UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended June 30, 1999

                                      OR

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


                          Commission File No. 001-14043

                          OCWEN ASSET INVESTMENT CORP.
                          ----------------------------
             (Exact name of registrant as specified in its charter)


            Virginia                               65-0736120
            --------                               ----------
  (State or other jurisdiction                  (I.R.S. Employer
 of incorporation or organization)              Identification No.)


                              The Forum, Suite 1000
                              ---------------------
         1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401
         ---------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


                                 (561) 682-8000
                                 --------------
              (Registrant's telephone number, including area code)

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 [ ].


Number of shares of Common Stock,  $.01 par value,  outstanding  at the close of
business on August 13, 1999: 18,965,000 shares.

<PAGE>
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<CAPTION>

                          OCWEN ASSET INVESTMENT CORP.
                                    FORM 10-Q

                                    I N D E X

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

 PART I - FINANCIAL INFORMATION                                              PAGE

<S>   <C>                                                                      <C>
 Item 1.  Interim Consolidated Financial Statements (unaudited)..........      3

          Consolidated Statements of Financial Condition.................      3

          Consolidated Statements of Operations..........................      4

          Consolidated Statements of Comprehensive Income (Loss).........      5

          Consolidated Statements of Changes in Shareholders' Equity.....      6

          Consolidated Statements of Cash Flows..........................      7

          Notes to Consolidated Financial Statements.....................      8

 Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations................     20

 Item 3.  Quantitative and Qualitative Disclosures About Market Risk.....     43

 PART II - OTHER INFORMATION

 Item 6.  Exhibits and Reports on Form 8-K...............................     47

 Signature...............................................................     48
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                                       2
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<TABLE>
<CAPTION>

                                    OCWEN ASSET INVESTMENT CORP.
                           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                       June 30,      December 31,
                                                                        1999            1998
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
ASSETS:
   Cash and amounts due from depository institutions ............   $   5,162,989    $   3,484,929
   Interest-bearing deposits ....................................      27,210,332       49,880,276
   Securities available for sale, at fair value .................     284,488,118      351,153,971
   Commercial and multi-family loan portfolio, net ..............      79,478,045       65,282,965
   Residential loan portfolio, net ..............................       6,064,404        8,058,445
   Match funded residential loans, net ..........................     135,857,672      173,609,873
   Discount loan portfolio, net .................................       5,618,022        5,618,022
   Investment in real estate, net ...............................     211,368,063      208,058,721
   Principal and interest receivable ............................       4,352,684        7,475,795
   Other assets .................................................      19,008,588       15,702,816
                                                                    -------------    -------------
     Total assets ...............................................   $ 778,608,917    $ 888,325,813
                                                                    =============    =============

LIABILITIES:
   Securities sold under agreements to repurchase ...............   $  73,847,048    $ 138,611,824
   Obligations outstanding under lines of credit ................      41,015,023       34,472,404
   Obligations outstanding under lines of credit - secured by
     real estate ................................................     143,755,698      142,556,880
    11.5% Redeemable Notes due 2005 .............................     143,000,000      143,000,000
    Bonds - match funded loan agreement .........................     124,209,290      163,403,966
   Accrued expenses, payables and other liabilities .............      22,805,816       21,190,288
                                                                    -------------    -------------
     Total liabilities ..........................................     548,632,875      643,235,362
                                                                    -------------    -------------

Minority interest ...............................................      21,967,987       23,914,058
                                                                    -------------    -------------

Commitments and Contingencies (Note 12)

SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 25,000,000 shares authorized;
     0 shares issued and outstanding ............................            --               --
  Common Stock, $.01 par value; 200,000,000 shares authorized;
     18,965,000 shares issued and outstanding ...................         189,650          189,650
   Additional paid-in capital ...................................     294,492,203      294,492,203
   Cumulative dividends declared ................................     (36,277,546)     (36,277,546)
   Accumulated deficit ..........................................     (65,345,486)     (46,394,403)
   Accumulated other comprehensive income:
     Unrealized gain on securities available for sale ...........      16,365,730       11,038,151
     Cumulative translation adjustment ..........................      (1,416,496)      (1,871,662)
                                                                    -------------    -------------
       Total other comprehensive income .........................      14,949,234        9,166,489
                                                                    -------------    -------------
       Total shareholders' equity ...............................     208,008,055      221,176,393
                                                                    -------------    -------------
                                                                    $ 778,608,917    $ 888,325,813
                                                                    =============    =============


      THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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                                       3
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                                          OCWEN ASSET INVESTMENT CORP.
                                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                    For the Three Months Ended       For the Six Months Ended
                                                             June 30,                        June 30,
                                                   ----------------------------    ---------------------------
                                                       1999            1998            1999            1998
                                                   ------------    ------------    ------------    -----------
<S>                                                <C>             <C>             <C>                 <C>
INTEREST INCOME:
  Repurchase agreements and interest bearing
    deposits ....................................  $    326,219    $     97,510    $    820,823        295,648
  Securities held for trading ...................            --        (375,300)             --        106,892
  Securities available for sale .................    12,063,542      11,534,635      25,702,059     16,183,217
  Commercial and multi-family loans .............     2,220,840       1,467,916       3,869,354      2,273,702
  Match funded residential loans ................     3,000,208              --       6,327,351             --
  Residential loans .............................       132,153       2,178,010         277,551      2,613,031
  Discount loans ................................       132,400         423,421         258,718      1,326,198
                                                   ------------    ------------    ------------    -----------
                                                     17,875,362      15,326,192      37,255,856     22,798,688
                                                   ------------    ------------    ------------    -----------
INTEREST EXPENSE:
  Securities sold under agreements to repurchase.     2,039,165       3,302,044       4,681,167      3,966,815
  Obligations outstanding under lines of credit..       705,826       2,244,723       1,312,510      2,273,769
  11.5% Redeemable Notes due 2005................     4,111,250              --       8,265,400             --
  Bonds-match funded loan agreements ............     2,252,778              --       4,776,380             --
                                                   ------------    ------------    ------------    -----------
                                                      9,109,019       5,546,767      19,035,457      6,240,584
                                                   ------------    ------------    ------------    -----------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
  LOSSES ........................................     8,766,343       9,779,425      18,220,399     16,558,104
  Provision for loan losses .....................       221,239         100,976         479,091        206,049
                                                   ------------    ------------    ------------    -----------
  NET INTEREST INCOME AFTER PROVISION FOR LOAN
    LOSSES ......................................     8,545,104       9,678,449      17,741,308     16,352,055
                                                   ------------    ------------    ------------    -----------

REAL ESTATE-OPERATING INCOME:
  Rental income .................................     8,167,173       4,515,204      16,149,603      6,549,491
  Other .........................................        15,057          18,978          25,439         26,835
                                                   ------------    ------------    ------------    -----------
                                                      8,182,230       4,534,182      16,175,042      6,576,326
                                                   ------------    ------------    ------------    -----------
REAL ESTATE-OPERATING EXPENSES:
  Rental operation ..............................     4,900,308       2,342,105       8,863,017      3,275,851
  Depreciation and amortization .................     1,259,927         758,484       2,453,904      1,062,921
  Interest ......................................     2,695,211       1,689,103       5,352,537      1,689,103
                                                   ------------    ------------    ------------    -----------
                                                      8,855,446       4,789,692      16,669,458      6,027,875
                                                   ------------    ------------    ------------    -----------
REAL ESTATE INCOME (EXPENSE), NET ...............      (673,216)       (255,510)       (494,416)       548,451
                                                   ------------    ------------    ------------    -----------

OTHER EXPENSES:
  Management fees ...............................     1,530,662       1,704,751       3,055,091      2,533,632
  Due diligence expenses ........................            --         174,955         122,745        367,644
  Foreign currency gain .........................            --              --              --       (116,953)
  Other .........................................     2,393,481         386,439       3,603,790        576,094
                                                   ------------    ------------    ------------    -----------
                                                      3,924,143       2,266,145       6,781,626      3,360,417
                                                   ------------    ------------    ------------    -----------

(LOSSES) GAINS ON SECURITIES ....................   (23,906,787)             34     (31,362,420)   (17,077,045)
                                                   ------------    ------------    ------------    -----------

(LOSS) INCOME BEFORE MINORITY INTEREST ..........   (19,959,042)      7,156,828     (20,897,154)    (3,536,956)
Minority interest in net loss (income) of
consolidated Subsidiary .........................     1,791,820        (510,696)      1,946,071       (321,154)
                                                   ------------    ------------    ------------    -----------

  NET (LOSS) INCOME .............................  $(18,167,222)   $  6,646,132    $(18,951,083)   $(3,858,110)
                                                   ============    ============    ============    ===========

LOSS PER SHARE:
  Basic .........................................  $      (0.96)   $       0.35    $      (1.00)   $     (0.20)
                                                   ============    ============    ============    ===========
  Diluted .......................................  $      (0.96)   $       0.35    $      (1.00)   $     (0.20)
                                                   ============    ============    ============    ===========

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic .........................................    18,965,000      18,965,000      18,965,000     18,965,000
                                                   ============    ============    ============    ===========
  Diluted .......................................    18,965,000      19,088,026      18,965,000     18,965,000
                                                   ============    ============    ============    ===========

            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                                       4
</TABLE>
<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
                                                    For the Three Months Ended      For the Six Months Ended
                                                             June 30,                        June 30,
                                                   ----------------------------    ----------------------------
                                                       1999            1998            1999             1998
                                                   ------------    ------------    ------------    ------------

<S>                                                <C>             <C>             <C>             <C>
Net (loss) income ..............................   $(18,167,222)   $  6,646,132    $(18,951,083)   $ (3,858,110)
Other comprehensive income:
  Unrealized gain (loss) on securities available
    for sale ...................................      5,567,933        (935,533)      5,327,579       7,409,111
  Unrealized foreign currency translation
    adjustment .................................        324,956      (1,051,966)        455,166      (1,051,966)
                                                   ------------    ------------    ------------    ------------
  Other comprehensive
    income .....................................      5,892,889      (1,987,499)      5,782,745       6,357,145
                                                   ------------    ------------    ------------    ------------
Comprehensive (loss) income ....................   $(12,274,333)   $  4,658,633    $(13,168,338)   $  2,499,035
                                                   ============    ============    ============    ============


Disclosure of reclassification adjustment:
  Unrealized holding losses arising during the
    period .....................................   $(18,338,854)   $   (935,499)   $(26,034,841)   $ (9,667,934)
  Add:  Adjustment for losses included
    in net loss ................................     23,906,787             (34)     31,362,420      17,077,045
                                                   ------------    ------------    ------------    ------------
   Net unrealized (losses) gains on
     securities ................................   $  5,567,933    $   (935,533)   $  5,327,579    $  7,409,111
                                                   ============    ============    ============    ============

             THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                                       5
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<TABLE>
<CAPTION>


                                                    OCWEN ASSET INVESTMENT CORP.
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998

                                                                                                         Accumulated
                                          Common Stock        Additional    Cumulative      Retained        other
                                      --------------------     paid-in       dividends      earnings    comprehensive
                                        Shares     Amount      capital       declared       (deficit)    income (loss)     Total
                                      ----------  --------   ------------  ------------   ------------  -------------- ------------
<S>                                    <C>        <C>       <C>            <C>            <C>            <C>           <C>
Balance at December 31, 1997 ......    18,965,000 $189,650  $ 280,503,838  $ (13,898,849) $  11,791,518  $ (7,327,890) $271,258,267

Capital contribution ..............            --       --     13,988,365             --             --            --    13,988,365

Net loss ..........................            --       --             --             --    (58,185,921)           --   (58,185,921)

Dividends .........................            --       --             --    (22,378,697)            --            --   (22,378,697)

Change in unrealized gain (loss) on
  securities available for sale ...            --       --             --             --             --    18,366,041    18,366,041

Change in cumulative translation
  adjustment ......................            --       --             --             --             --    (1,871,662)   (1,871,662)
                                       ---------- --------  -------------  -------------  -------------  ------------  ------------

Balance at December 31, 1998 ......    18,965,000  189,650    294,492,203    (36,277,546)   (46,394,403)    9,166,489   221,176,393

Net loss ..........................            --       --             --             --    (18,951,083)           --   (18,951,083)

Change in unrealized gain (loss) on
  securities available for sale ...            --       --             --             --             --     5,327,579     5,327,579

Change in cumulative translation
  adjustment ......................            --       --             --             --             --       455,166       455,166
                                       ---------- --------  -------------  -------------  -------------  ------------  ------------
Balance at June 30, 1999 ..........    18,965,000 $189,650  $ 294,492,203  $ (36,277,546) $ (65,345,486) $ 14,949,234  $208,008,055
                                       ========== ========  =============  =============  =============  ============  ============

                        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                                       6
<PAGE>
<TABLE>
<CAPTION>

                                         OCWEN ASSET INVESTMENT CORP.
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                      For the Six Months
                                                                                        Ended June 30,
                                                                                -----------------------------
                                                                                   1999             1998
                                                                                ------------    -------------
<S>                                                                             <C>             <C>
Cash flows from operating activities:
   Net loss .................................................................   $(18,951,083)   $  (3,858,110)
     Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Premium amortization (discount accretion), net .......................     13,389,650       10,969,400
       Depreciation .........................................................      2,453,904        1,062,921
       Foreign exchange gain ................................................             --         (116,953)
       Provision for loan losses ............................................        479,091          206,049
       Proceeds from sale of securities .....................................     12,708,996       36,288,836
       Net losses on securities .............................................     31,362,420       17,077,045
       Decrease (Increase) in interest receivable ...........................      3,123,111      (10,639,556)
       Increase in other assets .............................................     (3,283,257)      (8,841,875)
       Increase accrued expenses, payables and other liabilities ............      1,615,528        1,917,010
       (Decrease) Increase in minority interest in earnings (losses) ........     (1,946,071)         321,154
                                                                                ------------    -------------
Net cash provided by operating activities ...................................     40,952,289       44,385,921
                                                                                ------------    -------------
Cash flows from investing activities:
  Purchase of securities available for sale .................................             --     (336,676,078)
  Maturities and principal payments received on securities available for sale      9,998,074       16,268,838
  Principal payments received from discount loans ...........................             --          973,325
  Principal payments received from loans ....................................     43,586,358        8,425,556
  Purchase of loans .........................................................    (14,002,510)    (175,968,169)
  Investment in real estate .................................................     (5,763,246)    (114,932,518)
  Deposits on pending asset acquisitions ....................................             --          496,500
                                                                                ------------    -------------
Net cash provided by (used by) investing activities .........................     33,818,676     (601,412,546)
                                                                                ------------    -------------
Cash flows from financing activities:
  Dividend payments on common stock .........................................             --      (12,283,750)
  Proceeds from sale of securities to affiliates ............................             --       13,957,595
  Proceeds received from sale of operating partnership units ................             --       27,593,302
  Principal payments on bonds ...............................................    (39,194,676)              --
  (Decrease) Increase in securities sold under agreements to repurchase .....    (64,764,776)     223,819,860
  Increase in obligations outstanding under lines of credit .................      7,741,437      269,414,987
                                                                                ------------    -------------
Net cash (used by) provided by financing activities .........................    (96,218,015)     522,501,994
                                                                                ------------    -------------
Net decrease in cash and cash equivalents ...................................    (21,447,050)     (34,524,631)
Change in cumulative translation adjustment .................................        455,166       (1,051,966)
Cash and cash equivalents at beginning of period ............................     53,365,205       48,677,123
                                                                                ------------    -------------
Cash and cash equivalents at end of period ..................................   $ 32,373,321    $  13,100,526
                                                                                ============    =============
Reconciliation of cash and cash equivalents at end of period:
  Cash and amounts due from depository institutions .........................   $  5,162,989    $  11,764,015
  Interest earning deposits .................................................     27,210,332        1,336,511
                                                                                ------------    -------------
     Total ..................................................................   $ 32,373,321    $  13,100,526
                                                                                ============    =============

Supplemental schedule of non-cash financing activities:
  Interest paid .............................................................     19,639,457        7,929,687
Non-cash activities:
  Change in unrealized gain (loss) on securities available for sale .........      5,327,579        7,409,111


            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

                                                      7
</TABLE>
<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

NOTE 1   ORGANIZATION

         Ocwen Asset Investment Corp. ("OAC" or the "Company") has elected to be
taxed as a Real Estate  Investment Trust ("REIT") under Sections 856 through 860
of the Internal  Revenue Code of 1986,  as amended (the  "Code").  As such,  the
Company will generally not be subject to federal income taxation on that portion
of its income that is distributed to shareholders if it distributes at least 95%
of its taxable income to its  shareholders by the due date of its federal income
tax return and complies  with  various  other  requirements.  See Note 11 to the
Consolidated Financial Statements.

         The Company was incorporated in the Commonwealth of Virginia on January
22, 1997 and was initially  capitalized on February 12, 1997 through the sale of
100 shares of common stock for $1,600. On May 14, 1997, the Company completed an
initial  public  offering  ("IPO") with the sale of 19,125,000  shares of common
stock, par value $.01 per share ("Common Stock"), at a price of $16.00 per share
(before underwriting and offering expenses), and commenced operations thereon.

         The Company's consolidated financial statements include the accounts of
the Company and its  subsidiaries.  The Company directly owns two qualified REIT
subsidiaries,  Ocwen  General,  Inc. (the "General  Partner") and Ocwen Limited,
Inc. (the "Limited  Partner").  General Partner and Limited Partner own 0.9% and
90.4%, respectively,  of Ocwen Partnership,  L.P. (the "Operating Partnership").
Additionally,  through the General  Partner  and  Limited  Partner,  the Company
established  additional  partnerships  in Florida and California for real estate
investment  purposes.  The minority  interest at June 30, 1999 represents a 8.7%
interest  (1,808,733  units)  in the  Operating  Partnership  held by  Investors
Mortgage Insurance Holding Company ("IMIHC"), a wholly-owned subsidiary of Ocwen
Financial  Corporation  ("OCN").  IMIHC also owns 1,540,000 shares, or 8.12%, of
the outstanding Common Stock.

         The Company has entered into a management  agreement with Ocwen Capital
Corporation  ("OCC"), a wholly-owned  subsidiary of OCN, under which OCC advises
the  Company  on various  facets of its  business  and  manages  its  day-to-day
operations,  subject to the supervision of the Company's Board of Directors. For
its services,  OCC receives a quarterly base management fee of 0.25% per quarter
on Average  Invested Assets.  The term "Average  Invested Assets" for any period
means the  average of the  aggregate  book  value of the assets of the  Company,
including  the  assets of all of its direct and  indirect  subsidiaries,  before
reserves  for  depreciation  or bad  debts or other  similar  noncash  reserves,
computed  by  taking  the daily  average  of such  values  during  such  period;
provided, however, effective January 1, 1998, with respect to residential loans,
the phrase means average net equity  invested.  In addition,  OCC is entitled to
receive an annual  incentive  fee in an amount equal to 25% of the dollar amount
by which Funds From  Operations  ("FFO"),  as adjusted,  exceeds certain defined
levels per the management agreement. During the three months ended June 30, 1999
and  1998,   OCC  earned  from  the  Company  $1.5  million  and  $1.7  million,
respectively,  in base management fees. No incentive  compensation has ever been
paid. On May 13, 1999, the Board of Directors  approved extending the management
agreements between the Company and OCC, which was due to expire on May 19, 1999,
for an additional six months.

         The  Company  also has entered  into  servicing  agreements  with Ocwen
Federal  Bank,  FSB (the  "Bank"),  a  wholly-owned  subsidiary  of OCN, for the
servicing of all of the Company's  mortgage loans. In addition,  the Bank in its
capacity  as  servicer  or  special   servicer   receives   fees  from   certain
mortgage-backed  securities in which the Company owns a subordinate  or residual
interest.  As a  special  servicer,  the  Bank  provides  asset  management  and
resolution  services  with respect to defaulted  mortgage  loans  subject to the
Company's  right to direct the  foreclosure,  the  management  and  disposal  of
foreclosed  properties  and  all  other  actions  that a  servicer  may  take in
connection with a defaulted loan.  During the six months ended June 30, 1999 and
1998, the Bank earned from the Company $1.4 million and $0.1 in servicing  fees,
respectively.

NOTE 2   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  accounting   and  reporting   policies  of  the  Company  and  its
subsidiaries  follow  United States  generally  accepted  accounting  principles
("GAAP").  The  policies  which  materially  affect  the  determination  of  the
Company's  financial  position,   results  of  operations  and  cash  flows  are
summarized below.

                                       8

<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

PRINCIPLES OF CONSOLIDATION

         The Company's consolidated financial statements include the accounts of
OAC  and  its  subsidiaries  as  described  in  Note 1  above.  All  significant
intercompany transactions and balances have been eliminated.

USE OF ESTIMATES

         The  preparation  of  financial  statements  in  conformity  with  GAAP
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.  Material  estimates that are particularly  susceptible to
significant  change  in the near or  medium  term  relate  to the  valuation  of
securities  available for sale and  determination of the allowance for losses on
loans and discount loans.

