<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark one)

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the quarterly period ended March 31, 2002

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                           Commission File No. 1-12979

                             HOMESIDE LENDING, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Florida                                        59-2725415
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


          8659 BAYPINE ROAD, BLDG. 3, SUITE 300, JACKSONVILLE, FL 32256
          --------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (904) 807-3400
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

        Name of Each Class             Name of Each Exchange on which Registered
       ------------------              -----------------------------------------
Floating Rate Notes due June 10, 2002            New York Stock Exchange

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
                                      ---   ---

<PAGE>

                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             HOMESIDE LENDING, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                   MARCH 31, 2002   SEPTEMBER 30, 2001
                                                   --------------   ------------------
<S>                                                 <C>               <C>
ASSETS
Cash and cash equivalents                           $ 1,178,926       $   703,439
Mortgage loans held for sale, net                        53,343         1,845,766
Mortgage servicing rights, net                        3,159,376         2,615,225
Risk management instruments at fair value, net               --           437,758
Early pool buyout advances                              325,420            55,595
Accounts receivable, net                                349,686           488,918
Premises and equipment, net                                 885            81,811
Other assets                                             44,033            49,947
                                                    -----------       -----------

Total Assets                                        $ 5,111,669       $ 6,278,459
                                                    ===========       ===========

LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities            $   613,998       $ 1,019,838
Risk management instruments at fair value, net           99,792                --
Notes payable                                         1,316,000         2,148,000
Long-term debt                                        1,788,493         1,821,551
Deferred income taxes, net                                6,680            11,310
                                                    -----------       -----------
Total Liabilities                                     3,824,963         5,000,699
                                                    -----------       -----------

Stockholder's Equity:
Common stock:
Common stock, $1.00 par value, 185.7 shares
  authorized, issued, and outstanding                        --                --
Additional paid-in capital                            3,310,541         3,310,541
Accumulated deficit                                  (2,023,960)       (2,016,455)
Accumulated other comprehensive gain (loss)                 125           (16,326)
                                                    -----------       -----------

Total Stockholder's Equity                            1,286,706         1,277,760
                                                    -----------       -----------

Total Liabilities and Stockholder's Equity          $ 5,111,669       $ 6,278,459
                                                    ===========       ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       2
<PAGE>

                             HOMESIDE LENDING, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               FOR THE THREE    FOR THE THREE     FOR THE SIX        FOR THE SIX
                                                                MONTHS ENDED     MONTHS ENDED     MONTHS ENDED      MONTHS ENDED
                                                               MARCH 31, 2002   MARCH 31, 2001   MARCH 31, 2002    MARCH 31, 2001
                                                               --------------   --------------   --------------    --------------
<S>                                                             <C>             <C>              <C>               <C>
REVENUES:
Mortgage servicing fees                                         $ 206,841       $ 220,255        $ 428,788         $ 428,453
Amortization of mortgage servicing rights                        (195,710)       (135,392)        (387,295)         (255,654)
Risk management of mortgage servicing rights                     (146,855)        142,589          454,435           508,062
Valuation provision of mortgage servicing rights                  154,000        (277,510)        (443,371)         (902,371)
                                                                ---------       ---------        ---------         ---------
    Net servicing revenue (expense)                                18,276         (50,058)          52,557          (221,510)

Interest income                                                    24,427          29,150           58,945            57,833
Interest expense                                                  (18,459)        (45,502)         (45,144)          (90,956)
                                                                ---------       ---------        ---------         ---------
    Net interest revenue (expense)                                  5,968         (16,352)          13,801           (33,123)

Net mortgage origination revenue                                   37,149          39,560          101,475            62,182
Other income                                                        2,984           1,783            6,881             7,585
                                                                ---------       ---------        ---------         ---------
    Total Revenues (Expenses)                                      64,377         (25,067)         174,714          (184,866)

EXPENSES:
Salaries and employee benefits                                     26,548          32,642           68,610            62,520
Occupancy and equipment                                             7,680           9,369           19,235            19,207
Servicing losses on investor-owned loans
   and foreclosure-related expenses                                 8,746           8,109           14,652            18,200
Goodwill amortization                                                  --           8,572               --            17,144
Loss on disposition of operating assets                             9,805              --            9,805                --
Other expenses                                                     26,993          15,675           45,917            35,032
                                                                ---------       ---------        ---------         ---------
    Total Expenses                                                 79,772          74,367          158,219           152,103

(Loss) income before income taxes and cumulative                  (15,395)        (99,434)          16,495          (336,969)
effect of a change in accounting principle
Income tax (benefit) expense                                           --         (33,173)              --          (116,780)
                                                                ---------       ---------        ---------         ---------

(Loss) income before cumulative effect of a change in
accounting principle                                              (15,395)        (66,261)          16,495          (220,189)

Cumulative effect of a change in accounting for
derivative instruments and hedging activities, net of
income tax expense of $507                                             --              --               --               883
                                                                ---------       ---------        ---------         ---------

NET (LOSS) INCOME                                                 (15,395)        (66,261)          16,495          (219,306)

Other comprehensive income, net of tax:
      Cumulative effect of a change in accounting
      for derivative instruments and hedging activities                --              --               --            (9,133)
      Net gains (losses) on current period cash flow hedges           467           2,376            8,521              (539)
      Less: reclassification adjustment for (gains)
      losses included in net (loss) income                           (163)             38             (203)            9,120
      Less: reclassification of losses on sale of warehouse
      loans/hedges as a result of the disposition of
      operating assets                                              8,133              --            8,133                --
                                                                ---------       ---------        ---------         ---------
Other comprehensive income (loss)                                   8,437           2,414           16,451              (552)
                                                                ---------       ---------        ---------         ---------

COMPREHENSIVE (LOSS) INCOME                                     $  (6,958)      $ (63,847)       $  32,946         $(219,858)
                                                                =========       =========        =========         =========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>

                             HOMESIDE LENDING, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       FOR THE                FOR THE               FOR THE              FOR THE
                                                  THREE MONTHS ENDED    THREE MONTHS ENDED      SIX MONTHS ENDED    SIX MONTHS ENDED
                                                    MARCH 31, 2002        MARCH 31, 2001         MARCH 31, 2002      MARCH 31, 2001
                                                  ------------------    ------------------      ----------------    ----------------
<S>                                                   <C>                  <C>                      <C>               <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES AND RISK MANAGEMENT RESULTS:

Net (loss) income                                     $   (15,395)         $ (66,261)               $    16,495       $(219,306)
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating
activities and risk management results:
  Amortization of mortgage servicing rights               195,710            135,392                    387,295         255,654
  Depreciation and amortization                             4,568             13,719                     10,638          27,007
  Cumulative effect of a change in accounting for
    derivative instruments and hedging
    activities, net                                            --                 --                         --            (883)
  Change in fair value of net hedged assets
    & derivatives                                         (953,135)          (129,716)                 (424,621)       (409,440)
  Change in fair value of mortgage servicing rights
    due to hedged risk                                          --                 --                (1,050,361)             --
  Valuation provision of mortgage servicing rights        (154,000)           277,510                   443,371         902,371
  Servicing losses on investor-owned loans                   1,978                479                     2,591           4,039
  Change in deferred income tax liability                       54            (33,193)                   (4,630)       (116,790)
  Origination, purchase and sale of loans held
    for sale, net of repayments                          1,023,225           (287,473)                  701,701        (162,447)
  Change in accounts receivable                             49,816             10,323                   128,912          (2,799)
  Change in other assets and accounts payable and
    accrued liabilities                                   (136,568)           (31,850)                 (714,898)         22,589
  Proceeds from sale of operating assets                 1,184,425                 --                 1,184,425              --
  Change due to transaction costs from sale of
    operating assets, net                                    23,989                 --                   23,989              --
                                                        -----------          ---------              -----------       ---------
Net cash provided by (used in) operating activities       1,224,667           (111,070)                 704,907         299,995

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:

Purchase of premises and equipment, net                      (1,097)            (5,603)                  (4,217)        (11,685)
Acquisition of mortgage servicing rights                   (105,127)          (297,401)                (337,819)       (734,787)
Net cash provided from risk management contracts          1,080,169            167,850                  978,709         213,455
Net early pool buyout reimbursements                          5,653            (16,961)                   8,665          (2,550)
                                                        -----------          ---------              -----------       ---------
Net cash provided by (used in) investing activities         979,598           (152,115)                 645,338        (535,567)

CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:

Net (repayments to) borrowings from banks                  (337,000)           160,500                 (432,000)         99,100
Issuance of commercial paper, net of repayments            (884,898)           235,000                 (400,000)             --
Issuance of medium-term notes                                    --                 --                       --         250,000
Payment of debt issue costs                                     (34)              (754)                  (1,578)         (2,290)
Repayment of long-term debt                                 (17,100)               (82)                 (17,180)           (161)
Dividends paid to Parent                                         --                 --                  (24,000)        (31,313)
                                                        -----------          ---------              -----------       ---------
Net cash (used in) provided by financing activities      (1,239,032)           394,664                 (874,758)        315,336

Net increase in cash and cash equivalents                   965,233            131,479                  475,487          79,764
Cash and cash equivalents at beginning of period            213,693             59,022                  703,439         110,737
                                                        -----------          ---------              -----------       ---------

Cash and cash equivalents at end of period              $ 1,178,926          $ 190,501              $ 1,178,926       $ 190,501
                                                        ===========          =========              ===========       =========

Supplemental disclosure of cash flow information:
Interest paid                                           $    23,240          $  59,888              $    55,892       $ 104,622
Income taxes paid                                       $       (54)         $      21              $     4,636       $      23
Income taxes refunded                                   $        --          $      --              $         6       $      14
Impact of cash flow hedges on other comprehensive
income, net                                             $     8,437          $   2,414              $    16,451       $    (552)
Impact of removal of account provision on early
pool buyout advances                                    $   105,938          $      --              $   278,433       $      --
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>

                             HOMESIDE LENDING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosed amounts of
contingent liabilities at the date of the financial statements. Actual results
may differ from those estimates. Certain balances relating to the three- and
six-month periods ended March 31, 2001 may have been reclassed to conform with
the presentation for the three- and six-month periods ended March 31, 2002.

Operating results for the three- and six-month periods ended March 31, 2002 and
2001 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Form
10-K for the fiscal year ended September 30, 2001 of HomeSide Lending, Inc
("HomeSide").

On March 1, 2002, the National consummated the sale of HomeSide's operating
platform and certain of its operating assets to Washington Mutual Bank, FA
("WaMu"). As such, WaMu acquired all of HomeSide's servicing technology, and
other corporate assets including the wholesale, correspondent and consumer
direct production channels and servicing sites in Jacksonville, Florida and San
Antonio, Texas. The Company retained the mortgage servicing rights asset ("MSR")
and related financial hedges. Upon consummation of the Asset Purchase/Liability
Assumption Agreement (the "Asset Purchase Agreement"), the Company's servicing
portfolio was subserviced to WaMu.

