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                                                                   EXHIBIT 10.87

                             STOCK OPTION AGREEMENT

     MADE as of this 29th day of June, 1998 by MEGO MORTGAGE CORPORATION, a
Delaware corporation with its principal offices at 1000 Parkwood Circle, 5th
Floor, Atlanta, Georgia 30339 (the "Company"), in favor of SOVEREIGN BANCORP,
INC., a Pennsylvania corporation with its principal offices at 1130 Berkshire
Boulevard, P.O. Box 12646, Reading, Pennsylvania 19612 (the "Holder").

                                   Background:

     This Agreement is executed pursuant to the terms of a Preferred Stock
Purchase Agreement dated as of June 9, 1998 entered into by the Company and the
Holder (the "Preferred Stock Purchase Agreement"). Capitalized terms not
otherwise defined herein shall have the meanings given to them in the Preferred
Stock Purchase Agreement.

                                   WITNESSETH:

     NOW, THEREFORE, in consideration of the mutual undertakings set forth in
the Preferred Stock Purchase Agreement and other good and valuable
consideration, the Company, intending to be legally bound, hereby agrees as
follows:

     1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings indicated below, unless the context otherwise requires:

        (a) "Agreement" shall mean this Agreement and any future amendments,
restatements, modifications or supplements hereof or hereto.

        (b) "Board" shall mean the Board of Directors of the Company, as 
comprised from time to time.


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        (c) "Capital Stock" shall mean the Common Stock, and any other stock of
any class, whether now or hereafter authorized, which has the right to
participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage. "Capital Stock" shall not include any shares
at any time directly or indirectly owned by the Company.

        (d) "Closing Price" with respect to the Common Stock on any day shall 
mean: (i) if the Common Stock is listed or admitted for trading on a national
securities exchange (which shall include for this purpose the Nasdaq National
Market) the reported last sales price regular way or, if no such reported sale
occurs on such day, the average of the closing bid and asked prices regular way
on such day, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which such class of security is listed or admitted to
trading, or (ii) if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted sales price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market
on such day as reported by NASDAQ or any comparable system then in use or, if
not so reported, as reported by any New York Stock Exchange member firm
reasonably selected by the Company for such purpose.

        (e) "Fair Market Value" with respect to the Common Stock on any day 
shall mean the average of the daily Closing Prices of a share of Common Stock
for the 10 consecutive business days ending on the most recent business day for
which a Closing Price is available; provided, however, that in the event that
Fair Market Value is determined during a period following the announcement by
the Company of: (i) a dividend or distribution on the Common Stock, or (ii) any
subdivision, combination or reclassification of the Common Stock and prior to
the expiration of 10 business days after the ex-dividend date for


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such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Closing Price
for each day during such period of 10 consecutive business days which falls
prior to such ex-dividend date shall be appropriately adjusted.

        (f) "Option" shall mean the option herein provided to purchase the whole
block or any part of the block of shares of Common Stock purchasable hereunder.

        (g) "Option Price" shall mean the price per share at which Common Stock
is purchasable hereunder, as such price may be adjusted from time to time
pursuant hereto.

        (h) "Option Stock" shall mean, individually or collectively, as
appropriate, any share or shares of Common Stock purchased upon exercise of the
Options.

     2. Grant of Option. The Company hereby grants to the Holder the right to
purchase, at any time up to 180 days after the second anniversary of the Closing
Date (the "Expiration Date"), up to 6,666,667 shares of fully paid and
non-assessable Common Stock at an exercise price of $1.50 per share (subject to
adjustment as hereinafter provided).

     3. Exercise of Options. This Option may be exercised in whole or in part
(but not as to a fractional share of Common Stock) by the surrender of this
Agreement, properly endorsed, at any office of the Company and upon payment to
it by certified or bank cashier's check of the Option Price for the shares
purchasable thereunder. The persons entitled to the shares of Option Stock so
purchased shall be treated for all purposes as the holders of such shares as of
the close of business on the date of exercise. Certificates for the shares of
Option Stock so purchased, together with a new Agreement or Agreements of like
tenor representing in the aggregate the right to purchase the

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number of shares of Common Stock with respect to which the Option has not been
exercised (each such Agreement to be for such portion of the total shares of
Option Stock as the holder thereof shall designate), and shall be issued and
delivered to the persons so entitled within a reasonable time, not exceeding ten
(10) days, after such exercise.

