SEC Filing | Ocwen Financial Corporation

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-21341 OCWEN FINANCIAL CORPORATION ----------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 65-0039856 - -------------------------------- ----------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (561) 682-8000 -------------- (Registrant's telephone number, including area code) 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 [ ]. Number of shares of Common Stock, $.01 par value, outstanding as of May 11, 2001: 67,152,363 shares

OCWEN FINANCIAL CORPORATION FORM 10-Q I N D E X - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Page ---- Item 1. Interim Consolidated Financial Statements (Unaudited)........... 3 Consolidated Statements of Financial Condition at March 31, 2001 and December 31, 2000............................ 3 Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000............................ 4 Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2001 and 2000.............. 5 Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2001................ 6 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000............................ 7 Notes to Consolidated Financial Statements...................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 55 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................... 60 Item 6. Exhibits and Reports on Form 8-K................................ 60 Signatures................................................................ 62 2

PART I - FINANCIAL INFORMATION ITEM 1. INTERIM FINANCIAL STATEMENTS (UNAUDITED) OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) March 31, 2001 December 31, 2000 -------------- ----------------- ASSETS: Cash and amounts due from depository institutions ........................................ $ 39,413 $ 18,749 Interest earning deposits ................................................................ 9,990 134,987 Federal funds sold and repurchase agreements ............................................. 155,500 -- Trading securities, at fair value: Collateralized mortgage obligations (AAA-rated) ....................................... 97,196 277,595 Subordinates, residuals and other securities .......................................... 109,461 112,647 Loans available for sale, at lower of cost or market ..................................... 10,096 10,610 Real estate held for sale ................................................................ 21,623 22,670 Low-income housing tax credit interests held for sale .................................... 100,800 87,083 Investment in real estate ................................................................ 116,125 122,761 Investments in low-income housing tax credit interests ................................... 54,213 55,729 Investment securities, at cost ........................................................... 13,257 13,257 Loan portfolio, net ...................................................................... 77,983 93,414 Discount loan portfolio, net ............................................................. 439,649 536,028 Match funded loans and securities, net ................................................... 110,470 116,987 Investments in unconsolidated entities ................................................... 447 430 Real estate owned, net ................................................................... 136,267 146,419 Premises and equipment, net .............................................................. 42,483 43,152 Income taxes receivable .................................................................. 34,980 30,261 Deferred tax asset, net .................................................................. 82,171 95,991 Advances on loans and loans serviced for others .......................................... 299,609 227,055 Mortgage servicing rights ................................................................ 67,477 51,426 Other assets ............................................................................. 49,479 52,169 ----------- ----------- $ 2,068,689 $ 2,249,420 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits .............................................................................. $ 1,133,691 $ 1,258,360 Bonds - match funded agreements ....................................................... 99,732 107,050 Obligations outstanding under lines of credit ......................................... 32,796 32,933 Notes, debentures and other interest bearing obligations .............................. 169,130 173,330 Accrued interest payable .............................................................. 26,470 22,096 Excess of net assets acquired over purchase price ..................................... 32,082 36,665 Accrued expenses, payables and other liabilities ...................................... 32,070 36,030 ----------- ----------- Total liabilities .................................................................. 1,525,971 1,666,464 ----------- ----------- Company obligated, mandatorily redeemable securities of subsidiary trust holding solely junior subordinated debentures of the Company ....................... 63,685 79,530 COMMITMENTS AND CONTINGENCIES (NOTE 10) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 20,000,000 shares authorized; 0 shares issued and outstanding ............................................................ -- -- Common stock, $.01 par value; 200,000,000 shares authorized; 67,152,363 shares issued and outstanding at March 31, 2001, and December 31, 2000, respectively ...... 672 672 Additional paid-in capital ............................................................ 223,177 223,163 Retained earnings ..................................................................... 255,678 279,194 Accumulated other comprehensive (loss) income, net of taxes: Net unrealized loss on derivative financial instruments ............................ (20) -- Net unrealized foreign currency translation (loss) gain ............................ (474) 397 ----------- ----------- Total stockholders' equity ............................................................ 479,033 503,426 ----------- ----------- $ 2,068,689 $ 2,249,420 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 3

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) For the three months ended March 31, 2001 2000 - -------------------------------------------------------------------------------------------- ------------ ------------ NET INTEREST INCOME: Income .................................................................................. $ 24,817 $ 48,090 Expense ................................................................................. 26,880 43,396 ------------ ------------ Net interest income before provision for loan losses .................................... (2,063) 4,694 Provision for loan losses ............................................................... 8,120 2,608 ------------ ------------ Net interest (loss) income after provision for loan losses .............................. (10,183) 2,086 ------------ ------------ NON-INTEREST INCOME: Servicing and other fees ................................................................ 31,117 24,166 (Loss) gain on interest earning assets, net ............................................. (645) 10,994 Unrealized gain on trading and match funded securities, net ............................. 4,003 -- Impairment charges on securities available for sale ..................................... -- (6,833) Loss on real estate owned, net .......................................................... (984) (7,007) Gain on other non interest earning assets, net .......................................... 456 138 Net operating gains on investments in real estate ....................................... 2,554 5,553 Amortization of excess of net assets acquired over purchase price ....................... 4,583 2,794 Other income ............................................................................ 2,046 1,139 ------------ ------------ 43,130 30,944 ------------ ------------ NON-INTEREST EXPENSE: Compensation and employee benefits ...................................................... 20,935 16,583 Occupancy and equipment ................................................................. 3,093 3,263 Technology and communication costs ...................................................... 10,148 5,621 Loan expenses ........................................................................... 4,235 3,930 Net operating losses on investments in certain low-income housing tax credit interests .. 5,062 1,499 Amortization of excess of purchase price over net assets acquired ....................... 778 773 Professional services and regulatory fees ............................................... 4,026 3,839 Other operating expenses ................................................................ 2,579 2,566 ------------ ------------ 50,856 38,074 ------------ ------------ Distributions on Company-obligated, mandatorily redeemable securities of subsidiary trust holding solely junior subordinated debentures of the Company ............................ 2,053 3,194 Equity in income (losses) of investments in unconsolidated entities ........................ 45 (2,260) ------------ ------------ Loss before income taxes and extraordinary gain ............................................ (19,917) (10,498) Income tax (expense) benefit ............................................................... (5,762) 3,255 ------------ ------------ Loss before extraordinary gain ............................................................. (25,679) (7,243) Extraordinary gain on repurchase of debt, net of taxes ..................................... 2,163 2,145 ------------ ------------ Net loss ................................................................................... $ (23,516) $ (5,098) ============ ============ (LOSS) EARNINGS PER SHARE: Basic: Loss before extraordinary gain .......................................................... $ (0.38) $ (0.10) Extraordinary gain ...................................................................... 0.03 0.03 ------------ ------------ Net loss ................................................................................ $ (0.35) $ (0.07) ============ ============ Diluted: Loss before extraordinary gain .......................................................... $ (0.38) $ (0.10) Extraordinary gain ...................................................................... 0.03 0.03 ------------ ------------ Net loss ................................................................................ $ (0.35) $ (0.07) ============ ============ Weighted average common shares outstanding: Basic ..................................................................................... 67,152,363 68,222,987 ============ ============ Diluted ................................................................................... 67,152,363 68,222,987 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 4

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (DOLLARS IN THOUSANDS) For the three months ended March 31, 2001 2000 - ---------------------------------------------------------------------------------------------- ----------- ----------- Net loss ..................................................................................... $ (23,516) $ (5,098) ----------- ----------- Other comprehensive loss, net of taxes: Change in unrealized loss on securities available for sale arising during the period (1) ........................................................... -- (3,792) Less: Reclassification adjustment ......................................................... -- 544 ----------- ----------- Net change in unrealized loss on securities available for sale (2) ........................ -- (3,248) ----------- ----------- Change in unrealized foreign currency translation adjustment arising during the period (3) (871) 161 ----------- ----------- Change in accounting principle for derivative financial instruments ....................... 59 -- Adjustment to gain on derivative financial instruments .................................... (79) -- ----------- ----------- Change in unrealized gain on derivative financial instruments ............................. (20) -- ----------- ----------- Other comprehensive loss .................................................................. (891) (3,087) ----------- ----------- Comprehensive loss ........................................................................... $ (24,407) $ (8,185) =========== =========== Disclosure of reclassification adjustment: Unrealized holding gains arising during the period on securities sold or impaired ......................................................... $ -- $ (4,208) Add: Adjustment for realized gains and impairment charges on securities available for sale included in net loss ..................................... -- 4,752 ----------- ----------- Net reclassification adjustment for gains (losses) recognized in other comprehensive loss in prior years (4) ......................................... $ -- $ 544 =========== =========== (1) Net of tax benefit of $1,661 for the three months ended March 31,2000. (2) Net of a tax (expense) benefit of $1,899 for the three months ended March 31, 2000. (3) Net of tax (expense) benefit of $ (43) and $74 for the three months ended March 31, 2000. (4) Net of tax (expense) benefit of $238 for the three months ended March 31, 2000. The accompanying notes are an integral part of these consolidated financial statements. 5

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2001 (DOLLARS IN THOUSANDS) Accumulated Other Common Stock Additional Comprehensive ----------------------- Paid-in Retained Income (Loss), Shares Amount Capital Earnings Net of Taxes Total ---------- ---------- ---------- ---------- -------------- ---------- Balances at December 31, 2000 ............... 67,152,363 $ 672 $ 223,163 $ 279,194 $ 397 $ 503,426 Net loss .................................... -- -- -- (23,516) -- (23,516) Change in directors' stock plan ............. -- -- 14 -- -- 14 Other comprehensive income, net of taxes: Change in accounting principle for derivative financial instruments ...... -- -- -- -- 59 59 Adjustment to gain on derivative financial instruments ................. -- -- -- -- (79) (79) ---------- ---------- ---------- ---------- ---------- ---------- Change in unrealized gain on derivative financial instruments ................. -- -- -- -- (20) (20) Change in unrealized foreign currency translation loss ...................... -- -- -- -- (871) (871) ---------- ---------- ---------- ---------- ---------- ---------- Balances at March 31, 2001 .................. 67,152,363 $ 672 $ 223,177 $ 255,678 $ (494) $ 479,033 ========== ========== ========== ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 6

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) For the three months ended March 31, 2001 2000 - ------------------------------------------------------------------------------------------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .................................................................................. $ (23,516) $ (5,098) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Net cash provided by trading securities ................................................ 184,090 -- Proceeds from sales of loans available for sale ........................................ -- 2,434 Principal payments received on loans available for sale ................................ 287 2,258 Premium amortization on securities, net ................................................ 1,972 3,263 Depreciation and amortization .......................................................... 15,531 4,893 Provision for loan losses .............................................................. 8,120 2,608 Provision for real estate owned ........................................................ 6,181 9,212 (Loss) gain on interest-earning assets, net ............................................ 645 (10,994) Unrealized gain on trading securities .................................................. (4,003) -- Impairment charges on securities available for sale .................................... -- 6,833 Extraordinary gain on repurchase of long-term debt ..................................... (3,433) (3,109) (Gains) loss on sale of low-income housing tax credit interests ........................ (358) 261 Provision for loss on low-income housing tax credits held for investment ............... 4,503 -- Gain on real estate owned, net ......................................................... (6,376) (4,556) Gain on sale of real estate held for investment ........................................ (98) -- Equity in (income) losses of unconsolidated entities ................................... (45) 2,260 Increase in income taxes receivable .................................................... (4,719) (19,567) Decrease (increase) in deferred tax asset .............................................. 13,820 (3,630) Increase in advances on loans and loans serviced for others ............................ (72,554) (10,438) Increase in other assets, net .......................................................... (13,571) (7,436) Increase (decrease) in accrued expenses, interest payable and other liabilities ........ 822 (16,246) --------- --------- Net cash provided (used) by operating activities .......................................... 107,298 (47,052) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale ................................... -- 83,163 Purchase of securities available for sale .............................................. -- (449,954) Maturities of and principal payments received on securities available for sale ......... -- 106,099 Acquisition of Federal Home Loan Bank stock ............................................ -- (2,432) Principal payments received on match funded loans and securities ....................... 5,293 12,809 Investment in low-income housing tax credit investments ................................ (6,886) (16,189) Proceeds from sales of low-income housing tax credit interests ......................... 4,600 10,162 Purchase of mortgage servicing rights .................................................. (20,758) -- Proceeds from sales of discount loans, net ............................................. 38,195 64,507 Proceeds from sale of real estate held for sale ........................................ 1,000 -- Proceeds from sale of real estate held for investment .................................. 6,266 -- Proceeds from sales of loans held for investment ....................................... 12,454 227 Purchase and originations of loans held for investment, net of undisbursed loan funds .. (16,597) (9,788) Purchase of discount loans, net ........................................................ -- (68,887) Decrease in investment in unconsolidated entities ...................................... 28 456 Purchase of and capital improvements to real estate held for investment ................ -- (153,941) Principal payments received on loans held for investment ............................... 3,872 11,310 Capital improvements to real estate held for sale ...................................... -- (5,373) Principal payments received on discount loans, net ..................................... 20,311 31,232 Proceeds from sale of real estate owned ................................................ 46,610 39,728 Purchase of real estate owned in connection with discount loan purchases ............... -- (3,591) Additions to premises and equipment .................................................... (1,796) (1,379) --------- --------- Net cash provided (used) by investing activities .......................................... 92,592 (351,841) --------- --------- The accompanying notes are an integral part of these consolidated financial statements. 7

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS- (CONTINUED) (DOLLARS IN THOUSANDS) For the three months ended March 31, 2001 2000 - ------------------------------------------------------------------------------------------------ --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in deposits ........................................................................ $(124,669) $ (55,927) Increase in securities sold under agreements to repurchase .................................. -- 329,089 Repayment of obligations under lines of credit, net ......................................... (137) (13,396) Payments on bonds-match funded agreements ................................................... (7,535) (11,057) Repurchase of Capital Securities ............................................................ (12,115) -- Repurchases of notes and subordinate debentures ............................................. (4,267) (16,882) Repurchase of common stock .................................................................. -- (8,996) --------- --------- Net cash (used) provided by financing activities ............................................... (148,723) 222,831 --------- --------- Net increase (decrease) in cash and cash equivalents ........................................... 51,167 (176,062) Cash and cash equivalents at beginning of period ............................................... 153,736 354,219 --------- --------- Cash and cash equivalents at end of period ..................................................... $ 204,903 $ 178,157 ========= ========= RECONCILIATION OF CASH AND CASH EQUIVALENTS AT END OF PERIOD: Cash and amounts due from depository institutions ........................................... $ 39,413 $ 58,715 Interest-earning deposits ................................................................... 9,990 23,442 Federal funds sold and repurchase agreements ................................................ 155,500 96,000 --------- --------- $ 204,903 $ 178,157 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash received (paid) during the period for: Interest .................................................................................... $ (22,506) $ (36,284) ========= ========= Income taxes ................................................................................ $ 2,271 $ (18,721) ========= ========= Supplemental schedule of non-cash investing and financing activities: Real estate owned acquired through foreclosure .............................................. $ 30,903 $ 54,595 ========= ========= Reclassification of properties from investment in real estate to real estate held for sale .. $ -- $ 183,435 ========= ========= Reclassification of investments in low-income housing tax credit interests to low-income housing tax credit interests held for sale ............................................... $ 15,809 $ -- ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 8

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- FAS 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The standards are based on consistent application of a financial-components approach that focuses on control. FAS 140 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This Statement requires an entity that has securitized financial assets to disclose information about accounting policies, volume, cash flows, key assumptions made in determining fair values of retained interests and sensitivity of those fair values to changes in key assumptions. It also requires that entities that securitize assets disclose certain information about the securitized assets and any other financial assets it manages together with them, including: (a) the total principal amount outstanding, the portion that has been derecognized and the portion that continues to be recognized in each category reported in the statement of financial position, at the end of the period; (b) delinquencies at the end of the period; and (c) credit losses during the period. As of December 31, 2000, the Company adopted the disclosure provisions of FAS 140 as they relate to recognition and reclassification of collateral and for disclosures relating to securitization transactions, mortgage servicing rights and collateral. As of April 1, 2001, the Company adopted the provisions of FAS 140 as they relate to for transfers and servicing of financial assets and extinguishments of liabilities. The Emerging Issues Task Force issued EITF 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Assets" effective for fiscal quarters beginning after March 15, 2001. On April 1, 2001, the Company adopted the provisions of EITF 99-20. Adoption of EITF 99-20 did not have a material impact on the Company's results of operations, financial position or cash flows. NOTE 4: COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY In August 1997, the Ocwen Capital Trust ("OCT") issued $125,000 of 10.875% Capital Securities (the "Capital Securities"). Proceeds from the issuance of the Capital Securities were invested in 10.875% Junior Subordinated Debentures issued by OCN. The Junior Subordinated Debentures, which represent the sole assets of OCT, will mature on August 1, 2027. To date, OCT has repurchased $61,315 of its Capital Securities. During the three months ended March 31, 2001, OCT repurchased $15,845 of its Capital Securities in the open market, resulting in extraordinary gains of $3,336 ($2,102 net of taxes). Holders of the Capital Securities are entitled to receive cumulative cash distributions accruing from the date of original issuance and payable semiannually in arrears on February 1 and August 1 of each year, commencing on February 1, 1998, at an annual rate of 10.875% of the liquidation amount of $1,000 per Capital Security. Payment of distributions out of moneys held by OCT, and payments on liquidation of OCT or the redemption of Capital Securities, are guaranteed by the Company to the extent OCT has funds available. If the Company does not make principal or interest payments on the Junior Subordinated Debentures, OCT will not have sufficient funds to make distributions on the Capital Securities, in which event the guarantee shall not apply to such distributions until OCT has sufficient funds available therefore. Accumulated distributions payable on the Capital Securities amounted to $1,099 and $3,533 at March 31, 2001 and December 31, 2000, respectively, and are included in accrued interest payable. The Company has the right to defer payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 10 consecutive semiannual periods with respect to each deferral period, provided that no extension period may extend beyond the stated maturity of the Junior Subordinated Debentures. Upon the termination of any such extension period and the payment of all amounts then due on any interest payment date, the Company may elect to begin a new extension period. Accordingly, there could be multiple extension periods of varying lengths throughout the term of the Junior Subordinated Debentures. If interest payments on the Junior Subordinated Debentures are deferred, distributions on the Capital Securities will also be deferred and the Company may not, and may not permit any subsidiary of the Company to (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, the Company's capital stock or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities that rank pari passu with or junior to the Junior Subordinated Debentures. During an extension period, interest on the Junior Subordinated Debentures will continue to accrue at the rate of 10.875% per annum, compounded semiannually. The Junior Subordinated Debentures are redeemable prior to maturity at the option of the Company, subject to the receipt of any necessary prior regulatory approval, (i) in whole or in part on or after August 1, 2007, at a redemption price equal to 105.438% of the principal amount thereof on August 1, 2007, declining ratably on each August 1 thereafter to 100% on or after August 1, 2017, plus accrued interest thereon, or (ii) at any time, in whole (but not in part), upon the occurrence and continuation of a special event (defined as a tax event, regulatory capital event or investment company event) at a redemption 12