The operations of the Company changed substantially upon the consummation of the
Asset Purchase Agreement with WaMu, as described above. The Company retained the
mortgage servicing rights asset which existed as of March 1, 2002 and continues
to receive the servicing fees associated with the asset, net of subservicing
fees which are distributed to WaMu. The Company no longer originates loans for
resale. As a result, the Company would expect retained assets and associated
revenues to decline over time as the loans underlying the mortgage servicing
rights asset as of the transaction date are repaid. The cash flows associated
with the mortgage servicing rights asset will be used to repay the Company's
debt obligations and return capital to the National.

2.   DISPOSITION OF OPERATING ASSETS

On March 1, 2002, the sale of certain assets of HomeSide and certain of its
subsidiaries to WaMu as contemplated by the Asset Purchase Agreement dated
December 11, 2001 was completed. WaMu acquired all of HomeSide's servicing
operations and technology, and other corporate assets including the wholesale,
correspondent and consumer direct production channels and servicing sites in
Jacksonville, Florida and San Antonio, Texas.

The net assets sold had an aggregated net book value of $1,145 million, of which
$1,077 million consisted of mortgage loans held for sale. After giving
consideration to net transaction costs of $48.6 million, which are comprised
principally of employee related costs and legal and advisory fees, HomeSide
recorded a loss on the transaction of $9.8 million.

HomeSide retains the MSR and related financial hedges and other assets.
HomeSide's servicing portfolio is subserviced by WaMu under an agreement, which
extends through March 1, 2007. The agreement requires HomeSide to pay WaMu a
monthly fee based on the number of loans serviced. These per loan fees decline
over the term of the agreement. In addition, HomeSide pays certain
activity-based fees to WaMu. The agreement also includes a termination provision
which would require HomeSide to pay certain fees in the event HomeSide
terminates the agreement for reasons other than default by WaMu or the sale of
mortgage servicing rights to WaMu. These fees are paid on a per loan basis and
decline based on the length of time the subservicing agreement is in place.

3.   CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and cash due from banks, interest-bearing
deposits and margin deposits with an original maturity of three months or less.
The majority of these balances are held in accounts with the National. Margin
deposits associated with the risk management program for mortgage servicing
rights and interest rate swaps for debt instruments are maintained with brokers
in accordance with the requirements of International Swap Dealer Agreements.
Margin deposits with counterparties amounted to approximately $141.4 million at
March 31, 2002 and $506.7 million at September 30, 2001. The Company also
maintained margin deposits on behalf of


                                       5
<PAGE>

counterparties of $67.4 million at March 31, 2002 and $662.3 million at
September 30, 2001. Such amounts are included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheets.

4.   MORTGAGE SERVICING RIGHTS

The change in the balance of mortgage servicing rights was as follows (in
thousands):

<TABLE>
<S>                                                 <C>
Balance, September 30, 2001                         $ 2,615,225
Additions                                               337,819
Amortization                                           (387,295)
Change in value due to hedged risk                    1,050,361
Valuation provision                                    (443,371)
Servicing premium paid on warehouse loans sold          (13,363)
                                                    -----------

Balance, March 31, 2002                             $ 3,159,376
                                                    ===========
</TABLE>

Mortgage servicing rights are evaluated for impairment by comparing the carrying
amount of the servicing rights to their fair value, based on discounted
anticipated future net cash flows. At March 31, 2002, the estimated fair value
of the mortgage servicing rights approximated carrying value. The valuation used
the following assumptions: a weighted-average discount rate of 10.11% and a
weighted-average prepayment speed of 239.

Activity in the valuation reserve for mortgage servicing rights for the three-
and six-month periods ending March 31, 2002 is as follows (in thousands):

<TABLE>
<S>                              <C>
Balance, September 30, 2001      $ 2,556,450
Additions                            597,371
Recoveries                                --
                                 -----------

Balance, December 31, 2001       $ 3,153,821
Additions                                 --
Recoveries                          (154,000)
                                 -----------

Balance, March 31, 2002          $ 2,999,821
                                 ===========
</TABLE>


5.   RISK MANAGEMENT AND THE ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
     ACTIVITIES

The Company has developed risk management programs and processes designed to
manage market risk associated with the Company's business activities. As more
fully described herein, interest rate risk is a predominant risk that further
influences a number of other business risks such as pricing risk, prepayment
risk, valuation risk, balance sheet management and funding risk. As part of its
risk management programs, the Company utilizes a number of derivative
instruments to manage these risks.

In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended standardizes the
accounting for derivative instruments and hedging activities and requires that
all derivative instruments be recognized as assets and liabilities at fair
value. If certain conditions are met, "hedge accounting" may be applied and the
derivative instruments may be specifically designated as: (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment ("fair value hedge"), (b) a hedge of the exposure
to variability of cash flows of a recognized asset, liability or forecasted
transaction ("cash flow hedge") or (c) a hedge of certain foreign currency
exposures. In the case of a qualifying fair value hedge, changes in the value of
the derivative instruments that have been highly effective are recognized in
current earnings along with the change in value of the designated hedge item. In
the case of a qualifying cash flow hedge, changes in the value of the derivative
instruments that have been highly effective are recognized in other
comprehensive income ("OCI"), until such time that earnings are affected by the
variability of the cash flows of the underlying hedged item. In either a fair
value hedge or a cash flow hedge, net earnings are impacted to the extent the
changes in the value of the derivative instruments do not perfectly offset the
changes in the value of the hedge items (so called "ineffectiveness").
Derivative instruments that are non-designated or do not meet the relevant hedge
accounting criteria are accounted for at fair value with gains and losses
recorded to current earnings. The Company is not a party to any foreign currency
hedge relationships.

The Company adopted SFAS 133 as required during the first quarter of fiscal year
2001. Accordingly, all derivative instruments are recognized on balance sheet at
fair value and are designated either as fair value hedges, cash flow hedges, or
are non-designated pursuant to the Company's risk management policies. At
October 1, 2000, the Company recognized a cumulative-effect transition
adjustment of


                                       6
<PAGE>

$1.4 million to increase pre-tax income for the effect of the change in
accounting principle. Additionally, the Company recognized a pre-tax
cumulative-effect transition adjustment to reduce OCI by $14.4 million.

Risk Management of Loan Production Activities

Loan production activities include the origination or acquisition of mortgage
loans, the warehousing of those loans in inventory and the resale of those loans
in the secondary mortgage market. These activities were included in the
operations purchased by WaMu as of March 1, 2002 (See Note 2). Until the sale,
the Company maintained a risk management program to protect and manage interest
rate risk and pricing risk associated with its mortgage committed pipeline and
mortgage inventory. Transactions outstanding as of the date of the sale to WaMu
were assigned to WaMu at their estimated fair market value at that date.

Prior to the sale to WaMu, the Company's mortgage committed pipeline included
interest rate lock commitments ("IRLCs") that had been extended to borrowers who
applied for loan funding and meet certain defined credit and underwriting
criteria. Effective with the adoption of SFAS 133, the Company classified and
accounted for IRLCs as non-designated derivative instruments. Accordingly, IRLCs
were recorded at fair value with changes in value recorded to current earnings.
Risk management derivative contracts used to economically hedge the IRLCs were
also classified and accounted for as non-designated derivatives.

 The fair value of the Company's IRLCs generally approximated zero at inception
(the lock-in date) since the Company's practice was to extend loan commitments
at market rates of interest and to exclude from its fair value calculation the
normal profit margin associated with the future loan execution. (Losses)/gains
on interest rate lock commitments represented decreases/increases in the value
of the commitments from the rate-lock inception date to the loan funding date
(for those commitments that are funded), or to the current reporting date. The
basis of the IRLCs at the loan funding date, representing cumulative gains or
losses on the IRLCs, were included as a component of the initial cost basis of
the loans. The net ineffectiveness of non-designated risk management
relationships (related to the pipeline) was included in net mortgage origination
revenue in the accompanying consolidated statements of income and comprehensive
income.

Following is a summary of the net ineffectiveness recognized on non-designated
risk management hedging relationships related to the pipeline at March 31, 2002
and 2001, respectively (in thousands):

<TABLE>
<CAPTION>
                                                             For the three      For the six
                                                             months ended      months ended
                                                             March 31, 2002    March 31, 2002
                                                             --------------    --------------
<S>                                                            <C>               <C>
Gains on IRLCs recognized to income                            $ 24,469          $  6,006

Losses on mortgage forward delivery contracts                   (22,145)           (2,283)
(Losses) gains on options contracts                              (9,930)            7,842
                                                               --------          --------
   Total (losses) gains recognized to income                    (32,075)            5,559

Net ineffectiveness recognized on non-designated derivatives   $ (7,606)         $ 11,565
                                                               ========          ========
</TABLE>


<TABLE>
<CAPTION>
                                                              For the three     For the six
                                                              months ended      months ended
                                                              March 31, 2001    March 31, 2001
                                                              --------------    --------------
<S>                                                             <C>               <C>
Gains on IRLCs recognized to income                             $ 16,184          $ 33,876

Losses on mortgage forward delivery contracts                     (9,549)          (23,367)
Losses on options contracts                                       (1,125)           (2,671)
                                                                --------          --------
   Total losses recognized to income                             (10,674)          (26,038)

Net ineffectiveness recognized on non-designated derivatives    $  5,510          $  7,838
                                                                ========          ========
</TABLE>

The fair values of risk management hedging relationships at March 31, 2002 are
as follows (in thousands):

Designated mortgage forward delivery contracts               $ 128

Non-designated mortgage forward delivery contracts            (447)
                                                             -----
   Total fair value of derivatives related to inventory      $(319)
                                                             =====


                                       7
<PAGE>


Transition Adjustments and Current Period Activity in OCI

As previously discussed, the cumulative effect of the adoption of SFAS 133 was
to increase pre-tax net income by $1.4 million. This amount relates solely to
the mortgage pipeline at October 1, 2000 and represents the net effect of the
adjustments necessary to record IRLCs and the related non-designated derivatives
at fair value.

The pre-tax cumulative-effect transition adjustment to reduce OCI by $14.4
million relates solely to the hedging activities of the mortgage inventory at
October 1, 2000. Specifically, this amount represents the cumulative losses (to
September 30, 2000) of mortgage forward delivery contracts that were off-balance
sheet prior to the adoption of SFAS 133. Such cumulative losses did not exceed
cumulative unrealized gains in the designated mortgage inventory at October 1,
2000. Pursuant to the requirements of SFAS 133, cumulative gains in OCI of $3.3
million were reclassified to earnings during the six-month period ended March
31, 2002, concurrent with the recognition of the losses (or unfavorable
variability in cash flows) of the related forecasted loan sales that were
settled. Gains and losses on such hedge relationships are included in net
mortgage origination revenue in the accompanying consolidated statements of
income and comprehensive income.

