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 September 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 [ ].

There were  18,965,000  shares of Common Stock,  $.01 par value,  outstanding on
October 7,1999.

<PAGE>


                          OCWEN ASSET INVESTMENT CORP.
                                    FORM 10-Q

                                    I N D E X
================================================================================


    PART I - FINANCIAL INFORMATION                                          Page
                                                                            ----

    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............................ 21

    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............................................................... 49

                                       2
<PAGE>
<TABLE>
<CAPTION>
                                   OCWEN ASSET INVESTMENT CORP.
                          CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                    September 30,    December 31,
                                                                        1999              1998
                                                                    -------------    -------------
<S>                                                                 <C>              <C>
ASSETS:
   Cash and amounts due from depository institutions ............   $   3,331,593    $   3,484,929
   Interest-bearing deposits ....................................      36,394,259       49,880,276
   Repurchase agreements ........................................      34,382,497               --
                                                                    -------------    -------------
   Securities available for sale, at fair value .................     212,406,246      351,153,971
   Commercial and multi-family loan portfolio, net ..............      80,197,527       65,282,965
   Residential loan portfolio, net ..............................       5,474,771        8,058,445
   Match funded residential loans, net ..........................     124,874,602      173,609,873
   Discount loan portfolio, net .................................       5,479,723        5,618,022
   Investment in real estate, net ...............................     215,865,194      208,058,721
   Principal and interest receivable ............................       2,843,296        7,475,795
   Other assets .................................................      20,111,803       15,702,816
                                                                    -------------    -------------
     Total assets ...............................................   $ 741,361,511    $ 888,325,813
                                                                    =============    =============

LIABILITIES:
   Securities sold under agreements to repurchase ...............   $  42,594,164    $ 138,611,824
    Securities sold short .......................................      33,272,188               --
   Obligations outstanding under lines of credit ................      37,608,370       34,472,404
   Obligations outstanding under lines of credit - secured by
     real estate ................................................     145,482,325      142,556,880
   Dividends and distributions payable ..........................      17,034,461               --
    11.5% Redeemable Notes due 2005 .............................     143,000,000      143,000,000
    Bonds - match funded loan agreement .........................     113,074,841      163,403,966
   Accrued expenses, payables and other liabilities .............      20,014,882       21,190,288
                                                                    -------------    -------------
     Total liabilities ..........................................     552,081,231      643,235,362
                                                                    -------------    -------------

Minority interest ...............................................      21,000,661       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 ................................     (51,828,846)     (36,277,546)
   Accumulated deficit ..........................................     (68,671,313)     (46,394,403)
   Accumulated other comprehensive income:
     Unrealized (loss) gain on securities available for sale ....      (3,749,761)      11,038,151
     Cumulative translation adjustment ..........................      (2,152,314)      (1,871,662)
                                                                    -------------    -------------
       Total other accumulated comprehensive income (loss) ......      (5,902,075)       9,166,489
                                                                    -------------    -------------
       Total shareholders' equity ...............................     168,279,619      221,176,393
                                                                    -------------    -------------
                                                                    $ 741,361,511    $ 888,325,813
                                                                    =============    =============

      THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                3
<PAGE>
<TABLE>
<CAPTION>
                                       OCWEN ASSET INVESTMENT CORP.
                                  CONSOLIDATED STATEMENTS OF OPERATIONS

                                                     For the Three Months Ended      For the Nine Months Ended
                                                           September 30,                    September 30,
                                                    ----------------------------    ----------------------------
                                                        1999            1998            1999            1998
                                                    ------------    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>                <C>
INTEREST INCOME:
  Interest bearing deposits ....................    $    207,516    $    713,966    $  1,028,339       1,009,614
  Repurchase agreements ........................          80,648              --          80,648              --
  Securities held for trading ..................              --                              --         106,892
  Securities available for sale ................      10,206,148      13,806,940      35,908,207      29,990,157
  Commercial and multi-family loans ............       2,381,253       1,512,508       6,250,607       3,786,210
  Match funded residential loans ...............       2,437,981              --       8,765,332              --
  Residential loans ............................         114,251       3,862,725         391,802       6,475,756
  Discount loans ...............................         489,779         393,132         748,497       1,719,330
                                                    ------------    ------------    ------------    ------------
                                                      15,917,576      20,289,271      53,173,432      43,087,959
                                                    ------------    ------------    ------------    ------------
INTEREST EXPENSE:
  Securities sold under agreements to repurchase       1,473,096       3,082,025       6,154,263       7,048,840
  Securities sold short ........................         251,891              --         251,891              --
  Obligations outstanding under lines of credit          785,199       3,828,297       2,097,709       6,102,066
    11.5% Redeemable Notes......................       4,111,250       3,687,347      12,376,650       3,687,347
  Bonds-match funded loan agreements ...........       2,103,660              --       6,880,040              --
                                                    ------------    ------------    ------------    ------------
                                                         725,096      10,597,669      27,760,553      16,838,253
                                                    ------------    ------------    ------------    ------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN
  LOSSES........................................       7,192,480       9,691,602      25,412,879      26,249,706
  Provision for loan losses ....................         597,750         350,682       1,076,841         556,731
                                                    ------------    ------------    ------------    ------------
  NET INTEREST INCOME AFTER PROVISION FOR LOAN
    LOSSES .....................................       6,594,730       9,340,920      24,336,038      25,692,975
                                                    ------------    ------------    ------------    ------------

REAL ESTATE-OPERATING INCOME:
  Rental income ................................       8,244,755       8,035,170      24,394,358      14,584,661
  Other ........................................          26,793           1,508          52,232          28,343
                                                    ------------    ------------    ------------    ------------
                                                       8,271,548       8,036,678      24,446,590      14,613,004
                                                    ------------    ------------    ------------    ------------
REAL ESTATE-OPERATING EXPENSES:
  Rental operation .............................       4,294,104       3,626,054      13,157,121       6,901,905
  Depreciation and amortization ................       1,352,441       1,159,652       3,806,345       2,222,573
  Interest .....................................       2,796,180       2,707,478       8,148,717       4,396,581
                                                    ------------    ------------    ------------    ------------
                                                       8,442,725       7,493,184      25,112,183      13,521,059
                                                    ------------    ------------    ------------    ------------
REAL ESTATE INCOME (EXPENSE), NET ..............        (171,177)        543,494        (665,593)      1,091,945
                                                    ------------    ------------    ------------    ------------

OTHER EXPENSES:
  Management fees ..............................       1,415,407       1,576,379       4,470,498       4,110,011
  Due diligence expenses .......................              --         567,981         122,745         935,625
  Foreign currency gain ........................              --              --              --        (116,953)
  Other ........................................       3,963,921       1,067,996       7,567,711       1,644,090
                                                    ------------    ------------    ------------    ------------
                                                       5,379,328       3,212,356      12,160,954       6,572,773
                                                    ------------    ------------    ------------    ------------

LOSSES ON SECURITIES, DERIVATIVES AND REAL
  ESTATE .......................................      (4,219,906)    (15,646,384)    (35,582,326)    (32,723,429)
                                                    ------------    ------------    ------------    ------------

LOSS BEFORE MINORITY INTEREST ..................      (3,175,681)     (8,974,326)    (24,072,835)    (12,511,282)
Minority interest in net loss (income) of
  consolidated Subsidiary.......................        (150,146)        720,513       1,795,925         399,359
                                                    ------------    ------------    ------------    ------------
  NET LOSS BEFORE EXTRAORDINARY ITEMS ..........    $ (3,325,827)   $ (8,253,813)    (22,276,910)    (12,111,923)
                                                    ============    ============    ============    ============
  Extraordinary gain on repurchase of debt .....              --    $    615,047              --         615,047
                                                    ------------    ------------    ------------    ------------

  NET LOSS .....................................    $ (3,325,827)   $ (7,638,766)    (22,276,910)    (11,496,876)
                                                    ============    ============    ============    ============

BASIC LOSS PER SHARE:
  Before extraordinary item ....................    $      (0.18)   $      (0.43)   $      (1.17)   $      (0.64)
                                                    ------------    ------------    ------------    ------------
  Extraordinary item ...........................    $         --    $       0.03    $         --    $       0.03
                                                    ------------    ------------    ------------    ------------

  NET LOSS .....................................    $      (0.18)   $      (0.40)   $      (1.17)   $      (0.61)
                                                    ============    ============    ============    ============

DILUTED LOSS PER SHARE:
  Before extraordinary item ....................    $      (0.18)   $      (0.43)   $      (1.17)   $      (0.64)
                                                    ------------    ------------    ------------    ------------
  Extraordinary item ...........................    $         --    $       0.03    $         --    $       0.03
                                                    ------------    ------------    ------------    ------------
  NET LOSS .....................................    $      (0.18)   $      (0.40)   $      (1.17)   $      (0.61)
                                                    ============    ============    ============    ============

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic ........................................    $ 18,965,000    $ 18,965,000    $ 18,965,000    $ 18,965,000
                                                    ============    ============    ============    ============
  Diluted ......................................    $ 18,965,000    $ 18,965,000    $ 18,965,000    $ 18,965,000
                                                    ============    ============    ============    ============

         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                    4
<PAGE>
<TABLE>
<CAPTION>
                                           OCWEN ASSET INVESTMENT CORP.
                              CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                                                      For the Three Months Ended      For the Nine Months Ended
                                                            September 30,                    September 30,
                                                     ----------------------------    ----------------------------
                                                         1999            1998            1999            1998
                                                     ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>
Net loss ........................................... $ (3,325,827)   $ (7,638,766)   $(22,276,910)   $(11,496,876)
Other comprehensive income:
  Unrealized loss on securities available for sale..  (20,115,491)    (13,800,335)    (14,787,912)     (6,391,224)
  Unrealized foreign currency translation
    adjustment .....................................     (735,818)       (916,525)       (280,652)     (1,968,491)
                                                     ------------    ------------    ------------    ------------
  Other comprehensive loss .........................  (20,851,309)    (14,716,860)    (15,068,564)     (8,359,715)
                                                     ------------    ------------    ------------    ------------
Comprehensive loss ................................. $(24,177,136)   $(22,355,626)   $(37,345,474)   $(19,856,591)
                                                     ============    ============    ============    ============