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- GENERAL The Company's primary businesses are the servicing and special servicing of nonconforming, subperforming and nonperforming residential and commercial mortgage loans, as well as the development of related loan servicing technology and software for the mortgage and real estate industries. The Company is a registered savings and loan holding company subject to regulation by the OTS. The Bank is subject to regulation by the OTS, its chartering authority, and by the Federal Deposit Insurance Corporation (the "FDIC") as a result of its membership in the Savings Association Insurance Fund, which is administered by the FDIC and which insures the Banks' deposits up to the maximum extent permitted by law. The Bank is also subject to regulation by the Board of Governors of the Federal Reserve System and is currently a member of the Federal Home Loan Bank ("FHLB") of New York, one the 12 regional banks that comprise the FHLB System. The following discussion of the Company's consolidated financial condition, results of operations, capital resources and liquidity should be read in conjunction with the Interim Consolidated Financial Statements and related Notes included in Item 1 herein (which is incorporated herein by reference). RECENT DEVELOPMENTS On April 18, 2001, the Company acquired the servicing rights to more than $1,800,000 in mortgage loans from Metropolitan Mortgage & Securities Co., Inc. The servicing rights to approximately 31,000 loans will be transferred to the Company. On April 18, 2001, the Company executed a Receivables Financing Facility agreement with Greenwich Capital Financial Products, Inc. ("Greenwich"), whereby the Company borrowed $23,907 collateralized by certain of the Company's servicing advances. According to a Commitment Letter signed in connection with the execution of the Agreement, the Company has agreed to finance at least $200,000 of servicing advances with Greenwich over the course of the next two years. On April 20, 2001, the Company executed a Loan and Security Agreement with Credit Suisse First Boston ("CSFB") whereby the Company may borrow up to $100,000 over the next year collateralized by certain of the Company's servicing advances. The Company borrowed approximately $38,082 on this credit line on the date of execution. 20

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- SELECTED CONSOLIDATED FINANCIAL INFORMATION March 31, December 31, Increase 2001 2000 (Decrease) ---------- ---------- ---------- BALANCE SHEET DATA Total assets .................................................... $2,068,689 $2,249,420 (8)% Trading securities, at fair value: Collateralized mortgage obligations (AAA-rated) .............. 97,196 277,595 (65) Subordinates, residuals and other securities ................. 109,461 112,647 (3) Real estate held for sale ....................................... 21,623 22,670 (5) Low-income housing tax credits held for sale .................... 100,800 87,083 16 Investments in real estate ...................................... 116,125 122,761 (5) Investment in low-income housing tax credit interests ........... 54,213 55,729 (3) Loan portfolio, net ............................................. 77,983 93,414 (17) Discount loan portfolio, net .................................... 439,649 536,028 (18) Match funded loans and securities, net .......................... 110,470 116,987 (6) Real estate owned, net .......................................... 136,267 146,419 (7) Deferred tax asset, net ......................................... 82,171 95,991 (14) Advances on loans and loans serviced for others ................. 299,609 227,055 32 Mortgage servicing rights ....................................... 67,477 51,426 31 Total liabilities ............................................... 1,525,971 1,666,464 (8) Deposits ........................................................ 1,133,691 1,258,360 (10) Bonds-match funded agreements ................................... 99,732 107,050 (7) Obligations outstanding under lines of credit ................... 32,796 32,933 (1) Notes, debentures and other interest bearing obligations ........ 169,130 173,330 (2) Company-obligated, manditorily redeemable securities of subsidiary trust holding solely junior subordinated debentures of the Company ....................... 63,685 79,530 (20) Stockholders' equity ............................................ 479,033 503,426 (5) 21

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- At or for the Three Months Ended March 31, ------------------------------------------ Favorable 2001 2000 (Unfavorable) ----------- ---------- ------------- OPERATIONS DATA Net interest (loss) income ....................................................... $ (2,063) $ 4,694 (144)% Provision for loan losses ........................................................ 8,120 2,608 (211) Non-interest income .............................................................. 43,130 30,944 39 Non-interest expense ............................................................. 50,856 38,074 (34) Capital securities ............................................................... 2,053 3,194 36 Equity in income (losses) of investment in unconsolidated entities ............... 45 (2,260) 102 Income tax (expense) benefit ..................................................... (5,762) 3,255 (277) Extraordinary gain on repurchase of debt, net of taxes ........................... 2,163 2,145 1 Net (loss) income ................................................................ (23,516) (5,098) (361) PER COMMON SHARE Net (loss) income: Basic ......................................................................... $ (0.35) $ (0.07) (400)% Diluted ....................................................................... (0.35) (0.07) (400) Stock price: High .......................................................................... $ 9.90 $ 9.25 7% Low ........................................................................... 6.19 5.25 18 Close ......................................................................... 8.49 8.00 6 KEY RATIOS Annualized return on average assets .............................................. (4.32)% (0.61)% (608)% Annualized return on average equity .............................................. (18.93) (4.07) (365) Efficiency ratio (1) ............................................................. 123.70 114.07 8 Core (leverage) capital ratio .................................................... 14.13 9.33 51 Risk-based capital ratio ......................................................... 21.54 17.67 22 (1) The efficiency ratio represents non-interest expense divided by the sum of net interest income before provision for loan losses, non-interest income and equity in income (losses) of investment in unconsolidated entities. RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000 GENERAL. The Company recorded a net loss of $(23,516), or $(0.35) per share, for the first quarter of 2001, as compared to a net loss of $(5,098), or $(0.07) per share, for the first quarter of 2000. There were a number of key factors and transactions that contributed to the results for the first quarter of 2001 as compared to the first quarter of 2000, including: an increase in net losses incurred by OTX from $(4,475) in the first quarter of 2000 to $(8,535) in the first quarter of 2001, reflecting the continuing investment in the development of the Company's technology businesses; impairment charges of $4,503 on low-income housing tax credit investments held for investment recorded during the first quarter of 2001; and a $10,000 provision recorded in the first quarter of 2001 for an additional valuation allowance on the deferred tax asset. 22

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- SEGMENT PROFITABILITY. The following is a discussion of the contribution by business segment to the Company's net income (loss) for the periods indicated: o Single Family Residential Discount Loans. The segment had a net loss for the three months ended March 31, 2001 of $(1,089) as compared to income of $3,086 for the three months ended March 31,2000. Results for three months ended March 31, 2000 included gains of $7,794 from the sale of loans. There were no such gains during the three months ended March 31, 2001. Impairment charges on residential subordinate securities amounted to $599 for the three months ended March 31, 2000. Net unrealized trading gains on residential subordinate securities amounted to $1,682 for the first quarter of 2001. Losses from the sale and operation of real estate owned amounted to $3,560 for the three months ended March 31, 2001, as compared to $6,516 for the three months ended March 31, 2000. The results for the three months ended March 31, 2001 also reflect an increase of $1,224 in the provision for loan losses, as compared to the same period in the prior year. See "Results of Operations - Non-Interest Income." o Commercial Loans. Segment net income declined from $694 for the three months ended March 31, 2000 to a loss of $(5,031) for the three months ended March 31, 2001. The results for the three months ended March 31, 2001 reflect an increase of $2,612 in gains from the sale and operation of real estate owned as compared to the same period of 2000. Loss on loan sales increased from $99 for the three months ended March 31, 2000 to $1,898 for the three months ended March 31, 2001. The results for the three months ended March 31, 2001 also reflect increases in the provision for loan losses of $4,793 primarily related to discount loans. o Domestic Residential Mortgage Loan Servicing. Segment net income was $5,278 and $3,731 for the three months ended March 31, 2001 and 2000, respectively. Domestic residential servicing and other fees amounted to $26,955 for the three months ended March 31, 2001 as compared to $18,987 for the three months ended March 31 2000. The increase in servicing fees reflects an increase in the average balance of loans serviced for others. See "Results of Operations - Non-Interest Income." o Investment in Low-Income Housing Tax Credits. Segment net income declined from $1,217 for the three months ended March 31, 2000 to a loss of $(4,610) for the three months ended March 31, 2000. Contributing to the loss in 2001 were impairment charges of $4,503 provided on four projects held for investment. See "Changes in Financial Condition - Investment in Low-Income Housing Tax Credit Interests." o UK Operations. Losses for 2000 relate to the Company's equity investment in Kensington, which was sold November 22, 2000. See "Results of Operations - Equity in Losses of Investments in Unconsolidated Entities." o OTX. Segment losses were $(8,535) and $(4,475) for the three months ended March 31, 2000 and 2001, respectively. The net losses incurred by OTX reflect the Company's ongoing commitment to the development of its technology business. In addition, in 2001, the Company provided $3,185 for the final payment due in connection with the acquisition of Amos, Inc. in 1997. o Commercial Real Estate. Segment net income was $100 and $693 for the three months ended March 31, 2001 and 2000, respectively. Results for the three months ended March 31, 2001 included $1,265 of net operating gains on investments in real estate, which compared to $3,790 for the three months ended March 31, 2000. Results for the three months ended March 31, 2000 also included a $2,768 gain on the sale of a subordinate security. In addition, net interest (loss), including interest on lines of credit and transfer pricing, declined by $4,204 during the three months ended March 31, 2001 as compared to the same period in 2000. See "Results of Operations - Non-Interest Income." o Subprime Single Family Residential Lending. Segment results improved from a loss of $(4,561) for the three months ended March 31, 2000 to $1,066 of income for the three months ended March 31, 2001. Results for the three months ended March 31, 2000 included $6,234 of impairment charges on subprime residual securities. The results for 2001 included $2,541 of net unrealized trading gains on subprime residual securities during the first quarter. The Company closed its domestic subprime origination business, which had been conducted primarily through OFS, in 1999. o Unsecured Collections. Segment losses were $(1,364) and $(2,173) for the three months ended March 31, 2001 and 2000, respectively. Unsecured collections is primarily comprised of activities related to the Company's charged-off unsecured credit card receivables which were acquired at a discount. Collections of unsecured credit card receivables are accounted for under the cost recovery method. Results for the three months ended March 31, 2001 included provisions for loan losses of $740 as compared to $1,486 for the three months ended March 31, 2000. 23

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- o Ocwen Realty Advisors. Segment income was $87 and $142 for the three months ended March 31, 2001 and 2000, respectively. Ocwen Realty Advisors ("ORA") provides property valuation services and real estate research for residential and commercial properties. o Corporate Items and Other. Segment losses were $(9,418) and $(1,910) for the three months ended March 31, 2001 and 2000, respectively. This segment consists of extraordinary gains on repurchases of debt, business activities that are individually insignificant, amounts not allocated to the operating segments, distributions on the Capital Securities, transfer pricing mismatches, other general corporate expenses and the results of the securities portfolio excluding subprime residual and subordinate securities. Net loss for the three months ended March 31, 2000 includes $2,163 of extraordinary gains, net of taxes, on repurchases of debt as compared to $2,145 of such gains, net of taxes, during the same period of the prior year. Results for 2001 also include a provision of $10,000 for an additional valuation allowance on the deferred tax asset. See Note 9 to the Consolidated Financial Statements, included in Item 1 herein (which is incorporated herein by reference), for additional information related to the Company's operating segments. NET INTEREST INCOME: Net interest income is the difference between interest income earned from interest-earning assets and interest expense incurred on interest-bearing liabilities. Net interest income is determined by net interest spread (i.e., the difference between the yield earned on interest-earning assets and the rates incurred on interest-bearing liabilities), the relative amount of interest-earning assets and interest-bearing liabilities and the degree of mismatch in the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities. 24

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table sets forth, for the periods indicated, information regarding the total amount of income from interest-earning assets and the resultant average yields, the interest expense associated with interest-bearing liabilities, expressed in dollars and rates, and the net interest spread and net interest margin. Information is based on average daily balances during the indicated periods: Three Months Ended March 31, ------------------------------------------------------------------- 2001 2000 -------------------------------- -------------------------------- Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ----------- -------- ------- ----------- -------- ------- AVERAGE ASSETS: Federal funds sold and repurchase agreements ................. $ 129,705 $ 1,644 5.07% $ 121,953 $ 1,709 5.61% Trading securities (1) ....................................... 308,799 5,700 7.38 -- -- -- Securities available for sale (1) ............................ -- -- 655,283 12,869 7.86 Loans available for sale (2) ................................. 11,450 221 7.72 44,493 807 7.26 Investment securities and other .............................. 16,579 346 8.35 28,936 327 4.52 Loan portfolio (2) ........................................... 96,301 1,883 7.82 161,919 3,968 9.80 Match funded loans and securities ............................ 123,771 2,483 8.02 157,068 3,311 8.43 Discount loan portfolio ...................................... 533,068 12,540 9.41 987,427 25,099 10.17 ----------- -------- ----------- -------- Total interest earning assets ............................. 1,219,673 24,817 8.14 2,157,079 48,090 8.92 -------- -------- Non-interest earning cash .................................... 46,666 55,289 Allowance for loan losses .................................... (21,829) (27,418) Investment in low-income housing tax credit interests ........ 46,672 155,710 Investment in unconsolidated entities ........................ 421 35,091 Real estate owned, net ....................................... 134,499 181,880 Tax credits held for sale .................................... 94,861 -- Investment in real estate .................................... 121,786 306,884 Real estate held for sale .................................... 21,740 2,030 Escrow advances on loans and loans serviced for others ....... 245,292 180,631 Mortgage servicing rights, net ............................... 50,933 11,806 Other assets ................................................. 217,963 264,801 ----------- ----------- Total assets .............................................. $ 2,178,677 $ 3,323,783 =========== =========== AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY: Interest-bearing demand deposits ............................. $ 14,470 $ 137 3.79% $ 16,510 $ 178 4.31% Savings deposits ............................................. 1,313 7 2.13 1,451 10 2.76 Certificates of deposit ...................................... 1,108,578 17,927 6.47 1,568,476 24,497 6.25 ----------- -------- ----------- -------- Total interest-bearing deposits ........................... 1,124,361 18,071 6.43 1,586,437 24,685 6.22 Securities sold under agreements to repurchase ............... -- -- -- 166,559 2,640 6.34 Bonds-match funded agreements ................................ 104,873 2,966 11.31 138,177 3,356 9.72 Obligations outstanding under lines of credit ................ 32,885 720 8.76 179,230 3,471 7.75 Notes, debentures and other .................................. 175,530 5,123 11.67 298,592 9,244 12.38 ----------- -------- ----------- -------- Total interest-bearing liabilities ........................ 1,437,649 26,880 7.48 2,368,995 43,396 7.33 -------- -------- Non-interest bearing deposits ................................ 12,361 8,958 Escrow deposits .............................................. 52,013 206,937 Excess of net assets acquired over purchase price ............ 35,103 55,961 Other liabilities ............................................ 70,033 71,301 ----------- ----------- Total liabilities ......................................... 1,607,159 2,712,152 Capital Securities ........................................... 74,581 110,000 Stockholders' equity ......................................... 496,937 501,631 ----------- ----------- Total liabilities and stockholders' equity ................ $ 2,178,677 $ 3,323,783 =========== =========== Net interest income .......................................... $ (2,063) $ 4,694 ======== ======== Net interest spread .......................................... 0.66% 1.59% Net interest margin .......................................... (0.68)% 0.87% Ratio of interest-earning assets to interest-bearing liabilities ............................................... 85% 91% (1) Excludes effect of unrealized gains or losses on securities. (2) The average balances of loans available for sale and the loan portfolio include non-performing loans, interest on which is recognized on a cash basis. 25