Activity in OCI related to cash flow hedges of forecasted loan sales is
summarized as follows for the three- and six months ended March 31, 2002 and
2001, respectively (in thousands):

<TABLE>
<CAPTION>
                                                                                  TAX
                                                                 BEFORE-TAX     (EXPENSE)     NET-OF-TAX
                                                                   AMOUNT      OR BENEFIT       AMOUNT
                                                                 ----------    ----------     -----------
<S>                  <C> <C>                                      <C>            <C>           <C>
Balance at September 30, 2001                                     $(13,271)      $(3,055)      $(16,326)
Net gains on current period cash flow hedges                         8,054            --          8,054
Reclassification of gains to net income                             (3,095)        3,055            (40)
                                                                  --------       -------       --------

Balance at December 31, 2001                                      $ (8,312)      $    --       $ (8,312)
Net gains on current period cash flow hedges                           467            --            467
Reclassification of gains to net income                               (163)           --           (163)
Reclassification of losses on sale of warehouse loans/hedges
as a result of WaMu transaction (Note 2)                             8,133            --          8,133
                                                                  --------       -------       --------

Balance at March 31, 2002                                         $    125       $    --       $    125
                                                                  ========       =======       ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                         TAX
                                                                       BEFORE-TAX     (EXPENSE)     NET-OF-TAX
                                                                         AMOUNT       OR BENEFIT      AMOUNT
                                                                       ----------     ----------    ----------
<S>                                                                     <C>            <C>           <C>
Balance at September 30, 2000                                           $     --       $    --       $    --
Cumulative effect of a change in accounting for hedging activities       (14,383)        5,250        (9,133)
Net losses on current period cash flow hedges                             (4,589)        1,674        (2,915)
Reclassification of losses to net income                                  14,302        (5,220)        9,082
                                                                        --------       -------       -------

Balance at December 31, 2000                                            $ (4,670)      $ 1,704       $(2,966)
Net gains on current period cash flow hedges                               3,742        (1,366)        2,376
Reclassification of losses to net income                                      59           (21)           38
                                                                        --------       -------       -------

Balance at March 31, 2001                                               $   (869)      $   317       $  (552)
                                                                        ========       =======       =======
</TABLE>


Risk Management of Mortgage Servicing Rights

HomeSide utilizes a number of risk management derivative instruments to manage
the interest rate risk associated with its mortgage servicing rights ("MSR").
Such instruments include interest rate swaps, swaptions and caps, mortgage
forward delivery contracts, options on mortgage-backed securities, and options
and futures on exchange traded Treasury and Eurodollar contracts. Given the
unique value determinants and the convexity of mortgage servicing rights,
management uses a combination of derivative instruments to construct a hedge
portfolio that is intended to provide effective protection of the value of the
Company's mortgage servicing rights from interest rate risk.

SFAS 133 governs the accounting and disclosure requirements for derivative
instruments, including whether particular derivative transactions qualify for
hedge accounting treatment. Under its policies, the Company determines the
appropriate classification for its


                                       8
<PAGE>

MSR-related derivative transactions monthly. The objective of the Company's MSR
risk management practices is to minimize the risk of impairment in both the
immediate and long-term, while achieving an acceptable economic return on the
MSR asset. The hedge transactions entered into to meet this risk management
objective may, or may not, meet the SFAS 133 requirements for hedge accounting.
In the current fiscal year, the Company's MSR-related derivative transactions
qualified for fair value hedge accounting in the months of November and December
2001, and did not qualify for fair value hedge accounting in the month of
October 2001 or in the entire quarter ended March 31, 2002.

As a result, for the month of October 2001 and the quarter ended March 31, 2002,
the Company recognized a net gain of $369.6 million to current earnings related
to the change in fair value of its derivative instruments with no corresponding
hedge offset relative to the change in the fair value of the mortgage servicing
rights asset. During the months of November and December 2001, the decrease in
the value of the designated derivative contracts (net of theta) of $1,015.2
million was recorded to earnings along with an increase in the value of the
designated mortgage servicing rights of $1,050.4 million. In addition, during
the months of November and December 2001, the Company recognized a gain of $49.6
million to current earnings related to the change in fair value of
non-designated derivatives and theta. Additionally, pursuant to the guidance
provided in Statement of Financial Accounting Standard No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS 140"), the Company recorded a net valuation provision of mortgage
servicing rights totaling $443.4 million for the six months ended March 31,
2002. The fair value of the Company's derivative instruments used in the risk
management of mortgage servicing rights is ($128.0) million at March 31, 2002.

Risk Management of Corporate Funding

To meet its funding requirements, the Company periodically issues fixed-rate,
medium-term notes which are converted to floating-rate debt as part of its
Corporate funding strategies. As of the three- and six-month periods ended March
31, 2002, the Company had $650.0 million of fixed-rate, medium term notes that
had been swapped to floating rates of interest with $650.0 million in notional
interest rate swaps. The Company has designated the interest rate swaps as fair
value hedges of the change in value of the medium-term notes due to LIBOR
interest rates. At the inception of the hedge, the Company formally documents
the hedging relationships between the hedge instruments and the hedged items, as
well as the risk management objectives and strategy for undertaking the hedge
transactions. The medium-term notes are not pre-payable and the key terms of the
interest rate swaps are equivalent to those of the medium-term notes.
Accordingly, the Company expects that changes in the value of the interest rate
swaps will offset the changes in the value of the fixed-rate debt attributable
to LIBOR interest rates. During the three- and six-month periods ended March 31,
2002, the value of the interest rate swap contracts decreased by $4.7 million
and $11.5 million, respectively, and offset the changes in the fair value of the
medium-term notes due to the hedge risk. The fair value of interest rate swap
contracts designated as fair value hedges of medium-term notes was $28.5 million
at March 31, 2002.

Termination of Hedging Relationships

The Company employs a number of risk management monitoring procedures to ensure
that the designated hedging relationships are demonstrating, and are expected to
continue to demonstrate, a high level of effectiveness. Hedge accounting is
discontinued on a prospective basis if it is determined that the hedging
relationship is no longer effective or expected to be effective in offsetting
changes in the fair value or cash flows of the hedge item, or if a forecasted
transaction is no longer probable of occurring. When hedge accounting is
discontinued, the Company continues to carry the derivative instruments at fair
value with changes in their value recorded to earnings. However, in the case of
a fair value hedge that is discontinued, the carrying amount of the previously
hedged asset or liability may not be adjusted for changes in their fair value,
except in the case where a decline in fair value creates impairment to the
Company. In the case of a cash flow hedge of a forecasted transaction that is no
longer probable of occurring, gains and losses that were previously accumulated
in other comprehensive income are immediately recognized to earnings.

Fair Value of Derivative Instruments

Derivative Contracts: The fair value of mortgage forward delivery contracts,
options on mortgage-backed securities and exchange traded futures and options on
Treasury and Eurodollar contracts are determined based on market quotes.
Interest rate swaps, swaptions and caps are determined based on discounted
valuation models and are periodically validated against dealer quotes.

Interest Rate Lock Commitments Classified as Derivatives: The fair value of
interest rate lock commitments is determined using a vendor provided valuation
model, which references market quotes of the underlying mortgages. The valuation
model also considers a number of other key value determinants including the
remaining commitment period, the rate of the commitment in relation to current
market rates, interest rate volatility and the probability of the loan closing.
The probability of the loan closing is estimated based on historical
pull-through rates which are stored in matrix detail within the model database
by product type for an established set of interest rate shock scenarios. The
fair value of the Company's IRLCs generally approximate zero at inception (the
lock-in date) since the Company's practice is to extend loan commitments at
market rates of interest and to exclude from its fair value calculation the
normal profit margin associated with the future loan sale transactions.
                                       9
<PAGE>

Other Derivatives: The Company uses certain derivatives to economically hedge
the funding activities associated with government loans that are repurchased out
of GNMA (Government National Mortgage Association) pools that the Company has
previously sold. However, the Company does not designate a hedging relationship
for these derivatives for hedge accounting purposes. Accordingly, net gains on
these derivatives of $0.07 million and $0.05 million for the three- and
six-month periods ended March 31, 2002, were recorded to income and were
included as a component of risk management results. These results are included
as a component of other income in the accompanying consolidated statements of
income and comprehensive income.

6.   EARLY POOL BUYOUT SALES AND ADVANCES

On November 30, 1998, HomeSide formed a wholly-owned subsidiary, HomeSide
Funding Corporation ("HomeSide Funding"), whose sole purpose is to acquire
delinquent loans from HomeSide's servicing portfolio that are insured by the
Federal Housing Administration or guaranteed by the Department of Veterans
Affairs. The purchases are funded through sales to a trust.

In December 1998, HomeSide entered into a Pooling and Servicing Agreement with
Banc One Trust Company, N.A., as Trustee, and HomeSide Funding, as Transferor,
pursuant to which delinquent mortgage loans were sold to HomeSide Funding.
Subsequently, these loans were securitized and sold to the HomeSide Mortgage
Loan Buyout Trust 1998-A (the "Trust"). During the three- and six-month periods
ended March 31, 2002, no delinquent loans were sold to HomeSide Funding.
Effective November 29, 2001, the parties to the Pooling and Servicing Agreement
agreed that no additional increases would be made to the outstanding net
investment. Accordingly, no future delinquent loan sales are planned to HomeSide
Funding. The total principal amount of loans outstanding in the Trust as of
March 31, 2002 approximated $278.9 million. At March 31, 2002, the Trust had
commercial paper borrowings outstanding of approximately $280.5 million.
HomeSide held a residual interest in loans sold to HomeSide Funding in the
amount of $51.0 million and $28.1 million for the three months ended March 31,
2002 and 2001, respectively. Fair value was estimated based on the average
recovery periods and other economic factors.

Key economic assumptions used in measuring the fair value of HomeSide's retained
interests at March 31, 2002 and the effect on the fair value of those retained
interests from adverse changes in those assumptions are as follows:

<TABLE>
<CAPTION>

Dollars in thousands                                  MARCH 31, 2002
--------------------------------------------------------------------
<S>                                                      <C>
Fair value of retained interests                         $ 50,652
Weighted-average expected foreclosure related costs          2.77%
Weighted-average discount rate (annual rate)                 2.48%
      Impact of 10% adverse change                       $   (783)
      Impact of 20% adverse change                       $ (1,565)
Weighted-average recovery period (in months)                 9.68
      Impact of 10% adverse change                       $ (1,650)
      Impact of 20% adverse change                       $ (3,301)
</TABLE>

The above sensitivities are hypothetical and should be used with caution. As the
amounts indicate, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another (for example,
changes in average recovery period could result in changes in discount rates),
which might magnify or counteract the sensitivities.

