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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark one)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
                  For the fiscal year ended December 31, 1998
                                                        OR
[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

      For the transition period from: _________________to ________________

                           Commission File No. 0-21341

                           OCWEN FINANCIAL CORPORATION
             (Exact name of Registrant as specified in its charter)

               FLORIDA                                           65-0039856
               -------                                           ----------
   (State or other jurisdiction of                            (I.R.S. Employer
    incorporation or organization)                           Identification No.)

        THE FORUM, SUITE 1000
  1675 PALM BEACH LAKES BOULEVARD
      WEST PALM BEACH, FLORIDA                                      33401
      ------------------------                                      -----
  (Address of principal executive office)                         (Zip Code)

                                 (561) 682-8000
                                 --------------
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK, $.01 PAR VALUE                 NEW YORK STOCK EXCHANGE (NYSE)
    (Title of each class)                      (Name of each exchange on
                                                  which registered)

   Securities registered pursuant to Section 12 (g) of the Act:  Not applicable.

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

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

Aggregate  market  value  of  the  Common  Stock,   $.01  par  value,   held  by
nonaffiliates  of the registrant,  computed by reference to the closing price as
reported on the NYSE as of the close of business on March 9, 1999:  $262,679,977
million (for purposes of this calculation  affiliates include only directors and
executive officers of the registrant).

Number of shares of Common  Stock,  $.01 par value,  outstanding  as of March 9,
1999: 60,800,357 shares

DOCUMENTS   INCORPORATED  BY  REFERENCE:   Portions  of  the  Annual  Report  to
Shareholders  for fiscal  year  ended  December  31,  1998 are  incorporated  by
reference into Part II, Items 5-8.

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<PAGE>

                           OCWEN FINANCIAL CORPORATION
                          1998 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

                                                                            PAGE


                                     PART I


Item 1.     Business..........................................................4
              General.........................................................4
              Segments........................................................5
              Discount Loan Acquisition and Resolution Activities.............7
              Investment in Unconsolidated Entities..........................12
              Lending Activities.............................................13
              Loan Servicing Activities......................................19
              Asset Quality..................................................20
              Investment Activities..........................................26
              Sources of Funds...............................................35
              Computer Systems and Use of Technology.........................39
              Economic Conditions............................................40
              Competition....................................................40
              Subsidiaries...................................................40
              Employees......................................................41
              Regulation.....................................................41
              The Company....................................................42
              The Bank.......................................................43
              Federal Taxation...............................................47
              State Taxation.................................................47

Item 2.     Properties.......................................................48
              Offices........................................................48


Item 3.     Legal Proceedings................................................48


Item 4.     Submission of Matters to a Vote of Security Holders..............48


                                     PART II


Item 5.     Market for the Registrant's Common Equity and
                Related Stockholder Matters..................................48


Item 6.     Selected Consolidated Financial Data.............................48


Item 7.     Management's Discussion and Analysis of Financial Condition
                and Results of Operations....................................48


Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.......49


Item 8.     Financial Statements.............................................49


                                       2

<PAGE>

                           OCWEN FINANCIAL CORPORATION
                          1998 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS
                                   (CONTINUED)

                                                                            PAGE


Item 9.     Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure......................................49


                                    PART III


Item 10.    Directors and Executive Officers of Registrant....................49


Item 11.    Executive Compensation............................................52


Item 12.    Security Ownership of Certain Beneficial Owners and Management....55


Item 13.    Certain Relationships and Related Transactions....................56


                                     PART IV


Item 14.    Exhibits, Financial Statement Schedules, 
                and Reports on Form 8-K.......................................57

            Signatures........................................................59

FORWARD-LOOKING STATEMENTS

         IN THE NORMAL  COURSE OF BUSINESS,  THE  COMPANY,  IN AN EFFORT TO HELP
KEEP ITS  SHAREHOLDERS  AND THE PUBLIC INFORMED ABOUT THE COMPANY'S  OPERATIONS,
MAY FROM TIME TO TIME  ISSUE OR MAKE  CERTAIN  STATEMENTS,  EITHER IN WRITING OR
ORALLY, THAT ARE OR CONTAIN FORWARD-LOOKING  STATEMENTS, AS THAT TERM IS DEFINED
IN THE U.S. FEDERAL  SECURITIES  LAWS.  GENERALLY,  THESE  STATEMENTS  RELATE TO
BUSINESS   PLANS  OR  STRATEGIES,   PROJECTED  OR   ANTICIPATED   BENEFITS  FROM
ACQUISITIONS  MADE  BY OR TO BE  MADE  BY  THE  COMPANY,  PROJECTIONS  INVOLVING
ANTICIPATED  REVENUES,  EARNINGS,  PROFITABILITY  OR OTHER  ASPECTS OF OPERATING
RESULTS  OR OTHER  FUTURE  DEVELOPMENTS  IN THE  AFFAIRS  OF THE  COMPANY OR THE
INDUSTRY IN WHICH IT CONDUCTS BUSINESS. 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 OR PERIODS OR BY THE
USE  OF   FORWARD-LOOKING   TERMINOLOGY   SUCH   AS   "ANTICIPATE,"   "BELIEVE,"
"COMMITMENT,"   "CONSIDER,"   "CONTINUE,"  "COULD,"   "ENCOURAGE,"   "ESTIMATE,"
"EXPECT,"  "INTEND,"  "IN THE EVENT OF," "MAY,"  "PLAN,"  "PRESENT,"  "PROPOSE,"
"PROSPECT,"  "UPDATE,"  "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, THOSE DISCUSSED BELOW. THE COMPANY DOES
NOT UNDERTAKE,  AND SPECIFICALLY  DISCLAIMS ANY OBLIGATION,  TO RELEASE PUBLICLY
THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS
TO  REFLECT  THE   OCCURRENCE  OF  ANTICIPATED   OR   UNANTICIPATED   EVENTS  OR
CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.

                                       3


<PAGE>


                                     PART I


ITEM 1.  BUSINESS

General

         Ocwen  Financial  Corporation  ("OCN" or the  "Company") is a specialty
financial  services  company which  conducts  business  primarily  through Ocwen
Federal  Bank  FSB  (the  "Bank"),  a  federally-chartered  savings  bank  and a
wholly-owned  subsidiary of the Company, and, to a lesser extent,  through other
non-bank subsidiaries.

         The Company is a Florida  corporation  which was  organized in February
1988 in connection with its acquisition of the Bank. During the early 1990s, the
Company  sought to take  advantage  of the general  decline in asset  quality of
financial  institutions  in many areas of the  country  and the large  number of
failed savings  institutions  during this period by establishing  its discounted
loan  acquisition  and  resolution  program.  This  program  commenced  with the
acquisition of discounted single-family residential loans for resolution in 1991
and  was  expanded  to  cover  the  acquisition  and  resolution  of  discounted
multi-family residential and commercial real estate loans in 1994.

         During  the  early  1990s,   the  Company  also  acquired   assets  and
liabilities of three failed savings  institutions  and merged  Berkeley  Federal
Savings Bank ("Old Berkeley"), a troubled financial institution,  into the Bank.
The Company  subsequently  sold  substantially all of the assets and liabilities
acquired in  connection  with these  acquisitions.  The Company is a  registered
savings and loan holding  company  subject to regulation by the Office of Thrift
Supervision  (the "OTS").  The Bank is subject to  regulation by the OTS, as its
chartering authority, and by the Federal Deposit Insurance Corporation ("FDIC"),
as a  result  of  its  membership  in the  Savings  Association  Insurance  Fund
("SAIF"),  which insures the Bank's deposits up to the maximum extent  permitted
by law. The Bank is also subject to certain regulation by the Board of Governors
of the Federal  Reserve  System  ("Federal  Reserve  Board") and  currently is a
member  of the  Federal  Home  Loan Bank  ("FHLB")  of New  York,  one of the 12
regional banks which comprise the FHLB System.

         The  Company's  strategy  focuses on what it believes to be the current
trend toward the growth in the sale or outsourcing of servicing of nonperforming
and  underperforming  loans by financial  institutions and government  agencies,
particularly  in the event  that  credit  quality  for a product  line  (such as
subprime mortgage loans)  deteriorates.  The Company's  strategy also focuses on
leveraging  its  technology  infrastructure  and core  expertise  to expand  its
activities  into related  business  lines both for itself and on a fee basis for
others.

         On November 6, 1997,  the  Company  acquired  AMOS,  Inc.  ("AMOS"),  a
Connecticut-based  company engaged primarily in the development of mortgage loan
servicing  software.  AMOS'  products are  Microsoft(R)  Windows(R)-based,  have
client/server  architecture and feature real-time processing, are designed to be
year 2000  compliant,  feature a  scalable  database  platform  and have  strong
workflow   capabilities.   On  January  20,  1998,  the  Company   acquired  DTS
Communications,  Inc. ("DTS"),  a real estate technology  company located in San
Diego,  California.  DTS has developed  technology tools to automate real estate
transactions.   DTS  has  been  recognized  by  Microsoft  Corporation  for  the
Microsoft(R)   component-based   architecture  to  facilitate   electronic  data
interchange. Both AMOS and DTS are wholly-owned subsidiaries of Ocwen Technology
Xchange, Inc. ("OTX").

         OTX's  principal   products  are  REALTrans(SM)  and  OTX(TM)  Mortgage
Software Suite.  REALTrans(SM)  is a web-based  application that facilitates the
electronics  purchase of real estate  products and  services  via the  Internet.
Products currently supported include title insurance,  appraisals, escrow, field
services, inspections,  warranty, broker price opinions, and real property data.
This  application  allows  users  remote  access  to send,  receive,  and  track
information  from any location.  The user is able to track the status of orders,
and  send  and  receive  messages,  as  well  as  documents.  In  addition,  the
REALTrans(SM)  application  includes several forms that can be completed online,
thereby  facilitating  the sending of actual data, not just images of documents,
REALTrans(SM)  provides data integrity because all data are backed up and stored
at a  secure  off-site  facility.  The  Company  is  making  its  advanced  loan
resolution  technology,  the OTX(TM) Mortgage Software Suite, available to third
parties through the marketing of software licenses. OTX also provides consulting
services related to its software and Internet products.

         The Company  entered the United  Kingdom  ("UK")  subprime  residential
mortgage  market  in  1998  through  the  acquisition  of  36.07%  of the  total
outstanding  common  stock of Norland  Capital  Group  plc,  doing  business  as
Kensington Mortgage Company ("Kensington"),  on February 25, 1998. Kensington is
a leading originator of subprime residential  mortgages in the U.K. On April 24,
1998,  the Company,  through its  wholly-owned  subsidiary  Ocwen UK plc ("Ocwen
UK"), acquired substantially all of the assets, and certain liabilities,  of the
U.K. operations of Cityscape  Financial Corp.  ("Cityscape UK"). As consummated,
the Company acquired  Cityscape UK's mortgage loan portfolio and its residential
subprime mortgage loan origination and servicing businesses.

                                       4

<PAGE>

         The Company's  domestic  subprime  residential  lending  activities are
conducted  primarily through Ocwen Financial  Services,  Inc.  ("OFS"),  a 97.8%
owned subsidiary.  OFS acquired both the subprime residential lending operations
previously  conducted by the Bank and substantially all of the assets of Admiral
Home Loan ("Admiral"), the Company's primary correspondent mortgage banking firm
for subprime  single-family  residential loans, in a transaction which closed on
May 1, 1997.

         On May 5, 1998,  the  Company,  through  its  wholly-owned  subsidiary,
Investor's  Mortgage  Insurance  Holding  Company  ("IMI"),  acquired  1,473,733
partnership units of Ocwen Partnership L.P. ("OPLP"),  the operating  subsidiary
partnerships  of Ocwen Asset  Investment  Corp.  ("OAC").  This  purchase was in
addition to the 160,000 units owned at December 31, 1997,  and the 175,000 units
acquired on February 17,  1998,  for which the Company  exchanged  shares of OAC
stock,  increasing  the total number of units owned by IMI to 1,808,733 or 8.71%
of the total partnership units outstanding at December 31, 1998. OAC specializes
in the  acquisition  and  management  of real estate and mortgage  assets and is
managed by Ocwen Capital Corporation  ("OCC"), a wholly-owned  subsidiary of OCN
formed in 1997. At December 31, 1998,  the Company  owned  1,540,000 or 8.12% of
the outstanding common stock of OAC.

SEGMENTS

         The  Company's  primary  business  is the  acquisition,  servicing  and
resolution of  subperforming  and  nonperforming  mortgage loans and the related
development of loan servicing  technology and software for the mortgage and real
estate industries. Within its business, The Company's primary activities consist
of its single family residential and multi-family residential,  small commercial
and large  commercial  discount  loan  acquisition  and  resolution  activities,
servicing of  residential  and commercial  mortgage  loans for others,  lending,
investments in a wide variety of mortgage-related  securities and investments in
low-income housing tax credit interests.

<TABLE>
<CAPTION>

                                                         Net Interest       Net (Loss)         Total
DECEMBER 31, 1998                                           Income           Income            Assets
                                                         -----------       -----------      -----------
<S>                                                      <C>               <C>              <C>        
Discount loans:                                                      (Dollars in thousands)
   Single family residential loans...................... $    21,568       $    14,394      $   613,769
   Large commercial real estate loans...................      35,220            28,103          591,612
   Small commercial real estate loans...................      23,149             8,195          259,609
                                                         -----------       -----------      -----------
                                                              79,937            50,692        1,464,990
                                                         -----------       -----------      -----------
Mortgage loan servicing:
   Domestic.............................................       6,604             8,066           56,302
   Foreign (U.K.).......................................         147             4,771           11,974
                                                         -----------       -----------      -----------
                                                               6,751            12,837           68,276
                                                         -----------       -----------      -----------

Investment in low-income housing tax credits............      (8,246)            9,119          220,234

Commercial real estate lending..........................      16,066            13,588           74,439

OTX                                                                5            (9,623)          21,659

Subprime single family residential lending:
   Domestic.............................................      14,080           (20,524)         156,997
   Foreign (U.K.).......................................      11,898             7,475          286,224
                                                         -----------       -----------      -----------
                                                              25,978           (13,049)         443,221
                                                         -----------       -----------      -----------

Investment securities...................................        (214)          (59,186)         382,201

Equity investment in OAC................................          --            (8,701)          39,088

Other...................................................       2,524             3,123          593,971
                                                         -----------       -----------      -----------
                                                         $   122,801       $    (1,200)     $ 3,308,079
                                                         ===========       ===========      ===========
</TABLE>


                                       5


<PAGE>

<TABLE>
<CAPTION>

                                                              Net Interest       Net (Loss)          Total
      DECEMBER 31, 1997                                          Income            Income           Assets
                                                                ----------       ----------        ----------
<S>                                                             <C>              <C>               <C>       
      Discount loans:                                                      (Dollars in thousands)
        Single family residential loans................         $   24,870       $   23,349        $  844,146
        Large commercial real estate loans.............             33,142           24,474           585,035
        Small commercial real estate loans.............             19,257            5,349           308,543
                                                                ----------       ----------        ----------
                                                                    77,269           53,172         1,737,724
                                                                ----------       ----------        ----------
      Mortgage loan servicing:
        Domestic.......................................              2,629            3,972            11,160
        Foreign (U.K.).................................                 --               --                --
                                                                ----------       ----------        ----------
                                                                     2,629            3,972            11,160
                                                                ----------       ----------        ----------

      Investment in low income housing tax credits.....             (5,080)           9,087           168,748

      Commercial real estate lending...................             25,794           12,405           230,682

      OTX .............................................                (33)              --             5,116

      Subprime single family residential lending:
        Domestic.......................................              5,205           (2,166)          225,814
        Foreign (U.K.).................................                 --               --                --
                                                                ----------       ----------        ----------
                                                                     5,205           (2,166)          225,814
                                                                ----------       ----------        ----------

      Investment securities............................              2,698            3,587           344,231

      Equity investment in OAC.........................                 --               --                --

      Other............................................              7,760           (1,125)          345,690
                                                             -------------    --------------    -------------
                                                             $     116,242    $      78,932     $   3,069,165
                                                             =============    =============     =============
</TABLE>


                                       6


<PAGE>

<TABLE>
<CAPTION>

                                                                        Net Interest       Net (Loss)          Total
                DECEMBER 31, 1996                                          Income            Income           Assets
                                                                        ----------        ----------        ----------
<S>                                                                     <C>               <C>               <C>       
               Discount loans:                                                     (Dollars in thousands)
                 Single family residential loans................        $   12,122        $   16,827        $  650,261
                 Large commercial real estate loans.............            17,565            15,480           516,622
                 Small commercial real estate loans.............            14,851             1,398           283,466
                                                                        ----------        ----------        ----------
                                                                            44,538            33,705         1,450,349
                                                                        ----------        ----------        ----------
               Mortgage loan servicing:
                 Domestic.......................................             1,685            (2,558)            5,020
                 Foreign (U.K.).................................                --                --                --
                                                                        ----------        ----------        ----------
                                                                             1,685            (2,558)            5,020
                                                                        ----------        ----------        ----------

               Investment in low-income housing tax credits.....            (4,962)           11,577            93,309

               Commercial real estate lending...................            12,305             3,617           402,582

               Subprime single family residential lending:
                 Domestic.......................................             4,486             3,131           128,878
                 Foreign (U.K.).................................                --                --                --
                                                                        ----------        ----------        ----------
                                                                             4,486             3,131           128,878
                                                                        ----------        ----------        ----------

               Investment securities............................             8,632               987           342,801

               Other............................................            11,050              (317)           60,746
                                                                     -------------     -------------     -------------
                                                                     $      77,734     $      50,142     $   2,483,685
                                                                     =============     =============     =============
</TABLE>


DISCOUNT LOAN ACQUISITION AND RESOLUTION ACTIVITIES

         The  Company  believes  that,  under  appropriate  circumstances,   the
acquisition of  nonperforming  and  underperforming  mortgage loans at discounts
offers significant  opportunities to the Company.  Discount loans generally have
collateral coverage which is sufficiently in excess of the purchase price of the
loan,  such that  successful  resolutions can produce total returns which are in
excess of an equivalent investment in performing mortgage loans.

         The Company  began its discount  loan  operations in 1991 and initially
focused on the  acquisition  of single  family  residential  loans.  In 1994 the
Company  expanded this  business to include the  acquisition  and  resolution of
discount  multi-family  residential and commercial real estate loans  (together,
unless the context otherwise requires, "commercial real estate loans"). Prior to
entering the discount loan business,  management of the Company had  substantial
loan resolution  experience through former subsidiaries of the Company which had
been  engaged in the  business  of  providing  private  mortgage  insurance  for
residential  loans.  This  experience  assisted  the Company in  developing  the
procedures, facilities and systems to evaluate and acquire discount loans and to
resolve such loans in a timely and profitable manner.  Management of the Company
believes  that the  resources  utilized  by the Company in  connection  with the
acquisition,  servicing and  resolution  of discount  real estate  loans,  which
include  proprietary  technology and software,  allow the Company to effectively
manage an extremely  data-intensive business and that, as discussed below, these
resources have applications in other areas.  See "Business-Computer Systems and
Use of Technology."

         COMPOSITION OF THE DISCOUNT LOAN  PORTFOLIO.  At December 31, 1998, the
Company's  net discount loan  portfolio  amounted to $1.03 billion or 31% of the
Company's  total  assets.  Substantially  all of  the  Company's  discount  loan
portfolio is secured by first mortgage liens on real estate.

                                       7


<PAGE>

         The  following  table  sets  forth  the  composition  of the  Company's
discount loan portfolio by type of loan at the dates indicated:

<TABLE>
<CAPTION>

                                                                          December 31,
                                      ----------------------------------------------------------------------------------
                                           1998             1997             1996              1995              1994
                                      ------------      ------------     ------------     -------------     ------------
                                                                     (Dollars in Thousands)

<S>                                   <C>               <C>              <C>               <C>              <C>         
   Single family residential loans    $    597,100      $    900,817     $    504,049      $    376,501     $    382,165
   Multi-family residential loans          244,172           191,302          341,796           176,259          300,220
   Commercial real estate loans(1)         449,010           701,035          465,801           388,566          102,138
   Other loans...................           10,144             1,865            2,753             2,203              911
                                      ------------      ------------     ------------     -------------     ------------
     Total discount loans........        1,300,426         1,795,019        1,314,399           943,529          785,434
   Unaccreted discount (2).......         (252,513)         (337,350)        (241,908)         (273,758)        (255,974)
   Allowance for loan losses.....          (21,402)          (23,493)         (11,538)               --               --
                                      ------------      ------------     ------------      ------------     ------------
   Discount loans, net...........     $  1,026,511      $  1,434,176     $  1,060,953      $    669,771     $    529,460
                                      ============      ============     ============      ============     ============
</TABLE>


(1)      The balance at December 31, 1998  consisted of $154.1  million of loans
         secured by office buildings, $100.4 million of loans secured by hotels,
         $21.2 million of loans secured by retail properties or shopping centers
         and $173.3 million of loans secured by other properties. The balance at
         December  31,  1997  consisted  of $363.7  million of loans  secured by
         office  buildings,  $98.9  million of loans  secured by hotels,  $106.8
         million of loans secured by retail  properties or shopping  centers and
         $131.6  million of loans  secured by other  properties.  The balance at
         December  31,  1996  consisted  of $202.1  million of loans  secured by
         office  buildings,  $46.0  million of loans  secured by hotels,  $138.6
         million of loans secured by retail  properties or shopping  centers and
         $79.1 million of loans secured by other properties.

(2)      The balance at December 31, 1998  consisted of $161.6 million on single
         family  residential  loans,  $20.8 million on multi family  residential
         loans,  $69.8 million on commercial  real estate loans and $0.3 million
         on other loans respectively. The balance at December 31, 1997 consisted
         of $170.7 million on single family  residential loans, $46.0 million on
         multi-family  residential  loans,  $120.5  million on  commercial  real
         estate loans and $0.2 million on other loans, respectively. The balance
         at  December  31,  1996  consisted  of $92.2  million on single  family
         residential  loans,  $71.8 million on multi-family  residential  loans,
         $77.6 million on commercial real estate loans and $0.3 million on other
         loans, respectively.

         The  properties  which secure the Company's  discount loans are located
throughout  the United  States.  At December 31, 1998,  the five states with the
greatest  concentration of properties securing the Company's discount loans were
California,  New York,  Illinois,  Michigan  and New  Jersey,  which had  $211.5
million,  $144.0  million,  $111.2  million,  $104.8  million and $84.4  million
principal amount of discount loans (before unaccreted  discount),  respectively.
The Company believes that the relatively  dispersed  geographic  distribution of
its discount loan portfolio can reduce the risks  associated with  concentrating
such  loans  in  limited  geographic  areas,  and  that,  due to its  expertise,
technology and software,  and  procedures,  the geographic  distribution  of its
discount loan  portfolio  does not place  significantly  greater  burdens on the
Company's ability to resolve such loans.

         Discount   loans   may  have  net  book   values   up  to  the   Bank's
loan-to-one-borrower  limitation. See "Business Regulation-The Bank-Loan-to-One-
Borrower."

         ACQUISITION OF DISCOUNT  LOANS.  In early years,  the Company  acquired
discount  loans  from the  FDIC and the  Resolution  Trust  Corporation  ("RTC")
primarily  in auctions of pools of loans  acquired by them from the large number
of financial  institutions  which failed  during the late 1980s and early 1990s.
Although the RTC no longer is in existence and the banking and thrift industries
have recovered from the problems  experienced in the late 1980s and early 1990s,
governmental  agencies,   particularly  the  Department  of  Housing  and  Urban
Development  ("HUD"),  continue to be potential  sources of discount loans.  The
Company  obtains a  substantial  amount of discount  loans from various  private
sector  sellers,  such  as  banks,  savings  institutions,  mortgage  companies,
subprime lenders and insurance  companies.  At December 31, 1998,  approximately
74% of the loans in the Company's discount loan portfolio had been acquired from
the private sector, as compared to 58% at December 31, 1997, 77% at December 31,
1996, and 90% at December 31, 1995.

         Overall,  the  percentage of discount  loans in the Company's  discount
loan portfolio  acquired from private sector sellers has decreased since 1995 as
a result of the Company's  acquisition of a substantial amount of discount loans
from HUD. During the year ended December 31, 1997, the Company and a co-investor
were the successful bidder to purchase from HUD 24,773 single family residential
loans with an aggregate unpaid principal balance of $1.55 billion and a purchase
price of $1.34 billion.  The Company  acquired $771.6 million of these loans and
the right to service all of such loans.  In 1996,  the Company and a co-investor
were the successful bidder to purchase from HUD 4,591 single family  residential
loans  with an  aggregate  unpaid  principal  balance  of $258.1  million  and a
purchase price of $204.0 million.  The Company  acquired $112.2 million of these
loans and the right to service all of such  loans.  In 1996,  the  Company  also
acquired  from  HUD  discount  multi-family  residential  loans  with an  unpaid
principal balance of

                                       8

<PAGE>

$225.0 million.  The foregoing  acquisitions were in addition to the acquisition
of $741.2 million gross principal amount of single family residential loans from
HUD by BCBF, LLC (the "LLC"), a limited  liability  company formed in March 1996
by the Bank and BlackRock Capital Finance L.P. ("BlackRock"). See "Investment in
Unconsolidated Entities - Investment in Joint Ventures."

         Since  1996,  the  Company has  acquired  over $2.04  billion of single
family  residential  loans  and  $1.96  billion  of  distressed  commercial  and
multi-family  residential loans from the private sector and government agencies,
making it the largest  purchaser of such assets in the United  States.  In 1998,
the Company acquired $1.1 billion of unpaid principal balance of discount loans,
of which $0.6 billion were residential loans with the balance being commercial.

         HUD loans are acquired by HUD pursuant to various  assignment  programs
of the Federal  Housing  Administration  ("FHA").  Under  programs of the FHA, a
lending institution may assign an FHA-insured loan to HUD because of an economic
hardship on the part of the borrower  which  precludes  the borrower from making
the scheduled principal and interest payment on the loan. FHA-insured loans also
are  automatically  assigned to HUD upon the 20th  anniversary  of the  mortgage
loan.  In most  cases,  loans  assigned  to HUD after  this  20-year  period are
performing under the original terms of the loan. Once a loan is assigned to HUD,
the FHA insurance has been paid and the loan is no longer insured.  As a result,
none of the HUD loans are insured by the FHA.

         A majority of the $771.6  million of loans acquired by the Company from
HUD  during  the year  ended  December  31,  1997  are  subject  to  forbearance
agreements  after the servicing  transfer date.  During the forbearance  period,
borrowers are required to make a monthly payment which is based on their ability
to pay and which  may be less than the  contractual  monthly  payment.  Once the
forbearance  period  is over,  the  borrower  is  required  to make at least the
contractual payment regardless of ability to pay. Virtually all of the foregoing
loans acquired from HUD reached the end of the forbearance  period by the end of
1998.  Prior  purchases of loans from HUD by the Company (and the LLC) primarily
included loans that were beyond the forbearance period.

         Discount real estate loans  generally  are acquired in pools,  although
discount commercial real estate loans may be acquired individually.  These pools
generally are acquired in auctions or competitive bid circumstances in which the
Company  faces   substantial   competition.   Although  many  of  the  Company's
competitors  have  access to  greater  capital  and have other  advantages,  the
Company  believes  that it has a competitive  advantage  relative to many of its
competitors  as a result of its  experience in managing and  resolving  discount
loans,  its large  investment  in the  computer  systems,  technology  and other
resources which are necessary to conduct its  business,  its national reputation
and  the  strategic  relationships  and  contacts  which  it  has  developed  in
connection with these activities.

         The  Company  generally  acquires  discount  loans  solely  for its own
portfolio.  From time to time, however, the Company and one or more co-investors
may submit a joint bid to acquire a pool of  discount  loans in order to enhance
the prospects of submitting a successful bid. If successful, the Company and the
co-investors  generally  allocate  ownership of the acquired  loans in an agreed
upon manner,  although in certain  instances the Company and the co-investor may
continue to have a joint interest in the acquired loans. In addition,  from time
to time the Company and a co-investor may acquire discount loans through a joint
venture.  See  "Investment  in  Unconsolidated  Entities -  Investment  in Joint
Ventures."

         Prior to making an offer to purchase a portfolio of discount loans, the
Company conducts an extensive  investigation  and evaluation of the loans in the
portfolio.  Evaluations of potential  discount loans are conducted  primarily by
the Company's  employees who specialize in the analysis of nonperforming  loans,
often with further  specialization  based on geographic  or  collateral-specific
factors.  The Company's employees regularly use third parties,  such as brokers,
who are  familiar  with a  property's  type  and  location,  to  assist  them in
conducting an evaluation of the value of a collateral property, and depending on
the circumstances, particularly in the case of commercial real estate loans, may
use  subcontractors,  such as local counsel and  engineering  and  environmental
experts,  to assist in the evaluation and  verification  of information  and the
gathering of other  information  not  previously  made  available by a potential
seller.

         The Company  determines  the amount to be offered to acquire  potential
discount  loans by using a  proprietary  modeling  system  and loan  information
database  which focuses on the  anticipated  recovery  amount and the timing and
cost of the resolution of the loans. The amount offered by the Company generally
is at a  discount  from both the  stated  value of the loan and the value of the
underlying  collateral which the Company  estimates is sufficient to generate an
acceptable return on its investment.

         RESOLUTION OF DISCOUNT  LOANS.  After a discount loan is acquired,  the
Company utilizes its information technology software systems to resolve the loan
as  expeditiously  as possible in  accordance  with  specified  procedures.  The
various  resolution  alternatives  generally  include  the  following:  (i)  the
borrower  brings the loan current in accordance with original or modified terms,
(ii) the borrower repays the loan or a negotiated  amount of the loan, (iii) the
borrower

                                       9

<PAGE>

agrees to deed the property to the Company in lieu of foreclosure, in which case
it is classified as real estate owned and held for sale by the Company,  or (iv)
the  Company  forecloses  on the  loan  and  the  property  is  acquired  at the
foreclosure sale either by a third party or by the Company,  in which case it is
classified  as real estate owned and held for sale by the Company.  In addition,
in the case of single  family  residential  loans,  assistance  is  provided  to
borrowers in the form of forbearance  agreements under which the borrower either
makes a monthly  payment less than or equal to the original  monthly  payment or
makes a monthly payment more than the contractual monthly payment to make up for
arrearages.

         In appropriate  cases,  the Company works with borrowers to resolve the
loan in advance of foreclosure.  One method is through  forbearance  agreements,
which generally allow the borrower to pay the contractual monthly payment plus a
portion of the arrearage each month, and other means. Although this strategy may
result in an initial  reduction in the yield on a discounted  loan,  the Company
believes that it is  advantageous  because it (i) generally  results in a higher
resolution value than foreclosure;  (ii) reduces the amount of real estate owned
acquired by foreclosure or by deed-in-lieu  thereof and related risks, costs and
expenses;  (iii)  enhances  the  ability of the  Company to sell the loan in the
secondary market,  either on a whole loan basis or through  securitizations  (in
which case the Company  may  continue  to earn fee income  from  servicing  such
loans); and (iv) permits the borrower to retain ownership of the home and, thus,
enhances  relations  between the Company  and the  borrower.  As a result of the
Company's current loan resolution strategy of emphasizing forbearance agreements
and other  resolutions in advance of  foreclosure,  the Company has been able to
resolve 72% of its residential discount loans before foreclosure, as compared to
a 23% industry average.

         The  general  goal of the  Company's  asset  resolution  process  is to
maximize,  in a timely  manner,  cash recovery on each loan in the discount loan
portfolio.  The Company generally  anticipates a longer period (approximately 12
to 30 months) to resolve  discount  commercial  real estate loans than  discount
single family residential loans because of their complexity and the wide variety
of issues that may occur in connection with the resolution of such loans.

         The Credit  Committee of the Board of  Directors  of the Bank  actively
monitors  the asset  resolution  process to identify  discount  loans which have
exceeded their expected  foreclosure period and real estate owned which has been
held longer than  anticipated.  Plans of action are  developed for each of these
assets to remedy the cause for delay and are reviewed by the Credit Committee.

         SALE OF DISCOUNT LOANS.  From time to time the Company sells performing
discount  loans  either  on  a  whole  loan  basis  or  indirectly  through  the
securitization of such loans and sale of the mortgage-related  securities backed
by them.  During the years ended  December 31, 1998,  1997 and 1996, the Company
sold  $696.1  million,  $518.9  million and $230.2  million of  discount  loans,
respectively,  which resulted in gains of $63.5 million, $60.4 million and $15.3
million,  respectively,  including net  securitization  gains of $48.1  million,
$53.1  million  and $7.9,  respectively.  Also,  during 1997 the LLC, as part of
larger  transactions  involving  the  Company  and an  affiliate  of Black Rock,
completed the  securitizations of 1,730 discount single family residential loans
acquired from HUD in 1996 and 1995,  with an unpaid  principal  balance of $78.4
million and past due interest of $22.5  million,  which  resulted in the Company
recognizing  indirect  gains of $14.0  million as a result of the  Company's pro
rata interest in the LLC.

         The  following  table sets  forth  certain  information  related to the
Company's securitization of discount loans during 1998, 1997 and 1996.

<TABLE>
<CAPTION>

                               Loan Securitized
- ---------------------------------------------------------------------------         Book Value of
           Types of Loans                   Principal         No. of Loans      Securities Retained(1)         Net Gain
- ----------------------------------       --------------       -------------     ---------------------       -------------
<S>                                      <C>                          <C>          <C>                      <C>          
1998:                                                                  (Dollars in thousands)
Single family discount............       $      498,798               7,638        $         32,261         $      48,085
                                         ==============       =============        ================         =============

1997:
Single family discount............       $      418,795               6,295        $         20,635         $      51,137
Small commercial discount.........               62,733                 302                   4,134                 1,994
                                         --------------       -------------        ----------------         -------------
                                         $      481,528               6,597        $         24,769         $      53,131
                                         ==============       =============        ================         =============
1996:
Large commercial discount.........       $      164,417                  25        $          8,384         $       7,929
                                         ==============       =============        ================         =============
</TABLE>


(1)    Consists of subordinated  and/or residual  securities  resulting from the
       Company's  securitization  activities,  which  had a fair  value of $71.5
       million at December 31, 1998.

                                       10


<PAGE>

         ACTIVITY IN THE DISCOUNT LOAN PORTFOLIO. The following table sets forth
the activity in the Company's  gross discount loan portfolio  during the periods
indicated:


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                       --------------------------------------------------------------------------------------------------------
                               1998                 1997                 1996                 1995                 1994
                       -------------------- -------------------- -------------------- -------------------- --------------------
                                    No. of               No. of               No. of               No. of                No. of
                          Amount    Loans      Amount    Loans     Amount      Loans    Amount     Loans     Amount      Loans
                       ----------- -------- ----------- -------- ----------- -------- ----------- -------- ----------- --------
                                                               (Dollars in Thousands)
<S>                       <C>        <C>       <C>        <C>       <C>          <C>     <C>          <C>     <C>        <C>    
Balance at beginning
 of period ........... $ 1,795,019   12,980 $ 1,314,399    5,460 $   943,529    4,543 $   785,434    3,894 $   433,516    5,160
Acquisitions(1) ......   1,123,727    8,084   1,776,773   17,703   1,110,887    4,812     791,195    2,972     826,391    2,781
Resolutions and
 repayments(2) .......    (539,353)  (1,918)   (484,869)  (1,978)   (371,228)  (2,355)   (300,161)    (960)   (265,292)  (2,153)
Loans transferred to
  real estate owned ..    (382,904)  (3,193)   (292,412)  (1,596)   (138,543)    (860)   (281,344)    (984)   (171,300)  (1,477)
Sales ................    (696,063)  (7,853)   (518,872)  (6,609)   (230,246)    (680)    (51,595)    (379)    (37,881)    (417)
                       ----------- -------- ----------- -------- ----------- -------- ----------- -------- ----------- --------
Balance at
  end of period....... $ 1,300,426    8,100 $ 1,795,019   12,980 $ 1,314,399    5,460 $   943,529    4,543 $   785,434    3,894
                       =========== ======== =========== ======== =========== ======== =========== ======== =========== ========
</TABLE>


(1)      In 1998,  acquisitions  consisted  of $613.2  million of single  family
         residential loans, $231.1 million multifamily residential loans, $264.7
         million of  commercial  real estate loans and $14.7 million of consumer
         loans.  In 1997,  acquisitions  consisted  of $1.06  billion  of single
         family  residential  loans,  $57.7 million of multi-family  residential
         loans and $657.0  million of  commercial  real estate  loans.  In 1996,
         acquisitions  consisted of $365.4 million of single family  residential
         loans, $310.4 million of multi-family residential loans, $433.5 million
         of  commercial  real estate loans and $1.5 million of other loans.  The
         1996 data does not include the  Company's  pro rata share of the $741.2
         million of  discount  loans  acquired  by the LLC.  1995,  acquisitions
         consisted of $272.8 million of single family residential loans,  $141.2
         million of multi-family residential loans, $374.9 million of commercial
         real  estate  loans  and  $2.3   million  of  other  loans.   In  1994,
         acquisitions  consisted of $395.8 million of single family  residential
         loans,  $315.5  million of  multi-family  residential  loans and $115.1
         million of commercial real estate loans.

(2)      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.

         For  information  relating to the activity in the Company's real estate
owned which is attributable  to the Company's  discount loan  acquisitions,  see
"Asset Quality - Real Estate Owned."

         PAYMENT  STATUS OF  DISCOUNT  LOANS.  The  following  table  sets forth
certain  information  relating to the payment  status of loans in the  Company's
discount loan portfolio at the dates indicated.

<TABLE>
<CAPTION>

                                                                                  December 31,
                                                     -----------------------------------------------------------------------
                                                         1998           1997          1996            1995           1994
                                                     -----------    -----------    -----------    -----------    -----------
                                                                 (Dollars in Thousands)
<S>                                                  <C>            <C>            <C>            <C>            <C>        
Loan status:
  Current ........................................   $   579,449    $   673,255    $   579,597    $   351,630    $   113,794
  Past due 31 days to 89 days ....................        39,601         22,786         22,161         86,838         57,023
  Past due 90 days or more (1) ...................       624,328      1,070,925        563,077        385,112        413,506
  Acquired and servicing not
   yet transferred ...............................        57,048         28,053        149,564        119,949        201,111
                                                     -----------    -----------    -----------    -----------    -----------
                                                       1,300,426      1,795,019      1,314,399        943,529        785,434
  Unaccreted discount ............................      (252,513)      (337,350)      (241,908)      (273,758)      (255,974)
  Allowance for loan losses ......................       (21,402)       (23,493)       (11,538)            --             --
                                                     -----------    -----------    -----------    -----------    -----------
                                                     $ 1,026,511    $ 1,434,176    $ 1,060,953    $   669,771    $   529,460
                                                     ===========    ===========    ===========    ===========    ===========
</TABLE>


(1)      Includes $110.1 million, $432.6 million and $57.0 million of loans with
         forbearance   agreements   at  December  31,   1998,   1997  and  1996,
         respectively,  and $522.0 billion, $638.3 million and $506.1 million of
         loans without  forbearance  agreements  at December 31, 1998,  1997 and
         1996,  respectively.  Of the $110.1  million of loans with  forbearance
         agreements  past due 90 days or more in accordance with original terms,
         $77.9  million  were  current and $32.2  million were past due 31 to 89
         days under the terms of the forbearance agreements.

                                       11


<PAGE>

         ACCOUNTING  FOR  DISCOUNT  LOANS.  The  acquisition  cost for a pool of
discount loans is allocated to each  individual  loan within the pool based upon
relative fair value using the Company's pricing methodology. Prior to January 1,
1997,  the discount  associated  with all single  family  residential  loans was
recognized as a yield adjustment and was accreted into interest income using the
interest  method applied on a loan-by-loan  basis once  foreclosure  proceedings
were  initiated,  to the extent  the  timing  and amount of cash flows  could be
reasonably  determined.  Effective January 1, 1997, the Company ceased accretion
of discount on its nonperforming  single family  residential loans. The discount
which  is  associated  with  a  single  family   residential  loan  and  certain
multi-family  residential  and commercial real estate loans which are current or
subsequently  brought  current by the borrower in accordance with the loan terms
is accreted into the Company's  interest income as a yield  adjustment using the
interest method over the  contractual  maturity of the loan. For all other loans
interest is earned as cash is received.

         Gains on the  repayment and discharge of loans are recorded in interest
income on discount loans.  Upon receipt of title to property securing a discount
loan, the loans are transferred to real estate owned.

         Beginning in 1996, adjustments to reduce the carrying value of discount
loans to the fair value of the property  securing  the loan are charged  against
the  allowance for loan losses on the discount  loan  portfolio.  Prior to 1996,
such adjustments were charged against interest income on discount loans.

INVESTMENT IN UNCONSOLIDATED ENTITIES

         INVESTMENT  IN OAC. At December  31, 1997,  the  Company,  through IMI,
owned 1,715,000 shares or 9.04% of the outstanding  common stock of OAC. Also at
December 31, 1997, the Company, through IMI, owned 160,000 units or 0.84% of the
partnership units of OPLP. On February 17, 1998, IMI exchanged 175,000 shares of
OAC stock for 175,000 OPLP units.  On May 5, 1998,  IMI  acquired an  additional
1,473,733  OPLP units.  As a result of this  activity,  IMI's  investment in OAC
stock  declined to 1,540,000  shares or 8.12% at December  31,  1998,  while its
investment  in OPLP  increased to 1,808,733  units or 8.71%.  The Company  began
accounting for these entities on the equity method  effective May 5, 1998,  upon
the increase in its combined  ownership of OAC and OPLP to 16.83%. The Company's
investment  in OAC stock  amounted to $16.3  million at December 31,  1998.  The
Company's  investment  in OAC stock at December  31,  1997,  was  designated  as
available for sale and carried at a fair value of $35.2 million  ($25.5  million
cost).  The  Company's  investment  in OPLP units  amounted to $22.8  million at
December  31, 1998,  as compared to $2.4  million at December  31, 1997.  During
1998,  the Company  recorded  equity in the losses of its  investment in OAC and
OPLP of $4.0 million and $4.7 million, respectively.

         INVESTMENT IN KENSINGTON.  The Company's  investment in  unconsolidated
entities includes its 36.07% ownership interest in Kensington, which amounted to
$46.6 million at December 31, 1998, net of the excess of the purchase price over
the net  investment.  The excess of the purchase  price over the net  investment
amounted to $34.5  million  ((pound)20.9million)  at December 31,  1998,  net of
accumulated  amortization of $2.0 million ((pound)1.2 million), and is amortized
over a period of 15 years.  During 1998, the Company recorded equity in earnings
of Kensington  of $439,000,  net of the $2.0 million of  amortization  of excess
cost over purchase price.

         INVESTMENT  IN JOINT  VENTURES.  From time to time,  the  Company and a
co-investor  have acquired  discount loans by means of a co-owned joint venture.
At December 31, 1998,  the Company's  $1.1 million  investment in joint venture,
consisted  of a 10%  interest  in BCFL,  L.L.C.  ("BCFL"),  a limited  liability
company which was formed by the Company and BlackRock in January 1997 to acquire
discount  multi-family  residential  loans.  On December  12,  1997,  the LLC, a
limited  liability  company  formed  in  March  1996  between  the  Company  and
BlackRock,  distributed  all of its  assets  to the  Company  and its  other 50%
investor, BlackRock. Simultaneously, the Company acquired BlackRock's portion of
the distributed  assets.  The Company  recorded equity in earnings of the LLC of
$23.7 million and $38.3 million for 1997 and 1996, respectively.

         ACQUISITION  OF HUD LOANS BY THE LLC. In April 1996,  the LLC purchased
16,196 single family residential loans offered by HUD at an auction. Many of the
loans,  which had an aggregate unpaid principal balance of $741.2 million at the
date of acquisition, were not performing in accordance with their original terms
or an applicable forbearance agreement. The aggregate purchase price paid to HUD
amounted  to  $626.4  million.  All of the HUD  loans  acquired  by the LLC were
secured by first mortgage liens on single family residences.

         In  connection  with  the  acquisition,  the  Company  entered  into an
agreement  with the LLC to  service  the HUD loans in  accordance  with its loan
servicing and loan default resolution procedures.  In return for such servicing,
the Company  received  specific fees which were payable on a monthly basis.  The
Company did not pay any additional amount to acquire these servicing rights, and
as a result,  the  acquisition of the right to service the HUD loans held by the
LLC did not result in the Company's  recording  capitalized  mortgage  servicing
rights for financial reporting purposes.

                                       12

<PAGE>

         SECURITIZATION  OF THE HUD LOANS BY THE LLC.  During 1997,  the LLC, as
part of larger transactions involving the Company and an affiliate of BlackRock,
completed securitizations of 1,730 HUD loans held by it with an unpaid principal
balance of $78.4  million,  past due  interest  of $22.5  million and a net book
value of $60.6 million;  and during 1996, the LLC completed a securitization  of
9,825 HUD loans with an aggregate  unpaid  principal  balance of $419.4 million,
past due interest of $86.1 million and a net book value of $394.2  million.  The
LLC  recognized  gains of $14.0 million and $69.8  million  (including a gain of
$12.9 million on the sale in 1996 of $79.4 million of securities to the Company)
from the sale of the senior  classes in the  residuals  formed for  purposes  of
these transactions in the years ended December 31, 1997 and 1996,  respectively,
of which $7.0 million and $34.9  million,  respectively,  were  allocable to the
Company  as a  result  of its pro  rata  interest  in the LLC  and  included  in
losses/equity in earnings of investment in unconsolidated entities.

         ACCOUNTING FOR INVESTMENTS IN  UNCONSOLIDATED  ENTITIES.  The Company's
investment in unconsolidated  entities are accounted for under the equity method
of  accounting.  Under the equity  method of  accounting,  an  investment in the
shares or other  interests of an investee is  initially  recorded at the cost of
the shares or  interests  acquired  and  thereafter  is  periodically  increased
(decreased) by the investor's  proportionate  share of the earnings  (losses) of
the investee and  decreased by all  dividends  received by the investor from the
investee.

LENDING ACTIVITIES

         COMPOSITION OF LOAN PORTFOLIO.  At December 31, 1998, the Company's net
loan portfolio  amounted to $230.3 million or 7% of the Company's  total assets.
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.

         The following  table sets forth the  composition  of the Company's loan
portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>

                                                                 December 31,
                                         -------------------------------------------------------------
                                            1998        1997         1996         1995         1994
                                         ---------    ---------    ---------    ---------    ---------
                                                                        (Dollars in Thousands)
<S>                                      <C>          <C>          <C>          <C>          <C>      
Single family residential loans ......   $  30,361    $  46,226    $  73,186    $  75,928    $  31,926
Multi-family residential loans (1) ...      75,599       71,382       67,842       49,047        1,800
Commercial real estate and land loans:
     Hotels (2) (3) ..................      36,631       89,362      200,311      125,791       19,659
     Office buildings (4) ............      93,068       68,759      128,782       61,262           --
     Land ............................       2,266        2,858        2,332       24,904        1,315
     Other ...........................       6,762       16,094       25,623        2,494        4,936
                                         ---------    ---------    ---------    ---------    ---------
      Total ..........................     138,727      177,073      357,048      214,451       25,910
Commercial non-mortgage ..............          --           --        2,614           --           --
Consumer .............................         132          244          424        3,223        1,558
                                         ---------    ---------    ---------    ---------    ---------
     Total loans .....................     244,819      294,925      501,114      342,649       61,194
Undisbursed loan proceeds ............      (7,099)     (22,210)     (89,840)     (39,721)          --
Unaccreted discount ..................      (2,480)      (2,721)      (5,169)      (5,376)      (3,078)
Allowance for loan losses ............      (4,928)      (3,695)      (3,523)      (1,947)      (1,071)
                                         ---------    ---------    ---------    ---------    ---------
     Loans, net ......................   $ 230,312    $ 266,299    $ 402,582    $ 295,605    $  57,045
                                         =========    =========    =========    =========    =========
</TABLE>


(1)      At December 31, 1998,  1997,  1996 and 1995,  multi-family  residential
         loans included $22.3 million, $33.3 million and $36.6 million, and $7.7
         million of construction loans, respectively.

(2)      At December 31, 1998, 1997 and 1996, hotel loans included $6.9 million,
         $25.3 million and $26.4 million of construction loans, respectively.

(3)      During 1998 and 1997,  payoffs of loans secured by hotels totaled $16.6
         million and $80.5 million, respectively.

(4)      During  1998 and 1997,  payoffs of loans  secured  by office  buildings
         totaled $186.5 million and $107.3 million, respectively.

         The Company's  lending  activities are conducted on a nationwide basis,
and as a result,  the  properties  which secure its loan  portfolio  are located
throughout the United States. At December 31, 1998, the five states in which the
largest amount of properties securing loans in the Company's loan portfolio were
New York, New Jersey,  Florida,  Texas and California,  which had $52.3 million,
$29.8  million,  $27.9  million,  $12.2  million and $11.2  million of principal
amount of loans, respectively.

                                       13

<PAGE>

         CONTRACTUAL  PRINCIPAL  REPAYMENTS.  The  following  table  sets  forth
certain  information  at December 31, 1998  regarding the dollar amount of loans
maturing  in  the  Company's  loan  portfolio  based  on  scheduled  contractual
amortization,  as well as the  dollar  amount  of  loans  which  have  fixed  or
adjustable  interest  rates.  Demand loans (loans  having no stated  schedule of
repayments  and no stated  maturity) and  overdrafts  are reported as due in one
year or less.  Loan  balances  have not been  reduced for (i)  undisbursed  loan
proceeds,  unearned  discounts  and  the  allowance  for  loan  losses  or  (ii)
nonperforming loans.

<TABLE>
<CAPTION>

                                                                              Maturing in
                                                                After         After Five
                                                               One Year          Years
                                                 One         Through Five     Through Ten       After Ten
                                            Year or Less        Years            Years            Years            Total
                                            -------------     ------------    ------------     ------------     ------------
                                                    (Dollars in Thousands)
<S>                                          <C>              <C>             <C>              <C>              <C>         
Single family residential loans.......       $      1,047     $        794    $      9,179     $     19,341     $     30,361
Multi-family residential loans........             23,800           37,771           6,346            7,682           75,599
Commercial real estate and land loans.             35,517           96,183           7,027               --          138,727
Consumer and other loans..............                 11              121              --               --              132
                                             ------------     ------------    ------------     ------------     ------------
   Total..............................       $     60,375     $    134,869    $     22,552     $     27,023     $    244,819
                                             ============     ============    ============     ============     ============

Interest rate terms on amounts due:
   Fixed..............................       $     25,091     $     17,488    $      2,065     $     12,485     $     57,129
   Adjustable.........................             35,284          117,381          20,487           14,538          187,690
                                             ------------     ------------    ------------     ------------     ------------
                                             $     60,375     $    134,869    $     22,552     $     27,023     $    244,819
                                             ============     ============    ============     ============     ============
</TABLE>


         Scheduled  contractual  principal repayments may not reflect the actual
maturities  of loans  because of  prepayments  and, in the case of  conventional
mortgage  loans,  due-on-sale  clauses.  The  average  life of  mortgage  loans,
particularly  fixed-rate  loans,  tends to increase  when current  mortgage loan
rates are  substantially  higher  than  rates on  existing  mortgage  loans and,
conversely,  decrease when rates on existing mortgages are substantially  higher
than current mortgage loan rates.

         ACTIVITY  IN THE LOAN  PORTFOLIO.  The  following  table sets forth the
activity in the Company's loan portfolio during the periods indicated.

<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                           ----------------------------------------------
                                                              1998             1997              1996
                                                           -----------      -----------       -----------
                                                                       (Dollars in Thousands)
<S>                                                        <C>              <C>               <C>        
Balance at beginning of period.......................      $   294,925      $   501,114       $   342,649
Originations:
   Single family residential loans...................               --            1,987            10,681
   Multi-family residential loans....................           56,657           16,799            68,076
   Commercial real estate loans......................          116,452           69,948           199,017
   Commercial non-mortgage and consumer loans........               --            1,140             3,366
                                                           -----------      -----------       -----------
      Total loans originated.........................          173,109           89,874           281,140
                                                           -----------      -----------       -----------
Purchases:
   Single family residential loans...................               --               78               305
                                                           -----------      -----------       -----------
      Total loans purchased..........................               --               78               305
                                                           -----------      -----------       -----------
Sales ...............................................               --           (2,346)               --
Loans transferred from available for sale............               --           13,782                45
Principal repayments.................................         (222,668)        (306,916)         (121,818)
Transfer to real estate owned........................             (547)            (661)           (1,207)
                                                           ------------     -----------       -----------
Net increase (decrease) in net loans.................          (50,106)        (206,189)          158,465
                                                           ------------     -----------       -----------
Balance at end of period.............................      $   244,819      $   294,925       $   501,114
                                                           ===========      ===========       ===========
</TABLE>


         LOANS AVAILABLE FOR SALE. In addition to loans acquired for investment,
the Company also  originates  and  purchases  loans which it presently  does not
intend to hold to maturity.  Such loans are  designated  as loans  available for
sale upon origination or purchase and generally are carried at the lower of cost
or  aggregate  market  value.  At December 31, 1998,  loans  available  for sale
amounted to $177.8 million or 5% of the Company's total assets.

                                       14

<PAGE>

         The following  table sets forth the  composition of the Company's loans
available for sale by type of loan at the dates indicated.

<TABLE>
<CAPTION>

                                                                         December 31,
                                           ---------------------------------------------------------------------------
                                              1998            1997            1996            1995              1994
                                           -----------     -----------     -----------     -----------     -----------
                                                                    (Dollars in Thousands)
<S>                                        <C>             <C>             <C>             <C>             <C>        
Single family residential loans......      $   177,578     $   176,554     $   111,980     $   221,927     $    16,825
Multi-family residential loans.......               --              --          13,657          28,694          83,845
Consumer loans.......................              269             487             729           1,169           1,623
                                           -----------     -----------     -----------     -----------     -----------
                                           $   177,847     $   177,041     $   126,366     $   251,790     $   102,293
                                           ===========     ===========     ===========     ===========     ===========
</TABLE>


         At December 31, 1998, the five states or countries in which the largest
amount of properties  securing the Company's  loans  available for sale were the
U.K.,  California,  New Jersey,  Florida and Illinois  which had $87.6  million,
$21.0 million, $10.8 million, $10.6 million and $7.5 million of principal amount
of loans, respectively.

         Since late 1994,  the Company's  lending  activities  have included the
origination  and purchase of single  family  residential  loans to borrowers who
because of prior  credit  problems,  the  absence  of a credit  history or other
factors are unable or  unwilling  to qualify as  borrowers  for a single  family
residential loan under guidelines of the Federal National  Mortgage  Association
("FNMA") and the Federal Home Loan Mortgage Corporation  ("FHLMC")  ("conforming
loans")  and who have  substantial  equity in the  properties  which  secure the
loans.  Loans to non-conforming  borrowers are perceived by the Company as being
advantageous  because they generally have higher  interest rates and origination
and servicing  fees and generally  lower  loan-to-value  ratios than  conforming
loans and because the Company's  expertise in the  servicing  and  resolution of
nonperforming  loans can be utilized in  underwriting  such loans, as well as to
address loans acquired pursuant to this program which become nonperforming after
acquisition.

         Through 1996, the Company acquired  subprime single family  residential
loans  primarily  through a  correspondent  relationship  with Admiral and, to a
lesser extent,  correspondent  relationships with three other financial services
companies.  Correspondent  institutions  originate  loans  based  on  guidelines
provided  by the  Company  and  promptly  sell  the  loans to the  Company  on a
servicing-released basis.

         In order to solidify and expand its sources of domestic subprime single
family residential loans, the Company,  through OFS, acquired  substantially all
of the assets of  Admiral  in a  transaction  which  closed on May 1, 1997.  See
"Business-Subsidiaries."  In connection with the Company's acquisition of assets
from Admiral,  the Bank  transferred  its retail and wholesale  subprime  single
family  residential  lending  operations  to OFS,  which  included,  among other
things,  transferring its rights under contracts with brokers and  correspondent
lending  institutions  and its rights and  obligations  under leases to six loan
production  offices  recently  opened by it,  which are  located in  California,
Illinois, Massachusetts, Oregon and Utah.

         The  principal  sources of funds of OFS consist of lines of credit with
unaffiliated  parties of (i) a $200.0 million secured of credit, of which $100.0
million was committed, (ii) a $50.0 million secured line of credit, all of which
was committed,  (iii) a $200.0 million  secured line of credit,  of which $100.0
million ws committed (iv) a $100.0 million secure line of credit,  none of which
was committed (v) a $20.0 million secured residual line of credit, none of which
was committed and are secured by the mortgage loans acquired with such lines and
(vi) a $30.0 million  unsecured,  subordinated  credit facility  provided by the
Company to OFS at the time of the acquisition of substantially all of the assets
of Admiral. The Company has adopted policies that set forth the specific lending
requirements  of the  Company as they  relate to the  processing,  underwriting,
property  appraisal,  closing,  funding and  delivery of subprime  loans.  These
policies  include  program  descriptions  which set forth four classes of loans,
designated A, B, C and D. Class A loans  generally  relate to borrowers who have
no or limited adverse  incidents in their credit  histories,  whereas Class B, C
and D loans relate to increasing  degrees of adverse incidents in the borrower's
credit histories.  Factors which are considered in evaluating a borrower in this
regard are the presence or absence of a credit history,  prior  delinquencies in
the payment of mortgage  and  consumer  credit and  personal  bankruptcies.  See
"Sources of Funds - Borrowings".

         The terms of the loan  products  offered  by the  Company  directly  or
through its  correspondents  emphasize  real estate  loans which  generally  are
underwritten  with  significant  reliance on a borrower's level of equity in the
property securing the loan, which may be an owner-occupied  or, depending on the
class of loan  and its  terms,  a  non-owner  occupied  property.  Although  the
Company's  guidelines  require  information  in order to enable  the  Company to
evaluate a borrower's ability to repay a loan by relating the borrower's income,
assets and liabilities to the proposed indebtedness,  because of the significant
reliance  on the ratio of the  principal  amount  of the loans to the  appraised
value of the  security  property,  each of the four  principal  classes of loans
identified by the Company includes  products which permit reduced  documentation
for verifying a borrower's  income and  employment.  Loans which permit  reduced
documentation  generally require  documentation of employment and income for the
most recent six-month  period, as opposed to the two-year period required in the
case of full  documentation  loans.  Although the Company  reserves the right to
verify a borrower's income, assets and liabilities and employment history, other
than as set forth above, it generally does not verify such  information  through
other sources.

                                       15

<PAGE>

         The  Company's  strategy  is to offer a broad  range of products to its
borrowers and its origination  sources.  Loans may have principal  amounts which
conform to the guidelines set by FHLMC or FNMA for conforming loans or principal
amounts which  significantly  exceed these  amounts (so called  "jumbo  loans").
Loans may have fixed or  adjustable  interest  rates and terms  ranging up to 30
years.

         The Company  further  expanded its subprime  single family  residential
lending   operations  in  1998  by  entering  the  United  Kingdom  through  the
acquisition  of a 36.07%  interest  in  Kensington  and,  through  Ocwen UK, the
acquisition  of Cityscape  UK's  mortgage  loan  portfolio  and its  residential
subprime mortgage loan origination and servicing businesses.

         Ocwen UK's sources of funding  include a Loan Facility  Agreement  with
Greenwich  International  Ltd.  ("Greenwich")  under which Greenwich  provided a
short-term  facility to finance the  acquisition of Cityscape UK's mortgage loan
portfolio (the "Term Loan") and to finance Ocwen UK's further  originations  and
purchase of subprime single family loans (the "Revolving Facility", and together
with the Term Loan, the "Greenwich Facility"). The Greenwich Facility is secured
by Ocwen UK's loans available for sale. The Revolving Facility, which matures in
April 1999, is set at a maximum of $166.0 million  ((pound)100.0 million reduced
by the amount borrowed under the Term Loan), of which $87.1 million ((pound)52.5
million) was funded at December 31, 1998, to finance subprime single family loan
originations  and bears interest at a rate of the one-month LIBOR plus 1.50%. At
December 31, 1998, $5.6 million ((pound)3.4 million) had been borrowed under the
Term Loan, which matured in January 1999. In addition, Ocwen UK has entered into
a  secured  warehouse  line of  credit  with  Barclays  Bank plc (the  "Barclays
Facility") to finance  subprime  single family loan  originations.  The Barclays
Facility,  which matures in November  1999,  and bears interest at a rate of the
one-month LIBOR plus 0.80%,  is set at a maximum of $124.5 million  ((pound)75.0
million), against which $24.6 million ((pound)14.8 million) had been borrowed at
December 31, 1998. The weighted  average  interest rate on these lines of credit
outstanding at December 31, 1998, was 7.35%.

         The following  table sets forth the activity in the Company's net loans
available for sale during the periods indicated:

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                         ------------------------------------------------------
                                                             1998               1997                  1996
                                                         ------------      ------------          --------------
<S>                                                      <C>               <C>                   <C>           
                                                                         (Dollars in Thousands)
Balance at beginning of period...................        $    177,041      $    126,366          $      251,790
Purchases:                                                                                     
Single family residential........................             795,053           278,081                 284,598
Multi-family residential.........................                  --                --                  10,456
                                                         ------------      ------------          --------------
                                                              795,053           278,081                 295,054
                                                         ------------      ------------          --------------
Originations:
Single family residential........................             959,105           316,101                   9,447
   Multi-family residential......................                  --                --                      --
                                                         ------------      ------------          --------------
                                                              959,105           316,101                   9,447
                                                         ------------      ------------          --------------
Sales............................................          (1,658,773)         (501,079)               (395,999)
Increase in lower of cost or market reserve......              (4,064)           (1,034)                 (2,455)
Loans transferred (to)/from loan portfolio.......                  --           (13,674)                     45
Principal repayments, net of capitalized interest             (82,728)          (22,151)                (27,845)
Transfer to real estate owned....................              (7,787)           (5,569)                 (3,671)
                                                         -------------     ------------          --------------
Net increase (decrease) in loans.................                 806            50,675                (125,424)
                                                         ------------      ------------          --------------
Balance at end of period.........................        $    177,847      $    177,041          $      126,366
                                                         ============      ============          ==============
</TABLE>


         The Company purchased and originated a total of $1.75 billion of single
family  residential  loans to  non-conforming  borrowers  during 1998 and $558.3
million of such loans during 1997. At December 31, 1998,  the Company had $170.1
million  of  subprime  single  family  residential  loans,  which had a weighted
average yield of 12.18%.

         The Company generally intends to sell or securitize its subprime single
family  residential loans, and as a result, all of such loans were classified as
available  for sale at December  31,  1998.  During  1998 the Company  sold $2.9
million of subprime single family residential loans for gains of $53,000; during
1997 the Company sold $82.6 million of such loans for gains of $3.3 million; and
during  1996  the  Company  sold  $161.5  million  of  subprime   single  family
residential loans for gains of $571,000.  In addition, as presented in the table
below,  loans were  securitized  and sold in public  offerings  underwritten  by
unaffiliated  investment  banking firms during 1998,  1997 and 1996,  generating
gains of $61.5 million, $18.8 million and $7.2 million,  respectively,  upon the
sale of the securities. The Company retained subordinate and residual securities
in connection with these transactions.