     4. Exchange. This Agreement is exchangeable, upon the surrender thereof by
the Holder at any office of the Company, for a new Agreement or Agreements of
like tenor representing in the aggregate the right to purchase the number of
shares of Option Stock then purchasable hereunder, each of such new Agreements
to represent the right to subscribe for and purchase such portion of the
aggregate number of shares of Option Stock issuable hereunder as shall be
designated by the Holder at the time of such surrender.

     5. Transfer. This Agreement is transferable, in whole or in part, at any
office of the Company by the Holder in person or by duly authorized attorney,
upon presentation of the Agreement, properly endorsed, for transfer.

     6. Certain Covenants of the Company. The Company covenants and agrees that
all Option Stock which may be issued upon the exercise of this Option will, upon
issuance, be duly and validly issued, fully paid and non-assessable and free
from all taxes, liens, encumbrances, options, preemptive rights, and other
charges with respect to the issue thereof; and, if any other outstanding shares
of the Company's Common Stock are then listed on a national or regional
securities exchange or on the Nasdaq National Market System, will be so listed.
The Company further covenants and agrees that, during the period within which
this Option may be exercised: (a) the Company shall, at all times, have
authorized and reserved for the purpose of issue upon exercise of the Option
evidenced by this Agreement, a sufficient number of shares of Common Stock, and
(b) the Company will not,


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by amendment of its Certificate of Incorporation or through any
reclassification, capital reorganization, consolidation, merger, sale or
conveyance of assets, dissolution, liquidation, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder hereunder.

     7. Adjustment of Purchase Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of the Option and the Option Price
shall be subject to adjustment from time to time upon the occurrence of certain
events as follows:

        (a) Mergers and Reclassifications. If after the date hereof there shall
be any reclassification, capital reorganization or change of the Common Stock
(other than as a result of a subdivision, combination or stock dividend provided
for in Section 7(b) hereof), or any consolidation of the Company with, or merger
of the Company into, another corporation or other business organization (other
than a merger in which the Company is the continuing corporation and which does
not result in any reclassification or change of the outstanding Common Stock),
or any sale or conveyance to another corporation or other business organization
of all or substantially all of the assets of the Company, then, as a condition
of such reclassification, reorganization, change, consolidation, merger, sale or
conveyance, lawful provisions shall be made, and duly executed documents
evidencing the same from the Company or its successor shall be delivered to the
Holder, so that the Holder shall thereafter have the right to purchase, at a
total price not to exceed that payable upon the exercise of the Option in full,
the kind and amount of shares of stock and other securities and property which
the Holder would have received upon such


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reclassification, reorganization, change, consolidation, merger, sale or
conveyance if the Holder had exercised the Option in full immediately prior to
such reclassification, reorganization, change, consolidation, merger, sale or
conveyance, and in any such case appropriate provisions shall be made with
respect to the rights and interest of the Holder to the end that the provisions
hereof (including without limitation, provisions for the adjustment of the
Option Price and the number of shares issuable hereunder) shall thereafter be
applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof.

         (b) Dividends; Subdivisions; Combinations. If after the date hereof the
Company shall subdivide the Common Stock, by split-up or otherwise, or combine
the Common Stock, or issue additional shares of Common Stock in payment of a
stock dividend on the Common Stock: (i) the number of shares of Option Stock
issuable upon the exercise of this Option shall forthwith be proportionately
increased in the case of a subdivision or stock dividend, or proportionately
decreased in the case of a combination, and (ii) the Option Price shall
forthwith be proportionately decreased in the case of subdivision or stock
dividend, or proportionately increased in the case of a combination.