The following table summarizes cash flows between HomeSide and the
securitization special purpose entity:

                                                         FOR THE THREE MONTHS
Dollars in thousands                                     ENDED MARCH 31, 2002
--------------------------------------------------------------------------------

Other cash flows received on retained interest                 $    2,499


Actual credit losses were $1.27 million and $2.07 million for the three months
ended March 31, 2002 and 2001, respectively.

Early pool buyout advances consist of delinquent government loans in process of
foreclosure that have been purchased from pools. The program reduces the
unreimbursed interest expense that HomeSide incurs. The funding of the purchases
of these delinquent loans for the early pool buyout program is recorded as
interest expense. Interest income earned from the guarantor agency during the
foreclosure


                                       10
<PAGE>

process is accrued to match the funding expense incurred. Scheduled interest
payments made to the investor before the loans were purchased from the pool are
recorded as early pool buyout advances with a reserve for advances which are
estimated as being uncollectible.

At March 31, 2002, the early pool buyout advances consisted of $27.4 million in
delinquent government loans that have been purchased from pools and $298.0
million representing a conditional option to repurchase certain eligible loans
from investor pools. When certain conditions are met, the Company has the
unilateral right to repurchase certain loans from investor pools which are
subject to the removal of account provisions on defaulted loans required by SFAS
140. A corresponding $298.0 million liability is included in accounts payable
and accrued liabilities in the accompanying consolidated balance sheets.

7.   NOTES PAYABLE

Notes payable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     WEIGHTED AVERAGE
                                                                      INTEREST RATE
                                                                 -----------------------
                                                  TOTAL             AT         DURING
                                               OUTSTANDING       PERIOD END   THE PERIOD
                                               -----------       ---------    ---------
<S>                                             <C>                <C>         <C>
March 31, 2002:
National Australia Bank Unsecured Facility      $1,316,000         1.90%       2.02%

September 30, 2001:
Commercial Paper                                $  400,000         3.53%       5.06%
National Australia Bank Unsecured Facility       1,748,000         3.46%       5.22%
                                                ----------
  Total                                         $2,148,000
                                                ==========
</TABLE>


On December 18, 2001, HomeSide entered into a new back-up facility for $920
million led by JP Morgan Chase Bank (the "Chase Facility"). This agreement
replaced HomeSide's previous bank credit facility and was scheduled to terminate
on December 17, 2002. On March 1, 2002, the National consummated the sale of
HomeSide's operating platform and certain of its operating assets to Washington
Mutual Bank, FA ("WaMu"). As a result of this sale, the Chase Facility was
terminated.

On July 31, 2001, HomeSide entered into an agreement for an unsecured revolving
credit facility with the National. This agreement replaced a previous unsecured
revolving credit facility with the National initially established on June 23,
1998 and thereafter renewed on an annual basis. Under the new credit facility,
HomeSide can borrow up to $2.42 billion through and including January 30, 2002,
and up to $1.92 billion from January 31, 2002 through July 30, 2002, subject to
limits imposed by regulatory authorities. At March 31, 2002, HomeSide had $1.92
billion available for borrowing. Borrowings under the credit facility may be
overnight or for periods of 7, 30, 60 or 90 days. For overnight borrowings, the
interest rate is determined by the National at the time of the borrowing. For
borrowings other than overnight, the interest rate is charged at the
corresponding LIBOR rate of the maturity period. The weighted average interest
rate on outstanding borrowings under the credit facility during the three- and
six-month periods ended March 31, 2002 were 2.02% and 2.38%, respectively.


                                       11
<PAGE>

8.   LONG-TERM DEBT

Medium-term notes

As of March 31, 2002, the outstanding medium-term notes issued by HomeSide
Lending under its shelf registration statement were as follows (in thousands):

<TABLE>
<CAPTION>
                        OUTSTANDING     COUPON
  ISSUE DATE              BALANCE        RATE          MATURITY DATE
  ----------            -----------     ------         -------------
<S>                     <C>             <C>          <C>
June 30, 1997           $  200,000      6.88%        June 30, 2002
July 31, 1997              200,000      6.75%        August 1, 2004
May 22, 1998               225,000      6.20%        May 15, 2003
June 9, 2000               215,000      7.07% *      June 10, 2002
June 9, 2000               200,000      6.89% *      April 9, 2002
June 9, 2000                85,000      7.07% *      June 10, 2002
August 1, 2000              75,000      6.97% *      August 1, 2002
September 14, 2000          75,000      6.79% *      September 16, 2002
September 14, 2000          60,000      6.94% *      September 15, 2003
September 14, 2000          25,000      7.00%        September 16, 2002
September 15, 2000         100,000      6.79% *      September 16, 2002
September 15, 2000          50,000      6.86% *      September 16, 2002
December 4, 2000           125,000      6.98% *      December 4, 2002
December 4, 2000            75,000      6.98% *      December 4, 2002
December 4, 2000            50,000      6.87% *      December 4, 2002
                        ----------
  Total                 $1,760,000
                        ==========
</TABLE>


* Represents initial interest rate for floating rate note

As of March 31, 2002, the outstanding, fixed rate medium-term notes of $650.0
million had been effectively converted by interest rate swap agreements to
floating-rate notes. During the three- and six-month periods ended March 31,
2002, the value of the interest rate swap contracts decreased by $4.7 million
and $11.5 million, respectively, and offset the changes in the fair value of the
medium-term notes due to hedged risk. The fair value of the interest rate swap
contracts designated as fair value hedges of medium-term notes was $28.5 million
at March 31, 2002. (See Note 5). The weighted average borrowing rates on
medium-term borrowings issued for the three- and six-month periods ended March
31, 2002, including the effect of the interest rate swap agreements, were 2.38%
and 2.71%, respectively. Net proceeds from the issuances were primarily used to
reduce the amounts outstanding under the bank credit agreement and to fund
acquisitions of servicing rights.

Upon the maturity and satisfaction of its Floating Rate Notes due June 10, 2002,
the Company will no longer have reporting obligations under Section 12(b) of the
Securities Exchange Act of 1934 ("Act"). Immediately thereafter, the Company
plans to terminate its reporting obligations under Section 15(d) of the Act.

Mortgage note payable

The balance of the mortgage payable at December 31, 2001, including the fair
value adjustments resulting from the merger with the National, was $21.4
million. To prepare for the consummation of the Asset Purchase Agreement with
WaMu, on January 31, 2002, the Company extinguished the mortgage payable for
which the office building was pledged as collateral. The Company recognized a
$4.2 million after tax gain on the early extinguishment of debt, which was
included in the calculation of loss for the sale transaction with WaMu and is
included as a component of loss on disposition of operating assets in the
accompanying consolidated statements of income and comprehensive income. (See
Note 2).

9.   CONTINGENT LIABILITY

The Company has a contingent liability arising in connection with the sale of
operating assets to WaMu. Under the sale agreement and related transaction
documentation, the Company has given warranties and indemnities and has agreed
to pay a termination fee in certain circumstances if it terminates the provision
of services by WaMu in connection with its retained mortgage servicing
portfolio. In addition, final closing adjustments to the sale price are expected
during the six-months ended September 30, 2002, which will reflect differences
between the interim estimated price on closing and the final valuation of the
assets acquired by WaMu. This adjustment may be an amount refundable by HomeSide
or payable by WaMu. The maximum potential loss arising from the contingent
liability to WaMu will depend upon the type of warranty or indemnity claimed by
WaMu and the final valuation parameters. As such, it is not practicable to
estimate the maximum potential loss arising from the contingent liability to
WaMu. It is not envisioned that any material unrecorded loss is likely to arise
from this contingent liability.


                                       12
<PAGE>

10.  NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") which supercedes APB Opinion No. 17, Intangible Assets. This
statement addresses how intangible assets should be accounted for in financial
statements upon their acquisition and also how they should be accounted for
after they have been initially recognized in the financial statements. The
provisions of this statement are required to be applied starting with fiscal
years beginning after December 15, 2001. Early application is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been previously issued. This
statement is required to be applied at the beginning of an entity's fiscal year
and to be applied to all goodwill and other intangible assets reported in its
financial statements. Management does not expect the requirements of this
standard to have a significant impact on the financial statements.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"), which addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
for the associated retirement costs. The statement applies to all entities and
covers legal obligations (arising from laws, statutes, contracts, etc.) that an
entity must satisfy when disposing of tangible, long-lived assets. SFAS 143 does
not apply to a lessee's obligations that are considered minimum lease payments
or contingent rentals. In addition, obligations that arise solely from a plan to
dispose of a long-lived asset in accordance with SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
are not covered by the provisions of SFAS 143. The standard requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially recorded, the
entity capitalizes a cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. The
standard is effective for fiscal years beginning after June 15, 2002. Management
does not expect the adoption of this statement to have a material impact on the
financial statements.

In August, 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144") which supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and provides a single accounting model for the disposal of
long-lived assets. Although retaining many of the fundamental recognition and
measurement provisions of SFAS 121, the new rules also supersede the provisions
of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", with regard to reporting the
effects of a disposal of a segment of a business and required future operating
losses from discontinued operations to be displayed in discontinued operations
in the period(s) in which the losses are incurred. This Statement also amends
ARB No. 51, "Consolidated Financial Statements", to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. SFAS
144 is effective for fiscal years beginning after December 15, 2001. Management
does not expect the requirements of this standard to have a significant impact
on the financial statements.

11.  DIVIDENDS

On November 13, 2001 the Company paid dividends to the Parent in the amount of
$24.0 million.

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

General

HomeSide Lending, Inc. (the "Company" or "HomeSide") is a wholly owned
subsidiary of SR Investments, Inc. (the "Parent"), formerly known as HomeSide
International, Inc. (the "Parent"), formerly known as HomeSide, Inc. On February
10, 1998, National Australia Bank Limited (the "National") acquired all
outstanding shares of the common stock of HomeSide, Inc., renamed it HomeSide
International, Inc., and the Company adopted a fiscal year end of September 30
to conform to the fiscal year of the National. HomeSide, Inc. acquired Bank
Boston Mortgage Corporation, the mortgage banking subsidiary of BankBoston,
N.A., on March 16, 1996, renamed it HomeSide Lending, Inc. and subsequently
purchased the mortgage banking operations of Barnett Banks, Inc. HomeSide is
currently headquartered in Jacksonville, Florida.

On March 1, 2002, the National consummated the sale of HomeSide's operating
platform and certain of its operating assets to WaMu. As such, WaMu acquired all
of HomeSide's servicing technology, and other corporate assets including the
wholesale, correspondent and consumer direct production channels and servicing
sites in Jacksonville, Florida and San Antonio, Texas. The Company retained the


                                       13
<PAGE>

mortgage servicing rights asset and related financial hedges. Upon consummation
of the Asset Purchase Agreement, the Company's servicing portfolio was
subserviced to WaMu.