                                       16

<PAGE>

<TABLE>
<CAPTION>

                        Loan Securitized
           ------------------------------------------                                Book Value of
           Types of Loans                   Principal          No. of Loans      Securities Retained(2)        Net Gain
           --------------                --------------       -------------      ----------------------    --------------
<S>                                      <C>                         <C>           <C>                      <C>          
1998:                                                                  (Dollars in thousands)
Single family subprime (1)........       $    1,626,282              31,235        $        139,594         $      61,516
                                         ==============       =============        ================         =============
1997:
Single family subprime............       $      415,830               3,640        $         25,334         $      18,802
                                         ==============       =============        ================         =============
1996:
Single family subprime............       $      211,204               1,180        $         18,236         $       7,232
                                         ==============       =============        ================         =============
</TABLE>


(1)   Includes  20,819 loans  securitized  by Ocwen UK with an unpaid  principal
      balance of $558.5 million  ((pound)339.4  million) for a net gain of $25.6
      million ((pound)15.4 million).

(2)   Consists of  subordinated  and/or residual  securities  resulting from the
      Company's  securitization  activities,  which  had a fair  value of $177.5
      million  at  December  31,  1998,  including  $87.3  million  ((pound)52.6
      million) related to securitizations by Ocwen UK.

         Although  subprime  loans  generally have higher levels of default than
conforming  loans,  the  Company  believes  that the  borrower's  equity  in the
security  property and its expertise in the area of resolution of  nonperforming
loans will continue to make its subprime  borrower loan program a successful one
notwithstanding  such  defaults  and  any  resulting  losses.  There  can  be no
assurance that this will be the case, however.

         From  time to  time  the  Company  purchases  pools  of  single  family
residential  loans for investment  purposes.  During 1995, the Company purchased
$29.8 million of loans which were primarily secured by properties located in the
area surrounding the Bank's physical facility in northern New Jersey.

         MULTI-FAMILY   RESIDENTIAL  AND  COMMERCIAL  REAL  ESTATE  LOANS.   The
Company's  lending  activities  include  the  acquisition  of loans  secured  by
commercial  real  estate,  particularly  loans  secured  by  hotels  and  office
buildings,  which the  Company  began  originating  in late 1994 and late  1995,
respectively.  Commercial  real estate loans  currently  are made to finance the
purchase and refinance of commercial properties, the refurbishment of distressed
properties and, recently,  the construction of hotels. At December 31, 1998, the
Company's  loans secured by commercial real estate (and land) amounted to $138.7
million and  consisted  primarily  of $36.6  million and $93.1  million of loans
secured by hotels and office buildings, respectively.

         From time to time, the Company originates loans for the construction of
multi-family residences,  as well as bridge loans to finance the acquisition and
rehabilitation of distressed multi-family  residential  properties.  At December
31, 1998, the Company's  multi-family  residential loan portfolio included $22.3
million of multi-family  residential  construction loans, of which $20.1 million
had been funded, and $53.3 million of acquisition and  rehabilitation  loans, of
which $51.3 million had been funded.

         From time to time the Company also originates loans secured by existing
multi-family  residences.  Although  the Company has  deemphasized  this type of
lending in recent  periods,  it  previously  was active in the  origination  and
securitization  of  such  loans.   During  1995,  1994  and  1993,  the  Company
securitized  multi-family  residential  loans  acquired by it with an  aggregate
principal   amount  of  $83.9   million,   $346.6  million  and  $67.1  million,
respectively.  The Company  subsequently  sold all of the  securities  backed by
these loans.

         The multi-family  residential and commercial real estate loans acquired
by the Company in recent periods  generally have principal  amounts between $3.0
million  and the Bank's  loan-to-one-borrower  limitation  (see  "Regulation-The
Bank-Loans-to-One-Borrower") and are secured by properties which in management's
view have good  prospects  for  appreciation  in value during the loan term.  In
addition,   the  Company  currently  is  implementing  a  program  to  originate
multi-family residential and commercial real estate loans with smaller principal
amounts  (generally  up to $3.0  million)  and  which may be  secured  by a wide
variety of such properties.

         The Company's large multi-family residential and commercial real estate
loans  generally  have  fixed  interest  rates,  terms of two to five  years and
payment  schedules which are based on  amortization  over 15 to 25 year periods.
The maximum  loan-to-value ratio generally does not exceed 80% of the stabilized
value of the  property and 88% of the total costs of the property in the case of
construction, refurbishment or rehabilitation loans.

         Multi-family  residential  and commercial real estate loans are secured
by a first priority lien on the real property,  all improvements thereon and, in
the  case of  hotel  loans,  all  fixtures  and  equipment  used  in  connection

                                       17

<PAGE>

therewith,  as well as a first  priority  assignment  of all  revenue  and gross
receipts generated in connection with the property.  The liability of a borrower
on  multi-family  residential  and  commercial  real estate  loans  generally is
limited to the  borrower's  interest in the  property,  except  with  respect to
certain specified circumstances.

         In addition to stated interest, the large multi-family  residential and
commercial  real  estate  loans  originated  by  the  Company  commonly  include
provisions  pursuant  to  which  the  borrower  agrees  to pay  the  Company  as
additional  interest  on the  loan an  amount  based  on  specified  percentages
(generally  between  10-38%) of the net cash flow from the  property  during the
term of the loan and/or the net  proceeds  from the sale or  refinancing  of the
property upon maturity of the loan. Participating interests also may be obtained
in the form of additional  fees which must be paid by the borrower in connection
with a prepayment of the loan, generally after an initial lock-out period during
which prepayments are prohibited.  The fees which could be payable by a borrower
during specified  periods of the loan consist either of fixed exit fees or yield
maintenance  payments,  which are required to be paid over a specified number of
years after the prepayment and are intended to increase the yield to the Company
on the proceeds from the loan payoff to a level which is comparable to the yield
on the prepaid loan. At December 31, 1998 and 1997, the Company's loan portfolio
included  $12.3  million  and  $89.0  million  of  loans in  which  the  Company
participates in the residual profits of the underlying real estate.  The Company
generally  accounts for loans in which it  participates  in residual  profits as
loans and not as investments in real estate; however, because of concerns raised
by the staff of the OTS in this  regard,  in  December  1996 and during 1997 the
Bank sold to the Company  subordinated,  participating  interests  in a total of
eleven  acquisition,  development and construction loans, which interests had an
aggregate  principal balance of $18.0 million. On a consolidated basis, eight of
these loans,  which amounted to $64.3 million at December 31, 1997, were carried
by the Company as investments  in real estate.  These eight loans were repaid in
full during 1998.  The Bank (but not the  Company)  agreed with the OTS to cease
origination  of  mortgage  loans  with  profit  participation  features  in  the
underlying real estate, with the exception of existing commitments.

         Construction  loans  generally  have  terms of three to four  years and
interest  rates which float on a monthly  basis in  accordance  with  designated
reference rates. Payments during the term of the loan may be made to the Company
monthly on an  interest-only  basis.  The loan  amount may  include an  interest
reserve  which is  maintained by the Company and utilized to pay interest on the
loan during a portion of its term.

         Construction  loans are  secured by a first  priority  lien on the real
property,  all  improvements  thereon and all  fixtures  and  equipment  used in
connection therewith, as well as a first priority assignment of all revenues and
gross receipts generated in connection with the property. Construction loans are
made without  pre-leasing  requirements  or any  requirement  of a commitment by
another  lender to "take-out" the  construction  loan by making a permanent loan
secured by the property upon  completion  of  construction.  Disbursements  on a
construction loan are subject to a retainage percentage of 10% and are made only
after  evidence  that  available  funds  have  been  utilized  by the  borrower,
available  funds are  sufficient to pay for all  construction  costs through the
date of the construction advance and funds remain in the construction budget and
from sources other than the loan to complete construction of the project.

         The Company generally requires the general  contractor  selected by the
borrower,  which along with the general construction  contract is subject to the
Company's review and approval,  to provide payment and performance  bonds issued
by a surety  approved  by the  Company in an amount at least  equal to the costs
which are estimated to be necessary to complete  construction  of the project in
accordance  with the  construction  contract.  Moreover,  the Company  generally
conducts site inspections of projects under construction at least bi-monthly and
of completed projects at least semi-annually.

         Multi-family  residential,  commercial  real  estate  and  construction
lending  generally are considered to involve a higher degree of risk than single
family residential  lending because such loans involve larger loan balances to a
single  borrower  or  group of  related  borrowers.  In  addition,  the  payment
experience  on  multi-family   residential  and  commercial  real  estate  loans
typically is dependent on the successful operation of the project, and thus such
loans may be adversely affected to a greater extent by adverse conditions in the
real estate markets or in the economy generally.  Risk of loss on a construction
loan is  dependent  largely  upon the  accuracy of the  initial  estimate of the
property's  value at completion of construction or development and the estimated
cost  (including  interest)  of  construction,  as well as the  availability  of
permanent take-out financing. During the construction phase, a number of factors
could result in delays and cost overruns.  If the estimate of value proves to be
inaccurate,  the Company may be  confronted,  at or prior to the maturity of the
loan, with a project which, when completed, has a value which is insufficient to
ensure full repayment.  In addition to the foregoing,  multi-family  residential
and  commercial  real  estate  loans which are not fully  amortizing  over their
maturity and which have a balloon  payment due at their stated  maturity,  as is
generally the case with the Company's  multi-family  residential  and commercial

                                       18

<PAGE>

real estate loans,  involve a greater degree of risk than fully amortizing loans
because  the  ability of a borrower  to make a balloon  payment  typically  will
depend on its ability either to timely  refinance the loan or to timely sell the
security property. The ability of a borrower to accomplish these results will be
affected by a number of factors, including the level of available mortgage rates
at the  time of sale or  refinancing,  the  financial  condition  and  operating
history of the  borrower  and the  property  which  secures the loan,  tax laws,
prevailing   economic   conditions  and  the   availability   of  financing  for
multi-family residential and commercial real estate generally.

LOAN SERVICING ACTIVITIES

         During 1996, the Company  developed a program to provide loan servicing
and various other asset management and resolution services to third party owners
of  nonperforming  assets,  underperforming  assets and subprime  assets such as
Class B, C and D single family residential  mortgage loans.  Servicing contracts
entered into by the Company  provide for the payment to the Company of specified
fees and in some cases may include terms which allow the Company to  participate
in the profits  resulting  from the  successful  resolution  of the assets being
serviced.  Servicing  fees,  generally  expressed  as a  percent  of the  unpaid
principal balance, are collected from the borrowers' payments. During any period
in which the  borrower is not making  payments,  the  Company is required  under
certain  servicing  agreements  to  advance  its own  funds to meet  contractual
principal and interest remittance  requirements for certain investors,  maintain
property taxes and insurance,  and process  foreclosures.  The Company generally
recovers such advances from borrowers for  reinstated  and performing  loans and
from investors for foreclosed loans.

         The Bank has been approved as a loan  servicer by HUD,  FHLMC and FNMA.
The Bank is rated a Tier 1 servicer and as a preferred  servicer  for  high-risk
mortgages by FHLMC, the highest rating categories. The Bank is one of only seven
special  servicers  of  commercial  mortgage  loans to have  received a "Strong"
rating from Standard & Poor's.  The Bank is recognized and/or designated by four
rating agencies (Standard & Poor's,  Duff and Phelps,  IBC Fitch Investors,  and
Moody's) as a "Special Servicer" for residential  mortgage loans and is the only
special servicer with this designation for all mortgage categories.

         The Company  developed the concept of residential  special servicing in
1997 and, in 1998, began entering into special  servicing  arrangements  wherein
the Company acted as a special servicer for third parties,  typically as part of
a  securitization.  The Company  services loans that become greater than 90 days
past due and  receives  incentive  fees to the extent  certain  loss  mitigation
parameters are achieved.  Through  December 31, 1998, the Company was designated
as  a  special  servicer  for  securitized  pools  of  mortgage  loans  totaling
approximately  $9.1  billion  in  unpaid  principal  balance.  Of  this  amount,
approximately   $8.0  billion  were  residential  loans,  and  the  balance  was
commercial.

                                       19


<PAGE>


         The following  tables set forth the number and amount of loans serviced
by the Company for others at the dates indicated:

    DECEMBER 31, 1998:

<TABLE>
<CAPTION>
                                          Discount Loans        Subprime Loans (1)       Other Loans              Total
                                       ---------------------  ---------------------  -------------------  ---------------------
                                                     No. of                 No. of                No. of                No. of
                                         Amount       Loans     Amount       Loans     Amount      Loans    Amount       Loans
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                                                        (Dollars in thousands)
<S>                                    <C>            <C>     <C>            <C>     <C>          <C>     <C>            <C>   
     Loans securitized and sold with                                                              
       recourse....................... $1,015,988     16,840  $1,809,533     31,607  $      --        --  $ 2,825,521    48,447
     Loans serviced for third parties.  1,573,285     20,835   5,327,441     83,085    866,219     1,091    7,766,945   105,011
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                       $2,589,273     37,675  $7,136,974    114,692  $ 866,219     1,091  $10,592,466   153,458
                                       ==========    =======  ==========   ========  =========    ======  ===========   =======

    DECEMBER 31, 1997:
                                          Discount Loans          Subprime Loans         Other Loans              Total
                                       ---------------------  ---------------------  -------------------  ---------------------
                                                     No. of                 No. of                No. of                No. of
                                         Amount       Loans     Amount       Loans     Amount      Loans    Amount       Loans
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                                                        (Dollars in thousands)
<S>                                    <C>            <C>     <C>            <C>     <C>          <C>     <C>            <C>   
    Loans securitized and sold with                                                                                    
      recourse........................ $  624,591     11,148  $  555,914      4,976  $      --        --  $1,180,505    16,124
    Loans serviced for third parties..  1,682,764     23,181   2,352,352     29,911    294,198     1,092   4,329,314    54,184
                                       ----------   --------  ----------   --------  ---------    ------  ----------   -------
                                       $2,307,355     34,329  $2,908,266     34,887  $ 294,198     1,092  $5,509,819    70,308
                                       ==========   ========  ==========   ========  =========    ======  ==========   =======

    DECEMBER 31, 1996:
                                          Discount Loans          Subprime Loans         Other Loans              Total
                                       ---------------------  ---------------------  -------------------  ---------------------
                                                     No. of                 No. of                No. of                No. of
                                         Amount       Loans     Amount       Loans     Amount      Loans    Amount       Loans
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                                                        (Dollars in thousands)
<S>                                    <C>            <C>     <C>            <C>     <C>          <C>     <C>            <C>   
    Loans securitized and sold with                                                                                    
      recourse........................ $  204,586      4,796  $ 202,766       1,879  $      --        --  $  407,352     6,675
    Loans serviced for third parties..  1,209,535     22,511      6,784          60    294,427       917   1,510,746    23,488
                                       ----------  ---------  ---------   ---------  ---------   -------  ----------  --------
                                       $1,414,121     27,307  $ 209,550       1,939  $ 294,427       917  $1,918,098    30,163
                                       ==========  =========  =========   =========  =========   =======  ==========  ========
</TABLE>


(1)      Includes  37,955  loans  with an  unpaid  principal  balance  of $857.2
         million  ((pound)504.4  million)  which  were  serviced  by Ocwen UK at
         December 31, 1998.

         The Company  generally  does not purchase  rights to service  loans for
others, and as a result,  capitalized mortgage servicing rights amounted to only
$7.1 million and $5.7 million at December  31, 1998 and 1997,  respectively.  In
connection  with the  securitization  and sale of loans,  the Company  generally
retains the rights to service such loans for investors.  On January 1, 1996, the
Company adopted Statement of Financial  Accounting  Standards  ("SFAS") No. 122,
"Accounting for Mortgage  Servicing  Rights." SFAS No. 122 was  superseded,  for
transactions  recorded after December 31, 1996, by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
which the Company adopted on January 1, 1997. Both SFAS No. 122 and SFAS No. 125
require the  recognition  of a servicing  asset or liability and other  retained
interests as an allocation of the carrying amount of the assets sold between the
asset sold and the servicing  obligation and other retained  interests  based on
the  relative  fair  value of the assets  sold to the  interests  retained.  The
resulting  mortgage  servicing  asset or liability is amortized in proportion to
and over the period of  estimated  net  servicing  income or loss.  The  Company
evaluates the mortgage servicing asset for impairment based on the fair value of
the servicing asset. The Company estimates fair values by discounting  servicing
asset cash flows using  discount and  prepayment  rates that it believes  market
participants would use.

ASSET QUALITY

         The Company,  like all  financial  institutions,  is exposed to certain
credit risks related to the value of the  collateral  that secures its loans and
the ability of borrowers to repay their loans. Management of the Company closely
monitors the Company's  loan and  investment  portfolios  and the Company's real
estate  owned for  potential  problems  and reports to the Board of Directors at
regularly scheduled meetings.

         NONPERFORMING  LOANS.  It is  the  Company's  policy  to  establish  an
allowance for  uncollectible  interest on loans in its loan  portfolio and loans
available for sale which are past due 90 days or more and to place such loans on
non-accrual  status. As a result,  the Company currently does not have any loans
which are accruing  interest but are past due 90 days or more. Loans also may be
placed  on  non-accrual  status  when,  in  the  judgment  of  management,   the
probability  of collection of interest is deemed to be  insufficient  to warrant
further accrual. When a loan is placed on non-accrual status, previously accrued
but unpaid interest is reversed by a charge to interest income.

                                       20

<PAGE>


         The  following  table sets forth  certain  information  relating to the
Company's nonperforming loans in its loan portfolio at the dates indicated:

<TABLE>
<CAPTION>

                                                                           December 31,
                                               ---------------------------------------------------------------------
                                                  1998          1997          1996            1995            1994
                                               ---------     ---------     ---------       ---------       ---------
                                                                       (Dollars in Thousands)
<S>                                            <C>           <C>           <C>             <C>             <C>      
Nonperforming loans (1):
  Single family residential loans.........     $   1,169     $   1,575     $   2,123       $   2,923       $   2,478
  Multi-family residential loans(2)(3)....         7,392         7,583           106             731             152
  Consumer and other loans................           488            --            55             202              29
                                               ---------     ---------     ---------       ---------       ---------
     Total................................     $   9,049     $   9,158     $   2,284       $   3,856       $   2,659
                                               =========     =========     =========       =========       =========

Nonperforming loans as a percentage of:
  Total loans (4).........................          3.81%         3.36%         0.56%           1.27%           4.35%
  Total assets............................          0.27%         0.30%         0.09%           0.20%           0.21%

Allowance for loan losses as a percentage of:
     Total loans(4)(5)....................          2.07%         1.35%         0.87%           0.65%           1.84%
     Nonperforming loans..................         54.46%        40.35%       154.25%          50.49%          40.28%
</TABLE>


(1)    The Company did not have any  nonperforming  loans in its loan  portfolio
       which were deemed troubled debt restructurings at the dates indicated.

(2)    The increase in non performing multi-family residential loans during 1997
       was  primarily  attributable  to a $7.4  million loan secured by 127-unit
       condominium  building  located in New York,  New York,  which  management
       believes is well collateralized.

(3)    Non performing  multi-family  residential  loans at December 31, 1998 was
       primarily  attributable to three loans with an aggregate  balance of $5.0
       million, all of which management believes are well capitalized.

(4)    Total loans is net of undisbursed loan proceeds.

(5)    The decrease in the  allowance  for loan losses as a percentage  of total
       loans  during  1995  was  due to the  significant  increase  in the  loan
       portfolio  during  1995 as a result  of the  purchase  of  single  family
       residential  loans and the  origination of  multi-family  residential and
       commercial real estate loans.

       The following  table  presents a summary of the  Company's  nonperforming
loans in the loans available for sale portfolio at the dates indicated:

<TABLE>
<CAPTION>

                                                                           December 31,
                                              -----------------------------------------------------------------------
                                                 1998           1997            1996           1995           1994
                                              ----------     ----------     ----------      ----------     ----------
                                                                      (Dollars in Thousands)
<S>                                                    <C>           <C>            <C>            <C>            <C>
 Nonperforming loans:
  Single family loans..................       $   39,415     $   13,509     $   14,409      $    7,833     $       --
  Consumer loans.......................                9             25             36             100            120
                                              ----------     ----------     ----------      ----------     ----------
                                              $   39,424     $   13,534     $   14,445      $    7,933     $      120
                                              ==========     ==========     ==========      ==========     ==========

 Nonperforming loans a percentage of:
  Total loans available for sale.......           22.17%           7.64%         11.43%           3.15%          0.12%
  Total assets.........................            1.19%           0.44%          0.58%           0.58%          0.01%
</TABLE>


         For  information  relating  to  the  payment  status  of  loans  in the
Company's discount loan portfolio,  see "Business-Discount  Loan Acquisition and
Resolution Activities."

         REAL  ESTATE  OWNED.  Properties  acquired  through  foreclosure  or by
deed-in-lieu  thereof are valued at the lower of  amortized  cost or fair value.
Properties   included  in  the  Company's   real  estate  owned   portfolio  are
periodically  re-evaluated to determine that they are being carried at the lower
of cost or fair value less  estimated  costs to sell.  Holding  and  maintenance
costs  related to  properties  are recorded as expenses in the period  incurred.
Deficiencies   resulting  from  valuation   adjustments  to  real  estate  owned
subsequent to acquisition  are recognized as a valuation  allowance.  Subsequent
increases  related to the  valuation  of real estate  owned are  reflected  as a
reduction  in the  valuation  allowance,  but  not  below  zero.  Increases  and
decreases  in the  valuation  allowance  are  charged  or  credited  to  income,
respectively.  Accumulated valuation allowances amounted to $15.3 million, $12.3
million,  $11.5  million,  $4.6  million and $3.9  million at December 31, 1998,
1997, 1996 1995 and 1994, respectively.

                                       21


<PAGE>

         The  following  table sets forth  certain  information  relating to the
Company's real estate owned at the dates indicated.

<TABLE>
<CAPTION>

                                                   December 31,
                               ----------------------------------------------------
                                 1998       1997       1996       1995       1994
                               --------   --------   --------   --------   --------
                                               (Dollars in Thousands)
<S>                            <C>        <C>        <C>        <C>        <C>     
Discount loan portfolio:
   Single family residential   $ 94,641   $ 76,409   $ 49,728   $ 75,144   $ 86,426
   Multi-family residential      20,130     16,741     14,046     59,932         --
      Commercial real estate     82,591     71,339     36,264     31,218      8,801
                               --------   --------   --------   --------   --------

          Total ............    197,362    164,489    100,038    166,294     95,227
   Loan portfolio ..........        227        357        592        262      1,440
   Loans available for sale       3,962      2,419      3,074         --         --
                               --------   --------   --------   --------   --------

          Total ............   $201,551   $167,265   $103,704   $166,556   $ 96,667
                               ========   ========   ========   ========   ========
</TABLE>


         The following table sets forth certain geographical information by type
of property at December 31, 1998 related to the Company's real estate owned.

<TABLE>
<CAPTION>

                                                           Multi-family Residential
                              Single Family Residential         and Commercial                     Total
                              -------------------------    ------------------------      -----------------------
                                               No. of                      No. of                     No. of
                                 Amount      Properties      Amount      Properties        Amount     Properties
                               ---------     ----------    ----------    ----------      ----------   ----------
<S>                             <C>                 <C>     <C>                   <C>     <C>                <C>
                                              (Dollars in Thousands)

Florida..................       $  5,334            114     $  54,187             12      $  59,521          126
California...............         29,255            469         6,491              6         35,746          475
Maryland.................          8,078            141        14,942              3         23,020          144
Connecticut..............          5,382            109        12,481              2         17,863          111
New York.................          6,938            157           955              3          7,893          160
Other(1).................         43,843            945        13,665             38         57,508          983
                                --------       --------     ---------       --------      ---------     --------
   Total.................       $ 98,830          1,935     $ 102,721             64      $ 201,551        1,999
                                ========       ========     =========       ========      =========     ========
</TABLE>


(1)    Consists  of  properties  located  in 43  other  states,  none  of  which
       aggregated over $6.7 million in any one state.

       The  following  table sets forth the  activity in the real  estate  owned
during the periods indicated.

<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                          ---------------------------------------------------------------------------------
                                                  1998                          1997                         1996
                                          ----------------------        ----------------------       ----------------------
                                                        No. of                        No. of                        No of
                                          Amount      Properties        Amount      Properties       Amount      Properties
                                          ------      ----------        ------      ----------       ------      ----------
                                                                      (Dollars in Thousands)

<S>                                     <C>                <C>        <C>                  <C>      <C>               <C>  
Balance at beginning of period...       $ 167,265          1,505      $103,704             825      $ 166,556         1,070
Properties acquired through
   foreclosure or deed-in-lieu   
   thereof.......................         280,522          3,278       205,621           1,656        102,098           918
Acquired in connection with
   acquisitions of discount loans          19,949            303        38,486             545          2,529            12
Sales............................        (263,206)        (3,087)     (179,693)         (1,521)      (160,592)       (1,175)
Change in allowance..............          (2,979)            --          (853)             --         (6,887)           --
                                        ---------      ---------      --------       ---------      ---------     ---------
Balance at end of period.........       $ 201,551          1,999      $167,265           1,505      $ 103,704           825
                                        =========      =========      ========       =========      =========     =========
</TABLE>


         The following  table sets forth the amount of time that the Company had
held its real estate owned at the dates indicated.

<TABLE>
<CAPTION>

                                                                             December 31,
                                                              1998                1997                1996
                                                         ------------        ------------        ------------
                                                                         (Dollars in Thousands)

<S>                                                      <C>                 <C>                 <C>         
One to two months.................................       $     38,444        $     83,144        $     17,695
Three to four months..............................             79,264              28,912              15,291
Five to six months................................             27,115              20,929              14,348
Seven to 12 months................................             26,122              23,621              13,004
Over 12 months....................................             30,606              10,659              43,366
                                                         ------------        ------------        ------------
                                                         $    201,551        $    167,265        $    103,704
                                                         ============        ============        ============
</TABLE>


                                       22

<PAGE>

         The average  period  during which the Company held the $263.2  million,
$179.7 million and $160.6 million of real estate owned which was sold during the
years ended  December 31, 1998,  1997 and 1996,  respectively,  was 6 months,  9
months and 11 months, respectively.

         The  following  table sets forth the  activity,  in  aggregate,  in the
valuation allowances on real estate owned during the periods indicated.

<TABLE>
<CAPTION>

                                                  Year Ended December 31,
                               --------------------------------------------------------
                                 1998        1997        1996        1995        1994
                               --------    --------    --------    --------    --------
                                                 (Dollars in thousands)
<S>                            <C>         <C>         <C>         <C>         <C>     
Balance at beginning of year   $ 12,346    $ 11,493    $  4,606    $  3,937    $  2,455
Provisions for losses ......     18,626      13,450      18,360      10,510       9,074
Charge-offs and sales ......    (15,647)    (12,597)    (11,473)     (9,841)     (7,592)
                               --------    --------    --------    --------    --------
Balance at end of year .....   $ 15,325    $ 12,346    $ 11,493    $  4,606    $  3,937
                               ========    ========    ========    ========    ========
</TABLE>


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

         From time to time,  the Company makes loans to finance the sale of real
estate  owned.  At December  31, 1998,  such loans  amounted to $7.5 million and
consisted of $3.6 million of single family  residential  loans,  $3.6 million of
multi-family  residential  loans and $262,000 of  commercial  loans.  All of the
Company's  loans to finance the sale of real  estate  owned were  performing  in
accordance with their terms at December 31, 1998.

         CLASSIFIED  ASSETS.  OTS regulations  require that each insured savings
association  classify its assets on a regular basis. In addition,  in connection
with  examinations  of insured  associations,  OTS examiners  have  authority to
identify  problem  assets and, if  appropriate,  require them to be  classified.
There are three  classifications for problem assets:  "substandard,"  "doubtful"
and "loss."  Substandard  assets  have one or more  defined  weaknesses  and are
characterized  by the distinct  possibility  that the insured  institution  will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses  make  collection  or  liquidation  in full on the basis of currently
existing  facts,  conditions  and  values  questionable,  and  there  is a  high
possibility of loss. An asset  classified as a loss is considered  uncollectible
and of such little value that  continuance as an asset of the institution is not
warranted.   Another  category   designated   "special  mention"  also  must  be
established  and maintained for assets which do not currently  expose an insured
institution  to a  sufficient  degree  of  risk  to  warrant  classification  as
substandard,  doubtful or loss but do possess credit  deficiencies  or potential
weaknesses  deserving   management's  close  attention.   Assets  classified  as
substandard or doubtful require the institution to establish general  allowances
for loan losses.  If an asset or portion  thereof is classified  as a loss,  the
insured institution must either establish specific allowances for loan losses in
the amount of 100% of the  portion of the asset  classified  as a loss or charge
off such amount. In this regard, the Company  establishes  required reserves and
charges off loss assets as soon as  administratively  practicable.  General loss
allowances  established  to cover possible  losses related to assets  classified
substandard  or  doubtful  may  be  included  in  determining  an  institution's
regulatory capital,  while specific valuation  allowances for loan losses do not
qualify as regulatory capital.

         In 1996,  based upon discussions with the OTS and as a result of an OTS
bulletin  issued on December 13, 1996 entitled  "Guidance on the  Classification
and Regulatory  Reporting of Certain  Delinquent Loans and Other Credit Impaired
Assets," the Company has  classified all discount loans that are 90 or more days
contractually  past due, not otherwise  classified,  as special  mention and all
real estate owned, not otherwise  classified,  as special  mention.  The Company
also modified its policy for classifying  nonperforming  discount loans and real
estate owned related to its discount  loan  portfolio  ("nonperforming  discount
assets") to take into  account  both the holding  period of such assets from the
date of acquisition  and the ratio of book value to market value of such assets.
All  nonperforming  discount  assets  which are held 15 months or more after the
date of acquisition are classified  substandard;  nonperforming  discount assets
held 12  months  to  less  than 15  months  from  the  date of  acquisition  are

                                       23

<PAGE>

classified  as  substandard  if a ratio of book value to market  value is 80% or
more; and  nonperforming  discount assets held less than 12 months from the date
of acquisition  are classified as substandard if they have a ratio of book value
to market value of more than 85%. In  addition,  nonperforming  discount  assets
which are  performing  for a period of time  subsequent  to  acquisition  by the
Company  are   classified  as   substandard   at  the  time  such  loans  become
nonperforming.  The  Company  also  modified  its  classified  assets  policy to
classify all real estate owned which is not cash flowing and which has been held
for  more  than  15  months  and  three  years  as  substandard   and  doubtful,
respectively.  The Company's past experience  indicates that classified discount
assets do not necessarily correlate to probability or severity of loss.

         Excluding  assets which have been classified loss and fully reserved by
the  Company,  the  Company's  classified  assets at December 31, 1998 under the
above policy consisted of $49.8 million of assets  classified as substandard and
$636,000 of assets classified as doubtful.  In addition, at the same date, $80.5
million of assets were designated as special mention.

         Substandard  assets  at  December  31,  1998  under  the  above  policy
consisted  primarily of $5.6  million of loans and real estate owned  related to
the Company's discount single family residential loan program,  $22.9 million of
loans and real estate owned related to the Company's  discount  commercial  real
estate loan  program  and $5.6  million of subprime  single  family  residential
loans.  Special  mention assets at December 31, 1998 under the policy  consisted
primarily  of $26.9  million and $34.2  million of loans and real  estate  owned
related  to the  Company's  discount  single  family  residential  and  discount
commercial real estate loan programs, respectively.

         ALLOWANCES  FOR LOSSES.  The Company  maintains an  allowance  for loan
losses  for each of its loan  and  discount  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  and discount  loan  portfolio by loan
category  and the  percentage  of loans in each  category  to total loans in the
respective portfolios at the dates indicated:

<TABLE>
<CAPTION>

                                                                          December 31,
                                  --------------------------------------------------------------------------------------
                                       1998              1997              1996              1995              1994
                                  --------------    --------------    --------------    --------------    --------------
                                  Amount     %      Amount     %      Amount     %      Amount     %      Amount      % 
                                  ------   -----    ------   -----    ------   -----    ------   -----    ------   -----
                                                                      (Dollars in Thousands)
<S>                               <C>        <C>    <C>       <C>    <C>        <C>     <C>      <C>      <C>       <C>  
Loan portfolio:
Single family residential loans   $  215     4.4%   $  512    15.7%  $   520    14.6%   $  346    22.2%   $  615    52.2%
Multi-family residential loans     2,714    55.1     2,163    24.2       673    13.5       683    14.3        --     2.9
Commercial real estate loans ..    1,999    40.5     1,009    60.0     2,299    71.3       875    62.6       218    42.3
Commercial non-mortgage loans .       --      --        --      --        11     0.5        --      --        --      --
Consumer loans ................       --      --        11     0.1        20     0.1        43     0.9       238     2.6
                                  ------   -----   -------   -----   -------   -----    ------   -----    ------   -----
  Total .......................   $4,928   100.0%  $ 3,695   100.0%  $ 3,523   100.0%   $1,947   100.0%   $1,071   100.0%
                                  ======   =====   =======   =====   =======   =====    ======   =====    ======   =====

Discount loan portfolio(1):
Single family residential loans  $10,307    48.2%  $15,017    50.2%  $ 3,528    38.4%   $   --      --%   $   --      --%
Multi-family residential loans     2,457    11.5     2,616    10.7     3,124    26.0        --      --        --      --
Commercial real estate loans       8,607    40.2     5,860    39.0     4,886    35.4        --      --        --      --
Other loans...............            31     0.1       --      0.1        --     0.2        --      --        --      --
                                  ------   -----   -------   -----   -------  ------    ------   -----    ------   -----
  Total...................       $21,402   100.0%  $23,493   100.0%  $11,538   100.0%   $   --      --%   $   --      --%
                                  ======   =====   =======   =====   =======  ======    ======   =====    ======   =====
</TABLE>


(1)    The Company did not maintain an allowance for loan losses on its discount
       loan portfolio prior to 1996.

       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.

                                       24


<PAGE>

       The  following  table sets forth an analysis of activity in the allowance
for loan losses  relating to the  Company's  loan  portfolio  during the periods
indicated:

<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                                         --------------------------------------------------------------------
                                           1998           1997           1996           1995           1994
                                         --------       --------       --------       --------       --------
                                                                (Dollars in Thousands)
<S>                                      <C>            <C>            <C>            <C>            <C>     
 Balance at beginning of period......    $  3,695       $  3,523       $  1,947       $  1,071       $    884
 Provision for loan losses...........         891            325          1,872          1,121             --
 Charge-offs:
    Single family residential loans..        (212)          (100)          (261)          (131)          (302)
    Multi-family residential loans...          --             --             (7)            --             --
    Commercial real estate loans.....          --             --             --            (40)            --
    Consumer loans...................          (7)           (53)           (28)           (92)          (170)
                                         --------       --------       --------       --------       --------
      Total charge-offs..............        (219)          (153)          (296)          (263)          (472)
 Recoveries:
    Single family residential loans..          --             --             --              3            410
    Multi-family residential loans...          --             --             --             --             --
    Commercial real estate loans.....         561             --             --             15             --
    Consumer loans...................          --             --             --             --            249
                                         --------       --------       --------       --------       --------
      Total recoveries...............         561             --             --             18            659
                                         --------       --------       --------       --------       --------
      Net (charge-offs) recoveries...         342           (153)          (296)          (245)           187
                                         --------       --------       --------       --------       --------
 Balance at end of period............    $  4,928       $  3,695       $  3,523       $  1,947       $  1,071
                                         ========       ========        =======       ========       ========
 Net charge-offs (recoveries) as a
    percentage of average loan
    portfolio, net...................        0.13%          0.04%           0.09%         0.19%          (0.28)%
</TABLE>


         The following table sets forth an analysis of activity in the allowance
for loan losses  relating to the Company's  discount loan  portfolio  during the
periods indicated:
                                                    Year Ended December 31,
                                             ----------------------------------
                                               1998         1997          1996
                                             --------     --------     --------
                                                     (Dollars in Thousands)
Balance at beginning of period ...........   $ 23,493     $ 11,538     $     --
Provision for loan losses ................     17,618       31,894       20,578
Charge-offs:
   Single family residential loans .......    (14,574)     (13,281)      (7,009)
   Multi-family residential loans ........     (2,648)      (2,056)        (704)
   Commercial real estate loans ..........     (2,888)      (5,012)      (1,503)
   Other loans ...........................        (20)          --           --
                                             --------     --------     --------
      Total charge-offs ..................    (20,130)     (20,349)      (9,216)
                                             --------     --------     --------
Recoveries:
   Single family residential loans .......        421          410          176
   Multi-family residential loans ........         --           --           --
   Commercial real estate loans ..........         --           --           --
   Consumer loans ........................         --           --           --
                                             --------     --------     --------
      Total recoveries ...................        421          410          176
                                             --------     --------     --------
      Net (charge-offs) ..................    (19,709)     (19,939)      (9,040)
                                             --------     --------     --------
Balance at end of period .................   $ 21,402     $ 23,493     $ 11,538
                                             ========     ========     ========
Net charge-offs as a percentage of average
   discount loan portfolio ...............       1.53%        1.55%        1.34%


                                       25

<PAGE>

INVESTMENT ACTIVITIES

         GENERAL.  The investment  activities of the Company  currently  include
investments in mortgage-related securities, investment securities and low-income
housing tax credit  interests.  The investment  policy of the Company,  which is
established by the Investment  Committee and approved by the Board of Directors,
is designed  primarily to provide a portfolio of diversified  instruments  while
seeking to optimize net interest  income  within  acceptable  limits of interest
rate risk, credit risk and liquidity.

         MORTGAGE-BACKED AND RELATED SECURITIES.  From time to time, the Company
invests   in   mortgage-backed   and   mortgage-related   securities.   Although
mortgage-backed and  mortgage-related  securities  generally yield less than the
loans that back such securities  because of costs  associated with their payment
guarantees  or  credit  enhancements,  such  securities  are  more  liquid  than
individual  loans and may be used to  collateralize  borrowings  of the Company.
Other mortgage-backed and mortgage-related  securities indirectly bear the risks
of the underlying loans, such as prepayment risk (interest-only  securities) and
credit  risk  (subordinated  interests),  and are  generally  less  liquid  than
individual loans.

         Mortgage-related  securities  include  senior and  subordinate  regular
interests  and  residual  interests  in  collateralized   mortgage   obligations
("CMOs"),  including CMOs which have qualified as REMICs.  The regular interests
in some CMOs are like  traditional  debt  instruments  because  they have stated
principal amounts and traditionally defined  interest-rate terms.  Purchasers of
certain  other  interests in REMICs are  entitled to the excess,  if any, of the
issuer's cash inflows,  including reinvestment earnings,  over the cash outflows
for debt  service  and  administrative  expenses.  These  interests  may include
instruments  designated  as  residual  interests,   which  represent  an  equity
ownership  interest in the underlying  collateral,  subject to the first lien of
the investors in the other classes of the REMIC.

         A  senior-subordinated  structure  often is used with  CMOs to  provide
credit  enhancement for securities  which are backed by collateral  which is not
guaranteed  by  FNMA,  FHLMC or the  Government  National  Mortgage  Association
("GNMA"). These structures divide mortgage pools into two risk classes: a senior
class and one or more  subordinated  classes.  The subordinated  classes provide
protection  to the senior class.  When cash flow is impaired,  debt service goes
first to the holders of senior  classes.  In addition,  incoming cash flows also
may be held in a  reserve  fund to meet any  future  shortfalls  of cash flow to
holders of senior classes.  The holders of subordinated  classes may not receive
any principal repayments until the holders of senior classes have been paid and,
when  appropriate,  until a specified level of funds has been contributed to the
reserve fund.

         On July 27, 1998,  the Company  sold its entire  portfolio of AAA-rated
agency IOs for $137.5 million,  which  represented book value. As a result of an
increase in  prepayment  speeds due to  declining  interest  rates,  the Company
recorded  impairment  charges of $86.1  million in 1998 prior to the sale ($77.6
million  in the  second  quarter)  resulting  from  the  Company's  decision  to
discontinue  this investment  activity and write down the book value of the IOs.
The AAA-rated agency IOs consisted of IOs, which are classes of mortgage-related
securities  that are entitled to payments of interest  but no (or only  nominal)
principal,  and inverse IOs,  which bear interest at a floating rate that varies
inversely with (and often at a multiple of) changes in a specified index.

         At December 31, 1998,  the fair value of the  Company's  investment  in
subordinate  and residual  interests  amounted to $249.1 million ($227.9 million
amortized  cost) or 42% of total  securities  available  for sale and  supported
senior classes of securities  having an outstanding  principal  balance of $3.84
billion.  During 1998, the Company recorded $43.6 million 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."  Because  of their
subordinate  position,  subordinated  and residual  classes of  mortgage-related
securities  provide  protection  to and involve more risk than the senior class.
Specifically, when cash flow is impaired, debt service goes first to the holders
of senior  classes.  In addition,  incoming  cash flows may be held in a reserve
fund to meet any future repayments until the holders of senior classes have been
paid  and,  when  appropriate,  until  a  specified  level  of  funds  has  been
contributed  to  the  reserve  fund.   Further,   residual   interests   exhibit
considerably   more  price  volatility  than  mortgages  or  ordinary   mortgage
pass-through  securities,  due in part to the  uncertain  cash flows that result
from  changes  in the  prepayment  rates of the  underlying  mortgages.  Lastly,
subordinate and residual  interests involve  substantially more credit risk than
the senior  classes of the  mortgage-related  securities to which such interests
relate and generally are not as liquid as the senior classes.

         The Company  generally  retains  subordinate  and residual  securities,
which are certificated,  related to its securitization of loans. Subordinate and
residual interests in mortgage-related  securities provide credit support to the
more  senior  classes of the  mortgage-related  securities.  Principal  from the
underlying  mortgage loans  generally is allocated  first to the senior classes,
with the most  senior  class  having a priority  right to the cash flow from the
mortgage loans until its payment requirements are satisfied.  To the extent that
there are defaults and  unrecoverable  losses on the underlying  mortgage loans,
resulting in reduced cash flows, the most subordinate security will be the first
to bear this loss. Because  subordinate and residual interests generally have no
credit  support,  to the extent there are realized  losses on the mortgage loans

                                       26

<PAGE>

comprising  the mortgage  collateral  for such  securities,  the Company may not
recover  the full  amount or,  indeed,  any of its  initial  investment  in such
subordinate  and  residual  interests.  The Company  generally  retains the most
subordinate classes of the securities from the securitization and therefore will
be the first to bear any credit losses.

         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 include 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 18% 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 1998, the Company utilized  proprietary  prepayment
curves  generated by the Company  (reaching an  approximate  range of annualized
rates of 30% - 40%). In its estimates of annual loss rates, the Company utilizes
assumptions that it believes are reasonable. The Company estimates annual losses
of between 0.22% and 2.06% of the underlying loans.

         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 credit  risk of  mortgage  related  securities  is  affected by the
nature of the underlying  mortgage  loans.  In this regard,  the risk of loss on
securities  backed  by  commercial  and  multi-family  loans and  single  family
residential  loans made to borrowers who, because of prior credit problems,  the
absence of a credit history or other factors, are unable or unwilling to qualify
as  borrowers  under  guidelines  established  by the  FHLMC  and the  FNMA  for
purchases of loans by such agencies, generally involve more risk than securities
backed by single  family  residential  loans which  conform to the  requirements
established by FHLMC and FNMA for their purchase by such agencies.

         The Company  adjusts its securities  portfolio to fair value at the end
of each month  based upon the lower of dealer  quotations  or  internal  values,
subject to an internal review process. For those securities which do not have an
available  market  quotation,   the  Company  will  request  market  values  and
underlying assumptions from the various securities dealers that underwrote,  are
currently  financing the securities,  or have had prior experience with the type
of security to be valued. When quotations are obtained from two or more dealers,
the average dealer quote will be utilized.

         The Company periodically assesses the carrying value of its subordinate
securities and residual  securities retained as well as the servicing assets for
impairment.  There can be no  assurance  that the  Company's  estimates  used to
determine  the  gain on  securitized  loan  sales,  subordinate  securities  and
residual   securities  retained  and  servicing  asset  valuations  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 and/or servicing assets
may be decreased or the Company may increase its allowance  for possible  credit
losses on loans  sold  through  a charge  against  earnings  during  the  period
management  recognized  the  disparity.  Other  factors  may  also  result  in a
write-down  of the  Company's  subordinate  securities  and residual  securities
retained in subsequent periods. Accelerated prepayment speeds were a significant
contributing  factor to the $43.6 million of impairment  charges recorded by the
Company in 1998 on its subordinate and residual securities.

                                       27


<PAGE>


         The  following  table  sets  forth  the  fair  value  of the  Company's
mortgage-backed  and  related  securities   available  for  sale  at  the  dates
indicated.

<TABLE>
<CAPTION>

                                                                        December 31,
                                                       ---------------------------------------------
                                                           1998             1997             1996
                                                       ----------        ----------        ---------
<S>                                                    <C>               <C>               <C>
Mortgage-related  securities:                                      (Dollars in Thousands)
   Single family residential:
     CMOs (AAA-rated)............................      $  344,199        $  160,451        $  73,935
     Interest only:
       AAA-rated.................................              --            13,863            1,173
       FHLMC.....................................              --            64,745           47,571  
       FNMA......................................              --            59,715           49,380       
       GNMA......................................              --            29,766               -- 
     BB-rated subordinates.......................           8,517             2,515               --   
     B-rated subordinates........................           6,344                --               --      
       Unrated subordinates .....................          40,595            39,219           19,164       
      AAA-rated subprime residuals ..............           6,931                --               -- 
      BBB-rated subprime residuals ..............          17,593                --               --      
      Unrated subprime residuals ................         152,951            41,790           20,560          
     Futures contracts and swaps.................              --               (94)          (1,921)              
                                                       ----------        ----------        ---------
       Total.....................................         577,130           411,970          209,862          
                                                       ----------        ----------        ---------

   Multi-family residential and commercial:
     Interest only:
       AAA-rated.................................              71             3,058           83,590      
       BB-rated..................................               2               189               --   
       Unrated...................................              --               --             3,799  
     B-rated subordinates........................           8,813             8,512       
     Unrated.....................................              --                --           13,848          
     Unrated subordinates........................           7,331             6,795           43,686  
     Futures contracts...........................              --                --             (780)  
                                                       ----------        ----------        ---------              
       Total.....................................          16,217            18,554          144,143   
                                                       ----------        ----------        ---------         
   Marketable equity securities:
     Common stocks...............................              --            46,272               --  
                                                       ----------        ----------        --------- 

          Total..................................      $  593,347        $  476,796        $ 354,005 
                                                       ==========        ==========        ========= 
</TABLE>


         Under a regulatory  bulletin  issued by the OTS, a  federally-chartered
savings  institution  such as the Bank  generally  may  invest  in  "high  risk"
mortgage  securities only to reduce its overall  interest rate risk and after it
has  adopted  various   policies  and   procedures,   although  under  specified
circumstances such securities also may be acquired for trading purposes. A "high
risk"  mortgage  security  for this purpose  generally  is any  mortgage-related
security  which  meets one of three  tests  which are  intended  to measure  the
average  life or price  volatility  of the  security  in relation to a benchmark
fixed rate, 30-year mortgage-backed pass-through security. At December 31, 1998,
the Bank held  mortgage-related  securities  with a fair value of $19.5  million
(amortized cost of $19.5 million) which were classified as "high-risk"  mortgage
securities by the OTS.

                                       28


<PAGE>

         The following tables detail the Company's securities available for sale
portfolio  at December 31, 1998,  and its  estimates of expected  yields on such
securities,  taking  into  consideration  expected  prepayment  and  loss  rates
together with other factors.


<TABLE>
<CAPTION>

                                                         CLASS                        COLLATERAL BALANCE
                                            ISSUE     DESIGNATION       RATING        -------------------       PRODUCT TYPE AT
        SECURITIZATION         SECURITY     DATE        LETTER         AGENCIES       ISSUANCE   12/31/98           12/31/98
        --------------         --------     ----        ------         --------       ---------  --------       ---------------
<S>                                <C>         <C>       <C>       <C>                <C>        <C>         <C>        <C>   
SINGLE-FAMILY RESIDENTIAL                                              (Dollars in Thousands)
   Subordinates:
   BCF 1996 R1.............       B3       Oct-96         NR         S&P, Moody's     $ 505,513  $ 358,075   93% Fixed, 7% ARM
   BCF 1997 R1.............       B4       Mar-97         NR        Moody's, Fitch      177,823    138,739   93% Fixed, 7% ARM
   BCF 97 R2...............       B4       Jun-97       Ba2, BB     Moody's, Fitch      251,790    193,342   24% Fixed, 75% ARM
                                  B5                     B2,B
                                  B6                      NR
   BCF 1997 R3.............       B4       Dec-97         NR         Moody's DCR        579,851    519,213   93% Fixed, 6% ARM
   ORMBS 1998 R1...........       B4       Mar-98         NR         Moody's, DCR       565,411    546,176   94% Fixed, 6% ARM
   ORMBS 1998 R2...........      B4A       Jun-98         Ba2          Moody's          123,917    115,320   39% Fixed, 61% ARM
                                 B4F                      Ba2
                                 B5A                      B2
                                 B5F                      B2
                                 B6F                      NR
                                 B6A                      NR
   ORMBS 1998 R3...........       B4       Sep-98         BB         Moody's, DCR       261,452    259,873   95% Fixed, 5% ARM
                                  B5                     B2,B
                                  B6                      NR

   Subprime residuals:
   SMBS 1996-3.............       R        Jun-96         NR         S&P, Moody's       130,062     48,578   56% Fixed, 44% ARM
   MLM1 1996-1.............       R        Sep-96         NR         S&P, Moody's        81,142     33,469   30% Fixed, 70% ARM
   MS 1997-1...............     X1,X2      Jun-97         NR         S&P, Moody's       104,846     66,732   22% Fixed, 78% ARM
   1997 OFS(2).............       X        Sep-97         NR         S&P, Moody's       102,201     67,850   16% Fixed 84% ARM
   1997 OFS(3).............       X        Dec-97         NR         S&P, Moody's       208,784    167,604   16% Fixed 84% ARM
   1998 OFS(1).............       X        Mar-98         NR         Moody's, DCR       161,400    137,641   13% Fixed 87% ARM
   1998 OFS(2).............       X        Jun-98         NR         S&P, Moody's       382,715    304,266   37% Fixed 63% ARM
   1998 OFS(3).............       X        Sep-98         NR           S&P, DCR         261,649    253,156   27% Fixed 73% ARM
   1998 OFS(4).............       X        Dec-98         NR             S&P,           262,055    262,055   37% Fixed 63% ARM
                                                                    Moody's,Fitch
   OML(1)..................       R        Jun-98         NR           S&P, DCR         368,742    321,916   100% UK Subprime
   OML(2)..................     DAC-IO     Nov-98       Aaa,AAA     Moody's, Fitch      195,832    195,832   100% UK Subprime
                                 S&R                      NR
                                  B                    Baa2, BBB

MULTI-FAMILY AND COMMERCIAL
   Subordinates:
   CMAC 1996 C2............       G        Dec-96          B            Fitch           164,418    133,997   37% Retail, 19% Hotel,
                                  H                       NR                                                 16% Multi-family
                                XI,X2                     AAA
   BCF 97-C1...............      F,G       Oct-97          B            Fitch           128,387     86,959   19% Multi-family,  18%
                                 E-IO                     BB                                                 Hotel, 15% Industrial
                                X1,X2                     AAA
</TABLE>


                                       29

<PAGE>

<TABLE>
<CAPTION>

                                  WEIGHTED     WEIGHTED     TOTAL    ACTUAL LIFE  ACTUAL LIFE
                               AVERAGE COUPON   AVERAGE  DELINQUENCY TO DATE CPR    TO DATE   SUBORDINATION
                                     AT:        LTV AT:      AT:         AT:      LOSSES AT:      LEVEL     YIELD TO    MATURITY AT:
        SECURITIZATION            12/31/98     12/31/98   12/31/98     12/31/98    12/31/98    AT 12/31/98  PURCHASE     12/31/98
- --------------------------     --------------- --------  ----------- -----------  ----------- ------------- --------    ------------
<S>                                 <C>           <C>         <C>         <C>    <C>                <C>         <C>          <C>   
SINGLE-FAMILY RESIDENTIAL                               (Dollars in Thousands)
Subordinates:
   BCF 1996 R1 B3(5).......         10.06%        101.05%     22.00%      12.47% $14,199           None         15.70%       14.73%
   BCF 1997 R1 B4(5).......         10.08         108.90      39.87       11.78    6,145           None         13.46        -0.04
   BCF 97 R2 B4(5).........          8.30          85.64      72.88       11.87    3,876            8.06         9.58        11.97
             B5............                                                                         4.94        10.74        15.97
             B6............                                                                        None         15.98         5.35
   BCF 1997 R3(5)..........          9.65         113.90      38.32        7.81    5,045           None         15.84         5.56
   ORMBS 1998 R1(6)........          8.98         117.19      30.83        4.45    1,945           None         20.50         8.96
   ORMBS 1998 R3(6)........          8.98         122.50      24.05        3.69       79           13.73        11.71        11.03
   ORMBS 1998 R2 BA4(6)....          9.20          89.63      54.01        9.83      139            6.86        13.22        13.48
                 B4F.......                                                                         8.30        19.23        11.01
                 B5A.......                                                                         5.51        23.78        18.41
                 B5F.......                                                                         6.47        11.78        15.66
                 B5........                                                                        10.16        16.54         8.82
                 B6A.......                                                                        None         16.72        15.53
                 B6F.......                                                                        None         19.50        22.33

   ORMBS 1998 R3 B6(6).....          8.98         122.50      24.05        3.69       79           None         18.00         1.58

Subprime residuals:
   SMBS 1996-3(1)..........         11.24          70.00      19.93       31.74    1,896           10.14        15.52         3.94
   MLM1 1996-1(2)..........         11.57          73.36      25.84       32.28      970           12.62        15.16         5.52
   MS 1997-1 X1(3).........         10.45          74.41      17.34       24.89      191            4.51        21.47        13.30
             X2............                                                                                     20.38         8.60
   OML 1(7)................         14.08          64.00      22.05       22.36       24      Reserve Fund      20.72        29.98
                                                                                              - (pound) 7.0
                                                                                                million

   OML 2 DAC IO(7).........         13.79          65.80      30.95       n/a         --      Reserve Fund      28.50        28.50
                                                                                              - (pound)2.5
                                                                                                million
                B..........                                                                                     12.50        12.50
                R..........                                                                                     36.50        36.50
                S..........                                                                                     25.30        25.30
   1997 OFS 2 X(4).........         10.30          74.23      15.51       27.56      121            4.52        19.65         9.70
   1997 OFS 3 X(4).........         10.16          77.77      13.73       19.23       99            3.74        19.59        12.16
   1998 OFS 1X(4)..........         10.34          77.14      12.74       18.73      148            2.23        18.00        12.13
   1998 OFS 2 X(4).........         10.82          73.51       8.94       36.43       --            2.66        19.46         8.16
   1998 OFS 3 X(4).........         10.39          75.64       8.76       11.85       --            1.09        18.00        13.52
   1998 OFS 4 X(4).........         10.57          76.01         --          --       --           --           18.00        18.00

MULTI-FAMILY AND COMMERCIAL
Subordinates:
   BCF 97-C1 F(5)..........          10.54        2.31        15.16       20.50      --         n/a              10.35        11.99
             G.............                                                                                      15.00        20.27
   CMAC 1996 C2 G..........           8.37        1.29        --           8.07      --         n/a              11.11        14.60
                                                                                                                 18.46        31.13
H Interest-only:
   CMAC 96 C2 X1 IO(8).....           8.37        1.29        --           8.07      --         n/a              54.86        39.01
              X2 IO........                                                                                      25.94         3.67
   BCF 97-C1 X1(3).........          10.54        2.31        15.16       20.50      --         n/a               6.93        51.95
             X2............                                                                                       8.53        35.63
             E -IO.........                                                                                       7.00        37.48
</TABLE>


                                       30

<PAGE>

ISSUERS:
(1) Salomon Brothers Mortgage Securities VII
(2) Merrill Lynch Mortgage Investors, Inc.
(3) Morgan Stanley ABS Capital I, Inc.
(4) Ocwen Mortgage Loan Asset Backed Certificates
(5) BlackRock Capital Finance L.P.
(6) Ocwen Residential MBS Corporation
(7) Ocwen Mortgage Loans
(8) Commercial Mortgage Acceptance Corporation
    n/a - not available


         The following  table sets forth the principal  amount of mortgage loans
by the geographic  location of the property  securing the mortgages that underly
the Company's securities available for sale portfolio at December 31, 1998.



<TABLE>
<CAPTION>
  Description                 California  Florida      Texas      New York    Illinois    Other (1)       Total
  -----------                 ----------  --------   ---------   ---------   ---------   -----------   ----------
                                                         (Dollars In Thousands)
<S>                            <C>        <C>        <C>         <C>         <C>         <C>           <C>       
Single family residential ..   $752,249   $254,751   $ 266,869   $ 226,727   $ 170,015   $ 1,794,782   $3,465,393

 Multi-family and commercial     72,260     16,261       3,021      15,701      29,971        83,609      220,823 
                               --------   --------   ---------   ---------   ---------   -----------   ----------

 Total .....................   $824,509   $271,012   $ 269,890   $ 242,428   $ 199,986   $ 1,878,391   $3,686,216
                               ========   ========   =========   =========   =========   ===========   ==========

 Percentage (2) ............   %   22.4   %    7.4   %     7.3   %     6.6   %     5.4   %      50.9   %    100.0
                               ========   ========   =========   =========   =========   ===========   ==========
</TABLE>


(1)      No other  individual  state  makes up more  than 5% of the  total.  See
         "Certain Transaction" under Item 13.

(2)      Based on a  percentage  of the total  unpaid  principal  balance of the
         underlying loans.

                                       31

<PAGE>


         The following table  summarizes  information  relating to the Company's
mortgage-related securities available for sale at December 31, 1998.


<TABLE>
<CAPTION>
                                                                                     ANTICIPATED            ANTICIPATED
                                                                        ORIGINAL     UNLEVERAGED             WEIGHTED
                                                                       ANTICIPATED     YIELD TO               AVERAGE
                                    AMORTIZED                 PERCENT   YIELD TO     MATURITY AT             REMAINING
   RATING/DESCRIPTION                 COST      FAIR VALUE     OWNED     MATURITY      12/31/98(1) COUPON     LIFE (2)

SINGLE-FAMILY RESIDENTIAL:
<S>                                   <C>         <C>            <C>        <C>            <C>        <C>         <C>
   BB-rated subordinates.........     $8,517      $8,517         84.27%     13.99%         11.29%     6.99%       6.08%
   B-rated subordinates..........      6,344       6,344         83.95      16.44          11.37      7.04        3.06 
   Unrated subordinates..........     37,872      40,595         86.79      14.33           9.89      8.18        3.74 
   AAA-rated subprime securities.      6,178       6,931        100.00      28.50          28.50     10.90        1.70 
   BBB-rated subprime securities.     15,681      17,593        100.00      12.50          12.50      9.97        4.54 
   Unrated subprime residuals ...    141,526     152,951        100.00      24.35          30.78        --        2.69 


MULTI-FAMILY AND COMMERCIAL:
   B-rated subordinates..........      7,684       8,813         85.34      11.05          13.90      8.93        5.23 
   Unrated subordinates..........      4,126       7,331         85.34      21.62          26.81      9.15        4.46 
   AAA-rated interest-only.......         71          71         85.41       4.87          (3.77)     2.02        1.23 
   BB-rated interest only........         --           2         85.41      26.00          34.85      2.45        0.07 
</TABLE>


         (1)      Changes in the December 31, 1998 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 off of December 31,
                  1998 book value.

         The  following  table sets forth the  property  types of the  Company's
commercial  mortgage-backed  securities  at December  31,  1998,  based upon the
principal amount.
                                                                Percentage
                                    Property type                Invested
                                    -------------               ----------

                              Retail........................         26.3
                              Multi-family..................         24.8%
                              Lodging.......................         18.7 
                              Office........................         13.1 
                              Warehouse.....................          6.0 
                              Mixed use.....................          6.2 
                              Self storage..................          1.1
                              Other.........................          3.8 
                                                                 -------- 
                              Total.........................        100.0%
                                                                 ========

         The following is a glossary of terms included in the above tables.

         ACTUAL  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.

         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:


<TABLE>
<CAPTION>
<S>                             <C>      <C>                                <C>                    <C>
                                  _                                                                _
                                 |                                           (      12          )   |
                                 |                                           ( ---------------- )   |
                                 |                                           ( months in period )   |
                                 | ( 1 - Final Aggregate Balance actual     )                       |
                                 | (     ---------------------------------- )                       |
                                 | (     Final Aggregate Balance scheduled  )                       |
 Actual Life-to-Date CPR = 100 X |                                                                  |
                                 |_                                                                _|.
</TABLE>


         ACTUAL LIFE-TO-DATE LOSSES - Represents  cumulative losses expressed as
a percentage of the unpaid  balance of the original  collateral at the indicated
date.

                                       32

<PAGE>


         CLASS  DESIGNATION  LETTER - 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  ("NR")  which,  if included  in a  securitization,  will  always  receive
interest  last and  experience  losses first.  IO securities  receive the excess
interest  remaining  after the  interest  payments  have been made on all senior
classes  of bonds  based on their  respective  principal  balances.  There is no
principal associated with IO securities and they are considered  liquidated when
the  particular  class  they  are  contractually  tied to is paid  down to zero.
Principal only ("PO")  securities  receive excess  principal  payments after the
principal  has  been  made on all  classes  of bonds  based on their  respective
payment schedules.  There is no interest  associated with PO securities and they
are sold at a  discount.  The  return on PO  securities  is earned  through  the
receipt of the payments and the collection of the discounted amount.

         CLASS SIZE -  Represents  the  percentage  size of a  particular  class
relative to the total outstanding balance of all classes.

         COLLATERAL BALANCE - Represents,  in the case of residuals,  the unpaid
principal  balance of the  collateral of the entire  securities at the indicated
date and, in the case of subordinates,  the outstanding principal balance of the
entire securitization at the indicated date.

         ISSUE DATE - Represents the date on which the indicated securities were
issued.

         OVER-COLLATERIZATION  LEVEL - For  residual  interests  in  residential
mortgage-backed  securities,  over-collaterization ("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-collaterization  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.
Reserve funds ("RF") are actual cash  reserves  expressed as a percentage of the
original collateral balance at issuance.

         RATING - Represents  the rating,  if any, on the security or securities
by the indicated rating agencies.

         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.

         WEIGHTED AVERAGE DSCR - Represents debt service  coverage ratio,  which
is calculated by dividing cash flow available for debt service by debt service.

         WEIGHTED  AVERAGE LTV-  Represents  the ratio of the loan amount to the
value of the underlying collateral.

         YIELD TO  MATURITY  - Yield to  maturity  represents  a measure  of the
average rate of return that is earned on a security if held to maturity.

         INVESTMENT SECURITIES. Investment securities amounted to $10.8 million,
$10.8   million  and  $8.8  million  at  December  31,  1998,   1997  and  1996,
respectively,  and consisted of the Company's required investment in FHLB stock.
As a member  of the FHLB of New  York,  the Bank is  required  to  purchase  and
maintain  stock in the FHLB of New York in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts and similar
obligations  at the  beginning  of each year or 5% of  borrowings,  whichever is
greater.  Because  the  Company  has the  ability  and the  intent to hold these
securities to maturity they are considered non-marketable equity securities held
for investment and are stated at cost.

         TRADING  SECURITIES.  When  securities are purchased with the intent to
resell in the near term, they are classified as trading  securities and reported
on the Company's  consolidated  statement of financial condition as a separately
identified  trading  account.  