Disclosure of reclassification adjustment:
  Unrealized holding losses arising during the
    period ......................................... $(24,335,397)   $(27,376,733)   $(50,370,238)   $(37,044,667)
  Add:  Adjustment for losses included in net loss..    4,219,906      13,576,398      35,582,326      30,653,443
                                                     ------------    ------------    ------------    ------------
  Net unrealized losses on
    securities ..................................... $(20,115,491)   $(13,800,335)   $(14,787,912)   $ (6,391,224)
                                                     ============    ============    ============    ============



             THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                        5
<PAGE>
<TABLE>
<CAPTION>
                                                    OCWEN ASSET INVESTMENT CORP.
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                         FOR THE NINE MONTHS ENDED SEPTEMBER 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 ............................          --         --            --            --   (22,276,910)           --   (22,276,910)

Dividends ...........................          --         --            --   (15,551,300)           --            --   (15,551,300)

Change in unrealized loss on
  securities available for sale .....          --         --            --            --            --   (14,787,912)  (14,787,912)

Change in cumulative translation
  adjustment ........................          --         --            --            --            --      (280,652)     (280,652)
                                      ----------- ---------- ------------- ------------- ------------- ------------- -------------

Balance at September 30, 1999........  18,965,000 $  189,650 $ 294,492,203 $ (51,828,846)$ (68,671,313)$  (5,902,075)$ 168,279,619
                                      =========== ========== ============= ============= ============= ============= =============



                       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 Nine Months
                                                                                     Ended September 30,
                                                                                ------------------------------
                                                                                    1999              1998
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
Cash flows from operating activities:
   Net loss .................................................................   $ (22,276,910)   $ (11,496,876)
     Adjustments to reconcile net loss to net cash provided by
     Operating activities:
       Premium amortization (discount accretion), net .......................      25,520,705        7,992,956
       Depreciation .........................................................       3,806,345        2,222,573
       Foreign exchange gain ................................................              --         (116,953)
       Extraordinary gain on extinguishment of debt .........................              --         (615,047)
       Provision for loan losses ............................................       1,076,841          556,731
       Net losses on securities .............................................      35,582,326       32,723,429
       Decrease (increase) in interest receivable ...........................       4,632,499       (3,449,149)
       Increase in other assets .............................................      (5,558,065)     (20,108,845)
       Increase accrued expenses, payables and other liabilities ............      (1,175,406)      (1,071,622)
       (Decrease) in minority interest in earnings (losses) .................      (1,795,925)        (399,359)
                                                                                -------------    -------------
Net cash provided by operating activities ...................................      39,812,410        6,237,838
                                                                                -------------    -------------
Cash flows from investing activities:
  Purchase of securities available for sale .................................              --     (357,494,324)
    Increase in repurchase agreements .......................................     (34,382,497)              --
  Maturities and principal payments received on securities available for sale      16,125,781       30,388,130
  Principal payments received from discount loans ...........................         138,300          973,325
  Principal payments received from loans ....................................      57,208,565       20,344,923
  Proceeds from sale of securities ..........................................      48,516,666       39,408,287
    Purchase of discount loans ..............................................              --          (10,031)
    Payments received from sale of loans ....................................              --          111,109
  Purchase/originations of loans ............................................     (22,151,922)    (257,818,817)
  Investment in real estate .................................................     (11,612,818)    (149,017,946)
  Deposits on pending asset acquisitions ....................................              --          996,500
                                                                                -------------    -------------
Net cash provided by (used by) investing activities .........................      53,842,075     (672,118,844)
                                                                                -------------    -------------
Cash flows from financing activities:
  Dividend payments on common stock .........................................              --      (22,378,697)
  Proceeds from sale of securities to affiliates ............................              --       13,957,595
    Proceeds from issuance of notes .........................................              --      150,000,000
    Repurchase of notes .....................................................              --       (6,309,944)
  Proceeds received from sale of operating partnership units ................              --       27,593,302
  Principal payments on bonds ...............................................     (50,329,125)              --
  Increase in securities sold under agreements to repurchase ................     (96,017,660)     143,058,656
    Increase in securities sold short .......................................      33,272,188               --
  Increase in obligations outstanding under lines of credit .................       6,061,411      331,581,165
                                                                                -------------    -------------
Net cash (used by) provided by financing activities .........................    (107,013,186)     637,502,077
                                                                                -------------    -------------
Net decrease in cash and cash equivalents ...................................     (13,358,701)     (28,378,929)
Change in cumulative translation adjustment .................................        (280,652)      (1,968,491)
Cash and cash equivalents at beginning of period ............................      53,365,205       48,677,123
                                                                                -------------    -------------
Cash and cash equivalents at end of period ..................................   $  39,725,852    $  18,329,703
                                                                                =============    =============

Reconciliation of cash and cash equivalents at end of period:
  Cash and amounts due from depository institutions .........................   $   3,331,593    $   3,135,888
  Interest earning deposits .................................................      36,394,259       15,193,815
                                                                                -------------    -------------
     Total ..................................................................   $  39,725,852    $  18,329,703
                                                                                =============    =============

Supplemental schedule of non-cash financing activities:
  Interest paid .............................................................      13,663,610       16,204,823

            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
                                                      7
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
================================================================================


NOTE 1   ORGANIZATION

         On October 7, 1999, Ocwen Acquisition  Company  ("Acquisition  Sub"), a
Virginia corporation and an indirect wholly-owned  subsidiary of Ocwen Financial
Corporation  ("OCN")  merged  with and into  Ocwen  Asset  Investment  Corp.,  a
Virginia corporation,  ("OAC" or the "Company") in accordance with the Agreement
of Merger (the "Merger Agreement") dated as of July 25, 1999 among OAC, OCN, and
Acquisition  Sub. On October 20, 1999, the Company merged into Small  Commercial
Properties  Corporation  I  ("SCP"),  a  Florida  corporation  and  an  indirect
wholly-owned subsidiary of OCN. Immediately thereafter,  SCP changed its name to
Ocwen Asset  Investment  Corp.  In  accordance  with the Merger  Agreement,  OAC
shareholders  (except for OCN or its  subsidiaries)  received 0.71 shares of OCN
stock for each outstanding share of OAC common stock. As a result of the merger,
on October  20,  1999 OAC ceased to qualify as a real  estate  investment  trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").  This
report  does not  give  effect  to these  transactions  as they  occurred  after
September 30, 1999.

         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 September 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 OCN.
On September  30, 1998,  IMIHC also owned  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 and nine months
ended  September 30, 1999 and 1998, OCC earned from the Company $1.4 million and
$1.6 million and $4.5 million and $4.1 million, respectively, in base management
fees. No incentive compensation has ever been paid.

         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 three months and nine months ended
September  30,  1999,  the Bank earned from the  Company  $0.7  million and $2.1
million, respectively, in servicing fees.

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.

         In the opinion of management,  the  accompanying  financial  statements
contain all adjustments,  consisting of normal recurring accruals, necessary for
a fair presentation of the Company's  financial  condition at September 30, 1999
and  December  31, 1998,  the results of its  operations  for the three and nine
months ended September 30, 1999 and 1998, its comprehensive income for the three
and nine months ended  September 30, 1999 and 1998,  its cash flows for the nine
months  ended  September  30, 1999 and 1998,  and its  changes in  stockholders'

                                        8
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
================================================================================

equity for the nine months ended  September 30, 1999.  The results of operations
and other  data for the nine  month  period  ended  September  30,  1999 are not
necessarily indicative of the results that may be expected for any other interim
periods or the entire year ending December 31, 1999. The unaudited  consolidated
financial  statements  presented  herein should be read in conjunction  with the
audited consolidated  financial statements and related notes thereto included in
the Company's  Annual Report on Form 10-K for the year ended  December 31, 1998.
Certain  reclassifications  have been made to the  prior  period's  consolidated
financial statements to conform to the September 30, 1999 presentation.

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.

REPURCHASE AGREEMENTS

         The Company  enters into  purchases of securities  under  agreements to
resell  (repurchase  agreements).  Interest  earned on repurchase  agreements is
reported as interest  income.  At  September  30,  1999,  repurchase  agreements
amounted to $34.4 million.

SHORT SALES

         The Company has sold short U.S. Treasury bonds.  Short sales are stated
at fair value. Gains and losses are recognized in the statements of operations.

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 September 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.

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

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
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
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 September 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.

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

INCOME TAXES

         Through  October  20,  1999,  the  Company  qualified  as a REIT  under
Sections 856 through 860 of the Code.  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 through September 30, 1999.

         As a result of the  acquisition  of the  Company  by OCN on  October 7,
1999,  the Company no longer  qualifies  as a REIT under the  provisions  of the
Code.

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.

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

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

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 September 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.

         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
September  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.

                 Notional    LIBOR               Floating Rate at
     Maturity     Amount     Index   Fixed Rate   End of Period   Fair Value
     --------  ----------   -------  ----------  ---------------- ----------
                               (Dollars In Thousands)
       2003    $  100,000   1-month     5.75%           5.38%      $   1,665
       2001        17,000   1-month     6.00            5.37             (10)
       2001        75,000   1-month     6.00            5.38             (42)
       2002         8,780   1-month     6.04            5.37              27
               ----------                                          ---------
               $  200,780                                          $   1,640
               ==========                                          =========

         At  September  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 September 30, 1999,  the fair value of
the British  Pounds  futures  contracts  was $(0.8)  million.  In addition,  the

                                       12
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
================================================================================

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 September
30, 1999, the fair value of the Canadian  currency  contract was $(0.2) 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.