Operating results for the three- and six-month periods ended March 31, 2002 and
2001 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Form
10-K for the fiscal year ended September 30, 2001 of HomeSide Lending, Inc.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. This Quarterly Report on Form 10-Q
contains forward-looking statements, which reflect the Company's current views
with respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified below, which could cause actual results to differ materially from
historical results or those anticipated. The words "believe," "expect,"
"anticipate," "intend," "estimate" and other expressions, which indicate future
events and trends, identify forward-looking statements, which speak only as of
their dates. The Company undertakes no obligation to publicly update or revise
any forward-looking statements whether as a result of new information, future
events or otherwise. The operations of the Company changed substantially upon
the consummation of the Asset Purchase Agreement with WaMu, as described above.
The Company retained the mortgage servicing rights asset, which existed as of
March 1, 2002 and continues to receive the servicing fees associated with the
asset, net of subservicing fees which are distributed to WaMu. The Company no
longer originates loans for resale. As a result, the Company would expect
retained assets and associated revenues to decline over time as the loans
underlying the mortgage servicing rights asset as of the transaction date are
repaid. The cash flows associated with the mortgage servicing rights asset will
be used to repay the Company's debt obligations and return capital to the
National.

Loan Production Activities

Historically, HomeSide participated in several origination channels, including
wholesale origination (correspondent, co-issue, and broker) and direct
origination (HomeSide Solutions) channels. The direct channels included
internet, telemarketing, direct mail, and mortgages related to affinity group
and co-branding partnerships. HomeSide has also purchased servicing rights in
bulk from time to time. Upon completion of the Asset Purchase Agreement with
WaMu on March 1, 2002, as described above, the Company no longer originates
loans for resale. As a result, the Company would expect revenues and expenses
associated with loan origination activities to cease.

The following information regarding loan production activities for HomeSide is
presented to aid in understanding the results of operations and financial
condition of HomeSide for the three- and six-month periods ended March 31, 2002
and 2001 (in millions):

<TABLE>
<CAPTION>
                              FOR THE THREE     FOR THE THREE      FOR THE SIX       FOR THE SIX
                               MONTHS ENDED      MONTHS ENDED      MONTHS ENDED      MONTHS ENDED
                              MARCH 31, 2002    MARCH 31, 2001    MARCH 31, 2002    MARCH 31, 2001
                              --------------    --------------    --------------    --------------
<S>                              <C>              <C>               <C>               <C>
Correspondent                    $3,479           $ 3,421           $ 8,675           $ 6,195
Co-issue                          1,613             4,381             6,874             7,531
Broker                              876             1,058             2,604             1,780
                                 ------           -------           -------           -------
  Total wholesale                 5,968             8,860            18,153            15,506
Direct                              630               275             1,611               506
                                 ------           -------           -------           -------
  Total production                6,598             9,135            19,764            16,012
Bulk acquisitions                    --             2,064                --            15,261
                                 ------           -------           -------           -------
  Total production and
    acquisitions                 $6,598           $11,199           $19,764           $31,273
                                 ======           =======           =======           =======
</TABLE>


Total loan production, excluding bulk acquisitions, decreased from $9.1 billion
for the three months ended March 31, 2001 to $6.6 billion for the three months
ended March 31, 2002, a 28% decline. This decrease was primarily a function of
the completion of the Asset Purchase Agreement with WaMu on March 1, 2002, as
mentioned above. Total loan production, excluding bulk acquisitions, was $19.8
billion for the six months ended March 31, 2002 compared to $16.0 billion for
the six months ended March 31, 2001, a 23% increase. The increase, mainly
attributable to first quarter production, was a function of HomeSide's ability
to leverage origination alliances, technological enhancements and influences
from a more favorable interest rate environment.

Servicing Portfolio

Upon completion of the Asset Purchase Agreement with WaMu on March 1, 2002, as
described above, HomeSide's servicing portfolio is subserviced by WaMu under an
agreement, which extends through March 1, 2007, subject to extension at
HomeSide's option. The agreement provides for a monthly fee per loan serviced,
such fee, which declines over time, as well as certain activity and termination
fees. See Note 2 to the Consolidated Financial Statements for additional
details.


                                       14
<PAGE>

The following information on the dollar amounts of loans serviced is presented
to aid in understanding the results of operations and financial condition of
HomeSide for the three and six-month periods ended March 31, 2002 and 2001 (in
millions):

<TABLE>
<CAPTION>
                                    FOR THE THREE       FOR THE THREE      FOR THE SIX        FOR THE SIX
                                     MONTHS ENDED        MONTHS ENDED      MONTHS ENDED       MONTHS ENDED
                                    MARCH 31, 2002      MARCH 31, 2001    MARCH 31, 2002     MARCH 31, 2001
                                    --------------      --------------    --------------     --------------
<S>                                    <C>                <C>                <C>                <C>
Balance at beginning of
  Period                               $181,267           $187,552           $187,367           $173,310
   Additions, net                         6,940             11,176             20,063             31,229
   Scheduled amortization                 1,414              1,329              2,857              2,525
   Sale of servicing to WaMu              2,093                 --              2,093                 --
   Prepayments                           13,080              7,784             30,598             12,191
   Foreclosures                             276                207                538                415
                                       --------           --------           --------           --------
       Total reductions                  16,863              9,320             36,086             15,131
                                       --------           --------           --------           --------
Balance at end of period               $171,344           $189,408           $171,344           $189,408
                                       ========           ========           ========           ========
</TABLE>

The number of loans serviced at March 31, 2002 was 1,878,173 compared to
2,107,171 at March 31, 2001.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2001

Summary

The operations of the Company changed substantially upon the consummation of the
Asset Purchase Agreement with WaMu, as described above. The Company retained the
mortgage servicing rights asset, which existed as of March 1, 2002 and continues
to receive the servicing fees associated with the asset, net of subservicing
fees, which are distributed to WaMu. The Company no longer originates loans for
resale. As a result, the Company would anticipate net revenues associated with
loan origination activities to cease. The Company would also expect retained
assets and associated revenues to decline over time as the loans underlying the
mortgage servicing rights asset as of the transaction date are repaid. See Note
2 to the Consolidated Financial Statements for additional details.

HomeSide reported a net loss of ($15.4) million for the three months ended March
31, 2002 compared to a net loss of ($66.3) million for the three months ended
March 31, 2001, as restated. Total revenues (expenses) for the three months
ended March 31, 2002 were $64.4 million compared to ($25.1) million for the
three months ended March 31, 2001, an $89.5 million increase. Net servicing
revenue (expense) increased $68.3 million for the three months ended March 31,
2002 compared to the three months ended March 31, 2001, primarily due to the
impact of the valuation provision of mortgage servicing rights. Net interest
revenue (expense) increased to $6.0 million for the three months ended March 31,
2002, compared to ($16.4) million primarily due to the widening of the spread
between short-term and long-term interest rates. Net mortgage origination
revenue decreased from $39.6 million for the three months ended March 31, 2001
to $37.1 million for the three months ended March 31, 2002 primarily due to
reduced production volume as a result of the completion of the Asset Purchase
Agreement with WaMu on March 1, 2002. Total expenses increased 7% primarily due
to the loss incurred as a result of the completion of the Asset Purchase
Agreement with WaMu. Income tax benefit decreased primarily as a result of an
improvement in (loss) income before income taxes and adjustments to the
valuation allowance against certain deferred tax assets of the Company.

Net Servicing Revenue (Expense)

Net servicing revenue (expense) is comprised of mortgage servicing fees net of
guaranty fees, ancillary servicing revenue, amortization of mortgage servicing
rights, valuation provision related to the mortgage servicing rights asset, and
the net earnings impact of risk management of mortgage servicing rights.
Mortgage servicing rights are the rights to receive a portion of the interest
coupon and fees collected from the mortgagor for performing specified servicing
activities. The total cost of loans originated or acquired is allocated between
the mortgage servicing rights and the mortgage loans, without the servicing
rights, based on relative fair values. The value of servicing rights acquired
through bulk acquisitions is capitalized at cost.

Mortgage servicing rights are amortized in proportion to and over the period of
the estimated net servicing revenue. Mortgage servicing rights are evaluated for
impairment by comparing the carrying amount of the servicing rights to their
estimated fair value. Fair value is estimated based on discounted future net
cash flows considering market prepayment estimates, historical prepayment rates,
portfolio characteristics, interest rates and other economic factors. For
purposes of measuring impairment, the mortgage servicing rights are stratified
by the predominant risk characteristics which include product types of the
underlying loans and interest rates of mortgage notes. Impairment, if any, is
recognized through a valuation reserve for each impaired stratum.


                                       15
<PAGE>

Mortgage servicing fees decreased 6% to $206.8 million for the three months
ended March 31, 2002 compared to $220.3 million for the three months ended March
31, 2001. The servicing portfolio decreased $18.1 billion to $171.3 billion at
March 31, 2002, compared to $189.4 billion at March 31, 2001, a 10% decrease.
The portfolio decline is primarily due to high prepayment activity and decreased
production volume due to the sale of production channels. HomeSide's weighted
average interest rate on the mortgage loans in the servicing portfolio was 7.36%
and 7.60% for the three months ended March 31, 2002 and 2001, respectively. The
weighted average servicing fee, net of guaranty fees and including ancillary
income, for the servicing portfolio was 46.5 basis points for the three months
ended March 31, 2002 compared to 47.0 for the three months ended March 31, 2001.

Amortization expense was $195.7 million for the three months ended March 31,
2002 compared to $135.4 million for the three months ended March 31, 2001, a 45%
increase. Amortization expense increased primarily as a result of increased
prepayment speeds associated with declining mortgage interest rates.
Amortization charges are highly dependent upon the level of prepayments during
the period and changes in prepayment expectations, which are significantly
influenced by the direction and level of long-term interest rate movements. A
decrease in mortgage interest rates results in an increase in prepayment
estimates used in calculating periodic amortization expense. Because mortgage
servicing rights are amortized over the expected period of service fee revenues,
an increase in mortgage prepayment activity typically results in a shorter
estimated life of the mortgage servicing assets and, accordingly, higher
amortization expense.

During the quarter ended March 31, 2002, the Company did not qualify for hedge
accounting pursuant to the requirements of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") for its mortgage servicing right related derivative
transactions. As a result, the Company recognized a net loss of $146.9 million
to current earnings related to the change in fair value of its derivative
instruments with no corresponding hedge offset relative to the change in fair
value of the mortgage servicing rights asset. Additionally, pursuant to the
guidance provided in Statement of Financial Accounting Standard No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 140"), the Company recorded a reduction in its valuation
provision of mortgage servicing rights of $154.0 million. See Note 5 to the
Consolidated Financial Statements for additional detail.

Net Interest Revenue (Expense)

Net interest revenue (expense) is driven by the level of interest rates, the
direction in which rates are moving, the associated spread between short- and
long-term interest rates and the rates at which HomeSide is able to borrow, and
the growth in net assets. These factors influence the size of the residential
mortgage origination market, HomeSide's loan production volumes, the interest
income HomeSide earns on its mortgages held for sale and interest rates paid to
its lenders. These factors also influence risk management results that affect
funding requirements.