SECURITIES AVAILABLE FOR SALE

         Securities  are  classified as available for sale when in  management's
judgement  they may be sold in  response  to or in  anticipation  of  changes in
interest rates, and resulting  prepayment risk, or other factors.  Available for
sale securities are carried at fair value.  Unrealized gains and losses on these
securities,  along  with  any  unrealized  gains  and  losses  on  related  risk
management  instruments,  are reported as a separate  component  of  accumulated
other comprehensive income in shareholders' equity.  Securities that the Company
has the  positive  intent and  ability to hold to  maturity  are  classified  as
held-to-maturity  and are carried at amortized  cost. At June 30, 1999 and 1998,
the Company had no  securities  classified  as  held-to-maturity.  Interest  and
dividend income on securities,  including amortization of premiums and accretion
of discounts, are reported in earnings.  Interest income is recognized using the
interest  method.  The  specific  identification  method  is used  to  determine
realized  gains  and  losses  on sales of  securities,  which  are  reported  in
earnings.  The  carrying  value of  individual  securities  is  reduced  through
write-downs in earnings to reflect other-than-temporary impairments in value.

LOAN PORTFOLIO

         Loans are generally reported at the principal amount  outstanding,  net
of the  allowance  for loan losses,  purchase  premium or discount,  and any net
deferred loan fees.  Interest income is recognized  using the interest method or
on a basis  approximating  a level  yield  over the term of the loan.  Loans are
placed on nonaccrual status when the loan is past due 90 days or more.  Interest
accrued but not collected at the date a loan is placed on  nonaccrual  status is
reversed against interest income. In addition,  the amortization of net deferred
loan fees is  suspended  when a loan is placed on  nonaccrual  status.  Interest
income on nonaccrual  loans is recognized  only to the extent  received in cash.
However, where there is doubt regarding the ultimate  collectibility of the loan
principal,  cash  receipts,  whether  designated  as principal or interest,  are
thereafter  applied to reduce the carrying value of the loan. Loans are restored
to accrual status only when interest and principal  payments are brought current
and future payments are reasonably assured.

DISCOUNT LOAN PORTFOLIO

         Certain  mortgage  loans,  for which the  borrower is not current as to
principal  and  interest  payments or for which there is a reason to believe the
borrower will be unable to continue to make its scheduled principal and interest
payments,  are acquired at a discount.  The acquisition cost for a pool of loans
is  allocated  to each loan  within the pool based  upon the  Company's  pricing
methodology. The acquisition cost for a pool of discount loans is allocated on a
relative  fair value  basis to each loan within the pool.  The Company  believes
that it is able to reasonably  estimate the amounts and timing of collections on
all of its discounted  loans.  For those  commercial real estate loans which are
current and for which the  Company  believes  that  collecting  the  acquisition
amount of the loan and  discount is  probable,  the  discount  is accreted  into
interest  income  as a yield  adjustment  using  the  interest  method  over the
contractual  maturity  of the loan.  For those  commercial  discount  loans that
become nonperforming, the Company ceases accretion of the discount. Gains on the
repayment or discharge of the discount loans,  including any remaining discount,
are reported as interest income.

         Discount loans are reported at their outstanding  principal balance net
of any charge-offs and premiums or discounts. The Company periodically evaluates
loans in the discount loan  portfolio for  impairment.  Individually  identified
impaired loans are measured based on one of the following:  the present value of
payments  expected  to be  received  (using a  discount  rate that  equates  the

                                       9
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

Company's  estimate of expected  future  cash flows to the  acquisition  price),
observable  market prices,  or the estimated  fair value of the collateral  (for
loans  that are  solely  dependent  on the  collateral  for  repayment).  If the
recorded  investment in the impaired loan exceeds the measure of estimated  fair
value, a valuation  allowance is established as a component of the allowance for
loan losses. At June 30, 1999, the Company did not have any impaired loans.

ALLOWANCE FOR LOAN LOSSES

         The allowance  for estimated  loan losses is maintained at a level that
management,  based upon evaluation of known and inherent risks in the portfolio,
considers  adequate  to  provide  for  inherent  losses.  Management's  periodic
evaluation of the allowance for estimated  loan losses is based upon an analysis
of the portfolio,  historical loss experience,  economic  conditions and trends,
collateral  values  and  other  relevant  factors.  Future  adjustments  to  the
allowance may be necessary if economic conditions and trends,  collateral values
and other relevant  factors differ  substantially  from the assumptions  used in
making the evaluation.

INVESTMENT IN REAL ESTATE

         Investment  in  real  estate  is  recorded  at  cost  less  accumulated
depreciation.  The Company  reviews its investment in real estate for impairment
whenever  events or changes in  circumstances  indicate that the carrying amount
may not be recoverable.  Depreciation is computed on a straight-line  basis over
the estimated useful lives of the assets as follows:

         Buildings and improvements          39 years
         Tenant improvements                 Lesser of lease term or useful life
         Furniture, fixtures and equipment   7 years

         Expenditures  for repairs and  maintenance are charged to operations as
incurred.  Significant  renovations are capitalized.  Fees and costs incurred in
the   successful   negotiation  of  leases  are  deferred  and  amortized  on  a
straight-line  basis over the terms of the respective leases.  Rental revenue is
reported on a straight-line basis over the terms of the respective leases.

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION

         The Company's  investment in foreign  assets are  translated  into U.S.
dollars at current  exchange  rates,  and  related  revenues  and  expenses  are
translated  at average  exchange  rates for the  period.  Transaction  gains and
losses that arise from exchange rate fluctuations on transactions denominated in
a currency other than U.S. dollars are included in the results of operations.

         The assets,  liabilities  and results of  operations  of the  Company's
foreign subsidiaries which have functional currencies other than the U.S. dollar
are  translated  into U.S.  dollars  at  current  exchange  rates for assets and
liabilities  and  average  exchange  rates for the  period  for the  results  of
operations.  Resulting  translation  adjustments  are  included  as  a  separate
component of accumulated other comprehensive  income in shareholders'  equity as
cumulative translation adjustments.

INCOME TAXES

         The Company  qualifies as a REIT under  Sections 856 through 860 of the
Code of 1986, as amended. A REIT will generally not be subject to federal income
taxation on that portion of its income that is distributed to shareholders if it
distributes  at least 95% of its  taxable  income by the due date of its federal
income tax return and complies with certain other requirements.  Accordingly, no
provision  has been  made for  federal  income  taxes  for the  Company  and its
subsidiaries in the accompanying consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

         For purposes of reporting cash flows, cash and cash equivalents include
non-interest  earning deposits,  interest earning deposits and all highly liquid
investments  purchased  with an original  maturity date of three months or less.
Cash flows  associated  with hedges of  identifiable  transactions or events are
classified in the same category as the cash flows from the item being hedged.

                                       10
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

BASIC AND DILUTED EARNINGS PER SHARE

         Basic earnings per share is calculated  based upon the weighted average
number of shares of Common Stock outstanding during the period. Diluted earnings
per share is  calculated  based upon the  weighted  average  number of shares of
Common Stock  outstanding and all dilutive  potential common shares  outstanding
during the period.  The  computation of diluted  earnings per share includes the
impact of the exercise of the  outstanding  options to purchase Common Stock and
assumes  that the proceeds  from such  issuance  are used to  repurchase  common
shares at fair  value.  Common  Stock  equivalents  would be  excluded  from the
diluted  calculation  if a net loss was incurred for the period as they would be
antidilutive.

RISKS AND UNCERTAINTIES

         In the normal course of business,  the Company encounters primarily two
significant types of economic risk:  credit and market.  Credit risk is the risk
of default on the  company's  loan  portfolio  that  results  from a  borrowers'
inability or unwillingness to make contractually required payments.  Market risk
reflects  changes in the value of securities  available for sale and investments
in real  estate  due to  changes  in  interest  rates or other  market  factors,
including  the rate of  prepayments  of principal,  the value of the  collateral
underlying loans and the valuation of real estate held by the Company.

         Additionally,  the Company encounters significant tax risks. If OAC did
not  qualify  as a REIT in any  taxable  year,  OAC would be  subject to federal
income tax  (including any  applicable  alternative  minimum tax) on its taxable
income at regular corporate rates, and  distributions to shareholders  would not
be  deductible by OAC in computing its taxable  income.  Any such  corporate tax
liability could be substantial and would reduce the amount of cash available for
distribution to shareholders,  which in turn could have an adverse impact on the
value of, and trading prices for, the Company's common stock. Unless entitled to
relief under certain Code  provisions,  the Company  could also be  disqualified
from  taxation as a REIT for the four taxable  years  following  the year during
which OAC ceased to qualify as a REIT.

RECENT ACCOUNTING STANDARDS

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities",
which amends FASB  Statements No. 52 and 107, and supersedes FASB Statements No.
80, 105 and 119. SFAS No. 133 establishes accounting and reporting standards for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts and for hedging  activities.  SFAS No. 133 requires an entity to
recognize all  derivatives  as either assets or  liabilities in the statement of
financial condition and measure those instruments at fair value. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Subsequently,  FASB issued SFAS No. 137 "Accounting  for Derivative  Instruments
and  Hedging  Activities-  Deferral  of the  Effective  Date of SFAS No.  133 an
amendment of SFAS No. 133," which defers the effective  date of SFAS No. 133 for
fiscal years beginning after June 15, 2000. Earlier  application of SFAS No. 133
is encouraged  but is permitted  only as of the beginning of any fiscal  quarter
that begins after  issuance of SFAS No. 133. The Company has not yet  determined
the impact on its results of operations,  financial  position or cash flows as a
result of implementing SFAS No. 133.

NOTE 3   RISK MANAGEMENT INSTRUMENTS

         The Company enters into derivatives,  particularly interest rate swaps,
to hedge  interest rate  exposures  arising from  mismatches  between assets and
liabilities. Under interest rate swaps, the Company agrees with other parties to
exchange,  at  specified  intervals,   the  difference  between  fixed-rate  and
floating-rate  interest  amounts  calculated by reference to an agreed  notional
principal amount and the London Interbank  Offered Rate ("LIBOR").  The terms of
these  interest  rate swaps  allow the  Company  to  receive a floating  rate of
interest equal to LIBOR and to pay fixed interest rates.

         The  interest  rate  swaps are used to hedge  current  LIBOR  rate debt
incurred to fund the Company's  acquisitions  of real estate and subordinate and
residual  securities.  None of the  Company's  interest  rate swaps are held for
trading purposes. As of June 30, 1999, the Company held interest rate swaps with
a  notional  amount  of  approximately  $200.8  million.  The fair  value of the
interest rate swaps are not recognized in the consolidated financial statements.

                                       11
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

         To qualify for hedge  accounting  the interest  rate swap must meet two
criteria:

         o     the Company is exposed to  interest  rate risk as the result of a
               debt it has incurred; and
         o     the  interest  rate swap reduces the  Company's  exposure to such
               risk.

         If an interest  rate swap does not qualify as a hedge,  it is accounted
for as a  trading  asset at fair  value,  with any  gain or loss  included  as a
component of current income.

         The Company is exposed to credit loss if: (i) the counterparties to the
interest  rate swap do not perform and (ii) the floating  interest rate received
by  the  Company  exceeds  the  fixed  interest  rate  paid  by  it.  All of the
counterparties have long-term debt ratings of A+ or above by Standard and Poor's
and A1 or  above  by  Moody's.  Although  a swap  generally  may  not be sold or
transferred without the consent of the counterparty, management does not believe
that this consent would be withheld.  Although  none of the  Company's  interest
rate swaps are  exchange-traded,  there are a number of  financial  institutions
which  enter  into  these  types of  transactions  as part of  their  day-to-day
activities.

         The following  table  indicates the interest rate swaps  outstanding at
June  30,  1999,  pursuant  to  which  the  Company  receives  payments  from  a
counterparty  based on a floating rate of interest  equal to LIBOR and agrees to
pay a fixed rate of interest to such party on a specified notional amount.


<TABLE>
<CAPTION>
                     Notional         LIBOR                Floating Rate at
     Maturity         Amount          Index    Fixed Rate    End of Period     Fair Value
     --------        --------        -------   ----------  ----------------    ----------
                                    (Dollars In Thousands)
<S>    <C>        <C>             <C>           <C>            <C>            <C>
       2003 ....     $ 100,000       1-month      5.75%           5.02%        $   1,323
       2001 ....        17,000       1-month      6.00            4.93               (55)
       2001 ....        75,000       1-month      6.00            4.94              (231)
       2002 ....         8,780       1-month      6.04            4.93                (2)
                     ---------                                                  ---------
                     $ 200,780                                                  $   1,035
                     =========                                                  =========
</TABLE>

         At June 30, 1999, the Company had foreign currency futures contracts to
hedge currency exposure in connection with its investment in residual  interests
backed by residential mortgage loans originated in the United Kingdom, which are
held by a wholly-owned subsidiary of the Company. Currency futures contracts are
commitments to either  purchase or sell foreign  currency at a future date for a
specified  price. At June 30, 1999, the fair value of the British Pounds futures
contracts  was $0.5  million.  In  addition,  the Company  entered  into foreign
currency  futures  contracts  to  hedge  its  exposure  in  connection  with its
investment in the shopping center located in Halifax, Nova Scotia, which is held
by a wholly-owned subsidiary of the Company. At June 30, 1999, the fair value of
the Canadian  currency  contract was $(0.1)  million.  Gains and losses on these
foreign currency futures contracts are recorded in the Consolidated Statement of
Financial Condition offsetting the item being hedged.

         The fair  value of the  interest  rate swaps and the  foreign  currency
futures contracts  represent the estimated amount that the Company would receive
or pay to terminate these  agreements  taking into account current  interest and
exchange rates. Market quotes are available for these agreements.

                                       12

<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

NOTE 4   SECURITIES AVAILABLE FOR SALE

         The following table sets forth the amortized cost, fair value and gross
unrealized  gains and losses on the Company's  securities  available for sale at
the date indicated.
<TABLE>
<CAPTION>
                                                                          Gross            Gross
                                                      Amortized        Unrealized        Unrealized           Fair
         JUNE 30, 1999                                   Cost             Gains            Losses            Value
                                                     -------------    -------------    -------------     -------------
                                                                          (Dollars In Thousands)
<S>                                                  <C>              <C>              <C>               <C>
         Mortgage-related securities:
           Single family residential:
             Subprime residuals..................    $     160,471    $      13,072    $          --     $     173,543
             Subordinates........................            9,078               --              (77)            9,001
                                                     -------------    -------------    -------------     -------------
                                                           169,549           13,072              (77)          182,544
                                                     -------------    -------------    -------------     -------------

           Multi-family and commercial:
             Non-rated interest only.............            3,162              373               --             3,535
             Non-rated principal only............              276              176               --               452
             Subordinates........................           95,135            2,822               --            97,957
                                                     -------------    -------------    -------------     -------------
                                                            98,573            3,371               --           101,944
                                                     -------------    -------------    -------------     -------------
                                                     $     268,122    $      16,443    $         (77)    $     284,488
                                                     =============    =============    =============     =============
</TABLE>

         During the three months and six months ended June 30, 1999, the Company
recorded a charge of $23.9 million and $31.4 million, respectively,  against its
portfolio of securities  available for sale. The losses were primarily  recorded
against subprime  residuals,  reflecting  continued market illiquidity for these
instruments.

NOTE 5   LOAN PORTFOLIO

         The following  table sets forth the  components  of the Company's  loan
portfolio at the dates indicated.

                                                   June 30,     December 31,
                                                     1999           1998
                                                 ------------   ------------
  Single family residential ...................  $  6,540,454   $  8,419,265
  Multi-family residential ....................    25,002,338     20,544,269
  Commercial real estate:
    Office ....................................    30,975,076     24,123,894
    Hotel .....................................    23,998,171     21,304,912
                                                 ------------   ------------
      Total loans .............................    86,516,039     74,392,340
  Deferred fees ...............................      (336,418)      (409,254)
  Allowance for loan losses ...................      (637,172)      (641,676)
                                                 ------------   ------------
    Loans, net ................................  $ 85,542,449   $ 73,341,410
                                                 ============   ============

         The   following   table   represents   a  summary   of  the   Company's
non-performing loans (past due 90 days or more) at the dates indicated.


                                                   June 30,     December 31,
                                                     1999           1998
                                                 ------------   ------------
                                                    (Dollars in Thousands)
Non-performing loans:
    Single family residential.................   $      3,865   $      4,165
    Multi-family .............................             --             --
    Commercial ...............................             --             --
                                                 ------------   ------------
                                                 $      3,865   $      4,165
                                                 ============   ============

                                       13
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

         If non-accrual loans had been current in accordance with their original
terms,  additional  interest income of approximately  $0.1 million for the three
months ended June 30, 1999 would have been earned.  No interest has been accrued
on loans greater than 89 days past due.

         For the three  months and the six months  ended June 30, 1999 and 1998,
the Company had no  investment in impaired  loans as defined in accordance  with
SFAS No. 114, as amended by SFAS No. 118.

         The  following   table  sets  forth  the  geographic   distribution  of
properties securing the Company's loans at June 30, 1999:
<TABLE>
<CAPTION>

                                        Single family    Multi-family           Commercial
                                         Residential     Residential            Real Estate          Total
                                        -------------    -------------         -------------     -----------
                                                             (Dollars in Thousands)
<S>                                     <C>                <C>                 <C>               <C>
         California.................... $         812      $     6,010         $          --     $     6,822
         Delaware......................            --               --                12,398          12,398
         Florida.......................           461               --                    --             461
         Massachusetts.................            52               --                38,422          38,474
         New York......................           659           18,992                 2,925          22,576
         Other.........................         4,557               --                 1,228           5,785
                                        -------------      -----------         -------------     -----------
         Total......................... $       6,541      $    25,002         $      54,973     $    86,516
                                        =============      ===========         =============     ===========
</TABLE>

         The  following  table sets forth certain  information  at June 30, 1999
regarding the dollar amount of loans  maturing in the Company's  loan  portfolio
based on scheduled  contractual  amortization,  as well as the dollar  amount of
loans which have fixed or adjustable interest rates. Loan balances have not been
reduced for (i) undisbursed loan proceeds,  unearned discounts and the allowance
for loan losses or (ii) nonperforming loans.
<TABLE>
<CAPTION>
                                                                                 Maturing in
                                             -------------------------------------------------------------------------------
                                                  One        After One Year    After Five Years    After Ten
                                             Year or Less  Through Five Years  Through Ten Years      Years        Total
                                             ------------  ------------------  -----------------  ------------  ------------
                                                                           (Dollars In Thousands)
<S>                                          <C>             <C>                 <C>              <C>           <C>
Single family residential loans.......       $      3,534    $      2,410        $        303     $        294  $      6,541
Multi-family residential loans........             25,002              --                  --               --        25,002
Commercial real estate................             54,973              --                  --               --        54,973
                                             ------------    ------------        ------------     ------------  ------------
   Total..............................       $     83,509    $      2,410        $        303     $        294  $     86,516
                                             ============    ============        ============     ============  ============
</TABLE>

         Scheduled  contractual  principal repayments may not reflect the actual
maturities  of loans  because of  prepayments  and, in the case of  conventional
mortgage  loans,  due-on-sale  clauses.  The  average  life of  mortgage  loans,
particularly  fixed-rate  loans,  tends to increase  when current  mortgage loan
rates are  substantially  higher  than  rates on  existing  mortgage  loans and,
conversely,  decrease when rates on existing mortgages are substantially  higher
than current mortgage loan rates.

                                       14

<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

         The following table sets forth the activity in the Company's gross loan
portfolio during the periods indicated.

                                                For the Six         For the
                                                Months Ended      Year Ended
                                                  June 30,       December 31,
                                              ---------------   ---------------
                                                    1999             1998
                                              ---------------   ---------------

Balance at beginning of period..............  $    74,392,340   $    16,290,404
Originations:
   Single family residential loans..........               --                --
   Multi-family residential loans...........        4,458,069        19,186,936
   Commercial real estate loans.............        9,544,441        37,005,198
                                              ---------------   ---------------
      Total loans originated................       14,002,510        56,192,134
                                              ---------------   ---------------
Purchases:
   Single family residential loans..........               --       211,378,718
   Secured borrowing (match funded loans)...               --      (183,470,633)
   Principal repayments, net................       (1,878,811)      (25,998,283)
                                              ---------------   ---------------
Net increase in loan portfolio..............       12,123,699        58,101,936
                                              ---------------   ---------------
Balance at end of period....................  $    86,516,039   $    74,392,340
                                              ===============   ===============

NOTE 6   MATCH FUNDED RESIDENTIAL LOANS

         On November 13, 1998, the Company  securitized  and  transferred to OAC
Mortgage Residential Securities, Inc., a real estate mortgage investment conduit
(the "Trust"),  $173.6 million (1,808 mortgage  loans) of its  residential  loan
portfolio.  On that date,  the Trust issued two classes of notes  secured by the
related group of mortgage loans.  Loan Group I consisted of approximately  1,078
mortgage  loans  with an  aggregate  principal  balance of  approximately  $91.2
million  and  original  terms of up to 30 years and which are  secured  by first
liens on  single  family  residential  properties.  Loan  Group II  consists  of
approximately  730  mortgage  loans  with  an  aggregate  principal  balance  of
approximately  $91.0 million and original  terms of up to 30 years and which are
secured by first or second liens on single family residential  properties.  Upon
the transfer, the Company received approximately $173.9 million of proceeds. The
transfer did not qualify as a sale under FASB 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  Accordingly,
the amount of proceeds  from the  transfer  are  reported as a liability  in the
consolidated  statement of financial condition.  During the three months and six
months ended June 30,  1999,  the Company  recorded a provision  for loan losses
against the match funded  residential  loans of $0.2  million and $0.5  million,
respectively.

