EXHIBIT 99.2

                                  RISK FACTORS

         Each of the  factors  set forth below  could,  directly or  indirectly,
affect the Company's results of operations and financial condition.  Capitalized
terms that are not defined herein shall have the meaning  ascribed in the Annual
Report on Form 10-K of the Company to which this Exhibit relates.

RECENT  OPERATING  LOSSES OF THE COMPANY AND DECISION TO DISCONTINUE  INVESTMENT
ACTIVITIES COULD ADVERSELY AFFECT FUTURE OPERATIONS OF THE COMPANY

         The  Company  reported  a net loss of $58.2  million or $3.07 per fully
diluted  share for the year ended  December  31, 1998.  This loss was  primarily
attributable to a $79.7 million charge on subordinate and residual  interests in
mortgage-related  securities and derivatives,  which were adversely  affected by
increased  prepayments  of the  underlying  mortgage  loans and the  substantial
volatility in U.S. and foreign stock markets  commencing in mid-July 1998, which
has  resulted  in widening  mortgage  spreads and  declining  market  liquidity.
Moreover, as a result of these conditions,  in the latter half of 1998 there was
a general "flight to quality" by investors,  with the result that the market for
subordinate  and residual  interests  in  mortgage-related  securities  has been
substantially  reduced or  eliminated.  These  factors  adversely  affected  the
operations  and  financial  condition  of numerous  companies  in the  financial
service,  real estate  investment trust and  mortgage-backed  security  sectors,
including the Company.

         In connection with these factors, the Company has decided that, for the
foreseeable  future,  it does not plan to acquire any additional  assets or fund
any additional loans (beyond those which are currently  committed),  and it will
work to accelerate  the  stabilization  of its existing  assets and increase its
overall liquidity  position.  As a result, the Company has curtailed each of its
business  lines,  which  include the  acquisition  of  subordinate  and residual
interests   in   residential   and   commercial   mortgage-related   securities,
underperforming  real estate and  residential  and commercial real estate loans,
including construction and renovation loans.

         The future  success of the Company will be  primarily  dependent on its
ability to continue to be able to meet its obligations  under its  indebtedness.
This ability will depend largely on the Company's future performance,  which, in
turn, is subject to prevailing  economic  conditions and to financial,  business
and other factors beyond its control,  including levels of interest rates.  This
ability also could be significantly adversely affected by the Company's decision
to discontinue  future investment  activities,  which effectively means that the
Company's  future  profitability,  and  its  ability  to meet  its  indebtedness
obligations, will be dependent on its existing assets. There can be no assurance
that  the  Company's  existing  assets  will  be  sufficient  to  ensure  future
profitable   operations   or  enable  the  Company  to  meet  its   indebtedness
obligations,  or that such  assets will not be further  significantly  adversely
affected  by  changes  in market  and  economic  conditions  and other  factors.
Moreover,  it can be  anticipated  that  unless  and until the  Company  resumes
investment  activities,  income  from  the  Company's  portfolio  of  investment
securities and loans,  which along with  investments in real estate comprise the
Company's three principal  business lines, will decrease as securities and loans
mature and are repaid in the ordinary course of business.

THE COMPANY'S ABILITY TO COMPLY WITH INDEBTEDNESS REQUIREMENTS NOT ASSURED

         The Company has  significant  debt service  obligations.  The Company's
investments   in  real   estate,   subordinate   and   residual   interests   in
mortgage-related  securities and other assets, such as single-family residential
loans, generally depend upon short-term borrowings such as repurchase agreements
and  warehouse   facilities/lines  of  credit  with  financial  institutions  or
institutional  lenders to finance the Company's  acquisition of such assets on a
short-term basis in the case of repurchase agreements and on a one-to-three year
basis in the case of  warehouse  facilities/lines  of  credit.  There  can be no
assurance that such financing will continue to be available on terms  reasonably
satisfactory to the Company.  The inability of the Company to arrange additional
borrowings  such as  repurchase  agreements  and warehouse  facilities/lines  of
credit or to extend, repay or replace existing borrowings when they expire would
have a material adverse effect on the Company's  business,  financial  condition
and results of operations and on the Company's outstanding securities.

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         As a result of market and economic  conditions,  from  time-to-time the
Company has been required to pledge  additional  collateral  or post  additional
cash margins  (referred to herein  collectively as  "collateral")  to secure its
indebtedness.   Although  to  date  the  Company  has  had  adequate   cash  and
unencumbered  assets to meet such calls for additional  collateral and its other
operating and financing requirements,  there can be no assurance that sufficient
levels of unencumbered  assets will continue to be available.  If the Company is
unable  to fund  additional  collateral  needs or to  repay,  renew  or  replace
maturing  indebtedness  on terms  reasonably  satisfactory  to the Company,  the
Company would be required to sell, under adverse market conditions, a portion of
its  assets,  and could  incur  losses as a result.  Furthermore,  an  extremely
limited  market for  subordinate  and  residual  interests  in  mortgage-related
securities  exists and there can be no  assurance  that one will fully  develop,
thereby  limiting the Company's  ability to dispose of such securities  promptly
for fair value in such situations.