                                       13
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 dates indicated.
<TABLE>
<CAPTION>
                                                                          Gross            Gross
                                                      Amortized        Unrealized        Unrealized          Fair
         JULY 31, 1999                                   Cost             Gains            Losses            Value
                                                     -------------    -------------    -------------     -------------
                                                                          (Dollars In Thousands)
<S>                                                  <C>              <C>              <C>               <C>
         Mortgage-related securities:
           Single family residential:
             Subprime residuals..................    $     156,172    $      14,266    $          --     $     170,438
             Subordinates........................            8,947              343                              9,290
                                                     -------------    -------------    -------------     -------------
                                                           165,119           14,609                            179,728
                                                     -------------    -------------    -------------     -------------

           Multi-family and commercial:
             Non-rated interest only.............            3,152              379               --             3,531
             Non-rated principal only............              276              184               --               460
             Subordinates........................           95,024            2,257               --            97,281
                                                     -------------    -------------    -------------     -------------
                                                            98,452            2,820               --           101,272
                                                     -------------    -------------    -------------     -------------
                                                     $     263,571    $      17,429    $          --     $     281,000
                                                     =============    =============    =============     =============

                                                                          Gross            Gross
                                                      Amortized        Unrealized        Unrealized          Fair
         AUGUST 31, 1999                                 Cost             Gains            Losses            Value
                                                     -------------    -------------    -------------     -------------
                                                                          (Dollars In Thousands)
<S>                                                  <C>              <C>              <C>               <C>
         Mortgage-related securities:
           Single family residential:
             Subprime residuals..................    $     150,038    $      12,119    $          --     $     162,157
             Subordinates........................            8,828              253                              9,081
                                                     -------------    -------------    -------------     -------------
                                                           158,866           12,372                            171,238
                                                     -------------    -------------    -------------     -------------

           Multi-family and commercial:
             Non-rated interest only.............            3,140              281               --             3,421
             Non-rated principal only............              276              196               --               472
             Subordinates........................           62,781            2,271               --            65,052
                                                     -------------    -------------    -------------     -------------
                                                            66,197            2,748               --            68,945
                                                     -------------    -------------    -------------     -------------
                                                     $     225,063    $      15,120    $          --     $     240,183
                                                     =============    =============    =============     =============
</TABLE>

                                                          14
<PAGE>

<TABLE>
<CAPTION>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
======================================================================================================================


                                                                          Gross            Gross
                                                      Amortized        Unrealized        Unrealized          Fair
         SEPTEMBER 30, 1999                              Cost             Gains            Losses            Value
                                                     -------------    -------------    -------------     -------------
                                                                          (Dollars In Thousands)
<S>                                                  <C>              <C>              <C>               <C>
         Mortgage-related securities:
           Single family residential:
             Subprime residuals..................    $     143,370    $                $      (3,281)    $     140,089
             Subordinates........................            6,670               --             (363)            6,307
                                                     -------------    -------------    -------------     -------------
                                                           150,040               --           (3,644)          146,396
                                                     -------------    -------------    -------------     -------------

           Multi-family and commercial:
             Non-rated interest only.............            3,125                              (272)            2,853
             Non-rated principal only............              276                               (30)              246
             Subordinates........................           62,715              197               --            62,911
                                                     -------------    -------------    -------------     -------------
                                                            66,116              197             (302)           66,010
                                                     -------------    -------------    -------------     -------------
                                                     $     216,156    $         197    $      (3,946)    $     212,406
                                                     =============    =============    ==============    =============
</TABLE>

         During the three months and nine months ended  September 30, 1999,  the
Company  recorded   impairment  charges  of  $5.9  million  and  $27.3  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.

<TABLE>
<CAPTION>
                                                       September 30,      December 31,
                                                            1999              1998
                                                       --------------    --------------
<S>                                                    <C>               <C>
           Single family residential..............     $    6,209,446    $    8,419,265
           Multi-family residential...............         30,401,865        20,544,269
           Commercial real estate:
             Office...............................         30,975,076        24,123,894
             Hotel................................         19,300,560        21,304,912
                                                       --------------    --------------
               Total loans........................         86,886,947        74,392,340
           Deferred fees..........................           (285,727)         (409,254)
           Allowance for loan losses..............           (928,922)         (641,676)
                                                       --------------    --------------
             Loans, net...........................     $   85,672,298    $   73,341,410
                                                       ==============    ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                       September 30,      December 31,
                                                            1999              1998
                                                       --------------    --------------
         Non-performing loans:                             (Dollars in Thousands)
<S>                                                    <C>               <C>
             Single family residential.............    $        3,457    $        4,165
             Multi-family..........................             3,035                --
             Commercial............................                --                --
                                                       --------------    --------------
                                                       $        6,492    $        4,165
                                                       ==============    ==============
</TABLE>

         If non-accrual loans had been current in accordance with their original
terms,  additional  interest income of approximately  $0.2 million for the three
months ended  September  30, 1999 would have been  earned.  No interest has been
accrued on loans greater than 89 days past due.

                                       15
<PAGE>

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


         For the three months and the nine months ended  September  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 certain  information  at September 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
                                         --------------------------------------------------------------------------
                                                       After One Year  After Five Years
                                              One       Through Five     Through Ten      After Ten
                                         Year or Less      Years           Years            Years          Total
                                         ------------   ------------    ------------    ------------   ------------
                                                                 (Dollars In Thousands)
<S>                                      <C>            <C>             <C>             <C>            <C>
Single family residential loans.......   $        866   $      1,837    $      1,362    $      2,144   $      6,209
Multi-family residential loans........         30,402             --              --              --         30,402
Commercial real estate................         50,276             --              --              --         50,276
                                         ------------   ------------    ------------    ------------   ------------
   Total..............................   $     81,544   $      1,837    $      1,362    $      2,144   $     86,887
                                         ============   ============    ============    ============   ============
</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.

         The following table sets forth the activity in the Company's gross loan
portfolio during the periods indicated.
<TABLE>
<CAPTION>
                                                                For the Nine         For the
                                                                Months Ended       Year Ended
                                                                September 30,      December 31,
                                                                    1999               1998
                                                               ---------------   ---------------
<S>                                                            <C>               <C>
                  Balance at beginning of period............   $    74,392,340   $    16,290,404
                  Originations:
                     Single family residential loans........                --                --
                     Multi-family residential loans.........         9,857,596        19,186,936
                     Commercial real estate loans...........        12,294,326        37,005,198
                                                               ---------------   ---------------
                        Total loans originated..............        22,151,922        56,192,134
                                                               ---------------   ---------------
                  Purchases:
                     Single family residential loans........                --       211,378,718
                  Secured borrowing (match funded loans)....                --      (183,470,633)
                  Principal repayments, net.................        (9,657,315)      (25,998,283)
                                                               ---------------   ---------------
                  Net increase in loan portfolio............        12,494,607        58,101,936
                                                               ---------------   ---------------
                  Balance at end of period..................   $    86,886,947   $    74,392,340
                                                               ===============   ===============
</TABLE>

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.  At September 30, 1999, Loan Group I consisted
of  approximately  768  mortgage  loans with an aggregate  principal  balance of
approximately  $63.5 million and original  terms of up to 30 years and which are

                                       16
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
================================================================================

secured by first liens on single family  residential  properties.  Loan Group II
consisted  of  approximately  521  mortgage  loans with an  aggregate  principal
balance of approximately  $61.3 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 nine months ended  September 30, 1999,  the Company  recorded a
provision  for loan losses  against the match funded  residential  loans of $0.3
million and $0.8 million, respectively.

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.

         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.

         At September 30, 1999, the Company's discount loan portfolio  consisted
of the following:

                                                          (Dollars In Thousands)
           LOAN TYPE:
           Commercial real estate loans:
              Office..................................        $     7,014
              Retail..................................                 --
                                                              -----------
                Total discount loans..................              7,014
              Discount (1)............................             (1,534)
                                                              -----------
                Discount loans, net...................        $     5,480
                                                              ===========

 (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 September  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>
                                                                   September 30,     December 31,
                                                                       1999              1998
                                                                  --------------     -------------
<S>                                                               <C>                <C>
              Office buildings................................    $  174,616,120     $ 174,587,772
              Retail..........................................        33,541,248        32,328,623
              Building improvements...........................         7,594,386         1,223,185
              Tenant improvements and lease commissions.......         7,662,718         3,682,602
              Furniture and fixtures..........................            33,747                --
                                                                  --------------     -------------
                                                                     223,448,219       211,822,182
              Accumulated depreciation........................        (7,583,025)       (3,763,461)
                                                                  --------------     -------------
                Investment in real estate, net................    $  215,865,194     $ 208,058,721
                                                                  ==============     =============
</TABLE>

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

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

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements to repurchase were $42.6 million,  with a weighted  average  interest
rate of 8.87%, at September 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.

         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 September 30, 1999:
<TABLE>
<CAPTION>
                                    Outstanding   Commercial Securities Residential Securities
         Maturity Date               Borrowing        Fair Value             Fair Value
         -------------              -----------   --------------------- ----------------------
                                                (Dollars in Millions)
<S>                                 <C>               <C>                    <C>
         Within 1 month ..........  $      34.1       $      56.1            $        2.6
         More than 1 year ........          8.5                --                    34.1
                                    -----------       -----------            ------------
         Total ...................  $      42.6       $      56.1            $       36.7
                                    ===========       ===========            ============
</TABLE>

         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.  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 nine months ended  September  30, 1999
was $1.5 million and $6.2 million, respectively.

         SECURITIES  SOLD SHORT.  The company  enters into  short-term  sales of
securities  under agreements to purchase  (securities  sold short).  The amounts
advanced  under  short  sales are  carried at fair value on the  balance  sheet.
Interest  incurred on securities sold short are reported as interest  expense in
the  statement of  operations.  At September  30,  1999,  securities  sold short
amounted to $33.3 million.

         OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT.  Obligations outstanding
under lines of credit  amounted to $37.6  million at  September  30,  1999.  The
borrowings are pursuant to a three year agreement,  which is  collateralized  by
commercial  loans.  The weighted average interest rate at September 30, 1999 was
7.07%.  Interest  expense  during  the three  months and the nine  months  ended
September, 1999 was $0.8 million and $2.1 million,  respectively.  See Note 1 to
"--OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT-REAL ESTATE" below.

                                       18
<PAGE>

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


OBLIGATIONS  OUTSTANDING  UNDER  LINES  OF  CREDIT  - REAL  ESTATE.  Obligations
outstanding  under  lines of credit  secured by real  estate  amounted to $145.5
million at September 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 September 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...................     $      70.5(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 September  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  nine  months  ended
September 30, 1999 was $2.8 million and $8.1 million, respectively.

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 September
30, 1999,  the  outstanding  balance of the Notes was $143.0  million.  Interest
expense on the Notes for the three  months and nine months ended  September  30,
1999 was $4.1 million and $12.4 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.

                                       19
<PAGE>
OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
================================================================================

         At September 30, 1999,  bonds-match funded loan agreements  amounted to
$113.1  million and with a weighted  average  interest  rate of 6.75%.  Interest
expense for the three months and nine months ended  September  30, 1999 was $2.1
million and $6.9 million, respectively.