         The following  table sets forth the current unpaid  principal  balance,
excluding  deferred fees of $4.4 million,  and the  geographic  distribution  of
properties  securing the Company's  match funded  residential  loans at June 30,
1999:

                                                              Match Funded
                                                              Residential
                                                            ----------------
                                                          (Dollars In Thousands)
             Michigan................................       $         30,781
             California..............................                 13,636
             Florida.................................                  7,907
             Other...................................                 79,590
                                                            ----------------
             Total...................................       $        131,914
                                                            ================

NOTE 7   DISCOUNT LOAN PORTFOLIO

         The Company has acquired, through private sales and auctions,  mortgage
loans at a discount because the borrowers are either not current as to principal
and interest  payments or there is doubt as to the borrowers'  ability to pay in
full the contractual  principal and interest.  The Company estimates the amounts
it will realize through foreclosure,  collection or other resolution efforts and
the length of time required to complete the  collection  process in  determining
the amounts it will bid to acquire such loans.

                                       15
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

         The resolution alternatives applied to the discount loan portfolio are:
(i) the borrower brings the loan current in accordance with original or modified
terms;  (ii) the  borrower  repays the loan or a  negotiated  amount;  (iii) the
borrower agrees to a deed-in-lieu of foreclosure, in which case it is classified
as  investment  in real  estate and held for sale by the Company  and;  (iv) the
Company  forecloses  on the loan and the  property  is  either  acquired  at the
foreclosure  sale  by a third  party  or by the  Company,  in  which  case it is
classified as investment in real estate and held for sale. Upon receipt of title
to the property, the loans are transferred to investment in real estate.

         The Company's  discount loan  portfolio  remains  unchanged at June 30,
1999 from December 31, 1998 and consists of the following:


           LOAN TYPE:
           Commercial real estate loans:
                                                         (Dollars In Thousands)
              Office....................................... $          6,859
              Retail.......................................               --
                                                            ----------------
                Total discount loans.......................            6,859
              Discount (1).................................           (1,241)
                                                            ----------------
                Discount loans, net........................ $          5,618
                                                            ================

(1)      Discount generally represents the difference between the purchase price
         of discounted  loans and their  contractual  face amount at the date of
         acquisition.

NOTE 8   INVESTMENT IN REAL ESTATE

         The  investment  in real estate at June 30, 1999 was  comprised of four
commercial office properties in San Francisco, California; an office building in
Jacksonville,  Florida;  and three  shopping  plazas  located in (i)  Bradenton,
Florida;  (ii) Halifax,  Nova Scotia;  and (iii) Havre,  Montana.  The following
table sets forth the Company's investment in real estate at the dates indicated:

<TABLE>
<CAPTION>
                                                               June 30,           December 31,
                                                                 1999                 1998
                                                           ----------------     ----------------
<S>                                                        <C>                  <C>
         Office buildings................................  $    174,616,119     $    174,587,772
         Retail..........................................        32,908,577           32,328,623
         Building improvements...........................         4,571,087            1,223,185
         Tenant improvements and lease commissions.......         5,469,914            3,682,602
         Furniture and fixtures..........................            33,853                   --
                                                           ----------------     ----------------
                                                                217,599,550          211,822,182
         Accumulated depreciation........................        (6,231,487)          (3,763,461)
                                                           ----------------     ----------------
           Investment in real estate, net................  $    211,368,063     $    208,058,721
                                                           ================     ================
</TABLE>

NOTE 9   SECURITIES   SOLD  UNDER   AGREEMENTS  TO  REPURCHASE  AND  OBLIGATIONS
         OUTSTANDING UNDER LINES OF CREDIT

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements to repurchase were $73.8 million,  with a weighted  average  interest
rate of 8.56%,  at June 30,  1999,  compared to $138.6  million  with a weighted
average  rate of 7.97% at December 31, 1998.  These  obligations  are secured by
certain of the Company's  investments  in  subordinated  interests in commercial
mortgage-backed  securities,  residual  interests in subprime  residential  loan
securitizations, and U.K. mortgage loan residual securities.

                                       16

<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

         The following table  summarizes the maturity dates of OAC's  securities
sold under agreements to repurchase and the fair value of the related collateral
securities as of June 30, 1999:
<TABLE>
<CAPTION>

                                        Outstanding        Commercial Securities   Residential Securities
             Maturity Date               Borrowing               Fair Value               Fair Value
             -------------              -----------        ---------------------   ----------------------
                                                           (Dollars in Millions)
<S>                 <C>                 <C>                     <C>                       <C>
             Within 1 month .........   $       46.2          $          74.4           $          8.6
             2-5 months (1) .........           11.6                     14.5                       --
             6-12 months ............            4.4                       --                     69.8
             More than 1 year .......           11.6                       --                     49.3
                                        ------------          ---------------           --------------
             Total ..................   $       73.8          $          88.9           $        127.7
                                        ============          ===============           ==============
</TABLE>

(1)      Lenders have  indicated  that this  borrowing will not be renewed as of
         September 30, 1999.

         Mortgage-related  securities which are subject to repurchase agreements
which secure indebtedness  periodically are revalued by the lender. A decline in
value of the  securities  may result in the lender  periodically  requiring  the
Company to (i) provide additional  collateral to secure the indebtedness or (ii)
deny an extension of the maturity of the debt. On May 10, 1999,  the Company was
informed that the repurchase agreement on certain residuals would not be renewed
on the maturity  date of May 17, 1999.  The Company  funded the maturity of this
debt of $19.4 million with available cash on hand.  Although to date the Company
has had adequate cash, cash equivalents,  and other unencumbered  assets to meet
calls for additional collateral, to repay a portion of the related indebtedness,
and to meet its  other  operating  and  financing  requirements,  including  its
current  capital  expenditure  plans,  there can be no assurance that sufficient
levels of such assets will continue to be available.

         The  Company   periodically  enters  into  sales  of  securities  under
agreements  to  repurchase  the  same  securities.   Obligations  to  repurchase
securities  sold are reflected as a liability in the  accompanying  consolidated
statement  of  financial  condition.  Interest  expense  with  respect  to these
obligations for the three months and the six months ended June 30, 1999 was $2.0
million and $4.7 million, respectively.

         OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT.  Obligations outstanding
under lines of credit amounted to $41.0 million at June 30, 1999. The borrowings
are pursuant to a three year agreement,  which is  collateralized  by commercial
loans. The weighted  average interest rate at June 30, 1999 was 6.94%.  Interest
expense  during the three months and the six months ended June 30, 1999 was $0.7
million and $1.3 million, respectively. See Note 1 to "--OBLIGATIONS OUTSTANDING
UNDER LINES OF CREDIT-REAL ESTATe" below.

         OBLIGATIONS   OUTSTANDING   UNDER  LINES  OF  CREDIT  -  REAL   ESTATE.
Obligations outstanding under lines of credit secured by real estate amounted to
$143.8 million at June 30, 1999.  These borrowings have a three-year term and an
interest  rate  that  floats  in  accordance  with  LIBOR.  Set  forth  below is
information  regarding  OAC's  indebtedness  relating to its  investment in real
estate at June 30, 1999:
<TABLE>
<CAPTION>

                    Property               Principal Amount    Interest Rate     Maturity Date
         --------------------------------  ----------------    -------------     ---------------
                                                (Dollars In Millions)
<S>                                        <C>                <C>                 <C>
         Bush Street Property............  $      75.0         LIBOR plus 1.75%  April, 2001 (2)
         Other...........................  $      68.8(1)      LIBOR plus 1.75%  June,  2001 (2)
</TABLE>

(1)      Represents the portion of the outstanding  balance under a $200 million
         loan  that is  secured  by real  estate.  As  of June 30,  1999,  OAC's
         investments  in  Cortez  Plaza,  450  Sansome  Street,  10 U.N.  Plaza,
         Prudential  Plaza and 690  Market  Street  secured  this  loan,  and an
         additional  $41.0  million  was  borrowed  and  secured  by  commercial
         mortgage loans under this line of credit.

(2)      Subject to certain conditions, the Company may extend the maturity date
         by one year.

         Interest  expense during the three months and six months ended June 30,
1999 was $2.7 million and $5.4 million, respectively.

                                       17
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

NOTE 10  11.5% REDEEMABLE NOTES AND BONDS-MATCH FUNDED LOAN AGREEMENTS

         In July,  1998,  the Company  completed the issuance of $150 million of
11.5%  Redeemable  Notes  due 2005  (the  "Old  Notes")  which  were  resold  to
"qualified  institutional  buyers" in reliance on Rule 144A under the Securities
Act of 1933,  as amended  (the  "Securities  Act").  The  Company  completed  an
exchange  offer on March 15, 1999 whereby  holders  exchanged  Old Notes for New
Notes with materially identical terms, except that the New Notes were registered
under the  Securities  Act.  Old Notes and New  Notes  are  herein  referred  to
together  as the  "Notes".  Interest  on the Notes is payable  semi-annually  on
January 1 and July 1,  beginning  January 1, 1999, at a rate per annum of 11.5%.
The Notes will mature on July 1, 2005 and will be  redeemable,  at the option of
the  Company,  in whole or part,  on or after  July 1, 2002,  at the  redemption
prices  specified  below  (expressed  as  percentages  of the  principal  amount
thereof),  in each case,  together  with  accrued and unpaid  interest,  if any,
thereon to the date of redemption,  upon not less than 30 nor more than 60 days'
notice,  if redeemed during the  twelve-month  period beginning on July 1 of the
years indicated below:


                Year                                          Redemption Rate
                ----------------------------------------      ---------------
                2002....................................           105.750%
                2003....................................           102.875
                2004 and thereafter.....................           100.000

         During  the first 36 months  after  the date of  original  issue of the
Notes,  the Company may use the net  proceeds  of one or more  offerings  of its
common stock to redeem up to 25% of the aggregate  principal amount of the Notes
at a redemption price of 111.50% of the principal  amount thereof,  plus accrued
and unpaid  interest to the date of redemption,  provided  that,  after any such
redemption,  the aggregate  principal amount of the Notes outstanding must equal
at least $112.5 million.  On September 30, 1998, the Company  repurchased in the
open market $7.0 million of the $150.0 million  outstanding  Notes.  At June 30,
1999, the outstanding balance of the Notes was $143.0 million.  Interest expense
on the Notes for the three  months and six months  ended June 30,  1999 was $4.1
million and $8.3 million, respectively.

         Concerning the Bonds-Match Loan  Agreements,  on November 13, 1998, the
Company  securitized  and  transferred  to  the  Trust  $173.6  million  of  its
residential   loan   portfolio.   Upon  the  transfer,   the  Company   received
approximately $173.4 million of proceeds. The transfer did not qualify as a sale
under FAS 125  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities."  Accordingly,  the amount of proceeds from the
transfer are reported as a liability in the consolidated  statement of Financial
Condition.  For more  information  on the Company's  residential  loan portfolio
securitization, see Note 6 above.

         At June 30, 1999, bonds-match funded loan agreements amounted to $124.2
million and with a weighted average interest rate of 6.57%. Interest expense for
the three  months and six months  ended June 30, 1999 was $2.3  million and $4.8
million, respectively.

NOTE 11  TAXATION

         For 1998,  the Company  has sought to qualify as a REIT under  Sections
856 through 860 of the Code, as amended. A REIT will generally not be subject to
federal income taxation on that portion of its income that is distributed to its
shareholders  if it  distributes  at least 95% of its  taxable  income and meets
certain  other income and asset  tests.  The Company has until the filing of its
tax return to satisfy the distribution  requirement.  Since the Company plans to
distribute  100% of its taxable  income,  no provision has been made for federal
income  taxes  for  the  Company  and  its   subsidiaries  in  the  accompanying
consolidated  financial  statements.  At June  30,  1999,  the  Company  had not
declared the final 1998 dividend to meet the 95% distribution requirement, which
is expected to be approximately  $15.5 million, or $0.82 per share. There can be
no certainty that the dividend will be declared,  that, if declared, the Company
will have sufficient funds to pay the dividend or that the dividend would not be
in  a  form  other  than  cash.  In  addition,  OAC  will  be  subject  to  a 4%
nondeductible  excise tax on the amount, if any, by which certain  distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary  income for that year,  (ii) 95% of its capital gain net income for
that year and (iii) 100% of its  undistributed  taxable income from prior years.
OAC has incurred and paid a nondeductible excise tax for 1999.

                                       18
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
================================================================================

         On July 25, 1999 the Company entered into a definitive merger agreement
with OCN (the  "Merger").  The Merger,  which is structured to be taxable to the
Company's  shareholders,  is  expected  to close in the fourth  quarter of 1999,
subject to antitrust  approvals and the approval of the  shareholders of each of
OCN and OAC. If the Merger is consummated, the Company will no longer qualify as
a REIT under the  provisions of the Code,  which  requires a REIT to be owned by
100 or more persons. If the Company fails to qualify as a REIT, the Company will
be subject to tax  (including  any  applicable  alternative  minimum tax) on its
taxable income at regular corporate rates.

NOTE 12  COMMITMENTS AND CONTINGENCIES

         At June  30,  1999,  the  Company  had  $44.7  million  in  outstanding
commitments  to  fund  construction,  multi-family  and  commercial  loans.  The
following table details the amounts committed at such date.

                                      June 30, 1999
                                  (Dollars In Thousands)
           -------------------------------------------------------------------
           Multi-family....................................      $      20,283
           Hotels..........................................             22,298
           Offices.........................................              2,083
                                                                 -------------
             Total committed amount........................      $      44,664
                                                                 =============

         On April 20, 1999, a complaint was filed on behalf of a putative  class
of public  shareholders  of the  Company in the Circuit  Court of the  Fifteenth
Judicial  Circuit,  Palm Beach County,  Florida against OCN and the Company.  On
April 23,  1999, a complaint  was filed on behalf of putative  classes of public
shareholders  of the  company in the  Circuit  Court of the  Fifteenth  Judicial
Circuit, Palm Beach County, Florida against the Company and certain directors of
the Company.  The plaintiffs in both complaints seek to enjoin the  consummation
of the  merger.  Alternatively,  in the event the  merger  is  consummated,  the
plaintiffs seek damages for alleged breaches of common law fiduciary duties.

         On June 3, 1999,  Walton Street Capital,  L.L.C.  ("Walton") filed suit
against the Company and the Operating  Partnership  in the Circuit Court of Cook
County, Illinois.  Walton has alleged that the Company committed an anticipatory
breach of contract  with respect to the  proposed  sale by the Company of all of
its interest in its commercial  mortgage-backed  securities portfolio to Walton.
Walton has claimed  damages in an amount in excess of $20  million.  The Company
believes this suit is without merit and intends to vigorously defend against the
same.

         The  Company is subject to various  other  pending  legal  proceedings.
Management is of the opinion that the resolution of these claims will not have a
material  effect on the results of  operations  or  financial  condition  of the
Company.

                                       19
<PAGE>

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

GENERAL

         The Company is a Virginia  corporation,  formed in the first quarter of
1997,  that has elected to be taxed as a REIT under  Sections 856 through 860 of
the Code.  See  "Recent  Developments"  regarding  OAC's  status as a REIT.  The
Company's  primary  investments have been:

o        Commercial  and  residential  subordinate  and  residual  interests  in
         collateralized   mortgage   obligations   and  other   mortgage-related
         securities (collectively, "mortgage-related securities"); and
o        Underperforming  or otherwise  distressed  commercial and  multi-family
         real property,  including  properties  acquired by mortgage  lenders at
         foreclosure or through deed-in-lieu thereof.

         The Company also has invested,  by way of purchase or  origination,  in
other real estate  related  assets  including:

o        Commercial,  multifamily and  single-family  mortgage loans,  including
         construction and renovation  loans and mezzanine loans,  which comprise
         the Company's loan portfolio; and
o        Nonperforming  and  subperforming  mortgage loans,  which generally are
         purchased at a discount to their aggregate  unpaid principal amount and
         comprise the Company's discount loan portfolio.

RECENT OPERATING LOSSES; DISCONTINUANCE OF INVESTMENT ACTIVITIES

         The  Company  reported  a net loss of $18.2  million or $0.96 per fully
diluted  share for the three  months  ended June 30,  1999.  These  losses  were
primarily  attributable to a $23.9 million of losses on its securities available
for sale  portfolio  which were  comprised of a $19.0  million  writedown of its
residential subprime and residual mortgage-backed  securities and a $4.9 million
writedown of its commercial mortgage-backed securities. During the first quarter
of 1999,  the  Company  reported  $8.3  million  of losses on  subordinates  and
residual interests in mortgage related securities.  In 1998 the Company reported
$65.1 million of losses on subordinate and residual securities and $17.1 million
of losses in  conjunction  with the  Company's  AAA- rated  portfolio  of agency
interest   only  and   inverse   floating   rate   interest   only   classes  of
mortgage-related securities backed by single family residential loans. Losses in
these periods are  attributable,  in varying  degrees,  to increased  prepayment
speeds on  underlying  mortgage  loans,  widening  spreads  on  mortgage-related
securities  and  declining  market  liquidity for  mortgage-related  securities.
Moreover, as a result of these conditions, during the past year there has been a
general  "flight to quality" by  investors,  with the result that the market for
the subordinate and residual mortgage-related  securities has been substantially
reduced or eliminated.  These factors have adversely affected the operations and
financial  condition of numerous  companies in the financial  service,  REIT and
mortgage-backed security sectors, including the Company.

         As a result of the foregoing developments,  particularly as they relate
to the  Company's  subordinate  and residual  mortgage-related  securities,  the
Company  has been  receiving  requests  from its  lenders  to pledge  additional
collateral or post additional cash margins  (referred to herein  collectively as
"collateral")  pursuant to the terms of its loan  agreements,  which it has been
able to meet as of the date  hereof.  The  Company  has  decided  that,  for the
foreseeable  future,  it does not plan to acquire any additional  assets or fund
any additional loans (beyond those which are currently  committed),  and it will
work to accelerate  the  stabilization  of its existing  assets and increase its
overall liquidity position.

RECENT DEVELOPMENTS

         On July 25, 1999 the Company entered into a definitive merger agreement
with OCN (the "Merger")  providing for OCN to acquire OAC for 0.71 shares of OCN
common  stock for each  outstanding  share of OAC common stock (other than those
OAC shares  owned by OCN or its  subsidiaries).  The Merger  contemplates  that,
except in certain circumstances, OAC would declare and set a record date for the
final 1998 dividend  required for OAC to maintain its status as a REIT under the
federal tax provisions prior to the  consummation of the merger.  The final 1998
dividend  has been  deferred by the Board of Directors of OAC and is expected to
be  approximately  $15.5  million,  or $0.82 per share.  While OCN has agreed to
provide  in  certain  circumstances  up to $25  million  in  financing  for  the
Company's  operations  prior to the merger,  there can be no certainty  that the
dividend will be declared,  that, if declared,  the Company will have sufficient
funds to pay the dividend or that the dividend would not be in a form other than
cash. The Merger, which is structured to be taxable to the OAC shareholders,  is
expected to close in the fourth quarter of 1999, subject to antitrust  approvals
and the  approval  of the  shareholders  of each of OCN and OAC.  In  connection
therewith,  on  August  10,  1999,  OCN  filed a joint  proxy  and  registration
statement on Form S-4 with the Securities and Exchange  Commission  ("SEC").  If
the Merger is  consummated,  the Company will no longer  qualify as a REIT under
the  provisions  of the Code,  which  requires a REIT to be owned by 100 or more
persons.  If the Company fails to qualify as a REIT, the Company will be subject

                                       20
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

to tax (including any applicable  alternative minimum tax) on its taxable income
at  regular  corporate  rates.  See  Note  12  to  the  Consolidated   Financial
Statements.

         On August 12, 1999, the Company  entered into an agreement to sell CSFB
1995-AEW1  F-1 and G-1.  This  transaction  is  expected to settle on August 17,
1999, and is expected to result in proceeds,  net of financing to the Company of
approximately  $6.8  million.  On August 13,  1999,  the Company  entered into a
separate  agreement  to sell  CSFB  1995-AEW1  E and G-2.  This  transaction  is
expected to settle on August 18,  1999,  and is expected to result in  proceeds,
net of financing to the Company of  approximately  $9.8 million.  See "Financial
Condition--Securities  Available  for  Sale"  below  for  more  detail  on these
commercial mortgage-backed securities.

COMPARISON  OF  OPERATING  RESULTS FOR THE THREE MONTHS AND THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998

         GENERAL.  Net loss  for the  quarter  ended  June  30,  1999 was  $18.2
million,  or $0.96 per diluted share,  compared to a net income of $6.6 million,
or $0.35 per diluted share, for the period ended June 30, 1998. The loss for the
three months ended June 30, 1999 was  primarily  due to net losses on securities
available for sale of $23.9 million.  The losses on the securities available for
sale portfolio  during the second quarter of 1999 were taken  primarily  against
residential subprime bonds,  reflecting  continuing market illiquidity for these
instruments.  The Company  prices its  securities  portfolio  at fair value each
month based on the lower of broker/dealer marks or internal values. Net loss for
the six months  ended June 30, 1999 was $19.0  million  compared to $3.9 million
for the same period a year ago.