         In  addition  to  payment  and,  in the case of the  Company's  secured
indebtedness,  collateralization requirements, the Company is subject to various
other  covenants  in  the  agreements  evidencing  its  indebtedness,  including
financial  covenants  which  require the  maintenance  of  specified  amounts of
equity.   Other  covenants   affirmatively   impose   standards  of  management,
administration  and reporting  with respect to the real  property  assets of the
Company, and require the observance of certain administrative  activities,  loan
to value ratios and advance  limitations  with respect to mortgage  loans.  With
respect to the  securities  available for sale,  certain  covenants also seek to
control  the debt  exposure of the lender  based on the  default and  prepayment
experience  of the  loans  that  comprise  the  mortgage  pools  underlying  the
securities,  factors which are outside of the Company's  control.  The Company's
ability to continue to meet these  financial  requirements  will be dependent on
its results of operations.

         In the event of a default in the Company's  covenants or other terms of
the Company's  indebtedness,  the lender  generally  would be able to accelerate
repayment of the subject indebtedness and pursue other available remedies, which
could  result in  defaults  on other  indebtedness  of the  Company,  unless the
applicable  lender or lenders  allowed the Company to remain in violation of the
agreements.  Were a default to be  declared,  the  Company  would not be able to
continue to operate without the consent of its lenders.

OWNERSHIP OF SUBORDINATE AND RESIDUAL  INTERESTS  SUBJECT TO CREDIT,  PREPAYMENT
AND LIQUIDITY RISKS

         The  Company   invests  in  subordinate   and  residual   interests  in
collateralized  mortgage  obligations  ("CMOs"),   including  CMOs,  which  have
qualified as real estate mortgage investment conduits ("REMICs") under the Code.
These securities are subject to a number of risks, as outlined below.

         CREDIT RISK.  Subordinate  and residual  interests in  mortgage-related
securities   provide   credit   support  to  the  more  senior  classes  of  the
mortgage-related  securities.  Principal  from  the  underlying  mortgage  loans
generally is allocated first to the senior  classes,  with the most senior class
having a  priority  right to the cash flow  from the  mortgage  loans  until its
payment  requirements  are satisfied.  To the extent that there are defaults and
unrecoverable losses on the underlying mortgage loans, resulting in reduced cash
flows,  the most  subordinate  security  will be the  first to bear  this  loss.
Because  subordinate and residual interests generally have no credit support, to
the extent  there are  realized  losses on the  mortgage  loans  comprising  the
mortgage  collateral for such  securities,  the Company may not recover the full
amount  or,  indeed,  any of its  initial  investment  in such  subordinate  and
residual  interests.  The Company generally owns the most subordinate classes of
the  securities  in which it invests and therefor  will be the first to bear any
credit losses.

         The degree of credit risk is  affected by the nature of the  underlying
mortgage  loans.  In this  regard,  the  risk of loss on  securities  backed  by
commercial and multifamily  loans and  single-family  residential  loans made to
borrowers who, because of prior credit problems, the absence of a credit history
or other  factors,  are  unable or  unwilling  to  qualify  as  borrowers  under
guidelines  established by the Federal Home Loan Mortgage Corporation  ("FHLMC")
and the Federal National Mortgage Association ("FNMA") for purchases of loans by

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such agencies ("subprime  residential loans"),  generally involve more risk than
securities  backed by  single-family  residential  loans  which  conform  to the
requirements  established by FHLMC and FNMA for their purchase by such agencies.
At December 31, 1998,  the Company's  securities  available for sale amounted to
$351.2 million and consisted of (i) non-investment grade and unrated subordinate
securities  backed by commercial  real estate loans and having an amortized cost
of $115.7 million and a fair value of $117.1 million,  (ii) unrated residuals in
securities  backed  by  subprime  single-family   residential  loans  having  an
amortized  cost of $209.0  million and a fair value of $218.7  million and (iii)
unrated  subordinate  interests  in  securities  backed  by other  single-family
residential  loans having an amortized cost of $15.4 million and a fair value of
$15.4 million.

         PREPAYMENT RISK. Subordinate and residual interests are affected by the
rate and timing of payments of principal  (including  prepayments,  repurchases,
defaults  and  liquidations)  on the  mortgage  loans  underlying  a  series  of
mortgage-related   securities.   The  rate  of   principal   payments  may  vary
significantly over time depending on a variety of factors,  such as the level of
prevailing  mortgage loan interest rates and economic,  demographic,  tax, legal
and other  factors.  Prepayments  on the mortgage  loans  underlying a series of
mortgage-related  securities are generally  allocated to the more senior classes
of mortgage-related securities.  Although in the absence of defaults or interest
shortfalls  subordinates  receive  interest,   amounts  otherwise  allocable  to
residuals  generally are used to make payments on more senior classes or to fund
a   reserve    account   for   the    protection   of   senior   classes   until
overcollateralization  or the balance in the reserve account reaches a specified
level. In periods of declining  interest rates, rates of prepayments on mortgage
loans  generally  increase,  and if the  rate  of  prepayments  is  faster  than
anticipated,  then  the  yield  on  subordinates  generally  will be  positively
affected  and the yield on  residuals  generally  will be  negatively  affected.
Accelerated  prepayment  speeds as a result of declining  market  interest rates
were a significant factor in the $79.7 million loss on securities  available for
sale recorded by the Company during the year ended December 31, 1998.

