SELECTED CONSOLIDATED FINANCIAL INFORMATION

         The following table presents  selected  consolidated  financial data of
Ocwen Asset Investment  Corp. and its subsidiaries  ("OAIC" or the "Company") at
the date and for the period indicated.


     The selected  balance sheet data at December 31, 1997 and  operations  data
for the period from May 14, 1997 to December 31, 1997 have been derived from the
financial  statements  audited by Price  Waterhouse LLP,  independent  certified
public accountants.  The selected consolidated  financial data should be read in
conjunction  with,  and is  qualified  in its  entirety  by  reference  to,  the
information in the consolidated Financial Statements and related notes set forth
elsewhere herein.

                                                                For the Period
                                                                 May 14, 1997
                                                                      to
                                                               December 31, 1997
                                                               -----------------
OPERATIONS DATA:
  Interest income ...........................................   $  13,461,715
  Income on investments in real estate, net .................       1,481,633
  Other operating income ....................................          12,665
                                                                -------------
     Total income ...........................................      14,956,013
  Operating expenses ........................................       3,155,065
                                                                -------------
  Income before minority interest ...........................      11,800,948
  Minority interest in net income of operating partnership ..          (9,430)
                                                                -------------
     Net income .............................................   $  11,791,518
                                                                =============

  Earnings per share:
     Basic ..................................................   $        0.62
                                                                =============
     Diluted ................................................   $        0.60
                                                                =============

  Weighted average common shares outstanding:
     Basic ..................................................      19,108,789
                                                                =============
     Diluted ................................................      19,564,770
                                                                =============

BALANCE SHEET DATA:
    Total assets ............................................   $ 288,003,341
    Cash and cash equivalents ...............................      48,677,123
    Securities available for sale, at market value ..........     146,026,907
    Loan portfolio ..........................................      15,831,479
    Discount loan portfolio .................................      26,978,888
    Investment in real estate ...............................      45,430,039
    Minority interest .......................................       2,941,541
    Shareholders' equity ....................................     271,258,267

OTHER DATA:
    Average assets ..........................................   $ 289,215,300
    Average equity ..........................................     284,260,200
    Return on average assets ................................            6.56%
    Return on average equity ................................            6.67%
    Funds from operations ...................................   $  11,970,606


                                       1
<PAGE>
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

         The  following  discussion  of  the  Company's  consolidated  financial
condition,  results from operations,  and capital resources and liquidity should
be read in  conjunction  with the  Consolidated  Financial  Information  and the
Consolidated Financial Statements and related notes included elsewhere herein.

GENERAL

         The Company is a newly formed  corporation that has elected to be taxed
as a real estate  investment  trust ("REIT") under the Internal  Revenue Code of
1986, as amended (the "Code"), and that specializes in opportunistic real estate
investments.  At December 31, 1997,  the Company had invested  $234.3 million or
83% of the $283.7  million of net proceeds  received from the sale of 19,125,000
shares of its common stock in May 1997. Of this amount,  $146 million or 62% was
invested in  mortgage-related  securities,  $45.4 million or 19% was invested in
real estate,  $27 million or 12% was invested in  commercial  discount  mortgage
loans and $15.9 million or 7% was invested in other mortgage loans.

RECENT TRANSACTIONS

         During the months of January and February 1998,  the Company  completed
the  acquisition  of five pools of  residential  loans with an aggregate  unpaid
principal  balance of  approximately  $10.9  million.  The loans have a weighted
average coupon rate of 8.13%.

         On January 12,  1998,  the Company  closed an $11.6  million  mezzanine
construction  loan,  which had an initial draw of $1.6  million,  for a 160 unit
apartment  rental  project  located in San  Francisco,  California  with on-site
parking and commercial space on the first floor.

         On January 15, 1998,  in order to match-fund  the Company's  asset base
with anticipated  borrowings and thereby minimize the impact on the Company from
changes in net  interest  income due to  changes  in  1-month  London  InterBank
Offered Rate  ("LIBOR"),  the Company placed a 5 year,  $100.0 million  notional
swap.  The terms of the swap call for the  Company  to pay a fixed rate of 5.75%
and receive 1-month LIBOR on $100.0 million.

         On January  23,  1998,  the  Company  purchased  for $13.7  million,  a
16-story,  124,688 square foot office property located at 690 Market Street, San
Francisco,  California.  The  building  is 83% leased  with 41% of the  building
becoming  available  by the end of 1998.  The Company  anticipates  investing an
additional $4.3 million to reposition the building for re-leasing.

         On January 30, 1998, the Company  purchased a $51.6 million  investment
in a  subordinate  interest-only  strip  supported  by a pool of 6,309  subprime
mortgage  loans.  Ocwen  Federal Bank FSB (the "Bank") will special  service any
loans  that  become  60 days  delinquent.  The  average  balance  of the loan is
approximately   $95,000  and  the   geographical   concentration  is  mainly  in
California, Florida, Illinois, Massachusetts and Washington.

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

         On February 27, 1998,  the Company  closed a $30.3  million  commercial
real estate  construction  loan which had an initial draw of $13.2 million.  The
loan  facilitated  the  acquisition  of a 12-story,  155,000  gross square foot,
office  building  located in the Tribeca area of Manhattan,  New York,  and will
finance  its  conversion  to  contain  52 large  luxury  loft-style  residential
condominiums  with a parking garage.  The loan has a five year term. The Company
also receives  prepaid  interest upon closing of the loan,  and a fixed exit fee
when the loan is repaid in full.

         On March 6, 1998, OAIC executed a definitive purchase agreement for the
acquisition  of an  existing  536,000  square  foot,  22 story  Class A-  office
building located at 225 Bush Street in the financial  district of San Francisco,
California for $100.2 million.  OAIC expects to make an additional investment of
approximately $10.5 million to fund closing costs and commissions,  construction
costs  associated  with  mechanical  systems and cosmetic  upgrades,  and tenant

                                       2
<PAGE>
improvements  and leasing  commissions.  Current  rents in the building  average
$18.30 per square foot,  and OAIC  estimates the average  current market rent to
approximate  $32 to $35 per square foot.  As a result of the nearly 60% turnover
of the rental  space in 1998 and 1999,  OAIC  expects its funds from  operations
during 1998 will provide a modest  return on this  investment.  As is typical of
many of OAIC's  commercial  real estate  investments,  future  releasing of this
property at market rates is anticipated  to provide  stronger  contributions  to
funds from  operations  thereafter and to meet OAIC's desired return  parameters
over the expected holding period of the investment.  This transaction is subject
to various  terms and  conditions of closing and  performance,  and as a result,
there can be no assurance that this transaction will be consummated.

         On March 17, 1998,  OAIC  executed a definitive  agreement  with a Wall
Street firm concerning the  acquisition of subordinate  interest only securities
("Sub IO") for approximately  $14.3 million plus closing costs (such transaction
constitutes  the  result  of  negotiations  pursuant  to the  letter  of  intent
announced  by OAIC  and  Aames  Financial  Corporation  in  January  1998).  The
transaction   is  subject  to  various  terms  and  conditions  of  closing  and
performance,  and as a result,  there can be no assurance that this  transaction
will be consummated.

         On March 19, 1998, the Company  announced the  declaration of its first
quarter 1998 cash dividend of $0.25 per share, payable to shareholders of record
on March 30, 1998 with payment on April 16, 1998.

         On March 26, 1998, the Company  closed the  acquisition of $8.3 million
of Sub IOs issued from a securitization of sub-prime residential mortgage loans.

RESULTS OF OPERATIONS

         The Company  completed an initial  public  offering on May 14, 1997 and
commenced  operations  thereon.  Net income for the period  from May 14, 1997 to
December  31, 1997  amounted to $11.8  million.  Diluted  earnings  per weighted
average common share were $0.60 for the period.

         The Company is engaged in a variety of real estate and mortgage-related
investment  activities,  investing  primarily  in  mortgage-related  securities,
commercial real estate, commercial discount loans and commercial and residential
loans. The following table presents the  contribution by investment  activity to
the Company's net income  before  minority  interest for the period from May 14,
1997 to December 31, 1997.
<TABLE>
<CAPTION>
                                                                    Amount           %
                                                                 -----------    -----------
<S>                                                              <C>                 <C>
Mortgage-related securities and other short-term investments..   $ 9,948,788         84%
Commercial real estate .......................................     1,375,733         12
Commercial discount loans ....................................       394,391          3
Commercial and residential loans .............................        82,036          1
                                                                 -----------        ---
                                                                 $11,800,948        100%
                                                                 ===========        ===
</TABLE>

         INTEREST  INCOME.  Interest  income for the period from May 14, 1997 to
December 31, 1997 amounted to $13.5 million.  The following table sets forth the
total amount of interest income generated from  interest-earning  assets and the
resultant  annualized  yields.  The  average  balance is based on average  daily
balances for the reported period.
<TABLE>
<CAPTION>
                                              For the Period from May 14, 1997 to December 31, 1997
                                              -----------------------------------------------------
                                                  Average          Interest           Annualized
                                                  Balance          Income               Yield
                                              --------------    ---------------    ----------------
<S>                                           <C>               <C>                      <C>
Repurchase agreements and interest-earning
  deposits .................................  $  155,756,900    $     5,538,946          5.72%
Securities available for sale...............      76,423,400          6,362,909         13.39
Loans.......................................       4,294,000            311,157         11.65
Discount loans..............................      16,453,200          1,248,703         12.20
                                              --------------     --------------
   Total....................................  $  252,927,500    $    13,461,715          8.56%
                                              ==============    ===============
</TABLE>

         OPERATING  INCOME.  Operating  income is  comprised  primarily  of $1.5
million in income  earned on  investments  in real estate during the period from
May 14, 1997 to December 31, 1997. Such income represents rental income,  net of
operating  expenses and  depreciation,  and $890,000 of income realized from the
early  termination  of a  lease  by  a  tenant,  generated  from  the  Company's
investment in two office  buildings  located in California and a retail shopping
center located in Florida.