        INTEREST INCOME. Interest income increased $2.6 million to $17.9 million
for the three months ended June 30, 1999 from $15.3  million for the  comparable
period ended 1998. This increase was primarily due to additional interest income
of $1.4 million on loans and $0.5 million on the  securities  available for sale
portfolio.  The increase in interest income resulted from additional investments
in interest  earning assets.  Residential  loans  (including match funded loans)
increased  from an average  balance  of $118.3  million  to $154.5  million  and
commercial and  multi-family  loans  increased from an average  balance of $40.6
million to $76.2  million.  Such  increases  were  offset by a  decrease  in the
securities  available  for sale from an  average  balance  of $319.9  million to
$299.2 million.  Total interest earning assets yielded 12.6% at June 30, 1999, a
0.77%  increase  over the yield at June 30,  1998.  Interest  income for the six
months ended June 30, 1999 was $37.3  million  compared to $22.8 million for the
same period a year ago.

        INTEREST  EXPENSE.  Interest expense for the three months ended June 30,
1999  increased  $3.6  million to $9.1  million as compared to the three  months
ended June 30, 1998. This increase was primarily due to a $4.1 million  increase
in interest expense associated with the issuance of the 11 1/2% Redeemable Notes
due 2005 (the  "Notes")  and a $2.3  million  increase  due to interest  expense
related to the bonds-match  funded loan  agreements.  Interest  expense does not
include the expense  associated  with the  borrowings  secured by investments in
real estate,  which is included in  determining  the operations of the Company's
real estate. See " -Real Estate Income, Net" below. Interest expense for the six
months  ended June 30, 1999 was $19.0  million  compared to $6.2 million for the
same period a year ago.

         NET INTEREST  INCOME.  Net interest  income  represents  the difference
between  income on  interest-earning  assets  and  expense  on  interest-bearing
liabilities.   Net  interest   income  depends  upon  the  relative   amount  of
interest-earning assets and interest-bearing  liabilities, and the interest rate
earned or paid on them.

         The  following  table sets forth  certain  information  relating to the
Company's  consolidated  statements  of  financial  condition  and  consolidated
statement of operations for the periods indicated and reflects the average yield
on assets and average cost of liabilities for the periods indicated. Such yields
and costs are  derived by dividing  income or expense by the average  balance of
assets or liabilities, respectively, for the periods shown. Average balances are
derived from average daily  balances.  The yields include  amortization  of fees
which are considered adjustments to yields.

                                       21

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

<TABLE>
<CAPTION>
                                                                             For the Three Months Ended June 30,
                                                       -----------------------------------------------------------------------------
(Dollars In Thousands)                                                  1999                                    1998
                                                       --------------------------------------     ----------------------------------
                                                          Average                 Annualized      Average                Annualized
                                                          Balance     Interest    Yield/Rates     Balance      Interest  Yield/Rates
                                                         --------     --------    -----------     -------      --------  -----------
<S>                                                    <C>        <C>         <C>      <C>        <C>         <C>
    Interest-earning assets:
       Repurchase agreements and interest-bearing
         deposits ....................................   $  31,597   $     326         4.13%    $   9,781  $        97      3.97%
       Securities held for trading.....................         --          --           --        20,106         (375)    (7.46)
       Securities available for sale...................    299,152      12,064        16.13       319,909       11,535     14.42
       Commercial and multi-family loan portfolio, net.     76,240       2,221        11.65        40,563        1,468     14.48
       Match funded residential loans, net.............    148,110       3,000         8.10            --           --        --
       Residential loan portfolio, net.................      6,427         132         8.22       118,348        2,178      7.36
       Discount loans, net.............................      5,618         132         9.40         9,282          423     18.23
                                                         -----------------------------------    ---------------------------------
         Total interest-earning assets.................  $ 567,144   $  17,875        12.61%    $ 517,989  $    15,326     11.84%
                                                         -----------------------------------    ---------------------------------

    Interest-bearing liabilities:
       Securities sold under agreements to repurchase..  $  92,606   $   2,039         8.81%    $ 174,024  $     3,302      7.59%
       Obligations outstanding under lines of credit...     41,015         706         6.89       132,246        2,245      6.79
       11.5% Redeemable Notes due 2005.................    143,000       4,111        11.50            --           --        --
       Bonds match funded..............................    136,488       2,253         6.60            --           --        --
                                                         -----------------------------------    ---------------------------------
         Total interest-bearing liabilities............  $ 413,109   $   9,109         8.82%    $ 306,270  $     5,547      7.24%
                                                         -----------------------------------    ---------------------------------
    Net interest income/spread (1).....................              $   8,766         3.79%               $     9,779      4.60%
                                                                     =========                             ===========
    Net interest margin (2)............................                                6.18%                                7.55%
</TABLE>


<TABLE>
<CAPTION>
                                                                                For the Six Months Ended June 30,
                                                       -----------------------------------------------------------------------------
(Dollars In Thousands)                                                  1999                                    1998
                                                       --------------------------------------     ----------------------------------
                                                          Average                 Annualized      Average                Annualized
                                                          Balance     Interest    Yield/Rates     Balance      Interest  Yield/Rates
                                                         --------     --------    -----------     -------      --------  -----------
<S>                                                    <C>        <C>         <C>      <C>        <C>         <C>
    Interest-earning assets:
       Repurchase agreements and interest-bearing
         deposits .....................................  $  35,142   $     821         4.67%    $  11,896  $       296      4.98%
       Securities held for trading......................        --          --           --        36,929       (3,013)   (16.32)
       Securities available for sale....................   310,201      25,702        16.57       227,304       16,183     14.24
       Commercial and multi-family loan portfolio, net..    72,415       3,869        10.69        32,964        2,274     13.80
       Match funded residential loans, net..............   156,406       6,327         8.09            --           --        --
       Residential loan portfolio, net..................     6,899         278         8.06        70,644        2,613      7.40
       Discount loans, net..............................     5,618         259         9.22        18,057        1,326     14.69
                                                         -----------------------------------    ---------------------------------
         Total interest-earning assets.................. $ 586,681   $  37,256        12.70%    $ 397,794  $    19,679      9.89%
                                                         -----------------------------------    ---------------------------------

    Interest-bearing liabilities:
       Securities sold under agreements to repurchase... $  109,391  $   4,681         8.56%    $ 107,172  $     3,967      7.40%
       Obligations outstanding under lines of credit....     37,834      1,313         6.94        67,393        2,274      6.75
       11.5% Redeemable Notes due 2005..................    143,000      8,265        11.56            --           --        --
       Bonds match funded...............................    145,385      4,776         6.57            --           --        --
                                                         -----------------------------------    ---------------------------------
         Total interest-bearing liabilities............. $  435,610  $  19,035         8.74%    $ 174,565  $     6,241      7.15%
                                                         -----------------------------------    ---------------------------------
    Net interest income/spread (1)......................             $  18,221         3.96%               $    13,438      2.74%
                                                                     =========                             ===========
    Net interest margin (2).............................                               6.21%                                6.76%
</TABLE>

(1)      Interest rate spread represents the difference between the average rate
         on  interest-earning  assets and the average  cost of  interest-bearing
         liabilities.
(2)      Net interest income divided by average interest-earning assets.

         PROVISION  FOR LOAN LOSSES.  The  provision  for loan losses during the
three  months  ended June 30, 1999  increased  $0.1 million to $0.2 million from
$0.1 million  during the three months ended June 30, 1998,  which  reflected the
Company's evaluation of current economic  conditions,  a credit review of loans,

                                       22
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

an analysis of specific  loan  situations  and the size and  composition  of the
commercial and  multi-family  loan portfolio.  Provision for loan losses for the
six months ended June 30, 1999 was $0.5 million compared to $0.2 million for the
same period a year ago.

         REAL ESTATE INCOME (EXPENSE),  NET. Real estate income  (expense),  net
decreased  $0.4  million to ($0.7)  million for the three  months ended June 30,
1999,  compared to the same period in 1998. This decrease was primarily due to a
$2.6 million  increase in rental operation  expense,  a $0.5 million increase in
depreciation and amortization  expense,  and a $1.0 million increase in interest
expense offset by a $3.7 million  increase in rental income.  These increases in
real estate operating income and expenses,  compared to the same period in 1998,
were  largely  the result of an  increase in the  Company's  investment  in real
estate, and obtaining financing on these investments.  Additionally, the Company
made a 1998  Canadian  income tax return  payment in June 1999 for $0.6  million
(CAD),  which  translated to $0.4 million (U.S.).  Expenses related to buildings
and improvements are amortized over 39 years, while expenditures for repairs and
maintenance are charged to operations as incurred. Real estate income (expense),
net for the six months ended June 30, 1999 was ($0.5)  million  compared to $0.5
million for the same period a year ago.

         OTHER EXPENSES.  Other expenses  increased $1.7 million to $3.9 million
for the quarter ended June 30, 1999,  compared to the same period in 1998.  This
increase was largely due to a $2.0  million  increase in other  expenses  (which
consisted generally of servicing, accounting, audit, legal, excise tax, and bond
amortization  expenses),  which was offset in part by a $0.2 million decrease in
due  diligence  expense and a $0.2  million  decrease in  management  fees.  The
management  fees payable by the Company to OCC totaled  $1.5 million  during the
quarter  ended June 30, 1999  compared to $1.7 million  during the quarter ended
June 30, 1998.  Other  expenses for the six months ended June 30, 1999 were $6.8
million compared to $3.4 million for the same period a year ago.

         LOSSES ON  SECURITIES.  During the 1999  second  quarter,  the  Company
incurred  net  losses of $23.9  million  on its  securities  available  for sale
portfolio  which were comprised of a $19.0 million  writedown of its residential
subprime and residual mortgage-backed securities and a $4.9 million writedown of
its commercial  mortgage- backed  securities.  For the six months ended June 30,
1999, net losses on securities  available for sale were $31.4 million,  compared
to $17.1 million for the same period a year ago.

         The Company's losses on its investments in mortgage-related  securities
during the first and second  quarters  of 1999 were  attributable  to  increased
prepayment  speeds on underlying  mortgage loans,  widening spreads on mortgage-
related   securities  and  declining  market  liquidity  for  mortgage-  related
securities.

         MINORITY  INTEREST  IN NET LOSS  (INCOME) OF  CONSOLIDATED  SUBSIDIARY.
Minority  interest in net loss  (income)  of  consolidated  subsidiary  was $1.8
million during the quarter ended June 30, 1999 compared to ($0.5) million during
the same period in 1998. This minority  interest  represented the portion of the
Operating  Partnership's  loss  attributed to the limited  partnership  interest
owned by IMIHC, an affiliate of OCC. The Company has a 91.3% ownership  interest
in the  Operating  Partnership.  Minority  interest  in  net  loss  (income)  of
consolidated  subsidiary for the six months ended June 30, 1999 was $1.9 million
compared to ($0.3) million for the same period a year ago.

FINANCIAL CONDITION

         SECURITIES  AVAILABLE FOR SALE. The Company's  investment in securities
available for sale at June 30, 1999 decreased by $66.7 million to $284.5 million
from $351.2 million at December 31, 1998.

At June 30, 1999,  the Company's  securities  available  for sale  portfolio was
$284.5 million and consisted of:

o        Non-investment grade and unrated subordinate commercial mortgage-backed
         securities  having an amortized  cost of $98.6 million and a fair value
         of $101.9 million,

o        Unrated  residential  subprime  residuals  having an amortized  cost of
         $160.5 million and a fair value of $173.6 million, and

o        Unrated subordinate  residential  mortgage-backed  securities having an
         amortized cost of $9.0 million and a fair value of $9.0 million.

The Company's  unrated subprime  residual  portfolio of $173.6 million consisted
of:

o        $83.3 million of seasoned residuals (securitized between 1994 and 1997)
         with  overcollateralization  reserves  funded at  approximately  $122.7
         million, and

o        $90.3  million  of  unseasoned  residuals  (securitized  in 1998)  with
         overcollateralization reserves funded at approximately $29.7 million.

                                       23
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         The following  table sets forth the fair value and  composition  of the
Company's securities available for sale at the dates indicated.

<TABLE>
<CAPTION>
                                                             June 30,       December 31,
                                                               1999             1998
                                                           ----------        ----------
                                                               (Dollars In Thousands)
<S>                                                        <C>               <C>
Mortgage-related  securities:
   Single family residential:
     Subordinates......................................    $    9,001        $   15,390
     Subprime residuals................................       173,543           218,724
                                                           ----------        ----------
         Total single family residential...............       182,544           234,114

   Multi-family residential and commercial:

     AAA-rated interest-only...........................            --               441
     A-rated interest-only.............................            --               222
     Non-rated interest-only...........................         3,535             3,135
     Non-rated principal-only..........................           452               276
     Subordinates......................................        97.957           112,966
                                                           ----------        ----------
       Total multi-family residential and commercial...       101,944           117,040
                                                           ----------        ----------
       Total mortgage-related securities...............    $  284,488        $  351,154
                                                           ==========        ==========
</TABLE>

         The following tables detail the Company's securities available for sale
portfolio  at June 30,  1999,  and its  estimates  of  expected  yields  on such
securities,  taking  into  consideration  expected  prepayment  and  loss  rates
together with other factors. Included in the tables are the following terms:

         ACTUAL  DELINQUENCY - Represents the total unpaid principal  balance of
loans more than 30 days  delinquent at the indicated date as a percentage of the
unpaid principal balance of the collateral at such date.

         ACTUAL  LIFE-TO-DATE  CPR - The  Constant  Prepayment  Rate  is used to
measure the average prepayment rate for the underlying mortgage pool(s) over the
period of time  lapsed  since the  issuance of the  securities  through the date
indicated and is calculated as follows:

<TABLE>
<CAPTION>
<S>                             <C>      <C>                                <C>                    <C>
                                  _                                                                _
                                 |                                                                  |
                                 |                                                                  |
                                 |                                                                  |
                                 | ( 1 - Final Aggregate Balance ACTUAL    )   (       12         ) |
 Actual Life-to-Date CPR = 100 X | (     --------------------------------- ) X ( ---------------- ) |
                                 | (     Final Aggregate Balance SCHEDULED )   ( Months in Period ) |
                                 |                                                                  |
                                 |_                                                                _|
</TABLE>

         ACTUAL LIFE-TO-DATE LOSSES - Represents  cumulative losses expressed as
a percentage of the unpaid  balance of the original  collateral at the indicated
date.

         CLASS  DESIGNATION  LETTER - Refers to the credit rating  designated by
the rating agency for each  securitization  transaction.  Classes designated "A"
have a superior claim on payment to those rated "B", which are superior to those
rated "C." Additionally,  multiple letters have a superior claim to designations
with fewer letters.  Thus, for example, "BBB" is superior to "BB," which in turn
is superior  to "B." The lower class  designations  in any  securitization  will
receive  interest  payments  subsequent  to senior  classes and will  experience
losses prior to any senior class. The lowest potential class  designation is not
rated  ("NR")  which,  if included  in a  securitization,  will  always  receive
interest  last and  experience  losses first.  IO securities  receive the excess
interest  remaining  after the  interest  payments  have been made on all senior
classes  of bonds  based on their  respective  principal  balances.  There is no
principal associated with IO securities and they are considered  liquidated when
the  particular  class  they  are  contractually  tied to is paid  down to zero.
Principal only ("PO")  securities  receive excess  principal  payments after the
principal  has  been  made on all  classes  of bonds  based on their  respective
payment schedules.  There is no interest  associated with PO securities and they
are sold at a  discount.  The  return on PO  securities  is earned  through  the
receipt of the payments and the collection of the discounted amount.

         CLASS SIZE -  Represents  the  percentage  size of a  particular  class
relative to the total outstanding balance of all classes.

         COLLATERAL BALANCE - represents,  in the case of residuals,  the unpaid
principal  balance of the  collateral of the entire  securities at the indicated
date and, in the case of subordinates,  the outstanding principal balance of the
entire securitization at the indicated date.

                                       24
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         ISSUE DATE - Represents the date on which the indicated securities were
issued.

         OVER-COLLATERIZATION  LEVEL - For  residual  interests  in  residential
mortgage-backed  securities,  over-collaterization ("OC") is the amount by which
the  collateral  balance  exceeds the sum of the bond principal  amounts.  OC is
achieved  by  applying  monthly  a  portion  of  the  interest  payments  of the
underlying  mortgages  toward the reduction of the class  certificate  principal
amounts,  causing them to amortize more rapidly than the aggregate loan balance.
The OC  percentage,  expressed as a  percentage  of the  outstanding  collateral
balance,   represents  the  first  tier  of  loss  protection  afforded  to  the
non-residual   holders.   The  OC  percentage   also   determines   whether  the
over-collaterization  target has been satisfied as of a specific date, such that
cash flows to the residual  holder are warranted.  To the extent not consumed by
losses on more highly  rated  bonds,  OC is remitted  to the  residual  holders.
Reserve funds ("RF") are actual cash  reserves  expressed as a percentage of the
original collateral balance at issuance.

         RATING - Represents  the rating,  if any, on the security or securities
by the indicated rating agencies.

         SECURITIZATION - Series description.

         SECURITY  -  Represents  the name of the  class  associated  with  each
securitization held by the Company.  This has no relationship to a formal rating
but  is  for  identification   purposes  (although  the  names  are  usually  in
alphabetical or numeric order from the highest rated to the lowest rated).

         SUBORDINATION   LEVEL  -  Represents   the  credit   support  for  each
mortgage-backed security by indicating the percentage of outstanding bonds whose
right  to  receive  payment  is  subordinate  to the  referenced  security.  The
subordinate classes must experience a complete loss before any additional losses
would affect the particular referenced security.

         WEIGHTED AVERAGE DSCR - Represents debt service  coverage ratio,  which
is calculated by dividing cash flow available for debt service by debt service.

         WEIGHTED  AVERAGE LTV-  Represents  the ratio of the loan amount to the
value of the underlying collateral.

         YIELD TO  MATURITY  - Yield to  maturity  represents  a measure  of the
average rate of return that is earned on a security if held to maturity.

                                       25
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

The  following  tables  details  the  Company's  securities  available  for sale
portfolio at June 30, 1999:

<TABLE>
<CAPTION>
                                                                                                     OVER
                                            CLASS                                             COLLATERIZATION
                                  ISSUE   DESIGNATION     RATING      COLLATERAL   BALANCE        LEVEL AT      PRODUCT TYPE AT
 SECURITIZATION        SECURITY   DATE      LETTER       AGENCIES     ISSUANCE     06/30/99       6/30/99          6/30/99
 --------------        --------   -----   -----------    --------     ----------   --------   ----------------  ---------------
<S>                   <C>         <C>       <C>             <C>         <C>         <C>        <C>                 <C>
                                                   (Dollars In Thousands)
 RESIDENTIAL MORTGAGE
 BACKED SECURITIES

 RESIDUALS:
 SASCO 1998-2(1)          X       Jan-98       NR       S&P, Fitch     $600,052   $ 404,957    1.30% OC   26% Fixed, 69% 2/28 ARM
 SASCO 1998-3(1)          X       Mar-98       NR       S&P, Fitch      769,671     523,357    2.57% OC   10% Fixed, 77% 2/28 ARM
 MLMI 1998-FF1(2)         X       Jun-98       NR       S&P, Fitch      198,155     136,486    2.18% OC   10% 1/29 ARM, 88% 2/28 ARM
 PANAM 1997-1(3)          X       Dec-97       NR      S&P, Moody's     113,544      71,777    6.30% OC   26% 6mo ARM, 66% 2/28 ARM
                     Prepay Pen.
 LHELT 1998-2(4)          X       Jun-98       NR     Moody's, Fitch    209,225     154,635    4.97% OC   42% Fixed, 38% 2/28 ARM
 EQUICON 1994-2(5)    B Fix, B-2  Oct-94       NR      S&P, Moody's,     78,846      21,197    6.10% OC   100% Fixed
                                                           Fitch
                     QS Fix, QS-2              NR
                     B Var., B-2               NR                        32,306       5,586   19.54% OC   100% 6mo ARM
 EQUICON 1995-1(5)    B Fix, B-2  May-95       NR      S&P, Moody's,     70,024      16,892   15.63% OC   100% Fixed
                                                           Fitch
                     B Var., B-2               NR                        40,519       6,781   17.50% OC   100% 6mo ARM
 EQUICON 1995-2(5)    B Fix, B-2  Oct-95       NR      S&P, Moody's      79,288      23,107   14.97% OC   100% Fixed
                     B Var., B-2               NR                        39,667       7,349   17.81% OC   100% 6mo ARM
 ACCESS 1996-1(6)     B Fix, B-2  Feb-96       NR      S&P, Moody's     120,015      39,103    8.24% OC   100% Fixed
                     B Var., B-2               NR                        55,362      10,520   14.45% OC   100% 6mo ARM
 ACCESS 1996-2(6)      B-I, B-1   May-96       NR      S&P, Moody's     142,259      49,722   13.68% OC   100% Fixed
                     BI-S, BI-S-1              NR
                      B-II, B-1                NR                        68,345      13,162   16.32% OC   100% ARM
                        BII-S,                 NR
                       BII-S-1
 ACCESS 1996-3(6)      B-I, B-1   Aug-96       NR      S&P, Moody's     107,712      38,640   13.17% OC   100% Fixed
                     BI-S, BI-S-1              NR
                      B-II, B-1                NR                        99,885      20,634   23.74% OC   100% ARM
                        BII-S,                 NR
                       BII-S-1
 ACCESS 1996-4(6)       B, B-1    Nov-96       NR      S&P, Moody's     239,778      72,774   17.30% OC   51% Fixed, 49% ARM
                      B-S, B-S-1               NR
 ACCESS 1997-1(6)       B, B-1    Feb-97       NR      S&P, Moody's     276,442     103,859   19.16% OC   57% Fixed, 43% ARM
                      B-S, B-S-1               NR
 ACCESS 1997-2(6)       B, B-1    May-97       NR      S&P, Moody's     185,197      74,366   12.45% OC   52% Fixed, 48% ARM
                      B-S, B-S-1               NR
 ACCESS 1997-3(6)       B, B-1    Oct-97       NR      S&P, Moody's     199,884      92,176    7.95% OC   46% Fixed, 54% ARM
                      B-S, B-S-1               NR
 OCWEN 98 - OAC-1        N/A      Nov-98       NR      S&P, Moody's     182,178     134,956    7.93% OC   24% Fixed, 72% 1/1 CMT
 CMR1(8)               Deferred   Apr-96       NR        S&P, Duff       47,802(9)   22,423    8.93% RF   100% Amortizing
                         Comp