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior rate), (ii) changes in rate (change in rate multiplied by prior volume) and (iii) total change in rate and volume. Changes attributable to both volume and rate have been allocated proportionately to the change due to volume and the change due to rate. 2001 vs. 2000 -------------------------------- Increase (Decrease) Due To -------------------------------- For the three months ended March 31, Rate Volume Total - ------------------------------------------------------------ -------- -------- -------- Interest-Earning Assets: Federal funds sold and repurchase agreements ............... $ (170) $ 105 $ (65) Securities available for sale .............................. (492) (12,377) (12,869) Trading securities ......................................... (242) 5,942 5,700 Loans available for sale ................................... 49 (635) (586) Investment securities and other ............................ 199 (180) 19 Loan portfolio ............................................. (694) (1,391) (2,085) Match funded loans and securities .......................... (154) (674) (828) Discount loan portfolio .................................... (1,751) (10,808) (12,559) -------- -------- -------- Total interest-earning assets ........................... (3,255) (20,018) (23,273) -------- -------- -------- Interest-Bearing Liabilities: Interest-bearing demand deposits ........................... (21) (20) (41) Savings deposits ........................................... (2) (1) (3) Certificates of deposit .................................... 840 (7,410) (6,570) -------- -------- -------- Total interest-bearing deposits ......................... 817 (7,431) (6,614) Securities sold under agreements to repurchase ............. -- (2,640) (2,640) Bonds-match funded agreements .............................. 498 (888) (390) Obligations outstanding under lines of credit .............. 402 (3,153) (2,751) Notes, debentures and other interest-bearing obligations ... (502) (3,619) (4,121) -------- -------- -------- Total interest-bearing liabilities ................... 1,215 (17,731) (16,516) -------- -------- -------- $ (4,470) $ (2,287) $ (6,757) ======== ======== ======== The Company's net interest loss before provision for loan losses amounted to $(2,063) for the three months ended March 31, 2001 as compared to net interest income of $4,694 for the three months ended March 31, 2000, a decline of $6,757 or 144%. The decrease was due to a decrease in average interest-earning assets and a decrease in the net interest spread, offset by a decrease in average interest-bearing liabilities. Average interest-earning assets decreased by $937,406 or 43% during the three months ended March 31, 2001 and reduced interest income by $20,018. Average interest-bearing liabilities decreased by $931,346 or 39% during the three months ended March 31, 2001 and decreased interest expense by $17,731. The impact of these volume changes resulted in a $2,287 decrease in net interest income. The net interest spread decreased 93 basis points as a result of a 78 basis-point decrease in the weighted average rate on interest-earning assets and a 15 basis-point increase in the weighted average rate on interest-bearing liabilities. The impact of these rate changes resulted in a $4,470 decrease in net interest income. 26

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- Average Balance Increase Average Yield Increase ------------------------- (Decrease) ------------------- (Decrease) For the three months ended March 31, 2001 2000 $ 2001 2000 Basis Points - ------------------------------------- ----------- ----------- ----------- -------- -------- ------------ Federal funds sold and repurchase agreements ....................... $ 129,705 $ 121,953 $ 7,752 5.07% 5.61% (54) Trading securities .................. 308,799 -- 308,799 7.38 -- 738 Securities available for sale ....... -- 655,283 (655,283) -- 7.86 (786) Loans available for sale ............ 11,450 44,493 (33,043) 7.72 7.26 46 Investment securities and other ..... 16,579 28,936 (12,357) 8.35 4.52 383 Loan portfolio ...................... 96,301 161,919 (65,618) 7.82 9.80 (198) Match funded loans and securities ... 123,771 157,068 (33,297) 8.02 8.43 (41) Discount loan portfolio ............. 533,068 987,427 (454,359) 9.41 10.17 (76) ----------- ----------- ----------- $ 1,219,673 $ 2,157,079 $ (937,406) 8.14 8.92 (79) =========== =========== =========== Interest income on trading securities amounted to $5,700 during the first quarter of 2001 as compared to $0 during the first quarter of 2000. This increase resulted from the Company's change in its policy for securities available for sale on September 30, 2000 to account for them as trading. The table below indicates the composition of the portfolio of trading securities during three months ended March 31, 2001: Average Balance Annualized --------------------- Average Amount Percent Yield -------- -------- ---------- CMOs (AAA-rated) ...................... $200,631 65% 6.56% Subordinates and residuals ............ 108,168 35 8.90 -------- --- $308,799 100% 7.38% ======== === Interest income on securities available for sale amounted to $0 and $12,869 during the first quarter of 2001 and 2000, respectively. As noted above, on September 30, 2000 the Company changed its policy for securities available for sale and transferred those securities to the trading category. The following table indicates the composition of the portfolio of securities available for sale during the three months ended March 31, 2000: Average Balance --------------------- Average Amount Percent Yield -------- -------- ---------- CMOs (AAA-rated) ...................... $489,503 75% 6.25% Subordinates and residuals ............ 165,780 25 12.60 -------- --- $655,283 100% 7.86% ======== === The decline in the average balance of CMOs held for trading as compared to the average balance of CMOs available for sale reflects a planned reduction in these securities, which were originally acquired primarily to meet the Qualified Thrift Lender requirements but are no longer needed for that purpose. Interest income on the loan portfolio decreased by $2,085 or 53% during the three months ended March 31, 2001 versus the same period in 2000 due to a $65,618 or 41% decrease in the average balance and a 198 basis-point decrease in the average yield. During 1999, the Company ceased origination of multifamily and commercial loans. See "Changes in Financial Condition - Loan Portfolio." Interest income on match funded loans and securities is comprised of income earned on match funded loans acquired in connection with the acquisition of OAC in October 1999 and on four unrated residual securities transferred by the Company to Ocwen NIMS Corp. in exchange for non-recourse notes. The loans were previously securitized by OAC under a securitization accounted for as a financing transaction. See "Changes in Financial Condition - Match Funded Loans and Securities." 27

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- Interest income on discount loans decreased by $12,559 or 50% during the three months ended March 31, 2001 as compared to the same period in 2000 as a result of a $454,359 or 46% decline in the average balance and a 76 basis-point decrease in the average yield. See "Changes in Financial Condition - Discount Loans, Net." The yield on the discount loan portfolio is likely to fluctuate from period to period as a result of the timing of resolutions, particularly the resolution of large multi-family residential and commercial real estate loans, and the mix of the overall portfolio between performing and non-performing loans. Average Balance Increase Average Rate Increase ------------------------- (Decrease) --------------- (Decrease) For the three months ended March 31, 2001 2000 $ 2001 2000 Basis Points - -------------------------------------------------- ----------- ----------- ------------ ------ ------ ------------ Interest-bearing deposits ........................ $ 1,124,361 $ 1,586,437 $ (462,076) 6.43% 6.22% 21 Securities sold under agreements to repurchase ... -- 166,559 (166,559) -- 6.34 (634) Bonds-match funded agreements .................... 104,873 138,177 (33,304) 11.31 9.72 159 Obligations outstanding under lines of credit..... 32,885 179,230 (146,345) 8.76 7.75 101 Notes, debentures and other ...................... 175,530 298,592 (123,062) 11.67 12.38 (71) ----------- ----------- ----------- $ 1,437,649 $ 2,368,995 $ (933,066) 7.48 7.33 15 =========== =========== =========== Interest expense on interest-bearing deposits decreased $6,614 or 27% during the three months ended March 31, 2001 as compared to the same period in 2000 primarily due to a $462,076 or 29% decrease in the average balance. The decline in the average balance was primarily related to certificates of deposit. The decline in average deposits is consistent with the decline in average assets as the Company moves from capital-intensive businesses to fee-based businesses. See "Changes in Financial Condition - Deposits." The Company held no securities sold under agreements to repurchase during the three months ended March 31, 2001. During the three months ended March 31, 2000, securities sold under agreements to repurchase were used primarily to fund the purchase of CMOs, the average balance of which declined significantly for the first quarter of 2001 as compared to the first quarter of 2000. Interest expense on bonds-match funded agreements is comprised of interest incurred on bonds-match funded agreements acquired as a result of the OAC acquisition in October 1999 and on non-recourse notes which resulted from the Company's transfer of four unrated residual securities in December 1999 to Ocwen NIMS Corp. in exchange for non-recourse notes. See "Changes in Financial Condition - Bonds - Match Funded Agreements." Interest expense on obligations outstanding under lines of credit decreased $2,751 or 79% during the three months ended March 31, 2001 as compared to the same period in 2000 due to a $146,345 or 82% decrease in the average balance offset in part by a 101 basis-point increase in the weighted average interest rate. During the three months ended March 31, 2001, lines of credit were used to fund the investment in real estate and construction loans at OAC. See "Changes in Financial Condition - Obligations Outstanding Under Lines of Credit." Interest expense on notes, debentures and other decreased $4,121 or 45% during the three months ended March 31, 2001 as compared to the same period in 2000 primarily due to a $123,062 or 41% decrease in the average balance. The decrease in the average balances is primarily due to the Company's repurchases of debt during 2001 and 2000. See "Changes in Financial Condition - Notes, Debentures and Other." PROVISIONS FOR LOAN LOSSES. Provisions for losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio, the discount loan portfolio and match funded loans at a level which management considers adequate based upon an evaluation of known and inherent risks in such portfolios. Management's periodic evaluation is based on an analysis of the discount loan portfolio, the loan portfolio and match funded loans, historical loss experience, current economic conditions and trends, collateral values and other relevant factors. 28

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table presents the provisions for loan losses by the discount loan, loan portfolio and match funded loans for the periods indicated: For the three months ended March 31, 2001 2000 - ------------------------------------------- ------- ------- Discount loan portfolio ................... $ 6,730 $ 2,732 Loan portfolio ............................ 1,211 (155) Match funded loans ........................ 179 31 ------- ------- $ 8,120 $ 2,608 ======= ======= The increase in the provisions for loan losses is primarily attributable to certain non-performing commercial loans. The following table sets forth the allowance for loan losses as a percentage of the respective loan balances at the dates indicated: March 31, 2001 December 31, 2000 March 31, 2000 ------------------------ ------------------------ ------------------------ Allowance as Allowance as Allowance as Allowance a % of loans Allowance a % of loans Allowance a % of loans --------- ------------ --------- ------------ --------- ------------ Discount loan portfolio .... $ 18,790 4.10% $ 20,871 3.75% $ 20,189 2.34% Loan portfolio ............. 2,652 3.29 2,408 2.51 7,104 4.35 Match funded loans ......... 268 0.36 285 0.35 526 0.53 -------- -------- -------- $ 21,710 3.43 $ 23,564 3.21 $ 27,819 2.47 ======== ======== ======== For additional information regarding the Company's allowance for loan losses on the above portfolios, see "Changes in Financial Condition - Allowance for Loan Losses." For information relating to the Company's valuation allowance on real estate owned, see "Changes in Financial Condition - Real Estate Owned." NON-INTEREST INCOME. The following table sets forth the principal components of the Company's non-interest income during the periods indicated: Three Months -------------------- For the periods ended March 31, 2001 2000 - --------------------------------------------------------------------- -------- -------- Servicing and other fees ............................................ $ 31,117 $ 24,166 (Loss) gain on interest-earning assets, net ......................... (645) 10,994 Unrealized loss on trading and match funded securities, net ......... 4,003 -- Impairment charges on securities available for sale ................. -- (6,833) Loss on real estate owned, net ...................................... (984) (7,007) Gain on other non-interest earning assets, net ...................... 456 138 Net operating gains on investments in real estate ................... 2,554 5,553 Amortization of excess of net assets acquired over purchase price ... 4,583 2,794 Other income ........................................................ 2,046 1,139 -------- -------- Total ............................................................... $ 43,130 $ 30,944 ======== ======== Servicing and other fees are primarily comprised of fees from investors for servicing mortgage loans. Servicing and other fees for the three months ended March 31, 2001 increased $6,951 largely due to the growth in loans serviced for others. The average unpaid principal balance of loans serviced for others amounted to $11,308,486 during the three months ended March 31, 2001 as compared to $10,787,325 for the three months ended March 31, 2000. In addition to servicing fees, the increase in servicing and other fees during 2001 included increases in interest earned on custodial accounts during the holding period between collection of borrower payments and remittance to investors, in late charges on residential loans and in other miscellaneous servicing related fees. Servicing fees for the three months ended March 31, 2001 included $2,245 of special servicing fees as compared to $3,790 for the three months ended March 31, 2000. Under special servicing arrangements, the Company services loans for third parties, typically as part of a securitization, that become greater than 90 days past due and receives incentive fees to the extent certain loss mitigation parameters are achieved. 29

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table sets forth the Company's loans serviced for others at the dates indicated: Discount Loans Subprime Loans Other Loans Total --------------------- --------------------- --------------------- --------------------- No. of No. of No. of No. of Amount Loans Amount Loans Amount Loans Amount Loans ----------- ------- ----------- ------- ----------- ------- ----------- ------- MARCH 31, 2001 (1): Loans securitized: Residential loans ............ $ 821,389 13,696 $ 646,609 6,810 $ -- -- $ 1,467,998 20,506 Commercial loans ............. 5,672 32 -- -- -- -- 5,672 32 ----------- ------- ----------- ------- ----------- ------- ----------- ------- $ 827,061 13,728 $ 646,609 6,810 $ -- -- $ 1,473,670 20,538 =========== ======= =========== ======= =========== ======= =========== ======= Loans serviced for third parties: Residential loans ............ $ 613,107 12,573 $ 8,716,041 155,723 $ 37,040 404 $ 9,366,188 168,700 Commercial loans ............. 75,639 73 1,154 13 778,684 66 855,477 152 ----------- ------- ----------- ------- ----------- ------- ----------- ------- $ 688,746 12,646 $ 8,717,195 155,736 $ 815,724 470 $10,221,665 168,852 =========== ======= =========== ======= =========== ======= =========== ======= Total loans serviced for others: Residential loans ............ $ 1,434,496 26,269 $ 9,362,650 162,533 $ 37,040 404 $10,834,186 189,206 Commercial loans ............. 81,311 105 1,154 13 778,684 66 861,149 184 ----------- ------- ----------- ------- ----------- ------- ----------- ------- $ 1,515,807 26,374 $ 9,363,804 162,546 $ 815,724 470 $11,695,335 189,390 =========== ======= =========== ======= =========== ======= =========== ======= DECEMBER 31, 2000 (2): Loans securitized: Residential loans ............ $ 858,549 14,232 $ 719,231 7,456 $ -- -- $ 1,577,780 21,688 Commercial loans ............. 6,884 38 -- -- -- -- 6,884 38 ----------- ------- ----------- ------- ----------- ------- ----------- ------- $ 865,433 14,270 $ 719,231 7,456 $ -- -- $ 1,584,664 21,726 =========== ======= =========== ======= =========== ======= =========== ======= Loans serviced for third parties: Residential loans ............ $ 668,736 13,397 $ 8,210,658 128,964 $ 37,510 402 $ 8,916,904 142,763 Commercial loans ............. 77,551 81 1,422 16 779,983 167 858,956 264 ----------- ------- ----------- ------- ----------- ------- ----------- ------- $ 746,287 13,478 $ 8,212,080 128,980 $ 817,493 569 $ 9,775,860 143,027 =========== ======= =========== ======= =========== ======= =========== ======= Total loans serviced for others: Residential loans ...... $ 1,527,285 27,629 $ 8,929,889 136,420 $ 37,510 402 $10,494,684 164,451 Commercial loans ....... 84,435 119 1,422 16 779,983 167 865,840 302 ----------- ------- ----------- ------- ----------- ------- ----------- ------- $ 1,611,720 27,748 $ 8,931,311 136,436 $ 817,493 569 $11,360,524 164,753 =========== ======= =========== ======= =========== ======= =========== ======= (1) Does not include approximately 90,900 loans with an aggregate unpaid principal balance of $8,254,300 that were acquired under servicing agreements during the first quarter of 2001, but had not been boarded in the Company's loan servicing system as of March 31, 2001. (2) Does not include approximately 38,500 loans with an unpaid principal balance of approximately $1,027,600 that were acquired on December 31, 2000 but were not boarded in the Company's loan servicing system until 2001. For the three months ended March 31, 2001, net loss on interest-earning assets of $(645) was primarily comprised of $1,898 of losses on the sale of loans partially offset by $1,186 of gains on the sale of trading securities. Net gains on interest-earning assets for the three months ended March 31, 2000 of $10,994 was primarily comprised of a $7,794 gain recognized in connection with the sale of single family residential discount loans and a gain of $2,768 on the sale of a commercial subordinate security. The unrealized gain on trading securities of $4,003 for the three months ended March 31, 2001 resulted from the Company's change, on September 30, 2000, in its policy for securities available for sale and match-funded securities to account for them as trading securities. For trading securities, changes in fair value are reported in income in the period of change. See "Changes in Financial Condition - Trading Securities." Impairment charges on securities available for sale represent declines in fair value that were deemed to be other-than-temporary. See "Changes in Financial Condition - Securities Available for Sale." 30

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table sets forth the results of the Company's real estate owned (which does not include investments in real estate, as discussed below) during the periods indicated: For the three months ended March 31, 2001 2000 - -------------------------------------------------- ------- ------- Gains on sales ................................... $ 6,376 $ 4,556 Provision for losses in fair value ............... (6,181) (9,212) Carrying costs, net .............................. (1,179) (2,351) ------- ------- (Loss) income on real estate owned, net .......... $ (984) $(7,007) ======= ======= See "Changes in Financial Condition - Real Estate Owned" for additional information regarding real estate owned. Net operating gains on investments in real estate during the three months ended March 31, 2001 included $1,248 of operating income from investments in real estate as compared to $3,792 during the three months ended March 31, 2000. The decrease is principally the result of the sales of properties that occurred during 2000. The three months ended March 31, 2001 also included $1,306 of equity in earnings related to certain loans that are accounted for as investments in real estate as compared to $1,761 for the three months ended March 31, 2000. See "Changes in Financial Condition - Investments in Real Estate." The amortization of excess of net assets acquired over purchase price resulted from the Company's acquisition of OAC on October 7, 1999. The acquisition resulted in an excess of net assets acquired over the purchase price of $60,042, which is being amortized on a straight-line basis. Effective October 1, 2000, the amortization period was reduced from 60 months to 39 months, which accounts for the increase in amortization to $4,583 for the first quarter of 2001 as compared to $2,794 for the first quarter of 2000. The unamortized balance of the excess of net assets acquired over purchase price at March 31, 2001 was $32,082, as compared to $36,665 at December 31, 2000. Other income for the three months ended March 31, 2001 increased by $907 during the three months ended March 31, 2001 as compared to the three months ended March 31, 2000 largely due to an increase in consulting fee income of $913. These fees result from advisory services provided to Jamaica's Financial Sector Adjustment Company related to the resolution and liquidation of non-performing loans and real estate assets. NON-INTEREST EXPENSE. The following table sets forth the principal components of the Company's non-interest expense during the periods indicated: For the three months ended March 31, 2001 2000 - ------------------------------------------------------------------------------------------ ------- ------- Compensation and employee benefits ....................................................... $20,935 $16,583 Occupancy and equipment .................................................................. 3,093 3,263 Technology and communication costs ....................................................... 10,148 5,621 Loan expenses ............................................................................ 4,235 3,930 Net operating losses on investments in certain low-income housing tax credit interests ... 5,062 1,499 Amortization of excess of purchase price over net assets acquired ........................ 778 773 Professional services and regulatory fees ................................................ 4,026 3,839 Other operating expenses ................................................................. 2,579 2,566 ------- ------- Total .............................................................................. $50,856 $38,074 ======= ======= The $4,352 increase in compensation and employee benefits for the three months ended March 31, 2001 as compared to the same periods in 2000 was due in large part to the reversal of accrued profit sharing expense in the amount of $6,012 during the first quarter of 2000 as a result of the Company's decision to suspend its long-term incentive plan. Excluding the $6,012 accrual reversal, compensation and employee benefits decreased $1,660 during the three months ended March 31, 2001. This decrease is primarily due to a $1,284 decline in compensation expense related to contract programmers. Technology and communication costs consists primarily of depreciation expense on computer hardware and software, technology-related consulting fees (primarily OTX) and telephone expense. The $4,527 increase in technology and communication costs for the three months ended March 31, 2001 is primarily due to a $3,185 charge to record the final payment due on the acquisition of AMOS, Inc. 31