        (c) Adjustments for Issuances Below Option Price. In case the Company
shall at any time or from time to time after the date hereof issue or sell any
shares of Common Stock (other than shares issued in transactions to which
Sections 7(a) or 7(b) hereof apply), for consideration per share less than the
Option Price in effect immediately prior to the time of such issue or sale, or
pay any dividend or make any other distribution upon the Common Stock payable in
cash, property or securities of the Company other than Common Stock or in
securities of a corporation other than the Company, then forthwith upon such
issue or sale, or upon the payment of such dividend or the making of such other


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distribution, as the case may be, the Option Price shall (until another such
issue or sale, or dividend or other distribution) be reduced to a price
(calculated to the nearest cent) determined by dividing: (i) an amount equal to
the sum of (x) the number of shares of Common Stock outstanding immediately
prior to such issue or sale or the payment of such dividend or the making of
such other distribution, multiplied by the Option Price in effect immediately
prior to such event, plus (y) the consideration, if any, received by the Company
upon such issue or sale minus (z) the aggregate amount of such dividend or other
distribution in respect of Common Stock, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale or dividend or
other distribution. Further, the number of shares of Option Stock purchasable
hereunder shall be increased to a number determined by dividing: (i) the number
of shares of Option Stock purchasable hereunder immediately prior to such issue
or sale or dividend or other distribution, multiplied by the Option Price
hereunder immediately prior to such event, by (ii) the Option Price in effect
immediately after the foregoing adjustment. Notwithstanding the foregoing, no
adjustment shall be made under this Section 7(c) if the same issuance or sale
would result in a greater adjustment under Section 7(d) below.

        (d) Adjustments for Issuance Below Fair Market Value. In case the 
Company shall at any time or from time to time after the date hereof issue or
sell any shares of Common Stock (other than shares issued in transactions to
which Sections 7(a) or 7(b) hereof apply), for consideration per share less than
the Fair Market Value per share of outstanding Common Stock on the date of such
issuance or sale, or on the first date of the announcement of such issuance or
sale (whichever is less), then, effective immediately prior to the time of such
issuance, sale or announcement, the number of shares of Common Stock purchasable
upon exercise of this Option shall be adjusted by multiplying the number of
shares of Common Stock subject to purchase upon exercise of this Option by a
fraction, the


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numerator of which shall be the total number of shares of Common stock
outstanding immediately after such issuance or sale and the denominator of which
shall be an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (B) the number of
shares of Common Stock which the aggregate consideration, if any, received by
the Company upon such issuance or sale would buy at the Fair Market Value
thereof, as of the date immediately prior to such issuance or sale (whichever is
less). In the event of any such adjustment, the Option Price shall be adjusted
to a number determined by dividing the Option Price in effect immediately prior
to such issuance or sale by the fraction used for purposes of the aforementioned
adjustment. Notwithstanding the foregoing, there shall be no adjustment pursuant
to this Section 7(d) for the issuance of shares of Common Stock upon exercise of
the Option held by City National or upon conversion of shares of Series A
Preferred Stock, and no adjustment shall be made under this Section 7(d) if the
same issuance, sale or announcement would result in a greater adjustment under
Section 7(c) above.

        (e) Special Rules. For the purpose of Sections 7(c) and 7(d), the 
following provisions shall also be applicable:

            (i) If, after the date hereof, the Company shall in any manner 
      offer any rights to subscribe for or to purchase shares of Common Stock,
      at a price less than the Option Price or less than the Fair Market Value
      per share of Common Stock in effect immediately prior to the time of the
      offering of such rights or the granting of such options, as the case may
      be, all shares of Common Stock which the holders of such rights or options
      shall be entitled to subscribe for or purchase pursuant to such rights or
      options shall be deemed to be issued or sold as of the date of the
      offering of such rights or the granting of such options, as the case may
      be, and the minimum aggregate consideration


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     named in such rights or options for the Common Stock covered thereby, plus
     the consideration received by the Company for such rights or options, shall
     be deemed to be the consideration actually received by the Company (as of
     the date of the offering of such rights or the granting of such options, as
     the case may be) for the issue or sale of such shares.

