<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

         [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1998

                                       OR

         [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


          For the transition period from               to 
                                         -------------    -------------

                         Commission file number 1-12898


                    SOURCE ONE MORTGAGE SERVICES CORPORATION



             (Exact name of registrant as specified in its charter)


                Delaware                                     38-2011419
     (State or other jurisdiction of                      (I.R.S. employer
      incorporation or organization)                      identification no.)

27555 Farmington Road, Farmington Hills, Michigan            48334-3357
     (Address of principal executive offices)                 (Zip code)

       Registrant's telephone number, including area code: (248) 488-7000

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                     
<TABLE>
<S>                                                    <C>
              TITLE OF EACH CLASS                       NAME OF EACH EXCHANGE ON WHICH REGISTERED
    8.42% CUMULATIVE PREFERRED STOCK, SERIES A                   NEW YORK STOCK EXCHANGE
    9.375% QUARTERLY INCOME CAPITAL SECURITIES                   NEW YORK STOCK EXCHANGE
(SUBORDINATED INTEREST DEFERRED DEBENTURES, DUE 2025)

</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes   X    No       .
   -------   -------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]



THERE IS NO AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT. AS OF MARCH 29, 1999, THE NUMBER OF SHARES OF THE REGISTRANT'S
COMMON STOCK OUTSTANDING WAS 3,211,881.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1998 (Parts I, II and IV).


<PAGE>   2


PART I

ITEM 1.  BUSINESS

GENERAL

  Source One Mortgage Services Corporation (together with its subsidiaries, the
"Company"), a Delaware corporation, is one of the largest mortgage banking
companies in the United States that is not affiliated with a commercial bank. As
of December 31, 1998, the Company had a mortgage loan servicing portfolio
totaling $25.1 billion, including $15.9 billion of loans subserviced for others,
which is serviced on behalf of approximately 213 institutional investors and
numerous other security holders. As of December 31, 1998, the Company had 163
retail branch offices in 31 states and Puerto Rico and originated $10.9 billion
in mortgage loans for the year then ended.

  As a mortgage banker, the Company primarily engages in the business of
producing and selling conforming and subprime residential mortgage loans,
servicing conforming residential mortgage loans and subservicing residential
mortgage loans for third parties. The Company's primary sources of revenue are
net servicing revenue, net interest revenue, net gain on sale of mortgages, net
gain on sale of servicing, earnings from unconsolidated affiliate and other
revenue. The Company is also engaged, through certain of its subsidiaries, in
the sale of credit-related insurance products (such as life, disability, health,
accidental death and property and casualty insurance).

  The Company was incorporated in 1972 and is the successor to Citizens Mortgage
Corporation which was organized in 1946. The Company is a wholly-owned
subsidiary of White Mountains Holdings, Inc. ("White Mountains") (formerly Fund
American Enterprises, Inc.) and its parent Fund American Enterprises Holdings,
Inc. ("Fund American"), a Delaware corporation organized in 1980, which was
formerly known as The Fund American Companies, Inc. and Fireman's Fund
Corporation.

  The Company's principal executive offices are located at 27555 Farmington
Road, Farmington Hills, Michigan 48334-3357; its telephone number is (248)
488-7000.

INDUSTRY OVERVIEW

  Mortgage banking is the business of serving as a financial intermediary in (i)
the origination and purchase of mortgage loans, (ii) the holding of such loans
while aggregating sufficient loans to form appropriate mortgage-backed security
pools, (iii) the subsequent sale of such loans through pools or directly to
investors, and (iv) the ongoing servicing or subservicing of such loans during
the repayment period. Mortgage bankers generate revenue in each of the four
stages of the mortgage banking process.

MORTGAGE LOAN PRODUCTION

  The Company produces residential mortgage loans through (i) a system of retail
branch offices; (ii) a correspondent network of banks, thrift institutions and
other mortgage lenders; (iii) mortgage brokers; and (iv) a specialized marketing
program. The existence of these mortgage production sources gives the Company
the flexibility to shift its production between those sources as market
conditions warrant and allows it to emphasize the production mode which is most
economically advantageous. Loans produced, whether through origination or
purchase, include conventional, conforming, subprime and high loan-to-value
("high LTV") residential mortgage loans as well as conforming mortgage loans
which are either insured by the Federal Housing Administration ("FHA") or
partially guaranteed by the Veterans Administration ("VA") ("government loans").
In evaluating loans purchased through its correspondent network and loans
originated through its broker network, the Company applies the same quality
standards as required for loans originated by the Company itself. The Company's
quality control department reviews a sample of the loans purchased to determine
compliance with Company standards.

  It is a policy of the Company to primarily produce fixed rate mortgage loans.
Fixed rate mortgages tend to capture a larger share of the market in a declining
interest rate environment and are less susceptible to prepayment risk than


                                       1

<PAGE>   3



adjustable-rate mortgages. Accordingly, in a rising interest rate environment,
consumer preference for adjustable-rate mortgages tends to increase, which could
have an adverse impact on the Company's mortgage production operations. In 1998,
fixed rate mortgage originations accounted for approximately 98% of the 
Company's total mortgage loan production as compared to 88% in 1997.

  The following table sets forth selected information regarding the Company's
mortgage loan production:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
(in millions)
Year ended December 31,                    1998           1997            1996            1995            1994
--------------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>             <C>             <C>             <C>        
FHA/VA                              $     7,675    $     2,985     $     2,035     $     1,565     $     2,065
Conventional                              3,191          1,418           1,796           1,287           2,521
--------------------------------------------------------------------------------------------------------------------
Total production(a)                 $    10,866    $     4,403     $     3,831     $     2,852     $     4,586
--------------------------------------------------------------------------------------------------------------------
Retail branch originations          $     2,741    $     1,339     $     1,590     $     1,347     $     2,005
Correspondent network
  acquisitions                            6,896          2,552           1,640           1,157           1,081
Mortgage broker originations                910            390             369             196             696
Specialized marketing program
  originations                              319            122             232             152             804
--------------------------------------------------------------------------------------------------------------------
Total production (a)                $    10,866    $     4,403     $     3,831     $     2,852     $     4,586
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Excludes mortgage loan production originated by the Company's retail 
    branches that is sold directly to third parties on a whole loan basis
    totaling $1,201 million, $680 million, $496 million and $390 million for the
    years ended December 31, 1998, 1997, 1996 and 1995, respectively.

  Mortgage loans originated by the Company are subject to a defined underwriting
process in order to assess each prospective borrower's ability to repay the loan
requested and the adequacy of each property as collateral. In addition, the
Company is subject to the underwriting guidelines of FHA, VA, the Federal Home
Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") and the Federal National
Mortgage Association ("FNMA" or "Fannie Mae"), as well as specific contractual
requirements of institutional investors who have agreed to acquire mortgage
loans originated by the Company.

  In response to increased industry competition for producing and servicing
conforming mortgage loans, the Company decided to broaden its product line by
offering higher margin products. The Company began to produce 203(k) (FHA home
improvement) loans, manufactured housing loans, subprime loans and high LTV
second mortgage loans in late 1997. The 203(k) loans and manufactured housing
loans are being sold into agency pools with servicing retained. The subprime and
high LTV loans are being originated for a fee and sold to third parties on a
servicing released basis. The Company is currently subservicing subprime loans
and has the capability to service and subservice subprime and high LTV loans.
Although these higher margin products are a new focus for the Company, they
accounted for less than 4% of total production in 1998 and are currently
expected to account for approximately 8% of total production in 1999.

  RETAIL BRANCH OFFICES. As of December 31, 1998, the Company had 163 retail
branch offices in 31 states and Puerto Rico. Each office has sales
representatives who originate mortgage loans through contacts with real estate
brokers, builders, developers and others, as well as through direct contact with
homebuyers.











                                       2

<PAGE>   4


   As of December 31, 1998, the Company's retail branch offices were located in
 the following states and commonwealths:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                         Number                                 Number                                Number
State                  of Offices    State                    of Offices    State                   of Offices
-------------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>                          <C>       <C>                          <C>
California                 33        Alabama                      4         Arkansas                     1
Washington                 20        Colorado                     4         Idaho                        1
New York                   11        Illinois                     4         Indiana                      1
Georgia                    9         Kentucky                     4         Kansas                       1
Nevada                     8         Missouri                     4         Maryland                     1
Texas                      8         Oregon                       4         Oklahoma                     1
Michigan                   7         Alaska                       3         Rhode Island                 1
Arizona                    6         Utah                         3         Vermont                      1
Florida                    5         Massachusetts                2         Virginia                     1
Ohio                       5         New Jersey                   2         Puerto Rico                  1
Tennessee                  5         Pennsylvania                 2
-------------------------------------------------------------------------------------------------------------------
</TABLE>

   Most branch office originations are referred to regional operating centers
for preparation of loan documentation, evaluation of compliance with the
Company's underwriting conditions and closing of the loans.

  CORRESPONDENT NETWORK. The Company conducts a program through which it agrees
to purchase mortgage loans from a network of banks, thrift institutions and
other mortgage lenders. The funding price for such loans is set by the Company
on a daily basis. In addition, the Company pays a premium for the release of
servicing rights, which is negotiated on a case-by-case basis. As of December
31, 1998 there were approximately 253 participants in the Company's
correspondent network, with no single participant or group of affiliated
participants accounting for more than 12% of the Company's total mortgage loan
originations.

  MORTGAGE BROKERS. The Company conducts a program through which it closes loans
originated by a network of mortgage brokers. The funding price for such loans is
set by the Company on a daily basis. The mortgage broker receives compensation
equivalent to the difference between the Company's pricing schedule and the
closing price. As of December 31, 1998 there were approximately 478 active
participants in the Company's mortgage broker network, with no single broker or
group of affiliated brokers accounting for more than 1% of the Company's total
mortgage loan originations.

  SPECIALIZED MARKETING PROGRAM. The Company also generates mortgage loan
originations primarily by responding to refinancing requests from borrowers that
have mortgage loans currently serviced by the Company. The products currently
offered by the Specialized Marketing Program consist of purchase money first
mortgages, home equity lines of credit, closed-end second mortgages, refinance
mortgages and relocation assistance.

SALES OF LOANS

  The Company sells loans either through mortgage-backed securities issued
pursuant to programs of the Government National Mortgage Association ("GNMA" or
"Ginnie Mae"), FNMA and FHLMC or through whole loan sales to investors. Most
loans are aggregated in pools of $1.0 million or more, which are purchased by
institutional investors after having been guaranteed by GNMA, FNMA or FHLMC.
Approximately 48% of the Company's total consolidated revenue is generated from
sales of loans to GNMA, FNMA and FHLMC and the related servicing of those loans.
Substantially all GNMA securities are sold without recourse to the Company for
loss of principal in the event of a subsequent default by the mortgage borrower
due to the underlying FHA and VA insurance. Prior to December 1992,
substantially all conventional securities were sold with recourse to the Company
to the extent of insufficient proceeds from private mortgage insurance,
foreclosure and other recoveries. Since December 1992, conventional loans have
been sold without recourse to the Company.







