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, 1998

                                       OR

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


                          Commission File No. 000-22389

                          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 May 12, 1998: 18,965,000 shares.

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                                    FORM 10-Q

<TABLE>
<CAPTION>

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


PART I - FINANCIAL INFORMATION                                                                      PAGE

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

         Consolidated Statement of Financial Condition
         at March 31, 1998 and December 31, 1997..............................................        3

         Consolidated Statement of Operations for the three months ended March 31, 1998.......        4

         Consolidated Statement of Changes in Shareholders' Equity for the three months
         ended March 31, 1998 and for the period from May 14, 1997 to December 31, 1997.......        5

         Consolidated Statement of Cash Flows for the three months ended March 31, 1998.......        6

         Notes to Consolidated Financial Statements...........................................        7

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................................       10

Item 3   Quantitative and Qualitative Disclosures About Market Risk ..........................       20

PART II - OTHER INFORMATION

Item 2.  Changes in Securities................................................................       21

Item 6.  Exhibits and Reports on Form 8-K.....................................................       21

Signature.....................................................................................       23

</TABLE>


                                       2

<PAGE>
<TABLE>
<CAPTION>
                                     PART I - FINANCIAL INFORMATION

ITEM 1.  INTERIM FINANCIAL STATEMENTS (UNAUDITED)

                                      OCWEN ASSET INVESTMENT CORP.
                             CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                     March 31,            December 31,
                                                                       1998                   1997
                                                                   -------------         -------------
<S>                                                                <C>                   <C>          
ASSETS:
Cash and amounts due from depository institutions ..............   $     373,097         $     331,047
Interest bearing deposits ......................................       7,236,506            48,346,076
Securities held for trading ....................................      42,545,318                    --
Securities available for sale, at market value .................     157,991,828           146,026,907
Loan portfolio, net ............................................     144,604,936            15,831,479
Discount loan portfolio, net ...................................      27,108,120            26,978,888
Investment in real estate, net .................................      58,865,764            45,430,039
Principal and interest receivable ..............................       5,082,838             2,518,272
Deposits on pending asset acquisitions .........................       3,003,500             1,000,000
Other assets ...................................................         913,363             1,540,633
                                                                   -------------         -------------
                                                                   $ 447,725,270         $ 288,003,341
                                                                   =============         =============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES:
  Securities sold under agreements to repurchase ...............   $  85,274,000         $          --
  Obligation outstanding under line of credit ..................      81,890,207                    --
  Dividends and distributions payable ..........................       4,825,000             7,458,750
  Accrued expenses, payables and other liabilities .............       5,624,848             6,344,783
                                                                   -------------         -------------
                                                                     177,614,055            13,803,533
                                                                   -------------         -------------

Minority interest ..............................................       5,753,797             2,941,541
                                                                   -------------         -------------

COMMITMENTS AND CONTINGENCIES (NOTE 7)

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;
     19,125,000 shares issued; 18,965,000 shares outstanding ...         191,250               191,250
  Additional paid-in capital ...................................     283,496,750           283,496,750
  Distributions in excess of earnings ..........................     (17,352,824)           (2,107,331)
  Unrealized gain (loss) on securities available for sale ......       1,016,754            (7,327,890)
  Treasury stock at cost (160,000 shares) ......................      (2,994,512)           (2,994,512)
                                                                   -------------         -------------
     Total shareholders' equity ................................     264,357,418           271,258,267
                                                                   -------------         -------------
                                                                   $ 447,725,270         $ 288,003,341
                                                                   =============         =============

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

                                                   3
</TABLE>
<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998

Interest income:
  Repurchase agreements and interest bearing deposits .........   $    198,138
  Securities held for trading .................................     (2,637,259)
  Securities available for sale ...............................      4,648,582
  Loans .......................................................      1,240,807
  Discount loans ..............................................        902,777
                                                                  ------------
                                                                     4,353,045
                                                                  ------------
Interest expense:
  Securities sold under agreements to repurchase ..............        655,001
  Obligations outstanding under lines of credit ...............         28,548
  Other .......................................................         10,268
                                                                  ------------
                                                                       693,817
                                                                  ------------

  Net interest income before provision for loan losses ........      3,659,228
Provision for loan losses .....................................        105,073
                                                                  ------------
  Net interest income after provision for loan losses .........      3,554,155
                                                                  ------------

Operating income:
  Real estate investments, net ................................        796,104
  Other .......................................................          7,857
                                                                  ------------
                                                                       803,961
                                                                  ------------

Operating expenses:
  Management fees .............................................        828,881
  Due diligence expenses ......................................        192,689
  Foreign currency (gain) loss ................................       (116,953)
  Other .......................................................        189,655
                                                                  ------------
                                                                     1,094,272
                                                                  ------------

Loss on securities held for trading ...........................    (13,957,628)
                                                                  ------------

  (Loss) income before minority interest ......................    (10,693,784)
Minority interest in net loss (income) of 
  operating partnership .......................................        189,542
                                                                  ------------
     Net (loss) income ........................................   $(10,504,242)
                                                                  ============

Earnings per share:
     Basic ....................................................   $      (0.55)
                                                                  ============
     Diluted ..................................................   $      (0.54)
                                                                  ============


Weighted average shares outstanding:
     Basic ....................................................     18,965,000
                                                                  ============
     Diluted ..................................................     19,280,848
                                                                  ============

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

                                       4
<PAGE>
<TABLE>
<CAPTION>


                                                    OCWEN ASSET INVESTMENT CORP.
                                      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                              FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                        AND FOR THE PERIOD MAY 14, 1997 TO DECEMBER 31, 1997

                                                                                                         Unrealized
                                                                                                         gain(loss)
                                                                                                             on
                                            Common Stock                                 Distributions   securities
                                     -----------------------  Treasury     Additional      in excess     available
                                        Shares      Amount      stock    paid-in-capital  of earnings     for sale       Total
                                     -----------  ---------- ----------- --------------- -------------  -----------  -------------
<S>                                   <C>         <C>        <C>          <C>            <C>            <C>          <C>          
Issuance of common stock ...........  19,125,000  $  191,250  $       --  $ 283,496,750  $          --  $        --  $ 283,688,000

Repurchase of common stock .........    (160,000)         --  (2,994,512)            --             --           --     (2,994,512)

Net income .........................          --          --          --             --     11,791,518           --     11,791,518

Dividends ..........................          --          --          --             --    (13,898,849)          --    (13,898,849)

Change in unrealized gain (loss)
  on securities available for sale..          --          --          --             --             --   (7,327,890)    (7,327,890)
                                     -----------  ---------- -----------  -------------  -------------  -----------  -------------

Balances at December 31, 1997 ......  18,965,000     191,250  (2,994,512)   283,496,750     (2,107,331)  (7,327,890)   271,258,267

Net loss ...........................          --          --          --             --    (10,504,242)          --    (10,504,242)

