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
September 30, 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                (I.R.S. Employer Identification No.)
of incorporation or organization)


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 November 9,
1998.




<PAGE>




                           ContiFinancial Corporation

                                Table of Contents


                                     PART I

                                                                            Page
 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 Fiscal 1999 Second Quarter         10
         Selected Financial Information                                     13
         Results of Operations                                              15
         Gain (Loss) on Sale of Receivables and Excess Spread Receivables   17
         Liquidity and Capital Resources                                    20
         Year 2000                                                          22
         Forward-looking Statements                                         25
 Item 3.Quantitative and Qualitative Disclosures About Market Risk          25

                                     PART II

 Item 1.Legal Proceedings                                                   26
 Item 4.Submission of Matters to a Vote of Security Holders                 26
 Item 6.Exhibits and Reports on Form 8-K                                    27

 Signatures                                                                 28


<PAGE>



                            CONTIFINANCIAL CORPORATION
                           Consolidated Balance Sheets
                   as of September 30, 1998 and March 31, 1998
                        (in thousands, except share data)
                                   (unaudited)              
<TABLE>                            
<CAPTION>

                                                                                                      September 30,       March 31, 
                                                                                                          1998              1998
                                                                                                
                                             Assets
                                                                                                            
                                                                                                  
<S>                                                                                                       <C>              <C>      
 Cash and cash equivalents                                                                            $     176,040    $     173,588

 Restricted cash                                                                                              2,481            1,147
 Securities purchased under agreements to resell                                                          1,382,356          857,649
 Receivables held for sale, net:
   Receivables held for sale                                                                                954,284          726,990
   Allowance for loan losses                                                                                (3,598)          (2,685)
                                                                                                      -------------    -------------
 Receivables held for sale, net                                                                             950,686          724,305

 Other receivables                                                                                          124,909          117,678

 Due from affiliates                                                                                         66,145           46,922

 Interest-only and residual certificates                                                                    793,753          648,785

 Capitalized servicing rights                                                                               105,873           74,292

 Premises and equipment, net of accumulated depreciation of  $11,027
   and $7,951 as of  September 30, 1998 and March 31, 1998, respectively                                     24,587           18,887

 Cost in excess of equity acquired                                                                           80,245           55,738

 Equity investments in unconsolidated subsidiaries                                                           51,101           53,660

 Other assets                                                                                                55,270           35,928
                                                                                                     --------------    -------------

          Total assets                                                                               $    3,813,446     $  2,808,579
                                                                                                     ==============     ============


                              Liabilities and Stockholders' Equity
 Liabilities:
 Accounts payable                                                                                     $     214,936     $     91,179
 Securities sold but not yet purchased                                                                    1,290,742          847,470
 Trade receivables sold under agreements to repurchase                                                      539,767          245,556
 Due to affiliates                                                                                              151              163
 Short-term debt                                                                                            524,600          366,104
 Taxes payable                                                                                                  ---           81,190
 Long-term debt                                                                                             699,293          499,553
 Other liabilities                                                                                           19,353           30,427
                                                                                                       ------------     ------------
          Total liabilities                                                                               3,288,842        2,161,642
                                                                                                       ------------     ------------

 Commitments and contingencies
 Minority interest in subsidiaries                                                                            5,131              629
                                                                                                              
 Stockholders' equity:
  Preferred stock  (par value $0.01 per share; 
    25,000,000 shares authorized; none
    issued at September 30, 1998 and March 31, 1998)                                                            ---              ---
  Common stock (par value $0.01 per share;  
    250,000,000 shares authorized;47,657,539 shares issued 
    at September 30, 1998 and March 31,1998)                  
                                                                                                                477              477
     Paid-in capital                                                                                         400,101         399,776

    Retained earnings                                                                                       154,725          262,956

    Treasury stock (908,104 and 201,209 shares of common stock, at cost, 
     at September 30, 1998 and March 31, 1998, respectively)                                               (25,096)          (5,794)
    Deferred compensation                                                                                  (10,734)         (11,107)
                                                                                                    ---------------      -----------
          Total stockholders' equity                                                                       519,473           646,308
                                                                                                    ---------------      -----------
          Total liabilities and stockholders' equity                                                $    3,813,446       $ 2,808,579
                                                                                                    ===============      ===========
</TABLE>

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






                           CONTIFINANCIAL CORPORATION
                        Consolidated Statements of Income
         for the three and six months ended September 30, 1998 and 1997
                        (in thousands, except share data)
                                   (unaudited)
<TABLE>
<CAPTION>


                                                                Three Months                            Six Months
                                                               Ended September                       Ended September
                                                                     30,                                    30,

                                                             1998               1997             1998                  1997
                                                         ------------       ----------       -------------        ------------
 Gross income:
<S>                                                    <C>             <C>                <C>               <C>               
    Gain on sale of receivables                        $       16,316  $        78,792    $         53,888  $          143,132
    Commercial real estate
       valuation adjustments (see Note 3)                   (129,034)              ---           (129,034)                 ---
    Interest                                                   90,899           58,225             162,879             107,904
    Net servicing income                                       28,966           17,807              55,686              33,780
    Other income                                                3,708            3,306               9,552               7,337
                                                        -------------     -------------     --------------        ------------- 
                                                               10,855          158,130            152,971              292,153
          Total gross income                            -------------     -------------     --------------        -------------    
                                                               
                                                                                            
                                                                                     

 Expenses:
    Compensation and benefits                                  51,842            36,477             95,166             66,711
    Interest                                                   66,140            40,499            121,522             76,362
    Provision for loan losses                                   2,329             1,203              3,051              2,514
    General and administrative                                 40,071            22,718             72,582             43,788
    Other charges (see Note 3)                                 36,090               ---             36,090                ---
                                                         ------------      ------------      -------------        ------------    
                                                                                                              
          Total expenses                                      196,472           100,897           328,411             189,375
                                                         ------------      ------------      -------------        ------------
                                                                                                 
 Income (loss) before income taxes and
     minority interest                                      (185,617)            57,233          (175,440)            102,778
 Income taxes                                                (71,362)            23,343           (67,261)             41,984
                                                         -----------       ------------       ------------        ------------ 
                                                                                                
