SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
 (Mark One)

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

          For the quarterly period ended December 31, 1998

                                       OR

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

          For the transition period from __________ to __________

                                     1-14074
                            (Commission File Number)


                           ContiFinancial Corporation
             (Exact name of registrant as specified in its charter)

            Delaware                                              13-3852588
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

          277 Park Avenue
         New York, New York                                           10172
(Address of principal executive offices)                           (Zip Code)


Registrant's telephone number, including area code:          (212) 207-2800

                                    no change
              (Former name, former address and former fiscal year,
                         if changed since last report)

     Indicate  by check  mark  whether  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 _____

The Company had 46,749,435 shares of common stock outstanding as of February 11,
1999.



<PAGE>



                           ContiFinancial Corporation

                                Table of Contents


                                     PART I

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>                                                                                                   <C>
Item 1.  Financial Statements (unaudited)
            Consolidated Balance Sheets ............................................................   3
            Consolidated Statements of Income ......................................................   4
            Condensed Consolidated Statements of Cash Flows ........................................   5
            Notes to Unaudited Condensed Consolidated Financial Statements .........................   6
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations
            Discussion of Events During the Three and Nine Months Ended 
                   December 31, 1998 ...............................................................  11
            Selected Financial Information .........................................................  16
            Results of Operations ..................................................................  18
            Gain (Loss) on Sale of Receivables and Excess Spread Receivables .......................  20
            Liquidity and Capital Resources ........................................................  24
            Year 2000 ..............................................................................  26
            Forward-looking Statements .............................................................  29
Item 3.  Quantitative and Qualitative Disclosures About Market Risk ................................  29

                                     PART II

Item 1.  Legal Proceedings .........................................................................  30
Item 6.  Exhibits and Reports on Form 8-K ..........................................................  30

Signatures .........................................................................................  31
</TABLE>


                                       2
<PAGE>



                           CONTIFINANCIAL CORPORATION
                           Consolidated Balance Sheets
                   as of December 31, 1998 and March 31, 1998
                        (in thousands, except share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                                     December 31,        March 31,
                                                                                                         1998               1998
                                                                                                     -----------        -----------
                                            Assets
<S>                                                                                                  <C>                <C>
Cash and cash equivalents ....................................................................       $   110,691        $   173,588
Restricted cash ..............................................................................             2,825              1,147
Securities purchased under agreements to resell ..............................................            75,726            857,649
Receivables held for sale, net:
  Receivables held for sale ..................................................................           942,947            726,990
  Allowance for loan losses ..................................................................            (5,069)            (2,685)
                                                                                                     -----------        -----------
Receivables held for sale, net ...............................................................           937,878            724,305
Other receivables ............................................................................            86,928            117,678
Due from affiliates ..........................................................................           103,085             46,922
Interest-only and residual certificates ......................................................           849,644            648,785
Capitalized servicing rights .................................................................           105,577             74,292
Premises and equipment, net of accumulated depreciation of $12,313
  and $7,951 as of December 31, 1998 and March 31, 1998, respectively ........................            25,205             18,887
Cost in excess of equity acquired ............................................................            79,062             55,738
Equity investments in unconsolidated subsidiaries ............................................            19,343             53,660
Other assets .................................................................................            68,023             35,928
                                                                                                     -----------        -----------
         Total assets ........................................................................       $ 2,463,987        $ 2,808,579
                                                                                                     ===========        ===========

                             Liabilities and Stockholders' Equity
Liabilities:
Accounts payable .............................................................................       $   109,026        $    91,179
Securities sold but not yet purchased ........................................................            74,209            847,470
Receivables sold under agreements to repurchase ..............................................           574,561            245,556
Due to affiliates ............................................................................             7,542                163
Short-term debt ..............................................................................           512,233            366,104
Taxes payable ................................................................................                --             81,190
Long-term debt ...............................................................................           699,269            499,553
Other liabilities ............................................................................            19,935             30,427
                                                                                                     -----------        -----------
         Total liabilities ...................................................................         1,996,775          2,161,642
                                                                                                     -----------        -----------
Commitments and contingencies
Minority interest in subsidiaries ............................................................             4,652                629

Stockholders' equity:
   Preferred stock (par value $0.01 per share; 25,000,000 shares authorized; none
       issued at December 31, 1998 and March 31, 1998) .......................................                --                 --
   Common stock (par value $0.01 per share;  250,000,000 shares authorized;
       47,657,539 shares issued at December 31, 1998 and March 31, 1998) .....................               477                477
   Paid-in capital ...........................................................................           400,101            399,776
   Retained earnings .........................................................................            95,925            262,956
   Treasury stock (908,104 and 201,209 shares of common stock, at cost, at December
      31, 1998 and March 31, 1998, respectively) .............................................           (25,096)            (5,794)
   Deferred compensation .....................................................................            (8,847)           (11,107)
                                                                                                     -----------        -----------
         Total stockholders' equity ..........................................................           462,560            646,308
                                                                                                     -----------        -----------
         Total liabilities and stockholders' equity ..........................................       $ 2,463,987        $ 2,808,579
                                                                                                     ===========        ===========
</TABLE>

The  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements are an integral part of these statements.


                                       3
<PAGE>


                           CONTIFINANCIAL CORPORATION
                        Consolidated Statements of Income
         for the three and nine months ended December 31, 1998 and 1997
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months                            Nine Months
                                                                    Ended December 31,                     Ended December 31,
                                                             --------------------------------       --------------------------------
                                                                 1998                1997               1998                1997
                                                             ------------        ------------       ------------        ------------
<S>                                                          <C>                 <C>                <C>                 <C>
Gross income:
   Gain on sale of receivables .......................       $     35,720        $     82,631       $     89,608        $    225,763
   Commercial real estate
      valuation adjustments (see Note 3) .............                 --                  --           (129,034)                 --
   Interest ..........................................             72,740              63,497            235,619             171,401
   Net servicing income ..............................             18,631              24,866             74,317              58,646
   Other income (loss) ...............................             (1,523)              6,261              8,029              13,598
                                                             ------------        ------------       ------------        ------------
         Total gross income ..........................            125,568             177,255            278,539             469,408
                                                             ------------        ------------       ------------        ------------
Expenses:
   Compensation and benefits .........................             48,366              45,394            143,532             112,105
   Interest ..........................................             61,285              43,551            182,807             119,913
   Provision for loan losses .........................              1,059                 865              4,110               3,379
   General and administrative ........................             41,342              27,164            113,924              70,952
   Other charges (see Note 3) ........................             44,192                  --             80,282                  --
                                                             ------------        ------------       ------------        ------------
         Total expenses ..............................            196,244             116,974            524,655             306,349
                                                             ------------        ------------       ------------        ------------
Income (loss) before income taxes and
    minority interest ................................            (70,676)             60,281           (246,116)            163,059
Income taxes (See Note 7) ............................            (11,907)             24,170            (79,168)             66,154
                                                             ------------        ------------       ------------        ------------
Income (loss) before minority interest ...............            (58,769)             36,111           (166,948)             96,905
Minority interest in subsidiaries ....................                 31                 971                 83                  55
                                                             ------------        ------------       ------------        ------------
         Net income (loss) ...........................       $    (58,800)       $     35,140       $   (167,031)       $     96,850
                                                             ============        ============       ============        ============
Basic earnings (loss) per common share ...............       $      (1.27)       $       0.75       $      (3.61)       $       2.10
                                                             ============        ============       ============        ============
Diluted earnings (loss) per common share .............       $      (1.27)       $       0.74       $      (3.61)       $       2.07
                                                             ============        ============       ============        ============
Basic weighted average number of
   shares outstanding ................................         46,140,707          46,870,941         46,326,692          46,160,728
                                                             ============        ============       ============        ============
Diluted weighted average number of
   shares outstanding ................................         46,140,707          47,415,299         46,326,692          46,874,537
                                                             ============        ============       ============        ============
</TABLE>


The  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements are an integral part of these statements.



                                       4
<PAGE>


                           CONTIFINANCIAL CORPORATION
                 Condensed Consolidated Statements of Cash Flows
              for the nine months ended December 31, 1998 and 1997
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                            Nine Months Ended
                                                                                               December 31,
                                                                                     -----------------------------
                                                                                       1998                 1997
                                                                                     ---------           ---------
<S>                                                                                  <C>                 <C>
Net cash used in operating activities ..........................................     $(342,937)          $(200,807)
                                                                                     ---------           ---------
Cash flows from investing activities:
      Acquisitions of majority owned subsidiaries (net of cash acquired) .......       (26,730)             (4,796)
      Acquisitions of minority owned subsidiaries ..............................        (1,544)            (37,393)
      Purchase of property and equipment, net ..................................       (10,983)             (8,555)
                                                                                     ---------           ---------
         Net cash used in investing activities                                         (39,257)            (50,744)
                                                                                     ---------           ---------
Cash flows from financing activities:
      Increase(decrease) in due to affiliates ..................................         7,379             (29,203)
      Increase in short-term debt ..............................................       145,884             243,333
      Increase in long-term debt ...............................................       199,778                 987
      Proceeds from exercise of employee stock options .........................            --                 996
      Debt issuance costs ......................................................       (11,692)                 --
      Repurchase of common stock ...............................................       (22,052)                 --
      Net proceeds from common stock offering ..................................            --             100,778
      Other, net ...............................................................            --                 128
                                                                                     ---------           ---------
          Net cash provided by financing activities                                    319,297             317,019
                                                                                     ---------           ---------
Net increase (decrease) in cash and cash equivalents ...........................       (62,897)             65,468
Cash and cash equivalents at beginning of period ...............................       173,588              51,200
                                                                                     ---------           ---------
Cash and cash equivalents at end of period .....................................     $ 110,691           $ 116,668
                                                                                     =========           =========
</TABLE>


The  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements are an integral part of these statements.



                                       5
<PAGE>


                            CONTIFINANCIAL CORPORATION
         Notes to Unaudited Condensed Consolidated Financial Statements
                                December 31, 1998

1.   BASIS OF PRESENTATION

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
ContiFinancial  Corporation and its majority owned  subsidiaries  (collectively,
"ContiFinancial"  or the "Company") have been prepared pursuant to the rules and
regulations  of the Securities  and Exchange  Commission  and, in the opinion of
management,  reflect all normal recurring  adjustments which are necessary for a
fair  presentation of the financial  position,  results of operations,  and cash
flows for each period shown.  The preparation of financial  statements  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and the results of  operations.  Actual  results  could
differ from these  estimates.  In addition,  results for interim periods are not
necessarily  indicative of results for the full year. These unaudited  condensed
consolidated financial statements should be read in conjunction with the audited
Consolidated  Financial  Statements and notes thereto  included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the "Annual
Report").  All  significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

2.   RECENT ACCOUNTING PRONOUNCEMENT

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and Hedging  Activities" ("SFAS 133") which is effective for all fiscal quarters
of fiscal  years  beginning  after  June 15,  1999.  SFAS 133  standardizes  the
accounting for derivative instruments,  including certain derivative instruments
embedded in other  contracts,  by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. The Company is currently evaluating the impact of SFAS 133 on its
financial position and results of operations.