                                       3



<PAGE>   5


  The following table summarizes the principal amount of loans sold by the
Company:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
Year Ended
December 31,                        1998                            1997                            1996
--------------------------------------------------------------------------------------------------------------------
                         Principal                      Principal                       Principal
                           amount         Percentage      amount         Percentage       amount         Percentage
                      (in millions)        of total  (in millions)        of total   (in millions)        of total
--------------------------------------------------------------------------------------------------------------------
<S>                     <C>                 <C>        <C>                 <C>         <C>                 <C>  
GNMA                    $    7,667          71.1%      $     2,763         65.6%       $    1,678          42.8%
FNMA                         2,227          20.6               983         23.3             1,384          35.3
FHLMC                          573           5.3               283          6.7               453          11.6
Other                          324           3.0               186          4.4               404          10.3
--------------------------------------------------------------------------------------------------------------------
Total loan sales        $   10,791         100.0%      $     4,215        100.0%       $    3,919         100.0%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

  Servicing agreements relating to mortgage-backed securities issued pursuant to
the programs of GNMA, FNMA and FHLMC require the Company to advance funds to
make the required payments to investors in the event of a delinquency by the
borrower. The Company expects that it would recover most funds advanced upon
cure of default by the borrower or at foreclosure. However, in connection with
VA partially guaranteed loans and certain conventional loans (which may be, at
most, partially insured by private mortgage insurers), funds advanced may not
cover losses due to potential declines in collateral value. The Company is
subject to limited amounts of principal risk with respect to these loans since
the insurer has the option to reimburse the servicer for the lower of fair
market value of the property or the mortgage loan outstanding, in addition to
the VA guarantee on the loan. In addition, most of the Company's servicing
agreements for mortgage-backed securities typically require the payment to
investors of a full month's interest on each loan although the loan may be paid
off (by optional prepayment or foreclosure) other than on a month-end basis. In
this instance, the Company is obligated to pay the investor interest at the
pass-through rate from the date of the loan payoff through the end of that
calendar month without reimbursement.

  The Company, through private placements and public offerings, has also sold
mortgage loans through the issuance of mortgage pass-through certificates. The
Company issued $521.7 million of real estate mortgage investment conduit
("REMIC") certificates through December 31, 1990. The Company is the primary
servicer for these REMIC certificates, which were sold pursuant to five separate
trusts that have no recourse provisions. The Company has not issued any mortgage
pass-through certificates since 1990, however, the Company may offer additional
mortgage pass-through certificates in the future if economic and market
conditions warrant.

  Historically, the Company's sales of loans have generated net gains. However,
if secondary market interest rates decline after the Company obtains a mandatory
forward commitment for a loan, the loan may not close and the Company may incur
a loss from the cost of covering its obligations under such commitment. If
secondary market interest rates increase before the Company obtains a mandatory
forward commitment for a loan and the loan closes, the Company may realize a
loss when the loan is subsequently sold. The Company obtains mandatory forward
commitments of up to 120 days to sell mortgage-backed securities to hedge the
market risk associated with a substantial portion of its loans in process
("mortgage loan pipeline") that is expected to close and all mortgage loan
receivables.

  The Company's risk management function closely monitors the mortgage loan
pipeline to determine appropriate forward commitment coverage on a daily basis.
In addition, the risk management area seeks to reduce counterparty risk by
committing to sell mortgage loans only to approved dealers, with no dealer
having in excess of 20% of current commitments. The Company currently transacts
business with eighteen approved dealers.








                                       4



<PAGE>   6


LOAN SERVICING

  Mortgage loan servicing consists primarily of (i) collecting principal,
interest and funds to be escrowed for tax and insurance payments from mortgage
loan borrowers; (ii) remitting principal and interest to mortgage loan
investors; (iii) paying property taxes and insurance premiums on mortgaged
property; (iv) in some cases, advancing uncollected payments to mortgage loan
investors; (v) administering delinquent loans; (vi) supervising foreclosures in
the event of unremedied defaults; and (vii) performing all related accounting
and reporting activities. Servicing generates cash income in the form of fees,
which represent a percentage of the declining outstanding principal amount of
the loans serviced and are collected from each mortgage loan payment received
plus any late charges. Subservicing involves the administrative servicing of
loans owned by others for a fee.

  The Company generally retains the rights to service the conforming mortgage
loans it produces, while selling the rights to service its subprime and high LTV
loans. The Company is currently subservicing subprime loans and has the
capability to service and subservice subprime and high LTV loans. In addition,
the Company may acquire the rights to service a mortgage loan portfolio without
originating or acquiring the underlying mortgage loans. The Company periodically
makes such purchases of servicing rights from banks, thrift institutions and
other mortgage lenders. The fees paid to acquire such servicing rights are
negotiated on a case-by-case basis. During 1998, no such purchases were made.
During 1997 and 1996, the Company purchased the rights from third parties to
service $.04 billion and $2.8 billion, respectively.

  During 1996 through 1998, the Company forged a new strategy with respect to
its servicing operations. A major focus of this strategy is reducing exposure to
interest rate risk, which increases with the size of an owned servicing
portfolio. To reduce the exposure, the Company took steps to reduce its owned
servicing portfolio and expand its subservicing business. During 1998, the
Company sold the rights to service approximately $10.6 billion of its
nonrecourse mortgage servicing portfolio to third parties resulting in a pretax
gain of approximately $15.2 million. The Company continues to service $4.1
million of these loans pursuant to the subservicing agreement discussed below.
In February 1997, the Company sold the rights to service $17.0 billion of its
nonrecourse mortgage servicing portfolio to a third party and recognized a
pretax loss of $4.3 million on the sale and related assumption of subservicing.
The Company recorded an additional loss of $3.7 million in the fourth quarter of
1997 in connection with the first amendment of the subservicing arrangement
which extended the Company's subservicing responsibilities for one additional
year at less favorable terms than the original agreement provided. In November
1998, the Company amended its subservicing agreement again to extend its
subservicing responsibilities for two additional years at slightly more
favorable terms than the first amendment provided. As a result, the Company will
continue to service these loans pursuant to a subservicing agreement until March
2001, June 2001 and August 2001 for FHLMC loans, GNMA loans and FNMA loans,
respectively. During 1996, the Company sold the rights to service $3.3 billion
of its mortgage servicing portfolio to third parties resulting in a pretax gain
of $10.1 million.

















                                       5

<PAGE>   7


  The following table summarizes the changes in the Company's mortgage loan
servicing portfolio, excluding loans sold but not transferred:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
(in millions)
Year ended December 31,                       1998            1997            1996            1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>            <C>             <C>       
Servicing portfolio owned at
  beginning of year                     $   11,627      $   26,410      $   27,792     $    35,274     $   38,403
Mortgage loan production                    10,866           4,403           3,831           2,852          4,586
Servicing acquisitions and other                 -              36           2,789           4,674          3,707
--------------------------------------------------------------------------------------------------------------------
Total servicing in                          10,866           4,439           6,620           7,526          8,293
--------------------------------------------------------------------------------------------------------------------
Regular payoffs                              1,576           1,236           3,006           2,271          4,728
Sale of servicing                           10,647          17,018           3,302          10,973          3,868
Principal amortization,
  foreclosures and other                     1,073             968           1,694           1,764          2,826
--------------------------------------------------------------------------------------------------------------------
Total servicing out                         13,296          19,222           8,002          15,008         11,422
--------------------------------------------------------------------------------------------------------------------
Servicing portfolio owned at
  end of year                                9,197          11,627          26,410          27,792         35,274
--------------------------------------------------------------------------------------------------------------------
Subservicing portfolio                      15,915          14,919           2,791           4,039          4,294
--------------------------------------------------------------------------------------------------------------------
Total servicing portfolio at end
  of year                               $   25,112      $   26,546      $   29,201     $    31,831     $   39,568
--------------------------------------------------------------------------------------------------------------------
</TABLE>

  The Company closely monitors the rate of delinquencies and foreclosures
incident to its servicing portfolio. The following table summarizes the
Company's delinquency and foreclosure experience with respect to residential
mortgage loans serviced by the Company:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
(% of total residential loans serviced
and subserviced)
December 31,                                         1998           1997          1996          1995          1994
---------------------------------------------------------------------------------------------------------------------
<C>                                                 <C>            <C>           <C>           <C>           <C>  
31-59 days past due                                 5.15%          4.77%         4.74%         3.99%         3.15%
60-89 days past due                                 1.12            .96           .95           .70           .54
90 days or more past due                             .80            .62           .55           .59           .38
---------------------------------------------------------------------------------------------------------------------
Total delinquencies                                 7.07%          6.35%         6.24%         5.28%         4.07%
---------------------------------------------------------------------------------------------------------------------
Foreclosures                                        1.50%          1.18%          .93%          .80%          .77%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

  The increase in delinquencies for 1998 is primarily the result of (i)
servicing sales that require loans be current when transferred (therefore,
delinquent loans remain in the servicing portfolio at least until current), (ii)
no addition of new loan product as the Company sold the rights to service a
majority of its production in 1998, and (iii) the recent efforts to subservice
subprime loans. The increase in delinquencies for 1997, 1996 and 1995, is
primarily the result of servicing portfolio acquisitions made by the Company
during the fourth quarters of 1996 and 1995. The delinquency rates of these
portfolios, which the Company acquired on favorable terms considered to be
reflective of these higher delinquency rates, were higher than the Company's
historical average delinquency rate. The Company has established an allowance
for mortgage loan losses which totaled $11.5 million and $12.8 million as of
December 31, 1998 and 1997, respectively. In addition, the Company's valuation
allowance for its capitalized servicing asset which relates to its principal
recourse portfolio includes a $5.2 million and $8.2 million reserve at December
31, 1998 and 1997, respectively, for estimated losses on the corresponding
loans. Considering the decrease in the size of its owned servicing portfolio
during 1998, the Company believes that the allowances are adequate to provide
for estimated uninsured losses on its mortgage servicing portfolio.




                                       6
<PAGE>   8


RELATED ACTIVITIES

  In conjunction with its mortgage origination and servicing activities, the
Company provides certain credit-related insurance products (such as life,
disability, health, accidental death and property and casualty insurance)
through subsidiaries. The insurance subsidiaries act as agents and receive fees
based on premium value, but do not assume any insurance risk. Insurance products
are sold through (i) solicitation at the time of mortgage application, (ii)
direct mail solicitation shortly after mortgage loan closing, (iii) solicitation
by a direct solicitor and (iv) resolicitation of the Company's servicing
portfolio on an annual basis. At certain locations, personal solicitation by
Company staff is permitted by state regulations which determine allowable
insurance sales practices. The fees recognized under these programs were as
follows:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
(in thousands)
Year ended December 31,               1998             1997             1996              1995             1994
---------------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>              <C>               <C>              <C>      
Insurance revenue                $   3,290        $   4,240        $   4,554         $   4,762        $   4,582
---------------------------------------------------------------------------------------------------------------------
</TABLE>

CERTAIN BUSINESS CONDITIONS

  Changes in the economy or prevailing interest rates can have significant
effects, including material adverse effects, on the mortgage banking business
and the Company.

