SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                            ------------------------
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                           COMMISSION FILE NO. 1-12109
                            ------------------------
                           DELTA FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

              DELAWARE                               11-3336165
  (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                IDENTIFICATION NO.)

   1000 WOODBURY ROAD, SUITE 200,
         WOODBURY, NEW YORK                             11797
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)             (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(516) 364-8500
                            ------------------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE

   Indicate  by check mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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 [_]

   Indicate by check mark if disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

   As of March 26, 2003, the aggregate  market value of the voting stock held by
non-affiliates  of the  Registrant,  based on the  closing  price of $2.14,  was
approximately $12,241,157.

   Indicate by  check mark  whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2. Yes [__] No [X]

   As of March 17, 2003, the  Registrant  had 15,905,549  shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

   Part III,  Items 10, 11, 12 and 13 are  incorporated  by reference from Delta
Financial Corporation's definitive proxy statement to stockholders which will be
filed with the Securities  and Exchange  Commission no later than 120 days after
December 31, 2002.

<PAGE>

PART I
ITEM 1.  BUSINESS

BUSINESS OVERVIEW

   Delta Financial  Corporation (together with its subsidiaries "Delta" or "we")
is a specialty  consumer finance company that originates,  securitizes and sells
(and,  prior to May 2001,  serviced)  non-conforming  mortgage loans,  which are
primarily  secured  by  first  mortgages  on  one-  to  four-family  residential
properties. Throughout our 21-year operating history, we have focused on lending
to individuals who generally do not satisfy the credit,  documentation  or other
underwriting  standards  set by more  traditional  sources of  mortgage  credit,
including  those  entities  that  make  loans in  compliance  with  conventional
mortgage lending  guidelines  established by Fannie Mae and Freddie Mac. We make
loans to these borrowers for such purposes as debt  consolidation,  refinancing,
education  and home  improvement.  Our  corporate  offices  are  located at 1000
Woodbury Road,  Woodbury,  NY 11797 and we can be contacted at (516) 364-8500 or
through our internet web site at HTTP://WWW.DELTAFINANCIAL.COM. Our Exchange Act
filings can be accessed on the Investor  Relations page of our web site, through
a link to EDGAR.

   Our mortgage business has two principal  components.  First, we make mortgage
loans  to  individual  borrowers,  which is a cash and  expense  outlay  for us,
because our cost to  originate a loan exceeds the fees we collect at the time we
originate  that loan. At the time we originate a loan,  and prior to the time we
sell that loan,  we finance  that loan by  borrowing  under  warehouse  lines of
credit.  Second, we sell loans, either through securitization or on a whole loan
basis, to generate cash and non-cash  revenues,  recording the premiums received
as revenues.  We use the proceeds from these sales to repay our warehouse  lines
of credit and for working capital.

   ORIGINATION   OF  MORTGAGE   LOANS.   We  make  mortgage  loans  through  two
distribution  channels -  wholesale  (or broker)  and  retail.  We receive  loan
applications  both directly from borrowers and from licensed  independent  third
party  mortgage  brokers  and  other  real  estate   professionals   who  submit
applications on a borrower's behalf.  While we generally collect points and fees
from the borrower when a loan closes, our cost to originate a loan typically far
outweighs any fees we may collect from the borrower.

    In 2002,  we  originated  approximately  $872  million  of  loans,  of which
approximately  $535  million  were  brokered  loans and $337 million were retail
loans, compared to 2001, when we originated approximately $622 million of loans,
of which $346 million were brokered loans and $276 million were retail loans.

   INDEPENDENT  MORTGAGE  BROKER  (WHOLESALE)  CHANNEL.  Through  our  wholesale
distribution  channel,  we originate  mortgage loans indirectly through licensed
mortgage   brokers  and  other  real  estate   professionals   who  submit  loan
applications on behalf of borrowers.  We currently originate the majority of our
wholesale  loans in 26  states,  through  our  network  of  approximately  1,500
brokers.  The broker's role is to source the business,  identify the  applicant,
assist in completing the loan  application,  gather  necessary  information  and
documents  and serve as the  liaison  between us and the  borrower  through  the
entire origination  process. We review,  process and underwrite the applications
submitted by the broker, approve or deny the application,  set the interest rate
and  other  terms  of  the  loan  and,  upon  acceptance  by  the  borrower  and
satisfaction  of all conditions  imposed by us as the lender,  lend the money to
the borrower.  Because  brokers conduct their own marketing and employ their own
personnel to complete loan  applications  (and hence charge a broker fee that is
commensurate   with  their  services)  and  maintain   contact  with  borrowers,
originating  loans  through our broker  network  allows us to increase  our loan
volume without incurring the higher marketing and employee costs associated with
increased retail originations.

   RETAIL LOAN  CHANNEL.  Through our retail  distribution  channel,  we develop
retail loan leads ("retail loans") primarily  through our  telemarketing  system
and our  network  of 7 retail  offices  and 4  origination  centers  (which  are
typically  staffed with considerably more loan officers and cover a broader area
than  retail  offices)  located  in eight  states.  In 2002,  we  converted  our
Charlotte, North Carolina retail office into an origination center and opened an
additional  origination center in Phoenix,  Arizona.  We continually monitor our
retail operations and evaluate current and potential retail offices on the basis
of  selected  demographic  statistics,  marketing  analyses  and other  criteria
developed by us.  Typically,  contact  with the  customer is  initially  handled
through our telemarketing center. On the basis of an initial screening conducted
at the time of the call, our telemarketer  makes a preliminary  determination of
whether the customer and the property meet our lending criteria. If the customer
does meet our criteria, the telemarketer will forward the customer to one of our
local branches or origination  centers. The mortgage analyst at the local branch
or  origination  center may  complete the  application  over the  telephone,  or
schedule an appointment in the retail loan office most  conveniently  located to
the customer or in the customer's home,  depending on the customer's  needs. The
mortgage  analyst  assists the  applicant in  completing  the loan  application,
ensures that an

                                       1

appraisal has been ordered from an independent  third party  appraisal  company,
orders  a  credit  report  from an  independent,  nationally  recognized  credit
reporting  agency  and  performs  various  other  tasks in  connection  with the
completion of the loan package.  Our mortgage  analysts are trained to structure
loans that meet the applicant's  needs while satisfying our lending  guidelines.
The loan package is  underwritten  for loan approval on a centralized  basis. If
the loan package is approved, we will fund the loan.

   POOLING OF LOANS PRIOR TO SALE.  After we close or fund a loan,  we typically
pledge  the loan as  collateral  under a  warehouse  line of  credit  to  obtain
financing  against that loan.  By doing so, we  replenish  our capital so we can
make new loans. Typically,  loans are financed through warehouse lines of credit
for only a limited time - generally not more than three months - until such time
as we can  pool  enough  loans  and  sell  the  pool  of  loans  either  through
securitization or on a whole loan basis. During this time, we earn interest paid
by the borrower as income,  but this income is offset in part by the interest we
pay to the warehouse creditors for providing us with financing.

   SALE OF LOANS.  We derive the  majority of our  revenues  and cash flows from
selling  mortgage loans through one of two outlets:  (i)  securitization,  which
involves  the  public  offering  by  a  securitization   trust  of  asset-backed
pass-through   securities  (and  related  interests   including   securitization
servicing rights on  newly-originated  pools of mortgage loans);  and (ii) whole
loan  sales,   which  includes  the  sale  of  pools  of  individual   loans  to
institutional  investors,  banks,  and consumer  finance-related  companies on a
servicing  released basis. We select the outlet depending on market  conditions,
relative  profitability and cash flows. We generally realize higher gain on sale
when we  securitize  than we do when we sell whole loans.  We apply the proceeds
from loan sales,  whether through  securitizations or whole loan basis, to repay
our warehouse lines of credit - in order to make available  capacity under these
facilities  for future  funding of mortgage  loans - and utilize any  additional
funds for working capital.

   In 2002, securitizations and whole loan sales comprised approximately 89% and
11%,  respectively,  of our loan sales. Going forward,  we expect to continue to
use a combination of  securitizations  and whole loan sales, with the amounts of
each  dependent  upon the  marketplace  and our goal of maximizing  earnings and
liquidity.

   The following  table sets forth certain  information  regarding the Company's
securitizations and whole loan sales during the periods presented:
<TABLE>
<S>       <C>                      <C>          <C>           <C>

                                           YEAR ENDED DECEMBER 31,
                                           (DOLLARS IN THOUSANDS)

                                       2002         2001          2000
                                    ------------------------------------
           Loan securitizations     $ 850,000    $ 345,000     $ 840,000
           Whole loan sales           102,947      261,110        58,321
                                    ------------------------------------
           Total securitizations
           and loans sold           $ 952,947    $ 606,110     $ 898,321
                                    ====================================
</TABLE>

   In 2002,  we  securitized  the majority of our loans in four  securitizations
totaling $850 million, of which we delivered a total of $819 million of mortgage
loans during 2002 (and  delivered the remaining $31 million of mortgage loans in
January  2003,  pursuant  to a  pre-funding  mechanism).  We plan to continue to
utilize a combination of securitization and whole loan sales for the foreseeable
future.

   SECURITIZATION.  Securitizations  are off  balance  sheet  transactions  that
effectively provide us with a source of long-term financing.

   In a securitization, we pool together loans, typically each quarter, and sell
these loans to a  securitization  trust,  which is a qualified  special  purpose
entity or QSPE. The  securitization  trust raises money to purchase the mortgage
loans  from us by  selling  securities  to the  public - known  as  asset-backed
pass-through  securities  that are secured by the pool of mortgage loans held by
the securitization trust. These asset-backed  securities or senior certificates,
which are usually purchased for cash by insurance companies, mutual funds and/or
other institutional investors, represent senior interests in the cash flows from
the mortgage loans in the trust. We carry no contractual  obligation  related to
these trusts or the loans sold to them,  nor do we have any direct or contingent
liability  related to the trusts,  except for the standard  representations  and
warranties made in conjunction with each securitization trust.  Furthermore,  we
provide no guarantees to investors with respect to cash flow or performance  for
these trusts.  These entities  represent  qualified special purpose entities and
are therefore not  consolidated for financial  reporting  purposes in accordance
with SFAS No. 140  "Accounting  for Transfers and Servicing of Financial  Assets
and  Extinguishments  of  Liabilities".   Following  the   securitization,   the
securitization trust issues senior  certificates,  which entitles the holders of
these  senior  certificates  to  receive  the  principal  collected,   including
prepayments  of  principal,  on the  mortgage  loans in the trust.  In addition,
holders receive a portion of the interest on the loans in the trust equal to the
pass-through   interest   rate  on  the   remaining   principal   balance.   The
securitization trust also issues a subordinate  certificate

                                       2

or a BIO  certificate  (referred to as an excess  cashflow  certificate),  which
entitles  the holder to receive the excess cash flows after  making all required
payments to all other securities issued by the  securitization  trust,  covering
losses  incurred  by the trust and other  costs and  expenses  of the trust.  In
addition, the securitization trust also issues a P certificate (representing the
right to receive  prepayment  penalties  from  borrowers  who payoff their loans
early in their life).  In each of our 2002  securitizations,  we sold the excess
cashflow  certificate  and P  certificate  (which  entitles  the  holder  to all
prepayment penalties collected by the servicer of the underlying  securitization
trust) to a net  interest  margin  trust,  or NIM trust  (QSPE),  which in turn,
issued  interest-bearing NIM note(s) and a NIM owner trust certificate.  We sell
the excess cashflow  certificate and P certificate  without recourse except that
we provide normal  representations  and warranties to the NIM trust. One or more
investors  purchase the NIM note(s) for a cash price and we receive the proceeds
of the sale of the note(s),  together  with the NIM owner trust  certificate  in
consideration of our selling the excess cashflow  certificate and P certificates
to the NIM Trust.  The NIM note(s)  entitles  the  holder(s) to receive all cash
flows  generated by the excess cashflow  certificate and P certificate  owned by
the  NIM  trust,  until  the  holder(s)  are  paid in full  (all  principal  and
interest). The NIM owner trust certificates entitle the holder to all cash flows
generated by the excess  cashflow  certificate  and P certificate  after the NIM
note(s) have been paid in full.

   At the time we completed the 2002  securitizations,  we recognized as revenue
the following three economic interests:

    o The cash  purchase  price from the sale of the NIM note(s) issued by a NIM
      Trust;

    o The value of  the  excess cashflow certificates (initially,  the NIM owner
      trust certificate) that we retained; and

    o The cash  premium  we  received  from  selling  the  right  to service the
      loans being securitized.

   These economic  interests were recorded as net gain on sale of mortgage loans
on our consolidated statement of operations.

   WHOLE LOAN SALES WITHOUT RECOURSE.  We also sell loans, without retaining the
right to service the loans,  in exchange  for a cash  premium.  The  premiums we
receive from the loans sales are  recorded as revenue  under net gain on sale of
mortgage  loans at the time of sale.  The cash premiums  ranged  between 2.0% to
5.5% of the principal amount of mortgage loans sold in 2002.

   OTHER. In addition to the income and cash flows we earn from  securitizations
and whole loan sales, we also earn income and generate cash flows from:

    o the net  interest  spread  earned  on  mortgage  loans  while  we hold the
      mortgage loans for sale (the  difference  between the interest rate on the
      mortgage loan paid by the underlying  borrower less the financing costs we
      pay to our warehouse lenders to fund our loans);

    o net loan origination fees on brokered loans and retail loans; and

    o retained  excess  cashflow   certificates  and  distributions  from  Delta
      Funding  Residual  Exchange  Company LLC (the "LLC")  (described  below in
      "-Debt Modification and Debt Restructuring").

BUSINESS STRATEGY

   Our core  business  strategy is to continue  to  increase  profitability  and
generate cash revenues in excess of our cash expenses through an increase in our
overall  loan  production  and average  loan size,  such that we can continue to
maintain our profitability and operate on a cash flow neutral to positive basis.
We  believe  we have  the  infrastructure  in place to  expand  loan  production
significantly (on a percentage basis) in both our wholesale and retail channels,
without  having  to  invest  significantly  in our  infrastructure.  We  plan to
increase loan production by:

    o increasing   the   number   of   commissioned-based   account   executives
      responsible for generating new wholesale business;

    o continuing  to provide top  quality  service to our network of brokers and
      retail clients;

    o maintaining our loan underwriting standards;

    o penetrating  further  our  established  and  recently-entered  markets and
      expanding into new geographic markets;

                                       3

    o expanding our retail loan  origination  capabilities  through  larger call
      centers; and

    o continuing  to leverage  off of our  proprietary  web-based  and  workflow
      technology platform.

CORPORATE RESTRUCTURING, DEBT MODIFICATION AND DEBT RESTRUCTURING

   In 2000, we began a corporate  restructuring  - by reducing our workforce and
modifying  the terms of the  indenture  governing our senior notes due 2004 (the
"senior  notes")  - as part  of our  continuing  efforts  to  improve  operating
efficiencies  and to address our negative  cash flow from  operations.  Entering
2001,  management  still had several  concerns,  which we believed  needed to be
addressed for us to remain a viable company. Our principal concerns were:

      o the cash drain created  by our ongoing monthly delinquency and servicing
        advance  requirements  as servicer for  securitization  trusts (known as
        "securitization advances");

      o the high cost of  servicing  a seasoned  loan  portfolio,  including the
        capital charges associated with making securitization advances;

      o our ability to make timely  interest  payments  on  our senior notes and
        senior secured notes due 2004 (the "senior secured notes"); and

      o our  ability  to  effectuate  a  successful  business  model  given  the
        overhang of corporate ratings of "Caa2" by Moody's and "CC" by Fitch.

   Therefore  in the first  quarter of 2001,  we embarked  upon a business  plan
aimed at alleviating some of these concerns and issues.

   CORPORATE RESTRUCTURING

   In January  2001,  we announced  that we had entered  into an agreement  with
Ocwen  Financial  Corporation  ("Ocwen") to transfer our servicing  portfolio to
Ocwen. In May 2001, we physically  transferred our entire servicing portfolio to
Ocwen,  and  laid-off  the  majority  of our  servicing  staff - a total  of 128
employees.   We  recorded  a  $0.5  million   pre-tax  charge  related  to  this
restructuring,  which is  included in the line item  called  "restructuring  and
other special charges" on our consolidated statements of operations. This charge
relates to employee severance associated with closing our servicing  operations.
We no longer service loans nor do we have a servicing operation.

   DEBT MODIFICATION AND DEBT RESTRUCTURING

   In  August  2000,  we  announced  an  agreement  to  modify  the terms of the
indenture governing our senior notes (the "Debt Modification"). With the consent
of the holders of greater than fifty percent of our senior notes,  we modified a
negative  pledge  covenant in the senior notes  indenture,  which had previously
prevented us from selling or otherwise  obtaining  financing by using our excess
cashflow   certificates  as  collateral.   In   consideration   for  the  senior
noteholders'  consent,  we agreed,  in an exchange  offer (the  "First  Exchange
Offer"),  to offer then current  holders the  opportunity to exchange their then
existing senior notes for (a) new senior secured notes and (b) ten-year warrants
to buy  approximately 1.6 million shares of common stock, at an initial exercise
price of $9.10 per share,  subject to upward or downward  adjustment  in certain
circumstances.  In December 2002, the exercise price for the warrants  issued by
us was adjusted  downward to $0.01 per share in accordance  with the  agreement.
The senior secured notes have the same coupon,  face amount and maturity date as
the senior  notes and, up until the Second Debt  Restructuring  (see below) were
secured by at least $165 million of our excess cashflow certificates.  The First
Exchange Offer was  consummated  in December 2000,  with holders of greater than
$148 million (of $150 million) of senior notes tendering in the exchange.

   In February  2001,  we entered  into a letter of intent  with the  beneficial
holders of over fifty percent of our senior  secured notes to  restructure,  and
ultimately   extinguish,   the   senior   secured   notes  (the   "Second   Debt
Restructuring").  In  March  2001,  we  obtained  the  formal  consent  of these
beneficial  holders of the senior  secured notes through a consent  solicitation
that modified certain provisions of the senior secured notes indenture to, among
other things,  allow for the release of two excess  cashflow  certificates  then
securing the senior secured notes.  We were able to first finance and ultimately
sell the excess cashflow certificates underlying five securitizations (including
two excess cashflow  certificates  that were released as part of the Second Debt
Restructuring) for a $15 million cash purchase price to provide working capital.

   In  consideration  for their  consent,  we agreed to offer the holders of the
senior  secured notes (and the senior  notes,  collectively,  the  "notes"),  an
opportunity  to exchange their notes for new  securities  described  immediately

                                       4

below (the "Second Exchange  Offer").  The Second Exchange Offer was consummated
on August 29, 2001,  pursuant to which holders of  approximately  $138.1 million
(of $148.2  million) in principal  amount of our senior  secured  notes and $1.1
million (of $1.8  million) in principal  amount of our senior  notes,  exchanged
their notes for commensurate interests in:

   o  voting   membership  interests   in   the  LLC,  a  newly-formed   limited
      liability company  (unaffiliated  with us), to which we transferred all of
      the  mortgage-related  securities  previously  securing the senior secured
      notes (primarily comprised of excess cashflow certificates);

   o  shares of common stock of a newly-formed  management corporation that will
      manage the LLC's assets; and

   o  shares of our  newly-issued  Series A preferred  stock having an aggregate
      preference amount of $13.9 million.

   The LLC is controlled by the former  noteholders that now hold all the voting
membership  interests  in the LLC.  As part of the  transaction,  we  obtained a
non-voting  membership  interest in the LLC, which entitles us to receive 15% of
the net cash flows from the LLC for the first  three years  (through  June 2004)
and, thereafter, 10% of the net cash flows from the LLC. The net cash flows from
the LLC are equal to the total cash flows  generated  by the assets  held by the
LLC for a  particular  period,  less (a) all  expenses  of the LLC,  (b) certain
related income tax payments,  and (c) the New York State Banking Department (the
"NYSBD") subsidy payments (See "Regulations").  We began receiving distributions
from  the  LLC  in  the  first  quarter  of  2002  from a  fourth  quarter  2001
distribution.

   As part of the Second Exchange Offer, all tendering  noteholders waived their
right to receive  any future  interest  coupon  payments on the  tendered  notes
beginning with the August 2001 interest coupon payment.  With the closing of the
Second  Exchange  Offer,  we recorded a charge of $19.3  million  related to the
extinguishment  of debt and paid the August 2001 interest  coupon payment on the
approximately  $10.8 million of notes that did not tender in the Second Exchange
Offer.  The  notes  bear  interest  at  a  rate  of  9.5%  per  annum,   payable
semi-annually  (on February 1st and August 1st) and a maturity date of August 1,
2004 when all outstanding principal is due.

   By extinguishing substantially all of our long-term debt, the rating agencies
that  previously  rated us and our long-term debt have withdrawn their corporate
ratings.

HOME EQUITY LENDING OPERATIONS

OVERVIEW

   Our consumer finance activities consist of originating, securitizing, selling
(and, prior to May 2001, servicing)  non-conforming  mortgage loans. These loans
are primarily secured by first mortgages on one- to four-family residences. Once
loan applications have been received, the underwriting process completed and the
loans funded or  purchased,  we typically  package the loans in a portfolio  and
sell the loan portfolio through a securitization  or on a whole loan,  servicing
released basis.

   We provide  our  customers  with an array of loan  products  designed to meet
their needs, using a risk-based pricing strategy to develop products for various
risk categories.  Historically, we have offered fixed-rate loan products and, to
date,  the majority of our loan  production is  fixed-rate.  As we have expanded
geographically,  we have  expanded  our  product  offerings  to  include  hybrid
mortgages,  in which the interest  rate remains fixed for the first two or three
years and then adjusts thereafter.

   We primarily conduct our broker lending  operations out of our Woodbury,  New
York headquarters. Final underwriting approval for brokered loans is centralized
and required from the  Woodbury,  New York  headquarters.  We conduct our retail
operations  out of 4 call centers,  7 retail  offices and a  telemarketing  hub,
located  in eight  states.  Final  underwriting  approval  for  retail  loans is
required from either our retail underwriting  office in Cincinnati,  Ohio, which
has full underwriting authority or from our Woodbury, New York headquarters.

   We  adhere  to our  Best  Practice  Lending  Program  aimed at  ensuring  the
origination of quality loans and helping to better protect consumers.  This Best
Practice Lending Program includes:

    o fair  lending  initiatives  aimed at ensuring  all  borrowers  are treated
      fairly and similarly regardless of race, color, creed, religion,  national
      origin, sex, sexual orientation,  marital status, age, disability, and the
      applicant's  exercise,  in good  faith,  of any right  under the  Consumer
      Credit Protection Act;

                                       5

    o increased oversight of mortgage brokers and closing agents;

    o enhanced fraud detection and protection;

    o enhanced plain English disclosures; and

    o other originations and underwriting  initiatives  which  we  believe  help
      protect consumers.

LOAN ORIGINATIONS AND PURCHASES

   Our loan  originations  increased  by 40% to $872  million  in 2002 from $622
million in 2001.  The following  table shows  certain data  regarding our loans,
presented by channel of loan originations, for the years shown:
<TABLE>
<S>                                           <C>            <C>            <C>
                                                         YEAR ENDED DECEMBER 31,
                                                  2002           2001           2000
                                                  ----           ----           ----
                                                       (DOLLARS IN THOUSANDS)
Broker:
  Principal balance.......................     $ 534,999      $ 345,916      $ 603,616
    Average principal balance per loan....     $     116      $      79      $      74
    Combined weighted average initial loan-
      to-value ratio(1)...................         74.6%          71.7%          71.1%
    Weighted average interest rate........          9.5%          11.1%          11.7%
  Weighted average credit score...........           601            584            587
Retail:
    Principal balance.....................     $ 337,191      $ 275,799      $ 260,388
    Average principal balance per loan....     $      97      $      82      $      67
    Combined weighted average initial loan-
      to-value ratio(1)...................         79.5%          77.4%          76.9%
    Weighted average interest rate........          9.1%           9.8%          10.6%
  Weighted average credit score...........           631            633            617
Correspondent (2):
    Principal balance.....................            --             --      $  69,434
    Average principal balance per loan....            --             --      $      75
    Combined weighted average initial loan-
      to-value ratio(1)................               --             --          70.5%
    Weighted average interest rate........            --             --          11.5%
  Weighted average credit score...........            --             --            599
Total loan purchases and originations:
    Principal balance.....................     $ 872,190      $ 621,715      $ 933,438
    Average principal balance per loan....     $     108      $      81      $      72
    Combined weighted average initial loan-
      to-value ratio(1)...................         76.5%          74.2%          72.7%
    Weighted average interest rate........          9.4%          10.5%          11.4%
  Weighted average credit score...........           613            606            596
Percentage of loans secured by:
    First mortgage........................         96.3%          94.1%          90.9%
</TABLE>
---------------
(1) We determine  the weighted  average  initial  loan-to-value  ratio of a loan
    secured by a first mortgage by dividing the amount of the loan by the lesser
    of the purchase  price or the  appraised  value of the mortgage  property at
    origination.  We determine the weighted average initial  loan-to-value ratio
    of a loan secured by a second mortgage by taking the sum of the loan secured
    by the first and second mortgages and dividing by the lesser of the purchase
    price or the appraised value of the mortgage property at origination.

(2) We discontinued  our  correspondent operations in July 2000 to  focus on our
    less cash intensive broker and retail channels.

                                       6

   The  following  table shows certain data  regarding  our loans,  presented by
channel of loan originations, on a quarterly basis for 2002:
<TABLE>
<S>                                         <C>         <C>           <C>           <C>
                                                                THREE MONTHS ENDED
                                              -----------------------------------------------------
                                              MARCH 31,    JUNE 30,    SEPTEMBER 30,   DECEMBER 31,
                                                2002         2002          2002           2002
                                              ---------    --------     ----------     ------------
                                                              (DOLLARS IN THOUSANDS)
Broker:
    Number of brokered Loans.............        1,162       1,301         1,100         1,048
    Principal balance....................    $ 122,758   $ 141,039     $ 126,651     $ 144,551
    Average principal balance per loan...    $     106   $     108     $     115     $     138

    Combined weighted average initial loan-
      to-value ratio(1)..................        74.3%        73.4%        74.9%         75.7%
    Weighted average interest rate.......         9.9%         9.9%         9.5%          8.9%
  Weighted average credit score..........          599          598          596           610
Retail:
    Number of retail loans...............          713          793          882         1,078
    Principal balance....................    $  67,235    $  69,095    $  87,717     $  13,144
    Average principal balance per loan...    $      94    $      87    $      99     $     105
    Combined weighted average initial loan-
      to-value ratio(1)..................        78.4%        77.7%        80.3%         80.5%
    Weighted average interest rate.......         9.3%         9.5%         9.0%          8.7%
  Weighted average credit score..........          631          628          633           631
Total loan originations:
    Total number of loans................        1,875        2,094        1,982         2,126
    Principal balance....................    $ 189,993    $ 210,134    $ 214,368     $ 257,695
    Average principal balance per loan...         $101         $100         $108          $121
    Combined weighted average initial loan-
      to-value ratio(1)..................        75.8%        74.8%        77.1%         77.8%
    Weighted average interest rate.......         9.7%         9.8%         9.3%          8.8%
  Weighted average credit score..........          610          608          611           620
</TABLE>
---------------
(1) We determine the  weighted  average  initial  loan-to-value  ratio of a loan
    secured by a first mortgage by dividing the amount of the loan by the lesser
    of the purchase  price or the  appraised  value of the mortgage  property at
    origination.  We determine the weighted average initial  loan-to-value ratio
    of a loan secured by a second mortgage by taking the sum of the loan secured
    by the first and second mortgages and dividing by the lesser of the purchase
    price or the appraised value of the mortgage property at origination.

    The following table shows lien position, weighted average interest rates and
loan-to-value ratios for the years shown:
<TABLE>
<S>                                                   <C>        <C>      <C>
                                                         YEAR ENDED DECEMBER 31,
                                                        2002      2001     2000
                                                        ----      ----     ----
FIRST MORTGAGE:
    Percentage of total purchases and originations     96.3%      94.1%    90.9%
    Weighted average interest rate........              9.3%      10.5%    11.4%
    Weighted average initial loan-to-value ratio(1)    76.4%      74.2%    73.1%
SECOND MORTGAGE:
    Percentage of total purchases and originations      3.7%       5.9%     9.1%
    Weighted average interest rate........             10.5%      11.1%    11.5%
    Weighted average initial loan-to-value ratio(1)    79.3%      75.4%    71.1%
</TABLE>
---------------
(1) We  determine  the weighted  average initial  loan-to-value  ratio of a loan
    secured by a first mortgage by dividing the amount of the loan by the lesser
    of the purchase  price or the  appraised  value of the mortgage  property at
    origination.  We determine the weighted average initial  loan-to-value ratio
    of a loan secured by a second mortgage by taking the sum of the loan secured
    by the first and second mortgages and dividing by the lesser of the purchase
    price or the appraised value of the mortgage property at origination.

                                       7

   The following  table shows the geographic  distribution of loan purchases and
originations for the periods indicated:
<TABLE>
<S>                   <C>          <C>             <C>          <C>             <C>          <C>
                                                         YEAR ENDED DECEMBER 31,
                       -----------------------------------------------------------------------------------
                                2000                         2001                         2002
REGION                 PERCENTAGE   DOLLAR VALUE    PERCENTAGE   DOLLAR VALUE    PERCENTAGE   DOLLAR VALUE
------                 ----------   ------------    ----------   ------------    ----------   ------------
                                                      (DOLLARS IN MILLIONS)

NY, NJ and PA........     43.9%     $ 409.7           40.0%       $ 248.4           43.1%       $ 376.1
Midwest..............     27.7        258.7           34.1          212.2           25.5          222.1
Mid-Atlantic*........     10.5         97.6           11.8           73.1           13.5          118.2
Southeast............      9.4         87.5            7.5           46.8            9.5           82.5
New England..........      7.1         66.6            5.6           34.9            7.3           64.0
West.................      1.4         13.3            1.0            6.3            1.1            9.3
</TABLE>
------------
* Excluding New York (NY), New Jersey (NJ) and Pennsylvania (PA).

   WHOLESALE  MARKETING.   Throughout  our  history,  we  have  established  and
maintained relationships with brokers (and, prior to July 2000,  correspondents)
offering non-conforming mortgage products.

   Typically, we initiate contact with a broker through our Business Development
Department,  supervised  by a senior  officer  with  over ten years of sales and
marketing  experience  in the  industry.  We usually hire  business  development
representatives,  or account  executives,  who have  contacts  with brokers that
originate  non-conforming mortgage loans within their geographic territory.  The
account  executives are  responsible  for developing and  maintaining our broker
network  within their  geographic  territory by frequently  visiting the broker,
communicating our underwriting guidelines, disseminating new product information
and  pricing  changes,   and  by   demonstrating  a  continuing   commitment  to
understanding the needs of the customer.  The account executives attend industry
trade  shows and  inform us about the  products  and  pricing  being  offered by
competitors and new market entrants. This information assists us in refining our
programs  and  product  offerings  in  order  to  remain  competitive.   Account
executives  are  compensated  with a base  salary and  commissions  based on the
volume of loans originated as a result of their efforts.

   APPROVAL  PROCESS.  Before a broker  becomes part of our network,  it must go
through  an  approval  process.  Once  approved,  brokers  may begin  submitting
applications and/or loans to us.

   To be approved, a broker must:

   o  demonstrate  that  it is  properly licensed and registered in the state in
      which it seeks to transact business;

   o  submit to and pass a credit check; and

   o  sign a standard broker agreement  with us  that requires brokers to, among
      other things:

      >>  abide by our fair lending policy;

      >>  follow the National Association of  Mortgage  Brokers  Best  Practices
          Policies;

      >>  comply with all state and federal laws; and

      >>  submit only true and accurate documents and disclosures.

   We also perform searches on all new brokers using a third party database that
contains public and nonpublic information on individuals and companies that have
incidents of potential fraud and  misrepresentation.  In addition,  we regularly
review the performance of loans originated through our brokers.

   BROKERED  LOANS.  For the year ended  December 31, 2002,  our broker  network
accounted  for $535.0  million,  or 61%, of our loan  originations,  compared to
$345.9 million, or 56%, of our loan originations for the year ended December 31,
2001 and $603.6 million,  or 65%, of our loan purchases and originations for the
year ended December 31, 2000. No single broker  contributed more than 2.2%, 1.3%
or 2.0% of our total loan  production in the years ended December 31, 2002, 2001
and 2000, respectively.

   Once  approved,  a  broker  may  submit  loan  applications  for  prospective
borrowers.  To process broker submissions,  our broker  originations  channel is
organized  by  geographic  regions and into teams,  each  consisting  of account
executives,  account  managers and processors,  which are generally  assigned to
specific brokers.  Because we

                                       8

operate in a highly competitive  environment where brokers often submit the same
loan application to several  prospective  lenders  simultaneously,  we strive to
provide brokers with a rapid and informed  response.  Account executives analyze
the application and provide the broker with a preliminary  approval,  subject to
final underwriting approval, or a denial, typically within one business day. The
application  is logged  into our  proprietary  originations  software  program -
called  Click  &  Close  -  which  automatically  queues  the  loan  over  to an
underwriter  from the team covering that geographic  area and/or broker.  If the
application is approved by our  underwriter,  a  "conditional  approval" will be
issued to the broker with a list of specific conditions to be met and additional
documents to be supplied prior to funding the loan. The file is then queued back
to the account  manager and  processor,  who work directly  with the  submitting
broker to collect the requested  information,  meet all underwriting  conditions
and send out all appropriate  documentation  and disclosures.  In most cases, we
fund  loans  within  14 to 21  days  after  preliminary  approval  of  the  loan
application.  In the case of a denial,  we will make all reasonable  attempts to
ensure  that there is no missing  information  concerning  the  borrower  or the
application that might change the decision on the loan.

   We  compensate  our  account  executives,  who are the  primary  relationship
contacts with the brokers,  predominantly  on a commission  basis.  We strive to
have our account  executives  maintain  the level of  knowledge  and  experience
integral to our commitment to providing the highest quality service for brokers.
We believe that by maintaining an efficient,  trained and experienced  staff, we
have  addressed  four central  factors that  determine  where a broker sends its
business:

     o   the service and support a lender provides;

     o   product offerings and pricing;

     o   the turn-around time, or speed with which a lender closes loans; and

     o   the lender's knowledge concerning the broker and his business.

   RETAIL LOANS.  We develop retail loan leads  primarily  through our automated
telemarketing  system and our  network of 4 call  centers  and 7 retail  offices
located  in eight  states.  For the year ended  December  31,  2002,  the retail
channel accounted for $337.2 million, or 39%, of our loan originations, compared
to $275.8 million,  or 44%, of our loan originations for the year ended December
31, 2001 and $260.4 million,  or 28%, of our loan purchases and originations for
the year ended December 31, 2000. Through our marketing efforts, the retail loan
channel is able to  identify,  locate  and focus on  individuals  who,  based on
historic  customer  profiles,   are  likely  customers  for  our  products.  Our
telemarketing  representatives  identify interested  customers and forward these
potential  borrowers to a branch manager  through our Click & Close system.  The
branch managers,  in turn, distribute these leads to mortgage analysts via Click
& Close by queuing the loan to a mortgage analyst's to do list in Click & Close.
The assigned  mortgage  analyst  discusses the  applicant's  qualifications  and
available loan products,  negotiates  loan terms with the borrower and processes
the loan  through  completion.  Click & Close is  utilized  to queue the loan to
underwriters at the appropriate times for approvals and help facilitate the loan
application process through closing.

   We  compensate  our  mortgage  analysts,  who  are the  primary  relationship
contacts with our borrowers, predominantly on a commission basis.