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- Net operating losses on investments in certain low-income housing tax credit interests increased $3,563 during the three months ended March 31, 2001 as compared to the same period in 2000 largely because of the provision to record $4,503 of impairment charges on four projects offset in part by a reduction in operating losses resulting from the sale of projects. See "Changes in Financial Condition - Investment in Low-Income Housing Tax Credit Interest." Other operating expenses are primarily comprised of marketing costs and travel expense. DISTRIBUTIONS ON COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY. Cash distributions on the Capital Securities are payable semi-annually in arrears on February 1 and August 1 of each year at an annual rate of 10.875%. The Company recorded $2,053 and $3,194 of distributions to holders of the Capital Securities during the three months ended March 31, 2001 and 2000, respectively. The decline in distributions is the result of repurchases during the second, third and fourth quarters of 2000 and the first quarter of 2001. See Note 4 to the Consolidated Financial Statements included in Item 1 (which is incorporated herein by reference) and "Changes in Financial Condition - Company-Obligated, Mandatorily Redeemable Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company." EQUITY IN LOSSES OF INVESTMENTS IN UNCONSOLIDATED ENTITIES. During the three months ended March 31, 2001, the Company recorded equity in the income of investments in unconsolidated entities of $45. This compares to losses of $(2,260) for the three months ended March 31, 2000. The three months ended March 31, 2000 included equity in losses of Kensington Group plc of $(2,334), including goodwill amortization. The Company sold its equity investment in Kensington on November 22, 2000. INCOME TAX (EXPENSE) BENEFIT. Income tax (expense) benefit amounted to $(5,762) and $3,255 during the three months ended March 31, 2001 and 2000, respectively. The Company's effective tax rates reflect tax credits resulting from the Company's investment in low-income housing tax credit interests of $296 and $3,715 during the first quarter of 2001 and 2000, respectively. The decline in tax credits reflects the sale of projects during the third and fourth quarters of 2000 and the first quarter of 2001. The Company's provision in the first quarter of 2001 also includes a charge of $10,000 related to the deferred tax asset valuation allowance. Exclusive of the provision for the deferred tax asset valuation allowance, the Company's income taxes for 2001 and 2000 reflect expected effective tax rates of 18% and 31%, respectively. See "Changes in Financial Condition - Investments in Low-Income Housing Tax Credit Interests" and "- Deferred Tax Asset." EXTRAORDINARY GAIN ON REPURCHASE OF DEBT, NET OF TAXES. Extraordinary gains on repurchases of debt, net of taxes, for the three months ended March 31, 2001 of $2,163 is comprised of $2,102 ($3,433 before taxes) of gains recognized in connection with the repurchase of $15,845 face amount of Capital Securities and $61 of gains recognized in connection with the repurchase of $4,200 face amount of 11.875% Notes due October 1, 2003. For the first quarter of 2000, extraordinary gains, net of taxes, amounted to $2,145 ($3,109 before taxes) and resulted from the repurchase of $19,550 of the 11.5% of Redeemable Notes due July 1, 2005. See "Changes in Financial Condition - Notes, Debentures and Other Interest-Bearing Obligations" and "- Company Obligated, Mandatorily Redeemable Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company." CHANGES IN FINANCIAL CONDITION TRADING SECURITIES. On September 30, 2000, the Company reclassified its portfolio of securities available for sale, which had a fair value of $496,295 on that date, to trading. 32

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table sets forth the fair value of the Company's trading securities at the dates indicated: March 31, December 31, 2000 2000 ----------- ----------- Mortgage-related securities: Collateralized mortgage obligations (AAA-rated)... $ 97,196 $ 277,595 ----------- ----------- Subordinates, residuals and other securities: Single family residential: BB-rated subordinates ........................ 4,488 4,563 B-rated subordinates ......................... 2,494 2,911 Unrated subordinates ......................... 9,536 9,361 Unrated subprime residuals ................... 90,366 93,176 ----------- ----------- 106,884 110,011 ----------- ----------- Multi-family residential and commercial: Unrated subordinates ................... 2,577 2,636 ----------- ----------- 109,461 112,647 ----------- ----------- Trading securities .................................... $ 206,657 $ 390,242 =========== =========== During the three months ended March 31, 2001, trading securities declined $183,585. This decline was primarily due to $79,827 of maturities and principal repayments, $103,464 of sales and $1,972 of net premium amortization, offset in part by a $2,737 increase in fair value. Residual and subordinate securities at March 31, 2001 and December 31, 2000 include retained interests with a fair value of $40,448 and $43,016, respectively, from securitizations of loans completed by the Company in prior years. The Company determines the present value of anticipated cash flows at the time each securitization transaction closes, utilizing valuation assumptions appropriate for each particular transaction. The significant valuation assumptions have included the anticipated prepayment speeds and the anticipated credit losses related to the underlying mortgages. In order to determine the present value of this estimated excess cash flow, the Company currently applies a discount rate of 17% to 20% to the projected cash flows on the unrated classes of securities. The annual prepayment rate of the securitized loans is a function of full and partial prepayments and defaults. The Company makes assumptions as to the prepayment rates of the underlying loans, which the Company believes are reasonable, in estimating fair values of the subordinate securities and residual securities retained. During 2001, the Company utilized proprietary prepayment curves (reaching an approximate range of annualized rates of 11% to 36%). During 2001, the Company estimated annual losses of between 0.5% and 7% of the unpaid principal balance of the underlying loans. See Note 5 to the Interim Consolidated Financial Statements included in Item 1 herein. Subordinate and residual interests are affected by the rate and timing of payments of principal (including prepayments, repurchase, defaults and liquidations) on the mortgage loans underlying a series of mortgage-related securities. The rate of principal payments may vary significantly over time depending on a variety of factors, such as the level of prevailing mortgage loan interest rates and economic, demographic, tax, legal and other factors. Prepayments on the mortgage loans underlying a series of mortgage-related securities are generally allocated to the more senior classes of mortgage-related securities. Although in the absence of defaults or interest shortfalls all subordinates receive interest, amounts otherwise allocable to residuals generally are used to make payments on more senior classes or to fund a reserve account for the protection of senior classes until overcollateralization or the balance in the reserve account reaches a specified level. In periods of declining interest rates, rates of prepayments on mortgage loans generally increase, and if the rate of prepayments is faster than anticipated, then the yield on subordinates will be positively affected and the yield on residuals will be negatively affected. The Company periodically assesses the carrying value of its subordinate securities and residual securities retained. There can be no assurance that the Company's estimates used to determine the value of the subordinate securities and residual securities retained will remain appropriate for the life of each securitization. If actual loan prepayments or defaults exceed the Company's estimates, the carrying value of the Company's subordinate securities and residual securities retained may be decreased during the period management recognizes the disparity. Other factors may also result in a write-down of the Company's subordinate securities and residual securities in subsequent months. During the three months ended March 31, 2000, which was prior to the transfer of securities available for sale to trading, the Company recorded $6,833 of impairment charges on its portfolio of subordinate and residual securities as a result of declines in value that were deemed to be "other-than-temporary." 33

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following tables detail the Company's trading securities portfolio at March 31, 2001, and its estimates of expected yields on such securities, taking into consideration expected prepayment and loss rates together with other factors: ANTICIPATED SUBORDI- YIELD TO CLASS SIZE NATION/OC MATURITY AT PROSPECTIVE ISSUE RATING ----------------- INTEREST LEVEL AT: ------------------ YIELD AT SECURITIZATION (ISSUER) SECURITY DATE RATING AGENCIES ISSUANCE 3/31/01 % 3/31/01 PURCHASE 3/31/01 3/31/01 - ----------------------- -------- ----- ------ -------- -------- ------- -------- ------- -------- ------- ------- SINGLE-FAMILY RESIDENTIAL Subordinates: BCF 1996 R1(1)............. B3 Oct-96 UR (a), (b) $ 70,773 $ 33,866 50.00% None 15.70% 8.30% 38.67% CSFB 1996-1R (ITT 94-P1) (2)............ 4B2, Oct-96 UR (b), (c) 1,046 105 100.00 None N/A N/A (A) BCF 1997 R2 (1)............ B4 Jun-97 Ba2,BB (b), (c) 6,358 5,502 73.54 7.44% 9.58 10.13 53.44 B5 B2,B 6,264 5,422 73.54 2.80 10.74 10.51 N/M B6 UR 13,883 3,277 73.54 None 15.98 3.47 (A) SBMS 1997-HUD1 (3) B5 Apr-97 B2, n.a. (b), (d) 9,785 6,640 100.00 -- 16.87 (7.10) 5.72 B6 Apr-97 UR 16,998 -- 100.00 None 22.86 (8.97) (A) ORMBS 1998 R1 (4).......... B4 Mar-98 UR (b), (d) 101,774 42,542 82.48 None 20.50 (28.99) 26.80 ORMBS 1998 R2 (4).......... B4A Jun-98 Ba2 (b) 1,056 946 100.00 6.05 13.22 4.77 N/M B4F Ba2 937 850 100.00 5.60 19.23 (9.67) 73.65 B5A B2 880 775 100.00 3.90 23.78 8.54 N/M B5F B2 937 850 100.00 2.57 11.78 13.73 N/M B6A UR 3,696 1,407 100.00 None 16.72 24.43 N/M B6F UR 3,345 721 100.00 None 19.50 (16.41) (A) ORMBS 1998 R3 (4).......... B4 Sep-98 Ba2,BB (b), (d) 11,765 10,755 85.87 -- 11.71 (45.70) N/M B5 B2,B 9,151 -- 85.87 None 16.54 N/A N/M B6 UR 26,145 -- 85.87 None 18.00 N/A (A) ORMBS 1999 R1 (4).......... B5A Mar-99 B2,B (b), (d) 1,630 1,487 100.00 3.50 17.73 32.93 45.69 B5F B2,B 1,843 1,545 100.00 3.46 17.74 40.51 N/M B6A UR 3,586 1,328 100.00 None 18.00 55.40 106.27 B6F UR 4,299 1,928 100.00 None 18.00 100.00 (A) ORMBS 1999 R2 (4) ......... B4 Jun-99 BB (a),(c),(d) 10,530 10,083 100.00 5.87 13.45 37.51 67.75 B5 B 4,680 4,119 100.00 -- 18.45 86.67 (A) B6 UR 7,020 -- 100.00 None 18.00 N/A (A) (1B) Subprime residuals: SBMS 1996 3 (5)............ R Jun-96 UR (a), (b) 130,062 21,055 100.00 25.47OC 15.52 4.17 19.02 MLM1 1996 1 (6)............ R Sep-96 UR (a), (b) 81,142 11,293 100.00 42.46OC 15.16 3.74 22.37 MS 1997 1 (7).............. X1 Jun-97 UR (a), (b) 17,727 7,632 100.00 6.06OC 21.47 16.88 19.48 X2 87,118 10,785 100.00 25.45OC 20.38 0.95 11.56 1997 OFS 2 (8)............. X Sep-97 UR (a), (b) 102,201 18,165 100.00 12.77OC 19.65 (0.44) 20.82 1997 OFS 3 (8)............. X Dec-97 UR (a), (b) 208,784 49,389 100.00 15.48OC 19.59 5.91 18.45 1998 OFS 1 (8)............. X Mar-98 UR (b), (d) 161,400 39,269 100.00 4.28OC 18.00 (2.34) 6.63 1998 OFS 2 (8)............. X Jun-98 UR (a), (b) 382,715 103,638 100.00 3.91OC 19.46 (2.00) 8.80 1998 OFS 3 (8)............. X Sep-98 UR (a), (d) 261,649 104,138 100.00 5.70OC 18.00 1.08 10.12 1998 OFS 4 (8)............. X Dec-98 UR (a),(b),(c) 349,000 177,140 100.00 2.16OC 18.00 (118.65) (339.61) 1999 OFS 1 (8) ............ X Jun-99 UR (a), (b) 148,628 103,182 100.00 5.81OC 18.00 (3.72) (4.88) PANAM 1997-1 (9)........... X Dec-97 UR (a), (b) 113,544 20,993 100.00 11.31OC 22.45 (0.02) 18.52 Prepay UR 25.69 1.86 (12.03) Pen. 34

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- ANTICIPATED SUBORDI- YIELD TO CLASS SIZE NATION/OC MATURITY AT PROSPECTIVE ISSUE RATING ----------------- INTEREST LEVEL AT: ----------------- YIELD AT SECURITIZATION (ISSUER) SECURITY DATE RATING AGENCIES ISSUANCE 3/31/01 % 3/31/01 PURCHASE 3/31/01 3/31/01 - ----------------------- -------- ---- ------ -------- -------- ------- -------- ------- -------- ------- ------- SINGLE-FAMILY RESIDENTIAL EQUICON 1994-2(10)....... B Fix Oct-94 UR (a),(b),(c) 78,846 $ 13,762 100.00% 7.59%OC 18.00% 103.62% 11.73% B Var. UR 32,306 1,680 100.00 48.26OC 18.00 31.21 11.64 EQUICON 1995-1(10)....... B Fix, May-95 UR (a),(b),(c) 70,024 9,122 100.00 12.97OC 18.00 27.35 (A) B Var. UR 40,519 4,445 100.00 11.81OC 18.00 104.57 (A) EQUICON 1995-2(10)....... B Fix Oct-95 UR (a),(b) 79,288 14,296 100.00 13.33OC 18.00 26.44 N/M B Var. UR 39,667 2,942 100.00 19.25OC 18.00 108.66 (A) ACCESS 1996-1(11)........ B Fix, Feb-96 UR (a),(b) 120,015 23,717 100.00 7.34OC 18.00 28.93 156.29 B Var. UR 55,362 5,022 100.00 14.52OC 18.00 41.47 (A) ACCESS 1996-2(11)........ B-I,BI-S May-96 UR (a),(b) 142,259 28,530 100.00 10.93OC 18.00 29.66 (A) B-II UR 68,345 6,453 100.00 16.26OC 18.00 15.48 830.83 BII-S ACCESS 1996-3(11)........ B-I, BI-S Aug-96 UR (a),(b) 107,712 22,321 100.00 17.73OC 18.00 19.00 300.61 B-II UR 99,885 9,564 100.00 25.84OC 18.00 18.51 (A) BII-S ACCESS 1996-4(11)........ B, B-S Nov-96 UR (a),(b) 239,778 34,591 100.00 38.57OC 18.00 11.65 21.47 ACCESS 1997-1(11)........ B, B-S Feb-97 UR (a),(b) 276,442 53,252 100.00 37.87OC 18.00 10.82 32.84 ACCESS 1997-2(11)........ B, B-S May-97 UR (a),(b) 185,197 34,381 100.00 26.96OC 18.00 5.61 25.17 ACCESS 1997-3(11)........ B, B-S Oct-97 UR (a),(b) 199,884 40,671 100.00 19.20OC 18.00 11.23 31.78 UK SUBPRIME Subordinates: CMR1(12)................. Deferred Apr-96 UR (a),(c) 48,450(B) 11,164(C) 100.00 14.60RF 18.69 23.61 27.93 Comp CMR2(12)................. Deferred Oct-96 UR (a),(c) 97,627(B) 24,598(C) 100.00 15.50RF 18.69 35.47 45.02 Comp CMR3(12)................. Deferred Oct-96 UR (a),(c) 176,047(B) 43,305(C) 100.00 22.70RF 18.69 68.27 150.06 Comp CMR4(12)................. Deferred Jan-97 UR (a),(c) 103,031(B) 27,631(C) 100.00 11.30RF 18.69 37.97 52.95 Comp CMR5(12)................. Deferred Jan-97 UR (a),(c) 54,686(B) 14,940(C) 100.00 55.40RF 0.00 N/A (A) Comp CMR6(12)................. Deferred Apr-97 UR (a),(c) 90,498(B) 21,504(C) 100.00 12.80RF 18.69 49.09 94.14 Comp COMMERCIAL Subordinates: BT97-SI(13).............. Equity Dec-97 UR None 57,750 34,842 25.00 -- 22.15 12.10 10.09 Cert. 35