  Inflation and changes in interest rates can have differing effects on various
aspects of the Company's business, particularly with respect to marketing gains
and losses from the sale of mortgage loans, mortgage loan production, the value
of the Company's servicing portfolio and net interest revenue. Historically, the
Company's loan originations and loan production income have increased in
response to falling interest rates and have decreased during periods of rising
interest rates. Periods of low inflation and falling interest rates tend to
reduce loan servicing income and the value of the Company's mortgage loan
servicing portfolio because prepayments of mortgages increase and the average
life of loan servicing rights is shortened. Conversely, periods of increasing
inflation and rising interest rates tend to increase loan servicing income and
the value of the Company's mortgage loan servicing portfolio because prepayments
of mortgages decline and the average life of loan servicing rights is
lengthened. To mitigate the Company's exposure to changes in market interest
rates, the Company utilizes various derivative financial instruments (refer to
Item 7a for further discussion).

COMPETITION

  The Company competes nationally and locally with other mortgage bankers, state
and national banks, thrift institutions and insurance companies. National banks
and thrift institutions have substantially more flexibility in their loan
origination programs than the Company, which generally originates loans meeting
the standards of the secondary market. Mortgage lenders compete primarily with
respect to price and service. Competition may also occur on mortgage terms and
closing costs. The Company competes, in part, by using its commissioned sales
force to maintain close relationships with real estate brokers, builders,
developers and members of its correspondent and broker networks. In the opinion
of management, no single mortgage lender dominates the industry.

REGULATION

  The Company is subject to the rules and regulations of, and examinations by,
investors and insurers, including, FNMA, FHLMC, GNMA, FHA and VA with respect to
originating, selling, servicing and subservicing mortgage loans. Lenders are
required to submit audited financial statements annually and to maintain
specified net worth levels which vary depending on the amount of loans serviced
and annual mortgage loan production. Mortgage loan origination activities are
also subject to fair housing laws, the Equal Credit Opportunity Act, the Federal
Truth-in-Lending Act, the Real Estate Settlement Procedures Act, the Fair Credit
Reporting Act, licensing laws, usury laws, the Home Mortgage Disclosure Act and
the regulations promulgated thereunder which, among other things, prohibit
discrimination in residential lending and require the disclosure of certain
information to borrowers. There are various other state laws and regulations
affecting



                                       7

<PAGE>   9


the Company's mortgage banking and insurance operations. The Company's internal
audit and quality control departments monitor compliance with these laws and
regulations.

EMPLOYEES

  As of December 31, 1998, the Company employed approximately 2,212 persons (of
whom approximately 360 were engaged in loan servicing activities and
approximately 1,852 were engaged in residential loan production activities,
administrative and managerial responsibilities).

  None of the Company's employees are covered by a collective bargaining
agreement. Management believes that the Company's employee relations are good.

YEAR 2000 COMPLIANCE

   During the fourth quarter of 1996, the Company established a team to
coordinate the identification, evaluation and implementation of changes to
computer systems and applications that the Company currently believes are
necessary to achieve a year 2000 date conversion with no material adverse
effects to its customers or disruption to business operations. These actions are
necessary to ensure that the systems and applications will recognize and process
the year 2000 and beyond. The Company has substantially completed the testing
phase for all information technology ("IT") systems and is currently
concentrating efforts on testing outside constituents. Additionally, non-IT
systems have also been reviewed for effects of the Year 2000 dilemma. Non-IT
systems influenced by Year 2000 date conversion will be upgraded or replaced by
the second quarter of 1999.

   During 1998, the Company engaged an independent consultant to perform an
assessment of the Company's Year 2000 readiness. The assessment confirmed that
the Company was in the final stages of completion and that the Company was a low
risk entity for adverse Year 2000 incidents.

   The total pretax cost of achieving Year 2000 compliance, including $1.0
million for hardware and software upgrades, is approximately $2.5 million. To
date, the Company has incurred approximately $2.4 million in costs. These costs
have been expensed as incurred, with the exception of hardware costs, which were
capitalized in accordance with GAAP. The Year 2000 project has accounted for
less than 15% of the total IT budget for the years ended December 31, 1998, 1997
and 1996.

   The Company has been closely monitoring the Year 2000 issues of its third
party constituents with whom it voluntarily interacts (e.g. customers,
suppliers, reinsurers, creditors, borrowers). These third party constituents
were requested to demonstrate their ability to become Year 2000 compliant by
year-end 1998. For those constituents who either failed to respond to this
inquiry or were deemed to be unlikely to remedy their own Year 2000 issues in a
timely manner, the Company is in the process of establishing similar
relationships with new parties that expect to be Year 2000 compliant.

   The failure to identify or correct significant Year 2000 issues could result
in an interruption in, or a failure of, certain normal business activities or
operations concerning the Company. Such failure could adversely affect the
Company's results of operations, liquidity and financial condition. Due to
general uncertainties inherent in the Year 2000 problem, resulting in part from
uncertainty of potential business interruptions caused by third party
constituents in which the Company must interact (including but not limited to
the suppliers of electric power, various private and public markets for equity
and debt securities, certain agencies of the Federal government and states in
which the Company conducts business), the Company is unable to determine at this
time whether the consequences of any Year 2000 failures will have a material
impact on its results of operations, liquidity or financial condition. However,
the Company currently believes that, with the implementation of its Year 2000
plan (which is in the final stages of completion), the possibility of
significant interruptions of normal business activities due to Year 2000 issues
should be reduced. In addition, the Company is currently in the process of
developing and updating Business Continuance Plans, to facilitate continued
operations in the event of adverse Year 2000 incidents.





                                       8

<PAGE>   10


FORWARD-LOOKING STATEMENTS

  We make forward-looking statements in this Annual Report on Form 10-K and may
make such statements in future filings with the Securities Exchange Commission.
We may also make forward-looking statements in our press releases or other
public communications. Our forward-looking statements, which are subject to
risks and uncertainties, include information about our expectations and possible
or assumed future results of our operations. When we use any of the words
"believes," "expects", "anticipates," "estimates" or similar expressions, we are
making forward-looking statements.

  We claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 for all of our
forward-looking statements. While we believe that our forward-looking statements
are reasonable, you should not place undue reliance on any such forward-looking
statements, which speak only as of the date made. You should understand that a
number of factors, all of which are difficult to predict and many of which are
beyond our control, could affect our future results and performance and any
other expectations expressed in our forward-looking statements. This could cause
our actual results, performance and experience to differ materially from those
expressed in our forward-looking statements. Factors that might cause such a 
difference include the following:

         -  inflation and changes in the interest rate environment that decrease
            our mortgage loan production and gain on sale of mortgage loans, or
            reduce the fair value of our servicing portfolio or financial
            instruments, or otherwise adversely impact our operations;

         -  significantly increased industry consolidation and competition that
            causes reduced profitability;

         -  general economic conditions, either nationally or in our market
            areas, that are worse than expected;

         -  adverse changes in the securities markets;

         -  legislative or regulatory changes that adversely affect our
            business;

         -  restrictions on our ability to enter new markets successfully and
            capitalize on growth opportunities; and

         -  technological changes, including "Year 2000" data systems compliance
            issues, that are more difficult or expensive than we expect.

  We do not undertake, and we specifically disclaim, any obligation to update
any forward-looking statements to reflect the occurrence of unanticipated events
or circumstances after the date of such statements.

ITEM 2. PROPERTIES

  The Company owns its principal executive offices in Farmington Hills, Michigan
which house the majority of the Company's employees. The Company leases several
other office facilities and operating equipment under cancelable and
noncancelable agreements. Most leases contain renewal clauses.

ITEM 3. LEGAL PROCEEDINGS

  Various claims have been made against the Company in the ordinary course of
business. Management believes that any liabilities which could result from such
claims would not materially affect the Company's financial position and results
of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None.









                                       9

<PAGE>   11


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  Reported on page 4 of the Company's 1998 Annual Report to Shareholders, herein
incorporated by reference.

ITEM 6. SELECTED FINANCIAL DATA

  Reported on pages 3-4 of the Company's 1998 Annual Report to Shareholders,
herein incorporated by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

  Reported on pages 5-14 of the Company's 1998 Annual Report to Shareholders,
herein incorporated by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  The Company's consolidated statement of condition includes certain assets and
liabilities whose fair values are subject to market risk. The term market risk
refers to the risk of loss arising from adverse changes in: interest rates,
foreign currency exchange rates, commodity prices, and other relevant market
rates and prices such as prices for common equity securities. Due to the
Company's sizable investments in mortgage production and servicing assets and
financial instruments and its use of medium and long-term debt financing, market
risk can have a significant affect on the Company's consolidated financial
position.

INTEREST RATE RISK

   MORTGAGE PRODUCTION AND SERVICING ASSETS. The Company's mortgage loan
production and servicing activities are subject to interest rate risk and are
generally counter cyclical in nature. In addition, the Company utilizes various
financial instruments, including derivatives, to manage the interest rate risk
related specifically to its mortgage loan pipeline, mortgage loans receivable
and capitalized servicing asset. The overall objective of the Company's interest
rate risk management policies is to offset changes in values of these items
resulting from changes in interest rates.

  The Company obtains mandatory forward commitments of up to 120 days to sell
mortgage-backed securities. These commitments hedge the market risk associated
with a substantial portion of the loans in process ("pipeline") that is expected
to close and all loans which have been funded (mortgage loans receivable). If
secondary market interest rates decline after the Company obtains a mandatory
forward commitment for a loan, the loan may not close and the Company may incur
a loss from the cost of covering its obligations under such commitment. If
secondary market rates increase before the Company obtains a mandatory forward
commitment for a loan and the loan closes, the Company may realize a loss when
the loan is subsequently sold. The Company's risk management function closely
monitors the mortgage loan pipeline to determine appropriate forward commitment
coverage on a daily basis in order to manage the risk inherent in these
off-balance-sheet financial instruments.

   As part of the interest rate risk management process, the Company performs
various sensitivity analyses that quantify the net financial impact in interest
rate-sensitive assets and commitments. These analyses incorporate scenarios
including assumed shifts in the yield curve. Various modeling techniques are
employed to forecast the value of these assets and commitments. For pipeline
commitments, an option-adjusted spread model is used which incorporates implied
market volatilities and prepayment speeds. For mortgage servicing rights, a
discounted cash flow model is used which incorporates prepayment speeds,
discount rates and credit losses.








                                       10

<PAGE>   12

  Utilizing the sensitivity analyses described above, the table below summarizes
the estimated effects of hypothetical increases and decreases in market interest
rates on the Company's mortgage production and servicing assets that management
believes are reasonably possible near-term changes in market interest rates:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                           Estimated Fair
                               Carrying Value at                         Value after Change
                               December 31, 1998     Assumed Change in     in Interest Rate     After tax gain (loss)
                                 (in millions)         Interest Rate        (in millions)           (in millions)
--------------------------------------------------------------------------------------------------------------------
<S>                           <C>                      <C>                 <C>                      <C>         
Capitalized servicing asset   $       171.3 (a)        50 bp decrease      $         156.0          $       (9.9)
                                                       50 bp increase      $         183.9          $        8.2
Mortgage forward contracts    $           -            50 bp decrease      $          11.6          $        7.5
                                                       50 bp increase      $         (11.6)         $       (7.5)
Mortgage loan pipeline        $           -            50 bp decrease      $         (11.7)         $       (7.6)
                                                       50 bp increase      $          11.4          $        7.4
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Represents the carrying value of capitalized mortgage servicing, excludiing
    $1.6 million of capitalized subservicing.