 CMR2(8)               Deferred   Nov-96       NR    S&P, Duff, Fitch   106,692(9)   49,135    9.32% RF   89.97% Amort 10.03% IO
                         Comp                                                                             mortgages

 CMR3(8)               Deferred   Nov-96       NR    S&P, Duff, Fitch   195,610(9)   92,541   12.89% RF   73.32% Amort 26.68% IO
                         Comp                                                                             mortgages

 CMR4(8)               Deferred   Feb-97       NR    S&P, Duff, Fitch   108,630(9)   59,955    6.26% RF   89.80% Amort 10.20% IO
                         Comp                                                                             mortgages
 CMR6(8)               Deferred   May-97       NR    S&P, Duff, Fitch    91,442(9)   50,665    6.52% RF   95.55% Amort 4.45% IO
                         Comp                                                                             mortgages
</TABLE>

                                       26
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

<TABLE>
<CAPTION>
                                                                                                     OVER
                                              CLASS                                             COLLATERIZATION
                                    ISSUE   DESIGNATION     RATING      COLLATERAL   BALANCE        LEVEL AT      PRODUCT TYPE AT
 SECURITIZATION        SECURITY     DATE      LETTER       AGENCIES     ISSUANCE     06/30/99       6/30/99          6/30/99
 --------------        --------     -----   -----------    --------     ----------   --------   ----------------  ---------------
<S>                   <C>         <C>       <C>             <C>         <C>         <C>        <C>                 <C>
 SUBORDINATES:                                       (Dollars In Thousands)
 SBMS 1997-HUD1(11)       B5        Apr-97  B2, n.a.    Moody's, DCR      326,147    216,172         3.53%          97% Fixed
                          B6        Apr-97     NR                              --         --         None
 ORMBS 1998-R1(12)        B4        Mar-98     NR       Moody's, DCR      565,411    514,342         None           98% Fixed
 GECMS 1994-12(13)        B4        Mar-94     NR   Moody's, Fitch, S&P   516,732    247,688         None          100% Fixed
</TABLE>

                                       27

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

<TABLE>
<CAPTION>
                                       WEIGHTED    WEIGHTED       ACTUAL        ACTUAL        ACTUAL
                                        AVERAGE     AVERAGE     DELINQUENCY  LIFE TO DATE  LIFE TO DATE         YIELD TO
                                     INTEREST RATE  LTV AT:         AT:         CPR AT:     LOSSES AT:        MATURITY AT:
    SECURITIZATION        SECURITY    AT: 6/30/99   6/30/99       6/30/99       6/30/99       6/30/99       PURCHASE 6/30/99
    --------------        --------   ------------- --------     -----------  ------------  ------------     ----------------
<S>                     <C>              <C>         <C>            <C>           <C>         <C>            <C>        <C>
    RESIDENTIAL MORTGAGE
    BACKED SECURITIES                                                   (Dollars In Thousands)

    RESIDUALS:
    SASCO 1998-2              X          10.13%      75.09%         12.28%        23.75%      $1,452         16.00%     8.52%
    SASCO 1998-3(1)           X           9.75       76.96           9.32         26.09        1,104         17.04      7.70
    MLMI 1998-FF1(2)          X           9.39       77.58           7.71         28.64           46         18.57     11.84
    PANAM 1997-1(3)           X          10.13       81.18          17.52         26.52        1,380         22.45      6.45
                         Prepay Pen.                                                                         25.69     15.52
    LHELT 1998-2(4)           X          10.05       76.93          10.64         23.92            0         18.55     22.46
    EQUICON 1994-2(5)    B Fix, B-2       9.92       68.36          20.15         34.12          996         18.00     75.58
                        QS Fix, QS-2
                         B Var., B-2     10.62       81.88                                                   18.00     29.83
    EQUICON 1995-1(5)    B Fix, B-2      12.06       66.45          34.80         32.62        2,181         18.00     15.90
                         B Var., B-2     11.20       77.14                                                   18.00     75.29
    EQUICON 1995-2(5)    B Fix, B-2      10.84       72.79          31.65         37.16        2,016         18.00     32.80
                         B Var., B-2     11.19       73.10                                                   18.00     63.30
    ACCESS 1996-1(6)     B Fix, B-2      10.87       73.33          29.64         35.11        2,488         18.00     27.81
                         B Var., B-2     11.17       77.67                                                   18.00     19.18
    ACCESS 1996-2(6)      B-I, B-1       11.04       74.99          30.56         36.58        3,387         18.00     17.01
                        BI-S, BI-S-1
                          B-11, B-1      11.19       78.14                                                   18.00     13.85
                           BII-S,
                           BII-S-1
    ACCESS 1996-3(6)      B-I, B-1       11.43       76.57          37.50         39.48        2,382         18.00     20.69
                        BI-S, BI-S-1
                          B-II, B-1      11.55       79.82                                                   18.00     15.62
                           BII-S,
                           BII-S-1
    ACCESS 1996-4(6)       B, B-1        11.71       79.09          40.00         40.04        2,914         18.00     14.38
                         B-S, B-S-1
    ACCESS 1997-1(6)       B, B-1        11.46       81.16          39.52         39.46        4,512         18.00     13.76
                         B-S, B-S-1
    ACCESS 1997-2(6)       B, B-1        11.37       80.31          36.02         40.75        1,958         18.00     10.13
                         B-S, B-S-1
    ACCESS 1997-3(6)       B, B-1        11.16       80.20          30.75         39.48        1,194         18.00     16.40
                         B-S, B-S-1
    OCWEN 98-OAC-1(7)        N/A          8.66       79.87           6.09         35.64            2          N/A        N/A
    CMR1(8)             Deferred Comp    13.44         N/A          37.88         21.05          610         18.00    128.06
    CMR2(8)             Deferred Comp    12.50         N/A          30.25         21.93          910         18.00     57.66
    CMR3(8)             Deferred Comp    13.63         N/A          18.08         17.94        2,312         18.00     20.92
    CMR4(8)             Deferred Comp    13.78         N/A          37.35         19.45        1,100         18.00     34.04
    CMR6(8)             Deferred Comp    13.61         N/A          36.40         21.58          607         18.00     38.07

    SUBORDINATES:
    SBMS 1997-HUD1(11)       B5           9.80      108.29          10.50         15.23        8,842         16.87     19.81
                             B6                                                                              22.86     26.60
    ORMBS 1998-R1(12)        B4           8.94       90.80          21.18          7.26       11,364         13.75      5.92
    GECMS 1994-12(13)        B4           6.82       66.31           0.46          8.20            0         19.37     20.47
</TABLE>

                                       28
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================


ISSUERS:
(1)  Structured Asset Securities Corp.
(2)  Merrill Lynch Mortgage Investors, Inc.
(3)  Pan American Bank, FSB.
(4)  Lehman Home Equity Loan Trust.
(5)  Equicon Mortgage Loan Trust.
(6)  Access Financial Mortgage Loan Trust.
(7)  Ocwen Residential Mortgage-Backed Securities.
(8)  City Mortgage Receivable.
(9)  Dollar equivalent of amounts in British pounds at the rate of exchange that
     prevailed a the time of issuance.
(10) Dollar  equivalent of amounts in British  pounds at the rate of exchange at
     3/31/99.
(11) Salomon Brothers Mortgage Securities.
(12) Ocwen Mortgage Loan Trust.
(13) GE Capital Mortgage Services, Inc.
(14) Not available.

<TABLE>
<CAPTION>
                                                                CLASS                                        SUBORDINATION
                                                             DESIGNATION                                        LEVEL AT
SECURITIZATION                  SECURITY      ISSUE DATE        LETTER         RATING AGENCIES          ISSUANCE        6/30/99
--------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>           <C>            <C>                       <C>           <C>
COMMERCIAL MORTGAGE
BACKED SECURITIES

NASC 1996 MD-V  1                 B-2            Apr-96           B            S&P, Duff, Fitch             0.00%         0.00%
CSFB 1995-AEW1  2                  E             Oct-95           BB              S&P, Fitch               13.75         36.59
                                  F-1                             B                                         4.80         12.98
                                  G-1                             NR                                        0.00          0.00
                                  G-2                             NR                                        0.00          0.00
MRAC 1996-C2  3                    K             Dec-96           B-            Fitch, Moody's              2.50          2.72
                                  L-1                           NR-PO                                       0.00          0.00
                                  L-2                           NR-IO                                       0.00          0.00
BTC 1997-S1  4                    E, F           Dec-97          BB/B             S&P, Fitch               19.00         45.17
                                 Equity                           NR                                        0.00          0.00
</TABLE>

                                                               29

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

<TABLE>
<CAPTION>

                                                         Actual   Actual
                            Weighted Weighted            Life to  Life to
                            Average   Average    Actual    Date     Date         Class Size %         Yield to       Collateral
                            DSCR at   LTV at  Delinquency CPR at  CPR at        Of Total as of       Maturity at     Balance at
Securitization     Security Issuance Issuance   6/30/99  6/30/99  6/30/99     Issuance   6/30/99 Purchase 6/30/99 Issuance   6/30/99
--------------     -------- -------- --------   -------  -------  ---------   --------   ------- -------- ------- --------   -------
                                                       (Dollars in thousands)
<S>            <C>     <C>    <C>      <C>        <C>      <C>     <C>          <C>        <C>     <C>     <C>    <C>        <C>
COMMERCIAL MORTGAGE
BACKED SECURITIES

NASC 1996 MD-V (1)   B-2      1.69     62.0%      0.0%     0.0%    $    0       4.36%      4.50%   9.90%   9.98%  $773,693   749,570
CSFB 1995-AEW1 (2)   E        1.26     71.8%      5.1%     n/a     $  708      11.00      29.75    7.93    7.80   $288,906   106,379
                     F-1                                                        1.80       4.87    9.75    9.87
                     G-1                                                        4.80      12.98   12.84   15.41
                     G-2                                                        5.72      14.80   14.87   17.37
MRAC 1996-C2 (3)     K        1.36     69.1%      0.3%     n/a     $    0       1.50       1.63   12.10   12.43   $512,102   470,946
                     L-1                                                        2.50       2.72   12.31   19.48
                     L-2                                                        2.50       2.72   12.82   15.90
BTC 1997-S1  (4)     E, F     1.27    106.0%     18.6%   48.37%    $2,512      14.50      34.47    8.36    8.50   $303,946   127,853
                    Equity                                                     19.00      45.17   21.19   26.53
</TABLE>
ISSUERS:
(1)  Nomura Asset Securities Corporation
(2)  CS First Boston Mortgage Securities Corp.
(3)  Midland Realty Acceptance Corp.
(4)  BTC Mortgage Investors Trust 1997-S1
(5)  Merrill Lynch Mortgage Capital, Inc.

         The following  table sets forth the principal  amount of mortgage loans
by the geographic  location of the property securing the mortgages that underlie
the Company's securities available for sale portfolio at June 30, 1999.
<TABLE>
<CAPTION>

  Description                       California        Florida           Texas           New York         Maryland         Other (1)
-------------------------------  --------------    ------------    --------------    -------------    -------------    ------------
                                                                        (Dollars In Thousands)

<S>                              <C>               <C>             <C>               <C>              <C>              <C>
  Residential properties.......  $      545,032    $    249,330    $      146,103    $      88,796    $     112,686    $  1,775,324

  Commercial properties........         298,579         128,745           170,170           86,929           81,870         688,455
                                 --------------    ------------    --------------    -------------    -------------    ------------

  Total........................  $      843,611    $    378,075    $      316,273    $     175,725    $     194,556    $  2,463,779
                                 ==============    ============    ==============    =============    =============    ============

  Percentage (2)...............           19.30%           8.65%             7.23%            4.02%            4.45%          56.35%
                                 ==============    ============    ==============    =============    =============    ============
</TABLE>

(1)      No other individual state makes up more than 5% of the total.
(2)      Based on a  percentage  of the total  unpaid  principal  balance of the
         underlying loans.

                                       30

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         The following table  summarizes  information  relating to the Company's
mortgage-related securities available for sale at June 30, 1999.
<TABLE>
<CAPTION>

                                                                                                ANTICIPATED             ANTICIPATED
                                                                                  ORIGINAL      UNLEVERAGED               WEIGHTED
                                                                                 ANTICIPATED     YIELD TO                 AVERAGE
              RATING/                 AMORTIZED                       PERCENT     YIELD TO      MATURITY AT              REMAINING
           DESCRIPTION                  COST        FAIR VALUE         OWNED      MATURITY      6/30/99 (2)   COUPON       LIFE (3)
           -----------                  ----        ----------         -----      --------      -----------   ------    -----------
                                                                          (Dollars In Thousands)
<S>                                    <C>            <C>              <C>           <C>            <C>         <C>          <C>
SINGLE FAMILY RESIDENTIAL
Unrated residuals...................   $160,471       $173,543         100.00%       17.58%         19.26%      0.00%        6.58
B-rated subordinates................      4,032          4,032         100.00        16.87          19.81       7.75         5.40
Unrated subordinates................      5,046          4,969          51.40        15.92          11.07       7.01         3.76
                                       --------       --------
     Total single family............    169,549        182,544
                                       --------       --------
MULTI-FAMILY/COMMERCIAL
BB-rated subordinates...............     54,370         55,786          86.93         8.24           8.31       7.71         3.47
B-rated subordinates................     23,163         23,157          77.61        10.32          10.40       8.44         9.79
Unrated subordinates................     17,602         19,014         100.00        15.65          18.87       7.50         5.36
Unrated IOs (1).....................      3,162          3,535         100.00        12.79          15.90       7.23        12.05
Unrated POs (1).....................        276            452         100.00        12.31          19.48       0.00        12.05
                                       --------       --------
     Total multi-family/commercial       98,573        101,944
                                       --------       --------
     Total mortgage related
       securities...................   $268,122       $284,488
                                       ========       ========
</TABLE>

(1)      These securities  relate to the same  mortgage-related  security,  thus
         giving the Company both the  principal  and interest  components to the
         particular class.

(2)      Changes in the June 30, 1999  anticipated  yield to maturity  from that
         originally   anticipated   are  primarily  the  result  of  changes  in
         prepayment assumptions and to a lesser extent loss assumptions.

(3)      Equals the weighted  average  duration  based off of June 30, 1999 book
         value.

         The  following  table sets forth the  property  types of the  Company's
commercial mortgage-backed securities at June 30, 1999, based upon the principal
amount.

                                                         Percentage
                            Property type                 Invested
                     ------------------------------   ---------------
                     Retail........................         29.4%
                     Multi-family..................         19.3
                     Hotel.........................         16.1
                     Office........................          6.7
                     Industrial....................          5.0
                     Mixed use.....................          3.2
                     Other.........................         20.3
                                                        --------
                     Total.........................        100.0%
                                                        ========

         Subordinate  and  residual  interests  in  mortgage-related  securities
provide  credit  support  to the more  senior  classes  of the  mortgage-related
securities.  Principal from the underlying mortgage loans generally is allocated
first to the senior classes,  with the most senior class having a priority right
to the cash flow from the  mortgage  loans  until its payment  requirements  are
satisfied. To the extent that there are defaults and unrecoverable losses on the
underlying mortgage loans, resulting in reduced cash flows, the most subordinate
security will be the first to bear this loss.  Because  subordinate and residual
interests  generally  have no credit  support,  to the extent there are realized
losses  on the  mortgage  loans  comprising  the  mortgage  collateral  for such
securities,  the Company may not recover the full amount or, indeed,  any of its
initial  investment  in such  subordinate  and residual  interests.  The Company
generally  owns the  most  subordinate  classes  of the  securities  in which it
invests and therefore will be the first to bear any credit losses.

         The Company  determines the present value of anticipated  cash flows of
its mortgage-related  securities utilizing valuation assumptions  appropriate at
the time of each  acquisition or  securitization  transaction.  The  significant
valuation  assumptions  include  the  anticipated   prepayment  speeds  and  the
anticipated  credit  losses  related to the  underlying  mortgages.  In order to
determine  the present  value of this  estimated  excess cash flow,  the Company
currently  applies a  discount  rate of 18% to the  projected  cash flows on the
unrated  classes of securities.  The annual  prepayment  rate of the securitized
loans is a function of full and partial  prepayments  and defaults.  The Company
makes assumptions as to the prepayment rates of the underlying loans,  which the
Company  believes are  reasonable,  in estimating fair values of the subordinate
securities and residual securities retained.  During the second quarter of 1999,

                                       31
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

the Company  utilized  proprietary  prepayment  curves  generated by the Company
(reaching an approximate range of annualized rates of 8%-56%).  In its estimates
of annual loss rates,  the Company  utilizes  assumptions  that it believes  are
reasonable.  The Company  estimates  annual losses of between 0.60% and 4.72% of
the underlying loans.

         The credit  risk of  mortgage-related  securities  is  affected  by the
nature of the underlying  mortgage  loans.  In this regard,  the risk of loss on
securities  backed  by  commercial  and  multi-family  loans and  single  family
residential  loans made to borrowers who, because of prior credit problems,  the
absence of a credit history or other factors, are unable or unwilling to qualify
as  borrowers  under  guidelines  established  by the  FHLMC  and the  FNMA  for
purchases of loans by such agencies, generally involve more risk than securities
backed by single  family  residential  loans which  conform to the  requirements
established by FHLMC and FNMA for their purchase by such agencies.

         Subordinate and residual  interests are affected by the rate and timing
of  payments of  principal  (including  prepayments,  repurchase,  defaults  and
liquidations)  on the mortgage  loans  underlying  a series of  mortgage-related
securities.  The rate of  principal  payments may vary  significantly  over time
depending on a variety of factors, such as the level of prevailing mortgage loan
interest  rates  and  economic,  demographic,  tax,  legal  and  other  factors.
Prepayments  on the  mortgage  loans  underlying  a series  of  mortgage-related
securities   are   generally   allocated   to  the  more   senior   classes   of
mortgage-related  securities.  Although  in the  absence of defaults or interest
shortfalls all subordinates  receive interest,  amounts  otherwise  allocable to
residuals  generally are used to make payments on more senior classes or to fund
a   reserve    account   for   the    protection   of   senior   classes   until
overcollateralization  or the balance in the reserve account reaches a specified
level. In periods of declining  interest rates, rates of prepayments on mortgage
loans  generally  increase,  and if the  rate  of  prepayments  is  faster  than
anticipated,  then the yield on subordinates will be positively affected and the
yield on residuals will be negatively affected.  Continued market illiquidity on
subprime residential  mortgage-backed securities was a significant factor in the
$23.9 million loss in the second quarter of 1999.

         The Company marks its securities  portfolio to fair value at the end of
each month  based  upon  broker/dealer  marks,  subject  to an  internal  review
process.  For those securities which do not have an available market  quotation,
the Company  requests market values and underlying  assumptions from the various
broker/dealers  that underwrote,  are currently financing the securities or have
had  prior  experience  with  the  type of  securities.  Because  the  Company's
subordinate and residual  securities are not readily  marketable,  trades can be
infrequent   (and  under  some  market   conditions,   non-existent)   and  most
broker/dealers do not have the securities  modeled.  In these  circumstances the
market value is typically  available from only a small group of  broker/dealers,
and in most cases from only one broker/dealer. When valuations are obtained from
two or more  broker/dealers,  the average  dealer mark is  utilized.  As of each
reporting  period,  the  Company  evaluates  whether  and  to  what  extent  any
unrealized loss is to be recognized as other than temporary.  (See Note 2 to the
Consolidated  Financial Statements above.) As a result there can be no assurance
that  the  Company  will  not  take  additional  write-downs  to the  securities
available for sale portfolio in subsequent periods.

         For additional  information on commercial  mortgage-backed  securities,
see  "Recent  Developments"  above  and  Note 12 to the  Consolidated  Financial
Statements.

         COMMERCIAL AND MULTI-FAMILY LOAN PORTFOLIO. The Company's investment in
commercial and multi-family  loans amounted to $79.5 million at June 30, 1999, a
$14.2 million  increase over the $65.3 million  investment at December 31, 1998.
See Note 12 to the Consolidated Financial Statements.

         The  following  table  sets  forth  the  composition  of the  Company's
commercial  and  multi-family  loan  portfolio  by type  of  loan  at the  dates
indicated.

