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 March 31, 1999
 
                                      OR

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


                          Commission File No. 001-14043

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


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


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


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.   Yes [X]   No [ ].


Number of shares of Common Stock,  $.01 par value,  outstanding  at the close of
business on April 30, 1999: 18,965,000 shares.

<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 loss....................  5

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

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

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

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk....... 42

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K................................. 46

Signature................................................................. 48


                                       2
<PAGE>

<TABLE>
<CAPTION>
                                        OCWEN ASSET INVESTMENT CORP.
                               CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

                                                                                March 31,      December 31,
                                                                                 1999              1998
                                                                             -------------    -------------
<S>                                                                          <C>              <C>          
  ASSETS:

   Cash and amounts due from depository institutions .....................   $   3,641,241    $   3,484,929
   Interest-bearing deposits .............................................      57,605,709       49,880,276
   Securities available for sale, at fair value ..........................     316,198,972      351,153,971
   Commercial and multi-family loan portfolio, net .......................      70,339,922       65,282,965
   Residential loan portfolio, net .......................................       6,558,614        8,058,445
   Match funded residential loans, net ...................................     154,164,052      173,609,873
   Discount loan portfolio, net ..........................................       5,618,022        5,618,022
   Investment in real estate, net ........................................     208,733,751      208,058,721
   Principal and interest receivable .....................................       4,056,990        7,475,795
   Other assets ..........................................................      15,850,394       15,702,816
                                                                             -------------    -------------
     Total assets ........................................................   $ 842,767,667    $ 888,325,813
                                                                             =============    =============

LIABILITIES:
   Securities sold under agreements to repurchase ........................   $ 113,991,304    $ 138,611,824
   Obligations outstanding under line of credit ..........................      41,015,023       34,472,404
   Obligations outstanding under line of credit - secured by real estate..     143,755,698      142,556,880
   11.5% Redeemable Notes due 2005 .....,.................................     143,000,000      143,000,000
   Bonds - match funded loan agreement ...................................     143,298,397      163,403,966
   Accrued expenses, payables and other liabilities ......................      13,665,050       21,190,288
                                                                             -------------    -------------
     Total liabilities ...................................................     598,725,472      643,235,362
                                                                             -------------    -------------

Minority interest ........................................................      23,759,807       23,914,058
                                                                             -------------    -------------

Commitments and Contingencies (Note 12)

SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 25,000,000 shares authorized;
     0 shares issued and outstanding .....................................              --               --
  Common Stock, $.01 par value; 200,000,000 shares authorized;
       18,965,000 shares issued and outstanding ..........................         189,650          189,650
   Additional paid-in capital ............................................     294,492,203      294,492,203
   Cumulative dividends declared .........................................     (36,277,546)     (36,277,546)
   Accumulated deficit ...................................................     (47,178,264)     (46,394,403)
   Accumulated other comprehensive income:
     Unrealized gain on securities available for sale ....................      10,797,797       11,038,151
     Cumulative translation adjustment ...................................      (1,741,452)      (1,871,662)
                                                                             -------------    -------------
       Total other comprehensive income ..................................       9,056,345        9,166,489
                                                                             -------------    -------------
       Total shareholders' equity ........................................     220,282,388      221,176,393
                                                                             -------------    -------------
                                                                             $ 842,767,667    $ 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 STATEMENT OF OPERATIONS

                                                                          For the Three Months Ended
                                                                                   March 31,
                                                                           1999                 1998
                                                                       -------------        ------------
<S>                                                                    <C>                  <C>         
  INTEREST INCOME:
     Repurchase agreements and interest bearing deposits ..........    $     494,604        $    198,138
     Securities held for trading...................................               --             482,192
     Securities available for sale.................................       13,638,517           4,648,582
     Commercial and Multi-family loans ............................        1,648,514             805,786
     Match funded residential loans................................        3,327,143                  --
     Residential loans.............................................          145,398             435,021
     Discount loans ...............................................          126,318             902,777
                                                                       -------------        ------------
                                                                          19,380,494           7,472,496
                                                                       -------------        ------------
  INTEREST EXPENSE:
     Securities sold under agreements to repurchase................        2,642,002             665,269
     Obligations outstanding under lines of credit ................          606,684              28,548
     11.5%  Redeemable Notes due 2005 .............................        4,154,150                  --
     Bonds-match funded loan agreements............................        2,523,602                  --
                                                                       -------------        ------------
                                                                           9,926,438             693,817
                                                                       -------------        ------------

  NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES.............        9,454,056           6,778,679
     Provision for loan losses.....................................          257,852             105,073
                                                                       -------------        ------------
     NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...........        9,196,204           6,673,606
                                                                       -------------        ------------
  REAL ESTATE-OPERATING INCOME:                                                          
     Rental income.................................................        7,982,430           2,034,287
     Other.........................................................           10,382               7,857
                                                                       -------------        ------------
                                                                           7,992,812           2,042,144
                                                                       -------------        ------------
  REAL ESTATE-OPERATING EXPENSES:                                                        
     Rental operation..............................................        3,962,709             933,746
     Depreciation and amortization.................................        1,193,977             304,437
     Interest......................................................        2,657,326                  --
                                                                       -------------        ------------
                                                                           7,814,012           1,238,183
                                                                       -------------        ------------
  REAL ESTATE INCOME, NET..........................................          178,800             803,961
                                                                       -------------        ------------
  OTHER EXPENSES:
     Management fees...............................................        1,524,429             828,881
     Due diligence expenses........................................          122,745             192,689
     Foreign currency gain.........................................               --            (116,953)
     Other.........................................................        1,210,309             189,655
                                                                       -------------        ------------
                                                                           2,857,483           1,094,272
                                                                       -------------        ------------
  LOSSES ON SECURITIES.............................................       (7,455,633)        (17,077,079)
                                                                       -------------        ------------

  LOSS BEFORE MINORITY INTEREST....................................         (938,112)        (10,693,784)
  Minority interest in net loss of consolidated
      subsidiary...................................................          154,251             189,542
                                                                       -------------        ------------
     NET LOSS......................................................    $    (783,861)       $(10,504,242)
                                                                       =============        ============
  LOSS PER SHARE:
     Basic.........................................................    $       (0.04)       $      (0.55)
                                                                       =============        ============
     Diluted.......................................................    $       (0.04)       $      (0.55)
                                                                       =============        ============
  WEIGHTED AVERAGE SHARES OUTSTANDING:
     Basic.........................................................       18,965,000          18,965,000
                                                                       =============        ============
     Diluted.......................................................       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 STATEMENT OF COMPREHENSIVE LOSS

                                                                                     For the Three        For the Three
                                                                                      Months Ended         Months Ended
                                                                                        March 31,            March 31,
                                                                                          1999                 1998
                                                                                      ------------         ------------
<S>                                                                                   <C>                  <C>          
Net loss                                                                              $   (783,861)        $(10,504,212)
Other comprehensive income:
   Unrealized gain (loss) on securities available for sale...................             (240,354)           8,344,644
   Unrealized foreign currency translation adjustment .......................              130,210                   --
   Other comprehensive income................................................             (110,144)           8,344,644
                                                                                      ------------         ------------
Comprehensive loss...........................................................         $   (894,005)        $ (2,159,568)
                                                                                      ============         ============


   Disclosure of reclassification adjustment:
      Unrealized holding losses arising during the period....................         $ (7,695,987)        $ (8,732,435)
      Add:  Adjustment for losses included in net loss.......................            7,455,633           17,077,079
                                                                                      ------------         ------------
      Net unrealized (losses) gains on securities............................         $   (240,354)        $  8,344,644
                                                                                      ============         ============


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

                                                           5

<PAGE>

<TABLE>
<CAPTION>
                                                  OCWEN ASSET INVESTMENT CORP.
                                   CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                         FOR THE THREE MONTHS ENDED MARCH 31, 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.......................                                                          (783,861)                    (783,861)

Change in unrealized gain (loss)
   on securities available for sale                                                                   (240,354)       (240,354)

Change in cumulative translation
  adjustment.....................                                                                      130,210         130,210
                                   ---------- --------   ------------  ------------  ------------  -----------    ------------

Balance at March 31, 1999......    18,965,000 $189,650   $294,492,203  $(36,277,546) $(47,178,264) $ 9,056,345    $220,282,388
                                   ========== ========   ============  ============  ============  ===========    ============


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

                                                               6

<PAGE>

<TABLE>
<CAPTION>
                                            OCWEN ASSET INVESTMENT CORP.
                                        CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                                      For the Three Months Ended
                                                                                               March 31,
                                                                                       1999              1998
                                                                                   -------------    -------------
<S>                                                                                <C>              <C>           
Cash flows from operating activities:
   Net loss ....................................................................   $    (783,861)   $ (10,504,242)
     Adjustments  to  reconcile  net  loss to net  cash  provided  by  operating
     activities:
       Premium amortization (discount accretion), net ..........................       8,601,099        5,315,514
       Depreciation ............................................................       1,193,977          304,437
       Foreign exchange gain ...................................................              --         (116,953)
       Provision for loan losses ...............................................         257,852          105,073
       Net losses on securities ................................................       7,455,633       17,077,079
       (Increase) decrease in interest receivable ..............................       3,418,805       (2,564,566) 
       (Increase) decrease in other assets .....................................         (22,137)         627,270
       Decrease in accrued expenses, payables and other liabilities ............      (7,525,230)        (719,935)
       Minority interest in losses .............................................        (154,251)        (189,542)
                                                                                   -------------    -------------
Net cash provided by operating activities ......................................      12,441,887        9,334,135
                                                                                   -------------    -------------
Cash flows from investing activities:
  Purchase of securities available for sale ....................................              --      (72,771,240)
  Sale of securities available for sale ........................................      12,708,996               --
  Maturities and principal payments received on securities available for sale...       6,280,742        4,003,330
  Principal payments received from discount loans ..............................              --            6,915
  Principal payments received from loans .......................................      20,136,324          366,932
  Purchase of loans ............................................................      (4,962,755)    (129,054,935)
  Investment in real estate ....................................................      (1,869,007)     (13,740,162)
  Deposits on pending asset acquisitions .......................................              --       (2,003,500)
                                                                                   -------------    -------------
Net cash provided by (used by) investing activities ............................      32,294,300     (213,192,660)
                                                                                   -------------    -------------
Cash flows from financing activities:
  Dividend payments on common stock ............................................              --       (7,458,750)
  Principal payments on bonds ..................................................     (20,105,569)              --
  Proceeds from sale of operating partnership units ............................              --        3,085,548
  Increase (decrease) in securities sold under agreements to repurchase ........     (24,620,520)      85,274,000
  Increase in obligations outstanding under lines of credit ....................       7,741,437       81,890,207
                                                                                   -------------    -------------
Net cash provided by (used in) financing activities ............................     (36,984,652)     162,791,005
                                                                                   -------------    -------------
Change in cumulative translation adjustment ....................................         130,210               --
Net increase (decrease) in cash and cash equivalents ...........................       7,751,535      (41,067,520)
Cash and cash equivalents at beginning of period ...............................      53,365,205       48,677,123
                                                                                   -------------    -------------
Cash and cash equivalents at end of period .....................................   $  61,246,950    $   7,609,603
                                                                                   =============    =============
Reconciliation of cash and cash equivalents at end of period:
  Cash and amounts due from depository institutions ............................   $   3,641,241    $     373,097
  Interest earning deposits ....................................................      57,605,709        7,236,506
                                                                                   -------------    -------------
     Total .....................................................................   $  61,246,950    $   7,609,603
                                                                                   =============    =============
  Supplement schedule of non-cash financing activities:
     Interest paid .............................................................      13,958,058          552,817
  Non-cash activities:
     Change in unrealized gain (loss) on securities available for sale .........         240,354        8,344,644

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

                                                         7

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

NOTE 1            ORGANIZATION

         Ocwen Asset Investment Corp. ("OAC" or the "Company") has elected to be
taxed as a Real Estate  Investment Trust ("REIT") under Sections 865 through 860
of the Internal  Revenue Code of 1986,  as amended (the  "Code").  As such,  the
Company will generally not be subject to federal income taxation on that portion
of its income that is distributed to shareholders if it distributes at least 95%
of its taxable income to its  shareholders by the due date of its federal income
tax return and complies  with  various  other  requirements.  See Note 11 to the
Consolidated Financial Statements above.