 Income (loss) before minority interest                     (114,255)            33,890          (108,179)             60,794
 Minority interest in subsidiaries
                                                                  (4)             (947)                 52              (916)
                                                        ------------       ------------       ------------        -----------      
          Net income (loss)                             $   (114,251)      $     34,837       $  (108,231)        $    61,710
                                                        ============       ============       ============        ===========
 Basic earnings (loss) per common share                 $      (2.48)      $       0.74       $     (2.33)        $      1.35
                                                        ============       ============       ============        ===========
                                                                                                   
 Diluted earnings (loss) per common share               $      (2.48)      $       0.73       $     (2.33)        $      1.32
                                                        ============       ============       ============        ===========
                                                                                                  
 Basic weighted average number of
    shares outstanding                                    46,153,506         46,853,920        46,419,684          45,805,621
                                                        ============        ===========       ============        ===========
 Diluted weighted average number of
    shares outstanding                                    46,153,506         47,619,685        46,419,684          46,604,156
                                                        ============        ===========       ============        ===========
</TABLE>


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






<PAGE>



                           CONTIFINANCIAL CORPORATION
                 Condensed Consolidated Statements of Cash Flows
              for the six months ended September 30, 1998 and 1997
                                 (in thousands)
                                   (unaudited)
<TABLE>

                                                                                              Six Months Ended
                                                                                                September 30,

                                                                                             1998             1997
                                                                                      

<S>                                                                                   <C>               <C>        
 Net cash used in operating activities                                                $     (290,309)   $ (271,031)
                                                                                      ---------------   -----------
 Cash flows from investing activities:
       Acquisitions of majority owned subsidiaries (net of cash acquired)                    (22,086)           ---
       Acquisitions of minority owned subsidiaries                                            (1,140)       (5,603)
       Purchase of property and equipment, net                                                (8,375)       (3,959)
          Net cash used in investing activities                                       ---------------   -----------
                                                                                             (31,601)       (9,562)
 Cash flows from financing activities:                                                ---------------   ----------- 
       Decrease in due to affiliates                                                             (12)      (29,219)
       Increase in short-term debt                                                            158,340       245,310
       Increase in long-term debt                                                             199,778           714
       Proceeds from exercise of employee stock options                                           ---           524
       Debt issuance costs                                                                   (11,692)           ---
       Repurchase of common stock                                                            (22,052)           ---
       Net proceeds from common stock offering                                                    ---       100,778
       Other, net                                                                                 ---            24
                                                                                      ---------------   -----------            
           Net cash provided by financing activities                                          324,362       318,131
                                                                                      ---------------   -----------
                                                                                              
 Net increase in cash and cash equivalents                                                      2,452        37,538
                                                                                      
 Cash and cash equivalents at beginning of  period                                            173,588        51,200
                                                                                              
                                                                                      ---------------   -----------              
 Cash and cash equivalents at end of period                                           $       176,040   $    88,738
                                                                                      ===============   ===========


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









<PAGE>





                           CONTIFINANCIAL CORPORATION
         Notes to Unaudited Condensed Consolidated Financial Statements
                               September 30, 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  for the 1999  second  quarter  were  significantly  and
adversely  affected by extremely  difficult capital market conditions during the
quarter. Although interest rates on U.S. Treasury securities moved significantly
lower during the quarter,  the interest rate spreads between such securities and
other fixed income securities widened  considerably.  Particularly  affected was
the market for commercial real estate loans and securities backed by such loans.
These  adverse  developments   resulted  in  commercial  real  estate  valuation
adjustments and other charges against earnings of $165.1 million.

The accompanying unaudited  consolidated  statements of income includes a charge
of $125.0  million  related to the write down of  commercial  real estate  loans
during the second  quarter of fiscal 1999. At September 30, 1998 the Company had
commercial  real estate loans held for sale of $150.2 million and $845.8 million
of loans sold with limited  recourse under the Company's asset purchase and sale
facilities with certain financial institutions ("Purchase and Sale Facilities").
Prior to sale or  securitization,  the 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
hedges its resulting exposure to absolute movement in interest rates,  typically
through the short sale of U.S.  Treasury  securities  or interest  rate  futures
contracts.


                           CONTIFINANCIAL CORPORATION
  Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
                               September 30, 1998


During the 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.  In  addition,  commercial  real estate
valuation adjustments includes a $4.0 million reduction in the carrying value of
commercial real estate related excess spread receivable ("ESR").

Expenses for the quarter  include  other  charges of $36.1  million.  During the
quarter,  certain  affiliates  engaged in commercial  real estate  activities or
subprime  home  equity  lending  experienced   constraints  on  their  financing
availability  or  encountered  depressed  origination  premiums that the Company
believes  has  adversely  impacted  such  affiliates'  operations.  As a result,
charges  of $28.0  million  were  recorded  in order to  establish  reserves  in
connection with  receivables from such entities.  The remaining  charges of $8.1
million were attributable to the write down of certain investments in affiliates
and costs incurred as a result of the Company's  decision to reduce the scope of
certain business activities, primarily commercial real estate.


4.  STOCKHOLDERS' EQUITY

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

                                                                    Three Months                        Six Months
                                                                 Ended September 30,               Ended September 30,
                                                                1998                1997         1998                  1997
                                                                                                   
<S>                                                           <C>             <C>            <C>               <C>           
 Net income (loss)                                            $  (114,251)    $     34,837   $   (108,231)     $       61,710
                                                              ============    ============   =============     ==============
 Basic weighted average number of
 shares outstanding                                             46,153,506      46,853,920      46,419,684         45,805,621
 Adjustments for dilutive shares outstanding:

    Restricted shares                                              ---             175,086          ---               163,000
    Options                                                        ---             590,679          ---               635,535
                                                              ------------    ------------   -------------     --------------
                                                                                                
 Diluted weighted average number of
 shares outstanding                                             46,153,506      47,619,685      46,419,684         46,604,156
                                                              ============    =============  =============      =============

 Earnings (loss) per common share:
      Basic                                                   $     (2.48)    $       0.74   $      (2.33)      $        1.35
                                                              ============    ============   =============      =============
      Diluted                                                 $     (2.48)    $       0.73   $      (2.33)      $        1.32
                                                              ============    ============   =============      =============
</TABLE>








                           CONTIFINANCIAL CORPORATION
   Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
                               September 30, 1998


For the three and six months ended September 30, 1998, there were no adjustments
for diluted shares outstanding as their effect was 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 six
months ended  September 30, 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 with offices in Dallas and
Phoenix,  acts as a mortgage banker primarily to the insurance industry and does
not take principal risk.