                                                   June 30,     December 31,
                                                    1999           1998
                                                ------------    ------------
Multi-family residential loans ..............   $ 25,002,338    $ 20,544,269
Commercial real estate and land loans:
     Hotels .................................     23,998,171      21,304,912
     Office buildings .......................     30,975,076      24,123,894
                                                ------------    ------------
      Total .................................     79,975,585      65,973,075
Deferred fees ...............................        (70,955)        (48,434)
Allowance for loan losses ...................       (426,585)       (641,676)
                                                ------------    ------------
     Commercial and multi-family loans, net..   $ 79,478,045    $ 65,282,965
                                                ============    ============

                                       32
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         The Company  maintains  an  allowance  for loan losses at a level which
management  considers  adequate to provide for  potential  losses  based upon an
evaluation  of known and inherent  risks.  At June 30, 1999,  the Company had an
allowance  for loan losses in the amount of $0.4 million on the  commercial  and
multi-family loan portfolio.

         The following table sets forth certain information  regarding the loans
in the Company's commercial and multi-family loan portfolio at June 30, 1999.

<TABLE>
<CAPTION>
                                                                                                STABILIZED
                                                LOAN AMOUNT                RATIO OF   LOAN PER     DEBT
                                        LOAN    OUTSTANDING   TYPE OF      LOAN TO  UNIT/SQUARE  COVERAGE  COUPON
      LOAN            LOCATION         AMOUNT    AT 6/30/99    LOAN         COST       FOOT      RATIO(1)   RATE       SIZE
---------------   ----------------    ---------------------  ---------     -------- ----------- ---------- ------   ---------
MULTI-FAMILY                                             (Dollars In Thousands)
RESIDENTIAL:
<S>               <C>                  <C>       <C>        <C>                 <C>        <C>       <C>    <C>     <C>
Fourth & Harrison San Francisco, CA    $11,550   $ 6,010    Construction        85%        72        1.22   9.630%  160 units

241 Church Street New York, NY          30,280    15,957    Conversion          88        582         N/A   9.000   52 units

459 Washington
 Street           New York, NY           3,455     3,035    Conversion          61        314         N/A  10.500   11 units

COMMERCIAL:
Doubletree Hotel  Lowell, MA             7,652     7,447    Renovation          85         31         1.9  10.000   249 rooms

Hawthorn Suites
 Hotel            Schaumburg, IL         7,629     1,228    Construction        65         56        1.59   8.750   136 suites

Thompson
 Street Hotel     New York, NY          17,715     2,925    Construction        80        209        1.66  10.000   100 rooms

Wyndham Garden
 Hotel            Wilmington, DE        13,300    12,398    Renovation          67         61         2.2   8.650   291 rooms

Landmark III-GTE  Burlington, MA        33,058    30,975    Renovation          85        114        1.18   9.250   291,007 sq.ft.
                                      --------  --------
                                      $124,639  $ 79,975
                                      ========  ========
</TABLE>

(1)      Represents  the net income of the stabilized  property  divided by debt
         service required by the loan.

         RESIDENTIAL  LOAN  PORTFOLIO.  The Company's  investment in residential
loans  decreased  to $6.1  million at June 30, 1999 from an  investment  of $8.1
million at December 31, 1998. At June 30, 1999,  $3.9 million of the residential
loan  portfolio  was past  due 90 days or  more,  compared  to $4.2  million  at
December 31, 1998.  During the second  quarter of 1999,  the Company  recorded a
provision for loan losses of $0.2 million.

         DISCOUNT LOAN PORTFOLIO. Nonperforming and subperforming mortgage loans
may  presently  be in default or may have a greater  than  normal risk of future
defaults and delinquencies, compared to newly-originated,  high-quality loans of
comparable type, size and geographic concentration.  Returns on an investment of
this type depend on the borrower's  ability to make required payments or, in the
event of default,  the ability of the loan's servicer to foreclose and liquidate
the mortgage  loan.  There can be no assurance  that the Company will be able to
liquidate a defaulted  mortgage loan successfully  (through sale of the security
property or otherwise) or in a timely fashion.

         At June 30, 1999 and December 31, 1998, the Company's net discount loan
portfolio amounted to $5.6 million or 0.7% of the Company's total assets. All of
the Company's discount loan portfolio is secured by first mortgage liens on real
estate.

                                       33
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         At June 30, 1999 and December  31,1998,  the Company's  discount  loans
consisted  of a 13.83%  participation  interest  in a loan  pool,  which  had an
outstanding  principal  balance of $6.9 million.  The  collateral  for the loans
consists of two office  buildings  located in midtown  Manhattan,  New York. The
loans are  serviced  by the Bank,  which holds the  remaining  interest in these
loans.

         The  following  table sets forth the  activity in the  Company's  gross
discount loan portfolio during the periods indicated:
<TABLE>
<CAPTION>

                                                          For the Six
                                                          Months Ended       For the Year Ended
                                                            June 30,             December 31,
                                                              1999                  1998
                                                        ---------------      ------------------
                                                                (Dollars In Thousands)
<S>                                                     <C>                   <C>
Balance at beginning of period.....................     $     6,858,836       $    42,528,782
Acquisitions.......................................                  --                    --
Resolutions and repayments(1)......................                  --            (2,349,969)
Loans transferred to investment in real estate.....                  --           (33,436,930)
Foreign exchange gain (loss).......................                  --               116,953
                                                        ---------------       ---------------
Balance at end of period...........................     $     6,858,836       $     6,858,836
                                                        ===============       ===============
</TABLE>

(1)      Resolutions  and repayments  consists of loans which were resolved in a
         manner which  resulted in partial or full  repayment of the loan to the
         Company, as well as principal payments on loans which have been brought
         current in accordance  with their  original or modified  terms (whether
         pursuant to  forbearance  agreements  or  otherwise)  or on other loans
         which have not been resolved.

         The acquisition  cost for a pool of discount loans is allocated to each
individual  loan within the pool based upon the Company's  pricing  methodology.
The discount  which is associated  with  commercial  real estate loans which are
current,  and which the Company  believes will remain current,  is accreted into
interest  income  as a yield  adjustment  using  the  interest  method  over the
contractual maturity of the loan. For all other loans interest is earned as cash
is  received.  Gains on the  repayment  and  discharge  of loans are reported as
interest income on discount loans.  Upon receipt of title to property securing a
discount loan, the loans are transferred to investment in real estate.

         INVESTMENT IN REAL ESTATE. At June 30, 1999, and December 31, 1998, the
Company's  investments in real estate consisted of eight properties which had an
aggregate carrying value of $211.4 million and $208.1 million,  respectively.  A
total of four of the properties currently owned by the Company with an aggregate
carrying  value of  approximately  $146.3  million are located in San Francisco,
California.  Three of these properties are located in the financial  district of
San Francisco, and one property is located in the adjacent civic center district
of San Francisco.  The Company believes that the office market in San Francisco,
particularly the financial district,  is characterized by limited new supply and
significant  barriers to entry.  Low  vacancy  rates,  coupled  with lack of new
construction,  are leading to increased rental rates.  Government  regulation of
development  in  conjunction  with  local  construction  costs  and  a  lack  of
developable land provide significant barriers to entry to this area. The Company
believes that its  investments  in real estate in San Francisco are well located
and benefit from their  proximity to the majority of the city's  office,  retail
and hotel accommodations.

         The Company's  earthquake  insurance relating to its four properties in
San Francisco is in the aggregate  amount of $50 million,  which is the probable
maximum loss estimated to be sustained in the event the most powerful earthquake
recorded in  California  were to occur at the  properties,  as  determined by an
independent  structural engineer.  In the event of such probable maximum loss of
$50 million, such damage would be insured, less a deductible of approximately 5%
of total  value at risk.  In the  event  of a more  catastrophic  earthquake  or
damages in excess of $50  million,  the  Company  would not be insured  for such
losses.

                                       34

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         The Company's net investment in real estate increased to $211.4 million
at June 30, 1999 from $208.1  million at December  31, 1998 and is  comprised of
the following properties:

<TABLE>
<CAPTION>
      Date                                                                                                         Book Value at
      Acquired         Property                  Location                    Square Feet       Property Type       June 30, 1999
      -----------      -----------------------   -----------------------     -----------       -------------     ---------------
                                                         (Dollars In Thousands)
<S>   <C>              <C>                       <C>                            <C>             <C>                <C>
      04/08/98         225 Bush Street........   San Francisco, CA               570,637        Office Bldg.       $     105,028
      09/23/97         450 Sansome Street.....   San Francisco, CA               130,437        Office Bldg.              20,390
      01/23/98         690 Market Street......   San Francisco, CA               124,692        Office Bldg.              14,934
      09/03/97         10 U.N. Plaza..........   San Francisco, CA                71,636        Office Bldg.              10,450
      07/22/98         841 Prudential Drive...   Jacksonville, FL                488,080        Office Bldg.              32,839
      11/10/97         Cortez Plaza...........   Bradenton, FL                   289,686        Shopping Ctr.             19,344
      04/09/98         7075 Bayers Road.......   Halifax, Nova Scotia            402,529        Shopping Ctr.             12,673
      10/01/98         Holiday Village........   Havre, MT                       223,355        Shopping Ctr.              1,941

                                                                                        Accumulated depreciation
                                                                                                and amortization          (6,231)
                                                                                                                   -------------
                                                                                                                   $     211,368
                                                                                                                   =============
</TABLE>
         Set  forth  below  is a brief  description  of  each  of the  Company's
investments in real estate at June 30, 1999.

         225 BUSH  STREET.  In April  1998,  the  Company  acquired  an existing
570,637  square  foot,  22-story,  Class A office  building  located at 225 Bush
Street  in the  financial  district  of San  Francisco,  California  for  $100.2
million.  Bush Street was originally  constructed in 1923,  expanded in 1994 and
brought up to 1992 building code seismic  standards  during 1992-94.  Originally
built as the world headquarters of Chevron of USA, Inc. ("Chevron"), it was sold
in 1994 as Chevron  sought to relocate  its  executive  offices.  The Company is
projecting to make an additional  investment of  approximately  $17.0 million to
make tenant  improvements and pay leasing commissions and to upgrade mechanical,
HVAC, and electrical systems,  fire, and life/safety systems under the Americans
with  Disabilities Act of 1990 (the "ADA"), as well as upgrades and improvements
to the ground floor retail and annex entrance lobby.  Approximately $7.5 million
is budgeted  for 1999.  As of June 30,  1999,  the Bush Street  Property was 97%
leased.

         450 SANSOME STREET.  In September 1997, the Company  acquired a 130,437
square foot, 16-story,  Class B office building located at 450 Sansome Street in
the financial district of San Francisco,  California. The Company purchased this
property  for $17.2  million.  The  property  was built in 1967 and  upgraded in
certain  respects in 1989 and 1990.  The property was acquired from a lender who
had taken title through foreclosure.  As a result,  average rent per square foot
amounted to  approximately  $18.00 at the date of  acquisition.  During the next
five years, leases on 86% of the space in the property expire. The Company plans
to invest  approximately  $7.3 million in this  property in various  renovations
including  the entrance  lobby,  elevator  cabs,  bathrooms,  hallways,  certain
building systems and compliance with the ADA as well as tenant  improvements and
pay leasing  commissions.  Approximately  $4.0 million is budgeted for 1999. The
building  was  approximately  92% leased as of June 30,  1999.  Three new leases
totaling approximately 21,400 square feet were executed in the second quarter of
1999.

         690 MARKET  STREET.  In January  1998,  the Company  acquired a 124,692
square foot,  16-story,  Class C office building located at 690 Market Street in
the financial district of San Francisco,  California. The property was purchased
for $13.7  million.  The property  was  originally  constructed  in 1888 and has
undergone numerous renovations. At the date of acquisition, approximately 41% of
the building was available  for releasing by the end of 1998, of which  existing
rents averaged $14.06 per square foot. The Company has recently executed fifteen
new leases totaling  approximately  29,000 square feet, which increased building
occupancy  to 83% as of June 30,  1999.  The  Company  is  projecting  to invest
approximately  $7.0 million in structural  upgrades,  a sprinkler system and ADA
upgrades,  deferred  maintenance,  tenant improvements and leasing  commissions.
Approximately $5.0 million is budgeted for 1999.

         10 UNITED NATIONS  PLAZA.  In September  1997,  the Company  acquired a
71,636  square foot,  six-story,  Class B office  building  located at 10 United
Nations  Plaza in the  civic  center  district  of San  Francisco.  The  Company
purchased this property,  which was built in 1982, for $9.1 million. At the date
of acquisition,  the property was substantially  leased and the average rent per
square foot was $13.76. The building was 12% leased as of June 30, 1999, but two
new leases totaling 31,227 square feet were executed during the first quarter of
1999 which will increase occupancy to approximately 55% when tenant improvements
are completed in July and September 1999,  respectively.  The remaining space is

                                       35
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

currently   being   marketed   for  lease  to  tenants  with  full  floor  space
requirements.  The  Company  is  investing  approximately  $3.5  million in this
property  to fund  cosmetic  improvements  to  enhance  the lobby and  hallways,
install ADA upgrades,  fund deferred maintenance and tenant improvements and pay
leasing commissions. Approximately $3.4 million is budgeted for 1999.

         PRUDENTIAL BUILDING. In July 1998, the Company purchased the Prudential
Building, a 488,080 square foot, 22 story office building located in the central
business  district of Jacksonville,  Florida for an aggregate  purchase price of
$36.0 million,  plus closing  costs.  The purchase price was funded with cash on
hand and advances from a line of credit.  Simultaneously with this closing,  the
Company also leased 98% of the building back to the Prudential  Insurance Co. of
America,  and sold two  adjacent  parking  areas to a  neighboring  hospital for
approximately  $4.1 million.  The Prudential lease has a term of four years with
options to vacate the  premises  during the term of the lease,  as well as three
subsequent  five-year  extension  options.  The  Company  also  entered  into an
agreement  with the  hospital  pursuant to which the  hospital is to lease up to
150,000  square feet in the  Prudential  Building for a nine-year  period should
Prudential exercise its termination option.

         CORTEZ PLAZA. In November 1997, the Company  purchased  Cortez Plaza, a
289,686 square foot shopping center located in Bradenton,  Florida,  a suburb of
Tampa.  The  Company  purchased  this  property,  which  was  built  in 1956 and
renovated in 1988, for $18.4 million. In a separate transaction,  the fee simple
title to a large  portion  of the  shopping  center  that had been  subject to a
ground lease was purchased  simultaneously for $0.7 million, which resulted in a
total investment in this property of $19.3 million. By simultaneously  acquiring
fee simple title to a ground lease that  encumbered a large part of the shopping
center's  parking lot, the Company  believes  that it  immediately  improved the
value and marketability of the project. As of June 30, 1999, the shopping center
was 94.6% leased with national and regional tenants, including Publix, PetSmart,
Circuit City,  Walgreens,  Montgomery Ward (which petitioned bankruptcy court to
affirm their lease) and BankAmerica, comprising 75% of the leaseable area. Below
market  leases  covering  approximately  9.4% of the  center  expire  during the
remainder of 1999 and 2000.

         BAYER'S ROAD SHOPPING  CENTRE.  In April 1998, the Company acquired the
Bayers Road  Shopping  Centre,  which is located at 7075 Bayers Road in Halifax,
Nova Scotia.  The property was acquired by  foreclosure  on the loans secured by
the property, which was acquired by the Company at a discount in September 1997.
The property contains 402,529 square feet of space,  which consists primarily of
retail space but also includes some office space and storage space. The original
buildings  were built in 1956 and were  enclosed and expanded in several  phases
between  1971 and 1987.  Major  tenants  of the  property  currently  consist of
Zellers,  Lawton's and Mark's Work Warehouse. The property was approximately 73%
leased at June 30, 1999. The Company currently is implementing an operating plan
to establish the second level as a strong  community  shopping  center  anchored
with both  national and regional  value-oriented  retailers,  while  filling the
lower level with service providers,  discount retailers and entertainment  uses.
The upper level would remain office space.  Additional  capital required for the
redevelopment and budgeted for 1999 totals $12.8 million.

         HOLIDAY VILLAGE SHOPPING CENTRE.  In October 1998, the Company acquired
the Holiday Village Shopping Centre,  which is located at 1753 Highway 2 West in
Havre,  Montana. The property was acquired by foreclosure on the loan secured by
the property,  which was acquired by the Company at a discount in November 1997.
The property contains 223,355 square feet of retail space. The original building
was built in 1978.  Ownership of the  property is subject to two ground  leases,
the disposition of which is currently being negotiated.  The major tenant at the
property currently is Herberger's.  The property was approximately 51% leased at
June 30, 1999.  The Company  currently is developing a leasing plan to stabilize
the property  that will  include  leasing one of the vacant  anchor  spaces to a
national or regional anchor tenant and lease the balance of the in-line space to
local and regional tenants.

                                       36
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

         The  following  table  sets  forth  the cost of  improvements  for each
investment in real estate through June 30, 1999.

<TABLE>
<CAPTION>
                                 Budgeted    Actual Cost                                              Rents due
                       Initial    Cost of        of                                                   and accrued Total
                       Cost to  Improvements Improvements Impairment         Book Value   Accumulated  at end of  Rental
     Property          Company   for 1999      to Date    Writedown   Sales  at 06/30/99  Depreciation  period    Income
------------------------------------------------------------------------------------------------------------------------
                                                           (Dollars In Thousands)
<S>                    <C>        <C>          <C>         <C>       <C>       <C>           <C>        <C>      <C>
225 Bush Street ....   $101,632   $ 7,536      $ 3,396     $    --   $    --   $105,028      $2,945     $1,103   $ 5,782
450 Sansome Street .     17,205     3,988        3,185          --        --     20,390         717        125     1,276
690 Market Street ..     13,707     5,014        1,227          --        --     14,934         445         43     1,283
10 U.N. Plaza ......      9,080     3,414        1,370          --        --     10,450         360          3        80
841 Prudential Dr...     32,827       484           12          --        --     32,839         608      1,622     4,185
Cortez Plaza .......     19,244     1,354          100          --        --     19,344         701        307     1,500
7075 Bayers Road ...     15,219    10,782        1,356      (3,902)       --     12,673         424        238     1,820
Holiday Village ....      1,791       350          150          --        --      1,941          31          8       224
Park Center I ......      1,534        --           --          --    (1,534)        --          --         --        --
                       --------   -------      -------     -------   -------   --------      ------     ------   -------

   Total ...........   $212,239   $32,922      $10,796     $(3,902)  $(1,534)  $217,599      $6,231     $3,449   $16,150
                       ========   =======      =======     =======   =======   ========      ======     ======   =======
</TABLE>

         The  following  table sets forth a summary  schedule of the total lease
expirations for the Company's  investments in real estate for leases in place as
of June 30, 1999,  assuming that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations.

<TABLE>
<CAPTION>
                                                              Percentage of                     Average Base     Percentage of
                                                                Aggregate       Annualized        Rent per         Aggregate
                            Number of       Square Footage      Portfolio      Base Rent of    Square Foot of      Portfolio
       Year of Lease         Leases          Of Expiring      Leased Square      Expiring         Expiring      Annualized Base
        Expiration          Expiring            Leases            Feet            Leases          Leases(3)           Rent
       -------------        ---------       --------------    -------------    ------------    --------------   ---------------
<S>        <C>                  <C>             <C>               <C>          <C>                    <C>              <C>
           1999(1)              42              208,858           11.69%       $ 1,302,376(2)         6.24             8.78%
           2000                 49              152,066            8.51          1,624,860           10.69            10.96
           2001                 50              123,120            6.89          1,196,923            9.72             8.07
           2002                 54              605,314           33.86          5,271,294            8.71            35.55
           2003                 19               32,289            1.81            451,567           13.99             3.04
           2004                 15               91,682            5.13          1,047,598           11.43             7.06
           2005                  4               29,120            1.63            103,035            3.54             0.69
           2006                  9              117,223            6.56            500,101            4.27             3.37
           2007                  5               93,387            5.23            769,962            8.24             5.19
           2008                  7              138,778            7.77          1,779,377           12.82            12.00
       2009 & beyond             8              195,122           10.92            785,033            4.02             5.29
                             -----           ----------        --------        -----------                          -------
                               262            1,786,959          100.00%       $14,832,126                           100.00%
                             =====           ==========        ========        ===========                          =======
</TABLE>

(1)      Lease year runs from  January 1 to December 31 for all years except for
         1999, in which the lease year is July 1 to December 31, 1999.
(2)      Annualized  base  rent  is  calculated  based  on the  amount  of  rent
         scheduled  from  January 1 of the listed year to the lease  expiration,
         except for 1999 in which the amount is based on the rent  schedule from
         July 1 to the lease expiration.
(3)      Average base rent per square foot is  calculated  using the  annualized
         base rent divided by the square footage.

         The Company  regularly engages in negotiations with existing tenants to
extend  leases  due to expire as well as to enter  into new  leases  with  other
interested parties. Square footage involved in such negotiations may vary from a
small  sub-tenancy  to  substantially  all  the  available  space  at any  given
property.