   CORRESPONDENT  LOANS. We discontinued  our  correspondent  operations in July
2000 to focus on our less cash intensive broker and retail channels. As such, we
had no correspondent  purchases in 2002 or 2001. For the year ended December 31,
2000, our correspondent  network accounted for $69.4 million, or 7%, of our loan
purchases and originations.  No single correspondent  contributed more than 1.5%
of our total loan production in 2000.

LOAN UNDERWRITING

   We  maintain  written  underwriting  guidelines  that  are  utilized  by  all
employees associated with the underwriting  process.  Throughout our 21 years in
existence, these guidelines have been continually reviewed and updated by senior
underwriters  and the  head of risk  management.  We  provide  our  underwriting
guidelines  to all of the brokers  from whom we accept loan  applications.  Loan
applications  received  from  brokers are  classified  according  to  particular
characteristics  including, but not limited to, the applicant's:

   o   ability to pay;
   o   credit  history  (with  emphasis  on the  applicant's  existing  mortgage
       payment  history);
   o   credit score;
   o   income  documentation  type;

                                       9

   o   lien position;
   o   loan-to-value ratio;
   o   property type; and
   o   general  stability, in  terms of  employment  history, time in residence,
       occupancy and condition and location of the collateral.

   We have established classifications with respect to the credit profile of the
applicant,  and each loan is placed into one of four letter  ratings "A" through
"D," with subratings  within those  categories.  Terms of loans that we make, as
well as maximum  loan-to-value ratios and debt-to-income  ratios, vary depending
on the  classification  of the applicant and the borrower's  credit score.  Loan
applicants  with less  favorable  credit  ratings and/or lower credit scores are
generally  offered  loans with  higher  interest  rates and lower  loan-to-value
ratios than applicants  with more favorable  credit ratings and/or higher credit
scores.  The general  criteria our  underwriting  staff uses in classifying loan
applicants are set forth in the following table.






                      REST OF PAGE INTENTIONALLY LEFT BLANK


                                       10
<PAGE>
<TABLE>
<S>                    <C>        <C>              <C>             <C>            <C>              <C>          <C>
                            DELTA FUNDING CORPORATION
                          UNDERWRITING GUIDELINE MATRIX
------------------------------- ----------------------------------------------------------------------------------------------
                                                                       FIRST MORTGAGE
------------------------------- ------------------------------------------------ ---------------------------------------------
                                                OWNER OCCUPIED                                NON OWNER OCCUPIED
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
       CREDIT           MIN           FULL         LIMITED INCOME                    FULL            LIMITED
      PROGRAM          CREDIT        INCOME         & NO INCOME                     INCOME         INCOME & NO
 ~ MAX LOAN AMOUNT     SCORE         CHECK            CHECK          AS STATED       CHECK         INCOME CHECK    AS STATED
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
                                                                                    LTV >80%:
                                   LTV >90%:        LTV >85%:       LTV >80%:      1-4 FAMILY
     PROPERTY                     1-2 FAMILY       1-2 FAMILY      1-2 FAMILY       LTV >85%:
   RESTRICTIONS                    DETACHED         DETACHED        DETACHED       1-2 FAMILY
                                   & CONDO'S        & CONDO'S       & CONDO'S       DETACHED
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
        A+              675      100% 1st Mtg      95% 1st Mtg     90% 1st Mtg     90% 1st Mtg     75% 1st Mtg   70% 1st Mtg
                        650      100% 1st Mtg      90% 1st Mtg     85% 1st Mtg     85% 1st Mtg     75% 1st Mtg   70% 1st Mtg
                        625       95% 1st Mtg      90% 1st Mtg     85% 1st Mtg     85% 1st Mtg     75% 1st Mtg   70% 1st Mtg
 ~ UP TO $600,000       550       90% 1st Mtg      85% 1st Mtg     80% 1st Mtg     80% 1st Mtg     75% 1st Mtg   70% 1st Mtg
                        525       85% 1st Mtg      80% 1st Mtg         NA          80% 1st Mtg     70% 1st Mtg        NA
                        500       80% 1st Mtg      75% 1st Mtg         NA          75% 1st Mtg     65% 1st Mtg        NA
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
        A1              675      100% 1st Mtg      95% 1st Mtg     90% 1st Mtg     90% 1st Mtg     75% 1st Mtg   70% 1st Mtg
                        650      100% 1st Mtg      90% 1st Mtg     85% 1st Mtg     85% 1st Mtg     75% 1st Mtg   70% 1st Mtg
                        625       95% 1st Mtg      90% 1st Mtg     85% 1st Mtg     85% 1st Mtg     75% 1st Mtg   70% 1st Mtg
 ~ UP TO $600,000       550       90% 1st Mtg      85% 1st Mtg     80% 1st Mtg     80% 1st Mtg     75% 1st Mtg   70% 1st Mtg
                        525       85% 1st Mtg      75% 1st Mtg         NA          75% 1st Mtg     65% 1st Mtg        NA
                        500       80% 1st Mtg      70% 1st Mtg         NA          70% 1st Mtg     60% 1st Mtg        NA
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
                        575       90% 1st Mtg      85% 1st Mtg     80% 1st Mtg     80% 1st Mtg     75% 1st Mtg   70% 1st Mtg
        A2              550       85% 1st Mtg      80% 1st Mtg     75% 1st Mtg     80% 1st Mtg     70% 1st Mtg   65% 1st Mtg
 ~ UP TO $500,000       525       80% 1st Mtg      75% 1st Mtg         NA          75% 1st Mtg     65% 1st Mtg        NA
                        500       75% 1st Mtg      70% 1st Mtg         NA          70% 1st Mtg     60% 1st Mtg        NA
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
                        600       90% 1st Mtg      80% 1st Mtg     75% 1st Mtg     80% 1st Mtg     70% 1st Mtg
        B1              575       85% 1st Mtg      80% 1st Mtg     75% 1st Mtg     80% 1st Mtg     70% 1st Mtg
 ~ UP TO $450,000       550       85% 1st Mtg      75% 1st Mtg     70% 1st Mtg     75% 1st Mtg     65% 1st Mtg
                        525       80% 1st Mtg          NA              NA              NA              NA
                        500       75% 1st Mtg          NA              NA              NA              NA
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
        B2              575       85% 1st Mtg      75% 1st Mtg     70% 1st Mtg     75% 1st Mtg
~ UP TO $450,000        550       80% 1st Mtg      70% 1st Mtg     70% 1st Mtg     70% 1st Mtg
                        525       75% 1st Mtg          NA              NA              NA
                        500       70% 1st Mtg          NA              NA              NA
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
                        575       80% 1st Mtg      75% 1st Mtg                     75% 1st Mtg
        C1              550       80% 1st Mtg      75% 1st Mtg                     70% 1st Mtg
 ~ UP TO $300,000       525       75% 1st Mtg          NA                              NA
                        500       70% 1st Mtg          NA                              NA
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
        C2              550       75% 1st Mtg
 ~ UP TO $300,000       525       70% 1st Mtg
                        500       65% 1st Mtg
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
        D1              550       70% 1st Mtg
 ~ UP TO $250,000       500       65% 1st Mtg
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
       ***D2            525       65% 1st Mtg
 ~ UP TO $250,000       500       60% 1st Mtg
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
       ***D3            550       60% 1st Mtg
 ~ UP TO $250,000
-------------------- ---------- ---------------- ---------------- -------------- ---------------- -------------- -------------
</TABLE>
<TABLE>
<S>         <C>                                        <C>


                                                              BANKRUPTCY
   DTI             MORTGAGE PAYMENT HISTORY                  INFORMATION
 -------- -------------------------------------------- -----------------------------
   **55%       EXCELLENT MORTGAGE HISTORY 0x30 on         *** MINIMUM 3 YEARS OLD
             mortgages within last 12 months. * For       Chapter 7 discharge or
           extended LTV's with credit score < 575,      Chapter 13 filing. Chapter
           0x60 months 13 to 24. No foreclosures        13 discharge must be 1 year
                        last 3 years.                      old at closing
 -------- -------------------------------------------- -----------------------------
  **55%       EXCELLENT MORTGAGE HISTORY 1x30 on         *** MINIMUM 3 YEARS OLD
           mortgages within last 12 months. * For        Chapter 7 discharge or
           extended LTV's with credit score < 575,     Chapter 13 filing. Chapter
         0x60 months 13 to 24. No foreclosures last    13 discharge must be 1 year
                          3 years.                           old at closing
 -------- -------------------------------------------- -----------------------------
              EXCELLENT MORTGAGE HISTORY 2x30 on         *** MINIMUM 2 YEARS OLD
            mortgages within last 12 months. * For        Chapter 7 discharge or
  **55%     extended LTV's with credit score < 575,     Chapter 13 filing. Chapter
          0x90 months 13 to 24. No foreclosures last      13 must be discharged
                           2 years.                          before closing.
 -------- -------------------------------------------- -----------------------------
   **55%              GOOD MORTGAGE HISTORY               *** MINIMUM 2 YEARS OLD
            3x30 on mortgages within last 12 months.       Chapter 7 discharge or
           No foreclosures last 2 years. If mortgage     Chapter 13 filing. Chapter
          history(s) for the past 12 months is 0x30,       13 must be discharged
            the foreclosure/NOD restriction will be           before closing.
                     lowered to 18 months.
 -------- -------------------------------------------- -----------------------------
  **55%              GOOD MORTGAGE HISTORY              *** MINIMUM 18 MONTHS OLD
         2x30 & 1x60 or Unlimited 30's, 0x60 on           Chapter 7 discharge or
           mortgages within last 12 months. No            Chapter 13 filing. Open
         foreclosures last 18 months. If mortgage         Chapter 13 considered.
         history(s) for the past 12 months is 0x30,        Mortgage must be paid as
          the foreclosure/NOD restriction will be          agreed since filing.
                 lowered to 12 months.
 -------- -------------------------------------------- -----------------------------
  **55%              FAIR MORTGAGE HISTORY                *** MINIMUM 1 YEAR OLD
            0x90 on mortgages within last 12 months.       Chapter 7 discharge or
              No worse than D-30 at closing. No           Chapter 13 filing. No late
                  foreclosures last 12 months.           payments on mortgages since
                                                           Chapter 7 or 13 filing.
 -------- -------------------------------------------- -----------------------------
  **55%              FAIR MORTGAGE HISTORY                  Chapter 7 must be
           1x90 on mortgages within last 12 months.    discharged by closing. Open
                No worse than D-60 at closing.            Chapter 13 considered.
 -------- -------------------------------------------- -----------------------------
                     POOR MORTGAGE HISTORY                  Chapter 7 must be
  **55%    1x120 on mortgages within last 12 months.   discharged by closing. Open
                No worse than D-90 at closing.            Chapter 13 considered.
 -------- -------------------------------------------- -----------------------------
                     POOR MORTGAGE HISTORY                  Chapter 7 must be
  **55%    No worse than D-119 at closing. Mortgage       discharged by closing.
                      NOT in foreclosure.              Open Chapter 13 considered.
 -------- -------------------------------------------- -----------------------------
                                                            Chapter 7 must be
  **55%              POOR MORTGAGE HISTORY             discharged by closing. Open
           Open foreclosures considered case-by-case      Chapter 13 considered.
 -------- -------------------------------------------- -----------------------------
</TABLE>
<TABLE>
<S>   <C>

- MAXIMUM LOAN AMOUNTS AVAILABLE ARE SUBJECT TO LTV, INCOME CLASSIFICATION AND OCCUPANCY REQUIREMENTS.
NOTE: MINIMUM 2 YEARS EMPLOYMENT HISTORY FOR PROGRAMS A+ THROUGH B2.
NOTE: Minimum MARKET VALUE for: OO FIC, LIC & NIC > 90%, OO As Stated > 85% and NOO FIC > 85% is $80,000.
------------------------------------------------------------------------------------------------------------------------------
*      Extended LTV's are defined as: OO > 80% and NOO > 75%. For Credit Programs A+ through A2, if Credit Score is < 575,
       must obtain 24 month mortgage history.
       If mortgage history is not reporting and Credit Score is > = 575, must obtain 12 months mortgage history.
       For LTV's > 90%, As Stated > 85%, All NOO's > 85%, months 13-24 must be 0x60 if reporting to credit.
------------------------------------------------------------------------------------------------------------------------------
**     For LTV's above 80% and/or income under $25K/yr, maximum DTI = 50% for programs A+ through D3.
------------------------------------------------------------------------------------------------------------------------------
***    Lower LTV by 5% for programs D2 & D3 in: Connecticut, Idaho, Illinois, Indiana, Iowa, Maine, Massachusetts, New Jersey,
       New York, Oklahoma, Vermont & Wisconsin.
------------------------------------------------------------------------------------------------------------------------------
****   Chapter 13 involuntary  dismissal date follows same guidelines as Chapter 7 discharge.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       11
<TABLE>
<S>                          <C>                 <C>                        <C>                        <C>
                            DELTA FUNDING CORPORATION
                          UNDERWRITING GUIDELINE MATRIX
-------------------------------------------- ------------------------------------------------------------------------------
                                                                            SECOND MORTGAGE
-------------------------------------------- ---------------------------------------------------- -------------------------
                                                               OWNER OCCUPIED                        NON OWNER OCCUPIED
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
      CREDIT PROGRAM          MIN CREDIT             FULL INCOME           LIMITED INCOME & NO
    ~ MAX LOAN AMOUNT            SCORE                  CHECK                 INCOME CHECK            FULL INCOME CHECK
--------------------------- ---------------- ------------------------------------------------------------------------------
  PROPERTY RESTRICTIONS                       2ND MORTGAGES NOT AVAILABLE FOR: SCORES < 550, AS STATED LOANS, NPO LOANS,
                                                  MIXED USE/MULTI-FAMILY & DOUBLE WIDE MANUFACTURED HOMES OR "UNIQUE
                                                                             PROPERTIES".
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
            A+                    675             #100% 2ND MTG              80% 2nd Mtg                75% 2nd Mtg
                                  650             #100% 2ND MTG              80% 2nd Mtg                75% 2nd Mtg
                                  625              90% 2nd Mtg               80% 2nd Mtg                75% 2nd Mtg
                                  550              85% 2nd Mtg               80% 2nd Mtg                75% 2nd Mtg
     ~ UP TO $600,000             525                  NA                         NA                         NA
                                  500                  NA                         NA                         NA
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
            A1                    675             #100% 2ND MTG              80% 2nd Mtg                75% 2nd Mtg
                                  650             #100% 2ND MTG              80% 2nd Mtg                75% 2nd Mtg
                                  625              90% 2nd Mtg               80% 2nd Mtg                75% 2nd Mtg
                                  550              85% 2nd Mtg               80% 2nd Mtg                75% 2nd Mtg
     ~ UP TO $600,000             525                  NA                         NA                         NA
                                  500                  NA                         NA                         NA
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
            A2                    575              85% 2nd Mtg               80% 2nd Mtg                75% 2nd Mtg
                                  550              85% 2nd Mtg               80% 2nd Mtg                75% 2nd Mtg
                                  525                  NA                         NA                         NA
                                  500                  NA                         NA                         NA
     ~ UP TO $500,000
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
                                  600              80% 2nd Mtg               80% 2nd Mtg                70% 2nd Mtg
            B1                    575              80% 2nd Mtg               80% 2nd Mtg                70% 2nd Mtg
     ~ UP TO $450,000             550              80% 2nd Mtg               75% 2nd Mtg                70% 2nd Mtg
                                  525                  NA                         NA                         NA
                                  500                  NA                         NA                         NA
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
            B2                    575              80% 2nd Mtg
      ~ UP TO $450,000            550              80% 2nd Mtg
                                  525                  NA
                                  500                  NA
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
                                  575              75% 2nd Mtg
            C1                    550              75% 2nd Mtg
     ~ UP TO $300,000             525                  NA
                                  500                  NA
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
            C2                    550
     ~ UP TO $300,000             525
                                  500
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
            D1                    550
     ~ UP TO $250,000             500
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
           ***D2                  525
     ~ UP TO $250,000             500
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
          ***D3                   550
     ~ UP TO $250,000
--------------------------- ---------------- ------------------------ --------------------------- -------------------------
</TABLE>

<TABLE>
<S>           <C>                                    <C>

    DTI            MORTGAGE PAYMENT HISTORY               BANKRUPTCY INFORMATION
  ---------- --------------------------------------- -----------------------------------
   **55%          EXCELLENT MORTGAGE HISTORY             *** MINIMUM 3 YEARS OLD
               0x30 on mortgages within last 12       Chapter 7 discharge or Chapter 13
                           months.                                 filing.
               * For extended LTV's with credit          Chapter 13 discharge must be
                         score < 575,                       1 year old at closing
                    0X60 months 13 to 24.
                No foreclosures last 3 years.
 ---------- --------------------------------------- -----------------------------------
   **55%          EXCELLENT MORTGAGE HISTORY             *** MINIMUM 3 YEARS OLD
               1x30 on mortgages within last 12      Chapter 7 discharge or Chapter 13
                           months.                                filing.
               * For extended LTV's with credit        Chapter 13 discharge must be 1
                         score < 575,                        year old at closing
                    0X60 months 13 to 24.
                No foreclosures last 3 years.
 ---------- --------------------------------------- -----------------------------------
   **55%          EXCELLENT MORTGAGE HISTORY             *** MINIMUM 2 YEARS OLD
               2x30 on mortgages within last 12     Chapter 7 discharge or Chapter 13
                        months.                                  filing.
              * For extended LTV's with credit      Chapter 13 must be discharged
                        score < 575,                         before closing.
                     0X90 months 13 to 24.
                No foreclosures last 3 years.
 ---------- --------------------------------------- -----------------------------------
                     GOOD MORTGAGE HISTORY               *** MINIMUM 2 YEARS OLD
               3X30 on mortgages within last 12     Chapter 7 discharge or Chapter 13
                           months.                              filing.
                No foreclosures last 2 years.        Chapter 13 must be discharged
   **55%     IF MORTGAGE HISTORY(S) FOR THE PAST              before closing.
            12 MONTHS IS 0X30, THE FORECLOSURE/NOD
              RESTRICTION WILL BE LOWERED TO 18
                           MONTHS.
 ---------- --------------------------------------- -----------------------------------
    **55%            GOOD MORTGAGE HISTORY                 *** MINIMUM 18 MONTHS OLD
           2x30 & 1x60 or Unlimited 30's, 0x60        Chapter 7 discharge or Chapter 13
           on mortgages within last 12 months.                  filing.
             No foreclosures last 18 months.              Open Chapter 13 considered.
             IF MORTGAGE HISTORY(S) FOR THE PAST        Mortgage must be paid as agreed
           12 MONTHS IS 0X30, THE FORECLOSURE/NOD              since filing.
          RESTRICTION WILL BE LOWERED TO 12 months.
 ---------- --------------------------------------- -----------------------------------
                    FAIR MORTGAGE HISTORY                 *** MINIMUM 1 YEAR OLD
               0x90 on mortgages within last 12     Chapter 7 discharge or Chapter 13
   **55%                   months.                               filing.
                No worse than D-30 at closing.        No late payments on mortgages
               No foreclosures last 12 months.        since Chapter 7 or 13 filing.
 ---------- --------------------------------------- -----------------------------------
   **55%            FAIR MORTGAGE HISTORY
               1x90 on mortgages within last 12      Chapter 7 must be discharged by
                           months.                               closing
                No worse than D-60 at closing.         Open Chapter 13 considered.
 ---------- --------------------------------------- -----------------------------------
                    POOR MORTGAGE HISTORY
              1x120 on mortgages within last 12      Chapter 7 must be discharged by
   **55%                   months.                               closing.
                No worse than D-90 at closing.         Open Chapter 13 considered.
 ---------- --------------------------------------- -----------------------------------
                    POOR MORTGAGE HISTORY            Chapter 7 must be discharged by
   **55%       No worse than D-119 at closing.                   closing.
                 Mortgage NOT in foreclosure.          Open Chapter 13 considered.
 ---------- --------------------------------------- -----------------------------------
                    POOR MORTGAGE HISTORY            Chapter 7 must be discharged by
   **55%         Open foreclosures considered                    closing.
                         case-by-case                  Open Chapter 13 considered.
 ---------- --------------------------------------- -----------------------------------
</TABLE>

  #100% LTV 2ND  MORTGAGE  REQUIREMENTS  ARE AS  FOLLOWS:  (SEE  GUIDELINES  FOR
   ADDITIONAL REQUIREMENTS)
[] Minimum 650 middle credit score.
[] FIC only (24 month bank statements not allowed in this program).
[] Min 4 yrs bankruptcy discharge or foreclosure. Consumer Credit Counseling not
   allowed in this program.
[] 1 family detached only. No condos.
[] REFINANCES only. No purchase money.
[] Minimum loan amount $40,000 as a stand alone 2nd. As a  simultaneous  1st and
   2nd, minimum $20,000.
[] Maximum loan amount  $250,000.
[] Minimum market value $100,000.
[] 12 month mortgage history required.  If 24 months reports to credit,  0x60 in
   months 13-24.
--------------------------------------------------------------------------------


                                       12
<PAGE>

   We  use  these  categories  and  characteristics  as  guidelines  only.  On a
case-by-case  basis, we may determine that the prospective  borrower warrants an
exception  from  the  guidelines,  if  sufficient  compensating  factors  exist.
Examples of compensating factors we consider are:

   o   low debt ratio;
   o   long-term stability of employment and/or residence;
   o   excellent payment history on past mortgages;
   o   a significant reduction in monthly expenses; or
   o   low loan-to-value ratio.

   The  following  table  sets forth  certain  information  with  respect to our
originations  and  purchases  of first and  second  mortgage  loans by  borrower
classification,  along with weighted average coupons,  for the periods shown and
highlights the improved credit quality of our originations and purchases.

(DOLLARS IN THOUSANDS)
<TABLE>
<S>    <C>        <C>               <C>          <C>         <C>
                                      PERCENT
YEAR    CREDIT           TOTAL       OF TOTAL     WAC(1)      WLTV(2)
----     ----            ----         ------       -----      ------
2002       A       $   752,920        86.3%        9.1%       78.1%
           B            57,186         6.6        10.3        70.3
           C            42,903         4.9        11.1        66.0
           D            19,181         2.2        12.1        55.5
                     ---------        ----        ----        ----
      Totals       $   872,190       100.0%        9.4%       76.5%
                   ===========       ======        ====       =====

2001       A       $   478,485        77.0%       10.0%       76.7%
           B            59,729         9.6        11.5        68.6
           C            61,498         9.9        12.2        66.7
           D            22,003         3.5        13.2        57.4
                     ---------        ----        ----        ----
      Totals       $   621,715       100.0%       10.5%       74.2%
                   ===========       ======       =====       =====

2000       A       $   596,946        63.9%       10.8%       75.7%
           B           164,024        17.6        11.7        70.2
           C           127,041        13.6        12.6        67.3
           D            45,427         4.9        13.8        56.9
                     ---------        ----        ----        ----
      Totals       $   933,438       100.0%       11.4%       72.7%
                   ===========       ======       =====       =====
</TABLE>
------------------
(1) Weighted Average Coupon ("WAC").
(2) Weighted Average Initial Loan-to-Value Ratio ("WLTV").

   The mortgage loans we originate have  amortization  schedules  ranging from 5
years to 30 years,  generally  bear  interest at fixed  rates and require  equal
monthly  payments  which are due as of a  scheduled  day of each month  which is
fixed  at  origination.  Substantially  all  of our  mortgage  loans  are  fully
amortizing loans. We primarily originate fixed rate loans, which amortize over a
period not to exceed 30 years.  The principal  amounts of the loans we originate
generally  range from a minimum of $25,000 to a maximum of $600,000  and we will
lend up to 100% of the combined  loan-to-value  ratio.  Our loans are  generally
secured  by  one-  to  four-family   residences,   including   condominiums  and
town-houses,  and these  properties are usually occupied by the owner. It is our
policy not to accept  commercial  properties or unimproved  land as  collateral.
However, we will accept mixed-use properties, such as a property where a portion
of the  property is used for  residential  purposes  and the balance is used for
commercial  purposes,  and will accept small  multifamily  properties  of 5 to 8
units, both at reduced loan-to-value ratios. We do not originate loans where any
senior  mortgage  contains  open-end  advance,  negative  amortization or shared
appreciation  provisions - all of which could have the effect of increasing  the
amount of the senior mortgage,  thereby  increasing the combined LTV, and making
the loan more risky for us.

   Our mortgage loan program includes:

       o   a full documentation program;

                                       13

       o   a limited documentation program;
       o   a no income verification program for self-employed borrowers; and
       o   a stated income program.

   Our borrowers' total monthly debt  obligations - which include  principal and
interest on the new loan and all other  mortgages,  loans,  charge  accounts and
scheduled  indebtedness  - generally are 50% or less of the  borrower's  monthly
gross  income,  although  some of our  borrowers  will qualify using our maximum
debt-to-income  ratio of 55%. For loans to borrowers who are salaried employees,
we require current employment  information in addition to employment history. We
verify this  information  based on one or more of the following  items:  written
confirmation from employers,  recent pay-stubs, recent W-2 tax forms, recent tax
returns, bank statements and telephone  confirmation from the employer.  For our
limited documentation  program, we require either 6 months of bank statements or
a job letter to be submitted which contains  substantially  the same information
one would find on a standard verification of employment form, including:

       o   job position;
       o   length of time on job;
       o   current salary; and
       o   the job letter should appear on the employer's letterhead and include
           the telephone  number and signature of the individual completing  the
           letter on behalf of the employer.

   For our no income  verification  program, we require proof of self-employment
in the same business for 2 years. We only offer our stated income program, which
represents  a very small  percentage  of our loans,  for better  credit  quality
borrowers  where a telephone  verification  is done by an  underwriter to verify
that the borrower is employed.  We usually require lower combined  loan-to-value
ratios  with  respect  to  loans  made  under   programs  other  than  the  full
documentation program.

   We  assess  a  borrower's  credit  worthiness  primarily  based on his or her
mortgage  history and credit score, and generally adjust our pricing and loan to
value  ratios  based on many other risk  parameters.  Our  borrowers  often have
either (a)  mortgage  or other  credit  delinquencies,  (b)  problems  providing
documentation required by traditional lenders,  and/or (c) collateral types that
traditional  lenders  will not lend  against.  As such,  we  employ  experienced
non-conforming  mortgage  loan  credit  underwriters  to review the  applicant's
credit profile and to evaluate whether an impaired credit history is a result of
adverse  circumstances or a continuing inability or unwillingness to meet credit
obligations  in a timely  manner.  An  applicant's  credit  record will often be
impaired by personal circumstances including divorce, family illnesses or deaths
and temporary job loss due to layoffs and corporate downsizing.

   As part of our settlement  agreements with New York State  regulators - I.E.,
the Remediation  Agreement and Stipulated Order on Consent - we agreed to modify
certain aspects of our  underwriting  guidelines.  Even though these  agreements
terminated in September 2002, we have not eliminated the underwriting changes we
agreed to and, in fact, intend to continue to originate loans in accordance with
these agreements.

   We  have  a  staff  of  43  underwriters  with  an  average  of 11  years  of
non-conforming  lending  experience.   All  underwriting  functions  for  broker
originations  are  centralized  in our  Woodbury,  New  York  headquarters.  All
underwriting  functions for retail  originations  are  centralized in our retail
underwriting  "hub,"  located in Cincinnati,  Ohio,  and our Woodbury,  New York
headquarters.  We do not delegate underwriting authority to any third party. Our
underwriting  department functions independently of our business development and
sales departments and does not report to any individual directly involved in the
sales  origination  process.  None of our  underwriters  are  compensated  on an
incentive  or  commission  basis.  Our  underwriters  are  trained to review all
components  of the  loan to  determine  its  compliance  with  our  underwriting
guidelines.

   We have  instituted  underwriting  checks and  balances  that are designed to
ensure  that  loans are  generally  reviewed  and  approved  by a minimum of two
underwriters.  The Underwriting  Department employs  underwriters with different
levels of experience and authority and loans  generally must receive a secondary
review by an  underwriter  of equal or higher  rank.  Although  the most  senior
underwriters  do not require a secondary  review in certain  circumstances,  the
vast majority of our loans are reviewed by at least two underwriters. Similarly,
maximum loan amount and loan-to-value  approval authorities are assigned to each
level,  ensuring  that loans at the highest  dollar or  LTV-limits  we offer are
reviewed and approved only by the Department's most senior members.

   We underwrite every loan submitted by not only thoroughly  reviewing  credit,
but also by performing the following:

                                       14

       o   a separate  appraisal  review  conducted  by our  underwriter  and/or
           appraisal  review  department;  and

       o   a full  compliance  review,  to ensure that all  documents  have been
           properly  prepared,  all  applicable  disclosures  given  in a timely
           fashion,   and  proper   compliance   with  all   federal  and  state
           regulations.

   We require appraisals to be performed by third party, fee-based appraisers or
by our approved  appraisers  and to conform  generally to current Fannie Mae and
Freddie Mac secondary market requirements for residential  property  appraisals.
Each appraisal includes,  among other things, an inspection of both the exterior
and interior of the subject property and data from sales within the preceding 12
months of similar  properties  within the same  general  location as the subject
property.  We perform an appraisal  review on each loan prior to closing.  We do
not believe that the general  quality  control  practices  of many  conventional
mortgage lenders,  which is to perform only drive-by  appraisals after closings,
provides sufficient protection. As such, in addition to reviewing each appraisal
for  accuracy,  we  access  alternate  sources  to  validate  sales  used in the
appraisal to determine market value. These sources include:

       o   Multiple Listing Services;
       o   assessment  and  sales  services,  such as  Comps,  Inc.,  Pace,  1st
           American and Transamerica;
       o   on-line internet services such as Realtor.com; and
       o   other sources for  verification,  including broker price opinions and
           market analyses by local real estate agents.

   We actively  track and grade (based upon criteria that we have developed over
time)  all  appraisers  from  which we accept  appraisals  for  quality  control
purposes and do not accept work from  appraisers  who have not  conformed to our
review standards.

   After  completing  the  underwriting  and  processing of a brokered  loan, we
schedule the closing of the loan with an approved closing attorney or settlement
agent.  We hold  the  closing  attorney  or  settlement  agent  responsible  for
completing the loan closing  transaction in accordance  with  applicable law and
our  operating  procedures.  We also require  title  insurance  that insures our
interest as mortgagee and evidence of adequate  homeowner's  insurance naming us
as an additional insured party on all loans.

   We perform a post-funding  quality control review to monitor and evaluate our
loan  origination  policies and procedures.  The quality  control  department is
separate from the  underwriting  department and reports  directly to a member of
senior management.

   We subject at least 10% of all loan  originations  to a full quality  control
re-underwriting  and  review,  the  results  of which  are  reported  to  senior
management on a quarterly  basis. On a daily basis,  should the need arise,  the
AVP in charge of QC Underwriting will e-mail senior management any critical loan
findings. The sample of loans reviewed are selected in the following manner:

       o   All early default payments and customer complaints;

       o   At least 5% of the loans received are randomly sample; and

       o   Targets  which may be based on sources  of  business  (both  internal
           branches/teams  and external  brokers,  areas or other third parties)
           and products (perceived riskier products and newly offered products).

      If any discrepancies  are discovered  during the review process,  a senior
quality control underwriter  re-reviews the loan and proceeds with any necessary
follow-up actions. Discrepancies noted by the review are analyzed and corrective
actions are instituted.  A typical quality control underwriting review currently
includes:

       o   obtaining a new verification of value and/or photo for each property;
       o   re-verifying the credit report;
       o   reviewing loan  applications for  completeness,  signatures,  and for
           consistency with other processing documents;
       o   obtaining  new  written  and/or  verbal  verification  of income  and
           employment from employer;
       o   obtaining  new  written  and/or  verbal  verification  of mortgage to
           re-verify any outstanding mortgages, if necessary; and
       o   analyzing the underwriting and program selection decisions.

   We update the quality  control  process from time to time as our policies and
procedures change.

                                       15

   CLICK &  CLOSE.  Click & Close  is a  proprietary  web-based  system  that we
developed  internally to streamline  and  integrate our  origination's  process.
Click & Close,  or C&C,  opens an online channel of  communications  between us,
brokers,  borrowers and a wide range of other mortgage  information  sources. We
already  utilize  C&C  to  automate  and  facilitate  many  of  our  origination
processes, including but not limited to:

     o   logging  in and  tracking  applications  in our  retail  and  wholesale
         channels;
     o   increasing the amount of internal loan  origination  processes that can
         be handled electronically,  thereby reducing paper flow between account
         managers,  loan processors and  underwriters  and allowing us to become
         more paperless;
     o   generating  pre-approvals  utilizing our risk-based  pricing model;
     o   generating  stipulation  sheets,   preliminary  disclosures  and  other
         documents; and
     o   easy, real time  supervisory  oversight to ensure all  applications are
         being worked on in a timely manner.

    We are continuing to work to improve C&C to further streamline our processes
and reduce the paper flow required throughout the mortgage  origination process,
with a goal of ultimately lowering our cost to originate.

LOAN SALES

   We sell virtually all the loans we originate through one of two outlets:  (i)
securitizations,  which involve the public offering by a securitization trust of
asset-backed  pass-through securities;  and (ii) whole loan sales, which include
the sale of pools of individual  loans to  institutional  investors,  banks, and
consumer  finance-related  companies  on a servicing  released  basis.  In 2002,
securitizations  and  whole  loan  sales  comprised  approximately  89% and 11%,
respectively,  of our loan sales. Going forward,  we expect to continue to use a
combination of  securitizations  and whole loan sales,  with the amounts of each
dependent  upon  the  marketplace  and  our  goal  of  maximizing  earnings  and
liquidity.

   SECURITIZATIONS. During 2002, we completed four securitizations totaling $850
million,  of which we delivered a total of $819 million of mortgage loans during
2002 (and delivered the remaining $31 million of mortgage loans in January 2003,
pursuant  to  a   pre-funding   mechanism).   During  2001,   we  completed  two
securitizations  totaling $345 million of mortgage  loans.  The following  table
sets forth certain information with respect to our 2002  securitizations (all of
which contained ratings on various classes of securities ranging from AAA/Aaa to
BBB/Baa2 by S&P,  Fitch,  and Moody's,  respectively)  by offering  size,  which
includes  pre-funded  amounts,  duration weighted average  pass-through rate and
type of credit enhancement.
<TABLE>
<S>  <C>               <C>         <C>               <C>                    <C>
                                                      INITIAL DURATION
                                    OFFERING SIZE     WEIGHTED AVERAGE        CREDIT
      SECURITIZATION    COMPLETED     (MILLIONS)      PASS-THROUGH RATE      ENHANCEMENT
      ---------         ---------    ------------   ---------------------    -----------
      2002-1........... 03/28/02       $175.0              4.08%              Hybrid *
      2002-2........... 06/27/02       $200.0              2.46%              Senior/Sub
      2002-3........... 09/27/02       $250.0              2.61%              Hybrid *
      2002-4........... 12/30/02       $225.0              2.73%              Hybrid*
</TABLE>

* SENIOR/SUB  STRUCTURE WITH A "AAA" RATED MONOLINE  INSURER INSURING THE SENIOR
  OR "AAA" RATED PASS-THROUGH CERTIFICATES

   When we securitize  loans, we create trusts in the form of off-balance  sheet
qualified special purpose entities,  or QSPEs.  These trusts are established for
the limited  purpose of buying and  reselling  mortgage  loans.  Typically  each
quarter,  we pool together loans,  and sell these loans to these  securitization
trusts. We carry no contractual  obligation related to these trusts or the loans
sold to them, nor do we have any direct or contingent  liability  related to the
trusts,  except  for  the  standard   representations  and  warranties  made  in
conjunction  with  each  securitization  trust.   Furthermore,   we  provide  no
guarantees  to  investors  with  respect to cash flow or  performance  for these
trusts.  These entities  represent  qualified  special purpose  entities and are
therefore not consolidated for financial  reporting  purposes in accordance with
SFAS No. 140  "Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments of Liabilities".