3.   COMMERCIAL REAL ESTATE VALUATION ADJUSTMENTS and OTHER CHARGES

The Company's  results were  significantly  and adversely  affected by difficult
capital market  conditions  that  commenced  during the second quarter of fiscal
1999, with the effects of and certain  conditions  continuing to a lesser degree
during the third  quarter.  Interest  rates on U.S.  Treasury  securities  moved
significantly  lower  during  the  second  quarter  as  fixed  income  investors
purchased large amounts of these  securities in a "flight to quality" and at the
same time the  interest  rate spread  between  such  securities  and other fixed
income  securities  widened  considerably  as  demand  for  other  fixed  income
securities declined  dramatically.  These unusual interest rate movements had an
adverse  impact on the market for  commercial  real estate loans,  subprime home
equity loans, other residential mortgages and securities backed by such loans.

These market  disruptions  affected many  participants  in the  commercial  real
estate and subprime home equity  industries,  including several of the Company's
majority and minority-owned affiliates.

These adverse  developments  resulted in the following  charges to the Company's
accompanying  consolidated statements of income. First, a commercial real estate
valuation  adjustment of $129.0 million was incurred  during the second quarter.
Second,  charges for $44.2 million and $80.3  million were  incurred  during the
three and nine months  ended  December  31,  1998,  respectively,  to write down
investments  in  or  establish   reserves  on  receivables   from  majority  and
minority-owned  affiliates  and to cover the  expenses  in  connection  with the
Company's  decision  to reduce the scope of certain  business  activities.  This
charge  is  shown  under  the  caption  "Other  charges"  on  the   accompanying
consolidated statements of income. The Company also incurred



                                       6
<PAGE>


charges during these periods as a result of the fair value adjustment of its ESR
portfolio  relating  to home  equity  loans.  Details  of this  ESR  fair  value
adjustment  are set forth in Item 2.  "Management's  Discussion  and Analysis of
Financial   Condition  and  Results  of  Operations  -Gain  (Loss)  on  Sale  of
Receivables and Excess Spread Receivables."

The commercial real estate valuation  adjustments of $129.0 million for the nine
months ended  December 31, 1998 are composed of a $125.0  million charge related
to the write down of commercial  real estate loans during the second  quarter of
fiscal 1999 and a $4.0 million  reduction in the  carrying  value of  commercial
real estate related excess spread receivable ("ESR") during the same period.

Prior to sale or securitization, the Company's commerical real estate loans held
for sale are  carried at the lower of  aggregate  cost or market  value.  Market
value  represents  the  proceeds the Company  believes it would  receive if such
assets  were  sold over a  reasonable  period of time  under  prevailing  market
conditions.  The Company hedged its resulting  exposure to absolute  movement in
interest rates,  typically through the short sale of U.S. Treasury securities or
interest  rate  futures  contracts.   During  the  second  fiscal  quarter,  the
significant  decline in interest rates on U.S. Treasury  securities  resulted in
significant  losses on hedge  positions.  If interest rate spreads  between U.S.
Treasury  securities  and the  securities to be issued (backed by the commercial
real estate  loans) had  remained at the levels that  prevailed  when the hedges
were executed,  the market value of the loans would have  increased,  offsetting
the hedge losses.  However,  spreads widened considerably,  so much in fact that
the market  value of the loans  declined at the same time that hedge losses were
being  incurred  resulting in the charge of $125.0 million to the second quarter
results.

At December 31, 1998, the Company had commercial real estate loans held for sale
totaling  $624.6  million of which $71.5 million was owned and $553.1 million of
loans were sold with limited  recourse  under the Company's  asset  purchase and
sale  facilities  with certain  financial  institutions  (the "Purchase and Sale
Facilities").

The other  charges of $44.2  million  and $80.3  million  for the three and nine
months ended  December 31, 1998,  respectively,  consist of (i) charges of $11.8
million and $39.8 million that were  recorded in order to establish  reserves on
receivables  from such  affiliates  for the three and nine months ended December
31, 1998,  respectively,  (ii) charges in connection with the Company's decision
to reduce the scope of certain business  activities,  resulting in an accrual of
$4.8  million  during the three months ended  December 31, 1998,  for  severance
plans related to the termination of approximately  170 employees,  (iii) charges
of $5.3 million relating to exit costs (not including  employee severance costs)
for commercial real estate  activities during the nine months ended December 31,
1998,  and (iv) charges of $27.6 million and $30.4 million  during the three and
nine months ended December 31, 1998, respectively, relating to the write down or
the sale of certain minority and majority investments.

Included in the $27.6 million  charge during the three months ended December 31,
1998, is a noncash  accounting charge of $23.6 million related to the impairment
of  a  minority-owned   affiliate.  The  securitization  of  the  loans  of  the
minority-owned  affiliate  began to require large initial cash  investments  and
investors in the securitization required an increasing yield on their investment
decreasing  the  profit  associated  with  securitization.   Additionally,   the
minority-owned  affiliate  experienced  liquidity  constraints and a decrease in
demand  for whole  loan  product.  These  market  factors  caused a  significant
decrease in the fair market value of the minority-owned  affiliate's origination
business, as well as negatively impacted future cash flow. Estimated fair market
value was  determined  by reviewing  cash flow  estimates and  discussions  with
market professionals.


                                       7
<PAGE>



                           CONTIFINANCIAL CORPORATION
         Notes to Unaudited Condensed Consolidated Financial Statements
                                December 31, 1998

4.   STOCKHOLDERS' EQUITY

The following table presents a reconciliation  of basic and diluted earnings per
common share (in thousands, except share amounts).

<TABLE>
<CAPTION>
                                                                  Three Months                        Nine Months
                                                               Ended December 31,                 Ended December 31,
                                                           1998               1997              1998                1997
                                                        -----------        -----------       -----------        -----------
<S>                                                     <C>                <C>               <C>                <C>
Net income (loss) .................................     $   (58,800)       $    35,140       $  (167,031)       $    96,850
                                                        ===========        ===========       ===========        ===========
Basic weighted average number of
  shares outstanding ..............................      46,140,707         46,870,941        46,326,692         46,160,728
Adjustments for dilutive shares outstanding:
   Restricted shares ..............................            --              202,724              --              176,241
   Options ........................................            --              341,634              --              537,568
                                                        -----------        -----------       -----------        -----------

Diluted weighted average number of
shares outstanding ................................      46,140,707         47,415,299        46,326,692         46,874,537
                                                        ===========        ===========       ===========        ===========

Earnings (loss) per common share:
     Basic ........................................     $     (1.27)       $      0.75       $     (3.61)       $      2.10
                                                        ===========        ===========       ===========        ===========
     Diluted ......................................     $     (1.27)       $      0.74       $     (3.61)       $      2.07
                                                        ===========        ===========       ===========        ===========
</TABLE>

For the three and nine months ended December 31, 1998, there were no adjustments
for  restricted  shares or options in  computing  the diluted  weighted  average
number of shares outstanding as their effect was antidilutive.  During the three
and nine months ended December 31, 1997,  options to purchase 295,000 and 98,333
shares of common stock, respectively,  were outstanding but were not included in
the computation of diluted earnings per common share as they were antidilutive.

In February 1998, the Company's Board of Directors authorized the purchase of up
to one million shares of the Company's outstanding common stock. During the nine
months ended  December  31, 1998,  the Company  purchased  806,300  shares at an
average cost of $27.35 per share,  completing  the  authorized one million share
repurchase. The purchased shares are held in treasury for use in connection with
ContiFinancial's 1995 Long-Term Stock Incentive Plan (the "Stock Plan").

5.   ACQUISITION

In April 1998, the Company  acquired,  for  approximately  $18.0 million,  a 75%
interest  in  Keystone  Mortgage  Partners  L.L.C.  ("Keystone").  Keystone,  an
originator  and servicer of commercial  mortgage  loans which acts as a mortgage
banker primarily to the insurance industry but does not take principal risk.


                                       8
<PAGE>



                           CONTIFINANCIAL CORPORATION
         Notes to Unaudited Condensed Consolidated Financial Statements
                                December 31, 1998

6.   DEBT

Short-term  and long-term debt at December 31, 1998 and March 31, 1998 consisted
of the following :

<TABLE>
<CAPTION>
                                                                      December  31,     March 31,
                                                                          1998             1998
                                                                      -------------     ---------
                                                                             (in thousands)
<S>                                                                     <C>              <C>
Short-term debt:
   Commercial paper ...............................................     $311,873         $270,708
   Revolving credit facility ......................................      200,000           95,000
   Current portion of long-term debt ..............................          360              396
                                                                        --------         --------
Total short-term debt .............................................     $512,233         $366,104
                                                                        ========         ========

Long-term debt:
   8 3/8% Senior Notes, $300 million face amount, due 2003 ........     $299,376         $299,295
   7 1/2% Senior Notes, $200 million face amount, due 2002 ........      199,513          199,412
   8 1/8% Senior Notes, $200 million face amount, due 2008 ........      199,788               --
   Capitalized lease ..............................................          592              846
                                                                        --------         --------
Total long-term debt ..............................................     $699,269         $499,553
                                                                        ========         ========
</TABLE>

On April 2, 1998, the Company issued $200 million aggregate  principal amount of
8 1/8% unsecured Senior Notes due April 1, 2008. Proceeds to the Company, net of
underwriting fees, market discount and other costs were $188.1 million. Interest
on these  notes is payable  semi-annually  on April 1 and  October 1  commencing
October 1, 1998.  The notes are redeemable in whole or in part, at the option of
the Company,  at any time or from time to time,  at a redemption  price equal to
the greater of (i) 100% of their principal amount or (ii) the sum of the present
values of the remaining  scheduled  payments of principal  and interest  thereon
discounted to the date of redemption on a semiannual basis at the treasury yield
plus 50 basis  points,  plus,  in each  case,  accrued  interest  to the date of
redemption.

On August 21,  1998,  the Company  increased  its one year  renewable  unsecured
commercial paper program  ("Commercial  Paper Program") backed by an irrevocable
direct-pay letter of credit provided by a syndicate of banks from $275.0 million
to $317.5 million.  At December 31, 1998, $311.9 million of commercial paper was
outstanding  and the Company was fully  drawn under its $200  million  revolving
credit facility ("Revolving Credit Facility").

The Company is required to comply with  various  financial  covenants  under its
outstanding  Senior  Notes,  Revolving  Credit  Facility  and  Commercial  Paper
Program,  as  well as  under  certain  provisions  of two of the  agreements  to
repurchase ("Repurchase  Agreements"),  including,  among other things, leverage
ratios, minimum net worth tests and interest coverage ratios. As of December 31,
1998,  the Company's  leverage  ratio exceeded the leverage ratio test under the
covenants of its outstanding Senior Notes. As a result, the Company is prevented
from issuing  additional  unsecured  debt until its leverage ratio is below such
test. The Company and two of its lenders  agreed to amend certain  provisions of
the  Repurchase  Agreements.   Amendments  were  received  from  the  Repurchase
Agreement  lenders  changing the leverage ratio to 2.75 to 1. Amended  financial
covenants  were also received  changing the leverage and fixed charge ratios and
the



                                       9
<PAGE>


minimum net worth test in the Revolving  Credit  Facility and  Commercial  Paper
Program and lenders  agreed to exclude  certain  charges from the covenant ratio
calculations.  If the above  mentioned  amendments  had not been  obtained,  the
Company would not have been in compliance with the covenants. The Company was in
compliance  with the amended  covenants of the Revolving  Credit  Facility,  the
Commercial Paper Program and the Repurchase  Agreements as of December 31, 1998.
As part of the  amendments to the  Revolving  Credit  Facility,  the Company has
agreed to prepay the Revolving  Credit Facility on August 20, 1999,  which would
make  the  revolving  Credit  Facility  coterminous  with the  Commercial  Paper
Program, and increase the interest rate of the Revolving Credit Facility and the
Commercial Paper Program by 138 basis points.