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

         The Company's consolidated financial statements include the accounts of
the Company and its  subsidiaries.  The Company directly owns two qualified REIT
subsidiaries,  Ocwen  General,  Inc. (the "General  Partner") and Ocwen Limited,
Inc. (the "Limited  Partner").  General Partner and Limited Partner own 0.9% and
90.4%, respectively,  of Ocwen Partnership,  L.P. (the "Operating Partnership").
Additionally,  through the General  Partner  and  Limited  Partner,  the Company
established  additional  partnerships  in Florida and California for real estate
investment  purposes.  The minority interest at March 31, 1999 represents a 8.7%
interest  (1,808,733  units)  in the  Operating  Partnership  held by  Investors
Mortgage Insurance Holding Company ("IMIHC"), a wholly owned subsidiary of Ocwen
Financial  Corporation  ("OCN").  IMIHC also owns 1,540,000 shares, or 8.12%, of
the outstanding Common Stock.

         The Company has entered into a management  agreement with Ocwen Capital
Corporation  ("OCC"), a wholly-owned  subsidiary of OCN, under which OCC advises
the  Company  on various  facets of its  business  and  manages  its  day-to-day
operations,  subject to the supervision of the Company's Board of Directors. For
its services,  OCC receives a quarterly base management fee of 0.25% per quarter
on Average  Invested Assets.  The term "Average  Invested Assets" for any period
means the  average of the  aggregate  book  value of the assets of the  Company,
including  the  assets of all of its direct and  indirect  subsidiaries,  before
reserves  for  depreciation  or bad  debts or other  similar  noncash  reserves,
computed  by  taking  the daily  average  of such  values  during  such  period;
provided, however, effective January 1, 1998, with respect to residential loans,
the phrase means average net equity  invested.  In addition,  OCC is entitled to
receive an annual  incentive  fee in an amount equal to 25% of the dollar amount
by which Funds From  Operations  ("FFO"),  as adjusted,  exceeds certain defined
levels per the  management  agreement.  During the three  months ended March 31,
1999 and 1998,  OCC earned  from the  Company  $1.5  million  and $0.8  million,
respectively in base management fees. No incentive  compensation was paid during
the three months ended March 31, 1999 and 1998.  In addition,  for such periods,
OCC was reimbursed $0.1 million and $0.2 million, respectively for out-of-pocket
costs and salary allocations for due diligence tasks. On May 13, 1999, the Board
of Directors approved extending the Management Agreement between the Company and
OCC, which was due to expire on May 19, 1999, for an additional six months.

         The  Company  also has entered  into  servicing  agreements  with Ocwen
Federal  Bank,  FSB (the  "Bank"),  a  wholly-owned  subsidiary  of OCN, for the
servicing of all of the Company's  mortgage loans. In addition,  the Bank in its
capacity  as  servicer  or  special   servicer   receives   fees  from   certain
mortgage-backed  securities in which the Company owns a subordinate  or residual
interest.  As a  special  servicer,  the  Bank  provides  asset  management  and
resolution  services  with respect to defaulted  mortgage  loans  subject to the
Company's  right to direct the  foreclosure,  the  management  and  disposal  of
foreclosed  properties  and  all  other  actions  that a  servicer  may  take in
connection with a defaulted  loan.  During the three months ended March 31, 1999
and 1998, the Bank earned from the Company $0.2 million and $23,948 in servicing
fees, respectively.

NOTE 2             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  accounting   and  reporting   policies  of  the  Company  and  its
subsidiaries  follow Generally  Accepted  Accounting  Principles  ("GAAP").  The
policies which materially  affect the  determination of the Company's  financial
position, results of operations and cash flows are summarized below.

                                       8

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

SECURITIES AVAILABLE FOR SALE

         Securities  are  classified as available for sale when in  management's
judgement  they may be sold in  response  to or in  anticipation  of  changes in
interest rates and resulting  prepayment  risk, or other factors.  Available for
sale securities are carried at fair value.  Unrealized gains and losses on these
securities,  along  with  any  unrealized  gains  and  losses  on  related  risk
management  instruments,  are reported as a separate  component  of  accumulated
other comprehensive income in shareholders' equity.  Securities that the Company
has the  positive  intent and  ability to hold to  maturity  are  classified  as
held-to-maturity  and are carried at amortized cost. At March 31, 1999 and 1998,
the Company had no  securities  classified  as  held-to-maturity.  Interest  and
dividend income on securities,  including amortization of premiums and accretion
of discounts, are reported in earnings.  Interest income is recognized using the
interest  method.  The  specific  identification  method  is used  to  determine
realized  gains  and  losses  on sales of  securities,  which  are  reported  in
earnings.  The  carrying  value of  individual  securities  is  reduced  through
write-downs in earnings to reflect other-than-temporary impairments in value.

LOAN PORTFOLIO

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

DISCOUNT LOAN PORTFOLIO

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

         Discount loans are reported at their outstanding  principal balance net
of any charge-offs and premiums or discounts. The Company periodically evaluates
loans in the discount loan  portfolio for  impairment.  Individually  identified
impaired loans are measured based on one of the following:  the present value of

                                       9

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

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 March 31, 1999, the Company did not have any impaired loans.

ALLOWANCE FOR LOAN LOSSES

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

INVESTMENT IN REAL ESTATE

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

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

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

FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION

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

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

INCOME TAXES

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

CONSOLIDATED STATEMENT OF CASH FLOWS

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

                                       10

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

BASIC AND DILUTED EARNINGS PER SHARE

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

RISKS AND UNCERTAINTIES

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

         Additionally, the Company encounters significant tax risks. If OAC were
to fail to  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 that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial condition and measure those instruments at fair value. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Initial application of SFAS No. 133 should be as of the beginning of an entity's
fiscal quarter; on that date, hedging  relationships must be designated anew and
documented  pursuant to the provisions of SFAS No. 133.  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.

         In  October  1998,  the FASB  issued  SFAS  No.  134,  "Accounting  for
Mortgage-Backed  Securities  Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise",  an amendment of FASB Statement
No. 65. This statement is effective for the first fiscal quarter beginning after
December 15, 1998.  This  Statement  standardizes  how  mortgage  banking  firms
account  for  certain   securities   and  other   interests  they  retain  after
securitizing   mortgage  loans  that  were  held  for  sale.  Adoption  of  this
pronouncement  did not have a  material  impact  on the  Company's  consolidated
financial statements.

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.

                                       11

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

         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 March 31, 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
March  31,  1999,  pursuant  to  which  the  Company  receives  payments  from a
counterparty  based on a floating rate of interest  equal to LIBOR and agrees to
pay a fixed rate of interest to such party on a specified notional amount.

<TABLE>
<CAPTION>
                     Notional        LIBOR                 Floating Rate at
     Maturity         Amount         Index     Fixed Rate    End of Period     Fair Value
     --------         ------         -----     ----------    -------------     ----------
                                    (Dollars In Thousands)
<S>    <C>          <C>             <C>           <C>            <C>            <C>       
       2003         $ 100,000       1-month       5.75%          4.93%          $    (564)
       2001            17,000       1-month       6.00           4.96                (213)
       2001            75,000       1-month       6.00           4.96                (930)
       2002             8,780       1-month       6.04           4.96                (135)
                    ---------                                                   ---------
                    $ 200,780                                                   $  (1,842)
                    =========                                                   =========
</TABLE>

         At March 31, 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 March 31,  1999,  the fair value of the
British  Pounds  future  contract was $0.6  million.  In  addition,  the Company
entered  into  foreign  currency  futures  contracts  to hedge its  exposure  in
connection with its investment in the shopping  center located in Halifax,  Nova
Scotia, which is held by a wholly-owned  subsidiary of the Company. At March 31,
1999, the fair value of the Canadian currency contract was $(0.2) million. Gains
and losses on these  foreign  currency  future  contracts  are  recorded  in the
Consolidated Statement of Financial Condition offsetting the item being hedged.

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

                                       12

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

NOTE 4            SECURITIES AVAILABLE FOR SALE

         The following table sets forth the amortized cost, fair value and gross
unrealized  gains and losses on the Company's  securities  available for sale at
the date indicated.

                                             Gross        Gross
                               Amortized   Unrealized   Unrealized     Fair
MARCH 31, 1999                    Cost       Gains        Losses       Value
                               ---------   ---------    ---------    ---------
                                           (Dollars In Thousands)
Mortgage-related securities:
Single family residential:
  Subprime residuals .......   $ 187,090   $  10,082    $      --    $ 197,172
  Subordinates .............      14,639          --         (347)      14,292
                               ---------   ---------    ---------    ---------
                                 201,729      10,082         (347)     211,464
                               ---------   ---------    ---------    ---------
Multi-family and commercial:
  Non-rated interest only ..       3,157          --          (30)       3,127
  Non-rated principal only..         276          24           --          300
  Subordinates .............     100,242       1,066           --      101,308
                               ---------   ---------    ---------    ---------
                                 103,675       1,090          (30)     104,735
                               ---------   ---------    ---------    ---------
                               $ 305,404   $  11,172    $    (377)   $ 316,199
                               =========   =========    =========    =========

         During the quarter ended March 31, 1999, the Company  recorded a charge
of $8.3 million  against its portfolio of securities  available for sale,  which
was  partially  offset  by a  $0.8  million  gain  on  the  sale  of  commercial
mortgage-backed securities. The losses were recorded against subprime residuals,
reflecting continued market illiquidity for these instruments.  Additionally one
of the bonds had stopped cash flowing,  which  resulted in a decline in its fair
value.

         During the quarter ended March 31, 1999, cash proceeds from the sale of
securities was $12.7 million at a gross realized gain of $0.9 million.

NOTE 5            LOAN PORTFOLIO

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

                              March 31,     December 31,
                                1999            1998
                            ------------    ------------
Single family residential   $  6,934,620    $  8,419,265
Multi-family residential      21,741,464      20,544,269
Commercial real estate:
  Office ................     27,049,347      24,123,894
  Hotel .................     22,145,020      21,304,912
                            ------------    ------------
    Total loans .........     77,870,451      74,392,340
Deferred fees ...........       (526,228)       (409,254)
Allowance for loan losses       (445,687)       (641,676)
                            ------------    ------------
  Loans, net ............   $ 76,898,536    $ 73,341,410
                            ============    ============

                                       13

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

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

                                             March 31,     December 31,
                                               1999            1998
                                           ------------    -----------
Non-performing loans:                         (Dollars in Thousands)
    Single family residential............  $      4,039    $     4,165
    Multi-family.........................            --             --
    Commercial...........................            --             --
                                           ------------    -----------
                                           $      4,039    $     4,165
                                           ============    ===========

         If non-accrual loans had been current in accordance with their original
terms,  additional interest income of approximately $51,000 for the three months
ended March 31, 1999 would have been  earned.  No interest  has been  accrued on
loans greater than 89 days past due.

         At and for the three months ended March 31, 1999 and 1998,  the Company
had no investment in impaired loans as defined in accordance  with SFAS No. 114,
as amended by SFAS No. 118.

