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

                                   FORM 10-K/A

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                            ------------------------
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                           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:

    COMMON STOCK, PAR VALUE $.01 PER SHARE        NEW YORK STOCK EXCHANGE
             (TITLE OF EACH CLASS)               (NAME OF EACH EXCHANGE ON
                                                     WHICH REGISTERED)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

     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. [_]

     As of March 26, 2001, the aggregate market value of the voting stock held
by non-affiliates of the Registrant, based on the closing price of $0.45, was
approximately $2,513,885.

     As of March 31, 2001, the Registrant had 15,883,749 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, 2000.

================================================================================

<PAGE>

PART I
ITEM 1. BUSINESS

BUSINESS OVERVIEW

     Delta Financial Corporation (together with its subsidiaries, the "Company"
or "Delta") is a Delaware corporation that was organized in August 1996. On
October 31, 1996, in connection with its initial public offering, the Company
acquired all of the outstanding common stock of Delta Funding Corporation
("Delta Funding"), a New York corporation that had been organized on January 8,
1982 to originate, sell, service and invest in residential first and second
mortgages. On November 1, 1996, the Company completed an initial public offering
of 4,600,000 shares of common stock, par value $.01 per share.

     Delta, through its subsidiaries, is a specialty consumer finance company
that has engaged in originating, acquiring, selling and servicing non-conforming
home equity loans since 1982. Throughout its operating history, Delta has
focused on lending to individuals who generally do not qualify for conforming
credit. Management believes that these borrowers have largely been unsatisfied
by the more traditional sources of mortgage credit, which underwrite loans to
conventional guidelines established by the Federal National Mortgage
Associations ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
The Company makes loans to these borrowers for such purposes as debt
consolidation, home improvement, refinancing or education, and these loans are
primarily secured by first mortgages on one- to four-family residential
properties.

     The Company originates home equity loans indirectly through licensed
mortgage brokers and other real estate professionals who submit loan
applications on behalf of borrowers ("Brokered Loans") and, prior to July 2000,
also purchased loans from mortgage bankers and smaller financial institutions
that satisfy Delta's underwriting guidelines ("Correspondent Loans"). The
Company decided to discontinue its correspondent operations in July 2000 to
focus on its less cash intensive broker and retail channels. Delta Funding
currently originates the majority of its loans in 20 states, through its network
of approximately 1,500 brokers.

     The Company develops retail loan leads ("Retail Loans") primarily through
its telemarketing system and its network of 11 retail offices located in
Illinois, Indiana, Missouri, North Carolina, Ohio (4), Pennsylvania (2),
Tennessee, and a call center in New York. During the twelve months ended
December 31, 2000, the Company closed two under-performing retail offices in
Georgia and Florida, and opened a new retail origination call center at its
headquarters in Woodbury, New York. In January 2001, the Company closed two
additional under-performing retail offices in Florida.

     The Company's business strategy is to increase its loan originations
platform by focusing its efforts on its broker and retail channels of
originations by (1) continuing to provide top quality service to its network of
brokers, and retail clients, (2) maintaining its underwriting standards, (3)
further penetrating its established and recently-entered markets and expanding
into new geographic markets, (4) expanding its retail origination capabilities,
and (5) leveraging and continuing its investment in information and processing
technologies.

     For the year ended December 31, 2000, the Company originated or purchased
approximately $933 million of loans, of which approximately $604 million were
Brokered Loans, $260 million were Retail Loans and $69 million were
Correspondent Loans, compared to $891 million, $319 million and $261 million,
respectively, for the year ended December 31, 1999.

     Through the first three quarters of 2000, substantially all of the loans
which the Company originated and purchased were sold in securitizations in which
the loans were sold to a trust. In turn, the trust issued certificates
evidencing ownership interests in the trust in return for capital to fund the
purchase of the mortgage loans by the trust. These certificates are issued
through the sale of asset-backed securities primarily to institutional
investors. For the year ended December 31, 2000, Delta sold a total of $840
million of loans through four real estate mortgage investment conduit ("REMIC")
securitizations. Each of these four securitizations was credit-enhanced, by an
insurance policy provided through a monoline insurance company and/or a
senior-subordinated structure, to receive ratings of "Aaa" from Moody's
Investors Service, Inc. ("Moody's"), Fitch IBCA ("Fitch") and "AAA" from
Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc.
("S&P"). The Company sells loans through securitizations to improve its
operating leverage and liquidity, to minimize financing costs and to reduce its
exposure to fluctuations in interest rates.

     In the fourth quarter of 2000, the Company again securitized the majority
of its loan production in a $115 million securitization. In contrast to the past
several quarters, however, the Company also sold a considerably larger amount -
$47 million of loans - of its loan production for cash and received a premium
through whole loan sales, without retaining the right to loan servicing. The
Company plans to continue to utilize a combination of securitization and whole
loan sales in the foreseeable future.

     The majority of the Company's revenues and cash flows primarily results
from the sale of mortgage loans (through securitization and on a whole loan
basis) and the sale of its servicing rights on newly originated or purchased
pools of home-equity loans. In connection with a securitization, the Company
sells loans to a trust for a cash payment while (1) retaining the interest-only
and residual certificates in the trust, and (2) either (a) retaining the right
to service the loans and receive contractual and ancillary servicing fees, or
(b) selling the servicing rights relating to the securitization to a third party
for an up-front cash premium.

     The interest-only and residual certificates in the trust entitle the
Company to receive any "Excess Servicing" income, consisting of any remaining
cash flows collected by the trust from principal and interest payments on its
loans after the trust has first paid

          o    all principal and interest required to be passed through to
               holders of the trust's securities,

          o    all contractual servicing fees, and

          o    other recurring fees and costs of administering the trust.

Upon securitizing a pool of loans, the Company recognizes a gain on sale of
loans ("net gain on sale of mortgage loans") equal to the difference between the
cash received from the trust when it sells asset-backed pass-through
certificates and the investment in the loans remaining after allocating portions
of that investment to record the value of either the retained servicing rights
or the sale of servicing rights, and the interest-only and residual certificates
retained by Delta in the securitization. The majority of the net gain on the
sale of mortgage loans results from, and is initially realized in the form of,
interest-only and residual certificates and the retention or sale of the
mortgage servicing rights. Delta records on its balance sheet the interest-only
and residual certificates and retained servicing rights, based on their fair
values, estimated based on a discount rate which management believes to be
reasonable, and the stated terms of the transferred loans adjusted for estimates
of future prepayment rates and defaults among those loans. If actual prepayments
and/or defaults exceed the Company's estimates, the future cash flows from the
servicing rights and interest-only and residual certificates would be negatively
affected. (See "-Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Certain Accounting Considerations").

     Through and including the first quarter of 2000, the Company retained the
right to service the loans in all of its securitizations. In exchange for
servicing the mortgage loans in a securitization, the Company receives
contractual service fees and other ancillary service fees over the life of the
loans. As servicer in securitizations, the Company incurs the following
expenses, among others, (1) the cost of capital associated with making monthly
delinquency and servicing advances on mortgage loans where the underlying
borrower of such mortgage loan has defaulted, and (2) prepayment interest
shortfalls. Prepayment interest shortfalls represent the amount that the
servicer must pay when a mortgage loan included in a securitization trust repays
in full prior to month end and equals the remaining interest that would
otherwise have been due in that month on that mortgage loan had it not been
repaid early. Beginning in the second quarter of 2000, the Company sold the
servicing rights associated with each securitization for up-front cash proceeds
and recognized a premium on such sale that was recorded under "Net Gain on Sale"
on its Statement of Operations. As of December 31, 2000, the Company had a loan
servicing portfolio of $3.3 billion.

     Although the Company immediately recognizes income from retaining
interest-only and residual certificates, and retained servicing rights (where
applicable), the Company receives cash flows from these interest-only and
residual certificates and retained servicing rights over the life of the
transferred loans. The Company typically begins to receive cash flows from the
interest-only and residual certificates retained upon securitization
approximately twelve to twenty months after a securitization is completed, with
the specific timing depending on the structure and performance of the
securitization.

     Initially, securitization trusts utilize the Excess Servicing cash flows to
make additional payments of principal on the pass-through certificates in order
to establish a spread between the principal amount of the trust's outstanding
loans and the amount of outstanding pass-through certificates. Once a spread of
between 1.50% and 3% of the initial securitization principal (the
"overcollateralization limit") is established, the Excess Servicing cash flows
are distributed to Delta as the holder of the interest-only and residual
certificates. The Company utilizes the more conservative "cash-out" method of
valuing future cash flows from residual certificates (See "-Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Accounting Considerations."). With retained servicing fees,
the Company begins to receive cash flows from monthly contractual servicing fees
in the month following a securitization. The Company's retained servicing fees
range from 0.50% to 0.65% per annum of the outstanding balance of the loans
being serviced.

     In addition to the income and cash flows that the Company earns from
securitizations and whole loan sales, the Company also earns income and
generates cash flows from the net interest spread earned on loans while they are
held for sale and from loan origination fees on Brokered Loans and Retail Loans.

     The Company has primarily operated on a negative cash flow basis in the
past (see "-Liquidity and Capital Resources"), having historically utilized
various financing facilities and an equity financing to offset its negative
operating cash flows and to support its loan originations, securitizations and
general operating expenses. In July 1997, the Company completed an offering of
$150 million aggregate principal amount of 9 1/2% senior notes due 2004 (the
"Senior Notes"). The Company used a portion of the Senior Notes proceeds to pay
down various financing facilities with the remainder used to fund the Company's
loan originations and its ongoing securitization program. Since the issuance of
the Senior Notes, the debt and equity markets (other than the asset-backed
securitization market) have largely been shut off to monoline non-conforming
mortgage lenders like Delta. As a result, the Company's primary sources of
liquidity since 1997 have been (a) warehouse and other financing facilities, (b)
securitizations of mortgage loans and (c) sales of whole loans and mortgage
servicing rights. In 2000, the Company helped finance its operations by
completing securitizations of interest (delinquency) advances and servicing
advances and, following the modification of the Senior Notes in August 2000 (see
"-Corporate Restructuring and Debt Modification"), by obtaining financing
against certain interest-only and residual certificates and subsequently selling
certain of these certificates in a Net Interest Margin securitization (the "NIM
Transaction").

CORPORATE RESTRUCTURING AND DEBT MODIFICATION

     In August 2000, Delta announced a corporate restructuring as part of its
continuing efforts to improve operating efficiencies and to address its negative
cash flow from operations. As part of this restructuring, the Company recorded
charges primarily relating to employee severance associated with the layoffs, a
reduction to goodwill and office equipment write-offs.

     Also in August 2000, the Company announced an agreement to modify the terms
of its Senior Notes (the "Debt Modification"). With the consent of greater than
fifty percent of its Senior Noteholders, the Company modified a negative pledge
covenant in the Senior Notes Indenture, which previously prevented the Company
from selling or otherwise obtaining financing against any of its interest-only
or residual certificates (the "Residual Assets"). In consideration for the
Senior Noteholders' consent, the Company agreed, in an exchange offer (the
"Exchange Offer"), to offer current Senior Noteholders the option to exchange
their then existing Senior Notes for (a) new senior secured notes (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. 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 "- Subsequent Events below"),
were secured by at least $165 million of the Company's residual assets. The
Exchange Offer was consummated in December 2000, with holders of greater than
$148 million of Senior Notes tendering in the exchange.

SUBSEQUENT EVENTS

     In 2000, the Company had taken the steps described above to improve
operating efficiencies and to remedy its negative cash flow from operations.
However, management believed that additional steps were necessary to permit
Delta to continue as a going concern. Management's principal concerns were:

          o    the cash drain created by its ongoing monthly delinquency and
               servicing advance requirements as servicer (the "Securitization
               Advances"),

          o    the high cost of servicing a seasoned loan portfolio, including
               the capital charges associated with making Securitization
               Advances,

          o    the Company's ability to make timely interest payments on the
               Senior Secured Notes, and

          o    its 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, management embarked upon a business plan
aimed at alleviating some of these concerns and issues.

     First, in January 2001, the Company entered into a subservicing agreement
with Ocwen Financial Corporation ("Ocwen"), under which Ocwen will subservice
Delta's existing loan portfolio. While the Company remains the servicer, Ocwen
will take over servicing responsibilities, including making Securitization
Advances, and in return Ocwen will retain all servicing related fees. Management
expects to complete the transfer on or before June 1, 2001, at or before which
point, it is anticipated that Ocwen will purchase from the Company its
outstanding monthly Securitization Advances, subject to certain conditions.
Until the transfer of servicing, Delta will continue to service the loan
portfolio and earn an interim service fee that will be used to offset some of
its servicing related expenses. By transferring servicing and, along with it,
the responsibility for making advances, the Company expects to save
approximately $5.5 million of annual capital charges, in addition to the
significant cash outlays associated with making such advances.

     Second, in February 2001, the Company entered into a Letter of Intent with
the beneficial holders of over fifty percent of its Senior Secured Notes to
restructure, and ultimately extinguish, the Senior Secured Notes (the "Second
Debt Restructuring"). In March 2001, the Company 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 residual
certificates currently securing the Senior Secured Notes. In consideration for
their consent, the Company has agreed to offer the Senior Secured Noteholders
the option to exchange their existing Notes (the "Second Exchange Offer") for
new securities that will evidence a commensurate interest in a Liquidating Trust
(to be formed in connection with the Second Exchange Offer), into which residual
certificates then securing the Company's obligations under the Senior Secured
Notes (totaling approximately $150 million) will be transferred as well as an
interest in preferred stock of Delta. The Second Debt Restructuring will provide
for, among other things, the following:

          (a)  The Liquidating Trust will receive $15 million of newly issued
               Delta preferred stock bearing a 10% dividend payable
               semi-annually (with the first three dividends payable in kind).
               Delta may redeem the preferred stock at its liquidation
               preference plus accrued dividends at any time prior to conversion
               (which can occur only once five dividends have not been paid in
               cash).

          (b)  Delta will receive all cash flows from the residual certificates
               transferred into the Liquidating Trust through, and including,
               the June 2001 distributions. Thereafter, the Company will earn a
               management fee in return for its oversight and its efforts to
               maximize the value of the Residual Assets in the Liquidating
               Trust, and for absorbing certain costs and fees on behalf of the
               Liquidating Trust.

          (c)  The Company is monetizing the two residual certificates together
               with other residual certificates owned by the Company but not
               securing the Senior Secured Notes, to provide working capital.

     Delta believes that, upon successful consummation of the Second Exchange
Offer (which requires at least 90-95% of the holders agreeing to the exchange
offer), Moody's and Fitch will withdraw their corporate ratings on the Company,
as the underlying debt will have been largely extinguished. Delta hopes to
complete the Second Debt Restructuring, subject to receipt of noteholder and
regulatory approvals, some time in the second or third quarter of 2001.

     In March 2001, in connection with the Second Debt Restructuring, the
Company entered into a sale agreement to sell 5 of its residual certificates for
a cash purchase price of $15 million. As customary with sales of similar assets,
the cash settlement does not occur until the pools of mortgages underlying such
residual certificates are transferred to an agreed upon servicer to service the
pool of mortgage loans for the purchaser of such residuals. The purchasers of
these five residuals have provided bridge financing, in the form of residual
financing equal to approximately 64% of the cash purchase price. The remainder
of the purchase price will be paid to the Company upon the transfer of servicing
to Ocwen. The Company will use the proceeds from the residual financing and
subsequent sale for working capital.

     Management believes that its agreement to transfer servicing to Ocwen and
the Second Debt Restructuring are essential steps in its ongoing effort to
restructure its operations and reduce its negative cash flow associated with its
servicing operations and Senior Secured Notes.

HOME EQUITY LENDING OPERATIONS

OVERVIEW

     Delta's consumer finance activities consist of originating, acquiring,
selling and (until the transfer to Ocwen) 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, Delta
typically packages the loans in a portfolio and sells the loan portfolio through
a securitization or on a whole loan, servicing released basis. Historically,
Delta retained the right to service the loans that it securitized. However,
beginning in the second quarter 2000, Delta has sold the servicing rights
relating to its new securitizations to third party servicers for an up front
cash premium.

     Delta provides its customers with an array of loan products designed to
meet their needs. Delta uses a risk-based pricing strategy and has developed
products for various risk categories. Historically, Delta offered fixed-rate
loan products and, to date, the majority of Delta's loan production is
fixed-rate. As Delta has expanded geographically, it has expanded its product
offerings to include adjustable-rate mortgages and fixed/adjustable-rate
mortgages. However, since the fourth quarter of 1998, Delta has virtually
eliminated originations of its six-month LIBOR (London InterBank Offered Rate)
adjustable rate mortgages, which are less profitable and more prone to early
prepayment.

     Delta conducts all of its broker and correspondent lending operations out
of its Woodbury, New York headquarters and a regional branch office in the
Southeast. As part of Delta's corporate restructuring (See "-Corporate
Restructuring and Debt Modification"), two other regional branch offices that
Delta operated in the Midwest and Southwest were closed. Final underwriting
approval for Brokered Loans is centralized and required from the Woodbury, New
York headquarters. Delta's Retail Loans are underwritten by one operational
office in Cincinnati, Ohio, which has full underwriting authority. As part of
Delta's corporate restructuring in August 2000, it closed a second Retail Loan
underwriting office that was previously located in Florida.

     Delta adheres to a Best Practice Lending Program aimed at ensuring the
origination of quality loans and helping to better protect consumers. This
Program includes (a) fair lending initiatives to ensure 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; (b) increased oversight of mortgage brokers and closing agents;
(c) enhanced fraud detection and protection; (d) enhanced plain English
disclosures; and (e) other originations, underwriting and servicing initiatives
which Delta's management believes help protect consumers.

LOAN ORIGINATION AND PURCHASES

     Delta's loan originations and purchases decreased by 37% to $933 million in
2000 from $1.47 billion in 1999. The decrease in loan production was primarily
the result of (a) the Company's strategic decision to first decrease, and
ultimately close, its correspondent operations, and to focus more exclusively on
its less cash-intensive broker and retail channels and (b) a higher interest
rate environment, which management believes deterred borrowers from refinancing
industry-wide.

<PAGE>

     The following table shows the channels of Delta's loan originations and
purchases for the years shown:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                               1998                1999                2000
                                                               ----                ----                ----
                                                                          (DOLLARS IN THOUSANDS)
<S>                                                        <C>                  <C>                 <C>
Broker:
   Principal balance...............................        $  841,079             890,822             603,616
   Average principal balance per loan..............        $       92                  85                  74
   Combined weighted average initial loan-
     to-value ratio(1).............................             72.8%               72.8%               71.1%
   Weighted average interest rate..................             10.0%               10.4%               11.7%
Retail:
   Principal balance...............................        $  234,011             319,227             260,388
   Average principal balance per loan..............        $       75                  68                  67
   Combined weighted average initial loan-
     to-value ratio(1).............................             79.9%               77.6%               76.9%
   Weighted average interest rate..................              9.4%                9.8%               10.6%
Correspondent:
   Principal balance...............................        $  652,503             261,289              69,434
   Average principal balance per loan..............        $       82                  77                  75
   Combined weighted average initial loan-
     to-value ratio (1)............................             73.9%               72.0%               70.5%
   Weighted average interest rate..................             10.8%               11.0%               11.5%
Total loan purchases and originations:
   Principal balance...............................        $1,727,593           1,471,338             933,438
   Average principal balance per loan                      $       85                  79                  72
   Combined weighted average initial loan-
     to-value ratio (1)............................             74.2%               73.7%               72.7%
   Weighted average interest rate..................             10.2%               10.4%               11.4%
Percentage of loans secured by:
   First mortgage..................................             95.5%               94.6%               90.9%
</TABLE>
_______________
(1)  The weighted average initial loan-to-value ratio of a loan secured by a
     first mortgage is determined by dividing the amount of the loan by the
     lesser of the purchase price or the appraised value of the mortgage
     property at origination. The weighted average initial loan-to-value ratio
     of a loan secured by a second mortgage is determined 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.

<PAGE>

     The following table shows the channels of loan originations and purchases
on a quarterly basis for 2000:

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED
                                                      --------------------------------------------------
                                                       MARCH 31,     JUNE 30,    SEPTEMBER     DECEMBER
                                                          2000         2000       30, 2000     31, 2000
                                                      -----------  -----------  -----------  -----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                   <C>          <C>          <C>          <C>
Broker:
   Number of Brokered Loans.......................        2,271        2,208        1,944        1,741
   Principal balance..............................    $ 173,458      167,240      136,619      126,299
   Average principal balance per loan.............    $      76           76           70           73
   Combined weighted average initial loan-
     to-value ratio (1)...........................        72.1%        71.5%        70.6%        69.9%
   Weighted average interest rate.................        11.2%        11.4%        12.2%        12.1%
Retail:
   Number of retail loans.........................        1,006        1,055          954          880
   Principal balance..............................    $  71,488       70,667       59,713       58,520
   Average principal balance per loan.............    $      71           67           63           67
   Combined weighted average initial loan-
     to-value ratio (1)...........................        77.7%        76.4%        76.6%        77.0%
   Weighted average interest rate.................        10.2%        10.6%        11.1%        10.9%
Correspondent:
   Number of Correspondent Loans..................          561          339           24            0
   Principal balance..............................    $  42,241       25,666        1,527            0
   Average principal balance per loan.............    $      75           76           64            0
   Combined weighted average initial loan-
     to-value ratio (1)...........................        69.8%        71.8%        69.1%           0%
   Weighted average interest rate.................        11.3%        11.7%        11.9%           0%
Total loan purchases and originations:
   Total number of loans..........................        3,838        3,602        2,922        2,621
   Principal balance..............................    $ 287,187      263,573      197,859      184,819
   Average principal balance per loan.............    $      75           73           68           71
   Combined weighted average initial loan-
     to-value ratio (1)...........................        73.2%        72.8%        72.4%        72.1%
   Weighted average interest rate.................        10.9%        11.2%        11.9%        11.7%
</TABLE>
_______________
(1)  The weighted average initial loan-to-value ratio of a loan secured by a
     first mortgage is determined by dividing the amount of the loan by the
     lesser of the purchase price or the appraised value of the mortgage
     property at origination. The weighted average initial loan-to-value ratio
     of a loan secured by a second mortgage is determined 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.