   The securitization  trust raises money to purchase the mortgage loans from us
by  selling  securities  to the  public  - known  as  asset-backed  pass-through
securities  that  are  secured  by  the  pool  of  mortgage  loans  held  by the
securitization  trust.  These  asset-backed  securities or senior  certificates,
which are usually purchased for cash by

                                       16

insurance  companies,   mutual  funds  and/or  other  institutional   investors,
represent  senior  interests  in the cash flows from the  mortgage  loans in the
trust.

   The  securitization  trust issues  senior  certificates,  which  entitles the
holders  of these  senior  certificates  to  receive  the  principal  collected,
including  prepayments  of  principal,  on the mortgage  loans in the trust.  In
addition,  holders  receive a portion of the  interest on the loans in the trust
equal to the pass-through  interest rate on the remaining principal balance. The
securitization  trust also issues a subordinate  certificate or BIO  certificate
(referred  to  as  an  excess  cashflow   certificate),   and  a  P  certificate
(representing  the right to receive  prepayment  penalties  from  borrowers  who
payoff their loans early in their life). Each month, the P certificate holder is
entitled to receive  prepayment  penalties  received  from  borrowers who payoff
their loans early in their life.

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such excess cashflow  certificates are applied in a "waterfall"  manner. (See "-
Management's Discussion & Analysis - Loan Securitizations"  beginning on page 26
for a  more  complete  discussion  on the  "waterfall"  and  securitizations  in
general.)

   A summary of the gain on sale and cash flow we  received  from our  aggregate
securitizations in 2002 and 2001 is presented below. "Loans sold" represents the
amount of loans actually  transferred to the  respective  securitization  trusts
during each year:
<TABLE>
<S>                                                             <C>                <C>

                                                                      YEAR ENDED DECEMBER 31,
                                                                     2002               2001
                                                                     ----               ----
GAIN ON SALE SUMMARY                                                  (DOLLARS IN THOUSANDS)
--------------------
Loans Sold                                                       $ 819,042          $ 345,000
NIM Proceeds, Net of the Upfront Overcollateralization               5.13%                --%
Interest Only Certificate Proceeds........                             --%              3.86%
Excess Cashflow Certificate (owner trust certificates)(1)            1.28%              3.21%
Mortgage Servicing Rights(2)..............                           0.88%              1.51%
Less:  Transaction Costs..................                         (0.67%)             (0.60%)
                                                                -----------       ------------
   Net gain on sale recorded..............                           6.62%              7.98%
                                                                ===========       ============

CASH FLOW SUMMARY
-----------------
NIM Proceeds, Net of the Upfront Overcollateralization               5.13%                --%
Interest Only Certificate Proceeds........                             --%              3.86%
Mortgage Servicing Rights (2).............                           0.88%              1.51%
Less: Transaction Costs...................                          (0.67%)            (0.60%)
                                                                -----------        -----------
      Net Cash Flow at Closing............                           5.34%              4.77%
                                                                ===========        ===========
</TABLE>
----------
(1)The reduction in value of the excess  cashflow  certificates in 2002 compared
   to 2001 is primarily due to changes we made to our fair value  assumptions of
   our excess cashflow certificates (see "- Excess Cashflow Certificate, Net").
(2)In 2001,  the mortgage  servicer  purchased  the P  Certificate;  in 2002, we
   transferred  the P  Certificate  to the NIM  Trust,  which  accounts  for the
   reduced gain from the sale of mortgage servicing rights in 2002.

   At the time we completed the 2002  securitizations,  we recognized as revenue
each the economic interests listed above, which was recorded as net gain on sale
of mortgage loans on our consolidated statement of operations.

   WHOLE LOAN SALES  WITHOUT  RECOURSE.  We have found  that,  at times,  we can
receive better  economic  results by selling  certain  mortgage loans on a whole
loan, without retaining servicing rights,  generally in private  transactions to
financial  institutions or consumer  finance  companies.  We recognize a gain or
loss when we sell loans on a whole loan basis  equal to the  difference  between
the cash  proceeds  received  for the loans  and our  investment  in the  loans,
including any  unamortized  loan  origination  fees and costs. We generally sell
these loans without recourse,  except that we provide normal representations and
warranties to the purchasers of such loans.

   In  2002  and   2001,   we  sold   whole   loans   without   recourse   on  a
servicing-released basis of $102.9 million and $261.1 million, respectively.

LOAN SERVICING

                                       17

   Prior  to May  2001,  we  serviced  substantially  all of the  loans  that we
originated and purchased since our inception in 1982.

   In January  2001,  we announced  that we had entered  into an agreement  with
Ocwen to transfer our servicing  portfolio to Ocwen.  In May 2001, we physically
transferred our entire servicing  portfolio to Ocwen, and laid-off our servicing
staff. We no longer service loans nor do we have a servicing  operation.  We do,
however,  maintain several employees to assist third parties with delinquent and
defaulted loans, as well as portfolio retention.

COMPETITION

   As an originator of mortgage  loans, we face intense  competition,  primarily
from diversified  consumer financial  companies and other diversified  financial
institutions,  mortgage  banking  companies,  commercial  banks,  credit unions,
savings and loans,  credit card  issuers  and finance  companies.  Many of these
competitors in the financial services business are substantially larger and have
more capital and other  resources than we do.  Competition  can take many forms,
including interest rates and costs of the loan, convenience in obtaining a loan,
service,  marketing and distribution channels.  Furthermore,  the level of gains
realized by us and our  competitors on the sale of the type of loans  originated
has  attracted  additional  competitors  into  this  market  with the  effect of
lowering the gains that may be realized by us on future loan sales. In addition,
efficiencies in the asset-backed market have generally created a desire for even
larger  transactions  giving  companies with greater  volumes of  originations a
competitive advantage.

   Competition  may be affected by  fluctuations  in interest  rates and general
economic  conditions.  During  periods of rising rates,  competitors  which have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining  rates,  competitors  may solicit  borrowers  underlying our excess
cashflow  certificates  to refinance their loans.  During economic  slowdowns or
recessions,  these  borrowers  may have new  financial  difficulties  and may be
receptive to offers by our competitors.

   Over  the  past  several  years,  many of the  independent  mortgage  banking
companies, which previously were among our most intense competitors, have either
gone out of  business  or been  acquired by larger,  more  diversified  national
financial  institutions.  At the  same  time,  many  larger  finance  companies,
financial  institutions and conforming  mortgage  originators have adapted their
conforming  origination  programs and allocated  resources to the origination of
non-conforming  loans and/or have otherwise  begun to offer products  similar to
those offered by us, targeting  customers similar to those we do. Fannie Mae and
Freddie Mac also have  expressed  interest in adapting their programs to include
products  similar to those offered by us and have begun to expand their programs
and presence into the  non-conforming  market.  The entrance of these larger and
better-capitalized  competitors  into our  market  may have a  material  adverse
effect on our results of operations and financial condition.

REGULATION

   Our business is subject to extensive regulation, supervision and licensing by
federal, state and local governmental authorities and is subject to various laws
and judicial and administrative decisions imposing requirements and restrictions
on part or all of our operations.  Our consumer  lending  activities are subject
to, among other laws and regulations:

     o   the Federal  Truth-in-Lending  Act and Regulation Z (including the Home
         Ownership and Equity Protection Act of 1994);

     o   the Equal Credit Opportunity Act of 1974, as amended (ECOA);

     o   the Fair Credit Reporting Act of 1970, as amended;

     o   the Real Estate Settlement Procedures Act (RESPA), and Regulation X;

     o   the Home Mortgage Disclosure Act;

     o   the Federal Debt Collection Practices Act; and

     o   other federal,  state and local statutes and regulations  affecting our
         activities.

   We also are subject to the rules and regulations of, and  examinations by the
Department  of  Housing  and Urban  Development  ("HUD")  and  state  regulatory
authorities with respect to originating,  processing and underwriting loans (and
servicing  loans prior to May 2001).  These rules and  regulations,  among other
things:

                                       18

     o   impose licensing obligations on us;

     o   establish eligibility criteria for mortgage loans;

     o   prohibit discrimination;

     o   provide for inspections and appraisals of properties;

     o   require credit reports on loan applicants;

     o   regulate  assessment,  collection,  foreclosure  and  claims  handling,
         investment  and  interest  payments  on  escrow  balances  and  payment
         features;

     o   mandate certain disclosures and notices to borrowers; and

     o   in some cases,  fix maximum  interest  rates,  fees and  mortgage  loan
         amounts.

   Failure to comply with these  requirements  can lead to, among other  things,
loss  of  approved  status,   demands  for  indemnification  or  mortgage  loans
repurchases,  certain rights of rescission for mortgage loans,  class action and
other lawsuits, and administrative enforcement actions.

   Several states and local municipalities have recently enacted so-called "high
cost" mortgage laws and/or regulations. While many of these laws and regulations
contain some provisions that are similar to one another,  there are a variety of
provisions that vary from state to state and municipality to municipality, which
has  significantly  increased the costs of  compliance.  In addition,  dozens of
other state and local laws and regulations  are currently  under  consideration,
with even more  likely to be  proposed  on the  horizon,  that are  intended  to
further regulate our industry. Many of these laws and regulations seek to impose
broad  restrictions on certain commonly  accepted lending  practices,  including
some of our practices. There can be no assurance that these proposed laws, rules
and  regulations,  or other  similar  laws,  rules or  regulations,  will not be
adopted in the future.  Adoption of these laws, rules and regulations could have
a material adverse impact on our business by:

     o   substantially  increasing  the costs of  compliance  with a variety  of
         potentially inconsistent federal, state and local laws;

     o   substantially  increasing  the  risk of  litigation  or  administrative
         action associated with complying with these proposed federal, state and
         local  laws,  particularly  those  aspects of such  proposed  laws that
         contain subjective (as opposed to objective) requirements,  among other
         things;

     o   restricting our ability to charge rates and fees adequate to compensate
         us for the risk associated with certain loans; or

     o   if the law, rule or regulation is too onerous, potentially limiting our
         ability or willingness to operate in a particular geographic area.

   There are also several potential  federal bills being proposed,  at least one
of which may provide for  federal  preemption  over these  myriad  existing  and
proposed  state and local laws and  regulations.  There can be no assurance that
any federal law will be passed  addressing this matter,  or that, if passed,  it
will  contain a provision  that  preempts  these myriad state and local laws and
regulations.

   In September  1999, we settled  allegations by the NYSBD and a lawsuit by the
New York State Office of the Attorney General (the "NYOAG") alleging that we had
violated  various state and federal  lending  laws.  The global  settlement  was
evidenced by (a) a  Remediation  Agreement by and between  Delta Funding and the
NYSBD,  dated as of September 17, 1999 and (b) a Stipulated  Order on Consent by
and among Delta Funding,  Delta  Financial and the NYOAG,  dated as of September
17, 1999. As part of the Settlement,  we, among other things, implemented agreed
upon changes to our lending  practices;  are  providing  reduced  loan  payments
aggregating $7.25 million to certain borrowers identified by the NYSBD; and have
created a fund managed by the NYSBD and financed by the grant of 525,000  shares
of Delta Financial's common stock.

   Each month,  on behalf of borrowers  designated by the NYSBD, we make subsidy
payments to the related  securitization  trusts. These subsidy payments fund the
differential  between the original loan payments and the reduced loan  payments.
As part of the Second  Exchange  Offer we  completed  in August 2001 (see Note 2
"Summary of Regulatory  Settlement"  and Note 3 "Corporate  Restructuring,  Debt
Modification  and Debt  Restructuring"  to Notes to the  Consolidated  Financial
Statements),  the  LLC  -  an  unaffiliated,  newly-formed  entity,  the  voting
membership  interests  of which are owned by  former  holders  of our notes - is
obligated to satisfy these

                                       19

payment  subsidies  out of the cash  flows  generated  by the  mortgage  related
securities  (primarily  from the excess cashflow  certificates)  it owns. If the
LLC's cash flows are insufficient to pay this obligation,  we remain responsible
to satisfy our obligations under the Remediation Agreement.

   The proceeds of the stock fund will be used to pay borrowers and to finance a
variety of consumer  educational and counseling  programs.  We do not manage the
fund created for this purpose. The number of shares of common stock deposited in
the fund does not adjust to account for  fluctuations in the market price of our
common  stock.  Changes  to the  market  price of these  shares of common  stock
deposited in the fund do not have any impact on our financial statements. We did
not make any additional  financial  commitments  between the settlement date and
March 2000. The Stipulated  Order on Consent and the Remediation  Agreement both
terminated by their respective  terms, in September 2002. We remain obligated as
discussed  above to continue  to make  subsidy  payments on behalf of  borrowers
identified by the NYSBD for so long as such borrowers  continue to make payments
under the mortgage loans.

   We believe we are in  compliance  in all material  respects  with  applicable
federal and state laws and regulations.

ENVIRONMENTAL MATTERS

   To date, we have not been required to perform any  investigation  or clean up
activities,  nor have we been subject to any environmental  claims. There can be
no assurance, however, that this will remain the case in the future. Although we
primarily  lend to  owners  of  residential  properties,  in the  course  of our
business, we may acquire properties securing loans that are in default. There is
a risk that we could be required to investigate and clean-up  hazardous or toxic
substances or chemical releases at such properties,  and may be held liable to a
governmental entity or to third parties for property damage, personal injury and
investigation  and cleanup costs incurred by such parties in connection with the
contamination.  In addition,  the owner or former owners of a contaminated  site
may be subject to common law claims by third  parties based on damages and costs
resulting from environmental contamination emanating from such property.

EMPLOYEES

   As of December  31,  2002,  we had a total of 693  employees  (full-time  and
part-time).  None  of our  employees  are  covered  by a  collective  bargaining
agreement. We consider our relations with our employees to be good.

ITEM 2.  PROPERTIES

   Our executive and  administrative  offices are located at 1000 Woodbury Road,
Woodbury,  New York 11797, where we lease  approximately  107,000 square feet of
office space at an aggregate  annual rent of  approximately  $2.0  million.  The
lease provides for certain scheduled rent increases and expires in 2008.

   We  also  maintain  business   development  offices  in  New  Jersey,   Ohio,
Pennsylvania and Virginia.  Our retail operation currently maintains four retail
call centers in Woodbury, New York, Pittsburgh,  Pennsylvania,  Charlotte, North
Carolina and Phoenix,  Arizona, and seven retail mortgage origination offices in
Illinois,  Missouri,  Ohio (3), Pennsylvania and Tennessee. We also maintain one
telemarketing  hub and one  underwriting  hub in Ohio. The terms of these leases
vary as to duration and escalation provisions, with the latest expiring in 2008.

ITEM 3.  LEGAL PROCEEDINGS

   Because  the nature of our  business  involves  the  collection  of  numerous
accounts,  the validity of liens and  compliance  with various state and federal
lending  laws,  we are subject,  in the normal  course of business,  to numerous
claims and legal  proceedings.  Our lending  practices  have been the subject of
several  lawsuits  styled as class  actions  and of  investigations  by  various
regulatory  agencies  including  the  NYSBD,  the  NYOAG and the  United  States
Department  of Justice  (the  "DOJ").  The  current  status of these  actions is
summarized below.

     o   In or about November 1998, we received notice that we had been named in
         a lawsuit  filed in the United  States  District  Court for the Eastern
         District of New York.  In December  1998,  plaintiffs  filed an amended
         complaint  alleging that we had violated the Home  Ownership and Equity
         Protection  Act  ("HOEPA"),  the Truth in Lending Act  ("TILA") and New
         York  State  General  Business  Lawss.349.   The  complaint  seeks  (a)
         certification  of a  class  of  plaintiffs,  (b)  declaratory  judgment
         permitting rescission,  (c) unspecified actual,  statutory,  treble and
         punitive damages  (including  attorneys' fees), (d) certain  injunctive
         relief, and (e)

                                       20

         declaratory judgment declaring  the  loan   transactions  as  void  and
         unconscionable. On December 7, 1998, plaintiff filed a motion seeking a
         temporary  restraining order and preliminary  injunction,  enjoining us
         from conducting foreclosure sales on 11 properties.  The District Court
         Judge ruled that in order to  consider  such a motion,  plaintiff  must
         move  to  intervene  on  behalf  of  these  11  borrowers.  Thereafter,
         plaintiff  moved to intervene on behalf of 3 of these 11 borrowers  and
         sought injunctive  relief on their behalf.  We opposed the motions.  On
         December  14,  1998,  the  District  Court Judge  granted the motion to
         intervene and on December 23, 1998,  the District  Court Judge issued a
         preliminary  injunction  that  enjoined  us from  proceeding  with  the
         foreclosure  sales of the  three  intervenors'  properties.  We filed a
         motion for  reconsideration  of the December 23, 1998 order. In January
         1999, we filed an answer to  plaintiffs'  first amended  complaint.  In
         July 1999,  plaintiffs were granted leave, on consent, to file a second
         amended  complaint.  In August 1999,  plaintiffs filed a second amended
         complaint  that,  among  other  things,  added  additional  parties but
         contained  the same  causes of  action  alleged  in the  first  amended
         complaint.  In  September  1999,  we  filed a  motion  to  dismiss  the
         complaint,  which was  opposed by  plaintiffs  and,  in June 2000,  was
         denied in part and  granted in part by the Court.  In or about  October
         1999,  plaintiffs  filed a motion  seeking an order  preventing us, our
         attorneys  and/or  the NYSBD  from  issuing  notices  to certain of our
         borrowers,  in accordance with a settlement  agreement  entered into by
         and between Delta and the NYSBD.  In or about October 1999 and November
         1999,   respectively,   we  and  the  NYSBD  submitted   opposition  to
         plaintiffs'  motion.  In March  2000,  the Court  issued an order  that
         permitted  us to issue an  approved  form of the notice.  In  September
         1999,  plaintiffs  filed a motion  for  class  certification,  which we
         opposed  in  February  2000,  and  was  ultimately   withdrawn  without
         prejudice by plaintiffs in January 2001. In February  2002, we executed
         a settlement agreement with plaintiffs, pursuant to which we denied all
         wrongdoing, but agreed to resolve the litigation on a class-wide basis.
         The Court preliminarily  approved the settlement and a fairness hearing
         was held in May 2002.  We are awaiting a decision from the Court on the
         fairness   hearing.   We  believe  that  the  Court  will  approve  the
         settlement,  but if it does not,  we believe  that we have  meritorious
         defenses and intend to defend this suit,  but cannot  estimate with any
         certainty  our ultimate  legal or  financial  liability,  if any,  with
         respect to the alleged claims.

     o   In or about March 1999, we received  notice that we had been named in a
         lawsuit filed in the Supreme  Court of the State of New York,  New York
         County,  alleging  that we had  improperly  charged  certain  borrowers
         processing  fees. The complaint seeks (a)  certification  of a class of
         plaintiffs,  (b) an accounting,  and (c) unspecified  compensatory  and
         punitive damages  (including  attorneys' fees),  based upon alleged (i)
         unjust enrichment,  (ii) fraud, and (iii) deceptive trade practices. In
         April 1999, we filed an answer to the complaint.  In September 1999, we
         filed  a  motion  to  dismiss  the  complaint,  which  was  opposed  by
         plaintiffs,  and in  February  2000,  the Court  denied  the  motion to
         dismiss.  In  April  1999,  we  filed a  motion  to  change  venue  and
         plaintiffs  opposed  the  motion.  In July 1999,  the Court  denied the
         motion to change  venue.  We appealed and in March 2000,  the Appellate
         Court granted our appeal to change venue from New York County to Nassau
         County.   In  August  1999,   plaintiffs   filed  a  motion  for  class
         certification,  which we opposed in July  2000.  In or about  September
         2000,  the Court granted  plaintiffs'  motion for class  certification,
         from  which we  appealed.  The  Appellate  Court  denied  our appeal in
         December  2001.  In or about June 2001,  we filed a motion for  summary
         judgment  to dismiss  the  complaint,  which was denied by the Court in
         October 2001. We appealed that decision, but the appellate court denied
         our appeal in November  2002.  We filed a motion to reargue in December
         2002, which was denied by the Court in January 2003. Discovery will now
         continue  in the  lower  court.  We  believe  that we have  meritorious
         defenses and intend to defend this suit,  but cannot  estimate with any
         certainty  our ultimate  legal or  financial  liability,  if any,  with
         respect to the alleged claims.

     o   In  November  1999,  we  received  notice  that we had been  named in a
         lawsuit  filed in the  United  States  District  Court for the  Eastern
         District  of New York,  seeking  certification  as a class  action  and
         alleging  violations of the federal  securities laws in connection with
         our initial public offering in 1996 and our reports  subsequently filed
         with the Securities and Exchange Commission. The complaint alleges that
         the  scope of the  violations  alleged  in the  consumer  lawsuits  and
         regulatory  actions  brought in or around  1999  indicate  a  pervasive
         pattern  of action  and risk  that  should  have  been more  thoroughly
         disclosed  to  investors in our common  stock.  In May 2000,  the Court
         consolidated  this case and several  other  lawsuits  that  purportedly
         contain the same or similar  allegations  against us and in August 2000
         plaintiffs filed their Consolidated Amended Complaint. In October 2000,
         we filed a motion to dismiss the Complaint in its  entirety,  which was
         opposed by  plaintiffs  in  November  2000,  and denied by the Court in
         September  2001. We reached an agreement in principal with  plaintiffs'
         counsel and our insurer to settle the action on a  class-

                                       21

         wide basis in or about August 2002 and  executed a settlement agreement
         in January 2003 (pursuant to  which  we  denied  all  wrongdoing).  The
         settlement has been preliminarily  approved by the Court and a fairness
         hearing has been  scheduled  for April  2003,  at which time we further
         anticipate  that the Court will  approve the  settlement.  In the event
         that  the  settlement  is  not  approved,   we  believe  that  we  have
         meritorious  defenses  and  intend  to defend  this  suit,  but  cannot
         estimate with any certainty our ultimate legal or financial  liability,
         if any, with respect to the alleged claims.

     o   In or about April 2000, we received  notice that we had been named in a
         lawsuit  filed in the  Supreme  Court of the State of New York,  Nassau
         County,  alleging that we had  improperly  charged and  collected  from
         borrowers certain fees when they paid off their mortgage loans with us.
         The complaint  seeks (a)  certification  of a class of plaintiffs,  (b)
         declaratory  relief  finding  that the payoff  statements  used include
         unauthorized  charges  and are  deceptive  and unfair,  (c)  injunctive
         relief,  and  (d)  unspecified  compensatory,  statutory  and  punitive
         damages  (including legal fees),  based upon alleged violations of Real
         Property  Law 274-a,  unfair  and  deceptive  practices,  money had and
         received  and  unjust  enrichment,  and  conversion.  We  answered  the
         complaint  in June 2000.  In March 2001,  we filed a motion for summary
         judgment,  which was opposed by plaintiffs in March 2001,  and we filed
         reply  papers in April  2001.  In June 2001,  our  motion  for  summary
         judgment   dismissing  the  complaint  was  granted.  In  August  2001,
         plaintiffs  appealed the  decision.  In September  2002,  we executed a
         settlement  agreement with  plaintiffs  pursuant to which we denied all
         wrongdoing, but agreed to resolve the litigation on a class-wide basis.
         We  anticipate  that a fairness  hearing  will be held in the  upcoming
         months,  at which  point we  further  anticipate  that the  Court  will
         approve  the  settlement.  In the  event  that  the  settlement  is not
         approved,  we believe that we have  meritorious  defenses and intend to
         defend this suit,  but cannot  estimate with any certainty our ultimate
         legal or  financial  liability,  if any,  with  respect to the  alleged
         claims.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   None.



                                       22
<PAGE>


PART II
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

   Our common  stock trades on the  Over-The-Counter  Bulletin  Board  ("OTCBB")
under the  symbol  "DLTO".  The  following  table  sets  forth  for the  periods
indicated  the range of the high and low  closing  sales  prices  for our common
stock.

   2002                                               HIGH          LOW
   ----                                               ----         ----
   First Quarter .........................        $   1.54      $  0.85
   Second Quarter ........................            2.76         0.91
   Third Quarter..........................            2.74         1.65
   Fourth Quarter ........................            1.50         0.95

   2001                                               HIGH          LOW
   ----                                               ----         ----
   First Quarter .........................        $   0.63      $  0.36
   Second Quarter ........................            0.43         0.24
   Third Quarter..........................            0.51         0.28
   Fourth Quarter ........................            1.06         0.38

   Our common stock  previously  was listed on the New York Stock  Exchange (the
"NYSE") under the symbol "DFC",  but in May 2001,  the NYSE de-listed our common
stock.  The NYSE stated that it took this action  because we were unable to meet
the NYSE's continued  listing  standards of maintaining a minimum of $15 million
in market  capitalization  and a minimum share price of $1 over a 30-day trading
period. When our common stock was de-listed in May 2001, it began trading on the
OTCBB under the ticker symbol "DLTO".

   On December 31, 2002, we had  approximately  76 stockholders of record.  This
number does not include  beneficial  owners holding  shares  through  nominee or
"street"   names.   We  believe  the  number  of  beneficial   stockholders   is
approximately 1,200.

DIVIDEND POLICY

   We did not pay any  dividends  in 2002 and,  in  accordance  with our present
general policy, we have no present intention to pay cash dividends on our common
stock.  Under the terms of our Certificate of Designations  for our newly-issued
preferred stock, we are obligated to commence paying dividends to holders of our
Series A  preferred  stock in July 2003,  and are  limited in our ability to pay
dividends to holders of our common stock.


                                       23
<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<S>                                                     <C>              <C>          <C>           <C>          <C>
                                                                               YEAR ENDED DECEMBER 31,
                                                                      -----------------------------------------
                                                              2002          2001        2000          1999         1998
                                                              ----          ----        ----          ----         ----
Income Statement Data:                                              (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
  Revenues:
      Net gain on sale of mortgage loans............     $  58,805        38,638       52,590        90,588       131,101
      Interest.......................................       11,691       (22,146)      32,287        31,041        12,458
      Servicing fees.................................           --         2,983       14,191        16,341        10,464
      Net origination fees and other income..........       15,647        13,673       20,376        17,401       (13,589)
                                                            --------------------------------------------------------------
           Total revenues............................       86,143        33,148      119,444        155,371      140,434
                                                            --------------------------------------------------------------
 Expenses
      Payroll and related costs .....................       41,306        42,896       56,525        65,116        56,709
      Interest.......................................        5,273        16,132       30,386        26,656        30,019
      General and administrative                            23,696        49,101       45,539        55,870        35,210
      Capitalized mortgage servicing impairment .....           --            --       38,237            --            --
      Restructuring and other special charges........           --         2,678       11,382            --            --
      Extinguishment of debt.........................           --        19,255           --            --            --
                                                          ---------------------------------------------------------------
            Total expenses...........................       70,275       130,062      182,069       147,642       121,938
                                                          ---------------------------------------------------------------

 Income (loss) before income tax expense (benefit)         15,868        (96,914)     (62,625)        7,729        18,496
  Provision for income tax expense (benefit) ........      (1,769)         2,876      (13,208)        3,053         7,168
                                                          ---------------------------------------------------------------
    Net income (loss)...............................     $ 17,637        (99,790)     (49,417)        4,676        11,328
                                                          ---------------------------------------------------------------

BASIC EARNINGS PER SHARE:
Net income (loss) per share..........................    $   1.11          (6.28)       (3.11)         0.30          0.74

DILUTED EARNINGS PER SHARE(1):
Net income (loss) per share..........................    $   1.04          (6.28)       (3.11)         0.30          0.74

Basic weighted average number of
            shares outstanding.......................   15,894,913    15,883,749    15,883,749    15,511,214    15,382,161
Diluted weighted average number of
            shares outstanding.......................   16,971,028    15,883,749    15,883,749    15,512,457    15,404,880


Selected Balance Sheet Data:
  Loans held for sale, net...........................    $ 33,984         94,407        82,698        89,036        87,170
  Capitalized mortgage servicing rights..............          --             --            --        45,927        33,490
  Excess cashflow certificates, net..................      24,565         16,765       216,907       224,659       203,803
  Total assets.......................................      73,544        133,806       452,697       556,835       481,907
   Senior notes, warehouse financing and
      other borrowings...............................      27,196        100,472       238,203       258,493       229,660
  Investor payable...................................          --             --        69,489        82,204        63,790
  Total liabilities..................................      44,047        121,956       354,973       409,694       344,219
  Stockholders' equity...............................    $ 29,497         11,850        97,724       147,141       137,688

(1) For 2001 and  2000,  stock  options  of  approximately  23,000  and  37,000,
respectively  are excluded  from the  calculation  of diluted EPS because  their
effect is antidiluted in periods where losses are reported.
</TABLE>




                                       24
<PAGE>


ITEM 7.  MANAGEMENT'S  DISCUSSION  AND   ANALYSIS  OF  FINANCIAL  CONDITION  AND
RESULTS  OF OPERATIONS

THE FOLLOWING  DISCUSSION  SHOULD BE READ IN CONJUNCTION  WITH OUR  CONSOLIDATED
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SET FORTH THEREIN.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

   EXCESS  CASHFLOW  CERTIFICATES.  Our excess cashflow  certificates  primarily
consist of the right to  receive  the  future  excess  cash flows from a pool of
securitized  mortgage  loans.  Our  interest  in  these  certificates  generally
consists of the  following:

     o   The interest spread between the coupon on the underlying mortgage loans
         and the  cost of  financing  (which,  when we sell NIM  notes,  is only
         received after the NIM notes are paid in full);

     o   On  our  2002  securitizations,   prepayment  penalties  received  from
         borrowers  who payoff their loans early in their life  (which,  when we
         sell NIM notes, is only received after the NIM notes are paid in full);
         and

     o   Overcollateralization, which is designed to protect the securities sold
         to the  securitization  pass-through  investors from credit loss on the
         underlying  mortgage  loans (and which we  describe  in greater  detail
         below under "Loan Securitizations").

   The excess cash flow we receive is highly  dependent  upon the interest  rate
environment to the extent basis risk exists between the  securitization  trust's
assets and liabilities.  For instance,  in each of our  securitizations in 2002,
the cost of financing for the securitized loans is indexed against 1 month LIBOR
meaning  that  each  month  the  interest  rate  received  by the  pass  through
certificate  holders may adjust  (upwards or downwards) as 1 month LIBOR changes
(liability),  while  the  majority  of  the  underlying  mortgage  loans  in the
securitization  trust have a fixed note rate for at least 3 years (asset).  As a
result,  as rates rise and fall,  the amount of our excess  cash flows will fall
and rise,  which in turn  will  increase  or  decrease  the value of our  excess
cashflow certificates.

   In each of our securitizations in which we sold NIM note(s), we purchased, on
behalf of the NIM owner trust,  an interest  rate cap for the benefit of the NIM
noteholder(s), which helps mitigate the basis risk for the approximate time that
the NIM notes are outstanding.

   We believe the  accounting  estimates  related to the valuation of our excess
cashflow  certificates  is a  "critical  accounting  estimate"  because  it  can
materially affect net income and require us to forecast interest rates, mortgage
principal  payments,  prepayments,  and loan loss  assumptions  which are highly
uncertain and require a large degree of judgment.  The rate used to discount the
projected  cash flows is also critical in the  valuation of our excess  cashflow
certificates.  Management uses internal,  historical collateral performance data
and  published  forward  LIBOR  curves  when  modeling  future  expected  excess
cashflows.  We believe the value of our excess  cashflows  certificates is fair,
but can provide no  assurance  that future  prepayment  and loss  experience  or
changes in their required market  discount rate will not require  write-downs of
the excess cashflow certificate asset. Write-downs would reduce income of future
periods.

GENERAL

   As discussed in more detail in the "Business  Overview" in Part I,  beginning
on  page  1,  Delta  Financial   Corporation  ("Delta"  or  "we"),  through  its
wholly-owned subsidiaries,  originates, securitizes and sells (and, prior to May
2001, serviced) non-conforming home equity loans, which are primarily secured by
first mortgages on one- to four-family residential properties. Throughout our 21
years of  operating  history,  we have  focused on lending  to  individuals  who
generally  have  impaired or limited  credit  profiles or higher  debt-to-income
ratios for such  purposes  as debt  consolidation,  home  improvement,  mortgage
refinancing or education.  These borrowers  generally do not satisfy the credit,
documentation or other underwriting standards set by more traditional sources of
mortgage credit, including those that make loans in compliance with conventional
mortgage lending guidelines established by Fannie Mae and Freddie Mac.

   Our mortgage business has two principal  components.  First, we make mortgage
loans  to  individual  borrowers,  which is a cash and  expense  outlay  for us,
because our cost to  originate a loan exceeds the fees we collect at the time we
originate  that loan. At the time we originate a loan,  and prior to the time we
sell that loan,  we finance  that loan by  borrowing  under  warehouse  lines of
credit.  Second, we sell loans, either through securitization or on a whole loan
basis, to generate cash and non-cash revenues, recording the premiums we receive
as revenues.  We use the proceeds from these sales to repay our warehouse  lines
of credit and for working capital.

                                       25

   CORPORATE  RESTRUCTURING,   DEBT  MODIFICATION  AND  DEBT  RESTRUCTURING.  As
discussed in more detail in "Corporate Restructuring, Debt Modification and Debt
Restructuring"  in Part I,  beginning  on page 3,  we  engaged  in a  series  of
transactions  beginning in 2000,  and  concluding  in the third quarter of 2001,
aimed at improving  operating  efficiencies and reducing our negative cash flow.
We spent  much of 2001  working  on two  transactions  in  particular,  which we
believe were of  tantamount  importance  in this regard - selling our  servicing
portfolio and extinguishing most of our long term debt.

     o   In May 2001,  we completed  our  transfer of servicing to Ocwen,  which
         freed  us from  the  significant  cash  drain  associated  with  making
         securitization  advances (and the capital costs  associated with making
         such advances),  and of servicing a highly seasoned portfolio following
         three  successive  quarters  of selling  the  securitization  servicing
         rights associated with newly originated mortgage loans.

     o   In  August  2001,  we  completed  our  Second  Exchange  Offer,   which
         extinguished   substantially   all  of  our  long-term  debt,   leaving
         approximately  $11  million  out of $150  million  of our  notes  still
         outstanding  and resulted in us recording a $19.3 million charge to our
         statement of operations.  This debt extinguishment helped us threefold.
         First,  it  eliminated  nearly  $139  million  of  principal  which  we
         otherwise would have had to repay in 2004.  Second,  it eliminated more
         than $14 million of yearly  interest  expense that we would have had to
         pay to the former  noteholders had they still held their notes.  Third,
         the  ratings  agencies  that  previously  rated us and our  notes  have
         withdrawn their corporate ratings.

   We believe that our  transfer of  servicing to Ocwen and the Second  Exchange
Offer were  essential  steps in our effort to  restructure  our  operations  and
reduce  our  negative  cash  flow  previously   associated  with  our  servicing
operations and the notes.

LOAN SECURITIZATIONS

   When we securitize  loans, we create trusts in the form of off-balance  sheet
qualified special purpose entities,  or QSPEs.  These trusts are established for
the limited  purpose of buying and  reselling  mortgage  loans.  Typically  each
quarter,  we pool together loans,  and sell these loans to these  securitization
trusts. We carry no contractual  obligation related to these trusts or the loans
sold to them, nor do we have any direct or contingent  liability  related to the
trusts,  except  for  the  standard   representations  and  warranties  made  in
conjunction  with  each  securitization  trust.   Furthermore,   we  provide  no
guarantees  to  investors  with  respect to cash flow or  performance  for these
trusts.  These entities  represent  qualified  special purpose  entities and are
therefore not consolidated for financial  reporting  purposes in accordance with
SFAS No. 140  "Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishments of Liabilities".

   The securitization  trust raises money to purchase the mortgage loans from us
by  selling  securities  to the  public  - known  as  asset-backed  pass-through
securities  that  are  secured  by  the  pool  of  mortgage  loans  held  by the
securitization  trust.  These  asset-backed  securities or senior  certificates,
which are usually purchased for cash by insurance companies, mutual funds and/or
other institutional investors, represent senior interests in the cash flows from
the mortgage loans in the trust.