NOTE 11  TAXATION

         For 1998,  the  Company  has  qualified  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.  On August 23, 1999, the Company declared a
cash dividend of $0.82 or $15.5 million to  shareholders of record on August 30,
1999,  paid  October  7,  1999.  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.

         As a result of the  acquisition  of the  Company  by OCN on  October 7,
1999,  the  Company  failed to qualify as a REIT as of October 20, 1999 and will
record an income tax provision in the fourth quarter.

NOTE 12  COMMITMENTS AND CONTINGENCIES

         At September  30, 1999,  the Company had $36.3  million in  outstanding
commitments  to  fund  construction,  multi-family  and  commercial  loans.  The
following table details the amounts committed at such date.

                                   September 30, 1999
                  -----------------------------------------------------
                                 (Dollars In Thousands)
                  Multi-family......................      $      14,883
                  Hotels............................             19,343
                  Offices...........................              2,083
                                                          -------------
                    Total committed amount..........      $      36,309
                                                          =============

         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 sought to enjoin consummation of
the  acquisition  of the  Company by OCN.  The cases were  consolidated,  and on
September 13, 1999 a consolidated  amended  complaint was filed.  The injunction
was denied,  and on October 14, 1999, OCN was dismissed as a party.  Plaintiffs'
remaining  claims are for 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.

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

GENERAL

         The Company was formed as a Virginia  corporation  in the first quarter
of 1997, and had elected to be taxed as a REIT under Sections 856 through 860 of
the Code.  See  "Recent  Developments"  regarding  OAC's  change in tax  status,
ownership  structure and domicile.  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 $3.3  million or $(0.18) per fully
diluted share for the three months ended  September 30, 1999.  These losses were
primarily attributable to $5.9 million of losses on its securities available for
sale portfolio which were comprised of a writedown of its  residential  subprime
and residual mortgage-backed securities. During the first and second quarters of
1999,  the Company  reported $8.3 million and $23.9  million,  respectively,  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  September  30, 1999 the company  entered  into an agreement to sell
MRAC 1996-C2 classes K, L1, and L2. This transaction  settled on October 5, 1999
and resulted in proceeds,  net of financing to the Company of $ 6.1 million. See
"Financial  Condition-Securities  Available  for Sale"  below for more detail on
these commercial mortgage-backed securities.

         On October 7, 1999, Ocwen Acquisition  Company  ("Acquisition  Sub"), a
Virginia corporation and an indirect wholly-owned  subsidiary of OCN merged with
and into the Company in  accordance  with the  Agreement  of Merger (the "Merger
Agreement")  dated as of July 25, 1999 among the Company,  OCN, and  Acquisition
Sub. Under the terms of the Merger Agreement, each outstanding share (other than
those held by OCN and its wholly-owned  subsidiaries) of common stock, par value
$0.01 per share,  of the  Company  was  converted  into .71 shares of OCN common
stock.

         Also on October 7, 1999,  the Company paid a cash dividend of $0.82 per
share,  or $15.5  million,  to  shareholders  of record on August 30, 1999. As a
result of the  acquisition of the company by OCN on October 7, 1999, the Company
no longer qualifies as a REIT under the provisions of the Code.

                                       21
<PAGE>

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


         On  October  20,  1999,  the  Company  merged  into  Small   Commercial
Properties  Corporation  I  ("SCP"),  a  Florida  corporation  and  an  indirect
wholly-owned subsidiary of OCN. Immediately thereafter,  SCP changed its name to
Ocwen Asset Investment Corp.

         On November 1, 1999, the Company sold,  for $2.9 million,  a pool of 36
residential loans with an unpaid principal balance of $3.3 million.

COMPARISON  OF OPERATING  RESULTS FOR THE THREE MONTHS AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998

         GENERAL.  Net loss for the quarter  ended  September  30, 1999 was $3.3
million,  or $(0.18) per diluted share,  compared to a net loss of $7.6 million,
or $(0.40) per diluted share, for the three months ended September 30, 1998. The
loss  for the  three  months  ended  September  30,  1999 was  primarily  due to
impairment  losses on securities,  derivatives  and real estate of $4.2 million.
The  losses on the  securities  available  for sale  portfolio  during the third
quarter  of 1999 were  taken  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 nine  months  ended
September 30, 1999 was $22.3 million compared to a net loss of $11.5 million for
the same period a year ago.

        INTEREST INCOME. Interest income decreased $4.4 million to $15.9 million
for the three  months  ended  September  30,  1999 from  $20.3  million  for the
comparable  period ended 1998.  This decrease was primarily due to a decrease in
interest income of $3.6 million on the securities  available for sale portfolio,
which resulted from higher than expected  losses in the  residential  securities
portfolio,  along with the sale of some securities.  Interest income was further
reduced by a  decrease  of $1.4  million  on  interest  from  residential  loans
(including  match funded  loans),  which resulted from a decrease in the average
balances of these loan portfolios.  Total interest earning assets yielded 12.86%
at September  30, 1999, a 1.48%  increase  over the yield at September 30, 1998.
Interest  income for the nine months ended September 30, 1999 was $ 53.2 million
compared to $ 43.1 million for the same period a year ago.

         INTEREST EXPENSE. Interest expense for the three months ended September
30, 1999 decreased $1.4 million to $8.7 million as compared to the same period a
year ago. This decrease was primarily due to a $3.0 million decrease in interest
expense  associated with the pay down of obligations  outstanding under lines of
credit and a $1.6 million  decrease in interest  incurred from  securities  sold
under  agreements to repurchase  due to the sale of  securities.  However,  this
decrease was  mitigated in part by a $2.1 million  increase in 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 (Expense),  Net" below.  Interest expense
for the nine months ended September 30, 1999 was $27.8 million compared to $16.8
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.

                                       22
<PAGE>
ITEM 2.           MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION
                  AND RESULTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
                                                                     For the Three Months Ended September 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:
   Interest-bearing deposits........................ $    18,309 $      208        4.54%   $     54,861 $     714     5.16%
   Repurchase agreements..........................         6,737         80        4.75              --        --       --
   Securities available for sale...................      246,903     10,206       16.53         412,265    13,807    13.29
   Commercial and multi-family loan portfolio, net.       80,253      2,381       11.87          50,323     1,512    11.92
   Match funded residential loans, net.............      131,278      2,438        7.43              --        --       --
   Residential loan portfolio, net.................        6,134        114        7.43         181,545     3,863     8.44
   Discount loans, net.............................        5,616        490       34.90           8,527       393    18.29
                                                     ----------------------------------    -------------------------------
     Total interest-earning assets.................  $   495,230 $   15,917       12.86%   $    707,521 $  20,289    11.38%
                                                     ----------------------------------    -------------------------------

Interest-bearing liabilities:
   Securities sold under agreements to repurchase..  $    59,908 $    1,473        9.84%   $    163,253 $   3,082     7.49%
   Securities sold short...........................       17,143        252        5.00              --        --       --
   Obligations outstanding under lines of credit...       43,382        785        7.24         189,414     3,828     8.02
   11.5% Redeemable Notes due 2005.................      143,000      4,111       11.50         128,255     3,687    11.50
   Bonds match funded..............................      118,751      2,104        7.09              --        --       --
                                                     ----------------------------------    -------------------------------
     Total interest-bearing liabilities............  $   382,184 $    8,725        9.13%   $    480,922 $  10,597     8.74%
                                                     ----------------------------------    -------------------------------

Net interest income/spread (1).....................              $    7,192        3.73%                $   9,692     2.64%
                                                                 ==========                             =========
Net interest margin (2)............................                                5.81%                              5.43%

                                                                     For the Nine Months Ended September 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:
   Interest-bearing deposits........................ $    33,306  $   1,028        4.12%   $     26,375 $   1,010     5.12%
   Repurchase agreements............................       2,250         80        4.74              --        --       --
   Securities held for trading......................          --         --          --          28,702       107      .50
   Securities available for sale....................     289,102     35,908       16.56         285,298    29,990    14.05
   Commercial and multi-family loan portfolio, net..      75,028      6,251       11.11          38,815     3,786    13.04
   Match funded residential loans, net..............     147,457      8,765        7.93              --        --       --
   Residential loan portfolio, net..................       6,644        392        7.87         108,017     6,476     8.02
   Discount loans, net..............................       5,617        749       17.78          14,845     1,719    15.48
                                                     ----------------------------------    -------------------------------
     Total interest-earning assets.................. $   559,404 $   53,173       12.67%   $    502,052 $  43,088    11.47%
                                                     ----------------------------------    -------------------------------

Interest-bearing liabilities:
   Securities sold under agreements to repurchase... $    92,496 $    6,154        8.87%   $    126,071 $   7,049     7.48%
    Securities sold short...........................       5,714        252        5.88              --        --       --
   Obligations outstanding under lines of credit....      39,545      2,098        7.07         108,514     6,102     7.52
   11.5% Redeemable Notes due 2005..................     143,000     12,377       11.54          42,752     3,687    11.50
   Bonds match funded...............................     135,974      6,880        6.75              --        --       --
                                                     ----------------------------------    -------------------------------
     Total interest-bearing liabilities............. $   416,729 $   27,761        8.88%   $    277,337 $  16,838     8.12%
                                                     ----------------------------------    -------------------------------

Net interest income/spread (1)......................             $   25,412        3.79%                $  26,250     3.35%
                                                                 ==========                             =========
Net interest margin (2).............................                               6.06%                              6.99%
</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.

                                       23
<PAGE>

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


         PROVISION  FOR LOAN LOSSES.  The  provision  for loan losses during the
three months ended  September  30, 1999  increased  $0.2 million to $0.6 million
from $0.4  million  during the three  months ended  September  30,  1998,  which
reflected the  Company's  evaluation of current  economic  conditions,  a credit
review of loans,  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 nine  months  ended  September  30,  1999 was $1.1  million
compared to $0.6 million for the same period a year ago.

         REAL ESTATE INCOME (EXPENSE),  NET. Real estate income  (expense),  net
decreased  $0.7  million to a loss of $0.2  million for the three  months  ended
September  30,  1999,  compared to the same period in 1998.  This  decrease  was
primarily due to a $0.6 million  increase in rental  operation  expense,  a $0.2
million increase in depreciation and  amortization  expense,  and a $0.1 million
increase in interest expense offset by a $0.2 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.
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 nine months ended September
30, 1999 was a loss of $0.7  million  compared to net income of $1.1 million for
the same period a year ago.