<PAGE>

     The following table shows lien position, weighted average interest rates
and loan-to-value ratios for the years shown:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                        -----------------------------------
                                                                         1998          1999           2000
                                                                         ----          ----           ----
<S>                                                                     <C>           <C>            <C>
First mortgage:
   Percentage of total purchases and originations............           95.5%         94.6%          90.9%
   Weighted average interest rate............................           10.2%         10.3%          11.4%
   Weighted average initial loan-to-value ratio (1)..........           74.3%         74.1%          73.1%

Second mortgage:
   Percentage of total purchases and originations............            4.5%          5.4%           9.1%
   Weighted average interest rate............................           10.5%         10.8%          11.5%
   Weighted average initial loan-to-value ratio (1)..........           70.6%         66.6%          71.1%
</TABLE>
_______________
(1)  The weighted average initial loan-to-value ratio of a loan secured by a
     first mortgage is determined by dividing the amount of the loan by the
     lesser of the purchase price or the appraised value of the mortgage
     property at origination. The weighted average initial loan-to-value ratio
     of a loan secured by a second mortgage is determined 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 the geographic distribution of loan purchases and
originations for the periods indicated:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                             ------------------------------------------------------------------------------
                                       1998                       1999                       2000
                             ------------------------   ------------------------   ------------------------
REGION                       PERCENTAGE  DOLLAR VALUE   PERCENTAGE  DOLLAR VALUE   PERCENTAGE  DOLLAR VALUE
---------------------------  ----------  ------------   ----------  ------------   ----------  ------------
                                                         (DOLLARS IN MILLIONS)
<S>                             <C>         <C>            <C>         <C>            <C>         <C>
NY, NJ and PA..........         55.0%       $ 949.3        50.8%       $ 747.9        43.9%       $ 409.7
Midwest................         19.7          340.3        24.5          361.1        29.1          272.0
Southeast..............          9.3          161.0         8.4          123.5         9.4           87.5
New England............          7.3          125.8         5.8           85.1         7.1           66.6
Mid-Atlantic*..........          6.9          119.1         8.6          126.7        10.5           97.6
West...................          1.5           26.6         1.9           27.1           0              0
Canada.................          0.3            5.5         n/a            n/a         n/a            n/a
</TABLE>
_______________
*    Excluding New York (NY), New Jersey (NJ) and Pennsylvania (PA).

     BROKER AND CORRESPONDENT MARKETING. Throughout its history Delta has been
successful in establishing and maintaining relationships with brokers and, prior
to July 2000, correspondents offering non-conforming mortgage products to their
clientele. The Company decided to discontinue its correspondent operations in
July 2000 to focus on its less cash intensive broker and retail channels.

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

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

     To be approved, a broker must demonstrate that it is properly licensed and
registered in the state in which it seeks to transact business, submit to a
credit check and sign a standard broker agreement with Delta that requires
brokers to, among other things, abide by Delta's 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. Delta also performs 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, Delta regularly reviews the performance of loans originated through
its brokers.

     BROKERED LOANS. For the year ended December 31, 2000, Delta's broker
network accounted for $603.6 million, or 65%, of Delta's loan purchases and
originations, compared to $890.8 million, or 60%, of Delta's loan purchases and
originations for the year ended December 31, 1999 and $841.1 million, or 49%, of
Delta's loan purchases and originations for the year ended December 31, 1998. No
single broker contributed more than 2.0%, 3.1% or 5.2% of Delta's total loan
production in the years ended December 31, 2000, 1999 and 1998, respectively.

     Once approved, a broker may submit loan applications for prospective
borrowers to Delta. To process broker submissions, Delta's broker originations
area is organized by geographic regions and into teams, each consisting of loan
officers and processors, which are generally assigned to specific brokers.
Because Delta operates in a highly competitive environment where brokers may
submit the same loan application to several prospective lenders simultaneously,
Delta strives to provide brokers with a rapid and informed response. Loan
officers analyze the application and provide the broker with a preliminary
approval, subject to final underwriting approval, or a denial, typically within
one business day. If Delta's underwriters approve the application, 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 loan officer and processor team will then work directly with the
submitting broker to collect the requested information and meet all underwriting
conditions. In most cases, Delta funds loans within 14 to 21 days after
preliminary approval of the loan application. In the case of a denial, Delta
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.

     Delta compensates its loan officers, who on a loan-by-loan basis are the
primary relationship contacts with the brokers, predominantly on a commission
basis. All of Delta's loan officers must complete an extensive 9- to 12-month
training program to attain the level of knowledge and experience integral to
Delta's commitment to providing the highest quality service for brokers.
Management believes that by maintaining an efficient, trained and experienced
staff, it has addressed three central factors which determine where a broker
sends its business: (1) the speed with which a lender closes loans, (2) the
lender's knowledge concerning the broker and his business and (3) the support a
lender provides. Included in this support, Delta offers fair lending training to
all brokers with whom it does business.

     CORRESPONDENT LOANS. For the year ended December 31, 2000, Delta's
correspondent network accounted for $69.4 million, or 7%, of Delta's loan
purchases and originations, compared to $261.3 million, or 18%, of Delta's loan
purchases and originations for the year ended December 31, 1999 and $652.5
million, or 38%, of Delta's loan purchases and originations for the year ended
December 31, 1998. The decrease in production was primarily the result of
Delta's strategic decision to close its correspondent operations and to focus
more exclusively on its broker and retail channels, which are less cash
intensive. No single correspondent contributed more than 1.5%, 1.9% or 3.8% of
Delta's total loan production in 2000, 1999, or 1998, respectively.

     An approved correspondent was a licensed mortgage banker or savings and
loan that sold loans to Delta that conformed to Delta's underwriting standards,
which the correspondent had originated, processed, closed and funded in its own
name. The loans were sold to Delta either on an individual flow basis or in
block sales. When selling on a flow basis, a correspondent typically sought a
pre-approval from Delta prior to closing the loan, and Delta approved the loan
based on a partial or full credit package, stipulating any items needed to
complete the package in adherence to Delta's underwriting guidelines. On a block
sale, a correspondent offered a group of loans, generally loans that have not
been pre-approved, to Delta for sale, and Delta purchased those loans in the
block that meet Delta's underwriting criteria.

     RETAIL LOANS. For the year ended December 31, 2000, this channel accounted
for $260.4 million, or 28%, of Delta's loan purchases and originations, compared
to $319.3 million, or 22%, of Delta's loan purchases and originations for the
year ended December 31, 1999 and $234.0 million, or 13%, of Delta's loan
purchases and originations for the year ended December 31, 1998. Through its
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 Delta's products. Its telemarketing representatives identify interested
customers and refer these customers to loan officers at the retail branch
offices who then proceed to determine the applicant's qualifications for Delta's
loan products, negotiate loan terms with the borrower and process the loan
through completion.

LOAN UNDERWRITING

     Delta provides its underwriting guidelines to all of the brokers, and prior
to July 2000, to all of the correspondents who submit loans to Delta. Loan
applications that Delta receives from brokers, correspondents and retail
customers are classified according to particular characteristics, including but
not limited to:

          o    ability to pay,
          o    credit history of the applicant,
          o    loan-to-value ratio,
          o    general stability of the applicant in terms of employment history
               and time in residence, and
          o    condition and location of the collateral.

     Delta has 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 sub ratings within those categories. Terms of loans that Delta
makes, as well as maximum loan-to-value ratios and debt-to-income ratios, vary
depending on the classification of the applicant. Loan applicants with less
favorable credit ratings are generally offered loans with higher interest rates
and lower loan-to-value ratios than applicants with more favorable credit
ratings. The general criteria that Delta's underwriting staff uses in
classifying loan applicants are set forth below.

<PAGE>

                          DELTA'S UNDERWRITING CRITERIA

<TABLE>
<CAPTION>
                                       "A" RISK               "B" RISK               "C" RISK               "D" RISK
                                       --------               --------               --------               --------

<S>                             <C>                     <C>                     <C>                     <C>
Credit profile.............     Excellent credit        Good overall credit     Good to fair credit     Fair to poor credit
                                history

Existing mortgage
  history..................     Current at application  Current at application  Up to 60 days           90 days delinquent
                                time and a maximum of   application time and a  delinquent at           or more
                                two 30-day late         maximum of four 30-day  application time and
                                payments in the last    late payments in the    one 90-day late
                                12 months               last 12 months          payment in the last
                                                                                12 months

Other credit...............     Minor 30-day late       Some slow pays allowed  Slow pays, some open    Not a factor.
                                items allowed with a    but majority of credit  delinquencies allowed.  Derogatory credit
                                letter of explanation;  and installment debt    Isolated charge-offs,   must be paid with
                                no open collection      paid as agreed. Small   collection accounts or  proceeds. Must
                                accounts, charge-offs,  isolated charge-offs,   judgments case-by-case  demonstrate ability
                                judgments               collections, or                                 to pay
                                                        judgments allowed
                                                        case-by-case

Bankruptcy filings.........     Discharged more than    Discharged more than    Discharged more than    May be open at
                                three years prior to    two years prior to      one year prior to       closing, but must be
                                closing and excellent   closing and excellent   closing and good        paid off with
                                reestablished credit    reestablished credit    reestablished credit    proceeds

Debt service to
  Income ratio.............     55% or less             55% or less             55% or less             55% or less

Maximum loan-to-value ratio:
  Owner-occupied...........     Generally 80% (up to    Generally 80% (up to    Generally 75% (up to    Generally 65% (up to
                                90%*) for a one- to     85%*) for a one- to     80%*) for a one- to     70%*) for a one- to
                                four-family residence   four-family residence   four-family residence   four-family residence

  Non-owner occupied.......     Generally 75% (up to    Generally 70% (up to    Generally 65% (up to    Generally 55% (up to
                                85%*) for a one- to     80%*) for a one- to     75%*) for a one- to     60%*) for a one- to
                                four-family residence   four-family residence   four-family residence   four-family residence

  Employment...............     Minimum 2 years         Minimum 2 years         No minimum required     No minimum required
                                employment in the same  employment in the same
                                field                   field
</TABLE>

*    On an exception basis

     Delta uses the foregoing categories and characteristics as guidelines only.
On a case-by-case basis, Delta may determine that the prospective borrower
warrants an exception, if sufficient compensating factors exist. Examples of
compensating factors are:

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

     The following table sets forth certain information with respect to Delta's
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 Delta's originations and purchases.

(DOLLARS IN THOUSANDS)

                                            PERCENT
YEAR      CREDIT              TOTAL         OF TOTAL      WAC (1)      WLTV (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%
                          ============        =====        =====        =====

1999         A            $    859,935         58.4%         9.8%        76.4%
             B                 298,253         20.3         10.7         72.9
             C                 245,862         16.7         11.3         69.5
             D                  67,288          4.6         13.0         57.3
                          ------------        -----        -----        -----
          Totals          $  1,471,338        100.0%        10.4%        73.7%
                          ============        =====        =====        =====

1998         A            $    990,988         57.3%         9.7%        77.0%
             B                 425,056         24.6         10.4         73.2
             C                 248,488         14.4         11.3         69.0
             D                  63,061          3.7         12.7         57.2
                          ------------        -----        -----        -----
          Totals          $  1,727,593        100.0%        10.2%        74.2%
                          ============        =====        =====        =====

_______________
(1)  Weighted Average Coupon ("WAC").
(2)  Weighted Average Initial Loan-to-Value Ratio ("WLTV").

     Delta originates mortgage loans that 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 the time of origination. Substantially all of Delta's mortgage loans
are fully amortizing loans. Delta primarily originates fixed rate loans that
amortize over a period not to exceed 30 years. Loans that are not fully
amortizing generally provide for scheduled amortization over 30 years, with a
due date and a balloon payment at the end of the fifteenth year. The principal
amounts of the loans originated by Delta generally range from a minimum of
$10,000 to a maximum of $350,000. Delta generally does not acquire or originate
any mortgage loans where the combined loan-to-value ratio exceeds 90%. The
collateral securing loans acquired or originated by Delta are generally one- to
four-family residences, including condominiums and townhouses, and these
properties may or may not be occupied by the owner. It is Delta's policy not to
accept commercial properties or unimproved land as collateral. However, Delta
will accept mixed-use properties of 1-4 units where a portion of the property is
used for residential purposes and the balance is used for commercial purposes,
and will accept small residential multifamily properties (5 to 8 units), both at
reduced loan-to-value ratios. Delta does not originate loans where any senior
mortgage contains open-end advance, negative amortization or shared appreciation
provisions.

     Delta's mortgage loan program includes:

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

     The total monthly debt obligations, which include principal and interest on
the new loan and all other mortgages, loans, charge accounts and scheduled
indebtedness, generally is 55% or less of the borrower's monthly gross income.
Loans to borrowers who are salaried employees must be supported by current
employment information in addition to employment history. Delta then verifies
this information for salaried borrowers based on written confirmation from
employers, one or more pay-stubs, recent W-2 tax forms, recent tax returns or
telephone confirmation from the employer. For Delta's limited documentation
program, Delta requires a job letter to be submitted which contains the same
information one would find on a standard verification of employment form:

          o    job position;
          o    length of time on job;
          o    current salary; and
          o    the job letter should appear on the employer's letterhead.

     For Delta's no-income verification program, proof of self-employment in the
same business plus proof of current self-employed status is required. Delta's
stated income program, which represents a very small percentage of Delta's
loans, is only offered for better credit quality borrowers where a telephone
verification is done by an underwriter to verify that the borrower is employed.
Delta usually requires lower combined loan-to-value ratios with respect to loans
made under programs other than the full documentation program.

     Delta employs experienced non-conforming mortgage loan credit underwriters
to scrutinize 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. Personal
circumstances including divorce, family illnesses or deaths, and temporary job
loss due to layoffs and corporate downsizing will often impair an applicant's
credit record. Assessment of an applicant's ability and willingness to pay is
one of the principal elements in distinguishing Delta's lending specialty from
methods employed by traditional lenders, such as savings and loans and
commercial banks. All lenders utilize debt ratios and loan-to-value ratios in
the approval process. Many lenders simply use software packages to score an
applicant for loan approval and fund the loan after auditing the data provided
by the borrower. All loans underwritten by Delta's underwriters are underwritten
with regard for the borrower's ability to repay, and are not underwritten solely
on the value of the collateral property or the amount of equity therein. All
loans are underwritten to ensure that the loan has a solid purpose and provides
tangible benefits to the borrower.

     Delta has a staff of approximately 45 underwriters with an average of
approximately 9 years of non-conforming lending experience. With the exception
of Delta's Atlanta, Georgia office, all underwriting functions for broker
originations (and, prior to July 2000, correspondent purchases) and the New York
Retail Loan call center are centralized in its Woodbury, New York office.
Underwriting functions for its retail operations (other than the New York call
center) is centralized in Delta's retail underwriting "hub" located in
Cincinnati, Ohio. In August 2000, as part of its corporate restructuring
efforts, Delta closed its other retail underwriting "hub" located in West Palm
Beach, Florida (See "-Corporate Restructuring and Debt Modification"). Delta
does not delegate underwriting authority to any broker (nor, prior to July 2000,
to any correspondent). Delta's underwriting department functions independently
of its business development and mortgage origination departments and does not
report to any individual directly involved in the origination process. No
underwriter at Delta is compensated on an incentive or commission basis.

     Delta has instituted underwriting checks and balances that are designed to
ensure that every loan is reviewed and approved by a minimum of two underwriters
and/or an AVP of Underwriting, with some higher loan amounts requiring a third
approval. Delta believes that by requiring each file be seen by a minimum of two
underwriters, a high degree of accuracy and quality control is ensured
throughout the underwriting process and before funding.

     Delta's underwriting of every loan submitted consists not only of a
thorough credit review, but also the following:

          o    a separate appraisal review conducted by Delta's appraisal review
               department and/or underwriter; 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.

     Appraisals are performed by third party, fee-based appraisers or by Delta's
approved appraisers and generally conform 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.

     Delta performs an appraisal review on each loan prior to closing or prior
to purchasing. While Delta recognizes that the general quality control practices
of conventional mortgage lenders is to perform only drive-by appraisals after
closings, Delta believes this practice does not provide sufficient protection.
In addition to reviewing each appraisal for accuracy, Delta accesses other
sources to validate sales used in the appraisal to determine market value. These
sources include:

          o    Multiple Listing Services in nine states;

          o    assessment and sales services, such as Comps, Inc., Pace, 1st
               American and Transamerica;

          o    internet services such as Realtor.com; and

          o    other sources for verification, including broker price opinions
               and market analyses by local real estate agents.

     Post closing, in addition to its normal due diligence, Delta randomly
selects one out of every ten appraisals, and performs a drive-by appraisal. This
additional step gives Delta an added degree of comfort with respect to
appraisers with which Delta has had limited experience. Delta actively tracks
and grades, on criteria that it has developed over time, all appraisers from
which it accepts appraisals for quality control purposes and does not accept
work from appraisers who have not conformed to its review standards.

     Upon completion of a broker loan's underwriting and processing, the closing
of the loan is scheduled with a closing attorney or agent approved by Delta. The
closing attorney or agent is responsible for completing the loan closing
transaction in accordance with applicable law and Delta's operating procedures.
The Company requires title insurance that insures Delta's interest as mortgagee
and evidence of adequate homeowner's insurance naming Delta as an additional
insured party on all loans.

     Delta performs a post-funding quality control review to monitor and
evaluate Delta's loan origination policies and procedures. The quality control
department is separate from the underwriting department, and reports directly to
a member of senior management.

     At least 10% of all loan originations and purchases are subjected to a full
quality control re-underwriting and review, the results of which are reported to
senior management on a monthly basis. Discrepancies noted by the audit are
analyzed and corrective actions are instituted. A typical quality control review
currently includes:

          o    obtaining a new drive-by appraisal for each property;

          o    running a new credit report from a different credit report
               agency;

          o    reviewing loan applications for completeness, signatures, and for
               consistency with other processing documents;

          o    obtaining new written verification of income and employment;

          o    obtaining new written verification of mortgage to re-verify any
               outstanding mortgages; and

          o    analyzing the underwriting and program selection decisions.

     The quality control process is updated from time to time as Delta's
policies and procedures change.

LOAN SALES

     Delta sells virtually all the loans it originates or purchases through one
of two methods: (1) securitizations, which involve the private placement or
public offering by a securitization trust of asset-backed pass-through
securities; and (2) whole loan sales, which include the sale of blocks of
individual loans to institutional or individual investors on a servicing
released basis. Over the past several years, including 1999 and 1998, Delta has
sold close to 100% of its loans through securitizations, with the remainder
being sold on a whole loan servicing released basis. In 2000, Delta securitized
approximately 90% of its loan originations and purchases and sold on a whole
loan servicing released basis approximately 6% of its loan originations and
purchases. The majority of the loans that Delta sold on a whole loan basis
occurred in the fourth quarter of 2000, when Delta sold approximately $47
million, or 25%, of its loans production through whole loan sales, which is far
greater than it had in previous quarters. Going forward, Delta expects to
continue to use a combination of securitizations and whole loan sales, with the
amounts of each dependent upon the marketplace and Delta's goal of maximizing
earnings and liquidity.

     SECURITIZATIONS. During 2000, Delta completed four securitizations totaling
$840 million. The following table sets forth certain information with respect to
Delta's securitizations (all of which have been rated AAA/Aaa by S&P Fitch, and
Moody's, respectively) by offering size, which includes prefunded amounts,
duration weighted average pass-through rate and type of credit enhancement.

<TABLE>
<CAPTION>
                                                                     DURATION
                                                 OFFERING SIZE    WEIGHTED AVERAGE      CREDIT
SECURITIZATION                       COMPLETED    (MILLIONS)     PASS-THROUGH RATE   ENHANCEMENT
----------------------------------   ---------   -------------   -----------------   -----------
<S>                                  <C>         <C>             <C>                 <C>
2000-1.......................         03/30/00      $250.0             7.40%           Hybrid *
2000-2.......................         06/30/00      $275.0             7.84%           Hybrid *
2000-3.......................         09/28/00      $200.0             7.59%           Hybrid *
2000-4.......................         12/14/00      $115.0             7.22%           Hybrid *
</TABLE>
_______________
* Senior/Sub Structure with Bond Insured AAA Tranche.

     When Delta securitizes loans, it sells a portfolio of loans to a trust (a
"Home Equity Loan Trust") for a cash payment and the Home Equity Loan Trust
sells various classes of pass-through certificates representing undivided
ownership interests in such Home Equity Loan Trust. As servicer for each
securitization, Delta collects and remits principal and interest payments to the
appropriate Home Equity Loan Trust, which, in turn, passes through such payments
to certificateholders. For each of the 2000 securitizations, Delta retained 100%
of the interests in the residual certificates while selling the interest-only
certificates for cash. Management contemplates continuing to retain residual
certificates in the future as long as, in management's opinion, this practice
maximizes earnings while remaining within the Company's liquidity requirements.

     Each Home Equity Loan 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 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 Servicing cash flows that would otherwise be paid to Delta as holder of
the residual certificate is initially applied as additional payments of
principal for the investor certificates, thereby accelerating amortization of
the investor certificates relative to the amortization of the loans and creating
overcollateralization. Once the overcollateralization limit is reached, the use
of Excess Servicing to create overcollateralization stops unless it subsequently
becomes necessary to obtain or maintain required overcollateralization limits.
Overcollateralization is intended to create a source of cash (the "extra"
payments on the loans) to absorb losses prior to making a claim on the financial
guaranty insurance policy or the subordinated certificates.

     WHOLE LOAN SALES WITHOUT RECOURSE. From time to time, Delta has found that
it can receive better execution by selling certain mortgage loans on a whole
loan, non-recourse basis, without retaining servicing rights, generally in
private transactions to institutional or individual investors. Delta recognizes
a gain or loss when it sells loans on a whole loan basis equal to the difference
between the cash proceeds received for the loans and Delta's investment in the
loans, including any unamortized loan origination fees and costs.

     In 2000 and 1998, Delta sold $58.3 million and $8.7 million of loans,
respectively on a whole loan, non-recourse basis. In 1999, Delta did not have
any whole loan, non- recourse basis sales.

LOAN SERVICING AND COLLECTIONS

     Since its inception in 1982, Delta has serviced virtually all loans it
originated or purchased. In the second quarter of 2000, however, management
determined that the cash purchase premium third party servicers were willing to
pay to purchase the servicing rights on Delta's newly issued securitizations was
higher than the value Delta would ascribe to retaining such servicing rights.
Therefore beginning in the second quarter 2000, and in each of the following two
quarters in 2000, Delta sold the servicing rights on its newly issued
securitizations to a third party servicer for an up-front cash purchase price.