Dividends ..........................          --          --          --             --     (4,741,251)          --     (4,741,251)

Change in unrealized gain (loss)
  on securities available for sale..          --          --          --             --             --    8,344,644      8,344,644
                                     -----------  ---------- -----------  -------------  -------------  -----------  -------------

Balances at March 31, 1998 .........  18,965,000  $  191,250 $(2,994,512) $ 283,496,750  $ (17,352,824) $ 1,016,754  $ 264,357,418
                                     ===========  ========== ===========  =============  =============  ===========  =============


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

                                                                 5

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                            OCWEN ASSET INVESTMENT CORP.
                        CONSOLIDATED STATEMENT OF CASH FLOWS
                      FOR THE THREE MONTHS ENDED MARCH 31, 1998

<S>                                                                  <C>           
Cash flows from operating activities:
   Net loss .......................................................   $ (10,504,242)
     Adjustments to reconcile net income to net cash provided by
     operating activities:
       Premium amortization (discount accretion), net .............       8,434,965
       Depreciation ...............................................         304,437
       Foreign exchange gain ......................................        (116,953)
       Provision for loan losses ..................................         105,073
       Loss on securities held for trading ........................      13,957,628
       Increase in interest receivable ............................      (2,564,566)
       Decrease in other assets ...................................         627,270
       Decrease in accrued expenses, payables and other liabilities        (719,935)
       Minority interest in net loss of operating partnership .....        (189,542)
                                                                      -------------
Net cash provided by operating activities .........................       9,334,135
                                                                      -------------
Cash flows from investing activities:
   Purchase of securities available for sale ......................     (72,771,240)
   Maturities and principal payments received on securities
     available for sale ...........................................       4,003,330
   Purchase of loans ..............................................    (129,054,935)
   Principal payments received from discount loans ................           6,915
   Principal payments received from loans .........................         366,932
   Investment in real estate ......................................     (13,740,162)
   Deposits on pending asset acquisitions .........................      (2,003,500)
                                                                      -------------
Net cash used by investing activities .............................    (213,192,660)
                                                                      -------------
Cash flows from financing activities:
   Dividend payments on common stock ..............................      (7,458,750)
   Redemption of shares ...........................................      (3,085,548)
   Proceeds from sale of operating partnership units ..............       3,085,548
   Issuance of shares .............................................       3,085,548
   Increase in securities sold under agreements to repurchase .....      85,274,000
   Increase in obligations outstanding under lines of credit ......      81,890,207
                                                                      -------------
Net cash provided by financing activities .........................     162,791,005
                                                                      -------------

Net decrease in cash and cash equivalents .........................     (41,067,520)
Cash and cash equivalents at beginning of period ..................      48,677,123
                                                                      -------------
Cash and cash equivalents at end of period ........................   $   7,609,603
                                                                      =============
Reconciliation of cash and cash equivalents at end of period:
   Cash and amounts due from depository institutions ..............         373,097
   Interest bearing deposits ......................................       7,236,506
                                                                      -------------
     Total ........................................................   $   7,609,603
                                                                      =============
Supplemental schedule of non-cash financing activities:
   Common stock dividends and distributions declared but not paid..   $   4,825,000
                                                                      =============

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

                                               6
<PAGE>

ITEM 2.  OCWEN ASSET INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         MARCH 31, 1998


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

NOTE 1   BASIS OF PRESENTATION

         The accompanying  unaudited consolidated financial statements have been
prepared in conformity  with the  instructions to Form 10-Q and Article 10, Rule
10-01 of Regulation S-X for interim financial statements.  Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting   principles   ("GAAP")  for  complete  financial   statements.   The
consolidated financial statements include the accounts of Ocwen Asset Investment
Corp.  ("OAC" or the  "Company")  and its  subsidiaries.  OAC directly  owns two
qualified  real estate  investment  trust ("REIT")  subsidiaries,  Ocwen General
Partner,  Inc. ("General Partner") and Ocwen Limited,  Inc. ("Limited Partner"),
among  others.   General   Partner  and  Limited  Partner  own  1%  and  97.26%,
respectively of Ocwen Partnership, L.P. ("Operating Partnership").  The minority
interest at March 31, 1998  represents a 1.74% interest  (335,000  units) in the
Operating  Partnership  held by Investors  Mortgage  Insurance  Holding  Company
("IMI"), a wholly owned subsidiary of Ocwen Financial Corporation ("Ocwen"). IMI
also owns 1,540,000 shares, or 8.12%, of the Company's outstanding common stock.

         In the opinion of management,  the  accompanying  financial  statements
contain all adjustments,  consisting of normal and recurring accruals, necessary
for a fair presentation of the Company's  financial  condition at March 31, 1998
and December 31, 1997,  the results of its operations for the three months ended
March 31, 1998, the changes in  shareholders'  equity for the three month period
ended March 31,  1998 and for the period May 14,  1997 to December  31, 1997 and
its cash flows for the three months ended March 31, 1998.  Operating results for
the period ended March 31, 1998 are not  necessarily  indicative  of the results
that may be  expected  for any other  interim  periods or the entire  year ended
December 31, 1998.

         In preparing  the  consolidated  financial  statements,  management  is
required to make estimates and assumptions  that affect the reported  amounts of
assets and liabilities at the dates of the statements of financial condition and
revenues and expenses for the periods covered.  Actual results could differ from
those estimates and assumptions.

NOTE 2   ORGANIZATION AND RELATIONSHIPS

         OAC 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,  at a price of  $16.00  per  share  (before
underwriting and offering expenses), and commenced operations thereon.

         The Company has entered into a management  agreement with Ocwen Capital
Corporation  ("OCC"),  a wholly owned subsidiary of Ocwen Financial  Corporation
("Ocwen"), 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.  OCC has 1,912,500 options (25% of which vest each
year over the next four years) to  purchase,  at the  election  of the  Company,
either shares of the Company or an  equivalent  number of units in the Operating
Partnership  at an exercise  price of $16.00 per share.  For its  services,  OCC
receives a base management fee of 1% per annum of average  invested  assets,  as
defined  in the  related  agreement,  payable  quarterly.  In  addition,  OCC is
entitled  to receive  incentive  compensation  in an amount  equal to 25% of the
dollar  amount by which Funds From  Operations  ("FFO"),  as  adjusted,  exceeds
certain defined levels.