                                       3
<PAGE>

         OPERATING  EXPENSES.  The  following  table  sets  forth the  principal
components of the Company's  operating  expenses  during the period from May 14,
1997 to December 31, 1997.

Management fees..........................................    $    1,796,311
Due diligence............................................           326,025
Foreign currency loss....................................           568,565
Other  ..................................................           464,164
                                                             --------------
   Total.................................................    $    3,155,065
                                                             ==============

         Management  fees totaling $1.8 million for the period from May 14, 1997
to December  31, 1997 were  comprised  solely of a base  management  fee (1% per
annum of average invested assets) earned by Ocwen Capital Corporation ("OCC"), a
wholly-owned  subsidiary  of  Ocwen,  pursuant  to  the  terms  of a  management
agreement entered into between the Company and Ocwen. OCC advises the Company on
various facets of its business and manages its day-to-day operations, subject to
the  supervision  of  the  Company's  Board  of  Directors.  See  Note  1 to the
Consolidated  Financial  Statements.  In  addition,  the  Company  incurred  due
diligence  expense in connection with its asset  acquisitions.  Foreign currency
loss for the  period is a result of the  strengthening  U.S.  dollar  versus the
Canadian dollar and relates to the Company's investment in a Canadian commercial
discount  loan.  See  "Discount  Loan  Portfolio"  and  Notes  1  and  6 to  the
Consolidated  Financial  Statements.  Other  expenses were comprised of auditing
fees, insurance premiums and other miscellaneous expenses.

FUNDS FROM OPERATIONS

         Most  industry  analysts,  including the Company,  consider  Funds from
Operations ("FFO") an appropriate supplementary measure of operating performance
of a REIT. However, FFO does not represent cash provided by operating activities
in accordance with generally accepted accounting  principles ("GAAP") and should
not be considered an  alternative  to net income as an indication of the results
of the  Company's  performance  or to cash flows as a measure of  liquidity.  In
1995,  the National  Association  of Real Estate  Investment  Trusts  ("NAREIT")
established  new guidelines  clarifying its definition of FFO and requested that
REITs adopt this new definition  beginning in 1996. The following table computes
FFO under the NAREIT definition. FFO consists of net income applicable to common
shareholders   (computed  in  accordance  with  generally  accepted   accounting
principles)  excluding  gains  (losses)  from  debt  restructuring  and sales of
property   (including   furniture  and  equipment)   plus  real  estate  related
depreciation  and  amortization  (excluding  amortization of deferred  financing
costs) and after adjustments for unconsolidated partnerships and joint ventures.

         For the period from May 14, 1997 to December  31, 1997,  the  Company's
FFO was $12.0 million or $0.61 per diluted  weighted  average common share.  The
following table sets forth the calculation of the Company's FFO for the period.


Net income...............................................    $  11,791,518
Add: Real estate related depreciation....................          179,088
                                                             -------------
FFO .....................................................    $  11,970,606
                                                             =============

Diluted weighted average shares outstanding..............       19,564,770
                                                             =============

                                       4
<PAGE>
CHANGES IN FINANCIAL CONDITION

         The following table sets forth  information  relating to certain of the
Company's assets and liabilities at December 31, 1997.

    ASSETS:
    Interest earning deposits.................................  $   48,346,076
    Securities available for sale, at market value............     146,026,907
    Loan portfolio............................................      15,831,479
    Discount loan portfolio, net..............................      26,978,888
    Investment in real estate, net............................      45,430,039
    Total assets..............................................     288,003,341

    LIABILITIES AND SHAREHOLDERS' EQUITY:
    Dividends  and distributions payable......................       7,458,750
    Total liabilities.........................................      13,803,533
    Minority interest.........................................       2,941,541
    Shareholders' equity......................................     271,258,267

         GENERAL.  Total assets  amounted to $288.0 million at December 31, 1997
and consisted  primarily of $48.3 million of interest earning  deposits,  $146.0
million  of  securities  available  for sale,  $15.8  million  of loans  held in
portfolio,  $27.0 million of discount  loans and $45.4 million of investments in
real estate.  These  assets are the result of the  Company's  investment  of the
$283.7  million of proceeds  received  from its initial  public  offering in May
1997. Total liabilities  amounted to $13.8 million at December 31, 1997 and were
primarily  comprised of declared  but unpaid  dividends  of $7.5  million,  $2.8
million  payable in connection  with the  acquisition of a pool of single family
loans and unpaid management fees due OCC of $728,000.

         REPURCHASE  AGREEMENTS AND INTEREST EARNING  DEPOSITS.  At December 31,
1997 total interest earning  deposits  amounted to $48.3 million or 17% of total
assets and were  comprised of deposits at various  banks,  including  $16,000 on
deposit in an account at the Bank.

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

         The Company  earned  interest  income of $5.5 million during the period
May 14,  1997 to  December  31, 1997 from its  investment  in  interest  earning
deposits and repurchase agreements. Of this amount, $5.1 million was earned from
investments in repurchase agreements. Given the Company's investment of cash and
cash  equivalents  received in connection  with its initial  public  offering in
other types of assets over the course of the reporting period, operating results
for the period  presented  are unlikely to be indicative of the results that may
be expected for future periods.

                                       5
<PAGE>
         SECURITIES   AVAILABLE   FOR  SALE.   The   Company's   investment   in
mortgage-related securities available for sale of $146.0 million at December 31,
1997 is net of $7.3  million of net  unrealized  losses  which was  included  in
shareholders' equity. The Company's securities available for sale were comprised
of the following at December 31, 1997:

Mortgage-related  securities:
  Single-family residential:
     FHLMC interest only................................      $    21,177,964
     FNMA interest only.................................           22,573,132
     AAA-rated interest only............................              729,372
     Subordinates.......................................            9,444,067
                                                              ---------------
       Total............................................           53,924,535
                                                              ---------------
  Multi-family residential and commercial:
     AAA-rated interest only............................              865,747
     A-rated interest only..............................              480,188
     Non-rated interest only............................            4,802,873
     Subordinates.......................................           85,953,564
                                                              ---------------
       Total............................................           92,102,372
                                                              ---------------
         Total..........................................      $   146,026,907
                                                              ===============

         The $146.0  million of  securities  available  for sale at December 31,
1997 is the  result  of  purchases  of  $166.3  million,  offset in part by $6.7
million of  principal  payments  and  maturities,  $6.3  million of net  premium
amortization and net unrealized losses of $7.3 million.

         The Company's  investments  in interest only and inverse  interest-only
securities  (together,  "IOs"),  which had an aggregate  amortized cost and fair
value of $60.8  million and $50.6  million at December 31,  1997,  respectively,
exhibit  considerably  more price volatility than mortgages or ordinary mortgage
pass-through  securities,  due in part to the  uncertain  cash flows that result
from changes in the prepayment rates of the underlying mortgages. In the case of
IOs, increased prepayments of the underlying mortgages as a result of a decrease
in market  interest  rates or other factors can result in loss of all or part of
the purchase  price of such  security.  During  January and February  1998,  the
Company  recorded a charge of $2.5 million against its interest only  securities
portfolio.  The charge  resulted from increases in projected  prepayment  speeds
during this period and a resulting  shortening of the weighted  average lives of
certain individual securities in the portfolio. As a result, a determination was
made to write  down  the  recorded  investment  in those  securities  where  the
reduction in fair value was considered to be other than  temporary.  The Company
believes that the current low levels of interest  rates,  and the inverted shape
of the yield curve,  are  relatively  short-term  phenomena.  To the extent that
longer term interest rates increase or the relationship  between  short-term and
long-term rates revert to their historical  spreads,  the value of the portfolio
should recover.  To the extent that the current  environment  persists,  or that
rates decrease further, additional impairment losses may be recognized. See Note
4 to the Consolidated Financial Statements.

         LOAN  PORTFOLIO.  The Company's  investment in loans  amounted to $15.8
million at December 31, 1997 as follows:

   Single-family residential............................      $    6,465,080
   Multi-family residential.............................           3,455,000
    Commercial real estate:
      Office............................................          33,058,000
      Hotel.............................................          20,952,000
                                                              --------------
       Total loans......................................          63,930,080
   Deferred origination fees............................            (458,925)
    Undisbursed loan proceeds...........................         (47,639,676)
   Allowance for loan losses............................                  --
                                                              --------------
     Loans, net.........................................      $   15,831,479
                                                              ==============

         During the  reporting  period,  the Company  acquired 48 single  family
residential  loans with an aggregate  unpaid  principal  balance of $6.8 million
with the intent of  accumulating  such loans,  executing a  securitization,  and
effectively  retaining  a  subordinate   interest.  In  addition,   the  Company
originated one multi-family  residential loan in the amount of $3.5 million,  of
which $1.4 million had been funded at December 31, 1997,  two hotel  acquisition
and renovation  loans in

                                       6
<PAGE>
the aggregate amount of $21.0 million,  of which $8.4 million had been funded at
December 31, 1997, and one office building  renovation and construction  loan in
the amount of $33.0  million  which had not been funded at December 31, 1997. At
December  31,  1997 all loans were  current  with the  exception  of four single
family  residential  loans having an unpaid  principal  balance of approximately
$269,000  which were  greater  than 89 days past due.  Substantially  all of the
above loans are serviced by the Bank. See Note 5 to the  Consolidated  Financial
Statements.

         DISCOUNT LOAN PORTFOLIO. The following table sets forth the composition
of the  Company's  $27.0 million  investment  in discount  loans at December 31,
1997.