6.  DEBT

Short-term and long-term debt at September 30, 1998 and March 31, 1998 consisted
of the following :
<TABLE>
<CAPTION>

                                                                                           September 30,           March 31,
                                                                                               1998               1998
                                                                                                     (in thousands)
 Short-term debt:
<S>                                                                                           <C>                 <C>         
    Commercial paper                                                                          $    314,226        $    270,708
    Revolving credit facility                                                                      150,000              95,000
    Uncommitted credit facility                                                                     60,000                 ---
    Current portion of long-term debt                                                                  374                 396
                                                                                              ------------        ------------
 Total short-term debt                                                                        $    524,600        $    366,104
                                                                                              ============        ============

 Long-term debt:
    8 3/8% Senior Notes, $300 million face amount, due 2003                                   $    299,348        $    299,295
    7 1/2% Senior Notes, $200 million face amount, due 2002                                        199,479             199,412
    8 1/8% Senior Notes, $200 million face amount, due 2008                                        199,785                 ---
    Capitalized lease                                                                                  681                 846
                                                                                              ------------        ------------
 Total long-term debt                                                                          $   699,293        $    499,553
                                                                                              ============        ============
</TABLE>




                           CONTIFINANCIAL CORPORATION
     Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
                               September 30, 1998


On April 2, 1998,  the Company  issued $200 million 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 $188.0 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 September 30, 1998, $314.2 million of commercial paper was
outstanding.

As of November  13, 1998 the Company is fully drawn under its  Commercial  Paper
Program and its $200 million unsecured revolving credit facility (the "Revolving
Credit Facility").

The Company is also 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 the Purchase and Sale Facilities
and agreements to repurchase  (the  "Repurchase  Agreements")  including,  among
other  things,  a 2.5 to 1  leverage  ratio,  a minimum  net  worth  test and an
interest  coverage ratio.  The Company was in compliance with these covenants as
of September  30, 1998 but may or may not be in  compliance as of the end of the
third  quarter of fiscal year 1999.  If it appears  necessary,  the Company will
approach its lenders  under the  Revolving  Credit  Facility and the  Commercial
Paper Program for covenant relief.  However,  no assurance can be given that any
such relief will be  forthcoming.  The  Company's  ability to continue to obtain
funding under the Revolving  Credit Facility and the Commercial Paper Program is
subject to its  continued  compliance  with these  covenants  or, if  necessary,
obtaining  covenant  relief.  The  Company's  ability to remain in compliance is
dependent on factors 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  discontinuation  of
funding under its financing  facilities and could have a material adverse effect
on the Company's liquidity, financial condition and operations.




<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 Fiscal 1999 Second Quarter

The  Company's  results  for the 1999  second  quarter  were  significantly  and
adversely  affected by extremely  difficult capital market conditions during the
quarter. Although interest rates on U.S. Treasury securities moved significantly
lower during the quarter,  the interest rate spreads between such securities and
other fixed income securities widened  considerably.  Particularly  affected was
the market for commercial real estate loans and securities backed by such loans.
As more fully discussed below,  these adverse  developments  resulted in charges
against earnings,  a weakening of operating  results  (exclusive of the charges)
and draws on liquidity.

Special  Charges Against  Earnings - The Company's  second quarter loss included
charges  against  earnings of $165.1  million that  resulted  directly  from the
disruptive market conditions noted above.

     The  accompanying  unaudited  consolidated  statements of income includes a
charge of $125.0  million  related to the write down of  commercial  real estate
loans  during the second  quarter of fiscal  1999.  At  September  30,  1998 the
Company had  commercial  real estate  loans held for sale of $150.2  million and
$845.8 million of loans sold with limited recourse under the Company's  Purchase
and Sale Facilities.  Prior to sale or  securitization,  the 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 hedges 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 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.  In addition,
commercial real estate valuation  adjustments  includes a $4.0 million reduction
in the carrying value of commercial real estate related ESR.

Expenses for the quarter  include  other  charges of $36.1  million.  During the
quarter,  certain  affiliates  engaged in commercial  real estate  activities or
subprime  home  equity  lending  experienced   constraints  on  their  financing
availability  or  encountered  depressed  origination  premiums that the Company
believes  has  adversely  impacted  such  affiliates'  operations.  As a result,
charges  of $28.0  million  were  recorded  in order to  establish  reserves  in
connection with  receivables from such entities.  The remaining  charges of $8.1
million were attributable to the write down of certain investments in affiliates
and costs incurred as a result of the Company's  decision to reduce the scope of
certain business activities, primarily commercial real estate.

Impact on  Operating  Results - In addition to the items  discussed  above,  the
market  conditions  that  prevailed  in the fiscal  1999  second  quarter had an
adverse impact on operating results.  The Company  contributed a total of $669.1
million   of   commercial   mortgage   loans  to  a  $1.1   billion   commercial
mortgage-backed  securitization  that closed in late August.  In  addition,  Red
Mountain  Funding,  a  48%  owned  affiliate,   contributed  $112.7  million  of
collateral to the transaction. As a result of the deterioration of interest rate
spreads,  the Company  recorded a pretax loss of $3.3 million in connection with
this  transaction,  which  is  included  in gain on sale of  receivables  in the
accompanying unaudited consolidated statements of income.

The Company  completed a $2.1 billion home equity  securitization  in September.
Although  spreads on  securities  collateralized  by home equity  loans  widened
during  the  quarter,  the  resulting  impact  on  profitability  was much  less
significant  than  the  impact  on the  commercial  real  estate  securitization
discussed  above.  The  pretax  gain on sale  recorded  in  connection  with the
ContiMortgage  98-3  transaction was $64.5 million.  The gain on sale percentage
(i.e.,  gain  on  sale  as a  percentage  of  securitization  volume)  for  that
transaction was 3.07%, down from 3.90% for the ContiMortgage 98-2 securitization
completed in the first quarter.  The  aforementioned  amounts do not include the
impact of ESR fair value adjustments.