                                       7

<PAGE>

ITEM 2.  OCWEN ASSET INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         MARCH 31, 1998

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

NOTE 3   RECENTLY ISSUED ACCOUNTING STANDARDS

         In February  1997,  the FASB issued  Statement of Financial  Accounting
Standards  ("SFAS") No. 128,  "Earnings per Share." SFAS No. 128  simplifies the
standards found in APB No. 15 for computing earnings per share ("EPS") and makes
them comparable to international standards.  Under SFAS No. 128, OAC is required
to  present  both  basic  and  diluted  EPS on the  face  of its  statements  of
operations.  Basic EPS,  which  replaces  primary EPS required by APB No. 15 for
entities with complex capital structures,  excludes common stock equivalents and
is  computed  by  dividing  income  available  to  common  stockholders  by  the
weighted-average number of common shares outstanding for the period. Diluted EPS
gives  effect to all  dilutive  potential  common  shares that were  outstanding
during the period.  SFAS No. 128 is effective for financial  statements for both
interim  and  annual  periods  ending  after  December  15,  1997  with  earlier
application not permitted.  The Company adopted SFAS No. 128 effective  December
31, 1997.

         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income." SFAS No. 130 requires the inclusion of comprehensive  income, either in
a  separate  statement  for  comprehensive  income,  or as  part  of a  combined
statement of income and  comprehensive  income in a full-set of  general-purpose
financial statements. Comprehensive income is defined as the change in equity of
a business  enterprise  during a period from  transactions  and other events and
circumstances,  excluding those resulting from investments by and  distributions
to  owners.  SFAS No.  130  requires  that  comprehensive  income  be  presented
beginning  with net  income,  adding the  elements of  comprehensive  income not
included in the determination of net income, to arrive at comprehensive  income.
SFAS No. 130 also requires that an enterprise display the accumulated balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
No. 130 is effective for the Company's  fiscal year  beginning  January 1, 1998.
SFAS No. 130 requires the presentation of information  already  contained in the
Company's  financial  statements  and  therefore  did not have an  impact on the
Company's financial position or results of operations upon adoption.

        In June 1997,  the FASB also  issued SFAS No.  131,  "Disclosures  About
Segments of an Enterprise  and Related  Information."  SFAS No. 131  establishes
standards for the reporting of information  about  operating  segments by public
business  enterprises  in their annual and interim  financial  reports issued to
shareholders.  SFAS No. 131 requires that a public  business  enterprise  report
financial  and  descriptive  information,  including  profit  or  loss,  certain
specific  revenue and expense items,  and segment  assets,  about its reportable
operating  segments.   Operating  segments  are  defined  as  components  of  an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision-maker  in deciding how to
allocate resources and in assessing  performance.  SFAS No. 131 is effective for
the Company's  financial  statements  for periods  beginning  after December 15,
1997.  SFAS No. 131 is a disclosure  requirement  and  therefore did not have an
effect on the  Company's  financial  position  or  results  of  operations  upon
adoption.

NOTE 4   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.

NOTE 5   COMPREHENSIVE INCOME

         Comprehensive  income is  defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances,
excluding those resulting from investments by and distributions to owners.  SFAS
No. 130  requires  that  comprehensive  income be presented  beginning  with net
income,  adding  the  elements  of  comprehensive  income  not  included  in the
determination of net income,

                                       8
<PAGE>

ITEM 2.  OCWEN ASSET INVESTMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         MARCH 31, 1998

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

to arrive at  comprehensive  income.  Comprehensive  income for the three months
ended March 31, 1998 amounts to a loss of $2.2 million.

NOTE 6   INTEREST RATE RISK MANAGEMENT INSTRUMENTS

         In order to  match-fund  the  Company's  asset  base  with  anticipated
borrowings and thereby  minimize the impact from changes in net interest  income
due to changes in 1-month London Interbank  Offered Rate ("LIBOR"),  the Company
has entered into swaps.  Under 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
amount.  The terms of the swaps  provide  for the  Company to receive a floating
rate of interest  equal to LIBOR and to pay fixed interest  rates.  The notional
amount of the outstanding swap is amortized  (i.e.,  reduced) monthly based upon
estimated  prepayment  rates of the mortgages  underlying the  securities  being
hedged.  The terms of the  outstanding  and  committed  swaps at March 31,  1998
follow (Dollars in Thousands):
<TABLE>
<CAPTION>

                     Notional     LIBOR                  Floating Rate at
    Maturity          Amount      Index     Fixed Rate    End of Period      Fair Value
    --------         --------     -----     ----------   ----------------    ----------
<S>   <C>             <C>         <C>           <C>            <C>            <C>      
      2003           $100,000     1-month       5.75%          5.68%          $     900
</TABLE>

         The  1-month  LIBOR  was  5.68% on March  31,  1998.  The  terms of the
committed swaps at March 31, 1998 follow (Dollars in Thousands):
<TABLE>
<CAPTION>

                                Notional      LIBOR
    Effective     Maturity       Amount       Index       Fixed Rate     Fair Value
    ---------     --------      --------      -----       ----------     ----------
<S>    <C>          <C>       <C>            <C>            <C>           <C>       
       4/1          2001      $   17,000     1-month        6.00%         $     (44)
       4/2          2001          75,000     1-month        5.99%         $      93
       4/1          2002           8,780     1-month        6.04%         $     (31)
</TABLE>

NOTE 7   COMMITMENTS

         At March 31, 1998,  outstanding  commitments totaled $147.8 million and
included $80.4 million  related to the  acquisition of two residual  securities,
$34.6  million   related  to  the   origination  of  a  commercial  real  estate
construction  loan,  and $32.8  million of  subordinate  interests in commercial
mortgage-backed securities.

         Each of these  commitments  is subject to  various  closing  conditions
including, but not limited to, completion of satisfactory due diligence efforts,
the negotiation of definitive  purchase and sales agreements  and/or  conditions
the borrowers or sellers must satisfy prior to OAC funding the transactions.

NOTE 8   SHAREHOLDERS' EQUITY

         On February 17, 1998,  the Company sold 175,000  shares of common stock
for cash in an  aggregate  amount  of  approximately  $3.1  million  to  certain
officers and directors of the Company and Ocwen Financial Corporation ("Ocwen").
In connection with this stock issuance, a subsidiary of Ocwen sold a like number
of shares of the  Company's  common  stock to the Company and invested in a like
number of limited  partnership units of the Company's  operating  partnership in
order to comply with the stock ownership restrictions imposed on REITs under the
code.

                                       9
<PAGE>

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

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

GENERAL

         The  Company  is a  Virginia  corporation  that was formed in the first
quarter of 1997, that has elected to be taxed as a real estate  investment trust
("REIT") under the Internal  Revenue Code of 1986, as amended (the "Code"),  and
that specializes in opportunistic real estate investments.

         As of March 31, 1998, OAC's total closed transactions since its initial
public offering,  net of repayments to date, is $511.0 million.  Of this amount,
$432.1  million  had been  funded  and $78.9  million  is to be funded  over the
construction and renovation periods, which range from 6 to 30 months.

        The  following  discussion  of  the  Company's   consolidated  financial
condition,  results from operations,  and capital resources and liquidity should
be read in conjunction with the Interim  Consolidated  Financial  Statements and
related Notes included in Item 1 hereof.