                                       37
<PAGE>

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

         Noncancelable  operating  leases with tenants  expire on various  dates
through 2028.  The future minimum rental income (base rent) to be received under
leases existing as of June 30, 1999, are as follows:

                              (Dollars In Thousands)
                1999..........................................  $ 13,053
                2000..........................................    23,000
                2001..........................................    20,629
                2002..........................................    15,566
                2003..........................................    10,273
                Thereafter....................................    45,582
                                                                --------
                     Total                                      $128,103
                                                                ========

         INDEBTEDNESS-GENERAL.   The  Company's   investments  in  real  estate,
subordinate  and residual  interests in  mortgage-related  securities  and other
assets,  such  as  single  family  residential  loans,   generally  depend  upon
short-term    borrowings   such   as   repurchase   agreements   and   warehouse
facilities/lines of credit with financial  institutions or institutional lenders
to finance the Company's acquisition of such assets on a short-term basis in the
case of repurchase  agreements  and on a one to three-year  basis in the case of
warehouse  facilities/lines  of  credit.  There  can be no  assurance  that such
financing will continue to be available on terms reasonably  satisfactory to the
Company.  The inability of the Company to arrange additional  borrowings such as
repurchase  agreements  and  warehouse  facilities/lines  of credit or to repay,
extend or replace  existing  borrowings  when they expire  would have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations  and on  the  Company's  outstanding  securities.  See  Note 9 to the
Consolidated  Financial  Statements  above,  which  is  hereby  incorporated  by
reference.

         At June 30, 1999, the Company had total  consolidated  indebtedness  of
$548.6 million, of which all but $143.0 million of outstanding Notes was secured
indebtedness,  as well as $22.8 million of other liabilities.  This consolidated
indebtedness consisted of: (i) $73.8 million of repurchase agreements,  of which
$62.2  million  was  scheduled  to  mature  in one  year;  (ii)  lines of credit
aggregating  $184.8  million,  which mature in 2001 (subject to extension by the
Company  under  certain  conditions  until 2002) and are secured by real estate,
loans and/or securities;  (iii) $143.0 million of outstanding  Redeemable Notes,
which mature in 2005; and (iv) $124.2 million of match funded indebtedness which
is secured by $135.9 million of match funded  residential  loans, net, which was
incurred in November 1998 as a result of the  securitization  of 1,808 first and
second single family residential mortgage loans and the retention by the Company
of an approximately  $9.6 million  non-investment  grade security in the special
purpose entity which was established to effect the securitization. See Note 6 to
the Consolidated Financial Statements above.

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements  to repurchase  decreased  $64.7 million to $73.9 million at June 30,
1999, from $138.6 million at December 31, 1998. This decrease was due to certain
repurchase  agreements  with the  Company's  lenders which require all cashflows
from the bonds to be used to pay down  outstanding debt and the repricing of the
repurchase agreements as the collateral amortizes, and the scheduled maturity of
certain other repurchase agreements. These obligations are secured by certain of
the   Company's   investments   in   subordinated    interests   in   commercial
mortgage-backed  securities,  residual  interests in subprime  residential  loan
securitizations, and U.K. mortgage loan residual securities.

         OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT.  Obligations outstanding
under lines of credit  increased $6.5 million to $41.0 million at June 30, 1999,
from $34.5  million at December 31, 1998.  The  borrowing is pursuant to a three
year agreement, which is collateralized by commercial loans.

         OBLIGATIONS   OUTSTANDING   UNDER  LINES  OF  CREDIT  -  REAL   ESTATE.
Obligations  outstanding  under lines of credit secured by real estate increased
$1.2 million to $143.8  million at June 30, 1999 from $142.6 million at December
31, 1998.  These  borrowings  have a three-year  term and an interest  rate that
floats in accordance with LIBOR.

         MINORITY  INTEREST.  At June 30, 1999,  minority interest totaled $22.0
million and represented  OCN's ownership through IMIHC of 1,808,733 units in the
Operating Partnership.

         SHAREHOLDERS'  EQUITY.  Shareholders' equity decreased by $13.2 million
from $221.2 million at December 31, 1998 to $208.0 million at June 30, 1999. The
decrease  was  due to a net  loss  of  $19.0  million,  partially  offset  by  a
cumulative  currency  translation  adjustment of $1.4 million and a $5.3 million
increase in unrealized gain on securities available for sale.

                                       38
<PAGE>

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

CAPITAL RESOURCES AND LIQUIDITY

         Liquidity is a measurement  of the Company's  ability to meet potential
cash  requirements,  including  ongoing  commitments to repay  borrowings,  fund
investments,  engage in loan acquisition and lending  activities,  and for other
general business purposes.  Additionally, to maintain its status as a REIT under
the Code,  the  Company  must  distribute  annually  at least 95% of its taxable
income.  The primary sources of funds for liquidity during the second quarter of
1999  consisted of cash  provided by operating  activities,  principal  payments
received  from loans,  sales of  securities  available  for sale,  increases  in
obligations  outstanding  under  lines of credit,  and  principal  and  interest
payments received on the Company's securities portfolio.

         The Company's operating activities provided cash flows of $41.0 million
during the second  quarter of 1999. At the same time,  the  Company's  investing
activities  provided  cash flows of $33.8 million  during the second  quarter of
1999.  During the second quarter of 1999, cash provided by investing  activities
primarily  consisted of principal  payments on securities  available for sale of
$10.0 million and principal  payments on loans of $43.6  million.  The Company's
financing  activities used cash flows of $96.2 million during the second quarter
of 1999 and  primarily  consisted of  repayments  of $64.8 million on borrowings
collateralized by securities sold under agreements to repurchase,  and principal
payments of $39.2 million on bonds-match funded loan agreements.

         At June 30, 1999, OAC's total closed transactions since the IPO, net of
repayments,  were $767.6 million. Of this amount, $722.9 million has been funded
and the  remaining  $44.7  million  is to be funded  over the  construction  and
renovation  periods,  which range from two to 18 months. In addition,  for 1999,
the  Company  has  budgeted  $32.9  million  of  capital   expenditures  on  its
investments in real estate in order to reposition such properties in the market.

         In connection with, and prior to the proposed  merger,  OCN has agreed,
in certain  circumstances,  to provide up to $25 million in secured financing on
an  arm's-length  basis  and on terms  consistent  with  market  conditions  and
applicable  debt  covenants  for the Company's  operations.  The Company will be
obligated to repay this  financing  immediately  upon  termination of the Merger
Agreement. See "Recent Developments" above.

         Based  upon its  current  balance  of cash and  cash  equivalents,  and
projected  cashflows  from  operations,  potential cash inflows from the sale or
refinancing of assets,  and its available lines of credit,  the Company believes
that its sources of funds will be adequate  for the purpose of meeting its short
term and long term liquidity  requirements.  However,  there can be no assurance
that this will be the case.  Material increases in interest expense or operating
expenses,  collateral  calls on its secured  financings,  the  inability  of the
Company to renew or replace maturing sources of financing,  and the inability to
sell assets to raise  additional  cash,  among other  factors,  generally  would
negatively impact the Company's  liquidity.  On the other hand, sales of assets,
increases  in  operating  cash  flows  and in the  valuation  of its  securities
portfolio,  and the execution of new  financing  transactions,  would  generally
positively  affect the  Company's  liquidity.  See also  "Recent  Developments",
"Indebtedness-General", and "Other Trends and Contingencies."

OTHER TRENDS AND CONTINGENCIES

         Fluctuations  in interest  rates will  continue to impact the Company's
net interest  income to the extent the Company's fixed rate assets are funded by
variable rate debt or the Company's  variable rate assets reprice on a different
schedule,  or in relation to a different  index than its floating  rate debt. At
June 30, 1999,  the Company had interest  rate swap  agreements  with a notional
amount of $200.8  million  and a fair  value of $1.0  million  in order to limit
partially  the  adverse  effects  of  rising  interest  rates  on the  remaining
floating-rate  debt. For a tabular  presentation  of these  agreements and other
information, see Note 3 to the Consolidated Financial Statements above. When the
Company's swap  agreements  expire,  the Company will have interest rate risk to
the extent interest rates increase on any  floating-rate  borrowings  unless the
swaps are replaced or other steps are taken to mitigate this risk.

                                       39
<PAGE>

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

         The Company's ability to raise additional debt is dependent upon, among
other things, the value of unencumbered  assets,  which are inherently linked to
prevailing interest rates and changes in the credit of the underlying assets. At
June 30, 1999,  the Company had  unencumbered  residential  loans and securities
having a fair value totaling  approximately  $290.5 million  ($182.5  million of
subordinate  and  residual   mortgage-backed   securities,   $101.9  million  of
commercial mortgage-backed securities, and $6.1 million of residential loans).

         In certain circumstances,  including,  among other things, increases in
interest rates, changes in market spreads, or decreases in the credit quality of
underlying   assets,  the  Company  would  be  required  to  provide  additional
collateral  in  connection   with  its   short-term,   floating-rate   borrowing
facilities.  During the second  quarter of 1999, the Company was required to and
did fund requests for  additional  collateral  calls on  outstanding  repurchase
agreements collateralized by securities available for sale which aggregated $1.6
million.  During February 1999, $1.1 million of cash was returned to the Company
in  connection  with  its  cash  margin  deposits  with its  swaps  and  futures
counterparties.  During April 1999, the Company  funded  requests for additional
collateral  calls  on  outstanding   repurchase  agreements   collateralized  by
securities available for sale in the amount of $3.3 million.

         Mortgage-related securities which are subject to repurchase agreements,
as well as loans and real estate which secure other  indebtedness,  periodically
are revalued by the lender, and a decline in such value may result in the lender
requiring   the  Company  to  provide   additional   collateral  to  secure  the
indebtedness.  Although  to  date  the  Company  has  had  adequate  cash,  cash
equivalents  and  other  unencumbered   assets  to  meet  calls  for  additional
collateral, to repay a portion of the related indebtedness, or to meet its other
operating and financing requirements,  including its current capital expenditure
plans,  there can be no  assurance  that  sufficient  levels of such assets will
continue to be available.

         The Company's  decision to  discontinue  future  investment  activities
effectively  means that the Company's future  profitability,  and its ability to
meet its  indebtedness  obligations,  will be dependent on its existing  assets.
Circumstances  which  result in  decreased  income  from the  Company's  assets,
including  without  limitation  market and economic  conditions  which adversely
affect leasing income from the Company's investments in real estate, payments on
its loans,  and yield on its securities,  could adversely  affect the ability of
the Company to meet its indebtedness  obligations,  as could market and economic
conditions which increase the cost of the Company's  variable rate or short-term
liabilities, as noted above.

         If the  Company  is unable to fund  additional  collateral  needs or to
repay, renew or replace maturing indebtedness on terms reasonably  satisfactory,
the Company  would be required  to sell,  under  adverse  market  conditions,  a
portion of its  assets,  and could  incur  losses as a result.  Furthermore,  an
extremely   limited   market  for   subordinate   and   residual   interests  in
mortgage-related  securities currently exists and there can be no assurance that
a liquid market for such securities will fully develop. Therefore, the Company's
ability  to  dispose  of such  securities  promptly  in such  situations  may be
limited.  Nevertheless,  the Company continues to evaluate opportunities to sell
individual securities or groups of securities as they arise.

         The  indenture  under  which the  Redeemable  Notes  were  issued  (the
"Indenture")  prohibits the Company from  incurring or issuing debt,  other than
certain permitted indebtedness ("Permitted Indebtedness"),  if certain financial
tests are not  satisfied.  One such test requires that the ratio of adjusted FFO
to adjusted fixed charges for the previous four fiscal quarters  exceeds 1.25 to
1.00.  Given  that FFO for the four  quarters  ended June 30,  1999 was  $(69.6)
million,  the Company does not expect this financial test to be satisfied during
1999. Permitted  Indebtedness,  the incurrence of which is not limited under the
Indenture,  includes:  (i) up to $150 million of debt that may be incurred under
certain warehouse lines of credit or mortgage loan repurchase  agreements;  (ii)
match funded debt that may be incurred by a special purpose,  bankruptcy  remote
subsidiary  of the Company;  (iii)  renewals or  refinancings  of existing  debt
structured to meet certain  conditions;  (iv) debt that may be incurred in hedge
transactions;  (v) up to  $10  million  of  capital  lease  and  purchase  money
financing;  and (vi) up to $50 million of additional  debt. The Company believes
that it can meet its  financing  needs from  sources of  Permitted  Indebtedness
during 1999, although there can be no assurance that this will be the case.

         In  addition  to  payment  and,  in the case of the  Company's  secured
indebtedness,  collateralization requirements, the Company is subject to various
other  covenants in the agreements  evidencing its  indebtedness,  including the
maintenance  of  specified  amounts of equity.  At June 30, 1999 and at July 31,
1999, the Company was in compliance  with all  obligations  under the agreements
evidencing  its  indebtedness  with  respect  to the  Company's  equity  and the
Operating  Partnership's  equity,  as defined in the  applicable  agreement.  In
recent months,  various  lenders have agreed to decrease the amount of net worth
required to satisfy  the  financial  covenants  in the  applicable  indebtedness
agreements.  As of July 31,  1999 the  Operating  Partnership's  equity was $7.5
million in excess of the highest such net worth covenant.  However, there can be
no certainty that additional  operating  losses will not result in the Company's
violation of certain minimum net worth covenants in the future.  In the event of
a default in such  covenants,  the lender  generally would be able to accelerate
repayment of the indebtedness and pursue other available  remedies,  which could
result in defaults on other  indebtedness of the Company,  unless the applicable
lender or lenders  allowed the Company to remain in violation of the agreements.
Were a default to be  declared,  the  Company  would not be able to  continue to
operate  without the  consent of its  lenders.  In  addition to the Merger,  the
Company currently is considering various  alternatives to enhance its ability to
meet its payment and other  obligations  under its  indebtedness and the funding
requirements  discussed  above,  including  the sale of  certain  assets and the
potential  tax and  other  consequences  associated  therewith.  There can be no
certainty  that  the  Company  will  have  sufficient  liquidity  to meet  these
obligations on a short-term or long-term basis.

                                       40
<PAGE>

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

YEAR 2000  DATE CONVERSION

         A critical  business  issue is whether  existing  application  software
programs and operating  systems can accommodate the year 2000 change date value.
Many existing  application software products in the marketplace were designed to
accommodate  only  two-digit  date  entries.  Beginning in the year 2000,  these
systems  and  products  will need to be able to  accept  four-digit  entries  to
distinguish  years beginning with 2000 from prior years.  As a result,  computer
systems and software  used by many  companies  may need to be upgraded to comply
with such Year 2000 requirements.

         The Company is dependent upon data  processing  systems and software to
conduct its business.  The data  processing  systems and software  include those
developed,  purchased  and  maintained  by OCC,  as  well  as OCN and its  other
subsidiaries, which provide management services to the Company. The Company does
not own nor maintain computer equipment or software.

         OCN has  established  a project plan to achieve Year 2000  readiness of
its mission  critical  and  non-mission  critical  systems,  including  hardware
infrastructure  and  software  applications.   During  1998,  OCN  substantially
completed the systems  identification  and evaluation phases of the project,  as
well as remediation and validation of its mission critical systems. During 1999,
OCN is focusing on any remaining  validation  tasks,  including  remediation and
validation of its non-mission critical systems and end-to-end testing with third
parties.

         The Company could experience  disruptions  across all business segments
as a result of year 2000 systems  failures at  government  agencies,  utilities,
telecommunications  providers,  couriers and financial  services vendors,  among
others.  Concerning  specific  Company  business  functions,  data acquired from
third-parties  might  contain  year 2000  incompatible  components,  which could
impact the  timeliness of third-party  loan servicing  functions such as payment
processing or loan resolution.  In addition,  loans  previously  acquired by the
Company could  experience  increased  borrower or tenant defaults  stemming from
year 2000 related business shortfalls,  dislocations or delays. Such risks could
also impact the value of the Company's portfolio of mortgage-backed  securities,
as these are dependent upon the underlying pool of mortgage loans.  There can be
no assurance that such risks, if realized  individually or  collectively,  would
not have a  material  adverse  effect  on the  Company's  business,  results  of
operations or financial condition.

FUNDS FROM OPERATIONS

         The  Company   generally   considers  FFO  to  be  a  useful  financial
performance measure of the operating  performance of a REIT because such measure
does not recognize:  (i)  depreciation and amortization of real estate assets as
operating  expenses,  which management believes are not meaningful in evaluating
income-producing  real  estate  because  such real estate  historically  has not
depreciated;  and  (ii)  gains/losses  from  debt  restructuring  and  sales  of
property.  In addition,  FFO,  together with net income and cash flow,  provides
investors  with an  additional  basis to evaluate the ability of a REIT to incur
and service debt and to fund  acquisitions and other capital  expenditures.  FFO
does not represent cash provided by operating activities in accordance with GAAP
and should not be  considered an  alternative  to net income as an indication of
the  results  of the  Company's  performance  or to cash  flows as a measure  of
liquidity. For a discussion of the Company's operating,  investing and financing
activities  under GAAP, see "-Capital  Resources and Liquidity"  above. In 1995,
NAREIT established new guidelines clarifying its definition of FFO and requested
that REITs adopt this new definition beginning in 1996. As defined, FFO consists
of net income  applicable to common  shareholders  (computed in accordance  with
GAAP)  excluding  gains (losses) from debt  restructuring  and sales of property
(including  furniture and equipment) plus real estate related  depreciation  and
amortization  (excluding  amortization  of deferred  financing  costs) and after
adjustments for  unconsolidated  partnerships  and joint  ventures.  Since other
REITs may calculate FFO in a different  manner,  there can be no assurance  that
the  Company's FFO is comparable  with the FFO reported by other  entities.  FFO
differs from cash made available to holders of the Common Stock,  which is based
on the Company's net taxable income.

         FFO for the three  months  and the six months  ended June 30,  1999 was
($16.9) million and ($17.3)  million  compared to $7.4 million and $11.2 million
for the comparable periods in 1998.

                                       41
<PAGE>


         The following  table  reconciles  FFO and net income during the periods
indicated.

<TABLE>
<CAPTION>
                                                           For the Three Months             For the Six Months
                                                              Ended June 30,                  Ended June 30,
                                                     -------------------------------  ------------------------------
                                                         1999              1998           1999              1998
                                                     -------------     -------------  -------------    -------------
                                                                          (Dollars in Thousands)
<S>                                                  <C>               <C>            <C>              <C>
          Net loss income......................      $     (18,167)    $       6,646  $     (18,951)   $      (3,858)
             Depreciation and amortization.....              1,260               759          2,454            1,063
             Loss on sale of IO portfolio......                 --                --             --           13,957
             Gain on sale of securities........                 --                --           (851)              --
                                                     -------------     -------------  -------------    -------------
          FFO..................................      $     (16,907)    $       7,405  $     (17,348)   $      11,162
                                                     =============     =============  =============    =============
</TABLE>

REIT STATUS

         The Company has  qualified  and intends to continue to qualify  through
calendar  1998 as a REIT under  Sections 856 through 860 of Code.  Qualification
for treatment as a REIT requires the Company to meet certain criteria, including
certain requirements regarding the nature of its ownership,  assets, income, and
distributions of taxable income. A REIT generally will not be subject to federal
income  taxation  on that  portion  of its  income  that is  distributed  to its
shareholders  if it  distributes  at least 95% of its  taxable  income and meets
certain  other income and asset  tests.  The Company has until the filing of its
tax return to satisfy the distribution  requirement.  Since the Company plans to
distribute  100% of its taxable  income,  no provision has been made for federal
income  taxes  for  the  Company  and  its   subsidiaries  in  the  accompanying
Consolidated  Financial  Statements.  At June  30,  1999,  the  Company  had not
declared the final 1998 dividend to meet the 95% distribution requirement, which
is expected to be approximately  $15.5 million, or $0.82 per share. There can be
no certainty that the dividend will be declared,  that, if declared, the Company
will have sufficient funds to pay the dividend or that the dividend would not be
in a form other than cash.

         For further  discussion on the Company's  status as a REIT, see "Recent
Developments" above.

RISK OF LOSS OF INVESTMENT COMPANY ACT EXEMPTION

         The  Company  believes  that it is not,  and  intends  to  conduct  its
operations  so as not to become,  regulated as an  investment  company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). Under
the Investment  Company Act, an investment  company is required to register with
the Commission and is subject to extensive,  restrictive and potentially adverse
regulations.  The Investment  Company Act exempts  entities,  however,  that are
"primarily  engaged  in  the  business  of  purchasing  or  otherwise  acquiring
mortgages  and  other  liens  on and  interests  in  real  estate"  ("Qualifying
Interests").  Under  current  interpretations  by the  staff of the  Commission,
qualifying  for this  exemption  requires the Company,  among other  things,  to
maintain at least 55% of its assets in  Qualifying  Interests and to maintain an
additional 25% in Qualifying Interests or other real estate-related  assets. The
Company's  investments  in real estate and mortgage loans  generally  constitute
Qualifying  Interests,  and the Company  believes that  subordinate and residual
interests in mortgage-related  securities  constitute  Qualifying Interests when
the Company acquires the right to direct the foreclosure upon any defaulted loan
which  backs  such  securities  and to take all other  actions  that a  servicer
generally may take in connection with a defaulted loan.

         At June 30, 1999, the Company  believes that its Qualifying  Interests,
including  subordinate  and  residual  interests,  comprised  over  88%  of  the
Company's total assets and over 93% when combined with other real-estate related
assets.  As a result,  the Company  believes  that it was and is not required to
register as an investment  company under the Investment Company Act. The Company
does not intend,  however, to seek an exemptive order, no-action letter or other
form of interpretive  guidance from the Commission on this position,  and if the
Commission  were to take a different  position,  the  Company  could be required
either (i) to change the manner in which it conducts its  operations in order to
avoid  investment  company  registration  or (ii) to register  as an  investment
company, either of which could have a material adverse effect on the Company and
its securities,  could subject the Company to monetary  penalties and injunctive
relief in an action  brought by the  Commission,  could  cause the Company to be
unable to enforce  contracts with third parties and could cause third parties to
seek recission of relevant transactions.