The ESR fair value  adjustment  for the  quarter was $78.4  million.  During the
first  quarter,  the Company  increased the weighted  average  estimated  future
Conditional   Prepayment   Rate  ("CPR")  for  its   ContiMortgage   Corporation
("ContiMortgage")/ContiWest  Corporation ("ContiWest") ESR portfolio from 27% at
March 31, 1998 to 28% at June 30,  1998.  At September  30,  1998,  the estimate
remained at 28%.  Approximately  $25  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  Real Estate Mortgage  Investment  Conduits  ("REMICs").
Prepayments  moderated  later in the  quarter.  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
future defaults and an increase in future loss severity. This increase accounted
for $46.3  million of the fair value  adjustment.  (see "Gain  (Loss) on Sale of
Receivables and Excess Spread Receivables" for further discussion)

Draws on liquidity - As interest rate spreads  widened on  securities  backed by
commercial  real estate  loans and,  to a lesser  extent,  subprime  home equity
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  during the quarter and $36.9 million
in October 1998.

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 quarter.  As a result,  the net cash outflow
in connection with its hedge positions was $114.1 million over the course of the
quarter and $24.9 million in October  1998.  The Company had hedged its interest
rate  exposure on its loan  portfolio  through  the short sale of U.S.  Treasury
securities  or  interest  rate  futures  contracts.  In an effort to reduce  its
exposure to large cash outflows as a result of margin  requirements in the event
of a large  decline in interest  rates,  the Company has replaced a  significant
portion  of its short  sales and  futures  positions  with  positions  utilizing
options on interest rate futures contracts.

During the quarter,  the Company  maintained  sufficient levels of liquidity and
was able to fund its business activities,  albeit at a reduced level,  including
the 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.  Previously,  Continental Grain Company ("Continental  Grain"), which
owns  approximately 77% of the Company's  outstanding  common stock,  stated its
intention to provide the Company with financial  support,  under the appropriate
conditions. At ContiFinancial's request, Continental Grain has now agreed, for a
fee, to provide 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  through October
15, 1999.  Although the advances will be made to, and repaid by, the REMICs, and
not by the Company or ContiMortgage,  Continental  Grain's advances will improve
the  liquidity of the Company by relieving  it of its  obligation  to make these
advances  itself.  Continental  Grain has indicated its  willingness to consider
additional   financial   support   to  the   Company,   under  the   appropriate
circumstances,  should the Company  require it. However,  Continental  Grain has
made no commitment to provide additional funds.

The Company's most significant financing requirement is the funding of mortgage,
loan and lease  originations and purchases pending their pooling and sale. These
receivables  are  generally  financed  on a secured  basis  either  through  the
Company's  Purchase  and Sale  Facilities  or the  Company's  funding  under the
Repurchase  Agreements,  collectively,  the  "Facilities".  In October 1998, the
Company  suspended the  origination  of new loans  through its ContiMAP  conduit
program.  As noted  earlier,  the  Company  recorded  a $125.0  million  charge,
including  hedging  losses,  to  write  down the  commercial  real  estate  loan
portfolio to market value, assuming an orderly liquidation of the portfolio over
a reasonable  period of time based on the market conditions that prevailed as of
September 30, 1998.

Subsequent  to September  30,  1998,  the Company has reduced the volume of home
equity, home improvement and other residential mortgage loan originations.  Loan
originations  for the month of  October  were  $772.9  million  compared  with a
monthly  average  of $837.9  million  during  the  second  fiscal  quarter.  The
reduction was focused on wholesale originations since the Company typically pays
premiums in connection  with the purchase of loans from  wholesale  originators.
The Company plans to reduce wholesale  originations to approximately  30% of its
total  originations,  down  from  60% of the  total  currently.  Another  factor
influencing   financing   requirements   is  the   timing  of  loan   sales  and
securitizations.  The  Company  has  generally  executed  one large home  equity
securitization  in the last month of each quarter.  Looking  ahead,  the Company
expects to increase the frequency of loan sales  through a combination  of whole
loan sales and smaller,  but more  frequent,  securitizations.  By pursuing this
approach, the Company expects that the financing required to fund loan inventory
should be less than that  otherwise  required  under the previous  approach.  In
early November 1998, the Company signed  agreements  encompassing  sales of $553
million of home equity  loans of which $425  million has been  funded,  with the
remaining  $128  million to be funded  this week.  The Company  also  intends to
negotiate a flow-basis whole loan sale program.

Another step the Company is taking to improve the cash flow  characteristics  of
its business  activities is to focus 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.

In its commercial loan operations,  the Company will focus on the origination of
commercial loans primarily through Keystone, a subsidiary of the Company,  which
acts as a mortgage  banker and does not take  principal  risk.  The  Company has
received  indications  of interest to buy $540 million of the Company's  current
commercial loan portfolio at prices  comparable to its value as of September 30,
1998. The remaining approximately $400 million of commercial loans are currently
being marketed.

In  connection  with the  foregoing  actions,  the  Company is in the process of
implementing a staff  reduction  consistent  with the reduction of its wholesale
residential  mortgage and commercial real estate  activity.  Approximately,  446
positions, or 12% of the Company's total work force, are being eliminated.  Most
of the positions relate to home equity wholesale origination and funding.



Selected Financial Information

                           ContiFinancial Corporation
                  Loan Originations, Securitizations and Sales
                             (dollars in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>


                                                      For the three months ended     %          For the six months ended     %
                                                            September 30,           Incr.             September 30,         Incr.
                                                      1998             1997        (Decr.)        1998        1997         (Decr.)
                                                     
                                                                                                                                    
 Home equity, home improvement and 
 other residential mortgage loans:
    Wholesale:
<S>                                              <C>                 <C>            <C>      <C>            <C>               <C>  
        Brokers                                  $  401,301          $   226,121     77.5%   $     777,196  $   433,210       79.4%
        Correspondents                            1,585,875            1,109,182     43.0%       2,935,304    2,092,446       40.3%
        Direct retail                               498,906              304,036     64.1%         964,831      505,914       90.7%
                                                 ----------          -----------    ------    ------------   ----------       ------
                                                                                    
                                                    
 Total home equity, home improvement
  and other residential mortgage loans            2,486,082            1,639,339     51.7%       4,677,331    3,031,570        54.3%
                                                 ----------          -----------    ------    ------------   ----------       ------
  Commercial real estate mortgage loans:
    Conduit (ContiMAP(R)and affiliates)             656,524              383,764     71.1%       1,375,307      575,570       138.9%
    Keystone                                        269,543                  ---    100.0%         487,495          ---       100.0%
                                                 ----------          -----------    ------     -----------   ----------       ------
 Total commercial real estate
  mortgage loans . .                                926,067              383,764    141.3%       1,862,802      575,570       223.6%
                                                 ----------          -----------    ------     -----------   ----------       ------
                                                    