The Company's ability to continue to maintain funding under the Revolving Credit
Facility,  the Commercial Paper Program and the Repurchase Agreements is subject
to its  continued  compliance  with these  amended  covenants  or, if necessary,
obtaining  covenant  relief.  The  Company's  ability to remain in compliance is
dependent  on  factors  some of which are beyond  the  control  of the  Company,
primarily  conditions in the  securitization  and whole-loan  sale markets.  The
Company is dependent  on  continued  access to its  Revolving  Credit  Facility,
Commercial  Paper  Program,  Purchase  and Sale  Facilities  and the  Repurchase
Agreements  (collectively,  the "Lending Facilities") or obtaining new financing
sources  in order  to meet  its  cash  needs.  Failure  of the  Company  to have
continued  access to the  securitization  and  whole-loan  sale  markets and its
Lending  Facilities  or the  failure  of  the  Company  to  renew  such  Lending
Facilities or obtain alternate financing could have a material adverse effect on
the Company's liquidity, financial condition and operations.

7.   TAXES

As of December 31, 1998,  the Company  recorded net deferred tax assets of $19.1
million.  Included  in this  amount are net  deferred  tax  liabilities  of $6.7
million relating to temporary  differences  between financial  accounting income
and taxable income including,  nondeductible and compensation  related expenses,
capitalized  servicing rights, and interest-only and residual  certificates,  as
well as a deferred  tax asset of $25.8  million  relating  to the tax benefit of
operating losses. In the opinion of management,  it is more likely than not that
the  deferred  tax asset will be  realized.  For income tax  purposes,  the loss
carryforwards expire in years beginning after March 31, 2019.


                                       10
<PAGE>


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

This discussion  should be read in conjunction with the  accompanying  unaudited
condensed  consolidated  financial statements and notes thereto included herein,
and the Company's audited  Consolidated  Financial  Statements and notes thereto
included in the Company's Annual Report.  Certain  statements under this caption
constitute  "forward-looking  statements"  under federal  securities  laws.  See
"Forward-looking Statements".

Discussion of Events During the Three and Nine Months Ended December 31, 1998

Overview The Company's  results were  significantly  and  adversely  affected by
difficult  capital market conditions that commenced during the second quarter of
fiscal 1999, with the effects of and certain  conditions  continuing to a lesser
degree during the third  quarter.  Interest  rates on U.S.  Treasury  securities
moved  significantly  lower during the second quarter as fixed income  investors
purchased large amounts of these securities in a "flights to quality" and at the
same time,  the interest  rate spread  between such  securities  and other fixed
income  securities  widened  considerably  as  demand  for  other  fixed  income
securities declined  dramatically.  These unusual interest rate movements had an
adverse  impact on the market for  commercial  real estate loans,  subprime home
equity loans, other residential mortgages and securities backed by such loans.

As a result of these market disruptions, the value of the loans held for sale by
the Company declined during these periods and the loans became more difficult to
sell,  either on a whole basis or through  securitization.  The most significant
effect of this was  realized  on the  commercial  real estate  activities.  As a
result of the  decline in the value of the loans,  which are used by the Company
as collateral  for the Company's  Purchase and Sale  Facilities  and  Repurchase
Agreements, (collectively, the "Facilities") used to finance the purchase of the
loans, margin calls were made by the lenders under the Facilities for additional
cash collateral.  Later in the third quarter,  as market conditions improved and
the value of loans held as collateral  increased,  a portion of this  collateral
was returned to the Company.

These market  disruptions  affected many  participants  in the  commercial  real
estate and subprime home equity  industries,  including several of the Company's
majority and minority-owned affiliates.

As discussed in further  details  below,  the Company has taken several steps to
respond to these changed market  conditions.  The Company has reduced the volume
of home  equity  loan  origination,  with  much  of the  reduction  focusing  on
originations  from  wholesale  sources,  where the Company must pay a premium to
acquire loans. The Company has negotiated an arrangement with a home equity loan
buyer to sell whole  loans,  servicing  released,  to the buyer on a flow basis,
reducing the Company's  reliance on  securitization  as a method for selling its
loans,  reducing the Company's overall financing  requirements and improving the
Company's  cash  flow.  The  Company  also  plans to  securitize  its loans more
frequently,  resulting in smaller  securitizations and a reduced need to finance
loan inventory.  With respect to commercial real estate loans,  the Company will
focus on the  origination of these loans through  Keystone,  a subsidiary of the
Company,  which acts as a commercial mortgage banker and does not take principle
risks.

These adverse  developments  resulted in the following  charges to the Company's
income statement. First, a commercial real estate valuation adjustment of $129.0
million  was  incurred  during the second  quarter.  Second,  charges  for $44.2
million and $80.3 million were  incurred  during the three and nine months ended
December  31,  1998,  respectively,  to write down  investments  in or establish
reserves on receivables from majority and minority-owned affiliates and to cover
the expenses in connection  with the  Company's  decision to reduce the scope of
certain  business  activities.  This charge is shown  under the  caption  "Other
charges" on the accompanying consolidated statements of income. The Company also
incurred  charges during these periods as



                                       11
<PAGE>


a result of the fair value  adjustment  of its ESR  portfolio  relating  to home
equity loans. Details of this ESR fair value adjustment are set forth in Item 2.
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -Gain (Loss) on Sale of Receivables and Excess Spread Receivables."

Commercial Real Estate Valuations and Other Charges
(dollars in thousands)

<TABLE>
<CAPTION>
                                                              Three Months ended      Nine Months ended
                                                               December 31, 1998      December 31, 1998

<S>                                                               <C>                      <C>
Commercial real estate valuation adjustments:

     Commercial loan valuation adjustment                         $   --                   $125,034
     Excess spread receivables valuation adjustment                   --                      4,000
                                                                  --------                 --------
Total Commercial real estate valuation adjustment                     --                    129,034
                                                                  --------                 --------

Other charges:

     Reserves for receivables from affiliates                       11,754                   39,722
     Accrued severance plan for terminated employees                 4,838                    4,838
     Write down or sale of certain minority and
     majority investments                                           27,600                   30,383
     Accrued exit costs (not including employee
     severance costs) for reduction in commercial
     real estate activity                                             --                      5,339
                                                                  --------                 --------
Total other charges
                                                                    44,192                   80,282
                                                                  --------                 --------
Total commercial real estate valuation adjustments
and other charges                                                 $ 44,192                 $209,316
                                                                  ========                 ========
</TABLE>

Commercial  Real  Estate  Valuation   Adjustments  The  commercial  real  estate
valuation  adjustments  of $129.0 million for the nine months ended December 31,
1998 are  composed  of a $125.0  million  charge  related  to the write  down of
commercial real estate loans during the second quarter of fiscal 1999 and a $4.0
million  reduction in the carrying  value of commercial  real estate related ESR
during the same period.

Prior to sale or securitization, the Company's commercial real estate loans held
for sale are  carried at the lower of  aggregate  cost or market  value.  Market
value  represents  the  proceeds the Company  believes it would  receive if such
assets  were  sold over a  reasonable  period of time  under  prevailing  market
conditions.  With  respect to loans held for sale and the  recourse  risk on the
Purchase  and Sale  Facilities,  the Company  hedged its  resulting  exposure to
absolute  movement in interest rates,  typically  through the short sale of U.S.
Treasury securities or interest rate futures contracts. During the second fiscal
quarter,  the significant  decline in interest rates on U.S. Treasury securities
resulted in  significant  losses on hedge  positions.  If interest  rate spreads
between U.S. Treasury  securities and the securities to be issued (backed by the
commercial real estate loans) had remained at the levels that prevailed when the
hedges  were  executed,  the market  value of the loans  would  have  increased,
offsetting the hedge losses. However,  spreads widened considerably,  so much in
fact that the  market  value of the loans  declined  at the same time that hedge
losses were being incurred resulting in a charge of $125.0 million to the second
quarter results.



                                       12
<PAGE>


At December 31, 1998, the Company had commercial real estate loans held for sale
totaling  $624.6  million of which $71.5 million was owned and $553.1 million of
loans were sold with  limited  recourse  under the  Company's  Purchase and Sale
Facilities.

Other Charges The other charges of $44.2 million and $80.3 million for the three
and nine months ended December 31, 1998, respectively, consist of (i) charges of
$11.8  million  and $39.8  million  that  were  recorded  in order to  establish
reserves on receivables from such affiliates for the three and nine months ended
December 31, 1998,  respectively,  (ii) charges in connection with the Company's
decision  to reduce the scope of certain  business  activities  resulting  in an
accrual  of $4.8  million in the three  months  ended  December  31,  1998,  for
severance plans related to the termination of approximately 170 employees, (iii)
charges of $5.3 million relating to exit costs (not including employee severance
costs) for  commercial  real  estate  activities  during the nine  months  ended
December 31, 1998 and (iv) charges of $27.6 million and $30.4 million during the
three and nine months ended  December 31,  1998,  respectively,  relating to the
write down or sale of certain minority and majority investments.

Included  in the $27.6  million of costs  incurred  for the three  months  ended
December 31, 1998, was a charge of $23.6 million  related to the impairment of a
minority-owned  affiliate. The securitization of the loans of the minority-owned
affiliate  began to require large initial cash  investments and investors in the
securitization  required an increasing yield on their investment.  Additionally,
the minority-owned affiliate experienced liquidity constraints and a decrease in
demand  for whole  loan  product.  These  market  factors  caused a  significant
decrease in the fair market value of such minority-owned affiliate's origination
business, as well as negatively impacted future cash flow.

Impact on  Operating  Results - In addition to the items  discussed  above,  the
market conditions that prevailed during fiscal 1999 second quarter and continued
during  the  third  quarter  had  adverse  impact  on  operating  results.   The
deterioration  of interest rate spreads  caused the Company to record lower gain
on sale and the need for  liquidity  required the Company to execute  whole loan
home equity sales at a loss.

As discussed in "Draws on liquidity"  below, the Company is pursuing an approach
to decrease the average home equity loans held for sale through a combination of
whole loan sales and smaller,  but more  frequent,  securitizations.  During the
third quarter of fiscal 1999,  the Company  executed  whole loan sales of $782.6
million,  including two ContiMortgage Corporation  ("ContiMortgage")  /ContiWest
Corporation  ("ContiWest")  sales  totaling  $551.2 million and one $1.0 billion
securitization.  The two ContiMortgage/ContiWest  whole loan sales were executed
at a loss of $10.9  million  due to  market  conditions  and the  interest  rate
environment  negatively  impacting  premiums  received  versus  the  origination
premiums  paid on such loans which were  predominately  originated in the second
quarter  prior to the  change  in market  conditions.  The  pretax  gain on sale
recorded in connection with the  ContiMortgage/ContiWest  securitization  in the
fiscal 1999 third quarter was $37.9 million.  The gain on sale percentage (i.e.,
gain on sale as a percentage of securitization  volume) for that transaction was
3.61%, up from 3.07% for the ContiMortgage/ContiWest securitization completed in
the second quarter of fiscal 1999,  primarily due to a decrease in premiums paid
later in the  quarter  for loans  from  wholesale  sources.  The  aforementioned
amounts do not include the impact of ESR fair value adjustments.