                                       33

<PAGE>


Securities  in this  account  are  carried at fair  market  value.  All  trading
securities  are  marked-to-market,  and any  increase or decrease in  unrealized
appreciation  or   depreciation  is  included  in  the  Company's   consolidated
statements of operations.

         Under guidelines approved by the Board of Directors of the Company, the
Company  is  authorized  to  hold  a  wide  variety  of  securities  as  trading
securities,  including U.S. Government and agency securities and mortgage-backed
and  mortgage-related  securities.  The  Company  also  is  authorized  by  such
guidelines to use various  hedging  techniques  in  connection  with its trading
activities,  as well as to effect short sales of  securities,  pursuant to which
the Company  sells  securities  which are to be acquired by it at a future date.
Under  current  guidelines,  the amount of  securities  held by the Company in a
trading  account may not exceed on a gross basis the greater of $200  million or
15% of the  Company's  total  assets,  and the  total net  amount of  securities
(taking into account any related hedge or buy/sell agreement relating to similar
securities) may not exceed the greater of $150 million or 10% of total assets.

         The Company's securities held for trading at December 31, 1996 amounted
to $75.6  million and  represented  one  AAA-rated CMO which was sold in January
1997. The Company held no securities for trading at December 31, 1998 and 1997.

         INVESTMENTS  IN LOW-INCOME  HOUSING TAX CREDIT  INTERESTS.  The Company
invests in low-income  housing tax credit  interests  primarily  through limited
partnerships for the purpose of obtaining Federal income tax credits pursuant to
Section 42 of the Code,  which  provides a tax credit to  investors in qualified
low-income  rental housing that is constructed,  rehabilitated or acquired after
December 31, 1986. To be eligible for housing tax credits,  a property generally
must first be  allocated  an amount of tax credits by the tax credit  allocating
agency,  which in most cases also serves as the housing finance  agency,  of the
state in which the property is located.  If the property is to be constructed or
rehabilitated,  it must be  completed  and placed in service  within a specified
time,  generally  within  two  years  after  the  year in which  the tax  credit
allocation  is  received.  A  specified  portion  of the  apartment  units  in a
qualifying  project may be rented only to  qualified  tenants for a period of 15
years,  or a portion of any  previously  claimed tax credits  will be subject to
recapture, as discussed below.

         At December 31, 1998,  the Company's  investment in low-income  housing
tax  credit  interests  amounted  to $144.2  million or 4% of total  assets,  as
compared to $128.6 million or 4% of total assets at December 31, 1997, and $93.3
million or 4% of total assets at December 31, 1996. The Company's investments in
low-income  housing  tax credit  interests  are made by the  Company  indirectly
through  subsidiaries  of the Company,  which may be a general  partner and/or a
limited partner in the partnership.

         In accordance  with a 1995  pronouncement  of the Emerging  Issues Task
Force, the Company's accounting for investments in low-income housing tax credit
partnerships  in which it acts solely as a limited  partner,  which  amounted to
$75.9  million in the  aggregate at December  31,  1998,  depends on whether the
investment was made on or after May 18, 1995.

         Low-income  housing  tax  credit  partnerships  in which  the  Company,
through a subsidiary, acts as a general partner, are presented on a consolidated
basis. At December 31, 1998, the Company's  investment in low-income housing tax
credit interests  included $68.3 million of assets related to low-income housing
tax credit  partnerships  in which a subsidiary of the Company acts as a general
partner. At December 31, 1998, the Company had no commitments to make additional
investments in such partnerships.

         The  Company  also  makes  loans  to  low-income   housing  tax  credit
partnerships  in which it has  invested  to  construct  the  affordable  housing
project owned by the  partnerships.  At December 31, 1998, the Company had $15.0
million of  construction  loans  outstanding  to  low-income  housing tax credit
partnerships  and commitments to fund an additional $63.4 million of such loans.
Approximately  $6.5  million of such funded  construction  loans at December 31,
1998 were made to partnerships in which subsidiaries of the Company acted as the
general  partner  and thus were  consolidated  with the  Company  for  financial
reporting purposes. The risks associated with these construction loans generally
are the same as those made by the Company to  unaffiliated  third  parties.  See
"Lending Activities".

         The affordable  housing  projects  owned by the low-income  housing tax
credit  partnerships  in which the Company had invested at December 31, 1998 are
geographically  located  throughout the United States. At December 31, 1998, the
Company's largest  investment in a low-income  housing tax credit interest was a
$10.0  million  investment in a  partnership  which owned a 170-unit  qualifying
project located in Racine, Wisconsin.

         At December 31, 1998, the Company had invested in or had commitments to
invest in 47 low-income  housing tax credit  partnerships,  of which 33 had been
allocated tax credits.  The Company  estimates that the investment in low-income
housing tax credit  interests in which it had invested at December 31, 1998 will
provide approximately $299.4 million of tax credits.

         During 1998, the Company sold its investment in five low-income housing
tax credit  projects  which had a carrying  value of $28.9  million for gains of
$7.4  million.  During  1997,  the Company  sold an  investment  in a low-income
housing tax credit  interest  which had a carrying  value of $15.7 million for a
gain of $6.1  million.  

                                       34

<PAGE>


During 1996,  the Company sold $19.8  million of its  investments  in low-income
housing tax credit interests for a gain of $4.9 million.  Depending on available
prices,  its ability to utilize tax credits and other  factors,  the Company may
seek to sell other of its low-income housing tax credit interests in the future.

         The ownership of low-income  housing tax credit interests  produces two
types of tax benefits. The primary tax benefit flows from the low-income housing
tax credits under the Code which are generated by the ownership and operation of
the real  property  in the manner  required to obtain  such tax  credits.  These
credits may be used to offset  Federal  income tax on a dollar for dollar  basis
but may not offset the alternative  minimum tax; tax credits thus may reduce the
overall  Federal  income  tax to an  effective  rate of 20%.  In  addition,  the
operation of the rental properties  produces losses for financial  statement and
tax  purposes  in the  early  years and  sometimes  throughout  the  anticipated
ownership  period.  These tax losses may be used to offset  taxable  income from
other  operations and thereby reduce income tax which would otherwise be paid on
such taxable income.

         Tax credits may be claimed  over a ten-year  period on a  straight-line
basis once the  underlying  multi-family  residential  properties  are placed in
service. Tax credits claimed reduce the tax payments computed based upon taxable
income to not less than the  alternative  minimum tax  computed for that year or
any year not more than  three  years  before or 15 years  after the year the tax
credit is  earned.  The  Taxpayer  Relief  Act of 1997  changed  the tax  credit
carryback  period  from 3 years to 1 year and the carry  forward  period from 15
years to 20 years for credits that become  available for use in years  beginning
after  December 31, 1997.  Tax credits are realized even if units in the project
do not continue to be occupied once the units in the project have been initially
rented to a qualifying  tenant, and tax credits are not dependent on a project's
operating  income or  appreciation.  Tax credits can be claimed  over a ten-year
period and generally can be lost or recaptured  only if  non-qualifying  tenants
are placed in units,  ownership of the project is  transferred or the project is
destroyed and not rebuilt  during a 15-year  compliance  period for the project.
The Company has  established  specific  investment  criteria for  investment  in
multi-family  residential projects which have been allocated tax credits,  which
require,  among other things,  a third party developer of the project and/or the
seller of the interest therein to provide a guarantee  against loss or recapture
of tax credits and to maintain appropriate  insurance to fund rebuilding in case
of destruction of the project.  Notwithstanding the Company's efforts, there can
be no  assurance  that  the  multi-family  residential  projects  owned  by  the
low-income housing tax credit partnerships in which it has invested will satisfy
applicable criteria during the 15-year compliance period and that there will not
be loss or recapture of the tax credits associated therewith.

         Investments made pursuant to the affordable  housing tax credit program
of the Code are subject to numerous  risks  resulting  from changes in the Code.
For example,  the Balanced Budget Act of 1995, which was vetoed by the President
of the United States in December  1995 for reasons  which were  unrelated to the
tax credit  program,  generally  would have  established  a sunset  date for the
affordable  housing tax credit program of the Code for housing placed in service
after  December 31, 1997 and would have required a favorable vote by Congress to
extend the credit  program.  Although  this change  would not have  impacted the
Company's existing investments,  other potential changes in the Code, which have
been discussed from time to time, could reduce the benefits  associated with the
Company's  existing  investments  in  low-income  housing tax credit  interests,
including the replacement of the current graduated income taxation provisions in
the Code with a "flat tax" based system and increases in the alternative minimum
tax, which cannot be reduced by tax credits. Management of the Company is unable
to predict  whether any of the  foregoing  or other  changes to the Code will be
subject to future  legislation and, if so, what the contents of such legislation
will be and its effects, if any, on the Company.

SOURCES OF FUNDS

         GENERAL. Deposits, FHLB advances, reverse repurchase agreements,  lines
of credit,  and  maturities  and payments of principal and interest on loans and
securities and proceeds from the sales and securitizations thereof currently are
the principal  sources of funds for use in the Company's  investment and lending
activities and for other general  business  purposes.  Management of the Company
closely  monitors  rates and terms of  competing  sources  of funds on a regular
basis and generally utilizes the sources which are the most cost effective.

         DEPOSITS.  The primary source of deposits for the Company  currently is
brokered  certificates of deposit obtained primarily through national investment
banking firms which, pursuant to agreements with the Company, solicit funds from
their  customers  for  deposit  with the  Company  ("brokered  deposits").  Such
deposits  obtained through national  investment  banking firms amounted to $1.48
billion  or 68% of the  Company's  total  deposits  at  December  31,  1998.  In
addition, during 1995, the Company commenced a program to obtain certificates of
deposit from customers of regional and local investment  banking firms which are
made aware of the Company's  products by the Company's  direct  solicitation and
marketing efforts.  At December 31, 1998, $242.2 million or 11% of the Company's
deposits  were  obtained  in this manner  through  over 140  regional  and local
investment banking firms. The Company also solicits certificates of deposit from
institutional  investors  and  high  net  worth  individuals  identified  by the
Company.  At December  31, 1998,  $135.2  million or 6% of the  Company's  total
deposits  consisted of deposits  obtained by the Company from such efforts.  The
Company's  brokered  deposits at December  31, 1998 were net of $9.6  million of
unamortized  deferred fees. The  amortization of deferred fees is computed using
the  interest  method and is  included in interest  expense on  certificates  of
deposit.

                                       35

<PAGE>


         The Company  believes  that the  effective  cost of brokered  and other
wholesale deposits is more attractive to the Company than deposits obtained on a
retail basis from branch  offices after the general and  administrative  expense
associated  with the  maintenance  of  branch  offices  is taken  into  account.
Moreover,  brokered and other wholesale deposits generally give the Company more
flexibility  than retail sources of funds in  structuring  the maturities of its
deposits  and in  matching  liabilities  with  comparably  maturing  assets.  At
December  31,  1998,  $976.7  million or 51% of the  Company's  certificates  of
deposits were scheduled to mature within one year.

         Although  management  of the Company  believes  that brokered and other
wholesale  deposits are advantageous in certain respects,  such funding sources,
when  compared  to  retail  deposits  attracted  through a branch  network,  are
generally  more  sensitive to changes in interest  rates and  volatility  in the
capital  markets and are more likely to be compared by the investor to competing
investments.  In  addition,  such  funding  sources  may be  more  sensitive  to
significant  changes in the financial  condition of the Company.  There are also
various  regulatory  limitations  on the  ability  of all  but  well-capitalized
insured financial  institutions to obtain brokered  deposits.  See "Regulation -
The Bank - Brokered Deposits." These limitations currently are not applicable to
the Company because the Bank is a well-capitalized  financial  institution under
applicable laws and regulations.  See "Regulation - The Bank -Regulatory Capital
Requirements."  There can be no assurances,  however,  that the Company will not
become subject to such limitations in the future.

         As a result of the Company's  reliance on brokered and other  wholesale
deposits,  significant changes in the prevailing  interest rate environment,  in
the  availability of alternative  investments  for individual and  institutional
investors or in the Company's financial  condition,  among other factors,  could
affect the Company's liquidity and results of operations much more significantly
than might be the case with an  institution  that obtained a greater  portion of
its funds from retail or core deposits attracted through a branch network.

         In addition  to  brokered  and other  wholesale  deposits,  the Company
obtains  deposits from its office located in New Jersey.  These deposits include
non-interest bearing checking accounts,  NOW and money market checking accounts,
savings   accounts  and   certificates  of  deposit  and  are  obtained  through
advertising,  walk-ins and other  traditional  means.  At December 31, 1998, the
deposits which were allocated to this office  amounted to $66.0 million or 3% of
the Company's deposits.

         The  following  table sets forth  information  related to the Company's
deposits at the dates indicated.


<TABLE>
<CAPTION>
                                                                    December 31,
                                  ---------------------------------------------------------------------------------
                                            1998                        1997                        1996
                                  --------------------------  --------------------------  -------------------------
                                    Amount         Avg. Rate    Amount         Avg. Rate    Amount        Avg. Rate
                                  -----------      ---------  ----------       ---------  ----------      ---------
                                                               (Dollars in Thousands)
<S>                                    <C>            <C>         <C>             <C>         <C>            <C> 
Non-interest bearing checking
   accounts.................      $   233,427           --%   $  130,372            --%   $   96,563           --%
NOW and money market
   checking accounts........           33,272         3.40        27,624          4.73        22,208         2.99
Savings accounts............            1,326         2.30         1,664          2.30         2,761         2.30
                                  -----------                 ----------                  ----------
                                      268,025                    159,660                     121,532
                                  -----------                 ----------                  ----------
Certificates of deposit(1)..        1,916,548                  1,834,899                   1,809,098
Unamortized deferred fees...           (9,557)                   (11,737)                    (10,888)
                                  ------------                ----------                  ----------
Total certificates of deposit       1,906,991         5.78     1,823,162          6.00     1,798,210         5.80
                                  -----------                 ----------                  ----------
     Total deposits.........      $ 2,175,016         5.18    $1,982,822          5.95    $1,919,742         5.47
                                  ===========                 ==========                  ==========
</TABLE>


(1)    At December 31, 1998, 1997 and 1996, certificates of deposit issued on an
       uninsured  basis  amounted to $100.5  million,  $133.7 million and $147.5
       million,  respectively.  Of the $100.5  million of uninsured  deposits at
       December 31, 1998, $47.8 million were from political  subdivisions in New
       Jersey and secured or collateralized as required under state law.

                                       36

<PAGE>

       The following table sets forth, by various interest rate categories,  the
certificates of deposit in the Company at the dates indicated.

<TABLE>
<CAPTION>
                                                                      December 31,
                                                   --------------------------------------------------
                                                      1998                1997               1996
                                                   -----------        -----------         -----------
                                                                 (Dollars in Thousands)
<S>                                                        <C>                <C>                 <C>
 2.99% or less..............................       $       819        $       841         $     1,442
 3.00-3.50%.................................                --                 --                   4
 3.51-4.50..................................             3,515                 41               1,149
 4.51-5.50..................................           724,241            292,192             595,730
 5.51-6.50..................................         1,006,860          1,300,463             990,621
 6.51-7.50..................................           171,065            229,134             208,774
 7.51-8.50..................................               491                491                 490
                                                   -----------        -----------         -----------
                                                   $ 1,906,991        $ 1,823,162         $ 1,798,210
                                                   ===========        ===========         ===========
</TABLE>


         The  following  table  sets  forth the  amount  and  maturities  of the
certificates of deposit in the Company at December 31, 1998.


<TABLE>
<CAPTION>
                                                    Over Six
                                                   Months and        One Year
                                 Six Months         Less than       Through Two      Over Two
                                  and Less          One Year           Years           Years              Total
                                ------------      ------------     ------------    --------------     ------------
                                                              (Dollars in Thousands)
<S>                             <C>               <C>              <C>               <C>              <C>         
2.99% or less.............      $        819      $         --     $         --      $         --     $        819 
3.00-3.50%................                --                --               --                --               --
3.51-4.50.................             3,030               352              133                --            3,515
4.51-5.50.................           305,953           169,001          104,209           145,078          724,241
5.51-6.50.................           301,399           122,447          236,637           346,377        1,006,860
6.51-7.50.................            23,100            50,412           25,432            72,122          171,065 
7.51-8.50.................                99               196              196                --              491
                                ------------      ------------     ------------    --------------     ------------
                                $    634,400      $    342,408     $    366,607      $    563,577     $  1,906,991
                                ============      ============     ============    --------------     ============
</TABLE>


         At December 31, 1998, the Company had $156.6 million of certificates of
deposit in amounts of $100,000 or more  outstanding  maturing as follows:  $56.1
million within three months; $41.9 million over three months through six months;
$15.9 million over six months through 12 months; and $42.7 million thereafter.

         BORROWINGS.  Through the Bank,  the Company  obtains  advances from the
FHLB of New York upon the security of certain of its residential  first mortgage
loans,   mortgage-backed  and  mortgage-related  securities  and  other  assets,
including FHLB stock, provided certain standards related to the creditworthiness
of the Bank have been met.  FHLB  advances  are  available  to member  financial
institutions  such as the Bank for investment  and lending  activities and other
general business purposes.  FHLB advances are made pursuant to several different
credit programs,  each of which has its own interest rate, which may be fixed or
adjustable, and range of maturities.

         The  Company  also  obtains  funds  pursuant to  securities  sold under
reverse  repurchase  agreements.  Under  these  agreements,  the  Company  sells
securities (generally mortgage-backed and mortgage-related  securities) under an
agreement to repurchase  such  securities at a specified  price at a later date.
Reverse repurchase  agreements have short-term  maturities (typically 90 days or
less) and are deemed to be financing  transactions.  All  securities  underlying
reverse  repurchase   agreements  are  reflected  as  assets  in  the  Company's
consolidated financial statements and are held in safekeeping by broker-dealers.

         Beginning in 1997,  borrowings  of the Company  include lines of credit
obtained by OFS to finance its subprime lending as follows: (i) a $200.0 million
secured line of credit,  of which  $100.0  million was  committed,  (ii) a $50.0
million  secured  line of  credit,  all of which was  committed,  (iii) a $200.0
million secured line of credit, of which $100.0 million was committed and (iv) a
$100.0 million  secured line of credit,  none of which was committed,  and (v) a
$20.0 million secured residual line of credit, none of which was committed.  The
lines of credit  mature  between  March 1999 and July 2001 and bear  interest at
rates that float in accordance with designated indices. The terms of the line of
credit agreements contain, among other provisions,  requirements for maintaining
certain  profitability,  defined levels of net worth and debt-to-equity  ratios.
For the period  ended  December  31,  1998,  OFS  obtained a lender's  agreement
waiving  compliance with the maintenance of a profitability  covenant for one of
OFS' line of credit agreements,  with which OFS failed to comply. The agreements
also  require  annual  commitment  fees to be paid  based on the used and unused
portion  of the  facilities,  as well  as a  facility  fee  based  on the  total
committed  amount.  Such  commitment  fees are  capitalized  and  amortized on a
straight-line  basis over a twelve-month  period.  An aggregate of $59.5 million
and  $118.3  million  was  outstanding  to OFS  under  these  lines of credit at
December 31, 1998 and 1997, respectively.

                                       37

<PAGE>


         In connection with the Company's  acquisition of  substantially  all of
the assets of Cityscape UK, Ocwen UK has entered into a Loan Facility  Agreement
with Greenwich  which provided a short-term  facility to finance the acquisition
of Cityscape  UK's  mortgage  loan  portfolio  and to finance Ocwen UK's further
originations  and  purchase of  subprime  single  family  loans.  The  Greenwich
Facility  is  secured  by Ocwen UK's loans  available  for sale.  The  Revolving
Facility,  which  matures in April 1999,  is set at a maximum of $166.0  million
((pound)100.0  million  reduced by the amount  borrowed  under the Term Loan) of
which $87.1  million  ((pound)52.5  million) was funded at December 31, 1998, to
finance subprime single family loan originations and bears interest at a rate of
the one-month LIBOR plus 1.50%.  At December 31, 1998, $5.6 million  ((pound)3.4
million) had been borrowed  under the Term Loan,  which matured in January 1999.
In addition,  Ocwen UK has entered into a secured  warehouse line of credit with
Barclays  Bank plc to finance  subprime  single  family loan  originations.  The
Barclays  Facility,  which matures in November 1999 and bears interest at a rate
of the  one-month  LIBOR  plus  0.80%,  is set at a maximum  of  $124.5  million
((pound)75.0  million),  against which $24.6 million  ((pound)14.8  million) had
been borrowed at December 31, 1998.

         The Company's  borrowings also include notes,  subordinated  debentures
and other interest-bearing  obligations.  At December 31, 1998, this category of
borrowings consisted of $100.0 million of 12.000% Subordinated Debentures issued
by the Bank in June 1995 and due 2005 (the  "Debentures")  and $125.0 million of
11.875% Notes (the "Notes")  issued by the Company  through a public offering on
September 25, 1996 and due 2003.

         The following  table sets forth  information  relating to the Company's
borrowings and other interest-bearing obligations at the dates indicated.

<TABLE>
<CAPTION>
                                                                               December 31,
                                                         --------------------------------------------------------
                                                              1998                 1997                 1996
                                                         --------------       --------------       --------------
                                                                          (Dollars in Thousands)
<S>                                                      <C>                  <C>                  <C>           
FHLB advances......................................      $           --       $           --       $          399
Reverse repurchase agreements......................              72,051              108,250               74,546
Obligations outstanding under lines of credit......             179,285              118,304                   --
Notes, debentures and other interest bearing
  obligations:                                                                                    
     Notes.........................................             125,000              125,000              125,000
     Debentures....................................             100,000              100,000              100,000
     Hotel mortgages payable.......................                  --                   --                  573
     Short-term notes..............................                  --                1,975                   --
                                                         --------------       --------------       --------------
                                                                225,000              226,975              225,573
                                                         --------------       --------------       --------------
                                                         $      476,336       $      453,529       $      300,518
                                                         ==============       ==============       ==============
</TABLE>


                                                        38

<PAGE>


         The  following  table sets forth  certain  information  relating to the
Company's  short  term  borrowings  having  average  balances  during any of the
reported periods of greater than 30% of  stockholders'  equity at the end of the
reported period.



<TABLE>
<CAPTION>
                                                               At or for the Year Ended December 31,
                                                         ----------------------------------------------
                                                            1998               1997             1996
                                                         -----------        ----------        ---------
                                                                      (Dollars in Thousands)
<S>                                                      <C>                <C>               <C>      
FHLB ADVANCES:
   Average amount outstanding during the period....      $     2,201        $    9,482        $  71,221
   Maximum month-end balance outstanding
       During the period...........................      $        --        $      399        $  81,399
   Weighted average rate:
      During the period............................             5.45%             5.56%            5.69%
      At end of period.............................               --%               --%            7.02%
OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT:
   Average amount outstanding during the period....      $   481,212        $   84,272        $      --
   Maximum month-end balance outstanding                                                     
      during the period............................      $   572,707        $  267,095        $      --
   Weighted average rate:
      During the period............................             7.19%             6.62%              --%
      At end of period.............................              6.9%             6.32%              --%
</TABLE>


COMPUTER SYSTEMS AND USE OF TECHNOLOGY

         The Company believes that its use of information  technology has been a
key factor in achieving success in the acquisition, management and resolution of
discount loans and believes that this technology also has applicability to other
aspects of its business  which involve  servicing  intensive  assets,  including
subprime   residential   mortgage   lending,   servicing  of   nonperforming  or
underperforming loans for third parties and asset management services.

         In addition to its standard industry software  applications  which have
been customized to meet the Company's  requirements,  the Company has internally
developed fully integrated proprietary applications designed to provide decision
support,  automation of decision  execution,  tracking and  exception  reporting
associated with the management of nonperforming and  underperforming  loans. The
Company also has  deployed:  a predictive  dialing  solution  which  permits the
Company to direct the calls made by its collectors to increase the  productivity
of the department; an interactive voice response system which provides automated
account  information  to  customers;  a document  imaging  system which  permits
immediate access to pertinent loan documents; and a data warehouse which permits
corporate  data to be shared on a centralized  basis for decision  support.  The
Company is also  implementing  electronic  commerce  initiatives  which  further
automates the Company's communications with its third party service providers.

         The  Company's  proprietary  systems  result  in a number  of  benefits
including  consistency  of service to customers,  reduced  training  periods for
employees, resolution decisions which evaluate on an automated basis the optimal
means to maximize the net  resolution  proceeds  (which may include a variety of
resolution  alternatives  including placing the borrowers on forbearance  plans,
pursuing  a  pre-approved  sale  of  the  property,  or  completing  foreclosure
proceedings),  the ability to effect  foreclosure as quickly as possible  within
state-specific  foreclosure  timelines and the management of third party service
providers  to ensure  quality of service.  The  federal  mortgage  agencies  and
credit-rating  agencies have  established a variety of measurements for approved
servicers,  against which the Company  compares  favorably.  See  "Business-Loan
Servicing Activities."

         Through its  document  imaging  system,  the Company is able to produce
complete  foreclosure  packages  within minutes.  The Company  believes that the
industry standard generally is to prepare a complete  foreclosure package within
sixty days.  Delays in the time to  resolution  result in increased  third party
costs, opportunity costs and direct servicing expenses. As a result, the Company
has designed its systems and  procedures to move a loan through the  foreclosure
process in a timely manner.

         The Company has invested in a sophisticated computer  infrastructure to
support  its  software  applications.  The  Company  uses an IBM RISC  AS400 and
NetFrame  and COMPAQ  Proliant  and  SunUNIX  5500 file  servers as its  primary
hardware  platform.  The Company uses CISCO Routers,  Cabletron Hubs and chassis
with fiber optic cabling throughout and between buildings.  The Company also has
deployed a DAVOX predicative  dialer which currently has capacity for 120 seats.
The Company's  document imaging system  currently  stores 6 million images.  The
Company's systems have significant capacity for expansion and upgrade.

                                       39

<PAGE>


         The  Company  protects  its  proprietary   information  by  developing,
maintaining and enforcing a comprehensive set of information  security policies;
by having each employee  execute an  intellectual  property  agreement  with the
Company,  which  among  other  things,   prohibits  disclosure  of  confidential
information  and  provides for the  assignment  of  developments;  by affixing a
copyright  symbol to copies of any of the Company's  proprietary  information to
which a third party has access; by emblazoning the start-up screen of any of the
Company's  proprietary  software with the Company's logo and a copyright symbol;
by having third-party contract employees and consultants execute a contract with
the Company which contains,  among other things,  confidentiality and assignment
provisions;  and by  otherwise  limiting  third-party  access  to the  Company's
proprietary information.

RISK FACTORS

         Information related to risk factors which could directly or indirectly,
affect the Company's results of operations and financial  condition are included
in Exhibit 99.1 and are incorporated herein by reference.

ECONOMIC CONDITIONS

         GENERAL.  The success of the Company is dependent  to a certain  extent
upon  the  general  economic  conditions  in the  geographic  areas  in which it
conducts substantial  business activities.  Adverse changes in national economic
conditions  or in the  economic  conditions  of  regions  in which  the  Company
conducts  substantial business likely would impair the ability of the Company to
collect on outstanding loans or dispose of real estate owned and would otherwise
have an adverse effect on its business,  including the demand for new loans, the
ability of customers to repay loans and the value of both the collateral pledged
to the  Company  to  secure  its  loans  and its real  estate  owned.  Moreover,
earthquakes  and other natural  disasters could have similar  effects.  Although
such disasters have not  significantly  adversely  affected the Company to date,
the  availability  of insurance for such disasters in  California,  in which the
Company  conducts  substantial  business  activities,  is severely  limited.  At
December  31,  1998,  the Company had loans with an unpaid  balance  aggregating
$243.7  million  (including  loans  available  for sale)  secured by  properties
located in California  and $35.7 million of the Company's  real estate owned was
located in California,  which collectively represent 8.4% of the Company's total
assets at such date.

         EFFECTS OF CHANGES IN INTEREST RATES. The Company's  operating  results
depend to a large extent on its net  interest  income,  which is the  difference
between the interest income earned on  interest-earning  assets and the interest
expense incurred in connection with its interest-bearing liabilities. Changes in
the general level of interest rates can affect the Company's net interest income
by  affecting  the spread  between  the  Company's  interest-earning  assets and
interest-bearing liabilities, as well as, among other things, the ability of the
Company to originate loans; the value of the Company's  interest-earning  assets
and its ability to realize gains from the sale of such assets;  the average life
of the Company's  interest-earning  assets;  the value of the Company's mortgage
servicing  rights;  and the Company's  ability to obtain deposits in competition
with  other  available  investment  alternatives.   Interest  rates  are  highly
sensitive to many factors,  including  governmental monetary policies,  domestic
and international economic and political conditions and other factors beyond the
control of the Company. The Company actively monitors its assets and liabilities
and  employs a hedging  strategy  which seeks to limit the effects of changes in
interest  rates  on  its  operations.  Although  management  believes  that  the
maturities  of the Company's  assets  currently are well balanced in relation to
its  liabilities  (based on various  estimates  as to how changes in the general
level of interest rates will impact its assets and liabilities), there can be no
assurance that the profitability of the Company would not be adversely  affected
during any period of changes in interest rates.

COMPETITION

         The  businesses  in which the Company is engaged  generally  are highly
competitive.  The acquisition of discount loans is particularly competitive,  as
acquisitions of such loans are often based on competitive  bidding.  The Company
also  encounters  significant  competition in connection  with its other lending
activities, its investment and in its deposit-gathering  activities. Many of the
Company's  competitors are significantly larger than the Company and have access
to greater  capital and other  resources.  In  addition,  many of the  Company's
competitors  are not  subject to the same  extensive  federal  regulations  that
govern  federally-insured  institutions  such  as the  Bank  and  their  holding
companies.  As a result, many of the Company's  competitors have advantages over
the Company in conducting certain businesses and providing certain services.

SUBSIDIARIES

         Set  forth  below  is a  brief  description  of the  operations  of the
Company's significant non-banking subsidiaries.

         INVESTOR'S  MORTGAGE INSURANCE HOLDING COMPANY.  Through  subsidiaries,
IMI owns an interest in the Westin Hotel in Columbus, Ohio, residential units in
cooperative  buildings  which are acquired in connection with the foreclosure on
loans held by the Bank or by deed-in-lieu  thereof, as well as other real estate
related ventures. During 1997, IMI sold a 69% partnership interest in the Westin
Hotel for a small gain.  At December 31, 1998,  IMI had a combined  ownership of
16.83% of the outstanding common stock of OAC and OPLP units.

                                       40

<PAGE>


         OCWEN  FINANCIAL  SERVICES,  INC.  OFS was formed by the Company  under
Florida law in October 1996 for the purpose of purchasing  substantially  all of
the assets of Admiral, the Company's primary correspondent mortgage banking firm
for subprime  single family  residential  loans,  and assuming all of the Bank's
subprime single family residential  lending  operations.  Under the terms of the
acquisition, which closed on May 1, 1997, the Company agreed to pay Admiral $6.8
million and to transfer to Admiral 20% of the voting  stock of OFS. In addition,
OFS  assumed   specified   liabilities  of  Admiral  in  connection   with  this
transaction,  including a $3.0 million unsecured loan which was made by the Bank
to Admiral at the time OFS entered  into the asset  acquisition  agreement  with
Admiral, which loan was repaid with the proceeds from a $30.0 million unsecured,
subordinated  credit facility  provided by the Company to OFS at the time of the
closing of such acquisition. On December 3, 1997, OCN purchased 2,705 additional
shares  of common  stock of OFS for  $15.0  million,  increasing  its  ownership
percentage from 80% to 93.7%. On March 31, 1998, OCN purchased 7,518  additional
shares of common stock in exchange for $40.0  million,  further  increasing  its
ownership to 97.8%. The value of each share of stock was computed based on total
stockholders'  equity  at  December  31,  1997  divided  by the  shares of stock
outstanding at that date.

         OCWEN  CAPITAL  CORPORATION.  OCC is a  wholly-owned  subsidiary of the
Company which was formed under Florida law to manage the  day-to-day  operations
of OAC,  subject to supervision  by OAC's Board of Directors.  The directors and
executive  officers  of OCC  consist  solely  of  William  C.  Erbey,  Chairman,
President  and Chief  Executive  Officer,  and other  executive  officers of the
Company. OAC is a Virginia corporation which elected to be taxed as a REIT under
the Code. In May 1997,  OAC conducted an initial  public  offering of 17,250,000
shares of its common stock,  which  resulted in net proceeds of $238.8  million,
inclusive  of the $27.9  million  contributed  by the Company for an  additional
1,875,000 shares, or 9.8% of the outstanding shares of OAC common stock. The OAC
common stock is traded on the New York Stock Exchange under the symbol "OAC."

         Pursuant to a management  agreement between OCC and OAC, and subject to
supervision by OAC's Board of Directors, OCC formulates operating strategies for
OAC,  arranges for the acquisition of assets by OAC,  arranges for various types
of  financing  for OAC,  monitors the  performance  of OAC's assets and provides
certain  administrative and managerial services in connection with the operation
of OAC. For performing these services, OCC receives (i) a base management fee in
an amount equal to 1% of total assets per annum,  calculated  and paid quarterly
based upon the average invested assets, as defined, by OAC, and (ii) a quarterly
incentive  fee in an amount equal to the product of (A) 25% of the dollar amount
by which (1)(a) funds from operations, as defined, per share of OAC common stock
plus (b) gains (or minus losses) from debt  restructuring  and sales of property
per share of OAC common  stock,  exceeds (2) an amount equal to (a) the weighted
average of the initial  public  offering price per share of the OAC common stock
and the prices per share of any  secondary  offerings of OAC common stock by OAC
multiplied by (b) the ten-year U.S. Treasury rate plus 5% per annum,  multiplied
by (B) the weighted  average  number of shares of OAC common stock  outstanding.
The Board of Directors of OAC may adjust the base  management  fee in the future
if  necessary  to align  the fee more  closely  with  the  actual  costs of such
services.  OCC also may be  reimbursed  for the costs of certain  due  diligence
tasks  performed  by it on  behalf  of  OAC  and  will  be  reimbursed  for  the
out-of-pocket expenses incurred by it on behalf of OAC.

         During 1997, the Company transferred the lending operations  associated
with its large multi-family residential and commercial real estate loans to OCC.
To date, OCC has emphasized originating loans for OAC (in order to enable OAC to
invest the proceeds from the initial public  offering of OAC's common stock) and
not the Company.

         OCWEN  UK.  In  April  1998,  the  Company,  through  its  wholly-owned
subsidiary  Ocwen UK,  acquired  substantially  all of the  assets,  and certain
liabilities of the U.K.  operations of Cityscape  Financial Corp., an originator
of subprime  mortgages.  As  consummated,  the Company  acquired  Cityscape UK's
mortgage loan portfolio and its residential  subprime  mortgage loan origination
and servicing businesses.

         OCWEN TECHNOLOGY  XCHANGE,  INC. ("OTX"), a wholly-owned  subsidiary of
the Company, is the Company's software solutions  subsidiary which was formed in
May  1998 by  combining  the  Company's  Information  Technology  Group  and two
previously  acquired  subsidiaries,  AMOS and DTS. OTX designs advances software
solutions for mortgage and real estate transactions,  including software systems
for managing the loan servicing cycle.

EMPLOYEES

         At December  31, 1998 the  Company had 1,462 full time  employees.  The
employees are not represented by a collective bargaining  agreement.  Management
considers the Company's employee relations to be satisfactory.

REGULATION

         Financial  institutions  and their holding  companies  are  extensively
regulated  under  federal and state laws. As a result,  the business,  financial
condition and  prospects of the Company can be  materially  affected not only by
management  decisions and general  economic  conditions,  but also by applicable
statutes  and  regulations  and other  regulatory  pronouncements  and  policies
promulgated by regulatory  agencies with  jurisdiction  over the Company and the
Bank, such as the OTS and the FDIC. The effect of such statutes, regulations and
other pronouncements and policies can be significant, cannot be predicted with a
high degree of  certainty  and can change over time.  Moreover,  such  statutes,
regulations  and other  pronouncements  and  policies  are  intended  to protect
depositors and the insurance funds administered by the FDIC and not stockholders
or holders of indebtedness which are not insured by the FDIC.

                                       41

<PAGE>


         The  enforcement  powers  available to Federal  banking  regulators are
substantial  and  include,  among  other  things,  the  ability to assess  civil
monetary penalties,  to issue cease-and-desist or removal orders and to initiate
injunctive  actions against  banking  organizations  and  institution-affiliated
parties, as defined. In general, these enforcement actions must be initiated for
violations  of laws and  regulations  and  unsafe or  unsound  practices.  Other
actions or inactions  may provide the basis for  enforcement  action,  including
misleading or untimely reports filed with regulatory authorities.

         The following  discussion and other  references to and  descriptions of
the  regulation of financial  institutions  contained  herein  constitute  brief
summaries  thereof as currently in effect.  This  discussion  is not intended to
constitute,  and does not  purport  to be, a  complete  statement  of all  legal
restrictions  and  requirements  applicable  to the Company and the Bank and all
such  descriptions  are  qualified in their  entirety by reference to applicable
statutes, regulations and other regulatory pronouncements.

THE COMPANY

         GENERAL.  The Company is a registered  savings and loan holding company
under the Home Owner's Loan Act (the "HOLA"). As such, the Company is subject to
regulation, supervision and examination by the OTS.

         ACTIVITIES  RESTRICTION.  There are  generally no  restrictions  on the
activities  of a savings and loan holding  company,  such as the Company,  which
holds only one subsidiary savings  institution.  However, if the Director of the
OTS determines that there is reasonable  cause to believe that the  continuation
by a savings and loan holding company of an activity  constitutes a serious risk
to the  financial  safety,  soundness  or stability  of its  subsidiary  savings
institution,  the Director may impose such  restrictions as are deemed necessary
to address  such risk,  including  limiting:  (i)  payment of  dividends  by the
savings  institution;  (ii) transactions between the savings institution and its
affiliates;  and (iii) any  activities  of the  savings  institution  that might
create a serious  risk  that the  liabilities  of the  holding  company  and its
affiliates may be imposed on the savings institution.  Notwithstanding the above
rules as to permissible  business activities of unitary savings and loan holding
companies, if the savings institution subsidiary of such a holding company fails
to meet the qualified  thrift lender ("QTL") test set forth in OTS  regulations,
then such unitary  holding  company shall become  subject to the  activities and
restrictions  applicable  to multiple  savings and loan holding  companies  and,
unless the savings institution  requalifies as a QTL within one year thereafter,
shall register as, and become subject to the  restriction  applicable to, a bank
holding company. See "The Bank-Qualified Thrift Lender Test."

         If the Company were to acquire control of another  savings  institution
other than  through  merger or other  business  combination  with the Bank,  the
Company  would  thereupon  become a multiple  savings and loan holding  company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift acquisition and where each subsidiary  savings  institution meets the QTL
test,  as set  forth  below,  the  activities  of  the  Company  and  any of its
subsidiaries  (other  than the Bank or other  subsidiary  savings  institutions)
would  thereafter be subject to further  restrictions.  Among other  things,  no
multiple  savings and loan holding company or subsidiary  thereof which is not a
savings institution generally shall commence or continue for a limited period of
time after  becoming a multiple  savings and loan holding  company or subsidiary
thereof  any  business  activity,  other  than:  (i)  furnishing  or  performing
management  services for a subsidiary  savings  institution;  (ii) conducting an
insurance agency or escrow  business;  (iii) holding,  managing,  or liquidating
assets owned by or acquired from a subsidiary savings institution;  (iv) holding
or managing properties used or occupied by a subsidiary savings institution; (v)
acting as trustee  under deeds of trust;  (vi) those  activities  authorized  by
regulation  as of March 5, 1987 to be engaged in by  multiple  savings  and loan
holding  companies;  or  (vii)  unless  the  Director  of the OTS by  regulation
prohibits  or limits such  activities  for savings and loan  holding  companies,
those activities authorized by the Federal Reserve Board as permissible for bank
holding companies. Those activities described in clause (vii) above also must be
approved  by the  Director  of the OTS prior to being  engaged  in by a multiple
savings and loan holding company.

         RESTRICTIONS  ON  ACQUISITIONS.  Except  under  limited  circumstances,
savings and loan holding companies are prohibited from acquiring,  without prior
approval  of  the  Director  of the  OTS:  (i)  control  of  any  other  savings
institution  or savings and loan  holding  company or  substantially  all of the
assets  thereof;  or  (ii)  more  than  5% of the  voting  shares  of a  savings
institution or holding  company  thereof which is not a subsidiary.  Except with
the prior  approval  of the  Director  of the OTS,  no  director or officer of a
savings and loan holding  company,  or person owning or  controlling by proxy or
otherwise  more than 25% of such  company's  stock,  may acquire  control of any
savings  institution,  other than a subsidiary  savings  institution,  or of any
other savings and loan holding company.

                                       42

<PAGE>


         The  Director  of the OTS may  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
institutions  in more than one state only if: (i) the multiple  savings and loan
holding company involved controls a savings institution which operated a home or
branch office located in the state of the institution to be acquired as of March
5, 1987;  (ii) the  acquiror  is  authorized  to acquire  control of the savings
institution  pursuant to the  emergency  acquisition  provisions  of the Federal
Deposit Insurance Act ("FDIA");  or (iii) the statutes of the state in which the
institution to be acquired is located  specifically  permit  institutions  to be
acquired by state-chartered  savings institutions located in the state where the
acquiring  entity  is  located  (or by a  holding  company  that  controls  such
state-chartered savings institutions).

         RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES.  Transactions between the
Company or any of its non-bank  subsidiaries and the Bank are subject to various
restrictions, which are described below under "The Bank-Affiliate Transactions."

THE BANK

         GENERAL. The Bank is a federally-chartered savings bank organized under
the  HOLA.  As  such,  the  Bank  is  subject  to  regulation,  supervision  and
examination  by the OTS.  The  deposit  accounts  of the Bank are  insured up to
applicable  limits by the SAIF  administered  by the FDIC and, as a result,  the
Bank also is subject to regulation, supervision and examination by the FDIC.

         The  business  and  affairs of the Bank are  regulated  in a variety of
ways.  Regulations apply to, among other things,  insurance of deposit accounts,
capital ratios,  payment of dividends,  liquidity  requirements,  the nature and
amount of the investments that the Bank may make,  transactions with affiliates,
community and consumer lending laws,  internal policies and controls,  reporting
by and examination of the Bank and changes in control of the Bank.

         INSURANCE OF  ACCOUNTS.  Pursuant to  legislation  enacted in September
1996, a fee was required to be paid by all SAIF-insured institutions at the rate
of $0.657 per $100 of deposits held by such  institutions at March 31, 1995. The
money collected  recapitalized the SAIF reserve to the level of 1.25% of insured
deposits as required by law. In 1996, the Bank recorded a pre-tax charge of $7.1
million for this assessment.  The  recapitalization  of the SAIF has resulted in
lower deposit insurance premiums for most SAIF-insured  financial  institutions,
including the Bank.

         Insured  institutions  also are  required  to share in the  payment  of
interest on the bonds issued by a specially created  government entity ("FICO"),
the  proceeds of which were applied  toward  resolution  of the thrift  industry
crisis in the 1980s.  Beginning on January 1, 1997, in addition to the insurance
premiums paid by  SAIF-insured  institutions to maintain the SAIF reserve at its
required level pursuant to the current risk classification system,  SAIF-insured
institutions  pay  deposit  insurance  premiums  at the annual rate of 6.4 basis
points of their insured deposits and BIF-insured  institutions  will pay deposit
insurance  premiums  at the  annual  rate of 1.3 basis  points of their  insured
deposits towards the payment of interest on the FICO bonds.

         Under the current risk classification system, institutions are assigned
to one of three  capital  groups  which  are  based  solely  on the  level of an
institution's   capital--"well   capitalized,"   "adequately   capitalized"  and
"undercapitalized"--which  are  defined  in the same  manner as the  regulations
establishing the prompt  corrective  action system under Section 38 of the FDIA,
as discussed  below.  These three groups are then divided into three  subgroups,
which are based on supervisory  evaluations by the institution's primary federal
regulator,  resulting  in  nine  assessment  classifications.  Assessment  rates
currently range from 0 basis points for well capitalized,  healthy  institutions
to  27  basis  points  for   undercapitalized   institutions   with  substantial
supervisory concerns.

         The FDIC may terminate the deposit insurance of any insured  depository
institution,  including  the Bank,  if it  determines  after a hearing  that the
institution has engaged or is engaging in unsafe or unsound practices,  is in an
unsafe  or  unsound  condition  to  continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.

         REGULATORY CAPITAL REQUIREMENTS. Federally-insured savings associations
are subject to three capital requirements of general  applicability:  a tangible
capital  requirement,  a core or leverage  capital  requirement and a risk-based
capital requirement. All savings associations currently are required to maintain
tangible  capital of at least 1.5% of adjusted  total  assets (as defined in the
regulations),  core  capital  equal to 3% of  adjusted  total  assets  and total
capital  (a  combination  of core  and  supplementary  capital)  equal  to 8% of
risk-weighted  assets  (as  defined in the  regulations).  For  purposes  of the
regulation,  tangible  capital is core capital less all  intangibles  other than
qualifying  purchased  mortgage  servicing  rights,  of which  the Bank had $3.7
million at December 31, 1998. Core capital includes common stockholders' equity,
non-cumulative perpetual preferred stock and related surplus, minority interests
in  the  equity  accounts  of  fully   consolidated   subsidiaries  and  certain
nonwithdrawable accounts and pledged deposits. Core capital generally is reduced
by  the  amount  of  a  savings  association's  intangible  assets,  other  than
qualifying mortgage servicing rights.

                                       43

<PAGE>


         A savings  association  is  allowed to include  both core  capital  and
supplementary  capital in the  calculation  of its total capital for purposes of
the risk-based capital  requirements,  provided that the amount of supplementary
capital  included  does not  exceed  the  savings  association's  core  capital.
Supplementary  capital  consists  of  certain  capital  instruments  that do not
qualify  as core  capital,  including  subordinated  debt  (such  as the  Bank's
Debentures) which meets specified  requirements,  and general valuation loan and
lease loss  allowances  up to a maximum  of 1.25% of  risk-weighted  assets.  In
determining the required amount of risk-based capital,  total assets,  including
certain  off-balance  sheet items,  are multiplied by a risk weight based on the
risks inherent in the type of assets.  The risk weights  assigned by the OTS for
principal categories of assets currently range from 0% to 100%, depending on the
type of asset.

         OTS  policy  imposes a  limitation  on the amount of net  deferred  tax
assets  under SFAS No. 109 that may be  included  in  regulatory  capital.  (Net
deferred  tax assets  represent  deferred tax assets,  reduced by any  valuation
allowances,  in excess of deferred tax  liabilities.)  Application  of the limit
depends on the possible sources of taxable income available to an institution to
realize  deferred tax assets.  Deferred tax assets that can be realized from the
following  generally are not limited:  taxes paid in prior  carryback  years and
future reversals of existing taxable temporary  differences.  To the extent that
the  realization  of  deferred  tax assets  depends on an  institution's  future
taxable income (exclusive of reversing temporary differences and carryforwards),
or its  tax-planning  strategies,  such  deferred  tax  assets are  limited  for
regulatory  capital  purposes  to the lesser of the amount  that can be realized
within one year of the quarter-end report date or 10% of core capital.

         In  August  1993,  the  OTS  adopted  a  final  rule  incorporating  an
interest-rate risk component into the risk-based capital  regulation.  Under the
rule, an  institution  with a greater than "normal"  level of interest rate risk
will be subject to a deduction of its interest  rate risk  component  from total
capital for purposes of determining  whether it has met the  risk-based  capital
requirement.  As a result,  such an  institution  will be  required  to maintain
additional capital in order to comply with the risk-based  capital  requirement.
Although the final rule was  originally  scheduled to be effective as of January
1994,  the OTS has indicated  that it will delay invoking its interest rate risk
rule until appeal procedures are implemented and evaluated.  The OTS has not yet
established  an  effective  date for the capital  deduction.  Management  of the
Company does not believe that the adoption of an interest rate risk component to
the risk-based capital  requirement will adversely affect the Bank if it becomes
effective in its current form.

         Effective  April 1,  1999,  the OTS  minimum  core  capital  ratio will
provide that only those institutions with a Uniform Financial Institution Rating
System  ("UFIRS")  rating of "1" will be subject to a 3%  minimum  core  capital
ratio.  All other  institutions  will be subject to a 4%  minimum  core  capital
ratio.  The 3% minimum  core  capital  ratio  currently  applies to all  federal
savings associations.

         PROMPT  CORRECTIVE  ACTION.  Federal law provides  the Federal  banking
regulators  with broad power to take "prompt  corrective  action" to resolve the
problems of undercapitalized  institutions. The extent of the regulators' powers
depends  on  whether  the   institution  in  question  is  "well   capitalized,"
"adequately capitalized,"  "undercapitalized,"  "significantly undercapitalized"
or  "critically  undercapitalized."  Under  regulations  adopted by the  Federal
banking regulators, an institution shall be deemed to be: (i) "well capitalized"
if it has a total  risk-based  capital  ratio of  10.0%  or  more,  has a Tier 1
risk-based capital ratio of 6.0% or more, has a Tier 1 leverage capital ratio of
5.0% or more and is not subject to specified requirements to meet and maintain a
specific capital level for any capital measure; (ii) "adequately capitalized" if
it has a total  risk-based  capital  ratio of 8.0% or more,  a Tier 1 risk-based
capital  ratio of 4.0% or more and a Tier 1  leverage  capital  ratio of 4.0% or
more (3.0% under  certain  circumstances)  and does not meet the  definition  of
"well  capitalized,"  (iii)  "undercapitalized"  if it  has a  total  risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based  capital ratio that is
less than 4.0% or a Tier 1 leverage  capital  ratio that is less than 4.0% (3.0%
under certain circumstances),  (iv) "significantly undercapitalized" if it has a
total  risk-based  capital  ratio  that is less than 6.0%,  a Tier 1  risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage  capital ratio that is
less  than  3.0%,  and (v)  "critically  undercapitalized"  if it has a ratio of
tangible equity to adjusted total assets that is equal to or less than 2.0%. The
regulations also permit the appropriate  Federal banking  regulator to downgrade
an  institution  to the  next  lower  category  (provided  that a  significantly
undercapitalized    institution    may   not   be   downgraded   to   critically
undercapitalized) if the regulator determines:  (i) after notice and opportunity
for  hearing  or  response,  that the  institution  is in an unsafe  or  unsound
condition  or (ii) that the  institution  has  received  (and not  corrected)  a
less-than-satisfactory  rating  for  any of the  categories  of  asset  quality,
management, earnings or liquidity in its most recent exam. At December 31, 1998,
the Bank was a "well capitalized" institution under the prompt corrective action
regulations of the OTS.

                                       44

<PAGE>


         Depending  upon  the  capital  category  to  which  an  institution  is
assigned,  the  regulators'  corrective  powers,  many of which are mandatory in
certain   circumstances,   include:   prohibition   on  capital   distributions;
prohibition on payment of management fees to controlling persons;  requiring the
submission  of a capital  restoration  plan;  placing  limits  on asset  growth;
limiting  acquisitions,  branching  or new  lines  of  business;  requiring  the
institution  to issue  additional  capital stock  (including  additional  voting
stock) or to be acquired; restricting transactions with affiliates;  restricting
the interest  rates that the  institution  may pay on  deposits;  ordering a new
election of  directors  of the  institution;  requiring  that  senior  executive
officers or directors be dismissed;  prohibiting the institution  from accepting
deposits from correspondent  banks;  requiring the institution to divest certain
subsidiaries;  prohibiting  the payment of principal or interest on subordinated
debt; and, ultimately, appointing a receiver for the institution.

         QUALIFIED THRIFT LENDER TEST. All savings  associations are required to
meet the QTL test set forth in the HOLA and regulations of the OTS thereunder to
avoid certain restrictions on their operations. Under the QTL test provisions, a
savings  institution  must  maintain  at least  65% of its  portfolio  assets in
qualified thrift investments.  In general,  qualified thrift investments include
loans,  securities  and other  investments  that are related to  housing,  small
business and credit card lending, and to a more limited extent, consumer lending
and community service purposes. Portfolio assets are defined as an institution's
total  assets less  goodwill  and other  intangible  assets,  the  institution's
business  property and a limited amount of the  institution's  liquid assets.  A
savings  association  that  does not meet the QTL test set forth in the HOLA and
implementing  regulations  must either  convert to a bank charter or comply with
the following restrictions on its operations: (i) the association may not engage
in any new activity or make any new investment,  directly or indirectly,  unless
such  activity  or  investment  is  permissible  for a national  bank;  (ii) the
branching  powers of the association  shall be restricted to those of a national
bank;  (iii) the  association  shall not be eligible to obtain any advances from
its FHLB; and (iv) payment of dividends by the  association  shall be subject to
the rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the  association  ceases to be a QTL, it must cease
any activity and not retain any investment not  permissible  for a national bank
and  immediately  repay any  outstanding  FHLB  advances  (subject to safety and
soundness  considerations).  The Bank met the QTL test throughout  1998, and its
qualified  thrift  investments  comprised  68.47%  of its  portfolio  assets  at
December 31, 1998.

         RESTRICTIONS  ON  CAPITAL  DISTRIBUTIONS.  The  OTS has  promulgated  a
regulation  governing  capital  distributions  by  savings  associations,  which
include cash  dividends,  stock  redemptions or repurchases,  cash-out  mergers,
interest payments on certain convertible debt and other transactions  charged to
the  capital  account  of  a  savings  association  as a  capital  distribution.
Generally,   the  regulation  creates  three  tiers  of  associations  based  on
regulatory capital, with the top two tiers providing a safe harbor for specified
levels of capital  distributions  from associations so long as such associations
notify  the OTS and  receive  no  objection  to the  distribution  from the OTS.
Associations  that do not qualify for the safe harbor  provided  for the top two
tiers of  associations  are required to obtain prior OTS approval  before making
any capital distributions.

         Tier  1   associations   may  make  the   highest   amount  of  capital
distributions,  and are defined as savings  associations  that, before and after
the  proposed  distribution,  meet or exceed  their fully  phased-in  regulatory
capital requirements.  Tier 1 associations may make capital distributions during
any  calendar  year  equal to the  greater  of:  (i) 100% of net  income for the
calendar  year-to-date  plus 50% of its "surplus capital ratio" at the beginning
of the  calendar  year;  and (ii)  75% of its net  income  over the most  recent
four-quarter  period.  The  "surplus  capital  ratio"  is  defined  to mean  the
percentage by which the  association's  ratio of total capital to assets exceeds
the ratio of its fully  phased-in  capital  requirement  to  assets,  and "fully
phased-in  capital  requirement"  is  defined to mean an  association's  capital
requirement under the statutory and regulatory  standards applicable on December
31,  1994,  as modified to reflect any  applicable  individual  minimum  capital
requirement  imposed upon the association.  At December 31, 1998, the Bank was a
Tier 1 association under the OTS capital distribution regulation.

         The OTS  recently  published  amendments  to its  capital  distribution
regulation which become  effective April 1, 1999. Under the revised  regulation,
the Bank will be required to file either an application or a notice with the OTS
at least 30 days  prior to making a capital  distribution.  The OTS may deny the
Bank's  application or disapprove its notice if the OTS determines  that (a) the
Bank will be "undercapitalized," "significantly undercapitalized" or "critically
under  capitalized,"  as defined in the OTS capital  regulations,  following the
capital  distribution,  (b) the proposed capital  distribution raises safety and
soundness  concerns  or  (c)  the  proposed  capital  distribution   violates  a
prohibition  contained in any statute,  regulation or agreement between the Bank
and the OTS or a  condition  imposed  on the Bank in an  application  or  notice
approved by the OTS.

         LOAN-TO-ONE BORROWER. Under applicable laws and regulations, the amount
of loans and extensions of credit which may be extended by a savings institution
such as the Bank to any one borrower,  including related entities, generally may
not  exceed  the  greater  of  $500,000  or 15% of the  unimpaired  capital  and
unimpaired surplus of the institution. Loans in an amount equal to an additional
10% of unimpaired  capital and unimpaired surplus also may be made to a borrower
if  the  loans  are  fully  secured  by  readily   marketable   collateral.   An
institution's  "unimpaired capital and unimpaired surplus" includes, among other
things, the amount of its core capital and supplementary capital included in its
total capital under OTS regulations.

                                       45

<PAGE>


         At  December  31,  1998,  the Bank's  unimpaired  capital  and  surplus
amounted  to  $345.8  million,  resulting  in a  general  loans-to-one  borrower
limitation of $51.9 million under applicable laws and regulations. See "Discount
Loan  Acquisition  and  Resolution  Activities-Composition  of the Discount Loan
Portfolio" and "Lending Activities-Composition of Loan Portfolio."

         BROKERED  DEPOSITS.  Under applicable laws and regulations,  an insured
depository  institution may be restricted in obtaining,  directly or indirectly,
funds by or through any  "deposit  broker," as defined,  for deposit into one or
more deposit  accounts at the institution.  The term "deposit broker"  generally
includes any person engaged in the business of placing deposits, or facilitating
the placement of deposits, of third parties with insured depository institutions
or the business of placing deposits with insured depository institutions for the
purpose of selling  interests in those deposits to third  parties.  In addition,
the term "deposit  broker" includes any insured  depository  institution that is
well-capitalized,  and any employee of any such insured depository  institution,
which  engages,  directly  or  indirectly,  in the  solicitation  of deposits by
offering  rates  of  interest   (with  respect  to  such  deposits)   which  are
significantly  higher than the prevailing  rates of interest on deposits offered
by other insured depository institutions having the same type of charter in such
depository  institution's  normal market area. As a result of the  definition of
"deposit broker," all of the Bank's brokered  deposits,  as well as possibly its
deposits  obtained through  customers of regional and local  investment  banking
firms and the deposits obtained from the Bank's direct  solicitation  efforts of
institutional investors and high net worth individuals,  are potentially subject
to the restrictions  described below.  Under FDIC regulations,  well-capitalized
institutions  are  not  subject  to  the  brokered  deposit  limitations,  while
adequately  capitalized  institutions  are able to  accept,  renew or roll  over
brokered deposits only: (i) with a waiver from the FDIC; and (ii) subject to the
limitation  that they do not pay an effective  yield on any such  deposit  which
exceeds by more than (a) 75 basis points,  the effective  yield paid on deposits
of  comparable  size and maturity in such  institution's  normal market area for
deposits  accepted in its normal market area or (b) 120% for retail deposits and
130% for wholesale  deposits,  respectively,  of the current yield on comparable
maturity  U.S.   Treasury   obligations  for  deposits   accepted   outside  the
institution's  normal  market  area.   Undercapitalized   institutions  are  not
permitted to accept brokered  deposits and may not solicit  deposits by offering
an  effective  yield that  exceeds by more than 75 basis  points the  prevailing
effective yields on insured deposits of comparable maturity in the institution's
normal  market  area or in the  market  area in which  such  deposits  are being
solicited.  At December 31, 1998,  the Bank was a  well-capitalized  institution
which was not subject to  restrictions  on brokered  deposits.  See  "Business -
Sources of Funds - Deposits."

         LIQUIDITY  REQUIREMENTS.  All  savings  associations  are  required  to
maintain an average daily  balance of liquid  assets,  which  include  specified
short-term assets and certain long-term assets, equal to a certain percentage of
the sum of its average daily balance of net  withdrawable  deposit  accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all  savings  associations.  In  November  1997,  the OTS  amended  its
liquidity regulations to, among other things, provide that a savings association
shall maintain  liquid assets of not less than 4% of the amount of its liquidity
base at the end of the  preceding  calendar  quarter as well as to provide  that
each savings association must maintain  sufficient  liquidity to ensure its safe
and sound operation. Prior to November 1997, the required liquid asset ratio was
5%. Historically, the Bank has operated in compliance with these requirements.

         AFFILIATE TRANSACTIONS. Under federal law and regulation,  transactions
between a savings association and its affiliates are subject to quantitative and
qualitative  restrictions.  Affiliates of a savings association  include,  among
other  entities,  companies that control,  are controlled by or are under common
control with the savings  association.  As a result,  the  Company,  OAC and the
Company's non-bank subsidiaries are affiliates of the Bank.

         Savings  associations  are  restricted  in their  ability  to engage in
"covered transactions" with their affiliates. In addition,  covered transactions
between  a  savings  association  and an  affiliate,  as well as  certain  other
transactions with or benefiting an affiliate, must be on terms and conditions at
least as favorable to the savings  association  as those  prevailing at the time
for comparable transactions with non-affiliated companies.  Savings associations
are  required  to  make  and  retain  detailed  records  of  transactions   with
affiliates.

         Notwithstanding  the foregoing,  a savings association is not permitted
to make a loan or extension of credit to any  affiliate  unless the affiliate is
engaged  only in  activities  the Federal  Reserve  Board has  determined  to be
permissible for bank holding companies. Savings associations also are prohibited
from  purchasing or investing in securities  issued by an affiliate,  other than
shares of a subsidiary.

         Savings  associations  are also  subject  to  various  limitations  and
reporting  requirements on loans to insiders.  These limitations require,  among
other  things,  that all loans or  extensions  of credit to insiders  (generally
executive  officers,  directors or 10% stockholders of the institution) or their
"related  interests" be made on substantially the same terms (including interest
rates and collateral) as, and follow credit underwriting procedures that are not
less stringent  than,  those  prevailing for  comparable  transactions  with the
general public and not involve more than the normal risk of repayment or present
other unfavorable features.

                                       46

<PAGE>


         COMMUNITY  INVESTMENT AND CONSUMER PROTECTIONS LAWS. In connection with
its  lending  activities,  the Bank is  subject  to a variety  of  federal  laws
designed  to protect  borrowers  and promote  lending to various  sectors of the
economy and  population.  Included  among these are the  Federal  Home  Mortgage
Disclosure Act, Real Estate  Settlement  Procedures Act,  Truth-in-Lending  Act,
Equal  Credit  Opportunity  Act,  Fair Credit  Reporting  Act and the  Community
Reinvestment Act.

         SAFETY  AND  SOUNDNESS.  Other  regulations  include:  (i) real  estate
lending standards for insured institutions,  which provide guidelines concerning
loan-to-value  ratios for various  types of real estate loans;  (ii)  risk-based
capital  rules to account for interest rate risk,  concentration  of credit risk
and the risks  posed by  "non-traditional  activities;"  (iii)  rules  requiring
depository institutions to develop and implement internal procedures to evaluate
and control credit and settlement  exposure to their  correspondent  banks;  and
(iv)  rules  addressing  various  "safety  and  soundness"   issues,   including
operations and managerial standards,  standards for asset quality,  earnings and
stock  valuations,  and  compensation  standards  for the  officers,  directors,
employees and principal stockholders of the insured institution.

FEDERAL TAXATION

         GENERAL.  The Company and all of its  domestic  subsidiaries  currently
file, and expect to continue to file, a  consolidated  Federal income tax return
based on a calendar  year.  Prior to October 1, 1996,  IMI and its  subsidiaries
filed a separate Federal  consolidated tax return.  Ocwen UK is a foreign entity
owned by the Company that is not included in the consolidated federal income tax
return but files its own tax return in the United Kingdom.  Consolidated returns
have the effect of eliminating inter-company transactions,  including dividends,
from the computation of taxable income.

         ALTERNATIVE  MINIMUM TAX. In addition to the regular  corporate  income
tax, corporations,  including qualifying savings institutions, are subject to an
alternative  minimum tax. The 20% tax is computed on Alternative Minimum Taxable
Income  ("AMTI")  and applies if it exceeds the regular tax  liability.  AMTI is
equal to regular  taxable  income with certain  adjustments.  For taxable  years
beginning  after  1989,  AMTI  includes an  adjustment  for 75% of the excess of
"adjusted  current  earnings" over regular  taxable  income.  Net operating loss
carrybacks  and  carryforwards  are  permitted  to  offset  only  90%  of  AMTI.
Alternative  minimum tax paid can be credited  against  regular tax due in later
years.