RECENT DEVELOPMENTS

         On April 1, 1998, OAC purchased a $32.8 million subordinate  investment
in the "BB", "B" and unrated  classes of a commercial  mortgage-backed  security
issued in 1995. Ocwen Federal Bank FSB (the "Bank"),  a wholly-owned  subsidiary
of  Ocwen,  is the  special  servicer  of any  loans  which  are 60 days or more
delinquent.

         On April 8, 1998,  the Company  acquired,  an existing  536,000  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 in cash. The
building was purchased from Pacific Resources Development, Inc., an unaffiliated
third party (the  "Seller").  The  purchase  price was  determined  through arms
length negotiations between the Seller and OCC, and the source of funds for this
purchase by OAC was a $75.0 million loan from Salomon  Brothers Realty Corp. and
cash reserves on hand. OAC intends to continue to use the building for rentals.

         On April 24, 1998, OAC acquired securitized mortgage loan residuals for
(pound)33.7  million  (approximately  $55.0 million),  from Cityscape  Financial
Corp.  In addition,  OAC and Ocwen  entered  into an  agreement  for the Bank to
service the securitized mortgage loan residuals.

         On April 30,  1998,  OAC  purchased  a $59.7  million  investment  in a
residual security supported by a pool of 6,946 subprime mortgage loans. The Bank
is the master servicer of the loans.

         On May 1, 1998,  OAC's common stock began trading on the New York Stock
Exchange under the symbol "OAC".  OAC,  which had traded on the NASDAQ  National
Market System under the symbol "OAIC" since May, 1997, was delisted from trading
on NASDAQ on the same date.

         On  May 1,  1998,  OAC  purchased  a  $13.25  million  investment  in a
subordinate  security  supported  by a pool of 7,474  single-family  residential
mortgages the Bank is the master servicer of the loans.

         On May 7, 1998,  OAC sold its entire  portfolio  of  interest-only  and
inverse  interest-only  securities  (together,  "IOs")  at  amortized  cost plus
accrued  interest  for cash in the amount of $54.6  million to William C. Erbey,
Chairman  and Chief  Executive  Officer of OAC, and Barry N. Wish, a director of
Ocwen.  The amortized  cost of the IO portfolio at April 30, 1998,  exceeded the
market value by approximately $14.0 million. Because the IOs are being sold to a
principal  shareholder and another related party,  the amount by which amortized
cost  exceeds  market  value has been  recorded as a charge to earnings  for the
quarter ended March 31, 1998, in accordance with generally  accepted  accounting
principles.  The cash  received in excess of market  value will be  reflected on
OAC's books as a capital contribution,  effectively  reestablishing OAC's equity
position. The charge with respect to the IO portfolio

                                       10
<PAGE>

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

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

in the month of April will impact FFO by approximately $0.01 to $0.03 per share.
The sale of the IO  portfolio  is expected  to  generate a capital  loss for tax
purposes that will be deductible in future  periods  against  long-term  capital
gains.

         On May 7, 1998, OAC's operating partnership issued 1,495,436 additional
partnership  units  to IMI in  exchange  for a  capital  contribution  of  $24.9
million.

FUNDS FROM OPERATIONS

         Most  industry  analysts,   including  the  Company,  consider  FFO  an
appropriate  supplementary  measure of operating performance of a REIT. However,
FFO does not represent cash provided by operating  activities in accordance with
generally accepted  accounting  principles ("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.  In 1995,  the National
Association  of  Real  Estate  Investment  Trusts  ("NAREIT")   established  new
guidelines  clarifying its definition of FFO and requested that REITs adopt this
new  definition  beginning in 1996.  The following  table computes FFO under the
NAREIT definition.  FFO consists of net income applicable to common shareholders
(computed in accordance with generally accepted accounting principles) 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.

         For the  quarter  ended  March 31,  1998,  the  Company's  FFO was $3.8
million or $0.19 per diluted  weighted average common share. The following table
sets forth the calculation of the Company's FFO for the period.

                                                         For the Three Months
                                                         Ended March 31, 1998
                                                        ----------------------
                                                        (Dollars in Thousands)

Net income..............................................      $     (10,504)
Add: Real estate related depreciation...................                304
     Non-recurring loss on IO portfolio.................             13,958
                                                              -------------
FFO ....................................................      $       3,758
                                                              =============

Diluted weighted average shares outstanding.............         19,280,848
                                                              =============

RESULTS OF OPERATIONS

         The Company  completed an initial  public  offering on May 14, 1997 and
commenced  operations  thereon.  The Company incurred a net loss for the quarter
ended March 31, 1998 of $10.5  million,  or $0.54 per diluted  weighted  average
common  share.   The  loss  for  the  first  quarter  was   attributable   to  a
mark-to-market loss of $14.0 million on OAC's portfolio of IOs held for trading,
in addition to write-downs on the IOs totaling $3.1 million for the quarter. See
also "Recent Developments" in this Item 2.

                                       11

<PAGE>

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

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

         The Company is engaged in a variety of real estate and mortgage-related
investment  activities,  investing  primarily  in  mortgage-related  securities,
commercial real estate, commercial discount loans and commercial and residential
loans. The following table presents the  contribution by investment  activity to
the Company's net income before minority interest as of March 31, 1998.

(Dollars in Thousands)                                  Amount             %
---------------------------------------------------  --------------     -------
Mortgage-related securities and other
  short-term investments...........................  $    (12,864)      (120)%
Commercial real estate.............................           792          7
Commercial discount loans..........................           562          5
Commercial and residential loans...................           816          8
                                                     ------------        ---
                                                     $    (10,694)       100%
                                                     ============        ===

         INTEREST INCOME.  The following table sets forth information  regarding
the total  amount of  income  from  interest-earning  assets  and the  resultant
average  yields.  Information  is based on daily  average  balances  during  the
reported period.
<TABLE>
<CAPTION>

                                                              For the Three Months
                                                              Ended March 31, 1998
                                                           --------------------------
                                                            Average         Interest       Annualized
(Dollars in Thousands)                                      Balance          Income          Yield
-------------------------------------------------------    ----------      ----------      ----------
<S>                                                        <C>             <C>                 <C>  
Repurchase agreements and interest-bearing deposits...     $   14,035      $      198          5.71%
Securities held for trading...........................         53,950          (2,637)       (19.82)
Securities available for sale.........................        133,328           4,649         14.14
Loan portfolio........................................         47,691           1,241         10.55
Discount loan portfolio...............................         26,929             902        *13.60
                                                           ----------      ----------
   Total..............................................     $  275,933      $    4,353        * 6.40%
                                                           ==========      ==========
</TABLE>

* As revised

         The  negative  yield on  securities  held  for  trading  was  primarily
attributable  to declining  interest rates and resulted in increased  prepayment
speeds,  and  permanent  write-downs  on the IOs  totaling  $3.1 million for the
quarter.  The decline in value of the IO portfolio during the quarter stems from
increased  prepayments of the underlying  mortgages as a result of a decrease in
market interest rates. Subsequent to March 31, 1998, the Company sold its entire
IO portfolio to William C. Erbey,  Chairman and Chief Executive  Officer of OAC,
and Barry N. Wish, a director of Ocwen. See "Recent Developments" above.