 Triad auto loans                                   102,407               38,277    167.5%         172,953       76,333       126.6%
                                                 ----------          -----------    ------     -----------   ----------       ------
                                                                                                                                    
         Total loan originations                 $3,514,556           $2,061,380     70.5%      $6,713,086   $3,683,473        82.2%
                                                 ==========          ===========     =====      ==========   ==========       ======
                                                                                                                                  

 Securitizations and sales
 ContiMortgage/ContiWest
    securitizations                              $2,100,000           $1,525,000     37.7%      $3,850,000   $2,790,000        38.0%
 Other home equity,
    home improvement and                            193,360              131,705     46.8%         389,543      217,584        79.0%
    other residential mortgage sales             ----------          -----------     -----      ----------   ----------        -----
 Total home equity, home improvement                                                                                          
    and other residential mortgage sales          2,293,360            1,656,705     38.4%       4,239,543    3,007,584        41.0%
                                                 ----------          -----------     -----      ----------   ----------        -----
                                                                                                                 
 Commercial real estate mortgage loans:
    Conduit (ContiMAP(R)and affiliates)             581,343              328,007     77.2%         581,343      486,823        19.4%
    Keystone                                        269,543                  ---    100.0%         487,495         ---        100.0%
                                                 ---------           -----------    ------       ---------    ---------       ------
 Total commercial real estate
    mortgage loans                                  850,886              328,007    159.4%       1,068,838      486,823       119.6%
                                                 ----------          -----------    ------       ---------    ---------       ------
 Triad auto loans                                    80,007                  ---    100.0%         137,674       45,881       200.1%
 Strategic alliances                                 56,939               75,877   (25.0)%         157,188      250,077      (37.1)%
                                                 ----------          -----------    ------       ---------    ---------       ------

        Total securitizations and sales          $3,281,192           $2,060,589     59.2%     $ 5,603,243 $  3,790,365        47.8%
                                                 ==========          ===========    ======       =========    =========       ======
                                                                          

 
</TABLE>


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

<TABLE>
<CAPTION>

 ContiMortgage                                          September 30,                           March 31,              September 30,
 Servicing Portfolio                                       1998                                    1998                     1997
                                                         
                                                

<S>                                                      <C>                                  <C>                        <C>        
 Serviced loan portfolio (at period end)                 $ 12,535,874                         $ 10,135,785               $ 8,163,419
                                                         ============                         ============               ===========
  Delinquencies:
     30 - 59 days                                               2.02%                                1.50%                     2.92%
     60 - 89  days                                              0.74%                                0.51%                     0.73%
     90 days and over                                           0.57%                                0.35%                     0.62%
                                            
     Total delinquencies (%)                                    3.33%                                2.36%                     4.27%
                                                         ============                         ============              ============
     Total delinquencies ($)                              $   417,862                         $    239,015              $    348,180
                                                         ============                         ============              ============

  Defaults:


     Foreclosures                                               1.95%                                2.31%                     2.98%
     Bankruptcies                                               1.53%                                1.70%                     1.39%
     Real estate owned                                          0.93%                                0.83%                     0.53%
     Loss mitigation (1)                                        0.91%                                0.74%                     0.07%
                                                         ------------                          ------------             ------------
     Total defaults (%)                                         5.32%                                5.58%                     4.97%
                                                         ============                          ============             ============
     Total defaults ($)                                  $    666,687                          $   565,238              $    405,503
                                                         ============                          ============             ============
 (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.
</TABLE>
<TABLE>
<CAPTION>

                                                For the three          For the twelve
                                                months ended           months ended
 ContiMortgage                                  September 30,          September 30,
 Loan Loss experience                               1998                    1998
 --------------------
                                                                                                                     
<S>                                             <C>                  <C>             
 Average serviced loan portfolio                $   12,013,942       $     10,254,773
                                                ==============       ================
 Net losses :
    REMICs and loans held
         pending sale or securitization         $       24,624       $         67,603
                                                        
    Loans and properties
         purchased out of REMICs                         1,899                 14,027
                                                         
               Total net losses                 $       26,523       $         81,630
                                                ==============       ================
 Net losses as a percentage of
 average amount outstanding (2):
 
    REMICs and loans held
         pending sale or securitization                  0.82%                  0.66%
    Loans and properties
         purchased out of REMICs                         0.06%                  0.14%
                                                --------------       ----------------
 Total net losses as a percentage
 of average amount outstanding                           0.88%                  0.80%
                                                ==============       ================
 

                 (2)  Amounts for the three months ended September 30, 1998 
                      are annualized.
</TABLE>

Results of Operations

Three and Six Months Ended September 30, 1998 Compared with the 
Three and Six Months Ended September 30, 1997

Net loss for the  three and six  months  ended  September  30,  1998 was  $114.3
million  and $108.2  million,  respectively,  compared  with net income of $34.8
million and $61.7  million for the  corresponding  periods in fiscal  1998.  The
Company's  total gross income  decreased to $10.9 million and $153.0 million for
the three and six months ended  September  30, 1998,  respectively,  from $158.1
million and $292.2 million for the comparable periods last year.

As discussed  previously  in the  "Discussion  of Events  During the Fiscal 1999
Second Quarter",  the Company incurred charges related to commercial real estate
valuation  and other  charges  against  earnings  during the fiscal  1999 second
quarter of $165.1  million.  Also  contributing to the decreases were fair value
adjustments  to primarily  home equity  related ESR for the three and six months
ended  September  30, 1998 of $78.4  million and $137.9  million,  respectively.
Further,   the  fiscal  1999  second   quarter   commercial   real  estate  loan
securitization  resulted in a $3.3 million loss.  There was no  commercial  real
estate  loan  securitization  in the 1999  fiscal  first  quarter.  The  Company
generated  pretax  gain on sale  of  receivables  from  commercial  real  estate
activities of $11.4 million and $15.8 million for the three and six months ended
September 30, 1997, 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.  In recent
years the Company's  origination,  securitization and sales volume has increased
significantly,  contributing  to a concurrent  increase in the average  level of
loans held in inventory pending securitization. As a result, net interest income
increased to $24.8  million and $41.4 million for the three and six months ended
September  30,  1998,  respectively,  from  $17.7  million  and  $31.5  million,
respectively,  for the  corresponding  periods last year.  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.  Interest income increased $32.7
million and $55.0 million or 56.1% and 50.9%, for the three and six months ended
September  30, 1998  compared to the three and six months  ended  September  30,
1997,  respectively.  Interest expense increased $25.6 million and $45.2 million
or 63.3% and 59.1%,  for the three and six months ended  September 30, 1998 over
the corresponding  period fiscal 1998,  respectively (see "Liquidity and Capital
Resources" for discussion of future operations).