The ESR fair value  adjustment  for the three and nine months ended December 31,
1998 was $24.0  million  and  $161.9  million,  respectively.  During  the first
quarter, the Company increased the weighted average estimated future Conditional
Prepayment Rate ("CPR") for its ContiMortgage  /ContiWest ESR portfolio from 27%
at March 31, 1998 to 28% at June 30, 1998 where it still remains at December 31,
1998. In the third  quarter the Company  increased its estimate of future credit
losses to reflect a projected increase in defaults on currently performing loans
and loss severity on defaulted loans. The Company also increased its estimate of
future  prepayments  on certain  ContiMortgage/ContiWest  real  estate  mortgage
investment conduit's ("REMIC"). The decline in ESR fair value during the quarter
 as also impacted by greater than anticipated credit losses on



                                       13
<PAGE>


ContiMortgage/ContiWest  REMIC's.  These declines in value were partially offset
by a favorable  effect of the interest  rate  environment.  (See "Gain (Loss) on
Sale of Receivables and Excess Spread Receivables" for further discussion.)

Draws on liquidity - In the second  quarter of fiscal 1999 interest rate spreads
widened on securities  backed by  commercial  real estate loans and, to a lesser
extent, subprime home equity and other residential mortgage loans, the "margins"
applied to financing for such loans prior to sale or securitization were in many
instances  increased.  The margin  represents  the  difference  between a loan's
principal  value and the amount that can be  borrowed  by  pledging  the loan as
collateral.  In the  normal  course  of its  business  activities,  the  Company
maintains substantial  inventories of loans held for sale or securitization and,
as a  result,  has  significant  financing  requirements.  As a  result  of  the
reduction in the value of loans  pledged as  collateral  for secured  borrowings
and/or the  increase in related  margins,  the Company was  required to post net
cash  collateral of $55.4 million and $14.9 million  during the second and third
quarters of fiscal 1999, respectively.

On an ongoing  basis,  the Company is required  to maintain  margin  deposits in
connection  with its hedge  positions.  As noted earlier,  the Company  incurred
significant  hedge losses during the second quarter.  As a result,  the net cash
outflow in  connection  with its hedge  positions  was $114.1  million and $18.6
million  over the  course of the  second  and  third  quarters  of fiscal  1999,
respectively.  The Company  had hedged its  interest  rate  exposure on its loan
portfolio  through the short sale of U.S.  Treasury  securities,  interest  rate
futures  contracts or options on interest  rate futures  contracts.  The Company
intends to monitor  the  impact of  hedging  on its  future  liquidity  and make
adjustments to the hedging financial instruments accordingly.

Since the second  quarter of fiscal  1999,  the  Company  maintained  sufficient
levels of liquidity  and was able to fund its business  activities,  albeit at a
reduced level because of additional cash requirements in connection with margins
on secured financing and margins on hedge positions. As discussed further below,
the Company has taken steps to reduce its financing needs and provide  continued
access to liquidity. Continental Grain Company ("Continental Grain"), which owns
approximately 78% of the Company's  outstanding common stock,  provides up to an
aggregate  of $85 million in monthly  servicer  advances  to certain  REMICs for
which ContiMortgage,  a wholly-owned  subsidiary,  is the servicer.  Continental
Grain has agreed to make these  advances,  for a fee,  through October 15, 1999.
Although the advances  have been made to, and repaid by, the REMICs,  and not by
the Company or ContiMortgage, Continental Grain's advances improve the liquidity
of the Company by relieving it of the  significant  portion of its obligation to
make these advances itself.

The Company's most significant  financing requirement is the funding of mortgage
and loan  originations  and  purchases  pending  their  pooling and sale.  These
receivables  are  generally  financed on a secured  basis  through the Company's
Facilities.

In October  1998,  the  Company  suspended  new loan  originations  through  its
ContiMAPa commercial loan conduit program and decided to sell its loan exposure.
During the three months ended ecember 31, 1998,  and the one month ended January
31, 1999, the Company sold $368.8  million and $97.0 million of commercial  real
estate loans,  respectively.  These sales were executed at prices  approximating
the loans'  carrying  value and  provided  cash  proceeds of $24.1  million from
margins on secured financing. The Company plans to sell the remaining commercial
real estate loans of approximately  $527.6 million over the next nine months. In
the future,  the Company will focus on the origination of commercial real estate
loans primarily through Keystone,  a subsidiary of the Company,  which acts as a
mortgage banker for a fee but does not take principal risk.

During the third quarter of fiscal 1999, the Company  reduced the volume of home
equity and other residential  mortgage loan originations.  Loan originations for
the three  months  ended  December  31,  1998 were $1.8  billion  compared  with
originations  of $2.5  billion  during the  preceding  three month  period.  The
reduction  was  focused  on  wholesale   originations,   as  opposed  to  retail
orginations,  since the Company  typically pays premiums in



                                       14
<PAGE>


connection  with the purchase of loans from wholesale  originators.  The Company
plans to reduce ContiMortgage/ContiWest  wholesale originations to approximately
40% of its total originations, down from 55% for the month of December 1998.

The Company is taking these actions to improve the cash flow  characteristics of
its  business  activities  in order to focus on its  direct  origination  (i.e.,
retail) and small broker channels, and reducing the level of loan purchases from
wholesale  originators.  The  Company's  objective  with  respect  to  wholesale
origination is to pursue a pricing policy that will facilitate a continuous flow
of cash positive whole loan sales.

Another factor  influencing  financing  requirements is the timing of loan sales
and  securitizations.  The Company has generally  executed one large home equity
securitization   each  quarter.   During  the  third  quarter  of  fiscal  1999,
ContiMortgage/ContiWest  executed  two home equity  whole  loans sales  totaling
$551.2 million and a $1.0 billion  securitization.  By pursuing this approach to
increase the frequency of loan sales  through a combination  of whole loan sales
and smaller,  but more frequent,  securitizations,  the Company expects that the
financing  required to fund loan  inventory  should be less than that  otherwise
required under the previous  approach.  In January 1999, in order to establish a
consistent and committed whole loan sale program,  the Company  negotiated a two
year purchase agreement with a financial institution that permits the Company to
sell, with servicing  released,  not less than $2.25 billion and up to a maximum
of $7.2 billion of home equity loans. The purchase agreement establishes a sales
price that can be adjusted, upon occurrence of specific events.

In November 1998 the Company disposed of its leasing  subsidiary.  The Company's
decision to exit this  business was based on such  subsidiary's  long-term  cash
flow characteristics.

In connection with the foregoing actions, the Company is proceeding to implement
a staff  reduction  consistent  with the reduction of its non-retail home equity
loan  origination  and funding,  and commercial  real estate activity as well as
eliminating redundancies in home equity affiliates. Most of the positions relate
to home equity  wholesale  origination and funding.  During the third quarter of
fiscal 1999, an accrual of $4.8 million has been  recorded for  severance  plans
established  as of December  31,  1998,  for  approximately  170  employees.  At
December 31, 1998, $3.6 million of such accrual remained.

There can be no assurance  that the Company will be able to renew the  Revolving
Credit Facility and the Commercial Paper Program,  or obtain new bank debt, when
the Revolving  Credit  Facility and the  Commercial  Paper Program  terminate in
August, 1999, on as favorable terms, if at all.

The Company is engaged in discussions with potential new investors  regarding an
equity  investment  in the Company to improve  its capital  base and enhance the
execution  of its new  business  strategy.  No  assurance  can be given that the
Company will be  successful  in raising  additional  equity.  Under  appropriate
conditions,  Continental  Grain,  which owns  approximately 78% of the Company's
outstanding  common  stock,  expects to  participate  along with such  potential
equity  investor or  investors  in making an equity  investment  in the Company.
However, Continental Grain has made no commitment to make such an investment.


                                       15
<PAGE>


Selected Financial Information

                           ContiFinancial Corporation
                  Loan Originations, Securitizations and Sales
                             (dollars in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                     For the three months ended      %         For the nine months ended       %
                                                             December 31,          Incr.               December 31,          Incr.
                                                        1998           1997       (Decr.)         1998           1997       (Decr.)
                                                     ----------     ----------    -------      ----------     ----------    -------
<S>                                                  <C>            <C>            <C>         <C>            <C>            <C>
Originations

Home equity, home improvement and
  other residential mortgage loans:
   Wholesale:
       Brokers .................................     $  376,791     $  345,715       9.0%      $1,153,987     $  778,925      48.2%
       Correspondents ..........................      1,009,731      1,170,509     (13.7)%      3,945,035      3,262,955      20.9%
    Direct retail ..............................        457,313        333,077      37.3%       1,422,144        838,991      69.5%
                                                     ----------     ----------     -----       ----------     ----------     -----
Total home equity, home improvement
  and other residential mortgage loans .........      1,843,835      1,849,301      (0.3)%      6,521,166      4,880,871      33.6%
                                                     ----------     ----------     -----       ----------     ----------     -----
Commercial real estate mortgage loans:
   Conduit (ContiMAP(R)and affiliates) .........         80,537        760,817     (89.4)%      1,455,844      1,336,387       8.9%
   Keystone ....................................        236,225           --         n/a          723,720           --         n/a
                                                     ----------     ----------     -----       ----------     ----------     -----
Total commercial real estate
  mortgage loans ...............................        316,762        760,817     (58.4)%      2,179,564      1,336,387      63.1%
                                                     ----------     ----------     -----       ----------     ----------     -----
Triad auto loans ...............................         98,992         54,787      80.7%         271,945        131,120     107.4%
                                                     ----------     ----------     -----       ----------     ----------     -----
        Total loan originations ................     $2,259,589     $2,664,905     (15.2)%     $8,972,675     $6,348,378      41.3%
                                                     ==========     ==========     =====       ==========     ==========     =====

Securitizations and sales

ContiMortgage/ContiWest
  securitizations ..............................     $1,049,318     $1,660,000     (36.8)%     $4,899,318     $4,450,000      10.1%
Other home equity,
  home improvement and
  other residential mortgage sales .............        782,583        181,679     330.8%       1,172,126        399,263     193.6%
                                                     ----------     ----------     -----       ----------     ----------     -----
Total home equity, home improvement
  and other residential mortgage sales .........      1,831,901      1,841,679      (0.5)%      6,071,444      4,849,263      25.2%
                                                     ----------     ----------     -----       ----------     ----------     -----
Commercial real estate mortgage loans:
  Conduit (ContiMAP(R)and affiliates) ..........           --          494,722    (100.0)%        581,343        981,545     (40.8)%
  Whole loan sales .............................        368,762           --         n/a          368,762           --         n/a
  Keystone .....................................        236,225           --         n/a          723,720           --         n/a
                                                     ----------     ----------     -----       ----------     ----------     -----
Total commercial real estate
  mortgage loans ...............................        604,987        494,722      22.3%       1,673,825        981,545      70.5%
                                                     ----------     ----------     -----       ----------     ----------     -----
Triad auto loans ...............................        100,000         62,174      60.8%         237,674        108,055     120.0%
Strategic alliances ............................         60,000         57,821       3.8%         217,188        307,898     (29.5)%
                                                     ----------     ----------     -----       ----------     ----------     -----
       Total securitizations and sales .........     $2,596,888     $2,456,396       5.7%      $8,200,131     $6,246,761      31.3%
                                                     ==========     ==========     =====       ==========     ==========     =====
</TABLE>