     In the fourth quarter of 2000, management further determined that its
existing portfolio became more costly to service for a variety of reasons,
including: (1) higher servicing personnel costs associated with a portfolio that
became increasingly more seasoned (delinquent) as Delta continued to sell its
newly originated mortgage loans to the third party servicer, (2) increased
monthly delinquency and servicing related advances, and (3) an inability to
recognize economies of scale on a loan portfolio which was declining in size but
had certain fixed costs associated with it. Consequently, Delta entered into the
subservicing agreement with Ocwen (see "- Subsequent Events") in January 2001,
to have Ocwen subservice its entire loan portfolio with the actual transfer date
to be on or before June 1, 2001. Servicing involves, among other things,
collecting payments when due, remitting payments of principal and interest,
furnishing reports to the current owners of the loans, enforcing the current
owners' rights with respect to the loans, including, recovering delinquent
payments, instituting foreclosure and liquidating the underlying collateral, and
making required monthly delinquency and servicing advances. As of December 31,
2000, Delta had a servicing portfolio of $3.3 billion.

     Until the transfer of servicing to Ocwen, Delta will continue to service
all loans out of its headquarters in Woodbury, New York, utilizing LSAMS, a
leading in-house loan servicing system, and FORTRACS, a default management
sub-servicing system with separate "modules" for foreclosure, bankruptcy, and
REO. These sub-servicing modules provide detailed tracking of all key events in
foreclosure and bankruptcy on a loan-by-loan and portfolio-wide basis; the
ability to track and account for all pre- and post-petition payments received in
bankruptcy from the borrower and/or trustee; and the ability to monitor, market
and account for all aspects necessary to liquidate an REO property after
foreclosure. Information entered on FORTRACS is automatically uploaded to LSAMS
on a daily basis. Further, information entered on LSAMS is automatically
reflected on FORTRACS. Additionally, Delta's Management Information Systems
Department has created a market value analysis program to run with LSAMS, which
provides Delta with the ability to monitor its equity position on a loan-by-loan
and/or portfolio-wide basis. These features have led to cost savings through
greater automation and system upgrades and have helped mitigate loan losses
because the Servicing Department has been able to identify problem loans
earlier, allowing for earlier corrective action.

     Delta has established centralized controls and standards for the servicing
and collection of mortgage loans in its portfolio. Delta revises such policies
and procedures from time to time in connection with changing economic and market
conditions and changing legal and regulatory requirements.

     Delta's collections policy is designed to identify payment problems
sufficiently early to permit Delta to quickly address delinquency problems and,
when necessary, to act to preserve equity in a preforeclosure property. Delta
believes that these policies, combined with the experience level of independent
appraisers engaged by Delta, help to reduce the incidence of charge-offs of a
first or second mortgage loan.

     Borrowers are billed on a monthly basis in advance of the due date.
Collection procedures commence upon identification of a past due account by
Delta's automated servicing system using Delta's proprietary payment profiling
software. If timely payment is not received, LSAMS automatically places the loan
in the assigned collector's auto queue and collection procedures generally are
initiated on the day determined by the proprietary software to be after the
borrower's typical payment date. This payment profiling allows Delta to focus
its collections efforts on those borrowers who are delinquent and outside their
typical payment date as opposed to those borrowers who are delinquent but
typically pay on or about a specific date each month. These loans are queued
automatically into LSAMS auto queue as well as into a Davox predictive dialer.
The predictive dialer initiates the telephone calls and transfers the calls to a
collector when a borrower is reached. If the predictive dialer determines a line
is busy or receives a no answer, it automatically cycles those calls through the
same day at pre-determined intervals. If the predictive dialer contacts an
answering machine, an automated message is left. The account remains in the
queue unless and until payment is received, at which point LSAMS automatically
removes the loan from the collector's auto queue until the next payment profile
pattern is broken. In the case of seriously delinquent accounts, collection
calls can begin as soon as two days after the payment due date.

     When a loan appears in a collector's auto queue, a collector will telephone
to remind the borrower that a payment is due. Follow-up telephone contacts are
attempted until the account is current or other payment arrangements have been
made. Standard form letters are utilized when attempts to reach the borrower by
telephone fail and/or, in some circumstances, to supplement the phone contacts.
During the delinquency period, the collector will continue to contact the
borrower and property inspections are performed on or about the 45th day of
delinquency. Delta's collectors have computer access to telephone numbers,
payment histories, loan information and all past collection notes. All
collection activity, including the date collection letters were sent and
detailed notes on the substance of each collection telephone call, is entered
into a permanent collection history for each account on LSAMS. Additional
guidance with the collection process is derived through frequent communication
with Delta's senior management.

     On or about the ninety-first day of delinquency, the loan is referred to
the loss mitigation department. This department is comprised of the collectors
with the ability to negotiate payment plans, deeds in lieu, short sales and
other cures. If their efforts also have been exhausted without success, the loss
mitigation representative responsible for the account recommends the loan be
sent to foreclosure at one of several foreclosure committee meetings held each
month. The foreclosure committee is comprised of the loss mitigation
representative, the foreclosure department manager and two members of the
executive department. This meeting is held to determine whether foreclosure
proceedings are appropriate, based upon the analysis of all relevant factors,
including a market value analysis, reason for default and efforts by the
borrower to cure the default.

     Regulations and practices regarding the liquidation of properties and the
rights of a borrower in default vary greatly from state to state. As a result,
all foreclosures are assigned to outside counsel, located in the same state as
the secured property. Bankruptcies filed by borrowers are similarly assigned to
appropriate local counsel. All aspects of foreclosures and bankruptcies are
closely monitored by Delta through its sub-servicing loan system described above
and through monthly status reports from attorneys.

     Prior to foreclosure sale, Delta performs an in-depth market value analysis
on all defaulted loans. This analysis includes:

          o    a current valuation of the property obtained through a drive-by
               appraisal or broker's price opinion conducted by an independent
               appraiser or a broker from Delta's network of real estate
               brokers, complete with a description of the condition of the
               property, recent price lists of comparable properties, recent
               closed comparables, estimated marketing time and required or
               suggested repairs, and an estimate of the sales price;

          o    an evaluation of the amount owed, if any, for real estate taxes;

          o    an evaluation of the amount owed, if any, to a senior mortgagee;
               and

          o    estimated carrying costs, brokers' fee, repair costs and other
               related costs associated with real estate owned properties. Delta
               bases the amount it will bid at foreclosure sales on this
               analysis.

     If Delta acquires title to a property at a foreclosure sale or otherwise,
the REO department immediately begins working the file by obtaining an estimate
of the sale price of the property by sending at least two local real estate
brokers to inspect the premises, and then hiring one to begin marketing the
property. If the property is not vacant when acquired, local eviction attorneys
are hired to commence eviction proceedings or negotiations are held with
occupants in an attempt to get them to vacate without incurring the additional
time and cost of eviction. Repairs are performed if it is determined that they
will increase the net liquidation proceeds, taking into consideration the cost
of repairs, the carrying costs during the repair period and the marketability of
the property both before and after the repairs.

     Delta's loan servicing software also tracks and maintains homeowners'
insurance information and tax and insurance escrow information. Expiration
reports are generated bi-weekly listing all policies scheduled to expire within
the next 15 days. When policies lapse, a letter is issued advising the borrower
of that lapse and notifying the borrower that Delta will obtain force-placed
insurance at the borrower's expense. Delta also has an insurance policy in place
that provides coverage automatically for Delta in the event that Delta fails to
obtain force-placed insurance.

     Following the transfer to Ocwen, Ocwen will perform all servicing functions
and Delta will discontinue its Servicing Operations, laying off the majority of
the Servicing employees, and give back the entire leased premises to the
Landlord.

DELINQUENCY AND LOSS EXPERIENCE

     The following table sets forth information relating to the delinquency and
loss experience of the mortgage loans serviced by Delta (primarily for the
securitization trusts) for the periods indicated. Delta is not the holder of the
securitization loans, but generally holds residual or interest-only certificates
of the trusts, as well as the servicing rights, each of which may be adversely
affected by mortgage loan defaults. (See "-Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Accounting
Considerations"). Following the transfer of a majority of Delta's Residual
Assets in connection with the anticipated consummation of the Second Debt
Restructuring in 2001, and anticipated sales of certain other Residual Assets
for a cash purchase price, Delta will no longer be the holder of the vast
majority of the residual and interest-only certificates of the trusts that own
the loans, the performance of which is reflected in the table:

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                            --------------------------------------------
                                                                2000            1999            1998
                                                                ----            ----            ----
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                         <C>             <C>             <C>
Total Outstanding Principal Balance
   (at period end)....................................      $ 3,312,582     $ 3,631,830     $ 2,950,435
Average Outstanding (1)...............................      $ 3,638,398     $ 3,362,377     $ 2,436,343
DELINQUENCY (at period end) 30-59 Days:
   Principal Balance..................................        $ 238,047       $ 208,302       $ 153,726
   Percent of Delinquency (2).........................            7.19%           5.73%           5.21%
60-89 Days:
   Principal Balance..................................        $ 110,730       $  83,000       $  50,034
   Percent of Delinquency (2).........................            3.34%           2.28%           1.70%
90 Days or More:
   Principal Balance..................................        $  69,802       $  56,435       $  47,887
   Percent of Delinquency (2).........................            2.11%           1.55%           1.62%
Total Delinquencies:
   Principal Balance..................................        $ 418,579       $ 347,737       $ 251,647
   Percent of Delinquency (2).........................           12.64%           9.56%           8.53%
FORECLOSURES
   Principal Balance..................................        $ 206,281       $ 185,843       $ 145,679
   Percent of Foreclosures by Dollar (2)..............            6.23%           5.11%           4.94%
REO
   Principal Balance..................................        $  57,981       $  36,663       $  18,811
   Percent of REO.....................................            1.75%           1.01%           0.64%
Net Gains/(Losses) on liquidated loans................        $  28,918       $ (14,722)      $  (8,704)
Percentage of Net Gains/(Losses) on liquidated
   loans (based on Average Outstanding Balance).......           (0.79%)         (0.44%)         (0.36%)
</TABLE>
_______________
(1)  Calculated by summing the actual outstanding principal balances at the end
     of each month and dividing the total by the number of months in the
     applicable period.
(2)  Percentages are expressed based upon the total outstanding principal
     balance at the end of the indicated period.

COMPETITION

     As an originator of mortgage loans, Delta faces 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 Delta. Competition can take many
forms, including interest rates and costs of the loan, convenience in obtaining
a loan, service, and marketing and distribution channels. Furthermore, the level
of gains realized by Delta and its competitors on the sale of the type of loans
originated and purchased has attracted additional competitors into this market
with the effect of lowering the gains that may be realized by Delta 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 who have
"locked in" low borrowing costs may have a competitive advantage. During periods
of declining rates, competitors may solicit Delta's borrowers to refinance their
loans. During economic slowdowns or recessions, Delta's borrowers may have new
financial difficulties and may be receptive to offers by Delta's competitors.

     Over the past few years, many of the independent mortgage banking
companies, which previously were among Delta's 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 Delta, targeting customers similar to those
of Delta. Fannie Mae and Freddie Mac have also expressed interest in adapting
their programs to include products similar to those offered by Delta and have
begun to expand their programs and presence into the subprime market. The
entrance of these larger and better-capitalized competitors into Delta's market
may have a material adverse effect on Delta's results of operations and
financial condition.

REGULATION

     Delta's 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 its operations. Delta's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Equal
Credit Opportunity Act of 1974, as amended (ECOA), the Fair Credit Reporting Act
of 1970, as amended, the Real Estate Settlement Procedures Act (RESPA), and
Regulation X, the Home Mortgage Disclosure Act and the Federal Debt Collection
Practices Act, as well as other federal and state statutes and regulations
affecting Delta's activities. Delta is also subject to the rules and regulations
of, and examinations by HUD and state regulatory authorities with respect to
originating, processing, underwriting and servicing loans. These rules and
regulations, among other things, impose licensing obligations on Delta,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, termination
or suspension of servicing contracts without compensation to the servicer,
demands for indemnifications or mortgage loans repurchases, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcement actions.

     In September 1999, Delta settled allegations by the New York State Banking
Department and a lawsuit by the New York State Office of the Attorney General
alleging that Delta had violated various state and federal lending laws. The
global settlement was evidenced by that certain (a) Remediation Agreement by and
between Delta Funding and the NYSBD, dated as of September 17, 1999 and (b)
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, Delta, among
other things, has implemented agreed upon changes to its lending practices; is
providing reduced loan payments aggregating $7.25 million to certain borrowers
identified by the NYSBD; and has created a fund financed by the grant of 525,000
shares of Delta Financial's common stock. The proceeds of the fund will be used,
for among other things, to compensate certain borrowers and for a variety of
consumer educational and counseling programs.

     In March 2000, Delta 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 it had reached with the NYSBD and
NYOAG. The Federal agreement mandates some additional compliance efforts for
Delta, but it does not require any additional financial commitment.

     Delta believes it is in compliance in all material respects with applicable
federal and state laws and regulations.

ENVIRONMENTAL MATTERS

     To date, Delta has not been required to perform any investigation or clean
up activities, nor has it been subject to any environmental claims. There can be
no assurance, however, that this will remain the case in the future. In the
ordinary course of its business, Delta from time to time forecloses on
properties securing loans. Although Delta primarily lends to owners of
residential properties, there is a risk that Delta could be required to
investigate and clean-up hazardous or toxic substances or chemical releases at
such properties after acquisition by Delta, 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 owners 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, 2000, Delta had a total of 851 employees (full-time and
part-time). None of Delta's employees are covered by a collective bargaining
agreement. Delta considers its relations with its employees to be good.

ITEM 2. PROPERTIES

     Delta's executive and administrative offices are located at 1000 Woodbury
Road, Woodbury, New York 11797, where Delta leases approximately 120,000 square
feet of office space at an aggregate annual rent of approximately $2.4 million.
The lease provides for certain scheduled rent increases and expires in 2008.

     Delta's servicing operations are located at 99 Sunnyside Boulevard,
Woodbury, New York 11797, where Delta leases approximately 40,000 square feet of
office space at an aggregate annual rent of approximately $0.9 million. The
lease is scheduled to expire in June 2001.

     Delta also maintains a full service office in Atlanta, Georgia and business
development offices in New Jersey, Ohio, Pennsylvania and Virginia. Delta's
retail operation currently maintains eleven retail mortgage origination offices
in Illinois, Indiana, Missouri, North Carolina, Ohio (4), Pennsylvania (2) and
Tennessee; one telemarketing hub in Ohio; and a retail call center at Delta's
headquarters in Woodbury, New York. The terms of theses leases vary as to
duration and escalation provisions, with the latest expiring in 2004.

ITEM 3. LEGAL PROCEEDINGS

     Because the nature of Delta's business involves the collection of numerous
accounts, the validity of liens and compliance with various state and federal
lending laws, Delta is subject, in the normal course of business, to numerous
claims and legal proceedings. Delta's lending practices have been the subject of
several lawsuits styled as class actions and of investigations by various
regulatory agencies including the New York State Banking Department (the
"NYSBD"), the Office of the Attorney General of the State of New York (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, Delta received notice that it 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 Delta had violated the Home Equity and
          Ownership 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) 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 Delta 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 the injunctive relief on their behalf.
          Delta 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 enjoining Delta
          from proceeding with the foreclosure sales of the three intervenors'
          properties. Delta has filed a motion for reconsideration of the
          December 23, 1998 order. In January 1999, Delta 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,
          Delta 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 Delta, its attorneys and/or the NYSBD from
          issuing notices to certain of Delta's 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, Delta and
          the NYSBD submitted opposition to plaintiffs' motion. In March 2000,
          the Court issued an order that permits Delta to issue an approved form
          of the notice. In September 1999, plaintiffs filed a motion for class
          certification, which was opposed by Delta in February 2000, and
          ultimately withdrawn without prejudice by plaintiffs in January 2001.
          Delta believes that it has meritorious defenses and intends to defend
          this suit, but cannot estimate with any certainty its ultimate legal
          or financial liability, if any, with respect to the alleged claims.

     o    In or about March 1999, Delta received notice that it had been named
          in a lawsuit filed in the Supreme Court of the State of New York, New
          York County, alleging that Delta 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 (1) unjust enrichment, (2) fraud, and (3) deceptive trade
          practices. In April 1999, Delta filed an answer to the complaint. In
          September 1999, Delta 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, Delta filed a motion to change venue
          and plaintiffs opposed the motion. In July 1999, the Court denied the
          motion to change venue. Delta appealed and in March 2000, the
          Appellate Court granted Delta's appeal to change venue from New York
          County to Nassau County. In August 1999, plaintiffs filed a motion for
          class certification, which Delta opposed in July 2000. In or about
          September 2000, the Court granted plaintiffs' motion for class
          certification, from which Delta filed a Notice of Appeal. Delta
          believes that it has meritorious defenses and intends to defend this
          suit, but cannot estimate with any certainty its ultimate legal or
          financial liability, if any, with respect to the alleged claims.

     o    In or about July 1999, Delta received notice that it had been named in
          a lawsuit filed in the United States District Court for the Western
          District of New York, alleging that amounts collected and maintained
          by it in certain borrowers' tax and insurance escrow accounts exceeded
          certain statutory (RESPA) and/or contractual (the respective
          borrowers' mortgage agreements) ceilings. The complaint seeks (a)
          certification of a class of plaintiffs, (b) declaratory relief finding
          that Delta's practices violate applicable statutes and/or the mortgage
          agreements, (c) injunctive relief, and (d) unspecified compensatory
          and punitive damages (including attorneys' fees). In October 1999,
          Delta filed a motion to dismiss the complaint. In or about November
          1999, the case was transferred to the United States District Court for
          the Northern District of Illinois. In February 2000, the plaintiff
          opposed Delta's motion to dismiss. In March 2000, the Court granted
          Delta's motion to dismiss in part, and denied it in part. Delta
          believes that it has meritorious defenses and intends to defend this
          suit, but cannot estimate with any certainty its ultimate legal or
          financial liability, if any, with respect to the alleged claims.

     o    In or about August 1999, the NYOAG filed a lawsuit against Delta
          alleging violations of (a) RESPA (by paying yield spread premiums),
          (b) HOEPA and TILA, (c) ECOA, (d) New York Executive Lawss.296-a, and
          (e) New York Executive Lawss.63(12). In September 1999, Delta and the
          NYOAG settled the lawsuit, as part of a global settlement by and among
          Delta, the NYOAG and the NYSBD, evidenced by that certain (a)
          Remediation Agreement by and between Delta and the NYSBD, dated as of
          September 17, 1999 and (b) Stipulated Order on Consent by and among
          Delta, Delta Financial and the NYOAG, dated as of September 17, 1999.
          As part of the Settlement, Delta will, among other things, implement
          agreed upon changes to its lending practices; provide reduced loan
          payments aggregating $7.25 million to certain borrowers identified by
          the NYSBD; and create a fund of approximately $4.75 million to be
          financed by the grant of 525,000 shares of Delta Financial's common
          stock valued at a constant assumed priced of $9.10 per share, which
          approximates book value. The proceeds of the fund will be used, among
          other things, to pay borrowers and for a variety of consumer
          educational and counseling programs. As a result, the NYOAG lawsuit
          has been dismissed as against Delta.

          The Remediation Agreement and Stipulated Order on Consent supersede
          Delta's previously announced settlements with the NYSBD and the NYOAG.
          In March 2000, Delta finalized a settlement agreement with the United
          States Department of Justice, the Federal Trade Commission and the
          Department of Housing and Urban Renewal, to complete the global
          settlement it had reached with the NYSBD and NYOAG. The Federal
          agreement mandates some additional compliance efforts for Delta, but
          it does not require any additional financial commitment.

     o    In November 1999, Delta received notice that it 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
          the Company's initial public offering in 1996 and its reports
          subsequently filed with the Securities and Exchange Commission. The
          complaint alleges that the scope of the violations alleged recently in
          the consumer lawsuits and regulatory actions indicate a pervasive
          pattern of action and risk that should have been more thoroughly
          disclosed to investors in the Company's common stock. In May 2000, the
          Court consolidated this case and several other lawsuits that
          purportedly contain the same or similar allegations against Delta and
          in August 2000 plaintiffs filed their Consolidated Amended Complaint.
          In October 2000, Delta filed a motion to dismiss the Complaint in its
          entirety, which was opposed by plaintiffs in November 2000, and is now
          pending. Delta believes that it has meritorious defenses and intends
          to defend these suits, but cannot estimate with any certainty its
          ultimate legal or financial liability, if any, with respect to the
          alleged claims.

     o    In or about April 2000, Delta received notice that it had been named
          in a lawsuit filed in the Supreme Court of the State of New York,
          Nassau County, alleging that Delta has improperly charged and
          collected from borrowers certain fees when they paid off their
          mortgage loans with Delta. 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. Delta answered the complaint in June 2000. Delta believes
          that it has meritorious defenses and intends to defend this suit, but
          cannot estimate with any certainty its ultimate legal or financial
          liability, if any, with respect to the alleged claims.

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

     The annual meeting of stockholders was held on May 16, 2000. At the
meeting, Richard Blass and Arnold B. Pollard were elected as a Class I Directors
for a term of three years. Sidney A. Miller, Hugh Miller, Martin D. Payson and
Margaret Williams continue to serve as members of the Board of Directors.

     Votes cast in favor of Mr. Blass' selection totaled 14,598,596, while
30,340 votes were withheld.

     Votes cast in favor of Mr. Pollard's selection totaled 14,598,596, while
30,340 votes were withheld.

     The stockholders also voted to ratify the appointment of KPMG LLP as the
Company's independent auditors for the fiscal year ending December 31, 2000.
Votes cast in favor of this ratification were 14,620,621, while votes cast
against were 7,365 and abstentions totaled 950.

<PAGE>

                                     PART II

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

PRICE RANGE OF COMMON STOCK

     Delta's Common Stock was listed on the New York Stock Exchange (the "NYSE")
under the symbol "DFC" on November 1, 1996. The following table sets forth for
the periods indicated the range of the high and low closing sales prices for
Delta's Common Stock on the NYSE.