         TAX RESIDUALS.  From time to time, the Company acquires REMIC residuals
or retains  residual  securities  in REMICs  which were formed by the Company in
connection with the  securitization  and sale of loans.  Although a tax residual
may have  little or no future  economic  cash flows from the REMIC from which it
has been issued,  the tax residual does bear the income tax liability or benefit
resulting from the  difference  between the interest rate paid on the securities
by the REMIC and the interest  rate  received on the mortgage  loans held by the
REMIC.  This  generally  results in taxable  income for the Company in the first
several years of the REMIC and equal amounts of tax deductions  thereafter.  The
Company  receives  cash  payments  in  connection  with the  acquisition  of tax
residuals to compensate the Company for the time value of money  associated with
the tax  payments  related  to  these  securities  and the  costs  of  modeling,
recording,  monitoring and reporting the securities. The Company defers all fees
received and recognizes such fees in interest income on a level yield basis over
the  expected  life of the  deferred  tax asset  related to tax  residuals.  The
Company also adjusts the  recognition in interest  income of fees deferred based
upon the changes in the actual prepayment rates of the underlying mortgages held
by the REMIC and periodic reassessments of the expected life of the deferred tax
asset  related to tax  residuals.  At December 31,  1998,  the  Company's  gross
deferred  tax  assets  included  $5.3  million  which  was  attributable  to the
Company's tax residuals and related deferred income.

         INVESTMENTS  IN  LOW-INCOME   HOUSING  TAX  CREDIT  INTERESTS.   For  a
discussion of the tax effects of  investments  in low-income  housing tax credit
interests, see "Business-Investment  Activities-Investment in Low-Income Housing
Tax Credit Interests."

         EXAMINATIONS.  The most recent  examination by the IRS of the Company's
Federal  income tax return was of the tax return filed for 1996.  The statute of
limitations  has run with  respect  to 1994 and all prior tax years.  Thus,  the
Federal  income  tax  returns  for the  years  1995  through  1997  are open for
examination.  Management  of  the  Company  does  not  anticipate  any  material
adjustments as a result of any examination,  although there can be no assurances
in this regard.

STATE TAXATION

         The  Company's  income is subject  to tax by the States of Florida  and
California, which have statutory tax rates of 5.5% and 10.84%, respectively, and
is determined based on certain  apportionment  factors.  The Company is taxed in
New Jersey on income, net of expenses,  earned in New Jersey at a statutory rate
of 3.0%. No state return of the Company has been examined,  and no  notification
has been  received by the Company  that any state  intends to examine any of the
Company's tax returns.

                                       47

<PAGE>



I
TEM 2.  PROPERTIES

         The following  table sets forth  information  relating to the Company's
facilities at December 31, 1998.


<TABLE>
<CAPTION>
                                                                           Net Book Value of
                                                                               Leasehold
                                                                              Improvements
                 Location                            Owned/Leased        (Dollars in Thousands)
- -----------------------------------------------      ------------        ----------------------
<S>                                                     <C>                    <C>      
Executive offices:
     1675 Palm Beach Lakes Blvd.
     West Palm Beach, FL.......................         Leased                 $   6,066

Main office:
     2400 Lemoine Ave
     Fort Lee, NJ..............................         Leased                 $      17

Foreign offices (Ocwen UK):
     St. David's Court
     Union Street
     Wolverhampton, United Kingdom.............         Leased                 $      --

     Malvern House
     Croxley Business Park
     Watford, Hertfordshire
     United Kingdom............................         Leased                 $      --
</TABLE>


         In addition to the above  offices,  OFS  maintained 25 loan  production
offices in 4 states of December 31, 1998. These offices are operated pursuant to
leases with up to  three-year  terms,  each of which can be readily  replaced on
commercially  reasonable  terms.  Also, the Company is currently  constructing a
national loan servicing center in Orlando,  Florida which will have capacity for
900 loan  servicing  representatives  per shift upon planned  completion  in the
summer of 1999.


ITEM 3.  LEGAL PROCEEDINGS

         The Company is currently  not involved in any material  litigation.  To
the Company's knowledge,  no material litigation is currently threatened against
the Company.


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

         None.

                                       48


<PAGE>



                                     PART II


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

         Information   required   by  this  Item   appears   under  the  caption
"Shareholder Information" on page 96 of the Annual Report to Stockholders and is
incorporated herein by reference.


ITEM 6.   SELECTED CONSOLIDATED FINANCIAL INFORMATION

         Information  required by this Item appears under the caption  "Selected
Consolidated  Financial  Information"  on pages 18 to 19 of the Annual Report to
Stockholders and is incorporated herein by reference.


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

         Information   required   by  this  Item   appears   under  the  caption
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  on pages  21 to 43 of the  Annual  Report  to  Stockholders  and is
incorporated herein by reference.


                                       49

<PAGE>



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Information  required by this Item appears under the caption "Asset and
Liability  Management"  on  pages  36 to 40,  "Note 1:  Summary  of  Significant
Accounting  Policies"  on  pages 52 to 58 and  "Note  21:  Derivative  Financial
Instruments"  on pages 79 to 80 of the  Annual  Report  to  Stockholders  and is
incorporated herein by reference.


ITEM 8.  FINANCIAL STATEMENTS

         Information  required  by this  Item  appears  on pages 45 to 95 in the
Annual Report to Stockholders and is incorporated herein by reference.


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

         None.

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS

         The  following  table sets forth  certain  information  concerning  the
directors of the Company.


<TABLE>
<CAPTION>
         Name                                                            Age (1)    Director Since
         -----------------------------------------------------------     -------    --------------
<S>                                                                         <C>          <C> 
         William C. Erbey...........................................        49           1988
         Hon. Thomas F. Lewis.......................................        74           1997
         W.C. Martin................................................        50           1996
         Howard H. Simon............................................        58           1996
         Barry N. Wish..............................................        57           1988
</TABLE>


(1)      As of March 15, 1999.

         The  principal  occupation  for the last five years of each director of
the Company, as well as some other information, is set for the below.

         WILLIAM C. ERBEY.  Mr. Erbey has served as the Chairman of the Board of
Directors of the Company since September 1996, as the Chief Executive Officer of
the Company since January 1988, as the Chief  Investment  Officer of the Company
since January 1992, and as the President of the Company from January 1988 to May
1988. Mr. Erbey has served as the Chairman of the Board of Directors of the Bank
since  February 1988 and as the Chief  Executive  Officer of the Bank since June
1990.  Mr. Erbey has served as the Chairman and Chief  Executive  Officer of OAC
since  February  1997.  He  also  serves  as a  director  and  officer  of  many
subsidiaries  of the Company and OAC.  From 1983 to 1995,  Mr. Erbey served as a
Managing  General Partner of The Oxford  Financial Group  ("Oxford"),  a private
investment  partnership  that was the  predecessor of the Company.  From 1975 to
1983,  Mr.  Erbey served at General  Electric  Capital  Corporation  ("GECC") in
various  capacities,  most recently as the President and Chief Operating Officer
of General Electric Mortgage Insurance Corporation. Mr. Erbey also served as the
Program General Manager of GECC's Commercial  Financial Services  Department and
as the President of Acquisition Funding  Corporation.  He received a Bachelor of
Arts in Economics from Allegheny  College and a Master's degree from the Harvard
Graduate School of Business Administration.

         HON. THOMAS F. LEWIS. Mr. Lewis has served as a director of the Company
and of the Bank since May 1997. Mr. Lewis served as a United States Congressman,
representing the 12th District of Florida from 1983 to 1995. Mr. Lewis served in
the House and Senate of the Florida  State  Legislature  at various  times.  Mr.
Lewis is a principal of Lewis Properties, Vice President of Marian V. Lewis Real
Estate and  Investments  and a director of T&M Ranch & Nursery.  

                                       50

<PAGE>


He currently is Chairman of the Board of  Directors  of the U.S.  Department  of
Veterans  Affairs and Research  Foundation.  He is also a member of the Economic
Council of Palm Beach  County.  Mr.  Lewis  formerly  served as a United  States
delegate  to the  North  Atlantic  Treaty  Organization  and as a member  of the
Presidents  Advisory  Commission  on Global  Trade  Policies.  He  attended  the
University  of Florida and holds an  Associate's  Degree from Palm Beach  Junior
College,  a  Certificate  in  Engineering  from the  Massachusetts  Institute of
Technology and honorary  doctorates from the Florida Institute of Technology and
Nova University.

         W.C.  MARTIN.  Mr. Martin has served as a director of the Company since
July 1996 and of the Bank since  June  1996.  Since  1982,  Mr.  Martin has been
associated  with  Holding  Capital  Group  ("HCG")  and has been  engaged in the
acquisition  and turnaround of business in a broad variety of industries.  Since
March 1993, Mr. Martin also has served as President and Chief Executive  Officer
of SV  Microwave,  a company he formed along with other HCG investors to acquire
the assets of the former Microwave  Division of Solitron Devices,  Inc. Prior to
1982, Mr. Martin was a Manager in Touche Ross & Company's Management  Consulting
Division,  and prior to that he held  positions  in  financial  management  with
Chrysler Corporation.  Mr. Martin received a Masters of Business  Administration
from Notre Dame and a Bachelor of Science in Industrial  Management from LaSalle
University.

         HOWARD H.  SIMON.  Mr.  Simon has served as a director  of the  Company
since July 1996 and of the Bank since 1987.  Mr. Simon is the Managing  Director
of Simon,  Master & Sidlow,  P.A., a certified public  accounting firm which Mr.
Simon founded in 1978 and which is based in Wilmington, Delaware. Mr. Simon is a
past  Chairman and current  member of the Board of  Directors of CPA  Associates
International,  Inc.  Prior to 1978,  Mr.  Simon was a Partner of Touche  Ross &
Company. Mr. Simon is a Certified Public Accountant in the State of Delaware and
a graduate of the University of Delaware.

         BARRY N. WISH.  Mr. Wish has served as Chairman,  Emeritus of the Board
of Directors of the Company since  September  1996, and he previously  served as
Chairman of the Board of the Company from January  1988 to September  1996.  Mr.
Wish has served as a  director  of the Bank since  February  1988.  From 1983 to
1995, he served as a Managing General Partner of Oxford, which he founded.  From
1979 to 1983, he was a Managing General Partner of Walsh, Greenwood, Wish & Co.,
a member firm of the New York Stock  Exchange.  Prior to founding that firm, Mr.
Wish was a Vice President and shareholder of Kidder, Peabody & Co., Inc. He is a
graduate of Bowdoin College.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

         The following table sets forth certain information with respect to each
person who currently serves as an executive  officer of the Company but does not
serve on the Company's Board of Directors. Executive officers of the Company are
elected annually by the Board of Directors and generally serve at the discretion
of the Board.  There are no arrangements or  understandings  between the Company
and any person pursuant to which such person was elected as an executive officer
of the Company. Other than William C. Erbey and John R. Erbey, who are brothers,
no director or executive  officer is related to any other  director or executive
officer  of the  Company  or  any of its  subsidiaries  by  blood,  marriage  or
adoption.


<TABLE>
<CAPTION>
  Name                                       Age(1)     Position
  ------------------------------------    -----------   ---------------------------------------------------------------------------
<S>                                            <C>       <C>                     
  John R. Barnes......................         56        Senior Vice President
  Joseph A. Dlutowski.................         34        Senior Vice President of  the Bank and Chief Executive Officer of Ocwen UK
  John R. Erbey.......................         58        Senior Managing Director, General Counsel and Secretary
  Ronald M. Faris.....................         36        Executive Vice President
  Christine A. Reich..................         37        President
  Mark S. Zeidman.....................         47        Senior Vice President and Chief Financial Officer
</TABLE>


(1)      As of March 15, 1999.

         The background for the last five years of each executive officer of the
Company  who is not a director,  as well as certain  other  information,  is set
forth below.

         JOHN R. BARNES. Mr. Barnes has served as a Senior Vice President of the
Company  and the Bank  since  May 1994 and  served  as a Vice  President  of the
Company and the Bank from October 1989 to May 1994.  Mr.  Barnes also has served
as Senior Vice  President of OAC since February 1997 and serves as an officer of
many  subsidiaries  of the Company and OAC. Mr.  Barnes was a Tax Partner in the
firm of  Deloitte  Haskins  & Sells  from 1986 to 1989 and in the firm of Arthur
Young & Co.  from 1979 to 1986.  Mr.  Barnes  was the  Partner  in Charge of the
Cleveland Office Tax Department of Arthur Young & Co. from 1979 to 1984. He is a
graduate of Ohio State University.

                                       51


<PAGE>
         JOSEPH A. DLUTOWSKI.  Mr. Dlutowski has served as Senior Vice President
of the Bank since  March 1997 and as Chief  Executive  Officer of Ocwen UK since
April 1998.  Mr.  Dlutowski  also served as Senior Vice President of the Company
from May 1997 to May 1998 and of OAC from  February  1997 to May 1998. He joined
the Bank in  October  1992 and  served as a Vice  President  from May 1993 until
March 1997. From 1989 to 1991, Mr. Dlutowski was associated with the law firm of
Baker and  Hostetler.  He holds a Bachelor  of Science  degree  from the Wharton
School of Business at the  University of  Pennsylvania  and a Master of Business
and a Juris Doctor from the University of Pittsburgh.

         JOHN R. ERBEY. Mr. Erbey has served as Senior Managing  Director of the
Company  since May 1998,  as  Secretary  of the  Company  since June 1989,  as a
Managing  Director of the Company from  January 1993 to May 1998,  and as Senior
Vice  President of the Company from June 1989 until January 1993.  Mr. Erbey has
served as a director of the Bank since 1990,  as a Senior  Managing  Director of
the Bank since May 1998, and as Secretary of the Bank since July 1989. Mr. Erbey
also has  served  as  Senior  Managing  Director  of OAC  since  May 1998 and as
Secretary  of OAC since  February  1997.  He also serves as an officer  and/or a
director of many  subsidiaries  of the Company and OAC.  From 1971 to 1989,  Mr.
Erbey was a member of the Law Department of  Westinghouse  Electric  Corporation
and held various management  positions,  including Associate General Counsel and
Assistant  Secretary  from 1984 to 1989.  Previously,  he held the  positions of
Assistant  General  Counsel  of  the  Industries  and  International  Group  and
Assistant  General Counsel of the Power Systems Group of  Westinghouse.  He is a
graduate of Allegheny College and Vanderbilt University School of Law.

         RONALD M. FARIS.  Mr. Faris has served as Executive  Vice  President of
the Company and the Bank since May 1998, as a Senior Vice  President of the Bank
from May 1997 to May 1998, as Vice President and Chief Accounting Officer of the
Company  from  June 1995 to May 1998 and of the Bank from July 1994 to May 1997.
From March 1991 to July 1994 he served as  Controller  for a  subsidiary  of the
Company. From 1986 to 1991, Mr. Faris was a Vice President with Kidder,  Peabody
& Co.,  Inc.,  and from 1984 to 1986 worked in the General  Audit  Department of
Price  Waterhouse.  He holds a  Bachelor  of  Science  from  Pennsylvania  State
University and is a Certified Public Accountant.

         CHRISTINE  A. REICH.  Ms.  Reich has served as President of the Company
since May 1998,  as a Managing  Director  of the  Company  from June 1994 to May
1988, as Chief  Financial  Officer of the Company from January 1990 to May 1997,
as a Senior Vice  President of the Company from January 1993 until June 1994 and
as a Vice  President of the Company from January 1990 until  January  1993.  Ms.
Reich has served as a director of the Bank since June 1993 and as the  President
of the Bank since May 1998. From 1987 to 1990, Ms. Reich served as an officer of
another  subsidiary of the Company.  Ms. Reich has served as the President and a
director of OAC since  February 1997. Ms. Reich also serves as an officer and/or
a director of many subsidiaries of the Company and OAC. Prior to 1987, Ms. Reich
was employed by KPMG Peat Marwick LLP, most recently in the position of Manager.
She holds a Bachelor of Science in  Accounting  from the  University of Southern
California.

         MARK S. ZEIDMAN.  Mr.  Zeidman has served as Senior Vice  President and
Chief Financial  Officer of the Company and the Bank since May 1997. Mr. Zeidman
also has served as Senior  Vice  President  and Chief  Financial  Officer of OAC
since June 1997 and serves as an officer of many subsidiaries of the Company and
OAC.  From 1986 until May 1997,  Mr.  Zeidman was employed by Nomura  Securities
International,  Inc., most recently as Managing Director. Prior to 1986, he held
positions with Shearson Lehman Brothers and Coopers & Lybrand.  Mr. Zeidman is a
Certified  Public  Accountant.  He  holds a  Bachelor  of Arts  degree  from the
University  of  Pennsylvania,  a Master of  International  Affairs from Columbia
University  and a Master of Business  Administration  from the Wharton School of
Business at the University of Pennsylvania.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  executive  officers and  directors,  and persons who own
more than 10% of the Common  Stock,  to file reports of ownership and changes in
ownership  with  the  Commission.  Officers,  directors  and  greater  than  10%
shareholders are required by Commission  regulations to furnish the Company with
copies of all  Section  16(a)  forms  they  file.  Specific  due dates for these
reports have been established by the Commission,  and the Company is required to
report any  failure to timely  file such  reports by those due dates  during the
1998 fiscal year.

         To the Company's  knowledge,  based solely upon review of the copies of
such reports furnished to the Company and written  representations that no other
reports were required,  all Section 16(a) filing requirements  applicable to its
officers,  directors and greater than 10% shareholders were complied with during
1998.

                                       52

<PAGE>


ITEM 11. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

         The following  table discloses  compensation  received by the Company's
chief  executive  officer  and the four other most  highly  paid  directors  and
executive officers of the Company for the years indicated.

<TABLE>
<CAPTION>
                                              ANNUAL COMPENSATION                    LONG-TERM COMPENSATION
                                      -----------------------------------   --------------------------------------
                                                                                      AWARDS               PAYOUTS
                                                                            --------------------------     -------
                                                                                           NUMBER OF
                                                                                           SECURITIES                   ALL
                                                                            RESTRICTED      UNDERLYING                  OTHER
                                                                              STOCK         OPTIONS         LTIP       COMPEN-
NAME AND POSITION                      YEAR         SALARY      BONUS (1)     AWARDS         (#)(2)        PAYOUTS    SATION (4)
- --------------------------------       ----        --------    ----------   ----------     -----------     -------    ----------
<S>                                    <C>         <C>         <C>             <C>           <C>              <C>      <C>    
William C. Erbey................       1998        $357,499    $  197,438       --            14,143(3)       --       $10,000
  Chairman of the Board and            1997         150,000     1,300,000       --           235,756          --         3,000
    Chief Executive Officer            1996         150,000       650,000       --           115,790          --         3,000



Christine A. Reich..............       1998         317,976       175,500       --            12,572(3)       --        10,000
  President                            1997         150,000       850,000       --           147,348          --         3,000
                                       1996         150,000       487,500       --           163,158          --         3,000


John R. Erbey...................       1998         298,214       329,063       --            15,715(3)       --        10,000
  Senior Managing Director             1997         150,000       925,000       --           162,083          --         3,000
    and Secretary                      1996         150,000       525,000       --           178,948          --         3,000


Ronald M. Faris.................       1998         218,916       219,933       --            11,524(3)       --        10,000
  Executive Vice President                                                                                     

Joseph A. Dlutowski.............       1998         297,916       223,988       --             7,483(3)       --        10,000
  Chief Executive Officer              1997         120,673       300,000       --            39,293          --         3,000
    of Ocwen UK and Senior
    Vice President of the Bank
</TABLE>



(1)   Consists of bonuses paid pursuant to the Company's  1998 Annual  Incentive
      Plan in the first quarter of the following  year for services  rendered in
      the year indicated.

(2)   Consists of options granted  pursuant to the Company's 1991  Non-Qualified
      Stock Option Plan, as amended (the "Stock Option Plan").

(3)   Consists of grants made as of January  31, 1999 for  services  rendered in
      1998.

(4)   Consists of  contributions by the Company pursuant to the Company's 401(k)
      Savings Plan.

                                       53

<PAGE>


OPTION GRANTS FOR 1998

         The following table provides information relating to option grants made
pursuant  to the  Company's  1991  Stock  Option  Plan  in  January  1999 to the
individuals  named in the Summary  Compensation  Table for services  rendered in
1998.


<TABLE>
<CAPTION>
                                                  PERCENT OF
                                                  SECURITIES
                                        NO. OF    UNDERLYING
                                      SECURITIES     TOTAL                                   POTENTIAL REALIZABLE VALUE AT ASSUMED
                                      UNDERLYING    OPTIONS                                    RATES OF STOCK PRICE APPRECIATION
                                        OPTION     GRANTED TO     EXERCISE                             FOR OPTION TERM (3)
                                        GRANTED    EMPLOYEES        PRICE     EXPIRATION     -------------------------------------
         NAME                          (#)(1) (2)   (%) (2)        ($/SH)        DATE          0%($)        5%($)           10%($)
         ------------------------     ----------- -----------     --------    ----------     -------      --------         -------
<S>                                       <C>          <C>         <C>         <C>             <C>         <C>             <C>    
         William C. Erbey........         14,143       7.8         12.3125     1/31/09          --         109,573         277,592

         Christine A. Reich......         12,572       6.9         12.3125     1/31/09          --          97,402         246,757

         John R. Erbey...........         15,715       8.6         12.3125     1/31/09          --         121,752         308,446

         Ronald M. Faris.........         11,524       6.3         12.3125     1/31/09          --          89,282         226,187

         Joseph A. Dlutowski.....          7,483       4.1         12.3125     1/31/09          --          57,975         146,873
</TABLE>


(1)      All options are to purchase shares of Common Stock, and one third vests
         and becomes exercisable on each of January 31, 1999, 2000 and 2001.

(2)      Indicated  grants were made in January  1999 for  services  rendered in
         1998.  The  percentage  of securities  underlying  these options to the
         total number of securities  underlying all options granted to employees
         of the  Company  is based on  options  to  purchase  a total of 181,945
         shares of Common Stock  granted to  employees of the Company  under the
         Stock Option Plan as of January 31, 1999.

(3)      Assumes future prices of shares of Common Stock of $12.3125, $20.06 and
         $31.94 at compounded rates of return of 0%, 5% and 10%, respectively.

AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES

         The following table provides  information  relating to option exercises
in 1998 by the individuals named in the Summary Compensation Table and the value
of each such individual's unexercised options at December 31, 1998.


<TABLE>
<CAPTION>
                                                                         NUMBER OF SECURITIES              VALUE OF UNEXERCISED
                                           NUMBER OF               UNDERLYING UNEXERCISED OPTIONS AT      IN-THE MONEY OPTIONS AT
                                             SHARES                      DECEMBER 31, 1998 (1)             DECEMBER 31, 1998 (2)
                                            ACQUIRED     VALUE     ---------------------------------    ---------------------------
NAME                                      ON EXERCISE  REALIZED    EXERCISABLE         UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
- ----                                      -----------  --------    -----------         -------------    -----------   -------------
<S>                                          <C>      <C>             <C>                  <C>         <C>                   <C>
William C. Erbey.....................             --          --      467,336              14,143       $303,949          $  --

Christine A. Reich...................        163,158   2,528,949      147,348              12,572             --             --

John R. Erbey........................             --          --      430,031              15,715      1,074,362             --

Ronald M. Faris......................             --          --       60,345              11,524         27,631             --

Joseph A. Dlutowski..................             --          --       20,870               7,483         80,874             --
</TABLE>


(1)      All  options are to purchase  shares of Common  Stock and were  granted
         pursuant to the Stock  Option  Plan.  Options  listed as  "exercisable"
         consist of options  granted  in or prior to January  1998 which  became
         exercisable   in  or  prior  to  January   1999.   Options   listed  as
         "unexercisable" consist of options granted in January 1999 which become
         exercisable in January 2000.

(2)      Based on the $12.3125  closing  price of a share of Common Stock on the
         New York Stock Exchange on December 31, 1998.

                                       54

<PAGE>

LONG-TERM INCENTIVE PLANS - AWARDS IN 1998

         The  following  table  provides  information  relating to basis  points
awards made pursuant to the Company's  Long-Term  Incentive Plan (the "LTIP") to
the individuals named in the Summary Compensation Table.


<TABLE>
<CAPTION>
                                                       ESTIMATED FUTURE PAYOUTS UNDER
                                                       NON-STOCK PRICE-BASED PLANS (1)
                                                       -------------------------------
                                      NUMBER OF
                                     BASIS POINTS
NAME                                AWARDED IN 1998    THRESHOLD               TARGET  
- ----------------------------------  ----------------   ---------               ------
<S>                                       <C>          <C>                   <C>       
 William C. Erbey.................        15           $2,679,000            $3,855,000
 John R. Erbey....................        15            2,679,000             3,855,000
 Christine A. Reich...............        15            2,679,000             3,855,000
 Ronald M. Faris..................        15            2,679,000             3,855,000
 Joseph A. Dlutowski..............        10            1,786,000             2,570,000
</TABLE>


(1)      Payout figures are for the entire five year performance  period,  which
         runs  from  January  1, 1998 to  December  31,  2002 (the  "Performance
         Period").  The maximum  value of Basis Points that may be earned by any
         LTIP participant for any Performance Period is $25 million.

         The value of Basis  Points  awards  under the LTIP (the  "Basis  Points
Awards") is tied to the Company's  achievement of specified  levels of return on
equity and growth in  earnings  per share  during the  Performance  Period.  The
threshold  amount will be earned if average  return on equity and average annual
growth  in  earnings  per  share are each five  percentage  points  below  their
respective  target  levels.  The Basis  Points  Awards are  subject to  complete
forfeiture upon termination and partial  forfeiture in any year certain personal
performance goals are not achieved.  At the end of the Performance  Period,  the
Company will pay to the LTIP participants,  as more fully described below, Basis
Points Awards in the form of shares of restricted stock based on the fair market
value of the Common Stock on the last day of the Performance Period. Ten percent
of the shares received shall vest on each of the first ten  anniversaries of the
last day of the Performance Period.  Upon vesting,  the shares received shall be
automatically  placed into a nonqualified  irrevocable  trust established by the
Company for the benefit of the recipient  (the  "Deferred  Compensation  Trust")
until such shares are  payable.  Upon the  termination  of  employment  with the
Company of an LTIP  participant,  all  restrictions  on the  shares  held in the
Deferred  Compensation  Trust shall lapse, and such shares of Common Stock shall
be payable in five equal annual installments.

COMPENSATION OF DIRECTORS

         Pursuant to a Directors  Stock Plan  adopted by the Board of  Directors
and shareholders of the Company in July 1996, the Company compensates  directors
by delivering a total annual value of $10,000  payable in shares of Common Stock
(which may be prorated for a director serving less than a full one-year term, as
in the case of a director joining the Board of Directors after an annual meeting
of  shareholders),  subject to review and  adjustment  by the Board of Directors
from time to time. Such payment is made after the annual organizational  meeting
of the Board of Directors  which follows the annual meeting of  shareholders  of
the Company.  An additional annual fee payable in shares of Common Stock,  which
currently  amounts to $2,000,  subject to review and  adjustment by the Board of
Directors  from time to time,  is paid to  committee  chairs  after  the  annual
organizational  meeting of the Board of Directors.  During 1998, an aggregate of
2,235  shares of Common  Stock was granted to the five  directors of the Company
and the three committee chairs.

         The number of shares  issued  pursuant to the  Directors  Stock Plan is
based on their "fair market  value" on the date of grant.  The term "fair market
value" is defined in the  Directors  Stock Plan to mean the  average of the high
and low prices of the Common Stock as reported on the New York Stock Exchange on
the relevant date.

         Shares  issued  pursuant to the  Directors  Stock Plan,  other than the
committee  fee shares,  are subject to  forfeiture  during the 12 full  calendar
months  following  election  or  appointment  to the  Board  of  Directors  or a
committee  thereof if the director  does not attend an aggregate of at least 75%
of all meetings of the Board of Directors and committees  thereof of which he is
a member during such period.

                                       55

<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         Determinations  regarding  compensation of the Company's  employees are
made by the Company's  Nominating and  Compensation  Committee.  Currently,  the
members of the  Nominating  and  Compensation  committee  are  Directors  Martin
(Chairman), Lewis, Simon and Wish.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the Common  Stock as of the date  indicated by (i) each
director and executive officer of the Company,  (ii) all directors and executive
officers of the Company as a group and (iii) all persons known by the Company to
own beneficially 5% or more of the outstanding  Common Stock. The table is based
upon  information  supplied to the Company by directors,  officers and principal
stockholders and filings under the Exchange Act.


<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY OWNED AS OF
                                                                       MARCH 15, 1999
                                                            ------------------------------------
  NAME OF BENEFICIAL OWNER                                   AMOUNT(1)                PERCENT(1)
  -----------------------------------------------------     ------------              ----------
<S>                                                         <C>                          <C> 
  J.P. Morgan & Co. Incorporated.......................     4,276,200(2)                 7.0%
      60 Wall Street
      New York, NY 10260

  Directors and Executive Officers:
      William C. Erbey.................................    19,617,505(3)                 32.0
      Hon. Thomas F. Lewis.............................         1,469(4)                  *
      W.C. Martin......................................         6,285(5)                  *
      Howard H. Simon..................................         2,885(6)                  *
      Barry N. Wish....................................     9,372,648(7)                 15.4
      Christine A. Reich...............................       587,650(8)                  *
      John R. Erbey....................................     2,190,491(9)                 3.6
      Ronald M. Faris..................................       157,674(10)                 *
      Joseph A. Dlutowski..............................        84,123(11)                 *

  All Directors and Executive Officers as a Group
      (11 persons).....................................    32,202,127(12)               51.9%
</TABLE>


 *       Less than 1%.

(1)      For  purposes of this table,  pursuant to rules  promulgated  under the
         Exchange  Act, an individual  is  considered  to  beneficially  own any
         shares of  Common  Stock if he or she  directly  or  indirectly  has or
         shares: (i) voting power, which includes the power to vote or to direct
         the voting of the shares, or (ii) investment power,  which includes the
         power to  dispose  or direct  the  disposition  of the  shares.  Unless
         otherwise  indicated,  (i) an individual has sole voting power and sole
         investment  power  with  respect  to  the  indicated  shares  and  (ii)
         individual holdings amount to less than 1% of the outstanding shares of
         Common Stock.

(2)      Based  on  information  contained  in a  Schedule  13G  filed  with the
         Commission on February 23, 1999 by J.P.  Morgan & Co.  Incorporated,  a
         parent holding company whose subsidiaries include Morgan Guaranty Trust
         Company of New York (a bank), J.P. Morgan Investment  Management,  Inc.
         (an investment  advisor) and J.P.  Morgan Florida  Federal Savings Bank
         (an investment  advisor).  Includes  4,275,900  shares as to which sole
         voting power is claimed and 3,439,600  shares as to which sole disposal
         power is claimed.

(3)      Includes  13,740,465  shares  held by FF  Plaza  Partners,  a  Delaware
         partnership of which the partners are William C. Erbey, his spouse,  E.
         Elaine Erbey, and Delaware Permanent Corporation,  a corporation wholly
         owned by William C. Erbey.  Mr. and Mrs.  William C. Erbey share voting
         and  dispositive  power with  respect  to the shares  owned by FF Plaza
         Partners.   Also  includes  5,409,704  shares  held  by  Erbey  Holding
         Corporation,  a  corporation  wholly  owned by William C.  Erbey.  Also
         includes options to acquire 467,336 shares which were exercisable at or
         within 60 days of March 15,  1999.  Included  in the shares  held by FF
         Plaza  Partners are 2,885 shares held pursuant to the  Directors  Stock
         Plan.

                                       56

<PAGE>


(4)      Includes  400 shares held  jointly with  spouse.  Also  includes  1,069
         shares held pursuant to the Directors Stock Plan.

(5)      Includes  3,400  shares  held by the  Martin  &  Associates  Management
         Consultants,  Inc.  Defined  Contribution  Pension  Plan & Trust.  Also
         includes 2,885 shares held pursuant to the Directors Stock Plan.

(6)      Consists of shares held pursuant to the Directors Stock Plan.

(7)      Includes   8,878,305  shares  held  by  Wishco,   Inc.,  a  corporation
         controlled  by Barry N. Wish  pursuant to his ownership of 93.0% of the
         common  stock  thereof;  351,940  shares  held by  B.N.W.  Partners,  a
         Delaware  partnership  of which the  partners  are Mr. Wish and B.N.W.,
         Inc., a corporation  wholly owned by Mr. Wish;  and 140,000 shares held
         by the Barry Wish Family Foundation,  Inc., a charitable  foundation of
         which Mr. Wish is a director.  Also includes 2,403 shares held pursuant
         to the Directors Stock Plan.

(8)      Includes  440,300  shares  held by CPR Family  Limited  Partnership,  a
         Georgia  limited  partnership  whose  general  partner is a corporation
         wholly  owned by  Christine  A. Reich and whose  limited  partners  are
         Christine  A. Reich and her spouse.  Also  includes  options to acquire
         147,348  shares of Common Stock which were  exercisable at or within 60
         days of March 15, 1999.

(9)      Includes  1,747,330  shares  held  by  John  R.  Erbey  Family  Limited
         Partnership,  a Georgia limited  partnership whose general partner is a
         corporation  wholly owned by John R. Erbey and whose  limited  partners
         consist  of John R.  Erbey,  his  spouse and  children.  Also  includes
         options  to  acquire   430,031   shares  of  Common  Stock  which  were
         exercisable at or within 60 days of March 15, 1999.

(10)     Includes 5,000 shares held jointly with spouse.  Also includes  options
         to acquire  60,345 shares of Common Stock which were  exercisable at or
         within 60 days of March 15, 1999.

(11)     Includes 23,960 shares held jointly with spouse.  Also includes options
         to acquire  60,163 shares of Common Stock which were  exercisable at or
         within 60 days of March 15, 1999.

(12)     Includes  options to acquire an aggregate of 1,209,427 shares of Common
         Stock which were exercisable at or within 60 days of March 15, 1999.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On January 20, 1998, the Company  purchased  indirectly from William C.
Erbey and Barry N. Wish,  159,156  shares and  159,155  shares of Common  Stock,
respectively,  which  equaled  the  aggregate  number of shares of Common  Stock
issued by the Company on the same date in  connection  with its  acquisition  of
DTS.  The per share price of the shares of Common Stock  purchased  from Messrs.
Erbey and Wish was $24.42, which was equal to the average per share price of the
Common Stock determined pursuant to the Agreement of Merger, dated as of January
7, 1998,  among the  Company,  DTS and certain  other  parties  for  purposes of
determining  the number of shares of Common Stock to be issued by the Company in
connection  with the acquisition of DTS (which price was equal to the average of
the high and low per share sales price of the Common Stock on the New York Stock
Exchange  during each of the 20 trading days ending three  trading days prior to
consummation of the acquisition of DTS).

         In  September1998,  Howard H.  Simon  repaid  the  remaining  principal
balance  outstanding  on a  residential  mortgage  loan with an interest rate of
8.5%. The lender was an institution that had been acquired by the Bank.
The highest principal balance of this loan during 1998 was $99,131.

         In October  1998,  the Company  indirectly  loaned  $600,000 to John R.
Erbey and  $250,000  to John R.  Barnes in order to prevent  them from having to
sell shares of Common  Stock to meet or avoid margin  calls.  Each loan was: (i)
evidenced  by a promissory  note  bearing  interest at a rate of 9.5% per annum,
(ii)  payable  in two equal  installments  at 18 and 30 months  from the date of
issuance, and (iii) secured by pledges of Common Stock. As of December 31, 1998,
John R. Erbey had prepaid approximately $86,860 on his note.

                                       57

<PAGE>



                                     PART IV


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

        EXHIBITS
           3.1   Amended and Restated Articles of Incorporation (1)
           3.2   Amended and restated Bylaws 
           4.0   Form of Certificate of Common Stock (1)
           4.1   Form of Indenture  between the Company and Bank One,  Columbus,
                 NA, as Trustee (1)
           4.2   Form of Note due 2003  (included  in Exhibit  4.1)(1) 
           4.3   Certificate of Trust of Ocwen Capital Trust I (2) 
           4.4   Amended  and  Restated  Declaration  of Trust of Ocwen  Capital
                 Trust I (2)
           4.5   Form of Capital  Security  of Ocwen  Capital  Trust I (3) 
           4.6   Form of Indenture  between the Company and the Chase  Manhattan
                 Bank, a Trustee (3)
           4.7   Form of 10 7/8% Junior Subordinated  Debentures due 2027 of the
                 Company (3)
           4.8   Form  of  Guarantee  of the  Company  relating  to the  Capital
                 Securities of Ocwen Capital Trust I (2)
           4.9   Form of Indenture  between the Company and The Bank of New York
                 as Trustee (4)
           4.10  Form of  Subordinated  Debentures due 2005 (included in Exhibit
                 4.2) (4)
           10.1  Ocwen Financial  Corporation  1991  Non-Qualified  Stock Option
                 Plan, as amended (5)
           10.3  Ocwen Financial  Corporation 1996 Stock Plan for Directors,  as
                 amended (5)
           10.4  Ocwen Financial Corporation 1998 Annual Incentive Plan (6)
           10.5  Ocwen Financial Corporation Long-Term Incentive Plan (6)
           11.1  Computation of earnings per share (7)
           12.1  Ratio of Earnings to Fixed Charges
           13.1  Annual Report to  Stockholders  for the year ended December 31,
                 1998
           21.0  Subsidiaries (see "Business-General")
           23.0  Consent of PricewaterhouseCoopers LLP
           27.1  Financial Data Schedule - For the year ended December 31, 1998
           99.1  Risk Factors

(1)    Incorporated  by reference to the  similarly  described  exhibit filed in
       connection with the Registrant's Registration Statement on Form S-1, File
       No. 333-5153, declared effective by the commission on September 25, 1996.

(2)    Incorporated  by reference to the similarly  identified  exhibit filed in
       connection with the Registrant's Registration Statement on Form S-1 (File
       No.  333-28889),  as amended,  declared  effective by the  Commission  on
       August 6, 1997.

(3)    Incorporated  by reference to the similarly  described  exhibit  included
       with  Registrant's  Quarterly  Report on Form 10-Q for the quarter  ended
       September 30, 1997.

(4)    Incorporated  by reference to 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.

(5)    Incorporated  by reference to 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.

(6)    Incorporated  by  reference  to the  similarly  described  exhibit to the
       Company's  Definitive  Proxy Statement with respect to the Company's 1998
       Annual Meeting as filed with the Commission on March 31, 1998.

(7)    Computation of earnings per share appears on page 78 in the Annual Report
       to Stockholders and is incorporated herein by reference.

       FINANCIAL STATEMENTS AND SCHEDULES.  The following Consolidated Financial
Statements of Ocwen Financial  Corporation and Report of  PricewaterhouseCoopers
LLP,  Independent  Certified  Public  Accountants, are  incorporated  herein  by
reference from pages 45 to 95 of the Company's Annual Report to Stockholders:


       Report of Independent Certified Public Accountants

                                       58

<PAGE>


       Consolidated  Statements of Financial  Condition at December 31, 1998 and
       1997

       Consolidated  Statements of Operations for each of the three years in the
       period ended December 31, 1998

       Consolidated  Statements of Changes in  Stockholders'  Equity for each of
       the three years in the period ended December 31, 1998

       Consolidated  Statements  of  Comprehensive  Income for each of the three
       years in the period ended December 31, 1998

       Consolidated  Statements of Cash Flows for each of the three years in the
       period ended December 31, 1998.


       Notes to Consolidated Financial Statements

       Financial  statement  schedules  have been  omitted  because they are not
       applicable  or the  required  information  is shown  in the  Consolidated
       Financial Statements or notes thereto.

       REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER, 31, 1998.

(1)    A Form 8-K was filed by the Company on October 28, 1998 which contained a
       news release announcing the Company's financial results for the three and
       nine months ended September 30, 1998.

                                       59

<PAGE>



 
                                  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/ WILLIAM C. ERBEY
                               ------------------------------------
                                   William C. Erbey
                                   Chairman of the Board and
                                   Chief Executive Officer
                                   (duly authorized representative)

Date:      March 31, 1999


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

/s/ WILLIAM C. ERBEY                                    Date:      March 31,1999
- ------------------------------------------------
    William C. Erbey, Chairman of the Board and
    Chief Executive Officer
    (principal executive officer)

/s/ CHRISTINE A. REICH                                  Date:      March 31,1999
- ------------------------------------------------
    Christine A. Reich, President

/s/ BARRY N. WISH                                       Date:      March 31,1999
- ------------------------------------------------
    Barry N. Wish, Director

/s/ W.C. MARTIN                                         Date:      March 31,1999
- ------------------------------------------------
    W.C. Martin, Director

/s/ HOWARD H. SIMON                                     Date:      March 31,1999
- ------------------------------------------------
    Howard H. Simon, Director

/s/ HON. THOMAS F. LEWIS                                Date:      March 31,1999
- ------------------------------------------------
    Hon. Thomas F. Lewis, Director

/s/ MARK S. ZEIDMAN                                     Date:      March 31,1999
- ------------------------------------------------
    Mark S. Zeidman, Senior Vice President and
    Chief Financial Officer
    (principal financial and accounting officer)

                                       60






                                                                     EXHIBIT 3.2

                                    BYLAWS OF
                           OCWEN FINANCIAL CORPORATION


                                    ARTICLE I

                                  SHAREHOLDERS

         SECTION 1.1 ANNUAL MEETING. Except as otherwise provided in Section 1.9
of these Bylaws,  an annual meeting of  shareholders  of the Corporation for the
election of directors and for the transaction of any other proper business shall
be held each  year on such  date,  at such  hour on said date and at such  place
within  or  without  the  State  of  Florida  as may be  fixed  by the  Board of
Directors.

         SECTION 1.2 SPECIAL MEETINGS.  A special meeting of shareholders of the
Corporation  entitled  to vote on any  business  to be  considered  at any  such
meeting may be called by the Chairman of the Board or the  President,  and shall
be called by the  Chairman of the Board,  the  President or the  Secretary  when
directed  to do so by  resolution  of the Board of  Directors  or at the written
request of shareholders holding at least 10% of the Corporation's stock entitled
to vote at such meeting. Any such request shall state the purpose or purposes of
the proposed meeting.

         SECTION 1.3 NOTICE OF MEETINGS.  Whenever  shareholders are required or
permitted to take any action at a meeting,  unless  notice is waived as provided
in Article VIII  herein,  a written  notice of the meeting  shall
 be given which
shall  state the  place,  date and hour of the  meeting,  and,  in the case of a
special meeting, the purpose or purposes for which the meeting is called.

         Unless otherwise provided by law, and except as to any shareholder duly
waiving notice,  the written notice of any meeting shall be given  personally or
by mail,  not less  than ten nor more than  sixty  days  before  the date of the
meeting to each shareholder entitled to vote at such meeting. If mailed,  notice
shall be deemed given when deposited in the United States mail, postage prepaid,
directed to the  shareholder  at his address as it appears on the records of the
Corporation.

         When a meeting is adjourned to another date, time or place, notice need
not be given of the new  date,  time or place if the new  date,  time and  place
thereof are announced at the meeting  before the  adjournment  is taken.  At the
adjourned meeting the Corporation may transact any business that might have been
transacted at the original  meeting.  If,  however,  the adjournment is for more
than one hundred  twenty days, or if after the  adjournment a new record date is
fixed for the  adjourned  meeting,  a notice of the  adjourned  meeting shall be
given to each shareholder of record entitled to vote at the meeting.

         SECTION  1.4  QUORUM.  Except  as  otherwise  provided  by law,  by the
Articles of Incorporation or by these Bylaws in respect of the vote required for
a specified  action, at any meeting of shareholders the holders of a majority of
the shares of stock  entitled to vote thereat,  either present or represented by
proxy,  shall  constitute a quorum for the transaction of any business,  but the
shareholders  present,  although less than a quorum,  may adjourn the meeting to
another time or place and,  except as provided in the last  paragraph of Section
1.3 of these Bylaws, notice need not be given of the adjourned meeting.

         SECTION 1.5 VOTING.  Whenever directors are to be elected at a meeting,
they  shall be elected by a  plurality  of the votes cast at the  meeting by the
holders of stock entitled to vote. Whenever any corporate action, other than the
election of directors,  is to be taken by vote of shareholders at a meeting,  it
shall,  except as otherwise required by law, by the Articles of Incorporation or
by these  Bylaws,  be  approved  if the votes cast by the  holders of the shares
represented at the meeting and entitled to vote on the subject  matter  favoring
the action exceed the votes cast opposing the action.

         Except  as   otherwise   provided   by  law  or  by  the   Articles  of
Incorporation,  each  holder of record of stock of the  Corporation  entitled to
vote on any matter at any meeting of shareholders  shall be entitled to one vote

                                       1

<PAGE>

for each share of such stock  standing  in the name of such  holder on the stock
ledger  of the  Corporation  on the  record  date for the  determination  of the
shareholders entitled to vote at the meeting.

         Upon the  demand  of any  shareholder  entitled  to vote,  the vote for
directors  or the vote on any  other  matter at a  meeting  shall be by  written
ballot,  but  otherwise  the method of voting and the manner in which  votes are
counted shall be discretionary with the presiding officer at the meeting.

         SECTION  1.6  PRESIDING  OFFICER  AND  SECRETARY.  At every  meeting of
shareholders  the  Chairman  of the Board,  or in his or her  absence  the Chief
Executive  Officer,  or in his or her  absence the  President,  or in his or her
absence a Senior Managing Director or Managing Director, or, if none be present,
the appointee of the meeting,  shall preside.  The  Secretary,  or in his or her
absence an  Assistant  Secretary,  or if none be present,  the  appointee of the
presiding officer of the meeting, shall act as secretary of the meeting.

         SECTION 1.7 PROXIES.  A shareholder  entitled to vote at any meeting of
shareholders or any adjournment  thereof may vote in person or by proxy executed
in writing and signed by the shareholder or the shareholder's  attorney-in-fact.
The  appointment  of proxy will be effective  when  received by the Secretary or
other officer or agent  authorized to tabulate votes. If a proxy  designates two
or more persons to act as proxies,  a majority of these  persons  present at the
meeting,  or if only one is  present,  that one,  shall  have all of the  powers
conferred  by  the  instrument  upon  all  the  persons  designated  unless  the
instrument  otherwise  provides.  No proxy  shall be valid more than eleven (11)
months after the date of its execution  unless a longer term is expressly stated
in the proxy.

         SECTION  1.8 LIST OF  SHAREHOLDERS.  The  officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of shareholders,  a complete list of the shareholders  entitled to
vote at the meeting,  arranged in alphabetical order, and showing the address of
each  shareholder  and the  number  of  shares  registered  in the  name of each
shareholder.  Such list shall be open to the examination of any shareholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at  least  ten days  prior to the  meeting,  at the  Corporation's  principal
office, at the office of the  Corporation's  transfer agent or registrar or at a
place  within the city where the  meeting is to be held,  which  place  shall be
specified in the notice of the meeting,  or, if not so  specified,  at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof and may be inspected
by any shareholder who is present.

         The  stock  ledger  shall  be  the  only  evidence  as to who  are  the
shareholders  entitled to examine the stock  ledger,  the list  required by this
Section or the books of the Corporation, or to vote in person or by proxy at any
meeting of shareholders.

         SECTION 1.9 WRITTEN CONSENT OF SHAREHOLDERS IN LIEU OF MEETING.  Except
as  otherwise  provided by law or by the Articles of  Incorporation,  any action
required or permitted by statute to be taken at any annual or special meeting of
shareholders of the  Corporation  may be taken without a meeting,  without prior
notice and without a vote, if a consent in writing,  setting forth the action so
taken,  shall be dated and signed by the holders of outstanding stock having not
less than the minimum  number of votes that would be  necessary  to authorize or
take such action at a meeting at which all shares  entitled to vote thereon were
present and voted. Any such written consent may be given by one or any number of
substantially  concurrent  written  instruments of  substantially  similar tenor
dated and signed by such  shareholders,  in person or by  attorney or proxy duly
appointed in writing,  and filed with the Secretary or an Assistant Secretary of
the Corporation.  Within ten days after obtaining such  authorization by written
consent,  notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those shareholders who have not
consented in writing or who are not entitled to vote on such action.  The notice
shall fairly summarize the material  features of the authorized  action.  If the
action creates dissenters' rights, the notice shall contain a clear statement of
the right of dissenting  shareholders  to be paid the fair value of their shares
upon  compliance  with and as provided for by the Florida  Business  Corporation
Act.

                                       2

<PAGE>

                                   ARTICLE II

                                    DIRECTORS

         SECTION 2.1 NUMBER OF DIRECTORS.  The Board of Directors  shall consist
of not less than three  directors  and not more than seven  directors,  with the
exact number to be fixed by the Board of Directors.  The number of directors may
be  fixed at any time and  from  time to time by a  resolution  of the  Board of
Directors passed by a majority of the whole Board of Directors or by a vote at a
meeting or by written  consent of the  holders of stock  entitled to vote on the
election of  directors,  except that no decrease  shall  shorten the term of any
incumbent  director  unless such director is  specifically  removed  pursuant to
Section 2.5 of these Bylaws at the time of such decrease.

         SECTION 2.2 ELECTION AND TERM OF DIRECTORS.  Directors shall be elected
annually,  by  election  at the  annual  meeting of  shareholders  or by written
consent  of the  holders  of  stock  entitled  to vote  thereon  in lieu of such
meeting.  If the annual election of directors is not held on the date designated
therefor,  the directors shall cause such election to be held as soon thereafter
as convenient. Each director shall hold office from the time of his election and
qualification  until his successor is elected and qualified or until his earlier
resignation or removal.

         SECTION 2.3 VACANCIES AND NEWLY  CREATED  DIRECTORSHIPS.  Vacancies and
newly created directorships resulting from any increase in the authorized number
of  directors  may be filled by  election  at a meeting  of  shareholders  or by
written  consent of the holders of stock  entitled to vote  thereon in lieu of a
meeting.   Except  as   otherwise   provided  by  law  or  by  the  Articles  of
Incorporation, vacancies and such newly created directorships may also be filled
by a majority of the directors then in office,  although less than a quorum,  or
by a sole remaining director.

         SECTION  2.4  RESIGNATION.  Any  director  may  resign at any time upon
written  notice  to the Board of  Directors,  the  Chairman  of the Board or the
Corporation.  Any such  resignation  shall  take  effect  at the time  specified
therein  or,  if the  time  be not  specified,  upon  receipt  thereof,  and the
acceptance of such resignation,  unless required by the terms thereof, shall not
be necessary to make such resignation effective.

         SECTION. 2.5 REMOVAL. Any or all of the directors may be removed at any
time,  with or  without  cause,  by vote of the  holders  of the shares of stock
entitled to vote on the election of directors,  taken at a meeting or by written
consent,  if the  number of votes  cast to remove  such  director  or  directors
exceeds the number of votes cast not to remove such director or directors.

         SECTION 2.6 MEETINGS.  Meetings of the Board of  Directors,  regular or
special,  shall be held at the principal place of business of the Corporation or
at another place  designated by the person or persons giving notice or otherwise
calling the  meeting.  Members of the Board of  Directors,  or of any  committee
designated by the Board, may participate in a meeting of such Board or committee
by means of conference telephone or similar communications equipment by means of
which all persons  participating  in the meeting  may  simultaneously  hear each
other, and participation in a meeting by such means shall constitute presence in
person at such meeting.  The Board of Directors may fix dates,  times and places
for regular  meetings of the Board of Directors  and no notice of such  meetings
need be  given.  A  special  meeting  of the  Board of  Directors  shall be held
whenever  called by the  Chairman of the Board,  if any, or by the  President at
such date, time and place as shall be specified in the notice or waiver thereof.
Notice of each special  meeting  shall be given by the  Secretary or by a person
calling  the  meeting  to  each  director  orally  or in  writing,  and  may  be
communicated  in  person,  by  telegraph,  teletype,  telecopy  or other form of
electronic communication not later than the day before the meeting or by mailing
the same,  postage  prepaid,  not later than the second day before the  meeting.
Notice of a meeting  of the Board of  Directors  need not be given to a director
who signs a waiver of notice either before or after the meeting. Attendance of a
director at a meeting  shall  constitute  a waiver of notice of that meeting and
waiver of all  objections  to the place of the meeting,  the time of the meeting
and the manner in which it is called or convened, except when a director states,
at the  beginning  of the  meeting or  promptly  upon  arrival  at the  meeting,
objection  to the  transaction  of business  because the meeting is not lawfully
called or convened.  Neither the business to be  transacted  at, nor the purpose
of, any regular or special  meeting of the Board of Directors  must be specified
in the notice or waiver of notice of such meeting.

                                       3

<PAGE>

         SECTION  2.7  QUORUM AND  VOTING.  A  majority  of the total  number of
directors  shall  constitute a quorum for the  transaction of business,  but, if
there be less than a quorum at any meeting of the Board of Directors, a majority
of the  directors  present may adjourn  the  meeting  from time to time,  and no
further  notice  thereof  need be given other than  announcement  at the meeting
which  shall be so  adjourned.  Except  as  otherwise  provided  by law,  by the
Articles  of  Incorporation  or by these  Bylaws,  the vote of a majority of the
directors  present at a meeting at which a quorum is present shall be the act of
the Board of Directors.

         SECTION  2.8 WRITTEN  CONSENT OF  DIRECTORS  IN LIEU OF A MEETING.  Any
action  required  or  permitted  to be  taken  at any  meeting  of the  Board of
Directors  or of any  committee  thereof  may be taken  without a meeting if all
members of the Board or of such  committee,  as the case may be, consent thereto
in  writing,  and the  writing  or  writings  are  filed  with  the  minutes  of
proceedings of the Board or committee.

         SECTION  2.9  COMPENSATION.  Directors  may  receive  compensation  for
services to the  Corporation  in their  capacities  as directors or otherwise in
such  manner and in such  amounts as may be fixed from time to time by the Board
of Directors.

                                   ARTICLE III

                      COMMITTEES OF THE BOARD OF DIRECTORS

         SECTION 3.1  APPOINTMENT  AND POWERS.  The Board of Directors  may from
time to time, by resolution passed by majority of the whole Board, designate one
or more  committees,  each  committee to consist of two or more directors of the
Corporation.  The Board of  Directors  may  designate  one or more  directors as
alternate  members of any committee,  who may replace any absent or disqualified
member at any meeting of the committee. The resolution of the Board of Directors
may,   in   addition  or   alternatively,   provide   that  in  the  absence  or
disqualification  of a member of a  committee,  the  member or  members  thereof
present at any meeting and not  disqualified  from voting,  whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or  disqualified
member.  Any such  committee,  to the extent  provided in the  resolution of the
Board of Directors,  shall have and may exercise all the powers and authority of
the Board of  Directors  in the  management  of the  business and affairs of the
Corporation,  and may authorize the seal of the Corporation to be affixed to all
papers  which may  require it,  except as  otherwise  provided by law.  Any such
committee  may adopt rules  governing  the method of calling and date,  time and
place of  holding  its  meetings.  Unless  otherwise  provided  by the  Board of
Directors,  a majority of any such committee  shall  constitute a quorum for the
transaction  of  business,  and the vote of a  majority  of the  members of such
committee  present at a meeting at which a quorum is present shall be the act of
such  committee.  Each  such  committee  shall  keep a  record  of its  acts and
proceedings  and  shall  report  thereon  to the  Board  of  Directors  whenever
requested  so to do. Any or all  members of any such  committee  may be removed,
with or without  cause,  by resolution  of the Board of  Directors,  passed by a
majority of the whole Board.

                                   ARTICLE IV

                         OFFICERS, AGENTS AND EMPLOYEES

         SECTION  4.1  APPOINTMENT  AND  TERM OF  OFFICE.  The  officers  of the
Corporation shall include a Chairman of the Board, a Chief Executive  Officer, a
President,  a  Secretary  and a  Treasurer,  and may  include one or more Senior
Managing Directors,  Managing Directors,  Executive Vice Presidents, Senior Vice
Presidents  and Vice  Presidents.  All such  officers  shall be appointed by the
Board of Directors or by a duly authorized committee thereof. Any number of such
offices  may  be  held  by  the  same  person,  but no  officer  shall  execute,
acknowledge or verify any instrument in more than one capacity. Except as may be
prescribed  otherwise  by the Board of  Directors  or a  committee  thereof in a
particular  case,  all such officers shall hold their offices at the pleasure of
the  Board of  Directors  for an  unlimited  term  and  need not be  reappointed
annually or at any other periodic interval.  The Board of Directors may appoint,
and may delegate  power to appoint,  such other  officers  (including  Assistant
Secretaries  and Assistant  Treasurers)  and agents as it may deem  necessary or
proper,  who shall hold their  offices or  positions  for such terms,  have such
authority  and perform such duties as may from time to time be  determined by or
pursuant to authorization of the Board of Directors.

                                       4

<PAGE>

         SECTION 4.2 RESIGNATION AND REMOVAL. Any officer may resign at any time
upon written notice to the Secretary of the Corporation.  Any officer,  agent or
employee of the  Corporation  may be removed by the Board of Directors,  or by a
duly authorized committee thereof,  with or without cause at any time. The Board
of Directors or such a committee  thereof may delegate  such power of removal as
to officers,  agents and  employees  not  appointed by the Board of Directors or
such a committee.

         SECTION 4.3  COMPENSATION AND BOND. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors,  but this power may be
delegated to any officer in respect of other  officers  under his  control.  The
Corporation  may secure the  fidelity of any or all of its  officers,  agents or
employees by bond or otherwise.

         SECTION  4.4  CHAIRMAN  OF THE BOARD.  The  Chairman of the Board shall
preside at all meetings of the Board of Directors and of the  shareholders.  The
Chairman of the Board shall have such other powers and perform such other duties
as are  prescribed by these Bylaws and as usually  pertain to such office and as
may be  assigned  to him or her at any time or from time to time by the Board of
Directors.

         SECTION 4.5 CHIEF  EXECUTIVE  OFFICER;  PRESIDENT.  The Chairman of the
Board shall be the Chief Executive Officer of the Corporation,  unless the Board
of Directors  designates  the President as Chief  Executive  Officer.  The Chief
Executive Officer shall have the responsibility for carrying out the policies of
the Board of Directors,  subject to the  direction of the Board,  and shall have
general  supervision  over the business and affairs of the  Corporation.  In the
absence of the Chairman of the Board, the President shall preside at meetings of
the Board of Directors and of the  shareholders.  The Chief Executive Officer or
President  may employ and  discharge  employees  and agents of the  Corporation,
except as otherwise prescribed by the Board of Directors, and may delegate these
powers.  The Chief  Executive  Officer or President  may vote the stock or other
securities  of any other  domestic  or foreign  corporation  of any type or kind
which may at any time be owned by the Corporation, may execute any shareholders'
or other consents in respect  thereof and may in his or her discretion  delegate
such powers by executing  proxies,  or otherwise,  on behalf of the Corporation.
The Board of  Directors by  resolution  from time to time may confer like powers
upon any other  person or persons.  The Chief  Executive  Officer and  President
shall have such other powers and perform such other duties as are  prescribed by
these Bylaws and as usually pertain to such office and as may be assigned to him
or her at any time or from time to time by the Board of Directors.

         SECTION  4.6  MANAGING  DIRECTORS.  Each  Senior  Managing  Director or
Managing Director shall have such powers and perform such duties as the Board of
Directors,  the Chief  Executive  Officer or the President may from time to time
prescribe. In the absence or inability to act of the President, unless the Board
of Directors shall otherwise provide,  the Senior Managing Director (or if none,
the Managing  Director) who has served in that capacity for the longest time and
who shall be  present  and able to act,  shall  perform  all the  duties and may
exercise any of the powers of the  President.  The  performance of any duty by a
Senior Managing  Director or a Managing  Director shall, in respect of any other
person dealing with the Corporation,  be conclusive evidence of his or her power
to act.

         SECTION 4.7 VICE PRESIDENTS. Each Executive Vice President, Senior Vice
President and Vice  President  shall have such powers and perform such duties as
the Board of Directors,  the Chief  Executive  Officer or the President may from
time to time  prescribe.  The  performance  of any  duty  by an  Executive  Vice
President,  Senior Vice  President or Vice  President  shall,  in respect of any
other person dealing with the Corporation,  be conclusive evidence of his or her
power to act.

         SECTION 4.8 TREASURER. The Treasurer shall have charge of all funds and
securities of the Corporation,  shall endorse the same for deposit or collection
when  necessary  and deposit the same to the credit of the  Corporation  in such
banks or  depositories  as the Board of Directors may authorize.  He may endorse
all  commercial  documents  requiring  endorsements  for  or on  behalf  of  the
Corporation  and may sign all receipts  and  vouchers  for payments  made to the
Corporation.  He shall have all such further  powers and duties as generally are
incident to the  position of Treasurer or as may be assigned to him by the Board
of Directors, the Chief Executive Officer or the President.

         SECTION 4.9 SECRETARY.  The Secretary  shall record all the proceedings
of the meetings of the  shareholders and directors in a book to be kept for that
purpose and shall also record therein all action taken by written consent of the
shareholders  or directors  in lieu of a meeting.  He or she shall attend to the

                                       5

<PAGE>

giving and serving of all notices of the  Corporation.  The Secretary shall have
custody of the seal of the  Corporation  and shall attest the same by his or her
signature whenever required. The Secretary shall have charge of the stock ledger
and such other books and papers as the Board of Directors may direct,  but he or
she may delegate responsibility for maintaining the stock ledger to any transfer
agent appointed by the Board of Directors. He or she shall have all such further
powers and duties as  generally  are incident to the position of Secretary or as
may be assigned to him by the Board of Directors, the Chief Executive Officer or
the President

         SECTION 4.10 ASSISTANT  TREASURERS.  In the absence or inability to act
of the  Treasurer,  any  Assistant  Treasurer  may  perform  all the  duties and
exercise  all the  powers of the  Treasurer.  The  performance  of any such duty
shall,  in  respect  of any  other  person  dealing  with  the  Corporation,  be
conclusive  evidence of his or her power to act. An  Assistant  Treasurer  shall
also perform such other duties as the  Treasurer,  the Board of  Directors,  the
Chief Executive Officer or the President may assign to him or her.

         SECTION 4.11 ASSISTANT SECRETARIES.  In the absence or inability to act
of the  Secretary,  any  Assistant  Secretary  may  perform  all the  duties and
exercise  all the  powers of the  Secretary.  The  performance  of any such duty
shall,  in  respect  of any  other  person  dealing  with  the  Corporation,  be
conclusive  evidence of his or her power to act. An  Assistant  Secretary  shall
also perform such other duties as the  Secretary,  the Board of  Directors,  the
Chief Executive Officer or the President may assign to him or her.

         SECTION  4.12  DELEGATION  OF  DUTIES.  In case of the  absence  of any
officer of the Corporation,  or for any other reason that the Board of Directors
may deem  sufficient,  the Board of Directors  may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.

         SECTION 4.13 LOANS TO OFFICERS,  DIRECTORS AND  EMPLOYEES;  GUARANTY OF
OBLIGATIONS OF OFFICERS, DIRECTORS AND EMPLOYEES. The Corporation may lend money
to, or guarantee any obligation of, or otherwise assist any officer, director or
employee of the Corporation or any subsidiary  whenever,  in the judgment of the
Board of Directors, such loan, guaranty or assistance may reasonably be expected
to benefit the Corporation.  The loan,  guaranty or other assistance may be with
or without  interest and may be unsecured or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation.