         The  following   table  sets  forth  the  geographic   distribution  of
properties securing the Company's loans at March 31, 1999:

                Single family    Multi-family   Commercial
                Residential      Residential    Real Estate    Total
                -------------    ------------   -----------   -------
                              (Dollars in Thousands)

California ..   $         871    $      5,288   $        --   $ 6,159
Delaware ....              --              --        12,274    12,274
Florida .....             462              --            --       462
Massachusetts              52              --        34,496    34,548
New York ....              --          16,453         2,424    18,877
Other .......           5,550              --            --     5,550
                -------------    ------------   -----------   -------
Total .......   $       6,935    $     21,741   $    49,194   $77,870
                =============    ============   ===========   =======

         The following  table sets forth certain  information  at March 31, 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.......       $      4,158    $      1,530        $        402    $        845    $      6,935
Multi-family residential loans........             21,741              --                  --              --          21,741
Commercial real estate................             49,194              --                  --              --          49,194
                                             ------------    ------------        ------------    ------------    ------------
   Total..............................       $     75,093    $      1,530        $        402    $        845    $     77,870
                                             ============    ============        ============    ============    ============
</TABLE>

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

                                       14
<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

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

                                          For the Three      For the
                                          Months Ended      Year Ended
                                            March 31,      December 31,
                                             1999              1998
                                         -------------    -------------
Balance at beginning of period .......   $  74,392,340    $  16,290,404
Originations:
   Single family residential loans ...              --               --
   Multi-family residential loans ....       1,197,194       19,186,936
   Commercial real estate loans ......       3,765,561       37,005,198
                                         -------------    -------------
      Total loans originated .........       4,962,755       56,192,134
                                         -------------    -------------
Purchases:
   Single family residential loans ...              --      211,378,718
Secured borrowing (match funded loans)              --     (183,470,633)
Principal repayments, net ............      (1,484,644)     (25,998,283)
                                         -------------    -------------
Net increase in net loans ............       3,478,111       58,101,936
                                         -------------    -------------
Balance at end of period .............   $  77,870,451    $  74,392,340
                                         =============    =============

NOTE 6            MATCH FUNDED RESIDENTIAL LOANS

         On November 13, 1998, the Company  securitized  and  transferred to OAC
Mortgage Residential Securities, Inc., a real estate mortgage investment conduit
(the "Trust"),  $173.6 million (1,808 mortgage  loans) of its  residential  loan
portfolio.  On that date,  the Trust issued two classes of notes  secured by the
related group of mortgage loans.  Loan Group I consisted of approximately  1,078
mortgage  loans  with an  aggregate  principal  balance of  approximately  $91.2
million  and  original  terms of up to 30 years and which are  secured  by first
liens on  single  family  residential  properties.  Loan  Group II  consists  of
approximately  730  mortgage  loans  with  an  aggregate  principal  balance  of
approximately  $91.0 million and original  terms of up to 30 years and which are
secured by first or second liens on single family residential  properties.  Upon
the transfer, the Company received approximately $173.9 million of proceeds. The
transfer did not qualify as a sale under FASB 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  Accordingly,
the amount of proceeds  from the  transfer  are  reported as a liability  in the
consolidated  statement of financial  condition.  During the quarter ended March
31, 1999, the Company recorded a provision for loan losses of $0.5 million.

     The  following  table  sets forth the  current  unpaid  principal  balance,
excluding  deferred fees of $1.6 million,  and the  geographic  distribution  of
properties  securing the Company's match funded  residential  loans at March 31,
1999:

                                              Single Family
                                               Residential
                                              -------------
                                           (Dollars In Thousands)
                     Michigan................ $      36,646
                     California..............        15,575
                     Florida.................         8,427
                     Other...................        92,398
                                              -------------
                     Total................... $     153,046
                                              =============

NOTE 7            DISCOUNT LOAN PORTFOLIO

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

                                       15
<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

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

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

LOAN TYPE:
Commercial real estate loans:
                                                        (Dollars In Thousands)

   Office..............................................   $         6,859
   Retail..............................................                --
                                                         ----------------
     Total discount loans..............................             6,859
   Discount (1)........................................            (1,241)
                                                         ----------------
     Discount loans, net...............................  $          5,618
                                                         ================

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

NOTE 8            INVESTMENT IN REAL ESTATE

         The  investment  in real estate at March 31, 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:

                                              March 31,       December 31,
                                                1999             1998
                                            -------------    -------------
Office Buildings .......................... $ 174,616,119    $ 174,587,772
Retail ....................................    32,563,088       32,328,623
Building improvements .....................     2,374,574        1,223,185
Tenant improvements and lease commissions .     4,140,299        3,682,602
                                            -------------    -------------
                                              213,694,080      211,822,182
Accumulated depreciation ..................    (4,960,329)      (3,763,461)
                                            -------------    -------------
  Investment in real estate, net .......... $ 208,733,751    $ 208,058,721
                                            =============    =============

                                       16

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

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

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements to repurchase were $114.0 million,  with a weighted  average interest
rate of 8.36%,  at March 31,  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 March
31, 1999:

<TABLE>
<CAPTION>
                                        Outstanding           Commercial Securities   Residential Securities
             Maturity Date               Borrowing                 Fair Value               Fair Value
             -------------              ------------          ---------------------   ----------------------
                                                           (Dollars in Millions)
<S>                 <C>                 <C>                     <C>                       <C>           
             Within 1 month             $       46.9            $           76.2          $         11.3
             2-5 months                         26.8                          --                    37.9
             6-12 months                        17.8                        15.6                    33.2
             More than 1 year                   22.5                          --                    96.8
                                        ------------            ----------------          --------------
             Total                      $      114.0            $           91.8          $        179.2
                                        ============            ================          ==============
</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. On May 10, 1999,  the Company was
informed that the repurchase agreement on certain residuals would not be renewed
on the maturity  date of May 17, 1999.  The Company  funded the maturity of this
debt of $19.4 million with available cash on hand.  Although to date the Company
has had adequate cash, cash equivalents,  and other unencumbered  assets to meet
calls for additional collateral, to repay a portion of the related indebtedness,
and to meet its  other  operating  and  financing  requirements,  including  its
current  capital  expenditure  plans,  there can be no assurance that sufficient
levels of such assets will continue to be available.

         The  Company   periodically  enters  into  sales  of  securities  under
agreements  to  repurchase  the  same  securities.   Obligations  to  repurchase
securities  sold are reflected as a liability in the  accompanying  consolidated
statement  of  financial  condition.  Interest  expense  with  respect  to these
obligations  for the three months ended March 31, 1999 was $2.6 million.

         OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT.  Obligations outstanding
under  lines  of  credit  amounted  to $41.0  million  at March  31,  1999.  The
borrowings are pursuant to a three year agreement,  which is  collateralized  by
commercial loans. The weighted average interest rate at March 31, 1999 was 7.0%.
Interest expense during the three months ended March 31, 1999 was $0.6 million.

                                       17

<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

OBLIGATIONS  OUTSTANDING  UNDER  LINES  OF  CREDIT  - REAL  ESTATE.  Obligations
outstanding  under  lines of credit  secured by real  estate  amounted to $143.8
million  at March 31,  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 March 31, 1999:

<TABLE>
<CAPTION>
                    Property                      Principal Amount       Interest Rate       Maturity Date
         --------------------------------------------------------------------------------------------------
                                                   (Dollars In Millions)
<S>      <C>                                       <C>                  <C>                 <C>
         Bush Street Property............          $      75.0(1)       LIBOR plus 1.75%    April, 2001 (3)
         Other...........................          $      68.8(2)       LIBOR plus 1.75%    June,  2001 (3)
</TABLE>

1)       Plus up to $5.0 million of additional advances for capital improvements
         to the Bush Street Property.
2)       Represents the portion of the outstanding  balance under a $200 million
         loan  that is  secured  by real  estate.  As of March 31,  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.  
3)       Subject to certain conditions, the Company may extend the maturity date
         by one year.

         Interest  expense during the three months ended March 31, 1999 was $2.7
million.

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:

                                                             REDEMPTION
            YEAR                                                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. This resulted
in the Company  realizing an  extraordinary  gain of $0.6 million.  At March 31,
1999, the outstanding balance of the Notes was $143.0 million.  Interest expense
on the Notes for the three months ended March 31, 1999 was $4.2 million.

         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.

         At March 31,  1999,  bonds-match  funded  loan  agreements  amounted to
$143.3  million and with a weighted  average  interest  rate of 8.08%.  Interest
expense for the three months ended March 31, 1999 was $2.5 million.


                                       18
<PAGE>

OCWEN ASSET INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
================================================================================

NOTE 11  TAXATION

         For 1998,  the Company  has sought to qualify as a REIT under  Sections
856 through 860 of the Code, as amended. A REIT will generally not be subject to
federal income taxation on that portion of its income that is distributed to its
shareholders  if it  distributes  at least 95% of its  taxable  income and meets
certain  other income and asset  tests.  The Company has until the filing of its
tax return to satisfy the distribution  requirement.  Since the Company plans to
distribute  100% of its taxable  income,  no provision has been made for federal
income  taxes  for  the  Company  and  its   subsidiaries  in  the  accompanying
consolidated  financial  statements.  At March 31,  1999,  the  Company  had not
declared the final 1998 dividend to meet the 95% distribution requirement, which
is expected to be approximately $15.5 million, or $0.82 per share.

         On April 16, 1999, the Company announced the receipt of a proposal from
OCN  regarding a possible  business  combination  between them. If this business
combination is  consummated,  the Company will no longer qualify as a REIT under
the  provisions  of the Code,  which  requires a REIT to be owned by 100 or more
persons.  If the Company fails to qualify as a REIT, the Company will be subject
to tax (including any applicable  alternative minimum tax) on its taxable income
at regular  corporate  rates.  

         Because the Special  Committee of the Board is  investigating a variety
of strategic  alternatives in addition to a business combination with OCN, there
can be no assurance that if a business combination is effected, the Company will
cease to be a REIT.

NOTE 12  COMMITMENTS AND CONTINGENCIES

         At March 31,  1999,  the  Company  had  $53.7  million  in  outstanding
commitments  to  fund  construction,  multi-family  and  commercial  loans.  The
following table details the amounts committed at such date.

                                     March 31, 1999
         --------------------------------------------------------------------
                                 (Dollars In Thousands)
         Multi-family.....................................      $      23,543
         Hotels...........................................             24,151
         Offices..........................................              6,009
                                                                -------------
           Total committed amount.........................      $      53,703
                                                                =============

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

                                       19
<PAGE>

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

GENERAL

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

         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 $0.8  million  or $0.04 per fully
diluted  share for the three  months  ended March 31,  1999.  These  losses were
primarily  attributable  to $8.3 million of losses on  subordinate  and residual
interests  in  mortgage-related  securities,  which were  adversely  affected by
continued market  illiquidity.  Moreover,  as a result of these  conditions,  in
recent months 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.  As a result, the Company has curtailed each of its
business  lines,  which  include the  acquisition  of  subordinate  and residual
interests   in   residential   and   commercial   mortgage-related   securities,
underperforming  real estate and  residential  and commercial real estate loans,
including construction and renovation loans.

RECENT DEVELOPMENTS

         As  previously  announced  on April 16,  1999,  the Company  received a
proposal from OCN regarding a possible business  combination between OCN and the
Company. 

         Under OCN's proposal,  a newly-formed  subsidiary  would merge into the
Company in a taxable transaction,  and each outstanding share of common stock of
the  Company  (other  than  those  owned  by OCN or its  subsidiaries)  would be
converted  into 0.57 shares of common stock of OCN. OCN has  indicated  that its
proposal requires OAC to pay its final 1998 dividend (which has been deferred by
the Board of Directors of OAC and is expected to be approximately $15.5 million,
or $0.82  per  share)  prior to the  consummation  of the  proposed  transaction
between OCN and the Company.  There can be no assurance,  however, as to whether
or when that dividend will actually be paid. OCN's proposal is subject to, among
other things,  the  satisfactory  negotiation  of final terms of an  acquisition
agreement.  There can be no assurance that the parties will agree to final terms
or that any possible business  combination will be consummated.  Consummation of
OCN's proposal would be subject to approval by the Company's shareholders.

         OAC has  formed a Special  Committee  of its Board,  consisting  of two
independent directors; a third independent director,  Benjamin Navarro, resigned
from the Board on April 26, 1999. The Special  committee intends to consider the
OCN proposal as well as OAC's other strategic alternatives,  including,  but not
limited to, recapitalization,  restructuring, and sale of the Company to another

                                       20
<PAGE>

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

party.   Since  OCN's   proposal  would  be  subject  to  approval  by  the  OAC
shareholders,  OAC has  postponed its 1999 Annual  Meeting of the  shareholders,
originally scheduled for May 12, 1999 and has deferred independent consideration
by its  shareholders of terminating  OAC's status as a REIT. See also Note 11 to
the Consolidated Financial Statements above.

         Under the Company's Articles of Incorporation,  a majority of the Board
of  Directors  must be  independent  directors.  In  response  to Mr.  Navarro's
resignation,  Christine A. Reich,  resigned  from the Board on May 12, 1999,  in
order  to  ensure   continued   compliance   with  the  Company's   Articles  of
Incorporation. Ms. Reich will continue to serve as President of the Company.

         Two suits have been filed against OAC, OCN and their directors in state
court in Florida  seeking to enjoin the  consummation  of the proposed  business
combination  between OCN and OAC. The Company  believes  these suits are without
merit and intends to vigorously contest the plaintiff's claims.

         On May 10, 1999,  the Company was informed that a repurchase  agreement
on certain  residuals in the amount of $19.4 million would not be renewed on the
maturity date of May 17, 1999. The Company funded the maturity of this debt with
available cash on hand.

         On May 13, 1999,  for an  additional  six months the Board of Directors
approved  extending the management  agreement between the Company and OCC, which
was due to expire on May 19, 1999. See also Note 1 to the Consolidated Financial
Statements above.