                                       16
<PAGE>


                            ContiMortgage Corporation
                       Delinquencies, Defaults and Losses
                             (dollars in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
ContiMortgage                                          December 31,               March 31,              December 31,
Servicing Portfolio                                        1998                     1998                      1997
-------------------                                   --------------           --------------           --------------
<S>                                                   <C>                      <C>                      <C>
Serviced loan portfolio (at period end) ..........    $   12,676,546           $   10,135,785           $    9,122,792
                                                      ==============           ==============           ==============
 Delinquencies:
    30 - 59 days .................................              2.06%                    1.50%                    2.37%
    60 - 89  days ................................              0.74%                    0.51%                    0.74%
    90 days and over .............................              0.63%                    0.35%                    0.31%
                                                      --------------           --------------           --------------
    Total delinquencies (%) ......................              3.43%                    2.36%                    3.42%
                                                      --------------           --------------           --------------
    Total delinquencies ($) ......................    $      434,841           $      239,015           $      311,821
                                                      ==============           ==============           ==============

 Defaults(2):

    Foreclosures .................................              2.14%                    2.31%                    2.78%
    Bankruptcies .................................              1.59%                    1.70%                    1.53%
    Real estate owned ............................              1.05%                    0.83%                    0.65%
    Loss mitigation (1) ..........................              1.04%                    0.74%                    0.59%
                                                      --------------           --------------           --------------
    Total defaults (%) ...........................              5.82%                    5.58%                    5.55%
                                                      ==============           ==============           ==============
    Total defaults ($) ...........................    $      737,189           $      565,238           $      506,744
                                                      ==============           ==============           ==============
</TABLE>

(1) This category includes  non-performing  accounts specifically identified for
accelerated  resolution under the Company's loss mitigation program.  Resolution
strategies include  refinances,  reinstatements,  and full payoffs;  forbearance
plans;  pre-foreclosure sales for less than full payoff; third party foreclosure
sales;  deed-in-lieu (or "cash for keys");  and  charge-offs.

(2) This category  includes  accounts that are  contractually  less than 90 days
delinquent but are classified within foreclosure,  bankruptcy or loss mitigation
categories.

                                                 For the three    For the twelve
                                                  months ended     months ended
ContiMortgage                                     December 31,     December 31,
Loan Loss experience                                 1998             1998
                                                  -----------      -----------
Average serviced loan portfolio ..............    $12,690,000      $11,270,111
                                                  ===========      ===========

Net losses:
   REMICs, other sales and loans held
        pending sale or securitization .......    $    32,084      $    88,398
   Loans and properties
        purchased out of REMICs ..............          1,089            9,668
                                                  -----------      -----------
              Total net losses ...............    $    33,173      $    98,066
                                                  ===========      ===========
Net losses as a percentage of average
   amount outstanding(3):
   REMICs, other sales and loans held
     pending sale or securitization ..........           1.01%            0.78%
   Loans and properties
     purchased out of REMICs .................           0.03%            0.09%
                                                  -----------      -----------
Total net losses as a percentage of
   average amount outstanding ................           1.04%            0.87%
                                                  ===========      ===========

(3) Amounts for the three months ended  December 31, 1998 are annualized and are
not necessarily indicative of or predictive of actual performance.


                                       17
<PAGE>


Results of Operations

Three and Nine Months Ended  December 31, 1998  Compared with the Three and Nine
Months Ended December 31, 1997

Net loss for the three and nine months ended December 31, 1998 was $58.8 million
and $167.0 million, respectively,  compared with net income of $35.1 million and
$96.9 million for the corresponding  periods in fiscal 1998. The Company's total
gross income  decreased to $125.6  million and $278.5  million for the three and
nine months  ended  December  31, 1998,  respectively,  from $177.3  million and
$469.4 million for the comparable periods last year.

As discussed  previously in the  "Discussion of Events During the Three and Nine
Months  Ended  December  31,  1998",  the Company  incurred  charges  related to
commercial  real estate  valuation  and other charges  against  earnings for the
three and nine months  ended  December  31,  1998,  of $44.2  million and $209.3
million,  respectively.   Also  contributing  to  the  losses  were  fair  value
adjustments  to primarily  home equity related ESR for the three and nine months
ended December 31, 1998 of $24.0 million and $161.9 million, respectively.

Interest income and expense:

In the normal course of its activities, the Company carries inventories of loans
pending sale or securitization  and earns a positive spread between the interest
income earned on those loans and its cost of financing  those loans.  Due to the
decline in the Company's  origination  volume during the quarter ended  December
31, 1998, there was a concurrent  decrease in the average level of loans held in
inventory  pending sale or  securitization.  As a result,  net  interest  income
decreased to $11.5  million for the three  months  ended  December 31, 1998 from
$19.9 million for the  corresponding  period last year. Net interest  income for
the nine months  ended  December  31, 1998,  remained  relatively  flat at $52.8
million as compared  to $51.5  million  for the  corresponding  period in fiscal
1998.  This resulted from an increase in origination,  securitization  and sales
volume during the first two quarters of fiscal 1999 offset by a decreased volume
for the third  quarter of fiscal 1999.  Interest  income also  includes  accrued
interest  on ESR. In addition to the cost of  financing  loans  pending  sale or
securitization,  interest  expense  includes the cost of financing the Company's
longer term capital  requirements  (see  "Liquidity  and Capital  Resources" for
discussion of future operations).

Net servicing income:

Net servicing income decreased $6.2 million or 25.1% and increased $15.7 million
or 26.7% for the three and nine months ended December 31, 1998, respectively, as
compared to the corresponding  periods in fiscal 1998. Servicing income consists
of fee income and  capitalized  servicing.  The servicing  fee income  component
represents  income earned from the REMICs and other trusts based on the level of
loans serviced.  The fee income  component of servicing income increased by $9.9
million and $26.9 million for the three and nine months ended  December 31, 1998
, as compared to the corresponding  period in fiscal 1998,  respectively.  These
increases  were  primarily due to the increase in the size of the Company's home
equity  servicing   portfolio  and  the  year-to-date   volume  of  home  equity
securitizations. The Company's home equity loan servicing portfolio increased to
$12.7  billion at December  31, 1998 from $9.1  billion at  December  31,  1997.
Capitalized  servicing  consists of servicing assets recorded in connection with
new securitizations  (i.e., the present value of future servicing income, net of
expenses),  reduced by the  amortization  of  capitalized  servicing  from prior
securitizations.  The net capitalized  servicing  component of servicing  income
decreased by $16.1 million and $11.3 million for the three and nine months ended
December  31,  1998,  as compared to the  corresponding  periods in fiscal 1998,
respectively.  The  decrease  for the three  months  ended  December 31, 1998 as
compared  to the  corresponding  period in fiscal  1998 was due to a decrease in
securitization  volume from $1.7 billion in the third  quarter of fiscal 1998 to
$1.0 billion in the third quarter of fiscal 1999.  Additionally,  the decline in
net



                                       18
<PAGE>


capitalized  servicing  for both the three and nine months  ended  December  31,
1998,  as  compared  to  corresponding  periods  in fiscal  1998 was caused by a
scheduled  acceleration in  amortization  of the capitalized  servicing asset as
compared  to the prior  periods.  Loans  originated  during  1997 and 1998 had a
higher amount of capitalized servicing than earlier  originations,  as a result,
the implied amortization accelerated.

Compensation and benefits and General and administrative expenses:

In fiscal 1997, the Company acquired 100% of three retail home equity companies,
California  Lending  Group,  Inc.,  d/b/a  United  Lending  Group,  Resource One
Consumer Discount Company, Inc., and Royal Mortgage Partners,  L.P., d/b/a Royal
MortgageBanc  and 56% of an auto finance  company,  Triad Financial  Corporation
("Triad").  In fiscal 1998, the Company  acquired the remaining 44% of Triad and
100% of two additional retail home equity companies, Fidelity Mortgage Decisions
Corporation and Crystal Mortgage Company, Inc. along with its subsidiary Lenders
M.D.,  Inc. These companies are  collectively  referred to herein as the "Retail
Subsidiaries".  In each case,  the  companies  acquired  were  former  Strategic
Alliances or ContiMortgage/ContiWest loan origination sources.

The table below allocates the Company's  compensation and benefits,  general and
administrative  expenses and headcount  between the Retail  Subsidiaries and all
other activities.  The Company's  development of its retail origination platform
has  resulted  in a change in the  profile  of the  consolidated  statements  of
income.  Retail origination  expenses focus heavily on compensation and benefits
and general and administrative expenses,  whereas wholesale origination costs in
the  form  of  loan  origination  points,  are  netted  against  gain on sale of
receivables. Consequently, the accompanying unaudited consolidated statements of
income reflect increases in retail operating expenses,  as well as higher income
from retail loan origination points (see "Gain (Loss) on Sale of Receivables and
Excess  Spread  Receivables").  From the  date of the  acquisition  of  majority
ownership,  expenses of the acquired  subsidiaries are included in the Company's
consolidated expenses.

As demonstrated in the table below,  the acquisition and expansion of the retail
origination   subsidiaries   has  resulted  in  higher  levels  of  general  and
administrative  expenses and compensation and benefits expenses. With respect to
the  Company's  activities  exclusive  of the Retail  Subsidiaries,  general and
administrative  expense increased due to the significant  year-to-year growth in
ContiMortgage's  origination volume, its serviced loan portfolio and the related
growth in headcount to support these  activities.  Conversely,  compensation and
benefits expense for the three months ended December 31, 1998,  exclusive of the
Retail Subsidiaries,  decreased slightly as compared to the corresponding period
in fiscal 1998. During the nine months ended December 31, 1998, compensation and
benefits expense, exclusive of the Retail Subsidiaries, increased but at a lower
rate than the related increase in ContiMortgage's  aforementioned growth factors
effecting  general and  administrative  expense.  The  compensation and benefits
fluctuations  resulted from decreased incentive  compensation accrued during the
three and nine months ended December 31, 1998.



