due to/from affiliates are net cash advances from an
         affiliated company of the managing member of the Company. The advances
         are short term in nature and bear no interest. The amounts are to be
         repaid from available cash flow.




                                       -9-

<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                              FINANCIAL STATEMENTS

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998




<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          INDEX TO FINANCIAL STATEMENTS


                                                                            Page

Balance Sheets ...........................................................   1

Statement of Operations and Partner's Capital............................. 2 - 3

Statement of Cash Flows...................................................   4

Notes to the Financial Statements ........................................ 5 - 9



<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                                 BALANCE SHEETS

                 AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997



                                                      09/30/98       12/31/97
                                                    (unaudited)      (audited)
                                                    ------------    ------------
                                     ASSETS
Cash                                                ($    85,842)   $    361,379
Performance bonds                                        250,910         229,020
Notes receivable                                          44,550          44,500
Utility deposits                                          47,823          38,570
Fixed assets, net                                          3,437           7,856
Due from affiliates                                       61,184         809,711
Inventories                                           10,990,827      11,756,553
                                                    ------------    ------------

TOTAL ASSETS                                        $ 11,312,889    $ 13,247,589
                                                    ============    ============




                      LIABILITIES AND STOCKHOLDERS' EQUITY


Mortgages payable                                   $  8,942,329    $ 11,587,034
Accounts payable                                         447,016         709,668
Accrued expenses                                         593,382
Customer deposits                                        855,634         891,680
                                                    ------------    ------------

TOTAL LIABILITIES                                     10,838,361      13,188,382
                                                    ------------    ------------

PARTNERS' CAPITAL                                        474,528          59,207
                                                    ------------    ------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL             $ 11,312,889    $ 13,247,589
                                                    ============    ============



                                       -1-


<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998



Sales                                                                 $7,834,321

Cost of sales                                                          6,898,981
                                                                      ----------

Gross profit                                                             935,340

Selling, general and administrative expenses                             616,545
                                                                      ----------

Income from operations                                                   318,795

Depreciation                                                               1,473

Interest income                                                            4,695
                                                                      ----------

Net income                                                               322,017

Member's capital, Beginning of period                                    152,511
                                                                      ----------

Member's capital, End of Period                                       $  474,528
                                                                      ==========


                                       -2-


<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                 STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998



Sales                                                                $15,722,248

Cost of sales                                                         14,039,141
                                                                     -----------

Gross profit                                                           1,683,107

Selling, general and administrative expenses                           1,272,085
                                                                     -----------

Income from operations                                                   411,022

Depreciation                                                               4,419

Interest income                                                            8,718
                                                                     -----------

Net income                                                               415,321

Member's capital, Beginning of period                                     59,207
                                                                     -----------

Member's capital, End of Period                                      $   474,528
                                                                     ===========

                                       -3-



<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                            STATEMENTS OF CASH FLOWS

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                                   (UNAUDITED)


CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                    415,321
   Depreciation                                                           4,419
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Decrease in inventories                                          765,676
       Increase in performance bonds                                    (21,890)
       Increase in utility deposits                                      (9,253)
       Increase (decrease) in customer deposits                         (36,046)
       Increase (decrease) in accrued expenses                          593,382
       Increase (decrease) in accounts payable                         (262,652)
                                                                   ------------

NET CASH USED IN OPERATING ACTIVITIES                                 1,448,957
                                                                   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from mortgage payable                                14,340,076
       Payments of construction and land mortgages                  (16,984,781)
       Proceeds from affiliate                                          748,527
                                                                   ------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                            (1,896,178)
                                                                   ------------


DECREASE IN CASH                                                       (447,221)

CASH,  Beginning of period                                              361,379
                                                                   ------------
CASH,  End of period                                               ($    85,842)
                                                                   ============


                                      -4-

<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

         NATURE OF BUSINESS AND ORGANIZATION

         Matzel & Mumford at Freehold, L.L.C. ("M & M at "Freehold") is a New
         Jersey limited liability company formed for the purpose of purchasing
         land in the Township of Freehold, New Jersey and developing and
         constructing 126 single-family homes on that land.