         INTEREST EXPENSE. The following table sets forth information  regarding
the  total  amount  of  interest   expense   associated  with   interest-bearing
liabilities  and the  resultant  average  rates.  Information  is based on daily
average balances during the reported period.

<TABLE>
<CAPTION>

                                                              For the Three Months
                                                              Ended March 31, 1998
                                                           --------------------------
                                                            Average         Interest       Annualized
(Dollars in Thousands)                                      Balance         Expense          Yield
-------------------------------------------------------    ----------      ----------      ----------
<S>                                                        <C>             <C>                 <C>  
Securities sold under agreements to 
  repurchase and other................................     $   39,577      $      665          6.81%
Obligation outstanding under line of credit...........          1,820              29          6.36
                                                           ----------      ----------
   Total..............................................     $   41,397      $      694          6.79%
                                                           ==========      ==========
</TABLE>

         OPERATING INCOME.  Operating income is comprised  primarily of $796,000
in income  earned on  investments  in real estate  during the three months ended
March 31, 1998. Such income represents rental income,  net of operating expenses
and  depreciation,  generated  from the  Company's  investment  in three  office
buildings located in California and a retail shopping center located in Florida.

                                       12
<PAGE>

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

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

         OPERATING  EXPENSES.  Management  fees totaling  $829,000 for the first
quarter of 1998 were comprised  solely of the base  management fee (1% per annum
of average  invested assets) earned by OCC pursuant to the terms of a management
agreement entered into between the Company and Ocwen. 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.  See Note 1 to the Interim
Consolidated  Financial  Statements included in Item 1 hereof. In addition,  the
Company incurred due diligence expenses of $193,000 in connection with its asset
acquisitions.  Foreign  currency  gain for the period of $117,000 is a result of
the  declining  U.S.  dollar  versus  the  Canadian  dollar  and  relates to the
Company's  investment in a Canadian commercial discount loan. See "Discount Loan
Portfolio."  Other  expenses  of  $190,000  were  comprised  of  auditing  fees,
insurance premiums and other miscellaneous expenses.

CHANGES IN FINANCIAL CONDITION

         GENERAL.  From  December  31,  1997 to March  31,  1998,  total  assets
increased  $159.7 million or 55% to $447.7 million.  This increase was primarily
due to a $128.8 million increase in the loan portfolio, a $42.5 million increase
in securities held for trading,  a $13.4 million increase in investments in real
estate, and a $12.0 million increase in securities available for sale, offset by
a  $41.1  million  decrease  in  interest-bearing  deposits.  Total  liabilities
increased  $163.8  million  during the  period,  primarily  as a result of $85.3
million of securities  sold under  agreements to repurchase and an $81.9 million
obligation outstanding under a line of credit.

         REPURCHASE AGREEMENTS AND INTEREST-EARNING  DEPOSITS. At March 31, 1998
total interest earning  deposits  amounted to $7.2 million or 2% of total assets
and were  comprised  of deposits at various  banks.  Interest  bearing  deposits
declined by $41.1 million or 85% from  December 31, 1997 to March 31, 1998.  The
change is due to the  reinvestment of cash and cash  equivalents  into long term
assets.

         Although the Company had no repurchase  agreements at March 31, 1998 or
December 31, 1997,  it enters into such  agreements  from time to time. In these
transactions,  the Company purchases securities from a counterparty,  and agrees
to sell the  securities  back to the  counterparty  at a specified  future date.
Repurchase agreements are carried at the amounts at which the securities will be
subsequently  resold to the counterparty plus accrued interest,  as specified in
the respective agreements.  The securities purchased are held in custody for the
benefit of the Company.  All of the  transactions are in United States agency or
investment grade securities.  The Company's  exposure to credit risks associated
with the  non-performance  of  counterparties  in fulfilling  their  contractual
obligations can be directly  impacted by market  fluctuations,  which may impair
the counterparties'  ability to satisfy their obligations.  The Company monitors
the market value of the underlying  securities relative to the amounts due under
the agreements and, when necessary,  requires  prompt  additional  collateral or
reduction in loan balance to ensure that the market value remains  sufficient to
protect itself in the event of default by the counterparty.

         The Company earned  interest income of $198,000 during the three months
ended March 31,  1998,  from its  investment  in interest  bearing  deposits and
repurchase  agreements.  Of such income,  $43,000 was earned from investments in
repurchase agreements.


                                       13
<PAGE>

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

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

         SECURITIES HELD FOR TRADING.  Securities held for trading  purposes are
carried at market value with  unrealized  gains or losses  included in earnings.
The Company's  investment in securities held for trading were  transferred  from
the available for sale category on March 31, 1998 and were comprised entirely of
mortgage-related IOs as follows:
<TABLE>
<CAPTION>

                                                      March 31,         December 31,
                                                        1998                1997
                                                   -------------       -------------
                                                         (Dollars in Thousands)
<S>                                                <C>                 <C>          
Mortgage-related securities:
  Single family residential:
     FHLMC interest only.......................... $      18,797       $          --
     FNMA interest only...........................        22,837                  --
     AAA-rated interest only......................           911                  --
                                                   -------------       -------------
       Total...................................... $      42,545       $          --
                                                   =============       =============
</TABLE>

         Unrealized  losses on the IO portfolio during the first quarter of 1998
amounted  to $14.0  million,  in addition to  permanent  write-downs  on the IOs
totaling $3.1 million for the quarter.  The decline in value of the IO portfolio
during the quarter stems from increased  prepayments of the underlying mortgages
as a result of a decrease in market interest  rates. As noted above,  subsequent
to March  31,  1998 the  Company  sold its  entire  IO  portfolio.  See  "Recent
Developments."