         LIQUIDITY RISK. As a result of the risks  associated  with  subordinate
and  residual  interests  in  mortgage-related   securities,  and  because  they
generally are unrated or rated  non-investment  grade, such securities generally
are traded less frequently than investment-grade  securities and may not provide
holders  thereof with liquidity of  investment.  This is  particularly  the case
since U.S. and foreign stock markets began experiencing  substantial  volatility
in mid-July  1998,  which has  substantially  adversely  affected the market for
subordinate and residual interests in mortgage-related securities.

         SUBORDINATE  AND  RESIDUAL   INTERESTS  MAY  GENERATE   TAXABLE  INCOME
EXCEEDING CASH FLOW.  Subordinate  and residual  interests,  including  residual
interests which are designated as REMIC residual interests under Section 860D of
the Code,  receive  cash flow in excess of amounts  needed to make  payments  on
other classes of the security or to fund a related  reserve  account.  Cash flow
otherwise  allocable  to  subordinate  or residual  interests is used to protect
senior  classes of  securities  from credit  losses on the  underlying  mortgage
loans. Moreover, in any given year, the taxable income produced by a subordinate
or residual interest may exceed its cash flow. If the Company was deemed to have
a  substantial  amount of such  "phantom  income" in any  particular  year,  the
Company  could be required to borrow  funds or to  liquidate  assets in order to
meet the REIT distribution requirement for such year.

VALUE AND REVENUES OF REAL ESTATE  DEPENDENT ON CONDITIONS  BEYOND THE COMPANY'S
CONTROL

         GENERAL.  Investment  in  underperforming  real  estate is  subject  to
varying  degrees of risk which are  generally  incident to the ownership of real
property.  Revenues may be adversely  affected by adverse changes in national or
local economic  conditions,  competition from other properties offering the same
or similar services, changes in interest rates and in the availability, cost and
terms of mortgage funds,  the impact of present or future laws and  regulations,
including without limitation those dealing with zoning, the environment,  access
by disabled  persons and  taxation,  the ongoing  need for capital  improvements
(particularly in older  structures),  changes in real estate tax rates and other
operating  expenses,  adverse changes in governmental rules and fiscal policies,
civil  unrest,  acts of  nature,  including  earthquakes,  hurricanes  and other
natural disasters, acts of war and other factors which are beyond the control of
the Company.  Revenues also may be affected by problems  experienced by lessees,
which may weaken their financial  condition and result in failure to make rental
payments  when due. At any time, a lessee of the Company's  properties  may seek
the  protection  of  bankruptcy  laws,  which  could  result  in  rejection  and
termination  of the  lessee's  lease and thereby  cause a reduction in cash flow
available for distribution to the Company. As a result of the foregoing factors,
no  assurances  can be given that the fair market value  and/or  revenues of the

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Company's investments in real estate will not decrease in the future or that the
Company will be able to vary its real estate portfolio in response to changes in
economic or other conditions.

         VALUE  AND  REVENUES  OF REAL  ESTATE  DEPENDENT  IN  PART ON  EXTERNAL
MANAGEMENT.  The value and revenues of  underperforming  real estate acquired by
the Company is  dependent in part upon the ability of the Manager to operate the
real estate in a manner which is sufficient to maintain or increase  revenues in
excess of  operating  expenses  and debt  service  requirements,  which  will be
affected by many of the risks which are inherent in  investments  in real estate
and over which the  Company  has no  control.  The  underperforming  real estate
acquired  by the  Company  to date  generally  has had  significant  amounts  of
unleased  space or  restrictive  or below market rents in place.  As part of its
initial  repositioning  of a property  after an  acquisition,  the  Company,  in
addition  to making any  necessary  capital  expenditures,  generally  pursues a
policy of replacing  some existing  tenants with tenants which have higher lease
payments  and/or a higher  probability  of expansion and renewal.  Although this
strategy  may  adversely  affect  tenant  retention  rates in the early years of
ownership  of  a  property,  management  believes  that  the  strategy  will  be
beneficial to the Company in the long term. There can be no assurance,  however,
that the  Company's  tenant  retention  rate will  increase as each  property is
repositioned  or  stabilized  or that the net  present  value of new or  renewed
leases will  substantially  exceed the net present value of leases with existing
tenants.