                                    ARTICLE V

                                 INDEMNIFICATION

         SECTION 5.1  INDEMNIFICATION  OF  DIRECTORS,  OFFICERS,  EMPLOYEES  AND
AGENTS.  Any person who was or is a party or is threatened to be made a party to
any threatened,  pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action or suit by or in
the right of the  Corporation  to procure a judgment  in its favor) by reason of
the fact that he or she is or was a director,  officer, employee or agent of the
Corporation,  or is or was  serving  at the  request  of  the  Corporation  as a
director, officer, employee or agent of another corporation,  partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation, if,
as and to the extent  authorized by applicable law, against expenses  (including
attorneys'  fees),  judgments,  liabilities,  fines,  costs and amounts  paid in
settlement actually and reasonably incurred by him or her in connection with the
defense or settlement of such action,  suit or proceeding.  The  indemnification
expressly  provided by  applicable  law and by these  Bylaws in a specific  case
shall  not  be  deemed  exclusive  of any  other  rights  to  which  any  person
indemnified may be entitled under any lawful agreement,  vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in  another  capacity  while  holding  such  office,  and shall
continue  as to a person who has ceased to be a director,  officer,  employee or
agent and shall inure to the benefit of the heirs,  executors and administrators
of such a person.

         SECTION 5.2 INSURANCE.  The Corporation may maintain insurance,  at its
expense,  to protect  itself and its directors,  officers,  employees and agents
against  expenses,  judgments,  liabilities,  fines,  costs and amounts  paid in
settlement,  whether  or not the  Corporation  would  have  the  legal  power to
indemnify them directly against such liability.

                                       6

<PAGE>


         SECTION 5.3  SAVINGS  CLAUSE.  If this  Article or any portion of it is
invalidated on any ground by a court of competent jurisdiction,  the Corporation
nevertheless  shall  indemnify  each  person  described  in Section  5.1 of this
Article to the fullest  extent  permitted  by all  portions of this Article that
shall not have been invalidated and to the fullest extent permitted by law.

                                   ARTICLE VI

                                      STOCK

         SECTION 6.1  CERTIFICATES.  The Board of Directors  may  authorize  the
issuance  of some or all of the  Corporation's  shares  of  stock  of any or all
classes or series with or without  certificates.  Certificates  for stock of the
Corporation shall be in such form as shall be approved by the Board of Directors
and shall be signed in the name of the Corporation by the Chairman of the Board,
the President,  a Senior Managing  Director or a Managing  Director,  and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary.
Such  certificates may be sealed with the seal of the Corporation or a facsimile
thereof.  Any or all of the signatures on a certificate  may be a facsimile.  In
case any officer,  transfer agent or registrar who has signed or whose facsimile
signature  has been  placed  upon a  certificate  shall  have  ceased to be such
officer,  transfer agent or registrar before such certificate is issued,  it may
be  issued  by the  Corporation  with the same  effect as if he or she were such
officer, transfer agent or registrar at the date of issue.

         SECTION 6.2 REGISTERED SHAREHOLDERS. No certificate shall be issued for
any share until the share is fully paid.  The  Corporation  shall be entitled to
treat the  holder of  record  of  shares  as the  holder in fact and,  except as
otherwise  provided by law,  shall not be bound to  recognize  any  equitable or
other claim to or interest in the shares.

         SECTION 6.3  TRANSFERS OF STOCK.  Transfers of stock shall be made only
upon the books of the Corporation by the holder, in person or by duly authorized
attorney, and on the surrender of the certificate or certificates for such stock
properly endorsed.  The Board of Directors shall have the power to make all such
rules and  regulations,  not  inconsistent  with applicable law, the Articles of
Incorporation  or these Bylaws,  as the Board of Directors may deem  appropriate
concerning the issue, transfer and registration of certificates for stock of the
Corporation.  The Board may appoint one or more transfer agents or registrars of
transfers, or both, and may require all stock certificates to bear the signature
of either or both.

         SECTION 6.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
issue a new stock certificate in the place of any certificate theretofore issued
by it, alleged to have been lost,  stolen or destroyed,  and the Corporation may
require  the owner of the lost,  stolen or  destroyed  certificate  or his legal
representative to give the Corporation a bond sufficient to indemnify it against
any claim that may be made against it on account of the alleged  loss,  theft or
destruction of any such certificate or the issuance of any such new certificate.
The Board of  Directors  may  require  such  owner to satisfy  other  reasonable
requirements.

         SECTION 6.5 SHAREHOLDER  RECORD DATE. In order that the Corporation may
determine  the  shareholders  entitled to notice of or to vote at any meeting of
shareholders  or any  adjournment  thereof,  or to express  consent to corporate
action in  writing  without a meeting,  or  entitled  to receive  payment of any
dividend  or other  distribution  or  allotment  of any  rights,  or entitled to
exercise any rights in respect of any change,  conversion  or exchange of stock,
or for the purpose of any other lawful  action,  the Board of Directors may fix,
in advance, a record date, which shall not precede the date upon which the Board
of  Directors  adopts the  resolution  fixing  such record date nor be more than
seventy  days  before  the  date of  such  meeting  or  other  action  requiring
shareholder  determination.  Only such  shareholders as shall be shareholders of
record on the date so fixed shall be entitled to notice of, and to vote at, such
meeting and any  adjournment  thereof,  or to give such  consent,  or to receive
payment of such  dividend or other  distribution,  or to exercise such rights in
respect of any such change,  conversion or exchange of stock,  or to participate
in such action, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any record date so fixed.

         If no record  date is fixed by the Board of  Directors,  (i) the record
date for determining  shareholders entitled to notice of or to vote at a meeting
of shareholders  shall be at the close of business on the day next preceding the
date on which  notice is given  or,  if  notice  is  waived by all  shareholders
entitled  to vote at the  meeting,  at the  close  of  business  on the day next
preceding  the day on which  the  meeting  is held,  (ii)  the  record  date for
determining  shareholders  entitled to express  consent to  corporate  action in

                                       7

<PAGE>

writing  without a meeting,  when no prior  action by the Board of  Directors is
necessary,  shall be at the  close of  business  on the day on which  the  first
written  consent is expressed  by the filing  thereof  with the  Corporation  as
provided  in  Section  1.10 of these  Bylaws,  and  (iii)  the  record  date for
determining shareholders for any other purpose shall be at the close of business
on the day on which  the  Board of  Directors  adopts  the  resolution  relating
thereto.

         A  determination  of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

                                   ARTICLE VII

                                      SEAL

         SECTION 7.1 SEAL. The seal of the Corporation shall be circular in form
and shall bear, in addition to any other emblem or device  approved by the Board
of Directors, the name of the Corporation, the year of its incorporation and the
words  "Corporate  Seal" and "Florida".  The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.

                                  ARTICLE VIII

                                WAIVER OF NOTICE

         SECTION 8.1 WAIVER OF NOTICE.  Whenever  notice is required to be given
by statute or under any  provision  of the  Articles of  Incorporation  or these
Bylaws,  a written  waiver  thereof,  signed by the person  entitled  to notice,
whether before or after the time stated therein,  shall be deemed  equivalent to
notice.  In the case of a  shareholder,  such  waiver of notice may be signed by
such shareholder's attorney or proxy duly appointed in writing.  Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting,  except
when the person  attends a meeting for the express  purpose of  objecting at the
beginning of the meeting to the transaction of any business  because the meeting
is not lawfully  called or convened.  Neither the business to be transacted  at,
nor the  purpose  of,  any  regular  or  special  meeting  of the  shareholders,
directors  or members of a  committee  of  directors  need be  specified  in any
written waiver of notice.


                                   ARTICLE IX

                           CHECKS, NOTES, DRAFTS, ETC.

         SECTION  9.1  CHECKS,   NOTES,  DRAFTS,  ETC.  Checks,  notes,  drafts,
acceptances,  bills of exchange and other orders or obligations  for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized  committee thereof may from time to time
designate.

                                    ARTICLE X

                                    AMENDMENT

         SECTION  10.1  AMENDMENT.  These  Bylaws or any of them may be altered,
amended or repealed, and new Bylaws may be adopted, by the Board of Directors or
by the shareholders.


                                       8



<TABLE>
<CAPTION>
                                Ocwen Financial Corporation and Subsidiaries                 Exhibit 12.1
                                  Computation of Earnings to Fixed Charges
                                           (Dollars in Thousands)




                                                                      Year Ended December 31,
                                                    ------------------------------------------------------
                                                      1998         1997       1996       1995       1994  
                                                      ----         ----       ----       ----       ----

Earnings:
<S>                                                 <C>          <C>        <C>        <C>        <C>     
           (Loss) income from continuing operations
             before income taxes (1)                $ (32,805)   $ 99,538   $ 61,301   $ 37,701   $ 81,577

Add:
           Fixed charges (2)                        $ 202,003    $163,798   $116,680   $ 84,626   $ 63,549
                                                    ---------    --------   --------   --------   --------


Earnings for computation purposes                   $ 169,198    $263,336   $177,981   $122,327   $145,126


Ratio of earnings to fixed charges:

           Including interest on deposits (3) (4)        0.84        1.61       1.53       1.45       2.28

           Excluding interest on deposits (3) (4)        0.62        3.39       3.68       3.95       5.40
</TABLE>


- ----------

(1)  Earnings   represents   income   from   continuing   operations   excluding
     undistributed income of $440 from a less than fifty percent owned entity.

(2)  Fixed charges represent total interest expensed and capitalized,  including
     and  excluding  interest on  deposits,  amortization  of  capitalized  debt
     expenses, as well as the interest component of rental expense.

(3)  The ratios of  earnings to fixed  charges  were  computed  by dividing  (x)
     income from continuing operations before income taxes,  extraordinary gains
     and  cumulative  effect  of a  change  in  accounting  principle  excluding
     undistributed  income from a less than  fifity  percent  owned  entity
 plus
     fixed charges by (y) fixed charges.

(4)  Excluding  after-tax  impairment  charges of $97.1 million  ($152.8 million
     pre-tax)  the  Company's  ratio of earnings  to fixed  charges for the year
     ended  December  31,  1998  would  have  been 1.95 and 3.14  including  and
     excluding interest on deposits, respectively.




SELECTED CONSOLIDATED FINANCIAL INFORMATION

         The following  tables present selected  consolidated  financial data of
the Ocwen Financial Corporation and its subsidiaries ("OCN" or the "Company") at
the dates and for the periods indicated.  The historical  operations and balance
sheet data at and for the years ended December 31, 1998,  1997,  1996,  1995 and
1994,    have   been   derived   from    financial    statements    audited   by
PricewaterhouseCoopers  LLP,  independent  certified  public  accountants.   The
selected consolidated  financial data should be read in conjunction with, and is
qualified in its entirety by reference to, the  information in the  Consolidated
Financial Statements and related notes set forth elsewhere herein.


<TABLE>
<CAPTION>
                                                                              For the Year Ended December 31,
                                                             -----------------------------------------------------   -----------
                                                               1998(1)        1997          1996         1995(2)        1994(2)
                                                             -----------   -----------   -----------   -----------   -----------
                                                                       (Dollars in thousands, except per share data)
<S>                                                          <C>           <C>           <C>           <C>           <C>        
OPERATIONS DATA:
Interest income.......................................       $   307,694   $   272,531   $   193,894   $   137,275   $   131,458
Interest expense......................................           184,893       156,289       116,160        84,060        62,598
                                                             -----------   -----------   -----------   -----------   -----------
  Net interest income.................................           122,801       116,242        77,734        53,215        68,860
Provision for loan losses (3).........................            18,509        32,218        22,450         1,082            --
                                                             -----------   -----------   -----------   -----------   -----------
  Net interest income after provision for loan losses.           104,292        84,024        55,284        52,133        68,860
                                                             -----------   -----------   -----------   -----------   -----------
(Loss) gain on interest-earning assets, net...........            (1,594)       82,212        21,682
         6,916         5,727
Servicing fees and other charges......................            59,180        25,962         4,682         2,870         4,786
Gain on sale of branch offices........................                --            --            --         5,430        62,600
Income on real estate owned, net......................            14,033         7,277         3,827         9,540         5,995
Other non-interest income.............................            39,696         8,498         7,112         6,385         2,467
                                                             -----------   -----------   -----------   -----------   -----------
  Total non-interest income...........................           111,315       123,949        37,303        31,141        81,575
                                                             -----------   -----------   -----------   -----------   -----------
Compensation and employee benefits....................           115,556        77,573        39,043        24,797        42,776
Other non-interest expense............................           110,838        49,301        30,563        20,776        26,082
                                                             -----------   -----------   -----------   -----------   -----------
  Total non-interest expense..........................           226,394       126,874        69,606        45,573        68,858
                                                             -----------   -----------   -----------   -----------   -----------
Distributions on Capital Securities...................            13,594         5,249            --            --            --
Equity in (losses) earnings of investment in
  unconsolidated entities (4).........................            (7,985)       23,688        38,320            --            --
Income tax benefit (expense)..........................            30,699       (21,309)      (11,159)       (4,562)      (29,724)
Minority interest in net loss of consolidated subsidiary             467           703            --            --            --
                                                             -----------   -----------   -----------   -----------  ------------
(Loss) income from continuing operations..............            (1,200)       78,932        50,142        33,139        51,853
Discontinued operations (5)...........................                --            --            --        (7,672)       (4,514)
                                                             -----------   -----------   -----------   ------------  ------------
Net income............................................       $    (1,200)  $    78,932   $    50,142   $    25,467   $    47,339
                                                             ===========   ===========   ===========   ===========   ===========
(Loss) income from continuing operations per share (5):
  Basic...............................................       $     (0.02)  $      1.40   $      0.99   $      0.64   $      0.81
  Diluted.............................................       $     (0.02)  $      1.39   $      0.94   $      0.60   $      0.76
Net (loss) income per share (6):
  Basic...............................................       $     (0.02)  $      1.40   $      0.99   $      0.49   $      0.74
  Diluted.............................................       $     (0.02)  $      1.39   $      0.94   $      0.46   $      0.70
</TABLE>


                                                               18

<PAGE>



<TABLE>
<CAPTION>
                                                                          At or For the Year Ended December 31,
                                                       ---------------------------------------------------------------------------
                                                         1998 (1)          1997            1996          1995 (2)        1994 (2)
                                                       -----------     -----------     -----------     -----------     -----------
                                                                                  (Dollars in thousands)
<S>                                                    <C>             <C>             <C>             <C>             <C>        
BALANCE SHEET DATA:
Total assets........................................   $ 3,308,079     $ 3,069,165     $ 2,483,685     $ 1,973,590     $ 1,226,403
Securities available for sale (7)...................       593,347         476,796         354,005         337,480         187,717
Loans available for sale (7) (8)....................       177,847         177,041         126,366         251,790         102,293
Investment securities, net..........................        10,825          10,825           8,901          18,665          17,011
Mortgage-related securities held for investment, net            --              --              --              --          91,917
Loan portfolio, net (8).............................       230,312         266,299         402,582         295,605          57,045
Discount loan portfolio (8).........................     1,026,511       1,434,176       1,060,953         669,771         529,460
Investment in low-income housing tax credit interests      144,164         128,614          93,309          81,362          49,442
Real estate owned, net (9)..........................       201,551         167,265         103,704         166,556          96,667
Investment in unconsolidated entities...............        86,893           3,526          67,909              --              --
Excess of purchase price over
  net assets acquired, net..........................        12,706          15,560              --              --              --
Deposits............................................     2,175,016       1,982,822       1,919,742       1,501,646       1,023,268
Borrowings and other interest-bearing obligations...       476,336         453,529         300,518         272,214          25,510
Capital Securities..................................       125,000         125,000              --              --              --
Stockholders' equity (10)...........................       436,376         419,692         203,596         139,547         153,383
OTHER DATA:
Average assets (11).................................   $ 3,586,985     $ 2,835,514     $ 2,013,283     $ 1,521,368     $ 1,714,953
Average equity......................................       427,512         290,030         161,332         121,291         119,500
Return on average assets (11) (12):
   Income from continuing operations................         (0.03)%          2.78%           2.49%           2.18%           3.02%
   Net income.......................................         (0.03)           2.78            2.49            1.67            2.76
Return on average equity (12):
   Income from continuing operations................         (0.28)          27.22           31.08           27.32           43.39
   Net income.......................................         (0.28)          27.22           31.08           21.00           39.61
Average equity to average assets....................         11.92           10.23            8.01            7.97            6.97
Net interest spread.................................          3.98            4.81            5.46            5.25            4.86
Net interest margin.................................          4.32            4.91            4.84            4.54            4.75
Efficiency ratio (13)...............................        100.12           48.08           45.39           54.00           45.77
Nonperforming loans to total loans at end of
   period (14)......................................          3.81            3.36            0.56            1.27            4.35
Allowance for loan losses to total loans (14).......          2.07            1.39            0.87            0.65            1.84
Bank regulatory capital ratios at end of period:
   Tangible.........................................          9.07           10.66            9.33            6.52           11.28
   Core (Leverage)..................................          9.07           10.66            9.33            6.52           11.28
   Risk-based.......................................         17.26           14.83           12.85           11.80           14.74
Number of full-service offices at end of period.....             1               1               1               1               3
</TABLE>


NOTES TO SELECTED CONSOLIDATED FINANCIAL INFORMATION

(1)      Financial results for 1998 reflect pre-tax impairment charges of $152.8
         million,  of which $86.1 million related to the Company's  portfolio of
         AAA-rated  agency  interest-only   securities  ("IOs"),  $43.6  million
         related to residual  and  subordinate  securities  available  for sale,
         $13.0  million  was for the  anticipated  curtailment  of its  domestic
         operations,  $8.2 million was for losses on its equity  investments  in
         Ocwen  Asset  Investment  Corp.  ("OAC")  and  Ocwen  Partnership  L.P.
         ("OPLP"),  and $1.9  million  related to an  impaired  commercial  real
         estate investment. OAC specializes in the acquisition and management of
         real estate and  mortgage  assets.  OPLP is the  operating  partnership
         subsidiary of OAC.  Exclusive of these  impairment  charges and related
         income taxes, net income for 1998 would have been $95.9 million.

(2)      Financial  data at December 31, 1995 and 1994,  reflects the  Company's
         sale of two and 23 branch offices, respectively,  which resulted in the
         transfer   of  deposits   of  $111.7   million   and  $909.3   million,
         respectively,  and resulted in a gain on sale of $5.4 million and $62.6
         million during 1995 and 1994,  respectively.  Operations  data for 1995
         and 1994 reflect the gains

                                       19

<PAGE>


         from these  transactions.  Exclusive of these gains and related  income
         taxes and profit sharing expense,  the Company's income from continuing
         operations  would have been $30.3 million and $24.0 million during 1995
         and 1994, respectively.

(3)      The provision for loan losses in 1998, 1997 and 1996 consists primarily
         of $17.6  million,  $31.9  million  and  $20.6  million,  respectively,
         related to the  Company's  discount  loan  portfolio.  Beginning in the
         first quarter of 1996, the Company began  recording  general  valuation
         allowances on discount loans. See "Management's Discussion and Analysis
         of   Financial   Condition   and  Results  of   Operations-Results   of
         Operations-Provision for Loan Losses."

(4)      Results for 1998 related  primarily to the  Company's  16.83%  combined
         investment  in OAC and  OPLP,  and its  36.07%  investment  in  Norland
         Capital  Group plc,  doing  business  as  Kensington  Mortgage  Company
         ("Kensington"),  a leading  originator  of  non-conforming  residential
         mortgages in the United Kingdom ("U.K."). See "Management's  Discussion
         and Analysis of Financial  Condition and Results of  Operations-Results
         of  Operations-General."  Results  for  1997 and  1996  related  to the
         Company's  investment in BCBF,  L.L.C.  (the "LLC"),  a 50% owned joint
         venture  formed  between  the  Company and  BlackRock  Capital  Finance
         ("BlackRock") to acquire loans from the Department of Housing and Urban
         Development ("HUD") in April 1996.

(5)      In September 1995, the Company announced its decision to dispose of its
         automated  banking  division,   which  was  substantially  complete  at
         December 31, 1995.

(6)      All per share amounts have been adjusted  retroactively  to reflect the
         10-for-1  stock split in 1996 and the 2-for-1  stock split in 1997.  In
         addition,  all per share amounts have been adjusted for the adoption of
         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  per
         Share." See Note 1 to the Consolidated Financial Statements.

(7)      Securities  available for sale are carried at fair market value.  Loans
         available  for sale are  carried  at the  lower of cost or fair  market
         value.

(8)      The discount loan portfolio  consists of mortgage loans  purchased at a
         discount  to the  unpaid  debt,  most of which  were  nonperforming  or
         subperforming at the date of acquisition.  The loan portfolio and loans
         available  for sale  consist of other  loans which were  originated  or
         purchased  by  the  Company  for  investment  or  for  potential  sale,
         respectively.  Data related to discount loans does not include discount
         loans held by the LLC.

(9)      Real estate owned consists of properties  acquired by foreclosure or by
         deed-in-lieu  thereof and is primarily  attributable  to the  Company's
         discount loan acquisition and resolution business.

(10)     Reflects the Company's  repurchase  of 17,630,120  shares of its common
         stock during 1995 for an aggregate of $42.0 million.

(11)     Includes the Company's pro rata share of the average assets held by the
         LLC during 1997 and 1996.

(12)     Exclusive of the after-tax impairment charges of $97.1 million recorded
         in 1998,  the return on average  assets would have been 2.64%,  and the
         return on average equity would have been 22.16%.  Exclusive of the $7.1
         million  one-time  assessment to recapitalize  the Savings  Association
         Insurance  Fund (the "SAIF") in 1996 and of the gains from the sales of
         branch offices in 1995 and 1994 and related income taxes, (i) return on
         average  assets on income from  continuing  operations  would have been
         2.54%,  2.00% and 1.40% during 1996, 1995 and 1994,  respectively,  and
         (ii)  return on average  equity on income  from  continuing  operations
         would have been 33.35%,  25.02% and 20.06% during 1996,  1995 and 1994,
         respectively.

(13)     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 earnings of investment in unconsolidated entities.
         Exclusive of the impairment charges of $152.8 million recorded in 1998,
         the  efficiency  ratio would have been  58.05%.  Exclusive  of the SAIF
         assessment  in 1996 and gains from the sales of branch  offices in 1995
         and 1994,  the  efficiency  ratio  would have been  41.33%,  56.34% and
         64.14% during 1996, 1995 and 1994, respectively.

(14)     Nonperforming  loans  and  total  loans  do not  include  loans  in the
         Company's discount loan portfolio or loans available for sale.

                                       20

<PAGE>



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

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

RESULTS OF OPERATIONS

         General.  The Company  recorded a net loss of $1.2 million for 1998, as
compared  to net income of $78.9  million  for 1997 and $50.1  million for 1996.
Diluted loss per share was $0.02 for 1998, as compared with diluted earnings per
share of $1.39 for 1997 and $0.94 for 1996. The results for 1998 include pre-tax
impairment  charges of $152.8  million,  of which $86.1  million  related to the
Company's securities portfolio of AAA-rated agency IOs, $43.6 million related to
residual and subordinate  securities  available for sale,  $13.0 million was for
the anticipated  curtailment of its domestic subprime  operations,  $8.2 million
was for  combined  losses on its equity  investments  in OAC and OPLP during the
fourth quarter,  and $1.9 million related to an impaired  commercial real estate
investment.  Exclusive of these  impairment  charges,  net income for 1998 would
have been $95.9 million, or $1.57 per diluted share.

The Company's  operating results for 1998 have also been significantly  affected
by the following transactions:

o    On  November  6,  1997,  the  Company  acquired  AMOS,  Inc.  ("AMOS"),   a
     Connecticut-based  company engaged primarily in the development of mortgage
     loan servicing software. AMOS' products are Microsoft(R)  Windows(R)-based,
     have  client/server  architecture  and feature  real-time  processing,  are
     designed to be year 2000 compliant,  feature a scalable  database  platform
     and have strong workflow capabilities.

o    On December 12, 1997, the LLC  distributed all of its assets to the Company
     and its other 50% investor, BlackRock. Simultaneously, the Company acquired
     BlackRock's  portion of the distributed  assets.  As a result,  the Company
     recorded  equity in earnings of the LLC of $0 in 1998, as compared to $23.7
     million and $38.3 million for 1997 and 1996, respectively.  See "Results of
     Operations N Equity in (Losses)  Earnings of Investment  in  Unconsolidated
     Entities."

o    On January 20, 1998, the Company acquired DTS Communications, Inc. ("DTS"),
     a real estate technology company located in San Diego, California.  DTS has
     developed  technology tools to automate real estate  transactions.  DTS has
     been   recognized   by   Microsoft   Corporation   for   the   Microsoft(R)
     component-based  architecture to facilitate  electronic  data  interchange.
     Both  AMOS  and DTS  are  wholly-owned  subsidiaries  of  Ocwen  Technology
     Xchange, Inc. ("OTX"), which incurred a net loss of $9.6 million in 1998.

o    On February 25, 1998, the Company purchased 36.07% of the total outstanding
     common  stock  of  Kensington.   Kensington  is  a  leading  originator  of
     non-conforming  residential  mortgages  in the U.K.  The  Company  recorded
     equity in  earnings  of  Kensington  in 1998 of  $439,000,  net of goodwill
     amortization  of $2.0  million.  See  "Results  of  Operations  N Equity in
     (Losses) Earnings of Investment in Unconsolidated Entities."

o    On April 24, 1998, the Company,  through its wholly-owned  subsidiary Ocwen
     UK, acquired  substantially all of the assets, and certain liabilities,  of
     the U.K.  operations  of Cityscape  Financial  Corp.  ("Cityscape  UK"). As
     consummated,  the Company  acquired  Cityscape UK's mortgage loan portfolio
     and its  residential  subprime  mortgage  loan  origination  and  servicing
     businesses. The Company recorded net income of $12.3 million ($18.9 million
     before income taxes) in 1998 from Ocwen UK's loan origination and servicing
     businesses.

o    On May 5, 1998, the Company, through its wholly-owned subsidiary Investor's
     Mortgage Holding Company ("IMI"),  acquired 1,473,733  partnership units of
     OPLP for $24.5 million.  This purchase was in addition to the 160,000 units
     owned at December 31, 1997,  and the 175,000 units acquired on February 17,
     1998,  increasing  the total  number of units owned by IMI to  1,808,733 or
     8.71% of the total partnership units outstanding at December 31, 1998. OPLP
     is the operating  partnership  subsidiary of OAC, which is managed by Ocwen
     Capital Corporation ("OCC"), a wholly-owned  subsidiary of OCN. At December
     31, 1998, the Company owned  1,540,000 or 8.12% of the  outstanding  common
     stock of OAC. Combined equity in the losses of the Company's investments in
     OPLP and OAC  amounted to $8.7  million in 1998,  of which $8.2 million was

                                       21

<PAGE>


     incurred  during the fourth quarter.  See "Results of Operations  Equity in
     (Losses) Earnings of Investment in Unconsolidated Entities."

See Note 2 to the Consolidated  Financial Statements for additional  information
regarding these transactions.

SEGMENT PROFITABILITY. The following table presents the contribution by business
segment to the Company's net (loss) income for the years indicated.


<TABLE>
<CAPTION>
                                                                    1998             1997              1996
                                                                -----------       -----------      -----------
Discount loans:                                                             (Dollars in thousands)
<S>                                                             <C>               <C>              <C>        
Single family residential loans.........................        $    14,394       $    23,349      $    16,827
Large commercial real estate loans......................             28,103            24,474           15,480
Small commercial real estate loans......................              8,195             5,349            1,398
                                                                -----------       -----------      -----------
                                                                     50,692            53,172           33,705
                                                                -----------       -----------      -----------
Mortgage loan servicing:
Domestic................................................              8,066             3,972           (2,558)
Foreign (U.K.)..........................................              4,771                --               --
                                                                -----------       -----------      -----------
                                                                     12,837             3,972           (2,558)
                                                                -----------       -----------      -----------

Investment in low-income housing tax credits............              9,119             9,087           11,577

Commercial real estate lending..........................             13,588            12,405            3,617

OTX.....................................................             (9,623)               --               --

Subprime single family residential lending:
Domestic................................................            (20,524)           (2,166)           3,131
Foreign (U.K.)..........................................              7,475                --               --
                                                                -----------       -----------      -----------
                                                                    (13,049)           (2,166)           3,131
                                                                -----------       -----------      -----------

Investment securities...................................            (59,186)            3,587              987

Equity investment in OAC................................             (8,701)               --               --

Other...................................................              3,123            (1,125)            (317)
                                                                -----------       -----------      -----------
                                                                $    (1,200)      $    78,932      $    50,142
                                                                ===========       ===========      ===========
</TABLE>


o        Single  Family  Residential  Discount  Loans.  Included  in  1998 is an
         impairment  charge  of  approximately   $12.2  million  on  residential
         subordinate  securities  and  gains  of  $48.1  million  earned  on the
         securitization  of loans with an aggregate unpaid principal  balance of
         $498.8  million.  Securitization  gains during 1997 and 1996 were $51.1
         million and $0, respectively.  See "Results of Operations  Non-Interest
         Income."

o        Large  Commercial  Discount  Real  Estate  Loans.  Net  income for 1998
         reflects a gain of $4.7 million earned on the sale of loans. Net income
         for 1997  includes  $3.5  million  of gains  from  sales of  loans,  as
         compared to a $7.9 million gain earned in 1996 in  connection  with the
         securitization  of 25 loans with an unpaid principal  balance of $164.4
         million. See "Results of Operations Non-Interest Income."

o        Small  Commercial  Discount Real Estate  Loans.  Gains from the sale of
         loans  amounted to $7.6  million,  $2.7  million (of which $2.0 million
         were  securitization  gains),  and  $0  during  1998,  1997  and  1996,
         respectively. See "Results of Operations Non-Interest Income."

o        Investment  in  Low-Income  Housing  Tax  Credits.  Net income for 1998
         includes $7.4 million of gains  associated  with the sale of tax credit
         interests.  This  compares to gains of $6.1 million and $4.9 million in
         1997  and  1996,  respectively.  Low-income  housing  tax  credits  and
         benefits amounted to $17.7 million,  $14.9 million and $9.3 million for
         1998, 1997 and 1996, respectively. Net operating losses from tax credit
         properties  in service  amounted  to $6.9  million,  $4.9  million  and
         $636,000

                                       22

<PAGE>


         during  1998,  1997 and 1996,  respectively.  See "Changes in Financial
         Condition Investment in Low-Income Housing Tax Credit Interests."

o        Commercial  Real Estate  Lending.  Net income for 1998  includes  $12.4
         million of  additional  interest  received  on the payoff of nine loans
         with an unpaid principal balance of $107.2 million. The increase in net
         income during 1997 as compared to 1996 is primarily attributed to $12.3
         million of additional interest received on the repayment of loans.

o        Subprime Single Family Residential  Lending.  The net loss in 1998 from
         the domestic  lending  operations  includes a $31.0 million  impairment
         charge on  subprime  residual  securities  available  for  sale,  $13.0
         million of goodwill write-offs and other charges recorded in connection
         with the anticipated  curtailment of the domestic  subprime  operations
         and  gains of $35.9  million  on the  securitization  of loans  with an
         unpaid  principal  balance of $1.07  billion.  The  Company's  domestic
         subprime  lending  operations  are  conducted  primarily  through Ocwen
         Financial Services,  Inc. ("OFS"),  which was formed in 1997. The $13.0
         million of curtailment  charges  consisted of $10.1 million of goodwill
         write-offs, $1.5 million of compensation to former owners and employees
         and  $1.4  million  related  to  lease  terminations  and  fixed  asset
         write-offs.  During  1997,  gains of $18.8  million  were  recorded  in
         connection with the  securitization  of loans with an unpaid  principal
         balance of $415.8  million.  During  1998,  Ocwen UK recorded  gains of
         $25.6   million   ((pound)15.4   million)   in   connection   with  the
         securitization  of loans  with an unpaid  principal  balance  of $558.5
         million ((pound)339.4 million).

o        Mortgage Loan  Servicing.  Servicing  fees  amounted to $45.6  million,
         $22.1   million  and  $2.4  million   during   1998,   1997  and  1996,
         respectively.  The increases in servicing  fees reflects an increase in
         loans  serviced for others from $1.92  billion at December 31, 1996, to
         $5.51 billion at December 31, 1997,  and $10.59 billion at December 31,
         1998.  The  unpaid  principal  balance  of loans  serviced  for  others
         averaged $8.06  billion,  $3.11 billion and $887.9 million during 1998,
         1997 and 1996,  respectively.  The  increase in net income for 1998 was
         partially   offset  by  the  increase  in  expenses   associated   with
         establishing a nationwide  customer service and collection  facility in
         Orlando,  Florida.  At December 31, 1998, the Company  serviced 153,458
         loans,  as compared to 70,308 and 30,163 at December 31, 1997 and 1996,
         respectively.

o        OTX. The 1998  operating  loss of $9.6 million was partially  offset by
         $2.4 million of capitalized software costs in 1998.

o        Investment  Securities.  The $59.2  million  loss in 1998  includes the
         $86.1 million of pre-tax  impairment charges ($54.9 million net of tax)
         related to the Company's  securities portfolio of AAA-rated agency IOs.
         These  charges were  recorded  prior to the sale of the IOs on July 27,
         1998.  The Company  has  discontinued  this  investment  activity.  See
         "Changes in Financial Condition Securities Available for Sale."

o        Equity Investment in OAC. The $8.7 million loss for 1998 represents the
         combined  equity in the losses of the Company's  investments in OAC and
         its  operating  partnership  subsidiary,  OPLP.  As  a  result  of  the
         Company's increased combined ownership of OAC and OPLP during 1998, the
         Company began  accounting  for these  investments on the equity method.
         The losses  incurred by OAC and OPLP  relate  primarily  to  impairment
         losses on  subordinate  and residual  mortgage-backed  securities.  See
         "Changes in Financial Condition Investment in Unconsolidated Entities."

See Note 27 to the Consolidated  Financial Statements for additional disclosures
related to the Company's operating segments.

NET INTEREST  INCOME:  1998 VERSUS 1997 AND 1997 VERSUS 1996.  The operations of
the Company are substantially dependent on its net interest income, which is the
difference between the interest income received from its interest-earning assets
and the interest expense paid on its interest-bearing  liabilities. Net interest
income  is  determined  by an  institution's  net  interest  spread  (i.e.,  the
difference between the yield earned on its interest-earning assets and the rates
paid   on  its   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.

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.

                                       23

<PAGE>



<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                  1998                           1997                          1996
                                      ----------------------------- ----------------------------- -----------------------------
                                                   Interest  Average            Interest  Average             Interest  Average
                                       Average     Income/   Yield/   Average    Income/   Yield/   Average    Income/   Yield/
                                       Balance     Expense    Rate    Balance    Expense    Rate   Balance     Expense    Rate
                                      ----------  ---------  ------ ----------  ---------  ------ ----------  ---------  ------
                                                                      (Dollars in thousands)
<S>                                   <C>         <C>          <C>  <C>         <C>          <C>  <C>         <C>         <C>  
AVERAGE ASSETS:
Federal funds sold and repurchase     
  agreements.......................   $  149,441  $   7,930   5.31% $  163,671  $   8,975   5.48% $   84,997  $   4,681   5.51%
Securities held for trading........           --         --     --       3,295        248   7.53      21,291      1,216   5.71
Securities available for sale (1)..      590,367     40,705   6.90     299,558     29,851   9.97     284,433     26,932   9.47
Loans available for sale (2).......      520,859     56,791  10.90     171,837     18,368  10.69     175,078     17,092   9.76
Investment securities and other....       32,122      2,812   8.75      36,905      2,739   7.42      36,264      3,990  11.00
Loan portfolio (2).................      266,519     38,609  14.49     410,863     54,701  13.31     328,378     36,818  11.21
Discount loan portfolio............    1,285,383    160,847  12.51   1,283,020    157,649  12.29     675,345    103,165  15.28
                                      ----------  ---------         ----------  ---------         ----------  ---------
   Total interest earning assets...    2,844,691    307,694  10.82   2,369,149    272,531  11.50   1,605,786    193,894  12.07
                                                  ---------                     ---------                     ---------
Non-interest earning cash..........       23,739                        14,843                         6,372
Allowance for loan losses..........      (25,655)                      (22,001)                      (11,250)
Low-income ........................
Housing tax credit interests.......      130,391                        96,096                        83,110
Investment in joint ventures.......       82,779                        34,777                        46,193
Real estate owned, net.............      178,223                       131,007                       137,250
Investment in real estate..........       36,922                        44,722                            --
Other assets.......................      315,895                       166,921                       145,822
                                      ----------                    ----------                    ----------
   Total assets....................   $3,586,985                    $2,835,514                    $2,013,283
                                      ==========                    ==========                    ==========

AVERAGE LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing demand deposits...   $   39,934      1,434   3.59% $   31,719      1,220   3.85% $   33,167        620   1.87%
Savings deposits...................        1,652         38   2.30       2,121         49   2.31       3,394         78   2.30
Certificates of deposit............    1,844,977    115,112   6.24   1,964,351    120,801   6.15   1,481,197     93,075   6.28
                                      ----------  ---------         ----------  ---------         ----------  ---------
   Total interest-bearing deposits.    1,886,563    116,584   6.18   1,998,191    122,070   6.11   1,517,758     93,773   6.18
Securities sold under agreements to                                                                                       5.62
   repurchase......................      104,980      6,514   6.20      16,717      1,000   5.98      19,581      1,101
Advances from the Federal Home Loan
  Bank.............................        2,201        120   5.45       9,482        527   5.56      71,221      4,053   5.69
Obligation outstanding under lines       
  of credit........................      481,212     34,587   7.19      84,272      5,578   6.62          --         --     --
Subordinated debentures............      227,858     27,088  11.89     228,233     27,114  11.88     148,282     17,233  11.62
                                      ----------  ---------         ----------  ---------         ----------  ---------
   Total interest-bearing liabilities  2,702,814    184,893   6.84   2,336,895    156,289   6.69   1,756,842    116,160   6.61
                                                  ---------                     ---------                     ---------
Non-interest bearing deposits......       19,483                        23,224                        10,938
Escrow deposits....................      165,111                        78,986                        41,306
Capital securities.................      125,000                        48,387                    $       --
Other liabilities..................      147,065                        57,992                        42,865
                                      ----------                    ----------                    ----------
   Total liabilities...............    3,159,473                     2,545,484                     1,851,951
Stockholders' equity...............      427,512                       290,030                       161,332
                                      ----------                    ----------                    ----------
   Total liabilities and              
     stockholders' equity..........   $3,586,985                    $2,835,514                    $2,013,283
                                      ==========                    ==========                    ==========
Net interest income................               $ 122,801                     $ 116,242                     $  77,734
                                                  =========                     =========                     =========
Net interest spread................                           3.98%                         4.81%                         5.46%
                                                              ====                          ====                          ====
Net interest margin................                           4.32%                         4.91%                         4.84%
                                                              ====                          ====                          ====
Ratio of interest-earning assets...
  to interest-bearing liabilities..          105%                          101%                           91%
                                      ==========                    ==========                    ==========
</TABLE>


(1)      Excludes effect of unrealized  gains or losses on securities  available
         for sale.

(2)      The average balances of loans available for sale and the loan portfolio
         include  nonperforming loans, interest on which is recognized on a cash
         basis.

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.

                                       24

<PAGE>



<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                           ----------------------------------------------------------------------------------------
                                                         1998 vs. 1997                                  1997 vs. 1996
                                           -----------------------------------------     ------------------------------------------
                                                   Increase (Decrease) Due To                     Increase (Decrease) Due To
                                           -----------------------------------------     ------------------------------------------
                                              Rate           Volume         Total            Rate          Volume          Total
                                           -----------    -----------    -----------     -----------     -----------    -----------
                                                                               (Dollars in thousands)
<S>                                        <C>            <C>            <C>             <C>             <C>            <C>        
INTEREST-EARNING ASSETS:
Federal funds sold and repurchase             
  agreements ...........................   $      (283)   $      (762)   $    (1,045)    $       (20)    $     4,314    $     4,294
Securities available for sale ..........       (11,348)        22,202         10,854           1,449           1,470          2,919
Securities held for trading ............          (124)          (124)          (248)            297          (1,265)          (968)
Loans available for sale ...............           375         38,048         38,423           1,597            (321)         1,276
Loan portfolio .........................         4,479        (20,571)       (16,092)          7,642          10,241         17,883
Discount loan portfolio ................         2,907            291          3,198         (23,426)         77,910         54,484
Investment securities and other ........           455           (382)            73          (1,320)             69         (1,251)
                                           -----------    -----------    -----------     -----------     -----------    -----------
     Total interest-earning assets .....        (3,539)        38,702         35,163         (13,781)         92,418         78,637
                                           -----------    -----------    -----------     -----------     -----------    -----------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits .......           (85)           299            214             628             (28)           600
Savings deposits .......................            --            (11)           (11)             --             (29)           (29)
Certificates of deposit ................         1,738         (7,427)        (5,689)         (2,026)         29,752         27,726
                                           -----------    -----------    -----------     -----------     -----------    -----------
     Total interest-bearing deposits ...         1,653         (7,139)        (5,486)         (1,398)         29,695         28,297
Securities sold under agreements to                 
  repurchase ...........................            39          5,475          5,514              67            (168)          (101)
Advances from the Federal Home Loan Bank           (10)          (397)          (407)            (92)         (3,434)        (3,526)
Obligations outstanding under lines of             
  credit ...............................           519         28,490         29,009              --           5,578          5,578
Notes, debentures and other                         
  interest-bearing obligations .........            19            (45)           (26)            391           9,490          9,881
                                           -----------    -----------    -----------     -----------     -----------    -----------
       Total interest-bearing liabilities        2,220         26,384         28,604          (1,032)         41,161         40,129
                                           -----------    -----------    -----------     -----------     -----------    -----------
Increase (decrease) in net interest income $    (5,759)   $    12,318    $     6,559     $   (12,749)    $    51,257    $    38,508
                                           ===========    ===========    ===========     ===========     ===========    ===========
</TABLE>


1998 VERSUS 1997:

The  Company's net interest  income  before  provision for loan losses of $122.8
million  increased $6.6 million or 6% during 1998 as compared to the prior year.
The increase was due to an increase in average  interest-earning  assets, offset
by an increase in average interest-bearing  liabilities and a decline in the net
interest spread. Average  interest-earning assets increased by $475.5 million or
20% during 1998 and yielded  $38.7  million of interest  income,  while  average
interest-bearing  liabilities  increased  $365.9 million or 16% and  contributed
$26.4  million  of  interest  expense.  The net impact of these  volume  changes
resulted in an increase of $12.3 million to net interest income. The increase in
average  interest-earning  assets was primarily due to a $349.0 million increase
in the average balance of loans available for sale and a $290.8 million increase
in securities  available for sale,  offset by a $144.3  million  decrease in the
average balance of the loan portfolio.  The increase in average interest-bearing
liabilities  was  primarily  due to a $396.9  million  increase  in the  average
balance of  obligations  outstanding  under  lines of credit.  The net  interest
spread  decreased  83 basis points  during 1998 as a result of a  68-basis-point
decline  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 net impact of these rate  changes  resulted in a $5.7  million
decrease in net interest income.

Interest  income on loans  available  for sale  increased  $38.4 million or 209%
during  1998 as compared to 1997  primarily  as a result of a $349.0  million or
203%  increase  in the  average  balance  and a  21-basis-point  increase in the
weighted  average yield earned.  The increase in the average  balance was due to
significant growth in the Company's domestic purchases and originations, as well
as those of Ocwen UK, which accounted for the U.S.  dollar  equivalent of $147.1
million of the  increase  in the average  balance.  The  Company  anticipates  a
significant curtailment of its domestic subprime lending operations in 1999.

Interest income on securities  available for sale increased $10.9 million or 36%
during 1998 as compared to 1997 primarily as a result of a $290.8 million or 97%
increase  in the average  balance,  offset by a 307  basis-point  decline in the
weighted average yield earned.  The increase in the average balance,  as well as
the  decline  in the  weighted  average  yield,  are  due in  large  part to the
Company's increased investment in collateralized  mortgage obligations ("CMOs").
The  average  balance  of CMOs  held for sale  during  1998  amounted  to $405.0
million,  or 69% of the average  balance of  securities  available  for sale, as
compared  to  $182.3  million,  or 61%  of the  average  balance  of  securities
available for sale,  during 1997.  Because CMOs have less cash flow variability,
their average lives and yields to maturity are more stable and, therefore,  CMOs
are priced to yield less than a less stable class of mortgage-related securities
such as IOs. See "Changes in Financial Condition Securities Available for Sale."

Interest income on the loan portfolio  decreased by $16.1 million or 29% in 1998
versus 1997  primarily  due to a $144.3  million or 35%  decrease in the average
balance  of the loan  portfolio  which was  offset in part by a  118-basis-point
increase in the weighted  average yield  earned.  The  significant  yield earned
during 1998, as well as the decrease in the average balance,  were primarily due

                                       25

<PAGE>


to  $12.4  million  of  additional  interest  received  in  connection  with the
repayment of nine commercial real estate (secured primarily by hotel properties)
and multi-family  residential loans having an unpaid principal balance of $107.2
million.

Interest  expense on  obligations  outstanding  under lines of credit  increased
$29.0 million or 520% during 1998 as compared to 1997 due to a $396.9 million or
471%  increase  in the  average  balance  and a  57-basis-point  increase in the
weighted average interest rate. The increase in the average balance is primarily
due to the  Company's  use of lines of  credit  at OFS and  Ocwen UK to fund the
growth in subprime single family  residential  loans. Ocwen UK accounted for the
US dollar  equivalent of $130.5 million of the increase in the average  balance.
See  "Changes in  Financial  Condition  Obligations  Outstanding  Under Lines of
Credit."

Interest expense on securities sold under agreements to repurchase  increased by
$5.5 million or 551% during 1998  primarily  as a result of an $88.3  million or
528% increase in the average  balance.  From time to time, the Company  utilizes
such collateralized borrowings as an additional source of liquidity depending on
the cost and availability of alternative sources of funding.

Interest expense on deposits  decreased $5.5 million or 4% during 1998 primarily
due  to a  $111.6  million  or  6%  net  decrease  in  the  average  balance  of
interest-bearing deposits. Certificates of deposits accounted for $119.4 million
of the $111.6  million net decrease in the average  balance of  interest-bearing
deposits.

1997 versus 1996:

The  Company's net interest  income  before  provision for loan losses of $116.2
million  increased  $38.5  million or 50% during  1997 as  compared to the prior
year.  The increase was due to an increase in average  interest-earning  assets,
offset by an increase in average  interest-bearing  liabilities and a decline in
the net interest  spread.  Average  interest-earning  assets increased by $763.4
million or 48% during 1998 and yielded $92.4 million of interest  income,  while
average  interest-bearing  liabilities  increased  $580.1  million  or  33%  and
contributed  $41.2 million of interest  expense.  The net impact of these volume
changes  resulted in an increase of $51.2  million to net interest  income.  The
increase  in  average  interest-earning  assets  was  primarily  due to a $607.7
million  increase in the average  balance of discount loans and an $82.5 million
increase in loan portfolio. The increase in average interest-bearing liabilities
was  primarily  due to a $483.2  million  increase  in the  average  balance  of
certificates  of deposit,  an $84.3 million  increase in the average  balance of
obligations  outstanding  under lines of credit and an $80.0 million increase in
notes,  debentures  and other  interest-bearing  obligations.  The net  interest
spread  decreased  65 basis points  during 1998 as a result of a  57-basis-point
decline  in  the  weighted  average  rate  on  interest-earning  assets  and  an
8-basis-point   increase  in  the  weighted  average  rate  on  interest-bearing
liabilities.  The net impact of these rate changes  resulted in a $12.7  million
decrease in net interest income.

Interest income on the discount loan portfolio increased by $54.5 million or 53%
in 1997  versus  1996 as a result of a $607.7  million  or 90%  increase  in the
average  balance of the discount loan  portfolio,  which was offset in part by a
299-basis-point  decrease in the weighted  average yield earned.  The decline in
the yield during 1997,  as compared to 1996,  is  primarily  attributable  to an
increase in the average  balance of single family  discount loans as a result of
acquisitions from HUD and the Company's  decision to cease accretion of discount
on nonperforming  single family residential  discount loans effective January 1,
1997. Discount accretion on nonperforming  single family discount loans amounted
to $4.6 million or 69 basis points in yield  during 1996.  The Company  believes
that the yield earned on its single family  residential  discount loan portfolio
in 1997  remained  below  the yield  earned  in the  prior  year also due to its
current  strategy of attempting to work with borrowers to either (i) bring their
loans  current,  (ii)  modify  the  terms  of  their  loans,  (iii)  enter  into
forbearance  agreements  that  require  the  borrower to make  monthly  payments
greater than or equal to scheduled  payment  amounts or (iv) refinance the loans
with the Company.  This resolution  strategy  results in lower initial yields as
compared  to  borrowers  paying off their  loans in full or in part and,  to the
extent the loans are ultimately  sold,  will result in a significant  portion of
the earnings being reflected in gains on sales of interest  earning  assets.  In
addition, the majority of the single family HUD loans acquired by the Company in
February and September 1997 are currently under a HUD  forbearance  plan whereby
the borrower makes  payments based upon ability to pay for a specific  period of
time, which generally results in a lower effective yield than the contract rate.
Once  this  period  is over the  borrower  must  make at least  its  contractual
mortgage  payment or the Company can pursue  foreclosure or other  actions.  The
yield on the  overall  discount  loan  portfolio  is also  likely to continue to
fluctuate  from  year  to  year  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  paying and
nonpaying loans.

Interest income on the loan portfolio  increased by $17.9 million or 49% in 1997
as  compared  to 1996  primarily  due to $12.3  million of  additional  interest
received  in  connection  with the  repayment  of 10 loans  secured by hotel and
office  properties and, to a lesser extent,  net increase in the average balance
of the loan portfolio for 1997 of $82.5 million or 25% over that of 1996.

Interest income on federal funds sold and repurchase  agreements  increased $4.3
million or 91% during 1997 as compared to 1996  primarily as a result of a $78.7
million or 93% increase in the average balance.

                                       26

<PAGE>


Interest  expense on  deposits  increased  $28.3  million or 30% during  1997 as
compared to 1996, and reflected the Company's  continued use of  certificates of
deposit  to  fund  its  asset  growth.  The  average  amount  of  the  Company's
certificates  of  deposits  increased  from $1.48  billion  during 1996 to $1.96
billion during 1997.

Interest  expense on notes,  debentures and other  interest-bearing  obligations
increased by $9.9 million or 57% during 1997 as compared to 1996  primarily  due
to the issuance of $125.0  million of 11.875%  Notes (the  "Notes") in September
1996.

Also  contributing  to the  increase  in  interest  expense  during  1997 is the
interest  expense  on lines  of  credit  established  at OFS  (see  "Changes  in
Financial  Condition  Obligations  Outstanding  Under Lines of  Credit"),  which
amounted to $5.6 million during 1997, as compared to $0 during 1996.

Provisions  for Loan  Losses.  Provisions  for  losses on loans are  charged  to
operations  to maintain an allowance  for losses on both the loan  portfolio and
the discount loan portfolio at a level which management considers adequate based
upon an  evaluation  of  known  and  inherent  risks  in such  loan  portfolios.
Management's  periodic  evaluation  is based on an analysis of both the discount
loan  portfolio and the loan  portfolio,  historical  loss  experience,  current
economic conditions and other relevant factors.

The following table presents the provisions for loan losses by the discount loan
and loan portfolios for the years indicated.


<TABLE>
<CAPTION>
                                                                  1998          1997           1996
                                                              -----------    -----------   -----------
                                                                       (Dollars in thousands)
         <S>                                                  <C>            <C>           <C>        
         Provisions for loan losses:
         Discount loan....................................    $    17,618    $    31,894   $    20,578
         Loan portfolio...................................            891            324         1,872
                                                              -----------    -----------   -----------
                                                              $    18,509    $    32,218   $    22,450
                                                              ===========    ===========   ===========
</TABLE>


The $14.3  million  decrease in the  provision  for losses on the discount  loan
portfolio in 1998 as compared to 1997 was primarily  due to a $407.7  million or
28%  decrease in the balance of the  discount  loan  portfolio.  See "Changes in
Financial Condition Discount Loan Portfolio, Net." The $11.3 million increase in
the  provision  for  losses on the  discount  loan  portfolio  in 1997  occurred
primarily as a result of a $373.2  million or 35% increase in the balance of the
discount loan portfolio and higher charge-offs.  Net charge-offs on the discount
loan portfolio amounted to $20.1 million,  $20.3 million and $9.2 million during
1998, 1997 and 1996, respectively. The Company establishes provisions for losses
on discount  loans as necessary  to maintain an allowance  for losses at a level
which management  believes  reflects the inherent losses which may have occurred
but have not yet been  specifically  identified,  and records all charge-offs on
the discount loan portfolio, net of recoveries, against the allowance for losses
on discount loans. At December 31, 1998 and 1997, the Company had allowances for
losses on its  discount  loan  portfolio  of $21.4  million  and $23.5  million,
respectively, which amounted to 2.0% and 1.6% of the respective balances.

Charge-offs  on the loan portfolio  amounted to $219,000,  $153,000 and $296,000
during 1998,  1997 and 1996,  respectively.  At December 31, 1998 and 1997,  the
Company  maintained  allowances for losses on its loan portfolio of $4.9 million
and  $3.7  million,  respectively,  which  amounted  to  2.1%  and  1.4%  of the
respective balances.

Although  management  utilizes its best  judgment in providing for possible loan
losses, there can be no assurance that the Company will not increase or decrease
its provisions for possible loan losses in subsequent periods. Changing economic
and business conditions,  fluctuations in local markets for real estate,  future
changes in  nonperforming  asset  trends,  material  upward  movements in market
interest rates or other factors could affect the Company's future provisions for
loan  losses.  In  addition,  the Office of Thrift  Supervision  ("OTS"),  as an
integral part of its examination  process,  periodically reviews the adequacy of
the Company's  allowance for losses on loans and discount loans and as a result,
may require the Company to recognize changes to such allowances for losses based
on its judgment about  information  available to it at the time of  examination.

Non-Interest  Income.  Non-interest income decreased $12.6 million or 10% during
1998 and increased $86.6 million or 232% during 1997.

                                       27

<PAGE>


The  following  table  sets  forth the  principal  components  of the  Company's
non-interest income during the years indicated.


<TABLE>
<CAPTION>
                                                       1998            1997            1996
                                                   ------------    ------------    ------------
                                                               (Dollars in thousands)
<S>                                                <C>             <C>             <C>         
Servicing fees and other charges................   $     59,180    $    $25,962    $     $4,682
(Loss) gain on interest-earning assets, net.....         (1,594)         82,212          21,682
Gain on real estate owned, net..................         14,033           7,277           3,827
Other income....................................         39,696           8,498           7,112
                                                   ------------    ------------    ------------
Total...........................................   $    111,315    $    123,949    $     37,303
                                                   ============    ============    ============
</TABLE>


Servicing fees and other charges  increased  during 1998 and 1997 primarily as a
result  of  increases  in loan  servicing  and  related  fees as a result of the
Company's increase in loans serviced for others. During 1998, 1997 and 1996, the
average unpaid principal  balance of loans serviced for others amounted to $8.06
billion, $3.11 billion and $887.9 million,  respectively. The increases in loans
serviced  for others  during  1998 and 1997 were  primarily  related to subprime
loans  and   resulted   from   servicing   retained  in   connection   with  the
securitizations   of  loans,   the  acquisition  of  servicing  rights  and  the
acquisition of Cityscape UK's servicing business by Ocwen UK in 1998.

The following  table sets forth the Company's  loans  serviced for others at the
dates indicated.

    DECEMBER 31, 1998:

<TABLE>
<CAPTION>
                                          Discount Loans        Subprime Loans (1)       Other Loans              Total
                                       ---------------------  ---------------------  -------------------  ---------------------
                                                     No. of                 No. of                No. of                No. of
                                         Amount       Loans     Amount       Loans     Amount      Loans    Amount       Loans
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                                                        (Dollars in thousands)
<S>                                    <C>            <C>     <C>            <C>     <C>          <C>     <C>            <C>   
     Loans securitized and sold with                                                              
       recourse....................... $1,015,988     16,840  $1,809,533     31,607  $      --        --  $ 2,825,521    48,447
     Loans serviced for third parties.  1,573,285     20,835   5,327,441     83,085    866,219     1,091    7,766,945   105,011
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                       $2,589,273     37,675  $7,136,974    114,692  $ 866,219     1,091  $10,592,466   153,458
                                       ==========    =======  ==========   ========  =========    ======  ===========   =======
</TABLE>


<TABLE>
<CAPTION>
    DECEMBER 31, 1997:
                                          Discount Loans          Subprime Loans         Other Loans              Total
                                       ---------------------  ---------------------  -------------------  ---------------------
                                                     No. of                 No. of                No. of                No. of
                                         Amount       Loans     Amount       Loans     Amount      Loans    Amount       Loans
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                                                        (Dollars in thousands)
<S>                                    <C>            <C>     <C>            <C>     <C>          <C>     <C>            <C>   
    Loans securitized and sold with                                                                                    
      recourse........................ $  624,591     11,148  $  555,914      4,976  $      --        --  $1,180,505    16,124
    Loans serviced for third parties..  1,682,764     23,181   2,352,352     29,911    294,198     1,092   4,329,314    54,184
                                       ----------   --------  ----------   --------  ---------    ------  ----------   -------
                                       $2,307,355     34,329  $2,908,266     34,887  $ 294,198     1,092  $5,509,819    70,308
                                       ==========   ========  ==========   ========  =========    ======  ==========   =======
</TABLE>


<TABLE>
<CAPTION>
    DECEMBER 31, 1996:
                                          Discount Loans          Subprime Loans         Other Loans              Total
                                       ---------------------  ---------------------  -------------------  ---------------------
                                                     No. of                 No. of                No. of                No. of
                                         Amount       Loans     Amount       Loans     Amount      Loans    Amount       Loans
                                       ----------    -------  ----------   --------  ---------    ------  -----------   -------
                                                                        (Dollars in thousands)
<S>                                    <C>            <C>     <C>            <C>     <C>          <C>     <C>            <C>   
    Loans securitized and sold with                                                                                    
      recourse........................ $  204,586      4,796  $ 202,766       1,879  $      --        --  $  407,352     6,675
    Loans serviced for third parties..  1,209,535     22,511      6,784          60    294,427       917   1,510,746    23,488
                                       ----------  ---------  ---------   ---------  ---------   -------  ----------  --------
                                       $1,414,121     27,307  $ 209,550       1,939  $ 294,427       917  $1,918,098    30,163
                                       ==========  =========  =========   =========  =========   =======  ==========  ========
</TABLE>


(1)      Includes  37,955  loans  with an  unpaid  principal  balance  of $857.2
         million  ((pound)504.4  million)  which  were  serviced  by Ocwen UK at
         December 31, 1998.

Net losses on interest-earning assets in 1998 were primarily comprised of $129.7
million of impairment charges on securities  available for sale, including $86.1
million on the  portfolio of  AAA-rated  agency IOs which were sold in the third
quarter,  offset by $112.1  million of gains  recognized in connection  with the
securitization  of single family subprime loans and discount loans, as presented
in the table  below,  $7.6  million of gains from the sales of small  commercial
discount  loans and $4.7  million  of gains  from the sales of large  commercial
discount loans.

Net gains on  interest-earning  assets in 1997 were primarily comprised of $71.9
million of net gains recognized in connection with the  securitization of single
family  subprime  loans,  single  family  discount  loans and  small  commercial
discount  loans,  as  presented in the table  below.  Additionally,  the Company
recorded a $2.6 million gain on the sale of mortgage-related  securities to OAC,
$2.7 million of gains from the sales of single  family  subprime  loans and $3.5
million of gains from sales of certain large  commercial  loans in the Company's
discount loan portfolio.

                                       28

<PAGE>


Net gains on interest-earning  assets in 1996 were primarily comprised of a $5.4
million gain from the sale of 256 single family loans in the Company's  discount
loan portfolio  which had been brought current in accordance with their terms, a
$4.5  million  gain from the sale of large  commercial  discount  loans and,  as
presented in the table below,  $15.2 million of net gains in connection with the
securitization  of single family  subprime loans and large  commercial  discount
loans.

The following table sets forth the Company's net gains  recognized in connection
with the securitization of loans during 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                           Loan Securitized                                  
- ------------------------------------------------------------------------     Book Value of
           Types of Loans                   Principal      No. of Loans   Securities Retained(2)    Net Gain
- ----------------------------------      ----------------   -------------  ---------------------- -------------
<S>                                      <C>                       <C>      <C>                  <C>          
1998:                                                            (Dollars in thousands)
Single family discount............       $      498,798            7,638    $         32,261     $      48,085
Single family subprime (1)........            1,626,282           31,235             139,594            61,516
                                         --------------    -------------    ----------------     -------------
                                         $    2,125,080           38,873    $        171,855     $     109,601
                                         ==============    =============    ================     =============
1997:
Single family discount............       $      418,795            6,295    $         20,635     $      51,137
Single family subprime............              415,830            3,640              25,334            18,802
Small commercial discount.........               62,733              302               4,134             1,994
                                         --------------    -------------    ----------------     -------------
                                         $      897,358           10,237    $         50,103     $      71,933
                                         ==============    =============    ================     =============

1996:
Large commercial discount.........       $      164,417               25    $          8,384     $       7,929
Single family subprime............              211,204            1,180              18,236             7,232
                                         --------------    -------------    ----------------     -------------
                                         $      375,621            1,205    $         26,620     $      15,161
                                         ==============    =============    ================     =============
</TABLE>


(1)      Includes 20,819 loans  securitized by Ocwen UK with an unpaid principal
         balance  of $558.5  million  ((pound)339.4  million)  for a net gain of
         $25.6 million ((pound)15.4 million).

(2)      Consists of subordinated and/or residual securities  resulting from the
         Company's securitization  activities,  which had a fair value of $249.0
         million at December  31, 1998,  including  $87.3  million  ((pound)52.6
         million) related to securitizations by Ocwen UK.

Gains on  interest-earning  assets (as well as other assets, such as real estate
owned, as discussed  below) generally are dependent on various factors which are
not necessarily within the control of the Company, including market and economic
conditions.  As  a  result,  there  can  be  no  assurance  that  the  gains  on
interest-earning  assets  (and other  assets)  reported  by the Company in prior
periods will be reported in future periods or that there will not be substantial
inter-period variations in the results from such activities.

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 years indicated.

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                              --------------------------------------------------
                                                                   1998             1997               1996
                                                              ---------------   --------------    --------------
                                                                                   (Dollars in thousands)
<S>                                                           <C>               <C>               <C>           
Gains on sales............................................    $       43,839    $       30,651    $       22,835
Provision for losses in fair value........................           (18,626)          (13,450)          (18,360)
Carrying costs, net.......................................           (11,180)           (9,924)             (648)
                                                              ---------------   --------------    --------------
Income on real estate owned, net..........................    $       14,033    $        7,277    $        3,827
                                                              ==============    ==============    ==============
</TABLE>


The  increases in gains on sales  during 1998 and 1997 reflect  increases in the
number of properties sold from 1,175 during 1996, to 1,521 and 3,087 during 1997
and 1998,  respectively.  At December 31, 1998, 1997 and 1996, the Company owned
1,999,  1,505 and 825  properties,  respectively,  the  majority  of which  were
related to the discount loan portfolio.  For additional  information relating to
the Company's real estate owned, see "Changes in Financial Condition Real Estate
Owned."