2000                                                        HIGH         LOW
----                                                        ----         ---
First Quarter ......................................     $  4.13     $  2.00
Second Quarter......................................        2.31        1.25
Third Quarter.......................................        1.63        0.50
Fourth Quarter......................................        0.69        0.22

1999                                                        HIGH         LOW
----                                                        ----         ---
First Quarter ......................................     $  8.25     $  4.75
Second Quarter......................................        8.13        4.88
Third Quarter.......................................        7.81        5.00
Fourth Quarter......................................        5.06        3.63

     In January 2001, the Company announced that it received notification from
the NYSE that it has fallen below the continued listing standards of the NYSE.
The Company currently does not meet the NYSE's continued listing standards
requiring the maintenance of a minimum of $15 million in market capitalization
over a 30-day trading period and the maintenance of a minimum share price of $1
over a 30-day trading period. In accordance with the rules of the NYSE, the
Company has supplied the NYSE with its business plan to address promptly the
market capitalization and minimum share price issues. There can be no assurance,
however, that the Company will be successful in meeting those requirements on a
continuing basis. If the Company is delisted from the NYSE, it will apply for
quotation, and would expect its Common Stock to trade, on the OTC Bulletin
Board.

     On December 31, 2000, Delta had approximately 79 stockholders of record.
This number does not include beneficial owners holding shares through nominee or
"street" names. Delta believes the number of beneficial stockholders is
approximately 1,900.

DIVIDEND POLICY

     Delta did not pay any dividends in 2000 and, in accordance with its present
general policy, has no present intention to pay cash dividends.

<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------
                                                        2000        1999         1998         1997          1996
                                                        ----        ----         ----         ----          ----
Income Statement Data:                                      (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S>                                                  <C>           <C>          <C>          <C>          <C>
   Revenues:
     Net gain on sale of mortgage loans......        $ 47,550      78,663       91,380       85,890       46,525
     Interest................................          32,287      31,041       12,458       22,341       16,372
     Servicing fees..........................          14,190      16,341       10,464        7,511        5,368
     Origination fees........................          24,944      28,774       25,273       18,108        5,266
     Total revenues..........................         118,971     154,819      139,575      133,850       73,531

   Expenses:
     Payroll and related costs...............          56,525      65,116       56,709       41,214       17,633
     Interest................................          30,386      26,656       30,019       19,964       11,298
     General & administrative................          94,685      55,318       34,351       21,522       11,112
         Total expenses......................         181,596     147,090      121,079       82,700       40,043
   Income (loss) before income tax expense
     (benefit) and extraordinary item........         (62,625)      7,729       18,496       51,150       33,488
   Provision for income tax expense (benefit)         (13,208)      3,053        7,168       20,739        9,466

   Income (loss) before extraordinary item...         (49,417)      4,676       11,328       30,411       24,022
   Extraordinary item:
     Gain on extinguishment of debt..........              --          --           --           --        3,168
   Net income (loss).........................        $(49,417)      4,676       11,328       30,411       27,190

Pro forma information (1)(2):
   Provision for pro forma income tax expense
     before extraordinary item...............              --          --           --           --       14,400

   Pro forma income (loss) before
     extraordinary item......................         (49,417)      4,676       11,328       30,411       19,088
   Per share data (1)(3):
     Earnings (loss) per common share -
       basic and diluted.....................        $  (3.10)       0.30         0.74         1.98         1.46

     Weighted average number of
       shares outstanding....................      15,920,869  15,511,214   15,382,161   15,359,280   13,066,485


Selected Balance Sheet Data:
   Loans held for sale, net..................        $ 82,698      89,036       87,170       79,247       82,411
   Capitalized mortgage servicing rights.....              --      45,927       33,490       22,862       11,412
   Interest-only and residual certificates...         216,907     224,659      203,803      167,809       83,073
   Total assets..............................         452,697     556,835      481,907      393,232      231,616
   Senior notes, warehouse financing and
     other borrowings........................         238,203     258,493      229,660      177,540       95,482
   Investor payable..........................          69,489      82,204       63,790       40,852       20,869
   Total liabilities.........................         354,973     409,694      344,219      266,779      138,098
   Stockholders' equity......................          97,724     147,141      137,688      126,453       93,518
</TABLE>
_______________
(1)  Figures for December 31, 2000,1999, 1998 and 1997 are actual; pro forma
     presentation for the year 1996.
(2)  Prior to October 31, 1996, Delta Funding (a wholly owned subsidiary) was
     treated as an S corporation for Federal and state income tax purposes. The
     pro forma presentation reflects a provision for income taxes as if the
     Company had always been a C corporation at an assumed tax rate of 43%.
(3)  Pro forma earnings per common share has been computed by dividing pro forma
     net income by the sum of (a) 10,653,000 shares of the Company's common
     stock received by the former shareholders in exchange for their shares of
     Delta Funding, and (b) the effect of the issuance of 1,976,182 shares of
     the Company's common stock issued in the Company's initial public offering
     to generate sufficient cash for certain S corporation distributions paid to
     the former shareholders, which shares are treated as if they had always
     been outstanding.

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

     The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and accompanying Notes to
Consolidated Financial Statements set forth therein.

GENERAL

     Delta, through its wholly owned subsidiaries, engages in the consumer
finance business by originating, acquiring, selling and servicing non-conforming
home equity loans. Throughout its 19 years of operating history, the Company has
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.

     Delta originates home equity loans indirectly through licensed mortgage
brokers and other real estate professionals who submit loan applications on
behalf of borrowers ("Brokered Loans") and, prior to July 2000, also purchased
loans from mortgage bankers and smaller financial institutions that satisfy
Delta's underwriting guidelines ("Correspondent Loans"). The Company decided to
discontinue its correspondent operations in July 2000 to focus on its less cash
intensive broker and retail channels. Delta Funding currently originates the
majority of its loans in 20 states, through its network of approximately 1,500
brokers.

     Delta develops retail loan leads primarily through its telemarketing system
and its network of 11 retail offices located in Illinois, Indiana, Missouri,
North Carolina, Ohio (4), Pennsylvania (2), Tennessee, and a call center in New
York ("Retail Loans"). During the twelve months ended December 31, 2000, the
Company closed two under-performing retail offices in Georgia and Florida, and
opened a new retail origination call center at its headquarters in Woodbury, New
York. In January 2001, the Company closed two additional under-performing retail
offices in Florida.

     In March 2000, the Company finalized its settlement with the U.S.
Department of Justice (the "DOJ"), completing its global settlement with the
NYSBD and the NYOAG. The FTC and HUD also signed the DOJ settlement, which
parallels the NYSBD and NYOAG settlement agreements. See "- Legal Proceedings"
for a discussion of the settlement.

     In July 2000, the Company received $2 million in connection with the sale
of one of its domain names previously used as an Internet address.

     In August 2000, the Company announced a corporate restructuring and
modification of its Senior Notes (see " - Corporate Restructuring and Debt
Modification") to improve operating efficiencies and to address its negative
cash flow. The corporate restructuring was aimed at reducing overhead and
operating expenses. The debt modification enabled the Company to monetize a
portion of its Residual Assets, first by obtaining approximately $17 million in
residual financing in August 2000 and subsequently through the sale of a portion
of its Residual Assets through a net interest margin securitization ("NIM
Transaction") in November 2000. (See "-Liquidity and Capital Resources").

CORPORATE RESTRUCTURING AND DEBT MODIFICATION

     In August 2000, Delta announced a corporate restructuring (the
"Restructuring") in its continuing efforts to improve operating efficiencies and
to address its negative cash flow from operations. As part of this
restructuring, the Company recorded a $6.7 million charge primarily relating to
employee severance associated with the layoffs, a reduction to goodwill and
office equipment write-offs. After a cash payment for personnel related costs,
the balance of Delta's restructuring liability at December 31, 2000 was $1.3
million.

     Also in August 2000, the Company announced an agreement to modify the
Senior Notes (the "Debt Modification"). With the consent of greater than fifty
percent of its Senior Note holders, the Company modified a negative pledge
covenant contained in the Senior Notes Indenture. The negative pledge had
previously prevented the Company from selling or otherwise obtaining financing
against any of its interest-only or residual certificates (the "Residual
Assets"). In consideration for the Senior Noteholders' consent, the Company
agreed, through an exchange offer (the "Exchange Offer"), to offer current
Senior Noteholders the option of exchanging their then existing Senior Notes for
(a) new senior secured notes (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. 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 "- Subsequent Events" below), were secured by at least $165
million of the Company's Residual Assets. The Exchange Offer was consummated in
December 2000, with holders of greater than $148 million of Senior Notes
tendering in the exchange. The Company recorded a $3.1 million pre-tax charge in
the third quarter of 2000 related to professional fees incurred in connection
with the Debt Modification.

SUBSEQUENT EVENTS

     Although the Company had taken the steps in 2000 described above to improve
operating efficiencies and to address its negative cash flow from operations,
management believed that additional steps were necessary to permit Delta to
continue as a going concern. Management's principal concerns were:

          o    the burden imposed upon the Company by its ongoing monthly
               delinquency and servicing advance requirements as servicer (the
               "Securitization Advances"),

          o    the high cost of servicing a seasoned loan portfolio, including
               the capital charges associated with making Securitization
               Advances,

          o    the Company's ability to make timely interest payments on the
               Senior Secured Notes, and

          o    its 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, management embarked upon a business plan
aimed at alleviating these concerns and issues.

     First, in January 2001, the Company entered into a subservicing agreement
with Ocwen Financial Corporation ("Ocwen"), under which Ocwen will subservice
Delta's existing loan portfolio. While the Company remains the servicer, Ocwen
will take over servicing responsibilities, including the requirement to make
Securitization Advances, and will retain all servicing related fees. Management
expects to complete the transfer on or before June 1, 2001, at or before which
point, it is anticipated that Ocwen will purchase from the Company its
outstanding monthly Securitization Advances, subject to certain conditions.
During the Interim Period, Delta will continue to service the loan portfolio and
earn an interim service fee that will be used to offset some of its servicing
related expenses. By transferring servicing and, along with it, the
responsibility for making advances, the Company expects to save approximately
$5.5 million of annual capital charges, in addition to the significant cash
outlays associated with making such advances.

     Second, in February 2001, the Company entered into a Letter of Intent with
the beneficial holders of over fifty percent of its Senior Secured Notes to
restructure, and ultimately extinguish, the Senior Secured Notes (the "Second
Debt Restructuring"). In March 2001, the Company obtained the formal consent of
these 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 residual certificates currently
securing the Senior Secured Notes. In consideration for the Noteholders'
consent, Delta agreed to offer the Senior Secured Noteholders the option to
exchange their existing Notes (the "Second Exchange Offer") for new securities
that will evidence a commensurate interest in a Liquidating Trust (to be formed
in connection with the Second Exchange Offer), into which residual certificates
currently securing the Company's obligations under the Senior Secured Notes
(totaling approximately $150 million) will be transferred. The Second Debt
Restructuring will also provide for, among other things, the following:

          (a)  The Liquidating Trust will receive $15 million of newly issued
               preferred stock bearing a 10% dividend payable semi-annually
               (with the first three dividends payable in kind). Delta may
               redeem the preferred stock at its liquidation preference plus
               accrued dividends at any time prior to its conversion (which can
               occur only once five dividends have not been paid in cash).

          (b)  The Company will receive all cash flows from the residual
               certificates transferred into the Liquidating Trust through and
               including the June 2001 distributions. Thereafter, the Company
               will earn a management fee in return for its oversight and its
               efforts to maximize the value of the Residual Assets in the
               Liquidating Trust, and for absorbing certain costs and fees on
               behalf of the Liquidating Trust.

          (c)  The Company monetizing the two residual certificates together
               with other residual certificates owned by the Company but not
               securing the Senior Secured Notes, to provide additional working
               capital.

     The Company believes that, upon consummation of the Second Exchange Offer
(which requires the consent of at least 90-95% of the holders), Moody's and
Fitch will withdraw their corporate ratings on the Company, as the underlying
debt will have been largely extinguished.

     In March 2001, in connection with the Second Debt Restructuring, the
Company entered into a sale agreement to sell five of its residual certificates
for a $15 million cash purchase price. As customary with sales of similar
assets, the cash settlement does not occur until the pools of mortgages
underlying such residual certificates are transferred to an agreed upon servicer
to service the pool of mortgage loans for the purchaser of such residuals. The
purchasers of these five residuals have provided bridge financing, in the form
of residual financing, of approximately $9.6 million. The remainder of the
purchase price will be paid to the Company upon the transfer of servicing to
Ocwen. The Company will use the proceeds from the residual financing and
subsequent sale for working capital. These residual certificates are being sold
at a significant discount to the Company's book value for such certificates and,
as such, the Company expects to record an approximately $27 million pre-tax
non-cash charge in the first quarter of 2001.

     Management believes that its subservicing arrangement with Ocwen and the
Second Debt Restructuring were essential steps in its ongoing effort to
restructure its operations and reduce its negative cash flow associated with its
servicing operations and Senior Secured Notes. There can be no assurances,
however, that these or other factors described herein will not have a material
adverse effect on the Company's results of operations and financial condition.
(See "-Competition," "Regulation" and "Risk Factors," among other sections).

     In January 2001, the Company decided to close two under-performing retail
offices in Florida.

     Also in January 2001, the Company announced that it received notification
from the New York Stock Exchange ("NYSE") that it has fallen below the continued
listing standards of the NYSE. The Company currently does not meet the NYSE's
continued listing standards requiring the maintenance of a minimum of $15
million in market capitalization over a 30-day trading period and the
maintenance of a minimum share price of $1 over a 30-day trading period. In
accordance with the rules of the NYSE, the Company has supplied the NYSE with
its business plan to promptly address the market capitalization and minimum
share price issues. There can be no assurance, however, that the Company will be
successful in meeting those requirements on a continuing basis. If the Company
is delisted from the NYSE, it will apply for quotation, and would expect its
Common Stock to trade, on the OTC Bulletin Board.

CERTAIN ACCOUNTING CONSIDERATIONS

     As a fundamental part of its business and financing strategy, Delta sells
the majority of its loans through securitization to a securitization trust and
derives a substantial portion of its income from these sales. In a
securitization, the Company sells a pool of loans it has originated or purchased
to a REMIC trust for a cash purchase price. The trust, in turn, finances the
purchase of the pool of loans it has acquired by selling "pass-through
certificates," or bonds, which represent undivided ownership interests in the
trust. Holders of the pass-through certificates are entitled to receive monthly
distributions of all principal received on the underlying mortgages and a
specified amount of interest, determined at the time of the offering.

     When the Company sells a pool of loans to a securitization trust, it
receives the following economic interests in the trust: (a) the difference
between the interest payments due on the loans sold to the trust and the
interest rate paid to the pass-through certificateholders, less the Company's
contractual servicing fee and other costs and expenses of administering the
trust, represented by interest-only and residual certificates, and (b) the right
to service the loans on behalf of the trust and earn a servicing fee, as well as
other ancillary servicing related fees directly from the borrowers on the
underlying loans.

     The Company's net investment in the pool of loans sold at the date of the
securitization represents the amount originally paid to originate or acquire the
loans adjusted for (1) any direct loan origination costs incurred (an increase)
and loan origination fees received (a decrease) in connection with the loans,
which are treated as a component of the initial investment in loans, and (2) the
principal payments received, and the amortization of the net loan fees or costs,
during the period the Company held the loans prior to their securitization. The
Company's investment in the loans also reflects adjustments for any gains (a
decrease in the investment) or losses (an increase in the investment) the
Company has incurred on treasury rate lock contracts (or similar hedging
strategies) which the Company has typically used to hedge against the effects of
changes in interest rates during the period it holds the loans prior to their
securitization. (See "- Hedging.")

     Upon the securitization of a pool of loans, the Company (1) recognizes in
income, as origination fees, the unamortized origination fees included in the
investment in the loans sold, and (2) recognizes a gain on sale of loans equal
to the difference between cash received from the trust and the investment in the
loans remaining after the allocation of portions of that investment to record
interest-only and residual certificates and mortgage servicing rights received
in the securitization. The majority of the net gain on sale of mortgage loans
results from the fair value of the interest-only and residual certificates
retained by the Company in a securitization for each period and the market value
of the interest-only certificates sold in connection with each securitization.

     The Company sold the interest-only certificates created in each of the 2000
securitizations for cash proceeds and intends to continue to sell the
interest-only certificate as long as the sale effectively maximizes cash flow
and profitability.

     The interest-only and residual certificates received by the Company upon
the securitization of a pool of loans are accounted for as trading securities.
The amount initially allocated to the interest-only and residual certificates at
the date of a securitization reflects the fair value of those interests. The
amount recorded for the certificates is reduced for distributions thereon which
the Company receives from the trust, and is adjusted for subsequent changes in
the fair value of interest-only and residual certificates held by the Company,
which are reflected in the statement of operations. The Company assesses the
fair value of interest-only and residual certificates based upon updated
estimates of prepayment and default rates relating to loan groups comprised of
loans of similar types, terms, credit quality, interest rates, geographic
location and value of loan collateral, which represent the predominant risk
characteristics that would affect prepayments and default rates.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000, COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

GENERAL

     The Company reported a net loss for the year ended December 31, 2000 of
$49.4 million, or $3.10 per share, compared to net income of $4.7 million, or
$0.30 per share, for the year ended December 31, 1999. Excluding certain
non-recurring items, the Company would have reported net loss of $0.4 million,
or $0.02 per share, for the year ended December 31, 2000. These non-recurring
items related to

          o    the write-down of the Company's capitalized mortgage servicing
               rights based upon the Company's realization, in connection with
               the bidding process that led to the subservicing agreement with
               Ocwen, that it could not sell its existing loan servicing
               portfolio for a premium,

          o    a reduction in the carrying value of a portion of the Company's
               residual certificates related to an increase in the discount rate
               of such certificates included in the Company's NIM Transaction,

          o    the write-down of the Company's goodwill relating to the 1997
               purchase of Fidelity Mortgage,

          o    costs associated with the Company's NIM transaction in November
               2000,

          o    restructuring and debt modification charges, and

          o    non-recurring income associated with the sale of one of the
               Company's domain names.

Excluding a one-time charge relating to the Company's settlement with the NYSBD
and the NYOAG, the Company's net income for the year ended December 31, 1999,
would have been $12.0 million, or $0.77 per share. Comments regarding the
components of net income are detailed in the following paragraphs.

REVENUES

     Total revenues decreased $35.8 million, or 23%, to $119.0 million for the
year ended December 31, 2000, from $154.8 million for the comparable period in
1999. The decrease in revenue was primarily attributable to a decrease in the
net gain on sale of mortgage loans and, to a lesser extent, servicing fees and
origination fees. This decrease was partially offset by an increase in interest
income.

     The Company originated and purchased $933 million of mortgage loans for the
twelve months ended December 31, 2000, representing a 37% decrease from $1.47
billion of mortgage loans originated and purchased for the comparable period in
1999. The Company securitized $880 million in loans (and sold the related
servicing rights on its 2000 second, third and fourth quarter securitizations,
respectively) during the twelve months ended December 31, 2000, representing a
40% decrease from three securitizations and a loan sale through a conduit
facility totaling $1.46 billion during the twelve months ended December 31,
1999. The Company also sold $58.3 million of loans on a whole loan servicing
released basis for the twelve months December 31, 2000. The Company did not sell
whole loans for the comparable period in 1999. Total loans serviced decreased 9%
to $ 3.31 billion at December 31, 2000 from $3.63 billion at December 31, 1999.

     NET GAIN ON SALE OF MORTGAGE LOANS. Net gain on sale of mortgage loans
represents (1) the sum of (a) the fair value of the interest-only and residual
certificates retained by the Company in a securitization for each period and the
market value of the interest-only certificates sold in connection with each
securitization, (b) the fair value of capitalized mortgage servicing rights
associated with loans securitized in each period and the market value of
capitalized mortgage servicing rights sold in connection with each
securitization, and (c) premiums earned on the sale of whole loans on a
servicing-released basis, (2) less the (x) premiums paid to originate or acquire
mortgage loans, (y) costs associated with securitizations, and (z) any hedge
loss (gain) associated with a particular securitization.

     Net gain on sale of mortgage loans decreased $31.1 million, or 40%, to
$47.6 million for the twelve months ended December 31, 2000, from $78.7 million
for the comparable period in 1999. This decrease was primarily due to

          o    a 40% decrease in the amount of loans securitized or sold,

          o    a revision to the Company's loan loss reserve assumption in the
               fourth quarter of 1999 (see "-Fair Value Adjustment"), and

          o    a revision to the Company's annual discount rate in the fourth
               quarter of 2000 (see "-Fair Value Adjustment").

     The decrease was partially offset by

          o    a higher gross excess spread expected to be earned over the life
               of the loans as calculated by the weighted average coupon on the
               pool of mortgage loans securitized less the total cost of funds
               on the securitization,

          o    the Company not executing a securitization in the third quarter
               of 1999 and instead opting to sell its loan production into a
               conduit facility, where the net gain on sale was lower than if
               the Company would have sold its loans through securitization, and

          o    lower aggregate premiums paid to acquire loans, resulting from
               both a decrease in amount of loans purchased through the
               correspondent channel and lower average premiums paid to
               correspondents. The Company also lowered its prepayment speed
               assumptions in the third quarter of 2000, while at the same time
               increased its loss reserve initially established for both fixed
               and adjustable-rate loans sold to the securitizations trusts (see
               "Fair Value Adjustment"). The changes largely offset each other
               and, therefore, did not materially affect net gain on sale of
               mortgage loans. The weighted average net gain on sale ratio was
               5.9% for the year ended December 31, 2000 compared to 5.4% for
               the comparable period in 1999.

     INTEREST INCOME. Interest income primarily represents the sum of (1) the
difference between the distributions the Company receives on its interest-only
and residual certificates and the adjustments recorded to reflect changes in the
fair value of the interest-only and residual certificates, (2) the gross
interest earned on loans held for sale (other than for loans sold into the
conduit in which case, it is the net interest spread), (3) with respect to loans
sold into the conduit, the net interest margin earned (excess servicing) between
the weighted average rate on the mortgage loans less the conduit's variable
funding rate plus administrative fees, and (4) interest earned on cash
collection balances.