         GEOGRAPHIC  CONCENTRATION  OF REAL ESTATE SUBJECT TO LOCAL MARKET RISK.
Geographic  locations can have a  substantial  effect on the market value of and
revenues from real estate and on the ability of borrowers to repay loans secured
by properties in such a location. Value and revenues can be affected by national
and local  economic  conditions and other factors that are beyond the control of
the Company.  At December 31, 1998,  the  Company's  investments  in real estate
included  four  properties  with an aggregate  varying  value of $143.8  million
located in San Francisco,  California. In addition, at the same date the Company
had an $11.5 million loan for the  construction of an apartment  building in San
Francisco, of which $4.2 million had been disbursed at such date. As a result of
this concentration of investments, the Company's operations will be dependent to
a large extent on the economic conditions in this area.

         INSURANCE MAY NOT COVER ALL REAL ESTATE LOSSES.  The Company  maintains
comprehensive insurance coverage on its real estate,  including coverage against
events of a  catastrophic  nature,  such as  earthquakes,  hurricanes  and other
natural disasters.  There can be no assurance that insurance against such events
will continue to be obtainable on terms that are acceptable to the Company or at
all.  Moreover,   changes  in  building  codes  and  ordinances,   environmental
considerations  and  other  factors  also  might  make  it not  feasible  to use
insurance  proceeds to replace a property if it is damaged or  destroyed.  Under
such circumstances,  the insurance proceeds received by the Company might not be
adequate  to  restore  its  economic  position  with  respect  to  the  affected
distressed real property.

REAL PROPERTIES WITH  ENVIRONMENTAL  PROBLEMS WILL INCREASE COSTS AND MAY CREATE
LIABILITY FOR THE COMPANY

         Operating  costs and the value of real  property may be affected by the
obligation to pay for the cost of complying  with existing  environmental  laws,
ordinances and  regulations,  as well as the cost of future  legislation.  Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous  owner or operator of real  property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such  property.  Such laws often  impose  liability  whether or not the owner or
operator  knew of, or was  responsible  for, the  presence of such  hazardous or
toxic substances.  Therefore,  an environmental  liability could have a material
adverse  effect on the  underlying  value of a real  property,  and the  revenue
therefrom.  Although the Company believes that its pre-acquisition due diligence
identified  all  material  environmental  concerns  which  relate to its current
investments in real estate and accurately  assessed the costs and liabilities to
be  concurred  by it in  this  regard,  there  can  be no  assurance  that  such
investments will not involve unknown material environmental concerns or material
unanticipated environmental costs in the future.

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         The Company also evaluates the potential for significant  environmental
problems  prior to acquiring or  originating  a loan because there is a risk for
any mortgage loan,  particularly a multifamily  residential  and commercial real
estate loan,  that  hazardous  substances  or other  environmentally  restricted
substances could be discovered on the related real estate.  Through foreclosure,
the Company  could become the owner of the real estate that secured its loan and
might be required to remove such substances  from the affected  properties or to
engage in abatement  procedures  at its sole cost and  expense.  There can be no
assurance  that the cost of such  removal or  abatement  will not  substantially
exceed  the  value of the  affected  properties  or the  loans  secured  by such
properties,  that the Company  would have  adequate  remedies  against the prior
owners or other responsible  parties or that the Company would be able to resell
the affected  properties  either prior to or  following  completion  of any such
removal or abatement procedures.  If such environmental  problems are discovered
prior to  foreclosure,  the Company  generally will not foreclose on the related
loan;  however,  the value of such  property as  collateral  will  generally  be
substantially  reduced,  and as a result,  the  Company  may  suffer a loss upon
collection of the loan.

GREATER  RISKS  OF  LOSS  FROM  COMMERCIAL  AND  MULTIFAMILY   CONSTRUCTION  AND
RENOVATION LENDING ACTIVITIES

         The  Company's  investments  include  loans  for  the  construction  or
renovation of commercial and multifamily real estate, including a mezzanine loan
which is  subordinate  to the first lien on the property which secures the loan.
Multifamily and commercial real estate lending,  particularly  construction  and
renovation lending,  is generally  considered to involve a higher degree of risk
than  single-family  residential  lending  because  of  a  variety  of  factors,
including generally larger loan balances, dependency on successful completion or
operation of the project for repayment,  difficulties in estimating construction
and renovation costs and loan terms that often require little or no amortization
of the loan over its term  (typically  five years) and,  instead,  provide for a
balloon payment at stated  maturity.  Furthermore,  mezzanine  loans,  which are
subordinate to a senior loan or loans,  and  construction  loans  generally have
higher  loan-to-value  ratios than  conventional  loans.  Although the Company's
borrowers  generally  have an equity  investment  of 10% to 15% of total project
costs, such equity may not be sufficient to protect the Company's  investment in
these higher-yielding loans.

GREATER RISKS OF LOSS FROM DISTRESSED MORTGAGE LOANS

          Nonperforming  and  subperforming  mortgage  loans may presently be in
default  or  may  have a  greater  than  normal  risk  of  future  defaults  and
delinquencies, as compared to newly-originated, high-quality loans of comparable
type, size and geographic  concentration.  Returns on an investment of this type
depend on the borrower's  ability to make required  payments or, in the event of
default,  the ability of the loan's  servicer to  foreclose  and  liquidate  the
mortgage  loan.  There can be no assurance  that the  servicer  can  liquidate a
defaulted mortgage loan successfully or in a timely fashion.

