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                              As of October 1, 1998

Albert W. Mandia

Executive Vice President

Dear Al:

                  American Business Financial Services, Inc. (the "Company")
considers it essential to the best interests of its stockholders to attract top
executives and to foster the continuous employment of key management personnel.
The Board of Directors of the Company (the "Board") recognizes that the
possibility of a future change of control may exist and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of management personnel to the detriment
of the Company and its stockholders.

                  The Board has determined that appropriate steps should be
taken to ensure the continuity of management and to foster objectivity in the
face of potentially disturbing circumstances arising from the possibility of a
change of control of the Company, although no such change is now contemplated.

                  In order to induce you to remain in the employ of the Company
and in consideration of your further services to the Company, the Company agrees
that you shall receive the severance benefits set forth in this letter agreement
("Agreement") in the event your employment with the Company terminates within
the twenty-four (24) month period immediately subsequent to a "Change of
Control" of the Company (as defined in subparagraph 2(c) hereof) under the
circumstances described below.

                  1. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect until your employment with the Company
is terminated other than after a Change of Control unless sooner terminated by
written agreement of the Company and you.

                  2.  Definitions.  As used in this Agreement:

                  (a) "Annual Compensation" means the total of (i) one year of
base salary, at the highest base salary rate that you were paid by the Company
in the 12-month period prior to the date of your termination of employment, and
(ii) 100% of the greatest annual bonus which you were paid within the past three
fiscal years.
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                  (b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") .

                  (c) "Change of Control" of the Company means and includes each
and all of the following occurrences:

                           (i) The stockholders of the Company approve a merger
         or consolidation of the Company with any other corporation and such
         transaction is consummated, other than (A) a merger or consolidation
         which would result in the voting securities of the Company outstanding
         immediately prior thereto continuing to represent (either by remaining
         outstanding or by being converted into voting securities of the
         surviving entity) at least seventy-five percent (75%) of the total
         voting power represented by the voting securities of the Company (or
         such surviving entity outstanding immediately after such merger or
         consolidation) or (B) a merger or consolidation which would result in
         at least twenty percent (20%) of the voting securities of the Company
         (or such surviving entity outstanding immediately after such merger or
         consolidation) being held by an Employee Group.

                           (ii) The stockholders of the Company approve a plan
         of complete liquidation of the Company or an agreement for the sale or
         disposition by the Company of all or substantially all the Company's
         assets, other than a transaction which result in an Employee Group
         holding, directly or indirectly, at least twenty percent (20%) of the
         assets upon completion of such transaction.

                           (iii) The acquisition by any Person as Beneficial
         owner, directly or indirectly, of securities of the Company
         representing fifty percent (50%) or more of the total voting power
         represented by the Company's then outstanding voting securities except
         (A) if such Person constitutes an Employee Group, or (B) pursuant to a
         negotiated agreement with the Company pursuant to which such securities
         are purchased for the Company.

                           (iv) A majority of the Board of Directors of the
         Company in office at the beginning of any twenty-four (24) month period
         is replaced during the course of such twenty-four (24) month period
         (other than by voluntary resignation of individual directors in the
         ordinary course of business) and such placement was not initiated by
         the Board of Directors of the Company as constituted at the beginning
         of such twenty-four (24) month period or an Employee Group.

                  (d) "Change of Control Date" means the date upon which a
Change of Control transaction is consummated.

                  (e) "COBRA" means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.


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                  (f) "Code" means the Internal Revenue Code of 1986, as
amended.

                  (g) "Company" means American Business Financial Services,
Inc., and any successor as provided in Section 9 hereof.

                  (h) "Employee Group" means one or more members of the then
existing management and/or employee groups of the Company acting alone or in a
concerted effort.

                  (i) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Sections 13(d) of the Exchange Act
but excluding the Company and any subsidiary and any employee benefit plan
sponsored or maintained by the Company or any subsidiary (including any trustee
of such plan acting as Trustee).

                  (j) "Severance Payment" means the payment of severance
compensation as provided in Section 3 of this Agreement.

                  3. Compensation Upon Termination of Employment Following a
Change of Control. If your employment with the Company is terminated within
twenty-four (24) months after a Change in Control, subject to the limitations
set forth in paragraph 3(d) below, (a "Covered Termination"),

                  (a) You will be entitled to a Severance Payment in an amount
computed as follows:

                           (i) an amount equal to two (2) times Annual
         Compensation multiplied by a fraction, the numerator of which is the
         result of 730 less the number of days elapsing since the Change of
         Control Date and the denominator of which is 730 ("Termination
         Payment"); plus

                           (ii) continued coverage under the Company's health
         and group-term life insurance benefits on the same basis as such
         benefits were provided to you and your family under plans of the
         Company as of the Change of Control for a total of days which equals
         the result of 730 less the number of days elapsing since the Change of
         Control Date.

                  (b) Any cash payment to you under subparagraph 3(a) shall be
made within 30 calendar days of your termination of employment.

                  (c) Upon the occurrence of a Covered Termination, you shall be
provided, at the Company's sole expense, with professional outplacement services
consistent with your duties or profession and of a type and level customary for
persons in your position, as selected by the Company, subject to reasonable
limitations established by the Company on a uniform basis for similarly situated
employees as to duration and dollar amounts.