         REVENUE RECOGNITION

         Revenues arising from home sales will be recognized under the full
         accrual method. Under this method, income is recognized when all terms
         relating to the sale of a unit are complete, consideration is
         exchanged, and title is conveyed to the buyer.

         INVENTORIES

         Inventories are stated at the lower of cost or estimated net realizable
         value, which is determined by reducing the anticipated net sales
         proceeds by the estimated costs necessary to complete or improve the
         property to the condition used in arriving at the anticipated selling
         price.

         Inventory costs are comprised of direct unit and allocated costs.
         Development costs are capitalized until the property is complete and
         title has been conveyed to the buyer. Development costs generally
         include land and improvements, house construction, project overhead,
         interest and a portion of construction management fees. Interest
         incurred is capitalized based upon interest on specifically related
         debt.

         A portion of the construction management fees paid to a related party
         is capitalized by the Company.

         MEMBERS CAPITAL

         The two managing members have pledged a total of $1,000 in capital
         contributions.

                                       -5-



<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

         INCOME TAXES

         The Company is organized and operates as a limited liability company
         which is not subject to Federal or state income taxes. Accordingly, no
         provision for income taxes has been made. The earnings or losses of the
         Company are included on each member's tax return, according to the
         terms of the operating agreement.

         ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the period. Actual results could differ from those
         estimates.

NOTE 2 - INVENTORIES

         Inventories relating to the development of single-family homes consist
         of the following at September 30, 1998:

                Land                          $ 4,119,358
                Land improvements and         
                  construction costs            5,348,811
                Project overhead                  166,020
                Financing costs                 1,039,454
                Sales and marketing               317,184
                                              -----------
                                              $10,990,827
                                              ===========
                                        
         All expenses incurred for development of the project are capitalized.
         Selling expenses which do not benefit future periods and general and
         administrative expenses are treated as period costs and are expensed as
         incurred. Interest and management fees capitalized during the period
         ended September 30, 1998 are $1,194,679.


                                      -6-

<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 3  -  MORTGAGES PAYABLE
                                                       09/30/98     12/31/97
                                                     -----------   -----------
               Land and construction mortgages (a)   $ 3,215,401   $ 6,843,090
               1st mortgage (b)                                      1,099,268
               1st mortgage (C)                        2,291,063
               1st mortgage (d)                        2,835,865
               2nd mortgage (e)                          600,000       600,000
               2nd mortgage (f)                                        979,676
               3rd mortgage (g)                                      1,000,000
               4th  mortgage (h)                                     1,065,000
                                                     -----------   -----------
                                                     $ 8,942,329   $11,587,034
                                                     ===========   ===========

         (a)  The company has a commitment from a bank for land acquisition and
              construction not to exceed $10,330,000 as follows:

                  Note A in the maximum amount of $6,030,000 is to fund land
                  acquisition and improvements. The note is due in May 1999, and
                  bears interest at the prime rate, plus 1.5%. Interest is
                  payable monthly and principal is payable with each closing at
                  the rate of 120% of the amount advanced for land acquisition
                  and site improvements, or $110,210. The Note has a balance of
                  $1,140,276 at September 30, 1998.

                  Note B in the amount of $700,000 has been repaid in full.

                  Note C, a revolver, in the maximum amount of $4,000,000, is to
                  be used to fund construction. The note bears interest at the
                  prime rate, plus 1%, and matures in May 1999. Interest is
                  payable monthly and principal is paid at par upon closing of a
                  unit. The Note balance is $2,075,175 as of September 30, 1998.

                  The loan is collateralized by a first mortgage on the land and
                  improvements of phases one and two (95 lots) of the project
                  and is guaranteed by the managing members.

         (b)   The company has a first mortgage to the seller in the original
               amount of $1,699,268, of which $600,000 was payable on November
               15, 1997, and another $600,000 is payable on November 15, 1998
               with the balance due on November 15, 1999. The mortgage bears
               interest at 9.25% and is payable at the time of the related
               principal payment. The note is collateralized by a first mortgage
               on phase three (31 lots) of the project. At September 30, 1998
               the loan was repaid in full.