   The  securitization  trust  issues  senior  certificates,  which  entitle the
holders  of these  senior  certificates  to  receive  the  principal  collected,
including  prepayments  of  principal,  on the mortgage  loans in the trust.  In
addition,  holders  receive a portion of the  interest on the loans in the trust
equal to the pass-through  interest rate on the remaining principal balance. The
securitization  trust also issues a subordinate  certificate or BIO  certificate
(referred  to  as  an  excess  cashflow   certificate),   and  a  P  certificate
(representing  the right to receive  prepayment  penalties  from  borrowers  who
payoff their loans early in their life). Each month, the P certificate holder is
entitled to receive  prepayment  penalties  received  from  borrowers who payoff
their loans early in their life.

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such  excess  cashflow  certificates  are  applied  in a  "waterfall"  manner as
follows:

     o   first,  to cover  any  losses  on the  mortgage  loans  in the  related
         mortgage  loan pool,  because  the  excess  cashflow  certificates  are
         subordinate in right of payment to all other  securities  issued by the
         securitization trust;

     o   second, to reimburse the bond insurer, if any, of the related series of
         pass-through  certificates  for amounts paid by or  otherwise  owing to
         that insurer;

                                       26

     o   third,  to  build  or  maintain  the  overcollateralization   provision
         (described in more detail  immediately  below) for that  securitization
         trust at the required level by being applied as an accelerated  payment
         of principal  to the holders of the  pass-through  certificates  of the
         related series;

     o   fourth,  to reimburse  holders of the subordinated  certificates of the
         related series of pass-through certificates for unpaid interest and for
         any losses previously allocated to those certificates; and

     o   fifth, to pay interest on the related  pass-through  certificates which
         was not paid because of the  imposition of a cap on their  pass-through
         rates - these payments being called basis risk shortfall amounts.

   The overcollateralization provision or "O/C" is a credit enhancement which is
designed  to protect  the  securities  sold to the  securitization  pass-through
investors  from  credit  loss  on  the  underlying  mortgage  loans.  In  short,
overcollateralization  is when the amount of collateral  (I.E.,  mortgage loans)
owned  by  a  securitization  trust  exceeds  the  aggregate  amount  of  senior
pass-through  certificates.  The  O/C is  created  to  absorb  losses  that  the
securitization   trust  may  suffer,   as  loans  are   liquidated  at  a  loss.
Historically,  we built up the O/C  typically  over the first 18-24  months of a
securitization (with the specific timing depending upon the structure, amount of
excess spread,  and  performance of the  securitization),  by utilizing the cash
flows from the excess  cashflow  certificates  to make  additional  payments  of
principal to the holders of the pass-through certificates until the required O/C
level was reached.  Beginning with each of our 2002 securitizations,  we created
the O/C by initially  selling  pass-through  securities  totaling  approximately
98.5% of the total amount of mortgage  loans sold to the trust.  In doing so, we
create the full amount of the O/C required by the trust up front, at the time we
complete  the   securitization,   instead  of  over  time.  For  example,  if  a
securitization  trust contains  collateral of $100 million of mortgage loans, we
sell approximately $98.5 million in senior pass-through  certificates.  Prior to
our  2002   securitization   transactions,   we  typically  issued  pass-through
certificates  for a par purchase  price,  or a slight discount to par - with par
representing the aggregate  principal  balance of the mortgage loans backing the
asset-backed  securities.  For  example,  if  a  securitization  trust  contains
collateral of $100 million of mortgage  loans,  we typically  received  close to
$100 million in proceeds from the sales of these  certificates,  depending  upon
the structure we utilize for the securitization.

   The O/C is generally  expressed as a percentage of the initial  mortgage loan
or collateral  principal balance sold to the securitization  trust. The required
O/C is  initially  determined  by either  the  rating  agencies  and/or the bond
insurer,  if any, using various  factors  including (1)  characteristics  of the
mortgage loans sold to the trust (i.e., credit scores and loan to value ratios),
(2) the  amount  of  excess  spread  between  the  interest  rate on the pool of
mortgage  loans sold to the  securitization  trust and the interest  paid to the
pass-through  certificate  holders,  less the  servicing  fee, and other related
expenses  such as  trustee  fees  and  bond  insurer  fee,  if any,  and (3) the
structure of the underlying securitization.

   Our securitizations  have typically required an O/C of between 1.25% and 3.0%
of the initial mortgage loans sold to the securitization trust. The required O/C
can increase or decrease  throughout the life of the transaction  depending upon
subordination  levels,  delinquency and/or loss tests and is subject to minimums
and maximums, as defined by the rating agencies and/or the bond insurer insuring
the  securitization.  On our  securitizations  prior  to  2002,  after  the  O/C
requirement is reached, the cash flows from the excess cashflow certificates are
then  distributed to us as the holder of the excess  cashflow  certificates,  in
accordance  with  the  "waterfall"  described  above.  Over  time,  if the  cash
collected  during the periods  exceeds  the amount  necessary  to  maintain  the
required O/C and all other required distributions have been met, and there is no
shortfall  in the related  required  O/C,  the excess is then  released to us as
holder of the excess cashflow certificate.

   We began utilizing a new securitization structure in 2002. In lieu of selling
an interest-only certificate,  we sold a net interest margin certificate or NIM.
The NIM is generally  structured  where we sell the excess cashflow  certificate
and P  certificate  (which  entitles  the  holder  to all  prepayment  penalties
collected by the securitization  trust) to a QSPE or owner trust (the NIM trust)
and the NIM trust in turn issues (1) interest-bearing NIM note(s) (backed by the
excess  cashflow  certificate  and P  certificate),  and  (2)  NIM  owner  trust
certificate  evidencing  ownership in the NIM trust. We sell the excess cashflow
certificate  and P certificate  without  recourse  except that we provide normal
representations  and warranties to the NIM trust. One or more investors purchase
the NIM  note(s) and the  proceeds  from the sale of the  note(s),  along with a
owner trust  certificate  that is  subordinate  to the  note(s),  represent  the
consideration to us for the sale of the excess cashflow certificate.

   The NIM note(s) entitles the holder to be paid a specified interest rate, and
further provides for all cash flows generated by the excess cashflow certificate
and P  certificate  to be used  to pay all  principal  and  interest  on the NIM
note(s) until paid in full.  This typically  occurs  approximately  22-25 months
from the date the NIM note(s) were issued.  As part of the NIM  transaction,  we
received the cash  proceeds  from the sale of the NIM note(s) and a

                                       27

subordinate  interest  in the NIM owner  trust,  represented  by the owner trust
certificate. The owner trust certificate entitles us to all cash flows generated
by the excess cashflow certificate and P certificate after the holder of the NIM
note(s)  has been  paid in full.  As  such,  we  classify  the NIM  owner  trust
certificate on our balance sheet as an excess cashflow certificate and value the
NIM owner  trust  certificate  using the same  assumptions  that we  utilize  in
valuing excess cashflow certificates.

   As part of the NIM  transaction,  we were required to "fully fund" the O/C at
closing  - as  opposed  to  having  it  build  up  over  time  as we had in past
securitizations  - which is why we sold senior  pass-through  certificates  that
were approximately 1.5% less than the collateral in the securitization trust. We
use a portion of the proceeds we receive from selling NIM note(s) to make up for
the  difference  between  (1) the value of the  mortgage  loans sold and (2) the
proceeds from selling the senior pass-through certificates.

   In each of the four  securitizations  that we issued in 2002,  we derived the
following economic interests:

     o   we  received a cash  purchase  price  from the sale of the NIM  note(s)
         issued  by  a  NIM  trust,   to  which  we  sold  the  excess  cashflow
         certificates;

     o   we retained a NIM owner trust certificate, which entitles us to receive
         cash flows  generated  by the excess  cashflow  certificates  and the P
         certificate  issued in  connection  with the  securitization  after the
         holder  of the NIM  note(s)  has been paid in full.  Although  the cash
         flows generated by excess cashflow certificates are received over time,
         under existing  accounting  rules, we must report as income at the time
         of the  securitization the present value of all projected cash flows we
         expect to receive in the future from these excess cashflow certificates
         based upon an assumed  discount  rate.  Our  valuation  of these excess
         cashflow  certificates  is  primarily  based on (1) our estimate of the
         amount of  expected  losses  or  defaults  that will take  place on the
         underlying  mortgage loans over the life of the mortgage loans, (2) the
         expected  amount  of  prepayments  on  the  mortgage  loans  due to the
         underlying  borrowers of the mortgage  loans paying off their  mortgage
         loan prior to the loan's  stated  maturity,  (3) the London  Inter-Bank
         Offered Rate ("LIBOR")  forward curve (using current LIBOR as the floor
         rate) and (4) a discount rate; and

     o   we received a cash  premium from selling the right to service the loans
         being  securitized.  This right  entitles the  contractual  servicer to
         service  the loans on behalf of the  securitization  trust,  and earn a
         contractual servicing fee, and ancillary servicing fees (which includes
         prepayment  penalties for certain  securitization  servicing  rights we
         previously sold) in such capacity.

   At the time we completed the 2002  securitizations,  we recognized as revenue
each of the three economic interests  described above, which was recorded as net
gain on sale of mortgage loans on our consolidated statement of operations.

   Our  net   investment  in  the  pool  of  loans  sold  at  the  date  of  the
securitization  represents  the amount  originally  paid to originate the loans,
adjusted for the following:

     o   any  direct  loan  origination  costs  incurred  (an  increase  in  the
         investment)  and loan  origination  fees  received  (a  decrease in the
         investment)  in  connection  with the  loans,  which are  treated  as a
         component of the initial investment in loans;

     o   the principal payments  received,  and the amortization of the net loan
         fees or costs,  during  the  period  we held the  loans  prior to their
         securitization; and

     o   any gains (a decrease in the  investment) or losses (an increase in the
         investment)  we  incur  on any  hedging  instruments  that we may  have
         utilized to hedge  against  the  effects of changes in  interest  rates
         during the period we hold the loans prior to their securitization. (See
         "-Hedging,").

   We allocate our basis in the mortgage loans and excess cashflow  certificates
between the portion of the mortgage loans and excess cashflow  certificates sold
through securitization and the portion retained (the NIM owner trust certificate
and prepayment penalty owner trust  certificate,  in 2002) based on the relative
fair values of those  portions on the date of sale.  We may  recognize  gains or
losses  attributable  to the  changes  in  fair  value  of the  excess  cashflow
certificates,  which are recorded at estimated  fair value and  accounted for as
"trading"  securities.  Since there is no active market for such excess cashflow
certificates,  we  determine  the  estimated  fair value of the excess  cashflow
certificates by discounting the future expected cash flows.

   Each  securitization  trust has the  benefit of either a  financial  guaranty
insurance  policy  from a monoline  insurance  company or a  senior-subordinated
securitization  structure,  which insures the timely payment of interest

                                       28

and  the  ultimate  payment  of  principal  of  the   credit-enhanced   investor
certificate, or both (known as a "hybrid"). In "senior-subordinated" structures,
the  senior  certificate  holders  are  protected  from  losses by  subordinated
certificates,  which  absorb any such losses  first.  In addition to such credit
enhancement, the excess cash flows that would otherwise be paid to the holder of
the  excess  cashflow  certificate  is  used  when  if it  subsequently  becomes
necessary  to  obtain  or  maintain   required   overcollateralization   limits.
Overcollateralization,  which is created  when the amount of  collateral  (I.E.,
mortgage loans) owned by a securitization  trust exceeds the aggregate amount of
senior  pass-through  certificates,  is used to absorb  losses prior to making a
claim  on  the  financial   guaranty   insurance   policy  or  the  subordinated
certificates.

EXCESS CASHFLOW CERTIFICATES, NET

   Our excess cashflow  certificates  primarily  consist of the right to receive
the future  excess cash flows from a pool of  securitized  mortgage  loans.  Our
interest in these certificates generally consists of the following:

     o   The interest spread between the coupon on the underlying mortgage loans
         and the  cost of  financing  (which,  when we sell NIM  notes,  is only
         received after the NIM Notes are paid in full);

     o   On  our  2002  securitizations,   prepayment  penalties  received  from
         borrowers  who payoff their loans early in their life  (which,  when we
         sell NIM notes, is only received after the NIM Notes are paid in full);
         and

     o   Overcollateralization, which is designed to protect the securities sold
         to the  securitization  pass-through  investors from credit loss on the
         underlying  mortgage  loans (and which we  describe  in greater  detail
         below under "Securitization").

   The excess cash flow we receive is highly  dependent  upon the interest  rate
environment to the extent basis risk exists between the  securitization  trust's
assets and liabilities.  For instance,  in the fourth quarter's  securitization,
the cost of financing for the securitized loans is indexed against 1 month LIBOR
meaning  that  each  month  the  interest  rate  received  by the  pass  through
certificate  holders may adjust  (upwards or downwards) as 1 month LIBOR changes
(liability),  while a significant amount of the underlying mortgage loans in the
securitization  trust have a fixed note rate for at least 3 years (asset).  As a
result,  as rates rise and fall,  the amount of our excess  cash flows will fall
and rise,  which in turn  will  increase  or  decrease  the value of our  excess
cashflow certificates.

   In each of our securitizations in which we sold NIM note(s), we purchased, on
behalf of the NIM owner trust,  an interest  rate cap for the benefit of the NIM
noteholder(s), which helps mitigate the basis risk for the approximate time that
the NIM notes are outstanding.

   We believe the  accounting  estimates  related to the valuation of our excess
cashflow  certificates  is a  "critical  accounting  estimate"  because  it  can
materially affect net income and require us to forecast interest rates, mortgage
principal  payments,  prepayments,  and loan loss  assumptions  which are highly
uncertain and require a large degree of judgment.  The rate used to discount the
projected  cash flows is also critical in the  valuation of our excess  cashflow
certificates.  Management uses internal,  historical collateral performance data
and  published  forward  LIBOR  curves  when  modeling  future  expected  excess
cashflows.  We believe the value of our excess  cashflows  certificates is fair,
but can provide no assurance that future prepayment and loss experience, changes
in the LIBOR rate, or changes in their  required  market  discount rate will not
require write-downs of the excess cashflow certificate asset.  Write-downs would
reduce income of future periods.

   We  classify   excess  cashflow   certificates   that  we  receive  upon  the
securitization of a pool of loans as "trading  securities." The amount initially
allocated to the excess cashflow  certificates  at the date of a  securitization
reflects  their  fair  value.  The  amount  recorded  for  the  excess  cashflow
certificates  is  reduced  for  distributions  which we receive as the holder of
these excess cashflow  certificates,  and is adjusted for subsequent  changes in
the fair value of the excess cashflow certificates we hold.

   At the time each securitization  transaction closes, we determine the present
value  of  the  related  excess  cashflow   certificates  (which,  in  our  2002
securitizations  includes BIO  certificates  and NIM owner trust  certificates),
using certain  assumptions we make regarding the underlying  mortgage loans. The
excess  cashflow  certificate  is then  recorded on our  consolidated  financial
statements  at an estimated  fair value.  Our  estimates  primarily  include the
following:

     o   future rate of prepayment of the mortgage  loans - the expected  amount
         of prepayments on the mortgage loans due to the underlying borrowers of
         the mortgage  loans paying off their  mortgage loan prior to the loan's
         expected maturity;

                                       29

     o   credit  losses on the  mortgage  loans - our  estimate of the amount of
         expected  losses or  defaults  that will take  place on the  underlying
         mortgage  loans over the life of the mortgage  loans because the excess
         cashflow  certificates are subordinate in right of payment to all other
         securities issued by the securitization trust. Consequently, any losses
         sustained on mortgage  loans  comprising  a  particular  securitization
         trust are first absorbed by the excess cashflow certificates;

     o   the LIBOR forward  curve (using  current LIBOR as the floor rate) - our
         estimate of future  interest  rates which affects both the rate paid to
         the floating rate  pass-through  security  investors  (primarily  the 1
         month LIBOR index) and the  adjustable  rate mortgage loans sold to the
         securitization  trust  (which  provide for a fixed rate of interest for
         the  first 24 or 36  months  and a 6 month  variable  rate of  interest
         thereafter using the 6 month LIBOR index); and

     o   a discount rate used to calculate present value.

   The value of each excess  cashflow  certificate  represents  the cash flow we
expect to  receive  in the  future  from such  certificate  based  upon our best
estimate.  We  monitor  the  performance  of the loans  underlying  each  excess
cashflow  certificate,  and any changes in our estimates (and consequent changes
in value of the excess  cashflow  certificates)  are  reflected in the line item
called "interest  income" in the quarter in which we make any such change in our
estimate. Although we believe that the assumptions we use are reasonable,  there
can be no assurance as to the accuracy of the assumptions or estimates.

   In determining the fair value of each of the excess cashflow certificates, we
make the following underlying  assumptions  regarding mortgage loan prepayments,
mortgage loan default rates, the LIBOR forward curve and discount rates:

   (A)  PREPAYMENTS. We base our prepayment rate  assumptions  upon our on-going
        analysis of the performance of mortgage pools we previously securitized,
        and the  performance of similar pools of mortgage  loans  securitized by
        others in the industry.  We apply different prepayment speed assumptions
        to different loan product types because it has been our experience  that
        different  loan product types  exhibit  different  prepayment  patterns.
        Generally,  our loans can be grouped into two loan products - fixed rate
        loans and adjustable  rate loans.  With fixed rate loans,  an underlying
        borrower's  interest rate remains fixed throughout the life of the loan.
        Our  adjustable  rate  loans are  really a  "hybrid"  between  fixed and
        adjustable  rate  loans,  in  that  the  rate  generally  remains  fixed
        typically  for the  first  three  years of the  loan,  and then  adjusts
        typically every six months  thereafter.  Within each product type, other
        factors can affect prepayment rate  assumptions.  Some of these factors,
        for instance, include:

        o  whether or not a loan contains a prepayment  penalty - an amount that
           a  borrower  must pay to a lender if the  borrower  prepays  the loan
           within a certain time after the loan was originated. Loans containing
           a  prepayment  penalty  typically  do not  prepay as quickly as those
           without such a penalty;

        o  as is customary with adjustable rate mortgage loans, the introductory
           interest rate charged to the borrower is artificially lower,  between
           one and two full  percentage  points,  than the  rate for  which  the
           borrower  would  have  otherwise  qualified.   Generally,   once  the
           adjustable  rate mortgage  begins  adjusting on the first  adjustment
           date,  the  interest  rate payable on that loan  increases,  at times
           fairly substantially.  This interest rate increase can be exacerbated
           if there is an absolute  increase in interest  rates.  As a result of
           these  increases and the potential for future  increases,  adjustable
           rate  mortgage  loans   typically  are  more   susceptible  to  early
           prepayments.

      There are several  reasons why a loan will prepay  prior to its  maturity,
      including (but not limited to):

        o  a decrease in interest rates;

        o  improvement in the  borrower's  credit  profile,  which may allow the
           borrower to qualify for a lower interest rate loan;

        o  competition  in the  mortgage  market,  which  may  result  in  lower
           interest rates being offered;

        o  the borrower's sale of his or her home;

        o  the borrower's need for additional monies; and

        o  a default by the borrower, resulting in foreclosure by the lender.

                                       30

      It is unusual  for a borrower  to prepay a mortgage  loan during the first
      few months because of the following:

        o  it typically  takes at least several  months after the mortgage loans
           are originated for any of the above events to occur;

        o  there are costs involved with refinancing a loan; and

        o  the borrower does not want to incur prepayment penalties.

        The following  table shows our most recent  changes to the month one and
        peak  speed  components  of our  prepayment  assumptions  - in the third
        quarter of 2001 and, prior to that, in the third quarter 2000:

            LOAN TYPE          AT SEPTEMBER 30, 2001     AT SEPTEMBER 30, 2000
            ------------------------------------------------------------------
            Fixed Rate:
               At Month One          4.00%                       4.00%
               Peak Speed           30.00%                      23.00%
            Adjustable Rate:
               At Month One          4.00%                       4.00%
               Peak Speed           75.00%                      50.00%

        A higher  prepayment  speed means that the mortgage  loans prepay faster
        than  anticipated  and, as such,  we will earn less income in connection
        with the mortgage  loans and receive less excess  cashflow in the future
        because the mortgage loans have paid off; conversely,  if we have slower
        prepayment speeds, the mortgage loans remain outstanding for longer than
        anticipated  and, as such, we earn more income and more excess  cashflow
        in the future.

   (B)  DEFAULT RATE.  At December 31, 2002 and December 31, 2001, on each newly
        issued  securitization,  we apply a default  reserve for both fixed- and
        adjustable-rate  loans sold to the securitization  trusts totaling 5.00%
        of the amount initially securitized.  We apply a default or loss rate to
        the excess cashflow certificate because it is the "first-loss" piece and
        is  subordinated in right of payment to all other  securities  issued by
        the securitization trust. If defaults are higher than we anticipate,  we
        will receive less income and less excess cash flow than  expected in the
        future;  conversely,  if defaults  are lower than we  expected,  we will
        receive  more  income and more  excess  cash flow than  expected  in the
        future.

   (C)  LIBOR FORWARD  CURVE.  The LIBOR forward curve is used to project future
        interest  rates,  which  affects both the rate paid to the floating rate
        pass-through  security investors (primarily the 1 month LIBOR index) and
        the adjustable rate mortgage loans sold to the  securitization  trust (a
        fixed rate of  interest  for  either the first 24 or 36 months  then a 6
        month  variable  rate of  interest  thereafter  using the 6 month  LIBOR
        index). A significant  portion of our loans are fixed rate mortgages and
        a  significant  amount of these  fixed rate loans are backed by floating
        rate  securities  (I.E., 1 month LIBOR).  As such,  our excess  cashflow
        certificates are subject to significant basis risk and a change in LIBOR
        will,  therefore,  impact  our  excess  spread.  If LIBOR is lower  than
        anticipated  we will receive more income and more excess cash flows than
        expected in the future; conversely, if LIBOR is higher than expected, we
        will receive less income and less excess cash flows than expected in the
        future. In each of our  securitizations in which we sold NIM note(s), we
        purchased,  on behalf of the NIM owner trust,  an interest  rate cap for
        the benefit of the NIM  noteholder(s),  which helps  mitigate  the basis
        risk for the approximate time that the NIM notes are outstanding.

   (D)  DISCOUNT RATE. We use a discount rate that we believe reflects the risks
        associated  with our excess cashflow  certificates.  While quoted market
        prices on comparable excess cashflow certificates are not available,  we
        compare our  valuation  assumptions  and  performance  experience to our
        competitors in the non-conforming  mortgage industry.  Our discount rate
        takes  into  account  the  asset  quality  and  the  performance  of our
        securitized  mortgage  loans  compared to that of the industry and other
        characteristics   of  our  securitized  loans.  We  quantify  the  risks
        associated with our excess cashflow  certificates by comparing the asset
        quality and payment and loss  performance  experience of the  underlying
        securitized  mortgage  pools to  comparable  industry  performance.  The
        discount  rate we use to determine  the present value of cash flows from
        excess cashflow certificates reflects increased uncertainty  surrounding
        current and future  market  conditions,  including  without  limitation,
        uncertainty concerning inflation, recession, home prices, interest rates
        and equity markets.

                                       31

        We utilized a discount rate of 15% at December 31, 2002 and December 31,
        2001 on all excess  cashflow  certificates.  Prior to the quarter  ended
        September 30, 2001, we used an 18% discount rate on a NIM transaction we
        consummated  in November  2000.  We increased the discount rate on these
        excess  cashflow  certificates  during  the  period  that the senior NIM
        securities remained  outstanding,  to account for the potentially higher
        risk  associated with the residual cash flows expected to be received by
        the holder of the  certificated  interest  in the NIM  trust,  which was
        subordinated  to  the  multiple  senior   securities  sold  in  the  NIM
        transaction.  As part of the Second  Exchange  Offer,  all of the excess
        cashflow  certificates  that  were  subject  to the  November  2000  NIM
        transaction  were  transferred  to the  LLC.  We did  not  increase  the
        discount  rate on the  excess  cashflow  certificates  from  our  latest
        securitizations   despite   issuing  NIM  securities   because  the  NIM
        securities in the most recent transactions were:

        o issued from a single  securitization  as compared to the November 2000
          NIM   transaction,   which  was  backed  by  a   combination   of  six
          securitizations issued between September 1997 and March 1999 resulting
          in more  volatility or variability  in determining  the timing of cash
          flows to be received by the NIM; and

        o issued from a new  securitization as compared to the November 2000 NIM
          transaction,  which was  backed  by  several  seasoned  securitization
          trusts. The predictability in determining the timing of cash flows for
          the first  two years on a newly  issued  securitization  is  typically
          higher than  securitizations  that have been outstanding for a greater
          period of time  because  defaults  or losses to the trust  within  the
          first few years of issuance are typically  lower and more  predictable
          compared to a  securitization  that has been  outstanding for a longer
          period of time (a more seasoned transaction). Additionally, prepayment
          speeds are more  predictable  compared to more seasoned  transactions,
          which  is  aided  by  the  presence  of  prepayment  penalties,  which
          typically  expire  within the first few years after a mortgage loan is
          originated.  Therefore,  there is a higher  probability in determining
          the  timing  of cash  flows  to the  NIM  investor  on a new  issuance
          securitization as compared to a seasoned transaction.

    At March 31, 2002, we recorded a charge to interest income to reflect a fair
value  adjustment to our excess  cashflow  certificates,  totaling $2.1 million,
relating  to the  timing of excess  cash flows  that are to be  received  by the
excess   cashflow   certificate   after  the  release  or  "step-down"   of  the
overcollateralization account.

   The following  table  summarizes  the excess  cashflow  activity for the year
ended December 31, 2002 and 2001:
<TABLE>
<S>                                                    <C>           <C>        <C>


 (DOLLARS IN THOUSANDS)                                  2002          2001         2000
------------------------------------------------------------------------------------------
Balance, beginning of year                         $    16,765        216,907      224,659
New excess cashflow certificates                        10,499         11,081       32,716
New NIM certificates                                        --             --       73,658
Cash received from excess cashflow certificates        (2,588)        (9,990)     (28,444)
Net accretion of excess cashflow certificates             1,974         11,935       35,224
Fair value adjustments                                 (2,085)       (19,676)      (6,324)
Sales                                                       --       (40,402)      (2,131)
NIM certificate sales                                       --             --    (112,451)
Second Exchange Offer                                       --      (153,090)           --
------------------------------------------------------------------------------------------
Balance, end of year                               $    24,565         16,765      216,907
------------------------------------------------------------------------------------------
</TABLE>

   Our valuation of retained  excess cashflow  certificates is highly  dependent
upon  the  reasonableness  of our  assumptions  and  the  predictiveness  of the
relationships  that drive the results of our valuation model. The assumptions we
utilize,  described above, are complex, as we must make judgment calls about the
effect of matters that are inherently uncertain.  As the number of variables and
assumptions  affecting  the  possible  future  resolution  of the  uncertainties
increase, those judgments become even more complex.

   In  volatile  markets,  like those we have  experienced  in 2001 and in 2002,
there is increased risk that our actual results may vary  significantly from our
assumed  results.  The greater the time period over which the  uncertainty  will
exist, the greater the potential volatility for our valuation assumptions.

   For example,  assumptions  regarding prepayment speeds,  defaults,  and LIBOR
rates are used in estimating fair values of our excess cashflow certificates. If
loans  prepay  faster  than  estimated,  or loan loss  levels  are  higher  than
anticipated,  or LIBOR is higher than  anticipated,  we may be required to write
down the value of such  certificates.

                                       32

While we  believe  that our  assumptions  are  reasonable  estimates  using  our
historical loan  performance and the performance of similar  mortgage pools from
other lenders - in addition to accessing other public  information  about market
factors such as interest  rates,  inflation,  recession,  unemployment  and real
estate market  values,  among other things - these are just  estimates and it is
virtually  impossible  to predict the actual  level of  prepayments  and losses,
which are also driven by consumer behavior.

DEFERRED TAX ASSET

   As of December 31, 2002, we carried a deferred tax asset, net of $5.6 million
on our consolidated  financial  statements - comprised  primarily of federal and
state net  operating  losses  or  "NOLs"  less the tax  impact  and a  valuation
allowance.

   As of December 31, 2002, we have a gross  deferred tax asset of $47.9 million
(assuming a 40% effective tax rate) and a valuation  allowance of $42.3 million.
We established this valuation  allowance in 2001, in the midst of two successive
years of posting  significant  losses (2000 and 2001),  and the modest amount of
earnings we projected to earn over the ensuing several  quarters.  We believe it
was  appropriate to establish this valuation  allowance in accordance with GAAP.
Since then, we have now posted five consecutive quarters of profitability. If we
are able to continue to record positive  earnings over the next several quarters
and demonstrate a reliable future earnings stream, we expect to:

     o   utilize a larger  amount of the gross  deferred tax asset to offset the
         tax that would  otherwise be recorded on the majority of such earnings;
         and

     o   potentially  reduce the  amount of,  and/or  eliminate,  the  valuation
         allowance in accordance with GAAP (upon any reduction or elimination of
         the  valuation  allowance  net  earnings  and  retained  earnings  will
         increase;  however,  in  subsequent  quarters net earnings and retained
         earnings will be reduced by the amount of the tax provision).

   As of  December  31,  2002,  federal  and  state  NOL  carryforwards  totaled
approximately  $77.2  million,  with $3.9  million  expiring in 2020,  and $73.3
million expiring in 2021.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002, COMPARED TO THE YEAR ENDED DECEMBER 31, 2001

GENERAL

   We recorded net income for the year ended December 31, 2002 of $17.6 million,
or $1.11 per share basic and $1.04 per share diluted,  compared to a net loss of
$99.8 million, or $6.28 per share basic and diluted, for the year ended December
31,  2001.  Our net  income  for 2002  included  a special  tax  benefit of $2.2
million, or $0.14 per share basic and $0.13 diluted,  which primarily relates to
our obtaining  favorable  resolutions  to tax issues for which we had previously
reserved.

   The  majority of the net loss  related to (1) a $25.4  million  write down of
excess  cashflow  certificates  relating to a sale  agreement we entered into in
2001; (2) a charge (loss) to interest income of $19.7 million  reflecting a fair
value  adjustment  to our excess  cashflow  certificates;  (3) a charge of $19.3
million  related to the  extinguishment  of debt;  (4) a charge of $10.7 million
relating to our disposition  and transfer to Ocwen of our servicing  platform in
May  2001;  (5) a charge of $3.6  million  relating  to a change  in  accounting
estimates regarding the life expectancy of our computer-related equipment; (6) a
charge of $1.4 million relating to professional fees incurred in connection with
the Second Exchange Offer;  and (7) a charge of $1.5 million for  establishing a
reserve for non-performing mortgage loans that were ultimately sold.

REVENUES

   Total revenues  increased  $53.0  million,  or 160%, to $86.1 million for the
year ended December 31, 2002, from $33.1 million for the year ended December 31,
2001.  The  increase  in  revenues  was  primarily  the result of two charges we
incurred in 2001 that  significantly  reduced  revenues in that year.  First, we
recorded a $25.4 million  write-down of five excess cashflow  certificates  sold
for a cash purchase price  significantly below our carrying value of such excess
cashflow  certificates.  Second,  we  recorded  a fair value  adjustment  to our
remaining  excess  cashflow   certificates  due  to  changes  in  our  valuation
assumptions  totaling $19.7  million.  The increase in revenues in 2002 was also
attributable  to higher net gain on sale due to us  completing  securitizations,
net of  pre-funding,  of $819.0  million

                                       33

in 2002,  compared  to $345.0  million in 2001.  The  increase  in  revenue  was
partially  offset by (1) a decrease in interest  income from our retained excess
cashflow  certificates,  as we transferred the majority of these certificates in
connection  with our Second Exchange Offer in 2001 and (2) our not receiving any
servicing fees following the transfer of our servicing portfolio to Ocwen in May
2001.   (See   "-Corporate    Restructuring,    Debt   Modification   and   Debt
Restructuring").

   We originated  $872.2  million of mortgage  loans for the year ended December
31, 2002,  representing  a 40% increase  from $621.7  million of mortgage  loans
originated  for the  year  ended  December  31,  2001.  We  securitized,  net of
pre-funding,  $819.0  million of loans during the year ended  December 31, 2002,
representing  a 137%  increase from the $345.0  million of loans we  securitized
during 2001.  Our whole loan sales  amounted to $103.0  million  during the year
ended December 31, 2002,  representing a 61% decrease from the $261.1 million of
whole loans sold for the year ended December 31, 2001.

   NET GAIN ON SALE OF MORTGAGE  LOANS.  Net gain on sale of  mortgage  loans is
represented by the following:

   (1) the sum of:

       (a)  the cash purchase price we receive in connection with selling one of
            the following  securities in connection  with our  securitization(s)
            for   a   particular    period:    (i)   a   NIM   note,    net   of
            overcollateralization  amount  and  interest  rate  cap or  (ii)  an
            interest-only certificate;

       (b)  the fair  value of the  non-cash  excess  cashflow  certificates  we
            retain in a securitization for each period;

       (c)  the cash premium received from selling mortgage  servicing rights in
            connection with each securitization; and

       (d)  the  cash   premium   earned   from   selling   whole   loans  on  a
            servicing-released basis,

   (2) less the (i) costs associated with  securitizations,  (ii) any hedge loss
       (gain)  associated with a particular  securitization,  and (iii) any loss
       associated with loans sold at a discount.

   Net gain on sale of mortgage loans increased $20.2 million,  or 52%, to $58.8
million for the year ended  December 31, 2002,  from $38.6  million for the year
ended  December 31, 2001.  This  increase was  primarily  due to (a) higher loan
production  resulting  in a greater  amount of loans  securitized  and sold on a
whole loan basis in 2002 as  compared  to 2001,  (b) our  securitizing  a higher
percentage  of  mortgage   loans  in  2002,   instead  of  selling  whole  loans
servicing-released,  which  typically  results  in a  higher  net  gain  on sale
percentage than whole loan sales and (c) our selling  approximately  $60 million
of mortgage  loans we had held in  inventory at December 31, 2001 in addition to
the  mortgage  loans  we  originated   during  2002.  We  securitized,   net  of
pre-funding, $819.0 million in 2002 and sold $103.0 million of mortgage loans on
a  servicing-released  basis  in  2002,  compared  to  $345.0  million  of loans
securitized and $261.1 million of mortgage loans sold in 2001.

   INTEREST INCOME. Interest income primarily represents the sum of:

   (1) the gross interest we earn on loans held for sale;

   (2) the cash we receive from our excess cashflow certificates;

   (3) the non-cash  mark-to-market  or non-cash  valuation  adjustments  to our
       excess cashflow certificates to reflect changes in fair value;

   (4) cash interest earned on bank accounts; and

   (5) miscellaneous  interest income including prepayment penalties received on
       certain of our securitizations prior to 2002.

   Interest income  increased  $33.8 million,  or 153%, to $11.7 million for the
year ended December 31, 2002,  from $(22.1)  million for the year ended December
31,  2001.  In 2001,  we  recorded a $25.4  million  write-down  of five  excess
cashflow  certificates  sold for a cash purchase price  significantly  below our
carrying value of such excess cashflow certificates.  In addition, we recorded a
fair value  adjustment  to our remaining  excess  cashflow  certificates  due to
changes in our valuation  assumptions  totaling $19.7 million.  The increase was
also attributed to higher average loan balance (and, consequently, more interest
earned on loans  held for  sale) in 2002  compared  to 2001.  The  increase  was
partially   offset  by  a  decrease  in  revenues   from  our  excess   cashflow
certificates,  as we transferred  the majority of these  certificates as part of
our  Second  Exchange  Offer  in  2001.  (See  "-Corporate  Restructuring,  Debt

                                       34

Modification and Debt Restructuring").

   SERVICING  FEES.  Servicing  fees  represent  all  contractual  and ancillary
servicing  revenue  we  receive,   less  the  offsetting   amortization  of  the
capitalized  mortgage servicing rights, and any adjustments  recorded to reflect
valuation allowances for the impairment in mortgage servicing rights.