    Commercial real estate loans:
      Office ...........................................       $ 11,892,814
      Retail............................................         30,635,968
                                                               ------------
         Total unpaid principal balance.................         42,528,782
      Allowance for loan losses.........................                 --
      Unaccreted discount...............................        (15,549,894)
                                                               ------------
         Discount loans, net............................       $ 26,978,888
                                                               ============

         The $27.0 million of discount  loans at December 31, 1997 is the result
of three acquisitions. During June 1997 the Company acquired a 13.83% pari passu
interest  in  four  subperforming  commercial  loans  with an  aggregate  unpaid
principal balance of $10.5 million. The loans are collateralized by three office
buildings located in New York, New York and one shopping center in Yorktown, New
York. The Bank acquired the remaining interest in these loans.  During September
1997 the Company  acquired a Canadian  commercial loan with an unpaid  principal
balance of $27.6 million,  ($38.3 million Canadian).  The loan is collateralized
by a 395,000  square  foot  shopping  center  located in Halifax,  Nova  Scotia,
Canada. During November 1997 the Company acquired two loans secured by a 195,445
square foot shopping  center in Havre,  Montana and a 43,205 square foot Dayton,
Ohio office building with an aggregate unpaid principal balance of $6.6 million.
All of the Company's  discount loans are serviced by the Bank. See Note 6 to the
Consolidated Financial Statements.

         The  following  table sets forth  certain  information  relating to the
payment status of loans in the Company's discount loan portfolio at December 31,
1997.


  Past due less than 31 days............................       $    7,964,105
  Past due 31 days to 89 days...........................                   --
  Past due 90 days or more..............................           34,564,677
                                                               --------------
                                                               $   42,528,782
                                                               ==============

         ALLOWANCE  FOR LOAN  LOSSES.  The  Company's  policy is to  maintain an
allowance  for loan losses on its loan and discount  loan  portfolios at a level
which management  considers  adequate to provide for potential losses based upon
an  evaluation of known and inherent  risks.  At December 31, 1997, no allowance
for loan losses had been provided.

         INVESTMENT IN REAL ESTATE.  The Company's  $45.4 million net investment
in  real  estate  at  December  31,  1997  is net  of  $179,088  of  accumulated
depreciation  and is the result of the  acquisition  of two office  buildings in
California and one shopping center in Florida, as follows:

<TABLE>
<CAPTION>
   Date Acquired        Property            Location        Square Feet   Acquisition Cost
   -------------     ---------------    -----------------   -----------   ----------------
<S>  <C>             <C>                <C>                 <C>           <C>
     09/03/97        10 U.N. Plaza      San Francisco, CA      68,560      $    9,095,341
     09/23/97        450 Sansome St.    San Francisco, CA     123,099          17,246,713
     11/10/97        Cortez Plaza       Bradenton, FL         289,686          19,267,073
                                                                           --------------
                                                                           $   45,609,127
                                                                           ==============
</TABLE>
         The Company's strategy is to renovate and reposition the facilities and
target  full  floor  tenants  with five to ten year  lease  terms.  The  Company
estimates that over the next twelve months approximately $4.4 million in capital
improvements,  tenant  improvements  and  leasing  commissions  will be spent to
renovate  and  reposition  the above  properties.  Repositioning  is intended to
result in rents that are  considerably  greater  than the  current  rents  being
achieved at the sites. See Note 7 to the Consolidated Financial Statements.

                                       7
<PAGE>
         DIVIDENDS AND DISTRIBUTIONS  PAYABLE.  At December 31, 1997,  dividends
payable  totaled $7.5 million and  represents  declared but unpaid  dividends on
common stock.

         MINORITY INTEREST. At December 31, 1997, minority interest totaled $2.9
million  and  represents  Ocwen's  ownership  of  160,000  units  in  the  Ocwen
Partnership,  L.P.  ("Operating  Partnership").  See Note 1 to the  Consolidated
Financial Statements.

         SHAREHOLDERS' EQUITY.  Shareholders' equity increased to $271.3 million
from May 14, 1997 to December 31, 1997.  The  increase in  shareholders'  equity
during this period was  attributable  to net proceeds of $283.7 million from the
issuance  of  19,125,000  shares of common  stock in May 1997 and net  income of
$11.8 million earned during the period,  offset in part by net unrealized losses
on  securities  available for sale of $7.3  million,  the  repurchase of 160,000
shares of the Company's common stock for $3.0 million and dividends  declared on
common stock of $13.9 million.

CAPITAL RESOURCES AND LIQUIDITY

         Liquidity is a measurement  of the Company's  ability to meet potential
cash  requirements,  including  ongoing  commitments to repay  borrowings,  fund
investments,  engage in loan  acquisition  and lending  activities and for other
general business purposes.  Additionally, to maintain its status as a REIT under
the Code,  the  Company  must  distribute  annually  at least 95% of its taxable
income.  The primary sources of funds for liquidity consist of the proceeds from
the Company's initial public offering, net income, reverse repurchase agreements
and other secured  borrowings,  maturities  and principal  payments on loans and
securities and proceeds from loan resolutions thereof.

         Cash and cash  equivalents were $48.7 million at December 31, 1997. The
Company's  operating  activities provided cash flows of $21.1 million during the
period from May 14, 1997 to December 31, 1997. During the foregoing period, cash
resources from operating  activities were provided  primarily by net income. The
Company's  investing  activities  used cash flows of $249.6  million  during the
period from May 14, 1997 to December 31, 1997. During the foregoing period, cash
flows from  investing  activities  were used  primarily  to purchase  securities
available for sale,  discount loans,  loans and investments in real estate.  The
Company's financing  activities provided cash flows of $277.2 million during the
period from May 14, 1997 to December 31, 1997 and  consisted  of $283.7  million
net proceeds from the issuance of common stock, net of $6.5 million of dividends
paid during the period.

         The  Company  expects  to meet its  short-term  liquidity  requirements
generally  through its working  capital and net cash  provided by operating  and
financing  activities.  In addition,  the Company has contractual  relationships
with five  brokerage  firms pursuant to which it could obtain funds from reverse
repurchase  agreements and has $146.0 million of  unencumbered  mortgage-related
securities  which could be pledged to secure such  borrowings.  The Company also
believes that its net cash provided by operating  activities  will be sufficient
to allow the Company to make the  distributions  necessary for continued benefit
from qualification as a REIT.

         At December  31, 1997,  the Company had $ 74.3  million of  outstanding
commitments.  In addition,  the Company has  subsequently  engaged in additional
acquisition activities,  including the performance of due diligence with respect
to a variety of other investment opportunities.  See Note 11 to the Consolidated
Financial   Statements.   At  December  31,  1997,   the  Company  had  invested
approximately 83% of the net proceeds received from its initial public offering.
The Company expects to meet certain  long-term  liquidity  requirements  such as
property and security  acquisitions and loan  originations by obtaining  various
third-party  borrowings  and  has  entered  into  discussions  with  respect  to
obtaining such borrowings. Additionally, as discussed above, the Company intends
to execute a  securitization  of its loan  portfolio  and use the  proceeds  for
further  acquisitions.  The  Company  believes  that  such  new,  as well as its
existing, sources of liquidity, including third-party borrowings currently being
pursued, will be adequate to fund planned activities for the foreseeable future,
although there can be no assurances in this regard. In the event the Company was
unable to effect such third-party  borrowings or  securitization,  its liquidity
could be  constrained  and the impact on its  results of  operations,  financial
condition and FFO could be significant.

MARKET CONDITIONS

         Recently,  the  competitive  conditions of some of the markets in which
the Company operates have changed due to the significant  amount of capital made
available in the marketplace.  This  competition is particularly  notable in the
subordinated  commercial  mortgage-backed  securities  ("CMBS")  market  for new
issuances.   New  issuances  have  reduced

                                       8
<PAGE>
subordination levels with spreads declining by approximately 200 basis points in
the  noninvestment  grade  and  unrated  tranches.  The  Company  believes  that
investment in a new issue CMBS at this time does not meet its return objectives.
Therefore, the Company is focusing on seasoned or special situation subordinates
which meet its return objectives,  taking advantage of Ocwen's special servicing
capabilities.  In addition, the Company has purchased pools of residential loans
for  securitization,  and is pursuing  investments  in Sub IOs in CMBS backed by
subprime residential mortgage loans.

INFLATION

         Inflation has remained relatively low during the past few years and has
had  a  minimal  impact  on  the  operating   performance  of  the   properties.
Nonetheless,  certain of the  tenants'  leases  contain  provisions  designed to
lessen the impact of inflation.  Such provisions  include  clauses  enabling the
Company to receive  percentage  rentals  based on tenants'  gross  sales,  which
generally  increase as prices rise, and/or escalation  clauses,  which generally
increase rental rates during the terms of the leases.  In addition,  many of the
leases  are for terms of less than ten years,  which may  enable the  Company to
replace existing leases with new leases at higher base and/or percentage rentals
if rents of the existing leases are below the then-existing  market rate. Office
and retail space in the  properties  is generally  leased to tenants under lease
terms which provide for the tenants to pay for  increases in operating  expenses
in  excess  of  specified  amounts.  See Note 11 to the  Consolidated  Financial
Statements.

         However,  inflation may have a negative impact on some of the Company's
other operating items.  Interest and general and administrative  expenses may be
adversely  affected by inflation as these  specified  costs could  increase at a
rate higher  than rents.  Also,  for tenant  leases with stated rent  increases,
inflation  may have a negative  effect as the  stated  rent  increases  in these
leases could be lower than the increase in inflation at any given time.

RECENT ACCOUNTING DEVELOPMENTS

         For information  relating to the effects on the Company of the adoption
of  recent  accounting  standards,  see  Note  1 to the  Consolidated  Financial
Statements.

REIT STATUS

         The Company has  qualified and intends to continue to qualify as a REIT
under Sections 856 through 860 of the Internal Revenue Code.  Qualification  for
treatment as a REIT  requires the Company to meet  certain  criteria,  including
certain requirements  regarding the nature of its ownership,  assets, income and
distributions of taxable income. A REIT will generally not be subject to federal
income  taxation  on that  portion  of its  income  that is  distributed  to its
shareholders  if it  distributes  at least 95 percent of its taxable  income and
meets certain other income and asset tests.  The Company has until the filing of
its tax return to satisfy the distribution requirement.  Since the Company plans
to distribute 100% of its taxable income, no provision has been made for federal
income  taxes  for  the  Company  and  its   subsidiaries  in  the  accompanying
consolidated  financial  statements.  As taxable income is finalized and the tax
return  is  filed,  an  additional  distribution  may be  required  which may be
significant.  The Company may be subject to tax at normal corporate rates on net
income or capital gains not distributed.