         OAC  has  entered   into  a   nonbinding   letter  of  intent  to  sell
substantially all of its commercial  mortgage-backed  securities portfolio.  The
closing  of the  proposed  transaction  is subject  to the  prospective  buyer's
completion of its due diligence to its satisfaction.

COMPARISON  OF  OPERATING  RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998

         GENERAL.  Net  loss  for the  quarter  ended  March  31,  1999 was $0.8
million, or $0.04 per diluted share, compared to a net loss of $10.5 million, or
$0.55 per diluted  share,  for the period ended March 31, 1998. The loss for the
three months ended March 31, 1999 was primarily due to a $8.3 million  writedown
of its subordinate  and residual  mortgage-backed  securities,  offset by a $0.8
million  gain on the  sale of  commercial  mortgage-backed  securities.  For the
quarter ended March 31, 1998, net losses on securities  were $17.1 million.  The
losses on the securities  available for sale portfolio  during the first quarter
of 1999 were taken against  residential  subprime bonds,  reflecting  continuing
market illiquidity for these instruments.

        INTEREST  INCOME.  Interest  income  increased  $11.9  million  to $19.4
million for the three  months  ended  March 31,  1999 from $7.5  million for the
comparable  period ended 1998.  This  increase was  primarily  due to additional
interest  income of $3.1  million on loans and $8.9  million  on the  securities
available  for sale  portfolio.  The increase in interest  income  resulted from
additional investments in interest earning assets. Securities available for sale
increased  from  an  average  balance  of  $125.2  million  to  $321.3  million,
residential  loans  increased from an average balance of $22.4 million to $172.2
million and commercial and multi-family  loans increased from an average balance
of $25.1 million to $68.2 million.  Total interest earning assets yielded 12.78%
at March 31, 1999, a 2.0% increase over the yield at March 31, 1998.

        INTEREST EXPENSE.  Interest expense for the three months ended March 31,
1999 increased $9.2 million to $9.9 million for the three months ended March 31,
1998.  This increase was primarily due to a $2.0 million  increase in securities
sold under agreements to repurchase expense, a $4.2 million increase in interest
expense  associated with the issue of the 11 1/2% Redeemable Notes due 2005 (the
"Notes") and a $2.5  million  increase  due to interest  expense  related to the
bonds-match  funded  loan  agreements.  Interest  expense  does not  include the
expense  associated  with the borrowings  secured by investments in real estate,
which is included in  determining  the  operations of the Company's real estate.
See " -Real Estate Income, Net" below.

         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.

                                       21
<PAGE>


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

         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.


<TABLE>
<CAPTION>
                                                                   For the Three Months Ended March 31,
                                                       ---------------------------------------------------------------
(Dollars In Thousands)                                              1999                            1998
                                                       ------------------------------- -------------------------------
                                                        Average            Annualized  Average             Annualized
                                                        Balance   Interest Yield/Rates Balance    Interest Yield/Rates
                                                       --------   -------- ----------- --------   -------- -----------
<S>                                                    <C>        <C>         <C>      <C>        <C>         <C>  
Interest-earning assets:
   Repurchase agreements and interest-bearing
     deposits ......................................   $ 38,728   $    495    5.11%    $ 14,446   $    198    5.48%
   Securities held for trading .....................         --         --      --       62,586        482    3.08
   Securities available for sale ...................    321,281     13,638   16.98      125,241      4,649   14.85
   Commercial and multi-family loan portfolio, net..     68,590      1,649    9.62       25,109        806   12.84
   Match funded residential loans, net .............    164,795      3,327    8.08           --         --      --
   Residential loan portfolio, net .................      7,370        145    7.87       22,396        435    7.77
   Discount loans, net .............................      5,618        126    8.97       26,921        903   13.42
                                                       ---------------------------     ---------------------------
     Total interest-earning assets .................   $606,382   $ 19,380   12.78%    $276,699   $  7,473   10.80%
                                                       ---------------------------     ---------------------------

Interest-bearing liabilities:
   Securities sold under agreements to repurchase ..   $126,363   $  2,642    8.36%    $ 39,577   $    665    6.72%
   Obligations outstanding under lines of credit ...     34,618        607    7.01        1,820         29    6.37
   11.5% Redeemable Notes due 2005 .................    143,000      4,154   11.62           --         --      --
   Bonds match funded ..............................    154,380      2,523    6.54           --         --      --
                                                       ---------------------------     ---------------------------
     Total interest-bearing liabilities ............   $458,361   $  9,926    8.66%    $ 41,397   $    694    6.71%
                                                       ---------------------------     ---------------------------

Net interest income/spread (1)......................              $  9,454    4.12%               $  6,779    4.09%
                                                                  ========                        ========
Net interest margin (2).............................                          6.24%                           9.80%

</TABLE>

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

         PROVISION  FOR LOAN LOSSES.  The  provision  for loan losses during the
three  months ended March 31, 1999  increased  $0.2 million to $0.3 million from
$0.1 million during the three months ended March 31, 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.


         REAL ESTATE INCOME, NET. Real estate income, net decreased $0.6 million
to $0.2 million for the three months ended March 31, 1999,  compared to the same
period in 1998.  This decrease was  primarily due to a $5.9 million  increase in
rental income,  offset by a $3.0 million increase in rental operation expense, a
$0.9 million  increase in  depreciation  and  amortization  expense,  and a $2.7
million increase in interest  expense.  These increases in real estate operating
income and expenses, compared to same period in 1998, were largely the result of
an increase in the Company's investment in real estate, net of $208.7 million at
March 31,  1999,  compared  to $58.9  million at March 31,  1998,  which was not
leveraged.  After the Company acquires  distressed real property,  the Company's
goal  generally  is to improve the  positioning  so as to increase the cash flow
from the property.  Expenses related to buildings and improvements are amortized
over 39 years,  while  expenditures  for repairs and  maintenance are charged to
operations as incurred.

         OTHER EXPENSES.  Other expenses  increased $1.8 million to $2.9 million
for the quarter ended March 31, 1999,  compared to the same period in 1998. This
increase was largely due to a $0.7 million  increase in management  fees, a $1.0
million  increase in other  expenses  (which  consisted  generally of servicing,
accounting, audit, legal, excise tax, and bond amortization expenses), and which
were offset in part by a $0.07 million  decrease in due diligence  expense.  The
management  fees payable by the Company to OCC totaled  $1.5 million  during the
quarter ended March 31, 1999  compared to $0.8 million  during the quarter ended
March 31, 1998.

                                       22
<PAGE>

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

         LOSSES ON SECURITIES.  The losses on the securities  available for sale
portfolio  during  the first  quarter  of 1999 were  taken  against  residential
subprime bonds, reflecting continuing market illiquidity for these instruments.

         MINORITY  INTEREST  IN NET LOSS OF  CONSOLIDATED  SUBSIDIARY.  Minority
interest in net loss of  consolidated  subsidiary  was $0.2  million  during the
quarter ended March 31, 1999 which was comparable to the amount recorded  during
the  same  period  in  1998,  and  represented  the  portion  of  the  Operating
Partnership's  loss  attributed  to the limited  partnership  interest  owned by
IMIHC,  an affiliate of OCC. The Company has a 91.3%  ownership  interest in the
Operating Partnership.

FINANCIAL CONDITION

         SECURITIES  AVAILABLE FOR SALE. The Company's  investment in securities
available  for sale at March  31,  1999  decreased  by $35.0  million  to $316.2
million from $351.2 million at December 31, 1998.

At March 31, 1999,  the Company's  securities  available for sale  portfolio was
$316.2 million and consisted of:

    o    Non-investment grade and unrated subordinate commercial mortgage-backed
         securities  having an amortized cost of $103.7 million and a fair value
         of $104.7 million,
    o    Unrated  residential  subprime  residuals  having an amortized  cost of
         $187.1 million and a fair value of $197.2 million, and
    o    Unrated subordinate  residential  mortgage-backed  securities having an
         amortized cost of $14.6 million and a fair value of $14.3 million.

The Company's  unrated subprime  residual  portfolio of $197.2 million consisted
of:
    o    $97.8 million of seasoned residuals (securitized between 1994 and 1997)
         with  overcollateralization  reserves  funded at  approximately  $140.2
         million, and
    o    $99.4  million  of  unseasoned  residuals  (securitized  in 1998)  with
         overcollateralization reserves funded at approximately $28.5 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>
                                                                   March 31,       December 31,
                                                                     1999              1998
                                                                  ----------       ------------
<S>                                                               <C>               <C>       
Mortgage-related securities:
   Single family residential:                                        (Dollars In Thousands)
     Subordinates.........................................        $   14,292        $   15,390
     Subprime residuals...................................           197,172           218,724
                                                                  ----------        ----------
         Total single family residential..................           211,464           234,114

   Multi-family residential and commercial:

     AAA-rated interest-only..............................                --               441
     A-rated interest-only................................                --               222
     Non-rated interest-only..............................             3,127             3,135
     Non-rated principal-only.............................               300               276
     Subordinates.........................................           101,308           112,966
                                                                  ----------        ----------
       Total multi-family residential and commercial......           104,735           117,040
                                                                  ----------        ----------
       Total mortgage-related securities..................        $  316,199        $  351,154
                                                                  ==========        ==========
</TABLE>

         The following tables detail the Company's securities available for sale
portfolio  at March 31,  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.

                                       23
<PAGE>

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

         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.
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. 

                                       24
<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 March 31, 1999:


<TABLE>
<CAPTION>
                                                                                             OVER
                                          CLASS                                          COLLATERIZATION
                                  ISSUE  DESIGNATION  RATING      COLLATERAL    BALANCE     LEVEL AT      PRODUCT TYPE AT
 SECURITIZATION        SECURITY   DATE    LETTER      AGENCIES     ISSUANCE     03/31/99    3/31/99          3/31/99
 --------------        --------   -----   ------      --------     --------     -------- ---------------  ---------------
<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   $ 441,212   1.19% OC   25% Fixed, 69% 2/28 ARM
 SASCO 1998-3(1)          X       Mar-98    NR       S&P, Fitch      769,671     579,284   2.33% OC   10% Fixed, 26% 2/28 ARM
 MLMI 1998-FF1(2)         X       Jun-98    NR       S&P, Fitch      198,155     156,211   1.91% OC   14% 1/29 ARM, 83% 2/28 ARM
 PANAM 1997-1(3)          X       Dec-97    NR      S&P, Moody's     113,544      83,254   5.70% OC   31% 6mo ARM, 62% 2/28 ARM
                     Prepay Pen.
 LHELT 1998-2(4)          X       Jun-98    NR     Moody's, Fitch    209,225     170,653   3.99% OC   41% Fixed, 38% 2/28 ARM
 EQUICON 1994-2(5)    B Fix, B-2  Oct-94    NR      S&P, Moody's,     78,846      24,354   6.08% OC   100% Fixed
                                                        Fitch
                     QS Fix, QS-2           NR
                     B Var., B-2            NR                        32,306       6,549  19.31% OC   100% 6mo ARM
 EQUICON 1995-1(5)    B Fix, B-2  May-95    NR      S&P, Moody's,     70,024      18,905  16.15% OC   100% Fixed
                                                        Fitch
                     B Var., B-2            NR                        70,519       7,420  18.16% OC   100% 6mo ARM
 EQUICON 1995-2(5)    B Fix, B-2  Oct-95    NR      S&P, Moody's      79,288      27,041  14.04% OC   100% Fixed
                     B Var., B-2            NR                        39,667       9,094  17.50% OC   100% 6mo ARM
 ACCESS 1996-1(6)     B Fix, B-2  Feb-96    NR      S&P, Moody's     120,015      43,484   6.87% OC   100% Fixed
                     B Var., B-2            NR                        55,362      12,541  15.05% OC   100% 6mo ARM
 ACCESS 1996-2(6)      B-I, B-1   May-96    NR      S&P, Moody's     142,259      54,745  12.77% OC   100% Fixed
                     BI-S, BI-S-1           NR
                      B-II, B-1             NR                        68,345      15,682  12.41% 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      42,323  11.71% OC   100% Fixed
                     BI-S, BI-S-1           NR
                      B-II, B-1             NR                        99,885      23,327  20.40% 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      81,653  15.39% OC   49% Fixed, 51% ARM
                      B-S, B-S-1            NR
 ACCESS 1997-1(6)       B, B-1    Feb-97    NR      S&P, Moody's     276,442     116,444  17.16% OC   57% Fixed, 43% ARM
                      B-S, B-S-1            NR
 ACCESS 1997-2(6)       B, B-1    May-97    NR      S&P, Moody's     185,197      85,902  10.40% OC   51% Fixed, 49% ARM
                      B-S, B-S-1            NR
 ACCESS 1997-3(6)       B, B-1    Oct-97    NR      S&P, Moody's     199,884     103,520   6.51% OC   46% Fixed, 54% ARM
                      B-S, B-S-1            NR