Loan refinancing levels are the largest contributors to changes in the size of
the mortgage origination market. As interest rates decline, more borrowers
refinance their mortgages, resulting in an increase in the mortgage origination
market. Higher loan production volume results in higher average balances of
mortgages held for sale and consequently higher levels of interest income from
interest earned on such loans prior to their sale. This higher level of interest
income is partially offset by the lower rates earned on the loans.

Overall borrowing costs also fluctuate with changes in interest rates.
Currently, the interest expense HomeSide pays to finance mortgage loans held for
sale and other net assets is generally calculated with reference to short-term
interest rates. In addition, because mortgage loans held for sale earn interest
based on longer-term interest rates, the level of net interest revenue is also
influenced by the spread between long-term and short-term interest rates.

Net interest revenue (expense) resulted in net revenue of $6.0 million for the
three months ended March 31, 2002, an increase of $22.4 million compared to net
expense of ($16.4) million for the three months ended March 31, 2001. The
increase in net interest was partially due to the widening of the spread between
short-term and long-term interest rates. During the three months ended March 31,
2002, the spread between average long-term mortgage rates, based on the FNMA
30-year commitment rate, and short-term LIBOR rates widened by 330 basis points
as compared to the three months ended March 31, 2001.

Net Mortgage Origination Revenue

Net mortgage origination revenue is comprised of fees earned on the origination
of mortgage loans, fees charged to review loan documents for purchased loan
production, risk management hedge results, and gains and losses on the sale of
loans.

Net mortgage origination revenue was $37.1 million for the three months ended
March 31, 2002 compared to $39.6 million for the three months ended March 31,
2001, a 6% decrease. The decline was primarily due to a decrease in production
volumes resulting from the factors previously discussed above in the Loan
Production Activities section. Also contributing to this decrease were losses
recognized in relation to the risk management of loan production activities, see
the section below titled Risk Management of Loan Production Activities for
additional detail.


                                       16
<PAGE>

Other Income

Other income increased 67% to $3.0 million for the three months ended March 31,
2002 compared to $1.8 million for the three months ended March 31, 2001. Other
income was higher for the three months ended March 31, 2002 primarily due to
fees generated through inter-company use of servicing technology incurred prior
to the completion of the Asset Purchase Agreement with WaMu on March 1, 2002.

Salaries and Employee Benefits

Salaries and employee benefits expense was $26.5 million for the three months
ended March 31, 2002 compared to $32.6 million for the three months ended March
31, 2001, a 19% decrease. The average number of full-time equivalent employees
was 1,800 for the three months ended March 31, 2002 compared to 2,506 for the
three months ended March 31, 2001. The decrease is mainly attributable to
staffing reductions incurred as a result of the completion of the Asset Purchase
Agreement with WaMu on March 1, 2002.

Occupancy and Equipment

Occupancy and equipment expense primarily includes rental expense, repairs and
maintenance costs, certain computer software expenses and depreciation of
HomeSide's premises and equipment. Occupancy and equipment expense for the three
months ended March 31, 2002 was $7.7 million compared to $9.4 million for the
three months ended March 31, 2001. The decrease in expense was mainly due to
decreased rent expense and lower depreciation charges for premises and equipment
as a result of the completion of the Asset Purchase Agreement with WaMu on March
1, 2002.

Servicing Losses on Investor-Owned Loans and Foreclosure-Related Expenses

Servicing losses on investor-owned loans represent anticipated losses primarily
attributable to servicing FHA and VA loans for investors. These amounts include
actual losses for final disposition of loans, non-recoverable foreclosure costs,
accrued interest for which payment has been denied and estimates for potential
losses based on HomeSide's experience as a servicer of government loans.

The servicing losses on investor-owned loans and foreclosure-related expenses of
$8.7 million for the three months ended March 31, 2002 was relatively flat
compared to $8.1 million for the three months ended March 31, 2001.

Included in the balance of accounts payable and accrued liabilities at March 31,
2002 is a reserve for estimated servicing losses on investor-owned loans of
$13.3 million. The reserve has been established for potential losses related to
the mortgage servicing portfolio and the retained held for sale loans. Increases
to the reserve are charged to earnings as servicing losses on investor-owned
loans. The reserve is decreased for actual losses incurred related to the
mortgage servicing portfolio and retained held for sale loans. HomeSide's
historical loss experience on VA loans generally has been consistent with
industry experience. Management believes that HomeSide has an adequate level of
reserve based on servicing volume, portfolio composition, credit quality and
historical loss rates, as well as estimated future losses.

The following table sets forth HomeSide's delinquency and foreclosure
experience:

                        SERVICING PORTFOLIO DELINQUENCIES
                             (PERCENT BY LOAN COUNT)

<TABLE>
<CAPTION>
                                                          MARCH 31,    MARCH 31,
                                                            2002         2001
                                                          ---------    ---------
<S>                                                       <C>            <C>
Servicing Portfolio Delinquencies, excluding
  bankruptcies (at end of period)
          30 days                                         2.77%          2.60%
          60 days                                         0.56%          0.52%
          90+ days                                        0.34%          0.43%
                                                          ----           ----
               Total past due                             3.67%          3.55%
                                                          ====           ====
          Foreclosures pending                            0.80%          0.59%
                                                          ====           ====
</TABLE>


Goodwill Amortization

For the three months ended March 31, 2002, no goodwill amortization was
recorded. In September 2001, management of the Company determined that the
carrying value of goodwill and other intangible assets exceeded its recoverable
amount, based on an estimated market sale value of the Company. As a result, the
Company recorded an impairment charge of $565.8 million to write-off the
goodwill and $10.2 million to write-off other intangible assets. Goodwill
amortization was $8.6 million for the three months ended March 31, 2001.


                                       17
<PAGE>

Loss on Disposition of Operating Assets

For the three months ended March 31, 2002, the Company incurred a $9.8 million
loss in relation to the disposition of operating assets. The details of the sale
and resultant loss are more fully discussed in Note 2 to the Consolidated
Financial Statements.

Other Expenses

Other expenses consist mainly of professional fees, communications expense,
advertising and public relations, data processing expenses, certain loan
origination expenses and per loan fees incurred in relation to the Company's
subservicing agreement. The level of other expenses fluctuates in part based
upon the level of HomeSide's mortgage servicing portfolio and loan production
volumes.

Other expenses were $27.0 million for the three months ended March 31, 2002,
compared to $15.7 million for the three months ended March 31, 2001, a 72%
increase. The increase was primarily driven by per loan fees incurred in
relation to subservicing the Company's portfolio by WaMu.

Income Tax Benefit

The Company's income tax expense (benefit) was $0.0 for the three months ended
March 31, 2002, compared to an income tax benefit of $33.2 million for the three
months ended March 31, 2001. Income tax benefit decreased primarily as a result
of an improvement in (loss) income before income taxes and adjustments to the
valuation allowance against certain deferred tax assets.

Management has previously determined that it is more likely than not that
certain deferred tax assets will not be realized. Accordingly, a valuation
allowance was established in prior periods.

For the quarter ended March 31, 2002, expected income tax expense, including the
effect of state taxes was offset by adjustments to the valuation allowance.
Accordingly, no provision for income tax expense (benefit) has been recorded for
the quarter ended March 31, 2002. Management continues to maintain a valuation
allowance against certain deferred tax assets of the Company.

RESULTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2002 COMPARED TO THE SIX MONTHS ENDED MARCH
31, 2001

Summary

The operations of the Company changed substantially upon the consummation of the
Asset Purchase Agreement with WaMu, as described above. The Company retained the
mortgage servicing rights asset, which existed as of March 1, 2002 and continues
to receive the servicing fees associated with the asset, net of subservicing
fees, which are distributed to WaMu. The Company no longer originates loans for
resale. As a result, the Company would anticipate net revenues associated with
loan origination activities to cease. The Company would also expect retained
assets and associated revenues to decline over time as the loans underlying the
mortgage servicing rights asset as of the transaction date are repaid. See Note
2 to the Consolidated Financial Statements for additional details.

HomeSide reported net income of $16.5 million for the six months ended March 31,
2002 compared to a net loss of ($219.3) million for the six months ended March
31, 2001, as restated. Total revenues (expenses) for the six months ended March
31, 2002 were $174.7 million compared to ($184.9) million for the six months
ended March 31, 2001, a $359.6 million increase. Net servicing revenue (expense)
increased $274.1 million for the six months ended March 31, 2002 compared to the
six months ended March 31, 2001, primarily due to the impact of the valuation
provision of mortgage servicing rights. Net interest revenue (expense) increased
to $13.8 million for the six months ended March 31, 2002, compared to ($33.1)
million for the six months ended March 31, 2001, primarily due to the widening
of the spread between short-term and long-term interest rates. Net mortgage
origination revenue increased 63% from $62.2 million for the six months ended
March 31, 2001 to $101.5 million for the six months ended March 31, 2002
primarily due to a lower interest rate environment, which resulted in increased
production volume. Total expenses increased 4% primarily due to the loss on
disposition of operating assets. Income tax benefit decreased primarily as a
result of an increase in income (loss) before income taxes and adjustments to
the valuation allowance against certain deferred tax assets of the Company.

Net Servicing Revenue (Expense)

Net servicing revenue (expense) is comprised of mortgage servicing fees net of
guaranty fees, ancillary servicing revenue, amortization of mortgage servicing
rights, valuation provision related to the mortgage servicing rights asset, and
the net earnings impact of risk management of mortgage servicing rights.
Mortgage servicing rights are the rights to receive a portion of the interest
coupon and fees collected from the mortgagor for performing specified servicing
activities. The total cost of loans originated or acquired is allocated


                                       18
<PAGE>

between the mortgage servicing rights and the mortgage loans, without the
servicing rights, based on relative fair values. The value of servicing rights
acquired through bulk acquisitions is capitalized at cost.

Mortgage servicing rights are amortized in proportion to and over the period of
the estimated net servicing revenue. Mortgage servicing rights are evaluated for
impairment by comparing the carrying amount of the servicing rights to their
estimated fair value. Fair value is estimated based on discounted future net
cash flows considering market prepayment estimates, historical prepayment rates,
portfolio characteristics, interest rates and other economic factors. For
purposes of measuring impairment, the mortgage servicing rights are stratified
by the predominant risk characteristics which include product types of the
underlying loans and interest rates of mortgage notes. Impairment, if any, is
recognized through a valuation reserve for each impaired stratum.