                                       -7-

<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 3 - MORTGAGES PAYABLE (continued)

         (C)   The company has a commitment from a bank for land acquisition and
               construction not to exceed $5,387,000 as follows:

                  Note A in the maximum amount of $2,387,000 is to fund land
                  acquisition and improvements. The note is due in February
                  2000, and bears interest at the prime rate, plus .5%. Interest
                  is payable monthly and principal is payable with each closing
                  at the rate of 120% of the amount advanced for land
                  acquisition and site improvements, or $92,400. The Note has a
                  balance of $2,221,653 at September 30, 1998.

                  Note B, a revolver, in the maximum amount of $3,000,000, is to
                  be used to fund construction. The note bears interest at the
                  prime rate, plus .5%, and matures in February 2000. Interest
                  is payable monthly and principal is paid at par upon closing
                  of a unit. The Note balance is $69,410 as of September 30,
                  1998.

The loan is collateralized by a first mortgage on the land and improvements in
phase three (31 lots) of the project and is guaranteed by the managing members.

         (d)   The Company has two mortgages payable to Matzel & Mumford
               Mortgage Funding, Inc., an entity controlled by members of M & M
               at Freehold. The aggregate of the notes are in a maximum amount
               of $4,090,000 and are to fund the construction of twelve houses
               in phases one and two. Interest is payable at 16.00% and
               principal is payable with each closing at the rate of 105% of the
               amount funded for each unit. Interest payments are payable
               quarterly until July 31, 1999, when the outstanding principal
               balance is due. At September 30, 1998 the note balance is
               $2,835,865.

         (e)   The Company has a second mortgage to Matzel & Mumford Mortgage
               Funding, an entity controlled by the members of M & M at
               Freehold, which is payable interest only at 16%. Interest
               payments are payable quarterly until November 15, 1999 when the
               outstanding principal balance is due. The is collateralized by a
               second mortgage on phase three (31 lots) of the project.

         (f)   The Company has a second mortgage from a bank for site
               improvements on phase two (49 lots) not to exceed $2,415,000. The
               note matures in May 1998 and bears interest at the prime rate,
               plus 1 1/2%. Interest is payable monthly and principal is payable
               with each closing at the rate of 120% of the cost of the related
               improvements or $59,143 per lot. The note was repaid in full
               during the third quarter.

                                       -8-


<PAGE>

                      MATZEL & MUMFORD AT FREEHOLD, L.L.C.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1998

NOTE 3 - MORTGAGES PAYABLE (continued)

         (g)   The Company has a third mortgage payable on phases one and two to
               an investor group in the amount of $1,000,000. The note bears
               interest at the rate of 20%, of which 6% is deferred until the
               twenty first closing when the deferred portion is payable.
               Thereafter, interest is payable in full quarterly. Principal is
               payable $20,000 per house beginning with the 21st through the
               50th closing and $40,000 from the 51st through the 60th closing
               with the balance, if any, due on January 31, 2000. The note was
               repaid in full during the third quarter.

         (h)   The Company has a fourth mortgage payable to an insurance company
               in the maximum amount of $1,250,000 bearing interest at 20% on
               the first $1,000,000 and 25% on the balance. The Company has made
               principal repayments in the amount of $600,000 against the
               original loan balance of which $250,000 was at an interest rate
               of 25%. Fifty percent of the interest is payable semi-annually
               beginning one year from the initial advance with the balance
               deferred until the related principal payments commence. Principal
               is payable $50,000 per house, plus the related portion of the
               deferred interest, beginning with the 83rd closing through the
               95th closing with the unpaid balance, if any, due December 31,
               2001. The note is collateralized by a fourth mortgage on the land
               and improvements of phases one and two and the guarantee of the
               managing members.

NOTE 4 - RELATED PARTY TRANSACTIONS

         The Company has an agreement with MMO whereby MMO provides construction
         management services at a fee of 4% of the gross selling price of each
         house. MMO is entitled to receive monthly draws of $50,000 per month.
         Since inception, the Company has incurred $810,000 in management fees
         of which $155,225 have been capitalized in inventories at September 30,
         1998.