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

YEAR 2000 DATE CONVERSION

         OCC,  as well  as  Ocwen  and  its  other  subsidiaries  which  provide
management services to the Company, have begun to coordinate the identification,
evaluation,  and  implementation of changes to computer systems and applications
necessary to achieve a year 2000 date  conversion with no effect on customers or
disruption  to business  operations.  These

                                       9
<PAGE>

actions are necessary to ensure that the systems and applications will recognize
and process the year 2000 and beyond.  Major areas of potential  business impact
have been  identified  and  dimensioned,  and  initial  conversion  efforts  are
underway. Ocwen also is communicating with customers, financial institutions and
others  with  which it does  business  to  identify  and  coordinate  year  2000
conversion issues. Ocwen expects its year 2000 conversion will be completed on a
timely basis,  and the cost of achieving year 2000 compliance will be immaterial
and borne by Ocwen. The Company does not expect to incur any costs in connection
with achieving year 2000 compliance.

FORWARD-LOOKING STATEMENTS

         CERTAIN  STATEMENTS  CONTAINED  HEREIN ARE NOT, AND CERTAIN  STATEMENTS
CONTAINED  IN FUTURE  FILINGS BY THE COMPANY  WITH THE  SECURITIES  AND EXCHANGE
COMMISSION,  IN THE COMPANY'S PRESS RELEASES OR IN THE COMPANY'S OTHER PUBLIC OR
SHAREHOLDER  COMMUNICATIONS,  MAY  NOT BE  BASED  ON  HISTORICAL  FACTS  AND ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED,  INCLUDING THE CONSUMMATION AND EXPECTED  BENEFITS OF THE IDENTIFIED
TRANSACTIONS. THESE FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY REFERENCE TO
A FUTURE PERIOD(S), OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY,"
"WILL," "BELIEVE," "ESTIMATE," "EXPECT," "COMMITMENT," "ANTICIPATE," "CONSIDER,"
"CONTINUE,"  "ENCOURAGE," "INTEND," "PLAN," "PRESENT," "PROPOSE," "PROSPECT," OR
SIMILAR TERMS,  VARIATIONS OF THOSE TERMS, OR NEGATIVES OF ANY SUCH TERMINOLOGY.
ACTUAL RESULTS COULD DIFFER  MATERIALLY FROM THOSE SET FORTH IN  FORWARD-LOOKING
STATEMENTS  DUE TO A VARIETY OF FACTORS,  INCLUDING,  BUT NOT LIMITED TO,  THOSE
RELATED TO THE INTERNATIONAL,  NATIONAL, REGIONAL OR LOCAL ECONOMIC ENVIRONMENT,
PARTICULARLY  IN THE MARKET  AREAS IN WHICH THE  COMPANY  OPERATES,  COMPETITIVE
PRODUCTS AND  PRICING,  FISCAL AND  MONETARY  POLICIES OF THE U.S.,  CANADIAN OR
OTHER  GOVERNMENTS,  CHANGES IN  GOVERNMENT  REGULATIONS  AFFECTING  REAL ESTATE
INVESTMENT TRUSTS,  CHANGES IN PREVAILING  INTEREST AND CURRENCY EXCHANGE RATES,
CHANGES IN FACTORS  INHERENT TO THE VALUATION AND PRICING OF VARIOUS  SECURITIES
INCLUDING  THE IMPACT OF CHANGES IN  PREPAYMENT  SPEEDS ON MORTGAGE  LOANS,  THE
EFFECTIVENESS  OF THE  SERVICING OF LOANS  UNDERLYING  VARIOUS  SECURITIES,  THE
COURSE OF  NEGOTIATIONS  WITH  RESPECT TO VARIOUS  TRANSACTIONS,  THE ABILITY OF
PARTIES TO AGREE TO MATERIAL TERMS OF A  TRANSACTION,  THE ABILITY TO SATISFY OR
FULFILL AGREED UPON TERMS AND  CONDITIONS OF CLOSING OR  PERFORMANCE  (INCLUDING
BOARD  APPROVALS,  AS  NECESSARY OR AGREED  UPON),  THE  OCCURRENCE  OF MATERIAL
ADVERSE  CHANGES IN THE  BUSINESS OF ANY PARTY TO A  TRANSACTION,  THE TIMING OF
TRANSACTION CLOSINGS,  UNSATISFACTORY DUE DILIGENCE RESULTS, BORROWER FAILURE TO
SATISFY CLOSING CONDITIONS, THE ABILITY TO SECURITIZE MORTGAGE LOANS IN MUTUALLY
ACCEPTABLE  TERMS,  ACQUISITIONS  AND THE  INTEGRATION  OF ACQUIRED  BUSINESSES,
CREDIT RISK MANAGEMENT, ASSET/LIABILITY MANAGEMENT, THE FINANCIAL AND SECURITIES
MARKETS,  THE  AVAILABILITY  OF AND COSTS  ASSOCIATED  WITH  TIMELY  SOURCES  OF
LIQUIDITY ON MUTUALLY ACCEPTABLE TERMS AND OTHER FACTORS GENERALLY UNDERSTOOD TO
AFFECT THE REAL ESTATE  ACQUISITION  MORTGAGE  AND LEASING  MARKETS AND SECURITY
INVESTMENTS.  THE COMPANY DOES NOT  UNDERTAKE,  AND  SPECIFICALLY  DISCLAIMS ANY
OBLIGATION,  TO PUBLICLY  RELEASE THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE
TO ANY  FORWARD-LOOKING  STATEMENTS TO REFLECT THE  OCCURRENCE OF ANTICIPATED OR
UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.

                                       10
<PAGE>

         REPORT OF MANAGEMENT


         The management of Ocwen Asset  Investment  Corp. is responsible for the
         preparation and fair presentation of the financial statements and other
         financial information contained in this annual report. The accompanying
         consolidated financial statements have been prepared in conformity with
         generally accepted accounting  principles applied on a consistent basis
         and include amounts based on management's best estimates and judgments.
         Nonfinancial  information  included in this annual report has also been
         prepared  by  management  and  is  consistent  with  the   consolidated
         financial  statements.  In the opinion of management,  the consolidated
         financial  statements fairly reflect the Company's  financial position,
         results of operations and cash flows.

         To assure  that  financial  information  is  reliable  and  assets  are
         safeguarded,  management  has  established  and  maintains an effective
         system of internal  accounting  controls  and  procedures  that provide
         reasonable  assurance  as to  the  integrity  and  reliability  of  the
         financial  statements,  the  protection  of  assets  against  loss from
         unauthorized  use or  disposition  and the  prevention and detection of
         errors and irregularities on a timely basis.

         Price Waterhouse LLP conducts its audit of the  consolidated  financial
         statements in accordance with generally  accepted  auditing  standards.
         Such standards include the evaluation of internal  accounting  controls
         to establish a basis for developing the scope of its examination of the
         consolidated   financial   statements.   In  addition  to  the  use  of
         independent   certified   public   accountants,   Ocwen   maintains   a
         professional   staff  of  internal  auditors  who  conduct   financial,
         procedural  and  special  audits  of  the  Company.   To  ensure  their
         independence,  both Price Waterhouse LLP and the internal auditors have
         direct access to the Audit Committee of the Board of Directors.

         The Audit Committee,  which consists solely of independent directors of
         the Company, makes recommendations to the Board of Directors concerning
         the appointment of the  independent  certified  public  accountants and
         meets with Price  Waterhouse  LLP and the internal  auditors to discuss
         the results of their audits, the Company's internal accounting controls
         and financial reporting matters.



         /s/ William C. Erbey                      /s/ Mark S. Zeidman
         ----------------------------------------  ----------------------------
             William C. Erbey                          Mark S. Zeidman
             Chairman and Chief Executive Officer      Senior Vice President and
                                                       Chief Financial Officer


                                       11
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of Ocwen Asset Investment Corp.

In our opinion, the accompanying  consolidated statements of financial condition
and  the  related   consolidated   statements  of  operations,   of  changes  in
shareholders' equity and of cash flows present fairly, in all material respects,
the financial  position of Ocwen Asset  Investment Corp. (the "Company") and its
subsidiaries at December 31, 1997 and the results of their  operations and their
cash flows for the period from May 14, 1997 to December 31, 1997,  in conformity
with generally accepted accounting  principles.  These financial  statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial  statements based on our audits.  We conducted our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatements. An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



/s/ Price Waterhouse LLP
--------------------------------
    Price Waterhouse LLP


Fort Lauderdale, Florida
January 26, 1998

                                       12
<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                  CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                                DECEMBER 31, 1997

ASSETS:
Cash and amounts due from depository institutions ............   $     331,047
Interest earning deposits ....................................      48,346,076
Securities available for sale, at market value ...............     146,026,907
Loan portfolio, net ..........................................      15,831,479
Discount loan portfolio, net .................................      26,978,888
Investment in real estate, net ...............................      45,430,039
Deposits on pending asset acquisitions .......................       1,000,000
Principal and interest receivable ............................       2,518,272
Other assets .................................................       1,540,633
                                                                 -------------
                                                                 $ 288,003,341
                                                                 =============
LIABILITIES AND SHAREHOLDERS' EQUITY:

LIABILITIES:
  Dividends and distributions payable ........................   $   7,458,750
  Accrued expenses, payables and other liabilities ...........       6,344,783
                                                                 -------------
     Total liabilities .......................................      13,803,533
                                                                 -------------

Minority interest ............................................       2,941,541
                                                                 -------------

COMMITMENTS AND CONTINGENCIES (NOTE 11)

SHAREHOLDERS' EQUITY:
  Preferred stock, $.01 par value; 25,000,000 shares
    authorized; 0 shares issued and outstanding ..............              --
  Common Stock, $.01 par value; 200,000,000 shares authorized;
    19,125,000 shares issued; 18,965,000 shares outstanding ..         191,250
  Additional paid-in capital .................................     283,496,750
  Distributions in excess of earnings ........................      (2,107,331)
  Unrealized loss on securities available for sale ...........      (7,327,890)
  Treasury stock at cost (160,000 shares) ....................      (2,994,512)
                                                                 -------------
     Total shareholders' equity ..............................     271,258,267
                                                                 -------------
                                                                 $ 288,003,341
                                                                 =============