                                       19
<PAGE>


<TABLE>
<CAPTION>
                                                              Three                                     Nine
                                                           Months Ended                             Months Ended
                                                           December 31,         Increase/           December 31,
                                                       1998          1997       (Decrease)        1998          1997        Increase
                                                     --------      --------     ----------      --------      --------      --------
                                                                      (dollars in thousands)
<S>                                                  <C>           <C>           <C>            <C>           <C>           <C>
Compensation and benefits:
   Retail Subsidiaries ........................      $ 24,106      $ 20,676      $  3,430       $ 68,800      $ 47,478      $ 21,322
   Operations excluding Retail
               Subsidiaries ...................        24,260        24,718          (458)        74,732        64,627        10,105
                                                     --------      --------      --------       --------      --------      --------
Total compensation and benefits ...............      $ 48,366      $ 45,394      $  2,972       $143,532      $112,105      $ 31,427
                                                     ========      ========      ========       ========      ========      ========

General and administrative:
  Retail Subsidiaries .........................      $ 17,845      $ 12,720      $  5,125       $ 52,811      $ 32,994      $ 19,817
  Operations excluding Retail
               Subsidiaries ...................        23,497        14,444         9,053         61,113        37,958        23,155
                                                     --------      --------      --------       --------      --------      --------
Total general and administrative ..............      $ 41,342      $ 27,164      $ 14,178       $113,924      $ 70,952      $ 42,972
                                                     ========      ========      ========       ========      ========      ========

Headcount (at period end):
   Retail Subsidiaries ........................         1,830         1,420           410
   Headcount excluding Retail
               Subsidiaries ...................         1,577         1,050           527
                                                     --------      --------      --------
Total headcount ...............................         3,407         2,470           937
                                                     ========      ========      ========
</TABLE>

Gain (Loss) on Sale of Receivables and Excess Spread Receivables

Gain (loss) on sale of receivables:

The  following  table  sets  forth  the  components  of gain  (loss)  on sale of
receivables for the three and nine months ended December 31, 1998 and 1997. Gain
on sale of receivables with respect to  ContiMortgage/ContiWest  securitizations
includes the gain recorded upon the completion of the securitizations as well as
unrealized  gains or losses that result from the quarterly  adjustment of ESR to
fair value. ESR fair value adjustments  recorded in fiscal 1999 are discussed in
the following section on "Excess Spread Receivables" :

<TABLE>
<CAPTION>
                                                                  Three Months Ended                Nine Months Ended
                                                                      December 31,                     December 31,
                                                                1998             1997             1998             1997
                                                              --------         --------         --------         --------
                                                                               (dollars in thousands)
<S>                                                           <C>              <C>              <C>              <C>
Home equity/home improvement:
   ContiMortgage/ContiWest securitizations .............      $ 17,757         $ 33,993         $ 19,108         $120,953
   Other (including whole loan sales, origination
     points and fees) ..................................        13,564           33,532           55,514           64,577
                                                              --------         --------         --------         --------
Total home equity/home improvement .....................        31,321           67,525           74,622          185,530
Commercial real estate .................................         1,515            8,493              267           24,270
Auto ...................................................         3,540            7,335           15,957           14,290
Other ..................................................          (656)            (722)          (1,238)           1,673
                                                              --------         --------         --------         --------
       Total ...........................................      $ 35,720         $ 82,631         $ 89,608         $225,763
                                                              ========         ========         ========         ========
</TABLE>



                                       20
<PAGE>


Also, see  "Discussion of Events During the Three and Nine Months Ended December
31, 1998" at the beginning of Item 2.  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations".

Excluding  the ESR  fair  value  adjustments,  gain on sale of  receivables  for
ContiMortgage/ContiWest securitizations was $37.9 million and $170.8 million for
the three and nine months ended December 31, 1998, respectively. Gain on sale of
receivables for  ContiMortgage/ContiWest  securitizations  was $34.0 million and
$121.0  million  for  the  three  and  nine  months  ended  December  31,  1997,
respectively.  The increase in gain on sale in the third  quarter of fiscal 1999
from the  comparable  period in fiscal 1998 is due to an increase in the gain on
sale  percentage  from  2.05%  to  3.61%,  partially  offset  by  a  decline  in
securitization  volume from $1.7 billion in the third  quarter of fiscal 1998 to
$1.0 billion in the third  quarter of fiscal  1999.  The increase for the fiscal
1999 nine month  period to the  comparable  fiscal 1998 period was due to higher
securitization  volumes  in fiscal  1999 of $4.9  billion  from $4.5  billion in
fiscal 1998 and a higher gain on sale percentage of 3.49% from 2.72%.

The increases in the gain on sale percentage  (i.e. gain on sale before ESR fair
value  adjustments as a percentage of  securitization  volume) for the three and
nine months ended December 31, 1998, from the comparable  periods in fiscal 1998
were due to a decline in premiums paid to acquire loans from wholesale  sources,
partially offset by a widening in the interest rate spread.

Excess Spread Receivables:

At  December  31, 1998 and March 31,  1998,  the  Company's  ESR  portfolio  was
comprised of the following :

<TABLE>
<CAPTION>
                                                     December 31,      Percentage           March 31,       Percentage
                                                        1998            of Total             1998            of Total
                                                     ------------      ----------           ---------       ----------
                                                                           (dollars in thousands)
<S>                                                   <C>                 <C>               <C>                <C>  
Home equity:
    ContiMortgage/ContiWest ..................        $715,340            84.2%             $555,884           85.7%
    Other servicers ..........................          31,404             3.7                37,428            5.8
                                                      --------           -----              --------          -----
       Total home equity .....................         746,744            87.9               593,312           91.5
Home improvement .............................           5,333             0.6                 7,919            1.2
Commercial real estate .......................          39,589             4.7                 8,233            1.3
Auto .........................................          51,358             6.0                28,223            4.3
Leases .......................................           5,301             0.6                 8,960            1.4
Franchise ....................................           1,319             0.2                 2,138            0.3
                                                      --------           -----              --------          -----
       Total ESR portfolio ...................        $849,644           100.0%             $648,785          100.0%
                                                      ========           =====              ========          =====
</TABLE>

The  ESR  is  reported  as  "Interest-only  and  residual  certificates"  in the
accompanying  unaudited  consolidated  balance  sheets.  The ESR  represents the
present  value of an  estimated  stream of future  cash flows  that the  Company
expects to receive over the life of a securitization,  taking into consideration
estimated  prepayment  speeds and credit  losses.  These cash flows  include the
excess of the weighted  average coupon on the loans or



                                       21
<PAGE>


other  assets  securitized  over the sum of the  pass-through  interest  rate, a
normal servicing fee, a trustee fee, an insurance fee (where applicable) and the
credit losses relating to the loans or other assets securitized. At December 31,
1998,  ESR totaled  $849.6  million,  of which $715.3  million,  or 84.2% of the
total, was attributable to ContiMortgage/ContiWest securitizations.

A major factor  affecting  the level of  estimated  future ESR cash flows is the
rate at which the  underlying  principal  of the  securitized  loans is reduced.
Prepayments represent principal reductions in excess of contractually  scheduled
reductions;  prepayment speeds are generally  expressed as an annualized CPR. In
determining  fair  value  of the  ContiMortgage/ContiWest  ESR  portfolio  as of
December 31, 1998, the Company's weighted average estimated future CPR was 28%.

Additional  factors that are considered in determining the fair value of ESR are
estimated  future credit losses and the discount rate. As a credit  enhancement,
the ESR is subordinate  to the rights of the holders of the senior  pass-through
securities.  The  weighted  average  annual  credit loss  provision  used in the
determination  of the fair value of  ContiMortgage/ContiWest's  ESR was 0.75% at
December 31, 1998.  Total estimated  future ESR credit losses as of December 31,
1998 as a percentage of the December 31, 1998 unpaid principal  balance of loans
securitized  was 2.41%.  The future cash flows  estimated as of December 31, and
March 31, 1998, taking into consideration  estimated prepayment rates and credit
losses,  were  discounted  at a rate of 10% to arrive at the fair value  amounts
presented in the accompanying unaudited consolidated balance sheets.

The Company  determines the discount rate utilized in determining  fair value by
selecting  a rate that is  commensurate  with the risks  involved.  The  Company
recognizes  that the ESR  discount  rate  when  interacting  with the  other two
assumptions, loss and prepayment, is a "risk-adjusted" rate. In determining this
rate the Company  considers many factors including a comparison to the yields on
other financial instruments with prepayment or credit risk.

If actual  prepayments or credit losses are greater than the assumptions used to
determine ESR fair value,  the ESR carrying value will be written down through a
charge to earnings. Given the size of the Company's servicing portfolio,  even a
modest change in ESR fair value  assumptions can have a relatively  large impact
on ESR fair  value.  The table  below  illustrates  the impact of a positive  or
negative  change in a single  assumption  used to determine ESR fair value while
keeping the absolute value of the other two assumptions constant.  The impact of
changes in these assumptions are not linear. As of December 31, 1998, changes in
the assumptions would have approximately the following impact on ESR fair value.

         Factor                       Change            Fair value impact
         ------                       ------            -----------------
     Annual CPR                  +100 basis points        $(32 million)
     Annual CPR                  -100 basis points         $36 million
     Annual credit losses         +10 basis points        $(30 million)
     Annual credit losses         -10 basis points         $29 million
     Discount rate               +100 basis points        $(29 million)
     Discount rate               -100 basis points         $31 million


                                       22
<PAGE>


The following  table presents an analysis of ESR activity during the nine months
ended December 31, 1998:

Interest-only and residual certificates (in thousands):

Balance as of March 31, 1998 .......................                  $ 648,785
   New securitizations:
       ContiMortgage 1998-2 ........................      100,175
       Triad 1998-2 ................................        6,165
       ContiMortgage 1998-3 ........................      130,388
       Triad 1998-3 ................................        9,621
       Commercial (1) ..............................       35,931
       ContiMortgage 1998-4 ........................       66,403
       Triad 1998-4 ................................       13,600       362,283
                                                        ---------
   Cash distributions from REMICs and trusts .......                    (87,319)
   Cash payments on previous ESR sales (2) .........                     50,989
   Accruals of interest income .....................                     40,762
   Special Charges (3) .............................                     (4,000)
   Fair value adjustments (see discussion below) ...                   (161,856)
                                                                      ---------
Balance as of December 31, 1998 ....................                  $ 849,644
                                                                      =========

(1)  Represents  "BB+/-" rated  certificates  retained  from the Morgan  Stanley
     Capital 1998-CF1 securitization.

(2)  Represents cash payments made to certain  purchasers of  interest-only  and
     residual certificates sold with limited recourse.

(3)  Included in special  charges was a $4.0 million  write-down  of the "BB+/-"
     rated  certificates  retained  from the  Morgan  Stanley  Capital  1998-CF1
     securitization.

ESR Fair Value Adjustments - The $161.9 million  adjustment noted above included
$59.5  million,  $78.4 million and $24.0 million in the first three  quarters of
fiscal 1999,  respectively.  The first quarter negative adjustment was primarily
attributable to higher prepayment speeds.  During the first quarter, the Company
increased    the    weighted    average    estimated    future   CPR   for   its
ContiMortgage/ContiWest  ESR portfolio from 27% at March 31, 1998 to 28% at June
30,  1998.  At December 31, 1998,  the estimate  remained at 28%.  Approximately
$25.0 million of the aggregate  second  quarter  adjustment  was the result of a
higher level of actual  prepayments during the quarter than the level assumed in
the computation of ESR fair value on ContiMortgage/ContiWest REMICs. Prepayments
moderated  later in the second  quarter.  Also  during the second  quarter,  the
Company    increased    its    assumption    of   future    credit   losses   on
ContiMortgage/ContiWest  REMICs to reflect the increase in its assumed  level of
defaults  on  currently  performing  loans  and  loss  severity.  This  increase
accounted for $46.3 million of the fair value adjustment. The third quarter fair
value adjustment of $24.0 million was the result of an increase in the estimated
future credit losses of ContiMortgage/ContiWest REMIC's and the impact of actual
credit  losses during the quarter  being higher than  expected.  The increase in
estimated  future  losses  and the  impact  of  higher  losses  for the  quarter
accounted  for  $27.7  million  and  $5.8  million  in ESR fair  value  decline,
respectively.  This  increase  in  estimated  future  credit  losses  reflects a
projected  increase in defaults on currently  performing loans and loss severity
on defaulted loans.  During the third quarter the Company increased its estimate
of future prepayments on certain ContiMortgage/ContiWest  REMIC's. This increase
resulted in a $10.0  million  decline in ESR fair value.  These  declines in ESR
fair value were partially offset by the impact of favorable  changes in interest
rates  during the  quarter  which  increased  ESR fair  value by $19.5  million.
Combined historical and estimated future losses as a percentage of original



                                       23
<PAGE>


pool  balances  (for  ContiMortgage/ContiWest  REMICs) was 2.31% at December 31,
1998  compared  with 2.08% and 1.81% at  September  31, 1998 and June 30,  1998,
respectively.