         OTHER EXPENSES.  Other expenses  increased $2.2 million to $5.4 million
for the quarter ended  September 30, 1999,  compared to the same period in 1998.
This  increase  was largely  due to a $2.9  million  increase in other  expenses
(which consisted generally of servicing,  accounting,  audit, legal, excise tax,
bond  amortization,  and  merger  expenses),  which was offset in part by a $0.7
million  decrease in due diligence  expense.  The management fees payable by the
Company to OCC totaled $1.4 million during the quarter ended  September 30, 1999
compared to $1.6 million  during the quarter  ended  September  30, 1998.  Other
expenses  for the nine  months  ended  September  30,  1999 were  $12.2  million
compared to $6.6 million for the same period a year ago.

         LOSSES ON  SECURITIES,  DERIVATIVES,  AND REAL ESTATE.  During the 1999
third  quarter,  the Company  incurred net losses of $4.2 million on securities,
derivatives, and real estate which were comprised of a $5.9 million writedown of
its residential  subprime and residual mortgage- backed  securities,  and a $1.6
million writedown in real estate holdings, offset in part by a $3.2 million gain
on a sale of  securities.  For the nine months ended  September  30,  1999,  net
losses on securities, derivatives, and real estate available for sale were $35.6
million, compared to $32.7 million for the same period a year ago.

         The Company's losses on its investments in mortgage-related  securities
during the first half 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 $(0.2)
million  during the quarter  ended  September  30, 1999 compared to $0.7 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.  The  Company  has a 91.3%  ownership  interest in the
Operating  Partnership.  Minority  interest in net loss (income) of consolidated
subsidiary  for the nine  months  ended  September  30,  1999  was $1.8  million
compared to $0.4 million for the same period a year ago.

FINANCIAL CONDITION

         SECURITIES  AVAILABLE FOR SALE. The Company's  investment in securities
available for sale at September 30, 1999  decreased by $138.8  million to $212.4
million from $351.2 million at December 31, 1998.

At September 30, 1999, the Company's securities available for sale portfolio was
$212.4 million and consisted of:

     o   Non-investment grade and unrated subordinate commercial mortgage-backed
         securities  having an amortized  cost of $66.1 million and a fair value
         of $66.0 million,
     o   Unrated  residential  subprime  residuals  having an amortized  cost of
         $143.4  million  and a fair  value of  $140.1  million,  and o  Unrated
         subordinate residential  mortgage-backed securities having an amortized
         cost of $6.7 million and a fair value of $6.3 million.

                                       24
<PAGE>

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


The Company's  unrated subprime  residual  portfolio of $212.4 million consisted
of:

     o   $65.1 million of seasoned residuals (securitized between 1994 and 1997)
         with  overcollateralization  reserves  funded at  approximately  $121.3
         million, and
     o   $40.9  million  of  unseasoned  residuals  (securitized  in 1998)  with
         overcollateralization reserves funded at approximately $29.6 million.

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

<TABLE>
<CAPTION>
                                                                   September 30,     December 31,
                                                                       1999              1998
                                                                   -------------     ------------
                                                                      (Dollars In Thousands)
<S>                                                                 <C>               <C>
          Mortgage-related securities:
             Single family residential:
               Subordinates.....................................    $    6,307        $   15,390
               Subprime residuals...............................       140,089           218,724
                                                                    ----------        ----------
                   Total single family residential..............       146,396           234,114

             Multi-family residential and commercial:
               AAA-rated interest-only..........................            --               441
               A-rated interest-only............................            --               222
               Non-rated interest-only..........................         2,853             3,135
               Non-rated principal-only.........................           246               276
               Subordinates.....................................        62,911           112,966
                                                                    ----------        ----------
                 Total multi-family residential and commercial..        66,010           117,040
                                                                    ----------        ----------
                 Total mortgage-related securities..............    $  212,406        $  351,154
                                                                    ==========        ==========
</TABLE>

         The following tables detail the Company's securities available for sale
portfolio at September 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>
         Actual Life-to-Date CPR = 100 x   [(1 -  Final  Aggregate  Balance actual      )            12          ]
                                           [(     ------------------------------------- )     ---------------    ]
                                           [(     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.

                                       25
<PAGE>

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

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.

         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.

                                       26
<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 September 30, 1999:
<TABLE>
<CAPTION>
                                                                                                OVER
                                              CLASS                                       COLLATERIZATION
                                    ISSUE  DESIGNATION    RATING     COLLATERAL  BALANCE      LEVEL AT     PRODUCT TYPE AT:
SECURITIZATION        SECURITY      DATE     LETTER      AGENCIES    ISSUANCE    9/30/99      9/30/99         9/30/99
--------------        --------      ----     ------      --------    --------    -------      -------         -------
<S>                       <C>           <C>   <C>       <C>            <C>        <C>          <C>        <C>
RESIDENTIAL MORTGAGE
BACKED SECURITIES                                                  (Dollars In Thousands)

RESIDUALS:
SASCO 1998-2(1)          X         Jan-98     NR       S&P, Fitch     $600,052   $ 361,811     1.45% OC    26% Fixed, 68% 2/28 ARM
SASCO 1998-3(1)          X         Mar-98     NR       S&P, Fitch      769,671     470,928     2.86% OC    10% Fixed, 76% 2/28 ARM
MLMI 1998-FF1(2)         X         Jun-98     NR       S&P, Fitch      198,155     123,559     2.41% OC    9% 1/29 ARM, 88% 2/28 ARM
PANAM 1997-1(3)          X         Dec-97     NR      S&P, Moody's     113,544      64,825     7.12% OC    26% 6mo ARM, 66% 2/28 ARM
                    Prepay Pen.
LHELT 1998-2(4)          X         Jun-98     NR     Moody's, Fitch    209,225     140,587     5.60% OC    42% Fixed, 37% 2/28 ARM
EQUICON 1994-2(5)    B Fix, B-2    Oct-94     NR      S&P, Moody's,     78,846      20,089     6.11% OC    100% Fixed
                                                          Fitch
                    QS Fix, QS-2              NR
                    B Var., B-2               NR                        32,306       4,297     24.44% OC   100% 6mo ARM
EQUICON 1995-1(5)    B Fix, B-2    May-95     NR      S&P, Moody's,     70,024      15,077     12.48% OC   100% Fixed
                                                          Fitch
                    B Var., B-2               NR                        40,519       6,165     18.06% OC   100% 6mo ARM
EQUICON 1995-2(5)    B Fix, B-2    Oct-95     NR      S&P, Moody's      79,288      21,168     15.28% OC   100% Fixed
                    B Var., B-2               NR                        39,667       6,629     14.65% OC   100% 6mo ARM
ACCESS 1996-1(6)     B Fix, B-2    Feb-96     NR      S&P, Moody's     120,015      34,750      6.92% OC   100% Fixed
                    B Var., B-2               NR                        55,362       9,983     14.48% OC   100% 6mo ARM
ACCESS 1996-2(6)      B-I, B-1     May-96     NR      S&P, Moody's     142,259      44,411     12.90% OC   100% Fixed
                    BI-S, BI-S-1              NR
                     B-II, B-1                NR                        68,345      11,807     15.07% 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      35,078     14.66% OC   100% Fixed
                    BI-S, BI-S-1              NR
                     B-II, B-1                NR                        99,885      17,884     24.69% 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      63,476     20.34% 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      93,517     21.42% 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      65,195     14.91% 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      76,460     10.14% OC   49% Fixed, 51% ARM
                     B-S, B-S-1               NR
OCWEN 98 - OAC-1        N/A        Nov-98     NR      S&P, Moody's     182,178     124,467     14.84% OC   25% Fixed, 71% 1/1 CMT
CMR1(8)               Deferred     Apr-96     NR        S&P, Duff      47,802(9)    21,325(10)  9.80% RF   100% Amortizing
                        Comp

CMR2(8)               Deferred     Nov-96     NR    S&P, Duff, Fitch   106,692(9)   46,919(10) 10.19% RF   89.70% Amort 10.30% IO
                        Comp                                                                               mortgages

CMR3(8)               Deferred     Nov-96     NR    S&P, Duff, Fitch   195,610(9)   88,232(10) 14.11% RF   72.86% Amort 27.14% IO
                        Comp                                                                               mortgages

CMR4(8)               Deferred     Feb-97     NR    S&P, Duff, Fitch   108,630(9)   56,522(10)  6.94% RF   89.21% Amort 10.79% IO
                        Comp                                                                               mortgages

CMR6(8)               Deferred     May-97     NR    S&P, Duff, Fitch    91,442(9)   47,221(10)  7.30% RF   95.48% Amort 4.52% IO
                        Comp                                                                               mortgages
</TABLE>

                                       27

<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    9/30/99      9/30/99        9/30/99
--------------        --------       ----     ------      --------      ----------  -------      -------        -------
<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    203,366      2.82%       97% Fixed
                          B6        Apr-97     NR                              --         --      None
 ORMBS 1998-R1(12)        B4        Mar-98     NR       Moody's, DCR      565,411    493,665      None        98% Fixed
 GECMS 1994-12(13)        B4        Mar-94     NR      Moody's, Fitch,    516,732    235,985      None        100% Fixed
                                                             S&P
</TABLE>