ALLOWANCES FOR LOAN LOSSES MAY NOT BE ADEQUATE TO COVER LOSSES

         At  December  31,  1998,  the Company had  established  a $0.6  million
allowance for loan losses on its commercial and  multifamily  loan portfolio and
had not  established  such an  allowance  on its  single-family  residential  or
discount loan portfolio.  Although the Company  believes that these actions were
adequate  at such date and in  accordance  with  generally  accepted  accounting
principles,  future additions to allowances for loan losses may be necessary due
to changes in economic conditions, increases in loans and the performance of the
Company's loan portfolios.  Increases in the Company's  provisions for losses on
loans would adversely affect the Company's results of operations.

POTENTIAL ADVERSE EFFECTS OF CHANGES IN INTEREST RATES

         The Company's operations are significantly affected by current interest
rates,  which are  highly  sensitive  to many  factors,  including  governmental
monetary and tax  policies,  domestic and  international  economic and political
considerations  and other factors beyond the control of the Company.  Changes in
the general  level of  interest  rates will affect the  Company's  net  interest
income,   which  is  the  difference  between  the  interest  income  earned  on
interest-earning assets and the interest expense incurred in connection with its
interest-bearing  liabilities,  by affecting  the spread  between the  Company's

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interest-earning  assets and  interest-bearing  liabilities.  The  Company  uses
short-term,  floating-rate borrowings such as repurchase agreements and lines of
credit to acquire long-term  interest-earning  assets such as mortgage loans and
subordinate and residual interests in mortgage-related securities, some of which
will have a fixed rate of interest and/or longer  effective  maturities than the
related borrowings and thus may expose the Company to a maturity mismatch.  As a
consequence,  in an increasing interest rate environment the Company's borrowing
costs could exceed the income  earned on the Company's  interest-earning  assets
acquired with borrowed funds, thereby reducing the Company's net interest income
and ability to make payments on its indebtedness.

         Changes  in the  level of  interest  rates  also  affect  the value and
average  life  of  the   Company's   mortgage-related   securities,   which  are
substantially affected by prepayment rates on the underlying mortgage loans, and
other  interest-earning  assets and the Company's  ability to realize gains from
the sale of such  assets.  In  periods of  declining  mortgage  interest  rates,
prepayments  on  mortgage-related  securities  generally  increase.  If  general
interest  rates also  decline,  the amounts  available for  reinvestment  by the
Company  during such periods are likely to be reinvested at lower interest rates
than  the   Company   was  earning  on  the   securities   that  were   prepaid.
Mortgage-related  securities,  particularly residual interests,  may decrease in
value as a result of increases in interest rates and may benefit less than other
fixed-income  securities  from  declining  interest rates because of the risk of
prepayment.  If general interest rates increase, the credit risk associated with
subordinate  and  residual  interests  could  be  increased  if  borrowers  with
adjustable  or  floating-rate  loans are unable to meet  increased  debt service
requirements and default on the underlying mortgages. By reducing the likelihood
of loan prepayments,  increases in interest rates also could extend the weighted
average maturity of a security,  which could adversely affect the Company to the
extent  that the cost of the  borrowings  incurred  by the  Company  to fund the
security are increasing faster than the yield on the security is increasing,  if
at all. In general,  changes in both  prepayment  rates and interest  rates will
change  the total  return on  mortgage-related  securities,  which  will in turn
affect the Company's ability to make payments on its indebtedness, including the
Notes. Declining interest rates contributed significantly to the losses incurred
by the  Company on its  subordinate  and  residual  mortgage-related  securities
during the year ended December 31, 1998.

         Changes in  interest  rates  also  affect  the costs of  financing  the
acquisition  of real  estate and thus the value of real  estate,  as well as the
Company's ability to originate and acquire loans,  although it is not looking to
do so at this time.  Changes  in  interest  rates also may affect the  Company's
ability to incur additional indebtedness or raise capital on acceptable terms.

POTENTIAL ADVERSE EFFECTS OF HEDGING STRATEGIES

         The Company may utilize a variety of financial  instruments,  including
interest rate swaps, caps, floors and other interest rate exchange contracts, in
order to limit the effects of interest rates on its operations.  Among the risks
inherent with respect to the purchase and/or sale of such derivative instruments
are (i) interest rate risk,  which consists of the risks relating to fluctuating
interest rates;  (ii) basis risk,  which consists of the risk of loss associated
with  variations  in the spread  between the asset yield and the funding  and/or
hedge  costs;  (iii)  credit or  default  risk,  which  consists  of the risk of
insolvency or other inability of the counterparty to a particular transaction to
perform its  obligations  thereunder;  (iv) prepayment  risk,  which consists of
reinvestment risk to the extent the Company is not able to reinvest  repayments,
if any,  at a yield which is  comparable  to the yield  being  generated  on the
particular  security;  (v) liquidity  risk,  which consists of the risk that the
Company may not be able to sell a  particular  security at a  particular  price;
(vi) legal enforceability risk, which consists of the risks related to Company's
ability to enforce the terms of a particular  instrument or to obtain or collect
upon a legal judgment in the United States in the event that the counterparty to
the transaction is a foreign entity or the underlying collateral is located in a
foreign jurisdiction; and (vii) volatility risk, which consists of the risk that
actual volatility (i.e., the degree of uncertainty  relating to the price of the
underlying asset) differs from the historical volatility or "implied" volatility
of the instrument.