Liquidity and Capital Resources

Also, see  "Discussion of Events During the Three and Nine Months Ended December
31, 1998" at the beginning of Item 2.  "Management's  Discussion and Analysis of
Financial Conditions and Results of Operations".

Sources of Liquidity and Capital

The Company requires continued access to short- and long-term sources of funding
for its operations.  The Company's primary cash requirements include the funding
of: (i) mortgage and loan  originations  and purchases  pending their sale; (ii)
premiums paid in connection with the acquisition of wholesale loans;  (iii) fees
and  expenses  incurred in  connection  with its  securitization  program;  (iv)
over-collateralization  or reserve account requirements in connection with loans
pooled and sold; (v) servicer  advances to REMICs;  (vi) ongoing  administrative
and other operating expenses; (vii) payments related to tax obligations;  (viii)
interest and principal  payments  relating to the Company's  long-term  debt and
short-term  borrowed  funds;  (ix)  the  costs  of  sales  under  the  Company's
Facilities;  (x) funding margin calls; (xi) payments made in connection with the
Company's hedging strategy;  and (xii) the cost of any subsequent purchase price
adjustments on prior acquisitions.

The Company's  primary  sources of liquidity are sales of loans and other assets
through  securitizations,  whole loan  sales,  the sale or  financing  of loans,
leases and other assets under its  Facilities,  the issuance of shares of common
stock, the issuance of long-term debt and short-term borrowed funds.

The Company had $1.93  billion of  committed  and $2.30  billion of  uncommitted
funding  capacity under the Facilities as of February 12, 1999. The Purchase and
Sale Facilities allow the Company to sell, with limited  recourse,  interests in
designated pools of loans and other assets. The Repurchase  Agreements allow the
Company  to  sell,  with  recourse,  receivables  held  for  sale  to  financial
institutions  under  agreements to repurchase  the  receivables.  The Facilities
generally  have one year  renewable  terms,  which expire between March 1999 and
December 1999 as follows (amounts in thousands):

                                   Committed      Uncommitted        Total
      Expiration                   Facility        Facility        Facility
      ----------                   --------        --------        --------
                                                (in thousands)
     March, 1999                  $  600,000      $1,050,000      $1,650,000
     May, 1999                       400,000            --           400,000
     June, 1999                      150,000         600,000         750,000
     July, 1999                      230,000            --           230,000
     September, 1999                 250,000         450,000         700,000
     December, 1999                  300,000         200,000         500,000
                                  ----------      ----------      ----------
       Total facilities           $1,930,000      $2,300,000      $4,230,000
                                  ==========      ==========      ==========

As of December 31, 1998,  the Company had utilized  $1.7 billion of the capacity
under the  Facilities.  Although  the  Company  currently  plans to renew  these
facilities when they expire,  there can be no assurance that such financing will
be obtainable on as favorable terms, if at all.



                                       24
<PAGE>


On April 2, 1998, the Company issued $200 million aggregate  principal amount of
8 1/8% unsecured Senior Notes due April 1, 2008. Proceeds to the Company, net of
underwriting fees, market discount and other costs were $188.1 million. Interest
on these  notes is payable  semi-annually  on April 1 and  October 1  commencing
October 1, 1998.  The notes are redeemable in whole or in part, at the option of
the Company,  at any time or from time to time,  at a redemption  price equal to
the greater of (i) 100% of their principal amount or (ii) the sum of the present
values of the remaining  scheduled  payments of principal  and interest  thereon
discounted to the date of redemption on a semiannual basis at the treasury yield
plus 50 basis  points,  plus,  in each  case,  accrued  interest  to the date of
redemption.

On August 21, 1998, the Company increased its Commercial Paper Program backed by
an irrevocable direct-pay letter of credit provided by a syndicate of banks from
$275.0  million to $317.5  million.  At December  31,  1998,  $311.9  million of
commercial paper was outstanding. As of February 16, 1999, the Company was fully
drawn  under  the  Company's  Commercial  Paper  Program  and its  $200  million
unsecured Revolving Credit Facility.

In previous  fiscal  years,  the Company  sold ESR,  with limited  recourse,  to
provide cash to fund the Company's operations.  Under the recourse provisions of
the agreements,  the Company is responsible for losses incurred by the purchaser
within an agreed-upon  range. At December 31, 1998, $30.5 million of these sales
were outstanding.  The Company's  performance  obligations in these transactions
are guaranteed by Continental  Grain for an agreed-upon  fee.  Another method of
generating  liquidity from the ESR portfolio is through the sale of Net Interest
Margin Notes,  which  generated  proceeds of $159.7  million in fiscal 1998. The
Company does not intend to pursue such sales in the future,  rather, the Company
intends  to retain  ESR in the  portfolio  allowing  ESR cash flow to build over
time.

The  Company is  operating  on a negative  cash flow basis and is  dependent  on
various financing sources for its continued  operations.  Although the Company's
objective is to achieve a positive cash flow from  operations,  no assurance can
be given that this  objective  will be achieved.  In order to fund new loans and
asset  originations  and  purchases,  the Company is dependent on its ability to
fund loans and other  assets under its  Facilities.  The Company is dependent on
securitizations  and  whole-loan  sales to generate the cash flow to repay these
lines  and to  create  availability  on such  lines  for new  fundings.  Adverse
conditions in the  securitization  and whole-loan  sale markets could impair the
Company's  ability to  originate,  purchase and sell loans and other assets on a
favorable or timely basis.  The Company is also dependent on continued access to
its  Revolving   Credit  Facility  and  Commercial   Paper  Program  (the  "Bank
Facilities")  or obtaining new bank  facilities in order to meet its cash needs.
Failure  of the  Company  to have  continued  access to the  securitization  and
whole-loan sale markets and its Facilities and the Bank Facilities or failure of
the Company to renew such  Facilities and the Bank  Facilities  when they expire
could have a  material  adverse  effect on the  Company's  liquidity,  financial
condition and operations.

The Company is required to comply with  various  financial  covenants  under its
outstanding  Senior  Notes,  Revolving  Credit  Facility  and  Commercial  Paper
Program,  as  well  as  under  certain  provisions  of  two  of  the  Repurchase
Agreements,  including,  among other things,  leverage ratios, minimum net worth
tests and interest  coverage  ratios.  As of December 31,  1998,  the  Company's
leverage  ratio  exceeded  the  leverage  ratio test under the  covenants of its
outstanding  Senior Notes.  As a result,  the Company is prevented  from issuing
additional  unsecured  debt until its  leverage  ratio is below  such test.  The
Company  and two of its  lenders  agreed  to  amend  certain  provisions  of the
Repurchase  Agreements.  Amendments were received from the Repurchase  Agreement
lenders  changing the leverage ratio to 2.75 to 1. Amended  financial  covenants
were also received changing the leverage and fixed charge ratios and the minimum
net worth test in the Revolving Credit Facility and Commercial Paper Program and
lenders agreed to exclude certain charges from the covenant ratio  calculations.
If the above mentioned  amendments had not been obtained,  the Company would not
have been in compliance  with the covenants.  The Company was in compliance with
the amended



                                       25
<PAGE>


covenants of the Revolving Credit Facility, the Commercial Paper Program and the
Repurchase  Agreements as of December 31, 1998. As part of the amendments to the
Revolving Credit Facility, the Company has agreed to prepay the Revolving Credit
Facility on August 20,  1999,  which would make the  revolving  Credit  Facility
coterminous with the Commercial Paper Program, and increase the interest rate of
the  Revolving  Credit  Facility and the  Commercial  Paper Program by 138 basis
points.  The  Company's  ability  to  continue  to  maintain  funding  under the
Revolving  Credit  Facility and the  Commercial  Paper Program is subject to its
continued  compliance with these amended  covenants or, if necessary,  obtaining
covenant relief.  The Company's  ability to remain in compliance is dependent on
factors,  some of  which  are  beyond  the  control  of the  Company,  primarily
conditions in the  securitization  and whole-loan  sale markets.  Failure of the
Company to remain in compliance  with the financial  covenants may result in the
discontinuation of funding under its financing facilities.

There can be no assurance  that the Company will be able to renew the  Revolving
Credit Facility and the Commercial Paper Program,  or obtain new bank debt, when
the Revolving  Credit  Facility and the  Commercial  Paper Program  terminate in
August, 1999, on as favorable terms, if at all.

The Company is engaged in discussions with potential new investors  regarding an
equity  investment  in the Company to improve  its capital  base and enhance the
execution  of its new  business  strategy.  No  assurance  can be given that the
Company will be  successful  in raising  additional  equity.  Under  appropriate
conditions,   Continental  Grain  Company  ("Continental   Grain"),  which  owns
approximately  78%  of  the  Company's  outstanding  common  stock,  expects  to
participate  along with such potential equity investor or investors in making an
equity  investment  in the  Company.  However,  Continental  Grain  has  made no
commitment to make such an investment.

In February 1998, the Company's Board of Directors authorized the purchase of up
to one million shares of the Company's  outstanding common stock. The repurchase
of one million  shares was  completed  in July 1998 at an average cost of $27.66
per share.  The purchased shares are held in treasury for use in connection with
ContiFinancial's Stock Plan.

On October 13, 1998,  Standard & Poor's  lowered its senior  unsecured  debt and
long-term  debt credit  ratings to B+. On November 20, 1998,  Fitch IBCA reduced
the  Company's  long-term  debt  rating  to B+. On  February  9,  1999,  Moody's
Investors Service downgraded the Company's long-term debt ratings to B3.

Year 2000

The "Year 2000"  issue,  the  ability of systems to  identify  dates in the 21st
century,  is a critical  business and  operational  issue being addressed by the
Company. The issue primarily encompasses computer programs and applications that
were written using two digits (instead of four) to describe an applicable  year.
Failure to  successfully  modify such programs and  applications to be Year 2000
compliant could have a material  adverse impact on the Company.  Exposure arises
not only from potential consequences (e.g., business interruption) of certain of
the Company's own applications not being Year 2000 compliant,  but the impact of
noncompliance  by  certain  significant   counterparties,   including  Strategic
Alliances.

The  Company  has  undertaken  a  project  to bring its  systems  into Year 2000
compliance.  This project  includes an assessment  to determine the  anticipated
cost to remediate its systems and applications to make them Year 2000 compliant.
Project  efforts are being  coordinated  by a Year 2000 Task Force whose members
include the Company's  senior  management and information  technology,  finance,
accounting  and legal staffs,  supported by external  consultants.  Similar task
forces have been formed by each of Company's majority owned subsidiaries.