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- WEIGHTED WEIGHTED TOTAL ACTUAL LIFE ACTUAL LIFE AVERAGE AVERAGE DELINQUENCY TO DATE TO DATE COLLATERAL BALANCE COUPON AT LTV AT CPR AT LOSSES AT PRODUCT TYPE AT ------------------- SECURITIZATION (ISSUER) 3/31/01 AT 3/31/01 3/31/01 3/31/01 3/31/01 3/31/01 ISSUANCE 3/31/01 - ----------------------- --------- ---------- ----------- ----------- ----------- --------------- -------- ------- SINGLE-FAMILY RESIDENTIAL Subordinates: BCF 1996 R1 (1)............. 10.01% 84.18% 12.26% 13.51% $ 32,496 98% Fixed, 2% ARM $505,513 $ 233,597 CSFB 1996 1R (ITT 94-P1) (2)............. 8.16 N/A 3.39 N/A 157 100% 1-Year CMT 32,487 3,427 BCF 1997 R2 (1)............. 8.72 77.21 17.68 13.74 9,374 26% Fixed, 74% ARM 251,790 116,849 SBMS 1997-HUD1 (3).......... 9.78 67.73 10.60 15.46 18,353 97% Fixed, 3% ARM 326,147 151,350 ORMBS 1998 R1 (4)........... 8.86 91.97 27.04 11.48 54,089 98% Fixed, 2% ARM 565,411 373,955 ORMBS 1998 R2 (4)........... 9.37 79.24 26.47 15.57 4,407 44% Fixed, 56% ARM 123,917 64,101 ORMBS 1998 R3 (4)........... 8.87 91.05 37.12 15.12 34,420 98% Fixed, 2% ARM 261,452 170,210 ORMBS 1999 R1 (4)........... 9.30 76.72 32.59 19.40 3,626 60% Fixed, 40% ARM 147,101 93,665 ORMBS 1999 R2 (4)........... 9.24 88.72 31.95 14.73 6,860 100% Fixed 117,004 70,186 Subprime residuals: SBMS 1996 3 (5)............. 11.47 67.73 16.97 31.07 3,853 66% Fixed, 34% ARM 130,062 21,055 MLM1 1996 1 (6)............. 12.22 71.89 21.87 34.76 2,502 36% Fixed, 64% ARM 81,142 11,293 MS 1997 1 (7) X1............ 11.89 75.44 35.14 36.87 3,128 100% Fixed, 17,727 7,632 MS 1997 1 (7) X2............ 100% ARM 87,118 10,785 1997 OFS 2 (8).............. 11.90 78.67 21.52 37.32 3,838 42% Fixed, 58% ARM 102,201 18,165 1997 OFS 3 (8).............. 11.68 77.82 25.97 34.94 7,439 27% Fixed, 73% ARM 208,784 49,389 1998 OFS 1 (8).............. 11.95 79.86 25.42 36.68 6,913 23% Fixed, 77% ARM 161,400 39,269 1998 OFS 2 (8).............. 11.72 74.93 20.99 37.14 12,102 53% Fixed, 47% ARM 382,715 103,638 1998 OFS 3 (8).............. 11.27 77.78 29.28 30.09 9,624 42% Fixed, 58% ARM 261,649 104,138 1998 OFS 4 (8).............. 10.82 78.82 28.88 24.85 16,582 52% Fixed, 48% ARM 349,000 177,140 1999 OFS 1 (8).............. 9.80 77.88 19.01 17.97 3,509 70% Fixed, 30% ARM 148,628 103,182 PANAM 1997-1(9)............. 12.45 86.27 30.47 40.41 6,423 5% Fixed, 95% ARM 113,544 20,993 EQUICON 1994-2 (10)......... 10.10 81.03 14.78 30.20 2,800 100% Fixed 78,846 13,762 100% ARM 32,306 1,680 EQUICON 1995-1 (10)......... 12.75 109.89 29.53 29.75 5,427 100% Fixed 70,024 9,122 100% ARM 40,519 4,445 EQUICON 1995-2 (10)......... 11.11 81.46 30.71 32.07 3,642 100% Fixed 79,288 14,296 100% ARM 39,667 2,942 ACCESS 1996-1 (11).......... 11.12 76.25 28.21 30.17 6,201 100% Fixed 120,015 23,717 100% ARM 55,362 5,622 ACCESS 1996-2 (11).......... 11.23 74.30 31.45 32.20 6,915 100% Fixed 142,259 28,530 100% ARM 68,345 6,453 ACCESS 1996-3 (11).......... 11.72 77.32 40.07 34.26 5,815 100% Fixed 107,712 22,321 100% ARM 99,885 9,564 ACCESS 1996-4 (11).......... 12.30 80.14 39.05 36.97 7,553 56% Fixed, 44% ARM 239,778 34,290 ACCESS 1997-1 (11).......... 11.94 80.15 41.49 35.20 12,354 64% Fixed, 36% ARM 276,442 53,252 ACCESS 1997-2 (11).......... 11.94 81.98 37.18 35.20 6,798 64% Fixed, 36% ARM 185,197 34,381 ACCESS 1997-3 (11).......... 12.03 90.04 41.74 38.06 5,451 57% Fixed, 43% ARM 199,884 40,671 UK SUBPRIME Subordinates: CMR1 (12)................... 13.39 N/A 37.71 23.90 1,019 N/A 48,450(B) 11,164(C) CMR2 (12)................... 12.69 N/A 30.05 24.45 1,448 N/A 97,627(B) 24,598(C) CMR3 (12)................... 13.41 N/A 16.89 23.06 3,759 N/A 176,047(B) 43,305(C) CMR4 (12)................... 13.66 N/A 40.45 24.66 2,245 N/A 103,031(B) 27,631(C) CMR5 (12)................... 15.77 N/A 63.07 24.15 9,422 N/A 54,686(B) 14,940(C) CMR6 (12)................... 13.68 N/A 34.70 27.66 1,407 N/A 90,498(B) 21,504(C) COMMERCIAL Subordinates: BT97-SI (13)................ 7.88 N/A 57.19 N/A 10,549 N/A 295,925 68,780 36

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- ISSUERS: RATING AGENCIES: (1) BlackRock Capital Finance L.P. (a) S&P (2) Credit Suisse First Boston (ITT Federal Bank, (b) Moody's FSB) (c) Fitch (3) Salomon Brothers Mortgage Securities (d) DCR (4) Ocwen Residential MBS Corporation (5) Salomon Brothers Mortgage Securities VII OTHER: (6) Merrill Lynch Mortgage Investors, Inc. N/A - Not Available (7) Morgan Stanley ABS Capital I, Inc. N/M - As a result of impairment charge write-downs of the security while (8) Ocwen Mortgage Loan Asset Backed classified as available for sale, the prospective yield at 3/31/01 Certificates is not meaningful. (9) Pan American Bank, FSB (A) - As a result of impairment charge write-downs of the security while (10) Equicon Mortgage Loan Trust classified as available for sale, the book value is zero, (11) Access Financial Mortgage Loan Trust therefore, there is no prospective yield on the security. (12) City Mortgage Receivable (B) - Dollar equivalent of amounts in British pounds at the rate of (13) Bankers Trust Corporation Mortgage exchange that prevailed at the time of issuance. Investors Trust (C) - Dollar equivalent of amounts in British pounds at the rate of exchange at 3/31/01. The following table sets forth the principal amount of mortgage loans by the geographic location of the property securing the mortgages that underlie the Company's subordinate and residual securities at March 31, 2001: DESCRIPTION CALIFORNIA FLORIDA TEXAS U.K. NEW YORK OTHER (1) TOTAL - ----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Single family residential.. $ 412,107 $ 194,829 $ 178,153 $ 143,144 $ 132,004 $1,303,745 $2,363,982 Commercial ................ 21,056 -- 1,856 -- 77 115 23,104 Multi-family .............. 458 80 -- -- 4,816 4,218 9,572 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total ..................... $ 433,621 $ 194,909 $ 180,009 $ 143,144 $ 136,897 $1,308,078 $2,396,658 ========== ========== ========== ========== ========== ========== ========== Percentage (2) ............ 18.09% 8.13% 7.51% 5.97% 5.71% 54.59% 100.00% ========== ========== ========== ========== ========== ========== ========== (1) Consists of properties located in 46 other states, none of which aggregated over $108,217 in any one state. (2) Based on a percentage of the total unpaid principal balance of the underlying loans. The following table presents information regarding trading subordinate and residual securities summarized by classification and rating at March 31, 2001: ANTICIPATED ORIGINAL ANTICIPATED WEIGHTED ANTICIPATED YIELD TO AVERAGE PROSPECTIVE PERCENT YIELD TO MATURITY AT REMAINING YIELD AT RATING/DESCRIPTION FAIR VALUE OWNED MATURITY 3/31/01 (1) COUPON LIFE (2) 3/31/01 - ----------------------------------- ----------- ------- -------- ----------- ------ --------- ------- SINGLE-FAMILY RESIDENTIAL: BB-rated subordinates............ $ 4,488 89.42% 11.72% 5.03% 7.00% 2.16 41.13% B-rated subordinates............. 2,494 93.12 15.67 8.70 7.61 1.45 8.97 Unrated subordinates............. 9,536 70.35 17.84 (7.21) 8.06 2.67 33.78 Unrated subprime residuals....... 90,366 100.00 18.41 (2.90) N/A 7.44 9.71 COMMERCIAL: Unrated subordinates............. 2,577 25.00 22.15 12.10 7.88 2.10 10.09 ----------- $ 109,461 =========== (1) Changes in the March 31, 2001 anticipated yield to maturity from that originally anticipated are primarily the result of changes in prepayment assumptions, loss assumptions and charges taken to reduce the value of the securities while classified as available for sale. (2) Equals the weighted average life based on the March 31, 2001 book value. 37

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following is a glossary of terms included in the above tables: ACTUAL LIFE TO DATE CPR - The Constant Prepayment Rate is used to measure the average prepayment rate for the underlying mortgage pool(s) over the period of time lapsed since the issuance of the securities through the date indicated and is calculated as follows: -- -- | / 1-Final Aggregate Balance \ / \ | | | actual | | 12 | | Actual Life to Date CPR = 100 X | | ----------------------------------- | X | ---------------- | | | | Final Aggregate Balance | | Months In Period | | | \ scheduled / \ / | -- -- ACTUAL LIFE-TO-DATE LOSSES - Represents cumulative losses of the original collateral at the indicated date. ANTICIPATED YIELD TO MATURITY AT MARCH 31, 2000- Effective yield based on the purchase price, actual cash flows received from inception until the respective date, and the then current estimate of future cash flows under the assumptions at the respective date. ANTICIPATED YIELD TO MATURITY AT PURCHASE - Effective yield from inception to maturity based on the purchase price and anticipated future cash flows under pricing assumptions. CLASS SIZE - Represents the dollar size of a particular class. Class Size for subprime residuals is equal to the Collateral Balance at the respective date. COLLATERAL BALANCE - Represents the unpaid principal balance including arrearage of the underlying collateral of the entire securities at the indicated date. INTEREST PERCENTAGE - Represents the percentage of the particular class of security owned by the Company. ISSUE DATE - Represents the date on which the indicated securities were issued. OVER-COLLATERIZATION LEVEL - For residual interest in residential mortgage-backed securities, over-collateralization ("OC") is the amount by which the collateral balance exceeds the sum of the bond principal amounts. OC is achieved by applying monthly a portion of the interest payments of the underlying mortgages toward the reduction of the class certificate principal amounts, causing them to amortize more rapidly than the aggregate loan balance. The OC percentage, expressed as a percentage of the outstanding collateral balance, represents the first tier of loss protection afforded to the non-residual holders. The OC percentage also determines whether the over-collateralization target has been satisfied as of a specific date, such that cash flows to the residual holder are warranted. To the extent not consumed by losses on more highly rated bonds, OC is remitted to the residual holders. PROSPECTIVE YIELD - Effective yield based on the amortized cost of the investment, after impairments, and the then current estimate of the future cash flows under the assumptions at the respective date. RATING - Refers to the credit rating designated by the rating agency for each securitization transaction. Classes designated "A" have a superior claim on payment to those rated "B", which are superior to those rated "C." Additionally, multiple letters have a superior claim to designations with fewer letters. Thus, for example, "BBB" is superior to "BB," which in turn is superior to "B." The lower class designations in any securitization will receive interest payments subsequent to senior classes and will experience losses prior to any senior class. The lowest potential class designation is not rated ("UR") which, if included in a securitization, will always receive interest last and experience losses first. SECURITIZATION - Series description. SECURITY - Represents the name of the class associated with each securitization held by the Company. This has no relationship to a formal rating but is for identification purposes (although the names are usually in alphabetical or numeric order from the highest rated to the lowest rated). SUBORDINATION LEVEL - Represents the credit support for each mortgage-backed security by indicating the percentage of outstanding bonds whose right to receive payment is subordinate to the referenced security. The subordinate classes must experience a complete loss before any additional losses would affect the particular referenced security. 38

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- TOTAL DELINQUENCY - Represents the total unpaid principal balance of loans more than 30 days delinquent at the indicated date as a percentage of the unpaid principal balance of the collateral at such date. WEIGHTED AVERAGE COUPON - Represents the interest rate of the underlying mortgage loans weighted by the unpaid principal balance of the underlying mortgage loans at the respective date. WEIGHTED AVERAGE LTV - Represents the ratio of the unpaid principal balance including arrearage to the value of the underlying collateral and applies to the single-family residential securities. LOAN PORTFOLIO, NET. Loans held for investment in the Company's loan portfolio are carried at amortized cost, less an allowance for loan losses, because the Company has the ability and presently intends to hold them to maturity. Composition of Loan Portfolio. The following table sets forth the composition of the Company's loan portfolio by type of loan at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- Single family residential loans ............... $ 649 $ 848 ----------- ----------- Multi-family residential loans: Permanent ............................. 2,969 6,083 Construction .......................... 23,278 39,123 ----------- ----------- Total multi-family residential.. 26,247 45,206 ----------- ----------- Commercial real estate: Hotels: Construction ......................... 30,478 38,153 Office buildings ..................... 26,788 20,817 Land ................................. 1 1 ----------- ----------- Total commercial real estate ... 57,267 58,971 ----------- ----------- Consumer ...................................... 42 48 ----------- ----------- 84,205 105,073 Undisbursed loan proceeds ..................... (3,324) (8,879) Unamortized deferred fees ..................... (246) (372) ----------- ----------- Total loans .......................... 80,635 95,822 Allowance for loan losses ..................... (2,652) (2,408) ----------- ----------- Loans, net ........................... $ 77,983 $ 93,414 =========== =========== The loan portfolio is secured by mortgages on properties located throughout the United States. The following table sets forth the five states in which the largest amount of properties securing the Company's loans were located at March 31, 2001: Single Family Multi-family Commercial Residential Residential Real Estate Consumer Total ------------- ------------ ----------- ---------- ---------- New York ....... $ 157 $ 2,724 $ 17,746 $ 20 $ 20,647 Delaware ....... 255 -- 12,763 -- 13,018 Connecticut..... -- -- 12,800 9 12,809 California ..... -- 8,948 1 -- 8,949 Virginia ....... -- -- 7,650 -- 7,650 Other (1) ...... 237 14,575 6,307 13 21,132 ---------- ---------- ---------- ---------- ---------- Total .......... $ 649 $ 26,247 $ 57,267 $ 42 $ 84,205 ========== ========== ========== ========== ========== (1) Consists of properties located in 8 other states, none of which aggregated over $5,563 in any one state. 39

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- Activity in the Loan Portfolio. The following table sets forth the activity in the Company's gross loan portfolio during the periods indicated: For the three months ended March 31, 2001 2000 - ------------------------------------------------------- --------- --------- Balance at beginning of period ........................ $ 93,414 $ 157,408 --------- --------- Originations: Commercial non-mortgage and consumer loans ...... -- 970 Commercial real estate loans .................... 11,043 10,213 --------- --------- Total loans originated (1) .................. 11,043 11,183 --------- --------- Sales ................................................. (13,485) (251) Principal repayments and other ........................ (18,427) (11,308) Transfer to real estate owned ......................... -- (274) Decrease (increase) in undisbursed loan proceeds ...... 5,555 (1,395) Decrease in unamortized deferred fees ................. 126 601 (Increase) decrease in allowance for loan losses ...... (243) 155 --------- --------- Net decrease in loans ................................. (15,431) (1,289) --------- --------- Balance at end of period ........................ $ 77,983 $ 156,119 ========= ========= (1) Originations for the three months ended March 31, 2001 and 2000 represent loans to facilitate sales of real estate owned and fundings on previously originated construction loans. The following table sets forth certain information relating to the Company's non-performing loans in its loan portfolio at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- Non-performing loans: Single family residential loans................ $ 299 $ 316 Multi-family residential loans (1)............. 11,773 13,373 Commercial real estate and other (2)........... 3,564 4,581 ----------- ----------- Total...................................... $ 15,636 $ 18,270 =========== =========== Non-performing loans as a percentage of: Total loans.................................... 19.39% 19.07% Total assets................................... 0.76% 0.81% Allowance for loan losses as a percentage of: Total loans................................ 3.29% 2.51% Non-performing loans....................... 16.96% 13.18% (1) Non-performing multi-family residential loans at March 31, 2001 were comprised of 7 loans, all of which management believes are adequately collateralized and reserved. (2) Non-performing commercial real estate loans at March 31, 2001 were comprised of 4 loans, all of which management believes are adequately collateralized and reserved. 40