         SECURITIES   AVAILABLE   FOR  SALE.   The   Company's   investment   in
mortgage-related  securities  available for sale of $158.0  million at March 31,
1998  includes  $1.0  million of net  unrealized  gains,  which was  included in
shareholders' equity. The Company's securities available for sale were comprised
of the following at the dates indicated:

<TABLE>
<CAPTION>

                                                      March 31,       December 31,
                                                        1998              1997
                                                   -------------     -------------
                                                         (Dollars in Thousands)
<S>                                                <C>                 <C>          
Mortgage-related securities:
  Single family residential:
     FHLMC interest-only.......................... $          --     $      21,178
     FNMA interest-only...........................            --            22,573
     AAA-rated interest-only......................            --               729
     Subordinates.................................        69,028             9,444
                                                   -------------     -------------
                                                          69,028            53,924
                                                   -------------     -------------

  Multi-family residential and commercial:
     AAA-rated interest-only......................           810               866
     A-rated interest-only........................           455               480
     Non-rated interest-only......................         4,835             4,803
     Subordinates.................................        82,864            85,954
                                                   -------------     -------------
                                                          88,964            92,103
                                                   -------------     -------------

       Total...................................... $     157,992     $     146,027
                                                   =============     =============
</TABLE>

         The increase in securities  available for sale of $12.0 million  during
the quarter ended March 31,1998 is due to purchases of $72.8 million and a $ 8.3
million  increase in unrealized  gains,  offset in part by the transfer of $56.5
million of IOs to the held for trading  category  (see  above),  $4.0 million of
principal payments and maturities, and $8.6 million of net premium amortization.
Purchases  during the quarter include a $51.6 million  investment in subordinate
IOs  supported by a pool of 6,309  subprime  mortgage  loans and an $8.5 million
investment  in  residual  securities  issued from a  securitization  of subprime
mortgage loans.

                                       14
<PAGE>

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

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

         LOAN  PORTFOLIO.  The Company's  investment in loans amounted to $144.6
million at March 31,  1998, a $128.8  million  increase  over the $15.8  million
investment at December 31, 1997. The following  table sets forth the composition
of the Company's loan portfolio by type of loan at the dates indicated:

                                                      March 31      December 31,
                                                        1998            1997
                                                    -----------     -----------
                                                       (Dollars in Thousands)

   Single-family residential......................  $   105,943     $     6,465
   Multi-family residential.......................       61,335           3,455
    Commercial real estate:
      Office......................................       33,057          33,058
      Hotel.......................................       20,952          20,952
                                                    -----------     -----------
       Total loans................................      221,287          63,930
   Deferred origination fees......................        2,348            (459)
   Undisbursed loan proceeds......................      (78,925)        (47,640)
   Allowance for loan losses......................         (105)             --
                                                    -----------     -----------
     Loans, net...................................  $   144,605     $    15,831
                                                    ===========     ===========



                                       15

<PAGE>

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

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

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

                                                  Three Months Ended March 31,
                                                              1998
                                                --------------------------------
                                                    Balance        No. of Loans
                                                -------------     --------------
                                                     (Dollars in thousands)

Balance at beginning of period...............     $    63,930             52
Originations:
   Multi-family loans........................          57,880 (1)          2
Purchases:
   Single family residential loans...........          99,843 (2)        995

Principal repayments.........................            (366)            --
                                                  -----------         ------
   Net increase in loans.....................         157,357            997
                                                  -----------         ------
Balance at end of period.....................     $   221,287          1,049
                                                  ===========         ======

(1)      Originations  of  multi-family  residential  loans  during the  quarter
         include a $30.3 million  commercial  real estate  construction  loan to
         acquire and  convert a 155,000  square  foot  office  building  into 52
         luxury  loft-style  residential  condominiums  with  a  parking  garage
         located in the historic Tribeca area of Manhattan, New York.

(2)      Purchases of single  family  residential  loans during the quarter were
         primarily  comprised  of three pools (923 loans) of  residential  whole
         loans having an unpaid principal balance of $91.8 million.

         The  following  table sets forth  certain  information  relating to the
payment status of loans in the Company's loan portfolio at the dates indicated.

                                                      March 31      December 31,
                                                        1998            1997
                                                    -----------     -----------
                                                       (Dollars in Thousands)

Past due less than 31 days.......................... $   219,324    $   63,661
Past due 31 days to 89 days.........................       1,583            --
Past due 90 days or more............................         380           269
                                                      ----------    ----------
                                                     $   221,287    $   63,930
                                                     ===========    ==========

         DISCOUNT LOAN PORTFOLIO. The following table sets forth the composition
of the Company's discount loan portfolio by type of loan at the dates indicated.


                                                       March 31     December 31,
                                                         1998           1997
                                                     -----------    -----------
                                                        (Dollars in Thousands)

Commercial real estate loans:
   Office........................................... $     9,202    $   11,893
   Retail...........................................      33,510        30,636
                                                      ----------    ----------
     Total unpaid principal balance.................      42,712        42,529
Unaccreted discount.................................     (15,604)      (15,550)
                                                      ----------    ----------
   Discount loans, net.............................. $    27,108    $   26,979
                                                     ===========    ==========

                                       16
<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
payment  status of loans in the Company's  discount loan  portfolio at the dates
indicated.

                                                       March 31     December 31,
                                                         1998           1997
                                                     -----------    ------------
                                                        (Dollars in Thousands)
Past due less than 31 days.........................  $    7,957     $     7,964
Past due 31 days to 89 days........................          --              --
Past due 90 days or more...........................      34,755          34,565
                                                     ----------     -----------
                                                     $   42,712     $    42,529
                                                     ==========     ===========

         ALLOWANCES FOR LOAN LOSSES. 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, 1998,
the Company had provided an allowance for loan losses in the amount of $105,000,
on the loan  portfolio.  At December 31, 1997,  no allowance for loan losses had
been provided.

         INVESTMENT IN REAL ESTATE.  The Company's net investment in real estate
increased to $58.9  million at March 31, 1998 from $45.4 million at December 31,
1998 and is comprised of the following properties:
<TABLE>
<CAPTION>

                                                                                            Acquisition
  Date Acquired    Property             Location              Square Feet   Property Type       Cost
  -------------    --------             --------              -----------   -------------   -----------
<S>                <C>                  <C>                      <C>        <C>             <C> 
    09/03/97       10 U.N. Plaza        San Francisco, CA         68,560    Office Bldg.     $   9,095
    09/23/97       450 Sansome St.      San Francisco, CA        123,099    Office Bldg.        17,251
    11/10/97       Cortez Plaza         Bradenton, FL            289,686    Shopping Ctr.       19,288
    01/23/98       690 Market St. (1)   San Francisco, CA        124,688    Office Bldg.        13,715
                                                                                             ---------
                                                                                                59,349
                                                               Accumulated Depreciation           (483)
                                                                                             ---------
                                                                                             $  58,866
                                                                                             =========
</TABLE>

(1)      The building is 83% leased with 40% of the building becoming  available
         for re-leasing by the end of 1998.

         The Company's current overall strategy with respect to these properties
is to renovate and  reposition the facilities and target full floor tenants with
five to ten year lease terms.  The Company  estimates  that over the next twelve
months it will spend approximately $8.0 million in capital improvements,  tenant
improvements  and leasing  commissions  to  renovate  and  reposition  the above
properties.  Repositioning is intended to result in rents, upon re-leasing, that
are greater than the current rents at the sites.