               (ii) If, after the date hereof, the Company shall in any manner
     issue or sell any shares of any class or obligations directly or indirectly
     convertible into or exchangeable for shares of Common Stock and the price
     per share for which Common Stock is deliverable upon such conversion or
     exchange (determined by dividing: (i) the total minimum amount received or
     receivable by the Company in consideration of the issue or sale of such
     convertible or exchangeable shares or obligations, plus the total minimum
     amount of premiums, if any, payable to the Company upon conversion or
     exchange, by (ii) the total number of shares of Common Stock necessary to
     effect the conversion or exchange of all such convertible or exchangeable
     shares or obligations) shall be less than Option Price or the Fair Market
     Value per share of the Common Stock in effect immediately prior to the time
     of such issue or sale, then such issue or sale shall be deemed to be an
     issue or sale (as of the date of issue or sale of such convertible or
     exchangeable shares or obligations) of the total maximum number of shares
     of Common Stock necessary to effect the conversion or exchange of all such
     convertible or exchangeable shares or obligations, and the total minimum
     amount received or receivable by the Company in consideration of the issue
     or sale of such convertible or exchangeable shares or obligations, plus the
     total minimum amount of premiums, if any, payable to the Company upon
     exchange or conversion, shall be deemed to be the consideration actually
     received (as of the date of the issue

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     or sale of such convertible or exchangeable shares or obligations) for the
     issue or sale of such Common Stock.

               (iii) In the case of any dividend or other distribution on the
     Common Stock of the Company payable in property, securities of the Company
     other than Common Stock or securities of a corporation other than the
     Company, such dividend or other distribution shall be deemed to have been
     paid or made at a value equal to the fair market value of the property or
     securities so distributed. Any dividend or distribution referred to in this
     clause (iii) shall be deemed to have been paid or made on the day following
     the date fixed for determination of stockholders entitled to receive such
     dividend or distribution.

               (iv) In determining the amount of consideration received by the
     Company for Common Stock, securities convertible thereinto or exchangeable
     therefor, or rights or options for the purchase thereof, no deduction shall
     be made for expenses or underwriting discounts or commissions paid by the
     Company. The Board shall determine in good faith the fair market value of
     the amount of consideration other than the money received by the Company
     upon the issue by it of any of its securities. The Board shall also
     determine in good faith the fair market value of any dividend or other
     distribution made upon Common Stock payable in property, securities of the
     Company other than Common Stock or securities of a corporation other than
     the Company. The Board shall, in the event that any Common Stock,
     securities convertible thereunto or exchangeable therefor, or rights or
     options for the purchase thereof are issued with other stock, securities or
     assets of the Company, determine in good faith what part of the
     consideration received therefor is applicable to the issue of the Common
     Stock, securities convertible thereunto or

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     exchangeable therefor, or rights or options for the purchase thereof.

               (v) If there shall be any change in (A) the minimum aggregate
     consideration named in the rights or options referred to in clause (i)
     above, (B) the consideration received by the Company for such rights or
     options, (C) the price per share for which Common Stock is deliverable upon
     the conversion or exchange of the convertible or exchangeable shares or
     obligations referred to in clause (ii) above, (D) the number of shares
     which may be subscribed for or purchased pursuant to the rights or options
     referred to in clause (i) above, or (E) the rate at which the convertible
     or exchangeable shares or obligations referred to in clause (ii) above are
     convertible into or exchangeable for Common Stock, then the Option Price in
     effect at the time of such event shall be readjusted to the Option Price
     which would have been in effect at such time had such rights, options, or
     convertible or exchangeable shares or obligations still outstanding
     provided for such changed consideration, price per share, number of shares,
     or rate of conversion or exchange, as the case may be, at the time
     initially offered, granted, issued or sold, but only if as a result of such
     adjustment the Option Price then in effect hereunder is thereby reduced.

          (f) Other Action Affecting Capital Stock. If, after the date hereof,
the Company shall take any action affecting the Capital Stock, other than an
action described in any of the foregoing Sections 7(a) through 7(d) hereof
inclusive, which in the opinion of the Board would have a material adverse
effect upon the rights or economic interests of the Holder, the Option Price and
the number of shares of Option Stock purchasable hereunder shall be adjusted in
such manner and at such time as the Board on the advice of the Company's
independent public


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accountants may in good faith determine to be equitable in the circumstances.