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- MATCH FUNDED LOANS AND SECURITIES. Match funded loans and securities are comprised of the following at the dates indicated: March 31, December 31, 2001 2000 ------------ ------------ Single family residential loans (1)........ $ 75,345 $ 80,834 Allowance for loan losses.................. (268) (285) ------------ ------------ Match funded loans, net.................. 75,077 80,549 Match funded securities.................... 35,393 36,438 ------------ ------------ Total.................................... $ 110,470 $ 116,987 ============ ============ (1) Includes $4,594 and $2,831 of non-performing loans at March 31, 2001 and December 31, 2000, respectively. Match funded loans were securitized and transferred by OAC to a real estate mortgage investment conduit on November 13, 1998. The transfer did not qualify as a sale for accounting purposes. Accordingly, the proceeds received from the transfer are reported as a liability (bonds-match funded agreements). The $5,472 decline in the balance during the first quarter of 2001 was due to repayment of loan principal. Match funded securities resulted from the Company's transfer of four unrated residual securities to a trust on December 16, 1999 in exchange for non-recourse notes. The transfer did not qualify as a sale for accounting purposes. Accordingly, the amount of proceeds from the transfer are reported as a liability (bonds-match funded agreements). The decline of $1,045 in the balance during the first quarter of 2001 was due to principal repayments offset by a decrease in unrealized losses. For a glossary of the terms included in the tables below, see "Changes in Financial Condition -- Trading Securities." The match funded loans are secured by mortgages on properties located throughout the United States. The following table sets forth the five states in which the largest amount of properties securing the Company's loans were located at March 31, 2001: Michigan.............................................. $ 13,595 California............................................ 8,225 Texas................................................. 4,987 Florida............................................... 4,787 Massachusetts......................................... 3,970 Other (1)............................................. 39,781 ------------- Total................................................. $ 75,345 ============= (1) Consists of properties located in 41 other states, none of which aggregated over $3,199 in any one state. The following tables detail the Company's match funded securities at March 31, 2001, and its estimates of expected yields on such securities, taking into consideration expected prepayment and loss rates together with other factors: OVER CLASS COLLATERAL BALANCE COLLATERALIZATION ISSUE DESIGNATION RATING ------------------------ LEVEL AT PRODUCT TYPE AT SECURITIZATION SECURITY DATE LETTER AGENCIES ISSUANCE 3/31/01 3/31/01 3/31/01 - --------------------------------------------------------------------------------------------------------------------------------- SASCO 1998-2(1) X Jan-98 NR S&P, Fitch $ 600,052 $ 149,098 1.91% OC 43% Fixed, 57% ARM SASCO 1998-3(1) X Mar-98 NR S&P, Fitch 769,671 173,433 7.68% OC 21% Fixed, 79% ARM MLMI 1998-FFI(2) X Jun-98 NR S&P, Fitch 198,155 31,199 9.53% OC 100% ARM LHELT 1998-2(3) X Jun-98 NR Moody's, Fitch 209,225 79,657 9.88% OC 48% Fixed, 52% ARM ----------- --------- $ 1,777,103 $ 433,387 =========== ========= 41

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- WEIGHTED WEIGHTED ACTUAL ACTUAL ACTUAL YIELD TO AVERAGE AVERAGE DELINQUENCY LIFE TO DATE LIFE TO DATE MATURITY AT INTEREST RATE LTV AT AT CPR AT LOSSES AT -------------------- SECURITIZATION SECURITY AT 3/31/01 3/31/01 3/31/01 3/31/01 3/31/01 PURCHASE 3/31/01 - -------------- -------- ------------- ------- ----------- ------------ ------------ -------- ------- SASCO 1998-(2) X 10.88% 84.27% 23.24% 35.15% $ 13,457 16.00% (1.95)% SASCO 1998-(3) X 11.69 85.19 26.63 38.78 11,866 17.04 (0.91) MLMI 1998-FFI X 11.66 75.48 27.94 47.59 1,500 18.57 2.99 LHELT 1998-(2) X 10.84 N/A 19.30 28.32 2,826 18.55 13.56 ISSUERS: (1) Structured Asset Securities Corp. (2) Merrill Lynch Mortgage Investors, Inc. (3) Lehman Home Equity Loan Trust The following table sets forth the principal amount of mortgage loans by the geographic location of the property securing the mortgages that underlie the Company's match-funded securities at March 31, 2001: DESCRIPTION CALIFORNIA FLORIDA ILLINOIS WASHINGTON OREGON OTHER (1) TOTAL - ----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Single family residential .. $ 67,616 $ 48,798 $ 19,370 $ 19,577 $ 18,015 $ 248,240 $ 421,616 Multi-family ............... 2,671 854 1,016 -- -- 7,230 11,771 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total ...................... $ 70,287 $ 49,652 $ 20,386 $ 19,577 $ 18,015 $ 255,470 $ 433,387 ========== ========== ========== ========== ========== ========== ========== Percentage (2).............. 16.21% 11.46% 4.71% 4.51% 4.17% 58.94% 100.00% ========== ========== ========== ========== ========== ========== ========== (1) Consists of properties located in 45 other states, none of which aggregated over $17,118 in any one state. (2) Based on a percentage of the total unpaid principal balance of the underlying loans. The following table presents additional information regarding match funded securities at March 31, 2001: ANTICIPATED ORIGINAL ANTICIPATED WEIGHTED ANTICIPATED YIELD TO AVERAGE YIELD TO MATURITY AT REMAINING FAIR VALUE PERCENT OWNED MATURITY 3/31/01 (1) COUPON LIFE(2) ---------- ------------- -------- ----------- ------ ------- Match-funded securities...... $ 35,393 100.00% 17.24% 1.67% N/A 4.31 years ========== (1) Changes in the March 31, 2001 anticipated yield to maturity from that originally anticipated are primarily the result of changes in prepayment assumptions and, to a lesser extent, loss assumptions. (2) Equals the weighted average duration based on the March 31, 2001 book value. 42

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- DISCOUNT LOAN PORTFOLIO, NET. Composition of the Discount Loan Portfolio. The following table sets forth the composition of the Company's discount loan portfolio by type of loan at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- Single family residential loans ............ $ 247,923 $ 289,883 ----------- ----------- Multi-family residential loans ............. 66,590 105,591 ----------- ----------- Commercial real estate loans: Office buildings .................. 72,482 77,608 Hotels ............................ 41,602 63,967 Retail properties ................. 83,838 85,924 Other properties .................. 29,324 36,511 ----------- ----------- 227,246 264,010 ----------- ----------- Other loans (1) ............................ 15,261 17,188 ----------- ----------- Discount loans, gross ...................... 557,020 676,672 ----------- ----------- Unaccreted discount: Single family residential loans ... (62,892) (74,184) Multi-family residential loans .... (1,936) (5,176) Commercial real estate loans ...... (33,753) (40,413) ----------- ----------- (98,581) (119,773) ----------- ----------- Total discount loans .......... 458,439 556,899 Allowance for loan losses .................. (18,790) (20,871) ----------- ----------- Discount loans, net ........................ $ 439,649 $ 536,028 =========== =========== (1) Balances represent charged-off unsecured credit card receivables, which were acquired at a discount. Collections are accounted for under the cost recovery method. The discount loan portfolio is secured by mortgages on property located throughout the United States. The following table sets forth the five states in which the largest amount of properties securing the Company's discount loans were located at March 31, 2001: Commercial Single Family Multi-Family Real Estate Residential Residential and Other Total ------------- ----------- ----------- ----------- California ...... $ 16,118 $ 3,474 $ 59,214 $ 78,806 Illinois ........ 8,610 40,604 1,281 50,495 New York ........ 18,587 -- 26,901 45,488 Wisconsin ....... 1,655 -- 34,687 36,342 Tennessee ....... 3,309 -- 26,906 30,215 Other (1) ....... 136,752 20,576 59,765 217,093 ----------- ----------- ----------- ----------- Total ...... $ 185,031 $ 64,654 $ 208,754 $ 458,439 =========== =========== =========== =========== (1) Consists of properties located in 44 other states, none of which aggregated over $24,513 in any one state. 43

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- Activity in the Discount Loan Portfolio. The following table sets forth the activity in the Company's net discount loan portfolio during the periods indicated: For the three months ended March 31, 2001 2000 - ---------------------------------------------------- ---------- ---------- AMOUNT: Balance at beginning of period ..................... $ 536,028 $ 913,229 Acquisitions (1): Single family residential loans ............... -- 58,937 Multi-family residential loans ................. -- 15,317 Commercial real estate loans ................... -- 6,787 Other (2) ...................................... -- 5,493 ---------- ---------- -- 86,534 ---------- ---------- Resolutions and repayments (3) ..................... (25,479) (41,927) Loans transferred to real estate owned ............. (49,908) (71,435) Sales .............................................. (44,266) (70,989) Decrease in discount ............................... 21,193 27,774 Decrease (increase) in allowance for loan losses ... 2,081 (1,008) ---------- ---------- Balance at end of period ........................... $ 439,649 $ 842,178 ========== ========== For the three months ended March 31, 2001 2000 - ---------------------------------------------------- ---------- ---------- NUMBER OF LOANS: Balance at beginning of period ..................... 4,021 8,064 Acquisitions (1): Single family residential loans ............... -- 937 Multi-family residential loans ................. -- 7 Commercial real estate loans ................... -- 4 Other .......................................... -- 1 ---------- ---------- -- 949 ---------- ---------- Resolutions and repayments (3) ..................... (235) (362) Loans transferred to real estate owned ............. (339) (774) Sales .............................................. (17) (846) ---------- ---------- Balance at end of period ........................... 3,430 7,031 ========== ========== (1) Acquisitions during the three months ended March 31, 2000 exclude certain commercial and multi-family loans which are accounted for as investments in real estate. See "Changes in Financial Condition - Investments in Real Estate." (2) For the three months ended March 31, 2000, consists of charged-off unsecured credit card receivables acquired at a discount. (3) Resolutions and repayments consists of loans which were resolved in a manner which resulted in partial or full repayment of the loan to the Company, as well as principal payments on loans which have been brought current in accordance with their original or modified terms (whether pursuant to forbearance agreements or otherwise) or on other loans which have not been resolved. 44

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table sets forth certain information relating to the Company's allowance for loan losses on discount loans at and for the periods indicated: March 31, December 31, 2001 2000 ----------- ----------- Allowances for loan losses as a percentage of: Total loans.............................. 4.10% 3.75% Total assets............................. 0.91% 0.93% See "Changes in Financial Condition - Allowance for Loan Losses" below for additional information regarding the allowance for discount loan losses. ALLOWANCES FOR LOAN LOSSES. The Company maintains an allowance for loan losses for each of its loan, discount loan and match funded loan portfolios at a level which management considers adequate to provide for potential losses in each portfolio based upon an evaluation of known and inherent risks in such portfolios. The following table sets forth the breakdown of the allowance for loan losses on the Company's loan portfolio, discount loans and match funded loans by loan category and the percentage of allowance and loans in each category to totals in the respective portfolios at the dates indicated: March 31, 2001 December 31, 2000 ----------------------------------------- ----------------------------------------- Allowance Loan Balance Allowance Loan Balance ------------------- ------------------- ------------------- ------------------- Amount Percent Amount Percent Amount Percent Amount Percent -------- -------- -------- -------- -------- -------- -------- -------- Loan portfolio: Single family ................ $ 7 0.2% $ 635 0.8% $ 10 0.4% $ 812 0.8% Multi-family ................. 1,190 44.9 24,561 30.4 993 41.2 38,942 40.6 Commercial real estate ....... 1,455 54.9 55,439 68.8 1,405 58.4 56,068 58.6 -------- -------- -------- -------- -------- -------- -------- -------- $ 2,652 100.0% $ 80,635 100.0% $ 2,408 100.0% $ 95,822 100.0% ======== ======== ======== ======== ======== ======== ======== ======== Discount loans: Single family ................ $ 2,795 14.9% $185,029 40.4% $ 3,483 16.7% $215,698 38.7% Multi-family ................. 861 4.6 64,655 14.1 1,805 8.6 100,414 18.0 Commercial real estate ....... 5,574 29.6 193,494 42.2 6,813 32.7 223,599 40.2 Other ........................ 9,560 50.9 15,261 3.3 8,770 42.0 17,188 3.1 -------- -------- -------- -------- -------- -------- -------- -------- $ 18,790 100.0% $458,439 100.0% $ 20,871 100.0% $556,899 100.0% ======== ======== ======== ======== ======== ======== ======== ======== Match funded loans: Single family ................ $ 268 100.0% $ 75,345 100.0% $ 285 100.0% $ 80,834 100.0% ======== ======== ======== ======== ======== ======== ======== ======== The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category. 46

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following table sets forth an analysis of activity in the allowance for loan losses relating to the Company's loan portfolio, discount loan portfolio and match funded loans during the three months ended March 31, 2001: Balance Balance December 31, March 31, 2000 Provision Charge-offs Recoveries 2001 ------------ ---------- ---------- ---------- ---------- Loan portfolio: Single family ............ $ 10 $ 170 $ (173) $ -- $ 7 Multi-family ............. 993 991 (794) -- 1,190 Commercial real estate ... 1,405 50 -- -- 1,455 ---------- ---------- ---------- ---------- ---------- $ 2,408 $ 1,211 $ (967) $ -- $ 2,652 ========== ========== ========== ========== ========== Discount loans: Single family ............ $ 3,483 $ 1,204 $ (1,941) $ 44 $ 2,790 Multi-family ............. 1,805 (944) -- -- 861 Commercial ............... 6,813 5,680 (6,914) -- 5,579 Other .................... 8,770 790 -- -- 9,560 ---------- ---------- ---------- ---------- ---------- $ 20,871 $ 6,730 $ (8,855) $ 44 $ 18,790 ========== ========== ========== ========== ========== Match funded loans: Single family ............ $ 285 $ 179 $ (196) $ -- $ 268 ========== ========== ========== ========== ========== INVESTMENTS IN LOW-INCOME HOUSING TAX CREDIT INTERESTS. The Company invested in multi-family residential projects which have been allocated low-income housing tax credits under Section 42 of the Internal Revenue Code of 1986, as amended, by a state tax credit allocating agency. The carrying values of the Company's investments in low-income housing tax credit interests are as follows at the dates indicated: March 31, December 31, 2001 2000 ---------- ---------- Investments solely as a limited partner made prior to May 18, 1995 ............. $ 2,718 $ 21,170 Investments solely as a limited partner made on or after May 18, 1995 .......... 1,879 6,263 Investments both as a limited and, through subsidiaries, as a general partner .. 49,616 28,296 ---------- ---------- Total (1) ............................................................. $ 54,213 $ 55,729 ========== ========== (1) The decrease in the balance during the three months ended March 31, 2001 is due to the transfer to held for sale of three projects with an aggregate carrying value of $15,809 at December 31, 2000. In addition, impairment charges of $4,503 were recorded on four projects. These decreases were offset by additional investment in existing projects. See "Low-Income Housing Tax Credit Interests Held for Sale." The qualified affordable housing projects underlying the Company's investments in low-income housing tax credit interests are geographically located throughout the United States. At March 31, 2001, the Company's largest single investment was $7,719, which relates to a project located in Sacramento, California. Investments by the Company in low-income housing tax credit interests made on or after May 18, 1995, in which the Company invests solely as a limited partner, are accounted for using the equity method in accordance with the consensus of the Emerging Issues Task Force as recorded in Issue Number 94-1. Limited partnership investments made prior to May 18, 1995, are accounted for under the effective yield method as a reduction of income tax expense. Low-income housing tax credit partnerships in which the Company invests both as a limited and, through a subsidiary, as general partner are presented on a consolidated basis. Income on the Company's limited partnership investments made prior to May 18, 1995 is recorded under the level yield method as a reduction of income tax expense, and amounted to $121 and $682 for the first quarter of 2001 and 2000, respectively. For limited partnership investments made after May 18, 1995, and for investments as a limited partner and, through subsidiaries, as a general 47

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- partner, the Company recognized tax credits of $175 and $3,032 for the first quarter of 2001 and 2000, respectively, which are also reported as a reduction of income tax expense. The Company also recorded a loss from operations on the underlying real estate after depreciation of $5,062 and $1,499 for the first quarter of 2001 and 2000, respectively. The loss for the first quarter of 2001 included the $4,503 of impairment charges noted above. See "Low-Income Housing Tax Credit Interests Held for Sale" below. LOW-INCOME HOUSING TAX CREDIT INTERESTS HELD FOR SALE. During 2000, the Company entered into transactions to sell twenty-five of its low-income housing tax credit properties, together with the related tax credits. Although this transaction resulted in the transfer of tax credits and operating results for these properties to the purchaser, it did not qualify as a sale for accounting purposes. As a result, the Company has reclassified these properties as "held for sale" and has valued them at the lower of cost or fair value less disposal costs. During the three months ended March 31, 2000, three additional projects with an aggregate carrying value of $15,809 were transferred to held for sale. The carrying value of the Company's investments in low-income housing tax credit interests held for sale are as follows at the dates indicated: March 31, December 31, 2001 2000 ---------- ------------ Investments solely as a limited partner made prior to May 18, 1995 ............. $ 47,905 $ 32,229 Investments solely as a limited partner made on or after May 18, 1995 .......... 8,922 8,922 Investments both as a limited and, through subsidiaries, as a general partner .. 43,973 45,932 ---------- ---------- $ 100,800 $ 87,083 ========== ========== REAL ESTATE OWNED, NET. Real estate owned consists almost entirely of properties acquired by foreclosure or deed-in-lieu thereof on loans in the Company's discount loan portfolio. The following table sets forth certain information relating to the Company's real estate owned at the dates indicated: March 31, December 31, 2001 2000 ---------- ------------ Discount loan portfolio: Single family residential ........ $ 45,926 $ 55,751 Multi-family residential ......... -- 149 Commercial real estate ........... 88,963 88,214 ---------- ---------- Total ..................... 134,889 144,114 Loan portfolio ......................... 619 1,384 Loans available for sale ............... 759 921 ---------- ---------- Total ..................... $ 136,267 $ 146,419 ========== ========== The following table sets forth certain geographical information by type of property at March 31, 2001 related to the Company's real estate owned: Single Family Residential Commercial Real Estate Total ------------------------- ----------------------- ----------------------- No. of No. of No. of Amount Properties Amount Properties Amount Properties ---------- ---------- ---------- ---------- ---------- ---------- Florida ............ $ 2,003 34 $ 49,710 4 $ 51,713 38 Michigan ........... 4,681 120 16,701 1 21,382 121 Georgia ............ 1,368 14 14,517 1 15,885 15 Minnesota .......... 444 12 4,504 1 4,948 13 California ......... 2,143 24 1,643 2 3,786 26 Other (1) .......... 36,046 779 2,507 2 38,553 781 ---------- ---------- ---------- ---------- ---------- ---------- Total ......... $ 46,685 983 $ 89,582 11 $ 136,267 994 ========== ========== ========== ========== ========== ========== (1) Consists of properties located in 42 other states, none of which aggregated over $3,597 in any one state. 48