         SECURITIES SOLD UNDER  AGREEMENTS TO REPURCHASE.  Securities sold under
agreements to repurchase increased to $85.3 million at March 31, 1998 from $0 at
December  31, 1997.  The Company  periodically  enters into sales of  securities
under  agreements  to  repurchase  the  same  securities   (reverse   repurchase
agreements). Fixed coupon reverse repurchase agreements with maturities of three
months or less are treated as  financings,  and the  obligations  to  repurchase
securities  sold are reflected as a liability in the  accompanying  consolidated
statements of financial condition.  All securities underlying reverse repurchase
agreements are reflected as assets in the accompanying  consolidated  statements
of  financial   condition  and  are  held  in  safekeeping  by   broker/dealers.
Mortgage-related  securities  at amortized  cost of $147.4  million and a market
value of $134.8  million were posted as  collateral  for  securities  sold under
agreements to repurchase at March 31, 1998.

         OBLIGATION  OUTSTANDING  UNDER LINE OF CREDIT.  Obligation  outstanding
under a line of credit  amounted to $81.9  million at March 31, 1998 as compared
to $0 at December 31, 1997 and represents  borrowings having a one-year term and
interest  rates that float in  accordance  with a  designated  prime  rate.  See
"Capital Resources and Liquidity."

         MINORITY  INTEREST.  At March 31, 1998,  minority interest totaled $5.8
million and  represents  Ocwen's  ownership  of 335,000  units in the  Operating
Partnership.  On February  17, 1998,  the Company 

                                       17
<PAGE>

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

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

sold  175,000  shares  of  common  stock  for  cash in an  aggregate  amount  of
approximately  $3.1 million to certain officers and directors of the Company and
Ocwen. In connection with this stock issuance,  IMI sold a like number of shares
of the  Company's  common  stock to the Company and invested in a like number of
units in the Operating  Partnership in order to comply with the stock  ownership
restrictions  imposed on real estate investment trusts under the Code. See Notes
1 and 8 to the  Interim  Consolidated  Financial  Statements  included in Item 1
hereof.

         STOCKHOLDERS' EQUITY. Stockholders' equity decreased by $6.9 million to
$264.4  million at March 31, 1998. The decrease in  stockholders'  equity during
this period was  attributable to a net loss of $10.5 million and $4.7 million of
dividends  on common  stock,  offset by an $8.3 million  increase in  unrealized
gains on  securities  available  for sale.  See the  Consolidated  Statement  of
Changes in Stockholders' Equity in the Interim Consolidated Financial Statements
included in Item 1 hereof.

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
consisted of the proceeds from the Company's  initial public offering,  net cash
provided  by  operating  activities,  reverse  repurchase  agreements  and other
secured  borrowings,  maturities and principal  payments on loans and securities
and proceeds from loan resolutions thereof.

         Cash and cash  equivalents  were $7.6  million at March 31,  1998.  The
Company's  operating  activities  provided cash flows of $9.3 million during the
quarter ended March 31, 1998. The Company's investing activities used cash flows
of $213.2  million  during  quarter  ended March 31, 1998.  During the foregoing
period,  cash flows from  investing  activities  were used primarily to purchase
securities  available for sale, loans and commercial real estate.  The Company's
financing  activities  provided cash flows of $162.8  million during the quarter
ended  March 31,  1998 and  consisted  of  proceeds  from  lines of  credit  and
repurchase  agreements  of $167.2  million,  $3.1 million net proceeds  from the
issuance of units, net of $7.5 million of dividends paid during the period.

         The  Company  expects  to meet its  short-term  liquidity  requirements
generally  through its working  capital and net cash  provided by operating  and
financing  activities.  The Company also had $43.1 million  available  under its
existing  line of credit with Merrill Lynch  Mortgage  Capital Inc. at March 31,
1998. Additionally, on April 24, 1998, the Company entered into an agreement for
a line of credit with Greenwich Capital Financial Products Inc. in the principal
amount  of  (pound)19.0   million  ($32.1  million)  to  finance  the  Cityscape
residuals.  The  Company  believes  that  its net  cash  provided  by  operating
activities  will be  sufficient  to allow the Company to make the  distributions
necessary for continued benefit from qualification as a REIT.

         The Company expects to meet certain  long-term  liquidity  requirements
such as property and security  acquisitions  and loan  originations by obtaining
various third-party  borrowings and has entered into discussions with respect to
obtaining such borrowings. Additionally, as discussed above, the Company intends
to execute a  securitization  of its loan  portfolio  and use the  proceeds  for
further  acquisitions.  Further,  as the Company has previously  stated,  it may
consider seeking  additional  sources of equity.  The Company believes that such
new,  as well as its  existing,  sources  of  liquidity,  including  third-party
borrowings  currently being pursued and possible  additional  equity  infusions,
will be adequate to fund planned activities for the foreseeable future, although
there can be no assurances  in this regard.  In the event the Company was unable
to effect such  third-party  borrowings,  securitization,  or additional  equity
infusions,  its liquidity  could be constrained and the impact on its results of
operations, financial condition, and FFO could be significant.

                                       18
<PAGE>

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

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

REIT STATUS

         The Company has  qualified and intends to continue to qualify as a REIT
under Sections 856 through 860 of the Internal Revenue 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 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 percent 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  interim
consolidated  financial  statements.  As taxable income is finalized and the tax
return  is  filed,  an  additional  distribution  may be  required  which may be
significant.  The Company may be subject to tax at normal corporate rates on net
income or capital gains not distributed.

         The  Company  intends  to  conduct  its  business  so as not to  become
regulated as an investment company under the Investment Company Act of 1940 (the
"Investment  Company Act").  The Investment  Company Act exempts  entities that,
directly or through majority-owned  subsidiaries,  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 interpretation
by the staff of the  Securities  and Exchange  Commission  ("SEC"),  in order to
qualify for this exemption,  the Company,  among other things,  must maintain at
least 55% of its assets in  Qualifying  Interests  and also may be  required  to
maintain an additional 25% in Qualifying  Interests or other real estate-related
assets.  Therefore, the type and amount of assets the Company may acquire may be
limited by the Investment Company Act.