Net servicing income:

Net  servicing  income  increased  $11.2  million and $21.9 million or 62.7% and
64.8% for the second quarter and first half of fiscal 1999,  respectively,  over
the  corresponding  periods in fiscal 1998  primarily due to the increase in the
size of the  Company's  home equity  servicing  portfolio and the volume of home
equity  securitizations.  The  Company's  home equity loan  servicing  portfolio
increased to $12.5  billion at September 30, 1998 from $8.2 billion at September
30, 1997. Servicing income consists of fee income and capitalized servicing. The
fee income component  (which is realized in cash) represents  income earned from
the REMICs and other trusts based on the level of loans serviced. The fee income
component of servicing  income was $21.1 million and $39.5 million for the first
three and six months of fiscal 1999 and $11.4  million and $22.5 million for the
corresponding  periods  in  fiscal  1998,  respectively.  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 amortization  of capitalized  servicing from prior  securitizations.  The net
capitalized  servicing  component of servicing income was $7.9 million and $16.2
million for the second  quarter and first half of fiscal 1999 compared with $6.4
and $11.3 million for the corresponding periods in fiscal 1998, respectively.

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 retail 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  significantly  higher  levels  of
compensation and benefits and general and administrative  expenses. With respect
to the Company's activities  exclusive of the Retail  Subsidiaries,  the expense
increases  are  indicative  of  the   significant   growth  in   ContiMortgage's
origination  volume,  its  serviced  loan  portfolio  and the related  growth in
headcount to support these  activities.  Combined  compensation and benefits and
general and administrative  expenses for ContiMortgage  (exclusive of its retail
subsidiaries)  increased by $14.6  million and $21.7  million  during the second
quarter and first half of fiscal 1999, respectively.  ContiMortgage's  headcount
(exclusive  of its  retail  subsidiaries)  was 1,379 as of  September  30,  1998
compared with 810 as of September 30, 1997.















<TABLE>
<CAPTION>


                                                  Three                                       Six
                                              Months Ended                                Months Ended 
                                              September 30,                               September 30,
                                                                            
                                           1998           1997         Increase      1998            1997         Increase
                                         ---------      --------       --------     ---------      -------        --------

                                                                      (dollars in thousands)
 Compensation and benefits:
<S>                                        <C>         <C>           <C>            <C>             <C>             <C>      
    Retail Subsidiaries                    $  23,418   $   14,462    $    8,956     $    44,694     $   26,802      $  17,892
    Operations excluding Retail
                Subsidiaries                  28,424       22,015         6,409          50,472         39,909         10,563
                                           ---------   ----------    ----------     -----------     ----------      ---------
 Total compensation and benefits           $  51,842   $   36,477     $  15,365     $    95,166     $   66,711      $  28,455
                                           =========   ==========    ==========     ===========     ==========      =========

 General and administrative:
   Retail Subsidiaries                     $  18,520   $   10,611    $    7,909     $    34,966     $   20,274      $  14,692
   Operations excluding Retail
                Subsidiaries                  21,551       12,107         9,444          37,616         23,514         14,102
                                           ---------   ----------    ----------     -----------     ----------      --------- 
 Total general and administrative          $  40,071   $   22,718     $  17,353     $    72,582     $   43,788      $  28,794
                                           =========   ==========    ==========     ===========     ==========      =========

 Headcount (at period end):
    Retail Subsidiaries                        1,944        1,202           742
    Headcount excluding Retail
                Subsidiaries                   1,612          892           720
                                            --------    ---------    ----------
                                                              
 Total headcount                               3,556        2,094         1,462
                                            ========    =========    ==========
</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 six months ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>

                                                                    Three Months Ended              Six Months Ended
                                                                       September 30,                  September 30,          
                                                             1998                1997            1998              1997
                                                         ------------        -------------    ------------     ------------        
                                                                                 (dollars in thousands)                         
 Home equity/home improvement:                                                  
<S>                                                      <C>                 <C>              <C>              <C>        
    ContiMortgage/ContiWest securitizations              $   (10,142)        $      48,954    $      1,351     $    86,960
    Other (including whole loan sales,
 origination               points and fees)                    22,300               16,899          41,950          31,045
                                                         ------------        -------------    ------------     -----------
 Total home equity/home improvement                            12,158               65,853          43,301         118,005
 Commercial real estate                                       (2,510)               11,404         (1,248)          15,777
 Auto                                                           7,550                 (53)          12,417           6,955
 Other                                                          (882)                1,588           (582)           2,395
                                                         ------------        -------------    ------------     ------------     
        Total                                            $     16,316        $      78,792    $     53,888     $   143,132
                                                         ============        ============     ============     ============
</TABLE>


Also, see  "Discussion of Events During the Fiscal 1999 Second  Quarter"
on page 10.

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".

Excluding  the ESR  fair  value  adjustments,  gain on sale of  receivables  for
ContiMortgage/ContiWest securitizations was $64.5 million and $132.9 million for
the three and six months ended September 30, 1998, respectively. Gain on sale of
receivables for  ContiMortgage/ContiWest  securitizations  was $49.0 million and
$87.0  million  for  the  three  and  six  months  ended   September  30,  1997,
respectively. The increases in fiscal 1999 over the comparable periods in fiscal
1998 reflect  higher levels of  securitization  volume:  $2,100  million for the
fiscal 1999 second quarter,  up 37.7% from $1,525 million in the comparable 1998
quarter;  $3,850  million  for the fiscal 1999 six month  period,  up 38.0% from
$2,790 million in the comparable  1998 period.  Gain on sale  percentage  (i.e.,
gain on sale before ESR fair value adjustments as a percentage of securitization
volume), was 3.07% for the second quarter of fiscal 1999, down from 3.21% in the
comparable 1998 quarter. The impact of lower premiums paid to acquire loans from
wholesale  sources was more than offset by a tightening in the spread  (adjusted
for hedge results) between the interest rates on the mortgage loans  securitized
and the rates on the securities  sold. The gain on sale percentage was 3.45% for
the six months ended  September 30, 1998  compared with 3.12% in the  comparable
prior  period.  The  improvement  reflects the benefit of lower  premiums  paid,
offset in part by a widening in the interest rate spread.