     Interest income increased $1.3 million, or 4%, to $32.3 million for the
twelve months ended December 31, 2000, from $31.0 million for the comparable
period in 1999. The increase was primarily due to the Company utilizing a
mortgage loan conduit (special purpose vehicle) prior to securitization in 1999
- in which the Company earns and records the net interest margin between the
interest rate earned on the pool of mortgage loans sold to the mortgage loan
conduit and the conduit financing rate, less administrative expenses - that it
did not use at all in 2000.

     SERVICING FEES. Servicing fees represent all contractual and ancillary
servicing revenue received by the Company less (1) the offsetting amortization
of the capitalized mortgage servicing rights, and any adjustments recorded to
reflect valuation allowances for the impairment in mortgage servicing rights
(see "--Certain Accounting Considerations"), and (2) prepaid interest
shortfalls.

     Servicing fees decreased $2.1 million, or 13%, to $14.2 million for the
twelve months ended December 31, 2000, from $16.3 million for the comparable
period in 1999. The decrease in servicing income is primarily due to (1) lower
ancillary fees collected (primarily prepayment penalties as mortgage loan
prepayments were comparably lower in 2000) and (2) lower servicing fees
collected due to a more seasoned (I.E., more delinquent) portfolio in 2000, due
in part to the Company's sales of servicing rights on $590 million of newly
originated or purchased mortgage loans securitized in 2000.

     ORIGINATION FEES AND OTHER INCOME. Origination fees represent fees earned
on broker and retail originated loans and other income. Origination fees
decreased $3.9 million, or 14%, to $24.9 million for the twelve months ended
December 31, 2000, from $28.8 million for the comparable period in 1999. The
decrease was primarily the result of a 32% decrease in broker originated loans
and an 18% decrease in retail originated loans. This was partially offset by the
sale of one of the Company's domain names in July 2000.

EXPENSES

     Total expenses increased by $34.5 million, or 23%, to $181.6 million for
the twelve months ended December 31, 2000, from $147.1 million for the
comparable period in 1999. This was primarily the result of (1) the complete
write down of the Company's capitalized mortgage servicing rights of $38.2
million, (2) non-recurring charges related to the Corporate Restructuring and
Debt Modification in the third quarter of 2000 of $6.7 million and $3.1 million,
respectively, and (3) a write-down of goodwill in the fourth quarter of 2000 of
$1.8 million. This was partially offset by a decrease in general and
administrative costs (primarily relating to the $12 million the Company expensed
in the twelve months ended December 31, 1999, for the settlement entered into by
the Company with the NYSBD, NYOAG and DOJ) and a decrease in personnel costs
attributable to the Company's initiative to lower costs through its corporate
restructuring in the third quarter of 2000 that included a workforce reduction.

     PAYROLL AND RELATED COSTS. Payroll and related costs include salaries,
benefits and payroll taxes for all employees. Payroll and related costs
decreased by $8.6 million, or 13%, to $56.5 million for the twelve months ended
December 31, 2000, from $65.1 million for the comparable period in 1999. The
decrease was primarily the result of (1) a lower number of employees in 2000
compared to 1999 relating to the Company's restructuring in the third quarter of
2000 (see "- Corporate Restructuring and Debt Modification"), and (2) due to a
lower amount of commissions paid on a lower amount of originations in 2000
compared to 1999. As of December 31, 2000, the Company employed 851 full- and
part-time employees, compared to 1,134 full- and part-time employees as of
December 31, 1999.

     INTEREST EXPENSE. Interest expense includes the borrowing costs to finance
loan originations and purchases, equipment financing and the Company's overall
operations under the Senior Notes and the Company's credit facilities.

     Interest expense increased by $3.8 million, or 14%, to $30.4 million for
the twelve months ended December 31, 2000 from $26.6 million for the comparable
period in 1999. The increase was primarily attributable to the accounting for
loans sold through a mortgage loan conduit prior to their securitization during
the twelve months ended December 31, 1999, in which the Company earned and
recorded the net interest margin between the interest rate earned on the pool of
mortgage loans sold to the mortgage loan conduit and the conduit financing rate,
less administrative expenses. Typically, interest expense related to the
Company's other warehouse financing and borrowings are recorded directly to
interest expense. The Company did not utilize its mortgage loan conduit during
the twelve months ended December 31, 2000. In addition, there was an increase in
the cost of funds on the Company's credit facilities, which were tied to
one-month LIBOR. The one-month LIBOR index increased to an average interest rate
of 6.4% in the twelve months ended December 31, 2000, compared to an average
interest rate of 5.2% for the comparable period in 1999.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of office rent, insurance, telephone, depreciation, goodwill
amortization, 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 $10.2 million, or 18%, to
$45.1 million for the twelve months ended December 31, 2000, from $55.3 million
for the comparable period in 1999. The decrease was primarily the result of the
$12 million settlement the Company expensed in the twelve months ended December
31, 1999, in connection with its settlement with the NYSBD, NYOAG and DOJ.

     RESTRUCTURING AND OTHER SPECIAL CHARGES. In the fourth quarter of 2000, the
Company recorded a $38.2 million write-down of its capitalized mortgage
servicing rights coupled with a $1.6 million write-down of other servicing
receivable assets. In the third quarter of 2000, the Company recorded $3.1
million of debt modification charges primarily related to legal fees, and senior
note holder's financial advisor fees associated with the Debt Modification and
proposed Exchange Offering. Also, in the third quarter of 2000, the Company
recorded $6.7 million of charges related to the restructuring of its operations.
These charges primarily relate to employee severance associated with the
layoffs, a reduction to goodwill and office equipment write-offs (see
"-Corporate Restructuring and Debt Modification").

     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.

     The Company recorded a tax benefit of $13.2 million for the period ended
December 31, 2000 and a tax provision of $3.1 million for the period ended
December 31, 1999. Income taxes provided a 21.1% effective tax rate for the year
ended December 31, 2000, compared to a 39.5% effective tax rate for the year
ended December 31, 1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

GENERAL

     The Company's net income for the year ended December 31, 1999 was $4.7
million, or $0.30 per share, compared to $11.3 million, or $0.74 per share, for
the year ended December 31, 1998. Excluding a one-time charge relating to the
Company's settlement with the NYSBD and the NYOAG, the Company's net income for
the year ended December 31,1999, would have been $12.0 million, or $0.77 per
share. Comments regarding the components of net income are detailed in the
following paragraphs.

REVENUES

     Total revenues increased $15.2 million, or 11%, to $154.8 million for the
twelve months ended December 31, 1999, from $139.6 million for the comparable
period in 1998. The increase in revenue was primarily attributable to fair value
adjustments the Company made to its interest-only and residual certificates and
capitalized mortgage servicing rights in the second quarter of 1998 (See "-Fair
Value Adjustments"), an increase in servicing fees and origination fees, and was
partially offset by a decrease in the net gain recognized on the sale of
mortgage loans.

     The Company originated and purchased $1.47 billion of mortgage loans for
the twelve months ended December 31, 1999, representing a 15% decrease from
$1.73 billion of mortgage loans originated and purchased for the comparable
period in 1998. The Company completed three securitizations and a loan sale
through a conduit facility in 1999 totaling $1.46 billion, compared to four
securitizations and loan sales totaling $1.73 billion in 1998. Total loans
serviced increased 23% to $3.63 billion at December 31, 1999 from $2.95 billion
at December 31, 1998.

     Net gain on sale of mortgage loans decreased $12.7 million, or 14%, to
$78.7 million for the twelve months ended December 31, 1999, from $91.4 million
for the comparable period in 1998. This decrease was primarily due to a 16%
decrease in the amount of loans securitized or sold through a conduit facility
to $1.46 billion in 1999, compared to $1.73 billion of loans securitized or sold
in 1998; a revision to the Company's loan loss reserve assumption in 1999 (See
"-Fair Value Adjustments"); coupled with wider spreads demanded by asset-backed
investors who purchase the pass-through certificates issued by securitization
trusts during 1999 compared to 1998. The decrease was partially offset by lower
aggregate premiums paid to acquire loans, resulting from both a decrease in
amount of loans purchased through the correspondent channel and lower average
premiums paid to correspondents. The weighted average net gain on sale ratio was
5.4% in 1999 compared to 5.3% in 1998.

     Interest income increased $18.5 million, or 148%, to $31.0 million for the
twelve months ended December 31, 1999, from $12.5 million for the comparable
period in 1998. The increase in interest income was primarily due to fair value
adjustments made in 1998 to the Company's interest-only and residual
certificates, including a $15.5 million reduction in the second quarter of 1998
related to the change in prepayment assumptions (see "-Fair Value Adjustments").
The increase was also attributable to an increase in income recognized from the
Company's interest-only and residual certificates primarily due to
slower-than-anticipated actual prepayment rates. (see "-Fair Value
Adjustments"). This was offset partially by the accounting for loans sold by the
Company to a mortgage loan conduit prior to securitization in the third and
fourth quarters of 1999. For conduit-related sales, the Company earns and
records the net interest margin between the interest rate earned on the pool of
mortgage loans sold to the mortgage loan conduit and the conduit financing rate,
less administrative expenses. Typically, interest expense related to the
Company's other warehouse financing and borrowings are recorded directly to
interest expense.

     Servicing fees increased $5.8 million, or 55%, to $16.3 million for the
twelve months ended December 31, 1999, from $10.5 million for the comparable
period in 1998. This increase was primarily due to an increase in the aggregate
size of the Company's servicing portfolio and the recording of a $1.9 million
impairment provision for the Company's mortgage servicing rights during the
second quarter of 1998 (See "-Fair Value Adjustments"). The average balance of
the mortgage loans serviced by the Company increased 38% to $3.36 billion for
the twelve months ended December 31, 1999 from $2.44 billion during the
comparable period in 1998.

     ORIGINATION FEES. Origination fees increased $3.5 million, or 14%, to $28.8
million for the twelve months ended December 31, 1999, from $25.3 million for
the comparable period in 1998. The increase was primarily the result of (a) a
36% increase in retail originated loans and (b) a 6% increase in broker
originated loans.

EXPENSES

     Total expenses increased by $26.0 million, or 21%, to $147.1 million for
the twelve months ended December 31, 1999, from $121.1 million for the
comparable period in 1998. The increase was primarily the result of an increase
in general and administrative expenses primarily related to the Company's
settlement with the NYSBD and the NYOAG, and legal fees associated with the
settlement, as well as personnel costs associated with the Company's expanded
retail, broker and servicing divisions, partially offset by a decrease in
interest expense.

     PAYROLL AND RELATED COSTS. Payroll and related costs increased by $8.4
million, or 15%, to $65.1 million for the twelve months ended December 31,1999,
from $56.7 million for the comparable period in 1998. The increase was primarily
due to staff increases related to growth in the Company's servicing portfolio
and commissions paid to employees related to an increase in loans originated
through the Company's broker and retail divisions. As of December 31, 1999, the
Company employed 1,134 full- and part-time employees, compared to 1,104 full-
and part-time employees as of December 31, 1998.

     Interest expense decreased by $3.4 million, or 11%, to $26.6 million for
the twelve months ended December 31, 1999 from $30.0 million for the comparable
period in 1998. The decrease was primarily attributable to the accounting for
loans sold through a mortgage loan conduit prior to their securitization in the
third and fourth quarters of 1999, in which the Company earns and records the
net interest margin between the interest rate earned on the pool of mortgage
loans sold to the mortgage loan conduit and the conduit financing rate, less
administrative expenses. Typically, interest expense related to the Company's
other warehouse financing and borrowings are recorded directly to interest
expense. In addition, there was a decrease in the cost of funds on the Company's
credit facilities, which were tied to one-month LIBOR. The one-month LIBOR index
decreased to an average interest rate of 5.2% in the twelve months ended
December 31, 1999, compared to an average interest rate of 5.6% for the
comparable period in 1998.

     General and administrative expenses increased $20.9 million, or 61%, to
$55.3 million for the twelve months ended December 31, 1999 from $34.4 million
for the comparable period in 1998. This increase was primarily attributable to
(1) the Company's settlement with the NYSBD and the NYOAG, and the associated
legal costs, and (2) an increase in depreciation expense and management and
consulting fees, reflecting the Company's ongoing investment in technology.

     The Company recorded tax provisions of $3.1 million and $7.2 million for
the periods ended December 31, 1999 and 1998, respectively. Income taxes
provided a 39.5% effective tax rate for the year ended December 31, 1999,
compared to a 38.8% effective tax rate for the year ended December 31, 1998.

FINANCIAL CONDITION

DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999

     Cash and interest-bearing deposits decreased $7.3 million, or 10%, to $62.3
million at December 31, 2000, from $69.6 million at December 31, 1999. The
decrease was primarily the result of lower prepayments which caused a decrease
in monies held in securitization trust accounts by the Company, acting as
servicer for its ongoing securitization program.

     Accounts receivable decreased $10.4 million, or 32%, to $22.0 million at
December 31, 2000, from $32.4 million at December 31, 1999. This decrease was
primarily due to the sale of some of the Company's reimbursable servicing
advance receivables, issued through a securitization in 2000. This was partially
offset by an increase in reimbursable servicing advances made by the Company,
acting as servicer on its securitizations.

     Loans held for sale, net, decreased $6.3 million, or 7%, to $82.7 million
at December 31, 2000, from $89.0 million at December 31, 1999. This decrease was
primarily due to the net difference between loan originations and loans sold or
securitized during 2000.

     Accrued interest receivable decreased $52.9 million, or 84%, to $10.4
million at December 31, 2000, from $63.3 million at December 31, 1999. This
decrease was primarily due to the sale of some of the Company's interest
receivables (monthly delinquency advances), issued through two securitizations
in the first two quarters of 2000. This was partially offset by an increase in
reimbursable interest advances made by the Company, acting as servicer on its
securitizations.

     Capitalized mortgage servicing rights decreased $45.9 million, or 100%, to
$0.0 million at December 31, 2000. This decrease was due to the complete write
off of the Company's mortgage servicing rights based upon the Company's
realization, in connection with the bidding process that led to its subservicing
agreement with Ocwen in January 2001, that it could not sell its existing
seasoned loan servicing portfolio for a premium. By transferring servicing and,
along with it, the responsibility for making delinquency and servicing advances,
however, the Company expects to save approximately $5.5 million of annual
capital charges, in addition to the significant cash outlays associated with
making such advances.

     Interest-only and residual certificates decreased $7.8 million, or 3%, to
$216.9 million at December 31, 2000, from $224.7 million at December 31, 1999.
This decrease is primarily attributable the Company's valuation adjustment
related to a reduction in the present value of the Company's residual
certificates in the fourth quarter of 2000 due to a discount rate increase (1)
to 13% from 12% (see "-Fair Value Adjustments") on all senior residuals (I.E.,
those not underlying the NIM Transaction) in the fourth quarter of 2000, and (2)
with respect to the six residuals underlying the NIM Transaction issued in the
fourth quarter 2000, to 18% from 12% in the third quarter of 2000. This was
partially offset by the Company's receipt of residual certificates valued and
recorded at $32.7 million from loans securitized during the twelve months ended
December 31, 2000.

     Equipment, net, decreased $6.7 million, or 31%, to $15.0 million at
December 31, 2000, from $21.7 million at December 31, 1999. This decrease is
primarily attributable to the Company's write-down of its assets related to the
previously announced restructuring of its operations.

     Prepaid and other assets increased $27.5 million, or 267%, to $37.8 million
at December 31, 2000, from $10.3 million at December 31, 1999. This increase was
primarily attributable to the Company's investment in new affiliate companies
(qualified special purpose entities) in connection with the three securitization
advance transactions issued in 2000. (See "-Liquidity and Capital Resources").
During 1999 the Company had goodwill of $4.8 million. The Company has written
down its entire goodwill balance at December 31, 2000. The goodwill, which was
entirely related to its purchase of Fidelity Mortgage Inc. in 1997, was
primarily attributable to (1) the then-current management team (the "Key
Employees"), and to a lesser extent (2) Fidelity Mortgage's near term prospects
for significant loan origination growth. Management has determined that the
write-down of goodwill is warranted as none of the Key Employees are currently
employed at Fidelity Mortgage and the current origination level at Fidelity
Mortgage is well below the expectations upon which the Company based its initial
purchase price.

     The Company has a deferred tax asset, net, of $5.6 million at December 31,
2000, which was primarily attributable to the net operating losses incurred by
the Company in 2000. The deferred tax asset was reduced by a valuation allowance
established in 2000. The Company did not have a deferred tax asset at December
31, 1999.

     Warehouse financing and other borrowings decreased $20.4 million, or 19%,
to $88.6 million at December 31, 2000, from $109.0 at December 31, 1999. This
decrease was primarily attributable to the repayment in full of the Company's
bank syndicate working capital line in June 2000.

     The aggregate principal balance of the Senior Notes, net of unamortized
bond discount, totaled $149.6 million at December 31, 2000 compared to $149.5
million at December 31, 1999. The Senior Notes accrued interest at a rate of
9.5% per annum, payable semi-annually on February 1 and August 1. (See
-"Corporate Restructuring and Debt Modification" and Note 2 of the Notes to
Consolidated Financial Statements).

     Accounts payable and accrued expenses decreased $10.2 million, or 23%, to
$33.4 million at December 31, 2000 from $43.6 million at December 31, 1999. The
decrease was primarily the result of the timing of various operating accruals
and payables.

     Investor payable decreased $12.7 million, or 15%, to $69.5 million at
December 31, 2000, from $82.2 million at December 31, 1999. The decrease was
primarily the result of lower prepayments, which caused a decrease in the amount
payable to investors. Investor payable is comprised of all principal collected
on mortgage loans and accrued interest. Variability in this account is primarily
due to the principal payments collected within a given collection period.

     The Company does not have a deferred tax liability at December 31, 2000, as
the Company's net operating loss in 2000 offset its deferred tax liability,
creating a deferred tax asset. The Company had a deferred tax liability of $10.4
million at December 31, 1999.

     Stockholders' equity decreased $49.4 million, or 34%, to $97.7 million at
December 31, 2000 from $147.1 million at December 31, 1999. This decrease is due
to net loss for the twelve-month period of $49.4 million.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has primarily operated on a negative cash flow basis in the
past and anticipates that it will continue to have a negative operating cash
flow for the foreseeable future due primarily to

          o    the costs of maintaining its servicing operations until servicing
               is transferred to Ocwen,

          o    the costs of its loan originations operations, which currently
               exceed the cash proceeds generated from (a) up front origination
               fees earned on closed loans and (b) the Company's selling loans
               through securitization or on a whole loan basis, and

          o    lower projected aggregate cash inflows from the Company's
               retained interest-only and residual certificates.

     Cash inflows from the retained interest-only and residual certificates are
projected to be lower because

          o    the Company sold its right to receive a portion of the cash flows
               from several residual certificates in connection with its NIM
               Transaction, completed in the fourth quarter of 2000, for which
               it received an up-front cash purchase price,

          o    the Company pledged its right to receive a portion of the cash
               flows from several other residual certificates in connection with
               residual financing that the Company received in the first quarter
               of 2001, for which it also received up front cash proceeds,

          o    expected timing differences between the Company's retained
               interests in (A) older securitization trusts generating less cash
               flows per month per deal as the related mortgage pool pays down
               and (B) newer securitization trusts not yet cash flowing until
               initial reserve requirements are satisfied, and

          o    the Company agreed to transfer the vast majority of its retained
               interest-only and residual certificates (currently securing the
               Senior Secured Notes) into a Liquidating Trust for the benefit of
               the Senior Secured Noteholders, in accordance with the exchange
               offer contemplated by the Second Debt Restructuring, in which the
               cash flows from such interest-only and residual certificates will
               be paid over to the Liquidating Trust commencing in July 2001.
               (See "-Debt and Restructuring Modification").

     The Company believes that its negative cash flow may be somewhat offset in
future quarters by

          o    the Company's continued concentration on its less cash-intensive
               broker and retail originations,

          o    the transfer of servicing to Ocwen, which removes the Company's
               monthly delinquency and servicing advance obligations,

          o    the proposed extinguishment of the Company's high yield debt if
               the Second Exchange Offer is successful and approximately $14
               million of annual coupon interest payments upon consummation of
               the Second Exchange Offer,

          o    its recent history of utilizing securitization structures that
               have allowed the Company to sell senior interest-only
               certificates and/or mortgage servicing rights for an up front
               cash purchase price, and

          o    the continued strategy of selling whole loans for an up-front
               cash purchase price.

However, market conditions and various other factors identified below under
"Risk Factors" could impact the Company's cash flows potentially resulting in a
more significant negative cash flow.

     For the twelve months ended December 31, 2000, the Company had a cash
deficit of $7.3 million compared to positive cash flow of $10.4 million for the
comparable period in 1999. The decrease in cash flow was primarily attributable
to (1) the monthly delinquency and servicing advances the Company is required to
make as servicer for various securitization trusts, (2) a decrease in cash flows
from the Company's retained interest-only and residual certificates, and (3) a
reduction in cash received on the sale of interest-only certificates at the time
of securitization. These interest and servicing advances are reimbursable to the
Company as the borrowers repay their loan obligations over time. As such, the
exact timing of these reimbursements cannot be predicted with certainty.

     In 2000, the Company completed three securitizations of interest
(delinquency) and servicing advances (the "Advance Securitizations"), in which
the Company sold its rights to reimbursement of its outstanding delinquency and
servicing advances on specific REMIC securitizations for a cash purchase price.
The Company used the cash proceeds from the Advance Securitizations to (1) repay
a $25 million working capital sub-line of its bank syndicate warehouse facility
that expired in June 2000, which was secured by the Company's monthly
delinquency and servicing advances prior to the Advance Securitizations, and (2)
finance operations, including the funding of new delinquency and servicing
advances. Delta's subservicing agreement with Ocwen provides for Ocwen to
purchase the delinquency and servicing advances that Delta has made in its
capacity as servicer. In that regard, in March 2001, the Company sold its right
to reimbursement for certain servicing advances to Ocwen, and used the proceeds
of which to simultaneously repurchase the corresponding Advance Securitization.
The Company expects to sell its remaining delinquency and servicing advance
receivables to Ocwen, in accordance with the subservicing agreement, in
connection with which the remaining two Advance Securitizations will be
terminated.

     In August 2000, the Company announced a corporate restructuring and
modification of its Senior Notes (see "-Corporate Restructuring and Debt
Modification") to improve operating efficiencies and to address its negative
cash flow. The corporate restructuring was aimed at reducing overhead and
operating expenses. The debt modification enabled the company to monetize a
portion of its Residual Assets.