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The following tables set forth the activity in the real estate owned during the periods indicated: For the three months ended March 31, 2001 2000 - ----------------------------------------------------------------- --------- --------- AMOUNT: Balance at beginning of period .................................. $ 146,419 $ 167,506 Properties acquired through foreclosure or deed-in-lieu thereof: Discount loans .............................................. 49,908 71,435 Loans available for sale .................................... 227 3,129 Loan portfolio .............................................. -- 274 Less discount transferred ................................... (19,232) (20,243) --------- --------- 30,903 54,595 --------- --------- Acquired in connection with acquisitions of discount loans ...... -- 3,591 Sales ........................................................... (43,303) (38,204) Decrease (increase) in valuation allowance ...................... 2,248 (1,990) --------- --------- Balance at end of period ........................................ $ 136,267 $ 185,498 ========= ========= For the three months ended March 31, 2001 2000 - ----------------------------------------------------------------- --------- --------- NUMBER OF PROPERTIES: Balance at beginning of period .................................. 1,298 1,672 Properties acquired through foreclosure or deed-in-lieu thereof: Discount loans .............................................. 339 774 Loans available for sale .................................... 4 21 Loan portfolio .............................................. -- 3 --------- --------- 343 798 --------- --------- Acquired in connection with acquisitions of discount loans ...... -- 3 Sales ........................................................... (647) (757) --------- --------- Balance at end of period ........................................ 994 1,716 ========= ========= The following table sets forth the amount of time that the Company had held its real estate owned at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- One to two months............ $ 31,239 $ 17,832 Three to four months......... 8,162 11,450 Five to six months........... 8,581 9,494 Seven to 12 months........... 10,481 18,426 Over 12 months............... 77,804 89,217 ----------- ----------- $ 136,267 $ 146,419 =========== =========== The Company actively manages its real estate owned. Sales of real estate owned resulted in gains (losses), net of the provision for loss, of $195 and $(4,656) during the three months ended March 31, 2001 and 2000, respectively, which are included in determining the Company's (loss) income on real estate owned. The average period during which the Company held the $43,303 and $38,204 of real estate owned which was sold during the three months ended March 31, 2001 and 2000 was 8 and 6 months, respectively. The following table sets forth the activity, in the aggregate, in the valuation allowances on real estate owned during the periods indicated: For the three months ended March 31, 2001 2000 - ----------------------------------------------------------------------------- ----------- ----------- Balance at beginning of period............................................... $ 18,142 $ 17,181 Provisions for losses ....................................................... 6,181 9,212 Charge-offs and sales........................................................ (8,429) (7,222) ----------- ----------- Balance at end of period..................................................... $ 15,894 $ 19,171 =========== =========== Valuation allowance as a percentage of total gross real estate owned (1)..... 10.45% 9.37% 49

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- (1) The increase at March 31, 2001 as compared to March 31, 2000 reflects an increase in the amount of real estate owned which the Company has held in excess of one year as a percent of total real estate owned. At December 31, 2000, the valuation allowance as a percentage of total gross real estate owned was 11.02%. INVESTMENTS IN REAL ESTATE. The Company's investment in real estate consisted of the following at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- Properties held for investment (1): Office buildings ................................ $ 32,117 $ 32,112 Retail .......................................... 8,973 9,515 Building improvements ........................... 11,032 11,346 Tenant improvements and lease commissions ....... 1,929 1,744 Furniture and fixtures .......................... 49 52 ----------- ----------- 54,100 54,769 Accumulated depreciation ........................ (2,624) (2,359) ----------- ----------- 51,476 52,410 ----------- ----------- Loans accounted for as investments in real estate (2): Multi-family residential ........................ 97 97 Nonresidential .................................. 40,131 45,689 ----------- ----------- 40,228 45,786 ----------- ----------- Properties held for lease: Land and land improvements ...................... 1,256 1,256 Building ........................................ 15,640 15,641 Accumulated depreciation ........................ (1,004) (855) ----------- ----------- 15,892 16,042 ----------- ----------- Investment in real estate partnerships (3) ........... 8,529 8,523 ----------- ----------- $ 116,125 $ 122,761 =========== =========== (1) Acquired as a result of the acquisition of OAC. See "Changes in Financial Condition - Real Estate Held for Sale." The Company's properties held for investment at March 31, 2001 are comprised of the following: Date % Acquired Property Location Square Feet Property Type Leased Carrying Value - --------------- ------------------------- -------------------- -------------- --------------- --------- ------------------ 07/22/98 ...... 841 Prudential Drive..... Jacksonville, FL 550,000 Office Bldg. 99.8% $ 34,226 04/09/98 ...... 7075 Bayers Road......... Halifax, Nova Scotia 407,772 Shopping Ctr. 68.7 19,874 Accumulated depreciation (2,624) ------------ $ 51,476 ============ (2) Certain acquisition, development and construction loans were acquired in January 2000 in which the Company participates in the expected residual profits of the underlying real estate and the borrower has not contributed substantial equity to the project. As such, the Company has accounted for these loans under the equity method of accounting as though it had an investment in a real estate limited partnership. (3) Consists of interests in four limited partnerships operating as real estate ventures, consisting of multi-family type properties. 50

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- REAL ESTATE HELD FOR SALE. The Company's real estate held for sale at March 31, 2001 consisted of one shopping center in Bradenton, Florida with 290,673 square feet of space and an aggregate carrying value of $21,623. The shopping center was approximately 94.35% leased at March 31, 2001. The Company engaged an unaffiliated third party to market and sell the property, which was previously held for investment and was reclassified to held for sale during the second quarter of 2000. During the first quarter of 2001, the Company sold for $1,050, less commissions and closing costs, its other shopping center located in Havre, Montana, which had a book value of $1,000, for no gain. DEFERRED TAX ASSET, NET. At March 31, 2001, the deferred tax asset, net of deferred tax liabilities and valuation allowance, amounted to $82,171, as compared to $95,991 at December 31, 2000. The valuation allowance amounted to $68,903 and $58,903 at March 31, 2001 and December 31, 2000, respectively. The $13,820 net decrease during 2000 was due in large part to an increase in the valuation allowance of $10,000 resulting from the Company's evaluation of the future realizability of the deferred tax asset. Depending on the results of operations in future periods, additional allowances may be required or the valuation allowance may be reversed to income to the extent the deferred tax assets are realized as a reduction of taxes otherwise payable. ADVANCES ON LOANS AND LOANS SERVICED FOR OTHERS. Advances related to loan portfolios and loans serviced for others consisted of the following at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- Loan Portfolios: Principal, interest, taxes and insurance ..... $ 10,394 $ 11,168 Other ........................................ 11,646 11,840 ----------- ----------- 22,040 23,008 ----------- ----------- Loans Serviced for Others: Principal and interest ....................... 79,114 95,191 Taxes and insurance .......................... 60,817 64,159 Other (1) .................................... 137,638 44,697 ----------- ----------- 277,569 204,047 ----------- ----------- $ 299,609 $ 227,055 =========== =========== (1) The increase in other advances on loans serviced for others is principally the result of advances purchased in connection with the acquisition of loans serviced for others under servicing agreements entered into during the first quarter of 2001. MORTGAGE SERVICING RIGHTS. The unamortized balance of mortgage servicing rights amounted to $67,477 and $51,426 at March 31, 2001 and December 31, 2000, respectively. The $16,051 increase during the first quarter was due to $20,758 of purchases, offset by $4,707 of amortization. DEPOSITS. The following table sets forth information related to the Company's deposits at the dates indicated: March 31, 2001 December 31, 2000 ------------------------- ------------------------- % of Total % of Total Amount Deposits Amount Deposits ----------- ----------- ----------- ----------- Non-interest bearing checking accounts and escrows ... $ 58,840 5.2% $ 69,840 5.5% NOW and money market checking accounts ............... 12,893 1.1 14,669 1.2 Savings accounts ..................................... 1,239 0.1 1,274 0.1 ----------- ----------- ----------- ----------- 72,972 6.4 85,783 6.8 ----------- ----------- Certificates of deposit .............................. 1,063,958 1,176,566 Unamortized deferred fees ............................ (3,239) (3,989) ----------- ----------- Total certificates of deposit (1)(2) ................. 1,060,719 93.6 1,172,577 93.2 ----------- ----------- ----------- ----------- Total deposits .................................. $ 1,133,691 100.0% $ 1,258,360 100.0% =========== =========== =========== =========== (1) Included $924,198 and $964,443 at March 31, 2001 and December 31, 2000, respectively, of deposits originated through national, regional and local investment banking firms which solicit deposits from their customers, all of which are non-cancelable. 51

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- (2) At March 31, 2001 and December 31, 2000, certificates of deposit issued on an uninsured basis (greater than $100) amounted to $76,918 and $75,417, respectively. Of the $76,918 of uninsured deposits at March 31, 2001, $14,264 were from political subdivisions in New Jersey and secured or collateralized as required under state law. BONDS-MATCH FUNDED AGREEMENTS. Bonds-match funded agreements were comprised of the following at the dates indicated: March 31, December 31, 2001 2000 ----------- ----------- OAIC Mortgage Residential Securities Holdings, LLC..... $ 65,565 $ 72,101 Ocwen NIMS Corp. ...................................... 34,167 34,949 ----------- ----------- $ 99,732 $ 107,050 =========== =========== The $7,318 decline in total bonds-match funded agreements during the first quarter was due to principal repayments offset by discount amortization. NOTES, DEBENTURES AND OTHER INTEREST-BEARING OBLIGATIONS. Notes, debentures and other interest-bearing obligations mature as follows: March 31, December 31, 2001 2000 ----------- ----------- 2003: 11.875% Notes due October 1.......................... $ 95,850 $ 100,050 2004: Loan due May 24 (LIBOR plus 250 basis points)........ 6,235 6,235 2005: 12% Subordinated Debentures due June 15.............. 67,000 67,000 11.5% Redeemable Notes due July 1.................... 45 45 ----------- ----------- $ 169,130 $ 173,330 =========== =========== The $4,200 decline in the balance of the 11.875% Notes during the first quarter is due to repurchases. These repurchases resulted in an extraordinary gain of $61, net of tax ($97 before taxes). OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT. The Company has obtained a secured line of credit arrangement from an unaffiliated financial institution to fund real estate investments and commercial construction loans held by OAC as follows at the dates indicated: Balance Amount of Committed Maturity Entity Outstanding Facility Amount Date Interest Rate(1) - ------------------ ----------- ----------- ----------- --------- ------------------------ MARCH 31, 2001: $ 32,796 $ 200,000 $ 115,580 June 2001 LIBOR + 240 basis points =========== DECEMBER 31, 2000: $ 32,933 $ 200,000 $ 115,580 June 2001 LIBOR + 240 basis points =========== (1) 1-month LIBOR was 5.08% and 6.57% at March 31, 2001 and December 31, 2000, respectively. 52

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- COMPANY OBLIGATED, MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY. The outstanding balance of the 10.875% Capital Securities amounted to $63,685 at March 31, 2001, a decline of $15,845 from the balance outstanding at December 31, 2000. During the three months ended March 31, 2001, the Company repurchased $15,845 of its Capital Securities in the open market, resulting in an extraordinary gain of $3,336 ($2,102 net of taxes). See Note 4 to the Interim Consolidated Financial Statements included in Item 1 hereof (which is incorporated herein by reference). STOCKHOLDERS' EQUITY. Stockholders' equity decreased $24,393 or 5% during the three months ended March 31, 2001. The decrease was primarily due to a net loss of $23,516 during the first quarter. See Consolidated Statements of Changes in Stockholders' Equity of the Interim Consolidated Financial Statements included in Item 1 herein (which is incorporated herein by reference). LIQUIDITY, COMMITMENTS AND OFF-BALANCE SHEET RISKS The primary sources of funds for liquidity consist of deposits, FHLB advances, reverse repurchase agreements, lines of credit and maturities and payments of principal and interest on loans and securities, proceeds from sales thereof and servicing fees. Sources of liquidity include certificates of deposit obtained primarily from wholesale sources. At March 31, 2001, the Company had $1,060,719 of certificates of deposit, net of deferred fees, including $924,198 of brokered certificates of deposit obtained through national, regional and local investment banking firms, all of which are non-cancelable. At the same date, scheduled maturities of certificates of deposit during the 12 months ending March 31, 2002 and 2003, and thereafter amounted to $664,839, $225,670 and $170,210, respectively. Sources of borrowings include FHLB advances, which are required to be secured by single family and/or multi-family residential loans or other acceptable collateral, and reverse repurchase agreements. At March 31, 2001, the Company was eligible to borrow up to an aggregate of $34,998 from the FHLB of New York (subject to the availability of acceptable collateral) and had $28,025 of residential loans and $11,691 of short duration CMOs (all of which were held by the Bank) pledged as security for any such advances. At March 31, 2001, the Company had contractual relationships with 15 brokerage firms and the FHLB of New York pursuant to which it could obtain funds from reverse repurchase agreements. At March 31, 2001, the Company had $188,332 of unrestricted cash and cash equivalents and $97,196 of short duration CMOs that could be used to secure additional borrowings. At March 31, 2001, the Company had no outstanding FHLB advances or reverse repurchase agreements. In addition, at March 31, 2001, the Company, through OAC, had a line of credit of $200,000 ($115,580 committed). The Company had $32,796 outstanding at March 31, 2001 under this line of credit. The Company believes that its existing sources of liquidity, including internally generated funds, will be adequate to fund planned activities for the foreseeable future, although there can be no assurances in this regard. Moreover, the Company continues to evaluate other sources of liquidity, such as lines of credit from unaffiliated parties, which will enhance the management of its liquidity and the costs thereof. On April 18, 2001, the Company executed a Receivables Financing Facility agreement with Greenwich, whereby the Company borrowed $23,907 collateralized by certain of the Company's servicing advances. According to a Commitment Letter signed in connection with the execution of the Agreement, the Company has agreed to finance at least $200,000 of servicing advances with Greenwich over the course of the next two years. On April 20, 2001, the Company executed a Loan and Security Agreement with CSFB whereby the Company may borrow up to $100,000 over the next year collateralized by certain of the Company's servicing advances. The Company borrowed approximately $38,082 on this credit line on the date of execution. The Company's operating activities provided $107,053 of cash flows and used $47,493 of cash flows during the three months ended March 31, 2001 and 2000, respectively. During the three months ended March 31, 2001, cash flows used by operating activities primarily related to net increases in servicing advances. Cash flows were provided primarily by proceeds from the sale of trading securities and maturities and principal repayments received thereon. The increase in net cash flows provided by operating activities during the three months ended March 31, 2001 as compared to the three months ended March 31, 2000, was due primarily to the increase in cash provided by trading securities offset by increases in advances on loans and loans serviced for others due to increases in the number and amount of loans serviced for others. 53

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in thousands, except share data) - -------------------------------------------------------------------------------- The Company's investing activities provided cash flows totaling $92,592 and used $351,841 of cash flows during the three months ended March 31, 2001 and 2000, respectively. During the foregoing periods, cash flows from investing activities were used primarily to purchase securities available for sale, discount loans, mortgage servicing rights and real estate held for investment. Cash flows from investing activities during the first quarter of 2000 were provided primarily by proceeds from sales of and principal payments received on discount loans and securities available for sale and proceeds from sales of real estate owned. The increase in net cash provided by investing activities during the three months ended March 31, 2001 as compared to the three months March 31, 2000 was due primarily to a decline in purchases of securities available for sale (reclassified to trading), discount loans and real estate held for investment (primarily loans accounted for as investments in real estate). The Company's financing activities used cash flows of $148,478 and provided cash flows of $223,272 during the three months ended March 31, 2001 and 2000, respectively. Cash flows utilized in connection with financing activities were primarily related to a decline in deposits, changes in the balance of securities sold under agreements to repurchase, repayment of bonds-match funded agreements, repayment of lines of credit and repurchases of debt. The decline in cash flow from financing activities is principally related to a decrease in cash flow generated by sales of securities sold under agreements to repurchase. The Bank was previously required under applicable federal regulations to maintain specified levels of "liquid" investments in qualifying types of U.S. government, federal agency and other investments having maturities of five years or less (not less than 4% of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less). Effective March 15, 2001 the OTS issued an interim final rule eliminating the 4% liquidity requirement. However, the rule continues to require that savings associations maintain sufficient liquidity to ensure its safe and sound operation. At March 31, 2001, the Company had commitments of $4,052 related to the funding of construction loans. Management believes that the Company has adequate resources to fund all such unfunded commitments to the extent required and that substantially all of such unfunded commitments will be funded during 2001. See Note 10 to the Interim Consolidated Financial Statements included in Item 1 herein (which is incorporated herein by reference). In addition to commitments to extend credit, the Company is party to various off-balance sheet financial instruments in the normal course of the Company's business in order to manage its interest rate risk and foreign currency exchange rate risk. See Note 6 to the Interim Consolidated Financial Statements included in Item 1 herein (which is incorporated herein by reference) and "Asset and Liability Management" included in Item 3 herein. REGULATORY CAPITAL AND OTHER REQUIREMENTS See Note 7 to the Interim Consolidated Financial Statements included in Item 1 herein (which is incorporated by reference). 54

Item 3. Quantitative and Qualitative Disclosures About Market Risk. (Dollars in Thousands) - -------------------------------------------------------------------------------- ASSET AND LIABILITY MANAGEMENT Asset and liability management is concerned with the timing and magnitude of the repricing of assets and liabilities. It is the objective of the Company to attempt to control risks associated with interest rate and foreign currency exchange rate movements. In general, management's strategy is to match asset and liability balances within maturity categories and to manage foreign currency rate exposure related to its investments in non-U.S. dollar functional currency operations in order to limit the Company's exposure to earnings variations and variations in the value of assets and liabilities as interest rates and foreign currency exchange rates change over time. The Company's asset and liability management strategy is formulated and monitored by the Asset/Liability Management Committee ( the "Committee"), which is composed of directors and officers of the Company, in accordance with policies approved by the Board of Directors of the Company. The Committee meets to review, among other things, the sensitivity of the Company's assets and liabilities to interest rate changes and foreign currency exchange rate changes, the book and market values of assets and liabilities, unrealized gains and losses, including those attributable to hedging transactions, purchase and sale activity, and maturities of investments and borrowings. The Committee also approves and establishes pricing and funding decisions with respect to overall asset and liability composition. The Committee's methods for evaluating interest rate risk include an analysis of the Company's interest rate sensitivity "gap," which is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category. 55