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

                                       13
<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                      CONSOLIDATED STATEMENT OF OPERATIONS
              FOR THE PERIOD FROM MAY 14, 1997 TO DECEMBER 31, 1997


Interest income:
    Repurchase agreements and interest earning deposits ......    $  5,538,946
    Securities available for sale ............................       6,362,909
    Loans ....................................................         311,157
    Discount loans ...........................................       1,248,703
                                                                  ------------
                                                                    13,461,715
                                                                  ------------

Operating income:
    Investments in real estate, net ..........................       1,481,633
    Other ....................................................          12,665
                                                                  ------------
                                                                     1,494,298
                                                                  ------------

Operating expenses:
    Management fees ..........................................       1,796,311
    Due diligence ............................................         326,025
    Foreign currency loss ....................................         568,565
    Other ....................................................         464,164
                                                                  ------------
                                                                     3,155,065
                                                                  ------------
Income before minority interest ..............................      11,800,948
Minority interest in net income of operating partnership .....          (9,430)
                                                                  ------------
    Net income ...............................................    $ 11,791,518
                                                                  ============

Earnings per share:
    Basic ....................................................    $       0.62
                                                                  ============
    Diluted ..................................................    $       0.60
                                                                  ============

Weighted average shares outstanding:
    Basic ....................................................      19,108,789
                                                                  ============
    Diluted ..................................................      19,564,770
                                                                  ============

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

                                       14
<PAGE>
<TABLE>
<CAPTION>

                                                     OCWEN ASSET INVESTMENT CORP.
                                      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                        FOR THE PERIOD FROM MAY 14, 1997 TO DECEMBER 31, 1997

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

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

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

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

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

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


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

                                                                 15
</TABLE>

<PAGE>

                             OCWEN ASSET INVESTMENT CORP.
                         CONSOLIDATED STATEMENT OF CASH FLOWS
                FOR THE PERIOD FROM MAY 14, 1997 TO DECEMBER 31, 1997

<TABLE>
<CAPTION>

<S>                                                                    <C>
Cash flows from operating activities:
  Net income .......................................................   $  11,791,518
  Adjustments to reconcile net income to net cash provided by
     operating activities:
     Premium amortization (discount accretion), net ................       6,236,654
     Depreciation ..................................................         179,088
     Foreign exchange loss .........................................         568,565
     Increase in interest receivable ...............................      (2,518,272)
     Increase in other assets ......................................      (1,540,633)
     Increase in accrued expenses, payables and other liabilities ..       6,344,783
     Minority interest in earnings .................................           9,430
                                                                       -------------
Net cash provided by operating activities ..........................      21,071,133
                                                                       -------------

Cash flows from investing activities:
  Purchase of securities available for sale ........................    (166,334,140)
  Maturities and principal payments received on securities available
     for sale ......................................................       6,654,881
  Purchase of loans ................................................     (16,091,515)
  Purchase of discount loans .......................................     (28,465,429)
  Principal payments received on discount loans ....................         932,366
  Principal payments received on loans .............................         333,454
  Investment in real estate ........................................     (45,609,127)
  Deposits on pending asset acquisitions ...........................      (1,000,000)
                                                                       -------------
Net cash used by investing activities ..............................    (249,579,510)
                                                                       -------------

Cash flows from financing activities:
  Proceeds from issuance of common stock, net of offering costs ....     283,688,000
  Dividend payments on common stock ................................      (6,502,500)
  Treasury stock acquisition .......................................      (2,994,512)
  Proceeds from sale of  operating partnership units ...............       2,994,512
                                                                       -------------
Net cash provided by financing activities ..........................     277,185,500
                                                                       -------------

Net increase in cash and cash equivalents ..........................      48,677,123
Cash and cash equivalents at beginning of period ...................              --
                                                                       -------------
Cash and cash equivalents at end of period .........................   $  48,677,123
                                                                       =============

Reconciliation of cash and cash equivalents at end of period:
  Cash and amounts due from depository institutions ................   $     331,047
  Interest earning deposits ........................................      48,346,076
                                                                       -------------
                                                                       $  48,677,123
                                                                       =============

Supplemental schedule of non-cash financing activities:
  Common stock dividends and distributions declared but not paid ...   $   7,458,750
                                                                       =============

</TABLE>


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

                                       16

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

NOTE 1   ORGANIZATION

         Ocwen  Asset  Investment  Corp.  ("OAIC" or the  "Company")  is a newly
formed  corporation  that has  elected to be taxed as a Real  Estate  Investment
Trust  ("REIT") under the Internal  Revenue Code of 1986 (the "Code").  As such,
OAIC will generally not be subject to federal income taxation on that portion of
its income that is distributed to shareholders if it distributes at least 95% of
its taxable income to its shareholders by the due date of its federal income tax
return and complies with various other requirements.

         The Company was incorporated in the Commonwealth of Virginia on January
22, 1997 and was initially  capitalized on February 12, 1997 through the sale of
100 shares of common stock for $1,600. On May 14, 1997, the Company completed an
initial  public  offering  ("IPO") with the sale of 19,125,000  shares of common
stock,  par  value  $.01 per  share,  at a price of  $16.00  per  share  (before
underwriting and offering expenses), and commenced operations thereon.

         The Company's consolidated financial statements include the accounts of
OAIC and its subsidiaries.  OAIC directly owns two qualified REIT  subsidiaries,
Ocwen  General  Partner,  Inc.  ("General  Partner")  and  Ocwen  Limited,  Inc.
("Limited  Partner").  General  Partner  and  Limited  Partner own 1% and 98.2%,
respectively of Ocwen Partnership, L.P. ("Operating Partnership"). Additionally,
through General Partner and Limited Partner, the Company established  additional
partnerships in Florida and California for real estate investment purposes.  The
minority  interest at December  31, 1997  represents  a 0.8%  interest  (160,000
units) in the Operating Partnership held by Investors Mortgage Insurance Holding
Company  ("IMI"),  a wholly  owned  subsidiary  of Ocwen  Financial  Corporation
("Ocwen"). IMI also owns 1,715,000 shares, or 9.0%, of the Company's outstanding
common  stock and has  1,912,500  options  (25% of which vest each year over the
next four years) to purchase,  at the election of the Company,  either shares of
the Company or an equivalent number of units in the operating  partnership at an
exercise price of $16.00 per share.

         The Company has entered into a management  agreement with Ocwen Capital
Corporation ("OCC"), a wholly owned subsidiary of Ocwen, under which OCC advises
the  Company  on various  facets of its  business  and  manages  its  day-to-day
operations,  subject to the supervision of the Company's Board of Directors. For
its  services,  OCC  receives a base  management  fee of 1% per annum of average
invested assets,  as defined in the related  agreement,  payable  quarterly.  In
addition,  OCC is entitled to receive incentive  compensation in an amount equal
to 25% of the dollar amount by which Funds From Operations ("FFO"), as adjusted,
exceeds certain defined levels.


NOTE 2   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The Company's consolidated financial statements include the accounts of
OAIC  and its  subsidiaries  as  described  in  Note 1  above.  All  significant
intercompany transactions and balances have been eliminated.

SECURITIES AVAILABLE FOR SALE

         Securities  available for sale are carried at market value with the net
unrealized  gains or losses  reported as a separate  component of  shareholders'
equity. Unrealized losses on securities that reflect a decline in value which is
other than  temporary,  if any, are charged to  earnings.  At  disposition,  the
realized  net gain or loss is included in earnings on a specific  identification
basis.  The  amortization  of premiums and  accretion of discounts  are computed
using the interest  method after  considering  actual and  estimated  prepayment
rates, if applicable.  Actual prepayment experience is periodically reviewed and
effective yields

                                       17

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

are  recalculated   when  differences  arise  between   prepayments   originally
anticipated and amounts actually received plus anticipated future prepayments.

LOAN PORTFOLIO

         Loans  held for  investment  are  stated at  amortized  cost,  less any
allowance for loan losses, because the Company has the ability and the intent to
hold them to  maturity.  Interest  income is accrued as it is earned.  Loans are
placed on  non-accrual  status after being  delinquent  greater than 89 days, or
earlier  if the  borrower  is deemed  by  management  to be  unable to  continue
performance.  When a loan is placed on non-accrual status,  interest accrued but
not received is reversed.  While a loan is on  non-accrual  status,  interest is
recognized  only as cash is received.  Loans are returned to accrual status only
when the loan is reinstated and ultimate collectibility of future interest is no
longer in doubt. Loan origination fees and certain direct loan origination costs
are  deferred  and  recognized  over the lives of the  related  loans as a yield
adjustment and included in interest  income using the interest method applied on
a loan-by-loan  basis.  Gains and losses on disposal of such assets are computed
on a specific identification basis.

DISCOUNT LOAN PORTFOLIO

         Certain  mortgage  loans,  for which the  borrower is not current as to
principal  and  interest  payments or for which there is a reason to believe the
borrower will be unable to continue to make its scheduled principal and interest
payments,  are acquired at a discount.  The acquisition cost for a pool of loans
is  allocated  to each loan  within the pool based  upon the  Company's  pricing
methodology.  For those  commercial  real estate loans which are current and the
Company  believes will remain  current,  the remaining  unamortized  discount is
accreted into interest  income as a yield  adjustment  using the interest method
over the  contractual  maturity of the loan.  For all other  loans,  interest is
reported as cash is received.  Gains on the repayment and  discharging  of loans
are  reported  as  interest  income.  In  situations  where  the  collateral  is
foreclosed  upon, the loans are transferred to real estate owned upon receipt of
title to the property and accretion of the related discount is discontinued.