 OCWEN 98 - OAC-1        N/A      Nov-98    NR      S&P, Moody's     182,178     153,043   6.33% OC   23% Fixed, 77% ARM

 CMR1(8)               Deferred   Apr-96    NR        S&P, Duff       47,802(9)   24,655   8.29%RF    100% Amortizing
                         Comp

 CMR2(8)               Deferred   Nov-96    NR    S&P, Duff, Fitch   106,692(9)   54,426   8.59% RF   90.4% Amort 9.6% IO mortgages
                         Comp

 CMR3(8)               Deferred   Nov-96    NR    S&P, Duff, Fitch   195,610(9)  102,153  11.92% RF   74.1% Amort 25.9% IO mortgages
                         Comp

 CMR4(8)               Deferred   Feb-97    NR    S&P, Duff, Fitch   108,630(9)   66,615   5.76% RF   90.0% Amort 10.0% IO mortgages
                         Comp
 CMR6(8)               Deferred   May-97    NR    S&P, Duff, Fitch    91,442(9)   56,537   5.96% RF   95.7% Amort 4.3% IO mortgages
                         Comp

                                                                25
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                                                             OVER
                                          CLASS                                          COLLATERIZATION
                                  ISSUE  DESIGNATION   RATING      COLLATERAL   BALANCE      LEVEL AT     PRODUCT TYPE AT
 SECURITIZATION        SECURITY   DATE    LETTER       AGENCIES     ISSUANCE    03/31/99     3/31/99         3/31/99
 --------------        --------   -----   ------       --------    ----------   -------- ---------------  ---------------
<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     9,785       9,426     4.09%         97% Fixed
                          B6      Apr-97     NR                       16,998       9,713     None
 ORMBS 1998-R1(12)        B4      Mar-98     NR       Moody's, DCR    32,718      30,363     None          98% Fixed
 GECMS 1994-12(13)        B4      Mar-94     NR      Moody's, Fitch,   2,069       1,535     None         100% Fixed
                                                           S&P
</TABLE>

                                                                26

<PAGE>


<TABLE>
<CAPTION>
                                     WEIGHTED      WEIGHTED                     ACTUAL        ACTUAL
                                      AVERAGE       AVERAGE       ACTUAL     LIFE TO DATE  LIFE TO DATE        YIELD TO
                                   INTEREST RATE    LTV AT:     DELINQUENCY     CPR AT:     LOSSES AT:       MATURITY AT:
SECURITIZATION         SECURITY     AT: 3/31/99     3/31/99     AT: 3/31/99     3/31/99       3/31/99      PURCHASE  3/31/99
--------------         --------     -----------     -------     -----------     -------       -------      --------  -------

RESIDENTIAL MORTGAGE
BACKED SECURITIES                                                 (Dollars In Thousands)

RESIDUALS:
<S>                   <C>              <C>           <C>           <C>            <C>         <C>            <C>      <C>
SASCO 1998-2               X           10.14%        75.00%          8.42%        22.68%      $  315         16.00%   10.26%
SASCO 1998-3(1)            X            9.78         76.87           8.20         24.27          194         17.04     7.88
MLMI 1998-FF1(2)           X            9.40         78.07           7.75         24.44           46         18.57    12.83
PANAM 1997-1(3)            X           10.14         79.69          19.73         22.29          296         22.45    36.55
                      Prepay Pen.                                                                            25.69     9.27
LHELT 1998-2(4)            X           10.07         76.79           9.66         21.32            0         18.55    23.22
EQUICON 1994-2(5)     B Fix, B-2        9.95         72.92          24.87         34.35          932         18.00    63.88
                     QS Fix, QS-2
                      B Var., B-2      10.83         76.77                                                   18.00    21.82
EQUICON 1995-1(5)     B Fix, B-2       12.05         72.00          38.65         32.71        1,667         18.00    17.73
                      B Var., B-2      11.45         75.30                                                   18.00    60.24
EQUICON 1995-2(5)     B Fix, B-2       10.84         75.23          36.44         34.46        1,363         18.00    36.78
                      B Var., B-2      11.41         74.54                                                   18.00    83.55
ACCESS 1996-1(6)      B Fix, B-2       10.88         75.17          33.80         34.68        1,754         18.00    38.61
                      B Var., B-2      11.39         77.06                                                   18.00    22.51
ACCESS 1996-2(6)       B-I, B-1        11.05         74.99          34.58         36.84        2,672         18.00    21.92
                     BI-S, BI-S-1
                       B-11, B-1       11.39         76.89                                                   18.00    14.07
                        BII-S,
                        BII-S-1
ACCESS 1996-3(6)       B-I, B-1        11.45         76.14          39.22         40.84        1,805         18.00    26.38
                     BI-S, BI-S-1
                       B-II, B-1       11.60         77.38                                                   18.00    25.30
                        BII-S,
                        BII-S-1
ACCESS 1996-4(6)        B, B-1         11.85         76.52          40.51         40.82        1,776         18.00    16.13
                      B-S, B-S-1
ACCESS 1997-1(6)        B, B-1         11.49         77.85          42.18         40.14        2,860         18.00    15.71
                      B-S, B-S-1
ACCESS 1997-2(6)        B, B-1         11.35         76.22          37.70         40.17        1,259         18.00    16.01
                      B-S, B-S-1
ACCESS 1997-3(6)        B, B-1         11.16         76.90          31.82         40.06          655         18.00    17.94
                      B-S, B-S-1
OCWEN 98-OAC-1(7)         N/A           8.69         77.51           4.18         33.54            0           N/A      N/A
CMR1(8)              Deferred Comp     13.44           N/A          36.50         20.76          595         18.00    65.84
CMR2(8)              Deferred Comp     12.50           N/A          31.85         21.50          811         18.00    32.76
CMR3(8)              Deferred Comp     13.63           N/A          18.76         17.56        2,136         18.00    22.22
CMR4(8)              Deferred Comp     13.78           N/A          38.57         18.50          986         18.00    32.95
CMR6(8)              Deferred Comp     13.61           N/A          36.89         20.60          449         18.00    40.01

SUBORDINATES:
SBMS 1997-HUD1(11)        B5            9.80        107.64          18.73         14.50        5,798         16.87    19.37
                          B6                                                                                 22.86    26.60
ORMBS 1998-R1(12)         B4            8.97         90.78          20.63          5.82        5,613         13.75     9.91
GECMS 1994-12(13)         B4            6.82         48.30           0.49          7.60            0         19.37    20.49

</TABLE>

                                                             27
<PAGE>


ISSUERS:
(1)      Structured Asset Securities Corp.

(2)      Merrill Lynch Mortgage Investors, Inc.

(3)      Pan American Bank, FSB.

(4)      Lehman Home Equity Loan Trust.

(5)      Equicon Mortgage Loan Trust.

(6)      Access Financial Mortgage Loan Trust.

(7)      Ocwen Residential Mortgage-Backed Securities.

(8)      City Mortgage Receivable.

(9)      Dollar  equivalent of amounts in British pounds at the rate of exchange
         that prevailed a the time of issuance.

(10)     Dollar  equivalent of amounts in British pounds at the rate of exchange
         at 3/31/99.

(11)     Salomon Brothers Mortgage Securities.

(12)     Ocwen Mortgage Loan Trust.

(13)     GE Capital Mortgage Services, Inc.

(14)     Not available.


<TABLE>
<CAPTION>
                                                  CLASS                           SUBORDINATION
                                               DESIGNATION                          LEVEL AT
SECURITIZATION        SECURITY   ISSUE DATE      LETTER     RATING AGENCIES   ISSUANCE       3/31/99
--------------        --------   ----------      ------     ---------------   --------       -------

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%
CSFB 1995-AEW1 (2)        E        Oct-95           BB         S&P, Fitch       13.75         29.43
                         F-1                        B                            4.80         10.46
                         G-1                        NR                           0.00          0.00
                         G-2                        NR                           0.00          0.00
MRAC 1996-C2 (3)          K        Dec-96           B-       Fitch, Moody's      2.50          2.70
                         L-1                      NR-PO                          0.00          0.00
                         L-2                      NR-IO                          0.00          0.00
BTC 1997-S1 (4)          E, F      Dec-97          BB/B        S&P, Fitch       19.00         32.34
                        Equity                      NR                           0.00          0.00
MLMCI 1993-M1 (5)         B        Sep-93           NR        Moody's, S&P       2.00          6.21
</TABLE>


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

                                                         Actual   Actual 
                            Weighted Weighted            Life to  Life to
                            Average   Average    Actual    Date     Date         Class Size %         Yield to       Collateral
                            DSCR at   LTV at  Delinquency CPR at  CPR at        Of Total as of       Maturity at     Balance at
Securitization     Security Issuance Issuance   3/31/99  3/31/99  3/31/99     Issuance   3/31/99 Purchase 3/31/99 Issuance   3/31/99
--------------     -------- -------- --------   -------  -------  ---------   --------   ------- -------- ------- --------   -------
                                                       (Dollars in thousands)
COMMERCIAL MORTGAGE
BACKED SECURITIES
<S>                    <C>      <C>      <C>       <C>       <C>   <C>           <C>       <C>     <C>      <C>    <C>       <C>    
NASC 1996 MD-V (1)   B-2        1.69     62.0%     0.0%      0.0%  $      0      4.36%     4.48%   9.90%    9.98%  $752,598  752,598
CSFB 1995-AEW1 (2)    E         1.26     71.8%     2.1%       n/a  $    708     11.00     23.98    7.93     7.87   $131,988  130,465
                     F-1                                                         1.80      3.92    9.75     9.86
                     G-1                                                         4.80     10.46   12.84    13.70
                     G-2                                                         5.72     11.93   14.87    14.89
MRAC 1996-C2 (3)      K         1.36     69.1%     2.3%       n/a  $      0      1.50      1.62   12.10    14.96   $473,294  472,713
                     L-1                                                         2.50      2.70   12.31    12.48
                     L-2                                                         2.50      2.70   12.82    15.97
BTC 1997-S1 (4)      E, F       1.27    106.0%    17.8%       n/a  $  6,158     14.50     24.68    8.36     8.50   $178,597   73,991
                    Equity                                                      19.00     32.34   21.19    26.81
MLMCI 1993-M1 (5)     B         1.51     56.0%    55.3%       N/a  $      0      9.00     27.00   13.65     9.74   $  9,090    6,034
</TABLE>

  ISSUERS:
  (1)  Nomura Asset Securities Corporation
  (2)  CS First Boston Mortgage Securities Corp.
  (3)  Midland Realty Acceptance Corp.
  (4)  BTC Mortgage Investors Trust 1997-S1
  (5)  Merrill Lynch Mortgage Capital, Inc.

         The following  table sets forth the principal  amount of mortgage loans
by the geographic  location of the property  securing the mortgages that underly
the Company's securities available for sale portfolio at March 31, 1999.
<TABLE>
<CAPTION>

  Description                        California        Florida          Texas          New York        Maryland        Other (1)
  -----------                      -------------    ------------    -------------    ------------    ------------    ------------
                                                                        (Dollars In Thousands)
<S>                                   <C>              <C>             <C>              <C>             <C>          <C>         
  Single family residential......     $  486,021       $ 213,971       $  140,001       $  79,637       $ 103,919    $  2,172,331

  Multi-family and commercial....        181,556         117,536          152,981          95,692          84,468         888,284
                                   -------------    ------------    -------------    ------------    ------------    ------------

  Total..........................     $  667,577       $ 331,507       $  292,982       $ 175,329       $ 188,387      $3,060,615
                                   =============    ============    =============    ============    ============    ============

  Percentage (2).................           14.2%            7.0%             6.2%            3.7%            4.0%           64.9%
                                   =============    ============    =============    ============    ============    ============
</TABLE>

(1)      No other individual state makes up more than 5% of the total.  Includes
         $52.3 million of loans secured by single family  residences  located in
         United  Kingdom  which  back the  securities  issued  by City  Mortgage
         Receivable  1-6,  which were  acquired by the  Company  from the United
         Kingdom operations of Cityscape Financial Corp.
(2)      Based on a  percentage  of the total  unpaid  principal  balance of the
         underlying loans.