         Also included in due to/from affiliates are net cash advances from an
         affiliated company of the managing member of the Company. The advances
         are short term in nature and bear no interest. The amounts are to be
         repaid from available cash flow.


                                       -9-


<PAGE>


Item 2. Management's Plan of Operation

     Matzel & Mumford Mortgage Funding, Inc. (the "Funding Company") is a
finance company formed in July 1995 for the purpose of funding land acquisition,
infrastructure improvements, and the construction of homes in single-family
residential housing communities by making loans. In furtherance of this purpose,
the Funding Company made a public offering of up to $6,000,000 of its
Intermediate Term Secured Notes (the "Notes"). On May 16, 1996, the Funding
Company issued and sold $3,750,000 principal amount of Notes.

     During the third quarter of 1998, the Funding Company made two new first
mortgage loans to Matzel & Mumford at Freehold, LLC ("Freehold"). The first new
mortgage loan was in the amount of $2,390,000 on seven building lots for the
construction of sold homes of which $1,559,465 is outstanding at September 30,
1998. The other new mortgage loan was in the amount of $1,700,000 on five
building lots for the construction of new homes of which $1,276,400 is
outstanding at September 30, 1998. Freehold is an entity organized to develop,
market and build a 126 lot subdivision known as "Seven Oaks" located on
Burlington Road in Freehold, New Jersey. Freehold will use a portion of the
proceeds to repay Amboy National Bank (first mortgage holder) for its existing
acquisition and improvement funding. The remaining funds will be used for the
construction of the houses on a percentage of completion method. Repayment of
the loans from Freehold to the Funding Company will come from proceeds of the
houses as they are closed with third party purchasers. As of September 30, 1998,
of the 126 lots Freehold had written 88 contracts with prospective home buyers,
of which 8 were for lots financed by the Funding Company.

     As of September 30, 1998, the Funding Company had an aggregate of
$3,435,865 of loans outstanding, allocated to Freehold as follows: an aggregate
of $2,835,865 secured by a first mortgage on the above two referenced loans and
an aggregate of $600,000 secured by a second mortgage. The financial statements
of Freehold are included with this Quarterly Report. The Funding Company also
had $564,135 deposited in a cash collateral account with First Union National
Bank, as trustee for the holders of the Notes.

     During the third quarter of 1998, South Brunswick repaid in full its
previously outstanding loan of $3,400,000 from the Funding Company for
construction of seven homes.

Subsequent to September 30, 1998, the Funding Company made a first mortgage loan
to Matzel & Mumford at Heritage Landing ("Heritage Landing") in the amount of
$1,400,000 for the acquisition and approval costs of thirty building lots. The
thirty six building lots is part of an overall 132 unit subdivision. The
remaining 96 building lots have not yet been acquired. The 96 lots will be
acquired in three phases with the first phase closing expected to be in the
middle of November. Heritage Landing is an entity organized to develop, market
and build a 132 lot subdivision located off River Road in South River, New
Jersey. Repayment of the loan from Heritage Landing to the Funding Company will
come from in stages as bank financing is secured. Heritage



<PAGE>

Item 2. Management's Plan of Operation (continued)

Landing opened for sales in October 1998 and is scheduled to have a model grand
opening in early November. The anticipated base selling price will range between
$229,000 and $258,000 with option revenue adding an average of approximately
another $20,000 per house. The size of the building lots range from
approximately 1/4 acre to 1/3 acre.

The Funding Company also anticipates making a second mortgage loan to Matzel &
Mumford at Phillipsburg, LLC ("Phillipsburg) in the amount of $400,000 for land
acquisition for 26 building lots. The first mortgage loan for land acquisition
and construction has been secured through Commerce Bank in an aggregate amount
of $2,811,000. Phillipsburg is an entity organized to develop, market and build
a 26 lot subdivision known as "Delaware Knolls" located on Carpenterville Road
in Phillipsburg, New Jersey. The project is part of an overall 40 lot
subdivision and the property is being acquired with the site improvements
already in place. The anticipated base selling price will range between $175,000
and $220,000 with option revenue adding another $15,000 per house. The size of
the building lots average approximately 1/5 of an acre.