Item 3. Quantitative and Qualitative Disclosures About Market Risk. (Dollars in Thousands) - -------------------------------------------------------------------------------- The following table sets forth the estimated maturity or repricing of the Company's interest-earning assets and interest-bearing liabilities at March 31, 2001. The amounts of assets and liabilities shown within a particular period were determined in accordance with the contractual terms of the assets and liabilities, except (i) adjustable-rate loans, performing discount loans, securities and FHLB advances are included in the period in which they are first scheduled to adjust and not in the period in which they mature, (ii) fixed-rate mortgage-related securities reflect estimated prepayments, which were estimated based on analyses of broker estimates, the results of a prepayment model utilized by the Company and empirical data, (iii) non-performing discount loans reflect the estimated timing of resolutions which result in repayment to the Company, (iv) NOW and money market checking deposits and savings deposits, which do not have contractual maturities, reflect estimated levels of attrition, which are based on detailed studies of each such category of deposit by the Company, and (v) escrow deposits and other non-interest bearing checking accounts, which amounted to $58,840 at March 31, 2001, are excluded. Management believes that these assumptions approximate actual experience and considers them reasonable; however, the interest rate sensitivity of the Company's assets and liabilities in the table could vary substantially if different assumptions were used or actual experience differs from the historical experience on which the assumptions are based. March 31, 2001 ---------------------------------------------------------------------- Four to More Than Within Three Twelve One Year to Three Years Months Months Three Years and Over Total ----------- ----------- ----------- ----------- ----------- RATE-SENSITIVE ASSETS: Interest-earning deposits ........................... $ 9,990 $ -- $ -- $ -- $ 9,990 Federal funds sold .................................. 155,500 -- -- -- 155,500 Trading securities .................................. 49,155 48,092 38,295 71,115 206,657 Loans available for sale (1) ........................ 422 4,894 2,323 2,457 10,096 Investment securities, net .......................... 13,257 -- -- -- 13,257 Loan portfolio, net (1) ............................. 47,277 6,630 20,929 3,147 77,983 Discount loan portfolio, net (1) .................... 77,236 190,326 113,944 58,143 439,649 Match funded loans and securities (1) ............... 8,878 29,487 39,777 32,328 110,470 ----------- ----------- ----------- ----------- ----------- Total rate-sensitive assets ....................... 361,715 279,429 215,268 167,190 1,023,602 ----------- ----------- ----------- ----------- ----------- RATE-SENSITIVE LIABILITIES: NOW and money market checking deposits .............. 11,162 199 425 1,107 12,893 Savings deposits .................................... 94 176 349 620 1,239 Certificates of deposit ............................. 163,959 500,880 312,920 82,960 1,060,719 ----------- ----------- ----------- ----------- ----------- Total interest-bearing deposits ..................... 175,215 501,255 313,694 84,687 1,074,851 Bond-match funded loan agreements ................... 79,784 6,988 8,602 4,358 99,732 Obligations outstanding under lines of credit ....... 32,796 -- -- -- 32,796 Notes, debentures and other ......................... 6,235 -- 95,850 67,045 169,130 ----------- ----------- ----------- ----------- ----------- Total rate-sensitive liabilities .................. 294,030 508,243 418,146 156,090 1,376,509 ----------- ----------- ----------- ----------- ----------- Interest rate sensitivity gap excluding financial instruments ......................................... 67,685 (228,814) (202,878) 11,100 (352,907) FINANCIAL INSTRUMENTS: Interest rate caps ..................................... -- -- 148 -- 148 Interest rate floors ................................... 6 20 267 212 505 ----------- ----------- ----------- ----------- ----------- Total rate-sensitive financial instruments ............. 6 20 415 212 653 ----------- ----------- ----------- ----------- ----------- Interest rate sensitivity gap including financial instruments ......................................... $ 67,691 $ (228,794) $ (202,463) $ 11,312 $ (352,254) =========== =========== =========== =========== =========== Cumulative interest rate sensitivity gap ............... $ 67,691 $ (161,103) $ (363,566) $ (352,254) =========== =========== =========== =========== Cumulative interest rate sensitivity gap as a percentage of total rate-sensitive assets............ 6.61% (15.74)% (35.52)% (34.41)% (1) Balances have not been reduced for non-performing loans. The OTS has established specific minimum guidelines for thrift institutions to observe in the area of interest rate risk as described in Thrift Bulletin No. 13a, "Management of Interest Rate Risk, Investment Securities, and Derivative Activities" ("TB 13a"). Under TB 13a, institutions are required to establish and demonstrate quarterly compliance with board-approved limits on interest rate risk that are defined in terms of net portfolio value ("NPV"), which is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments. These limits specify the minimum net portfolio value ratio ("NPV Ratio") allowable under current interest rates and hypothetical interest rate scenarios. An institution's NPV Ratio for a given interest rate scenario is calculated by dividing the NPV that would result in 56

Item 3. Quantitative and Qualitative Disclosures About Market Risk. (Dollars in Thousands) - -------------------------------------------------------------------------------- that scenario by the present value of the institution's assets in that same scenario. The hypothetical scenarios are represented by immediate, permanent, parallel movements (shocks) in the term structure of interest rates of plus and minus 100, 200 and 300 basis points from the actual term structure observed at quarter end. The current NPV Ratio for each of the seven rate scenarios and the corresponding limits approved by the Board of Directors, and as applied to OCN, are as follows at March 31, 2001: Board Limits Current Rate Shock in basis points (minimum NPV Ratios) NPV Ratios - -------------------------- -------------------------- ----------------------- +300 5.00% 25.94% +200 6.00% 25.87% +100 7.00% 25.78% 0 8.00% 25.68% -100 7.00% 25.70% -200 6.00% 25.79% -300 5.00% 25.92% The Committee also regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and NPV and evaluating such impacts against the maximum potential changes in net interest income and NPV that is authorized by the Board of Directors, and as applied to OCN. The following table quantifies the potential changes in net interest income and net portfolio value should interest rates go up or down (shocked) 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other. The cash flows associated with the loan portfolios and securities available for sale are calculated based on prepayment and default rates that vary by asset. Projected losses, as well as prepayments, are generated based upon the actual experience with the subject pool, as well as similar, more seasoned pools. To the extent available, loan characteristics such as loan-to-value ratio, interest rate, credit history, prepayment penalty terms and product types are used to produce the projected loss and prepayment assumptions that are included in the cash flow projections of the securities. When interest rates are shocked, these projected loss and prepayment assumptions are further adjusted. The base interest rate scenario assumes interest rates at March 31, 2001. Actual results could differ significantly from the OCN results estimated in the following table: Estimated Changes in --------------------------------------------------- Rate Shock in basis points Net Interest NPV - -------------------------- -------------------------- ----------------------- +300 19.50% (1.73)% +200 13.00% (1.09)% +100 6.50% (0.54)% 0 --% --% -100 (6.50)% 1.10% -200 (13.00)% 2.56% -300 (19.50)% 4.21% The Committee is authorized to utilize a wide variety of off-balance sheet financial techniques to assist it in the management of interest rate risk and foreign currency exchange rate risk. These techniques include interest rate exchange or "swap" agreements, interest rate caps and floors and foreign currency futures contracts. INTEREST RATE RISK MANAGEMENT. The Company utilizes interest rate swaps to protect against the increase in borrowing cost from a short-term, fixed-rate liability, such as a line of credit, in an increasing interest-rate environment. The Company had entered into interest rate swaps with an aggregate notional amount of $33,000 at March 31, 2001 and December 31, 2000. In addition, the Company purchased amortizing caps and floors to hedge its interest rate exposure relating to mortgage servicing rights and match funded loans and securities. The Company had entered into caps and floors with an aggregate notional amount of $137,578 and $48,426, respectively, at March 31, 2001, as compared to caps and floors with an aggregate notional amount of $141,674 and $37,787, respectively, at December 31, 2000. See Note 6 to the Interim Consolidated Financial Statements included in Item 1 herein (which is incorporated herein by reference) for additional disclosures regarding the Company's interest rate derivative financial instruments. 57

Item 3. Quantitative and Qualitative Disclosures About Market Risk. (Dollars in Thousands) - -------------------------------------------------------------------------------- FOREIGN CURRENCY EXCHANGE RATE RISK MANAGEMENT. The Company has entered into foreign currency futures to hedge its investments in foreign subsidiaries which own residual interests backed by residential loans originated in the UK and in the shopping center located in Halifax, Nova Scotia. The Company's hedges, the related investments in foreign subsidiaries, and the net exposures as of March 31, 2001 and December 31, 2000 were as follows: Investment Hedge Net Exposure ---------- ---------- ------------ MARCH 31, 2001: UK residuals....................... $ 25,950 $ 20,792 $ (5,158) Nova Scotia Shopping Center........ $ 20,885 $ 20,947 $ 62 DECEMBER 31, 2000: UK residuals....................... $ 23,329 $ 22,236 $ (1,003) Nova Scotia Shopping Center........ $ 21,913 $ 22,423 $ 510 The net exposures are subject to gain or loss if foreign currency exchange rates fluctuate. See the "Foreign Currency Management" section of Note 6 to the Interim Consolidated Financial Statements included in Item 1 herein (which is incorporated herein by reference) for additional disclosures regarding the Company's foreign currency derivative financial instruments. 58

FORWARD-LOOKING STATEMENTS Certain statements contained herein are not, and certain statements contained in future filings by the Company with the Securities and Exchange Commission (the "Commission"), in the Company's press releases or in the Company's other public or shareholder communications may not be, based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements, which are based on various assumptions (some of which are beyond the Company's control), may be identified by reference to a future period(s) or by the use of forward-looking terminology such as "anticipate," "believe," "commitment," "consider," "continue," "could," "estimate," "expect," "foresee," "intend," "in the event of," "may," "plan," "propose," "prospect," "whether," "will," "would," future or conditional verb tenses, similar terms, variations on such terms or negatives of such terms. Although the Company believes the anticipated results or other expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that those results or expectations will be attained. Actual results could differ materially from those indicated in such statements due to risks, uncertainties and changes with respect to a variety of factors, including, but not limited to, international, national, regional or local economic environments (particularly in the market areas where the Company operates), government fiscal and monetary policies (particularly in the market areas where the Company operates), prevailing interest or currency exchange rates, effectiveness of interest rate, currency and other hedging strategies, laws and regulations affecting financial institutions, investment companies and real estate (including regulatory fees, capital requirements, access for disabled persons and environmental compliance), uncertainty of foreign laws, competitive products, pricing and conditions (including from competitors that have significantly greater resources than the Company), credit, prepayment, basis, default, subordination and asset/liability risks, loan servicing effectiveness, ability to identify acquisitions and investment opportunities meeting the Company's investment strategy, the course of negotiations and the ability to reach agreement with respect to the material terms of any particular transaction, satisfactory due diligence results, satisfaction or fulfillment of agreed upon terms and conditions of closing or performance, the timing of transaction closings, software integration, development and licensing effectiveness, damage to the company's computer equipment and the information stored its data centers, availability of and costs associated with obtaining adequate and timely sources of liquidity, ability to repay or refinance indebtedness (at maturity or upon acceleration), to meet collateral calls by lenders (upon re-valuation of the underlying assets or otherwise), to generate revenues sufficient to meet debt service payments and other operating expenses, availability of discount loans and servicing rights for purchase, size of, nature of and yields available with respect to the secondary market for mortgage loans, financial, securities and securitization markets in general, adequacy of allowances for loan losses, changes in real estate conditions (including liquidity, valuation, revenues, rental rates, occupancy levels and competing properties), adequacy of insurance coverage in the event of a loss, other factors generally understood to affect the real estate acquisition, mortgage, servicing and leasing markets, securities investments and the software and technology industry, and other risks detailed from time to time in the Company's reports and filings with the Commission, including its periodic reports on Forms 10-Q, 8-K and 10-K and Exhibit 99.1, titled Risk Factors, to the Company's Form 10-K for the year ended December 31, 2000. Given these uncertainties, readers are cautioned not to place undue reliance on such statements. The Company does not undertake, and specifically disclaims any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. 59

Part II - Other Information Item 1. Legal Proceedings. See "Note 10: Commitments and Contingencies" of the Company's Consolidated Financial Statements. Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS. 2.1 Agreement of Merger dated as of July 25, 1999 among Ocwen Financial Corporation, Ocwen Asset Investment Corp. and Ocwen Acquisition Company (1) 3.1 Amended and Restated Articles of Incorporation (2) 3.2 Amended and Restated Bylaws (3) 4.0 Form of Certificate of Common Stock (2) 4.1 Form of Indenture between the Company and Bank One, Columbus, NA as Trustee (2) 4.2 Form of Note due 2003 (Included in Exhibit 4.1) (2) 4.3 Certificate of Trust of Ocwen Capital Trust I (4) 4.4 Amended and Restated Declaration of Trust of Ocwen Capital Trust I (4) 4.5 Form of Capital Security of Ocwen Capital Trust I (Included in Exhibit 4.4) (4) 4.6 Form of Indenture relating to 10.875% Junior Subordinated Debentures due 2027 of the Company (4) 4.7 Form of 10.875% Junior Subordinated Debentures due 2027 of the Company (Included in Exhibit 4.6) (4) 4.8 Form of Guarantee of the Company relating to the Capital Securities of Ocwen Capital Trust I (4) 4.9 Form of Indenture between Ocwen Federal Bank FSB and The Bank of New York as Trustee (5) 4.10 Form of Subordinated Debentures due 2005 (5) 4.11 Form of Indenture between OAC and Norwest Bank Minnesota, National Association, as Trustee thereunder for the 11.5% Redeemable Notes due 2005 (6) 4.12 Form of 11.5% Redeemable Notes due 2005 (7) 4.13 Form of Second Supplemental Indenture between OAC and Wells Fargo Bank Minnesota, National Association, as successor to Norwest Bank Minnesota, National Association, as trustee thereunder for the 11.5% Redeemable Notes due 2005 (8) 10.1 Ocwen Financial Corporation 1996 Stock Plan for Directors, as amended(9) 10.2 Ocwen Financial Corporation 1998 Annual Incentive Plan (10) 10.3 Amended and Restated Loan Agreement, dated as of June 10, 1998, among, inter alia, OAIC California Partnership, L.P., OAIC California Partnership II, L.P., Salomon Brothers Realty Corp. and LaSalle National Bank (11) 10.4 Compensation and Indemnification Agreement, dated as of May 6, 1999, between OAC and the independent committee of the Board of Directors (12) 10.5 Second Amendment to Guarantee of Payment, dated as of July 9, 1999, between Salomon Brothers Realty Corp. and Ocwen Partnership, L.P. (12) 10.6 Indemnity agreement, dated August 24, 1999, among OCN and OAC's Board of Directors (13) 10.7 Amended Ocwen Financial Corporation 1991 Non-Qualified Stock Option Plan, dated October 26, 1999 (13) 10.8 First Amendment to Agreement, dated March 30, 2000, between HCT Investments, Inc. and OAIC Partnership I, L. P. (13) 10.9 Form of Separation Agreement and Full Release, dated as of February 28, 2001, by and among Christine A. Reich, Ocwen Federal Bank FSB and Ocwen Financial Corporation (14) 99.1 Risk factors (14) (1) Incorporated by reference from the similarly described exhibit included with the Registrant's Current Report on Form 8-K filed with the Commission on July 26, 1999. (2) Incorporated by reference from the similarly described exhibit filed in connection with the Registrant's Registration Statement on Form S-1 (File No. 333-5153), as amended, declared effective by the Commission on September 25, 1996. (3) Incorporated by reference from the similarly described exhibit included with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. 60

Part II - Other Information (4) Incorporated by reference from the similarly described exhibit filed in connection with the Company's Registration Statement on Form S-1 (File No. 333-28889), as amended, declared effective by the Commission on August 6, 1997. (5) Incorporated by reference from the similarly described exhibit filed in connection with Amendment No. 2 to Offering Circular on Form OC (on Form S-1) filed on June 7, 1995. (6) Incorporated by reference from OAC's Current Report on Form 8-K filed with the Commission on July 11, 1998. (7) Incorporated by reference from OAC's Registration Statement on Form S-4 (File No. 333-64047), as amended, declared effective by the Commission on February 12, 1999. (8) Pursuant to Item 601 of Regulation S-K, Instruction (4)(iii), the Registrant agrees to furnish a copy to the Commission upon request. (9) Incorporated by reference from the similarly described exhibit filed in connection with the Registrant's Registration Statement on Form S-8 (File No. 333-44999), effective when filed with the Commission on January 28, 1998. (10) Incorporated by reference from the similarly described exhibit to the Company's Definitive Proxy Statement with respect to the Company's 1998 Annual Meeting of Shareholders filed with the Commission on March 31, 1998. (11) Incorporated by reference from OAC's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998. (12) Incorporated by reference from OAC's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999. (13) Incorporated by reference from the similarly described exhibit included with Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000. (14) Incorporated by reference from the similarly described exhibit included with the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. (b) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED MARCH 31, 2001. (1) A Form 8-K was filed by the Company on February 7, 2001 that contained a news release announcing the Company's financial results for the three months and year ended December 31, 2000. (2) A Form 8-K was filed by the Company on February 28, 2001 that contained a press release announcing executive changes. 61

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OCWEN FINANCIAL CORPORATION By: /s/ MARK S. ZEIDMAN ------------------------------------- Mark S. Zeidman, Senior Vice President and Chief Financial Officer (On behalf of the Registrant and as its principal financial officer) Date: May 15, 2001 62