                                       29

<PAGE>


Other income of $39.7 million for 1998 included  $10.4 million of gains on sales
of investments in real estate (see "Changes in Financial Condition Investment in
Real Estate"),  $10.0 million of brokerage commissions earned in connection with
Ocwen UK loan originations,  $7.4 million of gains recognized in connection with
the sale of investments in low-income  housing tax credit projects (see "Changes
in Financial Condition Investments in Low Income Housing Tax Credit Interests"),
and $5.9  million of  management  fees  earned  from OAC.  Other  income of $8.5
million for 1997 was primarily  comprised of $6.1 million of gains recognized in
connection  with  the sale of  investments  in  low-income  housing  tax  credit
projects and $1.8 million of  management  fees earned from OAC.  Other income of
$7.1  million  for  1996  was  primarily  comprised  of $4.9  million  of  gains
recognized in connection with the sale of investments in low-income  housing tax
credit projects.

NON-INTEREST EXPENSE. Non-interest expense increased $99.5 million or 78% during
1998 and $57.2 million or 82% during 1997. The increase in non-interest  expense
during 1998 and 1997 is largely due to recent  acquisitions,  new business lines
and growth in existing  business lines.  Non-interest  expense for 1998 included
$41.3 million and $11.3 million related to Ocwen UK and OTX, respectively.

The  following  table  sets  forth the  principal  components  of the  Company's
non-interest expense during the years indicated.


<TABLE>
<CAPTION>
                                                                           1998             1997              1996
                                                                       -----------      -----------       -----------
                                                                                   (Dollars in thousands)
<S>                                                                    <C>              <C>               <C>        
Compensation and employee benefits..............................       $   115,556      $    77,573       $    39,043
Occupancy and equipment.........................................            34,878           17,657             8,921
Net operating loss (income) on investment in real estate and
   certain low-income housing tax credit interests..............             6,753            4,792              (425)
Amortization of excess of purchase price over 
  net assets acquired
   (Goodwill)...................................................            11,614              557                --
Loan expenses...................................................            25,193            7,014             4,111
Other operating expenses........................................            32,400           19,281            17,956
                                                                       -----------      -----------       -----------
   Total........................................................       $   226,394      $   126,874       $    69,606
                                                                       ===========      ===========       ===========
</TABLE>


The increases in compensation and employee  benefits in 1998 and 1997 reflect an
increase in the average  number of employees  from 398 during 1996 to 872 during
1997 to 1,512 during 1998.  Compensation  and employee  benefit expense for 1998
includes  $12.4  million  and  $7.4  million   related  to  Ocwen  UK  and  OTX,
respectively.

Occupancy and equipment  expense  increased $17.2 million in 1998, of which $5.6
million related to Ocwen UK, primarily as a result of a $5.8 million increase in
data processing  costs, a $4.7 million increase in general office expenses and a
$3.5 million  increase in rent expense.  The increase in occupancy and equipment
expense of $8.7 million in 1997 was primarily related to a $3.4 million increase
in general office expenses, a $3.1 million increase in data processing costs and
a $1.3 million increase in rent expense.

The increase in net operating  losses on  investments in real estate and certain
low-income  housing tax credits  during 1998 and 1997 is primarily the result of
net operating  losses and deprecation  expense on low-income  housing tax credit
projects placed in service, primarily during 1997. The associated tax credits on
such projects are reported as a reduction of income tax expense. See "Income Tax
Benefit (Expense)."

Of the $11.1 million increase in the amortization of goodwill during 1998, $10.3
million related to OFS,  including the $10.1 million  write-off of the remaining
unamortized balance which was deemed impaired by the Company.

Loan expenses of $15.2 million  incurred by Ocwen UK account for the majority of
the total increase in loan expenses in 1998 of $18.2 million.

Primarily due to a $9.7 million increase in professional fees and a $4.5 million
increase in marketing costs, other operating expenses increased $13.1 million in
1998,  of which  $8.1  million  and $3.0  million  related  to Ocwen UK and OTX,
respectively.  Exclusive  of the  non-recurring  expense of $7.1 million in 1996
related to the Federal Deposit Insurance  Corporation's  ("FDIC")  assessment to
recapitalize the Savings  Association  Insurance Fund ("SAIF"),  other operating
expenses  increased  by $8.5  million in 1997,  primarily  as a result of a $2.7
million increase in professional  fees, a $1.4 million increase in due diligence
costs,  a $1.4 million  reserve  established on a receivable and $1.1 million of
certain  other  one-time  charges.  See  Note 26 to the  Consolidated  Financial
Statements for a disclosure of the components of other operating expenses.

                                       30

<PAGE>


DISTRIBUTIONS  ON  COMPANY  OBLIGATED,   MANDATORILY  REDEEMABLE  SECURITIES  OF
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR  SUBORDINATED  DEBENTURES OF THE COMPANY.
In August 1997, Ocwen Capital Trust I ("OCT"), a wholly-owned  subsidiary of the
Company, issued $125.0 million of 10-7/8% Capital Securities. Cash distributions
on the Capital  Securities  accrue from the date of  original  issuance  and are
payable  semi-annually  in  arrears  on  February  1 and  August 1 of each year,
commencing on February 1, 1998, at an annual rate of 10-7/8% of the  liquidation
amount of $1,000 per Capital  Security.  The Company  recorded $13.6 million and
$5.2 million of distributions to holders of the Capital  Securities  during 1998
and 1997, respectively. See Note 19 to the Consolidated Financial Statements and
"Changes  in  Financial  Condition  Company-Obligated,   Mandatorily  Redeemable
Securities of Subsidiary Trust Holding Solely Junior Subordinated  Debentures of
the Company."

EQUITY IN (LOSSES) EARNINGS OF INVESTMENTS IN UNCONSOLIDATED ENTITIES. Equity in
earnings of investment in unconsolidated entities for 1997 and 1996 included the
Company's 50% joint venture  investment in the LLC. All of the assets of the LLC
were  distributed  at the end of 1997,  and  therefore  the Company  recorded no
income from this  investment in 1998.  The  Company's  $23.7 million of earnings
from the LLC during 1997 consisted  primarily of $4.5 million of interest income
on  discount  loans,  $14.0  million  of gains on the  sale of  discount  loans,
including the  securitizations  of HUD loans in March and December of 1997,  and
the recapture of $5.1 million of valuation allowances established in 1996 by the
Company on its equity investment in the LLC. The Company's equity in earnings of
LLC amounted to $38.3 million in 1996 and  consisted  primarily of $10.1 million
of net interest  income on discount  loans,  $35.6  million of gains on sales of
discount  loans,  offset by a $7.6  million  provision  for losses on the equity
investment in the LLC. The Company has recognized 50% of the loan servicing fees
not  eliminated  in  consolidation  in  servicing  fees and other  charges.  See
"Changes in Financial Condition Investment in Unconsolidated Entities."

During 1998, the Company recorded equity in the losses of its investments in OAC
and OPLP of $4.0  million and $4.7  million,  respectively.  The Company  owned,
through  IMI,  1,540,000  or 8.12%  of the  outstanding  common  stock of OAC at
December 31, 1998.  The Company also owned,  through IMI,  1,808,733 or 8.71% of
the total  partnership  units of OPLP  outstanding  at December  31,  1998.  The
Company  began  accounting  for its  investments  in OAC and OPLP on the  equity
method  effective May 5, 1998,  upon the  acquisition  of 1,473,733  OPLP units,
which increased its combined ownership in OAC and OPLP to 16.83%.  Equity in the
losses of OAC and OPLP reflect the period from May 5, 1998, through December 31,
1998,  and relate  primarily to losses  incurred by those entities in connection
with impairment  charges  recorded on subordinate  and residual  mortgage-backed
securities.  See "Changes in Financial  Condition  Investment in  Unconsolidated
Entities."

During 1998, the Company  recorded equity in earnings of Kensington of $439,000,
net of $2.0 million of goodwill amortization.  At December 31, 1998, the Company
owned  36.07% of the total  outstanding  common stock of  Kensington,  a leading
originator of non-conforming  residential  mortgages in the U.K. See "Changes in
Financial Condition Investment in Unconsolidated Entities."

Income Tax Benefit (Expense).  Income tax benefit (expense) on the Company's net
(loss) income  amounted to $30.7 million,  $(21.3)  million and $(11.2)  million
during 1998, 1997 and 1996,  respectively.  The Company's effective tax rate was
(94.8)%, 21.4% and 18.2% during 1998, 1997 and 1996, respectively. The Company's
effective tax rates in 1998,  1997 and 1996 reflect tax credits  resulting  from
the Company's  investment in  low-income  housing tax credit  interests of $17.7
million,   $14.9  million  and  $9.3  million   during  1998,   1997  and  1996,
respectively.  Exclusive of the above amounts,  the Company's effective tax rate
amounted to 31.0%, 36.4% and 33.4% during 1998, 1997 and 1996, respectively. See
"Changes in Financial  Condition  Investments  in Low Income  Housing Tax Credit
Interests."

                                       31

<PAGE>


CHANGES IN FINANCIAL CONDITION

The following table sets forth information  relating to certain of the Company's
assets and liabilities at the dates indicated.


<TABLE>
<CAPTION>
                                                                    December 31,                   Increase (Decrease)
                                                             ----------------------------       ------------------------
                                                                 1998            1997             Dollars        Percent
                                                             -----------      -----------       -----------      -------
                                                                               (Dollars in thousands)
<S>                                                          <C>              <C>               <C>                   <C>
ASSETS:
  Total assets.............................................. $ 3,308,079      $ 3,069,165       $   238,914           8%
  Securities available for sale.............................     593,347          476,796           116,551          24
  Loans available for sale..................................     177,847          177,041               806          --
  Loan portfolio, net.......................................     230,312          266,299           (35,987)        (14)
  Discount loan portfolio, net..............................   1,026,511        1,434,176          (407,665)        (28)
  Investment in low-income housing tax credit interests.....     144,164          128,614            15,550          12
  Investment in unconsolidated entities.....................      86,893            3,526            83,367       2,364
  Real estate owned, net....................................     201,551          167,265            34,286          20
  Investment in real estate.................................      36,860           76,340           (39,480)        (52)
  Deferred tax asset........................................      66,975           45,148            21,827          48
LIABILITIES:
  Total liabilities.........................................   2,746,111        2,523,430           222,681           9
  Deposits..................................................   2,175,016        1,982,822           192,194          10
  Securities sold under agreements to repurchase............      72,051          108,250           (36,199)        (33)
  Notes, debentures and other interest-bearing obligations..     225,000          226,975            (1,975)         (1)
  Obligations outstanding under lines of credit.............     179,285          118,304            60,981          52
  Capital Securities........................................     125,000          125,000                --          --
  Stockholders' equity......................................     436,376          419,692            16,684           4
</TABLE>


SECURITIES  AVAILABLE FOR SALE. At December 31, 1998,  securities  available for
sale amounted to $593.3  million or 18% of total  assets,  as compared to $476.8
million or 16% at December 31, 1997.  Securities  available for sale are carried
at fair value with unrealized  gains or losses reported as a separate  component
of stockholders'  equity net of deferred taxes.  Unrealized losses on securities
that  reflect a decline in value  which is other than  temporary  are charged to
earnings.  At December  31,  1998,  securities  available  for sale  included an
aggregate of $21.7 million of unrealized gains ($22.0 million of gross gains and
$335,000 of gross  losses),  as compared to $11.8 million of  unrealized  losses
($32.5 million of gross losses and $20.7 million of gross gains) at December 31,
1997.

                                       32

<PAGE>


The following table sets forth the carrying value (which  represents fair value)
of the Company's securities available for sale at the dates indicated.


<TABLE>
<CAPTION>
                                                           December 31,                  Increase (Decrease)
                                                  ------------------------------     --------------------------
MORTGAGE-RELATED SECURITIES:                          1998              1997            Dollars         Percent
                                                  ------------      ------------     ------------       -------
<S>                                               <C>               <C>              <C>                  <C> 
  Single family residential:
    CMOs (AAA-rated)........................      $    344,199      $    160,451     $    183,748         115%
    Interest-only:
       FHLMC................................                --            64,745          (64,745)       (100)
       FNMA.................................                --            59,715          (59,715)       (100)
       GNMA.................................                --            29,766          (29,766)       (100)
       AAA-rated............................                --            13,863          (13,863)       (100)
  BB-rated subordinates.....................             8,517             2,515            6,002         239
  B-rated subordinates......................             6,344                --            6,344         100
  Unrated subordinates......................            40,595            39,219            1,376           4
  AAA-rated subprime residuals..............             6,931                --            6,931         100
  BBB-rated subprime residuals..............            17,593                --           17,593         100
  Unrated subprime residuals................           152,951            41,790          111,161         266
  Swap contracts............................                --               (94)              94         100
                                                  ------------      ------------     ------------
                                                       577,130           411,970          165,160          40
                                                  ------------      ------------     ------------
MULTI-FAMILY RESIDENTIAL AND COMMERCIAL:
    Interest-only:
       AAA-rated............................                71             3,059           (2,988)        (98)
       BB-rated.............................                 2               189             (187)        (99)
    Subordinates:
       B-rated..............................             8,813             8,511              302           4
       Unrated..............................             7,331             6,795              536           8
                                                  ------------      ------------     ------------
                                                        16,217            18,554           (2,337)        (13)
                                                  ------------      ------------     ------------
MARKETABLE EQUITY SECURITIES:
    Common stocks...........................                --            46,272          (46,272)       (100)
                                                  ------------      ------------     ------------
    Total...................................      $    593,347      $    476,796     $    116,551          24
                                                  ============      ============     ============
</TABLE>


The Company's  securities  available for sale increased by $116.6 million or 24%
during 1998 due  primarily to $735.6  million of  purchases,  $171.9  million of
subordinates and residual  securities  acquired in connection with the Company's
securitizations  of loans  which was offset by $270.0  million of sales,  $360.0
million of  maturities  and principal  repayments,  $56.5 million of net premium
amortization and $129.7 million of impairment  charges,  including $86.1 million
on AAA-rated  agency IOs and $43.6 million on certain  subordinate  and residual
securities.

On July 27, 1998, the Company sold its entire  portfolio of AAA-rated agency IOs
for $137.5 million,  which represented book value. As a result of an increase in
prepayment  speeds  due  to  declining  interest  rates,  the  Company  recorded
impairment  charges of $86.1 million in 1998 prior to the sale ($77.6 million in
the second quarter)  resulting from the Company's  decision to discontinue  this
investment  activity  and write  down the book value of the IOs.  The  AAA-rated
agency IOs consisted of IOs,  which are classes of  mortgage-related  securities
that are  entitled to payments of interest but no (or only  nominal)  principal,
and inverse IOs,  which bear interest at a floating  rate that varies  inversely
with (and often at a multiple of) changes in a specified index.

Common stocks at December 31, 1997,  were  comprised  primarily of the Company's
investment  in OAC. At December  31,  1997,  the  Company,  through  IMI,  owned
1,715,000  shares  or 9.04% of the  outstanding  common  stock of OAC,  having a
market value of $35.2 million  ($25.5  million book value).  On May 5, 1998, IMI
purchased  an  additional   1,473,733  units  of  OAC's  operating   partnership
subsidiary,  OPLP,  increasing its combined ownership of OAC and OPLP to 16.83%.
As a result of this increase in ownership,  the Company began accounting for its
investments  in OAC and  OPLP  under  the  equity  method.  See  "Investment  in
Unconsolidated Entities." The Company's other common stock investment, which had
a market value of $11.1 million ($13.0 million book value) at December 31, 1997,
was sold during 1998 for a loss of $293,000.

At December 31, 1998, the fair value of the Company's  investment in subordinate
and residual  interests  amounted to $249.1 million  ($227.9  million  amortized
cost) or 42% of total securities available for sale and supported senior classes
of securities having an outstanding  principal balance of $3.84 billion.  During
1998, the Company recorded $43.6 million 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

<PAGE>


Because of their  subordinate  position,  subordinated  and residual  classes of
mortgage-related securities provide protection to and involve more risk than the
senior class. Specifically,  when cash flow is impaired, debt service goes first
to the holders of senior classes.  In addition,  incoming cash flows may be held
in a reserve  fund to meet any  future  repayments  until the  holders of senior
classes have been paid and, when  appropriate,  until a specified level of funds
has been contributed to the reserve fund.  Further,  residual  interests exhibit
considerably   more  price  volatility  than  mortgages  or  ordinary   mortgage
pass-through  securities,  due in part to the  uncertain  cash flows that result
from  changes  in the  prepayment  rates of the  underlying  mortgages.  Lastly,
subordinate and residual  interests involve  substantially more credit risk than
the senior  classes of the  mortgage-related  securities to which such interests
relate and  generally  are not as liquid as the  senior  classes.  The  weighted
average  prospective  yield to maturity on  subordinate  securities and subprime
residual securities was 0.04% and 13.66%, respectively, at December 31, 1998.

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

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 include 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 18% 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 1998, the Company utilized  proprietary  prepayment
curves  generated by the Company  (reaching an  approximate  range of annualized
rates of 30% - 40%). In its estimates of annual loss rates, the Company utilizes
assumptions that it believes are reasonable. The Company estimates annual losses
of between 0.22% and 2.06% of the underlying loans.

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 credit risk of mortgage related  securities is affected by the nature of the
underlying mortgage loans. In this regard, the risk of loss on securities backed
by commercial and multi-family loans and single family residential loans made to
borrowers who, because of prior credit problems, the absence of a credit history
or other  factors,  are  unable or  unwilling  to  qualify  as  borrowers  under
guidelines  established by the Federal Home Loan Mortgage Corporation  ("FHLMC")
and the Federal National Mortgage Association ("FNMA") for purchases of loans by
such  agencies,  generally  involve more risk than  securities  backed by single
family residential loans which conform to the requirements  established by FHLMC
and FNMA for their purchase by such agencies.

The Company adjusts its securities  portfolio to market value at the end of each
month based upon the lower of dealer  quotations or internal values,  subject to
an internal review process.  For those securities which do not have an available
market  quotation,  the  Company  will  request  market  values  and  underlying
assumptions from the various securities  dealers that underwrote,  are currently
financing the securities, or have had prior experience with the type of security
to be valued. When quotations are obtained from two or more dealers, the average
dealer quote will be utilized.

                                       34

<PAGE>


The  Company  periodically  assesses  the  carrying  value  of  its  subordinate
securities and residual  securities retained as well as the servicing assets for
impairment.  There can be no  assurance  that the  Company's  estimates  used to
determine  the  gain on  securitized  loan  sales,  subordinate  securities  and
residual   securities  retained  and  servicing  asset  valuations  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 and/or servicing assets
may be decreased or the Company may increase its allowance  for possible  credit
losses on loans  sold  through  a charge  against  earnings  during  the  period
management  recognized  the  disparity.  Other  factors  may  also  result  in a
write-down  of the  Company's  subordinate  securities  and residual  securities
retained in subsequent periods. Accelerated prepayment speeds were a significant
contributing  factor to the $43.6 million of impairment  charges recorded by the
Company in 1998 on its  subordinate and residual  securities.  See Note 1 to the
Consolidated Financial Statements.

It is  intended  that any  securities  retained by the Bank  resulting  from the
securitization  of assets held by it directly will be distributed to the Company
as a dividend,  subject to the Bank's  ability to declare such  dividends  under
applicable limitations. Four securities with an aggregate value of $60.8 million
were  distributed  to the Company from the Bank in the form of dividends  during
1998. At December 31, 1998, the Bank held two subordinate securities with a fair
value and amortized cost of $13.9 million.

LOANS  AVAILABLE  FOR  SALE.  Loans  available  for sale,  which  are  comprised
primarily of subprime  single family  residential  loans,  increased by $806,000
during 1998.  The increase in 1998  occurred  primarily as a result of purchases
and originations of $1.75 billion of single family  residential  subprime loans,
offset  in part by sales of $1.66  billion  and  principal  repayments  of $82.7
million of such loans.  Purchases and  originations  during 1998 include  $292.8
million  purchased  from the U.S.  operations of Cityscape  Financial  Corp. and
$675.6 million  purchased and originated by Ocwen UK. Of the single family loans
sold during 1998, $1.63 billion or 98% were due to the Company's  securitization
of such loans,  including $558.5 million related to securitizations by Ocwen UK.
Of the $177.8  million  loans  available  for sale at December 31,  1998,  $85.0
million related to Ocwen UK.

At December 31, 1998,  nonperforming  loans available for sale amounted to $39.4
million or 22.2% of total loans available for sale, as compared to $13.5 million
or 7.6% at December 31, 1997.  Nonperforming  loans  available  for sale consist
primarily of subprime  single family  residential  loans,  reflecting the higher
risks associated with such loans. During 1998, 1997 and 1996, respectively,  the
Company  recorded $5.4  million,  $1.4 million and $2.5 million of reductions in
the  carrying  value of these  loans to record them at the lower of cost or fair
market value.  The reductions in carrying value recorded during 1998 reflect the
significant increase in volume,  including the acquisition of Ocwen UK. Ocwen UK
accounted for $1.9 million of such reductions in carrying  value.  See Note 6 to
the Consolidated Financial Statements.

LOAN PORTFOLIO, NET. The Company's net loan portfolio decreased by $36.0 million
or 14%  during  1998  primarily  as a result  of  $227.7  million  of  principal
repayments,  offset by $188.7 million of originations.  The Company earned $12.4
million of additional  fees during 1998 in connection  with the payoff of $107.2
million of commercial real estate loans,  secured primarily by hotel properties,
and multi-family residential loans.

Nonperforming  loans amounted to $9.0 million or 3.8% of total loans at December
31,  1998,  as compared to $9.2  million or 3.4% of total loans at December  31,
1997. At December 31, 1998 and 1997,  nonperforming loans consisted primarily of
multi-family residential loans. The Company's allowance for loan losses amounted
to 54.5%  and  40.4% of  nonperforming  loans at  December  31,  1998 and  1997,
respectively. See Note 7 to the Consolidated Financial Statements.

DISCOUNT LOAN  PORTFOLIO,  NET. The discount  loan  portfolio  decreased  $407.7
million or 28% during 1998. During 1998, sales of loans with an unpaid principal
balance of $696.1  million,  resolutions  and  repayments of $539.4  million and
transfers to real estate owned of $382.9  million more than offset  acquisitions
having an unpaid principal balance of $1.12 billion.  Of the discount loans sold
during 1998,  $498.8  million  resulted  from the  Company's  securitization  of
performing  single  family  discount  loans.  See  Note  8 to  the  Consolidated
Financial Statements.

At December 31, 1998,  discount loans which were  performing in accordance  with
original  or  modified  terms  amounted  to $781.8  million  or 60% of the gross
discount  loan  portfolio,  as compared to $1.01  billion or 56% at December 31,
1997. The Company's allowance for losses on its discount loan portfolio amounted
to $21.4 million, or 2.0% of the loan balance, at December 31, 1998, as compared
to $23.5 million, or 1.6% of the loan balance, at December 31, 1997.

                                       35

<PAGE>


INVESTMENTS  IN LOW INCOME  HOUSING TAX CREDIT  INTERESTS.  In 1993, the Company
commenced a program to invest in  multi-family  residential  projects which have
been allocated  low-income  housing tax credits under Section 42 of the Internal
Revenue Code by a state tax credit allocating  agency. At December 31, 1998, the
Company  had $144.2  million of  investments  in  low-income  housing tax credit
interests,  as compared to $128.6 million at December 31, 1997. During 1998, the
Company sold its investment in five low-income housing tax credit projects which
had a carrying value of $28.9 million for gains of $7.4 million.

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,
which amounted to $56.3 million and $47.2 million at December 31, 1998 and 1997,
respectively,  are accounted for using the equity method in accordance  with the
consensus of the Emerging  Issues Task Force through Issue Number 94-1.  Limited
partnership  investments  made prior to May 18,  1995,  which  amounted to $19.6
million and $31.4  million at  December  31,  1998 and 1997,  respectively,  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
as both a limited and,  through a  subsidiary,  a general  partner,  amounted to
$68.3 million and $50.0 million at December 31, 1998 and 1997, respectively, and
are presented on a consolidated basis. See Note 13 to the Consolidated Financial
Statements.

INVESTMENT  IN  UNCONSOLIDATED  ENTITIES.  At December  31,  1997,  the Company,
through IMI, owned 1,715,000 shares or 9.04% of the outstanding  common stock of
OAC. Also at December 31, 1997, the Company, through IMI, owned 160,000 units or
0.84% of the partnership units of OPLP, the operating partnership  subsidiary of
OAC. On February 17, 1998, IMI exchanged 175,000 shares of OAC stock for 175,000
OPLP units. On May 5, 1998, IMI acquired an additional  1,473,733 OPLP units. As
a result of this activity,  IMI's  investment in OAC stock declined to 1,540,000
shares or 8.12% at December 31, 1998,  while its investment in OPLP increased to
1,808,733 units or 8.71%. The Company began accounting for these entities on the
equity method effective May 5, 1998, upon the increase in its combined ownership
of OAC and OPLP to 16.83%.  An  adjustment  to reduce  retained  earnings in the
amount of $979,000 (net of income taxes of $526,000) was recorded to reflect the
cumulative  effect of the  conversion  to the equity method of  accounting.  The
Company's  investment  in OAC stock  amounted to $16.3  million at December  31,
1998. The Company's investment in OAC stock at December 31, 1997, was designated
as  available  for sale and  carried  at a fair  value of $35.2  million  ($25.5
million cost). The Company's  investment in OPLP units amounted to $22.8 million
at December 31, 1998,  as compared to $2.4 million at December 31, 1997.  During
1998,  the Company  recorded  equity in the losses of its  investment in OAC and
OPLP  of  $4.0  million  and  $4.7  million,  respectively.  See  Note  9 to the
Consolidated Financial Statements.

On February  25, 1998,  the Company  purchased  36.07% of the total  outstanding
common  stock  of  Kensington  for  $45.9  million  ((pound)27.8  million).  The
Company's  investment  in  Kensington  amounted to $46.6 million at December 31,
1998,  net of the  excess of the  purchase  price over the net  investment.  The
excess of the purchase price over the net  investment  amounted to $34.5 million
((pound)20.9  million) at December 31, 1998, net of accumulated  amortization of
$2.0 million ((pound)1.2  million),  and is amortized over a period of 15 years.
During 1998, the Company  recorded equity in earnings of Kensington of $439,000,
net of the $2.0 million of amortization of excess cost over purchase price.  See
Note 9 to the Consolidated Financial Statements.

From time to time, the Company and a co-investor have acquired discount loans by
means of a co-owned  joint  venture.  At December 31, 1997,  the Company's  $1.1
million investment in joint venture,  net consisted of a 10% interest in BCFL, a
limited  liability  company  which was formed by the  Company and  BlackRock  in
January 1997 to acquire  discount  multi-family  residential  loans from HUD. On
December 12, 1997,  the LLC, a limited  liability  company  formed in March 1996
between the Company and BlackRock  distributed  all of its assets to the Company
and its other 50%  investor,  BlackRock.  Simultaneously,  the Company  acquired
BlackRock's  portion of the distributed  assets.  The Company recorded equity in
earnings  of the LLC of $23.7  million  and  $38.3  million  for 1997 and  1996,
respectively. See Note 9 to the Consolidated Financial Statements.

REAL ESTATE OWNED,  NET. Real estate owned,  net,  increased by $34.3 million or
21% during 1998 due primarily to $292.3 million of foreclosures and acquisitions
in connection with the  acquisition of discount loans,  offset by $263.2 million
of sales.  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.  Such  properties  amounted  to $197.4  million  or 98% of total real
estate owned at December 31, 1998, and consisted of $94.6 million, $20.1 million
and $82.6 million of properties attributable to single family residential loans,
multi-family residential loans and commercial real estate loans, respectively.

The Company  actively  manages its real estate owned.  During 1998,  the Company
sold 3,087  properties with a carrying value of $263.2  million,  as compared to
the sale of 1,521 properties with a carrying value of $179.7 million during 1997
and 1,175  properties with a carrying value of $160.6 million during 1996. These
sales resulted in gains, net of the provision for loss, of $25.2 million,  $17.2
million and $4.5 million  during 1998,  1997 and 1996,  respectively,  which are
included in determining  the Company's  income (loss) on real estate owned.  The
average  holding  period for real estate owned which was sold during 1998,  1997
and 1996, was six months, nine months and 11 months,  respectively.  See Note 10
to the Consolidated Financial Statements.

                                       36

<PAGE>


INVESTMENT IN REAL ESTATE. In conjunction with its multi-family  residential and
commercial real estate lending business activities, the Company has made certain
acquisition,   development   and   construction   loans  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  accounted  for these loans  under the equity  method of  accounting  as
though it had made an  investment  in a real  estate  limited  partnership.  The
Company's  investment in such loans, which amounted to $64.3 million at December
31,  1997,  has been  reduced to $0 at December  31,  1998,  as a result of loan
payoffs during 1998.

The Company's  investments  in real estate also included  $32.9 million and $6.4
million at December  31,  1998 and 1997,  respectively,  of  property  (land and
buildings) held for lease.

The Company also has invested, indirectly through a 31% partnership interest, in
The Westin Hotel located in Columbus,  Ohio.  The  Company's  investment in such
property  amounted to $1.3  million at December  31,  1998,  as compared to $1.4
million  at  December  31,  1997.  See  Note  11 to the  Consolidated  Financial
Statements.

DEFERRED  TAX ASSET.  At December  31,  1998,  the  deferred  tax asset,  net of
deferred  tax  liabilities,  amounted  to $67.0  million,  an  increase of $21.9
million from the $45.1  million  deferred  tax asset at December  31,  1997.  At
December 31, 1998,  the gross  deferred tax asset  amounted to $80.0 million and
consisted  primarily of $5.3 million  related to tax residuals,  $6.2 million of
gains on loan  foreclosures,  $3.8 million  mark-to-market  and reserves on real
estate owned  properties,  $7.9 million of loan loss reserves,  $16.3 million of
reserves on securities  available for sale,  $3.5 million of goodwill  reserves,
$3.9  million of accrued  profit  sharing  expense,  $12.6  million of  deferred
interest expense on the discount loan portfolio, $7.1 million partnership losses
and low-income housing tax credits,  $2.7 million contingent  interest income on
equity  participations  and $5.0  million  reserves  on  investments.  The gross
deferred tax liability amounted to $6.6 million and consisted  primarily of $4.7
million of deferred  interest income on the discount loan portfolio.  Additional
deferred tax liabilities consisted of $7.9 million  mark-to-market on securities
available for sale. At December 31, 1997,  the gross deferred tax asset amounted
to  $42.9  million  and  consisted  primarily  of $3.5  million  related  to tax
residuals,   $5.6   million  of  gains  on  loan   foreclosures,   $3.2  million
mark-to-market  and  reserves on real estate owned  properties,  $9.8 million of
loan loss reserves,  $4.0 million of reserves on securities  available for sale,
$2.0 million of  contingency  reserves,  $3.2 million of accrued  profit sharing
expense,  $7.7  million  of  deferred  interest  expense  on the  discount  loan
portfolio.   Additional   deferred   tax  assets   consisted   of  $6.7  million
mark-to-market  on  securities  available  for  sale.  The  gross  deferred  tax
liability  amounted to $4.4 million and  consisted  primarily of $2.3 million of
deferred interest income on the discount loan portfolio.

As a result of the Company's earnings history,  current tax position and taxable
income   projections,   management  believes  that  the  Company  will  generate
sufficient  taxable  income in future  years to realize the  deferred  tax asset
which existed at December 31, 1998. In evaluating the  expectation of sufficient
future  taxable  income,  management  considered  future  reversals of temporary
differences and available tax planning strategies that could be implemented,  if
required.  A valuation  allowance was not required at December 31, 1998, because
it was management's assessment that, based on available information,  it is more
likely than not that all of the deferred tax asset will be realized. A valuation
allowance  will be  established  in the  future  to the  extent  of a change  in
management's  assessment  of the  amount of the net  deferred  tax asset that is
expected to be realized. See Note 22 to the Consolidated Financial Statements.

DEPOSITS.  Deposits  increased  $192.2 million or 10% during 1998 primarily as a
result of a $116.6 million  increase in escrow  deposits,  primarily  related to
loans  serviced for others,  and an $83.8 million  increase in  certificates  of
deposit.  Brokered deposits obtained through national  investment  banking firms
which  solicit  deposits  from their  customers,  amounted  to $1.49  billion at
December 31, 1998, as compared to $1.35  billion at December 31, 1997.  Deposits
obtained as a result of the Company's direct  solicitation and marketing efforts
to regional and local investment  banking firms and institutional  investors and
high net worth  individuals  amounted to $377.4 million at December 31, 1998, as
compared to $430.1 million at December 31, 1997. See Note 15 to the Consolidated
Financial Statements.

NOTES, DEBENTURES AND OTHER INTEREST-BEARING OBLIGATIONS.  Notes, debentures and
other  interest-bearing  obligations  of $225.0  million at December  31,  1998,
decreased $2.0 million during 1998 and consists of the $125.0 million of 11.875%
Notes  issued by the  Company in 1996 and the $100.0  million of 12%  Debentures
issued  by  the  Bank  in  1995.  See  Note  18 to  the  Consolidated  Financial
Statements.

                                       37

<PAGE>


OBLIGATIONS  OUTSTANDING  UNDER LINES OF CREDIT.  Obligations  outstanding under
lines of  credit  increased  $61.0  million  during  1998 to $179.3  million  at
December 31, 1998,  and included  $59.5  million of borrowings at OFS and $117.3
million of borrowings  under new lines of credit  established at Ocwen UK during
1998.  These lines of credit fund the  acquisition  and  origination of subprime
single  family  residential  loans  at OFS and  Ocwen  UK and  generally  have a
one-year  term with interest  rates that float in  accordance  with a designated
prime  rate.   During  that  one-year  period,   the  Company  would  anticipate
securitizing  the underlying loans (or refinancing any remaining loans) and then
repaying  the  corresponding  lines of credit.  See Note 17 to the  Consolidated
Financial Statements.

COMPANY  OBLIGATED,   MANDATORILY  REDEEMABLE  SECURITIES  OF  SUBSIDIARY  TRUST
HOLDINGS SOLELY JUNIOR  SUBORDINATED  DEBENTURES OF THE COMPANY. In August 1997,
OCT,  a  wholly-owned  subsidiary  of Ocwen,  issued  $125.0  million of 10-7/8%
Capital  Securities.  Proceeds  from  issuance  of the Capital  Securities  were
invested in 10-7/8% Junior  Subordinated  Debentures issued by Ocwen. The Junior
Subordinated  Debentures,  which  represent  the sole assets of the Trust,  will
mature on August 1, 2027. Intercompany transactions between OCT and the Company,
including the Junior Subordinated Debentures, are eliminated in the consolidated
financial statements of the Company.

For the years ended  December  31, 1998 and 1997,  the  Company  recorded  $13.6
million  and $5.2  million,  respectively,  of  distributions  to holders of the
Capital Securities, of which $5.7 million was accrued and unpaid at December 31,
1998. See Note 19 to the Consolidated Financial Statements.

STOCKHOLDERS' EQUITY.  Stockholders' equity increased $16.7 million or 4% during
1998.  The increase in  stockholder's  equity during 1998 was primarily due to a
$19.1  million  increase in unrealized  gains on securities  available for sale,
offset by a $1.7  million  foreign  currency  translation  loss  related  to the
Company's  investments in Ocwen UK and  Kensington,  and a $1.2 million net loss
for the year.

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
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
Asset/Liability  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  Asset/Liability  Committee also approves and  establishes
pricing  and  funding  decisions  with  respect to overall  asset and  liability
composition.

The  Asset/Liability  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,  Eurodollar  and U.S.
Treasury interest rate futures contracts, foreign currency futures contracts and
foreign currency swap agreements.

INTEREST RATE RISK MANAGEMENT.  Under interest rate swap agreements, the parties
exchange the difference between  fixed-rate and floating-rate  interest payments
on a specified  principal  amount  (referred to as the "notional  amount") for a
specified  period  without the  exchange  of the  underlying  principal  amount.
Interest rate exchange agreements are utilized by the Company to protect against
the  decrease in value of a fixed-rate  asset or the increase in borrowing  cost
from a short-term,  fixed-rate liability, such as reverse repurchase agreements,
in an increasing  interest-rate  environment.  At December 31, 1998, the Company
had no interest rate exchange agreements outstanding.  At December 31, 1997, the
Company had entered into  interest rate  exchange  agreements  with an aggregate
notional  amount of $36.9  million.  Interest rate exchange  agreements  had the
effect of decreasing the Company's net interest income by $115,000, $198,000 and
$58,000  during  1998,  1997  and  1996,  respectively.   See  Note  21  to  the
Consolidated Financial Statements.

                                       38

<PAGE>


The  Company  also  enters  into  interest  rate  futures  contracts,  which are
commitments to either  purchase or sell  designated  financial  instruments at a
future  date  for a  specified  price  and may be  settled  in  cash or  through
delivery.  Eurodollar  futures  contracts have been sold by the Company to hedge
the  repricing  or  maturity  risk of certain  short  duration  mortgage-related
securities, and U.S. Treasury futures contracts have been sold by the Company to
offset  declines  in the  market  value  of its  fixed-rate  loans  and  certain
fixed-rate  mortgage-backed  and related  securities  available  for sale in the
event of an increasing  interest  rate  environment.  At December 31, 1998,  the
Company had no U.S.  Treasury  futures  contracts  outstanding.  At December 31,
1997, the Company had entered into U.S.  Treasury futures (short) contracts with
an aggregate  notional amount of $194.5 million.  The Company had no outstanding
Eurodollar futures contracts at December 31, 1998 or 1997. Futures contracts had
the effect of  (decreasing)  increasing  the  Company's  net interest  income by
$(49,000),   $2.0  million,   and  $(729,000)   during  1998,   1997  and  1996,
respectively.  In addition,  futures  contracts had the effect of decreasing the
Company's  non-interest  income by $5.8  million,  $4.8 million and $4.1 million
during  1998,  1997 and  1996,  respectively.  See  Note 21 to the  Consolidated
Financial Statements.

The  Asset/Liability  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.

The  following  table sets forth the  estimated  maturity  or  repricing  of the
Company's  interest-earning assets and interest-bearing  liabilities at December
31, 1998. 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)  nonperforming  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 $233.4  million at  December  31,  1998,  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.

                                       39

<PAGE>



<TABLE>
<CAPTION>
                                                                              December 31, 1998
                                                    -----------------------------------------------------------------------
                                                                                    More Than
                                                    Within Three      Four to      One Year to   Three Years
                                                       Months      Twelve Months   Three Years     and Over         Total
                                                    ------------   -------------   -----------   -----------     ----------
                                                                             (Dollars in thousands)
<S>                                                  <C>            <C>            <C>            <C>            <C>       
RATE-SENSITIVE ASSETS:
  Interest-earning deposits....................      $   49,374     $       --     $       --     $       --     $   49,374
  Federal funds sold...........................         275,000             --             --             --        275,000
  Securities available for sale................         134,291        198,047        118,180        142,829        593,347
  Loans available for sale (1).................           4,049         81,436         19,453         72,909        177,847
  Investment securities, net...................              --             --             --         10,825         10,825
  Loan portfolio, net (1)......................          46,279         60,063         87,544         36,426        230,312
  Discount loan portfolio, net.................         119,727        328,160        320,932        257,692      1,026,511
                                                     ----------     ----------     ----------     ----------     ----------
   Total rate-sensitive assets.................         628,720        667,706        546,109        520,681      2,363,216
                                                     ----------     ----------     ----------     ----------     ----------
RATE-SENSITIVE LIABILITIES:
  NOW and money market checking deposits.......          10,124          3,507          6,958         12,683         33,272
  Savings deposits.............................              75            202            399            650          1,326
  Certificates of deposit......................         329,189        647,743        659,524        270,535      1,906,991
                                                     ----------     ----------     ----------     ----------      ---------
  Total interest-bearing deposits..............         339,388        651,452        666,881        283,868      1,941,589
  Securities sold under agreements to repurchase         72,051             --             --             --         72,051
  Obligations outstanding under lines of credit         179,285             --             --             --        179,285
  Notes and debentures.........................              --             --             --        225,000        225,000
                                                     ----------     ----------     ----------     ----------     ----------
   Total rate-sensitive liabilities............         590,724        651,452        666,881        508,868      2,417,925
                                                     ----------     ----------     ----------     ----------      ---------
Interest rate sensitivity gap before 
  off-balance sheet financial instruments......          37,996         16,254       (120,772)        11,813        (54,709)
Futures contracts..............................              --             --             --             --             --
                                                     ----------     ----------     ----------     ----------     ----------
Interest rate sensitivity gap..................      $   37,996     $   16,254     $ (120,772)    $   11,813     $  (54,709)
                                                     ==========     ==========     ==========     ==========     ==========
Cumulative interest rate sensitivity gap.......      $   37,996     $   54,250     $  (66,522)    $  (54,709)
                                                     ==========     ==========     ==========     ==========
Cumulative interest rate sensitivity gap as a
  percentage of total rate-sensitive assets....            1.61%          2.30%         (2.81)%        (2.32)%
</TABLE>


(1)      Balances have not been reduced for nonperforming loans.

Although the interest rate sensitivity gap analysis is a useful  measurement and
contributes toward effective asset and liability management,  it is difficult to
predict the effect of changing interest rates based solely on that measure.  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
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 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  of the Bank,  is as
follows at December 31, 1998:

                                       40

<PAGE>


            Rate Shock             Board Limits                 Current
        (in basis points)      (minimum NPV Ratios)            NPV Ratios
        -----------------      --------------------            ----------
               +300                   5.00%                      14.90%
               +200                   6.00%                      15.73%
               +100                   7.00%                      16.43%
                  0                   8.00%                      16.95%
               -100                   7.00%                      17.49%
               -200                   6.00%                      18.00%
               -300                   5.00%                      18.45%

The  Asset/Liability  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 of
the Bank. 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.  For example,  under  current  market  conditions,  a  100-basis-point
decline in the market interest rate is estimated to result in a  200-basis-point
increase in the prepayment  rate of a typical  subprime  residential  loan. Most
commercial and multi-family  loans are not subject to prepayments as a result of
prepayment  penalties and contractual  terms which prohibit  prepayments  during
specified  periods.  However,  for those commercial and multi-family loans where
prepayments are not currently precluded by contract,  declines in interest rates
are  associated  with steep  increases in  prepayment  speeds in computing  cash
flows. A risk premium is then  calculated for each asset,  which,  when added to
the interest rate being modeled,  results in a matrix of discount rates that are
applied to the cash flows computed by the model. The base interest rate scenario
assumes  interest  rates at December  31,  1998.  Actual  results  could  differ
significantly from those estimated in the table.

                                              Estimated Changes in
          Change in Interest Rates        -----------------------------
        (Rate Shock in basis points)      Net Interest            NPV
        ----------------------------      ------------         --------
                    +300                     12.2%              (17.3)%
                    +200                     8.1 %              (10.7)%
                    +100                     4.1 %               (4.9)%
                       0                      --                   --
                    -100                    (4.1)%                5.1%
                    -200                    (8.1)%               10.2%
                    -300                   (12.2)%               15.0%

Management of the Company  believes that the assumptions  used by it to evaluate
the  vulnerability  of the  Company's  operations  to changes in interest  rates
approximate  actual  experience  and considers  them  reasonable;  however,  the
interest  rate  sensitivity  of the  Company's  assets and  liabilities  and the
estimated  effects of changes in interest  rates on the  Company's  net interest
income and NPV could vary  substantially  if different  assumptions  are used or
actual  experience  differs  from the  historical  experience  on which they are
based.

The following table shows the Company's financial instruments that are sensitive
to  changes  in  interest  rates,  categorized  by  expected  maturity,  and the
instruments' fair values at December 31, 1998. Market-rate-sensitive instruments
are  generally  defined  as on and  off  balance  sheet  derivatives  and  other
financial instruments.

                                       41

<PAGE>



<TABLE>
<CAPTION>
                                                                 Expected Maturity Date At December 31, 1998
                                           ---------------------------------------------------------------------------------------
                                                                                                              Total        Fair
                                              1999        2000     2001       2002        2003   Thereafter  Balance       Value
                                           ----------  --------- ---------  --------    -------- ---------- ----------  ----------
                                                                           (Dollars in thousands)
<S>                                        <C>         <C>       <C>        <C>         <C>       <C>       <C>         <C>       
 Rate-Sensitive Assets:
   Interest-earning deposits............   $   49,374  $      -- $      --  $     --    $     --  $     --  $   49,374  $   49,374
     Average interest rate .............         4.49%        --        --        --          --        --        4.49%
   Federal funds sold...................      275,000         --        --        --          --        --     275,000     275,000
     Average interest rate .............         3.57%        --        --        --          --        --        3.57%
   Securities available for sale........      332,338     85,666    32,514    20,246      22,233   100,350     593,347     593,347
     Average interest rate .............         6.52%     10.26%    16.96%    17.58%      17.79%    17.06%      10.21%
   Loans available for sale(2)..........       85,485     13,771     5,683     4,656       3,558    64,694     177,847     177,847
     Average interest rate .............         8.94%      8.95%     8.97%     8.99%       9.01%     9.05%       8.98%   
   Investment securities, net...........           --         --        --        --          --    10,825      10,825      10,825
     Average interest rate .............           --         --        --        --          --        --          --
   Loan portfolio, net(2)...............      106,341     56,613    30,931     7,577       4,397    24,453     230,312     232,242
     Average interest rate .............         9.87%      9.61%     9.35%     9.11%       8.97%     8.79%       9.58%
   Discount loan portfolio, net.........      447,887    228,740    92,192    62,637      49,582   145,473   1,026,511   1,046,945
     Average interest rate .............         8.46%      8.40%     8.42%     8.46%       8.49%     8.62%       8.46%
                                           ----------  --------- ---------  --------    --------  --------  ----------  ----------
       Total rate-sensitive assets......   $1,296,425  $ 384,790 $ 161,320  $ 95,116    $ 79,770  $345,795  $2,363,216  $2,385,580
                                           ==========  ========= =========  ========    ========  ========  ==========  ==========
 Rate-Sensitive Liabilities:
   NOW and money market checking deposits  $   13,631  $   3,860 $   3,098  $  2,487    $  1,997  $  8,199  $   33,272  $   32,901
     Average interest rate .............         3.50%      3.39%     3.38%     3.37%       3.35%     3.28%       3.40%
   Savings deposits.....................          277        222       177       142         114       394       1,326       1,259
     Average interest rate .............         2.30%      2.30%     2.30%     2.30%       2.30%     2.30%       2.30%
   Certificates of deposit..............      976,932    366,658   292,866   197,447      48,873    24,215   1,906,991   1,950,955
     Average interest rate .............         5.64%      5.83%     5.92%     6.12%       5.51%     5.86%       5.78%
                                           ----------  --------- ---------  --------    --------  --------  ----------  ----------
       Total interest-bearing deposits..      990,840    370,740   296,141   200,076      50,984    32,808   1,941,589   1,985,115
   Securities sold under agreements to         
     repurchase.........................       72,051         --        --        --          --        --      72,051      72,051
     Average interest rate                       7.77%        --        --        --          --        --        7.77%
   Obligations outstanding under lines        
     of credit..........................      179,285         --        --        --          --        --     179,285     179,285
     Average interest rate .............         6.85%        --        --        --          --        --        6.85%
   Notes and debentures.................           --         --        --        --     125,000   100,000     225,000     205,750
     Average interest rate .............           --         --        --        --       11.88%    12.00%      11.93%
                                           ----------  --------- ---------  --------    --------  --------  ----------  ----------
       Total rate-sensitive liabilities.   $1,242,176  $ 370,740 $ 296,141  $200,076    $175,984  $132,808  $2,417,925  $2,442,201
                                           ==========  ========= =========  ========    ========  ========  ==========  ==========
</TABLE>


(1)      Expected maturities are contractual maturities adjusted for prepayments
         of  principal.  The Company uses certain  assumptions  to estimate fair
         values and expected  maturities.  For assets,  expected  maturities are
         based upon contractual  maturity,  projected repayments and prepayments
         of principal.  The prepayment  experience  reflected herein is based on
         the Company's  historical  experience.  The Company's  average Constant
         Prepayment  Rate  ("CPR")  is 13.3% and  11.79% on its  fixed-rate  and
         adjustable-rate portfolios,  respectively,  for interest-earning assets
         (excluding  investment   securities,   which  do  not  have  prepayment
         features).  The  actual  maturities  of these  instruments  could  vary
         substantially   if  future   prepayments   differ  from  the  Company's
         historical experience.

(2)      Balances have not been reduced for nonperforming loans.

The Company believes that the broad geographic distribution of its discount loan
portfolio,  loan  portfolio and loans  available for sale reduces the risks that
would  otherwise  result  from  concentrating  such loans in limited  geographic
areas. See Note 6, Note 7 and Note 8 to the Consolidated Financial Statements.

Foreign  Currency  Exchange  Rate Risk  Management.  The  Company  uses  foreign
currency  derivatives to hedge its equity  investment in Ocwen UK and Kensington
("net investment  hedges").  The Company's exposure to foreign currency exchange
rates exists with the British Pound versus the U.S. dollar.  It is the Company's
policy  to  periodically  adjust  the  amount  of  foreign  currency  derivative
contracts  it has entered  into in response  to changes in its  recorded  equity
investment in these foreign entities.  

On February 25, 1998,  the Company  entered into a foreign  currency swap with a
AAA-rated  counterparty to hedge its equity investment in Kensington.  Under the
terms of the  agreement,  the Company  will swap  (pound)27.5  million for $43.5
million in five years based on the exchange rate on the date the contract became
effective.  On August 6, 1998,  the  Company  also sold short  foreign  currency
futures  contracts to further hedge its foreign currency exposure related to its
equity investment in Kensington.  Under the terms of the currency  futures,  the
Company has the right to receive $1.5 million and pay (pound)938,000.

During  1998,  the  Company  sold short  foreign  currency  futures to hedge its
foreign currency  exposure  related to its equity  investment in Ocwen UK. Under
the terms of the currency  futures,  the Company has the right to receive  $43.8
million and pay (pound)26.6  million. The value of the currency futures is based
on quoted market prices.

                                       42

<PAGE>


The  Company's  net  investment  hedges  and  related  foreign  currency  equity
investments  and net exposures as of December 31, 1998,  were as follows.  There
were no net investment hedges at December 31, 1997:

                               Equity Investment     Net Hedges    Net Exposure
                               -----------------   -------------  -------------
   Ocwen UK..................    $53.8 million     $43.8 million  $10.0 million
   Kensington................    $46.6 million     $45.1 million  $ 1.5 million

The net exposures are subject to gain or loss if foreign currency exchange rates
fluctuate. See Note 21 to the Consolidated Financial Statements.

Liquidity, Commitments and Off-Balance Sheet Risks

Liquidity is a  measurement  of the  Company's  ability to meet  potential  cash
requirements,  including ongoing commitments to fund deposit withdrawals,  repay
borrowings,  fund investment,  loan  acquisition and lending  activities and for
other  general  business  purposes.  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 and proceeds from sales and securitizations thereof.  Consistent with
the Company's  disclosure  in its Form 10-Q for the quarter ended  September 30,
1998, the Company is continuing its efforts to increase its liquidity position.

Sources of liquidity  include  certificates of deposit  obtained  primarily from
wholesale  sources.  At December  31,  1998,  the  Company had $1.92  billion of
certificates  of deposit,  including  $1.86 billion 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 December 31, 1999 and 2000,
and thereafter  amounted to $982.9  million,  $381.4 million and $542.7 million,
respectively.   Brokered  and  other  wholesale   deposits  generally  are  more
responsive to changes in interest  rates than core deposits and,  thus, are more
likely to be  withdrawn  from the Company  upon  maturity as changes in interest
rates and other  factors are  perceived by  investors to make other  investments
more attractive. Management of the Company believes that it can adjust the rates
paid on  certificates  of deposit to retain  deposits in changing  interest rate
environments  and that  brokered  and  other  wholesale  deposits  can be both a
relatively  cost-effective and stable source of funds. There can be no assurance
that this will continue to be the case in the future, however.

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 December 31, 1998, the Company
was eligible to borrow up to an aggregate of $641.0 million from the FHLB of New
York  (subject  to the  availability  of  acceptable  collateral)  and had $31.8
million of single  family  residential  loans and $5.6  million of  multi-family
residential  loans which could be pledged as security for such advances.  At the
same date, the Company had contractual relationships with 12 brokerage firms and
the FHLB of New York  pursuant  to which it  could  obtain  funds  from  reverse
repurchase  agreements.  Additionally,  at December  31,  1998,  the Company had
unrestricted  cash and cash  equivalents  of $424.8  million,  $344.2 million of
short  duration CMOs and $100.2 million of  subordinate  and residual  mortgages
which could be used to secure additional borrowings. At present, the Company has
no outstanding FHLB advances.

The liquidity of the Company includes lines of credit obtained by OFS to finance
its subprime lending as follows: (i) a $200.0 million secured line of credit, of
which $100.0 million was committed, (ii) a $50.0 million secured line of credit,
all of which was committed,  (iii) a $200.0 million  secured line of credit,  of
which  $100.0  million was  committed,  (iv) a $100.0  million  secured  line of
credit,  none of which was committed,  and (v) a $20.0 million secured  residual
line of credit, none of which was committed.  The lines of credit mature between
March 1999 and July 2001 and bear  interest  at rates  that float in  accordance
with designated  indices.  The terms of the line of credit  agreements  contain,
among other  provisions,  requirements  for maintaining  certain  profitability,
defined  levels of net worth and  debt-to-equity  ratios.  For the period  ended
December 31, 1998, OFS obtained a lender's agreement waiving compliance with the
maintenance  of a  profitability  covenant  for  one  of  OFS'  line  of  credit
agreements,  with which OFS failed to comply. The agreements also require annual
commitment  fees  to be  paid  based  on the  used  and  unused  portion  of the
facilities,  as well as a facility fee based on the total committed amount. Such
commitment fees are  capitalized  and amortized on a straight-line  basis over a
twelve-month  period. An aggregate of $59.5 million was outstanding to OFS under
these  lines of credit at  December  31,  1998.  In  addition,  the  Company has
provided a $30.0  million  unsecured,  subordinated  credit  facility to OFS, of
which $30.0 million was outstanding at December 31, 1998.

                                       43

<PAGE>


In connection with the Company's  acquisition of substantially all of the assets
of  Cityscape  UK,  Ocwen UK, has entered into a Loan  Facility  Agreement  with
Greenwich  International  Ltd.  ("Greenwich")  under which Greenwich  provided a
short-term  facility to finance the  acquisition of Cityscape UK's mortgage loan
portfolio (the "Term Loan") and to finance Ocwen UK's further  originations  and
purchase of subprime single family loans (the "Revolving  Facility" and together
with the Term Loan, the "Greenwich Facility"). The Greenwich Facility is secured
by Ocwen UK's loans available for sale. The Revolving Facility, which matures in
April 1999, is set at a maximum of $166.0 million  ((pound)100.0 million reduced
by the amount borrowed under the Term Loan) of which $87.1 million  ((pound)52.5
million) was funded at December 31, 1998, to finance subprime single family loan
originations  and bears interest at a rate of the one-month LIBOR plus 1.50%. At
December 31, 1998, $5.6 million ((pound)3.4 million) had been borrowed under the
Term Loan, which matured in January 1999. In addition, Ocwen UK has entered into
a  secured  warehouse  line of  credit  with  Barclays  Bank plc (the  "Barclays
Facility") to finance  subprime  single family loan  originations.  The Barclays
Facility,  which  matures in November  1999 and bears  interest at a rate of the
one-month LIBOR plus 0.80%,  is set at a maximum of $124.5 million  ((pound)75.0
million), against which $24.6 million ((pound)14.8 million) had been borrowed at
December 31, 1998.

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.

The Company's operating  activities  provided $398.7 million,  $90.2 million and
$63.0 million of cash flows during 1998, 1997 and 1996, respectively. During the
foregoing  years,  cash  resources  were  provided  primarily  by net income and
proceeds from sales of loans  available for sale,  and cash  resources were used
primarily to purchase and originate loans available for sale.

The Company's  investing  activities  used cash flows totaling  $314.0  million,
$471.1  million and $519.9  million  during 1998,  1997 and 1996,  respectively.
During the foregoing years,  cash flows from investing  activities were provided
primarily by principal payments on discount loans and loans held for investment,
maturities of and principal  payments received on securities  available for sale
and proceeds  from sales of discount  loans,  securities  available for sale and
real estate owned. Cash flows from investing  activities were primarily utilized
to purchase and originate  discount  loans and loans held for  investment and to
purchase securities available for sale.

The Company's financing activities provided cash flows of $208.7 million, $479.5
million and $454.5 million during 1998, 1997 and 1996, respectively.  Cash flows
from financing  activities  were  primarily  related to changes in the Company's
deposits, issuance of obligations outstanding under lines of credit, issuance of
common stock and the Capital  Securities in 1997,  issuance of the Notes in 1996
and advances from FHLB.  Cash flows used by financing  activities were primarily
utilized to repay  advances from the FHLB,  reverse  repurchase  agreements  and
obligations outstanding under lines of credit.

The Bank is 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.  Current
OTS regulations require that a savings association maintain liquid assets of not
less than 4% of its average daily balance of net  withdrawable  deposit accounts
and borrowings  payable in one year or less.  Monetary  penalties may be imposed
for failure to meet applicable liquidity requirements.  The Bank's liquidity, as
measured for regulatory  purposes,  averaged 8.34%,  5.6%, 8.8% and 12.9% during
the years ended  December  31,  1998,  1997,  1996 and 1995,  respectively,  and
amounted to 10.78% at December 31, 1998.

The Bank's  ability to make  capital  distributions  pursuant to the OTS capital
distribution  regulations is limited by the  regulatory  capital levels which it
has  committed to the OTS it would  maintain,  commencing on June 30, 1997. As a
result  of a  verbal  agreement  between  the  Bank  and  the  OTS  to  dividend
subordinate   and   residual   mortgage-related    securities   resulting   from
securitization  activities  conducted by the Bank,  which had an aggregate  fair
value of $13.9  million at  December  31,  1998,  the Bank may be limited in its
ability  to pay  cash  dividends  to the  Company.  The Bank  recently  received
approval  from the OTS to pay a $30.0  million cash  dividend to OCN,  which the
Bank paid to OCN on November 16, 1998.  Future cash  dividends  depend on future
operating results of the Bank. See "Regulatory Capital and Other Requirements."

                                       44

<PAGE>


At December 31,  1998,  the Company had $133.5  million of unfunded  commitments
related to the  purchase and  origination  of loans.  Management  of the Company
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  1998.  See  Note  28 to the  Consolidated
Financial  Statements.  In addition,  management of the Company  believes it has
adequate  resources to fund its  anticipated  employee  and  facility  expansion
needs.

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. See "Asset and Liability Management" above and Note 21 to the Consolidated
Financial Statements.

The Company conducts business with a variety of financial institutions and other
companies in the normal  course of  business,  including  counterparties  to its
off-balance  sheet  financial  instruments.  The Company is subject to potential
financial  loss if the  counterparty  is  unable  to  complete  an  agreed  upon
transaction.  The Company  seeks to limit  counterparty  risk through  financial
analysis, dollar limits and other monitoring procedures.

Regulatory Capital and Other Requirements

Federally-insured institutions such as the Bank are required to maintain minimum
levels of regulatory capital.  These standards generally must be as stringent as
the comparable  capital  requirements  imposed on national banks. In addition to
regulatory capital requirements of general applicability,  a federally-chartered
savings  association such as the Bank may be required to meet individual minimum
capital  requirements  established  by the OTS on a  case-by-case  basis  upon a
determination that a savings  association's  capital is or may become inadequate
in view of its circumstances.

Following an  examination in late 1996 and early 1997, the Bank committed to the
OTS to maintain a core capital  (leverage) ratio and a total risk-based  capital
ratio  of at  least  9% and  13%,  respectively.  The  Bank  continues  to be in
compliance with this commitment as well as the regulatory  capital  requirements
of general applicability,  as indicated in Note 25 to the Consolidated Financial
Statements.  The  Bank's  core  capital,  Tier 1  risk-based  capital  and total
risk-based  capital ratios at December 31, 1998, were 9.07%,  11.71% and 17.26%,
respectively,  placing the Bank in the "well-capitalized" category as defined by
federal  regulations.  Based on discussions with the OTS, the Bank believes that
this commitment does not affect its status as a "well-capitalized"  institution,
assuming  the  Bank's   continued   compliance   with  the  regulatory   capital
requirements required to be maintained by it pursuant to such commitment.

Although the above individual  regulatory capital  requirements have been agreed
to by the OTS,  there can be no assurance  that in the future the OTS will agree
to  a  decrease  in  such  requirements  or  will  not  seek  to  increase  such
requirements  or will not impose these or other  individual  regulatory  capital
requirements in a manner which affects the Bank's status as a "well-capitalized"
institution under applicable laws and regulations.

Recent Accounting Developments

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

Year 2000 Date Conversion

The Company is in the process of  establishing  the  readiness  of its  computer
systems  and  applications  for the year 2000 with no  effect  on  customers  or
disruption to business operations. The Company has established a project plan to
achieve year 2000  readiness of its mission  critical and  non-mission  critical
systems,  including  hardware  infrastructure  and  software  applications.  The
project plan has a budget of approximately  $2.0 million and is divided into six
phases: identification, evaluation, remediation, validation, risk assessment and
contingency  planning.  The addition of risk assessment and contingency planning
efforts to the overall project plan accounts for the difference between the $2.0
million  budgeted as of December 31, 1998,  and the estimate of $1.5 million for
achieving  year 2000  compliance  included in the Company's 10-Q for the quarter
ended June 30, 1998.

As of December 31, 1998, the Company had expended  approximately 66% of budgeted
man-hours  and incurred  costs of  approximately  $1.1 million,  which  included
approximately  $115,000 for year 2000  testing  tools,  additional  hardware and
outside  consulting  assistance,  while  the  remainder  consisted  of labor and
overhead expense from within the Company. To date, the Company has substantially
completed the systems  identification,  evaluation,  remediation  and validation
phases of the project, at a cost that was approximately 27% below budget.

                                       45

<PAGE>


In its systems  evaluation  and  validation  efforts,  the Company has  employed
automated testing tools that are designed to meet guidelines  established by the
Federal  Financial  Institution  Examination  Council (FFIEC) as required by the
OTS.  All  new  application  development  will  include  significant  year  2000
readiness  validation  prior  to  implementation,  followed  by such  end-to-end
testing as necessary.  During 1999,  the Company plans to focus on any remaining
validation tasks,  including  end-to-end testing with third parties.  During the
second and third  quarters of 1999,  the  Company  plans to  participate  in the
Mortgage Banker  Association  Year 2000  Inter-System  Readiness Test with other
mortgage  industry  leaders  as a  means  of  coordinating  critical  end-to-end
validation.

As part of the identification and evaluation phases of the project,  the Company
documented  critical  operating  functions within each business unit, as well as
strategic third-party and vendor  relationships.  These efforts also are serving
as the basis of the Company's year 2000 risk assessment and contingency planning
efforts.  The  Company  has  retained  a business  continuity  expert to prepare
contingency  plans and assist with the testing and  validation  of these  plans.
Until the risk assessment phase is completed, the Company will not know the full
extent of the risks  associated with year 2000 readiness,  including an analysis
of the most reasonably likely worst case year 2000 scenario. The Company expects
to complete  its year 2000 risk  assessment  and  contingency  planning  efforts
during the first half of 1999.