                                       29

<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 March 31, 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       3/31/99 (2)  COUPON      LIFE (3)
           -----------                ---------     ----------       -----        --------      ------------  ------      --------
SINGLE FAMILY RESIDENTIAL                                                 (Dollars In Thousands)
<S>                                    <C>            <C>              <C>           <C>            <C>        <C>          <C> 
Unrated residuals................      $187,090       $197,172         100%          17.90%         13.63%     0.00%        6.77
B-rated subordinates.............         4,772          4,430         100           16.87          19.37      7.75         6.66
Unrated subordinates.............         9,867          9,862          44           15.16          12.30      7.03         6.56
                                       --------       --------
     Total single family.........       201,729        211,464
                                       --------       --------
MULTI-FAMILY/COMMERCIAL
BB-rated subordinates............        55,284         58,108          86            8.67           8.33      7.78         3.84
B-rated subordinates.............        26,441         24,238          76           10.42          10.36      8.68        10.24
Unrated subordinates.............        18,517         18,962         100           14.04          17.15      8.02         5.49
Unrated IOs (1)..................         3,157          3,127         100           12.82          15.83      7.23        12.22
Unrated POs (1)..................           276            300         100           12.31          13.40      0.00        12.18
                                       --------       --------
   Total multi-family/commercial        103,675        104,735
                                       --------       --------
   Total mortgage related
     securities..................      $305,404       $316,199
                                       ========       ========
</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 March 31,  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 March 31,
                  1999 book value.

         The  following  table sets forth the  property  types of the  Company's
commercial  mortgage-backed  securities  at  March  31,  1999,  based  upon  the
principal amount.
                                                          Percentage
                             Property type                 Invested
                    ---------------------------------     ----------

                       Multi-family..................         27.0%
                       Retail........................         26.0
                       Hotel.........................         13.5
                       Office........................          7.4
                       Industrial....................          3.7
                       Mixed use.....................          2.1
                       Other.........................         20.3
                                                          --------
                       Total.........................        100.0%
                                                          ========

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

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

                                       30
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
================================================================================

Company  believes are  reasonable,  in estimating fair values of the subordinate
securities and residual securities  retained.  During the first quarter of 1999,
the Company  utilized  proprietary  prepayment  curves  generated by the Company
(reaching an approximate range of annualized rates of 30%-40%). In its estimates
of annual loss rates,  the Company  utilizes  assumptions  that it believes  are
reasonable.  The Company  estimates  annual losses of between 0.22% and 2.06% of
the underlying loans.

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

         Subordinate and residual  interests are affected by the rate and timing
of  payments of  principal  (including  prepayments,  repurchase,  defaults  and
liquidations)  on the mortgage  loans  underlying  a series of  mortgage-related
securities.  The rate of  principal  payments may vary  significantly  over time
depending on a variety of factors, such as the level of prevailing mortgage loan
interest  rates  and  economic,  demographic,  tax,  legal  and  other  factors.
Prepayments  on the  mortgage  loans  underlying  a series  of  mortgage-related
securities   are   generally   allocated   to  the  more   senior   classes   of
mortgage-related  securities.  Although  in the  absence of defaults or interest
shortfalls all subordinates  receive interest,  amounts  otherwise  allocable to
residuals  generally are used to make payments on more senior classes or to fund
a   reserve    account   for   the    protection   of   senior   classes   until
overcollateralization  or the balance in the reserve account reaches a specified
level. In periods of declining  interest rates, rates of prepayments on mortgage
loans  generally  increase,  and if the  rate  of  prepayments  is  faster  than
anticipated,  then the yield on subordinates will be positively affected and the
yield on residuals will be negatively affected.  Continued market illiquidity on
subprime residential  mortgage-backed securities was a significant factor in the
$8.3 million in the first quarter of 1999. Accelerated prepayment speeds largely
contributed  to the $17.1 million  losses on securities  recorded by the Company
during the first quarter of 1998.

         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.

         COMMERCIAL AND MULTI-FAMILY LOAN PORTFOLIO. The Company's investment in
commercial and multi-family loans amounted to $70.3 million at March 31, 1999, a
$5.1 million increase over the $65.3 million investment at December 31, 1998.

         The  Company's  commercial  lending  activities  focus  on real  estate
lending  opportunities  in selected major  metropolitan  markets  throughout the
United  States  where  the  Company   believes  there  are  significant   supply
constraints  and where  employment  and/or  population  growth and other  demand
generators  are expected to remain  strong.  The Company's  general  approach to
commercial  lending is to capitalize on the core capabilities of the Manager and
its affiliates,  which include an ability to assess the value creation potential
of  underutilized  real  estate  and  to  oversee  and  manage  the  conversion,
rehabilitation  and/or construction  process. The Company seeks to make loans to
borrowers  who have a proven  ability to acquire  such assets and enhance  value
through a process of repositioning or development.  Loans are usually structured
to  provide  current  income  along  with  either  exit  fees or  gross  revenue
participation  features.  Loans may be  originated  as first  mortgage  loans or
structured as subordinated debt or mezzanine financing.

                                       31
<PAGE>

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

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.
<TABLE>
<CAPTION>

                                                            March 31,            December 31,
                                                               1999                  1998
                                                         --------------        --------------
<S>                                                     <C>                   <C>            
  Multi-family residential loans..................      $    21,741,464       $    20,544,269
  Commercial real estate and land loans:
       Hotels.....................................           22,145,020            21,304,912
       Office buildings...........................           27,049,347            24,123,894
                                                         --------------        --------------
        Total.....................................           70,935,831            65,973,075
  Deferred fees...................................             (213,857)              (48,434)
  Allowance for loan losses.......................             (382,052)             (641,676)
                                                         --------------        --------------
       Commercial and multi-family loans, net.....       $   70,339,922        $   65,282,965
                                                         ==============        ==============
</TABLE>

         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 March 31, 1999,  the Company had an
allowance  for loan losses in the amount of $0.4 million on the  commercial  and
multi-family loan portfolio.

         The following table sets forth certain information  regarding the loans
in the Company's commercial and multi-family loan portfolio at March 31, 1999.
<TABLE>
<CAPTION>

                                                                                      LOAN PER   STABILIZED
                                                 LOAN AMOUNT               RATIO OF     UNIT/       DEBT
                                         LOAN    OUTSTANDING    TYPE OF     LOAN TO    SQUARE     COVERAGE    COUPON
      LOAN             LOCATION         AMOUNT   AT 03/31/99     LOAN        COST       FOOT      RATIO(1)     RATE    SIZE
------------------ -----------------  --------- ------------ ------------  --------  ----------  ----------   ------   -----
MULTI-FAMILY                                             (Dollars In Thousands)
 RESIDENTIAL:

<S>                <C>                 <C>       <C>        <C>                  <C>        <C>       <C>      <C>    <C>
Fourth & Harrison  San Francisco, CA   $ 11,550  $  5,289    Construction        85%        72        1.22     9.630% 160 units

241 Church Street  New York, NY          30,280    13,684    Conversion          88        582         N/A     9.000  52 units

459 Washington     New York, NY           3,455     2,769    Conversion          61        314         N/A    10.500  11 units
 Street

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

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

Thompson Street    New York, NY          17,715     2,424    Construction        80        209        1.66    10.000  100 rooms
 Hotel

Wyndham Garden     Wilmington, DE        13,300    12,274    Renovation          67         61         2.2     8.650  291 rooms
 Hotel

Landmark III-GTE   Burlington, MA        33,058    27,049    Renovation          85        114        1.18     9.250  291,007 sq.ft.
                                       --------  --------
                                       $124,639  $ 70,936
                                       ========  ========
</TABLE>

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

         RESIDENTIAL  LOAN  PORTFOLIO.  The Company's  investment in residential
loans  decreased  to $6.6 million at March 31, 1999 from an  investment  of $8.1
million at December 31, 1998. At March 31, 1999, $4.0 million of the residential
loan  portfolio  was past  due 90 days or  more,  compared  to $4.2  million  at
December  31, 1998.  During the first  quarter of 1999,  the Company  recorded a
provision for loan losses of $0.1 million.

                                       32
<PAGE>

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

         DISCOUNT LOAN PORTFOLIO.  The Company believes that, under  appropriate
circumstances,  the acquisition of nonperforming  and  underperforming  mortgage
loans at discounts offers  significant  opportunities  to the Company.  Discount
loans generally have collateral  coverage which is sufficiently in excess of the
purchase price of the loan, such that  successful  resolutions can produce total
returns which are in excess of an equivalent  investment in performing  mortgage
loans.

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

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

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

                                                         For the Three
                                                         Months Ended        For the Year Ended
                                                           March 31,            December 31,
                                                              1999                  1998
                                                        ---------------       ---------------
                                                                (Dollars In Thousands)

<S>                                                   <C>                    <C>              
Balance at beginning of period.....................   $       6,858,836      $      42,528,782
Acquisitions.......................................                  --                    --
Resolutions and repayments(1)......................                  --            (2,349,969)
Loans transferred to investment in real estate.....                  --           (33,436,930)
Foreign exchange gain (loss).......................                  --               116,953
                                                        ---------------       ---------------
Balance at end of period...........................    $      6,858,836      $      6,858,836
                                                       ================      ================
</TABLE>

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

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

         INVESTMENT  IN  REAL  ESTATE.  The  Company's  real  estate  investment
approach had sought value creation  opportunities  that can be realized  through
increased  management focus and capital  investment.  The Company  generally has
sought  underperforming  properties  that  can  be  acquired  and  renovated  at
discounts to  replacement  cost.  In evaluating  opportunities,  the Company has
focused on a series of key investment  criteria.  These include  analysis of the
level of proposed new supply and development constraints in the markets where it
is  considering  investing.  An underlying  premise of the Company's real estate
investment  philosophy has been that,  while demand for real estate has remained
relatively  constant  over time,  sudden and  dramatic  increases in supply have
driven boom and bust real estate cycles.

                                       33
<PAGE>

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

         At March 31, 1999, the Company's  investments in real estate  consisted
of eight properties which had an aggregate  carrying value of $208.7 million.  A
total of four of the properties currently owned by the Company with an aggregate
carrying  value of  approximately  $144.4  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,   satisfies  its  general  real  estate
investment  philosophy  because  in  management's  view it 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
$12.8  million.  In the event of a more  catastrophic  earthquake  or damages in
excess of $50 million, the Company would not be insured for such losses.

         The Company's net investment in real estate increased to $208.7 million
at March 31, 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      March 31, 1999
      -----------      -----------------------   -----------------------     -----------       -------------     ---------------
                                                         (Dollars In Thousands)
<S>   <C>              <C>                                                       <C>                               <C>          
      04/08/98         225 Bush Street........   San Francisco, CA               570,637        Office Bldg.       $     104,786
      09/23/97         450 Sansome Street.....   San Francisco, CA               130,437        Office Bldg.              19,308
      01/23/98         690 Market Street......   San Francisco, CA               124,692        Office Bldg.              14,231
      09/03/97         10 U.N. Plaza..........   San Francisco, CA                71,636        Office Bldg.               9,580
      07/22/98         841 Prudential Drive...   Jacksonville, FL                488,080        Office Bldg.              32,836
      11/10/97         Cortez Plaza...........   Bradenton, FL                   289,686        Shopping Ctr.             19,338
      04/09/98         7075 Bayers Road.......   Halifax, Nova Scotia            402,529        Shopping Ctr.             11,824
      10/01/98         Holiday Village........   Havre, MT                       223,355        Shopping Ctr.              1,791

                                                                                        Accumulated depreciation
                                                                                                and amortization          (4,960)
                                                                                                                   -------------
                                                                                                                   $     208,734
                                                                                                                   =============
</TABLE>

         Set  forth  below  is a brief  description  of  each  of the  Company's
investments in real estate at March 31, 1999.