   As shown above, the projected increase or decrease in the value of the
mortgage loan pipeline would be expected to be substantially offset by a
decrease or increase in the related mortgage loan forward contracts. In
addition, the projected increase or decrease in the value of the mortgage
servicing rights would be expected to be substantially offset by a decrease or
increase in the value of the related financial instruments as described below.
This analysis is limited by the fact that it was performed at a specific point
in time and does not incorporate other factors that would impact the Company's
financial performance. Actual results would likely vary.

  DERIVATIVE SECURITIES. The value of the Company's capitalized servicing asset
is affected by changes in market interest rates. Interest rates directly
influence prepayment rates as well as other assumptions used in valuing the
asset. In order to offset changes in the value of its capitalized servicing
asset and to mitigate the effect on earnings of higher amortization and
impairment which results from increased prepayment activity, the Company invests
in various financial instruments. As interest rates decline, prepayment activity
generally increases, thereby reducing the value of the capitalized servicing
asset, while the value of the financial instruments increases. Conversely, as
interest rates increase, the value of the capitalized servicing asset increases
while the value of such financial instruments decreases. The financial
instruments utilized by the Company include interest rate floor contracts
("floors"), interest rate swap agreements ("I/R swaps") and principal-only swap
agreements ("P/O swaps"). With respect to the floors, the Company is not exposed
to losses in excess of its initial investment in the floors. The Company's
exposure to loss in the P/O swaps is related to changes in the market value of
the underlying P/O security over the life of the contract. The exposure to loss
in the I/R swaps is related to the differences between the contracted fixed
interest rates and the variable interest rates over the life of the contract.
These financial instruments are carried at market value and are included in
investments in the consolidated statements of condition. Realized and unrealized
gains and losses are recorded as net gain on financial instruments in the
consolidated statements of income.

   INDEBTEDNESS. Increases and decreases in prevailing interest rates generally
translate into decreases and increases in fair values of fixed rate
indebtedness, respectively, particularly long-term debt. Additionally, fair
values of interest rate sensitive instruments may be affected by the credit
worthiness of the issuer, prepayment options, relative values of alternative
investments, the liquidity of the instrument and other general market
conditions.





                                       11

<PAGE>   13


  The table below summarizes the estimated effects of hypothetical increases and
decreases in market interest rates on the Company's derivative securities and
medium and long-term fixed rate indebtedness outstanding. Significant variations
in market interest rates could produce changes in the timing of repayments due
to prepayment options available to the issuer or the holder which are not
reflected herein. It is assumed that the changes occur immediately and uniformly
to each category of instrument containing interest rate risk.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                              Estimated Fair
                               Carrying Value at                            Value after Change         After tax
                               December 31, 1998      Assumed Change in      in Interest Rate         gain (loss)
                                   (in millions)        Interest Rate         (in millions)          (in millions)
--------------------------------------------------------------------------------------------------------------------
<S>                          <C>                      <C>                <C>                  <C>               
Derivative securities        $             17.5        50 bp decrease    $              31.5  $              9.1
                                                       50 bp increase    $               5.4  $             (7.9)
                                                      100 bp increase    $              (4.7) $            (14.4)
                                                      200 bp increase    $             (20.7) $            (24.8)
--------------------------------------------------------------------------------------------------------------------
Fixed rate indebtedness*     $            117.1        50 bp decrease    $             121.4  $             (2.8)
                                                       50 bp increase    $             113.0  $              2.7
                                                      100 bp increase    $             109.1  $              5.2       
                                                      200 bp increase    $             101.8  $              9.9
--------------------------------------------------------------------------------------------------------------------

</TABLE>

*  Excludes short-term indebtedness and long-term indebtedness callable by the
   Company during 1999.


EQUITY PRICE RISK

   The carrying values of the Company's investments in FSA Options and Preferred
Stock are based on quoted market prices or management's estimates of fair value
(which is based, in part, on quoted market prices) as of the balance sheet date.
Market prices of common equity securities are subject to fluctuations which
could cause the amount to be realized upon sale of the investment to differ
significantly from the current report value. The fluctuations may result from
perceived changes in the underlying economic characteristics of the investee,
the relative price of alternative investments, general market conditions and
supply and demand imbalances for a particular security.

   The table below summarizes the Company's equity price risks as of December
31, 1998 and shows the effects of a hypothetical 20% increase and a 20% decrease
in market prices as of that date.

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                           Estimated Fair Value
                                  Carrying Value at                           after Assumed Price         After tax
                                  December 31, 1998       Assumed Price           Change                gain (loss)
                                    (in millions)            Change            (in millions)           (in millions)
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>                    <C>             <C>                  <C>                
FSA Options and Preferred          $       114.4          20% increase    $             136.6  $              14.4
Stock                                                     20% decrease    $              91.5  $             (14.9)
---------------------------------------------------------------------------------------------------------------------
</TABLE>

   ACCOUNTING FOR FSA OPTIONS AND CONVERTIBLE PREFERRED STOCK. The Company
currently owns 3,460,200 shares of the common stock of FSA ("FSA Shares") and
various fixed price options and shares of convertible preferred stock of FSA
(the "FSA Options and FSA Preferred Stock") which, in total, gives the Company
the right to acquire up to 4,560,607 additional FSA Shares. The Company's
investment in FSA Shares is accounted for using the equity method of accounting
pursuant to which the investment is reported at FSA's equity value ($35.87 per
FSA Share at December 31, 1998). The Company's investments in FSA Options and
FSA Preferred Stock are currently accounted for under the provisions of SFAS No.
115 pursuant to which the investments are reported at fair value ($52.62 per
underlying FSA Share at December 31, 1998).

   The Company currently expects to exercise the FSA Options during 1999 and
convert the FSA Preferred Stock during 2004. Assuming that equity accounting
continues to be the proper accounting method for valuing the Company's
investment in FSA Shares, upon exercise of the FSA Options and conversion of the
FSA Preferred Stock, the Company expects that it would be required to restate
its historic balance sheets to account for its investments in FSA Options and
FSA Preferred Stock from fair value to their original cost. Upon exercise, the
Company's original cost basis in the FSA Shares acquired will be increased by
the exercise price paid. Because the new cost basis of the Company's investment
in FSA Shares is expected to be considerably less than its portion of the fair
value of FSA's net identifiable assets at the date of exercise, the Company
would be required to record a deferred credit that would be amortized to income
over an anticipated five year period. Assuming the FSA Options were exercised
and the FSA Preferred Stock


                                       12

<PAGE>   14


converted as of December 31, 1998, the Company would be required to reduce its
stockholders' equity by $62.6 million and would record a deferred credit of
$19.9 million. This net difference in carrying value of $42.7 million (which
represents the effective write-down of the FSA Options and FSA Preferred Stock
from fair value to FSA's equity value) would continue to exist until such time
as equity accounting is no longer appropriate for the Company's investment in
FSA Shares.

   This analysis is based solely on the Company's current circumstances
concerning its investments in FSA Options and FSA Preferred Stock. The Company's
actual accounting valuation will be determined at the point of exercise for the
FSA Options and upon the conversion of the FSA Preferred Stock and will be based
on the circumstances concerning such investments existing at that time.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  Financial statements reported in the consolidated financial statements of the
Company and the notes thereto and the report thereon of KPMG LLP, independent
auditors, appearing on pages 15-43 of the Company's Annual Report to
Shareholders, herein incorporated by reference. Selected Quarterly Financial
Data reported on page 44 of the Company's 1998 Annual Report to Shareholders,
herein incorporated by reference. The report of Ernst & Young LLP, independent
auditors, included as Exhibit 13(b) hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

  None.





















                                       13

<PAGE>   15


PART III

<TABLE>
<CAPTION>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------------------------------------------------------------------------
Board of Directors
(as of March 29, 1999)
                                                                                      Director
Name                                                               Age                   Since
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C> 
Michael C. Allemang                                                 56                    1993
Raymond Barrette                                                    48                    1998
Terry L. Baxter                                                     53                    1994
Robert R. Densmore                                                  50                    1986
Mark A. Janssen                                                     40                    1997
Francis X. Mohan                                                    59                    1997
James H. Ozanne                                                     55                    1996
Roger K. Taylor                                                     47                    1995
--------------------------------------------------------------------------------------------------------------------
</TABLE>

  Mr. Allemang has served as a director, Executive Vice President and Chief
Financial Officer of the Company since November 1993. He was a director and Vice
President of Fund American Enterprises, Inc. from August 1992 to December 1993.
Mr. Allemang was formerly Senior Vice President of Fireman's Fund Insurance
Company ("Fireman's Fund") from 1991 to 1992 and served as Vice President and
Treasurer of Fund American from 1989 to 1991 and Vice President of Fireman's
Fund from 1986 to 1991.

  Mr. Barrette has served as a director of the Company since February 1998. He
has served as Executive Vice President and Chief Financial Officer of Fund
American since November 1997. He holds the same positions with, and is a
director of White Mountains Holdings, Inc. He is also a director of Folksamerica
Holding Company, Inc., Valley Group, Inc., MSA Holdings, Inc. and Fund American
Enterprises, Inc. (formerly Fund American Enterprises II, Inc.) From 1994 to
1996, he was an actuarial consultant with Tillinghast-Towers Perrin. He joined
Fireman's Fund Insurance Company in 1973 and held various positions with that
company, including Chief Actuary and Chief Financial Officer. Prior to his
departure in 1993, he was a Director and Executive Vice President of Fireman's
Fund Insurance Company and President of its Personal Insurance Division.

  Mr. Baxter has served as a director of the Company since 1994. He served as
Chairman of the Company from June 1996 to March 1997. He has served as President
of White Mountains Holdings, Inc. since February 1997 and President of Fund
American Enterprises, Inc. from January 1994 to February 1997. He was the
Managing Director of the National Transportation Safety Board from 1990 to 1993,
and prior to that was Senior Vice President of the National Bank of Washington.
Mr. Baxter previously served as Assistant Director of The Office of Management
and Budget under President Reagan and was a Vice President of GEICO Corporation.
Mr. Baxter is also a director of Fund American Enterprises, Inc., Centricut,
LLC., Main Street America Holdings, Inc., White Mountains Holdings, Inc. and
White Mountains Insurance Company.

  Mr. Densmore has served as a director of the Company since 1986. He has served
as Executive Vice President of the Company's Servicing Division since 1987. He
was the Chief Financial Officer from 1978 to 1987. Mr. Densmore joined the
Company in 1976.

  Mr. Janssen has served as a director of the Company since November 1997. He
has served as Executive Vice President - Production and Capital Markets since
1997. He has also served as Executive Vice President of Capital Markets from
1996 to 1997, Senior Vice President of Finance from 1992 to 1996, Corporate Vice
President and Controller from 1991 to 1992 and Vice President of the Financial
Division from 1988 to 1992. Mr. Janssen joined the Company in 1981.



                                       14

<PAGE>   16


  Mr. Mohan has served as a director of the Company since November 1997. He
assumed the position of President and Chief Executive Officer of the Company in
September 1997. Mr. Mohan was with Beneficial Corporation from 1963 to 1997. He
held various positions which included District Manager, Operating Vice
President, Senior Vice President and President of several Beneficial Corporation
subsidiaries.