ALLOWANCE FOR LOAN LOSSES

         The allowance  for estimated  loan losses is maintained at a level that
management,  based upon evaluation of known and inherent risks in the portfolio,
considers  adequate  to provide  for  potential  losses.  Management's  periodic
evaluation of the allowance for estimated  loan losses is based upon an analysis
of the portfolio,  historical loss experience,  economic  conditions and trends,
collateral  values  and  other  relevant  factors.  Future  adjustments  to  the
allowance may be necessary if economic conditions and trends,  collateral values
and other relevant  factors differ  substantially  from the assumptions  used in
making the evaluation.


INVESTMENT IN REAL ESTATE

         Investment  in  real  estate  is  recorded  at  cost  less  accumulated
depreciation (which is less than the net realizable value of the property).  The
Company reviews its investment in real estate for impairment  whenever events or
changes  in  circumstances   indicate  that  the  carrying  amount  may  not  be
recoverable.

         Depreciation  is computed on a straight  line basis over the  estimated
useful lives of the assets as follows:


Buildings and improvements                  39 years
Tenant improvements                         Lesser of lease term or useful life
Furniture, fixtures and equipment           7 years

                                       18

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

         Expenditures  for repairs and  maintenance are charged to operations as
incurred.  Significant  renovations are capitalized.  Fees and costs incurred in
the   successful   negotiation  of  leases  are  deferred  and  amortized  on  a
straight-line  basis over the terms of the respective leases.  Rental revenue is
reported on a straight-line basis over the terms of the respective leases.

FOREIGN CURRENCY TRANSACTIONS

         The  Company's  investment in foreign  assets is  translated  into U.S.
dollars at current  exchange  rates,  and  related  revenues  and  expenses  are
translated  at average  exchange  rates for the  period.  Resulting  translation
adjustments  are reflected in the results of operations.  Transaction  gains and
losses that arise from exchange rate fluctuations on transactions denominated in
a currency other than U.S.  dollars are included in the results of operations as
incurred.

INCOME TAXES

         The Company  qualifies as a REIT under  Sections 856 through 860 of the
Code of 1986, as amended. A REIT will generally not be subject to federal income
taxation on that portion of its income that is distributed to shareholders if it
distributes  at least 95% of its  taxable  income by the due date of its federal
income tax return and complies with certain other requirements.  Accordingly, no
provision  has been  made for  federal  income  taxes  for the  Company  and its
subsidiaries in the accompanying consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

         For purposes of reporting cash flows, cash and cash equivalents include
non-interest  earning deposits,  interest earning deposits and all highly liquid
investments purchased with an original maturity date of three months or less.

BASIC AND DILUTED EARNINGS PER SHARE

         Basic earnings per share is calculated  based upon the weighted average
number of shares of common stock outstanding  during the year.  Diluted earnings
per share is  calculated  based upon the  weighted  average  number of shares of
common stock  outstanding and all dilutive  potential common shares  outstanding
during the year.  The  computation  of diluted  earnings per share  includes the
impact of the exercise of the  outstanding  options to purchase common stock and
assumes  that the proceeds  from such  issuance  are used to  repurchase  common
shares at fair value.

RISKS AND UNCERTAINTIES

         In the normal course of business,  the Company encounters primarily two
significant types of economic risk:  credit and market.  Credit risk is the risk
of default on the  company's  loan  portfolio  that  results  from a  borrowers'
inability or unwillingness to make contractually required payments.  Market risk
reflects  changes in the value of securities  available for sale and investments
in real  estate  due to  changes  in  interest  rates or other  market  factors,
including  the rate of  prepayments  of principal,  the value of the  collateral
underlying loans and the valuation of real estate held by the Company.

         Additionally,  the Company  encounters  significant  tax risks. If OAIC
were to fail to qualify as a REIT in any taxable year,  OAIC would be subject to
federal income tax (including  any  applicable  alternative  minimum tax) on its
taxable income at regular  corporate  rates,  and  distributions to shareholders
would not be  deductible  by OAIC in  computing  its  taxable  income.  Any such
corporate tax liability could be substantial and would reduce the amount of cash
available for distribution to shareholders,  which in turn could have an adverse
impact on the value of, and trading prices for, the Company's common stock.

                                       19

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

         Unless  entitled to relief under certain Code  provisions,  the Company
could also be  disqualified  from  taxation as a REIT for the four taxable years
following the year during which OAIC ceased to qualify as a REIT.

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  ("GAAP") requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual results could differ from those  estimates.  Material
estimates that are particularly susceptible to significant change in the near or
medium term relate to the determination of the allowance for losses on loans and
discount loans.

RECENT ACCOUNTING STANDARDS

         The  Company  adopted  Statement  of  Financial   Accounting  Standards
("SFAS") No. 125,  "Accounting  for Transfers and Servicing of Financial  Assets
and Extinguishments of Liabilities" during 1997. SFAS No. 125 (i) sets forth the
criteria for (a) determining  when to recognize  financial and servicing  assets
and  liabilities;  and (b) accounting for transfers of financial assets as sales
or borrowings;  and (ii) requires (a) liabilities  and derivatives  related to a
transfer of financial  assets to be recorded at fair value; (b) servicing assets
and retained  interests in transferred  assets carrying amounts be determined by
allocating  carrying  amounts based on fair value; (c) amortization of servicing
assets and liabilities be in proportion to net servicing income;  (d) impairment
measurement  based  on  fair  value;  and (e)  pledged  financial  assets  to be
classified  as  collateral.  SFAS No. 125 provides  implementation  guidance for
assessing  isolation of  transferred  assets and for accounting for transfers of
partial interests, servicing of financial assets, securitizations,  transfers of
sales-type  and  direct   financing  lease   receivables,   securities   lending
transactions, repurchase agreements including "dollar rolls", "wash sales", loan
syndications and participations,  risk  participations in banker's  acceptances,
factoring   arrangements,   transfers   of   receivables   with   recourse   and
extinguishments of liabilities.  In December 1996, the FASB issued SFAS No. 127,
"Deferral  of the  Effective  Date of FASB  Statement  No. 125",  which  delayed
implementation of certain provisions of SFAS No. 125.

         In February 1997,  the FASB issued SFAS No. 128,  "Earnings per Share."
SFAS No. 128 simplifies the calculation of earnings per share ("EPS"), and makes
them comparable to international  standards.  Under SFAS No. 128, the Company is
required to present both basic and diluted EPS on the face of its  statements of
operations.  Basic  EPS,  which  replaces  primary  EPS  required  by APB 15 for
entities with complex capital structures,  excludes common stock equivalents and
is  computed  by  dividing  income  available  to  common  shareholders  by  the
weighted-average number of common shares outstanding for the period. Diluted EPS
gives  effect to all  dilutive  potential  common  shares that were  outstanding
during the period.  SFAS No. 128 is effective for financial  statements for both
interim and annual periods  ending after December 15, 1997. The Company  adopted
SFAS No. 128 effective December 31, 1997.

         In February  1997,  the FASB also issued SFAS No. 129,  "Disclosure  of
Financial  Information  About Capital  Structure" ("SFAS No. 129"). SFAS No. 129
supersedes   capital  structure   disclosure   requirements  found  in  previous
accounting  pronouncements  and consolidates them into one statement for ease of
retrieval and greater visibility for non-public entities.  These disclosures are
required for financial statements for periods ending after December 15, 1997. As
SFAS No. 129 makes no changes to  previous  accounting  pronouncements  as those
pronouncements  applied to OAIC, adoption of SFAS No. 129 will have no impact on
the Company's results of operations and financial condition.

         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income." SFAS No. 130 requires the inclusion of comprehensive  income, either in
a  separate  statement  for  comprehensive  income,  or as  part  of a  combined
statement of income and comprehensive income in a full-set of general-

                                       20

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

purpose financial  statements.  Comprehensive income is defined as the change in
equity of a business  enterprise  during a period  from  transactions  and other
events and  circumstances,  excluding  those  resulting from  investments by and
distributions  to owners.  SFAS No. 130 requires  that  comprehensive  income be
presented beginning with net income, adding the elements of comprehensive income
not  included in the  determination  of net income,  to arrive at  comprehensive
income.  SFAS No. 130 also requires that an enterprise  display the  accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of a statement  of financial
position.  SFAS No. 130 is effective  for the  Company's  fiscal year  beginning
January 1, 1998. SFAS No. 130 requires the  presentation of information  already
contained in the Company's financial statements and therefore is not expected to
have an impact on the Company's financial position or results of operation.

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


NOTE 3   FAIR VALUE OF FINANCIAL INSTRUMENTS

         Substantially  all of the  Company's  assets are  considered  financial
instruments.   For  the  majority  of  the  Company's   financial   instruments,
principally  loans,  fair  values are not readily  available  since there are no
available  trading markets as characterized by current exchanges between willing
parties. Accordingly, fair values can only be derived or estimated using various
valuation  techniques,  such as computing the present value of estimated  future
cash flows using discount rates  commensurate with the risks involved.  However,
the  determination of estimated  future cash flows is inherently  subjective and
imprecise.  In addition,  for those financial  instruments  with  option-related
features, prepayment assumptions are incorporated into the valuation techniques.
It should be noted that minor changes in assumptions or estimation methodologies
can have a material effect on these derived or estimated fair values.

         The fair values  reflected  below are  indicative  of the interest rate
environments  as of  December  31, 1997 and do not take into  consideration  the
effects of interest rate fluctuations.  In different interest rate environments,
fair value results can differ  significantly,  especially for certain fixed-rate
financial  instruments  and  non-accrual  assets.  In addition,  the fair values
presented  do not attempt to  estimate  the value of the  Company's  anticipated
future business activities.  In other words, they do not represent the Company's
value as a going  concern.  Furthermore,  the  differences  between the carrying
amounts and the fair values  presented  may not be realized  because,  except as
indicated,  the Company generally intends to hold these financial instruments to
maturity and realize their recorded values.

         Reasonable comparability of fair values among institutions is difficult
due to the wide range of permitted  valuation  techniques and numerous estimates
that  must be made in the  absence  of  secondary  market  prices.  This lack of
objective pricing standards introduces a degree of subjectivity to these derived
or estimated fair values.  Therefore,  while disclosure of estimated fair values
of financial  instruments is required,  readers are cautioned in using this data
for purposes of evaluating the financial condition of the Company.