   We did  not  receive  any  servicing  fees  during  2002  as a  result  of us
transferring  our entire  servicing  portfolio to Ocwen in May of 2001. In 2001,
servicing fees totaled $3.0 million.

   NET ORIGINATION  FEES AND OTHER INCOME.  Origination  fees represent (1) fees
earned on broker and retail  originated  loans,  (2) premiums  paid to originate
mortgage loans, (3) distributions  from Delta Funding Residual Exchange Company,
LLC (the "LLC"), and (4) other miscellaneous income, if any.

   Net  origination  fees and other income  increased  $1.9 million,  or 14%, to
$15.6 million for the year ended  December 31, 2002,  from $13.7 million for the
year ended December 31, 2001. The increase in the net origination fees and other
income during the twelve  months ended  December 31, 2002 is primarily due to us
starting to receive distributions from the LLC (an unaffiliated entity to us) in
the first quarter of 2002. In addition,  our retail  origination  fees increased
during the period due to higher production.

EXPENSES

   Total expenses  decreased by $40.5 million,  or 37%, to $70.3 million for the
year ended  December 31, 2002,  from $110.8  million for the year ended December
31, 2001. The decrease in revenues  primarily resulted from expenses we incurred
in 2001  that did not recur in 2002,  including  expenses  associated  primarily
with: (1) our  disposition  and transfer of our servicing  portfolio to Ocwen in
May 2001, (2) capital  charges  associated  with  repurchasing  our interest and
servicing advance  securitizations prior to the sale of the servicing portfolio,
(3) a change  in  accounting  estimates  regarding  the life  expectancy  of our
computer-related  equipment in 2001, (4) a charge for reserves primarily against
a pool of non-performing loans, which we ultimately sold in July 2001, and (5) a
charge related to professional fees incurred with the second exchange offer. The
decrease also resulted from (a) a significantly  lower interest  expense in 2002
resulting from (1) our  extinguishing  approximately  $139.2 million of Notes in
the Second Exchange Offer (see "-Corporate Restructuring,  Debt Modification and
Debt  Restructuring"),  and (2)  lower  warehouse  financing  costs due to lower
borrowing  costs  during  2002,  as well as (b) a special  tax  benefit  in 2002
related to a  favorable  resolution  to tax  issues for which we had  previously
reserved and do not expect to recur.

   PAYROLL  AND RELATED  COSTS.  Payroll and  related  costs  include  salaries,
benefits and payroll taxes for all employees.

   Payroll and related costs decreased by $1.6 million,  or 4%, to $41.3 million
for the year ended  December  31,  2002,  from $42.9  million for the year ended
December  31,  2001.  The  decrease  was  primarily  the result of a  downsizing
effectuated  as part of our  overall  corporate  restructuring,  related  to our
transfer of our servicing operations in May 2001.

   INTEREST  EXPENSE.  Interest  expense  includes the borrowing  cost under our
warehouse credit facility to finance loan originations,  equipment financing and
the notes.

   Interest expense decreased by $10.8 million,  or 67%, to $5.3 million for the
year ended  December 31, 2002 from $16.1 million for the year ended December 31,
2001. The decrease was primarily  attributable to (i) our  extinguishing  $139.2
million of Senior notes in August 2001 and the  corresponding  interest  related
thereto,  and (ii) lower warehouse financing costs due to lower borrowing costs.
The average  one-month LIBOR rate,  which is the benchmark used to determine our
cost of borrowed funds, decreased on average to 1.8% for the year ended December
31, 2002, compared to an average of 3.9% for the year ended December 31, 2001.

   GENERAL AND  ADMINISTRATIVE  EXPENSES.  General and  administrative  expenses
consist  primarily of office rent,  insurance,  telephone,  depreciation,  legal
reserves and fees,  license  fees,  accounting  fees,  travel and  entertainment
expenses, advertising and promotional expenses and the provision for loan losses
on the inventory of loans held for sale and recourse loans.

   General and administrative expenses decreased $25.4 million, or 52%, to $23.7
million for the year ended  December 31, 2002,  from $49.1  million for the year
ended  December 31, 2001.  The year ended  December 31, 2001  included  expenses
primarily  associated  with (1) our  disposition  and transfer of our  servicing
portfolio in May 2001

                                       35

to Ocwen,  (2) capital  charges  previously  associated  with our  interest  and
servicing advance  securitizations prior to the sale of the servicing portfolio,
(3) a change  in  accounting  estimates  regarding  the life  expectancy  of our
computer-related  equipment,  and (4) a charge for reserves  primarily against a
pool of non-performing loans, which we ultimately sold in July 2001.

   RESTRUCTURING AND OTHER SPECIAL CHARGES. In 2001, we recorded $2.7 million of
restructuring  and other special charges relating to professional  fees incurred
in  connection  with  the  Second  Exchange  Offer  in  2001  (see   "-Corporate
Restructuring,  Debt Modification and Debt  Restructuring") and charges relating
to the disposition of branches and severance  costs  associated with closing our
servicing operation.

   EXTINGUISHMENT  OF DEBT.  In 2001,  we  recorded  a charge of $19.3  million,
related  to  the   extinguishment  of  debt  associated  with  our  notes.  (see
"-Corporate Restructuring, Debt Modification and Debt Restructuring")

   INCOME  TAXES.  Deferred tax assets and  liabilities  are  recognized  on the
income  reported in the financial  statements  regardless of when such taxes are
paid. These deferred taxes are measured by applying current enacted tax rates.

   We recorded a tax benefit of $1.8  million  for the year ended  December  31,
2002 primarily due to us recording a special tax benefit of $2.2 million related
to  our  obtaining  a  favorable  resolution  to tax  issues  for  which  we had
previously  reserved  and do not  expect  to  recur.  This was  offset  by a tax
provision of $0.4 million primarily related to excess inclusion income generated
by our excess  cashflow  certificates.  In 2001,  we recorded a tax provision of
$2.9 million which was primarily related to excess inclusion income.

   We have less taxable  excess  inclusion  income in 2002, as compared to 2001,
due to our holding lower excess cashflow  certificates during the period. Excess
inclusion  income  cannot be offset by our NOLs under the REMIC tax laws.  Going
forward,  we expect to  continue  to incur a modest  amount of excess  inclusion
income, which we will be unable to offset using our NOLs.

YEAR ENDED DECEMBER 31, 2001, COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

GENERAL

   We reported a net loss for the year ended December 31, 2001 of $99.8 million,
or $6.28 per share (basic and diluted), compared to a net loss of $49.4 million,
or $3.11 per share (basic and  diluted),  for the year ended  December 31, 2000.
For the year ended December 31, 2001, the net loss included:

     o   a $25.4 million, or $1.60 per share (basic and diluted),  write down of
         excess  cashflow  certificates  relating to a sale agreement we entered
         into in the first quarter of 2001 (that closed in May 2001), for a cash
         purchase price of $15 million,  which reflected a significant  discount
         to our carrying value of such excess cashflow certificates;

     o   a charge (loss) to interest income of $19.7 million, or $1.24 per share
         (basic and  diluted),  in the third  quarter,  reflecting  a fair value
         adjustment to our remaining  excess cashflow  certificates,  due to our
         changing the valuation  assumptions  we use to estimate fair value (see
         Notes to the  Consolidated  Financial  Statements  -  "Excess  Cashflow
         Certificates, Net");

     o   a charge  of $19.3  million,  or $1.21 per share  (basic  and  diluted)
         related to the extinguishment of debt associated with our notes;

     o   a charge of $10.7  million,  or $0.67 per share  (basic  and  diluted),
         relating to our  disposition  and  transfer  to Ocwen of our  servicing
         platform in May 2001;

     o   a charge of $3.6 million,  or $0.23 per share (basic and  diluted),  in
         the  second  quarter  relating  to a  change  in  accounting  estimates
         regarding the life expectancy of our computer-related equipment;

     o   a charge of $1.5 million,  or $0.09 per share (basic and  diluted),  in
         the  second  quarter  for  establishing  a reserve  for  non-performing
         mortgage loans; and

     o   a charge of $1.4 million, or $0.09 per share (basic and diluted) in the
         third quarter relating to professional fees incurred in connection with
         the Second Exchange Offer.

                                       36

   Results for the year ended December 31, 2001 were also negatively impacted by
(a) our not executing a  securitization  in either the first or third  quarters,
which  significantly  reduced our revenues for the year ended  December 31, 2001
and (b) a lower level of originations, compared to 2000.

   For the  year  ended  December  31,  2000,  we  reported  a net loss of $49.4
million,  or $3.11 per share (basic and  diluted).  The majority of the net loss
incurred related to:

     o   the write-down of our capitalized  mortgage  servicing  rights of $31.4
         million;

     o   restructuring and debt modification charges of $7.7 million;

     o   a reduction in the carrying  value of a portion of our excess  cashflow
         certificates  related  to an  increase  in the  discount  rate  of such
         certificates included in our NIM transaction, totaling $6.9 million;

     o   costs  associated  with our NIM  transaction  in November 2000 totaling
         $3.2 million; and

     o   the  write-down  of goodwill  relating to our 1997 purchase of Fidelity
         Mortgage totaling $1.4 million.

   This was partially  offset by  income  associated with the sale of one of our
   domain names for $1.7 million.

REVENUES

   Total revenues decreased $86.3 million, or 72%, to $33.1 million for the year
ended  December 31, 2001,  from $119.4  million for the year ended  December 31,
2000. The decrease in revenue was primarily attributable to:

    o    a decrease in interest income due to:

          (1) a $25.4  million  write-down  in the first  quarter of five excess
              cashflow certificates, and

          (2) a $19.7  million  charge in the third  quarter  reflecting  a fair
              value  adjustment to our remaining  excess cashflow  certificates,
              due to our changing the valuation  assumptions  we use to estimate
              fair value (See Notes to the Consolidated  Financial  Statements -
              "Excess Cashflow Certificates, Net");

    o    a lower net gain recognized on the sale of mortgage loans;

    o    lower  origination  fees and interest income due to a decrease in total
         loan production; and

    o    lower  servicing  fees due to our agreement in January 2001 to transfer
         our servicing  portfolio to Ocwen,  pursuant to which Ocwen immediately
         began  receiving  all servicing  related fees and, in turn,  paid us an
         interim  servicing  fee,  until the servicing  portfolio was physically
         transferred to Ocwen in May 2001.

   We originated  $621.7  million of mortgage  loans for the year ended December
31, 2001,  representing  a 33% decrease  from $933.4  million of mortgage  loans
originated  and  purchased  for year ended  December 31,  2000.  The decrease in
mortgage  loans  originated in 2001,  was  primarily due to senior  management's
attention  being  diverted  to  completing  our  necessary  corporate  and  debt
restructuring (See Notes to the Consolidated  Financial  Statements - "Corporate
Restructuring, Debt Modification and Debt Restructuring"). We securitized $345.0
million of loans during the year ended  December 31,  2001,  representing  a 61%
decrease from the $880.0 million of loans we securitized  during 2000. Our whole
loan sales  amounted to $261.1  million during the year ended December 31, 2001,
representing  a 348% increase from the $58.3 million of whole loans sold for the
year ended  December 31, 2000.  This  increase in whole loan sales  reflects our
present  strategy to diversify our funding sources between  securitizations  and
whole loan sales, in order to maximize cash flow and profitability.

   Net gain on sale of mortgage loans decreased $14.0 million,  or 27%, to $38.6
million for the year ended  December 31, 2001,  from $52.6  million for the year
ended  December 31, 2000.  This  decrease was primarily due to a 35% decrease in
the amount of loans  securitized or sold to $606.1 million in 2001,  compared to
$938.3  million of loans  securitized  or sold in 2000.  The  decrease  in loans
securitized or sold was due to an overall 33% decrease in total loan  production
in 2001,  compared to 2000.  The  decrease  in net gain on sale on a  comparable
basis was partially  offset by (1) a higher gross profit margin  recorded on our
securitizations in 2001 versus 2000, and (2) no correspondent premiums (negative
revenue) to acquire loans in 2001 - because we closed our correspondent  channel
in June 2000 - compared  to the $1.6  million  we paid  during the first half of
2000.  The  weighted  average net gain on sale ratio was 6.4% for the year ended
December 31, 2001 compared to 5.6% for the year ended December 31, 2000.

    Interest income decreased $54.4 million, or 168%, to $(22.1) million for the
year ended December 31, 2001, from $32.3 million for the year ended December 31,
2000. The decrease in interest income was primarily due to:

                                       37

    o  our $25.4 million write down of excess cashflow certificates that we sold
       for a cash  purchase  price  of $15  million  under a sale  agreement  we
       entered into in the first quarter of 2001;

    o  a charge to  interest  income  of $19.7  million  in the  third  quarter,
       reflecting  a fair value  adjustment  to our  remaining  excess  cashflow
       certificates,  due to the changes we made to the valuation assumptions we
       use to estimate  fair value (see "-Notes to  Financial  Statements - Note
       No. 8-Excess Cashflow Certificates, Net");

    o  a 33% decrease in loan  production  for the year ended December 31, 2001,
       compared to the year ended  December 31, 2000,  which resulted in a lower
       amount of mortgage loans generating interest income while held for sale;

    o  a lower  average  mortgage  coupon rate  charged to the borrower of 10.5%
       from 11.4% reflecting a lower economic interest rate environment; and

    o  a decrease  in  interest  earned on  interest  bearing  accounts  that we
       received as servicer on our securitizations.

   Servicing fees decreased $11.2 million,  or 79%, to $3.0 million for the year
ended  December 31,  2001,  from $14.2  million for the year ended  December 31,
2000.  This  decrease was the result of our  agreement to transfer our servicing
portfolio to Ocwen in January 2001,  pursuant to which Ocwen  immediately  began
receiving all servicing  related fees and, in turn, paid us an interim servicing
fee, until the servicing  portfolio was  physically  transferred to Ocwen in May
2001.

   Net  origination  fees and other income  decreased  $6.7 million,  or 33%, to
$13.7 million for the year ended  December 31, 2001,  from $20.4 million for the
year ended  December 31, 2000.  The decrease was  primarily  the result of a 33%
decrease in loan originations and our sale of a domain name in July 2000.

EXPENSES

   Total expenses decreased by $71.3 million,  or 39%, to $110.8 million for the
year ended  December 31, 2001,  from $182.1  million for the year ended December
31, 2000. The decrease was primarily due to a decrease in personnel costs due to
our  restructuring  and our sale of our  servicing  portfolio  and a decrease in
interest expense.  The decrease in expenses was also the result of our incurring
higher  expenses for the year ended 2000 relating to charges  associated  with a
corporate  restructuring and debt modification in the third quarter of 2000. The
decrease in expenses was  partially  offset by charges  principally  incurred in
connection with:

    o  our  disposition  and transfer of our servicing  platform to Ocwen in May
       2001;

    o  a change in our  accounting  estimates  regarding the life  expectancy of
       computer-related equipment in the second quarter of 2001; and

    o  our recording a reserve for  non-performing  mortgage loans in the second
       quarter of 2001.

   Payroll  and  related  costs  decreased  by $13.6  million,  or 24%, to $42.9
million for the year ended  December 31, 2001,  from $56.5  million for the year
ended  December 31,  2000.  The  decrease  was  primarily  the result of (1) the
downsizing  we  effectuated  as  part  of our  overall  corporate  restructuring
beginning in the second half of 2000 and culminating with the physical  transfer
of our servicing  operation in May 2001;  and (2) a lower amount of  commissions
paid due to the decrease in  originations.  We employed 609 full- and  part-time
employees as of December 31, 2001, compared to 851 full- and part-time employees
as of December 2000.

   Interest expense decreased by $14.3 million, or 47%, to $16.1 million for the
year ended  December 31, 2001 from $30.4 million for the year ended December 31,
2000. The decrease was primarily  attributable  to the $12.1 million of interest
expense we saved in 2001 by extinguishing $139.2 million of notes in August 2001
and, to a lesser extent, to our lower loan production in 2001, which resulted in
lower warehouse  financing,  and lower financing  costs.  The average  one-month
LIBOR rate, which is the benchmark used to determine our cost of borrowed funds,
decreased on average to 3.9% for the year ended  December 31, 2001,  compared to
an average of 6.4% for the year ended December 31, 2000.

   General and administrative  expenses increased $3.6 million,  or 8%, to $49.1
million for the year ended  December 31, 2001,  from $45.5  million for the year
ended December 31, 2000. The increase primarily resulted from:

    o  the cost of  maintaining  an  unprofitable  servicing  platform  until we
       physically transferred it to Ocwen in May 2001, plus the associated costs
       of transferring our servicing portfolio to Ocwen;

                                       38

    o  a change in the useful life of computer-related equipment from five years
       to three years;

    o  a fair  value  adjustment  to a pool of  non-performing  loans,  which we
       ultimately sold in July 2001;

    o  partially   offset  by  the  cost  savings   related  to  our   corporate
       restructuring,  including the  disposition of our servicing  portfolio to
       Ocwen in May 2001 and  elimination  of capital  charges  associated  with
       making  securitization  advances  prior  to the  sale  of  the  servicing
       portfolio.

   We recorded the following restructuring and other special charges in 2001 and
2000:

    o  In 2001, $2.7 million of restructuring and other special charges relating
       to our  disposition  of branches  and  severance  costs  associated  with
       closing our servicing operation.

    o  In the  fourth  quarter  of  2000,  a $1.6  million  write-down  of other
       servicing receivable assets.

    o  In the third quarter of 2000, $3.1 million of debt  modification  charges
       primarily  related to legal fees and the noteholders'  financial  advisor
       fees associated with the Debt Modification and Exchange Offering. We also
       recorded  $6.7  million of charges  related to our  restructuring  of our
       operations,  primarily related to employee severance  associated with the
       layoffs, a reduction to goodwill and office equipment write-offs.

   We  recorded  a charge to  extinguishment  of debt in 2001 of $19.3  million,
related to the extinguishment of debt associated with our notes.

   We  recorded a tax  provision  of $2.9  million  primarily  related to excess
inclusion income generated by our excess cashflow certificates and a tax benefit
of $13.2  million for the year ended  December 31, 2001 and 2000,  respectively.
Excess  inclusion  income cannot be offset by our NOLs under the REMIC tax laws.
In  2001,   excess   inclusion   income  was  primarily   caused  by  the  REMIC
securitization  trust  utilizing cash, that otherwise would have been paid to us
as holder of the excess cashflow certificate, to make payments to other security
holders:

    o  to create and/or maintain  overcollateralization  by artificially  paying
       down the principal balance of the asset-backed securities; and

    o  in connection with our NIM transaction, executed in November 2000, to pay
       down the debt collateralized by our excess cashflow certificates.

FINANCIAL CONDITION

DECEMBER 31, 2002 COMPARED TO DECEMBER 31, 2001

   Cash and  interest-bearing  deposits decreased $3.0 million,  or 47%, to $3.4
million at December  31, 2002,  from $6.4  million at December  31,  2001.  This
decrease  was  primarily  related to our  utilizing  operating  cash to fund our
production of mortgage  loans rather than finance the mortgage loans through our
warehouse facilities.

   Accounts  receivable  decreased  $2.4  million,  or 59%,  to $1.7  million at
December 31, 2002,  from $4.1  million at December 31, 2001.  This  decrease was
primarily due to the  settlement of cash  surrender  value of an officer's  life
insurance policies in December of 2002.

   Loans held for sale, net,  decreased $60.4 million,  or 64%, to $34.0 million
at December 31, 2002,  from $94.4 million at December 31, 2001.  This represents
mortgage  loans  held  in  inventory  awaiting  either  a  whole  loan  sale  or
securitization.  This decrease was primarily due to the net  difference  between
loan originations and loans sold or securitized during 2002.

   Excess cashflow  certificates,  net increased $7.8 million,  or 46%, to $24.6
million at December 31,  2002,  from $16.8  million at December  31, 2001.  This
increase was  primarily  due to us recording  new excess  cashflow  certificates
totaling  $10.5  million  from loans  securitized  in 2002.  This  increase  was
partially offset by a $2.1 million fair value  mark-to-market  adjustment of our
excess cashflow certificates, reflecting the change in fair value of such excess
cashflow  certificates - which  incorporates  any change in value  (accretion or
reduction) in the carrying  value of the excess  cashflow  certificates  and the
cash distributions we received from such excess cashflow certificates.

   Equipment,  net, decreased $2.4 million,  or 48%, to $2.6 million at December
31,  2002,  from $5.0  million at December 31,  2001.  This  decrease  primarily
reflects the periodic depreciation of fixed assets.

                                       39

   We have a deferred  tax asset,  net, of $5.6 million at December 31, 2002 and
2001,  which was primarily  attributable to the net operating losses we incurred
in 2000 and 2001.  Included  in the  deferred  tax asset,  net,  is a  valuation
allowance  established  in 2000 (See  Notes to  Financial  Statements  - "Income
Taxes").

   Warehouse financing and other borrowings  decreased $73.2 million, or 82%, to
$16.4  million at December  31,  2002,  from $89.6 at December  31,  2001.  This
decrease was primarily attributable to a lower amount of mortgage loans held for
sale  (mortgage  loans held in  inventory  awaiting  either a whole loan sale or
securitization) to be financed under our warehouse credit facilities.

   Senior notes totaled $10.8 million at December 31, 2002 and 2001.  The senior
notes accrue at a rate of 9.5% per annum,  payable  semi-annually on February 1,
and August 1.

   Accounts  payable and accrued  expenses  decreased  $2.7 million,  or 18%, to
$12.3 million at December 31, 2002 from $15.0 million at December 31, 2001. This
decrease was  primarily the result of the timing of various  operating  accruals
and payables.

   Income  taxes  payable  decreased  $2.0  million,  or 38%, to $3.2 million at
December  31, 2002 from $5.2 million at December  31,  2001.  This  decrease was
primarily the result of us obtaining a favorable tax resolution to tax issues in
the amount of $2.2  million,  for which we had  previously  reserved  and do not
expect to recur.

   Stockholders'  equity  increased $17.6 million,  or 148%, to $29.5 million at
December  31,  2002 from $11.9  million at  December  31,  2001.  This  increase
represents our positive earnings for the period.

LIQUIDITY AND CAPITAL RESOURCES

   We  require  substantial  amounts  of  cash to fund  our  loan  originations,
securitization  activities  and  operations.  In 2002, we operated on a positive
cash flow basis. In the past,  however, we have operated generally on a negative
cash flow basis.  Embedded in our current cost  structure  are many fixed costs,
which are not likely to be  significantly  affected by a relatively  substantial
increase  in loan  originations.  If we can  increase  our  loan  production  to
generate  sufficient  additional  revenues from our securitizations and sales of
such loans to offset our current cost structure and cash uses, we believe we can
continue  to  generate  positive  cash  flow in 2003.  However,  there can be no
assurance  we will be  successful  in this  regard.  To do so, we must  generate
sufficient cash from:

    o  the premiums we receive from  selling NIM or  interest-only  certificates
       and mortgage servicing rights in connection with our securitizations;

    o  the premiums we receive from selling whole loans, servicing released;

    o  origination fees on newly closed loans;

    o  excess   cashflow   certificates   we  retain  in  connection   with  our
       securitizations;

    o  interest  income  we  receive  on  our  loans  held  for  sale  prior  to
       securitization and/or whole loan sale; and

    o  distributions from the LLC.

There can be no assurance,  however,  that we will continue  generating positive
cash flow in 2003 or at all.

   Currently, our primary cash requirements include the funding of:

      o  the equity in our  mortgage  loans held for sale,  for which we receive
         financing  on from our  warehouse  lenders  up to only 98% of the total
         amount of the mortgage loan's  principal  balance (e.g.,  our warehouse
         lenders  will  provide  financing  to us equal to $98,000 on a mortgage
         loan with a principal  balance of $100,000,  leaving us with our $2,000
         tied up in the equity of the mortgage loan);

      o  interest expense on warehouse lines of credit,  the remaining notes and
         other financing;

      o  scheduled principal paydowns on other financing;

      o  expenses incurred in connection with our securitization program;

      o  tax  payments  on excess  inclusion  income  generated  from our excess
         cashflow certificates; and

      o  general ongoing  administrative and operating  expenses,  including the
         cost to originate loans.

   Historically,  we have  financed our  operations  utilizing  various  secured
credit financing  facilities,  issuance of corporate debt (i.e.,  senior notes),
issuance of equity, and the sale of interest-only  certificates and/or NIM notes
(sold
                                       40

in  conjunction  with  each  of our  securitizations)  to  offset  our  negative
operating  cash flow and support our  originations,  securitizations,  servicing
(prior to May 2001) and general operating expenses.  Over the past few years, we
have engaged in a series of  transactions  to further  address our negative cash
flow, including the following:

   o  in 2000, completing  three securitizations  of interest (delinquency)  and
      servicing  advances,  in which we sold our rights to be reimbursed for our
      outstanding  delinquency  and servicing  advances that we made as servicer
      for a cash purchase price. We used the proceeds from these securitizations
      to (1) repay a $25  million  working  capital  sub-line of our former bank
      syndicate  warehouse facility that expired in June 2000, which was secured
      by our delinquency and servicing advance receivables,  and (2) for working
      capital  to  finance  our   operations,   including  the  funding  of  new
      delinquency  and  servicing  advances.  We  ultimately  repurchased  these
      securitizations  in 2001,  in  connection  with the sale of  servicing  to
      Ocwen,  using  the  proceeds  we  received  from  selling  the  underlying
      delinquency and servicing advance receivables to Ocwen;

   o  modifying our senior notes in 2000 as part of the Debt  Modification  (see
      "-Corporate  Restructuring,  Debt  Modification and Debt  Restructuring"),
      which   enabled  us  to   monetize  a  portion  of  our  excess   cashflow
      certificates,  first by  obtaining  $17 million in residual  financing  in
      August 2000, secured by some of our excess cashflow certificates.  Shortly
      thereafter,  in November  2000, we sold six excess  cashflow  certificates
      through a private  placement NIM transaction to an owner trust that issued
      senior  certificates to institutional  investors for a cash purchase.  The
      net proceeds of the NIM transaction,  after expenses, was used entirely to
      repay the $17 million of residual financing we borrowed in August 2000 and
      to  create a $7.125  million  cash  escrow  account  to be used to pay the
      semi-annual interest payment due on the notes in February 2001;

   o  as part of our Second  Debt  Restructuring,  at the time of the signing of
      the Letter of Intent in  February  2001,  we obtained  approximately  $2.5
      million of residual  financing  secured by several of our excess  cashflow
      certificates.   We  received  approximately  $7.1  million  of  additional
      residual   financing  secured  primarily  by  additional  excess  cashflow
      certificates  following the  consummation of the consent  solicitation and
      the execution of the third  supplemental  indenture in March 2001. Also in
      March 2001, we entered into a sale agreement to sell five excess  cashflow
      certificates  for a $15 million cash  purchase  price.  As customary  with
      sales of similar assets, the cash settlement did not occur until the pools
      of mortgage loans  underlying the five excess cashflow  certificates  were
      transferred  to an agreed  upon  servicer  to service the pool of mortgage
      loans for the benefit of the purchaser. The purchaser of these five excess
      cashflow certificates  provided bridge financing,  in the form of residual
      financing described above, until the transfer of servicing in May 2001. We
      used these  proceeds to repay the residual  financing  and have been using
      the balance of the proceeds, together with the initial residual financing,
      for working capital.  Because these excess cashflow certificates were sold
      at a  significant  discount  to our book  value for such  excess  cashflow
      certificates,  we recorded $25.4 million  pre-tax  non-cash  charge in the
      first quarter of 2001.

   Currently, our primary sources of liquidity continue to be, subject to market
conditions:

      o  on-balance  sheet  warehouse  financing  and  other  secured  financing
         facilities (e.g., capital leasing);

      o  securitizations  of mortgage  loans and our  corresponding  sale of NIM
         Certificates  (or  interest-only   certificates,   depending  upon  the
         securitization structure) and mortgage servicing rights;

      o  sales of whole loans;

      o  cash flows from retained excess cashflow certificates;

      o  distributions  from  the  LLC  (an  unaffiliated  entity  to  us)  (see
         "-Corporate Restructuring, Debt Modification and Debt Restructuring");

      o  origination fees, interest income and other cash revenues; and

      o  utilizing NIM securitizations  and/or selling or financing our existing
         excess cashflow certificates.

   If we are not able to obtain financing,  we will not be able to originate new
loans  and our  business  and  results  of  operations  will be  materially  and
adversely affected.

   To  accumulate  loans  for  securitization  or  sale,  we  borrow  money on a
short-term  basis through  warehouse lines of credit.  We have relied upon a few
lenders to provide the primary credit  facilities for our loan  originations and
currently  have  two  warehouse  facilities  as of  December  31,  2002 for this
purpose. We have two $200 million credit

                                       41

facilities  that have a variable rate of interest and expire in May 2003.  There
can be no  assurance  that we will be able  either  to  renew or  replace  these
warehouse facilities at their maturities at terms satisfactory to us or at all.

   In addition to our common stock,  we currently have the following  securities
outstanding:

   o  Series A preferred stock having an aggregate  preference of $13.9 million,
      for  which  we  are  required  to  pay  10%  annual   dividends,   payable
      semi-annually, commencing in July 2003;

   o  Ten-year  warrants to  purchase  approximately  1.6 million  shares of our
      common stock, currently at an exercise price of $0.01 per share; and

   o  Approximately  $10.8 million of senior notes due 2004,  paying 9.5% annual
      interest, payable semi-annually.

   We are required to comply with various  operating and financial  covenants as
provided in our warehouse  agreements,  which are  customary  for  agreements of
their  type.  The  continued  availability  of funds  provided to us under these
agreements is subject to, among other conditions,  our continued compliance with
these  covenants.  Additionally,  we are  required  to comply  with  restrictive
covenants in connection with our Series A preferred  stock and our warrants.  We
believe we are in compliance with such covenants as of December 31, 2002.

   We have  repurchase  agreements  with certain of the  institutions  that have
purchased mortgages loans from us. Currently, some of the agreements provide for
the repurchase by us of any of the mortgage  loans that go to foreclosure  sale.
At the foreclosure sale, we will repurchase the mortgage, if necessary, and make
the institution  whole.  The dollar amount of loans that were sold with recourse
and still outstanding totaled $2.6 million at December 31, 2002 and $3.5 million
at December 31, 2001.  Included in accounts payable is an allowance for recourse
losses of $1.2  million at December  31, 2002 and $1.4  million at December  31,
2001, respectively.

   We  may,  from  time  to  time,  if  opportunities  arise  that we deem to be
appropriate,  repurchase  in the open market some of our  outstanding  preferred
stock and senior notes. The funds for any such repurchases  would be expected to
come from our existing cash.  There is no assurance that we will  effectuate any
such repurchases or the terms thereof.

   Subject to our  ability to execute  our  business  strategy  and the  various
uncertainties described above (and described in more detail in "-Forward Looking
Statements and Risk Factors" below),  we anticipate that we will have sufficient
cash  flows,  short-term  funding and capital  resources  to meet our  liquidity
obligations for the foreseeable future.

INTEREST RATE RISK

    Our primary market risk exposure is interest rate risk. Profitability may be
directly  affected by the level of, and fluctuation  in,  interest rates,  which
affect our ability to earn a spread between  interest  received on our loans and
the  costs of our  borrowings,  which  are tied to  various  interest  rate swap
maturities,  commercial paper rates and LIBOR. Our profitability is likely to be
adversely  affected during any period of unexpected or rapid changes in interest
rates. A substantial  and sustained  increase in interest rates could  adversely
affect our ability to originate  loans. A significant  decline in interest rates
could increase the level of loan prepayments  thereby decreasing the size of the
loan servicing portfolio  underlying our  securitizations.  To the extent excess
cashflow certificates have been capitalized on our financial statements,  higher
than  anticipated  rates of loan prepayments or losses could require us to write
down the value of such excess  cashflow  certificates,  adversely  impacting our
earnings.  In an  effort to  mitigate  the  effect of  interest  rate  risk,  we
periodically  review our various mortgage products and identify and modify those
that have proven  historically more susceptible to prepayments.  However,  there
can be no assurance that these  modifications  to our product line will mitigate
effectively interest rate risk in the future.

   Periods of  unexpected  or rapid  changes in  interest  rates,  and/or  other
volatility or uncertainty regarding interest rates, also can affect adversely us
by increasing  the  likelihood  that  asset-backed  investors will demand higher
spreads than normal to offset the volatility and/or uncertainty, which decreases
the value of the excess  cashflow  certificates  we receive in connection with a
securitization.

   Fluctuating  interest rates also may affect the net interest  income we earn,
resulting from the difference between the yield we receive on loans held pending
sales  and the  interest  paid by us for  funds  borrowed  under  our  warehouse
facility. We may, however, undertake to hedge our exposure to this risk by using
various hedging strategies,  including Fannie Mae mortgage securities,  treasury
rate lock contracts and/or interest rate swaps. (See  "--

                                       42

Hedging"). Fluctuating interest rates also may significantly affect net interest
income (the excess cash flows from our excess cashflow  certificates) as certain
of our  asset-backed  securities  are priced based on one-month  LIBOR,  but the
collateral  underlying  such  securities  are  comprised of mortgage  loans with
either fixed interest  rates or "hybrid"  interest rates - fixed for the initial
two or three years of the mortgage  loan,  and  adjusting  thereafter  every six
months - which  creates  basis  risk (See  Notes to the  Consolidated  Financial
Statements - "Excess Cashflow Certificates, Net").

HEDGING

   We adopted SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging
Activities,"  as of January 1, 2001.  The Standard  requires that all derivative
instruments  be  recorded  in the  balance  sheet at fair  value.  However,  the
accounting  for changes in fair value of the  derivative  instrument  depends on
whether  the  derivative  instrument  qualifies  as a hedge.  If the  derivative
instrument  does not qualify as a hedge,  changes in fair value are  reported in
earnings when they occur. If the derivative instrument qualifies as a hedge, the
accounting treatment varies based on the type of risk being hedged. There was no
impact on our financial  condition or results of operations upon the adoption of
SFAS No. 133, as amended.

   We originate mortgage loans and then sell them through a combination of whole
loan sales and  securitizations.  Between the time we originate the mortgage and
sell it in the  secondary  market,  we may  hedge  the risk of  fluctuations  in
interest  rates.  Our risk begins  subsequent to originating  mortgage loans and
prior to selling or  securitizing  such mortgage  loans.  Since we have a closed
(and funded) mortgage loan at a specified interest rate with an expected gain at
time of sale,  our  exposure is to a higher  interest  rate  environment  due to
market  conditions.  A higher  interest rate market  implies that we will have a
higher cost of funds,  which  decreases the net spread we would earn between the
mortgage  interest  rate on each  mortgage  loan  less the cost of  funds.  As a
result, we may experience a lower gain on sale.

   The cost of funds is generally  composed of two  components  - the  benchmark
interest  rate (I.E.,  the  treasury  rate or interest  rate swap with a similar
duration  and  average  life) and the spread or profit  margin  required  by the
investors.  We had previously used a "Treasury Rate Lock" and 15-year Fannie Mae
mortgage  securities  ("FNMA  Securities")  to hedge our cost of funds exposure.
However  recently,  the  securitizations  are priced to the  investor  using the
interest  rate swaps curve.  As such,  our cost of funds is more closely tied to
interest  rate swaps and, to the extent we hedge,  we will  likely use  interest
rate  swaps to hedge our  mortgage  loans in  inventory  pending  securitization
pricing.  While none of the above are perfect hedges,  we believe  interest rate
swaps  will  demonstrate  the  highest  correlation  to our  cost of  funds on a
go-forward basis.