Mortgage servicing fees of $428.8 million for the six months ended March 31,
2002 were relatively flat compared to $428.5 million for the six months ended
March 31, 2001. HomeSide's weighted average interest rate on loans in the
servicing portfolio was 7.41% and 7.60% for the six months ended March 31, 2002
and 2001, respectively. The weighted average servicing fee, including ancillary
income, for the servicing portfolio was 47.3 basis points for the six months
ended March 31, 2002 compared to 46.8 basis points for the six months ended
March 31, 2001.

Amortization expense was $387.3 million for the six months ended March 31, 2002
compared to $255.7 million for the six months ended March 31, 2001, a 51%
increase. Amortization expense increased primarily as a result of increased
prepayment speeds associated with declining mortgage interest rates.
Amortization charges are highly dependent upon the level of prepayments during
the period and changes in prepayment expectations, which are significantly
influenced by the direction and level of long-term interest rate movements. A
decrease in mortgage interest rates results in an increase in prepayment
estimates used in calculating periodic amortization expense. Because mortgage
servicing rights are amortized over the expected period of service fee revenues,
an increase in mortgage prepayment activity typically results in a shorter
estimated life of the mortgage servicing assets and, accordingly, higher
amortization expense.

In the current fiscal year, the Company's MSR-related derivative transactions
qualified for hedge accounting pursuant to the requirements of SFAS 133 for
mortgage servicing rights in the months of November and December 2001, and did
not qualify for hedge accounting in the month of October 2001 or for the quarter
ended March 31, 2002. As a result, for the month of October 2001 and the quarter
ended March 31, 2002, the Company recognized a net gain of $369.6 million to
current earnings related to the change in fair value of its derivative
instruments with no corresponding hedge offset relative to the change in the
fair value of the mortgage servicing rights asset. During the months of November
and December 2001, the decrease in the value of the designated derivative
contracts (net of theta) of $1,015.2 was recorded to earnings along with an
increase in the value of the designated mortgage servicing rights of $1,050.4
million. During the months of November and December 2001, the Company recognized
a gain of $49.6 million to current earnings related to the change in fair value
of non-designated derivatives and theta. Additionally, pursuant to the guidance
provided in SFAS 140, the Company recorded a net valuation provision of mortgage
servicing rights totaling $443.4 million for the six months ended March 31,
2002.

Net Interest Revenue (Expense)

Net interest revenue (expense) is driven by the level of interest rates, the
direction in which rates are moving, the associated spread between short- and
long-term interest rates and the rates at which HomeSide is able to borrow, and
the growth in net assets. These factors influence the size of the residential
mortgage origination market, HomeSide's loan production volumes, the interest
income HomeSide earns on its mortgages held for sale and interest rates paid to
its lenders. These factors also influence risk management results that affect
funding requirements.

Loan refinancing levels are the largest contributors to changes in the size of
the mortgage origination market. As interest rates decline, more borrowers
refinance their mortgages, resulting in an increase in the mortgage origination
market. Higher loan production volume results in higher average balances of
mortgages held for sale and consequently higher levels of interest income from
interest earned on such loans prior to their sale. This higher level of interest
income is partially offset by the lower rates earned on the loans.

Overall borrowing costs also fluctuate with changes in interest rates.
Currently, the interest expense HomeSide pays to finance mortgage loans held for
sale and other net assets is generally calculated with reference to short-term
interest rates. In addition, because mortgage loans held for sale earn interest
based on longer-term interest rates, the level of net interest revenue is also
influenced by the spread between long-term and short-term interest rates.

Net interest revenue (expense) resulted in net revenue of $13.8 million for the
six months ended March 31, 2002, an increase of $46.9 million compared to net
expense of ($33.1) million for the six months ended March 31, 2001. The increase
in net interest was partially due to a widening of the spread between short-term
and long-term rates. During the six months ended March 31, 2002, the spread
between average long-term mortgage rates, based on the FNMA 30-year commitment
rate, and short-term LIBOR rates widened by 328 basis points as compared to the
six months ended March 31, 2001.


                                       19
<PAGE>

Net Mortgage Origination Revenue

Net mortgage origination revenue is comprised of fees earned on the origination
of mortgage loans, fees charged to review loan documents for purchased loan
production, risk management hedge results, and gains and losses on the sale of
loans.

Net mortgage origination revenue was $101.5 million for the six months ended
March 31, 2002 compared to $62.2 million for the six months ended March 31,
2001, a 63% increase. The increase was primarily due to an increase in
production volumes resulting from the factors previously discussed above in the
Loan Production Activities section.

Other Income

Other income decreased slightly from $7.6 million for the six months ended March
31, 2001 compared to $6.9 million for the six months ended March 31, 2002. Other
income was higher for the six months ended March 31, 2001 primarily due to a
sale-leaseback transaction involving HomeSide's San Antonio facility, which
resulted in the immediate recognition of a $4.5 million gain. The decrease in
other income for the six months ended March 31, 2002 was partially offset by an
increase in fees generated through inter-company use of servicing technology
incurred prior to the completion of the Asset Purchase Agreement with WaMu on
March 1, 2002.

Salaries and Employee Benefits

Salaries and employee benefits expense was $68.6 million for the six months
ended March 31, 2002 compared to $62.5 million for the six months ended March
31, 2001, a 10% increase. The increase is mainly attributable to higher
prepayment activity, higher total production (excluding bulk acquisitions)
resulting in higher commissions, incentives and an increase in temporary and
overtime staff experienced through the five months ended February 28, 2002. This
increase was partially offset by staffing reductions incurred in March 2002 as a
result of the completion of the Asset Purchase Agreement with WaMu on March 1,
2002. The average number of full-time equivalent employees was 2,258 for the six
months ended March 31, 2002 compared to 2,434 for the six months ended March 31,
2001.

Occupancy and Equipment

Occupancy and equipment expense primarily includes rental expense, repairs and
maintenance costs, certain computer software expenses and depreciation of
HomeSide's premises and equipment. Occupancy and equipment expense of $19.2
million for the six months ended March 31, 2002 was relatively flat compared to
$19.2 million for the six months ended March 31, 2001.

Servicing Losses on Investor-Owned Loans and Foreclosure-Related Expenses

Servicing losses on investor-owned loans represent anticipated losses primarily
attributable to servicing FHA and VA loans for investors. These amounts include
actual losses for final disposition of loans, non-recoverable foreclosure costs,
accrued interest for which payment has been denied and estimates for potential
losses based on HomeSide's experience as a servicer of government loans.

The servicing losses on investor-owned loans and foreclosure-related expenses
totaled $14.7 million for the six months ended March 31, 2002 compared to $18.2
million for the six months ended March 31, 2001. The decrease was mainly
attributable to a decline in per unit servicing losses resulting from a shift in
the geographic mix and composition of the servicing portfolio.

Goodwill Amortization

For the six months ended March 31, 2002, no goodwill amortization was recorded.
In September 2001, management of the Company determined that the carrying value
of goodwill and other intangible assets exceeded its recoverable amount, based
on an estimated market sale value of the Company. As a result, the Company
recorded an impairment charge of $565.8 million to write-off the goodwill and
$10.2 million to write-off other intangible assets. Goodwill amortization was
$17.1 million for the six months ended March 31, 2001.

Loss on Disposition of Operating Assets

For the six months ended March 31, 2002, the Company incurred a $9.8 million
loss in relation to the disposition of operating assets. The details of the sale
and resultant loss are more fully discussed in Note 2 to the Consolidated
Financial Statements.

Other Expenses

Other expenses consist mainly of professional fees, communications expense,
advertising and public relations, data processing expenses, certain loan
origination expenses and per loan fees incurred in relation to the Company's
subservicing agreement. The level of other expenses fluctuates in part based
upon the level of HomeSide's mortgage servicing portfolio and loan production
volumes.


                                       20
<PAGE>

Other expenses were $45.9 million for the six months ended March 31, 2002,
compared to $35.0 million for the six months ended March 31, 2001. The increase
was primarily driven by per loan fees incurred in relation to subservicing the
Company's portfolio by WaMu.

Income Tax Benefit

The Company's income tax expense (benefit) was $0.0 for the six months ended
March 31, 2002, compared to an income tax benefit of $116.8 million for the six
months ended March 31, 2001. Income tax benefit decreased primarily as a result
of an improvement in (loss) income before income taxes and adjustments to the
valuation allowance against certain deferred tax assets.

Management has previously determined that it is more likely than not that
certain deferred tax assets will not be realized. Accordingly, a valuation
allowance was established in prior periods.

For the six months ended March 31, 2002, expected income tax expense, including
the effect of state taxes was offset by adjustments to the valuation allowance.
Accordingly, no provision for income tax expense (benefit) has been recorded for
the six months ended March 31, 2002. Management continues to maintain a
valuation allowance against certain deferred tax assets of the Company.

RISK MANAGEMENT ACTIVITIES

Mortgage banking entities face a broad range of risk that must be proactively
managed to achieve success in the industry. The Company utilizes an
enterprise-wide risk management structure that is comprised of a common policy
framework and a set of controls that are utilized to achieve standardization of
risks. Each business function is responsible for using standardized risk
assessment templates along with best practice methodology for the identification
and quantification of the particular risk it is exposed to and for the
implementation of appropriate policies and procedures.

The Company's Risk Council, comprising executive and senior management as well
as representation from internal audit, is the principal operating risk policy
decision making body within the Company. Risk Council's role is to constantly
monitor and assess the Company's risk profile in existing and future business
operations, and to assist business units in the design and implementation of
appropriate risk management policies and strategies.

The Risk Council provides direction and oversight for many types of risks such
as credit, operations, legislative compliance, e-commerce, business continuity
and disaster recovery. Certain of the Company's other major risk areas (e.g.
market risk) are more fully discussed below.

Risk Management of Market Risk

Market risk recognizes the potential change in the value of assets, liabilities
and other financial commitments as a result of changes in asset prices along
with changes in actual and projected interest rates. HomeSide continues to
review and enhance its strategies and underlying policies relating to risk
management of market risk based on changes in the market environment. Certain
members of the Company's Risk Council also comprise the Company's Asset and
Liability Management Committee ("ALCO") which, under delegated authority from
the Board, sets policies in relation to the management of market risk, corporate
funding and balance sheet management. Representatives of the Company's ALCO
report to the National's ALCO concerning risk management and also participate in
the National's group ALCO meetings.

In accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", for the three- and six-month periods ended March 31, 2002,
all of the Company's risk management derivative instruments are recorded at fair
value. Changes in the value of risk management derivative instruments designated
as qualifying fair value hedging relationships are recognized in current
earnings along with the changes in the value of the qualifying hedged assets or
liabilities. Changes in the value of risk management derivative instruments
designated as qualifying cash flow hedging relationships of forecasted loan sale
transactions are recorded to other comprehensive income ("OCI") and reclassified
to earnings concurrent with settlement of the loan sale transactions. The
accounting policies relevant to derivative instruments and hedging activities
for each of the Company's key risk management areas are more fully discussed in
Note 5 to the Consolidated Financial Statements.