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FOREIGN  INVESTMENTS  SUBJECT TO CURRENCY  CONVERSION  RISKS AND  UNCERTAINTY OF
FOREIGN LAWS

         The   Company   currently   has   investments   in  real   estate   and
mortgage-related  securities  backed by real estate  located  outside the United
States.  Foreign  investments are subject to most of the same risks faced by the
Company's  domestic  operations,  as well as risks  customarily  associated with
United States corporations  conducting foreign  activities.  These risks include
fluctuations in foreign  exchange rates and controls (which the Company attempts
to mitigate with  currency  hedging  agreements  as available  and  economical),
expropriation,  nationalization and other economic,  tax and regulatory policies
of foreign  governments  and  policies of the United  States  affecting  foreign
investments.

THE COMPANY IS SUBJECT TO INTENSE COMPETITION

         The  Company's  competition  varies  by  business  line and  geographic
market.  In many cases,  the acquisition of  mortgage-related  securities,  real
estate and commercial and  multi-family  loans is based on competitive  bidding,
which  involves  the risk that the Company may bid too low (which  generates  no
business) or too high (which could result in an acquisition  at an  economically
unattractive  price).  Many of the  Company's  competitors  are  larger and have
greater financial  resources than the Company,  and thus may be better able than
the Company to pursue business  opportunities  or to survive periods of industry
consolidation. For additional information, see "Competition" under Item 1 of the
Annual Report on Form 10-K to which this Exhibit relates.

INVESTMENT  POLICIES  OF THE  COMPANY  MAY BE CHANGED BY IT WITHOUT  APPROVAL OF
SHAREHOLDERS

         The investment,  financing,  borrowing and distribution policies of the
Company and its policies with respect to all other activities, including growth,
debt,  capitalization and operations,  are determined by the Board of Directors.
These  policies  may be  amended or revised at any time and from time to time at
the discretion of the Board of Directors  without a vote of the  shareholders of
the  Company.  In  addition,  the Board of  Directors  may change the  Company's
policies  with respect to conflicts of interest,  provided that such changes are
consistent  with  applicable  requirements.  A change  in these  policies  could
adversely affect the Company's financial condition, results of operations or the
market price of its outstanding securities.

POTENTIAL ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

         The Company  believes that it has been  organized and operated so as to
qualify as a REIT under  Sections  856 to 860 of the Code,  commencing  with its
short taxable year ended December 31, 1997.  The Company  intends to continue to
operate as a REIT for calendar year 1998 and,  subject to shareholder  approval,
to change its status to a taxable corporation  commencing in calendar year 1999.
The Company  believes  that,  based on certain  assumptions,  including  without
limitation that the Company will meet the 95% distribution requirement described
below for calendar 1998 (as to which there can be no assurance), the Company has
been organized and operated in a manner that has enabled it to qualify and to be
taxed as a REIT under the Code,  and that its proposed  method of operation will
enable it to continue to so qualify through calendar 1998, although there can be
no  assurance  that the  Company is now or will  continue  to be  organized  and
operated in a manner so as to so qualify or remain so  qualified.  Qualification
and taxation as a REIT involves the satisfaction of numerous  requirements (some
on an annual and quarterly basis) established under highly technical and complex
Code  provisions  for which there are only limited  judicial and  administrative
interpretations  and involves the  determination  of various factual matters and
circumstances  not  entirely  within  the  Company's   control.   The  Company's
qualification  and taxation as a REIT depends on the  Company's  ability to meet
(through actual annual operating results,  distribution  levels and diversity of
stock ownership) the various  qualification and distribution tests imposed under
the Code.  If the Company were to fail to qualify as a REIT in any taxable year,
the Company would be subject to federal  income tax  (including  any  applicable
alternative  minimum  tax) on its  taxable  income at regular  corporate  rates.
Moreover,  unless  entitled to relief under certain  statutory  provisions,  the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost.

                                       7
<PAGE>

         The Company  must  distribute  annually at least 95% of its net taxable
income  (excluding any net capital gains) to avoid corporate  income taxation on
the earnings that it distributes.  In addition, the Company will be subject to a
4%  nondeductible   excise  tax  on  the  amount,   if  any,  by  which  certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its  ordinary  income for that year,  (ii) 95% of its capital gain
net income for that year and (iii) 100% of its undistributed taxable income from
prior years.