  Mr. Ozanne has served as a director of the Company since August 1996. He has
served as Chairman of the Company since March 1997 and as President of Fund
American Enterprises, Inc. since February 1997. He is the founder and principal
of Greenrange Partners. He was Chairman, President & Chief Executive Officer of
Nations Financial Holdings Corporation (formerly U S WEST Capital Corporation)
from 1989 to 1996. From 1983 to 1989 he was Executive Vice President, Asset
Management and Consumer Groups, of General Electric Capital Corporation
("GECC"), Stamford, Connecticut and held other executive positions with GECC. He
is currently a director of Financial Security Assurance Holdings Ltd.("FSA"), a
publicly-held financial guaranty insurer with securities listed on the New York
Stock Exchange.

  Mr. Taylor has served as a director of the Company since August 1995. He has
served as President of FSA since November 1997 and Chief Operating Officer since
May 1993. He is also a member of FSA's management review committee for
structured transactions and underwriting committee for municipal transactions.
Prior to joining FSA in 1990 as an advisor for its new municipal bond insurance
business, Mr. Taylor was an Executive Vice President, founder and executive
committee member of Financial Guaranty Insurance Company. He is also a director
of FSA.

COMMITTEES OF THE BOARD OF DIRECTORS

  The major committees of the Board of Directors, committee membership and the
functions of those committees are described below.

  EXECUTIVE COMMITTEE. The members of the Executive Committee are: James H.
Ozanne (Chairman), Terry L. Baxter and Francis X. Mohan.

  The Executive Committee has been delegated all of the powers and authority of
the Board on all but such matters which are reserved to the Board by the
Delaware General Corporation.

  AUDIT COMMITTEE. The members of the Audit Committee are: Raymond Barrette
(Chairman) and Roger K. Taylor.

  The Audit Committee exercises the powers of the Board in the management of the
business and affairs of the Company regarding the accounting, reporting and
financial control practices of the Company. It reviews the qualifications of the
independent certified public accountants, makes recommendations to the Board as
to their selection, reviews the plan, fees and results of their audits and
reviews their non-audit services and related fees.

  HUMAN RESOURCES COMMITTEE. The members of the Human Resources Committee are:
Terry L. Baxter (Chairman), James H. Ozanne and Roger K. Taylor.

  The Human Resources Committee establishes compensation for executive officers
of the Company.















                                       15



<PAGE>   17

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS (as of March 29, 1999)
                                                                                                        Executive
                                                                                                          Officer
Name                                           Age    Position                                              Since
--------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                                                          <C> 
Michael C. Allemang *                           56    Executive Vice President and                           1993
                                                      Chief Financial Officer
John A. Courson                                 56    Senior Vice President;                                 1990
                                                      President and Chief Executive Officer
                                                      of Central Pacific Mortgage Company
Robert R. Densmore *                            50    Executive Vice President                               1983
Mark A. Janssen *                               40    Executive Vice President and Secretary                 1996
Francis X. Mohan *                              59    President and Chief Executive Officer                  1997
--------------------------------------------------------------------------------------------------------------------
</TABLE>

*  Member of the Board of Directors.

  Mr. Courson has served as a Senior Vice President of the Company and President
and Chief Executive Officer of Central Pacific Mortgage Company ("Central
Pacific"), a wholly-owned subsidiary of the Company, since July 1990. Prior to
that he was President and Chief Operating Officer of Fundamental Mortgage
Corporation of Dallas, Texas.

  Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Company's equity securities. Officers, directors and
greater than 10% stockholders are required by the Securities and Exchange
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.

  To the Company's knowledge, all Section 16(a) filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with during the year ended December 31, 1998.












                                       16

<PAGE>   18
ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

  The following table sets forth certain information regarding the salary,
incentive compensation and benefits paid by the Company to its Chief Executive
Officer and its four most highly compensated executive officers other than the
Chief Executive Officer during each of the three most recent fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                                                 Annual Compensation                        Long Term Compensation
                                                 -------------------                        ----------------------
                                                                               Awards           Payouts
                                                                               ------           -------
                                                                       Other                  Long-term              All
                                                                      Annual                  Incentive            Other
Name and                                                        Compensation      SARs             Plan     Compensation
Principal Position              Year    Salary       Bonus                 a       (#)b        Payouts b                c
--------------------------------------------------------------------------------------------------------------------------
<S>                             <C>    <C>          <C>              <C>         <C>           <C>            <C>      
Francis X. Mohan                1998   $ 250,016    $450,000         $     -         -         $       -      $  20,000
President and Chief             1997      63,466     300,000               -         -                 -              -
Executive Officer

Robert R. Densmore              1998   $ 191,306    $ 70,468         $     -     2,194         $ 163,440      $  20,000
Executive Vice President        1997     184,079      30,000               -         -                 -          4,800
                                1996     178,196      64,000           1,468         -                 -          7,500

Michael C. Allemang             1998   $ 187,250    $ 60,000         $     -     2,194         $ 163,440      $  20,000
Executive Vice President and    1997     178,049      30,000               -         -                 -          4,800
Chief Financial Officer         1996     172,136      62,000           9,000         -                 -          7,500

Mark A. Janssen                 1998   $ 167,910    $120,000         $     -     1,757         $ 130,932      $  20,000
Executive Vice President        1997     152,043     140,000               -         -                 -          4,800
and Secretary                   1996     125,033      75,000           9,000         -                 -          7,352

John A. Courson                 1998   $ 212,056    $300,000         $12,000       439          $ 32,695      $  20,000
Senior Vice President;          1997     212,056     110,988          12,000         -                 -          4,800
President and Chief             1996     187,044     138,496          12,570         -                 -          7,500
Executive Officer of Central
Pacific

-------------------------------------------------------------------------------
</TABLE>

a  Amounts shown for 1998 consist of the following: (i) Mr. Courson:
   reimbursement of automobile expense. Amounts shown for 1997 consist of the
   following: (i) Mr. Courson: reimbursement of automobile expenses. Amounts
   shown for 1996 consist of the following: (i) Mr. Densmore: reimbursement of
   automobile expenses; (ii) Mr. Allemang: reimbursement of automobile expenses;
   (iii) Mr. Janssen: reimbursement of automobile expenses; (iv) Mr. Courson:
   interest reimbursement of $570 on amounts paid to purchase investment
   contracts and reimbursement of automobile expenses.

b  Represents amounts earned pursuant to the Company's Long-Term Incentive 
   Plans.

c  Represents amounts allocated pursuant to the Company's Employee Stock
   Ownership and 401(k) Savings Plan.

INVESTMENT CONTRACTS AND STOCK APPRECIATION RIGHTS

  In 1993, certain directors and executive officers of the Company exchanged all
their shares of the Company's Class B common stock for 1.558 units in an
investment contract and 1.558 units of Stock Appreciation Rights ("SAR") for
each Class B share held. The investment contract entitles the holder to receive
the lesser of $86.625 or the closing price of Fund American's common stock on
the day preceding exercise of the investment contract, multiplied by a factor of
1.223 in cash for each unit held. The units may be exercised at any time at the
option of the holder.

  The SARs may be exercised at any time simultaneously with each exercised
investment contract unit at the option of the holders thereof. The value of each
SAR is equal to the difference between $86.625 and the closing price of Fund
American's common stock on the date preceding the exercise of the SAR multiplied
by a factor of 1.223. 










                                       17

<PAGE>   19
LONG-TERM INCENTIVE PLAN

The Company has long-term incentive plans that provide for granting stock-based 
and cash incentive awards to key management employees. Awards under the plans 
are payable upon the achievement of specific return on investment (ROE) goal 
covering overlapping three-year periods. Payments under the plans may 
accelerate in the event of a change in control of the Company, upon sale of 
substantially all of the assets of the Company related to mortgage banking or 
upon certain other events.

For the three-year periods beginning January 1, 1994, 1995 and 1996, the 
participants received a provisional allocation of phantom shares whose base 
value was equal to the market price of Fund American common stock at the 
beginning of the period. Based on the specific ROE achieved during the period, 
each participant vests in up to two times the phantom shares provisionally 
allocated. Each participant then receives a cash payment equal to the base 
value of these vested phantom shares and is awarded an equal number of stock 
appreciation rights (SARs). The value of each SAR equals the current price of 
Fund American common stock plus the total cash dividends paid on that stock 
since the beginning of the applicable three-year period less the market price 
of Fund American common stock at the beginning of the period. The SARs can be 
exercised for cash by the employee at any time and must be exercised no later 
than the earlier of the day of termination of employment or the last day of the 
year in which the employee attains age 65.

For the three-year periods beginning January 1, 1998 and 1999, participants 
received a number of units based on the participants' annual base salary. At the
end of the three-year period, each unit is worth between $0.00 and $3.00 
depending on specific ROE performance during the period. The unit values are 
paid in cash within 90 days after the end of the period.

SAR GRANTS IN LAST FISCAL YEAR


The following table summarizes stock appreciation right awards granted to the 
Named Executive Officers:

<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------------------
                                                                                              Potential realizable
                                                                                              value at assumed
                                                                                             annual rates of stock
                                                                                              price appreciation for
                                             Percent of                                              SAR term      
                          Number of          total SARs                                          (in thousands)(b) 
                          securities         granted to                                       -----------------------
                          underlying         employees in                        Expiration                      
Name                      SARs granted(a)    fiscal year           Base price     Date           5%             10%  
---------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>                 <C>             <C>          <C>             <C>
Robert R. Densmore               2,194         27.68%              $74.50             b         160              168

Michael C. Allemang              2,194         27.68%               74.50             b         160              168

Mark A. Janssen                  1,757         22.17%               74.50             b         128              135

John A. Courson                    439          5.54%               74.50             b          32               34
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  The number of securities underlying SARs granted are based on shares of 
     Fund American common stock.

(b)  The SARs have no specific term and may be exercised at any time at the
     option of the holders. However, the SARs are deemed to be exercised should
     the holders cease to be employees of the Company. For purposes of this
     disclosure, the term of the SARs was assumed to expire six months after
     the year ended December 31, 1998, due to the definitive agreement reached
     in late March 1999, under which Citicorp Mortgage, Inc., will acquire
     substantially all of the mortgage-banking related assets of the Company and
     employ substantially all of the Company's employees as discussed in Note 23
     on page 43 of the Company's 1998 Annual Report to Shareholders, herein
     incorporated by reference.



                                       18

<PAGE>   20
The following table summarizes SAR activity for the year ended December 31, 
1998.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                                 Number of Securities         Value of unexercised
                                                               underlying unexercised                 in-the-money
                                                            SARs at fiscal year end(b)   SARs at fiscal year-end(b)
                                                            -------------------------    -------------------------
                       Shares acquired   Value realized
Name                     on exercise(a)                   Exercisable   Unexercisable  Exercisable   Unexercisable
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>          <C>             <C>          <C>             <C>
Robert R. Densmore                   0              0        2,194           0             150,853        0       

Michael C. Allemang                  0              0        2,194           0             150,853        0       

Mark A. Janssen                      0              0        1,757           0             120,848        0       

John A. Courson                    871         71,035          439           0              30,177        0
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  Represents the number of investment contract units with respect to which 
     the SARs were exercised.

(b)  The number and value of unexercised SARs are based on shares of Fund 
     American common stock.