   We make  decisions  concerning the nature of our hedging  transactions  based
upon various factors including,  without  limitation,  market conditions and the
expected  volume of  mortgage  originations.  We may enter  into  these  hedging
strategies  through one of our warehouse  lenders and/or an investment bank that
underwrites our  securitizations.  These  strategies are designated as hedges on
our financial  statements and are closed out when we sell the associated  loans.
We will  review  continually  the  frequency  and  effectiveness  of our hedging
strategy to mitigate risk pending a securitization or loan sale.

   If the value of the hedges  decrease,  offsetting an increase in the value of
the loans,  upon settlement with our hedge  counterparty,  we will pay the hedge
loss in cash and then  realize  the  corresponding  increase in the value of the
loans as part of our net  gain on sale of  mortgage  loans  through  either  the
excess cashflow  certificates we retain from  securitization  or from whole loan
premiums. Conversely, if the value of the hedges increase, offsetting a decrease
in the value of the loans, upon settlement with our hedge counterparty,  we will
receive  the hedge gain in cash and realize  the  corresponding  decrease in the
value of the loans through a reduction in either the value of the  corresponding
excess cashflow certificates or whole loan premiums.

   We believe our hedging  strategy has  historically  largely been an effective
tool to manage  our  interest  rate risk on loans  prior to  securitization,  by
providing  us  with  a cash  gain  (or  loss)  to  largely  offset  the  reduced
(increased)  excess spread and resultant lower (or higher) net gain on sale from
an increase (decrease) in interest rates. A hedge may not, however,  perform its
intended purpose of offsetting changes in net gain on sale.

   If a hedging  transaction  is deemed to be  appropriate,  and can be properly
documented  and  mathematically  shown  to meet  the  appropriate  effectiveness
criteria,  we will account for these  hedges as fair value hedges in  accordance
with SFAS No. 133, as amended.

                                       43

   We did not hedge during the year ended  December 31, 2002 nor during the year
ended  December 31, 2001,  primarily due to the  tremendous  uncertainty  in the
United States economy  resulting  from an overall  weakened  economy,  depressed
stock market,  threat of war and terrorism,  among other things, that has caused
U.S.  interest rates to remain at or near 40 year historical  lows. For the year
ended December 31, 2000, we recorded a hedge loss of $2.1 million, which largely
offset a change in the value of mortgage loans being hedged,  as part of our net
gain on sale of loans.

   We will  continue  to review our hedging  strategy in order to best  mitigate
risk pending securitization or loan sales.

INFLATION

   Inflation most significantly  affects our loan originations and values of our
excess cashflow  certificates,  because of the substantial  effect inflation can
have on interest rates.  Interest rates normally increase during periods of high
inflation and decrease during periods of low inflation.  (See  "--Interest  Rate
Risk.").

IMPACT OF NEW ACCOUNTING STANDARDS

   For  discussion  regarding the impact of new accounting  standards,  refer to
Note No. 1 of Notes to the Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

   Except for historical information contained herein, certain matters discussed
in this Form 10-K are  "forward-looking  statements"  as defined in the  Private
Securities  Litigation  Reform Act  ("PSLRA")  of 1995,  which  involve risk and
uncertainties  that exist in our  operations and business  environment,  and are
subject to change on various important factors. We wish to take advantage of the
"safe  harbor"  provisions  of the PSLRA by  cautioning  readers  that  numerous
important factors discussed below,  among others, in some cases have caused, and
in the future  could cause our actual  results to differ  materially  from those
expressed in any  forward-looking  statements made by us, or on our behalf.  The
following include some, but not all, of the factors or uncertainties  that could
cause actual results to differ from projections:

o  Our ability or  inability  to increase  our loan  originations  to  specified
   levels (and  subsequent sale or  securitization  of such loans) to offset our
   current cost structure and cash uses;

o  Our ability or inability to continue  our practice of  securitizing  mortgage
   loans held for sale, as well as our ability to utilize optimal securitization
   structures (including the sale of NIM or interest-only certificates,  and the
   sale of servicing rights, at the time of  securitization)  at terms favorable
   to us;

o  Our ability or  inability  to continue to access lines of credit at favorable
   terms and  conditions,  including  without  limitation,  warehouse  and other
   credit  facilities used to finance  newly-originated  mortgage loans held for
   sale;

o  The  potential  effect  that a  possible  war with  Iraq,  or  other  similar
   conflicts or terrorist acts and/or threats,  may have on the capital markets,
   and in particular the asset-backed market;

o  The effect that the adoption of new, or changes in,  federal,  state or local
   lending laws and regulations and the application of such laws and regulations
   may have on our ability to originate  loans within a  particular  area.  Many
   states and local  municipalities have adopted and/or are considering adopting
   laws that are intended to further  regulate our industry.  Many of these laws
   and  regulations  seek to  impose  broad  restrictions  on  certain  commonly
   accepted lending practices,  including some of our practices.  In some cases,
   the  restrictions  and/or costs and risks  associated with complying with the
   laws have been so onerous  that we have decided to not lend in a state (I.E.,
   Georgia) or municipality (I.E., Oakland). In those cases where we continue to
   do  business,   our  costs  of  complying   with  a  variety  of  potentially
   inconsistent  federal,  state and local  laws has  increased  our  compliance
   costs, as well as the risk of litigation or administrative  action associated
   with complying with these proposed and enacted federal, state and local laws,
   particularly  those  aspects of such  proposed  and enacted laws that contain
   subjective (as opposed to objective) requirements, among other things.

o  Costs  associated with  litigation and rapid or unforeseen  escalation of the
   cost of  regulatory  compliance,  generally  including  but not  limited  to,
   adoption of new,  or changes in,  federal,  state or local  lending  laws and
   regulations  and the  application  of such  laws and  regulations,  licenses,
   environmental compliance,  adoption of new, or changes in accounting policies
   and practices and the  application of such polices and practices.  Failure to
   comply with various federal, state and local regulations, accounting policies
   and/or environmental  compliance

                                       44

can lead to loss of approved  status,  certain rights of rescission for mortgage
loans, class action lawsuits and administrative enforcement action against us;

o  Our ability or inability to continue  monetizing our existing excess cashflow
   certificates,   including   without   limitation,   selling,   financing   or
   securitizing (through NIM transactions) such assets;

o  A general economic  slowdown.  Periods of economic  slowdown or recession may
   be  accompanied  by decreased  demand for consumer  credit and declining real
   estate values. Because of our focus on credit-impaired  borrowers, the actual
   rate of  delinquencies,  foreclosures  and  losses on loans  affected  by the
   borrowers  reduced ability to use home equity to support  borrowings could be
   higher than those generally experienced in the mortgage lending industry. Any
   sustained period of increased delinquencies, foreclosure, losses or increased
   costs could  adversely  affect our ability to securitize or sell loans in the
   secondary market;

o  The effects of interest  rate  fluctuations  and our ability or  inability to
   hedge effectively  against such fluctuations in interest rates, the effect of
   changes  in  monetary  and  fiscal  policies,  laws  and  regulations,  other
   activities of governments,  agencies, and similar  organizations,  social and
   economic   conditions,   unforeseen   inflationary   pressures  and  monetary
   fluctuation;

o  Increased  competition  within our markets  has taken on many forms,  such as
   convenience in obtaining a loan, customer service, marketing and distribution
   channels,  loan  origination  fees  and  interest  rates.  We  are  currently
   competing with large finance  companies and conforming  mortgage  originators
   many of whom have greater financial, technological and marketing resources;

o  Unpredictable delays or difficulties in development of new product programs;

o  The unanticipated expenses of assimilating newly-acquired businesses into our
   structure, as well as the impact of unusual expenses from ongoing evaluations
   of business  strategies,  asset  valuations,  acquisitions,  divestitures and
   organizational structures; and

o  Regulatory actions which may have an adverse impact on our lending.

   ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   We  originate  mortgage  loans and then  sell the  mortgage  loans  through a
combination of whole loan sales and  securitizations.  As a result,  our primary
market risk is interest rate risk. In turn,  interest rates are highly sensitive
to many factors, including:

   o  governmental monetary and tax policies;

   o  domestic and international economic and political considerations; and

   o  other factors beyond our control.

   Changes in the general  interest  rate levels  between the time we  originate
mortgage loans and the time when we sell such mortgage  loans in  securitization
transactions  can  affect  the value of our  mortgage  loans  held for sale and,
consequently,  our net gain on sale  revenue by  affecting  the "excess  spread"
between the interest  rate on the mortgage  loans and the interest  rate paid to
asset-backed  investors  who purchase  pass-through  certificates  issued by the
securitization  trusts. If interest rates rise between the time we originate the
loans and the time we sell the loans in a securitization transaction, the excess
spread generally narrows,  resulting in a loss in value of the loans and a lower
net gain on sale for us. Since we close and fund  mortgage  loans at a specified
interest  rate with an  expected  gain on sale to be booked at the time of their
sale,  our exposure to decreases in the fair value of the mortgage  loans arises
when  moving  from a lower  to a  higher  interest  rate  environment.  A higher
interest  rate  environment  results in our having  higher  cost of funds.  This
decreases both the fair value of the mortgage loans,  and the net spread we earn
between the mortgage  interest  rate on each mortgage loan and our cost of funds
under  available  warehouse  lines of credit  used to finance the loans prior to
their sale in a  securitization  transaction.  As a result,  we may experience a
lower gain on sale.

   The following table  illustrates the impact on our earnings  resulting from a
hypothetical 10 basis point change in interest rates. Historically, such a basis
point  increase  has resulted in an  approximately  10 basis point change in the
excess  spread or "yield." The product of 10 basis  points in yield  (0.10%) and
the  duration of 2.5 years  equals a 25.0 basis point or 0.25% change in the net
gain on sale as shown below.

                                       45
<TABLE>
<S>                           <C>                      <C>                     <C>
                          10 BASIS POINT DECREASE IN                      10 BASIS POINT INCREASE IN
DESCRIPTION                     INTEREST RATES              BASE                INTEREST RATES
--------------------------------------------------------------------------------------------

Securitization amount          $100,000,000             $100,000,000            $100,000,000
Net gain on sale %             5.25%                    5.00%                   4.75%
Net gain                       $5,250,000               $5,000,000              $4,750,000
</TABLE>

   The table below  demonstrates the  sensitivity,  at December 31, 2002, of the
estimated fair value of our excess cashflow  certificates caused by an immediate
10% and 20%,  respectively,  adverse  change  in the key  assumptions  we use to
estimate fair value:
<TABLE>
<S>                                          <C>                     <C>
                                         Fair value of excess       Impact to
  (Dollars in thousands)                 cashflow certificates      earnings
----------------------------             ---------------------    -------------
Fair value as of 12/31/02:                    $ 24,565

10% increase in prepayment speed                19,011                $ 5,554
20% increase in prepayment speed                15,476                  9,089

10% increase in credit losses                   19,012                  5,553
20% increase in credit losses                   14,448                 10,117

10% increase in discount rates                  23,032                  1,533
20% increase in discount rates                  21,676                  2,889

10% increase in one- & six-month LIBOR          21,809                  2,756
20% increase in one- & six-month LIBOR          19,227                  5,338
</TABLE>

   These  sensitivities  are  hypothetical  and are presented  for  illustrative
purposes only.  Changes in the fair value resulting from a change in assumptions
generally  cannot be  extrapolated  because  the  relationship  of the change in
assumption to the resulting change in fair value may not be linear.  Each change
in assumptions presented above was calculated independently without changing any
other assumption.  However, in reality,  changes in one assumption may result in
changes  in  another   assumption,   which  may   magnify  or   counteract   the
sensitivities. For example, a change in market interest rates may simultaneously
impact prepayment speeds,  credit losses and the discount rate. It is impossible
to  predict  how  one  change  in  a  particular  assumption  may  impact  other
assumptions.

   To reduce our financial  exposure to changes in interest  rates, we may hedge
our mortgage loans held for sale through hedging products that are correlated to
the pass-though certificates issued in connection with the securitization of our
mortgage loans (I.E., interest rate swaps) (See "-Hedging"). Changes in interest
rates also could  adversely  affect our ability to originate  loans and/or could
affect  the level of loan  prepayments  thereby  impacting  the size of the loan
portfolio  underlying our excess cashflow  certificates and,  consequently,  the
value of our excess cashflow certificates. (See "-Interest Rate Risk" and "-Risk
Factors - Interest Rate Risk").



                                       46
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                          INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders of
Delta Financial Corporation:

We have audited the accompanying  consolidated balance sheets of Delta Financial
Corporation  and  subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the years in the  three-year  period ended  December 31, 2002.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Delta  Financial
Corporation  and  subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period  ended  December  31,  2002  in  conformity  with  accounting  principles
generally accepted in the United States of America.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
adopted FASB Statement No. 145,  "Rescission  of FASB  Statements No. 4, 44, and
64,  Amendment  of FASB  Statement  No. 13,  and  Technical  Corrections"  as of
December 31, 2002.


/s/  KPMG LLP


Melville, New York
February 3, 2003




                                       47
<PAGE>

<TABLE>
<S>                                              <C>            <C>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001


(DOLLARS IN THOUSANDS)                                 2002        2001
--------------------------------------------------------------------------------
ASSETS
Cash and interest-bearing deposits.............    $   3,405      6,410
Accounts receivable.............................       1,700      4,062
Loans held for sale, net........................      33,984     94,407
Excess cashflow certificates, net...............      24,565     16,765
Equipment, net..................................       2,553      4,998
Prepaid and other assets........................       1,737      1,564
Deferred tax asset, net.........................       5,600      5,600
--------------------------------------------------------------------------------
     Total assets...............................   $  73,544    133,806
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable....................................   $   1,369      1,267
Warehouse financing and other borrowings........      16,352     89,628
Senior notes....................................      10,844     10,844
Accounts payable and accrued expenses...........      12,327     15,015
Income taxes payable............................       3,155      5,202
--------------------------------------------------------------------------------
     Total liabilities..........................      44,047    121,956
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $.01 par value.
  Authorized 150,000 shares, 139,156 shares
  authorized and outstanding ..................       13,916     13,916
Common stock, $.01 par value. Authorized
49,000,000 shares; 16,022,349 shares issued
and 15,905,549 shares outstanding at December 31,
2002 and 16,000,549 shares issued and 15,883,749
shares outstanding at December 31, 2001.........         160        160
Additional paid-in capital......................      99,482     99,472
Accumulated deficit.............................    (82,743)  (100,380)
Treasury stock, at cost (116,800 shares)........     (1,318)    (1,318)
--------------------------------------------------------------------------------
     Total stockholders' equity.................      29,497     11,850
--------------------------------------------------------------------------------
     Total liabilities and stockholders' equity.   $  73,544    133,806
--------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.




                                       48
<PAGE>

<TABLE>
<S>                                                         <C>               <C>                <C>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002, 2001 and 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)                     2002             2001            2000
--------------------------------------------------------------------------------------------------------
REVENUES:
    Net gain on sale of mortgage loans................       $   58,805          38,638           52,590
    Interest..........................................           11,691        (22,146)           32,287
    Servicing fees....................................               --           2,983           14,191
    Net origination fees and other income.............           15,647          13,673           20,376

--------------------------------------------------------------------------------------------------------
       Total revenues                                            86,143          33,148          119,444
--------------------------------------------------------------------------------------------------------
EXPENSES:
    Payroll and related costs.........................           41,306          42,896           56,525
    Interest expense..................................            5,273          16,132           30,386
    General and administrative........................           23,696          49,101           45,539
    Capitalized mortgage servicing impairment.........               --              --           38,237
    Restructuring and other special charges............              --           2,678           11,382
    Extinguishment of debt.............................              --          19,255               --

---------------------------------------------------------------------------------------------------------
       Total expenses                                            70,275         130,062          182,069
---------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit).....           15,868         (96,914)        (62,625)
Provision for income tax expense (benefit)............          (1,769)            2,876        (13,208)
---------------------------------------------------------------------------------------------------------
       Net income (loss)..............................       $   17,637         (99,790)        (49,417)
---------------------------------------------------------------------------------------------------------
BASIC  EARNINGS PER SHARE:
Net income (loss) per share..........................        $     1.11          (6.28)           (3.11)

DILUTED EARNINGS PER SHARE:
Net income (loss) per share..........................        $     1.04          (6.28)           (3.11)

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




                                       49
<PAGE>

<TABLE>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2002, 2001 and 2000
<S>                                          <C>           <C>      <C>           <C>          <C>        <C>

                                                                     ADDITIONAL
                                              PREFERRED   CAPITAL     PAID-IN     ACCUMULATED   TREASURY
(DOLLARS IN THOUSANDS)                           STOCK     STOCK      CAPITAL       DEFICIT      STOCK      TOTAL
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999...............   $    --       160       99,472        48,827      (1,318)    147,141
Net loss...................................        --        --           --       (49,417)          --    (49,417)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000...............        --       160       99,472          (590)     (1,318)     97,724
Issuance of preferred stock related to
    debt exchange..........................     13,916       --           --           --          --       13,916
Net loss...................................        --        --           --       (99,790)        --      (99,790)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001...............     13,916      160       99,472      (100,380)     (1,318)     11,850
Stock options exercised....................        --        --           10           --          --           10
Net income.................................        --        --           --        17,637         --       17,637
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002...............   $ 13,916      160       99,482       (82,743)     (1,318)     29,497
-------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.



                                       50
<PAGE>

<TABLE>
<S>                                                             <C>            <C>           <C>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
-------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000

(DOLLARS IN THOUSANDS)                                               2002           2001         2000
-------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
   Net income (loss)......................................       $ 17,637       (99,790)      (49,417)
   Adjustments to reconcile net income (loss) to net cash
      used in operating activities:
      Provision for loan and recourse losses...............           603          2,431           670
      Depreciation and amortization........................         3,236          8,361        12,912
      Extinguishment of debt...............................            --         19,255            --
      Deferred tax benefit.................................            --             --      (16,011)
      Capitalized mortgage servicing rights, net
        of amortization....................................            --             --        45,927
      Deferred origination costs ..........................           545            578           174
      Excess cashflow certificates received in
        securitization transactions, net...................       (7,800)         47,052         7,752
   Changes in operating assets and liabilities:
      Decrease in accounts receivable......................         2,362         17,542        10,413
      Decrease (increase) in loans held for sale, net......        59,348       (14,263)         6,159
      (Increase) decrease in prepaid and other assets......         (173)         42,127        19,850
      Decrease in accounts payable and accrued expenses....       (2,761)        (1,212)      (10,723)
      (Decrease) increase in income taxes payable..........       (2,047)          1,417           518
      Decrease in investor payable.........................            --       (69,489)      (12,715)
      Decrease in advance payment by borrowers
          for taxes and insurance..........................            --       (12,940)         (844)

-------------------------------------------------------------------------------------------------------------------
   Net cash provided by (used in)  operating activities....        70,950       (58,931)        14,665
-------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
   (PURCHASE) DISPOSITION OF EQUIPMENT.....................         (791)          1,735       (1,297)
-------------------------------------------------------------------------------------------------------------------
   Net cash (used in) provided by investing activities.....         (791)          1,735       (1,297)
-------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   (Repayment of) proceeds from warehouse
      financing and other borrowings, net..................      (73,276)            996      (20,387)
   Increase (decrease) in bank payable, net................           102            340         (268)
------------------------------------------------------------------------------------------------------------------
   Proceeds from exercise of stock options.................            10             --            --
   Net cash (used in) provided by financing activities.....      (73,164)          1,336      (20,655)

-------------------------------------------------------------------------------------------------------------------
   Net decrease in cash and interest-bearing deposits......        (3,005)      (55,860)       (7,287)
Cash and interest-bearing deposits at beginning of year....         6,410         62,270        69,557

-------------------------------------------------------------------------------------------------------------------
Cash and interest-bearing deposits at end of year.........       $  3,405          6,410        62,270
-------------------------------------------------------------------------------------------------------------------
Supplemental Information:
Cash paid during the year for:
   Interest ...............................................      $  5,435         14,605        29,974
   Income taxes ...........................................           278            888         2,010
</TABLE>
See accompanying notes to consolidated financial statements.


                                       51
<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) ORGANIZATION
    Delta  Financial Corporation  ("Delta"  or "we") is a Delaware  corporation,
which was  organized in August 1996. On October 31, 1996, we acquired all of the
outstanding common stock of Delta Funding Corporation  ("Delta Funding"),  a New
York corporation  which had been organized on January 8, 1982 for the purpose of
originating,  selling,  servicing and investing in residential  first and second
mortgages.  On November 1, 1996,  we  completed  an initial  public  offering of
4,600,000 shares of common stock, $.01 par value.

(B) PRINCIPLES OF CONSOLIDATION
    The  accompanying  consolidated  financial  statements are  prepared  on the
accrual  basis  of  accounting  and  include  our  accounts  and  those  of  our
wholly-owned   subsidiaries.   All   significant   inter-company   accounts  and
transactions have been eliminated.

    Certain prior period  amounts in the  consolidated financial  statements and
notes have been reclassified to conform with the current year presentation.

(C) USE OF ESTIMATES
    The preparation of the consolidated  financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  our  management  to make  estimates  and  assumptions  that affect the
reported  amounts of assets and  liabilities  and the  disclosure  of contingent
liabilities  at the  date  of the  consolidated  financial  statements  and  the
reported  amounts  of  revenues  and  expenses  during  the  reporting  periods.
Significant items subject to such estimates and assumptions include the carrying
amount of excess cashflow certificates and a valuation allowance on deferred tax
assets. Actual results could differ from those estimates and assumptions.

(D) LOAN ORIGINATION FEES AND COSTS
    Loan  origination  fees  received,  net of  direct costs of  originating  or
acquiring  mortgage loans, are recorded as adjustments to the initial investment
in the loan. Such fees are deferred until the loans are securitized or sold.

(E) LOANS HELD FOR SALE, NET
    Loans held for sale are accounted for at the lower of cost or estimated fair
value,  determined on a net aggregate  basis.  Cost  includes  unamortized  loan
origination  fees  and  costs.  Net  unrealized  losses  are  provided  for in a
valuation  allowance  created  through  a  charge  to  operations.   Losses  are
recognized when the fair value is less than cost.

(F) SECURITIZATION AND SALE OF MORTGAGE LOANS
    Securitizations effectively provide us with a source of long-term financing.
In conjunction with securitization transactions,  trusts are created in the form
of off-balance sheet qualified special purpose entities,  or QSPEs. These trusts
are established for the limited purpose of buying and reselling  mortgage loans.
Typically  each  quarter,  we pool  together  loans,  and sell these  loans to a
securitization trust. We carry no contractual obligation related to these trusts
or the loans  sold to them,  nor do we have any direct or  contingent  liability
related to the trusts,  except for the standard  representations  and warranties
made in conjunction with each securitization trust.  Furthermore,  we provide no
guarantees  to  investors  with  respect to cash flow or  performance  for these
trusts.  These entities  represent  qualified  special purpose  entities and are
therefore not consolidated for financial  reporting  purposes in accordance with
Statement of Financial  Accounting  Standards  ("SFAS") No. 140  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".

    The securitization trust raises money to purchase the mortgage loans from us
by  selling  securities  to the  public  - known  as  asset-backed  pass-through
securities  that  are  secured  by  the  pool  of  mortgage  loans  held  by the
securitization  trust.  These  asset-backed  securities or senior  certificates,
which are usually purchased for cash by insurance companies, mutual funds and/or
other institutional investors,  represent senior interests in the cash flow from
the mortgage loans in the trust.

   The  securitization  trust  issues  senior  certificates,  which  entitle the
holders  of these  senior  certificates  to  receive  the  principal  collected,
including  prepayments  of  principal,  on the mortgage  loans in the trust.  In
addition,  holders

                                       52

receive  a  portion  of the  interest  on the  loans in the  trust  equal to the
pass-through   interest   rate  on  the   remaining   principal   balance.   The
securitization  trust also issues a subordinate  certificate or BIO  certificate
(referred  to  as  an  excess  cashflow   certificate),   and  a  P  certificate
(representing  the right to receive  prepayment  penalties  from  borrowers  who
payoff their loans early in their life). Each month, the P certificate holder is
entitled to receive  prepayment  penalties  received  from  borrowers who payoff
their loans early in their life.

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such excess cashflow  certificates are applied in a "waterfall" manner (see Note
6 "Securitization Transaction").

   We have found that,  at times,  we can  receive  better  economic  results by
selling  certain  mortgage loans on a whole loan,  non-recourse  basis,  without
retaining  servicing  rights,  generally  in private  transactions  to financial
institutions or consumer finance companies.  We recognize a gain or loss when we
sell  loans on a whole  loan  basis  equal to the  difference  between  the cash
proceeds  received for the loans and our investment in the loans,  including any
unamortized loan origination fees and costs.

 (G) EXCESS CASHFLOW CERTIFICATES, NET
     We classify  excess  cashflow   certificates   that  we  receive  upon  the
securitization  of a pool of loans as "trading  securities." The excess cashflow
certificates  represent an ownership  interest in a  securitization  trust.  The
assets of each securitization  trust consist primarily of two groups of mortgage
loans:  a group of fixed rate  mortgage  loans and a group of  hybrid/adjustable
rate mortgage  loans.  The mortgage loans in each mortgage pool  underlying each
excess cashflow  certificate  consist of fully  amortizing and balloon  mortgage
loans  secured  by  first  or  second  liens  primarily  on one- to  four-family
residential  real  properties  having  original terms to stated  maturity of not
greater than 30 years.

   The amount  initially  allocated to the excess  cashflow  certificates at the
date  of  a  securitization   reflects  their  fair  value.  At  the  time  each
securitization transaction closes, we determine the present value of the related
excess  cashflow  certificates  using certain  assumptions we make regarding the
underlying  mortgage loans. The excess cashflow  certificate is then recorded on
our consolidated  financial statements at an estimated fair value. Our estimates
primarily include the following:

   o  future rate of prepayment of the mortgage  loans - the expected  amount of
      prepayments on the mortgage  loans due to the underlying  borrowers of the
      mortgage loans paying off their mortgage loan prior to the loan's expected
      maturity;

   o  credit  losses  on the  mortgage  loans - our  estimate  of the  amount of
      expected  losses  or  defaults  that  will  take  place on the  underlying
      mortgage  loans over the life of the  mortgage  loans  because  the excess
      cashflow  certificates  are  subordinate  in right of payment to all other
      securities issued by the securitization  trust.  Consequently,  any losses
      sustained on mortgage loans comprising a particular  securitization  trust
      are first absorbed by the excess cashflow certificates;

   o  the LIBOR  forward  curve  (using  current  LIBOR as the floor rate) - our
      estimate of future  interest rates which affects both the rate paid to the
      floating rate pass-through security investors (primarily the 1 month LIBOR
      index) and the adjustable  rate mortgage loans sold to the  securitization
      trust  (which  provide for a fixed rate of interest for the first 24 or 36
      months and a 6 month  variable  rate of  interest  thereafter  using the 6
      month LIBOR index); and

   o  a discount rate used to calculate present value.

   The amount  recorded  for the excess  cashflow  certificates  is reduced  for
distributions   which  we  receive  as  the  holder  of  these  excess  cashflow
certificates,  and is adjusted for  subsequent  changes in the fair value of the
excess  cashflow  certificates  we  hold.  The  value  of each  excess  cashflow
certificate  represents  the cash flow we expect to receive  in the future  from
such certificate based upon our best estimate. We monitor the performance of the
loans  underlying  each  excess  cashflow  certificate,  and any  changes in our
estimates (and consequent changes in value of the excess cashflow  certificates)
is reflected in the line item called  "interest  income" in the quarter in which
we  make  any  such  change  in our  estimate.  Although  we  believe  that  the
assumptions we use are reasonable,  there can be no assurance as to the accuracy
of the  assumptions  or estimates.  (see Note 8 "Excess  Cashflow  Certificates,
Net").

                                       53

(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
    Statement  of Financial  Accounting  Standards  (SFAS) No. 107,  "Disclosure
About Fair Value of  Financial  Instruments,"  requires us to disclose  the fair
value of financial  instruments  for which it is  practicable  to estimate  fair
value. Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction  between willing parties,  other than in a
forced sale or  liquidation,  and is best  evidenced by a quoted  market  price.
Other than  excess  cashflow  certificates  which are  reported  at fair  value,
substantially all our assets and liabilities deemed to be financial  instruments
are carried at cost, which approximates their fair value.

(I) CASH AND INTEREST-BEARING DEPOSITS
    The fair value of cash and interest-bearing deposits consist of money market
accounts which  approximates  the carrying  value  reported in our  consolidated
balance sheet.

(J) EQUIPMENT, NET
    Equipment,  including  leasehold  improvements,  is  stated  at  cost,  less
accumulated depreciation and amortization. Depreciation of equipment is computed
using the straight-line method over the estimated useful lives of three to seven
years.  Leasehold improvements are amortized over the lesser of the terms of the
lease or the  estimated  useful  lives  of the  improvements.  Expenditures  for
betterments  and major renewals are  capitalized  and ordinary  maintenance  and
repairs are charged to operations as incurred.

(K) INCOME TAXES
    Deferred  tax  assets  and  liabilities  are  recognized  for the future tax
effects of differences  between the financial  reporting and tax bases of assets
and  liabilities.  These deferred taxes are measured by applying current enacted
tax rates.

(L) EARNINGS PER SHARE
    Basic Earnings  Per Share  ("EPS")  excludes  dilution  and is  computed  by
dividing income available to common stockholders by the weighted-average  number
of common shares outstanding for the period.  Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were  exercised  or  converted  into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.

(M) STOCK OPTION PLANS
    The  Company   applies  the   intrinsic-value-based   method  of  accounting
prescribed by Accounting  Principles Board (APB) Opinion No. 25,  ACCOUNTING FOR
STOCK  ISSUED  TO  EMPLOYEES,   and  related   interpretations   including  FASB
Interpretation  No. 44,  ACCOUNTING  FOR CERTAIN  TRANSACTIONS  INVOLVING  STOCK
COMPENSATION,  AN INTERPRETATION OF APB OPINION NO. 25, issued in March 2000, to
account  for its  fixed-plan  stock  options.  Under this  method,  compensation
expense is recorded on the date of grant only if the current market price of the
underlying  stock  exceeded the exercise  price.  SFAS No. 123,  ACCOUNTING  FOR
STOCK-BASED  COMPENSATION,  established  accounting and disclosure  requirements
using  a  fair-value-based   method  of  accounting  for  stock-based   employee
compensation  plans.  As allowed by SFAS No.  123,  the  Company  has elected to
continue  to apply  the  intrinsic-value-based  method of  accounting  described
above,  and has adopted only the  disclosure  requirements  of SFAS No. 123. The
following  table  illustrates  the effect on net income if the  fair-value-based
method had been applied to all outstanding and unvested awards in each period.

(Dollars in thousands, except share data)          2002       2001       2000
                                                 --------   --------   --------
Net income (loss), as reported                  $  17,637   (99,790)   (49,417)

Deduct total stock-based employee
   compensation expense determined
   under fair-value-based method for
   all rewards, net of tax                          (997)    (2,000)        (4)
                                                 --------   --------   --------
      Pro forma net income(loss)                $  16,640  (101,790)   (49,421)
                                                 ========   ========   ========

                                       54

      Earnings (loss) per share:

                       Basic - as reported      $    1.11    (6.28)      (3.11)
                                                 ========   ========   ========
                       Basic - pro forma        $    1.05    (6.41)      (3.11)
                                                 ========   ========   ========
                       Diluted - as reported    $    1.04    (6.28)      (3.11)
                                                 ========   ========   ========
                        Diluted - pro forma     $    0.98    (6.41)      (3.11)
                                                 ========   ========   ========

 (N) SEGMENT REPORTING
     We  operate  as one  reporting  segment, as  such,  the segment  disclosure
requirements, are not applicable to us.

 (O) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
     In January 2003, the Financial  Accounting  Standards Board ("FASB") issued
FASB  Interpretation No. 46 ("FIN No. 46"),  "Consolidation of Variable Interest
Entities,"  which  is an  interpretation  of ARB  No.  51.  This  Interpretation
addresses  consolidation by business  enterprises of variable interest entities.
The  Interpretation  applies  immediately to variable  interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an  interest  after that date.  It applies in the first  fiscal  year or
interim period  beginning after June 15, 2003, to various  interest  entities in
which an enterprise  holds a variable  interest that it acquired before February
1, 2003.  Management  does not  expect  that the  provisions  of FIN No. 46 will
impact our results of operations or financial condition.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
compensation - Transition and Disclosure,  which amends FASB No. 123, Accounting
for  Stock-Based  compensation."  SFAS No. 148 provides  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No.148  amends the
disclosure  requirements of SFAS No. 123 to require more permanent disclosure in
both  interim  and  annual  financial  statements.  Certain  of  the  disclosure
modifications are required for December 31,2002 and are included in the notes in
the financial  statements..  Management  does not expect that the  provisions of
SFAS No. 148 will impact our results of operations or financial condition.

     In July 2002, FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities,"  which  addresses  financial  accounting and
reporting for costs  associated with exit or disposal  activities.  It nullifies
EITF Issue No. 94-3,  "Liability  Recognition for Certain  Employee  Termination
Benefits and Other Costs to Exit an Activity  (including  Certain Costs Incurred
in a  Restructuring)."  SFAS No. 146 requires that a liability be recognized for
those  costs only when the  liability  is  incurred,  that is, when it meets the
definition  of a  liability  in the FASB's  conceptual  framework.  There was no
impact on the Company's  consolidated balance sheet or consolidated statement of
operations upon the adoption of SFAS No. 146 on January 1, 2003.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  Among other  things,  the standard  changes the income  statement
classification  of gains and losses from  early  extinguishments  of  debts. The
provisions of SFAS No. 145 are effective  for fiscal years  beginning  after May
15, 2002. There was no material impact on our financial  condition or results of
operations upon the adoption of SFAS No. 145.

     In October  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets,"  which  replaced  SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS No. 144 established a single  accounting  model,  based on
the framework  established in SFAS No. 121, for long-lived assets to be disposed
of by sale. SFAS No. 144 also resolved significant implementation issues related
to SFAS No. 121. The  provisions  of SFAS No. 144 are  effective  for  financial
statements  issued for fiscal years beginning after December 15, 2001. There was
no impact on the Company's consolidated balance sheet or consolidated statements
of operations upon adoption of SFAS No. 144 on January 1, 2002.

    In June 2001,  FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible  long-lived assets and the associated
asset retirement  costs. The provisions of SFAS No. 143 are effective for fiscal
years  beginning  after June 15, 2002. The adoption of SFAS No. 143 did not have
an impact on the financial position, results of operations, or cash flows of the
Company.

                                       55

(2)   SUMMARY OF REGULATORY SETTLEMENTS

    In September  1999,  we settled  allegations  by the New York State  Banking
Department  (the  "NYSBD")  and a lawsuit  by the New York  State  Office of the
Attorney  General (the "NYOAG")  alleging that we had violated various state and
federal  lending laws. The global  settlement was evidenced by (a) a Remediation
Agreement by and between Delta Funding and the NYSBD,  dated as of September 17,
1999 and (b) a  Stipulated  Order on Consent by and among Delta  Funding,  Delta
Financial  and  the  NYOAG,  dated  as of  September  17,  1999.  As part of the
Settlement,  we,  among other  things,  implemented  agreed upon  changes to our
lending practices; are providing reduced loan payments aggregating $7.25 million
to certain borrowers identified by the NYSBD; and have created a fund managed by
the  NYSBD and  financed  by the grant of  525,000  shares of Delta  Financial's
common stock.

    Each month, on behalf of borrowers  designated by the NYSBD, we make subsidy
payments to the related  securitization  trusts. These subsidy payments fund the
differential  between the original loan payments and the reduced loan  payments.
As part of the second exchange offer we completed in August 2001 (see Note No. 3
"-Corporate Restructuring,  Debt Modification,  and Debt Restructuring"),  Delta
Funding Residual  Exchange Company,  LLC (the "LLC") (an unaffiliated  entity to
us) - a newly-formed  entity, the voting membership interests of which are owned
by former  holders of our senior  secured  notes and senior  notes due 2004 (the
"Notes")  who  tendered  their  Notes for such  membership  interests  and other
securities - is obligated to satisfy  these  payment  subsidies  out of the cash
flows generated by the mortgage  related  securities  (primarily from the excess
cashflow  certificates) it owns. If the LLC's cash flows are insufficient to pay
this obligation (which we believe is unlikely), we remain responsible to satisfy
our obligations under the Remediation Agreement.