The Company's Year 2000 Task Force  established  the following five step project
methodology to address the Company's Year 2000 issues: (1) awareness and project
definition; (2) systems inventory and assessment; (3)



                                       26
<PAGE>


remediation; (4) testing; and, (5) implementation. The chart below describes the
Company's current and anticipated progress on the Year 2000 issue.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                            TARGET
                        PHASE                                DATE            STATUS                COMMENTS
------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>              <C>                <C>
Awareness and Project Definition - Heighten
awareness of the Company's Year 2000 issues and            March, 15,       Complete
formulate plans to address them.                             1998
------------------------------------------------------------------------------------------------------------------------
Systems Inventory and Assessment - Inventory
all hardware, software and computerized systems           April 15,       Substantially      A portion of the facilities
and identify those requiring Year 2000                       1998           Complete*        assessment is incomplete.
remediation.
------------------------------------------------------------------------------------------------------------------------
Remediation - Modify or replace all hardware,                                                Awaiting Year 2000
software and computerized systems that are not            August 31,       Partially         compliant software
Year 2000 compliant.                                         1998          Completed*        upgrades from some
                                                                                             vendors.
------------------------------------------------------------------------------------------------------------------------
Testing - Test modifications to and replacements                                             Awaiting Year 2000
of all hardware, software and computerized               December 31,     In progress*       compliant software
systems for Year 2000 compliance.                            1998                            upgrades from some
                                                                                             vendors.
------------------------------------------------------------------------------------------------------------------------
Implementation - Integrate the remediated and              March 31,      In progress
tested hardware, software and computerized                   1999
systems into the Company's operations.
------------------------------------------------------------------------------------------------------------------------
</TABLE>

* The  Company  does not  expect a  material  adverse  effect as a result of not
meeting these targets.

The Company has taken a prioritized  approach to addressing  the Year 2000 issue
and has  directed  its  efforts in  achieving  compliance  in the most  critical
systems first.  Systems and functions such as loan servicing,  loan origination,
payroll, human resources, financial, communications and other systems have taken
priority over facilities.  The Company is also dependent on third party property
managers for facility compliance  information which has not yet been received in
full. The  facilities  inventory and  assessment is  substantially  complete but
until it is  finalized,  the Company  cannot  complete the System  Inventory and
Assessment phase of the project. The Company plans on addressing  facilities and
does not expect a material adverse effect as a result of not meeting its project
phase target dates for facilities related systems.

Based on its  analysis of the data from the  systems  inventory  and  assessment
phase,  the Company has concluded  that the greatest risk posed by the Year 2000
issue  concerns the  computerized  loan servicing  systems  utilized by its home
equity  and  automobile  lending  operations.  If such  systems  fail to operate
properly as a result of the Year 2000 issue,  the loan  servicing  process could
not be executed  efficiently in a manual environment.  Both  ContiMortgage,  the
Company's  largest home equity  originator,  and Triad,  the Company's auto loan
originator,  use loan  servicing  systems  and  software  developed  by  outside
vendors.  These  systems and  related key  ancillary  systems are  operated  and
maintained in-house or under a service arrangement with the vendors.  Conversion
to  new  systems  and  servicing  software  could  take  up  to  twelve  months.
Accordingly,  a large part of the Company's remediation effort currently focuses
on insuring that  ContiMortgage's and Triad's loan servicing systems will not be
negatively impacted by the Year 2000 issue.

ContiMortgage  has  received  notice from its loan  servicing  software  service
provider  that  their  product  line and data  center  environment  is Year 2000
compliant as of December  31, 1998.  Through  1999,  the vendor will  facilitate
client based testing,  participate in industry testing, and continue future date
testing of their systems and underlying  third-party  products to verify ongoing
compliance. ContiMortgage's loan servicing software vendor is one of the largest
in the financial  services  industry and its Year 2000  remediation  and testing
efforts are being scrutinized by the Federal Financial Institutions  Examination
Council.  The loan servicing software vendor has retained an independent auditor
to monitor its Year 2000  remediation and testing efforts and to



                                       27
<PAGE>


provide regular reports to the vendor's customers.  Although the Company has the
highest level of confidence in its loan servicing  vendor, it has undertaken the
preparation  of a plan that would  facilitate  the  identification  of Year 2000
related  issues by users and  outline  the  actions to be taken to  address  the
issues in the event that  compliance  issues  arise  within  the loan  servicing
system. Even with a contingency plan in place, it is possible that ContiMortgage
could suffer a business  disruption that could have a material adverse impact on
the Company.  ContiMortgage's  remediation,  testing and implementation of other
primary systems and applications for Year 2000 compliance is complete.

Triad uses a vendor for its computerized loan servicing and collections  system.
According  to the terms of its  contract  with  Triad,  the loan  servicing  and
collections  vendor is  obligated  to ensure  that the Year 2000  issue does not
cause an interruption  in the services it provides to Triad.  Testing of Triad's
loan  servicing  system has been  completed  successfully  and loan servicing is
currently  processed on the Year 2000 compliant system.  Triad has substantially
completed  testing of its  computerized  systems and  applications for Year 2000
readiness and continues to test its remaining  systems and its  interfaces  with
loan origination sources and other entities with which it exchanges  information
electronically.

The Company is also working to ensure that other  operations  are not materially
affected by the Year 2000 issue.  The ability of the Company's  subsidiaries  to
generate new business would be severely  impacted if the Company's  primary long
distance  telephone  carrier  experiences  Year 2000 related  difficulties.  The
Company's primary long distance  telephone carrier  anticipated that its systems
would be Year 2000  compliant  by late  calendar  year 1998 but the  carrier has
pushed back the compliance  date  approximately  six months.  Telecommunications
networks are difficult to test and it is highly unlikely that the Company's long
distance  telephone  carrier will provide  written  assurance that the Company's
telecommunications network will not experience Year 2000-related  interruptions.
Therefore,  the  Company  will  have  to  rely on its  long  distance  carrier's
reputation, public statements and internal testing procedures.

Another function that could be adversely effected by the Year 2000 issue are the
credit  reporting  agencies  which  provide the  Company's  home equity and auto
lending  subsidiaries with information about the  creditworthiness  of potential
borrowers.  The  Company's  subsidiaries  make  extensive  use of  these  credit
reporting agencies,  which in turn rely on consumer information provided to them
by third parties.  The Company's  credit  reporting  agencies did not meet their
December 1998 compliance  deadlines but it is the Company's  understanding  from
these firms that they will  continue to test their  systems  through 1999 and do
not  anticipate  interruption  of service  due to the Year 2000.  However,  some
credit industry  estimates  indicate that over half of all consumer reports from
credit  reporting  agencies could be inaccurate or incomplete as a result of the
Year 2000 issue.  If the credit  reporting  agencies,  or the third parties upon
which  they  rely,  experience  such  difficulties,  this  could have a material
adverse impact on the Company's business operations.

The  Company  believes  that  through  the  execution  of its Year 2000  project
methodology,  it  will  significantly  reduce  the  risk  of  a  major  business
interruption due to Year 2000 failures.  The major risks are associated with the
Year 2000  remediation  efforts of third party vendors  utilized by the Company.
The vendors have provided information  indicating that they will remediate their
Year 2000 issues prior to December  31,  1999.  The Company is in the process of
developing  contingency  plans  for use in the event  that any of its  hardware,
software or other computerized  systems, or those of a vendor, are not ready for
the Year 2000.

The  Company  reaffirms  its  estimate  that the  direct  cost of its Year  2000
remediation, including contingency planning, will be approximately $5.0 million.
This  estimate  is subject to change as the  project  progresses.  To date,  the
Company has spent approximately $1.3 million on the Year 2000 issue. The Company
presently  believes,  based  on the  information  obtained  during  the  systems
inventory  and  assessment  phase,  that the  Year  2000  issue  will not have a
material  adverse  impact on its computer  systems or operations.  However,  the
interdependent nature of the Company's operations, in particular its substantial
reliance on third party vendors,



                                       28
<PAGE>


makes it impossible to say with certainty that the Year 2000 issue will not have
a material adverse impact on those computer systems and operations.  The Company
will reassess the expected  cost of  compliance  and the risk that the Year 2000
issue will have a material  adverse impact during the  remediation,  testing and
implementation phases of its Year 2000 conversion effort.

Forward-looking Statements

Certain statements  contained in this Quarterly Report on Form 10-Q,  including,
but not limited to, statements  relating to the Company's  strategic  objectives
and  future  performance,  which are not  historical  fact,  may be deemed to be
forward-looking  statements  under the federal  securities  laws. There are many
important  factors  that  could  cause the  Company's  actual  results to differ
materially from those indicated in the forward-looking  statements. Such factors
include,  but are not limited to,  general  economic  conditions;  interest rate
risk;  prepayment  speeds;  delinquency  and default  rates;  credit loss rates;
changes (legislative and otherwise) in the asset securitization industry; demand
for the Company's  services;  residential and commercial real estate values; the
ability of the Company to negotiate  agreements to sell whole loans;  the impact
of certain covenants in loan agreements of the Company;  the degree to which the
Company is leveraged; its needs for financing; the continued availability of the
Company's  credit  facilities;  the risk of margin calls on the Company's credit
facilities  and hedge  positions;  capital  markets  conditions,  including  the
markets for asset-backed securities,  commercial  mortgage-backed securities and
net interest margin  securities;  the performance of the Company's  subsidiaries
and affiliates;  the Company's Year 2000 issues;  and other risks  identified in
the Company's Securities and Exchange Commission filings. In addition, it should
be noted that past financial and  operational  performance of the Company is not
necessarily indicative of future financial and operational performance.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

          Not applicable.


                                       29
<PAGE>



                            PART II OTHER INFORMATION

Item 1. Legal Proceedings.

          The Company has been actively  pursuing  settlements  of potential and
          threatened claims arising from the suspension of fundings with respect
          to that portion of the Company's  commercial real estate loan business
          originated  by ContiTrade  Services  L.L.C.  ("ContiTrade")  under the
          ContiMAP(R)  conduit. The Company has settled most of such claims. The
          settlement  amount in the aggregate  will not have a material  adverse
          effect on the Company's  financial condition or results of operations.
          In  addition,  none  of the  pending  potential  claims  which  remain
          unresolved  are  expected  to have a  material  adverse  effect on the
          Company's  financial  condition or results of  operations.  ContiTrade
          believes  that it has valid  defenses  to such  remaining  claims  and
          intends to vigorously  defend  against any  litigation  which has been
          initiated or which may ensue.

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

        (a) Exhibits

        Exhibit
          No.                      Description
        -------                    -----------
         10.1   SECOND AMENDMENT to the Credit Agreement

         10.2   SECOND AMENDMENT to the Letter of Credit and Reimbursement
                Agreement

         11.1   Computation of the Company's Earnings Per Common Share

         12.1   Ratio of Earnings to Fixed Charges

         27.1   Financial Data Schedule

        (b) Reports on Form 8-K.

        None.


                                       30
<PAGE>


                                   SIGNATURES

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


                           ContiFinancial Corporation


<TABLE>
<CAPTION>
Date                        Signature                          Title
----                        ---------                          -----
<S>                         <C>                                <C>
February 16, 1999           /s/ Susan E. O'Donovan             Vice President and Controller
--------------------        --------------------------           (Principal Accounting Officer)
                            Susan E. O'Donovan



February 16, 1999           /s/ Daniel J. Willett              Senior Vice President and Chief
--------------------        --------------------------            Financial Officer (Principal
                            Daniel J. Willett                     Financial Officer)          

</TABLE>


                                       31