PENSION BENEFITS
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
                                                               Years of Service
                           ------------------------------------------------------------------------------------------
Remuneration                             15                20                25               30                35
---------------------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>               <C>              <C>               <C>     
        $ 125,000                    $ 30,000          $ 40,000          $ 50,000         $ 60,000          $ 70,000
          150,000                      36,000            48,000            60,000           72,000            84,000
          175,000                      42,000            56,000            70,000           84,000            98,000
          200,000                      48,000            64,000            80,000           96,000           112,000
          225,000                      54,000            72,000            90,000          108,000           126,000
          250,000                      60,000            80,000           100,000          120,000           140,000
          300,000                      72,000            96,000           120,000          144,000           168,000
          400,000                      96,000           128,000           160,000          192,000           224,000
          450,000                     108,000           144,000           180,000          216,000           252,000
          500,000                     120,000           160,000           200,000          240,000           280,000
---------------------------------------------------------------------------------------------------------------------
</TABLE>

  The gross annual benefit paid is computed as a straight-life annuity reduced
by .485% of average salary up to covered compensation; that is, the average of
social security wage bases for the 35 years prior to retirement. The annual
benefits shown in the above table are not reduced to reflect the limitations
imposed by the Internal Revenue Code, which limit the annual benefits payable
from qualified plans to any individual. The Company maintains a Supplemental
Retirement Plan which is a non-qualified, unfunded deferred compensation plan.
Under the plan, certain highly compensated employees affected by these
limitations will receive additional retirement income payments from the Company
so that their pension benefits will equal the amounts they would otherwise have
been were it not for the limitations.

   Messrs. Mohan, Densmore, Allemang, Janssen and Courson participate in
retirement plans under which they are entitled to receive estimated annual
retirement benefits in accordance with the table shown above.

  Participants in the retirement plans are eligible to receive normal retirement
benefits at age 65, reduced normal retirement benefits if qualified for early
retirement or a deferred vested benefit if they terminate employment prior to
retirement but after five years of service. In the fourth quarter of 1997, the
Company's Board of Directors approved certain amendments to the Company's
pension plan. The approved amendments included the expansion of eligibility
requirements for early retirement from age 55 with ten years of service to the
earlier of age 55 with ten years of service or age 50 with fifteen years of
service for retirements beginning on or after January 1, 1997.

  Eligible compensation for Messrs. Mohan, Densmore, Allemang, Janssen and
Courson includes base salary plus bonus received, but is limited to not more
than one and one-third of base salary in total. Benefits accrued under the
retirement plans are limited to eligible compensation of $160,000 for 1998 for
each of the Named Executive Officers.

  Benefits under the retirement plans for a single person are computed on a
straight-life basis and benefits for a married person are generally computed on
a joint and 50% survivor basis, subject to each participant's right to elect
alternative




                                       19
<PAGE>   21


survivor benefits. As of December 31, 1998, Messrs. Mohan, Densmore, Allemang,
Janssen and Courson had 1, 22, 5, 17 and 8 whole years of credited service,
respectively, for purposes of computing their benefits under the retirement
plans.

COMPENSATION OF DIRECTORS

  Directors who are neither employees of the Company nor employees or directors
of Fund American (Mr. Taylor) receive a fee of $1,500 for each board meeting
attended.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

  In connection with the employment of Mr. Mohan as President and Chief
Executive Officer of the Company, the Company and Mr. Mohan entered into an
employment agreement ("the Agreement"). The Agreement principally called for:
(i) Mr. Mohan to receive an annual base salary of $250,000; (ii) Mr. Mohan to
receive a bonus for 1997 equal to his base salary, provided he achieved specific
performance objectives; (iii) Mr. Mohan to receive additional payments of
$50,000 on November 1, 1997 and $200,000 on November 1, 1998 and 1999, provided
that he is an employee of the Company on those dates; (iv) Mr. Mohan to
participate in the Company's Long-Term Incentive Plan; (v) Mr. Mohan to
participate in an investment and option program; and (vi) in the event Mr. Mohan
is terminated without cause prior to December 31, 2000, Mr. Mohan to receive two
years of base salary and vest immediately in any options. Amounts relating to
1998 and 1997 are included in the "Summary Compensation Table" on page 17.

   In 1998, the Company established an Incentive Compensation Plan ("ICP") for
certain key executives and directors of the Company. Under this plan,
participants were provided the opportunity to invest in simulated equity shares
of the Company. The value of the shares represents the calculated fair value of
the Company as defined by the plan which was equal to $42.783 per share at the
time of issuance in May 1998. The Company issued approximately 50,253 shares in
exchange for cash proceeds of $2.2 million. Concurrent with the purchase of each
equity share, the participants were granted five simulated equity options. The
value of the options is equal to the appreciation in the value of the equity
shares over the strike price. The initial strike price is equal to $42.783 per
share and increases each January 1 by 4% beginning in 1999. The Company issued
approximately 251,267 options which vest over a three-year period beginning May
1, 1998. In September 1998, the Company established a second Incentive
Compensation Plan ("ICP II") for certain other key employees of the Company.
Under this plan, the Company issued approximately 31,900 options with an initial
strike price of $49.198 which vest over a three-year period beginning September
1, 1998. The strike price increases each September 1, by 4% beginning in 1999.
Vesting of the options may accelerate in the event of a change in control of the
Company (upon the sale of a majority of the Company's primary business
operations, upon the sale of more than 50% of the Company's common stock, or
upon certain other events. Messrs. Mohan, Densmore, Allemang, Janssen and
Courson participate in the ICP described above and hold approximately 9.3%,
2.3%, 4.7%, 7.0% and 1.2%, respectively, of the total outstanding simulated
equity shares and options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

  The Human Resources Committee of the Board of Directors establishes
compensation for executive officers of the Company. None of the members of the
Human Resources Committee, namely Terry L. Baxter, James H. Ozanne and Roger K.
Taylor, is, or was, an officer or employee of the Company or any of the
Company's subsidiaries.


                                       20

<PAGE>   22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  As of March 29, 1999, there were two holders of the 3,211,881 shares of the
Company's issued and outstanding common stock, with each share entitled to one
vote, as follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
Title                           Name and address of                                   Number of           Percent
of                              beneficial owners                                  shares owned          of class
Class
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                                   <C>                   <C>  
Common stock                    White Mountains Holdings, Inc.                        3,106,881             96.7%
                                80 South Main Street
                                Hanover, NH  03755

                                Fund American Enterprises Holdings, Inc.                105,000              3.3%
                                80 South Main Street
                                Hanover, NH  03755
--------------------------------------------------------------------------------------------------------------------
</TABLE>

  The following table sets forth, as of March 29, 1999, beneficial ownership of
Fund American common stock by each director of the Company and each of the
current "Named Executive Officers" as defined herein.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
Title of                        Name of                                             Number of            Percent
Class                           beneficial owner                                shares owned b         of class c
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                                     <C>                    <C>
Common stock a                  Michael C. Allemang                                        11                  *
                                Raymond Barrette                                        2,131                  *
                                Terry L. Baxter                                         3,642                  *
                                John A. Courson                                             -                  *
                                Robert R. Densmore                                          -                  *
                                Mark A. Janssen                                            18                  *
                                Francis X. Mohan                                           38                  *
                                James H. Ozanne                                           697                  *
                                Roger K. Taylor                                             -                  *
--------------------------------------------------------------------------------------------------------------------
</TABLE>

*  Represents less than 1% of the outstanding shares.

a  Represents Fund American common stock pursuant to Item 403(b) of Regulation
   S-K of the Securities Act of 1933.

b  Except for Messrs. Barrette, Courson, Densmore and Taylor, includes shares
   beneficially owned by the Company's Employee Stock Ownership and 401(k)
   Savings Plan (whereby voting rights are exercised by the Plan's trustee and
   attributable under the terms of the Plan to such person).

c  Determined based on the beneficial ownership provisions specified in Rule
   13d-3(d)(1) of the Exchange Act. Except to the extent indicated above, all
   executive officers and directors have (or share with their spouses) sole
   voting and investment power with respect to the shares for which they claim
   beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Pursuant to the terms of a tax allocation agreement between the Company and
Fund American, Fund American has agreed to compensate the Company for the use of
certain accumulated unrealized losses associated with the Company's common
equity securities portfolio if such losses, when realized, can be utilized in
Fund American's consolidated tax returns.

  During 1998, Mr. Courson received $146,502 upon the exercise of 871 investment
contract units. See discussion of "Investment Contracts and Stock Appreciation
Rights" on page 17.

   During 1998, the Company's directors and "Named Executive Officers" as
defined herein invested approximately $1.9 million in simulated equity shares of
the Company pursuant to an Incentive Compensation Plan established in 1998.  See
discussion of "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" on page 20.






                                       21

<PAGE>   23


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

a.   (1) Financial Statements

         The Financial Statements applicable to Source One Mortgage Services
         Corporation and consolidated subsidiaries have been incorporated by
         reference herein from Source One Mortgage Services Corporation's 1998
         Annual Report to Shareholders as they appear in the Index to Financial
         Statements and Financial Statement Schedules appearing on page 23 of
         this Annual Report on Form 10-K.

     (2) Financial Statement Schedules

         None.

     (3) Exhibits

         The exhibits required to be filed by Item 601 of Regulation S-K and by
         this form are listed on page 25 of this Annual Report on Form 10-K.

         The management contracts and compensatory plans or arrangements
         required to be filed as exhibits and included in such list of exhibits
         are as follows:

         Exhibit 10(a) Source One Mortgage Services Corporation Employee Stock
         Ownership and 401(k) Savings Plan and Trust Agreement, as amended and
         restated effective as of October 1, 1996

         Exhibit 10(b) Form of Source One Mortgage Services Corporation
         Voluntary Deferred Compensation Plan

         Exhibit 10(c) First Amendment to Source One Mortgage Services
         Corporation Voluntary Deferred Compensation Plan

         Exhibit 10(d) Form of Source One Mortgage Services Corporation
         Retirement Plan, as amended and restated

         Exhibit 10(e) First Amendment to Source One Mortgage Services
         Corporation Retirement Plan

         Exhibit 10(f) Second Amendment to Source One Mortgage Services
         Corporation Retirement Plan

         Exhibit 10(g) Third Amendment to Source One Mortgage Services
         Corporation Retirement Plan

         Exhibit 10(h) Form of Source One Mortgage Services Corporation
         Retirement Plan Trust Agreement

         Exhibit 10(i) Source One Mortgage Services Corporation Supplemental
         Retirement Plan

         Exhibit 10(j) Source One Mortgage Services Corporation Stock
         Appreciation Rights Plan

         Exhibit 10(k) Source One Mortgage Services Corporation Long Term
         Incentive Plan

         Exhibit 10(l) Source One Mortgage Services Corporation New Long-Term
         Incentive Plan

         Exhibit 10(m) Source One Mortgage Services Corporation Incentive
         Compensation Plan

         Exhibit 10(n) Source One Mortgage Services Corporation Incentive
         Compensation Plan II

         Exhibit 10(o) Investment Contract by and between Source One Mortgage
         Services Corporation and John A. Courson

         Exhibit 10(p) Incentive Agreement in the event of a sale of Source One
         Mortgage Services Corporation among certain Senior Officers of Source
         One Mortgage Services Corporation and Fund American Enterprises, Inc.