     As part of its Debt Modification in August 2000, a negative pledge covenant
in the Senior Notes Indenture that prevented the Company from encumbering or
otherwise obtaining financing against any of its Residual Assets was modified.
This modification enabled the Company to monetize a portion of its Residual
Assets, first by obtaining approximately $17 million in residual financing in
August 2000, secured by certain of the Company's residual certificates. Shortly
thereafter, in November 2000, the Company sold a portion of its retained
interest-only and residual certificates through a private placement NIM
securitization. In the NIM Transaction, the Company sold six of its residual
certificates to an owner trust that issued senior certificates to institutional
investors for a cash purchase price, and a subordinated certificate retained by
the Company (the "NIM Residual"). The net proceeds of the NIM Transaction, after
expenses was used entirely to repay the $17 million of residual financing the
Company 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 to the Senior
Secured Noteholders in February 2001.

     As part of its Second Debt Restructuring, the Company obtained
approximately $2.5 million of residual financing secured by certain of its
residual certificates at the time of the signing of the Letter of Intent in
February 2001. The Company received an additional approximately $7.1 million of
residual financing secured by certain additional residual certificates following
the consummation of the Consent Solicitation and the execution of the Third
Supplemental Indenture in March 2001. Also in March 2001, the Company entered
into a sale agreement to sell five of its residual certificates for a $15
million cash purchase price. As customary with sales of similar assets, the cash
settlement does not occur until the pools of mortgages underlying such residual
certificates are transferred to an agreed upon servicer to service the pool of
mortgage loans for the purchaser of such residuals. The purchasers of these five
residuals provided bridge financing, in the form of the residual financing
described above, which currently represents approximately 64% of the cash
purchase price. The Company will use the proceeds from this residual financing
and subsequent sale for working capital. These residual certificates are being
sold at a significant discount to the Company's book value for such certificates
and, as such, the Company expects to record an approximately $27 million pre-tax
non-cash charge in the first quarter of 2001.

     The Company's current primary cash requirements will be the funding of

          o    loan originations pending their pooling and sale,
          o    ongoing administrative and other operating expenses, and
          o    its servicing operation until servicing is transferred to Ocwen.

     The Company must be able to sell its loans and obtain adequate credit
facilities and other sources of funding in order to continue to originate and
service loans. Historically, the Company has utilized various financing
facilities and an equity financing to offset negative operating cash flows and
support its loan originations, securitizations and general operating expenses.
In July 1997, the Company completed an offering of the Senior Notes. A portion
of the Senior Notes proceeds were used to pay down various financing facilities
with the remainder used to fund the Company's loan originations and its ongoing
securitization program. The Company's primary sources of liquidity continue to
be warehouse, residual and other financing facilities, securitizations of
mortgage loans and Residual Assets and, subject to market conditions, sales of
whole loans, mortgage servicing rights, Residual Assets, and debt and equity
securities.

     To accumulate loans for securitization, the Company borrows money on a
short-term basis through warehouse lines of credit. The Company has relied upon
a few lenders to provide the primary credit facilities for its loan originations
and purchases. The Company had one warehouse facility as of December 31, 2000
for this purpose. The warehouse facility is a $200 million credit facility that
has a variable rate of interest and expires in May 2001. There can be no
assurance that the Company will be able to renew this warehouse facility at its
maturity at terms satisfactory to the Company or at all. The Company is
currently in the process of seeking additional warehouse lines of credit, but
there can be no assurances that the Company will be successful in its attempt to
secure an additional warehouse line of credit.

     The Company is required to comply with various operating and financial
covenants as provided in the agreements described above which are customary for
agreements of their type. The continued availability of funds provided to the
Company under these agreements is subject to, among other conditions, the
Company's continued compliance with these covenants.

INTEREST RATE RISK

     The Company's primary market risk exposure is interest rate risk.
Profitability may be directly affected by the level of, and fluctuation in,
interest rates, which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its borrowings, which are tied
to various United States Treasury maturities, commercial paper rates and the
London Inter-Bank Offered Rate ("LIBOR"). The profitability of the Company 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
affect adversely the Company's ability to purchase and originate loans. A
significant decline in interest rates could increase the level of loan
prepayments thereby decreasing the size of the Company's loan servicing
portfolio. To the extent servicing rights and interest-only and residual classes
of certificates have been capitalized on the books of the Company, higher than
anticipated rates of loan prepayments or losses could require the Company to
write down the value of such servicing rights and interest-only and residual
certificates, adversely impacting the Company's earnings. As previously
discussed, the fair value adjustments that the Company recorded in the second
quarter of 1998 were primarily attributable to the Company's change in
prepayment assumptions to reflect higher than originally anticipated rates of
prepayments (see "--Fair Value Adjustments"). In an effort to mitigate the
effect of interest rate risk, the Company periodically reviews its various
mortgage products and identifies and modifies those that have proven
historically more susceptible to prepayments. However, there can be no assurance
that such modifications to its 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
the Company 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 residual assets received by the Company in connection
with a securitization.

     Fluctuating interest rates also may affect the net interest income earned
by the Company resulting from the difference between the yield to the Company on
loans held pending sales and the interest paid by the Company for funds borrowed
under the Company's warehouse facilities, although the Company undertakes to
hedge its exposure to this risk by using treasury rate lock contracts and/or
FNMA mortgage securities. (See "--Hedging"). Fluctuating interest rates also may
affect net interest income as certain of the Company's 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 "--Fair Value Adjustments").

HEDGING

     The Company originates and purchases mortgage loans and then sells them
through a combination of whole loan sales and securitizations. Between the time
the Company originates the mortgage and sells the mortgage loan in the secondary
market, the Company may hedge the risk of fluctuations in interest. The risk to
the Company begins after the Company originates or purchases mortgage loans and
prior to selling or securitizing such mortgage loans. Since the Company has
closed and funded a mortgage loan at a specified interest rate and recorded an
expected gain at the time of sale of that mortgage loan, the Company is exposed
to a higher interest rate environment due to market conditions. A higher
interest rate market implies a higher cost of funds to the Company which
decreases the net spread the Company would earn between the mortgage interest
rate on each mortgage loan less the cost of funds. As a result the Company may
experience a lower gain on sale.

     The Company's cost of funds generally has two components, the Treasury rate
with a similar duration and average life and the spread to Treasuries or profit
margin required by the investors. Delta previously had used a "Treasury Rate
Lock" to hedge its cost of funds exposure. However, in the third quarter of 1998
and again in the second quarter of 1999, asset-backed investors demanded
substantially wider spreads over treasuries than historically experienced for
newly issued asset-backed securities, which resulted in a hedge loss to Delta
that was not offset by a higher gain on sale. In response, beginning in the
fourth quarter 2000, management implemented a new hedging strategy that involves
selling 15-year FNMA mortgage securities ("FNMA Securities"), in lieu of
treasury rate lock contracts. Delta believes FNMA Securities are more similarly
correlated to its mortgage loans because both are considered "spread product" -
the FNMA Securities incorporate both an underlying treasury rate with similar
duration to the Company's mortgage loans plus a general spread meant to take
into account additional risks such as early repayment or extension risk, etc. -
that management believes make them more likely to respond similarly to a change
in interest rates than AAA United States Treasury securities ("U.S.
Treasuries"), which do not have a "spread" component. While neither of the above
are perfect hedges, FNMA securities have demonstrated a closer correlation to
the Company's cost of funds over the past few years, especially during periods
of high interest rate volatility and market uncertainty. The nature and quantity
of hedging transactions are determined by the Company based upon various factors
including, without limitation, market conditions and the expected volume of
mortgage originations and purchases. The Company will enter into these hedging
strategies through one of its warehouse lenders and/or one of the investment
bankers, which underwrite the Company's securitizations. These strategies are
designated as hedges in the Company's books and records and are closed out when
the associated loans are sold.

     If the value of the hedges decrease, offsetting an increase in the value of
the loans, the Company, upon settlement with its hedge counterparty, will pay
the hedge loss in cash and then realize the corresponding increase in the value
of the loans as part of its net gain on sale of mortgage loans through either
its corresponding interest-only and residual certificates or whole loan
premiums. Conversely, if the value of the hedges increase, offsetting a decrease
in the value of the loans, the Company, upon settlement with its hedge
counterparty, 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 interest-only and residual certificates or whole loan
premiums.

     The Company will continue to review its hedging strategy in order to best
mitigate risk pending securitization or loan sales.

     For the twelve months ended December 31, 2000 and 1999, the Company
recorded a hedge loss of $2.1 million and a hedge gain of $3.3 million
respectively, which largely offset a change in the value of mortgage loans being
hedged, as part of its gain on sale of loans.

INFLATION

     Inflation affects the Company most significantly in the area of loan
originations and can have a substantial effect 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 1 and Note 8 of Notes to the Consolidated Financial Statements.

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 the Company's operations and business
environment, and are subject to change on various important factors. The Company
wishes 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 the Company's
actual results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. The following include some,
but not all, of the factors or uncertainties that could cause actual results to
differ from projections:

     o    The Company's ability or inability to consummate all facets of the
          Second Debt Restructuring, including without limitation, the Second
          Exchange Offer.

     o    The Company's 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 Company's ability or inability to continue its practice of
          securitization of mortgage loans held for sale, as well as its ability
          to utilize optimal securitization structures at favorable terms to the
          Company.

     o    The Company's ability or inability to continue monetizing its Residual
          Assets, including without limitation, selling, financing or
          securitizing (through NIM transactions) such assets.

     o    Costs associated with litigation, compliance with the NYSBD
          Remediation Agreement and NYOAG Stipulated Order on Consent, and rapid
          or unforeseen escalation of the cost of regulatory compliance,
          generally including but not limited to, adoption of new, or changes in
          state or federal 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,
          environmental compliance, and compliance with the Remediation
          Agreement and Stipulated Order on Consent can lead to loss of approved
          status, certain rights of rescission for mortgage loans, class action
          lawsuits and administrative enforcement action against the Company.

     o    The Company's ability or inability to complete the all facets of the
          transfer of servicing to Ocwen within the necessary time frames and as
          cost efficient as possible.

     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 the Company's 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 the Company's ability to
          securitize or sell loans in the secondary market.

     o    The effects of interest rate fluctuations and the Company's 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 the Company's 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. The Company is 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 the Company's structure; as well as the impact of unusual
          expenses from ongoing evaluations of business strategies, asset
          valuations, acquisitions, divestitures and organizational structures.

<PAGE>

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

     The Company originates and purchases mortgage loans and then sells the
mortgage loans through a combination of whole loan sales and securitizations. As
a result, the primary market risk to which the Company is subject to interest
rate risk. In turn, interest rates are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international
economic and political considerations, and other factors beyond the Company's
control. Changes in the general interest rate levels between the time the
Company originates or purchases mortgage loans and the time the Company sells
such mortgage loans in securitization transactions can affect the value of the
Company's mortgage loans held for sale and, consequently, the Company's 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 the Company originates or purchases the
loans and the time the Company sells 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 the Company. Since the Company closes and funds
mortgage loans at a specified interest rate with an expected gain on sale to be
booked at the time of their sale, the Company's 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 a
higher cost of funds for the Company. This decreases both the fair value of the
mortgage loans, and the net spread the Company earns between the mortgage
interest rate on each mortgage loan and the Company's 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 the Company may experience a
lower gain on sale.

     Many factors can affect the average life and duration of the excess
cashflow including, without limitation, the structure and credit enhancement
used in a particular securitization, the Company's prepayment, loss and discount
rate assumptions, and the spread over treasuries demanded by asset-backed
investors who purchase the Company's asset-backed securities. However, based on
gain on sale assumptions the Company uses to determine fair value, the duration
of the excess cashflow is 2.65 years. The following table illustrates the impact
on the Company's 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 (0.1%) and the duration of 2.65 years equals a 26.5
basis point or 0.265% change in the net gain on sale as shown below.

<TABLE>
<CAPTION>
                       10 BASIS POINT DECREASE              10 BASIS POINT INCREASE
     DESCRIPTION          IN INTEREST RATES        BASE        IN INTEREST RATES
---------------------- ----------------------- ------------ -----------------------
<S>                         <C>                <C>               <C>
Securitization Amount       $100,000,000       $100,000,000      $100,000,000

  Net Gain on Sale %           5.265%              5.00%            4.745%

       Net Gain              $5,265,000         $5,000,000        $4,745,000
</TABLE>

     At December 31, 2000, the sensitivity of the estimated fair value of our
retained interests caused by an immediate 10% and 20%, respectively, adverse
change in the key assumptions we use to estimate fair value are shown below:

                                          Fair value of            Impact to
      (Dollars in thousands)             residual assets           earnings
--------------------------------         ---------------          -----------

Fair value as of 12/31/00:                  $ 216,907             $      --
10% increase in prepayment speed              194,319                22,588
20% increase in prepayment speed              176,239                40,668

10% increase in credit losses                 204,350                12,557
20% increase in credit losses                 192,635                24,272

10% increase in discount rates                195,402                21,505
20% increase in discount rates                190,847                26,060

     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.

     To reduce its financial exposure to changes in interest rates, the Company
generally hedges its mortgage loans held for sale. (See "-Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Hedging"). Management determines, at its discretion, whether to hedge the fair
value of its mortgage loans held in inventory pending sale. Historically, the
Company's objective has been to hedge against changes in the fair value of its
mortgage loans during periods of uncertainty or volatility. Prior to the fourth
quarter of 2000, Delta had used "Treasury Rate Locks" to hedge the fair value
and cost of funds exposure. However, in the third quarter of 1998 and again in
the second quarter of 1999, asset-backed investors demanded substantially wider
spreads over treasuries for the asset-backed securities issued in our
securitization transactions. These rates were significantly higher than historic
rates for newly issued asset-backed securities. This difference resulted in a
hedge loss to the Company that was not offset by a higher gain on sale.
Beginning in the fourth quarter of 2000, management decided that a more
appropriate hedging strategy would be to short sell 15-year FNMA mortgage
securities ("FNMA Securities"), instead of using treasury rate lock contracts.
This change in hedging strategy was based on our belief that changes in the fair
value of FNMA Securities would be more closely correlated to changes in the fair
value of our mortgage loans because both are considered "spread product." The
FNMA Securities incorporate both an underlying treasury rate with similar
duration to the Company's mortgage loans and a general spread meant to take into
account additional risks such as early repayment or extension risk. Management
believes that these factors make the FNMA Securities more likely to react to a
change in interest rates in the same fashion that our mortgage loans than would
AAA-rated United States Treasury securities ("U.S. Treasuries"), which do not
have a "spread" component. Neither the FNMA Securities nor the U.S. Treasuries
are perfect hedging vehicles; however, FNMA securities have demonstrated a
closer correlation to the Company's fair value exposure, and cost of funds over
the past few years, especially during periods of high interest rate volatility
and market uncertainty.

     The Company makes decisions concerning the nature of its hedging
transactions based upon various factors including, without limitation, market
conditions and the expected volume of mortgage originations and purchases. The
Company may enter into these hedging strategies through one of its warehouse
lenders and/or an investment bank that underwrites the Company's
securitizations. The Company will review continually the frequency and
effectiveness of its hedging strategy to mitigate risk pending a securitization
or loan sale.

     If a hedging transaction is deemed to be appropriate, and can be properly
documented and mathematically shown to meet the appropriate effectiveness
criteria, the Company will account for these hedges as Fair Value hedges in
accordance with SFAS No. 133, as amended. Under SFAS No. 133 changes in the fair
value of both the derivative and hedged mortgage loans will be recorded through
earnings-offsetting each other for the effectiveness of the hedge, with the
ineffective portion of the fair value changes recorded in earnings with no
corresponding offset. The Company adopted SFAS No. 133 as of January 1, 2001,
and understands the transition date for SFAS No. 133 to be December 31, 2000.

     For the twelve months ended December 31, 2000 and 1999, the Company
recorded a hedge loss of $2.1 million and a hedge gain of $3.3 million
respectively, which largely offset a change in the value of mortgage loans being
hedged, as part of its gain on sale of loans (prior to the adoption of SFAS No.
133). As of December 31, 2000, the Company had no derivative instruments or
hedging relationships of any kind outstanding.

     Changes in interest rates also could adversely affect the Company's ability
to purchase and originate loans and/or could affect the level of loan
prepayments thereby impacting the size of the Company's loan servicing portfolio
and the value of the Company's interest only and residual certificates and
capitalized mortgage servicing rights. (See "-Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Interest Rate
Risk").

<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, 2000 and 1999, 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, 2000.
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, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.


/s/  KPMG LLP


Melville, New York
March 29, 2001

<PAGE>

<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999

(DOLLARS IN THOUSANDS)                                            2000       1999
-----------------------------------------------------------------------------------
<S>                                                           <C>         <C>
ASSETS
Cash and interest-bearing deposits..........................  $  62,270      69,557
Accounts receivable.........................................     21,954      32,367
Loans held for sale, net....................................     82,698      89,036
Accrued interest receivable.................................     10,388      63,309
Capitalized mortgage servicing rights.......................          -      45,927
Interest-only and residual certificates.....................    216,907     224,659
Equipment, net..............................................     15,034      21,721
Prepaid and other assets....................................     37,846      10,259
Deferred tax asset, net.....................................      5,600           -
-----------------------------------------------------------------------------------
     Total assets...........................................  $ 452,697     556,835
-----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank payable................................................  $     927       1,195
Warehouse financing and other borrowings....................     88,632     109,019
Senior Notes................................................    149,571     149,474
Accounts payable and accrued expenses.......................     33,414      43,607
Investor payable............................................     69,489      82,204
Advance payment by borrowers for taxes and insurance........     12,940      13,784
Deferred tax liability......................................          -      10,411
-----------------------------------------------------------------------------------
     Total liabilities......................................  $ 354,973     409,694
-----------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Capital stock, $.01 par value. Authorized 49,000,000
   shares; 16,000,549 shares issued and 15,883,749 shares
   outstanding at December 31, 2000 and December 31, 1999...        160         160
Additional paid-in capital..................................     99,472      99,472
Retained earnings (deficit).................................       (590)     48,827
Treasury stock, at cost (116,800 shares)....................     (1,318)     (1,318)
-----------------------------------------------------------------------------------
     Total stockholders' equity.............................     97,724     147,141
-----------------------------------------------------------------------------------
     Total liabilities and stockholders' equity.............  $ 452,697     556,835
-----------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 2000, 1999 and 1998

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)                     2000          1999          1998
--------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>          <C>
REVENUES:
   Net gain on sale of mortgage loans.....................     $  47,550       78,663       91,380
   Interest...............................................        32,287       31,041       12,458
   Servicing fees.........................................        14,190       16,341       10,464
   Origination fees and other income......................        24,944       28,774       25,273
--------------------------------------------------------------------------------------------------
     Total revenues.......................................       118,971      154,819      139,575
--------------------------------------------------------------------------------------------------
EXPENSES:
   Payroll and related costs..............................        56,525       65,116       56,709
   Interest expense.......................................        30,386       26,656       30,019
   General and administrative.............................        45,066       55,318       34,351
   Restructuring and other special charges................        49,619            -            -
--------------------------------------------------------------------------------------------------
     Total expenses.......................................       181,596      147,090      121,079
--------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit).........       (62,625)       7,729       18,496
Provisions for income tax expense (benefit)...............       (13,208)       3,053        7,168
--------------------------------------------------------------------------------------------------
     Net income (loss)....................................     $ (49,417)       4,676       11,328


PER SHARE DATA:
   Earnings (loss) per common share - basic and diluted        $   (3.10)       (0.30)        0.74
   Weighted average number of shares outstanding..........    15,920,869   15,511,214   15,382,161
--------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year ended December 31, 2000, 1999 and 1998

(DOLLARS IN THOUSANDS)                                           ADDITIONAL
                                                       CAPITAL     PAID-IN     RETAINED    TREASURY
                                                        STOCK      CAPITAL     EARNINGS      STOCK      TOTAL
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>      <C>         <C>         <C>         <C>
Balance at December 31, 1997....................        $ 154      93,476       32,823         --      126,453
Issuance of common stock related to Fidelity
   Mortgage.....................................            1       1,199           --         --        1,200
Purchase of Treasury Stock (116,800 shares)--              --          --       (1,318)    (1,318)
Proceeds from exercise of stock options.........           --          25           --         --           25
Net income......................................           --          --       11,328         --       11,328
---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998....................          155      94,700       44,151     (1,318)     137,688
Issuance of common stock related to Legal Settlement        5       4,772           --         --        4,777
Net income......................................           --          --        4,676         --        4,676
---------------------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 2000, 1999 and 1998


(DOLLARS IN THOUSANDS)                                                     2000       1999         1998
---------------------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>          <C>
Cash flows from operating activities:
   Net income (loss)................................................   $ (49,417)     4,676       11,328
   Adjustments to reconcile net income (loss) to net cash used in
     Operating activities:
     Provision for loan and recourse losses.........................         670        100          750
     Depreciation and amortization..................................      12,912      5,841        4,386
     Issuance of common stock related to legal settlement...........          --      4,777          ---
     Deferred tax benefit...........................................     (16,011)    (8,437)      (6,064)
     Capitalized mortgage servicing rights, net of amortization.....      45,927    (12,437)     (10,628)
     Deferred origination costs.....................................         174        114        1,840
     Interest-only and residual certificates received in
       securitization transactions, net.............................       7,752    (20,856)     (35,994)
Changes in operating assets and liabilities:
   Decrease (increase) in accounts receivable, net..................      10,413     (9,818)       5,755
   Decrease (increase) in loans held for sale, net..................       6,159     (2,010)      (9,793)
   Decrease (increase) in accrued interest receivable...............      52,921    (16,412)     (17,299)
---------------------------------------------------------------------------------------------------------
   (Increase) decrease in prepaid and other assets..................     (33,071)       411          385
   (Decrease) increase in accounts payable and accrued expenses.....     (10,205)    22,571        7,648
   (Decrease) increase in investor payable..........................     (12,715)    18,414       22,938
   (Decrease) increase in advance payment by borrowers for
     taxes and insurance............................................        (844)     4,225        3,809
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities.................      14,665     (8,841)     (20,939)
---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:                                     (1,297)    (9,330)      (8,982)
   Purchase of equipment............................................
---------------------------------------------------------------------------------------------------------
Net cash used in investing activities...............................      (1,297)    (9,330)      (8,982)
---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
   (Repayment of) proceeds from warehouse financing and other
     borrowings, net................................................     (20,387)    28,746       52,040
     Decrease in bank payable, net..................................        (268)      (201)        (826)
   Proceeds from exercise of stock options..........................          --         --           25
   Purchase of treasury stock.......................................          --         --       (1,318)
---------------------------------------------------------------------------------------------------------
   Net cash (used in) provided by financing activities..............     (20,655)    28,545       49,921
---------------------------------------------------------------------------------------------------------
   Net (decrease) increase in cash and interest-bearing deposits          (7,287)    10,374       20,000
---------------------------------------------------------------------------------------------------------
Cash and interest-bearing deposits at beginning of year.............      69,557     59,183       39,183
---------------------------------------------------------------------------------------------------------
Cash and interest-bearing deposits at end of year...................   $  62,270     69,557       59,183
Supplemental Information:                                                (20,387)    28,746       52,040
Cash paid during the year for:
   Interest.........................................................    $ 29,974     24,085       29,576
   Income taxes.....................................................       2,010     11,489        7,241
---------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                  DELTA FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999, AND 1998

(1)  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A)  ORGANIZATION

     Delta Financial Corporation (the "Company" or "Delta") is a Delaware
corporation, which was organized in August 1996. On October 31, 1996, the
Company acquired all of the outstanding common stock of Delta Funding
Corporation ("Delta Funding"), a New York corporation that 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, the Company
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 the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

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

(C)  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management of the Company 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 financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

(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
market 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 market value is less than cost.