         225 BUSH  STREET.  In April  1998,  the  Company  acquired  an existing
570,637  square  foot,  22-story,  Class A office  building  located at 225 Bush
Street  in the  financial  district  of San  Francisco,  California  for  $100.2
million.  Bush Street was originally  constructed in 1923,  expanded in 1994 and
brought up to 1992 building code seismic  standards  during 1992-94.  Originally
built as the world headquarters of Chevron of USA, Inc. ("Chevron"), it was sold
in 1994 as Chevron  sought to relocate  its  executive  offices.  The Company is
projecting to make an additional  investment of  approximately  $17.0 million to
make tenant  improvements and pay leasing commissions and to upgrade mechanical,
HVAC, and electrical systems,  fire, and life/safety systems under the Americans
with  Disabilities Act of 1990 (the "ADA"), as well as upgrades and improvements
to the ground floor retail and annex entrance lobby.  Approximately $7.5 million
is budgeted  for 1999.  As of March 31, 1999,  the Bush Street  Property was 96%
leased.

         450 SANSOME STREET.  In September 1997, the Company  acquired a 130,437
square foot, 16-story,  Class B office building located at 450 Sansome Street in
the financial district of San Francisco,  California. The Company purchased this
property  for $17.2  million.  The  property  was built in 1967 and  upgraded in
certain  respects in 1989 and 1990.  The property was acquired from a lender who
had taken title through foreclosure.  As a result,  average rent per square foot
amounted to  approximately  $18.00 at the date of  acquisition.  During the next

                                       34

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

five years, leases on 86% of the space in the property expire. The Company plans
to invest  approximately  $7.3 million in this  property in various  renovations
including  the entrance  lobby,  elevator  cabs,  bathrooms,  hallways,  certain
building systems and compliance with the ADA as well as tenant  improvements and
pay leasing  commissions.  Approximately  $4.0 million is budgeted for 1999. The
building  was  75%  leased  as of  March  31,  1999.  Two  new  leases  totaling
approximately  12,800  square  feet  were  executed  in  December  1998 and have
resulted in an increased occupancy level of 86% as of April 1999.

         690 MARKET  STREET.  In January  1998,  the Company  acquired a 124,692
square foot,  16-story,  Class C office building located at 690 Market Street in
the financial district of San Francisco,  California. The property was purchased
for $13.7  million.  The property  was  originally  constructed  in 1888 and has
undergone numerous renovations. At the date of acquisition, approximately 41% of
the building was available  for releasing by the end of 1998, of which  existing
rents averaged $14.06 per square foot. The Company has recently executed ten new
leases  totaling  approximately  15,000 square feet,  which  increased  building
occupancy  to 83% as of March 31, 1999.  The Company is investing  approximately
$6.0  million in  structural  upgrades,  a  sprinkler  system and ADA  upgrades,
deferred maintenance, tenant improvements and leasing commissions. Approximately
$5.0 million is budgeted for 1999

         10 UNITED NATIONS  PLAZA.  In September  1997,  the Company  acquired a
71,636  square foot,  six-story,  Class B office  building  located at 10 United
Nations  Plaza in the  civic  center  district  of San  Francisco.  The  Company
purchased this property,  which was built in 1982, for $9.1 million. At the date
of acquisition,  the property was substantially  leased and the average rent per
square foot was $13.76. The building was 9% leased as of March 31, 1999, but two
new leases totaling 31,227 square feet were executed during the first quarter of
1999 which will increase  occupancy to approximately 53%. The remaining space is
currently   being   marketed   for  lease  to  tenants  with  full  floor  space
requirements.  The  Company  is  investing  approximately  $3.6  million in this
property  to fund  cosmetic  improvements  to  enhance  the lobby and  hallways,
install ADA upgrades,  fund deferred maintenance and tenant improvements and pay
leasing commissions. Approximately $3.4 million is budgeted for 1999.

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

         CORTEZ PLAZA. In November 1997, the Company  purchased  Cortez Plaza, a
289,686 square foot shopping center located in Bradenton,  Florida,  a suburb of
Tampa.  The  Company  purchased  this  property,  which  was  built  in 1956 and
renovated in 1988, for $18.4 million. In a separate transaction,  the fee simple
title to a large  portion  of the  shopping  center  that had been  subject to a
ground lease was purchased  simultaneously for $0.7 million, which resulted in a
total investment in this property of $19.3 million. By simultaneously  acquiring
fee simple title to a ground lease that  encumbered a large part of the shopping
center's  parking lot, the Company  believes  that it  immediately  improved the
value and  marketability  of the  project.  As of March 31,  1999,  the shopping
center was 94% leased with  national and  regional  tenants,  including  Publix,
PetSmart,  Circuit City,  Montgomery Ward (which  currently is in bankruptcy but
paying rent) and  BankAmerica,  comprising  70.5% of the leaseable  area.  Below
market leases  covering  approximately  15% of the center expire during 1999 and
2000.

         BAYER'S ROAD SHOPPING  CENTRE.  In April 1998, the Company acquired the
Bayers Road  Shopping  Centre,  which is located at 7075 Bayers Road in Halifax,
Nova Scotia.  The property was acquired by  foreclosure  on the loans secured by
the property, which was acquired by the Company at a discount in September 1997.
The property contains 402,529 square feet of space,  which consists primarily of
retail space but also includes some office space and storage space. The original
buildings  were built in 1956 and were  enclosed and expanded in several  phases
between  1971 and 1987.  Major  tenants  of the  property  currently  consist of
Zellers,  Lawton's and Mark's Work Warehouse. The property was approximately 81%
leased at December 31, 1998. The Company  currently is implementing an operating
plan to  establish  the  second  level as a  strong  community  shopping  center
anchored with both national and regional value-oriented retailers, while filling
the lower level with service  providers,  discount  retailers and  entertainment
uses. The upper level would remain office space. Additional capital required for
the redevelopment and budgeted for 1999 totals $10.8 million.

                                       35
<PAGE>

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

         HOLIDAY VILLAGE SHOPPING CENTRE.  In October 1998, the Company acquired
the Holiday Village Shopping Centre,  which is located at 1753 Highway 2 West in
Havre,  Montana. The property was acquired by foreclosure on the loan secured by
the property,  which was acquired by the Company at a discount in November 1997.
The property contains 223,355 square feet of retail space. The original building
was built in 1978.  Ownership of the  property is subject to two ground  leases,
the disposition of which is currently being negotiated.  The major tenant at the
property currently is Herberger's.  The property was approximately 47% leased at
March 31, 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.

         The  following  table  sets  forth  the cost of  improvements  for each
investment in real estate through March 31, 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     03/31/99    Depreciation   period     Income
----------------------- ------------ ------------ ------------ ----------- ----------- --------    ------------ ---------- ---------
                                                        (Dollars In Thousands)
<C>                     <C>          <C>          <C>          <C>          <C>       <C>           <C>         <C>          <C>    
225 Bush Street.....    $  101,632   $    7,536   $    3,154    $         $           $  104,786  $    2,265  $     775    $   2,838
450 Sansome Street..        17,205        3,988        2,103                              19,308         580        104          573
690 Market Street...        13,707        5,014          524                              14,231         351         70          626
10 U.N. Plaza.......         9,080        3,414          500                               9,580         298          3           35
841 Prudential Dr...        32,827          484            9                              32,836         494      1,072        2,104
Cortez Plaza........        19,244        1,354           94                              19,338         612        285          776
7075 Bayers Road....        15,219       10,782          507      (3,902)                 11,824         341        228          921
Holiday Village.....         1,791          350           --                               1,791          19         24          109
Park Center I.......         1,534           --           --                 (1,534)          --          --         --           --
                        ----------   ----------   ----------   ---------  ---------   ----------  ----------  ---------    ---------

   Total............    $  212,239   $   32,922   $    6,891   $  (3,902) $  (1,534)  $  213,694  $    4,960  $   2,561    $   7,982
                        ==========   ==========   ==========   =========  =========   ==========  ==========  =========    =========

         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 March 31, 1999, assuming that none of the tenants exercise renewal options or
termination rights, if any, at or prior to the scheduled expirations.

                                                             Percentage of                      Average Base     Percentage of
                                                               Aggregate        Annualized        Rent per         Aggregate
                           Number of       Square Footage      Portfolio       Base Rent of    Square Foot of      Portfolio
       Year of Lease         Leases         Of Expiring      Leased Square       Expiring         Expiring      Annualized Base
       Expiration           Expiring           Leases            Feet             Leases          Leases(3)           Rent
       -------------       ---------       --------------    -------------     ------------    --------------   ---------------
<S>        <C>                  <C>             <C>               <C>          <C>                   <C>              <C>   
           1999(1)              78              227,438           13.10%       $ 2,811,873(2)        12.36            17.23%
           2000                 40              138,783            7.99          1,527,321           11.01             9.36
           2001                 46              118,078            6.80          1,216,421           10.30             7.46
           2002                 49              584,671           33.68          5,187,308            8.87            31.78
           2003                 16               28,178            1.62            434,987           15.44             2.67
           2004                 11               83,492            4.81            969,737           11.61             5.94
           2005                  4               29,120            1.68            102,069            3.51             0.63
           2006                  7              108,902            6.27            412,105            3.78             2.53
           2007                  9              116,019            6.68          1,162,714           10.02             7.13
           2008                  7              142,122            8.18          1,797,177           12.65            11.02
       2009 & beyond             6              159,573            9.19            693,430            4.35             4.25
                             -----           ----------        --------        -----------                          -------
                               273            1,736,376          100.00%       $16,315,142                           100.00%
                             =====           ==========        ========        ===========                          =======
</TABLE>

(1)      Lease year runs from April 1 to December 31 for all properties for 1999
         only.

(2)      Annualized  base  rent  is  calculated  based  on the  amount  of  rent
         scheduled from April 1 to December 31 for all properties for 1999 only.

(3)      Average base rent per square foot is  calculated  using the  annualized
         base rent divided by the square footage.

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

                                       36
<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 March 31, 1999, are as follows:

                    (Dollars In Thousands)
         1999....................................   $  19,393
         2000....................................      22,791
         2001....................................      20,521
         2002....................................      15,438
         2003....................................      10,208
         Thereafter..............................      47,476
                                                    ---------
              Total                                 $ 135,827
                                                    =========

         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.

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements to repurchase  decreased $24.6 million to $114.0 million at March 31,
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 cash flows
from the bonds be used to pay down  outstanding  debt and the  repricing  of the
repurchase agreements as the collateral amortizes. These obligations are secured
by certain of the Company's investments in subordinated  interests in commercial
mortgage-backed  securities,  residual  interests in subprime  residential  loan
securitizations, and U.K. mortgage loan residual securities.

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

         OBLIGATIONS   OUTSTANDING   UNDER  LINES  OF  CREDIT  -  REAL   ESTATE.
Obligations  outstanding  under lines of credit secured by real estate increased
$1.2 million to $143.8 million at March 31, 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 March 31, 1999,  minority interest totaled $23.8
million and represented  OCN's ownership through IMIHC of 1,808,733 units in the
Operating Partnership.

         SHAREHOLDERS'  EQUITY.  Shareholders'  equity decreased by $0.9 million
from December 31, 1998 to March 31, 1999.  The decrease was due to a net loss of
$0.8 million, a $0.2 million decrease in unrealized gain on securities available
for sale and partially offset by cumulative currency  translation  adjustment of
$0.1 million.

CAPITAL RESOURCES AND LIQUIDITY

         Liquidity is a measurement  of the Company's  ability to meet potential
cash  requirements,  including  ongoing  commitments to repay  borrowings,  fund
investments,  engage in loan acquisition and lending  activities,  and for other
general business purposes.  Additionally, to maintain its status as a REIT under
the Code,  the  Company  must  distribute  annually  at least 95% of its taxable
income.  The primary sources of funds for liquidity  during the first quarter of
1999  consisted of cash  provided by  operating  activities  principal  payments
received  from loans,  sales of  securities  available  for sale,  increases  in
obligations  oustanding  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 $12.4 million
during the first  quarter of 1999.  At the same time,  the  Company's  investing
activities  provided  cash flows of $32.3  million  during the first  quarter of
1999.  During the first quarter of 1999,  cash provided by investing  activities

                                       37
<PAGE>

ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FIANANCIAL  CONDITION  AND
         RESULTS OF OPREATIONS
================================================================================

primarily  consisted of sale of  securities  available for sale of $12.7 million
and  principal  payments  on loans of $20.1  million.  The  Company's  financing
activities used cash flows of $37.0 million during the first quarter of 1999 and
primarily consisted of repayments of $24.6 million on borrowings  collateralized
by securities sold under  agreements to repurchasers  and principal  payments of
$20.1 million on bonds-match funded loan agreements.