         Exhibit 10(q) Retirement Agreement dated October 22, 1997 between
         Source One Mortgage Services Corporation and James A. Conrad

         Exhibit 10(r) Employment Agreement by and between Source One Mortgage
         Services Corporation and Francis X. Mohan





                                       22

<PAGE>   24


Source One Mortgage Services Corporation and Subsidiaries

Index to Financial Statements and Financial Statement Schedules

(Item 14(a))

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------

                                                                                                       Annual Report
                                                                                                          page(s)*
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                                        <C>
FINANCIAL STATEMENTS:
  Consolidated statements of condition
    as of December 31, 1998 and 1997..........................................................................16
  Consolidated statements of income for each of the
    years ended December 31, 1998, 1997 and 1996..............................................................17
  Consolidated statements of comprehensive income for
    each of the years ended December 31, 1998, 1997, and 1996.................................................18
  Consolidated statements of stockholders' equity for each
    of the years ended December 31, 1998, 1997 and 1996.......................................................19
  Consolidated statements of cash flows for each
    of the years ended December 31, 1998, 1997 and 1996.......................................................20
  Notes to consolidated financial statements...............................................................21-43
OTHER FINANCIAL INFORMATION:
  Report of independent auditors..............................................................................15
  Selected quarterly financial data (Unaudited)...............................................................44
--------------------------------------------------------------------------------------------------------------------
</TABLE>

*  Source One Mortgage Services Corporation's 1998 Annual Report to
   Shareholders.

  Schedules for which provision is made in Regulation S-X are not required under
the related instructions or are inapplicable and, therefore, have been omitted
or the information required is included in the consolidated financial statements
or notes thereto.



















                                       23
<PAGE>   25


  b.     Reports on Form 8-K

  The Company filed 6 reports on Form 8-K during the fourth quarter of 1998. The
dates and contents are described below:

October 26, 1998   Reported Report to the Trustee and Report to the Certificate
                   Holders for the month of October 1998 relating to the Source
                   One Mortgage Services Corporation 11 1/2% Mortgage
                   Pass-Through Certificates, Series A

October 29, 1998   Reported Distribution Date Statements for October 25,
                   November 1, November 1, and October 20, 1998 relating to the
                   Source One Mortgage Services Corporation Agency MBS
                   Multi-Class Pass-Through Certificates Series 1987-2, 1988-1,
                   1988-2 and 1990-1, respectively

November 25, 1998  Reported Report to the Trustee and Report to the Certificate
                   Holders for the month of November 1998 relating to the Source
                   One Mortgage Services Corporation 11 1/2% Mortgage
                   Pass-Through Certificates, Series A

November 30, 1998  Reported Distribution Date Statements for November 25,
                   December 1, December 1, and November 20, 1998 relating to the
                   Source One Mortgage Services Corporation Agency MBS
                   Multi-Class Pass-Through Certificates Series 1987-2, 1988-1,
                   1988-2 and 1990-1, respectively

December 22, 1998  Reported Distribution Date Statements for December 25, 1998,
                   December 25, 1998, January 1, 1999, January 1, 1999 and
                   December 20, 1998 relating to the Source One Mortgage
                   Services Corporation Agency MBS Multi-Class Pass-Through
                   Certificates Series 1987-1, 1987-2, 1988-1, 1988-2 and
                   1990-1, respectively

December 28, 1998  Reported Report to the Trustee and Report to the Certificate
                   Holders for the month of December 1998 relating to the Source
                   One Mortgage Services Corporation 11 1/2% Mortgage
                   Pass-Through Certificates, Series A



















                                       24
<PAGE>   26


c.   Exhibits

Exhibit No.

 3(a)    Restated Certificate of Incorporation of Source One Mortgage Services
         Corporation (incorporated by reference to Exhibit 4(a) of the February
         28, 1994 Current Report on Form 8-K, File No. 1-12898, formerly File
         No. 33-8562)

  (b)    Certificate of Designation for Series A Preferred Stock of Source One
         Mortgage Services Corporation (incorporated by reference to Exhibit
         3(b) of the Annual Report on Form 10-K for the year ended December 31,
         1993, File No. 1-12898)

  (c)    Amended and Restated Bylaws of Source One Mortgage Services Corporation
         (incorporated by reference to Exhibit 4(d) of Amendment No. 1 to the
         registration statement on Form S-3, Registration No. 33-71924)

 4(a)    Pooling and Servicing Agreement between Manufacturers Hanover Mortgage
         Corporation (now "Source One Mortgage Services Corporation") and
         National Bank of Detroit dated March 1, 1983 and relating to Mortgage
         Pass-Through Certificates, Series A, 11 1/2% Pass-Through Rate
         (incorporated by reference to Exhibit 4(a) of the Annual Report on Form
         10-K for the year ended December 31, 1991, File No. 1-12898, formerly
         File No. 33-8562)

  (b)    Deposit Trust Agreement between Fireman's Fund Mortgage Corporation
         (now "Source One Mortgage Services Corporation") and the First National
         Bank of Chicago dated September 25, 1987 and relating to Agency MBS
         Multi-Class Pass-Through Certificates, Series 1987-1 (incorporated by
         reference to Exhibit 10(jj) of the September 22, 1988 Current Report on
         Form 8-K, File No. 1-12898, formerly File No. 33-8562)

  (c)    Deposit Trust Agreement between Fireman's Fund Mortgage Corporation
         (now "Source One Mortgage Services Corporation") and the First National
         Bank of Chicago dated January 28, 1988 and relating to Agency MBS
         Multi-Class Pass-Through Certificates, Series 1987-2 (incorporated by
         reference to Exhibit 10(kk) of the September 22, 1988 Current Report on
         Form 8-K, File No. 1-12898, formerly File No. 33-8562)

  (d)    Deposit Trust Agreement between Fireman's Fund Mortgage Corporation
         (now "Source One Mortgage Services Corporation") and the First National
         Bank of Chicago dated March 30, 1988 and relating to Agency MBS
         Multi-Class Pass-Through Certificates, Series 1988-1 (incorporated by
         reference to Exhibit 10(ll) of the September 22, 1988 Current Report on
         Form 8-K, File No. 1-12898, formerly File No. 33-8562)

  (e)    Deposit Trust Agreement between Fireman's Fund Mortgage Corporation
         (now "Source One Mortgage Services Corporation") and the First National
         Bank of Chicago dated June 28, 1988 and relating to Agency MBS
         Multi-Class Pass-Through Certificates, Series 1988-2 (incorporated by
         reference to Exhibit 10(mm) of the September 22, 1988 Current Report on
         Form 8-K, File No. 1-12898, formerly File No. 33-8562)

  (f)    Deposit Trust Agreement between Fireman's Fund Mortgage Corporation
         (now "Source One Mortgage Services Corporation") and the First National
         Bank of Chicago dated July 30, 1990 and relating to Agency MBS
         Multi-Class Pass-Through Certificates, Series 1990-1 (incorporated by
         reference to Exhibit 4(a) of the July 30, 1990 Current Report on Form
         8-K, File No. 1-12898, formerly File No. 33-8562)

  (g)    Indenture between Source One Mortgage Services Corporation and The
         First National Bank of Chicago dated May 7, 1992 (incorporated by
         reference to Exhibit 19(a) of the Quarterly Report on Form 10-Q for the
         quarter ended March 31, 1992, File No. 1-12898, formerly File No.
         33-8562)










                                       25
<PAGE>   27


  (h)    Resolutions of the Chairman of the Board of Source One Mortgage
         Services Corporation regarding the issuance of medium-term indebtedness
         adopted pursuant to authority delegated by the Board of Directors of
         Source One Mortgage Services Corporation (incorporated by reference to
         Exhibit 19(b) of the Quarterly Report on Form 10-Q for the quarter
         ended March 31, 1992, File No. 1-12898, formerly File No. 33-8562).
         (Said resolutions establish the terms of the Medium-Term Notes, Series
         B, of Source One Mortgage Services Corporation issuable under the
         Indenture between Source One Mortgage Services Corporation and The
         First National Bank of Chicago dated May 7, 1992)

  (i)    Resolutions of the Chairman of the Board of Source One Mortgage
         Services Corporation regarding the issuance of a series of medium-term
         notes, Series B, entitled "9% Debentures due June 1, 2012" adopted
         pursuant to authority delegated by the Board of Directors of Source One
         Mortgage Services Corporation (incorporated by reference to Exhibit (i)
         of the Quarterly Report on Form 10-Q for the quarter ended June 30,
         1992, File No. 1-12898, formerly File No. 33-8562). (Said resolutions
         establish the terms of the 9% Debentures due June 1, 2012 of Source One
         Mortgage Services Corporation issued under the Indenture between Source
         One Mortgage Services Corporation and The First National Bank of
         Chicago dated May 7, 1992)

  (j)    Indenture dated December 1, 1995 between Source One Mortgage Services
         Corporation and IBJ Schroeder Bank & Trust Company, as trustee
         (incorporated by reference to Exhibit (a)(1) of Amendment No. 4 to the
         Report on Schedule 13E-4 filed with the Securities and Exchange
         Commission on December 21, 1995)

  (k)    First Supplemental Indenture dated December 1, 1995 between Source One
         Mortgage Services Corporation and IBJ Schroeder Bank & Trust Company,
         as trustee (incorporated by reference to Exhibit (a)(2) of Amendment
         No. 4 to the Report on Schedule 13E-4 filed with the Securities and
         Exchange Commission on December 21, 1995)

  (l)    Form of 8.875% Notes due 2001 (incorporated by reference to Exhibit
         4(r) of the Annual Report on Form 10-K for the year ended December 31,
         1992, File No. 1-12898, formerly File No. 33-8562)

  (m)    Form of 9% Debentures due 2012 (incorporated by reference to Exhibit
         4(s) of the Annual Report on Form 10-K for the year ended December 31,
         1992, File No. 1-12898, formerly File No. 33-8562)

  (n)    Specimen Certificate for 8.42% Cumulative Preferred Stock, Series A, of
         Source One Mortgage Services Corporation (incorporated by reference to
         Exhibit 4(a) of the Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1994, File No. 1-12898)

  (o)    Form of 9.375% Quarterly Income Capital Securities (Subordinated
         Interest Deferrable Debentures, Due 2025); included in the First
         Supplemental Indenture dated December 1, 1995 between Source One
         Mortgage Services Corporation and IBJ Schroeder Bank & Trust Company,
         as trustee (incorporated by reference to Exhibit (a)(2) of Amendment
         No. 4 to the Report on Schedule 13E-4 filed with the Securities and
         Exchange Commission on December 21, 1995)

10       Material Contracts

  (a)    Source One Mortgage Services Corporation Employee Stock Ownership and
         401(k) Savings Plan and Trust Agreement (as amended and restated
         effective as of October 1, 1996) (incorporated by reference to Exhibit
         10(a) of the Annual Report on Form 10-K for the year ended December 31,
         1996, File No. 1-12898)

  (b)    Form of Source One Mortgage Services Corporation Voluntary Deferred
         Compensation Plan (incorporated by reference to Exhibit 10(e) of the
         Annual Report on Form 10-K for the year ended December 31, 1993, File
         No. 1-12898)

  (c)    First Amendment to Source One Mortgage Services Corporation Voluntary
         Deferred Compensation Plan (incorporated by reference to Exhibit 10(g)
         of the Annual Report on Form 10-K for the year ended December 31, 1994,
         File No. 1-12898)