<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: 9/30/99     9/30/99       9/30/99:      9/30/99       9/30/99       PURCHASE 9/30/99
    --------------        --------     -----------     -------       --------      -------       -------       -------- -------
<S>                        <C>            <C>           <C>            <C>           <C>         <C>            <C>        <C>
                                                                     (Dollars In Thousands)
    RESIDENTIAL MORTGAGE
    BACKED SECURITIES
    RESIDUALS:
    SASCO 1998-2              X           10.27%        74.04%         14.02%        25.70%      $2,740         16.00%     7.92%
    SASCO 1998-3(1)           X            9.85         75.98          10.42         27.48        2,440         17.04      7.59
    MLMI 1998-FF1(2)          X            9.39         77.93           9.17         29.35          177         18.57     12.15
    PANAM 1997-1(3)           X           10.15         82.32          19.59         27.49        1,995         22.45      3.59
                         Prepay Pen.                                                                            25.69     21.79
    LHELT 1998-2(4)           X           10.04         75.95          13.65         25.31          152         18.55     18.88
    EQUICON 1994-2(5)    B Fix, B-2        9.95         72.11          19.27         34.90        1,103         18.00    100.76
                        QS Fix, QS-2
                         B Var., B-2      10.75         81.57                                                   18.00     32.77
    EQUICON 1995-1(5)    B Fix, B-2       11.99         70.68          29.46         32.63        2,615         18.00     27.19
                         B Var., B-2      11.24         76.67                                                   18.00     86.99
    EQUICON 1995-2(5)    B Fix, B-2       10.80         76.42          33.67         35.99        2,213         18.00      0.00
                         B Var., B-2      11.21         73.20                                                   18.00     75.33
    ACCESS 1996-1(6)     B Fix, B-2       10.85         75.67          32.67         34.72        2,908         18.00     25.40
                         B Var., B-2      11.15         78.44                                                   18.00     29.06
    ACCESS 1996-2(6)      B-I, B-1        11.03         76.63          33.34         36.34        3,869         18.00     17.54
                        BI-S, BI-S-1
                          B-11, B-1       11.28         78.50                                                   18.00     15.21
                           BII-S,
                           BII-S-1
    ACCESS 1996-3(6)      B-I, B-1        11.45         78.25          37.02         38.89        2,916         18.00     20.74
                        BI-S, BI-S-1
                          B-II, B-1       11.60         80.40                                                   18.00     16.31
                           BII-S,
                           BII-S-1
    ACCESS 1996-4(6)       B, B-1         11.76         78.47          39.23         40.26        3,614         18.00     14.87
                         B-S, B-S-1
    ACCESS 1997-1(6)       B, B-1         11.48         81.29          39.42         38.61        5,776         18.00     14.10
                         B-S, B-S-1
    ACCESS 1997-2(6)       B, B-1         11.43         80.61          33.87         40.70        2,378         18.00     10.42
                         B-S, B-S-1
    ACCESS 1997-3(6)       B, B-1         11.35         81.56          33.76         41.60        1,729         18.00     16.83
                         B-S, B-S-1
    OCWEN 98-OAC-1(7)        N/A           8.64         80.12           6.86         33.42          143          N/A        N/A

    CMR1(8)             Deferred Comp     13.39           N/A          38.70         21.75          734         18.00     54.47
</TABLE>

                                       28
<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: 9/30/99     9/30/99       9/30/99:      9/30/99       9/30/99       PURCHASE 9/30/99
    --------------        --------     -----------     -------       --------      -------       -------       -------- -------
<S>                        <C>            <C>           <C>            <C>           <C>         <C>            <C>        <C>
    CMR2(8)             Deferred Comp     12.52           N/A          30.37         22.49         1193         18.00     52.44
    CMR3(8)             Deferred Comp     13.56           N/A          16.94         18.61        2,742         18.00     22.86
    CMR4(8)             Deferred Comp     13.93           N/A          35.65         20.74        1,418         18.00     29.49
    CMR6(8)             Deferred Comp     13.58           N/A          35.29         23.15          859         18.00     30.60

    SUBORDINATES:
    SBMS 1997-HUD1(11)       B5            9.80        105.31          11.09         15.69       10,694         16.87     21.01
                             B6                                                                                 22.86     26.60
    ORMBS 1998-R1(12)        B4            8.93        120.57          23.44          8.48       17,721         13.75    (23.50)

    GECMS 1994-12(13)        B4            6.81         46.30           0.85          8.30            0         19.37     21.21
</TABLE>


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
     9/30/99.
(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         9/30/99
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE
BACKED SECURITIES
<S>                                 <C>              <C>        <C>            <C>                          <C>           <C>
NASC 1996 MD-V(1)                 B-2            Apr-96           B            S&P, Duff, Fitch             0.00%         0.00%

BTC 1997-S1(3)                    E, F           Dec-97          BB/B             S&P, Fitch               19.00         33.62
                                 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   losses, at   of Total as of       Maturity at      Balance at
Securitization     Security Issuance Issuance   9/30/99  9/30/99   9/30/99     Issuance  9/30/99  Purchase  9/30/99 Issuance 9/30/99
--------------     -------- -------- --------   -------  -------   ----------  --------  -------  --------  ------- -------- -------
                                                               (Dollars in thousands)
<S>                   <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. 51%     9.90%    9.98% $773,693 747,307

BTC 1997-S1(3)      E, F      1.27    106.0%     23.6%    48.37%   $ 11,932      14.50    38.89      8.36     8.50  $303,946 113,039
                   Equity                                                        19.00    33.62     21.19    26.52
</TABLE>

  ISSUERS:
  (1) Nomura Asset Securities Corporation

  (3) BTC Mortgage Investors Trust 1997-S1


         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 September 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   $  499,436    $  231,797    $  137,428    $   90,887    $  104,397    $4,419,353

  Commercial properties        33,859        60,861            --        71,197        61,578       632,851
                           ----------    ----------    ----------    ----------    ----------    ----------

  Total ................   $  533,295    $  292,658    $  137,428    $  162,084    $  165,975    $5,052,204
                           ==========    ==========    ==========    ==========    ==========    ==========

  Percentage (2) .......         8.40%         4.61%         2.17%         2.56%         2.62%        79.64%
                           ==========    ==========    ==========    ==========    ==========    ==========
</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.
(3)      Excludes $287.0 million unpaid principal balance related to residential
         mortgage loans originated in the United Kingdom.


                                       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 September 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      9/30/99 (2)     COUPON    LIFE (3)
           -----------                  ----        ----------        -----        --------      -----------     ------    --------
                                                                          (Dollars In Thousands)
<S>                                 <C>            <C>                <C>           <C>            <C>           <C>       <C>
SINGLE FAMILY RESIDENTIAL
Unrated residuals.................. $143,369,973   $140,089,552       100.00%       17.58%         15.37%        0.00%     3.37%
B-rated subordinates...............    2,603,796      2,603,796       100.00        16.87          21.01         7.75      2.47
Unrated subordinates...............    4,066,521      3,703,176        51.40        15.92          15.08         6.89      1.50
                                    ------------   ------------
     Total single family...........  150,040,290    146,396,524
                                    ------------   ------------

MULTI-FAMILY/COMMERCIAL
BB-rated subordinates..............   39,773,972     41,410,051        86.93         8.24           8.50         7.37      3.67
B-rated subordinates...............   18,689,861     16,075,062        77.61        10.32          10.53         8.10      1.78
Unrated subordinates...............    4,250,538      5,425,584       100.00        15.65          26.52         0.00      3.59
Unrated IOs (1)....................    3,125,410      2,853,155       100.00        12.79          16.02         7.23      3.57
Unrated POs (1)....................      275,934        245,869       100.00        12.31          13.40         0.00     12.55
                                    ------------   ------------
     Total multi-family/commercial.   66,115,715     66,009,721
                                    ------------   ------------
     Total mortgage related
       securities.................. $216,156,005   $212,406,245
                                    ============   ============
</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  September  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 September
                  30, 1999 book value.

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

                                                       Percentage
                          Property type                 Invested
                   ------------------------------      ----------
                   Retail........................         30.00%
                   Multi-family..................          6.00
                   Hotel.........................         25.00
                   Office........................          2.00
                   Industrial....................          5.00
                   Mixed use.....................          1.00
                   Other.........................         31.00
                                                      ---------
                   Total.........................        100.00%
                                                      =========

         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 third 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 Federal Home Loan  Mortgage
Corporation ("FHLMC") and the Federal National Mortgage Association ("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
$4.2 million loss in the third 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.

         COMMERCIAL AND MULTI-FAMILY LOAN PORTFOLIO. The Company's investment in
commercial  and  multi-family  loans  amounted to $80.2 million at September 30,
1999, a $14.9 million increase over the $65.3 million investment at December 31,
1998. See Note 5 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.

                                              September 30,   December 31,
                                                  1999            1998
                                              ------------    ------------
Multi-family residential loans .............  $ 30,401,865    $ 20,544,269
Commercial real estate and land loans:
     Hotels ................................    19,300,560      21,304,912
     Office buildings ......................    30,975,076      24,123,894
                                              ------------    ------------
      Total ................................    80,677,501      65,973,075
Deferred fees ..............................       (16,040)        (48,434)
Allowance for loan losses ..................      (463,934)       (641,676)
                                              ------------    ------------
     Commercial and multi-family loans, net.  $ 80,197,527    $ 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 September 30, 1999, the Company had
an allowance for loan losses in the amount of $0.5 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 September 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 9/30/99    LOAN         COST       FOOT      RATIO(1)   RATE       SIZE
---------------   ----------------    ---------------------  ---------     -------- ----------- ---------- ------   ---------
<S>               <C>                  <C>       <C>        <C>                 <C>        <C>       <C>    <C>     <C>
                                                         (Dollars In Thousands)
MULTI-FAMILY
RESIDENTIAL:

Fourth & Harrision San Francisco, CA    $11,550      $ 8,847  Construction     85%        72        1.22     9.630%  160 units

241 Church Street  New York, NY          30,280       18,520  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:

Hawthorn Suites
  Hotel            Schaumburg, IL         7,629        3,183  Construction     65         56        1.59     8.750   136 suites

Thompson Street
  Hotel            New York, NY          17,715        3,577  Construction     80        209        1.66    10.000   100 rooms

Wyndham  Garden
  Hotel            Wilmington, DE        13,300       12,540  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.
                                       --------      -------
                                       $116,987      $80,677
                                       ========      =======
</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 $5.5 million at September 30, 1999 from an investment of $8.1
million at December  31,  1998.  At  September  30,  1999,  $3.5  million of the
residential  loan  portfolio  was  past due 90 days or  more,  compared  to $4.2
million at December  31,  1998.  During the third  quarter of 1999,  the Company
recorded a provision for loan losses of $0.3 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 September  30, 1999,  the  Company's  net  discount  loan  portfolio
amounted to $5.5 million  compared to $5.6 million at December 31, 1998.  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 September 30, 1999,  the  Company's  discount  loans  consisted of a
13.83% participation interest in a loan pool, which had an outstanding principal
balance of $7.0 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:

                                                For the Nine
                                                Months Ended  For the Year Ended
                                                September 30,   December 31,
                                                    1999           1998
                                                ------------- ------------------
                                                   (Dollars In Thousands)
Balance at beginning of period ...............  $  6,858,836    $ 42,528,782
Principal adjustments ........................       293,750              --
Resolutions and repayments(1) ................      (138,300)     (2,349,969)
Loans transferred to investment
  in real estate .............................            --     (33,436,930)
Foreign exchange gain (loss) .................            --         116,953
                                                ------------    ------------
Balance at end of period .....................  $  7,014,286    $  6,858,836
                                                ============    ============