                                       42
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================

MARKET RISK

         Market risk is the exposure to loss  resulting from changes in interest
rates, foreign currency exchange rates, commodity prices, and equity prices. The
primary market risk to which the Company is exposed is interest rate risk, which
is highly  sensitive to many factors,  including  governmental  monetary and tax
policies, domestic and international economic and political considerations,  and
other factors beyond the control of the Company. Changes in the general level of
interest  rates can affect  the  Company's  net  interest  income,  which is the
difference between the interest income earned on interest-earning assets and the
interest expense incurred in connection with its  interest-bearing  liabilities,
by  affecting  the spread  between  the  Company's  interest-earning  assets and
interest-bearing  liabilities.  Changes in the level of interest  rates also can
affect,  among other things, the ability of the Company to originate and acquire
loans,  the  value  of  the  Company's  mortgage-related  securities  and  other
interest-earning  assets, and its ability to realize gains from the sale of such
assets.

         The Company may utilize a variety of financial  instruments,  including
interest rate swaps, caps,  floors, and other interest rate contracts,  in order
to limit the effects of interest rates on its operations. The use of these types
of  derivatives  to  hedge  interest-earning   assets  and/or   interest-bearing
liabilities  carries  certain  risks,  including the risk that losses on a hedge
position  will reduce the funds  available for payments to holders of securities
and,  indeed,   that  such  losses  may  exceed  the  amount  invested  in  such
instruments.  A hedge may not perform its intended purpose of offsetting  losses
or increased costs. Moreover, with respect to certain of the instruments used as
hedges,  the Company is exposed to the risk that the  counterparties  with which
the  Company  trades  may  cease  making  markets  and  quoting  prices  in such
instruments,  which may render the  Company  unable to enter into an  offsetting
transaction  with respect to an open position.  If the Company  anticipates that
the income from any such hedging  transaction will not be qualifying  income for
REIT income test  purposes,  the Company may conduct  part or all of its hedging
activities through a to-be-formed  corporate subsidiary that is fully subject to
federal  corporate  income  taxation.  The  profitability  of the Company may be
adversely affected during any period as a result of changing interest rates.

         The following  table  quantifies the potential  changes in net interest
income and net portfolio  value should interest rates go up or down (shocked) by
100 to 400 basis  points,  assuming  the yield curves of the rate shocks will be
parallel to each other.  Net  portfolio  value is  calculated  as the sum of the
value of off-balance  sheet  instruments  and the present value of cash in-flows
generated  from  interest-earning  assets  net of cash  out-flows  in respect of
interest-bearing liabilities. The cash flows associated with the loan portfolios
and securities available for sale are calculated based on prepayment and default
rates  that  vary by  asset.  Projected  losses,  as well  as  prepayments,  are
generated  based upon the actual  experience  with the subject  pool, as well as
similar, more seasoned pools. To the extent available, loan characteristics such
as loan-to-value ratio,  interest rate, credit history,  prepayment penalty term
and  product  types  are used to  produce  the  projected  loss  and  prepayment
assumptions that are included in the cash flow projections of the securities.

         When interest  rates are shocked,  these  projected loss and prepayment
assumptions are further adjusted.  For example, under current market conditions,
a 100 basis point decline in the market  interest rate is estimated to result in
a 200  basis  point  increase  in the  prepayment  rate  of a  typical  subprime
residential  loan.  Most  commercial and  multi-family  loans are not subject to
prepayments  as a result of  prepayment  penalties  and  contractual  terms that
prohibit prepayments during specified periods. However, for those commercial and
multi-family  loans where  prepayments are not currently  precluded by contract,
declines in interest  rates are  associated  with steep  increases in prepayment
speeds in  computing  cash flows.  A risk  premium is then  calculated  for each
asset, which, when added to the interest rate being modeled, results in a matrix
of  discount  rates that are  applied to the cash flows  computed  by the model.
Since the net portfolio value consists of both fixed and adjustable  components,
an inverse  relationship  between the market value of the net  portfolio and net
interest income is possible. This could happen if more assets reprice during the
first  year.  In this case,  more  liabilities  would be funded at the new lower
rates over a longer  period of time  during  the year.  The base  interest  rate
scenario  assumes  interest rates at June 30, 1999.  Actual results could differ
significantly from those estimated in the table.

                                       43
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================

                                        Projected Percentage Change In
         ====================================================================
         Change in Interest Rate  Net Interest Income (1) Net Portfolio Value
         ====================================================================

              -400 Basis Points            (26.15)%              (6.96)%
              -300 Basis Points            (19.61)               (4.94)
              -200 Basis Points            (13.08)               (1.99)
              -100 Basis Points             (6.54)               (0.03)
             Base Interest Rate              0.00                 0.00
              +100 Basis Points              6.54                (0.13)
              +200 Basis Points             13.08                 1.97
              +300 Basis Points             19.61                 3.26
              +400 Basis Points             26.15                 4.75

(1)      Represents the estimated  percentage change in net interest income over
         the next twelve  months,  assuming  that  balances  are rolled over and
         reinvested at the shocked level of interest  rate. For purposes of this
         calculation,  net interest income includes interest expense  associated
         with the investments in real estate.

ASSET AND LIABILITY MANAGEMENT

         Asset  and  liability  management  involves  managing  the  timing  and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control risks associated with interest rate movements.  In
general,  management's  strategy is to match asset and liability balances within
maturity  categories to limit the Company's exposure to earnings  variations and
variations in the value of assets and  liabilities as interest rates change over
time.

         The  Company   utilizes  a  variety  of  off-balance   sheet  financing
techniques  to  assist  it in  the  management  of  interest  rate  risk.  These
techniques may include  interest rate futures and interest rate swaps,  pursuant
to  which  the  parties   exchange  the   difference   between   fixed-rate  and
floating-rate  interest payments on a specified principal amount (referred to as
the  "notional  amount")  for a specified  period  without  the  exchange of the
underlying principal amount.  Interest rate swaps are utilized by the Company to
protect  against the increase in  borrowing  cost from  floating  rate debt or a
short-term,  fixed-rate liability,  such as reverse repurchase agreements, in an
increasing interest-rate environment.  At June 30, 1999, the Company was a party
to interest rate swap  agreements  with an aggregate  notional  amount of $200.8
million. See Note 4 to the Consolidated Financial Statements above.

         Methods for  evaluating  interest  rate risk include an analysis of the
Company's  interest rate  sensitivity  "gap," which is defined as the difference
between  interest-earning  assets and  interest-bearing  liabilities maturing or
repricing  within a given time period.  A gap is  considered  positive  when the
amount of  interest-rate  sensitive  assets exceeds the amount of  interest-rate
sensitive  liabilities.  A  gap  is  considered  negative  when  the  amount  of
interest-rate  sensitive  liabilities  exceeds  interest-rate  sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net  interest  income,  while a  positive  gap would tend to result in an
increase in net interest  income.  During a period of falling  interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely. Since different
types of assets and  liabilities  with the same or similar  maturities may react
differently  to  changes  in  overall  market  rates or  conditions,  changes in
interest rates may affect net interest  income  positively or negatively even if
an institution were perfectly matched in each maturity category.

                                       44
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================

         The following  table sets forth the estimated  maturity or repricing of
the Company's  interest-earning assets and interest-bearing  liabilities at June
30, 1999. The amounts of assets and liabilities shown within a particular period
were  determined  in  accordance  with the  contractual  terms of the assets and
liabilities,  except: (i) adjustable-rate  loans, and securities are included in
the period in which their interest  rates are first  scheduled to adjust and not
in the period in which they mature, (ii) fixed-rate  mortgage-related securities
reflect estimated prepayments,  which were estimated based on analyses of broker
estimates,  the  results of a  prepayment  model  utilized  by the  Company  and
empirical data, (iii) non-performing discount loans reflect the estimated timing
of  resolutions  which result in repayment to the Company,  and (iv)  fixed-rate
loans reflect scheduled contractual amortization,  with no estimated prepayment.
Management  believes that these  assumptions  approximate  actual experience and
considers  them  reasonable;  however,  the  interest  rate  sensitivity  of the
Company's  assets  and  liabilities  in the table  could vary  substantially  if
different assumptions were used or actual experience differs from the historical
experience on which the assumptions are based.

<TABLE>
<CAPTION>
                                                                                June 30, 1999
                                                         -------------------------------------------------------------
                                                                                 More than 1
                                                          Within       4 to 12     Year to       3 Years
                                                         3 Months       Months     3 Years       and Over       Total
                                                         ---------     -------    ---------     ---------     --------
                                                                                 (Dollars In Thousands)
<S>                                                      <C>           <C>        <C>           <C>           <C>
       Rate-Sensitive Assets:
         Interest-earning cash and repurchase
         agreements ..................................   $  27,210     $    --    $      --     $      --     $ 27,210
         Securities available for sale ...............      11,881      32,309       71,213       169,085      284,488
         Loan portfolio, net (1) .....................      72,395      10,360        1,680         1,108       85,543
         Match funded loan agreements ................      34,197      44,954       32,400        24,307      135,858
         Discount loan portfolio, net (1) ............          --       5,618           --            --        5,618
                                                         ---------     -------    ---------     ---------     --------
           Total rate-sensitive assets ...............     145,683      93,241      105,293       194,500      538,717
                                                         ---------     -------    ---------     ---------     --------
       Rate-Sensitive Liabilities:
         Securities sold under agreements
           to repurchase .............................      73,847          --           --            --       73,847
         Bonds-match funded loan agreements ..........     124,209          --           --            --      124,209
         Obligations outstanding under lines of credit     184,771          --           --            --      184,771
         Notes, debentures and other
           interest-bearing obligations ..............          --          --           --       143,000      143,000
                                                         ---------     -------    ---------     ---------     --------
           Total rate-sensitive liabilities ..........     382,827          --           --       143,000      525,827
         Interest rate sensitivity gap before
           Off-balance sheet financial instruments ...    (237,144)     93,241      105,293        51,500       12,890
       Off-Balance Sheet Financial Instruments:
         Interest rate swaps .........................     200,780          --     (100,780)     (100,000)          --
                                                         ---------     -------    ---------     ---------     --------
       Interest rate sensitivity gap .................     (36,364)     93,241        4,513       (48,500)    $ 12,890
                                                         ---------     -------    ---------     ---------     --------
       Cumulative interest rate sensitivity gap ......   $ (36,364)    $56,877    $  61,390     $  12,890
                                                         =========     =======    =========     =========
       Cumulative interest rate sensitivity gap as a
         percentage of total rate-sensitive assets ...       (6.75%)     10.56%       11.40%         2.39%
</TABLE>

(1)      Balances have not been reduced for non-performing loans.

         As of June 30,  1999,  the  cumulative  volume  of assets  maturing  or
repricing  within one year exceeded  liabilities by $56.9  million,  or 10.6% of
assets,  implying moderate  current-year  income sensitivity to movements in the
level of interest rates.

                                       45
<PAGE>


         FORWARD-LOOKING STATEMENTS

         CERTAIN  STATEMENTS  CONTAINED HEREIN ARE NOT BASED ON HISTORICAL FACTS
AND ARE  "FORWARD-LOOKING  STATEMENTS"  WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED,  AND SECTION 21E OF THE SECURITIES  EXCHANGE
ACT OF 1934, AS AMENDED.  THESE FORWARD-LOOKING  STATEMENTS MAY BE IDENTIFIED BY
REFERENCE  TO A FUTURE  PERIOD(S) OR BY THE USE OF  FORWARD-LOOKING  TERMINOLOGY
SUCH  AS  "ANTICIPATE,"   "BELIEVE,"   "COMMITMENT,"   "CONSIDER,"   "CONTINUE,"
"ESTIMATE,"  "EXPECT,"  "FORESEE,"  "INTEND," "MAY," "PLAN,"  "WHETHER," "WILL,"
"WOULD," FUTURE OR CONDITIONAL  VERB TENSES,  SIMILAR TERMS,  VARIATIONS ON SUCH
TERMS OR NEGATIVES OF SUCH TERMS.  ALTHOUGH OAC BELIEVES THE ANTICIPATED RESULTS
OR OTHER EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING  STATEMENTS ARE BASED ON
REASONABLE  ASSUMPTIONS,  ACTUAL  RESULTS  COULD  DIFFER  MATERIALLY  FROM THOSE
INDICATED  IN SUCH  STATEMENTS  DUE TO RISKS,  UNCERTAINTIES  AND  CHANGES  WITH
RESPECT TO A VARIETY OF FACTORS,  INCLUDING,  BUT NOT LIMITED TO, THE ABILITY OF
OCN AND OAC TO CONSUMMATE  THE MERGER,  MARKET PRICES OF THE COMMON STOCK OF OCN
AND OAC,  INTERNATIONAL,  NATIONAL,  REGIONAL  OR LOCAL  ECONOMIC  ENVIRONMENTS,
GOVERNMENT FISCAL AND MONETARY,  PREVAILING INTEREST OR CURRENCY EXCHANGE RATES,
EFFECTIVENESS  OF  INTEREST  RATE,  CURRENCY  EXCHANGE  RATE AND  OTHER  HEDGING
STRATEGIES,  LAWS AND  REGULATIONS  AFFECTING  REAL  ESTATE  INVESTMENT  TRUSTS,
INVESTMENT COMPANIES AND REAL ESTATE (INCLUDING CAPITAL REQUIREMENTS, INCOME AND
PROPERTY  TAXATION,  ACCESS FOR DISABLED PERSONS AND ENVIRONMENTAL  COMPLIANCE),
UNCERTAINTY  OF FOREIGN  LAWS,  COMPETITIVE  PRODUCTS,  PRICING  AND  CONDITIONS
(INCLUDING FROM COMPETITORS THAT HAVE SIGNIFICANTLY GREATER RESOURCES THAN OAC),
CREDIT,  PREPAYMENT,  BASIS, DEFAULT,  SUBORDINATION AND ASSET/LIABILITY  RISKS,
LOAN SERVICING EFFECTIVENESS,  SATISFACTORY DUE DILIGENCE RESULTS,  SATISFACTION
OR FULFILLMENT  OF AGREED UPON TERMS AND  CONDITIONS OF CLOSING OR  PERFORMANCE,
TIMING OF TRANSACTION  CLOSINGS,  THE DECISION TO CURTAIL EACH BUSINESS LINE AND
DISCONTINUE  INVESTMENT  ACTIVITY,  AVAILABILITY  OF AND COSTS  ASSOCIATED  WITH
OBTAINING  ADEQUATE  AND TIMELY  SOURCES OF  LIQUIDITY,  DEPENDENCE  ON EXISTING
SOURCES OF FUNDING,  ABILITY TO REPAY OR REFINANCE  INDEBTEDNESS (AT MATURITY OR
UPON  ACCELERATION),  TO MEET COLLATERAL CALLS BY LENDERS (UPON  RE-VALUATION OF
THE UNDERLYING  ASSETS OR OTHERWISE),  TO GENERATE  REVENUES  SUFFICIENT TO MEET
DEBT SERVICE  PAYMENTS AND OTHER  OPERATING  EXPENSES  AND TO  SECURITIZE  WHOLE
LOANS,  TAXABLE  INCOME  EXCEEDING  CASH  FLOW,  SIZE OF,  NATURE OF AND  YIELDS
AVAILABLE WITH RESPECT TO THE SECONDARY MARKET FOR MORTGAGE LOANS AND FINANCIAL,
SECURITIES AND  SECURITIZATION  MARKETS IN GENERAL,  ALLOWANCES FOR LOAN LOSSES,
GEOGRAPHIC CONCENTRATIONS OF ASSETS (TEMPORARY OR OTHERWISE),  TIMELY LEASING OF
UNOCCUPIED SQUARE FOOTAGE (GENERALLY AND UPON LEASE EXPIRATION), CHANGES IN REAL
ESTATE MARKET  CONDITIONS  (INCLUDING  LIQUIDITY,  VALUATION,  REVENUES,  RENTAL
RATES,  OCCUPANCY  LEVELS  AND  COMPETING  PROPERTIES),  ADEQUACY  OF  INSURANCE
COVERAGE  IN THE EVENT OF A LOSS,  KNOWN OR  UNKNOWN  ENVIRONMENTAL  CONDITIONS,
EXTERNAL MANAGEMENT,  CONFLICTS OF INTEREST, YEAR 2000 COMPLIANCE, OTHER FACTORS
GENERALLY UNDERSTOOD TO AFFECT THE REAL ESTATE ACQUISITION, MORTGAGE AND LEASING
MARKETS,  SECURITIES  INVESTMENTS  AND RAPID GROWTH  COMPANIES,  AND OTHER RISKS
DETAILED FROM TIME TO TIME IN OAC'S REPORTS AND FILINGS WITH THE SEC,  INCLUDING
ITS REGISTRATION  STATEMENTS ON FORMS S-3, S-4 AND S-11 AND ITS PERIODIC REPORTS
ON FORMS 10-Q, 8-K AND 10-K. SPECIFIC REFERENCE IS MADE TO EXHIBIT 99.2 INCLUDED
WITH THE FORM 10-K FOR THE YEAR ENDED  DECEMBER 31, 1998 AND FILED WITH THE SEC,
FOR A  DESCRIPTION  OF MATERIAL  RISKS  FACED BY THE COMPANY AND ITS  SECURITIES
HOLDERS.  GIVEN THESE  UNCERTAINTIES,  READERS ARE  CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH STATEMENTS,  OAC DOES NOT UNDERTAKE TO REVISE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION,  TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS WHICH
MAY BE MADE TO, ANY  FORWARD-LOOKING  STATEMENTS  TO REFLECT THE  OCCURRENCE  OF
ANTICIPATED  OR  UNANTICIPATED  EVENTS OR  CIRCUMSTANCES  AFTER THE DATE OF SUCH
STATEMENTS.

                                       46
<PAGE>

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

Item 6.  Exhibits and Reports on Form 8-K

         (a)          Exhibits


             3.1      Amended and Restated Articles of Incorporation (1)

             3.2      Amended and Restated Bylaws (2)

             4.1      Form of Common Stock certificate (1)

             4.2      Form of  Indenture  between the  Company and Norwest  Bank
                      Minnesota, National Association, as Trustee thereunder for
                      the 11.5% Redeemable Notes due 2005 (3)

             10.1     First Amended and Restated Management Agreement (4)

             10.2     Form of Registration Rights Agreement (1)

             10.3     Third   Amended   and   Restated   Agreement   of  Limited
                      Partnership of Ocwen Partnership L.P. (4)

             10.4     Form of Stock Option Plan (1)

             10.5     Loan Agreement  between OAIC Bush Street,  LLC and Salomon
                      Brothers Realty Corp. as of April 7, 1998 (5)

             10.6     Loan  Agreement   between  OAC  and  Greenwich   Financial
                      Products Inc. as of April 24, 1998 (4)

             10.7     Amended and Restated  Loan  Agreement by and among,  inter
                      alia, OAIC California  Partnership,  L.P., OAIC California
                      partnership  II, L.P.,  Saloman  Brothers Realty Corp. and
                      LaSalle National Bank, dated as of June 10, 1998. (4)

             10.8     Extension  of  First   Amended  and  Restated   Management
                      Agreement (filed herewith)

             10.9     Compensation  and  Indemnification  Agreement  between the
                      Company  and the  independent  committee  of the  Board of
                      Directors, dated May 6, 1999 (filed herewith)

             10.10    Agreement  of Merger  dated as of July 25, 1999 among OCN,
                      Ocwen Acquisition Company and the Registrant (6)

             27       Financial Data Schedule for the period ended June 30, 1998
                      (filed herewith)

             99.1     Investment Guidelines (4)

             99.2     Risk Factors (2)
             ===================================================================

             (1)      Incorporated  by reference to the  Company's  Registration
                      Statement on Form S-11 (File No.  333-21965),  as amended,
                      declared affective by the Commission on May 14, 1997.
             (2)      Incorporated  by reference to the Company's  Annual Report
                      on Form 10-K for the year ended December 31, 1998.
             (3)      Incorporated  by reference to the  Company's  Registration
                      Statement on Form S-4 (File No. 333-64047), as amended, as
                      declared effective by the Commission on February 12, 1999.
             (4)      Incorporated  by  reference  to  the  Company's  Quarterly
                      Report on Form 10-Q for the  quarterly  period  ended June
                      30, 1998.
             (5)      Incorporated  by reference  to the Current  Report on Form
                      8-K filed by the Company with the  Commission on April 23,
                      1998.
             (6)      Incorporated  by reference to Exhibit 2.1 to OCN's current
                      Report on Form 8-K filed with the  Commission  on July 26,
                      1999.

         (b) Reports on Form 8-K filed during the quarter ended June 30, 1999.

             (1)      A Form 8-K filed on April 16,  1999,  announcing a receipt
                      of a proposal from OCN regarding a business combination.
             (2)      A Form 8-K filed on May 10, 1999,  which  contained a news
                      release announcing the Company's financial results for the
                      three months ended March 31, 1999.

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<PAGE>


                                   SIGNATURES


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


                         OCWEN ASSET INVESTMENT CORP.



                         By:  /s/ MARK S. ZEIDMAN
                              -------------------------------------------------
                              Mark S. Zeidman
                              Senior Vice President and
                              Chief Financial Officer (On behalf of the
                              Registrant and as its principal financial officer)

Date:  August 16, 1999


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