                                       21

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


         The carrying  amounts and the  estimated  fair values of the  Company's
financial instruments at December 31, 1997 are as follows:

                                                Carrying         Fair
                                                 Amount          Value
                                              ------------   ------------
Cash and cash equivalents ..................  $ 48,677,123   $ 48,677,123
Securities available for sale ..............   146,026,907    146,026,907
Loan portfolio, net ........................    15,831,479     15,831,479
Discount loan portfolio ....................    26,978,888     26,978,888

         The methodologies used and key assumptions made to estimate fair value,
the estimated fair values determined and recorded carrying values follow:

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents have been valued at their carrying amounts as
these are reasonable  estimates of fair value given the relatively  short period
of time between origination of the instruments and their expected realization.

MORTGAGE-RELATED SECURITIES

         For  mortgage-related  securities,  fair value equals quoted price,  if
available. For securities for which a quoted market price is not available, fair
value is estimated using quoted market prices for similar instruments.

LOANS AND DISCOUNT LOANS

         The fair value of performing whole loans is estimated based upon quoted
market prices for similar whole loan pools.  The fair value of the discount loan
portfolio is estimated based upon current market yields at which recent pools of
similar mortgages have traded taking into consideration the timing and amount of
expected cash flows.

                                       22

<PAGE>
                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

NOTE 4   SECURITIES AVAILABLE FOR SALE

         The amortized cost, fair value and gross unrealized gains and losses on
the Company's  securities  available for sale are as follows at the period ended
December 31, 1997:

<TABLE>
<CAPTION>
                                                     Gross            Gross
                                     Amortized     Unrealized       Unrealized          Fair
                                       Cost          Gains            Losses            Value
                                  -------------   -------------    -------------    -------------
<S>                               <C>             <C>              <C>              <C>
Mortgage-related securities:
Single-family residential:
  FHLMC interest only .........   $  26,010,872   $     215,892    $  (5,048,800)   $  21,177,964
  FNMA interest only ..........      27,289,844         183,774       (4,900,486)      22,573,132
  Other AAA-rated interest only       1,090,760              --         (361,388)         729,372
  Subordinates ................       8,668,663         806,723          (31,319)       9,444,067
                                  -------------   -------------    -------------    -------------
                                     63,060,139       1,206,389      (10,341,993)      53,924,535
                                  -------------   -------------    -------------    -------------

Multi-family and commercial:
  AAA-rated interest only .....         913,182              --          (47,435)         865,747
  A-rated interest only .......         503,707              --          (23,519)         480,188
  Non-rated interest only .....       4,975,589              --         (172,716)       4,802,873
  Subordinates ................      83,902,180       2,536,277         (484,893)      85,953,564
                                  -------------   -------------    -------------    -------------
                                     90,294,658       2,536,277         (728,563)      92,102,372
                                  -------------   -------------    -------------    -------------
                                  $ 153,354,797   $   3,742,666    $ (11,070,556)   $ 146,026,907
                                  =============   =============    =============    =============
</TABLE>

         A  profile  of the  maturities  of  securities  available  for  sale at
December   31,  1997   follows.   Securities   are   included   based  on  their
weighted-average maturities,  reflecting anticipated future prepayments based on
a consensus of dealers in the market.

                                        Amortized Cost   Fair Value
                                        --------------  ------------

Due within one year .................    $         --   $         --
Due after 1 through 5 years .........      79,455,456     70,323,551
Due after 5 through 10 years ........      57,361,874     58,753,733
Due after 10 years ..................      16,537,467     16,949,623
                                         ------------   ------------
                                         $153,354,797   $146,026,907
                                         ============   ============

         Premiums  amortized against and discounts accreted to income during the
period from May 14, 1997 to December 31, 1997 are as follows:

Premiums amortized against interest income ...........   $ 8,033,504
Discounts accreted to interest income ................    (1,709,044)
                                                         -----------
     Net premium amortization ........................   $ 6,324,460
                                                         ===========

         During January and February 1998, the Company recorded a charge of $2.5
million  against  its  portfolio  of  interest-only  and  inverse  interest-only
securities  (together,  "IOs").  The charge  results from increases in projected
prepayment speeds during this period and a resulting  shortening of the weighted
average lives of certain individual securities in the portfolio.  As a result, a
determination was made to write down the recorded investment in those securities
where the reduction in fair value was considered to be other than temporary. The
Company believes that the current low levels of interest rates, and the inverted
shape of the yield curve,  are relatively  short-term  phenomena.  To the extent
that longer term interest rates increase or the relationship  between short-term
and  long-term  rates  revert  to their  historical  spreads,  the  value of the
portfolio should recover. To the extent that the current  environment  persists,
or that rates decrease further, additional impairment losses may be recognized.

                                       23
<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

NOTE 5   LOAN PORTFOLIO

         The Company's loan portfolio consisted of the following at December 31,
1997:

Single-family residential .................................     $  6,465,080
Multi-family residential ..................................        3,455,000
Commercial real estate:
   Office .................................................       33,058,000
   Hotel ..................................................       20,952,000
                                                                ------------
    Total loans ...........................................       63,930,080
Deferred origination fees .................................         (458,925)
Loans in process ..........................................      (47,639,676)
Allowance for loan losses .................................               --
                                                                ------------
  Loans, net ..............................................     $ 15,831,479
                                                                ============

         The   following   table   represents   a  summary   of  the   Company's
non-performing loans at December 31, 1997.

NON-PERFORMING LOANS:
    Single-family residential .............................     $    268,689
    Multi-family ..........................................               --
    Commercial ............................................               --
                                                                ------------
                                                                $    268,689
                                                                ============

         If non-accrual loans had been current in accordance with their original
terms,  additional  interest income of approximately  $5,603 for the period from
May 14, 1997 to December 31, 1997 would have been  earned.  No interest has been
accrued on loans greater than 89 days past due.

         At December 31, 1997,  the Company had no investment in impaired  loans
as defined in accordance with SFAS No. 114, and as amended by SFAS No. 118.

         The  following   table  sets  forth  the  geographic   distribution  of
properties securing the Company's loans at December 31, 1997:

<TABLE>
<CAPTION>
                       Single-family         Multi-family           Commercial
                        Residential          Residential           Real Estate              Total
                      ---------------      ---------------       ---------------       ---------------
<S>                   <C>                  <C>                   <C>                   <C>
Georgia...........          1,954,863                   --                    --             1,954,863
New York..........                 --            3,455,000                    --             3,455,000
South Carolina....          3,520,770                   --                    --             3,520,770
Delaware..........                 --                   --            13,300,000            13,300,000
Massachusetts.....    $            --      $            --       $    40,710,000       $    40,710,000
Other.............            989,447                   --                    --               989,447
                      ---------------      ---------------       ---------------       ---------------
Total.............    $     6,465,080      $     3,455,000       $    54,010,000       $    63,930,080
                      ===============      ===============       ===============       ===============
</TABLE>

                                                   24

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

NOTE 6            DISCOUNT LOAN PORTFOLIO

         The Company has acquired, through private sales and auctions,  mortgage
loans at a discount because the borrowers are either not current as to principal
and interest  payments or there is doubt as to the borrowers'  ability to pay in
full the contractual  principal and interest.  The Company estimates the amounts
it will realize through foreclosure,  collection or other resolution efforts and
the length of time required to complete the  collection  process in  determining
the amounts it will bid to acquire such loans.

         The resolution  alternatives applied to the discount loan portfolio are
(i) the borrower brings the loan current in accordance with original or modified
terms;  (ii) the  borrower  repays the loan or a  negotiated  amount;  (iii) the
borrower agrees to a deed-in-lieu of foreclosure, in which case it is classified
as real  estate  owned  and held for sale by the  Company  and (iv) the  Company
forecloses  on the loan and the property is either  acquired at the  foreclosure
sale by a third party or by the Company,  in which case it is classified as real
estate owned and held for sale.  The Company  periodically  reviews the discount
loan portfolio performance to ensure that nonperforming loans are carried at the
lower of amortized cost or net realizable value of the underlying collateral and
the remaining unaccreted discount is adjusted accordingly. Upon receipt of title
to the property, the loans are transferred to real estate owned.

         The  Company's  discount  loan  portfolio  consists of the following at
December 31, 1997:

LOAN TYPE:
Commercial real estate loans:
   Office ............................................     $ 11,892,814
   Retail ............................................       30,635,968
                                                           ------------
     Total unpaid principal balance ..................       42,528,782
   Unaccreted discount ...............................      (15,549,894)
   Allowance for loan losses .........................               --
                                                           ------------
     Discount loans, net .............................     $ 26,978,888
                                                           ============

LOAN STATUS:
   Current ...........................................     $  7,964,105
   Past due 31 to 89 days ............................               --
   Past due 90 days or more ..........................       34,564,677
                                                           ------------
                                                           $ 42,528,782
                                                           ============

         The  following  table sets forth the  activity in the  Company's  gross
discount loan portfolio for the period from May 14, 1997 to December 31, 1997:

Principal balance at beginning of period .............     $         --
Acquisitions .........................................       44,686,413
Resolutions and repayments ...........................       (1,281,846)
Foreign currency loss (1) ............................         (875,785)
                                                           ------------
Principal balance at end of period ...................     $ 42,528,782
                                                           ============

(1)    The $875,785  represents  the gross foreign  currency loss related to the
       unpaid  principal  balance which, net of $307,220 related to the discount
       on loans,  resulted in a net foreign  currency  loss of $568,565  for the
       period from May 14, 1997 to December 31, 1997.