Excess Spread Receivables:

At September  30, 1998 and March 31,  1998,  the  Company's  ESR  portfolio  was
comprised of the following :
<TABLE>
<CAPTION>

                                                   September 30,       Percentage           March 31,        Percentage
                                                      1998             of Total               1998             of Total
                                                 --------------        ----------           ---------        -----------      
                                                                       (dollars in thousands)
 Home equity:
<S>                                                <C>                      <C>          <C>                  <C>  
     ContiMortgage/ContiWest                       $    667,228             84.1%        $  555,884           85.7%
     Other servicers                                     33,445              4.2             37,428             5.8
                                                 --------------        ---------          ---------          ---------- 
        Total home equity                               700,673             88.3            593,312            91.5
 Home improvement                                         4,949              0.6              7,919             1.2
 Commercial real estate                                  39,473              5.0              8,233             1.3
 Auto                                                    40,682              5.1             28,223             4.3
 Leases                                                   6,470              0.8              8,960             1.4
 Franchise                                                1,506              0.2              2,138             0.3
                                                 --------------       ----------          ---------          ----------
        Total ESR portfolio                      $      793,753           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 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 September  30, 1998,  ESR totaled
$793.8 million, of which $667.2 million, or 84.1% 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
September 30, 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 0.68% at
September  30, 1998.  The future cash flows  estimated  as of September  30, 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. 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. (See the table below.)

As of September 30, 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       $30 million
Annual credit losses           10 basis points       $30 million
Discount rate                 100 basis points       $30 million

The following  table presents an analysis of ESR activity  during the six months
ended September 30, 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          282,280
                                                   --------
     Net cash distributions from REMICs and trusts                  (21,040)
     Accruals of interest income                                      25,583
     Special Charges (2)                                             (4,000)
     Fair value adjustments (see discussion below)                 (137,855)
                                                                   ---------
  Balance as of September 30, 1998                                 $ 793,753
                                                                   =========


(1)  Represents  "BB+/-" rated  certificates  retained  from the Morgan  Stanley
Capital 1998-CF1 securitization.
(2)  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 $137.9 million  adjustment noted above included
$59.5  million in the fiscal 1999 first  quarter and $78.4 million in the second
quarter.  The first  quarter  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  September  30,  1998,  the
estimate  remained at 28%.  Approximately  $25 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  quarter.
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 future  defaults and loss severity.  This increase  accounted for $46.3
million of the fair value adjustment.  Actual credit losses for the quarter were
in line with expectations.  Combined historical and estimated future losses as a
percentage of original pool  balances (for  ContiMortgage/ContiWest  REMICs) was
2.08% at September 30, 1998 compared with 1.81% at June 30, 1998.


Liquidity and Capital Resources

Also, see  "Discussion of Events During the Fiscal 1999 Second  Quarter" on page
10.


Sources of Liquidity and Capital

The Company requires continued access to short- and long-term sources of funding
for its continued  operations.  The Company's primary cash requirements  include
the funding of: (i) mortgage,  loan and lease originations and purchases pending
their pooling and 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 and leases pooled and sold; (iv) 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
and  (xi)  the  cost of any  subsequent  purchase  price  adjustments  on  prior
acquisitions.

The Company's primary sources of liquidity are sales of loans,  leases and other
assets through  securitization,  whole loan sales, the sale 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 $2.40  billion of  committed  and $3.20  billion of  uncommitted
funding capacity under the Facilities as of September 30, 1998. 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  receivables  held for  sale to  financial  institutions  under
agreements to repurchase the receivables. The Facilities generally have one year
renewable  terms,  which expire  between  November  1998 and  September  1999 as
follows (amounts in thousands):



<TABLE>
<CAPTION>


                                       Committed          Uncommitted        Total
  Expiration                            Facility          Facility           Facility
                                                       
                                --------------------------------------------------------
                                                    (in thousands)
                                --------------------------------------------------------
<S>         <C>                       <C>                  <C>              <C>        
  November, 1998                      $  150,000           $  350,000       $   500,000
  December, 1998                         300,000              950,000         1,250,000
  March, 1999                            300,000              100,000           400,000
  June, 1999                             150,000              600,000           750,000
  July, 1999                             500,000                    0           500,000
  August, 1999                           250,000              450,000           700,000
  September, 1999                        750,000              750,000         1,500,000
                                ----------------           ----------        ----------
    Total facilities                  $2,400,000           $3,200,000        $5,600,000
                                ================           ==========        ==========
</TABLE>
 
As of September 30, 1998,  the Company had utilized $2.0 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.

On April 2, 1998,  the Company  issued $200 million 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 $188.0 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 September  30, 1998,  $314.2  million of
commercial paper was  outstanding.  As of November 13, 1998 the Company is fully
drawn under its Commercial Paper Program and 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 September 30, 1998, $52.0 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.
Although the Company  intends to continue to pursue  opportunities  to sell ESR,
there is only a limited  market for such  instruments  and no  assurance  can be
given that such opportunities will be available in the future.

However, the Company has operated on a negative cash flow basis and is dependent
on  various  financing  sources  for  its  continued  operations.  Although  the
objective of the actions discussed above 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. No assurance can be given that such
adverse conditions will not occur or that the Company will have continued access
to these  Facilities or that renewals will be obtainable on as favorable  terms,
if at all. Failure of the Company to have continued access to the securitization
and  whole-loan  sale markets and its Facilities  and other  financing  lines or
failure of the Company to renew such  Facilities and other financing lines could
have a material adverse effect on the Company's  liquidity,  financial condition
and operations.