          (g) No Adjustment for Certain Transactions. Notwithstanding the 
foregoing, no adjustment shall be made to the Option Price or to the number of
shares of Common Stock issuable upon exercise of this Option in connection with
the following transactions:

               (i) the Common Stock Offering, the Series A Preferred Stock
     Offering, the Exchange Offer or the Rights Offering (as such terms are
     defined in the Offering Memorandum);

               (ii) the issuance of up to 6,710,000 shares of Common Stock
     pursuant to options granted, expected to be granted or available to be
     granted to Company employees as described in Footnote 4 on page 44 of the
     Offering Memorandum; or

               (iii) the issuance of up to 3,000,000 shares of Common Stock to
     the Placement Agent as described in Section 11 of the Preferred Stock
     Purchase Agreement.

          8. Notice of Adjustments. In the event that the Company shall take any
action which pursuant to Section 7(a) through 7(d) or Section (f) hereof may
result in an adjustment of the Option Price and the number of shares of Option
Stock purchasable upon exercise of the Option, the Company will give to the
Holder at its last address known to the Company written notice of such action
(by first class mail, postage prepaid) ten (10) days in advance of its effective
date in order to afford to the Holder an opportunity to exercise the Option
prior to the effective date. Such notice shall contain the Company's certificate
signed by its President or Vice President and by its Treasurer or Assistant
Treasurer or its Secretary or Assistant


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Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the Option Price and number of shares of Option
Stock purchasable after giving effect to such adjustment. In the event that the
actual adjustment required by such event is different from that set forth in
such notice, the Company shall promptly mail to each Holder a revised
certificate and notice in accordance with this Section 8.

          9. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any purchase hereunder but in lieu of such fractional
shares, the Company shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Option Price then in
effect.

          10. Transfer to Comply with the Securities Act. Notwithstanding any
other provision contained herein, the Option and any Option Shares may not be
sold, transferred, pledged, hypothecated or otherwise disposed of except as
follows: (a) to a person who, in the opinion of counsel to the Company, is a
person to whom the Option or the Option Shares may legally be transferred
without registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 10 with
respect to any resale or other disposition of such securities; or (b) to any
person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.

          11. Legend. Unless the Option Shares have been registered under the
Securities Act, upon exercise of the Option

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and the issuance of any of the Optin Shares, all certificates representing such
securities shall bear on the face thereof substantially the following legend:

          The securities represented by this certificate have not been
          registered under the Securities Act of 1933, as amended, and may not
          be sold, offered for sale, assigned, transferred or otherwise disposed
          of, unless registered pursuant to the provisions of that Act or unless
          an opinion of counsel to the Company is obtained stating that such
          disposition is in compliance with an available exemption from such
          registration.

          12. Expiration Date. To the extent not previously exercised, the
Option provided for in this Agreement shall expire as of the close of business
on the Expiration Date and shall be void thereafter.

          13. Notices. All notices and other communications herein shall be
given in the manner required by Section 12 of the Preferred Stock Purchase
Agreement.

          14. Loss, Theft, Destruction or Mutilation. Upon receipt by the
Company of reasonable evidence satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of this Agreement and (in the case of
loss, theft, or destruction) of reasonable indemnity and (in the case of
mutilation) upon surrender and cancellation thereof, the Company will execute
and deliver, in lieu thereof, a new Agreement of like tenor.

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          15. Headings. The descriptive headings of the several sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.

          IN WITNESS WHEREOF, the Company, intending to be legally bound hereby,
has caused this Agreement to be signed by its duly authorized officer.

                                     MEGO MORTGAGE CORPORATION

                                     By: /s/ Jeff S. Moore
                                        --------------------------------
                                           Name:
                                           Title:
State of Georgia
-------------------------            :
                                     :ss.

COUNTY OF Cobb                       :
          ---------------                   
                  On this 29th day of June, 1998, before me, a notary public,
the undersigned officer, personally appeared Jeff S. Moore, who acknowledged
himself to be President of MEGO MORTGAGE CORPORATION, a Delaware corporation,
and that he as such officer, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.

                  IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.

                                     Deborah C. Decker
                                     -----------------------------------
                                                Notary Public

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