                                       25

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


         The  following   table  sets  forth  the  geographic   distribution  of
properties securing the Company's discount loans at December 31, 1997:

Canada ...............................................     $26,762,692
New York .............................................       9,208,805
Montana ..............................................       3,873,276
Ohio .................................................       2,684,009
                                                           -----------
   Total .............................................     $42,528,782
                                                           ===========


NOTE 7   INVESTMENT IN REAL ESTATE

         The   investments  in  real  estate  at  December  31,  1997  represent
acquisitions of two commercial  office  properties in San Francisco,  California
and a shopping plaza in Bradenton,  Florida.  The investments have been recorded
on the books of OAIC California Partnership,  L.P. and OAIC Florida Partnership,
L.P, respectively, and include:

Land .................................................     $  5,250,105
Office buildings .....................................       21,741,968
Retail ...............................................       18,602,922
Building improvements ................................           14,132
                                                           ------------
 .....................................................       45,609,127
Accumulated depreciation .............................         (179,088)
                                                           ------------
   Investment in real estate net .....................     $ 45,430,039
                                                           ============


NOTE 8   SHAREHOLDERS' EQUITY

         On May 14, 1997, the Company  completed its initial public  offering of
17,250,000  shares,  including  over-allotments,  for an initial public offering
price of $16.00  per  share,  before  underwriting  discounts  and  commissions.
Additionally,  upon the closing of the offering 1,875,000 shares of common stock
were sold to IMI at the  initial  public  offering  price,  net of  underwriting
discounts  and  commissions.  The total net proceeds  from the sale of the above
shares was $283,688,000.

         On  December  8,  1997 IMI sold to the  Company  160,000  shares of the
Company's  common  stock and  invested in an  equivalent  number of units in the
Operating Partnership. As a result of this sale, IMI's direct ownership interest
in the Company  amounted to 9.0% at December 31,  1997.  The change in ownership
structure  resulted in IMI  holding a 0.8%  minority  interest in the  Operating
Partnership.

         The Company  adopted a  non-qualified  stock  option plan (the  "Option
Plan"),  which provides  options to purchase  shares of common stock (or, at the
election  of  the  Company,  limited  partnership  interests  ("Units")  in  the
Operating  Partnership that may be redeemed for cash, or, at the election of the
General  Partner,  shares of common stock on a one-for-one  basis).  The maximum
aggregate  number  of  shares of Common  stock  that may be issued  pursuant  to
options  granted under the Option Plan is  5,000,000.  The purpose of the Option
Plan is to provide a means of performance-based compensation as an incentive for
OCC to enhance the value of Company's stock.

         At the closing of the initial public  offering,  the Company granted to
OCC 1,912,500 options under the Option Plan at an exercise price per share equal
to the initial  offering price of the common stock. The options vest one quarter
each year upon the first four  anniversaries  of the closing date of the initial
public offering.  The options  terminate on the tenth anniversary of the closing
date of the initial public offering.

                                       26

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

         The Company has recorded  $103,578 of  compensation  expense related to
the stock  options  granted  to OCC.  The  compensation  expense is based on the
estimated fair value of the options which was determined using the Black-Scholes
option-pricing  model.  The fair value of the  options was  estimated  using the
following assumptions:

Expected dividend yield ..............................         15.625%
Expected stock price volatility ......................         17.910%
Risk-free interest rate ..............................          5.391%
Expected life of options .............................          4 years

NOTE 9   BASIC AND DILUTED EARNINGS PER SHARE

         The Company is  required  to present  both basic and diluted EPS on the
face of its  statement of  operations.  Basic EPS,  which  replaced  primary EPS
required by APB 15, is calculated by dividing net income by the weighted average
number of common shares  outstanding  during the year. Diluted EPS is calculated
by dividing net income by the weighted  average number of shares of common stock
outstanding  and the dilutive  potential  common shares  related to  outstanding
stock options. The following is a reconciliation of the calculation of basic EPS
to diluted EPS for the period from May 14, 1997 to December 31, 1997.

Net income ...........................................     $11,791,518
                                                           ===========

BASIC EPS:
Weighted average shares of common stock ..............      19,108,789
                                                           ===========
Basic EPS ...........................................      $      0.62
                                                           ===========

DILUTED EPS:
Weighted average shares of common stock ..............      19,108,789
Effect of dilutive securities:
      Stock options ..................................         455,981
                                                           -----------
                                                            19,564,770
                                                           ===========
Diluted EPS ..........................................     $      0.60
                                                           ===========


NOTE 10  TAXATION

         The Company  qualifies as a REIT under  Sections 856 through 860 of the
Code,  as  amended.  A REIT will  generally  not be subject  to  federal  income
taxation on that portion of its income that is distributed  to its  shareholders
if it  distributes  at least 95 percent of its taxable  income and meets certain
other income and asset tests. The Company has until the filing of its tax return
to satisfy the distribution  requirement.  Since the Company plans to distribute
100% of its taxable income,  no provision has been made for federal income taxes
for the Company and its subsidiaries in the accompanying  consolidated financial
statements.  As taxable  income is  finalized  and the tax  return is filed,  an
additional distribution may be required.

                                       27

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

NOTE 11  COMMITMENTS AND CONTINGENCIES

         Noncancelable  operating  leases with tenants  expire on various  dates
through 2028.  The future minimum rental income (base rent) to be received under
leases existing as of December 31, 1997, are as follows:

1998 .................................................     $ 3,966,128
1999 .................................................       3,684,755
2000 .................................................       3,267,164
2001 .................................................       2,569,014
2002 .................................................       1,839,674
Thereafter ...........................................      14,747,152

         Office  and  retail  space in the  properties  is  generally  leased to
tenants  under lease terms which provide for the tenants to pay for increases in
operating  expenses in excess of specified  amounts.  The above  future  minimum
lease payments do not include  specified  payments for tenant  reimbursements of
operating expenses.

         At December 31, 1997, outstanding commitments totaled $74.3 million and
included  $14.0  million  related to the purchase of an office  building,  $60.3
million  related to the  origination  of three real  estate  loans with  initial
fundings of approximately $10.0 million.

         Neither the Company nor the Operating Partnership is currently involved
in any material  litigation  nor, to the  Company's  knowledge,  is any material
litigation   currently   threatened   against  the  Company  or  the   Operating
Partnership.


NOTE 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

         The following table sets forth the quarterly financial  information for
the period from May 14, 1997 to December 31, 1997.

<TABLE>
<CAPTION>

                                                                Quarters Ended           For the Period
                                                       -----------------------------      May 14, 1997
                                                       December 31,    September 30,           to
                                                          1997             1997           June 30, 1997
                                                       -----------     -------------      -------------
<S>                                                    <C>             <C>                  <C>
Interest income..............................          $ 5,466,971     $ 5,511,937          $2,482,807
Operating income.............................            1,427,260          67,038                  --
Operating expenses...........................           (1,503,779)     (1,228,703)           (422,583)
                                                       -----------     -----------          ----------
Income before minority interest..............            5,390,452       4,350,272           2,060,224
Minority interest in net income of operating
 partnership ................................               (9,430)             --                  --
                                                       -----------     -----------          ----------
Net income...................................          $ 5,381,022     $ 4,350,272          $2,060,224
                                                       ===========     ===========          ==========

Earnings per share:
  Basic.......................................          $     0.28      $     0.23           $    0.11
  Diluted.....................................          $     0.28      $     0.22           $    0.11

</TABLE>

                                       28

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


SHAREHOLDER INFORMATION

PRICE RANGE OF THE COMPANY'S COMMON STOCK

         The Company's  common stock began trading on The NASDAQ Stock  Market's
National  Market  ("NASDAQ")  on May 14,  1997  under  the  symbol  "OAIC".  The
following table sets forth for the indicated periods the high and low bid prices
for the common stock, as traded on such market.

     1997                                                 HIGH           LOW
     -----------------------------------------------    ---------     ---------
     Second quarter (from May 14)...................    $ 20.1250     $ 17.8750
     Third quarter..................................      24.8750       19.7500
     Fourth quarter.................................      24.0000       17.5000

The foregoing market  quotations  reflect  inter-dealer  prices,  without retail
mark-up,  mark-down,  or commissions  and may not necessarily  represent  actual
transactions.

         At the close of business on February 27,  1998,  the  Company's  common
stock price was $19.94.

         The Company  currently  qualifies as a REIT. To obtain the tax benefits
of a REIT,  the Company is required each year to distribute to its  shareholders
at least 95% of its taxable income after certain  adjustments by the due date of
its federal income tax return.  Future distributions paid by the Company will be
at the  discretion  of the Board of Directors and will depend on the actual cash
flow of the Company, its financial condition,  capital requirements,  the annual
REIT distribution  requirements and such other factors as the Board of Directors
of the Company  deem  relevant.  During the period from May 14, 1997 to December
31, 1997, the Company declared dividends totaling $13.9 million.

NUMBER OF HOLDERS OF COMMON STOCK

         At February 27, 1998,  18,965,000  shares of Company  common stock were
outstanding and held by approximately 76 holders of record.

                                       29

<PAGE>

                          OCWEN ASSET INVESTMENT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1997


CORPORATE INFORMATION

Corporate Headquarters

Ocwen Asset Investment Corp.
The Forum, Suite 1000
1675 Palm Beach Lakes Blvd.
West Palm Beach, Florida 33401
(561) 681-8000



Annual Meeting

The Annual Meeting of OAIC Shareholders will be held on May 14, 1998 at:

1675 Palm Beach Lakes Blvd.
West Palm Beach, Florida 33401



Investor Relations

All  investor  inquiries  may be  directed to or copies of OAIC Form 10-K may be
obtained from:

Investor Relations
Ocwen Asset Investment Corp.
The Forum, Suite 1003
1675 Palm Beach Lakes Blvd.
West Palm Beach, Florida 33401
(561) 681-8400



Listing

The common stock of Ocwen Asset  Investment  Corp. is listed on the NASDAQ.  Its
symbol is "OAIC".

Registrar and Transfer Agent

Transfer Agent for Stock

The Bank of New York
Shareholder Relations Department 11E
P.O. Box 11258
Church Street Station
New York, NY 10286
(800) 524-4458



Send certificates for transfer and address change notices to:

The Bank of New York
Receive and Deliver Department 11W
P.O. Box 11002
Church Street Station
New York, NY 10286

                                       30