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  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,"
"ENCOURAGE,"  "ESTIMATE,"  "EXPECT,"  "FORESEE,"  "INTEND,"  "IN THE EVENT  OF,"
"MAY," "PLAN," "PRESENT,"  "PROPOSE,"  "PROSPECT,"  "UPDATE," "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,  REAL ESTATE  INVESTMENT  TRUSTS,  INVESTMENT  COMPANIES  AND REAL
ESTATE (INCLUDING  REGULATORY FEES,  CAPITAL  REQUIREMENTS,  INCOME AND PROPERTY
TAXATION, 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,  COURSE OF NEGOTIATIONS
AND ABILITY TO REACH  AGREEMENT WITH RESPECT TO MATERIAL TERMS OF ANY PARTICULAR
TRANSACTION,  SATISFACTORY DUE DILIGENCE RESULTS, SATISFACTION OR FULFILLMENT OF
AGREED  UPON  TERMS  AND  CONDITIONS  OF  CLOSING  OR  PERFORMANCE,   TIMING  OF
TRANSACTION CLOSINGS,  RECENT EFFORTS TO REFOCUS ON CORE BUSINESSES AND INCREASE
LIQUIDITY,   DISPOSITIONS   AND  WINDING   DOWN  OF   DISCONTINUED   BUSINESSES,
ACQUISITIONS  AND  INTEGRATION  OF ACQUIRED  BUSINESSES,  SOFTWARE  INTEGRATION,
DEVELOPMENT AND LICENSING,  AVAILABILITY OF AND COSTS  ASSOCIATED WITH OBTAINING
ADEQUATE AND TIMELY  SOURCES OF  LIQUIDITY,  DEPENDENCE  ON EXISTING  SOURCES OF
FUNDING,  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 AND TO SECURITIZE  WHOLE LOANS,
TAXABLE INCOME EXCEEDING CASH FLOW, AVAILABILITY OF DISCOUNT LOANS FOR PURCHASE,
SIZE OF, NATURE OF AND YIELDS AVAILABLE WITH RESPECT TO THE SECONDARY MARKET FOR
MORTGAGE LOANS AND FINANCIAL,  SECURITIES AND SECURITIZATION MARKETS IN GENERAL,
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,  KNOWN OR
UNKNOWN ENVIRONMENTAL CONDITIONS, YEAR 2000 COMPLIANCE,  OTHER FACTORS GENERALLY
UNDERSTOOD TO AFFECT THE REAL ESTATE ACQUISITION,  MORTGAGE AND LEASING MARKETS,
SECURITIES INVESTMENTS AND RAPID GROWTH COMPANIES, AND OTHER RISKS DETAILED FROM
TIME TO TIME IN THE COMPANY'S REPORTS AND FILINGS WITH THE COMMISSION, INCLUDING
ITS  REGISTRATION  STATEMENTS ON FORMS S-1 AND S-3 AND PERIODIC REPORTS ON FORMS
10-Q,  8-K AND 10-K.  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 PUBLICLY  RELEASE THE RESULT 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.  PLEASE REFER TO EXHIBIT 99.1, RISK FACTORS,  INCLUDED
WITH THE FORM 10-K FOR THE YEAR  ENDED  DECEMBER  31,  1998,  AND FILED WITH THE
COMMISSION,  FOR A  DESCRIPTION  OF MATERIAL  RISKS FACED BY THE COMPANY AND ITS
SECURITIES HOLDERS.

                                       46

<PAGE>


REPORT OF MANAGEMENT


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

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

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

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


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

================================================================================
                           OCWEN FINANCIAL CORPORATION

                                       47

<PAGE>


PRICEWATERHOUSECOOPERS

                                                          PRICEWATERHOUSECOOPERS
                                                      One East Broward Boulevard
                                                                      Suite 1700
                                                       Fort Lauderdale, FL 33301
                                                        Telephone (954) 463-6280



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of Ocwen Financial Corporation


In our opinion, the accompanying  consolidated statements of financial condition
and the related consolidated statements of operations,  of comprehensive income,
of changes in  stockholders'  equity and of cash flows  present  fairly,  in all
material respects,  the financial  position of Ocwen Financial  Corporation (the
"Company") and its  subsidiaries  at December 31, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.  These financial  statements are the responsibility of the CompanyOs
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.



/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
    PRICEWATERHOUSECOOPERS LLP
    Fort Lauderdale, Florida
    January 29, 1999


                                       48

<PAGE>


<TABLE>
<CAPTION>
                                     OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                       (Dollars in Thousands, Except Share Data)

                                                                                   December 31,1998     December 31,1997
                                                                                   ----------------     ----------------
<S>                                                                                 <C>                  <C>           
ASSETS:
Cash and amounts due from depository institutions...........................        $      120,805       $       11,832
Interest earning deposits...................................................                49,374              140,001
Federal funds sold..........................................................               275,000                   --
Securities available for sale, at fair value................................               593,347              476,796
Loans available for sale, at lower of cost or market........................               177,847              177,041
Investment in capital stock of Federal Home Loan Bank, at cost..............                10,825               10,825
Loan portfolio, net.........................................................               230,312              266,299
Discount loan portfolio, net................................................             1,026,511            1,434,176
Investments in low-income housing tax credit interests......................               144,164              128,614
Investments in unconsolidated entities......................................                86,893                3,526
Real estate owned, net......................................................               201,551              167,265
Investment in real estate...................................................                36,860               76,340
Premises and equipment, net.................................................                33,823               21,542
Income taxes receivable.....................................................                34,333                   --
Deferred tax asset..........................................................                66,975               45,148
Excess of purchase price over net assets acquired, net......................                12,706               15,560
Principal, interest and dividends receivable................................                18,993               17,280
Escrow advances on loans....................................................                88,277               47,888
Other assets................................................................                99,483               29,032
                                                                                    --------------       --------------
                                                                                    $    3,308,079       $    3,069,165
                                                                                    ==============       ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Deposits..................................................................        $    2,175,016       $    1,982,822
  Securities sold under agreements to repurchase............................                72,051              108,250
  Obligations outstanding under lines of credit.............................               179,285              118,304
  Notes, debentures and other interest bearing obligations..................               225,000              226,975
  Accrued interest payable..................................................                33,706               32,238
  Income taxes payable......................................................                    --                3,132
  Accrued expenses, payables and other liabilities..........................                61,053               51,709
                                                                                    --------------       --------------
  Total liabilities.........................................................             2,746,111            2,523,430
                                                                                    --------------       --------------
  Company-obligated, mandatorily redeemable securities of subsidiary trust
    holding solely junior subordinated debentures of the Company............               125,000              125,000
  Minority interest.........................................................                   592                1,043
COMMITMENTS AND CONTINGENCIES (NOTE 28)
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; 60,800,357 and
    60,565,835 shares issued and outstanding at December 31, 1998, 
      and December 31, 1997, respectively...................................                   608                  606
  Additional paid-in capital................................................               166,234              164,751
  Retained earnings.........................................................               257,170              259,349
  Accumulated other comprehensive income, net of taxes:
  Unrealized gain (loss) on securities available for sale...................                14,057               (5,014)
  Net unrealized foreign currency translation loss..........................                (1,693)                  --
                                                                                    --------------       --------------
  Total stockholders' equity................................................               436,376              419,692
                                                                                    --------------       --------------
                                                                                    $    3,308,079       $    3,069,165
                                                                                    ==============       ==============

                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                          49

<PAGE>



<TABLE>
<CAPTION>
                                          OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (Dollars in Thousands, Except Share Data)

                                                                                           For the years ended December 31,
                                                                                    --------------------------------------------
                                                                                        1998            1997            1996
                                                                                    ------------    ------------    ------------
<S>                                                                                 <C>             <C>             <C>         
Interest income:
  Federal funds sold and repurchase agreements ..................................   $      7,930    $      8,975    $      4,681
  Securities available for sale .................................................         40,705          29,851          26,932
  Securities held for trading ...................................................             --             248           1,216
  Loans available for sale ......................................................         56,791          18,368          17,092
  Loans .........................................................................         38,609          54,701          36,818
  Discount loans ................................................................        160,847         157,649         103,165
  Investment securities and other ...............................................          2,812           2,739           3,990
                                                                                    ------------    ------------    ------------
                                                                                         307,694         272,531         193,894
                                                                                    ------------    ------------    ------------
Interest expense:
  Deposits ......................................................................        116,584         122,070          93,773
  Securities sold under agreements to repurchase ................................          6,514           1,000           1,101
  Advances from the Federal Home Loan Bank ......................................            120             527           4,053
  Obligations outstanding under lines of credit .................................         34,587           5,578              --
  Notes, debentures and other interest bearing obligations ......................         27,088          27,114          17,233
                                                                                    ------------    ------------    ------------
                                                                                         184,893         156,289         116,160
                                                                                    ------------    ------------    ------------
  Net interest income before provision for loan losses ..........................        122,801         116,242          77,734
  Provision for loan losses .....................................................         18,509          32,218          22,450
                                                                                    ------------    ------------    ------------
  Net interest income after provision for loan losses ...........................        104,292          84,024          55,284
                                                                                    ------------    ------------    ------------

Non-interest income:
  Servicing fees and other charges ..............................................         59,180          25,962           4,682
  (Loss) gain on interest earning assets, net ...................................         (1,594)         82,212          21,682
  Gain on real estate owned, net ................................................         14,033           7,277           3,827
  Other income ..................................................................         39,696           8,498           7,112
                                                                                    ------------    ------------    ------------
                                                                                         111,315         123,949          37,303
                                                                                    ------------    ------------    ------------
Non-interest expense:
  Compensation and employee benefits ............................................        115,556          77,573          39,043
  Occupancy and equipment .......................................................         34,878          17,657           8,921
Net operating loss (income) on investments in real estate and certain low-income
    housing tax credit interests ................................................          6,753           4,792            (425)
  Amortization and write-off of excess of purchase price over net assets acquired         11,614             557              --
  Loan expenses .................................................................         25,193           7,014           4,111
  Other operating expenses ......................................................         32,400          19,281          17,956
                                                                                    ------------    ------------    ------------
                                                                                         226,394         126,874          69,606
                                                                                    ------------    ------------    ------------
Distributions on Company-obligated, mandatory redeemable securities of 
  subsidiary trust holding solely junior subordinated debentures ................         13,594           5,249              --
Equity in (losses) earnings of investments in unconsolidated entities ...........         (7,985)         23,688          38,320
                                                                                    ------------    ------------    ------------
  (Loss) income before income taxes .............................................        (32,366)         99,538          61,301
Income tax benefit (expense) ....................................................         30,699         (21,309)        (11,159)
Minority interest in net loss of consolidated subsidiary ........................            467             703              --
                                                                                    ------------    ------------    ------------

Net (loss) income ...............................................................   $     (1,200)   $     78,932    $     50,142
                                                                                    ============    ============    ============

(Loss) earnings per share:
  Basic .........................................................................   $      (0.02)   $       1.40    $       0.99
  Diluted .......................................................................   $      (0.02)   $       1.39    $       0.94

Weighted average common shares outstanding:
  Basic .........................................................................     60,736,950      56,185,956      50,556,572
  Diluted .......................................................................     60,736,950      56,836,484      53,378,882

                     The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                               50

<PAGE>


<TABLE>
<CAPTION>
                                     OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                                (Dollars in Thousands)

                                                                                For the years ended December 31,
                                                                          -------------------------------------------
                                                                             1998             1997            1996
                                                                          ----------      -----------      ----------
<S>                                                                       <C>             <C>              <C>       
Net (loss) income.....................................................    $   (1,200)     $    78,932      $   50,142
Other comprehensive income, net of taxes:
  Unrealized gain (loss) on securities available for sale.............         1,493           (8,500)          4,901
  Unrealized foreign currency translation loss .......................        (1,693)              --              --
  Less: Reclassification adjustment for losses included in net income.        17,578               --              --
                                                                          ----------      -----------      ----------

  Other comprehensive income..........................................        17,378           (8,500)          4,901
                                                                          ----------      ------------     ----------
Comprehensive income..................................................    $   16,178      $    70,432      $   55,043
                                                                          ==========      ===========      ==========

Disclosure of reclassification adjustment:
  Unrealized holding losses arising during the year on securities sold    $  (37,390)
  Add: Adjustment for losses included in net loss.....................        54,968
                                                                          ----------
Net reclassification adjustment for losses recognized in other
  comprehensive income in prior years.................................    $   17,578
                                                                          ==========

               The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                               51

<PAGE>


<TABLE>
<CAPTION>
                                     OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
                                                (Dollars in Thousands)

                                                                                                          Notes
                                                                                           Accumulated  receivable
                                                                                              other    on exercise
                                               Common Stock       Additional              Comprehensive of common
                                         ----------------------     paid-in     Retained      income      stock
                                            Shares       Amount     capital     earnings   net of taxes  options      Total
                                         -----------    -------   ----------    --------- ------------- ----------- ---------
<S>                                      <C>            <C>        <C>          <C>          <C>         <C>        <C>      
Balances at December 31, 1995 ........   $47,624,540    $   476    $  10,211    $ 130,275    $ (1,415)   $    --    $ 139,547
Net income ...........................            --         --           --       50,142          --         --       50,142
Issuance of common stock .............         6,140         --           23           --          --         --           23
Repurchase of common stock options ...            --         --         (177)          --          --         --         (177)
Exercise of common stock options .....     5,857,660         59       12,933           --          --         --       12,992
Notes receivable on exercise of common
    stock options, net of repayments .            --         --           --           --          --     (3,832)      (3,832)
Change in unrealized gain (loss) on
    securities, net of taxes .........            --         --           --           --       4,901         --        4,901
                                         -----------    -------    ---------    ---------    --------    -------    ---------
Balances at December 31, 1996 ........    53,488,340        535       22,990      180,417       3,486     (3,832)     203,596
Net income ...........................            --         --           --       78,932          --         --       78,932
Issuance of common stock .............     6,906,198         69      141,934           --          --         --      142,003
Repurchase of common stock options ...            --         --       (3,208)          --          --         --       (3,208)
Exercise of common stock options .....       171,297          2        3,035           --          --         --        3,037
Notes receivable on exercise of common

    stock options, net of advances ...            --         --           --           --          --      3,832        3,832
Change in unrealized gain (loss) on
    securities, net of taxes .........            --         --           --           --      (8,500)        --       (8,500)
                                         -----------    -------    ---------    ---------    --------    -------    ---------
Balances at December 31, 1997 ........    60,565,835        606      164,751      259,349      (5,014)        --      419,692
Net loss .............................            --         --           --       (1,200)         --         --       (1,200)
Conversion of investment in an
    unconsolidated entity to the
    equity method ....................            --         --           --         (979)         --         --         (979)
Repurchase of common stock ...........      (318,311)        (3)      (7,769)          --          --         --       (7,772)
Issuance of common stock .............       320,550          3        7,825           --          --         --        7,828
Repurchase of common stock options ...            --         --       (6,502)          --          --         --       (6,502)
Exercise of common stock options .....       232,283          2        7,929           --          --         --        7,931
Other comprehensive income, net of
    taxes: ...........................            --         --           --           --          --         --           --
  Change in unrealized gain (loss) on
    securities available for sale ....            --         --           --           --      19,071         --       19,071
  Net unrealized foreign currency
    translation loss .................            --         --           --           --      (1,693)        --       (1,693)
                                         -----------    -------    ---------    ---------    --------    -------    ---------
Balances at December 31, 1998 ........   $60,800,357    $   608    $ 166,234    $ 257,170    $ 12,364    $    --    $ 436,376
                                         ===========    =======    =========    =========    ========    =======    =========

                   The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                              52

<PAGE>

<TABLE>
<CAPTION>
                                       OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (Dollars in Thousands)

                                                                                       For the years ended December 31,
                                                                                   ---------------------------------------
                                                                                      1998           1997          1996
                                                                                   -----------    -----------    ---------
<S>                                                                                <C>            <C>            <C>      
Cash flows from operating activities:
Net (loss) income ..............................................................   $    (1,200)   $    78,932    $  50,142
  Adjustments to reconcile net income to net cash  
    provided (used) by operating activities:
  Net cash provided (used) by trading activities ...............................       109,601        132,600      (60,881)
  Proceeds from sales of loans available for sale ..............................     1,659,368        519,163      397,606
  Purchases of loans available for sale ........................................      (370,865)      (278,081)    (295,054)
  Origination of loans available for sale ......................................      (959,105)      (316,101)      (9,447)
  Principal payments received on loans available for sale ......................        82,728         22,240       26,689
  Premium amortization (discount accretion), net ...............................        56,487         63,506       11,640
  Depreciation and amortization ................................................        26,229         10,865        7,646
  Provision for loan losses ....................................................        18,509         32,218       22,450
  Provision for real estate owned, net .........................................        18,627         13,450       18,360
  Loss (gain) on interest-earning assets, net ..................................         1,594        (82,212)     (21,682)
  Loss on sales of premises and equipment ......................................            47              1           97
  Gain on sale of low-income housing tax credit interests ......................        (7,316)        (6,298)      (4,861)
  Gain on real estate owned, net ...............................................       (43,839)       (30,651)     (22,835)
  Gain on sale of real estate held for investment ..............................       (10,383)            --           --
  Equity in losses (earnings) of unconsolidated entities, net ..................         7,985        (23,688)     (38,320)
  Increase in principal, interest and dividends receivable .....................        (1,713)          (459)      (2,277)
  (Increase) decrease in income taxes receivable ...............................       (37,465)        18,247      (14,110)
  (Increase) decrease in deferred tax asset ....................................       (21,827)       (39,288)      16,403
  Increase in escrow advances ..................................................       (40,389)       (20,479)      (6,255)
  Increase in other assets .....................................................       (84,137)       (27,916)     (12,037)
  Increase (decrease) in accrued expenses, interest payable and other
    liabilities ................................................................        (4,257)        24,118         (226)
                                                                                   -----------    -----------    ---------
Net cash provided (used) by operating activities ...............................       398,679         90,167       63,048
                                                                                   -----------    -----------    ---------
Cash flows from investing activities:
  Proceeds from sales of securities available for sale .........................       269,828        202,670      175,857
  Purchases of securities available for sale ...................................      (914,232)      (415,822)    (233,858)
  Maturities of and principal payments received on securities available for
    sale .......................................................................       359,525         46,084       28,756
  Maturities of and principal payments received on securities held for
    investment .................................................................            --             --       10,006
  Purchase of securities held for investment ...................................            --        (42,166)        (276)
  Acquisition of subsidiaries ..................................................      (426,096)       (11,635)          --
  Purchase of low-income housing tax credit interests ..........................       (49,063)       (54,573)     (34,240)
  Proceeds from sales of low-income housing tax credit interests ...............        37,918         22,026       24,667
  Proceeds from sales of discount loans ........................................       626,423        500,151      190,616
  Proceeds from sale of real estate held for investment ........................        47,644         14,905           --
  Proceeds from sales of loans held for investment .............................            --          2,384       14,883
  Purchase and originations of loans held for investment, net of undisbursed
    loan funds .................................................................      (188,716)      (138,884)    (237,525)
  Purchase of discount loans ...................................................      (938,859)    (1,464,611)    (925,850)
  (Increase) decrease in investment in unconsolidated entities .................       (70,190)        90,541      (29,589)
  Principal payments received on loans held for investment .....................       227,349        291,998      119,923
  Principal payments received on discount loans ................................       446,566        382,781      244,205
  Purchase of and capital improvements to real estate held for investment ......            --        (39,844)     (29,946)
  Proceeds from sale of real estate owned ......................................       301,485        196,180      169,084
  Purchase of real estate owned in connection with discount loan purchase ......       (19,949)       (38,486)      (1,628)
  Additions to premises and equipment ..........................................       (23,680)       (13,745)      (5,243)
  Other, net ...................................................................            --             --          227
                                                                                   -----------    -----------    ---------
Net cash (used) provided by investing activities ...............................      (314,047)      (470,046)    (519,931)
                                                                                   -----------    -----------    ---------

                  The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                             53

<PAGE>


<TABLE>
<CAPTION>
                                      OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (Dollars in Thousands)

                                                                                    For the years ended December 31,
                                                                                 -------------------------------------
                                                                                    1998           1997         1996
                                                                                 -----------    ---------    ---------
<S>                                                                                  <C>           <C>         <C>    
Cash flows from financing activities:
  Increase in deposits .......................................................       192,194       63,080      414,728
  Increase (decrease) in securities sold under agreements to repurchase ......       (36,199)      33,704      (10,215)
  Proceeds from issuance of notes, debentures and other interest-bearing                  
     obligations, net of repayment ...........................................            --        1,402      125,000
  Proceeds from issuance of obligations under lines of credit ................        60,981      118,304           --
  Payments of obligations assumed in connection with acquisition of subsidiary            --       (3,000)          --
  Payment of debt issuance costs .............................................            --           --       (5,252)
  Payments on advances from Federal Home Loan Bank ...........................            --         (399)    (146,000)
  Payments on notes and mortgages payable ....................................        (1,975)          --       (8,798)
  Repayments (originations) of loans made to executive officers, net .........            --        3,832       (3,832)
  Exercise of common stock options ...........................................         7,931        3,037       12,993
  Advances from the Federal Home Loan Bank ...................................            --           --       76,000
  Proceeds from issuance of Capital Trust Securities .........................            --      125,000           --
  Payment of Capital Trust Securities issuance costs .........................            --       (4,262)          --
  Issuance of shares of common stock, net ....................................            56      142,003           --
  Repurchase of common stock options .........................................        (6,502)      (3,208)        (177)
  Repurchase of common stock .................................................        (7,772)          --           --
  Other ......................................................................            --           --           23
                                                                                 -----------    ---------    ---------
Net cash provided by financing activities ....................................       208,714      479,493      454,470
                                                                                 -----------    ---------    ---------
  Net increase (decrease) in cash and cash equivalents .......................       293,346       99,614       (2,413)
  Cash and cash equivalents at beginning of period ...........................       151,833       52,219       54,632
                                                                                 -----------    ---------    ---------
  Cash and cash equivalents at end of period .................................   $   445,179    $ 151,833    $  52,219
                                                                                 ===========    =========    =========
Reconciliation of cash and cash equivalents at end of period:
  Cash and amounts due from depository institutions ..........................   $   120,805    $  11,832    $   6,878
  Interest-earning deposits ..................................................        49,374      140,001       13,341
  Federal funds sold and repurchase agreements ...............................       275,000           --       32,000
                                                                                 -----------    ---------    ---------
                                                                                 $   445,179    $ 151,833    $  52,219
                                                                                 ===========    =========    =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest ...................................................................   $   183,424    $ 148,895    $ 115,051
  Income taxes ...............................................................   $    36,754    $  28,228    $   4,725
Supplemental schedule of non-cash investing and financing activities:
  Real estate owned acquired through foreclosure .............................   $   280,522    $ 205,621    $ 102,140
  Exchange of discount loans and loans available for sale for securities .....   $ 2,125,080    $ 897,358    $ 375,621
  Transfer of securities for sale to investment in unconsolidated entities ...   $    35,158    $      --    $      --
Acquisition of businesses:
  Fair value of assets acquired ..............................................   $   449,420    $  15,052    $      --
  Liabilities assumed ........................................................        15,069        3,399           --
  Less stock issued ..........................................................        (7,772)          --           --
                                                                                 -----------    ---------    ---------
  Cash paid ..................................................................       426,579       11,653           --
  Less cash acquired .........................................................          (483)         (18)          --
                                                                                 -----------    ---------    ---------
  Net cash paid for assets acquired ..........................................   $   426,096    $  11,635    $      --
                                                                                 ===========    =========    =========

                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                          54


<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

Ocwen Financial  Corporation  ("OCN" or the "Company") is a specialty  financial
services  company whose primary  business  activities  consist of single family,
small commercial and large  commercial  discount loan acquisition and resolution
commercial real estate lending  activities,  subprime single family  residential
lending  mortgage  loans  serviced for others,  investments in a wide variety of
mortgage-related  securities and  investments  in low-income  housing tax credit
interests.  The Company's consolidated financial statements include the accounts
of OCN and its subsidiaries. The Company owns directly and indirectly all of the
outstanding  common  and  preferred  stock of its  primary  subsidiaries,  Ocwen
Federal Bank FSB (the "Bank"),  Investors  Mortgage  Insurance  Holding  Company
("IMI"),  Ocwen UK plc ("Ocwen UK") and Ocwen Technology Xchange,  Inc. ("OTX").
The Company also owns 97.8% of Ocwen Financial Services,  Inc. ("OFS"), with the
remaining  2.2%  owned by  owners  (and  their  spouses)  of  Admiral  Home Loan
("Admiral")  and is  reported  in the  consolidated  financial  statements  as a
minority interest. All significant  intercompany  transactions and balances have
been eliminated in consolidation.


The consolidated financial statements of the Company's foreign subsidiary, Ocwen
UK, and its equity  investee,  Norland  Capital  Group plc,  doing  business  as
Kensington  Mortgage  Company  ("Kensington"),  have been prepared in accordance
with  accounting  principles  generally  accepted in the United  Kingdom  ("U.K.
GAAP"). U.K. GAAP varies in certain significant respects from generally accepted
accounting  principles  in  the  United  States  ("U.S.  GAAP").  The  principal
adjustment  made to  conform  to U.S.  GAAP was to  recognize  a gain on sale of
interest-earning  assets in connection with the  securitization of single family
subprime residential mortgage loans and record the residual security retained at
fair value.

The Bank is a federally chartered savings bank regulated by the Office of Thrift
Supervision ("OTS").

RECLASSIFICATION

Certain amounts included in the 1997 and 1996 consolidated  financial statements
have been reclassified in order to conform to the 1998 presentation.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents  include cash on
hand,  interest-bearing and non-interest-bearing  deposits and all highly liquid
debt  instruments  purchased with an original  maturity of three months or less.
Cash flows associated with items intended as hedges of identifiable transactions
or events are  classified  in the same category as the cash flows from the items
being hedged.

SHORT-TERM HIGHLY LIQUID INVESTMENTS

The Company's short-term highly liquid investments  generally consist of federal
funds sold and assets purchased under agreements to resell.  The Company invests
in these  assets to maximize its return on liquid  funds.  At December 31, 1998,
such  investments  amounted  to  $275,000  of  federal  funds  sold which had an
overnight maturity. The Company had no such short-term highly liquid investments
at December 31, 1997.  The average  investment  in federal funds sold and assets
purchased under agreements to resell amounted to $149,441,  $163,671 and $84,997
during 1998, 1997 and 1996, respectively.

The   Bank  is   required   by  the   Federal   Reserve   System   to   maintain
non-interest-earning  cash reserves against certain of its transaction  accounts
and time deposit accounts. Such reserves totaled $5,557 and $895 at December 31,
1998 and 1997, respectively.

TRADING ACTIVITIES

From time to time,  the Company  purchases  investment and  mortgage-backed  and
related securities into its trading account.  In addition,  securities  acquired
and sold shortly thereafter resulting from the securitization of loans available
for sale are  accounted  for as the sale of loans and the  purchase  and sale of
trading  securities.  Securities  held for trading  purposes are carried at fair
value  with  the  unrealized  gains  or  losses  included  in  gains on sales of
interest-earning assets, net.

                                       55

<PAGE>


                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

SECURITIES AVAILABLE FOR SALE

Certain mortgage-related  securities are designated as assets available for sale
because  the  Company  does not  intend  to hold  them to  maturity.  Securities
available  for sale are carried at fair value with the net  unrealized  gains or
losses reported as a separate component of accumulated  comprehensive  income in
stockholders' equity. At disposition,  the realized net gain or loss is included
in earnings on a specific identification basis. The amortization of premiums and
accretion of discounts are computed using the interest method after  considering
actual  and  estimated  prepayment  rates,  if  applicable.   Actual  prepayment
experience is periodically  reviewed and effective yields are recalculated  when
differences  arise  between  prepayments   originally  anticipated  and  amounts
actually received plus anticipated future prepayments.

On a  quarterly  basis the Company  evaluates  each  individual  security in its
available  for sale  portfolio  to  determine  whether a decline in value  below
amortized  cost has  occurred  which is other  than  temporary.  In making  this
assessment,  the Company considers several factors, including but not limited to
the following:

(1)      Determining  whether the present  value of estimated  future cash flows
         discounted  at a  risk-free  rate  (the  rate on  monetary  assets of a
         comparable  duration  which  are  essentially  risk  free,  such as the
         three-month  Treasury bill rate) is less than the amortized  cost basis
         of the instrument;

(2)      Examining  whether  the  duration  of the  decline in market  value has
         exceeded six consecutive months; and

(3)      Identifying and understanding  the reasons for significant  declines in
         value (i.e., greater than 20%).

For each  security  where the  Company  concludes  that all or a portion  of the
decrease in value is other than  temporary,  such amount is charged to earnings,
thereby establishing a new cost basis for the security.

Investments in marketable  equity  securities not accounted for under the equity
method are  designated as available for sale and are carried at fair value based
on quoted  market  prices.  Net  unrealized  gains or losses are  reported  as a
separate component of accumulated  comprehensive income in stockholders' equity.
Unrealized  losses on securities  that reflect a decline in value which is other
than temporary, if any, are charged to earnings.

LOAN AVAILABLE FOR SALE AND HELD FOR INVESTMENT

Loans  originated or purchased by the Company which the Company  presently  does
not intend to hold to maturity are  designated as loans  available for sale upon
origination or purchase and are stated at the lower of cost,  after  considering
deferred loan fees and costs, or aggregate market value.  Unrealized  losses are
recorded as a reduction in earnings and are included  under the caption  "(Loss)
gain on interest-earning  assets" in the consolidated  statements of operations.
Loan origination fees and certain direct loan origination costs are deferred and
included  in the  carrying  value.  Upon  the  sale of a loan,  any  unamortized
deferred  loan fees,  net of costs,  are included in the gain or loss on sale of
interest earning assets. Gains and losses on disposal of such loans are computed
on a specific identification basis.

Loans held for  investment are stated at amortized  cost,  less an allowance for
loan losses, discount, deferred loan fees and undisbursed loan funds. To qualify
for this  treatment,  the  Company  must have both the ability and the intent to
hold such loans to  maturity.  Loan  origination  fees and  certain  direct loan
origination  costs are  deferred  and  recognized  over the lives of the related
loans as a yield  adjustment and included in interest  income using the interest
method applied on a loan-by-loan basis.

Interest  income is  accrued as it is  earned.  Loans are placed on  non-accrual
status after being  delinquent  greater than 89 days, or earlier if the borrower
is deemed by  management  to be unable to continue  performance.  When a loan is
placed on  non-accrual  status,  interest  accrued but not received is reversed.
Loans are  returned  to  accrual  status  only when the loan is  reinstated  and
ultimate  collectibility is no longer in doubt. In addition, the amortization of
deferred loan fees is suspended when a loan is placed on nonaccrual status.

ALLOWANCE FOR ESTIMATED LOAN LOSSES ON LOAN PORTFOLIO

The  allowance  for  estimated  loan  losses  is  maintained  at  a  level  that
management,  based  upon an  evaluation  of  known  and  inherent  risks  in the
portfolio,   considers  adequate  to  provide  for  potential  losses.  Specific
valuation  allowances are  established for impaired loans in the amount by which

                                       56

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

the carrying  value,  before  allowance for estimated  losses,  exceeds the fair
value of collateral  less costs to dispose on an individual  loan basis,  except
for single  family  residential  mortgage  loans and  consumer  loans  which are
generally  evaluated for impairment as homogeneous  pools of loans.  The Company
considers a loan to be impaired when, based upon current information and events,
it believes  that it is probable  that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement on a timely
basis. The Company measures these impaired loans at the fair value of the loans'
underlying  collateral less estimated disposal costs. Impaired loans may be left
on accrual  status  during the period the Company is pursuing  repayment  of the
loan.  These loans are placed on non-accrual  status at such time that the loans
either:  (i)  become 90 days  delinquent;  or (ii) the  Company  determines  the
borrower is incapable of, or has ceased efforts toward,  curing the cause of the
impairment.  Impairment  losses  are  recognized  through  an  increase  in  the
allowance for loan losses and a  corresponding  charge to the provision for loan
losses.  When an impaired loan is either sold,  transferred to real estate owned
("REO") or charged  off,  any related  valuation  allowance  is removed from the
allowance for loan losses.  Charge-offs  occur when loans, or a portion thereof,
are considered  uncollectible and of such little value that their continuance as
bankable assets is not warranted.  Valuation allowances are also established for
the inherent risks in the loan portfolio  which have occurred but have yet to be
specifically  identified.  Management's periodic evaluation of the allowance for
estimated  loan losses is based upon an analysis  of the  portfolio,  historical
loss experience,  economic  conditions and trends,  collateral  values and other
relevant  factors.  Future  adjustments  to the  allowance  may be  necessary if
economic  conditions and trends,  collateral  values and other relevant  factors
differ substantially from the assumptions used in making the evaluation.

DISCOUNT LOAN PORTFOLIO

Certain  mortgage  loans,  for which the borrower is not current as to principal
and  interest  payments or for which  there is a reason to believe the  borrower
will be  unable  to  continue  to make  its  scheduled  principal  and  interest
payments,  are  acquired at a discount.  The  Company  accounts  for its initial
investment in a pool of loans based upon the pricing  methodologies  used to bid
on the pool. The acquisition cost is allocated to each loan within the pool when
the bid price was determined  based upon an analysis of the expected future cash
flows of each  individual  loan.  The  acquisition  cost is accounted for in the
aggregate when the bid price was  determined  using  assumptions  concerning the
expected  future  cash flows  from  groups of loans  within  the pool.  Prior to
January 1, 1997,  the discount  associated  with all single  family  residential
loans was  recognized as a yield  adjustment  and accreted into interest  income
using the  interest  method  applied on a  loan-by-loan  basis once  foreclosure
proceedings  are  initiated,  to the  extent the timing and amount of cash flows
could be reasonably  determined.  Effective  January 1, 1997, the Company ceased
accretion of discount on its  nonperforming  discount single family  residential
loans.  For those single  family  residential  mortgage  loans which are brought
current by the  borrower and certain  multi-family  and  commercial  real estate
loans which are current and which the Company believes will remain current,  the
remaining  unamortized  discount is  accreted  into  interest  income as a yield
adjustment using the interest method over the contractual  maturity of the loan.
For all other  loans,  interest is reported  as cash is  received.  Gains on the
repayment  and  discharging  of  loans  are  reported  as  interest  income.  In
situations where the collateral is foreclosed upon, the loans are transferred to
real estate owned upon  receipt of title to the  property  and  accretion of the
related discount is discontinued.

The Company  periodically  evaluates  loans in the discount  loan  portfolio for
impairment.  Individually identified impaired loans are measured based on either
the present  value of payments  expected to be received  (using a discount  rate
equating the Company's estimate of expected future cash flows to the acquisition
price),  observable market prices, or the estimated fair value of the collateral
(for loans that are solely  dependent on the collateral for  repayment).  If the
recorded  investment in the impaired loan exceeds the measure of estimated  fair
value, a valuation  allowance is established as a component of the allowance for
loan losses.

REAL ESTATE OWNED

Properties  acquired through foreclosure are valued at the lower of the adjusted
cost basis of the loan or fair value less  estimated  costs of  disposal  of the
property  at  the  date  of  foreclosure.   Properties  held  are   periodically
re-evaluated  to determine  that they are being  carried at the lower of cost or
fair value less estimated costs to dispose. Sales proceeds and related costs are
recognized  with  passage of title to the buyer and,  in cases where the Company
finances the sale, receipt of sufficient down payment.  Rental income related to
properties  is  reported  as income as earned.  Holding  and  maintenance  costs
related to properties are reported as period costs as incurred.  No depreciation
expense  related to properties has been  recorded.  Decreases in market value of
foreclosed  real estate  subsequent to foreclosure are recognized as a valuation
allowance on a property specific basis.  Subsequent increases in market value of
the  foreclosed  real  estate  are  reflected  as  reductions  in the  valuation
allowance,  but not below zero.  Such  changes in the  valuation  allowance  are
charged or credited to income.

                                       57

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

VALUATION ALLOWANCES ON DISCOUNT LOANS AND REAL ESTATE OWNED

The Company records valuation allowances on discount loans and real estate owned
to  reflect  the  inherent  losses  which  have  occurred  but  have  yet  to be
specifically  identified.  Management has established  the valuation  allowances
based  upon  historical  loss  experience,   economic   conditions  and  trends,
collateral  values and other relevant  factors.  The Company  records losses and
charge-offs on discount loans against the allowance for loan losses.

MORTGAGE SERVICING RIGHTS

In connection with the  securitization  and sale of loans, the Company generally
retains the rights to service such loans for investors.  On January 1, 1996, the
Company adopted Statement of Financial  Accounting  Standards  ("SFAS") No. 122,
"Accounting for Mortgage  Servicing  Rights." SFAS No. 122 was  superseded,  for
transactions  recorded after December 31, 1996, by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and  Extinguishment  of Liabilities"
which the Company adopted on January 1, 1997. Both SFAS No. 122 and SFAS No. 125
require the  recognition  of a servicing  asset or liability and other  retained
interests as an allocation of the carrying amount of the assets sold between the
asset sold and the servicing  obligation and other retained  interests  based on
the  relative  fair  value of the assets  sold to the  interests  retained.  The
resulting  mortgage  servicing  asset or liability is amortized in proportion to
and over the period of  estimated  net  servicing  income or loss.  The  Company
evaluates the mortgage servicing asset for impairment based on the fair value of
the servicing asset. The Company estimates fair values by discounting  servicing
asset cash flows using  discount and  prepayment  rates that it believes  market
participants would use.

The Company receives fees from investors for servicing mortgage loans. Servicing
fees,  generally  expressed as a percent of the unpaid  principal  balance,  are
collected from the borrowers' payments.  During any period in which the borrower
is not  making  payments,  the  Company  is  required  under  certain  servicing
agreements to advance its own funds to meet  contractual  principal and interest
remittance  requirements  for certain  investors,  maintain  property  taxes and
insurance,  and  process  foreclosures.  The  Company  generally  recovers  such
advances from borrowers for  reinstated and performing  loans and from investors
for foreclosed loans.

INVESTMENT IN REAL ESTATE

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

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

                  Buildings and improvements.........                 40 years

                  Land improvements .................                 20 years

                  Furniture, fixtures and equipment..                 5-10 years

Expenditures  for repairs and maintenance are charged to operations as incurred.
Significant improvements are capitalized. The leases are classified as operating
leases in accordance  with SFAS No. 13  "Accounting  for Leases." Fees and costs
incurred in the successful negotiation of leases are deferred and amortized on a
straight-line  basis over the terms of the respective  leases.  Rental income is
reported on a straight-line basis over the terms of the respective leases.

In conjunction with its multi-family and commercial  lending business  activity,
the Company made certain  acquisition,  development  and  construction  loans in
which the Company  participated  in the residual  profits of the underlying real
estate and the borrower had not contributed  substantial  equity to the project.
As such,  the  Company  accounted  for these  loans  under the equity  method of
accounting  as  though  it has  made  an  investment  in a real  estate  limited
partnership.  All such  loans  were  repaid  during  1998 and no new loans  were
originated.

                                       58

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

INVESTMENTS IN LOW-INCOME HOUSING TAX CREDIT INTERESTS

Low-income  housing  tax  credit   partnerships  own  multi-family   residential
properties  which have been  allocated  tax credits  under the Internal  Revenue
Code. The  obligations of the  partnership to sustain  qualifying  status of the
properties covers a 15-year period;  however,  tax credits accrue over a 10-year
period on a  straight-line  basis.  Investments  by the  Company  in  low-income
housing  tax credit  partnerships  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
through issue number 94-1.  For the Company's  limited  partnership  investments
made prior to this date,  the Company  records its receipt of income tax credits
and other tax benefits on a level yield basis over the 15-year obligation period
and  reports  the  tax  credits  and tax  benefits  net of  amortization  of its
investment  in the limited  partnership  as a reduction  of income tax  expense.
Low-income housing tax credit  partnerships in which the Company has invested as
a limited  partner,  and through which a subsidiary acts as the general partner,
are   consolidated  and  included  in  the  Company's   consolidated   financial
statements.  For all investments in low-income  housing tax credit  partnerships
made after May 18, 1995, the Company  capitalizes  interest  expense and certain
direct costs incurred during the pre-operating period.

EXCESS OF COST OVER NET ASSETS ACQUIRED

The excess of purchase price over net assets of acquired businesses is stated at
cost and is amortized on a straight-line basis over the estimated future periods
to be benefited, not to exceed 15 years. The carrying value of cost in excess of
net assets  acquired is reviewed for  impairment  whenever  events or changes in
circumstances  indicate  that  it may  not be  recoverable.  If  such  an  event
occurred,  the Company would prepare  projections of expected cash flows for the
remaining  amortization  period. If such projections  indicated that the cost in
excess of net assets acquired would not be recoverable,  the Company's  carrying
value of such asset would be reduced by the estimated  excess of such value over
projected income.  The results of operations of acquired  companies are included
in the  consolidated  statements of operations  beginning  with the  acquisition
date.

PREMISES AND EQUIPMENT

Premises and equipment are carried at cost and, except for land, are depreciated
over their estimated  useful lives on the  straight-line  method.  The estimated
useful lives of the related assets range from three to 10 years.

CAPITALIZED SOFTWARE COSTS

The Company's policy is to capitalize  certain costs attributable to developing,
modifying and enhancing its software  revenue  products in accordance  with SFAS
No. 86,  "Accounting  for the Costs of Computer  Software to be Sold,  Leased or
Otherwise  Marketed."  Costs incurred up to the  establishment  of technological
feasibility are expensed as research and development expenses. Once the products
are made  available  for general  release to  customers,  capitalized  costs are
amortized using the  straight-line  method over the estimated  economic lives of
the  individual  products.  The  unamortized  costs by product are reduced to an
amount  not to  exceed  the  future  net  realizable  value by  product  at each
financial statement date.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses  derivative  financial  instruments for the purpose of reducing
its exposure to adverse  fluctuations in interest and foreign currency  exchange
rates.  While these hedging  instruments  are subject to  fluctuations in value,
such  fluctuations are generally offset by the change in value of the underlying
exposures  being  hedged.  The Company  does not hold any  derivative  financial
instruments for trading purposes. To qualify for hedge accounting,  the asset or
liability to be hedged must be specifically identified and expose the Company to
interest rate or currency risk, and must eliminate or  substantially  reduce the
risk of loss  from the  asset  or  liability  being  hedged.  If the  derivative
financial  instrument  fails or ceases to qualify  for hedge  accounting,  it is
accounted  for at fair value with changes in fair value  recorded in earnings in
the consolidated statements of operations.

The Company enters into foreign currency futures  contracts and foreign currency
swap agreements to hedge its equity  investments in Ocwen UK and Kensington.  It
is the Company's  policy to periodically  adjust the amount of foreign  currency
derivative  contracts it has entered into in response to changes in its recorded
equity investment in these foreign entities. The unamortized discount related to
foreign  currency  swaps  and the  values of  financial  hedge  instruments  are
included as a component of comprehensive income in stockholders' equity.

The Company  manages its exposure to interest rate movements by seeking to match
asset and  liability  balances  within  maturity  categories,  both directly and
through  the  use  of  derivative   financial   instruments.   These  derivative
instruments  include  interest  rate swaps  ("swaps")  and interest rate futures

                                       59

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

contracts that are designated and effective as hedges, as well as swaps that are
designated  and  effective  in  modifying  the  interest  rate  and/or  maturity
characteristics of specified assets or liabilities.

The net interest  received or paid on swaps is  reflected as interest  income or
expense of the related  hedged  position.  Gains and losses  resulting  from the
termination of swaps are recognized  over the shorter of the remaining  contract
lives of the  swaps or the  lives of the  related  hedged  positions  or, if the
hedged  positions are sold,  are  recognized  in the current  period as gains on
sales of interest-earning assets, net. Gains and losses on futures contracts are
deferred and amortized over the terms of the related  assets or liabilities  and
reflected as interest income or expense of the related hedged positions.  If the
hedged  positions are sold, any unamortized  deferred gains or losses on futures
contracts  are   recognized  in  the  current   period  as  gains  on  sales  of
interest-earning  assets,  net.  Interest  rate  contracts  are measured at fair
value.

FOREIGN CURRENCY TRANSLATION

The  Company has  determined  that the  functional  currency of Ocwen UK and the
Company's  equity  investment in Kensington is the British Pound.  In accordance
with  SFAS No.  52,  "Foreign  Currency  Translation,"  assets  and  liabilities
denominated  in a foreign  currency  are  translated  into U.S.  dollars  at the
current rate of exchange  existing at the statement of financial  condition date
and revenues and expenses are translated at average monthly rates. The resulting
translation adjustments are included as a component of accumulated comprehensive
income in stockholders' equity.

INCOME TAXES

The Company files consolidated Federal income tax returns with its subsidiaries.
Consolidated income tax is allocated among the subsidiaries participating in the
consolidated returns as if each subsidiary of the Company, which has one or more
subsidiaries, filed its own consolidated return.

The Company accounts for income taxes using the asset and liability method which
requires the recognition of deferred tax liabilities and assets for the expected
future tax  consequences of temporary  differences  between the carrying amounts
and the tax basis of assets and  liabilities.  Additionally,  deferred taxes are
adjusted for subsequent tax rate changes.

INVESTMENT IN UNCONSOLIDATED ENTITIES

The Company's investments in unconsolidated entities are accounted for under the
equity  method  of  accounting.  Under  the  equity  method  of  accounting,  an
investment in the shares or other interests of an investee is initially recorded
at the cost of the shares or interests  acquired and thereafter is  periodically
increased  (decreased)  by the  investor's  proportionate  share of the earnings
(losses) of the investee and decreased by all dividends received by the investor
from the investee.

BASIC AND DILUTED EARNINGS PER SHARE

Basic earnings per share is calculated based upon the weighted average number of
shares of common stock outstanding  during the year.  Diluted earnings per share
is calculated  based upon the weighted  average number of shares of common stock
outstanding  and all dilutive  potential  common shares  outstanding  during the
year. The  computation of diluted  earnings per share includes the impact of the
exercise of the  outstanding  options to purchase  common stock and assumes that
the proceeds  from such  issuance are used to  repurchase  common shares at fair
value.  Common stock equivalents would be excluded from the diluted  calculation
if a net loss was incurred for the period as they would be antidilutive.

COMPREHENSIVE INCOME

Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances,  excluding
those resulting from investments by and  distributions  to owners.  SFAS No. 130
requires  that  comprehensive  income be  presented  beginning  with net income,
adding the elements of comprehensive income not included in the determination of
net income, to arrive at comprehensive  income.  Accumulated other comprehensive
income is presented net of income taxes and is comprised of unrealized gains and
losses  on  securities  available  for sale,  and  unrealized  foreign  currency
translation gains and losses.

                                       60

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

RISKS AND UNCERTAINTIES

In the normal course of business,  the Company  encounters two significant types
of risk:  economic and  regulatory.  There are three main components of economic
risk:  credit risk, market risk and concentration of credit risk. Credit risk is
the risk of  default  on the  Company's  loan  portfolios  that  results  from a
borrowers'  inability or unwillingness to make contractually  required payments.
Market risk includes  interest rate risk,  foreign currency  exchange rate risk,
and equity  price  risk.  The  Company is exposed to  interest  rate risk to the
degree  that its  interest-bearing  liabilities  mature or reprice at  different
speeds, or different bases,  than its  interest-earning  assets.  The Company is
exposed to foreign currency exchange rate risk in connection with its investment
in non-U.S.  dollar functional currency operations and to the extent its foreign
exchange positions remain unhedged.  The Company is exposed to equity price risk
as a result of its  investments  in the  equity  securities  of other  entities.
Market risk also  reflects  the risk of declines in the  valuation of loans held
for sale and  securities  available for sale, and in the value of the collateral
underlying loans and the value of real estate held by the Company. Concentration
of credit risk refers to the risk that,  if the  Company  extends a  significant
portion of its total outstanding credit to borrowers in a specific  geographical
area or  industry  or on the  security  of a specific  form of  collateral,  the
Company may experience  disproportionately  high levels of default and losses if
those borrowers, or the value of such type of collateral,  is adversely affected
by economic or other factors that are particularly  applicable to such borrowers
or collateral.

The Bank is subject to the  regulations of various  government  agencies.  These
regulations can and do change significantly from period to period. The Bank also
undergoes periodic examinations by the regulatory agencies, which may subject it
to further  changes with respect to asset  valuations,  amounts of required loss
allowances and operating  restrictions  resulting from the regulators' judgments
based on information available to them at the time of their examination.

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

CURRENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 128,  "Earnings per Share." SFAS No. 128 simplifies  the standards  found in
Accounting  Principles  Board Opinion ("APB") No. 15 for computing  earnings per
share ("EPS") and makes them comparable to international  standards.  Under SFAS
No. 128,  the  Company is required to present  both basic and diluted EPS on the
face of its  statements of operations.  Basic EPS,  which  replaces  primary EPS
required by APB No. 15 for entities with complex  capital  structures,  excludes
common stock  equivalents and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted EPS gives effect to all dilutive  potential  common shares that
were  outstanding  during the period.  SFAS No. 128 is effective  for  financial
statements  for both interim and annual  periods ending after December 15, 1997,
with  earlier  application  not  permitted.  The  Company  adopted  SFAS No. 128
effective December 31, 1997.
All prior period EPS data have been restated.

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

In June 1997, the FASB issued SFAS No. 130,  "Reporting  Comprehensive  Income."
SFAS No.  130  requires  the  inclusion  of  comprehensive  income,  either in a
separate statement for comprehensive  income, or as part of a combined statement
of income and comprehensive  income in a full-set of  general-purpose  financial
statements.  Comprehensive  income  is  defined  as the  change  in  equity of a
business  enterprise  during a period  from  transactions  and other  events and
circumstances,  excluding those resulting from investments by and  distributions
to  owners.  SFAS No.  130  requires  that  comprehensive  income  be  presented
beginning  with net  income,  adding the  elements of  comprehensive  income not
included in the determination of net income, to arrive at comprehensive  income.
SFAS No. 130 also requires that an enterprise display the accumulated balance of
other  comprehensive  income  separately  from retained  earnings and additional
paid-in  capital in the equity  section of the statement of financial  position.
SFAS No. 130 is effective for the  Company's  fiscal year  beginning  January 1,
1998. SFAS No. 130 requires the presentation of information already contained in
the Company's  financial  statements and therefore did not have an impact on the
Company's financial position or results of operation upon adoption.

                                       61

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

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

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for  derivative  and hedging  activities and supersedes and
amends a number of  existing  standards.  SFAS No. 133  requires  that an entity
recognize all  derivatives  as either assets or  liabilities in the statement of
financial condition.  The gain or loss recognition is determined on the intended
use and resulting designation of the financial instruments as follows:

o    Gains or  losses  on  derivative  instruments  not  designated  as  hedging
     instruments are recognized in the period of change in fair value.

o    Gains or  losses  on  derivative  instruments  designated  as  hedging  the
     exposure to changes in the fair value of a recognized  asset,  liability or
     firm  commitment are recognized in earnings in the period of the fair value
     change,  together with the offsetting fair value loss or gain on the hedged
     item.

o    Gains or losses on derivative instruments designated as hedging exposure to
     variable  cash flows  arising from a forecasted  transaction  are initially
     reported,  to the extent  the fair value  change is offset by the change in
     the forecasted  cash flows, as a component of other  comprehensive  income.
     The portion of the change in fair value in excess of the offsetting  change
     in  forecasted  cash flows is  reported  in  earnings  in the period of the
     change.

o    Gains or losses on derivative  instruments  designated as foreign  currency
     hedges of net  investments  in foreign  operations  are  reported  in other
     comprehensive   income  as  part  of  the  foreign   currency   translation
     adjustment.

SFAS No. 133 precludes the use of nonderivative financial instruments as hedging
instruments,  except that nonderivative  financial instruments  denominated in a
foreign currency may be designated as a hedge of the foreign  currency  exposure
of an unrecognized  firm commitment  denominated in a foreign  currency or a net
investment in a foreign operation.

Under SFAS No. 133, an entity that elects to apply hedge  accounting is required
to establish at the  inception of the hedge the method it will use for assessing
the  effectiveness  of the hedging  derivative and the measurement  approach for
determining  the  ineffective  aspect  of  the  hedge.  Those  methods  must  be
consistent with the entity's approach to managing risk.

SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning of an entity's fiscal  quarter;  on that date,  hedging  relationships
must be designated  anew and  documented  pursuant to the provisions of SFAS No.
133. Earlier  application of SFAS No. 133 is encouraged but is permitted only as
of the  beginning of any fiscal  quarter that begins after  issuance of SFAS No.
133.  The  Company has not yet adopted  SFAS No. 133 nor has it  determined  the
impact on the  results  of  operations,  financial  position  or cash flows as a
result of implementing SFAS No. 133.

In October 1998, the FASB issued SFAS No. 134,  "Accounting for  Mortgage-Backed
Securities  Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking  Enterprise" as an amendment of SFAS No. 65,  "Accounting for
Certain Mortgage  Banking  Activities."  SFAS No. 65 establishes  accounting and
reporting  standards for certain activities of mortgage banking  enterprises and
other enterprises that conduct operations that are substantially  similar to the
primary operations of a mortgage banking enterprise.  SFAS No. 65, as amended by
SFAS  No.  115,   "Accounting  for  Certain   Investments  in  Debt  and  Equity
Securities,"  and SFAS No. 125,  "Accounting  for  Transfers  and  Servicing  of
Financial Assets and  Extinguishments  of Liabilities,"  requires that after the
securitization  of a mortgage loan held for sale, an entity  engaged in mortgage
banking  activities  classifies  the  resulting  mortgage-backed  security  as a
trading security.  SFAS No. 134 further amends SFAS No. 65 to require that after
the  securitization  of  mortgage  loans  held for sale,  an entity  engaged  in
mortgage banking activities classifies the resulting mortgage-backed  securities

                                       62

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

or other  retained  interests  based on its  ability  and intent to sell or hold
those  investments.   SFAS  No.  134  conforms  the  subsequent  accounting  for
securities  retained  after the  securitization  of mortgage loans by a mortgage
banking enterprise with the subsequent  accounting for securities retained after
the securitization of other types of assets by a nonmortgage banking enterprise.
SFAS No. 134 is effective for the first fiscal quarter  beginning after December
15, 1998.  Early  application is encouraged and is permitted as of October 1998.
The Company adopted SFAS No. 134 effective  October 31, 1998, which did not have
a material impact on the Company's  financial  position or results of operations
upon adoption.

NOTE 2: ACQUISITION AND DISPOSITION TRANSACTIONS

On May 5, 1998, the Company,  through IMI, acquired 1,473,733  partnership units
of Ocwen Partnership L.P. ("OPLP") for $24,508. This purchase was in addition to
the 160,000 units owned at December 31, 1997,  and the 175,000 units acquired on
February  17,  1998,  for  which the  Company  exchanged  shares of Ocwen  Asset
Investment  Corp.  ("OAC") stock,  increasing the total number of units owned by
IMI to 1,808,733 or 8.71% of the total partnership units outstanding at December
31, 1998. OPLP is the operating  partnership  subsidiary of OAC. OAC specializes
in the  acquisition  and  management  of real estate and mortgage  assets and is
managed by Ocwen Capital Corporation ("OCC"), a wholly-owned  subsidiary of OCN.
At  December  31,  1998,  the  Company  also  owned  1,540,000  or  8.12% of the
outstanding  common stock of OAC. Combined equity in the losses of the Company's
investments in OPLP and OAC amounted to $8,701 in 1998.

On April 24, 1998, the Company,  through its  wholly-owned  subsidiary Ocwen UK,
acquired substantially all of the assets, and certain liabilities, of the United
Kingdom ("UK")  operations of Cityscape  Financial Corp.  ("Cityscape  UK"). The
acquisition was accounted for as a purchase. The Company acquired Cityscape UK's
mortgage loan portfolio and its residential  subprime  mortgage loan origination
and  servicing  businesses  for $421,326  ((pound)249,571)  and assumed  $12,393
((pound)7,341) of Cityscape UK's liabilities.  The excess of net assets acquired
over the purchase price  (negative  goodwill)  related to this  transaction  was
applied to reduce non-current assets, primarily fixed assets.

On February  25, 1998,  the Company  purchased  36.07% of the total  outstanding
common stock of  Kensington  for $45,858  ((pound)27,837).  This  investment  is
accounted for under the equity method.  The  acquisition  was accounted for as a
purchase.  The  excess of the  purchase  price  over the net  investment,  which
amounted to $34,492  ((pound)20,933)  net of accumulated  amortization of $2,029
((pound)1,192) at December 31, 1998, is being amortized on a straight-line basis
over a period  of 15 years and is  included  under the  caption  "Investment  in
unconsolidated entities" in the consolidated statements of financial condition.

On January 20, 1998, the Company acquired DTS  Communications,  Inc. ("DTS"),  a
real estate technology company located in San Diego, California,  for a purchase
price of $13,025 in cash,  common stock of the Company and  repayment of certain
indebtedness. The acquisition was accounted for as a purchase. DTS has developed
technology tools to automate real estate  transactions.  DTS has been recognized
by Microsoft  Corporation for the Microsoft(R)  component-based  architecture to
facilitate  electronic data interchange.  The common stock of the Company issued
in the acquisition was acquired from affiliates of the Company at the same price
per  share  as was  used  to  calculate  the  number  of  shares  issued  in the
acquisition.  The excess of purchase price over net assets  acquired  related to
this  transaction,  which amounted to $7,584 net of accumulated  amortization of
$505 at December 31, 1998, is being  amortized on a  straight-line  basis over a
period of 15 years. DTS is a wholly-owned subsidiary of OTX.

During  1997,  the Company  consolidated  its  subprime  single  family  lending
operations within OFS in connection with its acquisition of substantially all of
the assets of Admiral in a transaction  which closed on May 1, 1997.  The excess
of purchase price over net assets acquired  related to this  transaction,  which
amounted to $10,826,  net of  accumulated  amortization  of $504 at December 31,
1997, was deemed impaired and therefore written off during 1998.

On  November  6,  1997,   the  Company   acquired   AMOS,   Inc.   ("AMOS"),   a
Connecticut-based  company engaged primarily in the development of mortgage loan
servicing  software.  The  acquisition  was accounted  for as a purchase.  AMOS'
products are Microsoft(R) Windows(R)-based,  have client/server architecture and
feature real-time processing, are designed to be year 2000 compliant,  feature a
scalable database platform and have strong workflow capabilities.  The aggregate
purchase price was $9,718,  including $4,815 which is contingent on AMOS meeting
certain software development  performance criteria. The excess of purchase price
over net assets acquired related to this  transaction,  which amounted to $5,122
net of accumulated amortization of $389 at December 31, 1998, is being amortized
on a  straight-line  basis  over a period  of 15 years.  AMOS is a  wholly-owned
subsidiary of OTX.

                                       63

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

On December 12, 1997, BCBF,  L.L.C.,  (the "LLC"), a limited  liability  company
formed in March 1996  between the Company and  BlackRock  Capital  Finance  L.P.
("BlackRock")  distributed  all of its assets to the  Company  and its other 50%
investor, BlackRock. Simultaneously, the Company acquired BlackRock's portion of
the distributed assets.


NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The fair values reflected below are indicative of the interest rate environments
as of December 31, 1998 and 1997, and do not take into consideration the effects
of interest rate fluctuations.  In different  interest rate  environments,  fair
value  results  can differ  significantly,  especially  for  certain  fixed-rate
financial  instruments  and  non-accrual  assets.  In addition,  the fair values
presented do not attempt to estimate the value of the Company's  fee  generating
businesses and anticipated future business  activities.  In other words, they do
not  represent  the  Company's  value  as  a  going  concern.  Furthermore,  the
differences  between the carrying  amounts and the fair values presented may not
be realized.

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

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

CASH AND CASH EQUIVALENTS

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

SECURITIES AVAILABLE FOR SALE

The Company  adjusts its  securities  portfolio to fair value at the end of each
month based upon the lower of dealer  quotations or internal values,  subject to
an internal review process.  For those securities which do not have an available
market  quotation,  the  Company  will  request  market  values  and  underlying
assumptions from the various securities  dealers that underwrote,  are currently
financing the securities, or have had prior experience with the type of security
to be valued. When quotations are obtained from two or more dealers, the average
dealer quote is utilized.

LOANS AND DISCOUNT LOANS

The fair value of performing  loans is estimated based upon quoted market prices
for similar whole loan pools. The fair value of nonperforming  loans is based on
estimated  cash  flows  discounted  using  a rate  commensurate  with  the  risk
associated  with the estimated  cash flows.  The fair value of the discount loan
portfolio is estimated based upon current market yields at which recent pools of
similar mortgages have traded taking into consideration the timing and amount of
expected cash flows.

                                       64

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

LOW-INCOME HOUSING TAX CREDIT INTERESTS

The fair value of the investments in low-income  housing tax credit interests is
estimated by  discounting  the future tax benefits  expected to be realized from
these investments  using discount rates at which similar  investments were being
made on or about the respective financial statement dates.

DEPOSITS

The fair value of demand deposits, savings accounts and money market deposits is
the  amount  payable  on  demand  at the  reporting  date.  The  fair  value  of
fixed-maturity  certificates of deposit is estimated by discounting the required
cash payments at the market rates  offered for deposits with similar  maturities
on or about the respective financial statement dates.

BORROWINGS

The fair value of the Company's notes and debentures and capital  securities are
based  upon  quoted  market  prices.  The  fair  value  of the  Company's  other
borrowings,  including  securities  sold  under  agreements  to  repurchase  and
obligations outstanding under lines of credit, approximate carrying value.

DERIVATIVE FINANCIAL INSTRUMENTS

The fair value of an interest rate swap is the estimated amount that the Company
would  receive or pay to terminate  the swap at the  reporting  date taking into
account interest rates and the creditworthiness of the swap counterparties on or
about the  respective  financial  statement  dates.  Market  quotes  are used to
estimate the fair value of interest rate futures contracts.  The fair value of a
currency swap is calculated as the notional amount of the swap multiplied by the
difference  between the spot rate at the date of inception  and the spot rate at
the financial statement date.

LOAN COMMITMENTS

The fair value of loan  commitments  is  estimated  considering  the  difference
between interest rates on or about the respective  financial statement dates and
the committed rates.

REAL ESTATE OWNED

Real estate,  although not a financial  instrument,  is an integral  part of the
Company's  business.  The fair  value of real  estate is  estimated  based  upon
appraisals, broker price opinions and other standard industry valuation methods,
less anticipated selling costs.

The carrying  amounts and the estimated  fair values of the Company's  financial
instruments and real estate owned are as follows:

<TABLE>
<CAPTION>

                                                      December 31, 1998         December 31, 1997
                                                   -----------------------   -----------------------
                                                    Carrying      Fair        Carrying      Fair
                                                     Amount       Value        Amount       Value
                                                   ----------   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>          <C>       
FINANCIAL ASSETS:
  Cash and cash equivalents ...................... $  445,179   $  445,179   $  151,833   $  151,833
  Securities available for sale ..................    593,347      593,347      476,796      476,796
  Loans available for sale .......................    177,847      177,847      177,041      184,884
  Investment securities ..........................     10,825       10,825       10,825       10,825
  Loan portfolio, net ............................    230,312      232,242      266,299      281,850
  Discount loan portfolio, net ...................  1,026,511    1,046,945    1,434,176    1,657,222
  Investments in low-income housing tax credit
    interests ....................................    144,164      158,521      128,614      151,130
  Real estate owned, net .........................    201,551      245,471      167,265      212,443
FINANCIAL LIABILITIES:
  Deposits .......................................  2,175,016    2,218,542    1,982,822    2,024,857
  Securities sold under agreements to repurchase..     72,051       72,051      108,250      108,250
  Obligations outstanding under lines of credit ..    179,285      179,285      118,304      118,304
  Notes, debentures and other interest-bearing
    Obligations ..................................    225,000      205,750      226,975      255,538
  Capital securities .............................    125,000       97,500      125,000      135,313
OTHER:
  Loan commitments ...............................    133,489      133,489      182,095      182,095
</TABLE>


NOTE 4: SECURITIES HELD FOR TRADING

The Company  traded  assets  totaling  $2,250,831,  $1,023,965  and  $373,723 in
aggregate  sales  proceeds  during the years ended  December 31, 1998,  1997 and
1996, respectively,  primarily in connection with the Company's  securitizations
of loans,  resulting in realized net gains of $109,601,  $72,214 and $14,645 for
the years ended December 31, 1998, 1997 and 1996, respectively. The Company held
no securities for trading at December 31, 1998 or 1997.