    The proceeds of the stock fund will be used to pay  borrowers and to finance
a variety of consumer educational and counseling programs.  We do not manage the
fund created for this purpose. The number of shares of common stock deposited in
the fund does not adjust to account for  fluctuations in the market price of our
common  stock.  Changes  to the  market  price of these  shares of common  stock
deposited in the fund do not have any impact on our financial statements. We did
not make any additional  financial  commitments  between the settlement date and
March 2000. The Stipulated  Order on Consent and the Remediation  Agreement both
terminated by their respective  terms, in September 2002. We remain obligated as
discussed  above to continue  to make  subsidy  payments on behalf of  borrowers
identified by the NYSBD for so long as such borrowers  continue to make payments
under the mortgage loans.

    In March  2000,  we  finalized  an  agreement  with the U.S.  Department  of
Justice,  the Federal Trade  Commission  and the Department of Housing and Urban
Development, to complete the global settlement we had reached with the NYSBD and
NYOAG. The federal agreement mandates some additional compliance efforts for us,
but it does not require any additional financial commitment by us.

    We believe we are in  compliance  in all material  respects  with applicable
federal and state laws and regulations.

(3) CORPORATE RESTRUCTURING, DEBT MODIFICATION, AND DEBT RESTRUCTURING

    In 2000, we began a corporate  restructuring - by reducing our workforce and
modifying  the terms of the  indenture  governing our senior notes due 2004 (the
"senior  notes")  - as part  of our  continuing  efforts  to  improve  operating
efficiencies  and to address our negative  cash flow from  operations.  Entering
2001,  management  still had several  concerns,  which we believed  needed to be
addressed for us to remain a viable company. Our principal concerns were:

   o  the cash drain created by our ongoing  monthly  delinquency  and servicing
      advance  requirements  as  servicer  for  securitization  trust  (known as
      "securitization advances");

   o  the high cost of  servicing  a  seasoned  loan  portfolio,  including  the
      capital charges associated with making securitization advances;

   o  our  ability to make  timely  interest  payments  on our senior  notes and
      senior secured notes due 2004 (the "senior secured notes"); and

   o  our ability to effectuate a successful  business  model given the overhang
      of corporate ratings of "Caa2" by Moody's and "CC" by Fitch.

Therefore in the first  quarter of 2001,  we embarked upon a business plan aimed
at alleviating some of these concerns and issues.

                                       56

   CORPORATE RESTRUCTURING

   In January  2001,  we announced  that we had entered  into an agreement  with
Ocwen  Financial  Corporation  ("Ocwen") to transfer our servicing  portfolio to
Ocwen. In May 2001, we physically  transferred our entire servicing portfolio to
Ocwen,  and  laid-off  the  majority  of our  servicing  staff - a total  of 128
employees.   We  recorded  a  $0.5  million  pre-tax  charge  relating  to  this
restructuring  which is included in the line item call  "restructuring and other
special  charges" on our  consolidated  statements  of  operations.  This charge
relates to employee severance associated with closing our servicing  operations.
We no longer service loans nor do we have a servicing operation.

   We have  accrued  restructuring  charges  related  to the write down of lease
obligations  of $0.1  million and $0.6 million at December 31, 2002 and December
31, 2001. The unpaid accrued  restructuring  charge was initially recorded under
the exit plan.  No charges under this exit plan are  associated  with or benefit
from activities that will be continued at the commitment date.

   DEBT MODIFICATION AND DEBT RESTRUCTURING

   In  August  2000,  we  announced  an  agreement  to  modify  the terms of the
indenture governing our senior notes (the "Debt Modification"). With the consent
of the holders of greater than fifty percent of our senior notes,  we modified a
negative  pledge  covenant in the senior notes  indenture,  which had previously
prevented us from selling or otherwise  obtaining  financing by using our excess
cashflow   certificates  as  collateral.   In   consideration   for  the  senior
noteholders'  consent,  we agreed,  in an exchange  offer (the  "First  Exchange
Offer"),  to offer then current  holders the  opportunity to exchange their then
existing  senior  notes for (a) new senior  secured  notes due 2004 (the "senior
secured  notes")  and (b)  ten-year  warrants to buy  approximately  1.6 million
shares of common stock, at an initial exercise price of $9.10 per share, subject
to upward or downward adjustment in certain circumstances. In December 2002, the
exercise price for the warrants issued by us was adjusted  downward to $0.01 per
share in accordance  with our agreement.  The senior secured notes have the same
coupon,  face  amount and  maturity  date as the senior  notes and, up until the
Second Debt  Restructuring  (see below) were secured by at least $165 million of
the our excess cashflow  certificates.  The First Exchange Offer was consummated
in December 2000, with holders of greater than $148 million (of $150 million) of
senior notes tendering in the exchange.

   In February  2001,  we entered  into a letter of intent  with the  beneficial
holders of over fifty percent of our senior  secured notes to  restructure,  and
ultimately   extinguish,   the   senior   secured   notes  (the   "Second   Debt
Restructuring").  In  March  2001,  we  obtained  the  formal  consent  of these
beneficial  holders of the senior  secured notes through a consent  solicitation
that modified certain provisions of the senior secured notes indenture to, among
other things,  allow for the release of two excess  cashflow  certificates  then
securing  the senior  secured  notes.  We were  first  able to finance  and then
ultimately sell the excess cashflow certificates underlying five securitizations
(including two excess  cashflow  certificates  that were released as part of the
Second Debt  Restructuring)  for a $15 million  cash  purchase  price to provide
working capital.

   In  consideration  for their  consent,  we agreed to offer the holders of the
senior  secured notes (and the senior  notes,  collectively,  the  "notes"),  an
opportunity  to exchange their notes for new  securities  described  immediately
below (the "Second Exchange  Offer").  The Second Exchange Offer was consummated
on August 29, 2001,  pursuant to which holders of  approximately  $138.1 million
(of $148.2  million) in principal  amount of our senior  secured  notes and $1.1
million (of $1.8  million) in principal  amount of our senior  notes,  exchanged
their notes for commensurate interests in:

   o  voting membership interests in Delta Funding Residual Exchange Company LLC
      (the "LLC"), a newly-formed  limited liability company  (unaffiliated with
      us),  to  which  we  transferred  all of the  mortgage-related  securities
      previously  securing  the senior  secured  notes  (primarily  comprised of
      excess cashflow certificates);

   o  shares of common stock of a newly-formed  management corporation that will
      manage the LLC's assets; and

   o  shares of our  newly-issued  Series A preferred  stock having an aggregate
      preference amount of $13.9 million.

   The LLC is controlled by the former  noteholders that now hold all the voting
membership  interest  in the LLC.  As part of the  transaction,  we  obtained  a
non-voting  membership  interest in the LLC, which entitles us to receive 15% of
the net cash flows from the LLC for the first  three years  (through  June 2004)
and, thereafter, 10% of the net

                                       57

cash flows from the LLC.  The net cash flows from the LLC are equal to the total
cash flows generated by the assets held by the LLC for a particular period, less
(a) all expenses of the LLC, (b) certain  related  income tax payments,  and (c)
the  NYSBD   subsidy   payments  (see  "-  Note  No.  2  Summary  of  Regulatory
Settlement"). We began receiving distributions from the LLC in the first quarter
of 2002 from a fourth quarter 2001 distribution.

   As part of the Second Exchange Offer, all tendering  noteholders waived their
right to receive  any future  interest  coupon  payments on the  tendered  notes
beginning with the August 2001 interest coupon payment.  With the closing of the
Second  Exchange  Offer,  we recorded a charge of $19.3  million  related to the
extinguishment  of debt and paid the August 2001 interest  coupon payment on the
approximately  $10.8 million of notes that did not tender in the Second Exchange
Offer.  The  notes  bear  interest  at  a  rate  of  9.5%  per  annum,   payable
semi-annually  (on February 1st and August 1st) and a maturity date of August 1,
2004 when all outstanding principal is due.

   By extinguishing substantially all of our long-term debt, the rating agencies
that previously rated us and our long-term debt withdrew their corporate ratings
in 2001.

(4) LOANS HELD FOR SALE, NET

    Our inventory consists of first and second  mortgages,  which had a weighted
average  interest  rate of 8.45% at December 31, 2002 and 10.11% at December 31,
2001.  These  mortgages are being held,  at the lower of cost or estimated  fair
value, for future sale. Certain of these mortgages are pledged as collateral for
a portion of the warehouse financing and other borrowings.

    Included in loans held for sale are  deferred  origination fees and purchase
premiums in the amount of $0.2 million and $0.8 million at December 31, 2002 and
2001,  respectively,  and a valuation allowance of approximately $0.4 million at
December  31,  2002 and $0.7  million as of December  31,  2001.  Mortgages  are
payable in monthly installments of principal and interest and have terms varying
from five to thirty years.

(5) ACCOUNTS RECEIVABLE

    Accounts receivable as of December 31, consist of the following:

(DOLLARS IN THOUSANDS)                       2002          2001
--------------------------------------------------------------------------------
Prepaid insurance premiums                $    --         2,227
Advances on loans  sold with recourse       1,335         1,550
Other                                         365           285
--------------------------------------------------------------------------------
Total accounts receivable                 $ 1,700         4,062
--------------------------------------------------------------------------------

   Funds due to us for accounts  receivable  are tracked  through  various asset
accounts.  These  accounts  are  reconciled  monthly,  at which  time we perform
research and  resolution on the  receivables.  All aged items are identified and
reported to  management  and  management  decides  whether to write-off any aged
items. We evaluate accounts  receivable items on an individual basis and an item
is not written off until all options for payment have been exhausted.

   Activity  in  Accounts  Receivable  for the years  ended  December  31, is as
follows (dollars in thousands):
<TABLE>
<S>                     <C>                 <C>                  <C>            <C>              <C>           <C>
                        Securitization     Prepaid Insurance     Current Tax     Adv on Loans
2002                 Servicing Advances       Premiums              Asset      Sold w/Recourse       Other        Total
-------------------------------------------------------------------------------------------------------------------------
Beginning balance        $     --              2,227                  --           1,550              285         4,062
Additions                      --                168                  --           1,467            5,227         6,862
Payments                       --            (2,395)                  --         (1,653)          (5,122)       (9,170)
Write offs                     --                 --                  --            (29)             (25)          (54)
-------------------------------------------------------------------------------------------------------------------------
Ending balance           $     --                 --                  --           1,335              365         1,700
-------------------------------------------------------------------------------------------------------------------------


                         Securitization     Prepaid Insurance     Current Tax    Adv on Loans
2001                  Servicing Advances       Premiums             Asset      Held w/Recourse       Other        Total
-------------------------------------------------------------------------------------------------------------------------
Beginning balance        $    12,518           2,047                 572           1,811            5,006        21,954
Additions                     69,613             180                  --           2,604           42,688       115,085
Payments                    (81,967)              --               (572)         (2,863)         (46,314)     (131,716)
Write offs                     (164)              --                  --             (2)          (1,095)       (1,261)
-------------------------------------------------------------------------------------------------------------------------
Ending balance           $       --            2,227                  --           1,550              285         4,062
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       58

6) SECURITIZATION TRANSACTION

   During 2002, we completed  four  securitizations  totaling  $850 million,  of
which we  delivered a total of $819  million of mortgage  loans during 2002 (and
delivered the remaining $31 million of mortgage loans in January 2003,  pursuant
to a  pre-funding  mechanism).  During 2001,  we completed  two  securitizations
totaling $345 million of mortgage loans.  The following table sets forth certain
information  with respect to our 2002  securitizations  (all of which  contained
ratings on various  classes of  securities  ranging  from AAA/Aaa to BBB/Baa2 by
S&P,  Fitch,  and  Moody's,  respectively)  by  offering  size,  which  includes
pre-funded  amounts,  duration  weighted average  pass-through  rate and type of
credit enhancement.
<TABLE>
<S>  <C>                <C>        <C>              <C>                   <C>

                                                     INITIAL DURATION
                                    OFFERING SIZE    WEIGHTED AVERAGE        CREDIT
      SECURITIZATION     COMPLETED   (MILLIONS)      PASS-THROUGH RATE     ENHANCEMENT
      --------------     ---------  ------------   ---------------------   -----------
      2002-1...........  03/28/02     $175.0              4.08%            Hybrid *
      2002-2...........  06/27/02     $200.0              2.46%            Senior/Sub
      2002-3...........  09/27/02     $250.0              2.61%            Hybrid *
      2002-4...........  12/30/02     $225.0              2.73%            Hybrid*
</TABLE>

* SENIOR/SUB  STRUCTURE WITH A "AAA" RATED MONOLINE  INSURER INSURING THE SENIOR
  OR "AAA" RATED PASS-THROUGH CERTIFICATES.

   When we securitize  loans, we create trusts in the form of off-balance  sheet
qualified special purpose entities,  or QSPEs.  These trusts are established for
the limited purpose of buying and reselling mortgage loans.

   For any monthly  distribution,  the holder of an excess cashflow  certificate
receives  payments  only after all required  payments  have been made on all the
other securities  issued by the  securitization  trust. In addition,  before the
holder of the excess cash flow certificate  receives  payments,  cash flows from
such  excess  cashflow  certificates  are  applied  in a  "waterfall"  manner as
follows:

   o  first,  to cover any losses on the mortgage loans in the related  mortgage
      loan pool,  because the excess  cashflow  certificates  are subordinate in
      right of  payment  to all other  securities  issued by the  securitization
      trust;

   o  second,  to reimburse the bond insurer,  if any, of the related  series of
      pass-through  certificates  for amounts paid by or otherwise owing to that
      insurer;

   o  third, to build or maintain the overcollateralization provision (described
      in more detail  immediately  below) for that  securitization  trust at the
      required level by being applied as an accelerated  payment of principal to
      the holders of the pass-through certificates of the related series;

   o  fourth,  to  reimburse  holders of the  subordinated  certificates  of the
      related series of  pass-through  certificates  for unpaid interest and for
      any losses previously allocated to those certificates; and

   o  fifth, to pay interest on the related pass-through  certificates which was
      not paid because of the imposition of a cap on their  pass-through rates -
      these payments being called basis risk shortfall amounts.

   The overcollateralization provision or "O/C" is a credit enhancement which is
designed  to protect  the  securities  sold to the  securitization  pass-through
investors  from  credit  loss  on  the  underlying  mortgage  loans.  In  short,
overcollateralization  is when the amount of collateral  (I.E.,  mortgage loans)
owned  by  a  securitization  trust  exceeds  the  aggregate  amount  of  senior
pass-through  certificates.  The  O/C is  created  to  absorb  losses  that  the
securitization   trust  may  suffer,   as  loans  are   liquidated  at  a  loss.
Historically,  we built up the O/C  typically  over the first 18-24  months of a
securitization (with the specific timing depending upon the structure, amount of
excess spread,  and  performance of the  securitization),  by utilizing the cash
flows from the excess  cashflow  certificates  to make  additional  payments  of
principal to the holders of the pass-through certificates until the required O/C
level was reached.  Beginning with each of our 2002 securitizations,  we created
the O/C by initially  selling  pass-through  securities  totaling  approximately
98.5% of the total amount of mortgage  loans sold to the trust.  In doing so, we
create the full amount of the O/C required by the trust up front, at the time we
complete  the   securitization,   instead  of

                                       59

over time. For example,  if a securitization  trust contains  collateral of $100
million  of  mortgage  loans,  we sell  approximately  $98.5  million  in senior
pass-through  certificates.  Prior to our 2002 securitization  transactions,  we
typically issued pass-through certificates for a par purchase price, or a slight
discount to par - with par representing the aggregate  principal  balance of the
mortgage  loans  backing  the  asset-backed   securities.   For  example,  if  a
securitization  trust contains  collateral of $100 million of mortgage loans, we
typically  received  close to $100  million in proceeds  from the sales of these
certificates, depending upon the structure we utilize for the securitization.

   Our  securitizations  have typically required an O/C of between 1.5% and 3.0%
of the initial mortgage loans sold to the securitization trust. The required O/C
can increase or decrease  throughout the life of the transaction  depending upon
subordination  levels,  delinquency and/or loss tests and is subject to minimums
and maximums, as defined by the rating agencies and/or the bond insurer insuring
the  securitization.  On our  securitizations  prior  to  2002,  after  the  O/C
requirement is reached, the cash flows from the excess cashflow certificates are
then  distributed to us as the holder of the excess  cashflow  certificates,  in
accordance  with  the  "waterfall"  described  above.  Over  time,  if the  cash
collected  during the periods  exceeds  the amount  necessary  to  maintain  the
required O/C and all other required distributions have been met, and there is no
shortfall  in the related  required  O/C,  the excess is then  released to us as
holder of the excess cashflow certificate.

   We began utilizing a new securitization structure in 2002. In lieu of selling
an interest-only certificate,  we sold a net interest margin certificate or NIM.
The NIM is generally  structured  where we sell the excess cashflow  certificate
and P  certificate  (which  entitles  the  holder  to all  prepayment  penalties
collected  by the  trust) to a QSPE or owner  trust  (the NIM trust) and the NIM
trust in turn  issues (1)  interest-bearing  NIM  note(s)  (backed by the excess
cashflow  certificate),  and  (2)  a  NIM  owner  trust  certificate  evidencing
ownership  in the NIM  trust.  We sell the  excess  cashflow  certificate  and P
certificate  without recourse except that we provide normal  representations and
warranties to the NIM trust. One or more investors  purchase the NIM note(s) and
the proceeds from the sale of the note(s),  along with a owner trust certificate
that is subordinate to the note(s),  represent the  consideration  to us for the
sale of the excess cashflow certificate and P certificate.

   The NIM note(s) entitles the holder to be paid a specified interest rate, and
further provides for all cash flows generated by the excess cashflow certificate
and P  certificate  to be used  to pay all  principal  and  interest  on the NIM
note(s)  until paid in full.  This is  estimated  to occur  approximately  22-25
months  from  the  date  the  NIM  note(s)  were  issued.  As  part  of the  NIM
transaction,  we received the cash proceeds from the sale of the NIM note(s) and
a subordinate  interest in the NIM owner trust,  represented  by the owner trust
certificate. The owner trust certificate entitles us to all cash flows generated
by the excess cashflow certificate and P certificate after the holder of the NIM
note(s)  has been  paid in full.  As  such,  we  classify  the NIM  owner  trust
certificate on our balance sheet as an excess cashflow certificate and value the
NIM owner  trust  certificate  using the same  assumptions  that we  utilize  in
valuing excess cashflow certificates.

   As part of the NIM  transaction,  we were required to "fully fund" the O/C at
closing  - as  opposed  to  having  it  build  up  over  time  as we had in past
securitizations  - which is why we sold senior  pass-through  certificates  that
were approximately  1.25% less than the collateral in the securitization  trust.
We use a portion of the  proceeds we receive from selling NIM note(s) to make up
for the difference  between (1) the value of the mortgage loans sold and (2) the
proceeds from selling the senior pass-through certificates.

   In each of the four  securitizations  that we issued in 2002,  we derived the
following economic interests:

   o  we received a cash purchase  price from the sale of the NIM note(s) issued
      by a NIM trust, to which we sold the excess cashflow certificates;

   o  we retained a NIM owner trust  certificate,  which  entitles us to receive
      cash  flows  generated  by the  excess  cashflow  certificates  and  the P
      certificate issued in connection with the securitization  after the holder
      of the NIM  note(s)  has  been  paid in  full.  Although  the  cash  flows
      generated by excess cashflow  certificates  are received over time,  under
      existing  accounting  rules,  we must  report as income at the time of the
      securitization  the present value of all projected cash flows we expect to
      receive in the future from these excess cashflow  certificates  based upon
      an  assumed   discount  rate.  Our  valuation  of  these  excess  cashflow
      certificates  is  primarily  based on (1) our  estimate  of the  amount of
      expected  losses  or  defaults  that  will  take  place on the  underlying
      mortgage  loans  over the life of the  mortgage  loans,  (2) the  expected
      amount  of  prepayments  on the  mortgage  loans  due  to  the  underlying
      borrowers of the mortgage  loans paying off their  mortgage  loan prior to
      the  loan's  stated  maturity,  (3) the  London  Inter-Bank  Offered  Rate
      ("LIBOR") forward curve (using current LIBOR as the floor rate), and (4) a
      discount rate; and

                                       60

   o  we  received a cash  premium  from  selling the right to service the loans
      being securitized. This right entitles the contractual servicer to service
      the loans on behalf of the  securitization  trust,  and earn a contractual
      servicing  fee, and ancillary  servicing fees (which  includes  prepayment
      penalties for certain securitization  servicing rights we previously sold)
      in such capacity.

   At the time we completed the 2002  securitizations,  we recognized as revenue
each of the three economic interests  described above, which was recorded as net
gain on sale of mortgage loans on our consolidated statement of operations.

   A summary of the gain on sale and cash flow we  received  from our  aggregate
securitizations in 2002 and 2001 is presented below. "Loans sold" represents the
amount of loans actually  transferred to the respective  securitization trust or
trusts during each year:
<TABLE>
<S>                                                              <C>                   <C>
                                                                       YEAR ENDED DECEMBER 31,
                                                                     2002                  2001
                                                                     ----                  ----
GAIN ON SALE SUMMARY                                                   (DOLLARS IN THOUSANDS)
--------------------

Loans Sold....................................................    $ 819,042             $ 345,000
NIM Proceeds, Net of the Upfront Overcollateralization.......         5.13%                   --%
Interest Only Certificate Proceeds............................          --%                 3.86%
Excess Cashflow Certificate (owner trust certificates) (1)....        1.28%                 3.21%
Mortgage Servicing Rights (2).................................        0.88%                 1.51%
Less:  Transaction Costs......................................       (0.67%)              (0.60%)
                                                                  ----------           ----------
   Net gain on sale recorded..................................        6.62%                 7.98%
                                                                  ==========           ==========

CASH FLOW SUMMARY
NIM Proceeds, Net of the Upfront Overcollateralization........       5.13 %                  -- %
Interest Only Certificate Proceeds............................         -- %                 3.86%
Mortgage Servicing Rights(2)..................................       0.88 %                1.51 %
Less: Transaction Costs.......................................       (0.67%)               (0.60%)
                                                                  ----------           -----------
     Net Cash Flow at Closing.................................        5.34%                 4.77%
                                                                  ==========           ===========
</TABLE>
----------
(1) The reduction in value of the excess cashflow  certificates in 2002 compared
    to 2001 is primarily due to changes we made to our fair value assumptions of
    our excess cashflow  certificates (see Note 8 "Excess Cashflow  Certificate,
    Net").
(2) In 2001, the mortgage  servicer  purchased  the P  Certificate;  in 2002, we
    transferred  the P  Certificate  to the NIM Trust,  which  accounts  for the
    reduced gain from the sale of mortgage servicing rights in 2002.

   Our  net   investment  in  the  pool  of  loans  sold  at  the  date  of  the
securitization  represents  the amount  originally  paid to originate the loans,
adjusted for the following:

   o  any direct loan origination costs incurred (an increase in the investment)
      and loan  origination  fees  received (a decrease  in the  investment)  in
      connection with the loans, which are treated as a component of the initial
      investment in loans;

   o  the principal payments received, and the amortization of the net loan fees
      or  costs,   during  the   period  we  held  the  loans   prior  to  their
      securitization; and

   o  any gains (a decrease  in the  investment)  or losses (an  increase in the
      investment) we incur on any hedging  instruments that we may have utilized
      to hedge  against  the  effects of changes in  interest  rates  during the
      period we hold the loans prior to their securitization. (See "Note 9").

   We allocate our basis in the mortgage loans and excess cashflow  certificates
between the portion of the mortgage loans and excess cashflow  certificates sold
through   securitization   and  the  portion   retained  (the  NIM  owner  trust
certificates in 2002) based on the relative fair values of those portions on the
date of sale. We may recognize  gains or losses  attributable  to the changes in
fair value of the excess cashflow certificates,  which are recorded at estimated
fair value and accounted for as "trading"  securities.  Since there is no active
market for such excess  cashflow  certificates,  we determine the estimated fair
value of the excess  cashflow  certificates  by discounting  the future expected
cash flows.

   Each  securitization  trust has the  benefit of either a  financial  guaranty
insurance  policy  from a monoline  insurance  company or a  senior-subordinated
securitization  structure,  which insures the timely payment of interest

                                       61

and  the  ultimate  payment  of  principal  of  the   credit-enhanced   investor
certificate, or both (known as a "hybrid"). In "senior-subordinated" structures,
the  senior  certificate  holders  are  protected  from  losses by  subordinated
certificates,  which  absorb any such losses  first.  In addition to such credit
enhancement, the excess cash flows that would otherwise be paid to the holder of
the excess cashflow  certificate is used when it subsequently  becomes necessary
to    obtain    or    maintain    required     overcollateralization     limits.
Overcollateralization  is  intended  to  create an  additional  source of credit
enhancement  to absorb losses prior to making a claim on the financial  guaranty
insurance policy or the subordinated certificates.

(7) CAPITALIZED MORTGAGE SERVICING RIGHTS

   Prior to 2001, we  recognized  rights to service  mortgage  loans as separate
assets. Subsequent to 2001, we do not recognize rights to service mortgage loans
because we sell our servicing  rights in connection with our whole loan sales or
securitizations.

   We  recognized  a $38.2  million  write-down,  which  represented  the entire
carrying  value of our MSR at December 31, 2000.  In December  2000,  we entered
into  discussions  with three  third-party  non-conforming  servicers  to either
purchase or sub-service our entire $3.31 billion servicing portfolio. Management
felt this  write-down was necessary to reflect the current market price we would
have received at December 31, 2000 for our servicing  portfolio.  We sold all of
our mortgage servicing rights for the years ended December 31, 2002 and 2001 and
as such had no activity or carrying  values for those assets during the periods.
The activity related to our capitalized  mortgage  servicing rights for the year
ended December 31, 2000 is as follows:
<TABLE>
<S>                               <C>
(DOLLARS IN THOUSANDS)                 2000
--------------------------------------------------------------------------------
Balance, beginning of year         $  45,927
Additions                             11,611
Amortization and FV adjustments      (8,916)
Sales                               (10,385)
Write-down                          (38,237)
--------------------------------------------------------------------------------
Balance, end of year               $      --
--------------------------------------------------------------------------------
</TABLE>

(8) EXCESS CASHFLOW CERTIFICATES, NET

   Our excess cashflow  certificates  primarily  consist of the right to receive
the future  excess cash flows from a pool of  securitized  mortgage  loans.  Our
interest in these certificates generally consists of the following:

   o  The interest  spread between the coupon on the  underlying  mortgage loans
      and the cost of financing (which, when we sell NIM notes, is only received
      after the NIM Notes are paid in full);

   o  On our 2002 securitizations,  prepayment penalties received from borrowers
      who payoff their loans early in their life (which, when we sell NIM notes,
      is only received after the NIM Notes are paid in full ); and

   o  Overcollateralization, which is designed to protect the securities sold to
      the  securitization   pass-through  investors  from  credit  loss  on  the
      underlying mortgage loans (and which we describe in greater detail in Note
      6).

   The excess cash flow we receive is highly  dependent  upon the interest  rate
environment to the extent basis risk exists between the  securitization  trust's
assets and liabilities.

   In each of our securitizations in which we sold NIM note(s), we purchased, on
behalf of the NIM owner trust,  an interest  rate cap for the benefit of the NIM
noteholder(s), which helps mitigate the basis risk for the approximate time that
the NIM notes are outstanding.

   The value of each excess  cashflow  certificate  represents  the cash flow we
expect to  receive  in the  future  from such  certificate  based  upon our best
estimate.  We  monitor  the  performance  of the loans  underlying  each  excess
cashflow  certificate,  and any changes in our estimates (and consequent changes
in value of the excess  cashflow  certificates)  are  reflected in the line item
called "interest  income" in the quarter in which we make any such change in our
estimate. Although we believe that the assumptions we use are reasonable,  there
can be no assurance as to the accuracy of the assumptions or estimates.

                                       62

   In determining the fair value of each of the excess cashflow certificates, we
make the following underlying  assumptions  regarding mortgage loan prepayments,
mortgage loan default rates, the LIBOR forward curve and discount rates:

  (A) PREPAYMENTS.  We base our  prepayment  rate  assumptions  upon our ongoing
      analysis of the  performance of mortgage pools we previously  securitized,
      and the  performance  of similar pools of mortgage  loans  securitized  by
      others in the industry. We apply different prepayment speed assumptions to
      different  loan  product  types  because it has been our  experience  that
      different  loan  product  types  exhibit  different  prepayment  patterns.
      Generally,  our loans can be grouped  into two loan  products - fixed rate
      loans and  adjustable  rate loans.  With fixed rate loans,  an  underlying
      borrower's  interest rate remains fixed  throughout  the life of the loan.
      Our  adjustable  rate  loans  are  really a  "hybrid"  between  fixed  and
      adjustable  rate  loans,  in that the rate  generally  remains  fixed  for
      typically  the first three years of the loan,  and then adjusts  typically
      every six months  thereafter.  Within each product type, other factors can
      affect prepayment rate assumptions.

      The  following  table shows our most recent  changes to month one and peak
      speed  components of our prepayment  assumptions - in the third quarter of
      2001 and, prior to that, in the third quarter 2000:

      LOAN TYPE         AT SEPTEMBER 30, 2001         AT SEPTEMBER 30, 2000
      ---------------------------------------------------------------------
      Fixed Rate:
         At Month               4.00%                         4.00%
         Peak Speed            30.00%                        23.00%
      Adjustable Rate:
         At Month               4.00%                         4.00%
         Peak Speed            75.00%                        50.00%

      A higher prepayment speed means that the mortgage loans prepay faster than
      anticipated  and, as such, we will earn less income in connection with the
      mortgage loans and receive less excess  cashflow in the future because the
      mortgage  loans have paid off;  conversely,  if we have slower  prepayment
      speeds,  the mortgage loans remain outstanding for longer than anticipated
      and, as such, we earn more income and more excess cashflow in the future.

  (B) DEFAULT  RATE.  At December 31, 2002 and December 31, 2001,  on each newly
      issued  securitization,  we apply a default  reserve  for both  fixed- and
      adjustable-rate  loans sold to the securitization trusts totaling 5.00% of
      the amount initially  securitized.  We apply a default or loss rate to the
      excess cashflow  certificate  because it is the "first-loss"  piece and is
      subordinated  in right of  payment to all other  securities  issued by the
      securitization  trust. If defaults are higher than we anticipate,  we will
      receive less income and less excess  cashflow than expected in the future;
      conversely,  if defaults are lower than we expected,  we will receive more
      income and more excess cashflow than expected in the future.

  (C) LIBOR FORWARD  CURVE.  The LIBOR  forward curve is used to project  future
      interest  rates,  which  affects both the rate paid to the  floating  rate
      pass-through  security  investors  (primarily the 1 month LIBOR index) and
      the  adjustable  rate mortgage loans sold to the  securitization  trust (a
      fixed rate of interest for either the first 24 or 36 months then a 6 month
      variable rate of interest  thereafter  using the 6 month LIBOR  index).  A
      significant   portion  of  our  loans  are  fixed  rate  mortgages  and  a
      significant  amount of these fixed rate loans are backed by floating  rate
      securities   (I.E.,  1  month  LIBOR).   As  such,  our  excess   cashflow
      certificates  are subject to significant  basis risk and a change in LIBOR
      will,  therefore,  impact  our  excess  spread.  If LIBOR  is  lower  than
      anticipated,  we will  receive more income and more excess cash flows than
      expected in the future;  conversely,  if LIBOR is higher than anticipated,
      we will less  income  and less  excess  cash flows  than  expected  in the
      future. In each of our  securitizations  in which we sold NIM note(s),  we
      purchased,  on behalf of the NIM owner trust, an interest rate cap for the
      benefit of the NIM noteholder(s),  which helps mitigate the basis risk for
      the approximate time that the NIM notes are outstanding.

  (D) DISCOUNT  RATE. We use a discount rate that we believe  reflects the risks
      associated  with our excess  cashflow  certificates.  While quoted  market
      prices on comparable  excess cashflow  certificates are not available,  we
      compare  our  valuation  assumptions  and  performance  experience  to our
      competitors in the  non-conforming  mortgage  industry.  Our discount rate
      takes  into  account  the  asset  quality  and  the   performance  of  our
      securitized  mortgage  loans  compared to that of the  industry  and other
      characteristics of our securitized loans. We quantify the risks associated
      with our excess  cashflow  certificates by comparing

                                       63

      the asset  quality  and  payment and loss  performance  experience  of the
      underlying  securitized mortgage pools to comparable industry performance.
      The discount rate we use to determine the present value of cash flows from
      excess cashflow certificates  reflects increased  uncertainty  surrounding
      current  and  future  market  conditions,  including  without  limitation,
      uncertainty concerning inflation,  recession,  home prices, interest rates
      and equity  markets.

      We utilized a discount  rate of 15% at December  31, 2002 and December 31,
      2001 on all  excess  cashflow  certificates.  Prior to the  quarter  ended
      September 30, 2001, we used an 18% discount rate on a NIM  transaction  we
      consummated in November 2000.

   In the third  quarter of 2000,  we had increased the discount rate we used on
those excess cashflow  certificates included in the NIM transaction to 18% (from
12%) and recorded an $8.8 million valuation adjustment. The adjustment reflected
a reduction in the present value of those excess cashflow  certificates  sold in
connection with our NIM transaction  completed in the fourth quarter of 2000. We
increased the discount  rate on these excess  cashflow  certificates  during the
period that the senior NIM  securities  remain  outstanding,  to account for the
potentially  higher risk  associated with the residual cash flows expected to be
received by the holder of the certificated  interest in the NIM trust,  which is
subordinated to the multiple senior securities sold in the NIM transaction.

   In the fourth  quarter of 2000, we had increased the discount rate we used in
determining the present value of our "senior"  excess  cashflow  certificates to
13% from 12%, and recorded a $7.1 million valuation  adjustment.  The adjustment
reflected an increase in volatility concerning the other underlying  assumptions
used in  estimating  expected  future  cash  flows  due to  greater  uncertainty
surrounding current and future market conditions,  including without limitation,
inflation, recession, home prices, interest rates and equity markets.

   For 2000, we recorded a non-cash  increase of $9.6 million to interest income
for a fair value  adjustment  to our excess  cashflow  certificates,  due to the
decrease in one-month  LIBOR.  Some of the our excess cashflow  certificates are
backed by floating rate securities,  which are susceptible to interest rate risk
(positive or negative) associated with a movement in short-term interest rates.

   At September 30, 2001,  we recorded a charge to interest  income to reflect a
fair value  adjustment to our remaining  excess cashflow  certificates  totaling
$19.7  million.  Our change in  assumptions  at September  30,  2001,  primarily
reflect recent  unforeseen  market events  relating to the terrorist  attacks on
September 11, 2001,  that further  accelerated an economic  downturn in the U.S.
economy,  and which we  believe  may have a  significant  adverse  impact on the
economy for the foreseeable future.

   At March 31, 2002, we recorded a charge to interest  income to reflect a fair
value  adjustment to our excess  cashflow  certificates,  totaling $2.1 million,
relating to the timing of excess cashflows that are to be received by the excess
cashflow    certificate    after   the    release   or    "step-down"   of   the
overcollateralization account.