Market Environment

Despite the sluggish economy, the US housing sector has remained strong.
Purchase volumes have been solid and refinancing activities have hit levels not
seen since mid-1998. This has resulted in increased production volumes and
improved results in the Company's production channels. However, the volatile
interest rate environment and extensive refinancing activities have resulted in
higher prepayment activity impacting the value of the Company's mortgage
servicing right asset.


                                       21
<PAGE>

Continued uncertainties surrounding future monetary policy and the state of the
US economy have resulted in significant volatility in interest rate spreads
between short and long term rates, placing considerable pressure on the
Company's hedge performance. As more fully discussed in Note 5 of the
Consolidated Financial Statements, HomeSide utilizes a combination of derivative
instruments to create a hedge portfolio that is intended to provide effective
protection of the value of the Company's mortgage servicing rights from interest
rate risk.

Following is a summary of risk management activities and results for the three-
and six-month periods ended March 31, 2002:

Risk Management of Loan Production Activities

Loan production activities include the origination or acquisition of mortgage
loans, the warehousing of those loans in inventory and the resale of those loans
in the secondary mortgage market. These activities were included in the
operations purchased by WaMu as of March 1, 2002. See Note 2 to the Consolidated
Financial Statements for additional details. Until the sale, the Company
maintained a risk management program to protect and manage interest rate risk
and pricing risk associated with its mortgage committed pipeline and mortgage
inventory. Transactions outstanding as of the date of the sale to WaMu were
assigned to WaMu at their estimated fair market value at that date. See Note 5
to the Consolidated Financial Statements for additional details.

Risk Management of Mortgage Servicing Rights

HomeSide utilizes a number of risk management derivative instruments to manage
the interest rate risk associated with its mortgage servicing rights. Such
instruments include interest rate swaps, swaptions and caps, mortgage forward
delivery contracts, options on mortgage-backed securities, and options and
futures on exchange traded Treasury and Eurodollar contracts. Given the unique
value determinants and the convexity of mortgage servicing rights, management
uses a combination of derivative instruments to construct a hedge portfolio that
is intended to provide effective protection of the value of the Company's
mortgage servicing rights from interest rate risk.

SFAS 133 governs the accounting and disclosure requirements for derivative
instruments, including whether particular derivative transactions qualify for
hedge accounting. Under its policies, the Company determines the appropriate
classification for its MSR-related derivative transactions monthly. The
objective of the Company's MSR risk management practices is to minimize the risk
of impairment in both the immediate and long-term, while achieving an acceptable
economic return on the MSR asset. The hedge transactions entered into to meet
this risk management objective may, or may not, meet the SFAS 133 requirements
for hedge accounting. In the current fiscal year, the Company's MSR-related
derivative transactions qualified for fair value hedge accounting in the months
of November and December 2001, and did not qualify for fair value hedge
accounting in the month of October 2001 or in the entire quarter ended March
31, 2002.

As a result, for the month of October 2001 and the quarter ended March 31, 2002,
the Company recognized a net gain of $369.6 million to current earnings related
to the change in fair value of its derivative instruments with no corresponding
hedge offset relative to the change in the fair value of the mortgage servicing
rights asset. During the months of November and December 2001, the decrease in
the value of the designated derivative contracts (net of theta) of $1,015.2
million was recorded to earnings along with an increase in the value of the
designated mortgage servicing rights of $1,050.4 million. During the months of
November and December 2001, the Company recognized a gain of $49.6 million to
current earnings related to the change in fair value of non-designated
derivatives and theta. Additionally, pursuant to the guidance provided in SFAS
140, the Company recorded a net valuation provision of mortgage servicing rights
totaling $443.4 million for the six months ended March 31, 2002. See Note 5 to
the Consolidated Financial Statements for additional details.

Risk Management of Corporate Funding

As part of its corporate funding and balance sheet management strategies, the
Company maintains a desired level of its total borrowings through short-term
funding sources. To meet the Company's financing needs, short-term funding is
provided through the Company's short-term facility with the National.
Additionally, the Company can alter its weighting in fixed-rate funding by
converting medium-term notes to floating rate. During the three-months ended
March 31, 2002, the Company was party to $650.0 million in interest rate swaps
which were effective in converting $650.0 million of medium-term notes to
LIBOR-based funding. As discussed in Note 5 to the Consolidated Financial
Statements, the interest rate swaps were accounted for as fair value hedges of
the designated medium-term notes.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal financing needs are the financing of the retained
mortgage servicing rights asset along with related financial hedges and
operating expenses. The Company's cash and cash equivalents totaled $1.2 billion
at March 31, 2002. The Company expects that this cash, together with the cash
generated from the retained assets will be sufficient to fund the operations of
the Company, repay existing debt and return capital to its Parent. The Company
would expect that to the extent cash generated from the retained assets is
inadequate to meet its liquidity needs, those needs can be met through external
facilities and inter-company borrowings with the National.


                                       22
<PAGE>

Operations

Net cash provided by operating activities was $1,224.7 million and $704.9
million for the three- and six-month periods ended March 31, 2002, respectively.
Net cash used in operating activities was $111.1 million for the three months
ended March 31, 2001. Net cash provided by operating activities was $300.0
million for the six months ended March 31, 2001. Cash provided from the sale of
operating assets, net servicing income, loan sales and principal repayments were
offset by cash used for the origination and purchase of mortgage loans held for
sale and to pay corporate expenses.

Investing

Net cash provided by investing was $979.6 million and $645.3 million for the
three- and six-month periods ended March 31, 2002, respectively. Net cash used
in investing activities was $152.1 million and $535.6 million for the three- and
six-month periods ended March 31, 2001, respectively. Cash was primarily
provided by proceeds from risk management contracts and early pool buyout
reimbursements. Cash used in investing activities was primarily for the purchase
of mortgage servicing rights and premises and equipment. Future uses of cash for
investing activities will be dependent on HomeSide's hedging needs.

Financing

Net cash used in financing activities was $1,239.0 million and $874.8 million
for the three- and six-month periods ended March 31, 2002, respectively. Net
cash provided by financing activities was $394.7 million and $315.3 million for
the three- and six-month periods ended March 31, 2001, respectively. Cash was
used for repayment of borrowings from the National and commercial paper, payment
of debt issue costs, payment of dividends to the Parent, and repayment of
long-term debt.

OFF-BALANCE SHEET ARRANGEMENTS

On November 30, 1998, HomeSide formed a wholly-owned subsidiary, HomeSide
Funding Corporation ("HomeSide Funding"), whose sole purpose is to acquire
delinquent loans from HomeSide's servicing portfolio that are insured by the
Federal Housing Administration or guaranteed by the Department of Veterans
Affairs. The purchases are funded through sales to a trust.

In December 1998, HomeSide entered into a Pooling and Servicing Agreement with
Banc One Trust Company, N.A., as Trustee, and HomeSide Funding, as Transferor,
pursuant to which delinquent mortgage loans were sold to HomeSide Funding.
Subsequently, these loans were securitized and sold to the HomeSide Mortgage
Loan Buyout Trust 1998-A (the "Trust"). During the three- and six-month periods
ended March 31, 2002, no delinquent loans were sold to HomeSide Funding.
Effective November 29, 2001, the parties to the Pooling and Servicing Agreement
agreed that no additional increases would be made to the outstanding net
investment. Accordingly, no future delinquent loan sales are planned to HomeSide
Funding. The total principal amount of loans outstanding in the Trust as of
March 31, 2002 approximated $278.9 million. At March 31, 2002, the Trust had
commercial paper borrowings outstanding of approximately $280.5 million.
HomeSide held a residual interest in loans sold to HomeSide Funding in the
amount of $51.0 million and $28.1 million for the three months ended March 31,
2002 and 2001, respectively. Fair value was estimated based on the average
recovery periods and other economic factors.

Key economic assumptions used in measuring the fair value of HomeSide's retained
interests at March 31, 2002 and the effect on the fair value of those retained
interests from adverse changes in those assumptions are as follows:


Dollars in thousands                                        MARCH 31, 2002
--------------------------------------------------------------------------

Fair value of retained interests                              $ 50,652
Weighted-average expected foreclosure related costs               2.77%
Weighted-average discount rate (annual rate)                      2.48%
      Impact of 10% adverse change                            $   (783)
      Impact of 20% adverse change                            $ (1,565)
Weighted-average recovery period (in months)                      9.68
      Impact of 10% adverse change                            $ (1,650)
      Impact of 20% adverse change                            $ (3,301)

The above sensitivities are hypothetical and should be used with caution. As the
amounts indicate, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is


                                       23
<PAGE>

calculated without changing any other assumption. In reality, changes in one
factor may result in changes in another (for example, changes in average
recovery period could result in changes in discount rates), which might magnify
or counteract the sensitivities.

The following table summarizes cash flows between HomeSide and the
securitization special purpose entity:

                                                         FOR THE THREE MONTHS
Dollars in thousands                                     ENDED MARCH 31, 2002
-----------------------------------------------------------------------------

Other cash flows received on retained interest                 $    2,499


Actual credit losses were $1.27 million and $2.07 million for the three months
ended March 31, 2002 and 2001, respectively.

QUANTITATIVE AND QUALITATIVE MARKET RISK

There have been no material changes in the Company's market risk from September
30, 2001. For information regarding the Company's market risk, refer to Form
10-K for the fiscal year ended September 30, 2001 of HomeSide Lending, Inc.
Additionally, the results of HomeSide's risk management programs and the
associated accounting for derivative instruments and hedging activities pursuant
to SFAS 133, as amended, is more fully described in Note 5 to the Consolidated
Financial Statements.

                           PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

HomeSide is a defendant in a number of legal proceedings arising in the normal
course of business. HomeSide, in management's estimation, has recorded adequate
reserves in the financial statements for pending litigation. Management, after
reviewing all actions and proceedings pending against or involving HomeSide,
considers that the aggregate liability or loss, if any, resulting from the final
outcome of these proceedings will not have a material effect on the financial
position of HomeSide.

In recent years, the mortgage banking industry has been subject to class action
lawsuits, which allege violations of federal and state laws and regulations,
including the propriety of collecting and paying various fees and charges. Class
action lawsuits may be filed in the future against the mortgage banking
industry.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a) No documents are filed as a part of this Report.


(b) Reports on Form 8-K

     During the three months ended March 31, 2002, the Company filed reports on
Form 8-K on March 8, 2002 and March 18, 2002.


                                       24
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     HomeSide Lending, Inc.
                                     ----------------------
                                     (Registrant)

Date: May 15, 2002                   By: /s/
                                        --------------------------------------
                                        Joseph J. Whiteside
                                        Chief Executive Officer (Principal
                                        Executive Officer)


Date: May 15, 2002                   By: /s/
                                        --------------------------------------
                                        Susan E. Lester
                                        Executive Vice President and Chief
                                        Financial Officer (Principal Financial
                                        and Accounting Officer)


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