         Although the Company reported a loss for financial  reporting  purposes
for the year ended  December 31,  1998,  it had  substantial  income for federal
income tax purposes during this period.  As a result, in order to qualify and be
taxed as a REIT for such period,  the Company is required to  distribute a final
dividend which is expected to range from $14.6 million,  or $0.77 per share,  to
$16.1 million, or $0.85 per share. The Company deferred payment of this dividend
in 1998, which resulted in it incurring a nondeductible  excise tax liability of
$0.4 million,  and  anticipates  that it will pay such  dividend  during 1999 in
order to comply with the 95%  distribution  requirement for calendar 1998. There
can be no assurance,  however,  as to whether or when the Company will make such
distribution and satisfy the distribution requirement. Moreover, satisfaction of
the  distribution  requirement  could  cause the  Company  (i) to sell assets in
adverse market conditions, (ii) to distribute amounts that represent a return of
capital or (iii) to distribute  amounts that would  otherwise be spent on future
acquisitions, unanticipated capital expenditures or repayment of debt. Gain from
the  disposition  of any  asset  held  primarily  for sale to  customers  in the
ordinary course of business generally will be subject to a 100% tax.

LOSS OF INVESTMENT COMPANY ACT EXEMPTION COULD HAVE ADVERSE CONSEQUENCES

         The  Company  believes  that it is not,  and  intends  to  conduct  its
operations  so as not to become,  regulated as an  investment  company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). Under
the Investment Company Act, a non-exempt entity that is an investment company is
required  to  register  with  the   Commission  and  is  subject  to  extensive,
restrictive and potentially  adverse regulation relating to, among other things,
operating methods,  management,  capital  structure,  dividends and transactions
with affiliates.  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  interpretations  by the
staff of the Commission,  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. The assets that the Company may
acquire  therefore may be limited by the  provisions of the  Investment  Company
Act.  The  Company's  investments  in real estate and mortgage  loans  generally
constitute Qualifying  Interests,  and the Company believes that subordinate and
residual  interests  in  mortgage-related   securities   constitute   Qualifying
Interests for purposes of the Investment  Company Act when the Company  acquires
the right to direct the  foreclosure  upon any  defaulted  loan which backs such
securities  and to take all other actions that a servicer  generally may take in
connection  with a defaulted  loan. At December 31, 1998,  the Company  believes
that its Qualifying  Interests,  including subordinate and residual interests in
mortgage-related  securities  which the Company  believes  meet the criteria set
forth  above,  comprised  over 86% of the  Company's  total  assets and that the
Company's  Qualifying  Interests and other real-estate  related assets comprised
over 95% of the Company's total assets.  As a result,  the Company believes that
it was not required to register as an investment  company  under the  Investment
Company Act. The Company does not intend to seek an exemptive  order,  no-action
letter or other form of  interpretive  guidance from the  Commission or staff to
confirm this  position.  If the Commission or its staff were to take a different
position  with  respect  to  whether  the  Company's  subordinate  and  residual
interests constitute Qualifying Interests,  the Company could be required either
(a) to change the manner in which it  conducts  its  operations  to avoid  being
required  to  register  as an  investment  company  or  (b)  to  register  as an
investment company,  either of which could have a material adverse effect on the
Company and its securities,  could subject the Company to monetary penalties and
injunctive  relief in an  action  brought  by the  Commission,  could  cause the
Company to be unable to enforce  contracts  with third  parties  and could cause
third parties to seek recission of relevant transactions.

                                       8
<PAGE>

DEPENDENCE OF THE COMPANY UPON EXTERNAL MANAGEMENT

         The Company is managed by the Manager,  subject to the  supervision  of
the Board of  Directors of the  Company.  Thus,  the Company is dependent on the
services of the Manager and its  officers and  employees  for the success of the
Company.  Moreover,  the  Manager's  personnel  are  employees of the Bank,  and
accordingly,  the Company's success depends in part on the continuing ability of
OCN to hire and retain knowledgeable personnel. This ability may be affected, in
turn, by OCN's continued  financial health.  Finally,  the Company is subject to
the risk that the Manager will  terminate the  Management  Agreement and that no
suitable replacement can be found to manage the Company.

         The Manager is a wholly-owned  subsidiary of OCN, a registered  savings
and loan holding company that conducts substantial  operations through the Bank,
a  federally-chartered  savings  bank.  Both  OCN and the Bank  are  subject  to
extensive government supervision and regulation, which is intended primarily for
the protection of depositors.  In addition,  each of OCN and the Bank is subject
to changes in federal and state laws,  including  changes in tax laws that could
materially  affect the real estate industry,  as well as changes in regulations,
governmental policies and accounting principles. Such changes may increase OCN's
and the Bank's costs of doing  business and assist their  competitors.  Any such
added  burdens  may  adversely  affect  the  Manager's  ability to carry out its
management  functions  and/or  the  Bank's  ability  to  provide  mortgage  loan
servicing for the Company,  as well as affect the ability of the Manager and its
affiliates to enter into other arrangements with the Company.

MANAGER ENTITLED TO BROAD INDEMNIFICATION FROM THE COMPANY

         Pursuant  to the  Management  Agreement  between  the  Company  and the
Manager, the Company is obligated to indemnify the Manager and its directors and
officers  from any action or claim that they are  accountable  or liable for the
debts or  obligations  of the Company.  In addition,  the Company is required to
indemnify the Manager and its directors and officers for acts performed pursuant
to the Management  Agreement,  except for claims arising from acts  constituting
bad faith,  willful misconduct,  gross negligence or reckless disregard of their
duties under the  Management  Agreement.  There can be no  assurance  that these
requirements will not adversely affect the Company's operations in the future.