(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 September  30, 1999,  and December 31,
1998,  the Company's  investments in real estate  consisted of eight  properties
which had an  aggregate  carrying  value of $215.9  million and $208.1  million,
respectively.  Four of the  properties  currently  owned by the Company  with an
aggregate  carrying  value of  approximately  $149.1  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 $215.9 million
at September 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     September 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.        $     106,606
      09/23/97         450 Sansome Street.....   San Francisco, CA             130,437         Office Bldg.               20,982
      01/23/98         690 Market Street......   San Francisco, CA             124,692         Office Bldg.               15,545
      09/03/97         10 U.N. Plaza..........   San Francisco, CA              71,636         Office Bldg.               11,495
      07/22/98         841 Prudential Drive...   Jacksonville, FL              550,000         Office Bldg.               32,840
      11/10/97         Cortez Plaza...........   Bradenton, FL                 289,686         Shopping Ctr.              19,397
      04/09/98         7075 Bayers Road.......   Halifax, Nova Scotia          402,529         Shopping Ctr.              15,554
      10/01/98         Holiday Village........   Havre, MT                     223,355         Shopping Ctr.               1,029

                                                                                     Accumulated depreciation
                                                                                             and amortization             (7,583)
                                                                                                                   -------------
                                                                                                                   $     215,865
                                                                                                                   =============
</TABLE>

         Set  forth  below  is a brief  description  of  each  of the  Company's
investments in real estate at September 30, 1999.

         225 BUSH  STREET.  In April  1998,  the  Company  acquired  an existing
570,637 square foot,  22-story office building located at 225 Bush Street in the
financial  district  of San  Francisco  for  $100.2  million.  Bush  Street  was
originally  constructed  in 1923 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  $27.3  million,  from  the  date of  acquisition  throughout  its
ownership  period,  to make tenant  improvements,  leasing  commissions,  and to
upgrade mechanical,  HVAC,  electrical,  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
$9.0  million of the capital  budget will be spent for tenant  improvements  and
other  upgrades to the  premises as a result of a new 10 year lease  executed in
August 1999 with XOOM.com for approximately 187,000 square feet. As of September
30, 1999, the Bush Street Property was 98% leased.

         450 SANSOME STREET.  In September 1997, the Company  acquired a 130,437
square  foot,  16-story  office  building  located at 450 Sansome  Street in the
financial  district of San  Francisco.  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.  Average rent per square foot was approximately  $18.00 at
the date of  acquisition.  The Company has to date renovated the entrance lobby,
elevator cabs, life safety systems, and certain building systems on four floors,
completed  improvements  required for  compliance  with the ADA, as well as paid
tenant improvements and leasing commissions. The building was fully leased as of
September 30, 1999 with average contract rents of $24.78 per square foot.

         690 MARKET  STREET.  In January  1998,  the Company  acquired a 124,692
square  foot,  16-story,  office  building  located at 690 Market  Street in the
financial  district of San  Francisco.  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 existing rents averaged $14.06
per square  foot.  Since the date of  acquisition,  the Company has executed new
leases  totaling  approximately  35,000 square feet,  which  increased  building
occupancy to 88% as of September 30, 1999,  and average rents have  increased to
approximately  $24.60 per square  foot.  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 from
the date at acquisition through its ownership period.

         10 UNITED NATIONS  PLAZA.  In September  1997,  the Company  acquired a
71,636 square foot,  six-story,  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 57% leased as of September 30, 1999 at average rents of
approximately  $24.19 per square foot.  The remaining  space is currently  being
marketed.  The Company has invested  approximately $2.5 million in this property

                                       35

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


to fund  improvements  to  enhance  the  appearance  of the lobby and  hallways,
install ADA upgrades, fund deferred maintenance and tenant improvements, and pay
leasing commissions.

         PRUDENTIAL BUILDING. In July 1998, the Company purchased the Prudential
Building, a 550,000 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. On August 6, 1999, Prudential Healthcare
was sold to Aetna.

         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 September 30, 1999, the shopping
center was 94.2% leased with national and regional  tenants,  including  Publix,
PetSmart,  Circuit  City,  Walgreens,  Montgomery  Ward  (which  has come out of
bankruptcy  and affirmed  their lease) and  BankAmerica,  comprising  75% of the
leaseable area.  Below market leases covering  approximately  2.2% 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 were  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
include of  Zellers,  Lawton's  and Mark's  Work  Warehouse.  The  property  was
approximately  69% leased at  September  30,  1999.  The  Company  currently  is
implementing  a  major  renovation  plan  establishing  the  second  level  as a
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 third level would remain office
space. In August 1999, the Company  purchased the neighboring IGA Store for $1.9
million as part of the major  renovation plan to demolish the IGA Store in order
to increase visibility to the Shopping Centre.

         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.  The major tenant at the property  currently is  Herberger's.
The property was  approximately  51% leased at September  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 September 30, 1999.
<TABLE>
<CAPTION>

                                                                                                                Rents due
                                       Budgeted   Actual Cost                                                      and
                          Initial       Cost of        of                              Book                     accrued at  Total
                          Cost to    Improvements Improvements Impairment              Value at    Accumulated    end of    Rental
       Property           Company      for 1999     to Date    Writedown     Sales     09/30/99    Depreciation   period    Income
----------------------- ------------ ------------ ------------ ----------- ----------- ----------- ----------- ------------ --------
                                                           (Dollars In Thousands)
<S>                     <C>          <C>          <C>          <C>        <C>         <C>         <C>         <C>          <C>
225 Bush Street.....    $  101,632   $    6,514   $    4,974   $      --  $      --   $  106,606  $    3,642  $     949    $  8,581
450 Sansome Street..        17,205        3,988        3,777          --         --       20,982         878        167       2,069
690 Market Street...        13,707        5,014        1,838          --         --       15,545         557         47       1,904
10 U.N. Plaza.......         9,080        3,414        2,415          --         --       11,495         452        148         274
841 Prudential Dr...        32,827          484           13          --         --       32,840         723      1,963       6,257
Cortez Plaza........        19,244        1,354          153          --         --       19,397         792        323       2,387
7075 Bayers Road....        15,219       12,755        4,237      (3,902)        --       15,554         497        172       2,580
Holiday Village.....         1,791          350          839      (1,601)        --        1,029          42         35         342
Park Center I.......         1,534           --           --          --     (1,534)          --          --         --          --
                        ----------   ----------   ----------   ---------  ---------   ----------  ----------  ---------    --------
   Total............    $  212,239   $   33,873   $   18,246   $  (5,503) $  (1,534)  $  223,448  $    7,583  $   3,804    $ 24,394
                        ==========   ==========   ==========   =========  =========   ==========  ==========  =========    ========
</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  September  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
        Expiration(1)       Expiring         Leases             Feet           Leases(2)         Leases(3)        Base Rent
        -------------       --------     --------------    -------------      ------------    --------------   ---------------
<S>         <C>                   <C>          <C>               <C>          <C>                    <C>              <C>
            1999                  34           125,059           6.99%        $   325,472           2.60             2.12%
             2000(4)              45           172,168           9.63%          1,161,519           6.75             7.59%
            2001                  49           148,399           8.30%          1,909,767          12.87            12.46%
            2002                  54           604,892          33.82%          5,263,647           8.70            34.33%
            2003                  20            54,113           3.03%          1,013,332          18.73             6.61%
            2004                  19            92,908           5.19%            600,674           6.47             3.92%
            2005                   3            27,546           1.54%             66,484           2.41             0.43%
            2006                   9           117,223           6.55%            474,424           4.05             3.09%
            2007                   4            91,683           5.13%            769,962           8.40             5.02%
            2008                   7           138,776           7.76%          1,813,263          13.07            11.83%
      2009 & beyond(5)            10           215,732          12.06%          1,931,931           8.96            12.60%
                               -----        ----------         ------         -----------                          ------
                                 254         1,788,499         100.00%        $15,330,475                          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 October 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
         October 1 to the lease expiration.
(3)      Average base rent per square foot is  calculated  using the  annualized
         base rent divided by the square footage.
(4)      In October 1999,  tenant IGA exercised a termination  option  effective
         April 30, 2000 at Bayers Road Shopping  Center,  which  requires IGA to
         pay termination fees following expiration of the lease agreement.
(5)      On August 13, 1999, XOOM.com, a new tenant, executed a 10 year lease at
         225 Bush Street for  approximately  187,000 square feet.  However,  the
         table only  includes  space that was occupied on September 30, 1999. As
         of September 30, 1999, XOOM.com physically occupied 24,157 square feet.
         The  remaining  square  footage is under  construction  with  occupancy
         scheduled during the first quarter of 2000.

         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 September 30, 1999, are as follows:

                             (Dollars In Thousands)
                 1999..................................     $   6,631
                 2000..................................        24,877
                 2001..................................        22,938
                 2002..................................        17,258
                 2003..................................        11,532
                 Thereafter............................        51,349
                                                            ---------
                      Total                                 $ 134,585
                                                            =========

         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 September 30, 1999, the Company had total consolidated  indebtedness
of $552.1  million,  of which all but $143.0  million of  outstanding  Notes was
secured  indebtedness,  as well as  $20.0  million  of other  liabilities.  This
consolidated   indebtedness  consisted  of:  (i)  $42.6  million  of  repurchase
agreements,  of which $34.1  million was  scheduled to mature in one year;  (ii)
lines of credit  aggregating  $37.6  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;  (iv) $113.1  million of match funded
indebtedness  which is secured by $124.9  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;  and (v) $33.3 million of securities
sold  short,  which  consisted  of ten year  treasury  bonds.  See Note 6 to the
Consolidated Financial Statements above.

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements to repurchase  decreased  $96.0 million to $42.6 million at September
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.

         SECURITIES SOLD SHORT.  Securities sold short amounted to $33.3 million
at September 30, 1999, and consisted of the short sale of a ten year US treasury
bond due November 15, 2005. There were no open short sale positions at September
30, 1998.

         OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT.  Obligations outstanding
under lines of credit  increased  $3.1 million to $37.6 million at September 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
$2.9  million to $145.5  million at  September  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 September 30, 1999,  minority  interest totaled
$21.0 million and represented  OCN's ownership  through IMIHC of 1,808,733 units
in the Operating Partnership.

                                       38

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


         SHAREHOLDERS'  EQUITY.  Shareholders' equity decreased by $52.9 million
from $221.2  million at December  31, 1998 to $168.3  million at  September  30,
1999. The decrease was due to a net loss of $22.3 million, partially offset by a
cumulative currency  translation  adjustment of $0.3 million and a $14.8 million
unrealized  loss on  securities  available  for  sale and the  declaration  of a
dividend of $.82 per share or $15.5 million to shareholders.

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 previously had to distribute  annually at least 95% of its
taxable  income.  The primary  sources of funds for  liquidity  during the third
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 $11.7 million
during the third  quarter of 1999.  At the same time,  the  Company's  investing
activities provided cash flows of $7.3 million during the third quarter of 1999.
During  the  third  quarter  of 1999,  cash  provided  by  investing  activities
primarily  consisted of principal  payments on securities  available for sale of
$6.1  million,  principal  payments on loans of $57.2  million and proceeds from
sale of securities of $35.8 million.  The Company's  financing  activities  used
cash  flows of $10.8  million  during the third  quarter  of 1999 and  primarily
consisted  of  repayments  of $31.3  million  on  borrowings  collateralized  by
securities sold under agreements to repurchase,  and principal payments of $11.1
million on bonds-match funded loan agreements.

         At September 30, 1999, OAC's total closed  transactions  since the IPO,
net of repayments,  were $680.6 million. Of this amount, $644.3 million has been
funded and the remaining $36.3 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  $33.9  million  of  capital   expenditures  on  its
investments in real estate in order to reposition such properties in the market.

         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
September  30,  1999,  the  Company had  interest  rate swap  agreements  with a
notional  amount of $200.8  million and a fair value of $1.6 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.

         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
September  30,  1999,  the  Company  had  unencumbered   residential  loans  and
securities  having a fair value totaling  approximately  $125.1 million  ($109.7
million of subordinate and residual mortgage-backed  securities, $9.9 million of
commercial mortgage-backed securities, and $5.5 million of residential loans).

         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

                                       39
<PAGE>

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


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 September 30, 1999 was $(67.5)
million,  the Company does not expect this  financial  test to be satisfied  for
some  time to  come.  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 September 30, 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.
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.

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.

                                       40
<PAGE>

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


         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 nine months ended  September  30, 1999
was ($5.2)  million and  ($22.5)  million  compared  to $(7.1)  million and $4.1
million for the comparable periods in 1998.


                                       41

<PAGE>

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


         The following  table  reconciles  FFO and net income during the periods
indicated.
<TABLE>
<CAPTION>

                                                                  For the Three Months                For the Nine Months
                                                                  Ended September 30,                 Ended September 30,
                                                          -----------------------------------  ---------------------------------
                                                              1999                  1998            1999                1998
                                                          -------------         -------------  --------------      -------------
                                                                                 (Dollars in Thousands)
<S>                                                       <C>                   <C>            <C>                 <C>
     Net loss income................................      $      (3,326)        $      (7,639) $      (22,277)     $     (11,497)
        Depreciation and amortization...............              1,352                 1,160           3,806              2,223
        Loss on sale of IO portfolio................                 --                    --              --             13,957
        Gain on sale of securities..................             (3,194)                   --          (4,045)                --
        Extraordinary gain on repurchase of debt....                 --                  (615)             --               (615)
                                                          -------------         -------------  --------------      -------------
     FFO............................................      $      (5,168)        $      (7,094) $      (22,516)     $      (4,068)
                                                          =============         =============  ==============      =============
</TABLE>

REIT STATUS

         The  Company  has  qualified  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, on October 7, 1999,  satisfied the distribution  requirement
by paying a cash dividend of $0.82 per share, or $15.5 million.

         As a result of the  acquisition  of the  Company  by OCN on  October 7,
1999,  the  Company  failed to qualify as a REIT as of October 20, 1999 and will
record an income tax provision in the fourth quarter.

         For further  discussion on the Company's  status as a REIT, see "Recent
Developments" above and Note 11 to the Consolidated Financial Statements.

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.  Section  3(c)(5) of 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  September  30,  1999,  the  Company  believes  that its  Qualifying
Interests,  including subordinate and residual interests,  comprised over 83% of
the Company's  total assets and over 87% 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.

         With the consummation of the Merger on October 7, 1999, the Company has
also  qualified for the "private  investment  Company"  exemption  under Section
3(c)(1) of the Investment Company Act. As a result,  even if the company at some
future date fails to meet the requirements of Section 3(c)(5), the Company would
be exempt from regulation as an investment company.

                                       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 September 30, 1999.  Actual  results could
differ significantly from those estimated in the table.

                                       43
<PAGE>
ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                MARKET RISK
================================================================================

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

   -400 Basis Points                (33.73)%                     (2.91)%
   -300 Basis Points                (25.30)                      (1.95)
   -200 Basis Points                (16.87)                      (1.23)
   -100 Basis Points                 (8.43)                      (0.30)
  Base Interest Rate                   0.0                         0.0
   +100 Basis Points                  8.43                        0.77
   +200 Basis Points                 16.87                        3.78
   +300 Basis Points                 25.30                        5.87
   +400 Basis Points                 33.73                        7.55

(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 September 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
                MARKET RISK
================================================================================


         The following  table sets forth the estimated  maturity or repricing of
the  Company's  interest-earning  assets  and  interest-bearing  liabilities  at
September  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>

                                                                               September 30, 1999
                                                                                   More than 1
                                                      Within         4 to 12         Year to         3 Years
                                                     3 Months         Months         3 Years         and Over         Total
                                                    ----------      ----------      ----------      ----------     ----------
<S>                                              <C>                 <C>           <C>             <C>            <C>
 Rate-Sensitive Assets:                                                      (Dollars In Thousands)
   Interest-earning cash........................  $     36,394        $     --      $       --      $       --     $   36,394
   Repurchase agreements........................        34,383              --              --              --         34,383
   Securities available for sale................         7,820          20,463          41,371         142,752        212,406
   Loan portfolio, net (1)......................        80,614             450           1,025           3,583         85,672
   Match funded loan agreements.................         3,925          11,107          25,211          84,632        124,875
   Discount loan portfolio, net (1).............         5,480              --              --              --          5,480
                                                  ------------    ------------    ------------      ----------     ----------
     Total rate-sensitive assets................       168,616          32,020          67,607         230,967        499,210
                                                  ------------    ------------    ------------      ----------     ----------
 Rate-Sensitive Liabilities:
   Securities sold under agreements
     to repurchase..............................        42,594              --              --              --         42,594
   Bonds-match funded loan agreements...........       113,075              --              --              --        113,075
   Obligations outstanding under lines of credit       183,091              --              --              --        183,091
   Notes, debentures and other
     interest-bearing.obligations...............            --              --              --         176,272        176,272
                                                  ------------    ------------    ------------      ----------     ----------
     Total rate-sensitive liabilities...........       338,760              --              --         176,272        515,032
   Interest rate sensitivity gap before
     Off-balance sheet financial instruments....      (170,144)         32,020          67,607          54,695        (15,822)
 Off-Balance Sheet Financial Instruments:
   Interest rate swaps..........................       214,780              --        (100,780)       (114,000)            --
     Futures contracts..........................        14,000              --              --         (14,000)            --
     Net-off-balance sheets.....................       228,780              --        (100,780)       (128,000)            --
 Interest rate sensitivity gap..................        58,636          32,020         (33,173)        (73,305)    $  (15,822)
                                                  ------------    ------------    -------------   -------------    ==========
 Cumulative interest rate sensitivity gap.......  $     58,636    $     90,656    $     57,483    $    (15,822)
                                                  ============    ============    ============    ============
 Cumulative interest rate sensitivity gap as a
   percentage of total rate-sensitive assets....         11.75%          18.16%          11.51%          (3.17)%
</TABLE>

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

         As of September 30, 1999, the cumulative  volume of assets  maturing or
repricing  within one year exceeded  liabilities by $32.0 million,  or 18.16% 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, 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 dated (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, dated as of April 7, 1998   between OAIC
                       Bush Street, LLC and Salomon Brothers Realty Corp. (5)

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

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

              10.8     Extension  of  First  Amended  and  Restated   Management
                       Agreement (7)

              10.9     Compensation  and  Indemnification Agreement, dated as of
                       May 6, 1999, between   the  Company  and the  independent
                       committee of the Board of Directors (7)

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

              10.11    First Amendment to Loan  Agreement and Guaranty, dated as
                       of July 9, 1999, made by and among OAIC Bush Street, LLC,
                       Salomon  Brothers  Realty  Corp,  and Ocwen  Partnership,
                       L.P.,  and La  Salle  Bank  National  Association  (filed
                       herewith)

              10.12    Second  Amendment to  Guarantee  of Payment,  dated as of
                       July 9, 1999, made by and between Salomon Brothers Realty
                       Corp. and Ocwen Partnership, L.P. (filed herewith)

              10.13    Indemnity  agreement,  dated August 24, 1999,  among OCN,
                       and the Company's directors (filed herewith)

              27       Financial  Data  Schedule for the period ended  September
                       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.
              (7)      Incorporated  by  reference  to the  Company's  Quarterly
                       Report  on Form  10-Q  for  the  quarterly  period  ended
                       September 30, 1999.

                                       47
<PAGE>

--------------------------------------------------------------------------------

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

              (1)      A Form 8-K filed on July 26, 1999 announcing a definitive
                       Merger Agreement between the Company and OCN.

              (2)      A Form 8-K filed on July 28, 1999, which contained a news
                       release  announcing the Company's  financial  results for
                       the three months ended June 30, 1999.

              (3)      A Form 8-K  filed on  August  19,  1999,  announcing  the
                       setting of the record and meeting dates for  shareholders
                       relating to the proposed acquisition of the Registrant by
                       OCN.

              (4)      A Form 8-K  filed on  August  24,  1999,  announcing  the
                       declaration  of a cash  dividend  of $0.82  per  share to
                       shareholders of record on August 30, 1999.

              (5)      A Form 8-K filed on  September  10,  1999,  announcing  a
                       lease agreement between the Company and XOOM.com.

                                       48
<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:  November 15, 1999


                                       49