                                       26
<PAGE>   28


    (d)  Form of Source One Mortgage Services Corporation Retirement Plan, as
         amended and restated (incorporated by reference to Exhibit 10(hh) of
         the Annual Report on Form 10-K for the year ended December 31, 1990,
         File No. 1-12898, formerly File No. 33-8562)

    (e)  First Amendment to Source One Mortgage Services Corporation Retirement
         Plan (incorporated by reference to Exhibit 10(j) of the Annual Report
         on Form 10-K for the year ended December 31, 1994, File No. 1-12898)

    (f)  Second Amendment to Source One Mortgage Services Corporation Retirement
         Plan (incorporated by reference to Exhibit 10(k) of the Annual Report
         on Form 10-K for the year ended December 31, 1994, File No. 1-12898)

    (g)  Third Amendment to Source One Mortgage Services Corporation Retirement
         Plan (incorporated by reference to Exhibit 10(l) of the Annual Report
         on Form 10-K for the year ended December 31, 1994, File No. 1-12898)

    (h)  Form of Source One Mortgage Services Corporation Retirement Plan Trust
         Agreement (incorporated by reference to Exhibit 10(d) of the
         registration statement on Form S-1, Registration No. 33-8562)

    (i)  Source One Mortgage Services Corporation Supplemental Retirement Plan
         (incorporated by reference to Exhibit 10(n) of the Annual Report on
         Form 10-K for the year ended December 31, 1989, File No. 1-12898,
         formerly File No. 33-8562)

    (j)  Source One Mortgage Services Corporation Stock Appreciation Rights Plan
         (incorporated by reference to Exhibit 10(c) of the Current Report on
         Form 8-K dated November 11, 1993, File No. 1-12898, formerly File No.
         33-8562)

    (k)  Source One Mortgage Services Corporation Long-Term Incentive Plan
         (incorporated by reference to Exhibit 10(ii) of the Annual Report on
         Form 10-K for the year ended December 31, 1994, File No. 1-12898)

    (l)  Source One Mortgage Services Corporation New Long-Term Incentive Plan*

    (m)  Source One Mortgage Services Corporation Incentive Compensation Plan*

    (n)  Source One Mortgage Services Corporation Incentive Compensation Plan 
         II*

    (o)  Investment Contract by and between Source One Mortgage Services
         Corporation and John A. Courson (incorporated by reference to Exhibit
         10(ee) of the Annual Report on Form 10-K for the year ended December
         31, 1993, File No. 1-12898)

    (p)  Incentive Agreement in the event of a sale of Source One Mortgage
         Services Corporation among certain Senior Officers of Source One
         Mortgage Services Corporation and Fund American Enterprises, Inc.
         (incorporated by reference to Exhibit 10(ll) of the Annual Report on
         Form 10-K for the year ended December 31, 1995, File No. 1-12898)

    (q)  Retirement Agreement dated October 22, 1997 between Source One Mortgage
         Services Corporation and James A. Conrad (incorporated by reference to
         Exhibit 10(hh) of the Annual Report on Form 10-K for the year ended
         December 31, 1997, File No. 1-12898)

    (r)  Employment Agreement by and between Source One Mortgage Services
         Corporation and Francis X. Mohan (incorporated by reference to Exhibit
         10(jj) of the Annual Report on Form 10-K for the year ended December
         31, 1997, File No. 1-12898)

    (s)  Federal Tax Sharing Agreement dated as of January 1, 1991, and
         effective for taxable years beginning after December 31, 1990, by and
         among Fund American Enterprises Holdings, Inc. and Source One Mortgage
         Services Corporation (incorporated by reference to Exhibit 10(m) of the
         Annual Report on Form 10-K for the year ended December 31, 1996, File
         No. 1-12898)

    (t)  Depository Agreement dated June 16, 1993 between Source One Mortgage
         Services Corporation and The First National Bank of Chicago
         (incorporated by reference to Exhibit 10(a) of the Current Report on
         Form 8-K dated February 28, 1994, File No. 1-12898, formerly File No.
         33-8562)



                                       27
<PAGE>   29


    (u)  Mortgage Warehousing Loan Agreement dated as of April 18, 1998 by and
         between Central Pacific Mortgage and PNC Bank National Association
         (incorporated by reference to Exhibit 10(a) of the current Report on
         Form 8-K dated July 10, 1998, File No. 1-12898)

    (v)  Master Loan and Security Agreement dated as of May 1, 1998 between
         Source One Mortgage Services Corporation and Greenwich Capital
         Financial Products, Inc (incorporated by reference to Exhibit 10(b) of
         the current Report on Form 8-K dated June 23, 1998, File No. 1-12898)

    (w)  Fourth Amended and Restated Revolving Credit Agreement dated as of July
         10, 1998 by and among Source One Mortgage Services Corporation and the
         First National Bank of Chicago, individually and as Administrative
         Agent and Certain Other Lenders (incorporated by reference to Exhibit
         10(a) of the current Report on Form 8-K dated September 2, 1998, File
         No. 1-12898)

    (x)  Fourth Amended and Restated Security and Collateral Agency Agreement
         dated as of July 10, 1998 by and among Source One Mortgage Services
         Corporation and The First National Bank of Chicago (in its capacity as
         Administrative Agent for the lenders) and National City Bank, Kentucky,
         as Collateral Agent (incorporated by reference to Exhibit 10(d) of the
         current Report on Form 8-K dated September 2, 1998, File No. 1-12898)

    (y)  Revolving Credit Agreement dated as of July 10, 1998 by and among
         Source One Mortgage Services Corporation and the First National Bank of
         Chicago, individually and as Administrative Agent and Certain Other
         Lenders (incorporated by reference to Exhibit 10(b) of the current
         Report on Form 8-K dated September 2, 1998, File No. 1-12898)

    (z)  Pledge and Security Agreement dated as of July 10, 1998 between Source
         One Mortgage Services Corporation and the First National Bank of
         Chicago, as Collateral Agent for the Lenders (incorporated by reference
         to Exhibit 10(c) of the current Report on Form 8-K dated September 2,
         1998, File No. 1-12898)

    (aa) FNMA/FHLMC/GNMA Mortgage Servicing Purchase and Sale Agreement dated
         February 28, 1997, by and between Source One Mortgage Services
         Corporation and Chemical Mortgage Company (now "Chase Mortgage
         Company") (incorporated by reference to Exhibit 10(dd) of the Annual
         Report on Form 10-K for the year ended December 31, 1996, File No.
         1-12898)

    (bb) Mortgage Loan Interim Subservicing Agreement made as of March 1, 1997,
         by and between Chemical Mortgage Company (now "Chase Mortgage Company")
         and Source One Mortgage Services Corporation (incorporated by reference
         to Exhibit 10(ee) of the Annual Report on Form 10-K for the year ended
         December 31, 1996, File No. 1-12898)

    (cc) Mortgage Loan Subservicing Agreement, by and between Chemical Mortgage
         Company (now "Chase Mortgage Company") and Source One Mortgage Services
         Corporation (incorporated by reference to Exhibit 10(ff) of the Annual
         Report on Form 10-K for the year ended December 31, 1996, File No.
         1-12898)

    (dd) Mortgage Loan Subservicing Agreement Extension Amendment, by and
         between Chemical Mortgage Company (now "Chase Mortgage Company") and
         Source One Mortgage Services Corporation (incorporated by reference to
         Exhibit 10(ii) of the Annual Report on Form 10-K for the year ended
         December 31, 1997, File No. 1-12898)

    (ee) Mortgage Loan Subservicing Agreement Second Extension Amendment dated
         as of November 4, 1998, by and between Chase Mortgage Company and
         Source One Mortgage Services Corporation*

    (ff) Asset Purchase Agreement dated as of March 23, 1999 by and among Source
         One Mortgage Services Corporation, Fund American Enterprises Holdings,
         Inc., and Citicorp Mortgage, Inc.*

    (gg) Transition Services Agreement dated as of March 25, 1999 by and among
         Source One Mortgage Services Corporation and Citicorp Mortgage, Inc.*

     13  Annual Report to Security Holders

    (a)  Source One Mortgage Services Corporation 1998 Annual Report to
         Shareholders. Such report, except for



                                       28
<PAGE>   30


         those portions which are expressly incorporated by reference in this
         Annual Report on Form 10-K, is furnished only for the information of
         the Commission and is not deemed filed as part hereof*

(b)      Audit opinion of Ernst & Young LLP*

16       (a) Letter of Ernst & Young LLP dated March 27, 1997 (incorporated by
         reference to Exhibit 16(a) of the Annual Report on Form 10-K for the
         year ended December 31, 1996, File No. 1-12898)

21       Subsidiaries of Source One Mortgage Services Corporation (incorporated
         by reference to Exhibit 21 of the Annual Report on Form 10-K for the
         year ended December 31, 1996, File No. 1-12898)

23       Consents of experts

(a)      Consent of KPMG LLP*

(b)      Consent of Ernst & Young LLP*

(c)      Consent of PricewaterhouseCoopers LLP dated March 29, 1999 relating to
         Financial Security Assurance Holdings Ltd.*

24       Powers of Attorney*

27       Financial Data Schedule*

99       The Consolidated Financial Statements of Financial Security Assurance
         Holdings Ltd. and the related Report of Independent Accountants as of
         December 31, 1998 and 1997 and for each of the three years in the
         period ended December 31, 1998*



*  Filed herewith















                                       29
<PAGE>   31


Signatures

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                           Source One Mortgage Services Corporation

Date: March 29, 1999       By:   /s/ MICHAEL C. ALLEMANG
                                 -----------------------
                                     Michael C. Allemang
                                     Executive Vice President,
                                     Chief Financial Officer and Director

    Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signature                                                                      Title                          Date
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                                                      <C>
  *                                                            Chairman and Director                March 29, 1999
---------------------------------------
James H. Ozanne

                                               President, Chief Executive Officer and                March 29, 1999
   *                                           Director (Principal Executive Officer)
---------------------------------------
Francis X. Mohan

/s/ MICHAEL C. ALLEMANG                     Executive Vice President, Chief Financial                March 29, 1999
----------------------------------------    Officer and Director (Principal Financial
Michael C. Allemang                         Officer and Principal Accounting Officer)
                                            

                                             Executive Vice President - Servicing and                March 29, 1999
  *                                                                         Director
---------------------------------------
Robert R. Densmore

                                             Executive Vice President, - Production &                March 29, 1999
  *                                           Capital Markets, Secretary and Director
----------------------------------------
Mark A. Janssen

  *                                                                         Director                March 29, 1999
---------------------------------------
Terry L. Baxter

  *                                                                         Director                March 29, 1999
---------------------------------------
Raymond Barrette

  *                                                                         Director                March 29, 1999
---------------------------------------
Roger K. Taylor

*By: /s/ MICHAEL C. ALLEMANG
     -----------------------
         Michael C. Allemang
         As Attorney-in-fact for the persons indicated
--------------------------------------------------------------------------------------------------------------------
</TABLE>

   Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
   The Company does not have any voting securities registered under Section 12
of the Act, and all of the Company's voting securities are held by two entities.
Accordingly, no proxy statement, form of proxy or other proxy soliciting
material has been, or will be, sent to more than 10 of the registrant's security
holders with respect to any annual or other meeting of security holders.





                                       30