The Company is also 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 the Purchase and Sale Facilities
and agreements to repurchase  (the  "Repurchase  Agreements")  including,  among
other  things,  a 2.5 to 1  leverage  ratio,  a minimum  net  worth  test and an
interest  coverage ratio.  The Company was in compliance with these covenants as
of September  30, 1998 but may or may not be in  compliance as of the end of the
third  quarter of fiscal year 1999.  If it appears  necessary,  the Company will
approach its lenders  under the  Revolving  Credit  Facility and the  Commercial
Paper Program for covenant relief.  However,  no assurance can be given that any
such relief will be  forthcoming.  The  Company's  ability to continue to obtain
funding under the Revolving  Credit Facility and the Commercial Paper Program is
subject to its  continued  compliance  with these  covenants  or, if  necessary,
obtaining  covenant  relief.  The  Company's  ability to remain in compliance is
dependent on factors 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  discontinuation  of
funding under its financing  facilities and could have a material adverse effect
on the Company's liquidity, financial condition and operations.

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 November  12,  1998,  Moody's  Investors  Service  downgraded  the  Company's
long-term debt ratings to B1. On October 13, 1998, Standard & Poor's lowered its
senior  unsecured  debt and long-term  debt credit ratings to B+. On October 15,
1998, Fitch IBCA reduced the Company's  long-term debt rating to BB.  Reductions
in  ratings  will  likely  increase  the  Company's  borrowing  costs  under its
Revolving Credit Facility and its Commercial Paper Program.



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

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

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


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, auto and commercial 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  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's  loan servicing  software  service provider has stated that
the system should be remediated  and tested for Year 2000  compliance by the end
of 1998,  with  additional  testing  during the first  quarter of 1999.  Because
ContiMortgage's  loan  servicing  software will not be available  until December
1998, the Company will not be able to complete the remediation  phase until that
time,  as noted in the chart  above.  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 provide regular  reports to the vendor's  customers.  The
Company believes that  ContiMortgage's  loan servicing software vendor will meet
its  scheduled  deadlines  for Year  2000  compliance.  ContiMortgage  is in the
process of creating a contingency  plan that could be  implemented  in the event
that its loan  servicing  software  vendor is unable  to  address  the Year 2000
issue.  However, if ContiMortgage's  loan servicing software vendor is unable to
correct all Year 2000 issues by the target dates and ContiMortgage's contingency
plan for that event proves inadequate, this would likely have a material adverse
impact on the Company.  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.  In  addition,  ContiMortgage  estimates  that
remediation  and  testing  of other  systems  and  applications  for  Year  2000
compliance  will require about 10,000  working  hours.  The target  deadline for
remediation  of these  systems  and  applications  is  December  31,  1998,  and
approximately 50% of the project has been completed to date. Expenses associated
with the remediation  and testing of those systems and  applications is included
in the Company's year 2000 estimate of costs.

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.  Triad is in the
process of testing  its  computerized  systems  and  applications  for Year 2000
readiness  and will  participate  in group  tests  with its loan  servicing  and
collections  vendor,  loan origination  sources and other entities with which it
exchanges  information  electronically.  Triad is formulating a contingency plan
for use in the event that its loan  servicing  and  collections  vendor fails to
address the Year 2000 issue.

The Company is also working to assess 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  anticipates that its systems
will  be   Year   2000-compliant   by  late   calendar   year   1998.   However,
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.  Each credit reporting agency has informed the Company that it
plans to be Year 2000-compliant by late calendar year 1998. 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 meet their
respective  target deadlines for resolution of Year 2000 issues.  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. These  contingency plans should be complete by late
calendar year 1998.

     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 $1.0 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,  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
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; 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;  the 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.


<PAGE>



                            PART II OTHER INFORMATION

Item 1.           Legal Proceedings.

                  The Company  believes  that  litigation  could result 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.   One  such   action   was   filed  and
                  subsequently settled and other litigation has been threatened.
                  It is  unclear  whether  any of such  threats  will  result in
                  litigation.  ContiTrade bas been actively pursuing  settlement
                  of all potential claims. ContiTrade believes that it has valid
                  defenses  to such  claims  and  intends to  vigorously  defend
                  against  any  litigation  that  might  ensue.  The  Company is
                  presently  unable to estimate  the amount of ultimate  loss to
                  resolve these claims.


Item 4.           Submission of Matters to a Vote of Security Holders.

                   (a) The annual meeting of shareholders of the Company
                       was held September 16, 1998.

                   (b) Directors whose term of office as a director 
                       continued after the meeting including the Class III 
                       Directors elected below:


          Class I Directors      Class II Directors         Class III Directors
          James E. Moore         Paul J. Fribourg           James J.  Bigham
          Donald L. Staheli      John W. Spiegel            John P. Tierney
                                 Lawrence G. Weppler        Michael J. Zimmerman
                  (c)  Holders  of common  shares  voted at this  meeting on the
                       following matters, which were set forth in full in the 
                       registrant's proxy statement dated July 28,1998 :

                                (i)  Election of Class III Directors

     Nominee                                For          Withheld
     James J. Bigham                  45,196,718          53,568
     John P. Tierney                  45,196,193          54,093
     Michael J. Zimmerman             45,194,743          55,543
<TABLE>

                                                                   For           Against          Abstain
  (ii) Approve the Senior Executive Warrant-Based
<S>                                                            <C>               <C>               <C>   
 Long-Term Incentive Plan:                                     44,822,147        384,199           43,940          <C>
                                                                                                                  Non-Vote
 (iii) Amend the 1995 Long-Term Stock Incentive
 Plan:                                                         41,410,342        854,626           38,920         2,946,398

                                                               

(iv) Appointment of Auditors:                                  45,222,345         19,201            8,740
</TABLE>

                                 Appointment of the firm of Arthur  Andersen LLP
                                 as the independent  accountants for the Company
                                 for the fiscal year ending March 31, 1999.


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

                  (a) Exhibits

                  Exhibit
                     No.                             Description

                  11.1              Computation of the Company's Earnings Per 
                                    Common Share

                  12.1              Ratio of Earnings to Fixed Charges

                  10.1              Amendment to the Letter of Credit and 
                                    Reimbursement Agreement

                  27.1              Financial Data Schedule

                  (b)  Reports on Form 8-K.

                  None.

<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



 Date               Signature               Title

 November 16, 1998  /s/ Daniel J. Willett   Senior Vice President and Chief
 -----------------  ---------------------

                    Daniel J. Willett       Financial Officer 
                                            (Principal Financial Officer)