The Funding Company also anticipates making an additional first mortgage loan to
Freehold in the amount of $2,620,000 on seven building lots for the construction
of new homes on a percentage of completion basis. Freehold will use a portion of
the proceeds to repay Amboy National Bank (first mortgage holder) for its
existing acquisition and improvement funding. The remaining funds will be used
for the construction of the houses on a percentage of completion method.
Repayment of the loans from Freehold to the Funding Company will come from
proceeds of the houses as they are closed with third party purchasers.

The company has completed an initial assessment of its Year 2000 status and has
developed and implemented a plan successfully to address the Company's exposure
to the "Year 2000" issue. The Year 2000 issue is the result of computer programs
being written using two digits rather four to define the applicable year.
Computer systems that have time sensitive software may recognize the date "00"
as the year 1900 rather than 2000. This could result in a major system failure
or miscalculations. Pursuant to its plan, the Company has implemented a Year
2000 conversion in July 1998 which included upgrading its software and
purchasing a new network server. The cost of the compliance of the Year 2000
conversion on all of its systems was $30,000 in 1998. No additional costs are
now anticipated. Major suppliers will be contacted in order to assess their
status as to Year 2000 compliance in the first half of 1999.

Because the Funding Company is not an operating company, it has minimal cash
needs. The Funding Company expects that its cash requirements will be satisfied
by the administrative fee that various borrowers will pay to the Funding Company
and by the amount of interest on the various loans (which will be at least 16%)
that remains after paying the interest on the Notes and a loan servicing fee to
its affiliate, Matzel & Mumford Organization. Inc.



<PAGE>

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable

Item 2. Changes in Securities.

Not applicable

Item 3. Defaults Upon Senior Securities.

Not applicable

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

Not applicable

Item 5. Other information.

None


<PAGE>



Item 6.

       (a)    Exhibits.

3(a)   Certificate of Incorporation of Matzel & Mumford Mortgage Funding, Inc.
       (the "Funding Company") (incorporated by reference to Exhibit 3(a) to
       Registration Statement on Form SB-2 of Matzel & Mumford Mortgage Funding,
       Inc. (Registration Number 33-98178) (the "Notes Registration
       Statement")).

3(b)   By-Laws of the Funding Company (incorporated by reference to Exhibit 3(b)
       to the Notes Registration Statement).

4(a)   Indenture (including form of Notes) dated as of January 25, 1996, between
       the Funding Company and First Union National Bank, as Trustee
       (incorporated by reference to Exhibit 4(a) to the Notes Registration
       Statement).

4(b)   Resolutions of the Board of Directors of the Funding Company establishing
       specific terms of the Notes (incorporated by reference to Exhibit 4(b) of
       Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996).

10(a)  Form of Loan Agreement (incorporated by reference to Exhibit 10(a) to the
       Notes Registration Statement).

10(b)  Form of Mortgage and Security Agreement (incorporated by reference to
       Exhibit 10(b) to the Notes Registration Statement).

10(c)  Loan Servicing Agreement dated January 22, 1996 between the Funding
       Company and The Matzel & Mumford Organization, Inc. (incorporated by
       reference to Exhibit 10(c) to the Notes Registration Statement).

27     Financial Data Schedules.



<PAGE>

                                   SIGNATURES

     Pursuant to the requirement of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the under-signed, thereunto duly authorized.

                                    MATZEL & MUMFORD MORTGAGE FUNDING, INC.


Date: November 13, 1998             By: /s/ ROGER MUMFORD
                                    --------------------------------------------
                                        Roger Mumford, President
                                        (Principal Executive Officer)

                                    By: /s/ JONATHAN FISHER
                                    --------------------------------------------
                                        Jonathan Fisher, Chief Financial Officer
                                        (Principal Accounting Officer)

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
This report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Date: November 13, 1998             By: /s/ ROGER MUMFORD
                                    --------------------------------------------
                                        Roger Mumford, Director

                                    By: /s/ Bruce Matzel
                                    --------------------------------------------
                                        Bruce Matzel, Director