                  (d) Notwithstanding anything contained in subsection (a)
above, the Company shall have no obligation to make any payment or offer any
benefits to you under this Section 3 if your employment is terminated (i) prior
to a Change in Control, (ii) or if your employment is terminated by the Company
after a Change in Control for Cause (as defined in Section 4), (iii) by reason
of death or Disability (as defined in Section 5), or (iv) due to retirement or
resignation other than for Good Reason (as defined in Section 6).

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                  (e) For purposes of COBRA, the date of a "qualifying event"
for you and your covered dependents shall be the date upon which the coverage
provided under Section 3(a)(ii) above terminates.

                  4. Cause. For purposes of this Agreement, "Cause" means your:
(i) willful gross neglect of your duties with the Company, (ii) fraud or
dishonesty in connection with performance of your duties to the Company (iii)
conviction by a court of competent jurisdiction of any crime (or upon entering a
plea of guilty or nolo contendere to a charge of any crime) constituting a
felony or (iv) failure to enter into any written employment agreement, with a
minimum term of three years, offered to you in good faith by the Company which
would entitle you to a position, responsibilities, compensation, benefits
package, Severance Payment and other terms and conditions of employment at least
as favorable to you as those to which you are entitled on the date hereof.

                  5. Disability. For purposes of this Agreement, "Disability"
means that, at the time your employment is terminated, you have been unable to
perform the duties of your position for a period of three (3) consecutive months
or for a period in excess of six months within any twelve month period (whether
or not consecutive) as the result of your incapability due to physical or mental
illness.

                  6. Good Reason. The Company will be obligated to make payments
and provide benefits under Section 3 if you terminate your employment for Good
Reason within twenty-four months after a Change in Control. For purposes of this
Agreement, "Good Reason" means

                           (i) a material reduction in salary or benefits,

                           (ii) a material change in job responsibilities,

                           (iii) a request to relocate, except for office
         relocations that would not increase your one-way commute by more than
         50 miles, or

                           (iv) the failure of the Company to obtain the
         assumption of the Agreement as stipulated in Section 9 hereof.

In no event shall you be considered to have terminated your employment for "Good
Reason" unless and until (i) the Company receives written notice from you
identifying in reasonable detail the acts or omissions constituting such "Good
Reason" and the provision of this Agreement you relied upon for such
termination, and (ii) such acts or omissions are not cured by the Company within
five (5) business days of the Company's receipt of such notice.

                  7. Disputes. If you disagree with your allotment of benefits
under this Agreement, you may file a written appeal with the designated human
resources representative. Any claim relating to this Agreement shall be subject
to this appeal process. The written appeal must be filed within sixty (60) days
of your termination date.

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                  The appeal must state the reasons that you believe you are
entitled to different benefits under the Agreement. A designated human resources
representative shall review the claim. If the claim is wholly or partially
denied, the designated human resources representative shall provide you with a
written notice of the denial, specifying the reasons the claim was denied. Such
notice shall be provided within ninety (90) days of receiving your written
appeal.

                  If your appeal is denied, you shall have the right and option
to elect review of such denial by either a court of competent jurisdiction or by
arbitration.

                  8.    No Mitigation.

                  (a) You shall not be required to mitigate the amount of any
payment provided for in Section 3 hereof by seeking other employment or
otherwise, nor shall the amount of such payment be reduced by reason of
compensation or other income you receive for services rendered after your
termination of employment with the Company.

                  (b) In addition to the Termination Payment payable pursuant to
Section 3 hereof, you shall be entitled to receive all benefits payable to you
under any benefit plan of the Company in which you participate.

                  9. Company's Successors. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, to expressly assume and agree to perform the obligations under this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. As used in this
Section 9, "Company" includes any successor to its business or assets as
aforesaid which executes and delivers this Agreement or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.

                  10. Notice. Notices and all other communications provided for
in this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or five (5) days after deposit with postal
authorities transmitted by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the first or last page of this Agreement, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notices of change address shall be effective only upon receipt.

                  11. Amendment or Waiver. No provisions of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing by you and the Company. No waiver of either party at any
time of the breach of, or lack of compliance with, any conditions or provisions
of this Agreement shall be deemed a waiver of the provisions or conditions
hereof.

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                  12. Sole Agreement. This Agreement represents the entire
agreement between you and the Company with respect to the matters set forth
herein and supersedes and replaces any prior agreements in their entirety. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this Agreement will be made by either party
which are not set forth expressly herein.

                  13. Employee's Successors. This Agreement shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts are still payable to you
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of the Agreement to your devisee, legatee, or other
designee or, if there be no such designees, to your estate.

                  14. Funding. This Agreement shall be funded from the Company's
general assets.

                  15. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.

                  16. Applicable Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.

                  17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

                  If the foregoing conforms with your understanding, please
indicate your agreement to the terms hereof by signing where indicated below and
returning one copy of this Agreement to the undersigned.


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                  IN WITNESS WHEREOF, this Agreement is executed effective as of
the date set forth above.

                                          Very truly yours,


                                          AMERICAN BUSINESS FINANCIAL SERVICES,
                                               INC.

                                          By:
                                             -----------------------------------
                                              Anthony J. Santilli, Jr.
                                              Chairman


ACCEPTED AND AGREED TO AS OF
THE DATE FIRST SET FORTH ABOVE:


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[Name]



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