FORWARD-LOOKING STATEMENTS

         CERTAIN  STATEMENTS  CONTAINED  HEREIN ARE NOT, AND CERTAIN  STATEMENTS
CONTAINED  IN FUTURE  FILINGS BY THE COMPANY  WITH THE  SECURITIES  AND EXCHANGE
COMMISSION,  IN THE COMPANY'S PRESS RELEASES OR IN THE COMPANY'S OTHER PUBLIC OR
SHAREHOLDER  COMMUNICATIONS,  MAY  NOT BE  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  ACT OF 1934,  AS
AMENDED.   THESE  FORWARD-LOOKING   STATEMENTS,   WHICH  ARE  BASED  ON  VARIOUS
ASSUMPTIONS (SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL),  MAY BE IDENTIFIED
BY REFERENCE TO A FUTURE PERIOD(S) OR BY THE USE OF FORWARD-LOOKING  TERMINOLOGY
SUCH AS "ANTICIPATE," "BELIEVE," "COMMITMENT,"  "CONSIDER," "CONTINUE," "COULD,"
"ENCOURAGE,"   "ESTIMATE,"   "EXPECT,"   "INTEND,"  "MAY,"  "PLAN,"   "PRESENT,"
"PROPOSE," "PROSPECT," "WILL," FUTURE OR CONDITIONAL VERB TENSES, SIMILAR TERMS,
VARIATIONS  ON SUCH TERMS OR  NEGATIVES  OF SUCH  TERMS.  ALTHOUGH  THE  COMPANY
BELIEVES THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS REFLECTED IN SUCH FORWARD
LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCE
THAT THOSE RESULTS OR EXPECTATIONS WILL BE ATTAINED. 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 (PARTICULARLY
IN THE MARKET AREAS WHERE THE COMPANY OPERATES),  GOVERNMENT FISCAL AND MONETARY
POLICIES  (PARTICULARLY  IN  THE  MARKET  AREAS  WHERE  THE  COMPANY  OPERATES),
PREVAILING INTEREST OR CURRENCY EXCHANGE RATES, GOVERNMENT REGULATIONS AFFECTING
REAL  ESTATE  INVESTMENT  TRUSTS,  COMPETITIVE  PRODUCTS  AND  PRICING,  CREDIT,
PREPAYMENT,  BASIS AND ASSET/LIABILITY RISKS, LOAN SERVICING EFFECTIVENESS,  THE
COURSE OF  NEGOTIATIONS  AND THE ABILITY TO REACH  AGREEMENT WITH RESPECT TO THE
MATERIAL  TERMS  OF  ANY  PARTICULAR  TRANSACTION,  SATISFACTORY  DUE  DILIGENCE
RESULTS,  SATISFACTION  OR  FULFILLMENT  OF AGREED UPON TERMS AND  CONDITIONS OF
CLOSING OR PERFORMANCE, THE TIMING OF TRANSACTION CLOSINGS, ACQUISITIONS AND THE
INTEGRATION OF ACQUIRED  BUSINESSES,  THE FINANCIAL AND SECURITIES MARKETS,  THE
AVAILABILITY OF AND COSTS ASSOCIATED WITH OBTAINING  ADEQUATE AND TIMELY SOURCES
OF  LIQUIDITY,  DEPENDENCE  ON  EXISTING  SOURCES OF  FUNDING,  AVAILABILITY  OF
DISCOUNT  LOANS FOR  PURCHASE,  SIZE AND  NATURE  OF THE  SECONDARY  MARKET  FOR
MORTGAGE LOANS AND OF THE MARKET FOR SECURITIZATIONS,  GEOGRAPHIC CONCENTRATIONS
OF ASSETS (TEMPORARY OR OTHERWISE), OTHER FACTORS GENERALLY UNDERSTOOD TO AFFECT
THE REAL  ESTATE  ACQUISITION,  MORTGAGE  AND  LEASING  MARKETS  AND  SECURITIES
INVESTMENTS, AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S REPORTS
AND FILINGS WITH THE SEC, INCLUDING ITS REGISTRATION  STATEMENT ON FORM S-11 AND
PERIODIC  REPORTS ON FORMS 10-Q,  8-K AND 10-K.  THE COMPANY DOES NOT UNDERTAKE,
AND SPECIFICALLY DISCLAIMS ANY OBLIGATION,  TO PUBLICLY RELEASE THE RESULT(S) 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.

                                       19
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

         Information  required  by this Item  appears  in Note 6 to the  Interim
Consolidated Financial Statements included in item 1 hereof, and is incorporated
herein by reference.


                                       20
<PAGE>


                            PART II OTHER INFORMATION


Item 2.  Changes in Securities


         Incorporated  by  reference  herein is Note 8 to the Interim  Financial
Statements  (Unaudited)  included  in Item 1 hereof and  "Changes  in  Financial
Condition-Minority  Interest"  included in Item 2 hereof.  These securities were
issued pursuant to the exemption  provided by Section 4(2) of the Securities Act
of 1933, as amended, and/or Regulation D promulgated thereunder.

Item 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  3.1      Amended and Restated Articles of Incorporation (1)

                  3.2      By laws (1)

                  4.1      Form of Common Stock Certificate (1)

                  10.1     First  Amended  and  Restated  Management   Agreement
                           (filed herewith)

                  10.2     Form of Registration Rights Agreement (1)

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

                  10.4     Form of Stock Option Plan (1)

                  10.5     Purchase and Sale  Agreement  between  Ocwen  Capital
                           Corporation and Pacific Resources  Development,  Inc.
                           as of March 31, 1998 (2).

                  10.6     Assignment and Assumption  Agreement,  dated April 7,
                           1998, by and between Ocwen  Capital  Corporation  and
                           OAIC Bush Street, LLC (2)

                  10.7     Loan  Agreement  between  OAIC Bush  Street,  LLC and
                           Soloman Brothers Realty Corp. as of April 7, 1998 (2)

                  10.8     Loan   Agreement   between  OAIC  and  Merrill  Lynch
                           Mortgage  Capital  Inc.  as of  March  30,1998 (filed
                           herewith)

                  10.9     Loan Agreement  between OAIC and Greenwich  Financial
                           Products Inc. as of April 24, 1998 (filed herewith).

                  27.1     Financial Data Schedule - For the quarter ended March
                           31, 1998

                           (1)   Incorporated  by  reference  to  the  similarly
                           described   exhibit  filed  in  connection  with  the
                           Company's  Registration  Statement on Form S-11 (File
                           No. 333-21965), as amended, declared effective by the
                           Commission on May 14, 1997.

                                       21
<PAGE>

                           (2)   Incorporated  by  reference  to  the  similarly
                           described   exhibit  filed  in  connection  with  the
                           Registrant's  Current  Report on Form  8-K,  as filed
                           with the Commission on April 22, 1998.

         (b)      Reports on Form 8-K filed  during the quarter  ended March 31,
                  1998

                  (1)      A Form 8-K was filed by the  Company on  January  28,
                           1998,  which contained a news release  announcing the
                           Company's  financial  results  for the  three  months
                           ended  December  31, 1997 and the period May 19, 1997
                           to December 31, 1997.

                  (2)      A Form 8-K was filed by the  Company on  February  9,
                           1998,  which contained a news release  announcing the
                           Company's January investment activity.

                  (3)      A Form 8-K was  filed  by the  Company  on March  23,
                           1998,  which contained a news release  announcing the
                           Company's  first  quarter 1998  dividend and February
                           1998 investment activity.

                   (4)     A form 8-K was filed by the  Company  on May  12,1998
                           which   contained  a  news  release   announcing  the
                           Company's  financial  results  for the  three  months
                           ended March 31,1998 the sale of its IO portfolio, and
                           additional capital investments.


                                       22
<PAGE>

                                    SIGNATURE



         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 15, 1998


                                       23