   The activity related to our excess cashflow  certificates for the years ended
December 31, is as follows:
<TABLE>
<S>                                                 <C>              <C>         <C>
(DOLLARS IN THOUSANDS)                                   2002           2001         2000
------------------------------------------------------------------------------------------
Balance, beginning of year                           $  16,765        216,907      224,659
New excess cashflow certificates                        10,499         11,081       32,716
New NIM certificates                                        --             --       73,658
Cash received from excess cashflow certificates        (2,588)        (9,990)     (28,444)
Net accretion of excess cashflow certificates            1,974         11,935       35,224
Fair value adjustments                                 (2,085)       (19,676)      (6,324)
Sales                                                       --       (40,402)      (2,131)
NIM certificate sales                                       --             --    (112,451)
Second Exchange Offer                                       --      (153,090)           --
------------------------------------------------------------------------------------------
Balance, end of year                                 $  24,565         16,765      216,907
------------------------------------------------------------------------------------------
</TABLE>

   Our valuation of retained  excess cashflow  certificates is highly  dependent
upon  the  reasonableness  of our  assumptions  and  the  predictiveness  of the
relationships  that drive the results of our valuation model. The assumptions we
utilize,  described above, are complex, as we must make judgment calls about the
effect of matters that are inherently uncertain.  As the number of variables and
assumptions  affecting  the  possible  future  resolution  of the  uncertainties
increase, those judgments become even more complex.

                                       64

   In  volatile  markets,  like those we have  experienced  in 2002 and in 2001,
there is increased risk that our actual results may vary  significantly from our
assumed  results.  The greater the time period over which the  uncertainty  will
exist, the greater the potential volatility for our valuation assumptions.

   At December 31, 2002,  key economic  assumptions  and the  sensitivity of the
current  estimated fair value of retained  interests caused by immediate 10% and
20% adverse changes in those assumptions are as follows:

                                        Fair value of excess      Impact to
(Dollars in thousands)                  cashflow certificates      earnings
----------------------------------------------------------------------------
Fair value as of 12/31/02:                    $ 24,565
10% increase in prepayment speed                19,011              $5,554
20% increase in prepayment speed                15,476               9,089

10% increase in credit losses                   19,012               5,553
20% increase in credit losses                   14,448              10,117

10% increase in discount rates                  23,032               1,533
20% increase in discount rates                  21,676               2,889

10% increase in one- & six-month LIBOR          21,809               2,756
20% increase in one- & six-month LIBOR          19,227               5,338

   These  sensitivities  are  hypothetical  and are presented  for  illustrative
purposes  only.  Changes in  carrying  amount  based on a change in  assumptions
generally  cannot be  extrapolated  because  the  relationship  of the change in
assumption  to the change in carrying  amount may not be linear.  The changes in
assumptions  presented in the above table were calculated  without  changing any
other assumption; in reality, changes in one assumption may result in changes in
another, which may magnify or counteract the sensitivities. For example, changes
in market  interest rates may  simultaneously  impact  repayment  speed,  credit
losses and the discount rate.

(9)  HEDGING TRANSACTIONS

     We did not hedge during the years ended December  31, 2002 and December 31,
2001.  For the year ended  December 31,  2000,  we recorded a hedge loss of $2.1
million,  which  largely  offset a change in the value of  mortgage  loans being
hedged, as part of our net gain on sale of loans.

(10) WAREHOUSE FINANCING AND OTHER BORROWINGS

     We have two  warehouse credit facilities  for a  combined  amount of $400.0
million as of  December  31,  2002.  At December  31, 2001 we had one  warehouse
credit facility in the amount of $200.0 million. The lines are collateralized by
specific  mortgage  receivables,   which  are  equal  to  or  greater  than  the
outstanding balances under the line at any point in time.

     The  following  table  summarizes certain information  regarding  warehouse
financing and other borrowings at December 31:

(DOLLARS IN MILLIONS)
<TABLE>
<S>                         <C>            <C>                <C>          <C>      <C>
                                                                     BALANCE
                            Facility                                 -------                   Expiration
Facility Description         Amount            Rate              2002       2001                  Date
-----------------------------------------------------------------------------------------------------------
Warehouse line of credit     $200.0         LIBOR + 1.125%     $   --       80.9                   May 2003
Warehouse line of credit     $200.0         LIBOR + 1.125%       13.8         --                   May 2003
Capital leases                  n/a         3.76% - 12.50%        2.6        6.7     March 2003 - June 2006
Other Borrowings                n/a         7.00% - 8.00%          --        2.0                         --
-----------------------------------------------------------------------------------------------------------
Total                        $400.0                            $ 16.4       89.6
-----------------------------------------------------------------------------------------------------------
</TABLE>


                                       65

   We are required to comply with various  operating and financial  covenants as
provided in our warehouse  agreements,  which are  customary  for  agreements of
their  type.  The  continued  availability  of funds  provided to us under these
agreements is subject to, among other conditions,  our continued compliance with
these  covenants.  We believe we are in  compliance  with such  covenants  as of
December 31, 2002.

   Future  contractual  obligations  related to  principal  balances for capital
leases as of December 31, 2002 and 2001 are as follows:

(Dollars in thousands)
<TABLE>
<S>                           <C>                   <C>

   PERIOD                         2002                2001
--------------------------------------------------------------------------------
   Less than 1 year            $ 1,953               4,704
   1-3 years                       642               2,033
--------------------------------------------------------------------------------
Total                          $ 2,595               6,737
--------------------------------------------------------------------------------
</TABLE>

(11) SENIOR NOTES

     In July 1997,  we issued  $150  million in the  aggregate  of 9 1/2% senior
notes  due 2004.  These  notes  were the  subject  of two  exchange  offers  (as
described in more detail in Note 3), which  modified the terms of the  indenture
governing  then notes - the second of which  resulted in the  extinguishment  of
approximately $139.2 million of the notes in 2001.

     The  outstanding  balance of the notes totaled $10.8 million as of December
31, 2002 and 2001. The outstanding balance as of December 31, 2000, prior to the
restructuring  (as  described  in  Note  3),  totaled  $149.6  million,  net  of
unamortized bond discount. During 2001, in connection with the restructuring, we
wrote  off  the  unamortized  issuance  cost  related  to  the  Senior  Note  of
approximately $2.5 million.

(12) BANK PAYABLE

     In order to maximize our cash  management  practices,  we have instituted a
procedure  whereby checks written  against our operating  account are covered as
they are presented to the bank for payment,  either by drawing down our lines of
credit or from subsequent  deposits of operating  cash. Bank payable  represents
the checks outstanding at December 31, 2002 and 2001, to be paid in this manner.

(13) EMPLOYEE BENEFIT PLANS

     We  sponsor  a  401(k)  Retirement  Savings  Plan.  Substantially  all  our
employees who are at least 21 years old are eligible to  participate in the plan
after  completing one year of service.  Contributions  are made from  employees'
elected salary deferrals. We elected to make discretionary  contributions to the
Plan of $0.3  million,  $0.5 million and $0.7  million for 2002,  2001 and 2000,
respectively.

(14) COMMITMENTS AND CONTINGENCIES

     We have repurchase  agreements with certain of the  institutions  that have
purchased mortgages.  Some of the agreements provide for the repurchase by us of
any of the mortgage loans that go to foreclosure  sale. At the foreclosure sale,
we will repurchase the mortgage,  if necessary,  and make the institution whole.
The  dollar  amount  of  loans  that  were  sold  with  recourse  and are  still
outstanding  totaled  $2.6  million at  December  31,  2002 and $3.5  million at
December 31, 2001.

     Included in accounts  payable is an allowance  for recourse  losses of $1.2
million  at  December   31,  2002  and  $1.4   million  at  December  31,  2001,
respectively. We recognized, as a charge to operations, a provision for recourse
losses of approximately  $73,500,  $311,000 and $11,600 for the years 2002, 2001
and 2000, respectively.  Additions to the allowance for loan losses are provided
by  charges  to income  based  upon  various  factors,  which,  in  management's
judgment,  deserve current  recognition in estimating  probable losses. The loss
factors are determined by management based upon an evaluation of historical loss
experience,   delinquency  trends,  loan  volume  and  the  impact  of  economic
conditions in our market area.

                                       66

     Our rental expense,  net of sublease  income,  for the years ended December
31, 2002, 2001 and 2000 amounted to $4.5 million, $5.0 million and $7.0 million,
respectively.

     Minimum future rentals under non-cancelable operating leases as of December
31, 2002 are as follows:
<TABLE>
<S>          <C>                              <C>
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
              Year                               Amount
--------------------------------------------------------------------------------
              2003                             $  3,944
              2004                                3,511
              2005                                3,381
              2006                                3,274
              2007                                3,130
              2008                                  710
--------------------------------------------------------------------------------
              Total                            $ 17,950
--------------------------------------------------------------------------------
</TABLE>

     Because the nature of our  business  involves  the  collection  of numerous
accounts,  the validity of liens and  compliance  with various state and federal
lending  laws,  we are subject,  in the normal  course of business,  to numerous
legal  proceedings  and claims,  including  several class action  lawsuits.  The
resolution of these lawsuits,  in management's opinion, will not have a material
adverse effect on our financial position or results of operations.

(15) STOCK OPTION PLAN

     The 1996 Stock  Option  Plan (the "1996  Plan")  authorized  the reserve of
2,200,000  shares of unissued  common  stock for  issuance  pursuant to the 1996
Plan.  The 2001 Stock Option Plan (the "2001 Plan,"  collectively  with the 1996
Plan, the "Plans") authorized the reserve of 1,500,000 shares of unissued common
stock for issuance  pursuant to the 2001 Plan.  Substantially all of the options
issued vest over a five-year  period at 20% per year and expire seven years from
the grant date.

   The following table  summarizes  certain  information  regarding the Plans at
December 31:
<TABLE>
<S>                           <C>            <C>         <C>            <C>          <C>         <C>
                                         2002                        2001                      2000
------------------------------------------------------------------------------------------------------------
                               Number         Wtd-Avg       Number       Wtd-Avg       Number      Wtd-Avg
                               of             Exercise      of           Exercise      of          Exercise
                               Shares         Price         Shares       Price         Shares      Price
------------------------------------------------------------------------------------------------------------
Balance, beginning of year     2,179,000        $4.25       990,700      $ 12.38      1,146,050    $ 12.44
Options granted                  800,500         1.83     1,658,300         0.50         20,000       2.00
Options exercised                 21,800         0.50            --           --             --         --
Options canceled                 457,650        12.48       470,000         8.17        175,350      11.57
------------------------------------------------------------------------------------------------------------
Balance at end of year         2,500,050        $2.00     2,179,000        $4.25        990,700     $12.38
------------------------------------------------------------------------------------------------------------
Options exercisable              519,380        $4.79       515,650       $13.97        513,120     $15.07
------------------------------------------------------------------------------------------------------------
</TABLE>

   The weighted-average fair value of options granted during 2002, 2001 and 2000
was  $1.25,  $1.21  and  $0.34,  respectively.  For  purposes  of the pro  forma
calculation  under  SFAS No.  123,  the fair  value of the  options  granted  is
estimated  using  the  Black-Scholes  option-pricing  model  with the  following
weighted-average assumptions used for the 2002, 2001 and 2000 grants:

                                               2002           2001         2000
--------------------------------------------------------------------------------
Dividend yield                                   0%            0%            0%
Expected volatility                            103%          164%          145%
Risk-free interest rate                       2.87%         4.22%         6.14%
Expected life                               5 years       5 years       5 years
Average remaining contractual life       5.37 years    5.28 years    3.70 years

                                       67

 (16) INCOME TAXES

   The  provision  (benefit)  for income taxes for the years ended  December 31,
2002, 2001 and 2000 is as follows:
<TABLE>
<S>                                          <C>           <C>         <C>
(DOLLARS IN THOUSANDS)                             2002        2001        2000
--------------------------------------------------------------------------------
Current: Federal                              $  (1,121)      1,847       2,203
         State & Local                             (648)      1,029         600
--------------------------------------------------------------------------------
Total current income taxes                    $  (1,769)      2,876       2,803
--------------------------------------------------------------------------------

Deferred: Federal                             $   3,560     (31,053)    (19,860)
          State & Local                             848      (7,393)     (4,448)
Valuation allowance                              (4,408)     38,446       8,297
--------------------------------------------------------------------------------
Total deferred income taxes                          --          --     (16,011)
--------------------------------------------------------------------------------
Total tax provision (benefit)                 $  (1,769)      2,876     (13,208)
--------------------------------------------------------------------------------
</TABLE>

   Significant  components  (temporary  differences and carryforwards) that give
rise to our net  deferred  tax asset as of  December  31,  2002 and 2001 were as
follows:

(DOLLARS IN THOUSANDS)
<TABLE>
<S>                                                  <C>            <C>
DEFERRED TAX ASSETS:
--------------------------------------------------------------------------------
Book/tax difference in excess cashflow
     certificates, net carrying amount                $  14,832        6,721
Loss reserves                                             1,879        2,887
Book over tax depreciation                                  419          159
Federal and State net operating loss carryforwards       30,905       42,894
--------------------------------------------------------------------------------
Gross deferred tax assets                             $  48,035       52,661
Less: Valuation Allowance                                42,335       46,743
--------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance        $   5,700        5,918
--------------------------------------------------------------------------------

DEFERRED TAX LIABILITIES:
--------------------------------------------------------------------------------
Capitalized origination fees and related cost         $     100          318
--------------------------------------------------------------------------------
Gross deferred tax liabilities                              100          318
--------------------------------------------------------------------------------
Net deferred tax assets                               $   5,600        5,600
--------------------------------------------------------------------------------
</TABLE>

   We are  required  to  recognize  all or a portion of our gross  deferred  tax
assets if we believe  that it is more likely  than not,  given the weight of all
available  evidence,  that all or a portion of the benefits of the  carryforward
losses and other deferred tax assets will be realized. Management believes that,
based on the available evidence, it is more likely than not that we will realize
the benefit from our gross deferred tax assets, net of the valuation allowance.

   A valuation allowance was initially established in 2000 and increased in 2001
because,  it was unclear whether we would have  sufficient  earnings in the then
immediate future to ensure  realization of our entire gross deferred tax assets,
following  two  consecutive  years  of  significant  losses.  We are  constantly
evaluating the anticipated  amount and  recoverability of the gross deferred tax
asset in light of our  historical  operations and  susceptibility  to changes in
market conditions.

   As of December 31, 2002, Federal and State net operating  loss  carryforwards
("NOLs")  totaled  approximately  $77.2 million,  with $3.9 million  expiring in
2020, and $73.3 million expiring in 2021.

                                       68

   A reconciliation of the statutory income tax rate to the effective income tax
rate,  as applied to income (loss) for the years ended  December 31, 2002,  2001
and 2000 is as follows:
<TABLE>
<S>                                                      <C>          <C>        <C>
                                                            2002        2001        2000
----------------------------------------------------------------------------------------
Tax at statutory rate                                      35.0%        35.0%      35.0%
State & local taxes, net of Federal benefit                 0.8          4.3        4.0
Change in valuation allowance for deferred tax assets     (27.7)       (39.7)     (13.2)
Non-deductible expenses and other                         (19.2)        (2.6)       4.7
----------------------------------------------------------------------------------------
Total tax rate                                            (11.1)%       (3.0)%     21.1%
----------------------------------------------------------------------------------------
</TABLE>

(17) EARNINGS PER SHARE

     The  following  is  a  reconciliation  of  the denominators   used  in  the
computations of basic and diluted EPS. The numerator for calculating  both basic
and diluted EPS is net income.

For the years ended December 31:
<TABLE>
<S>                                        <C>        <C>          <C>
(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)       2002        2001        2000
--------------------------------------------------------------------------------
Net  income (loss)                          $17,637    (99,790)     (49,417)
--------------------------------------------------------------------------------

Weighted-average shares - basic              15,895      15,884       15,884
Incremental shares-options                    1,076          --           --
--------------------------------------------------------------------------------
Weighted-average shares - diluted            16,971      15,884       15,884
--------------------------------------------------------------------------------

Basic earnings per share:
--------------------------------------------------------------------------------
Net  income (loss)                          $  1.11      (6.28)       (3.11)
--------------------------------------------------------------------------------

Diluted earnings per share:
--------------------------------------------------------------------------------
Net  income (loss)                          $  1.04      (6.28)       (3.11)
--------------------------------------------------------------------------------
</TABLE>

   For  2001  and  2000  Stock  Options  of  approximately  23,000  and  37,000,
respectively,  are excluded  from the  calculation  of diluted EPS because their
effect is antidiluted in periods where losses are reported.

(18) QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table is a summary of financial data by quarter for the years
ended December 31, 2002 and 2001:

For the quarters ended
<TABLE>
<S>                                                      <C>         <C>        <C>           <C>

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)              March 31,   June 30,   Sept. 30,   Dec. 31,
------------------------------------------------------------------------------------------------------
2002
  Revenues(a)                                             $ 19,644      21,577     21,823      23,099
  Expenses                                                  17,279      17,473     17,261      18,262
 Net income(a)(b)                                            2,245       3,972      6,698       4,722
   Earnings per share basic(a)(b)                             0.14        0.25       0.42        0.30
 Earnings per share diluted(a)(b)                             0.14        0.23       0.39        0.28

2001
  Revenues (c)(e)                                         $(2,982)      25,106   (10,304)      21,328
  Expenses (c)(d)(e)                                        30,298      41,541     40,745      17,478
 Net income (loss) (c)(d)(e)                              (33,752)    (16,528)   (52,910)       3,400
 Earnings (loss) per share basic and diluted(c)(d)(e)       (2.12)      (1.04)     (3.33)        0.21
-----------------------------
(a) The quarter ended March 31, 2002  includes a charge of $2.1  million,  which
    represents a fair value adjustment to our excess cashflow certificates.
(b) The quarter ended  September 30, 2002 includes a special tax benefit of $2.2
    million  related to us  obtaining  a favorable  resolution  to tax issue for
    which we had previously reserved and do not expect to recur.
</TABLE>

                                       69

(c) The quarter ended March 31, 2001 includes: (1) a $25.4 million write-down of
    excess cashflow  certificates  relating to a sale agreement  entered into by
    us, (2) a $0.8 million charge related to disposition of branches,  and (3) a
    $0.5 million related to restructuring charges.
(d) The quarter ended June 30, 2001 includes  non-recurring  charges principally
    incurred in connection  with the  recognition  of cost  attributable  to the
    disposition  and transfer of our  servicing  platform of $10.7 million and a
    change in accounting estimate regarding the life expectancy of our equipment
    of $3.6 million. In addition, we recorded a $1.5 million charge related to a
    fair value adjustment to a pool of non-performing loans.
(e) The quarter  ended  September  30, 2001 includes a charge of $19.7  million,
    which  represents a fair value  adjustment to our remaining  excess cashflow
    certificates.  We changed the valuation  assumptions we use to estimate fair
    value.  The quarter also includes a charge of $19.3  million  related to the
    extingushment  of debt .The quarter also includes a non-recurring  charge of
    $1.4 million  relating to professional  fees incurred in connection with the
    Second Exchange Offer.


ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

      None.


                                    PART III

ITEM 10.

   We incorporate by reference  information in our proxy statement that complies
with the information called for by Item 10 of Form 10-K. The proxy will be filed
at a later date with the Commission.

ITEM 11.

   We incorporate by reference  information in our proxy statement that complies
with the information called for by Item 11 of Form 10-K. The proxy will be filed
at a later date with the Commission.

ITEM 12.

   We incorporate by reference  information in our proxy statement that complies
with the information called for by Item 12 of Form 10-K. The proxy will be filed
at a later date with the Commission.

   The following  securities to be issued under our equity compensation plans at
December 31, 2002 have been approved by security holders:
<TABLE>
<S>                               <C>                           <C>                       <C>
                      EQUITY COMPENSATION PLAN INFORMATION
------------------------------------------------------------------------------------------------------------------
PLAN CATEGORY                NUMBER OF SECURITIES TO BE     WEIGHTED-AVERAGE        NUMBER OF SECURITIES REMAINING
                             ISSUED UPON EXERCISE OF        EXERCISE PRICE OF       AVAILABLE FOR FUTURE ISSUANCE
                             OUTSTANDING OPTIONS            OUTSTANDING OPTIONS     UNDER EQUITY COMPENSATION
                                                                                    PLANS (1)
                                       (A)                        (B)                             (C)
------------------------------------------------------------------------------------------------------------------

Equity compensation plans
approved by security holders       2,500,050                     $ 2.00                     1,199,950

Equity compensation plans not
approved by security holders             n/a                        n/a                           n/a

Total                              2,500,050                     $ 2.00                     1,199,950
----------------
</TABLE>
    (1) Excluding securities reflected in the first column.

ITEMS 13.

   We incorporate by reference  information in our proxy statement that complies
with the information called for by Item 13 of Form 10-K. The proxy will be filed
at a later date with the Commission.

                                       70

ITEM 14. CONTROLS AND PROCEDURES

   Our chief  executive  officer  and chief  financial  officer,  based on their
evaluation of our disclosure  controls and  procedures  within the past 90 days,
have concluded that such  disclosure  controls and procedures  were effective to
ensure that  material  information  relating  to the Company and  required to be
disclosed  by us has been made known to them and has been  recorded,  processed,
summarized and reported timely.  There have not been any significant  changes in
our internal controls or in other factors that could significantly  affect these
controls subsequent to the date of evaluation.


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

  (A)(1) FINANCIAL STATEMENTS
<TABLE>
<S> <C>                                                                                      <C>
                                 PAGE(S)
                                 -------
     The following   Consolidated   Financial   Statements  of  Delta  Financial
         Corporation  and  Subsidiaries  are included in Part II, Item 8 of this
         report
     Independent Auditors' Report...........................................................  47
     Consolidated Balance Sheets--December 31, 2002 and 2001................................  48
     Consolidated Statements of Operations--Years ended December 31, 2002, 2001 and 2000....  49
     Consolidated Statement of Changes in Stockholders' Equity--Years ended
         December 31, 2002, 2001 and 2000...................................................  50
     Consolidated Statements of Cash Flows--Years ended December 31, 2002, 2001 and
         2000...............................................................................  51
     Notes to Consolidated Financial Statements.............................................  52
</TABLE>



   (A)(3) EXHIBITS:
<TABLE>
<S>      <C>  <C> <C>
EXH.
 NO.     FILED     DESCRIPTION
 ---     ----      ----------
  3.1    (a)   --  Certificate of Incorporation of Delta Financial Corporation
  3.2    (e)   --  Second Amended Bylaws of Delta Financial Corporation
  3.3    (m)   --  Certificate of Designations, Voting Powers, Preferences and Rights of Series A
                   Preferred Stock of Delta Financial Corporation
  4.1    (b)   --  Indenture dated July 23, 1997, between Delta Financial Corporation, its subsidiary
                   guarantors and The Bank of New York, as Trustee
  4.2    (g)   --  First Supplemental  Indenture  dated August 1, 2000,  between
                   Delta  Financial  Corporation,  its subsidiary guarantors and
                   The Bank of New York, as Trustee
  4.3    (k)   --  Second Supplemental Indenture dated October 16, 2000,
                   between  Delta   Financial   Corporation,   its   subsidiary
                   guarantors and The Bank of New York, as Trustee
  4.4    (k)   --  Third Supplemental  Indenture dated November 20, 2000
                   between  Delta   Financial   Corporation,   its   subsidiary
                   guarantors and The Bank of New York, as Trustee
  4.5    (k)   --  Fourth Supplemental Indenture dated December 21, 2000
                   between  Delta   Financial   Corporation,   its   subsidiary
                   guarantors and The Bank of New York, as Trustee
  4.6    (h)   --  Indenture, dated December 21, 2000, relating to the 9 1/2% Senior Secured Notes due
                   2004 by and between Delta Financial Corporation, its subsidiary guarantors and U.S. Bank
                   Trust National Association, as Trustee.
  4.7    (k)   --  First Supplemental Indenture dated January 11, 2001, between Delta Financial
                   Corporation, its subsidiary guarantors and U.S. Bank Trust National Association, as Trustee
  4.8    (k)   --  Second Supplemental Indenture dated February 12, 2001, between Delta Financial
                   Corporation, its subsidiary guarantors and U.S. Bank Trust National Association, as Trustee
  4.9    (i)   --  Letter of Intent  and Term  Sheet,  by and among the
                   Delta Financial  Corporation and certain  beneficial holders
                   of the Senior Secured Notes, dated as of February 23, 2001.
  4.10   (j)   --  Third Supplemental Indenture dated March 16, 2001, between Delta Financial Corporation, its
                   subsidiary guarantors and U.S. Bank Trust National Association, as Trustee

                                       71


  4.11   (l)   --  Fourth Supplemental Indenture dated July 31, 2001, between Delta Financial Corporation, its
                   subsidiary guarantors and U.S. Bank Trust National Association, as Trustee
  4.12   (m)   --  Fifth Supplemental Indenture dated August 27, 2001, between Delta Financial Corporation, its
                   subsidiary guarantors and U.S. Bank Trust National Association, as Trustee
  10.2   (m)   --  Employment Agreement dated February 27, 2002 between the Registrant and Hugh Miller
  10.3   (n)   --  Employment Agreement dated September 12, 2002 between the Registrant and Sidney A. Miller.
  10.4   (m)   --  Employment Agreement dated September 24, 2001 between the Registrant and Randall F. Michaels
  10.5   (m)   --  Employment Agreement dated February 27, 2002 between the Registrant and Richard Blass
  10.7   (a)   --  Lease Agreement between Delta Funding  Corporation and the Tilles Investment Company, and the
                   Second, Third and Fourth Amendments to Lease Agreement
  10.8   (c)   --  Fifth, Sixth and Seventh Amendments to Lease Agreement between Delta Funding
                   Corporation and the Tilles Investment Company
  10.9   (d)   --  Eighth Amendment to Lease Agreement between Delta Funding Corporation and the Tilles
                   Investment Company
 10.10   (m)   --  Ninth Amendment to Lease Agreement between Delta Funding Corporation and the Tilles
                   Investment Company
 10.11   (a)   --  1996 Stock Option Plan of Delta Financial Corporation
 10.12   (m)   --  2001 Stock Option Plan of Delta Financial Corporation
  21.1   (o)   --  Subsidiaries of Registrant
  23.1   (o)   --  Consent of Independent Auditors
</TABLE>
---------------
(a) Incorporated by reference from our  Registration  Statement on Form S-1 (No.
    333-11289), filed with the Commission on October 9, 1996.
(b) Incorporated  by  reference  from  our  Current  Report  on  Form  8-K  (No.
    001-12109), filed with the Commission on July 30, 1997.
(c) Incorporated  by reference  from our Annual Report on Form 10-K for the year
    ended  December 31, 1997 (File No.  1-12109),  filed with the  Commission on
    March 31, 1998.
(d) Incorporated  by reference  from our  Quarterly  Report on Form 10-Q for the
    quarter ended March 31, 1998 (File No.  1-12109),  filed with the Commission
    on May 12, 1998.
(e) Incorporated  by reference  from our Annual Report on Form 10-K for the year
    ended  December 31, 1998 (File No.  1-12109),  filed with the  Commission on
    March 31, 1999.
(f) Incorporated  by reference  from our Annual Report on Form 10-K for the year
    ended  December 31, 1999 (File No.  1-12109),  filed with the  Commission on
    March 31, 2000.
(g) Incorporated  by  reference  from our  Current  Report on Form 8-K (File No.
    1-12109),  filed with the Commission on August 4, 2000.
(h) Incorporated  by  reference  from our  Current  Report on Form 8-K (File No.
    1-12109), filed with the Commission on January 10, 2001.
(i) Incorporated  by  reference  from our  Current  Report on Form 8-K (File No.
    1-12109), filed with the Commission on March 2, 2001.
(j) Incorporated  by  reference  from our  Current  Report on Form 8-K (File No.
    1-12109), filed with the Commission on March 22, 2001.
(k) Incorporated  by reference  from our Annual Report on Form 10-K for the year
    ended  December 31, 2000 (File No.  1-12109),  filed with the  Commission on
    April 2, 2001.
(l) Incorporated  by  reference  from our  Current  Report on Form 8-K (File No.
    1-12109), filed with the Commission on August 3, 2001.
(m) Incorporated  by reference  from our Annual Report on Form 10-K for the year
    ended  December 31, 2001 (File No.  1-12109),  filed with the  Commission on
    April 1, 2002.
(n) Incorporated  by reference  from our  Quarterly  Report on Form 10-Q for the
    quarter  ended  September  30,  2002  (File  No.  1-12109),  filed  with the
    Commission on November 13, 2002.
(o) Filed herewith

   (B) REPORTS ON FORM 8-K.

       On December 23, 2002, we filed a Current Report on Form 8-K under Item 5,
in which we announced that,  effective December 21, 2002, the exercise price for
warrants issued by us under a Warrant Agreement, dated December 21, 2000, by and
between the Company and Mellon  Investor  Services  LLP, as warrant  agent,  was
adjusted from $9.10 per share to $0.01 per share in accordance with Section 6 of
the Warrant Agreement.



                                       72
<PAGE>


                                   SIGNATURES

   Pursuant  to the  requirements  of  Section  13 or  15(d)  of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

                           DELTA FINANCIAL CORPORATION
                                  (Registrant)

Dated: March 27, 2003      By: /S/ HUGH MILLER
                           --------------------------
                           Hugh Miller
                           President and Chief Executive Officer

   Pursuant to the  requirements  of the Securities  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.
<TABLE>
<S>                                <C>                                                 <C>

SIGNATURE                                    CAPACITY IN WHICH SIGNED                       DATE
--------------------------------     ---------------------------------------          ----------------


/S/ SIDNEY A. MILLER                Chairman of the Board of Directors                  March 27, 2003
--------------------------------
Sidney A. Miller


/S/ HUGH MILLER                     President, Chief Executive Officer and Director     March 27, 2003
-------------------------------     (Principal Executive Officer)
Hugh Miller


/S/ RICHARD BLASS                   Executive Vice President, Chief Financial Officer   March 27, 2003
-------------------------------     and Director (Principal Financial Officer)
Richard Blass


/S/ MARTIN D. PAYSON                Director                                            March 27, 2003
-------------------------------
Martin D. Payson


/S/ ARNOLD B. POLLARD               Director                                            March 27, 2003
-------------------------------
Arnold B. Pollard


/S/ MARGARET WILLIAMS               Director                                            March 27, 2003
--------------------------------
Margaret Williams
</TABLE>



                                       73
<PAGE>




      I, Hugh Miller,  Chief Executive  Officer of Delta  Financial  Corporation
(the "Company"), certify that:

1. I have reviewed this annual report on Form 10-K of the Company;

2. Based on my  knowledge,  this  annual  report  does not  contain  any  untrue
   statement of a material  fact or omit to state a material  fact  necessary to
   make the  statements  made,  in light of the  circumstances  under which such
   statements  were made, not  misleading  with respect to the period covered by
   this annual report;

3. Based  on  my  knowledge,  the  financial  statements,  and  other  financial
   information  included in this annual  report,  fairly present in all material
   respects the financial condition, results of operations and cash flows of the
   Company as of, and for, the periods presented in this annual report;

4. The  Company's   other   certifying   officers  and  I  are  responsible  for
   establishing and maintaining  disclosure  controls and procedures (as defined
   in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

        o   designed  such  disclosure  controls and  procedures  to ensure that
            material  information   relating  to  the  Company,   including  its
            consolidated  subsidiaries,  is made  known to us by  others  within
            those entities,  particularly during the period in which this annual
            report is being prepared;

        o   evaluated the effectiveness of the Company's disclosure controls and
            procedures  as of a date  within 90 days prior to the filing date of
            this annual report (the "Evaluation Date"); and

        o   presented  in  this  annual   report  our   conclusions   about  the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5. The Company's other  certifying  officers and I have disclosed,  based on our
   most recent evaluation,  to the Company's auditors and the audit committee of
   the  Company's  board of  directors  (or persons  performing  the  equivalent
   function):

       (a) all  significant  deficiencies in the design or operation of internal
           controls  which  could  adversely  affect  the  Company's  ability to
           record,  process,  summarize  and  report  financial  data  and  have
           identified  for the  Company's  auditors any material  weaknesses  in
           internal controls; and

       (b) any fraud, whether or not material, that involves management or other
           employees  who  have a  significant  role in the  Company's  internal
           controls; and

6. The Company's other  certifying  officers and I have indicated in this annual
   report whether or not there were significant  changes in internal controls or
   in other factors that could significantly affect internal controls subsequent
   to the date of our most recent  evaluation,  including any corrective actions
   with regard to significant deficiencies and material weaknesses.

      Date: March 27, 2003

                                           By:/S/ HUGH MILLER
                                           -----------------------------------
                                           Hugh Miller
                                           PRESIDENT AND CHIEF EXECUTIVE OFFICER





                                       74

<PAGE>


                                  CERTIFICATION


      I, Richard Blass,  Chief Financial Officer of Delta Financial  Corporation
(the "Company"), certify that:

1.    I have reviewed this annual report on Form 10-K of the Company;

2.    Based on my  knowledge,  this  annual  report  does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information included in this annual report, fairly present in all material
      respects the financial condition,  results of operations and cash flows of
      the Company as of, and for, the periods presented in this annual report;

4.    The  Company's  other  certifying  officers  and  I  are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in  Exchange  Act Rules  13a-14 and 15d-14) for the Company and we
      have:

       o   designed  such  disclosure  controls  and  procedures  to ensure that
           material   information   relating  to  the  Company,   including  its
           consolidated subsidiaries, is made known to us by others within those
           entities,  particularly during the period in which this annual report
           is being prepared;

       o   evaluated the effectiveness of the Company's  disclosure controls and
           procedures  as of a date  within 90 days prior to the filing  date of
           this annual report (the "Evaluation Date"); and

       o   presented   in  this  annual   report  our   conclusions   about  the
           effectiveness of the disclosure  controls and procedures based on our
           evaluation as of the Evaluation Date;

5.    The Company's other certifying officers and I have disclosed, based on our
      most recent evaluation,  to the Company's auditors and the audit committee
      of the Company's board of directors (or persons  performing the equivalent
      function):

      (a) all significant  deficiencies  in the design or  operation of internal
          controls which could adversely affect the Company's ability to record,
          process,  summarize and report  financial data and have identified for
          the Company's  auditors any material  weaknesses in internal controls;
          and

      (b) any fraud, whether or not material,  that involves management or other
          employees  who  have a  significant  role  in the  Company's  internal
          controls; and

6.    The  Company's  other  certifying  officers  and I have  indicated in this
      annual report  whether or not there were  significant  changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

      Date: March 27, 2003


                                                  By: /S/ RICHARD BLASS
                                                  ------------------------------
                                                  Richard Blass
                                                  EXECUTIVE VICE PRESIDENT AND
                                                  CHIEF FINANCIAL OFFICER



                                       75

       CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


   I, Hugh Miller,  President  and Chief  Executive  Officer of Delta  Financial
Corporation (the "Company"),  pursuant to Section 906 of the  Sarbanes-Oxley Act
of 2002, do hereby certify as follows:

1. The annual report on Form 10-K of the Company for the year ended December 31,
   2002 fully  complies with the  requirements  of Section 13(a) or 15(d) of the
   Securities Exchange Act of 1934; and

2. The information  contained in such Form 10-K fairly presents, in all material
   respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF,  I have executed this  Certification this 27th day of March,
2003.


                                    /s/HUGH MILLER
                                    -------------------------------------
                                    Hugh Miller
                                    PRESIDENT AND CHIEF EXECUTIVE OFFICER





                                       76
<PAGE>


 CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT
                TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


   I, Richard Blass,  Executive Vice  President and Chief  Financial  Officer of
Delta  Financial  Corporation  (the  "Company"),  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, do hereby certify as follows:

1. The annual report on Form 10-K of the Company for the year ended December 31,
   2002 fully  complies with the  requirements  of Section 13(a) or 15(d) of the
   Securities Exchange Act of 1934; and

2. The information  contained in such Form 10-K fairly presents, in all material
   respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF,  I have executed this  Certification this 27th day of March,
2003.


                                /s/RICHARD BLASS
                                -------------------------------------
                                Richard Blass
                                EXECUTIVE VICE PRESIDENT AND
                                CHIEF FINANCIAL OFFICER







                                       77