(F)  SECURITIZATION AND SALE OF MORTGAGE LOANS

     The Company sells loans to a loan securitization trust and receives the
excess value of the loans' economic interests in exchange for (i) the difference
between the interest payments due on the loans sold to the trust and the
interest payments due, at the pass-through rates, to the holders of the
pass-through certificates, less the Company's contractual servicing fee and
other costs and expenses of administering the trust, represented by
interest-only and residual certificates, and (ii) the right to service the loans
on behalf of the trust and earn a contractual servicing fee, as well as other
ancillary servicing related fees directly from the borrowers on the underlying
loans.

     Upon the securitization of a pool of loans, the Company recognizes as
origination fees any then unamortized origination fees which had initially been
recorded as adjustments to the Company's investment in the loans, and
additionally allocates portions of the remaining investment in the loans sold to
each of (i) the servicing rights retained by the Company and (ii) the
interest-only and residual certificates received from the trust. The retained
servicing rights and interest-only and residual certificates are initially
recorded based upon their fair value, which is estimated based on the stated
terms of the transferred loans adjusted for estimates of future prepayments or
defaults among those loans. The Company recognizes a gain equal to the
difference between the investment in the loans remaining after this allocation
and the cash payment received from the trust.

(G)  CAPITALIZED MORTGAGE SERVICING RIGHTS

     The Company recognizes as separate assets the rights to service mortgage
loans for others, however those servicing rights are acquired. The Company
assesses the capitalized mortgage servicing rights for impairment. Mortgage
servicing rights are amortized in proportion to and over the period of the
estimated net servicing income.

(H)  INTEREST-ONLY AND RESIDUAL CERTIFICATES

     The interest-only and residual certificates, received by the Company upon
the securitization of a pool of loans to the securitization trust, are accounted
for as trading securities. The amount initially allocated to the interest-only
and residual certificates at the date of a securitization reflects the fair
value of those interests. The amount recorded for the certificates is reduced
for distributions thereon which the Company receives from the related trust, and
is adjusted for the subsequent changes in the fair value of these certificates
which are reflected on the statement of income. The fair value of interest-only
and residual certificates is determined using the same prepayment and default
estimates utilized in valuing servicing rights, together with the consideration
of the geographic location and value of loan collateral, the value of which
would affect the credit loss sustained by a trust upon the default of a loan.
The Company has consistently applied the more conservative cash-out method in
valuing the future cash flows of residual certificates.

(I)  FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires the Company 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 interest-only and
residual certificates which are reported at fair value, and capitalized mortgage
servicing rights, substantially all the Company's assets and liabilities deemed
to be financial instruments are carried at cost, which approximates their fair
value. The fair value of capitalized mortgage servicing rights represents the
Company's estimate of the expected future net servicing revenue based on common
industry assumptions, as well as on the Company's historical experience.

(J)  GOODWILL

     Goodwill, which represents the excess of the purchase price over the fair
value of the net assets acquired, is being amortized on a straight-line basis
over seven years. The Company evaluates goodwill periodically for impairment in
response to changes in circumstances or events.

(K)  REAL ESTATE OWNED

     Properties acquired through foreclosure or deeds in lieu of foreclosure are
recorded at the lower of the unpaid loan balance, or fair value, at the date of
acquisition. The carrying value of the individual properties is subsequently
adjusted to the extent it exceeds estimated fair value less costs to sell, at
which time a provision for losses on such real estate is charged to operations.

(L)  EQUIPMENT, NET

     Equipment, including leasehold improvements, is stated at cost, less
accumulated depreciation and amortization. Depreciation of equipment is computed
using the straight-line or accelerated 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.

(M)  SERVICING FEES

     Servicing fees includes servicing income and prepayment penalties for
servicing mortgage loans owned by investors. All fees and charges are recognized
into income when earned.

(N)  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.

(O)  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.

(P)  STOCK OPTION PLAN

     In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation,"
the company continues to apply the provisions of the Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants as if the fair-value based method defined in SFAS No. 123
had been applied.

(Q)  SEGMENT REPORTING

     The Company operates as one reporting segment, as such, the segment
disclosure requirements, are not applicable to the Company.

(R)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140, which replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," provides accounting and
reporting standards for securitizations and other transfers of assets. The
Standard is based on the application of a financial components approach that
focuses on control, and provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The Standard requires disclosure of information about securitized
assets, including principal outstanding of securitized and other managed assets,
accounting policies, key assumptions related to the determination of the fair
value of retained interests, delinquencies and credit losses. The accounting
requirements of the Standard are effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001, and must be applied prospectively. The disclosures related to
securitization transactions are required for fiscal years ending after December
15, 2000, and comparative disclosures for prior periods are not required. The
Company has provided the required disclosures as of December 31, 2000 in Note 7
of the "Notes to Consolidated Financial Statements" and does not expect the
impact of the accounting requirements of the Standard to be material to its
financial position or results of operations in future periods.

(2)  SUMMARY OF REGULATORY SETTLEMENTS

     In September 1999, the Company settled allegations by the New York State
Banking Department ("NYSBD") and a lawsuit by the New York State Office of the
Attorney General ("NYOAG") alleging that Delta had violated various state and
federal lending laws. The global settlement was evidenced by that certain (a)
Remediation Agreement by and between Delta Funding and the NYSBD, dated as of
September 17, 1999 and (b) 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, Delta, among other things, implemented agreed upon changes to
its lending practices; is providing reduced loan payments aggregating $7.25
million to certain borrowers identified by the NYSBD; and created a fund
financed by the grant of 525,000 shares of Delta Financial's common stock, with
an agreed upon fixed value of $9.10 per share, which approximates the stock's
book value. Each month, on behalf of the borrowers, the Company is making
subsidy payments to fund the differential between the reduced loan payments to
the related securitization trusts. As a result of our payments, each month the
amount of our current liability will decrease from the original $7.25 million.
The proceeds of the funds will be used to pay borrowers and to finance a variety
of consumer educational and counseling programs. The Company does not manage the
Trust. The number of shares of common stock do not adjust to account for any
fluctuation in the market price of the stock. Changes to the Company's common
stock market price do not have any impact on the Company's financial statements.
The Company did not make any additional financial commitments between the
settlement date and March 2000.

     In March 2000, the Company 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 it had reached with the NYSBD and
NYOAG. The Federal agreement mandates some additional compliance efforts for
Delta, but it does not require any additional financial commitment by Delta.

(3)  RESTRUCTURING CHARGE

     In August 2000, Delta announced a corporate restructuring in its continuing
efforts to improve operating efficiencies and to address its negative cash flow
from operations. During the third quarter of 2000, the Company recorded a $6.7
million pre-tax charge related to this restructuring, which is included in
restructuring and other special charges in the consolidated statements of
operations. This charge primarily relates to employee severance associated with
layoffs, a reduction to goodwill and office equipment write-offs.

     The following table shows the employee groups and the number of employees
terminated under this exit plan:

     Group Name                                 No. of Employees
     -----------------------------------------------------------
     Origination                                       81
     Retail Administration                             11
     Technology                                         9
     Office Management                                  8
     Servicing                                          6
     Financial                                          6
     Risk Management                                    4
     ===========================================================
     Total                                             125

     The following table sets forth the components of the Company's
restructuring charge (in thousands):

     Write down of fixed assets                     $2,394
     Goodwill impairment                             2,106
     Write down of lease obligations                 1,521
     Employment termination payments                   656
                                                    ------
     Total provision charged to income              $6,677
                                                    ======

     The Company has a remaining unpaid accrued restructuring charge balance at
December 31, 2000 of $1.3 million that represents unpaid lease obligations and
severance payments. Initially, these items were accrued for within the scope of
the presented restructuring charges under this exit plan. No charges under this
exit plan are associated with or benefit from activities that will be continued
at the commitment date.

(4)  LOANS HELD FOR SALE, NET

     The Company's inventory consists of first and second mortgages that had a
weighted average interest rate of 11.4% at December 31, 2000. These mortgages
are being held, at the lower of cost or estimated market 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 $1.4 million and $1.5 million at December 31, 2000 and
1999, respectively. The Company did not have a market valuation allowance at
December 31, 2000. The Company had a market valuation allowance of $0.6 million
at December 31, 1999. 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)                                 2000           1999
---------------------------------------------------------------------------
Securitization servicing advances                   $ 14,329         25,994
Prepaid insurance premiums                             2,047          1,868
Current tax assets                                       572            846
Other                                                  5,006          3,659
---------------------------------------------------------------------------
Total accounts receivable                           $ 21,954         32,367
---------------------------------------------------------------------------

     Funds due to Delta for account receivables 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>
<CAPTION>
                                               Prepaid
                            Securitization    Insurance  Current Tax
        2000              Servicing Advances   Premiums     Asset        Other         Total
---------------------     ------------------  ---------  -----------  -----------  -------------
<S>                       <C>                 <C>        <C>          <C>          <C>
Beginning balance           $    25,994         1,868       846          3,659        32,367
Additions                        79,348           179         -         25,930       105,457
Payments                        (90,383)            -      (274)       (24,354)     (115,011)
Write offs                         (630)            -         -           (229)         (859)
                          ------------------  ---------  -----------  -----------  -------------
Ending balance              $    14,329         2,047       572         5,006         21,954
                          ==================  =========  ===========  ===========  =============
</TABLE>

<TABLE>
<CAPTION>
                                               Prepaid
                            Securitization    Insurance  Current Tax
        1999              Servicing Advances   Premiums     Asset        Other         Total
---------------------     ------------------  ---------  -----------  -----------  -------------
<S>                       <C>                 <C>        <C>          <C>          <C>
Beginning balance           $    17,058         1,691       904          2,896        22,549
Additions                        57,324           177                   20,886        78,387
Payments                         46,485)            -       (58)       (20,245)      (66,788)
Write offs                       (1,903)            -         -            122        (1,781)
                          ------------------  ---------  -----------  -----------  -------------
Ending balance              $    25,994         1,868       846          3,659        32,367
                          ==================  =========  ===========  ===========  =============
</TABLE>

(6)  CAPITALIZED MORTGAGE SERVICING RIGHTS

     The Company recognizes rights to service mortgage loans as separate assets.
The total cost of mortgage loans sold or securitized is allocated between the
loans and the servicing rights based upon the relative fair values of each.
Purchased Mortgage Servicing Rights ("MSRs") are initially recorded at cost. All
MSRs are subsequently carried at the lower of the initial carrying value,
adjusted for amortization and deferred hedge gains/losses, or fair value. Fair
values are estimated based on market prices for similar MSRs and on the
discounted anticipated future net cash flows considering market loan prepayment
predictions, interest rates, servicing costs and other economic factors. For
purposes of impairment evaluation and measurement, the Company stratifies MSRs
based on predominant risk characteristics of the underlying loans, including
loan type, amortization type (fixed or adjustable) and note rate. To the extent
that the carrying value of MSRs exceeds fair value by individual stratum, a
valuation reserve is established, which is adjusted in the future as the value
of MSRs increases or decreases. The cost of MSRs is amortized in proportion to,
and over the period of, estimated net servicing income.

     The Company recognized a $38.2 million write-down, which represents the
entire carrying value of its MSR at December 31, 2000. In December 2000, the
Company entered into discussions with three third-party sub-prime servicers to
either purchase or sub-service the Company's entire $3.31 billion servicing
portfolio. Based upon the seasoning of the Company's loan portfolio, the high
costs associated with monthly and servicing advances necessary to maintain a
seasoned loan portfolio, and the nominal amount of ancillary service fee income,
the three servicers' bids for the portfolio all approximated par, meaning that
none of the bidders believed a purchase premium was justified. Following three
consecutive quarters of selling its mortgage servicing rights on newly issued
securitizations (beginning in the second quarter of 2000) for a cash premium,
the Company was left with a more seasoned, and therefore more costly, servicing
portfolio requiring significant cash outlays for monthly delinquency and
servicing advances, which adversely impacted the overall value of the remaining
loan portfolio. Therefore, management felt this write-down was necessary to
reflect the current market price it would have received at December 31, 2000 for
its servicing portfolio. Prior to soliciting bids in December 2000, management
believed that the carrying value of its MSR was validated as the cash purchase
price (premium) the Company received from selling the servicing rights
associated with its securitizations in June 2000 and September 2000 exceeded the
carrying value of the MSR stated as a percentage of the Company's entire loan
servicing portfolio. However, these specific pools were less seasoned, with
lower amounts of monthly and servicing advance obligations, and generated higher
ancillary service fee income.

     The activity related to the Company's capitalized mortgage servicing rights
for the years ended December 31, is as follows:

(DOLLARS IN THOUSANDS)                2000            1999             1998
-----------------------------------------------------------------------------
Balance, beginning of year          $45,927          33,490           22,862
Additions                            11,611          20,542           19,833
Amortization and FV adjustments      (8,916)         (8,105)          (9,205)
Sales                               (10,385)              -                -
Writedown                           (38,237)              -                -
-----------------------------------------------------------------------------
Balance, end of year                     $0          45,927           33,490
-----------------------------------------------------------------------------

     The write down of $38.2 million is included in restructuring and other
special charges in the consolidated statements of operations.

(7)  INTEREST-ONLY AND RESIDUAL CERTIFICATES

     The interest that the Company receives upon sales through securitizations
is in the form of interest-only and residual mortgage securities that are
classified as interest-only and residual certificates.

     Upon the sale or securitization of a loan, a gain on sale and a
corresponding asset is recognized for any interest-only and residual
certificates. These assets are classified as "trading securities" and, as such,
they are recorded at their fair value. Fair value of these certificates has been
determined by the Company based on various economic factors, including loan
type, sizes, interest rates, dates of origination, terms and geographic
locations, using the more conservative cash-out method. The Company also uses
other available information such as reports on prepayment rates, interest rates,
collateral value, economic forecasts and historical default and prepayment rates
of the portfolio under review. Any fair value adjustment of the interest-only
and residual certificates is recognized in the statement of income and is
reflected as a component of interest income.

     Although the Company believes it has made reasonable estimates of the fair
value of the interest-only and residual certificates likely to be realized, the
rate of prepayments and the amount of defaults utilized by the Company are
estimates and actual experience may vary. The gain on securitization recognized
by the Company upon the sale of loans through securitizations will be overstated
if prepayments or losses are greater than anticipated. Higher than anticipated
rates of loan prepayments or losses would require the Company to write down the
fair value of the interest-only and residual certificates, adversely impacting
earnings. Similarly, if delinquencies, liquidations or interest rates were to be
greater than was initially assumed, the fair value of the interest-only and
residual certificates would be negatively impacted, which would have an adverse
effect on income for the period in which such events occurred. Should the
estimated loan life assumed for this purpose be shorter than the actual life,
the amount of cash actually received over the lives of the loans would exceed
the gain previously recognized at the time the loans were sold through
securitizations and would result in additional income. The Company assumes
prepayment rates and defaults based upon the seasoning of its existing
securitization loan portfolio.

     The Company's underlying assumptions used in determining the fair value of
its interest-only and residual certificates are as follows:

     (a)  Prepayment rate assumptions are based upon the Company's on-going
          analysis of industry and Company pool trends, the most recent
          adjustments to these assumptions were made in the third quarter of
          2000 and the fourth quarter of 1999. The following table shows the
          changes to the prepayment assumptions at each of these dates and the
          assumptions used prior to the 1999 fourth quarter change:

<TABLE>
<CAPTION>
--------------------------- -------------------------------------- --------------------------------------
                                       Month One Speed                         Peak Speed *
--------------------------- -------------------------------------- --------------------------------------
<S>                         <C>         <C>           <C>          <C>          <C>           <C>
Loan Type                     9/30/00     12/31/99       Prior       9/30/00      12/31/99       Prior
--------------------------- ----------- ------------- ------------ ------------ ------------- -----------
Fixed Rate Loans                4.0%         4.0%         4.8%          23%          31%          31%
--------------------------- ----------- ------------- ------------ ------------ ------------- -----------
Six-Mo. LIBOR ARMS             10.0%        10.0%        10.0%          50%          50%          50%
--------------------------- ----------- ------------- ------------ ------------ ------------- -----------
Hybrid ARMS                     4.0%         4.0%         6.0%          50%          50%          50%
--------------------------- ----------- ------------- ------------ ------------ ------------- -----------
</TABLE>

*    Since the second quarter of 1998, the Company has utilized a "vector"
     curve, instead of a "ramp" curve, which the Company believes will be more
     representative of future loan prepayment experience.

     (b)  A default reserve for both fixed- and adjustable-rate loans sold to
          the securitization trusts of 3.50% of the amount initially securitized
          at December 31, 2000 compared to 3.10% at December 31, 1999 and 2.00%
          at December 31, 1998; and

     (c)  Under the "cash-out" method, an annual discount rate of 13.0% was used
          in determining the present value of cash flows from residual
          certificates, which represent the predominant form of retained
          interest, at December 31, 2000, up from 12% prior thereto. An annual
          discount rate of 18% is used during the duration of the Net Interest
          Margin ("NIM") transaction on a portion of the Company's residual
          certificates.

     In the third quarter of 2000, the Company lowered its prepayment speed
assumptions mainly by reducing the peak speed on its fixed rate product, which
comprises the majority of the Company's servicing portfolio. In the fourth
quarter of 1999, the Company lowered its prepayment speed assumption along parts
of the prepayment rate vector curve while leaving the peak speeds intact.

     The prepayment rate assumption was revised primarily to reflect the
Company's actual loan performance experience over the past several quarters. The
loan loss reserve assumption was revised to reflect management's belief that (i)
slower prepayment speeds, (ii) anticipated flat to slightly moderate rise in
home values as compared to the past few years and (iii) the inability of
borrowers to refinance their mortgages to avoid default because of industry
consolidation and higher interest rates may have an adverse effect on the
Company's non-performing loans.

     In the third and fourth quarters of 2000, the Company changed the discount
rate it uses in determining the present value of cash flows from residual
certificates, as follows:

     a. In the third quarter of 2000, the Company increased the discount rate
its uses on those residual certificates included in the NIM Transaction to 18%
(from 12%) and recorded an $8.8 million valuation adjustment. This adjustment
reflects a reduction in the present value of those residual certificates sold in
connection with the Company's NIM transaction completed in the fourth quarter of
2000. The Company increased the discount rate on these residual certificates,
during the period that the senior NIM securities will be outstanding, to account
for the potentially higher risk associated with the residual cash flows the
Company will retain from a certificated interest in the NIM trust, which is
subordinated to the senior security sold in the NIM transaction.

     b. In the fourth quarter of 2000, the Company raised the annual discount
rate it uses in determining the present value of cash flows from "senior"
residual certificates (I.E., those residuals that are not subject to a NIM
Transaction) to 13% from 12%, and recorded a $7.1 million valuation adjustment.
This adjustment reflects what management believes is 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, the Company recorded a non-cash increase of $9.6 million to its
interest income for its interest only and residual certificates, due to the
decrease in one-month LIBOR. Some of the Company's interest-only and residual
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.

     The activity related to the Company's interest-only and residual
certificates for the years ended December 31, is as follows:

(DOLLARS IN THOUSANDS)                             2000        1999        1998
--------------------------------------------------------------------------------
Balance, beginning of year                     $224,659     203,803     167,809

Additions                                        32,716      48,356      85,092

Cash remittances, accretion of discount
    and FV adjustments, net                     (40,468)    (27,500)    (49,098)
--------------------------------------------------------------------------------
Balance, end of year                           $216,907     224,659     203,803
--------------------------------------------------------------------------------

     At December 31, 2000, 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:

(DOLLARS IN THOUSANDS)

Carrying amount of retained interests                                   $216,907

PREPAYMENT SPEED (ANNUAL RATE)

Impact of 10% change                                                     $22,588

Impact of 20% change                                                      40,668

EXPECTED CREDIT LOSSES (ANNUAL RATE)

Impact of 10% change                                                     $12,557

Impact of 20% change                                                      24,272

DISCOUNT RATE (ANNUAL)

Impact of 10% change                                                     $21,505

Impact of 20% change                                                      26,060


     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.

(8)  HEDGING TRANSACTIONS

     The Company regularly securitizes and sells fixed-rate mortgage loans. To
offset the effects of interest rate fluctuations on the value of its fixed-rate
loans held for sale, the Company in certain cases will hedge its interest rate
risk related to loans held for sale through the use of treasury lock contracts
which function similar to a short-sale of US Treasury securities and/or FNMA
mortgage securities. The Company accounts for these contracts as hedges of
specific loans held for sale. The gain or loss derived from these contracts is
deferred and recognized as an adjustment to the carrying amounts of the loans
for which the contracts were interest rate hedges.

     The Company 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.

     As of December 31, 2000, 1999 and 1998, the Company did not have open hedge
positions. The Company included a loss of $2.1 million, a gain of $3.3 million
and a loss of $10.2 million on its hedges as part of gains on sale of loans in
2000, 1999 and 1998, respectively.