         At March 31, 1999,  OAC's total closed  transactions  since the Initial
Public Offering, net of repayments,  were $875.5 million. Of this amount, $811.8
million has been funded and the remaining $53.7 million is to be funded over the
construction  and  renovation  periods,  which  range from two to 18 months.  In
addition,   for  1999,  the  Company  has  budgeted  $32.9  million  of  capital
expenditures  on its  investments  in real  estate in order to  reposition  such
properties in the market.

         Based  upon its  current  balance  of cash and  cash  equivalents,  and
projected cash flows from  operations,  potential cash on flows from the sale or
refinancing of assets,  and available lines of credit, the Company believes that
its sources of funds will be adequate for the purposes 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
March 31, 1999,  the Company had interest rate swap  agreements  with a notional
amount of $200.8  million  and a fair value of ($1.8)  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
March 31, 1999, the Company had  unencumbered  residential  loans and securities
having a fair value  totaling  approximately  $51.6  million  ($32.1  million of
subordinate and residual mortgage-backed securities, $12.9 million of commercial
mortgage-backed securities, and $6.6 million of residential loans).

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

         During  April  1999,  the  Company   funded   requests  for  additional
collateral  calls  on  outstanding   repurchase  agreements   collateralized  by
securities available for sale in the amount of $3.3 million.

         At March 31, 1999, the Company had total  consolidated  indebtedness of
$598.7 million, of which all but $143.0 million of outstanding  Redeemable Notes
was secured  indebtedness,  as well as $13.7 million of other liabilities.  This
consolidated  indebtedness  consisted  of:  (i)  $114.0  million  of  repurchase
agreements,  of which $91.5  million was  scheduled to mature in one year;  (ii)
lines of credit  aggregating  $184.8  million,  which mature in 2001 (subject to
extension by the Company under certain conditions until 2002) and are secured by
real  estate,  loans and/or  securities;  (iii)  $143.0  million of  outstanding
Redeemable Notes,  which mature in 2005; and (iv) $143.3 million of match funded
indebtedness  which is secured by $154.2  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  $10.1  million
non-investment   grade  security  in  the  special   purpose  entity  which  was
established  to  effect  the  securitization.  See  Note 6 to  the  Consolidated
Financial Statements above.

                                       38
<PAGE>

ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FIANANCIAL  CONDITION  AND
         RESULTS OF OPREATIONS
================================================================================

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

         The  Company's  recent  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  March 31,  1999 was $(45.3)
million,  the Company does not expect this financial test to be satisfied during
1999. Permitted  Indebtedness,  the incurrence of which is not limited under the
Indenture,  includes:  (i) up to $150 million of debt that may be incurred under
certain warehouse lines of credit or mortgage loan repurchase  agreements;  (ii)
match funded debt that may be incurred by a special purpose,  bankruptcy  remote
subsidiary  of the Company;  (iii)  renewals or  refinancings  of existing  debt
structured to meet certain  conditions;  (iv) debt that may be incurred in hedge
transactions;  (v) up to  $10  million  of  capital  lease  and  purchase  money
financing;  and (vi) up to $50 million of additional  debt. The Company believes
that it can meet its financing  needs  from  sources of  Permitted  Indebtedness
during 1999, although there can be no assurance that this will be the case.

         In  addition  to  payment  and,  in the case of the  Company's  secured
indebtedness,  collateralization requirements, the Company is subject to various
other  covenants in the agreements  evidencing its  indebtedness,  including the
maintenance of specified  amounts of equity.  At March 31, 1999 and at April 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.  There
can be no  assurance  that  additional  operating  losses will not result in the
Company's violation of its financial and non-financial  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. 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 assurance 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.

                                       39
<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.  The project plan is divided into six
phases: identification, evaluation, remediation, validation, risk assessment and
contingency  planning.  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.

         As part of the identification and evaluation phases of the project, the
Company has documented  critical operating  functions within each business unit,
as well as strategic  third-party and vendor  relationships.  OCN has retained a
business  continuity  expert to prepare  contingency  plans and assist  with the
testing and  validation  of these  plans.  OCN expects to complete its Year 2000
risks assessment and contingency planning efforts during the first half of 1999.
The cost of OCN's Year 2000 project,  which is budgeted at $2.0 million, will be
borne by OCN. The Company does not expect to incur any costs in connection  with
achieving Year 2000  compliance.  Until the risk assessment  phase is completed,
the Company will not know the complete extent of the risks  associated with Year
2000 issues, including an analysis of the most reasonable likely worst case Year
2000  scenario,  nor can the Company  prepare a  contingency  plan. As a result,
neither is ready at this time.

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  ended  March  31,  1999 was  ($0.4)  million
compared to $3.8 million for the comparable quarter in 1998.

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

                                                         For the Three Months
                                                           Ended March 31,
                                                  ----------------------------------
                                                      1999                  1998
                                                  -------------         ------------
                                                        (Dollars in Thousands)
<S>                                               <C>                   <C>          
  Net income.................................     $        (784)        $    (10,504)
     Depreciation and amortization...........             1,194                  304
     Loss on sale of IO portfolio............                --               13,958
     Gain on sale of securities..............              (851)                  --
                                                  -------------         ------------
  FFO........................................     $        (441)        $      3,758
                                                  =============         ============
</TABLE>

                                       40

<PAGE>


ITEM 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FIANANCIAL  CONDITION  AND
         RESULTS OF OPREATIONS
================================================================================

REIT STATUS

         The Company has  qualified  and intends to continue to qualify  through
calendar 1998 (but not  thereafter)  as a REIT under Sections 856 through 860 of
Code. Qualification for treatment as a REIT requires the Company to meet certain
criteria,  including certain requirements regarding the nature of its ownership,
assets,  income,  and distributions of taxable income. A REIT generally will not
be subject to federal  income  taxation  on that  portion of its income  that is
distributed  to its  shareholders  if it distributes at least 95% of its taxable
income and meets certain other income and asset tests. The Company has until the
filing of its tax  return to satisfy  the  distribution  requirement.  Since the
Company plans to distribute  100% of its taxable  income,  no provision has been
made for  federal  income  taxes for the  Company  and its  subsidiaries  in the
accompanying  Consolidated Financial Statements.  At March 31, 1999, the Company
had  not  declared  the  final  1998  dividend  to  meet  the  95%  distribution
requirement,  which is expected to be approximately  $15.5 million, or $0.82 per
share.

         On April 16, 1999, the Company announced the receipt of a proposal from
OCN  regarding a possible  business  combination  between them. If this business
combination is  consummated,  the Company will no longer qualify as a REIT under
the  provisions  of the Code,  which  requires a REIT to be owned by 100 or more
persons.  If the Company fails to qualify as a REIT, the Company will be subject
to tax (including any applicable  alternative minimum tax) on its taxable income
at regular corporate rates. See "Recent Developments" above.

         Because the Special  Committee of the Board is  investigating a variety
of strategic  alternatives in addition to a business combination with OCN, there
can be no assurance that if a business combination is effected, the Company will
cease to be a REIT.


RISK OF LOSS OF INVESTMENT COMPANY ACT EXEMPTION

         The  Company  believes  that it is not,  and  intends  to  conduct  its
operations  so as not to become,  regulated as an  investment  company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). Under
the Investment  Company Act, an investment  company is required to register with
the Commission and is subject to extensive,  restrictive and potentially adverse
regulations.  The Investment  Company Act exempts  entities,  however,  that are
"primarily  engaged  in  the  business  of  purchasing  or  otherwise  acquiring
mortgages  and  other  liens  on and  interests  in  real  estate"  ("Qualifying
Interests").  Under current  interpretations  by the staff of the Securities and
Exchange Commission (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 March 31, 1999, the Company believes that its Qualifying  Interests,
including  subordinate  and  residual  interests,  comprised  over  84%  of  the
Company's total assets and over 90% 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.

                                       41

<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 March 31, 1999.  Actual results could differ
significantly from those estimated in the table.

                                       42
<PAGE>

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

<TABLE>
<CAPTION>

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

<S>    <C>                                    <C>                              <C>   
      -400 Basis Points                       (17.25)%                         18.61%
      -300 Basis Points                       (12.94)                          13.57
      -200 Basis Points                        (8.63)                           8.27
      -100 Basis Points                        (4.31)                           2.95
     Base Interest Rate                            0                               0
      +100 Basis Points                         4.31                           (2.73)
      +200 Basis Points                         8.63                           (6.13)
      +300 Basis Points                        12.94                           (8.92)
      +400 Basis Points                        17.25                          (11.90)
</TABLE>

(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 March 31, 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.

                                       43

<PAGE>

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

         The following  table sets forth the estimated  maturity or repricing of
the Company's interest-earning assets and interest-bearing  liabilities at March
31, 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>

                                                                                      March 31, 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 and repurchase                                                             
         Agreements.................................   $     57,606    $         --    $         --      $       --   $     57,606
       Securities available for sale................         13,135          37,265          75,492         190,307        316,199
       Loan portfolio, net (1)......................         46,321          28,177           1,164           1,236         76,898
       Match funded loan agreements.................         28,265          57,866          39,581          28,452        154,164
       Discount loan portfolio, net (1).............             --           5,618              --              --          5,618
                                                       ------------    ------------    ------------      ----------     ----------
         Total rate-sensitive assets................        145,327         128,926         116,237         219,995        610,485
                                                       ------------    ------------    ------------      ----------     ----------
     Rate-Sensitive Liabilities:
       Securities sold under agreements                 
         To repurchase..............................        113,991              --              --              --        113,991
       Bonds-match funded loan agreements...........        143,298              --              --              --        143,298
       Obligations outstanding under lines of credit        184,771              --              --              --        184,771
       Notes, debentures and other
        interest-bearing obligations................             --              --              --         143,000        143,000
                                                       ------------    ------------    ------------      ----------     ----------
         Total rate-sensitive liabilities...........        442,060              --              --         143,000        585,060
       Interest rate sensitivity gap before
         Off-balance sheet financial instruments....       (296,733)        128,926         116,237          76,995         25,425
     Off-Balance Sheet Financial Instruments:
       Interest rate swaps..........................        200,780              --         (92,000)       (108,780)            --
                                                       ------------    ------------    ------------      ----------     ----------
     Interest rate sensitivity gap..................        (95,953)        128,926          24,237         (31,785)    $   25,425
                                                       ------------    ------------    ------------      ----------     ----------
     Cumulative interest rate sensitivity gap.......   $    (95,953)   $     32,973    $     57,210      $   25,425
                                                       ============    ============    ============      ==========
     Cumulative interest rate sensitivity gap as a
       percentage of total rate-sensitive assets....        (15.72%)          5.40%           9.37%           4.16%
</TABLE>

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

         As of March 31,  1999,  the  cumulative  volume of assets  maturing  or
repricing  within one year exceeded  liabilities  by $33.0  million,  or 5.4% of
assets,  implying moderate  current-year  income sensitivity to movements in the
level of interest rates.

                                       44

<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 "BELIEVE" "COMMITMENT,"  "CONTINUE," "EXPECT," "FORESEE," "MAY," "PLAN,"
"WILL," 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.

                                       45

<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 (3)

                  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
                           (2)

                  10.1     First Amended and Restated Management Agreement (4)

                  10.2     Form of Registration Rights Agreement (1)

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

                  10.4     Form of Stock Option Plan (1)

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

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

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

                  27       Financial  Data  Schedule  for the period ended March
                           31, 1998 (3)

                  99.1     Investment Guidelines (4)

                  99.2     Risk Factors (3)

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

                  (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
                           Registration   Statement   on  Form  S-4   (File  No.
                           333-64047),  as amended, as declared effective by the
                           Commission on February 12, 1999.


                                       46
<PAGE>

                  (3)      Incorporated  by  reference to the  Company's  Annual
                           Report on Form 10-K for the year ended  December  31,
                           1998.

                  (4)      Incorporated by reference to the Company's  Quarterly
                           Report on Form 10-Q for the  quarterly  period  ended
                           June 30, 1998.

         (b)      Reports on Form 8-K filed  during the quarter  ended March 31,
                  1999.

                  (1)      A Form 8-K/A on January  28,  1999,  which  contained
                           Financial  Statements  related  to  certain  acquired
                           properties.

                  (2)      A Form 8-K filed on February 1, 1999, which contained
                           a news release  announcing  the  Company's  financial
                           results for the three months ended December 31, 1998.

                                       47

<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:  May 17, 1999


                                       48