POTENTIAL  CONFLICTS OF INTEREST BETWEEN THE COMPANY AND ITS AFFILIATES COULD BE
DISADVANTAGEOUS TO THE COMPANY

         The Company is subject to the following potential conflicts of interest
arising from its relationship with the Manager and its affiliates:

                  (i) OCN  beneficially  owns  1,540,000  shares  or 8.1% of the
         outstanding  Common  Stock,  as well as options to  purchase  1,912,500
         shares of  Common  Stock.  OCN also  indirectly  holds an 8.7%  limited
         partnership interest in the Operating Partnership.

                  (ii)  Two of the  members  of the  Board of  Directors  of the
         Company and all of its officers are employed by the Bank and  generally
         devote a majority  or more of their time to the affairs of the Bank and
         OCN. As a result of their  positions with the Company and the Bank, two
         directors and the officers of the Company have fiduciary duties to both
         the Company and the Bank and must consider the same in making decisions
         on behalf of these respective  entities,  including without  limitation
         decisions of the type referred to in paragraphs (iv) and (v) below.

                  (iii)  Pursuant  to  the  Management  Agreement,  the  Manager
         renders  management  services to the Company for a management fee based
         on average  invested  assets,  which also  benefits  the Manager as the
         asset size of the Company  increases,  regardless of the performance of
         the  Company's  assets.  In  addition,  the  incentive  portion  of the
         management  fee, which is based on the Company's FFO, as adjusted,  may
         create an incentive for the Manager to recommend  investments that have
         greater income potential but are generally more speculative than if the
         management fee did not include a performance component.

                                       9
<PAGE>

                  (iv) Although the Manager has granted to the Company the first
         option to  acquire  underperforming  real  estate and  subordinate  and
         residual interests backed by loans which were not formerly owned by the
         Manager and its affiliates,  OCN, the Bank and other  affiliates of the
         Manager invest in other assets that the Company invests in, including a
         wide  variety  of   mortgage-related   securities  and   single-family,
         multifamily and commercial real estate loans,  including  subperforming
         and  nonperforming  loans.  The  Manager  and  its  affiliates  have no
         obligation to make investment  opportunities  available to the Company,
         and as a result, the Company's ability to invest in certain real estate
         related  assets  may be  limited  to the  extent  that such  assets are
         attractive to OCN or one of its affiliates.

                  (v) Because they share  certain  investment  strategies,  from
         time to time the Company  has  acquired  assets from OCN,  the Bank and
         other  affiliates  of  the  Manager,   co-participated   in  investment
         transactions  with these  entities  or persons  and sold  assets to the
         same.

         The Board of  Directors of the  Company,  which  includes a majority of
Independent  Directors (as defined in the Company's  Articles of  Incorporation)
have established  general guidelines for the Company's  investments,  borrowings
and  operations  and  potential  conflicts of interest (the  "Guidelines").  The
Independent  Directors  review  transactions  engaged  in by  the  Company  on a
quarterly  basis to  monitor  compliance  with the  Guidelines  and  review  the
Company's investment policies annually. The Independent Directors rely primarily
on information  provided to them by the Manager in conducting  these reviews and
do not otherwise participate in the Company's daily operations.

         The  Management  Agreement and the  Guidelines do not limit or restrict
the  right  of the  Manager  or any of its  directors,  officers,  employees  or
affiliates  from  engaging in any business or rendering  services of any kind to
any other  person,  including  the  purchase  of or  rendering  advice to others
purchasing real estate assets that meet the Company's policies and criteria.

FAILURE OF COMPUTER  SYSTEMS TO RECOGNIZE THE YEAR 2000 COULD  ADVERSELY  AFFECT
THE COMPANY'S OPERATIONS

         As the year 2000  approaches,  a critical  business  issue has  emerged
regarding how existing  application  software programs and operating systems can
accommodate this date value. Many existing  application software products in the
marketplace  were designed to accommodate only two-digit  entries.  Beginning in
the year  2000,  these  systems  and  products  will  need to be able to  accept
four-digit entries to distinguish years beginning with 2000 from prior years. As
a result,  computer  systems and software used by many  companies may need to be
upgraded to comply with year 2000 requirements.

         The Company is dependent upon data  processing  systems and software to
conduct its business.  The data  processing  systems and software  include those
developed, purchased and maintained by the Manager, as well as OCN and its other
subsidiaries, which provide management services to the Company. The Company does
not own or maintain computer equipment or software.

         There can be no assurance that the failure of the Manager,  the Company
or third parties to adequately  address their  respective  year 2000 issues will
not have a material adverse effect on the Company.  For additional  information,
see "Year 2000 Data  Conversion"  under Item 7 of the Annual Report on Form 10-K
to which this Exhibit relates.

                                       10