(9)  WAREHOUSE FINANCING AND OTHER BORROWINGS

     The Company has one warehouse credit facility for an amount of $200.0
million as of December 31, 2000. This line is 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>
<CAPTION>
                                                                                    Balance
                                                                           -----------------------
                                        Facility
Facility Description                     Amount             Rate               2000        1999        Expiration Date
------------------------------------- ------------- ---------------------- ----------- ----------- -----------------------
<S>                                   <C>           <C>                    <C>         <C>             <C>
Warehouse line of credit              $ 200.0       Libor + 1.00%          $74.9          $ --     May 2001
Warehouse line of credit                 n/a        Libor + 1.00%              --           42.9   April 2000
Warehouse line of credit                 n/a        Fed Funds + 1.075%         --           51.8   June 2000
Term loan                                n/a        8.15%                      0.3           0.2   June 2001
Capital leases                           n/a        6.63% - 10.25%           11.4           14.1   Oct 2000 - Nov 2004
Other Borrowings                         n/a        7.00% - 8.00%              2.0          --     --
------------------------------------- ------------- ---------------------- ----------- ----------- -----------------------
Balance at December 31,               $ 200.0                              $88.6          $109.0
------------------------------------- ------------- ---------------------- ----------- ----------- -----------------------
</TABLE>

(10) SENIOR NOTES

     The Company's outstanding 9.5% Senior Notes due 2004 (the "Senior Notes")
totaled $149.6 million at December 31, 2000, and $149.5 million at December 31,
1999, net of unamortized bond discount. The Senior Notes bear interest at a rate
of 9.5% per annum, payable semi-annually commencing on February 1, 1998. The
Senior Notes were issued on July 23, 1997, and mature on August 1, 2004 when all
outstanding principal is due.

     Costs incurred with the issuance of the notes, in the amount of $4.8
million, have been deferred and are being amortized over a seven-year term using
a method that approximates level-yield. The unamortized debt issuance cost was
$2.9 million at December 31, 2000 and $3.5 million at December 31, 1999.

     In August 2000, the Company announced an agreement to modify the Senior
Notes (the "Debt Modification"). With the consent of greater than fifty percent
of its Senior Noteholders, a negative pledge covenant in the Senior Notes
Indenture was modified. The covenant had previously prevented the Company from
selling or otherwise obtaining financing against any of its interest-only or
residual certificates. In consideration for the Senior Noteholders' consent, the
Company agreed, through an exchange offer (the "Exchange Offer"), to offer
current Senior Noteholders the option to exchange their then existing Senior
Notes for (a) new senior secured notes (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. The Senior Secured Notes have the same
coupon, face amount and maturity date as the Senior Notes and are secured by at
least $165 million of the Company's Residual Assets. The Exchange Offer was
consummated in December 2000, with holders of more than $148 million of Senior
Notes tendering their notes in the exchange.

     In February 2001, the Company entered into a letter of intent with the
beneficial holders of over fifty percent of its Senior Secured Notes to
restructure, and ultimately extinguish, the Senior Secured Notes (the "Second
Debt Restructuring"). In March 2001, the Company obtained the formal consent of
these 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 residual certificates currently
securing the Senior Secured Notes. In consideration for the Noteholders'
consent, the Company has agreed to offer the Senior Secured Noteholders the
option to exchange their existing Notes (the "Second Exchange Offer") for new
securities that will evidence a commensurate interest in a Liquidating Trust (to
be formed in connection with the Second Exchange Offer), into which residual
certificates currently securing the Company's obligations under the Senior
Secured Notes (totaling approximately $150 million) will be transferred. The
Second Debt Restructuring will also provide for, among other things, the
following:

     The Liquidating Trust will receive $15 million of newly issued preferred
stock bearing a 10% dividend payable semi-annually (with the first three
dividends payable in kind). Delta may redeem the preferred stock at its
liquidation preference plus accrued dividends at any time prior to its
conversion (which can occur only once five dividends have not been paid in
cash).

     The Company will receive all cash flows from the residual certificates
transferred into the Liquidating Trust through and including the June 2001
distributions. Thereafter, the Company will earn a management fee in return for
its oversight and its efforts to maximize the value of the Residual Assets in
the Liquidating Trust, and for absorbing certain costs and fees on behalf of the
Liquidating Trust.

     The Company monetizing the two residual certificates together with other
residual certificates owned by the Company but not securing the Senior Secured
Notes, to provide additional working capital.

     In March 2001, in connection with the Second Debt Restructuring, the
Company entered into a sale agreement to sell five of its residual certificates
for a $15 million cash purchase price. As customary with sales of similar
assets, the cash settlement does not occur until the pools of mortgages
underlying such residual certificates are transferred to an agreed upon servicer
to service the pool of mortgage loans for the purchaser of such residuals. The
purchasers of these five residuals have provided bridge financing, in the form
of residual financing, of approximately $9.6 million. The remainder of the
purchase price will be paid to the Company upon the transfer of servicing to
Ocwen. The proceeds from the residual financing and subsequent sale will be used
by the Company for working capital. These residual certificates are being sold
at a significant discount to the Company's book value for such certificates and,
as such, the Company expects to record an approximately $27 million pre-tax
non-cash charge in the first quarter of 2001.

(11) BANK PAYABLE

     In order to maximize its cash management practices, the Company has
instituted a procedure whereby checks written against its operating account are
covered as they are presented to the bank for payment, either by drawing down
its lines of credit or from subsequent deposits of operating cash. Bank payable
represents the checks outstanding at December 31, 2000 and 1999, to be paid in
this manner.

(12) INVESTOR PAYABLE

     Investor payable represents the collection of mortgage payments by the
Company as servicer, from mortgagors, which are due to the investors,
representing primarily securitization trusts. These funds, when collected, are
placed in segregated bank accounts as provided by the related servicing
agreements and are reflected on the Company's balance sheet as a component of
cash and interest-bearing deposits.

(13) EMPLOYEE BENEFIT PLANS

     The Company had an employee profit sharing plan covering all eligible
employees, as defined, with at least 30 months of service. Effective January 1,
1997, the employee profit sharing plan was merged with the Company's 401(k)
Retirement Savings Plan.

     The Company sponsors a 401(k) Retirement Savings Plan. Substantially all
employees of the Company 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. The Company elected to make
discretionary contributions to the Plan of $0.7 million, $0.8 million and $0.5
million for 2000, 1999 and 1998, respectively.

(14) COMMITMENTS AND CONTINGENCIES

     The Company has repurchase agreements with certain of the institutions that
have purchased mortgages. Currently, some of the agreements provide for the
repurchase by the Company of any of the mortgage loans that go to foreclosure
sale. At the foreclosure sale, the Company will repurchase the mortgage, if
necessary, and make the institution whole. The dollar amount of loans, which
were sold with recourse, is $6.2 million at December 31, 2000 and $8.1 million
at December 31, 1999.

     Included in accounts payable and accrued expenses is an allowance for
recourse losses of $1.5 million and 1.4 million at December 31, 2000 and
December 31, 1999, respectively. The Company recognized, as a charge to
operations, a provision for recourse losses of $11,600, $70,000 and $720,000 for
the years 2000, 1999 and 1998, 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. Management determines the loss factors based upon an evaluation of
historical loss experience, delinquency trends, loan volume and the impact of
economic conditions in our market area.

     The Company's rental expense, net of sublease income, for the years ended
December 31, 2000, 1999 and 1998 amounted to $7.0 million, $6.4 million and $5.4
million, respectively.

     Minimum future rentals under non-cancelable operating leases as of December
31, 2000 are as follows:


(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
                        Year                                     Amount
--------------------------------------------------------------------------------
                        2001                                     $ 4,713
                        2002                                       3,556
                        2003                                       2,663
                        2004                                       2,330
                        2005                                       2,137
                     Thereafter                                    5,080
--------------------------------------------------------------------------------
                        Total                                    $20,479
--------------------------------------------------------------------------------

     Because the nature of the Company's business involves the collection of
numerous accounts, the validity of liens and compliance with various state and
federal lending laws, the Company is 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 the financial position or results of
operations of the Company.

(15) STOCK OPTION PLAN

     In October 4, 1996, the Board of Directors ratified the 1996 Stock Option
Plan (the "Plan") and authorized the reserve of 2,200,000 shares of authorized
but unissued common stock for issuance pursuant to the 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 Plan at
December 31:

<TABLE>
<CAPTION>
                                    2000                     1999                    1998
-----------------------------------------------------------------------------------------------------------
                                              Wtd-Avg                  Wtd-Avg                  Wtd-Avg.
                                  Number of   Exercise     Number of   Exercise     Number of   Exercise
                                   Shares       Price       Shares       Price       Shares       Price
---------------------------------------------------------- ------------------------------------------------
<S>                               <C>          <C>          <C>         <C>         <C>          <C>
Balance, beginning of year        1,148,050    $12.44        795,060    $16.96       848,760     $17.01
Options granted                      20,000      2.00        495,350      5.84        77,000      17.35
Options exercised                         -                        -         -         1,500      16.50
Options canceled                    175,350     11.57        142,360     14.75       129,200      17.54
-----------------------------------------------------------------------------------------------------------
Balance at end of year              992,700    $12.38      1,148,050    $12.44       795,060     $16.96
-----------------------------------------------------------------------------------------------------------
Options exercisable                 514,120    $15.18        335,400    $16.76       242,862     $16.77
-----------------------------------------------------------------------------------------------------------
</TABLE>

     The Company applies APB Opinion No. 25, and related Interpretations in
accounting for the Plan. There was no intrinsic value of the options granted, as
the exercise price was equal to the quoted market price at the grant date.
Accordingly, no compensation cost has been recognized for the years ended
December 31, 2000, 1999 and 1998.

     Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method of SFAS
No. 123, the Company's net income (loss) would have been $(49.4) million, $4.5
million and $10.8 for 2000, 1999 and 1998, respectively. Earnings (loss) per
share for 2000, 1999 and 1998 would have been ($3.10), $0.29 and $0.71,
respectively.

     The weighted-average fair value of options granted during 2000, 1999 and
1998 was $0.34, $3.86 and $9.14, 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 2000, 1999 and 1998 grants:


                               2000               1999               1998
--------------------------------------------------------------------------------
Dividend yield                    0%                 0%                0%
Expected volatility             145%                78%               55%
Risk-free interest rate        6.14%              4.54%             4.54%
Expected life                5 years            5 years           5 years

(16)     INCOME TAXES

     The (benefit) provision for income taxes for the years ended December 31,
2000, 1999 and 1998 is as follows:

(DOLLARS IN THOUSANDS)                      2000         1999        1998
---------------------------------------------------------------------------
Current:  Federal                       $   2,203        9,777      11,291
          State                               600        1,713       1,941
---------------------------------------------------------------------------
Total current income taxes              $   2,803       11,490      13,232
---------------------------------------------------------------------------

Deferred: Federal                       $ (19,860)      (7,172)     (4,586)
          State                            (4,448)      (1,265)     (1,478)
          Valuation allowance               8,297           --
---------------------------------------------------------------------------
Total deferred income taxes             $ (16,011)      (8,437)     (6,064)
---------------------------------------------------------------------------
Total tax (benefit) provision           $ (13,208)       3,053       7,168
---------------------------------------------------------------------------

     Significant components (temporary differences and carryforwards) that give
rise to the Company's net deferred tax asset (liability) as of December 31, 2000
and 1999 were as follows:

(DOLLARS IN THOUSANDS)

DEFERRED TAX ASSETS:                                       2000           1999
--------------------------------------------------------------------------------
Book over tax basis in mortgage serving asset           $      -           125
Loss reserves                                              5,306         4,992
Federal and State net operating loss carryforwards        25,318        21,873
--------------------------------------------------------------------------------
Gross deferred tax assets                               $ 30,624        26,990
Less:  Valuation allowance                                 8,297            --
--------------------------------------------------------------------------------
Deferred tax assets net of valuation allowance          $ 22,327        26,900
--------------------------------------------------------------------------------


DEFERRED TAX LIABILITIES:
--------------------------------------------------------------------------------
Capitalized cost of ture servicing income               $      -        17,911
Book/tax difference in interest-only and residual
     certificate carrying amount                          14,123        17,275
Tax over book depreciation                                 2,055         1,612
Capitalized origination fees and related cost                549           603
--------------------------------------------------------------------------------
Gross deferred tax liabilities                          $ 16,727        37,401
--------------------------------------------------------------------------------

Net deferred tax assets (liabilities)                   $  5,600       (10,411)
--------------------------------------------------------------------------------

     The Company is required to recognize all or a portion of its gross deferred
tax assets if it believes 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
the Company will realize the benefit from its gross deferred tax assets, net of
the valuation allowance.

     A valuation allowance of $8.3 million was established in 2000 because the
Company believes that it will have insufficient earnings in the immediate future
to ensure realization of its entire gross deferred tax assets.

     As of December 31, 2000 Federal and State net operating loss carryforwards
("NOLs") totaled $63.2 million, with $1.9 million expiring in 2012 and $61.3
million expiring in various years from 2018 through 2020.

     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, 2000,
1999 and 1998 is as follows:

                                                        2000     1999     1998
-------------------------------------------------------------------------------
Tax at statutory rate                                   35.0%    35.0%    35.0%
State & local taxes, net of Federal benefit              4.0      1.1      1.7
Change in valuation allowance for deferred tax assets  (13.2)      --       --
Non-deductible expenses and other                       (4.7)     3.4      2.1
-------------------------------------------------------------------------------
Total tax rate                                          21.1%    39.5%    38.8%
-------------------------------------------------------------------------------

(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.


(DOLLARS IN THOUSANDS, EXCEPT EPS DATA)           2000         1999         1998
--------------------------------------------------------------------------------
Net (loss) income                            $ (49,417)       4,676       11,328
Weighted-average shares                         15,921       15,511       15,382
Basic EPS                                    $   (3.10)        0.30         0.74
Weighted-average shares                         15,921       15,511       15,382
Incremental shares-options                           -            1           23
--------------------------------------------------------------------------------
                                                15,921       15,512       15,405
Total tax rate                               $   (3.10)        0.30         0.74
--------------------------------------------------------------------------------

(18) QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table is a summary of financial data by quarter for the years
ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
--------------------------------------------------------- -------------- --------------- -------------- --------------
For the quarters ended
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)               March 31        June 30        Sept. 30        Dec. 31
--------------------------------------------------------- -------------- --------------- -------------- --------------
<S>                                                       <C>            <C>             <C>            <C>
--------------------------------------------------------- -------------- --------------- -------------- --------------
2000
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Revenues (a)(b)                                              $ 35,945          28,944         27,625         26,457
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Expenses (a)(b)                                                32,820          34,977         43,010         70,789
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Net income (loss)(a)(b)                                         1,826          (3,527)       (11,206)       (36,510)
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Earnings (loss) per common share-basic and diluted               0.11           (0.22)         (0.70)         (2.29)
  (a)(b)
--------------------------------------------------------- -------------- --------------- -------------- --------------

--------------------------------------------------------- -------------- --------------- -------------- --------------
1999
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Revenues                                                     $ 42,513          44,449         29,686         38,171
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Expenses (c)(d)                                                33,071          40,758         39,844         33,417
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Net income (loss) (c)(d)                                        5,744           2,215         (6,095)         2,812
--------------------------------------------------------- -------------- --------------- -------------- --------------
  Earnings (loss) per common share-basic and diluted               0.37            0.14          (0.39)          0.18
  (c)(d)
--------------------------------------------------------- -------------- --------------- -------------- --------------
</TABLE>

(a)  The quarter ended September 30, 2000 includes $16.4 million non-recurring
     items, in connection with its corporate restructuring and a debt
     modification, NIM transaction and sale of a domain name.
(b)  The quarter ended December 31, 2000 includes $45.7 million non-recurring
     items, in connection with the Company's write-down of MSRs, NIM transaction
     costs, write-down of goodwill and other servicing related receivables.
(c)  The quarter ended June 30, 1999 includes a $6.0 million pre-tax charge, in
     connection with Delta's original agreement in principle with the NYOAG.
(d)  The quarter ended September 30, 1999 includes the remaining $6.0 million of
     the $12.0 million pre-tax charge for the global settlement with NYSBD and
     the NYOAG.


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

     None.

<PAGE>

                                    PART III

ITEMS 10-13

     The Registrant incorporates by reference herein information in its proxy
statement that complies with the information called for by Items 10-13 of Form
10-K. The proxy will be filed at a later date with the Commission.

<PAGE>

                                     PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A)(1) FINANCIAL STATEMENTS                                              PAGE(S)
The following Consolidated Financial Statements of Delta Financial
   Corporation and Subsidiaries are included in Part II,
   Item 8 of this report.........................................             39
Independent Auditors' Report.....................................             40
Consolidated Balance Sheets--December 31, 2000 and 1999..........             41
Consolidated Statements of Operations--Years ended
   December 31, 2000, 1999 and 1998..............................             42
Consolidated Statement of Changes in Stockholders' Equity--Years
   ended December 31, 2000, 1999 and 1998........................             43
Consolidated Statements of Cash Flows--Years ended
   December 31, 2000, 1999 and 1998..............................             43
Notes to Consolidated Financial Statements.......................             44

(A)(2) FINANCIAL STATEMENT SCHEDULES
    Exhibits 11.1 and 27 (See - Exhibit List)


(A)(3) EXHIBITS:

EXH. NO.      FILED           DESCRIPTION
--------      -----           -----------
3.1           (a)        --   Certificate of Incorporation of Delta Financial
                              Corporation
3.2           (f)        --   Second Amended Bylaws 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           (h)        --   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           (i)        --   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           (j)        --   Third Supplemental Indenture dated March 16, 2001,
                              between Delta Financial Corporation, its
                              subsidiary guarantors and U.S. Bank Trust National
                              Association, as Trustee
10.1          (a)        --   Employment Agreement dated October 1, 1996 between
                              the Registrant and Sidney A. Miller
10.2          (a)        --   Employment Agreement dated October 1, 1996 between
                              the Registrant and Hugh Miller
10.3          (g)        --   Employment Agreement dated July 9, 1999 between
                              the Registrant and Christopher Donnelly
10.4          (g)        --   Employment Agreement dated July 15, 1999 between
                              the Registrant and Randall F. Michaels
10.5          (g)        --   Employment Agreement dated July 1, 1999 between
                              the Registrant and Richard Blass
10.6          (g)        --   Employment Agreement dated July 23, 1999 between
                              the Registrant and Franklin E. Pellegrin, Jr.
10.7          (a)        --   Lease Agreement between Delta Funding Corporation
                              and the Tilles Investment Company
10.8          (d)        --   Fifth, Sixth and Seventh Amendments to Lease
                              Agreement between Delta Funding Corporation and
                              the Tilles Investment Company
10.9          (e)        --   Eighth Amendment to Lease Agreement between Delta
                              Funding Corporation and the Tilles Investment
                              Company
10.10         (a)        --   1996 Stock Option Plan of Delta Financial
                              Corporation
21.1          (k)        --   Subsidiaries of Registrant
27            (k)        --   Financial Data Schedule
_______________
(a)  Incorporated by reference from the Company's Registration Statement on Form
     S-1 (No. 333-11289) filed with the Commission on October 9, 1996.
(b)  Incorporated by reference from the Company's Current Report on Form 8-K
     (No. 001-12109) filed with the Commission on July 30, 1997.
(c)  Incorporated by reference from the Company's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1997 (File No. 1-12109) filed with the
     Commission on May 15, 1997.
(d)  Incorporated by reference from the Company's 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.
(e)  Incorporated by reference from the Company's 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.
(f)  Incorporated by reference from the Company's 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.
(g)  Incorporated by reference from the Company's Annual Report on Form 10-K for
     the year ended December 31, 1998 (File No. 1-12109) filed with the
     Commission on March 31, 2000.
(h)  Incorporated by reference from the Company's Current Report on Form 8-K
     (File No. 1-12109) filed with the Commission on August 4, 2000.
(i)  Incorporated by reference from the Company's Current Report on Form 8-K
     (File No. 1-12109) filed with the Commission on January 10, 2001.
(j)  Incorporated by reference from the Company's Current Report on Form 8-K
     (File No. 1-12109) filed with the Commission on March 22, 2001.
(k)  Filed herewith

     (B) REPORTS ON FORM 8-K.

     On August 4, 2000, the Company filed a Current Report on Form 8-K, in which
it reported (a) that it had reached an agreement to restructure its Senior Notes
with the consent of more than 50% of its Senior Notes holders, (b) that it would
launch an exchange offer pursuant to which the Senior Notes holders would be
provided the option to exchange their existing securities for new senior secured
notes and warrants in the Company, and (c) the execution of the First
Supplemental Indenture by and among the Company, its subsidiary guarantors and
the Bank of New York, as Indenture Trustee, dated as of August 1, 2000.

     On November 22, 2000, the Company filed a Current Report on Form 8-K, in
which it reported the commencement of an offering to acquire all of its then
currently outstanding Senior Notes in exchange for newly issued Senior Secured
Notes and warrants to purchase shares of the Company's common stock.

     On December 20, 2000, the Company filed a Current Report on Form 8-K, in
which it reported that it was extending the expiration date for its exchange
offer and consent solicitation until December 21, 2000.

     On December 22, 2000, the Company filed a Current Report on Form 8-K, in
which it reported that it had consummated the exchange offer of its Senior Notes
for newly issued Senior Secured Notes with holders of approximately $148 million
of Senior Notes agreeing to the exchange.

<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: July 2, 2001           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>
<CAPTION>
    SIGNATURE                   CAPACITY IN WHICH SIGNED                       DATE
-----------------------   --------------------------------------------------   --------------
<S>                       <C>                                                  <C>
/s/ SIDNEY A. MILLER      Chairman of the Board of Directors                   July 2, 2001
Sidney A. Miller

/s/ HUGH MILLER           Chief Executive Officer, President and Director      July 2, 2001
Hugh Miller               (Principal Executive Officer)

/s/ RICHARD BLASS         Executive Vice President, Chief Financial Officer    July 2, 2001
Richard Blass             and Director (Principal Financial Officer)

/s/ MARTIN D. PAYSON      Director                                             July 2, 2001
Martin D. Payson

/s/ ARNOLD B. POLLARD     Director                                             July 2, 2001
Arnold B. Pollard

/s/ MARGARET WILLIAMS     Director                                             July 2, 2001
Martin D. Payson
</TABLE>