NOTE 5: SECURITIES AVAILABLE FOR SALE

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

<TABLE>
<CAPTION>

                                                                        Gross           Gross
                                                      Amortized       Unrealized      Unrealized         Fair
                                                         Cost           Gains           Losses           Value
                                                     -----------     -----------     -----------     -----------
<S>                                                  <C>             <C>             <C>             <C>        
DECEMBER 31, 1998
 Mortgage-related securities
  Single family residential:
    AAA-rated collateralized mortgage obligations.   $   343,686     $       552     $       (39)    $   344,199
    BB-rated subordinates.........................         8,517              --              --           8,517
    B-rated subordinates..........................         6,344              --              --           6,344
    Unrated subordinates..........................        37,872           2,723              --          40,595
    AAA-rated subprime residuals (1)..............         6,178             753              --           6,931
    BBB-rated subprime residuals (1)..............        15,681           1,912              --          17,593
    Unrated subprime residuals (1)................       141,526          11,425              --         152,951
                                                     -----------     -----------     -----------     -----------
                                                         559,804          17,365             (39)        577,130
                                                     -----------     -----------     -----------     -----------
  Multi-family and commercial:
    B-rated subordinates..........................         7,684           1,290            (161)          8,813
    Unrated subordinates..........................         4,126           3,340            (135)          7,331
    AAA-rated interest-only.......................            71              --              --              71
    BB-rated interest-only........................            --               2              --               2
                                                     -----------     -----------     -----------     -----------
                                                          11,881           4,632            (296)         16,217
                                                     -----------     -----------     -----------     -----------
                                                     $   571,685     $    21,997     $      (335)    $   593,347
                                                     ===========     ===========     ===========     ===========
</TABLE>


(1)      Includes  subprime  residuals  with  a  total  fair  value  of  $87,334
         ((pound)51,274) and amortized cost of $73,615 ((pound)44,354)  relating
         to Ocwen UK.

One security in the available for sale portfolio, with a fair value of $9,929 is
pledged as collateral  to the State of New Jersey in connection  with the Bank's
sales  of  certificates  of  deposit  over  $100 to New  Jersey  municipalities.
Additionally,  certain mortgage-related securities are pledged as collateral for
securities sold under agreements to repurchase (see Note 16).

The amortized cost of mortgage-related  securities at December 31, 1998, was net
of unaccreted (discounts) and unamortized premiums of $(65,546).

A profile of the  maturities  of  securities  available for sale at December 31,
1998,   follows.   Mortgage-backed   securities  are  included  based  on  their
weighted-average maturities,  reflecting anticipated future prepayments based on
consensus of dealers in the market.

                                       65

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

                                            Amortized Cost         Fair Value
                                           ----------------     ----------------
Due within one year.....................   $        328,551     $        332,338
Due after 1 through 5 years.............            151,625              160,659
Due after 5 through 10 years............             55,780               61,615
Due after 10 years......................             35,729               38,735
                                           ----------------     ----------------
                                           $        571,685     $        593,347
                                           ================     ================

<TABLE>
<CAPTION>

                                                                          Gross            Gross
                                                       Amortized        Unrealized       Unrealized          Fair
                                                          Cost            Gains            Losses            Values
                                                     ------------      ------------     ------------      ------------
<S>                                                  <C>               <C>              <C>               <C>         
DECEMBER 31, 1997:
Mortgage-related securities:
 Single family residential:
    AAA-rated collateralized mortgage obligations..  $    160,347      $        195     $        (91)     $    160,451
    FHLMC interest-only............................        73,214               219           (8,688)           64,745
    FNMA interest-only.............................        71,215               829          (12,329)           59,715
    GNMA interest-only.............................        35,221                --           (5,455)           29,766
    AAA-rated interest-only........................        14,700                19             (856)           13,863
    BB-rated subordinates..........................         2,496                19               --             2,515
    Unrated subordinates...........................        34,041             5,922             (744)           39,219
    Unrated subprime residuals.....................        42,977               552           (1,739)           41,790
    Swaps..........................................            --                --              (94)              (94)
                                                     ------------      ------------     ------------      ------------
                                                          434,211             7,755          (29,996)          411,970
                                                     ------------      ------------     ------------      ------------
 Multi-family and commercial:
    B-rated subordinates...........................         7,585               927               --             8,512
    Unrated subordinates...........................         6,106             1,325             (636)            6,795
    AAA-rated interest-only........................         2,002             1,056               --             3,058
    BB-rated interest-only.........................           165                24               --               189
                                                     ------------      ------------     ------------      ------------
                                                           15,858             3,332             (636)           18,554
                                                     ------------      ------------     ------------      ------------
Marketable equity securities:
 Common stocks.....................................        38,545             9,638           (1,911)           46,272
                                                     ------------      ------------     ------------      ------------
                                                     $    488,614      $     20,725     $    (32,543)     $    476,796
                                                     ============      ============     ============      ============
</TABLE>


Common stocks at December 31, 1997,  were  comprised  primarily of the Company's
investment  in OAC. At December  31,  1997,  the  Company,  through  IMI,  owned
1,715,000  shares or 9.04% of the  outstanding  common  stock of OAC.  On May 5,
1998,  IMI  purchased an additional  1,473,733  units of OPLP,  OAC's  operating
partnership  subsidiary,  increasing  its combined  ownership of OAC and OPLP to
16.83%. As a result of this increase in ownership,  the Company began accounting
for its  investments  in OAC and OPLP under the equity  method.  See Note 9. The
Company's  other common stock  investment at December 31, 1997,  was sold during
1998.

A profile of the maturities of mortgage-related securities at December 31, 1997,
follows. Mortgage-backed securities are included based on their weighted-average
maturities,  reflecting  anticipated  future  prepayments  based on consensus of
dealers in the market.

                                        Amortized Cost         Fair Value
                                        --------------       --------------
Due within one year.............        $      120,839       $      120,700
Due after 1 through 5 years.....               246,204              223,873
Due after 5 through 10 years....                79,322               81,655
Due after 10 years..............                 3,704                4,296
                                        --------------       --------------
                                        $      450,069       $      430,524
                                        ==============       ==============

Gross realized gains and losses,  proceeds on sales,  premiums amortized against
and  discounts  accreted  to income  were as follows  during the  periods  ended
December 31:

                                       66

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

              Securities               1998           1997         1996
         -------------------        -----------    -----------  -----------
Gross realized gains ............   $     9,082    $     9,637  $     4,323
Gross realized losses ...........          (957)        (3,591)      (3,757)
                                    -----------    -----------  -----------
Net realized gains (losses) (1)..   $     8,125    $     6,046  $       566
                                    ===========    ===========  ===========
Proceeds on sales ...............   $   269,828    $   202,670  $   175,857
                                    ===========    ===========  ===========

Net premium amortization ........   $    56,487    $    66,285  $    20,247
                                    ===========    ===========  ===========

(1)      Excludes impairment charges of $129,714 incurred during 1998 related to
         AAA-rated agency  interest-only  securities,  subordinates and subprime
         residual securities.

NOTE 6: LOANS AVAILABLE FOR SALE

The following  table sets forth the composition of the Company's loans available
for sale by type of loan at the December 31:

                                                  Carrying Value
                                           ---------------------------
                                               1998           1997
                                           ------------   ------------
Loan type:
  Single family residential ............   $    177,578   $    176,554
  Consumer .............................            269            487
                                           ------------   ------------
    Total loans available for sale......
                                           $    177,847   $    177,041
                                           ============   ============

The loans  available  for sale  portfolio  is secured by  mortgages  on property
located throughout the United States and the United Kingdom. The following table
sets  forth  the five  states  or  countries  in which  the  largest  amount  of
properties  securing  the  Company's  loans  available  for sale were located at
December 31, 1998:


                               Single family
                                Residential         Consumer           Total
                               --------------    -------------      ------------
U.K. (1).....................   $     87,644     $          --      $     87,644
California...................         20,960                --            20,960
New Jersey...................         10,806                --            10,806
Florida......................         10,635               108            10,743
Illinois.....................          7,455                --             7,455
Other (2)....................         40,078               161            40,239
                                ------------      ------------      ------------
Total........................   $    177,578      $        269      $    177,847
                                ============      ============      ============


(1)      Represents   loans  originated  by  Ocwen  UK  with  a  carrying  value
         of(pound)52,808.

(2)      Consists  of  properties  located  in 40  other  states,  none of which
         aggregated over $6,180 in any one state.

The  following  table  presents a summary of the Company's  nonperforming  loans
(loans  which  were  past due 90 days or more) in the loans  available  for sale
portfolio at December 31:

Nonperforming loans:                                 1998              1997
                                               --------------    --------------
  Single family...........................     $       39,415    $       13,509
  Consumer................................                  9                25
                                               --------------    --------------
                                               $       39,424    $       13,534
                                               ==============    ==============
Nonperforming loans as a percentage of:
  Total loans available for sale..........              22.17%             7.64%
  Total assets............................               1.19%             0.44%

NOTE 7: LOAN PORTFOLIO

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

                                                           Carrying Value
                                                     --------------------------
                                                        1998             1994
                                                     ---------        ---------
Loan type:
Single family residential ....................       $  30,361        $  46,226
  Multi-family residential:
    Permanent ................................          53,311           38,105
    Construction .............................          22,288           33,277
                                                     ---------        ---------
    Total multi-family residential ...........          75,599           71,382
                                                     ---------        ---------
Commercial real estate:
  Hotel:
    Permanent ................................          29,735           64,040
    Construction .............................           6,896           25,322
  Office .....................................          93,068           68,759
  Land .......................................           2,266            2,858
  Other ......................................           6,762           16,094
                                                     ---------        ---------
     Total commercial real estate ............         138,727          177,073
                                                     ---------        ---------
Consumer .....................................             132              244
                                                     ---------        ---------
     Total loans .............................         244,819          294,925
Undisbursed loan funds .......................          (7,099)         (22,210)
Unaccreted discount ..........................          (2,480)          (2,721)
Allowance for loan losses ....................          (4,928)          (3,695)
                                                     ---------        ---------
     Loans, net ..............................       $ 230,312        $ 266,299
                                                     =========        =========

At December 31, 1998, the Company had $3,582 of single family  residential loans
and $3,645 of multi-family  residential  loans  outstanding,  at market interest
rates and terms,  which were issued to facilitate the sale of the Company's real
estate owned and real estate held for development.

Included in the loan  portfolio at December  31, 1998 and 1997,  was $12,297 and
$88,954,  respectively,  of loans  in  which  the  Company  participated  in the
residual profits of the underlying real estate. The Company records any residual
profits as part of interest income when received.

The following  table  presents a summary of the Company's  nonperforming  loans,
allowance  for loan  losses and  significant  ratios at and for the years  ended
December 31:

<TABLE>
<CAPTION>

                                                              1998              1997              1996
                                                         --------------    --------------    --------------
<S>                                                      <C>               <C>               <C>           
Nonperforming loans:
Single family residential.........................       $        1,169    $        1,575    $        2,123
Multi-family residential...........................               7,392             7,583               106
Commercial real estate and other...................                 488                --                55
                                                         --------------    --------------    --------------
                                                         $        9,049    $        9,158    $        2,284
                                                         ==============    ==============    ==============
Allowance for loan losses:
Balance, beginning of year.........................      $        3,695    $        3,523    $        1,947
Provision for loan losses..........................                 891               325             1,872
Charge-offs........................................                (219)             (153)             (296)
Recoveries.........................................                 561                --                --
                                                         --------------    --------------    --------------
Balance, end of year...............................      $        4,928    $        3,695    $        3,523
                                                         ==============    ==============    ==============
Significant ratios:................................
Nonperforming loans as a percentage of: Loans                  3.81%             3.36%             0.56%
Total assets.......................................            0.27%             0.30%             0.09%
Allowance for loan losses as a percentage of Loans             2.07%             1.35%             0.87%
Nonperforming loans................................           54.46%            40.35%           154.25%
</TABLE>


                                       67

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

If non-accrual  loans had been current in accordance  with their original terms,
interest income for the years ended December 31, 1998, 1997 and 1996, would have
been greater by approximately $284, $515 and $214, respectively. No interest has
been accrued on loans greater than 89 days past due.

At and for the years  ended  December  31,  1998 and 1997,  the  Company  had no
investment in impaired loans as defined in accordance  with SFAS No. 114, and as
amended by SFAS No. 118.

The 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  loans were  located at
December 31, 1998.

<TABLE>
<CAPTION>

                              Single Family    Multi-family     Commercial
                               Residential     Residential      Real Estate       Consumer         Total
                              -------------    -------------    ------------    ------------    ------------
<S>                            <C>              <C>             <C>             <C>             <C>         
New York...................    $      1,554     $     23,042    $     27,663    $         55    $     52,314
New Jersey.................          19,679            6,875           3,219              14          29,787
Florida....................             177               --          27,686              --          27,863
Texas......................           1,710            7,372           3,122              --          12,204
California.................             268            6,358           4,523              --          11,149
Other......................           6,973           31,952          72,514              63         111,502
                               ------------     ------------    ------------    ------------    ------------
   Total...................    $     30,361     $     75,599    $    138,727    $        132    $    244,819
                               ============     ============    ============    ============    ============
</TABLE>


NOTE 8: DISCOUNT LOAN PORTFOLIO

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

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

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

                                                           Carrying Value
                                                   ----------------------------
                                                      1998             1997
                                                   ------------    ------------
Loan type:
Single family residential......................    $    597,100    $    900,817
Multi-family residential.......................         244,172         191,302
Commercial real estate.........................         449,010         701,035
Other..........................................          10,144           1,865
                                                   ------------    ------------
   Total discount loans........................       1,300,426       1,795,019
Unaccreted discount............................        (252,513)       (337,350)
Allowance for loan losses......................         (21,402)        (23,493)
                                                   ------------    ------------
   Discount loans, net.........................    $  1,026,511    $  1,434,176
                                                   ============    ============

                                       68

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

The following table sets forth the payment status at December 31 of the loans in
the Company's gross discount loan portfolio:

<TABLE>
<CAPTION>

                                                              December 31, 1998             December 31, 1997
                                                         ---------------------------     -----------------------
                                                           Principal          % of        Principal       % of
                                                             Amount          Loans          Amount        Loans
                                                         -------------     ---------     -----------    --------
<S>                                                      <C>                   <C>       <C>               <C>
Loans without Forbearance Agreements:
   Current.......................................        $     578,269         44.47%    $   670,115       37.33%
   Past due 31 to 89 days........................               35,555          2.73          21,098        1.18
   Past due 90 days or more......................              509,838         39.21         638,319       35.56
   Acquired and servicing not yet transferred....               57,048          4.39          28,053        1.56
                                                         -------------     ---------     -----------    --------
     Subtotal....................................            1,180,710         90.80       1,357,585       75.63
                                                         -------------     ---------     -----------    --------
Loans with Forbearance Agreements:
   Current.......................................                1,180          0.09           3,140        0.18
   Past due 31 to 89 days........................                4,046          0.31           1,688        0.09
   Past due 90 days or more (1)(2)...............              114,490          8.80         432,606       24.10
                                                         -------------     ---------     -----------    --------
     Subtotal....................................              119,716          9.20         437,434       24.37
                                                         -------------     ---------     -----------    --------
Total............................................        $   1,300,426        100.00%    $ 1,795,019      100.00%
                                                         =============     ==========    ===========    ========
</TABLE>


(1)      Includes  $110,072 of loans which were less than 90 days past due under
         the terms of the forbearance  agreements at December 31, 1998, of which
         $77,893 were current and $32,179 were past due 31 to 89 days.

(2)      Includes  $316,347 of loans which were less than 90 days past due under
         the terms of the forbearance  agreements at December 31, 1997, of which
         $184,526 were current and $131,821 were past due 31 to 89 days.

A summary of income on discount loans is as follows for the years ended December
31:

                                           1998          1997            1996
                                       -----------    -----------    -----------
Interest income:
Realized.............................  $   160,847    $   157,649    $    97,174
Accreted and unrealized..............           --             --          5,991
                                       -----------    -----------    -----------
                                       $   160,847    $   157,649    $   103,165
                                       ===========    ===========    ===========

Gains on sales:
Realized gains on sales..............  $    12,609    $     4,215    $     7,393
                                       ===========    ===========    ===========

Proceeds on sales....................  $   626,423    $   500,151    $   190,616
                                       ===========    ===========    ===========

Proceeds and gains on sales of discount loans exclude non-cash  proceeds related
to the  exchange  of  discount  loans  for  securities  in  connection  with the
Company's securitization activities (see Note 4).

The following table sets forth the activity in the Company's gross discount loan
portfolio during the years ended December 31:

<TABLE>
<CAPTION>

                                                1998         1997           1996
                                             -----------   -----------   -----------
<S>                                          <C>           <C>           <C>        
Principal balance at beginning of year.....  $ 1,795,019   $ 1,314,399   $   943,529
Acquisitions...............................    1,123,727     1,776,773     1,110,887
Resolutions and repayments.................     (539,353)     (484,869)     (371,228)
Loans transferred to real estate owned.....     (382,904)     (292,412)     (138,543)
Sales......................................     (696,063)     (518,872)     (230,246)
                                             -----------   -----------   -----------
Principal balance at end of year...........  $ 1,300,426   $ 1,795,019   $ 1,314,399
                                             ===========   ===========   ===========
</TABLE>


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 December 31, 1998:

                                       69

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                  Commercial
                                 Single Family     Multi-Family   Real Estate
                                  Residential      Residential     and Other       Total
                                  -----------      -----------    -----------   -----------
<S>                               <C>              <C>            <C>           <C>        
California.....................   $    87,850      $    26,391    $    97,395   $   211,636
New York.......................        71,076            8,506         64,381       143,963
Illinois.......................        25,310           74,186         11,662       111,158
Michigan.......................         8,527           65,808         30,513       104,848
New Jersey.....................        71,233            2,903         10,270        84,406
Other..........................       333,104           66,378        244,933       644,415
                                  -----------      -----------    -----------   -----------
   Total.......................   $   597,100      $   244,172    $   459,154   $ 1,300,426
                                  ===========      ===========    ===========   ===========
</TABLE>


The following  schedule  presents a summary of the Company's  allowance for loan
losses and significant  ratios for its discount loans at and for the years ended
December 31:

<TABLE>
<CAPTION>
                                                               1998          1997           1996
                                                           -----------    -----------   -----------
<
S>                                                        <C>            <C>           <C>        
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year.............................. $    23,493    $    11,538   $        --
Provision for loan losses.................................      17,618         31,894        20,578
Charge-offs...............................................     (20,130)       (20,349)       (9,216)
Recoveries................................................         421            410           176
                                                           -----------    -----------   -----------
Balance at end of year.................................... $    21,402    $    23,493   $    11,538
                                                           ===========    ===========   ===========

SIGNIFICANT RATIOS:
Allowances for loan losses as a percentage of
discount loan portfolio, net of discount..................        2.04%          1.61%         1.08%
Net charge-offs as a percentage of average discount loans.        1.53%          1.55%         1.34%
</TABLE>


NOTE 9: INVESTMENT IN UNCONSOLIDATED ENTITIES

At December 31, 1997, the Company,  through IMI, owned 1,715,000 shares or 9.04%
of the outstanding  common stock of OAC. Also at December 31, 1997, the Company,
through IMI, owned 160,000 units or 0.84% of the partnership  units of OPLP, the
operating  partnership  subsidiary  of OAC. On February 17, 1998,  IMI exchanged
175,000 shares of OAC stock for 175,000 OPLP units. On May 5, 1998, IMI acquired
an  additional  1,473,733  OPLP  units.  As a  result  of this  activity,  IMI's
investment  in OAC stock  declined to 1,540,000  shares or 8.12% at December 31,
1998,  while its investment in OPLP increased to 1,808,733  units or 8.71%.  The
Company began  accounting for these  entities under the equity method  effective
May 5, 1998  upon the  increase  in the  combined  ownership  of OAC and OPLP to
16.83%.  An adjustment to reduce retained earnings in the amount of $979 (net of
income  taxes of $526) was  recorded  upon  conversion  to the equity  method to
reflect the cumulative effect of the accounting change. The Company's investment
in OAC stock amounted to $16,268 at December 31, 1998. The Company's  investment
in OAC stock at December  31, 1997,  was  designated  as available  for sale and
carried at a fair value of $35,158 ($25,519 cost).  The Company's  investment in
OPLP units  amounted to $22,820 at December 31,  1998,  as compared to $2,381 at
December 31, 1997. During 1998, the Company recorded equity in the losses of its
investment in OAC and OPLP of $4,007 and $4,694,  respectively.  At December 31,
1998,  the  Company's  investment  in OAC stock was  pledged  as  collateral  on
obligations outstanding under a line of credit.

The  Company's  investment  in  unconsolidated  entities at December  31,  1998,
includes 36.07% of the total outstanding  common stock of Kensington,  a leading
originator of  non-conforming  residential  mortgages in the U.K.,  purchased on
February 25, 1998,  for $45,858  ((pound)27,837).  The  Company's  investment in
Kensington  amounted to $46,586 at December 31,  1998,  net of the excess of the
purchase  price over the net  investment.  The excess of the purchase price over
the net investment amounted to $34,492 ((pound)20,933) at December 31, 1998, net
of accumulated  amortization of $2,029  ((pound)1,192),  and is amortized over a
period of 15 years.  During  1998,  the Company  recorded  equity in earnings of
Kensington of $439, net of the $2,029  amortization of excess cost over purchase
price.

                                       70

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

On December 12,  1997,  the LLC  distributed  all of its assets.  The  Company's
equity in  earnings  of the LLC of  $23,688  and  $38,320  for the  years  ended
December 31, 1997 and 1996, respectively,  includes 50% of the net income of the
LLC before deduction of the Company's 50% share of loan servicing fees which are
paid  100% to the  Company.  Equity  in  earnings  for 1997  also  includes  the
recapture of $5,114 of valuation  allowances  established in 1996 by the Company
on its equity  investment in the joint venture as a result of the resolution and
securitization  of loans.  Equity in earnings for 1996  includes a provision for
losses on the Company's  equity  investment in the joint venture of $7,614.  The
Company  has  recognized  50% of the  loan  servicing  fees  not  eliminated  in
consolidation  in  servicing  fees  and  other  charges.  Because  the LLC was a
pass-through entity for federal income tax purposes, provisions for income taxes
were established by each of the Company and its co-investor, and not the LLC.

Set forth  below are the  statements  of  operations  of the LLC for the periods
indicated.

<TABLE>
<CAPTION>

                                                BCBF, L.L.C.
                                          STATEMENTS OF OPERATIONS

                                                                     For the Period March
                                                     For the             March 13, 1996 
                                                   Year Ended               through
                                                December 31, 1997      December 31, 1996
                                                -----------------       ----------------
<S>                                              <C>                    <C>             
Interest income..............................    $          8,928       $         38,647
Interest expense.............................                  --                 18,503
                                                 ----------------       ----------------
   Net interest income.......................               8,928                 20,144
                                                 ----------------       ----------------
Non-interest income:
   Gain on sale of loans held for sale.......              27,994                 71,156
   Gain on sale of loan servicing rights.....                  --                  1,048
   Loss on real estate owned, net............                 (93)                  (130)
   Loan fees.................................                  23                     50
                                                 ----------------       ----------------
                                                           27,924                 72,124
Operating expenses:
   Loan servicing fees.......................               1,850                  5,743
   Other loan expenses.......................                  13                    273
                                                 ----------------       ----------------
                                                            1,863                  6,016
                                                 ----------------       ----------------
Net income...................................    $         34,989       $         86,252
                                                 ================       ================
</TABLE>


In October  1996,  the LLC  securitized  9,825  loans  with an unpaid  principal
balance  of  $419,382,  past due  interest  of  $86,131  and a net book value of
$394,234.  Proceeds from sales of the related  securities by the LLC amounted to
$466,806.  In March 1997, as part of a larger transaction  involving the Company
and an affiliate of BlackRock,  the LLC  securitized  1,196 loans with an unpaid
principal balance of $51,714,  past due interest of $14,209 and a net book value
of  $40,454.  Proceeds  from  the sale of the  related  securities  amounted  to
$58,866. In December 1997, as part of a larger transaction involving the Company
and BlackRock, the LLC securitized 534 loans with an unpaid principal balance of
$26,644,  past due interest of $8,303 and a net book value of $20,139.  Proceeds
from the sale of the related securities amounted to $30,178.

The  Company's  investment  in  unconsolidated  entities  also  includes a joint
venture  investment in BCFL, L.L.C.  ("BCFL"),  a limited liability  corporation
formed in January 1997 between the Company and BlackRock. The Company owns a 10%
interest in BCFL which was formed to acquire multi-family loans. At December 31,
1998  and  1997,  the  Company's  investment  amounted  to  $1,133  and  $1,056,
respectively. Equity in earnings of BCFL amounted to $277 during 1998.

NOTE 10: REAL ESTATE OWNED

Real  estate  owned,  net of  allowance  for  losses,  is held for sale and were
provided from the following portfolios at December 31:

                                       71

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

                                                        1998            1997
                                                    -----------      -----------
Discount loan portfolio:
Single family residential........................   $    94,641      $    76,409
Multi-family residential.........................        20,130           16,741
Commercial real estate...........................        82,591           71,339
                                                    -----------      -----------
Total discount loan portfolio....................       197,362          164,489
Loan portfolio...................................           227              357
Loans available for sale.........................         3,962            2,419
                                                    -----------      -----------
                                                    $   201,551      $   167,265
                                                    ===========      ===========

The following  schedule  presents the activity,  in aggregate,  in the valuation
allowances on real estate owned for the years ended December 31:

<TABLE>
<CAPTION>
                                                        1998          1997           1996
                                                    -----------    -----------    -----------
<S>                                                 <C>            <C>            <C>        
Balance at beginning of year.....................   $    12,346    $    11,493    $     4,606
Provision for losses.............................        18,626         13,450         18,360
Charge-offs and sales............................       (15,647)       (12,597)       (11,473)
                                                    -----------    -----------    -----------
Balance at end of year...........................   $    15,325    $    12,346    $    11,493
                                                    ===========    ===========    ===========
</TABLE>


The following  table sets forth the results of the Company's  investment in real
estate  owned,  which were  primarily  related to the discount  loan  portfolio,
during the years ended December 31:

<TABLE>
<CAPTION>
                                                        1998          1997            1996
                                                    -----------    -----------    -----------
<S>                                                 <C>            <C>            <C>        
Gains on sales...................................   $    43,839    $    30,651    $    22,835
Provision for losses.............................       (18,626)       (13,450)       (18,360)
Carrying costs, net..............................       (11,180)        (9,924)          (648)
                                                    -----------    -----------    -----------
                                                    $    14,033    $     7,277    $     3,827
                                                    ===========    ===========    ===========
</TABLE>

NOTE 11: INVESTMENT IN REAL ESTATE

The Company's  investment in real estate  consisted of the following at December
31:

                                                        1998            1997
                                                    -----------     -----------
Loans accounted for as investments in real estate:
   Multi-family residential......................   $        --     $    61,967
   Nonresidential................................            --           2,369
                                                    -----------     -----------
                                                    $        --     $    64,336
                                                    -----------     -----------

Properties held for lease:
   Land and land improvements, (net of accumulated
     Depreciation of $3 and $0, respectively)....         5,170           3,477
   Building, (net of accumulated depreciation
     of $115 and $0, respectively)...............        26,011           2,156
   Other (net of accumulated amortization of
     $170 and $0, respectively)..................         1,701             814
                                                    -----------     -----------
                                                         32,882           6,447
                                                    -----------     -----------
Other investments in real estate:
   Land..........................................            --           3,921
   Nonresidential................................         3,978           1,636
                                                    -----------     -----------
                                                          3,978           5,557
                                                    -----------     -----------
                                                    $    36,860     $    76,340
                                                    ===========     ===========

                                       72

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 12: MORTGAGE SERVICING

The Company  services for other investors  mortgage loans which it does not own.
The  total  amount  of such  loans  serviced  for  others  was  $10,592,467  and
$5,509,819 at December 31, 1998 and 1997, respectively.  Servicing fee income on
such loans amounted to $45,559,  $22,056 and $2,414 for the years ended December
31, 1998, 1997 and 1996, respectively.

The  unamortized  balance of mortgage  servicing  rights,  which are included in
other assets, is as follows at December 31:

                                                         1998           1997
                                                     -----------    -----------
Unamortized balance.............................     $     8,690    $     7,369
Valuation allowance.............................          (1,630)        (1,630)
                                                     -----------    -----------
                                                     $     7,060    $     5,739
                                                     ===========    ===========

NOTE 13: INVESTMENTS IN LOW INCOME HOUSING TAX CREDIT INTERESTS

The carrying value of the Company's investments in low-income housing tax credit
interests are as follows at December 31:

<TABLE>
<CAPTION>
                                                                                  1998       1997
                                                                                --------   --------
<S>                                                                             <C>        <C>     
Investments solely as a limited partner made prior to May 18, 1995 ...........  $ 19,607   $ 31,418
Investments solely as a limited partner made on or after May 18, 1995 ........    56,299     47,153
Investments both as a limited and, through subsidiaries, as a general partner.    68,258     50,043
                                                                                --------   --------
                                                                                $144,164   $128,614
                                                                                ========   ========
</TABLE>

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 December 31, 1998, the Company's largest single investment
was $9,965, which related to a project located in Racine, Wisconsin.

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 $4,650,  $6,846 and $8,144 for the years ended December
31, 1998, 1997 and 1996, respectively.  Had these investments been accounted for
under the equity method, net income would have been reduced by $1,113,  $665 and
$2,194 for the years ended December 31, 1998, 1997 and 1996,  respectively.  For
limited partnership  investments made after May 18, 1995, and for investments as
a  limited  and,  through  subsidiaries,  as  a  general  partner,  the  Company
recognized  tax  credits of  $13,017,  $8,035  and  $1,186  for the years  ended
December 31, 1998, 1997 and 1996,  respectively,  and recorded a loss of $6,905,
$4,935 and $636 from operations on the underlying real estate after depreciation
for the years ended December 31, 1998, 1997 and 1996, respectively.

Included in other income for the years ended  December 31, 1998,  1997 and 1996,
are gains of $7,366,  $6,053 and $4,861,  respectively,  on the sales of certain
investments in low-income housing tax credit interests which had carrying values
of $28,887, $15,728 and $19,806, respectively, at time of sale.

NOTE 14: PREMISES AND EQUIPMENT

Premises and equipment at December 31 are summarized as follows:

                                                          1998          1997
                                                      -----------   -----------
Land and land improvements.........................   $     4,782   $       773
Leasehold improvements.............................         9,062         7,664
Office and computer equipment......................        44,828        28,675
Construction in progress...........................           951            --
Less accumulated depreciation and amortization.....       (25,800)      (15,570)
                                                      -----------   -----------
                                                      $    33,823   $    21,542
                                                      ===========   ===========

Occupancy and equipment expenses include depreciation expense of $11,703, $6,821
and $4,547  for 1998,  1997 and 1996,  respectively.  Construction  in  progress
represents the  construction  costs  incurred in connection  with the nationwide
customer  service  and  collection  facility  currently  under  construction  in
Orlando, Florida.

                                       73

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 15: DEPOSITS

The Company's deposits consist of the following at December 31:

<TABLE>
<CAPTION>

                                                          1998                                      1997
                                           ------------------------------------    ---------------------------------------
                                           Weighted      Percent      Weighted      Percent
                                            Average       Book        of Total      Average         Book        of Total
                                             Rate         Value       Deposits        Rate          Value       Deposits
                                           --------   -----------    ----------    ---------    -----------   ------------
<S>                                           <C>           <C>           <C>          <C>            <C>           <C>
Non-interest-bearing deposits......             --%   $   233,427        10.7%           --%     $  130,372         6.6%
NOW and money market checking                 3.40         33,272         1.5          4.73          27,624         1.4
   accounts........................
Savings accounts...................           2.30          1,326         0.1          2.30           1,664         0.1
                                                                       ------                   -----------
                                                          268,025        12.3                       159,660         8.1
                                                                       ------                   -----------
Certificates of deposit............                     1,916,548                                 1,834,899
Unamortized deferred fees..........                        (9,557)                                  (11,737)
                                                      -----------                               -----------
                                              5.78      1,906,991        87.7          6.00       1,823,162        91.9
                                                      -----------      ------                   -----------
Total deposits.....................           5.18    $ 2,175,016       100.0%         5.95     $ 1,982,822       100.0%
                                                      ===========      ======                   ===========      ======
</TABLE>


At December 31, 1998 and 1997, certificates of deposit, exclusive of unamortized
deferred fees,  include  $1,856,902 and  $1,777,586,  respectively,  of deposits
originated  through national,  regional and local investment banking firms which
solicit  deposits  from  their  customers,  all  of  which  are  non-cancelable.
Additionally,   at  December  31,  1998  and  1997,   $100,463   and   $133,738,
respectively,  of certificates of deposit were issued on an uninsured  basis. Of
the  $100,463 of  uninsured  deposits at December  31,  1998,  $47,858 were from
political  subdivisions  in New Jersey  and are  secured  or  collateralized  as
required under state law.  Non-interest  bearing  deposits  include $213,116 and
$96,518 of advance payments by borrowers for taxes,  insurance and principal and
interest  collected  but not yet  remitted  in  accordance  with loan  servicing
agreements at December 31, 1998 and 1997, respectively.

The  contractual  maturity of the Company's  certificates of deposit at December
31, 1998, follows:

CONTRACTUAL REMAINING MATURITY:
   Within one year..........................................    $       976,808
   Within two years.........................................            366,607
   Within three years.......................................            292,871
   Within four years........................................            197,493
   Within five years........................................             48,879
   Thereafter...............................................             24,333
                                                                ---------------
                                                                $     1,906,991
                                                                ===============

The amortization of the deferred fees of $6,353, $6,619 and $5,384 for the years
ended  December 31, 1998,  1997 and 1996,  respectively,  is computed  using the
interest method and is included in interest  expense on certificates of deposit.
The  interest  expense  by type of deposit  account is as follows  for the years
ended December 31:

<TABLE>
<CAPTION>

                                                        1998          1997           1996
                                                    -----------    -----------   -----------
<S>                                                 <C>            <C>           <C>        
NOW accounts and money market checking.........     $     1,434    $     1,220   $       620
Savings .......................................              38             49            78
Certificates of deposit........................         115,112        120,801        93,075
                                                    -----------    -----------   -----------
                                                    $   116,584    $   122,070   $    93,773
                                                    ===========    ===========   ===========
</TABLE>


Accrued interest payable on deposits amounted to $22,687 and $21,967 at December
31, 1998 and 1997, respectively.

NOTE 16: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company  periodically  enters into sales of securities  under  agreements to
repurchase the same securities ("reverse repurchase  agreements").  Fixed coupon
reverse  repurchase  agreements  with  maturities  of three  months  or less are
treated as financings,  and the  obligations to repurchase  securities  sold are

                                       74

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

reflected  as  a  liability  in  the  accompanying  consolidated  statements  of
financial condition. All securities underlying reverse repurchase agreements are
reflected as assets in the  accompanying  consolidated  statements  of financial
condition and are held in safekeeping by broker/dealers.

<TABLE>
<CAPTION>

                                                                         December 31,
                                                         ----------------------------------------------
                                                             1998             1997              1996
                                                         -----------       -----------      -----------
<S>                         <C>                          <C>               <C>              <C>        
OTHER INFORMATION CONCERNING SECURITIES
   SOLD UNDER AGREEMENTS TO REPURCHASE:
     Balance at end of year (1)......................    $    72,051       $   108,250      $    74,546
     Accrued interest payable at end of year.........    $       214       $       306      $        12
     Weighted average interest rate at end of year...           7.95%             6.06%            5.46%
     Average balance during the year.................    $   104,980       $    16,717      $    19,581
     Weighted average interest rate during the year..           6.20%             5.98%            5.62%
     Maximum month-end balance.......................    $   314,515       $   108,250      $    84,321
</TABLE>


(1)      At December 31, 1998, $29,011 ((pound)17,480) related to Ocwen UK.

Securities  sold under  agreements  to  repurchase  at December 31,  1998,  were
contractually  due between  January  1999 and  December  2030.  Mortgage-related
securities  with an amortized cost of $137,705 and a fair value of $148,839 were
posted as  collateral  for  securities  sold under  agreements  to repurchase at
December 31, 1998. Interest expense incurred on securities sold under agreements
to repurchase  amounted to $6,514,  $1,000 and $1,101 during 1998, 1997 and 1996
respectively.

NOTE 17: OBLIGATIONS OUTSTANDING UNDER LINES OF CREDIT

The Company  through  its  subsidiaries  has  obtained  secured  lines of credit
arrangements from various unaffiliated  financial institutions primarily to fund
its growth in subprime single family residential loans, both domestically and in
the U.K.

At December 31, 1998, the Company,  through its  subsidiary  OFS, had short-term
secured lines of credit with unaffiliated financial institutions as follows: (i)
a $200,000  secured  line of credit,  of which  $100,000 was  committed,  (ii) a
$50,000  secured line of credit,  all of which was  committed,  (iii) a $200,000
secured line of credit, of which $100,000 was committed, (iv) a $100,000 secured
line of credit, none of which was committed,  and (v) a $20,000 secured residual
line of credit, none of which was committed.  The lines of credit mature between
March 1999 and July 2001 and bear  interest  at rates  that float in  accordance
with designated  indices.  The terms of the line of credit  agreements  contain,
among other  provisions,  requirements  for maintaining  certain  profitability,
defined levels of net worth and debt-to-equity ratios. At December 31, 1998, OFS
failed to comply with the maintenance of  profitability  covenant for one of its
credit lines.  OFS obtained the lender's  agreement  waiving the  requirement of
this  covenant for the period  ended  December 31,  1998.  The  agreements  also
require a facility fee based on the total committed amount. Such commitment fees
are  capitalized  and  amortized on a  straight-line  basis over a  twelve-month
period. In addition,  one agreement  requires a non-usage fee, which is expensed
as incurred,  based on the unused portion of the committed  amount.  At December
31, 1998 and 1997,  obligations  outstanding under these lines of credit totaled
$59,492 and $118,304,  respectively. The weighted average interest rate on these
lines of credit  outstanding at December 31, 1998 and 1997, was 6.26% and 6.32%,
respectively.

Additionally,  the Company's  foreign  subsidiary,  Ocwen UK, has entered into a
Loan Facility Agreement with Greenwich  International Ltd.  ("Greenwich")  under
which  Greenwich  provided a short-term  facility to finance the  acquisition of
Cityscape  UK's mortgage loan  portfolio  (the "Term Loan") and to finance Ocwen
UK's  further  originations  and purchase of subprime  single  family loans (the
"Revolving Facility, and together with the Term Loan, the "Greenwich Facility").
The Greenwich  Facility is secured by Ocwen UK's loans  available for sale.  The
Revolving  Facility which matures in April 1999, is set at a maximum of $166,000
((pound)100,000  reduced  by the amount  borrowed  under the Term Loan) of which
$87,100  ((pound)52,504)  was funded at December 31, 1998,  to finance  subprime
single family loan  originations  and bears  interest at a rate of the one-month
LIBOR plus 1.50%. At December 31, 1998, $5,600  ((pound)3,381) had been borrowed
under the Term Loan,  which matured in January  1999. In addition,  Ocwen UK has
entered  into a secured  warehouse  line of credit with  Barclays  Bank plc (the
"Barclays  Facility") to finance subprime single family loan  originations.  The
Barclays Facility,  which matures in November 1999, and bears interest at a rate
of  the  one-month   LIBOR  plus  0.80%,   is  set  at  a  maximum  of  $124,500
((pound)75,000),  against  which  $24,600  ((pound)14,800)  had been borrowed at
December 31, 1998. The weighted  average  interest rate on these lines of credit
outstanding at December 31, 1998, was 7.35%.

                                       75

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

The lines are used to fund mortgage loan originations and are generally advanced
at a rate of 80% to 98% of the principal balance of the mortgage loan.  Interest
expense on obligations  outstanding  under lines of credits amounted to $34,587,
$5,578 and $0 during 1998, 1997 and 1996, respectively.


NOTE 18: NOTES, DEBENTURES AND OTHER INTEREST-BEARING OBLIGATIONS

Notes, debentures and other interest-bearing obligations mature as follows:

                                                           December 31,
                                                  -----------------------------
                                                      1998             1997
                                                  -----------       -----------
1998:
7.063% Note due January 31.....................   $        --       $     1,975
2003:
11.875% Notes due October 1....................       125,000           125,000
2005:
12% Subordinated Debentures due June 15........       100,000           100,000
                                                  -----------       -----------
                                                  $   225,000       $   226,975
                                                  ===========       ===========

The $100,000 of 12%  Subordinated  Debentures due 2005 (the  "Debentures")  were
issued by the Bank with interest  payable  semiannually  on June 15 and December
15.  The  Debentures  are  unsecured  general  obligations  of the  Bank and are
subordinated in right of payment to all existing and future senior debt.

The Debentures  may not be redeemed prior to June 15, 2000,  except as described
below.  On or after such date, the Debentures may be redeemed at any time at the
option  of the Bank,  in whole or in part,  together  with  accrued  and  unpaid
interest,  if any,  on not less  than 30 nor  more  than 60 days  notice  at the
following redemption prices (expressed as a percentage of the principal amount),
if  redeemed  during  the  twelve-month  period  beginning  June 15 of the years
indicated below:

Year                                                            Redemption Price
- ----                                                            ----------------
2000......................................................            105.333%
2001......................................................            104.000%
2002......................................................            102.667%
2003......................................................            101.333%
2004 and thereafter.......................................            100.000%

In connection  with the issuance of the  Debentures,  the Bank incurred  certain
costs which have been  capitalized  and are being  amortized on a  straight-line
basis over the expected life of the Debentures. The unamortized balance of these
issuance  costs  amounted to $1,894 and $2,319,  at December  31, 1998 and 1997,
respectively,  and is included in other assets.  Accrued interest payable on the
Debentures  amounted to $500 at December  31, 1998 and 1997,  and is included in
accrued expenses, payables and other liabilities.

On September 25, 1996,  the Company  completed  the public  offering of $125,000
aggregate  principal of 11.875%  Notes due October 1, 2003,  ("the  Notes") with
interest payable  semiannually on April 1 and October 1. The Notes are unsecured
general  obligations of the Company and are  subordinated in right of payment to
the claims of creditors of the Company's subsidiaries.

The Notes may not be  redeemed  prior to October 1,  2001,  except as  described
below.  On or after  such  date,  the Notes may be  redeemed  at any time at the
option of the Company,  in whole or in part, at the following  redemption prices
(expressed  as a  percentage  of the  principal  amount) plus accrued and unpaid
interest,  if redeemed during the twelve-month period beginning October 1 of the
years indicated below:

Year                                                            Redemption Price
- ----                                                            ----------------
2001......................................................            105.938%
2002......................................................            102.969%

                                       76

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

In addition,  the Company may redeem,  at its option,  up to 35% of the original
aggregate  principal amount of the Notes at any time and from time to time until
October 1, 1999, with the net cash proceeds  received by the Company from one or
more public or private equity offerings at a redemption price of 111.875% of the
principal amount thereof, plus accrued and unpaid interest.

The indenture governing the Notes requires the Company to maintain, at all times
when the Notes  are not rated in an  investment  grade  category  by one or more
nationally  recognized  statistical rating  organizations,  unencumbered  liquid
assets with a value equal to 100% of the required  interest  payments due on the
Notes on the next two succeeding  semiannual interest payment dates. The Company
maintains an investment in cash and cash equivalents, or $14,844 at December 31,
1998 and 1997,  that is  restricted  for  purposes  of  meeting  this  liquidity
requirement.  The  indenture  further  provides that the Company shall not sell,
transfer or  otherwise  dispose of shares of common  stock of the Bank or permit
the Bank to issue,  sell or  otherwise  dispose  of shares of its  common  stock
unless in either case the Bank remains a wholly-owned subsidiary of the Company.

Proceeds from the offering of the Notes amounted to approximately  $120,156 (net
of  underwriting  discount).  On  September  30, 1996,  the Company  contributed
$50,000 of such proceeds to the Bank to support future growth.  The remainder of
the proceeds  retained by the Company have been available for general  corporate
purposes,  with the exception of the liquidity maintenance requirement described
above.

In connection with the issuance of the Notes, the Company incurred certain costs
which have been  capitalized and are being  amortized on a  straight-line  basis
over the life of the Notes.  The  unamortized  balance of these  issuance  costs
amounted to $3,838 and $4,647 at December 31, 1998 and 1997,  respectively,  and
is included in other assets.  Accrued  interest payable on the Notes amounted to
$3,711 at  December  31, 1998 and 1997,  and is  included  in accrued  expenses,
payables and other liabilities.


NOTE 19: CAPITAL SECURITIES

In August 1997,  Ocwen Capital Trust  ("OCT")  issued $125.0  million of 10-7/8%
Capital  Securities  (the "Capital  Securities").  Proceeds from issuance of the
Capital  Securities  were  invested in 10-7/8%  Junior  Subordinated  Debentures
issued by Ocwen. The Junior  Subordinated  Debentures,  which represent the sole
assets of OCT, will mature on August 1, 2027.

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 10-7/8% 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  therefor.  Accumulated
distributions payable on the Capital Securities amounted to $5,664 and $5,249 at
December 31, 1998 and 1997,  respectively,  and is 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 10-7/8% 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 an investment company event) at a redemption
price equal to the greater of (a) 100% of the  principal  amount  thereof or (b)

                                       77

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

the sum of the present values of the principal  amount and premium  payable with
respect to an optional  redemption  of such Junior  Subordinated  Debentures  on
August 1, 2007, together with scheduled payments of interest from the prepayment
date to August 1, 2007,  discounted to the prepayment date on a semiannual basis
at the  adjusted  Treasury  rate plus  accrued  interest  thereon to the date of
prepayment. The Capital Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Junior Subordinated  Debentures at maturity or
their earlier redemption, in an amount equal to the amount of the related Junior
Subordinated  Debentures  maturing or being  redeemed and at a redemption  price
equal  to the  redemption  price of the  Junior  Subordinated  Debentures,  plus
accumulated and unpaid distributions thereon to the date of redemption.

For financial reporting purposes,  OCT is treated as a subsidiary of the Company
and, accordingly, the accounts of OCT are included in the consolidated financial
statements  of the  Company.  Intercompany  transactions  between  OCT  and  the
Company, including the

Junior  Subordinated  Debentures,  are eliminated in the consolidated  financial
statements of the Company.  The Capital  Securities  are presented as a separate
caption  between  liabilities  and  stockholders'  equity  in  the  consolidated
statement  of  financial   condition  of  the  Company  as   "Company-obligated,
mandatorily  redeemable  securities  of subsidiary  trust holding  solely Junior
Subordinated Debentures of the Company." Distributions on the Capital Securities
are recorded as a separate caption immediately following non-interest expense in
the consolidated  statement of operations of the Company. The Company intends to
continue this method of accounting going forward.

In connection with the issuance of the Capital Securities,  the Company incurred
certain costs which have been  capitalized and are being amortized over the term
of the Capital  Securities.  The  unamortized  balance of these  issuance  costs
amounted to $4,187 and $4,262 at December 31, 1998 and 1997,  respectively,  and
is included in other assets.

NOTE 20: BASIC AND DILUTED EARNINGS PER SHARE

Under SFAS No. 128,  the  Company is required to present  both basic and diluted
EPS on the face of its  statement  of  operations.  Basic  EPS,  which  replaced
primary  EPS  required  by APB 15,  excludes  common  stock  equivalents  and is
calculated  by  dividing  net income by the  weighted  average  number of common
shares  outstanding  during the year.  Diluted EPS is calculated by dividing net
income by the weighted  average number of common shares  outstanding,  including
the dilutive  potential common shares related to outstanding  stock options.  In
computing  diluted net loss per share for 1998,  the  conversion of common stock
equivalents was not assumed as the effect would be antidilutive.

The following is a  reconciliation  of the  calculation  of basic EPS to diluted
EPS.

<TABLE>
<CAPTION>

                                               1998          1997          1996
                                           -----------    -----------   -----------
<S>                                        <C>            <C>           <C>        
Net (loss) income .......................  $    (1,200)   $    78,932   $    50,142
                                           ===========    ===========   ===========
Basic EPS:
Weighed average shares of common stock...   60,736,950     56,185,956    50,556,572
                                           ===========    ===========   ===========

     Basic EPS ..........................  $     (0.02)   $      1.40   $      0.99
                                           ===========    ===========   ===========

Diluted EPS:
Weighed average shares of common stock...   60,736,950     56,185,956    50,556,572
Effect of dilutive securities:
     Stock options ......................           --        650,528     2,822,310
                                           -----------    -----------   -----------
                                            60,736,950     56,836,484    53,378,882
                                           ===========    ===========   ===========

     Diluted EPS ........................  $     (0.02)   $      1.39   $      0.94
                                           ===========    ===========   ===========
</TABLE>


                                       78

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 21: DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses  derivative  financial  instruments for the purpose of reducing
its exposure to adverse  fluctuations in interest and foreign currency  exchange
rates.  While these hedging  instruments  are subject to  fluctuations in value,
such  fluctuations are generally offset by the change in value of the underlying
exposures being hedged.

INTEREST RATE MANAGEMENT

In managing its interest rate risk,  the Company on occasion  enters into swaps.
Under swaps,  the Company  agrees with other  parties to exchange,  at specified
intervals,  the difference between fixed-rate and floating-rate interest amounts
calculated  by reference to an agreed  notional  amount.  The terms of the swaps
provide  for the  Company to receive a floating  rate of  interest  based on the
London  Interbank  Offered Rate  ("LIBOR") and to pay fixed interest  rates.  In
addition,  the  notional  amount of the swap  outstanding  is  amortized  (i.e.,
reduced) monthly based on estimated  prepayment rates. At December 31, 1998, the
Company had no swaps outstanding.
The terms of the outstanding swap at December 31, 1997, are as follows:

                Notional    LIBOR                 Floating Rate
     Maturity    Amount     Index   Fixed Rate    at End of Year    Fair Value
     --------    ------     -----   ----------    --------------    ----------

       1998     $36,860    1-Month    6.18%           5.69%           $(94)

The interest  expense or benefit of the swaps had the effect of  decreasing  net
interest  income by $115,  $198 and $58 for the years ended  December  31, 1998,
1997 and 1996, respectively.

The  Company  also  enters  into short  sales of  Eurodollar  and U.S.  Treasury
interest  rate  futures  contracts  as part of its  overall  interest  rate risk
management  activity.  Interest rate futures contracts are commitments to either
purchase  or sell  designated  financial  instruments  at a  future  date  for a
specified price and may be settled in cash or through  delivery.  The Eurodollar
futures  contracts  have been sold by the Company to hedge the maturity  risk of
certain short-duration  mortgage-related  securities. U.S. Treasury futures have
been sold by the Company to hedge the risk of a reduction in the market value of
fixed rate  mortgage  loans and certain fixed rate  mortgage-backed  and related
securities available for sale in a rising interest rate environment. At December
31, 1998, the Company had no interest rate futures contracts outstanding.

Terms and other  information  on interest rate futures  contracts  sold short at
December 31, 1997, were as follows:

                                                      Notional
                                         Maturity     Principal     Fair Value
                                         --------     ---------     ----------
U.S. Treasury futures.............          1998       $194,500       $1,996

The fair value of the  interest  rate swaps and interest  rate futures  contacts
represent  the  estimated  amount  that  the  Company  would  receive  or pay to
terminate these agreements  taking into account current  interest rates.  Market
quotes are available for these  agreements.  The fair values are recorded in the
Consolidated  Statements  of  Financial  Condition  offsetting  the items  being
hedged.  The following table  summarizes the Company's use of interest rate risk
management instruments.

                                       79

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                               Notional Amount
                                                               ----------------------------------------------
                                                                  Short             Short   
                                                                Eurodollar      U.S. Treasury
                                                                  Swaps            Futures          Futures
                                                               -----------      -------------     -----------
<S>                                                            <C>               <C>              <C>        
BALANCE, DECEMBER 31, 1996................................     $    45,720       $   405,000      $   165,100
Purchases.................................................              --                --          966,400
Maturities................................................          (8,860)               --               --
Terminations..............................................              --          (405,000)        (937,000)
                                                               -----------       -----------      -----------
BALANCE, DECEMBER 31, 1997................................          36,860                --          194,500
Purchases.................................................              --                --          440,500
Maturities................................................         (36,860)               --               --
Terminations..............................................              --                --         (635,000)
                                                               -----------       -----------      -----------
BALANCE, DECEMBER 31, 1998................................     $        --       $        --      $        --
                                                               ===========       ===========      ===========
</TABLE>


U.S.  Treasury  Bills with a fair value of $2,055 were pledged by the Company as
security  for the  obligations  under  these  swaps and  interest  rate  futures
contracts at December 31, 1997.

FOREIGN CURRENCY MANAGEMENT

The  Company  enters  into  foreign  currency  derivatives  to hedge its  equity
investments  in  Ocwen  UK  and  Kensington.  It  is  the  Company's  policy  to
periodically adjust the amount of foreign currency  derivative  contracts it has
entered into in response to changes in its recorded  equity  investment in these
foreign entities.

The Company has determined  that the local  currency of its foreign  subsidiary,
Ocwen UK and its equity investment in Kensington, is the functional currency. In
accordance  with  SFAS  No.  52,  "Foreign  Currency  Translation,"  assets  and
liabilities  denominated in a foreign  currency are translated into U.S. dollars
at the current rate of exchange existing at the statement of financial condition
date and revenues and expenses are translated at average monthly rates.

On April 22, 1998,  the Company sold short foreign  currency  futures  contracts
("currency  futures")  to hedge its  foreign  currency  exposure  related to its
equity investment in Ocwen UK.  Periodically,  the Company adjusts the amount of
currency  futures  contracts  it has entered  into in response to changes in its
equity  investment  in Ocwen  UK.  Under the terms of the  currency  futures  at
December  31,  1998,  the  Company  has the  right to  receive  $43,828  and pay
(pound)26,563.  The fair value of the currency futures is based on quoted market
prices.

On February 25, 1998, the Company entered into a foreign currency swap agreement
("currency  swap") with a AAA-rated  counterparty to hedge its equity investment
in  Kensington.  Under the terms of the  currency  swap,  the Company  will swap
(pound)27,500  for $43,546 in five years based on the exchange  rate on the date
the contract became effective.  The discount on the currency swap,  representing
the difference between the contracted forward rate and the spot rate at the date
of inception, is amortized over the life of the currency swap on a straight-line
basis.  The value of the currency swap is  calculated as the notional  amount of
the currency swap multiplied by the difference between the spot rate at the date
of inception and the spot rate at the financial statement date. In addition, the
Company sold short  foreign  currency  futures  contracts  to further  hedge its
foreign currency exposure related to its equity investment in Kensington.  Under
the terms of the currency  futures,  the Company has the right to receive $1,547
and pay  (pound)938.  The fair value of the currency  futures is based on quoted
market prices.

The resulting translation adjustments,  the unamortized discount on the currency
swap and the  values  of the  hedging  financial  instruments  are  reported  as
translation adjustments and included as a component of stockholders' equity.

                                       80

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)


The  following  table  sets  forth  the  terms  and  values  of these  financial
instruments  at December 31, 1998. No such  financial  instruments  were held at
December 31, 1997:


<TABLE>
<CAPTION>
                                                         Notional Amount        
                                                    --------------------------    Contract    Unamortized
                                          Maturity      Pay            Receive      Rate        Discount      Fair Value
                                          --------  -------------      -------    --------    -----------     ----------
<S>                                         <C>            <C>        <C>          <C>         <C>             <C>       
Currency swap......................         2003    (pound)27,500     $  43,546    1.5835      $   1,562       $  (2,096)
British Pound currency futures.....         1999       (pound)938     $   1,547    1.6500            n/a       $      (6)
                                            1999    (pound)26,563     $  43,828    1.6500            n/a       $    (181)
</TABLE>


Because  interest  rate  futures  and foreign  currency  futures  contracts  are
exchange  traded,  holders  of  these  instruments  look  to  the  exchange  for
performance  under these  contracts  and not the entity  holding the  offsetting
futures  contract,  thereby  minimizing the risk of  nonperformance  under these
contracts.  The Company is exposed to credit loss in the event of nonperformance
by the  counterparty  to the interest and currency  swaps and controls this risk
through credit  monitoring  procedures.  The notional  principal amount does not
represent the Company's exposure to credit loss.

On  January  1,  1999,  11 of the 15  member  countries  of the  European  Union
converted to a common currency (the "Euro").  Since such time  transactions have
been  conducted  using either the Euro or the  countries'  existing  currencies.
Although the United Kingdom is a member of the European  Union, it is not one of
the  participating  countries in the Euro conversion,  and the Company currently
does not have transactions or operations in any of the participating  countries.
As a  result,  the Euro  conversion  had no effect  on the  Company's  financial
condition or results of operations.

NOTE 22: INCOME TAXES

Total income tax expense (benefit) was allocated as follows:


<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                      ----------------------------------
                                                                                        1998         1997        1996
                                                                                      ---------    ---------   ---------
<S>                                                                                   <C>          <C>         <C>      
Income (loss) from continuing operations...........................................   $ (30,699)   $  21,309   $  11,159
Benefit of tax deduction in excess of amounts recognized for financial reporting
   purposes related to employee stock options reflected in stockholders' equity....      (2,398)      (1,965)     (2,987)
Benefit of tax deduction in excess of amounts recognized for financial reporting
   purposes related to director restricted stock reflected in stockholders' equity.         (13)          --          --
                                                                                      ---------    ---------   ---------
                                                                                      $ (33,110)   $  19,344   $   8,172
                                                                                      =========    =========   =========

The  components  of income tax  expense  (benefit)  attributable  to income from
continuing operations were as follows:
</TABLE>


<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                            ----------------------------------------------
CURRENT:                                       1998              1997              1996
                                            -----------       -----------      -----------
<S>                                         <C>               <C>              <C>         
Federal.................................    $   (11,668)      $    42,482      $    (6,844)
Foreign.................................          5,995                --               --
State...................................          4,608             3,579             (576)
                                            -----------       -----------      -----------
                                                 (1,065)           46,061           (7,420)
                                            -----------       -----------      -----------
DEFERRED:
Federal.................................        (27,443)          (23,085)          16,616
State...................................         (2,191)           (1,667)           1,963
                                            -----------       -----------      -----------
                                                (29,634)          (24,752)          18,579
                                            -----------       -----------      -----------

Total...................................    $   (30,699)      $    21,309      $    11,159
                                            ===========       ===========      ===========
</TABLE>


Income tax  expense  differs  from the amounts  computed  by  applying  the U.S.
Federal corporate income tax rate of 35% as follows:

                                       81

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>     
Expected income tax expense at statutory rate ....   $(11,328)   $ 34,838    $ 21,455
Differences between expected and actual tax: .....         --          --          --
   Excess of cost over net assets acquired .......         19         (30)        (76)
     adjustments
   Tax effect of utilization of net operating loss     (3,003)       (906)     (1,782)
   State tax (after Federal tax benefit) .........      1,571       1,243         901
   Low-income housing tax credits ................    (17,666)    (14,881)     (9,330)
   Adjustments resulting from IRS audit ..........         --         921          --
   Other .........................................       (292)        124          (9)
                                                     --------    --------    --------
     Actual income tax (benefit) expense .........   $(30,699)   $ 21,309    $ 11,159
                                                     ========    ========    ========
</TABLE>


For taxable years beginning prior to January 1, 1996, a savings institution that
met certain definitional tests relating to the composition of its assets and the
sources of its income (a  "qualifying  savings  institution")  was  permitted to
establish  reserves for bad debts and make annual  additions  thereto  under the
experience method. Alternatively,  a qualifying savings institution could elect,
on an annual basis,  to use the  percentage of taxable  income method to compute
its allowable addition to its bad debt reserve on qualifying real property loans
(generally loans secured by an interest in improved real estate). The applicable
percentage  was 8% for tax periods after 1987.  The Bank utilized the percentage
of taxable income method for these years.

On August 20, 1996,  President  Clinton signed the Small Business Job Protection
Act (the "Act") into law. One  provision of the Act repealed the reserve  method
of accounting for bad debts for savings institutions effective for taxable years
beginning  after 1995.  The Bank,  therefore,  was  required to use the specific
charge-off  method on its 1996 and subsequent  federal  income tax returns.  The
Bank will be required to recapture its "applicable  excess  reserves," which are
its federal  tax bad debt  reserves  in excess of the base year  reserve  amount
described in the  following  paragraph.  The Bank will include  one-sixth of its
applicable  excess  reserves  in taxable  income in each year from 1996  through
2001. As of December 31, 1995, the Bank had approximately  $42,400 of applicable
excess  reserves.  As of December 31, 1996,  the Bank had fully provided for the
tax related to this recapture.

The base year  reserves  will  continue to be subject to recapture  and the Bank
could be required to recognize a tax liability if: (1) the Bank fails to qualify
as a "bank" for federal income tax purposes,  (2) certain distributions are made
with  respect to the stock of the Bank,  (3) the bad debt  reserves are used for
any purpose  other than to absorb bad debt  losses,  or (4) there is a change in
federal  tax law.  The  enactment  of this  legislation  is  expected to have no
material impact on the Bank's or the Company's operations or financial position.

In accordance  with SFAS No. 109  "Accounting  for Income Taxes," a deferred tax
liability has not been recognized for the tax bad debt base year reserves of the
Bank.  The base year  reserves  are  generally  the  balance of  reserves  as of
December 31, 1987,  reduced  proportionately  for  reductions in the Bank's loan
portfolio  between that date and  December  31,  1995.  At December 31, 1998 and
1997, the amount of those reserves was approximately  $5,700. This reserve could
be  recognized  in the future under the  conditions  described in the  preceding
paragraph.

                                       82

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

The net deferred tax assets were comprised of the following:

                                                             December 31,
                                                          -------------------
                                                            1998       1997
                                                          --------    -------
DEFERRED TAX ASSETS:
   Tax residuals and deferred income on tax residuals..   $  5,328    $ 3,497
   State taxes ........................................      2,511      2,203
   Application of purchase accounting .................        127        655
   Accrued profit sharing .............................      3,861      3,234
   Accrued other liabilities ..........................        773      2,495
   Deferred interest expense on discount loan portfolio     12,554      7,685
   Mark-to-market and reserves on REO properties ......      3,828      3,187
   Gain on loan foreclosure ...........................      6,246      5,635
   Bad debt and loan loss reserves ....................      7,857      9,770
   Reserves and impairments on securities held for sale     16,308      4,007
   Mortgage servicing right impairment and amortization        787         --
   Goodwill impairment and amortization ...............      3,521         --
   Contingent interest income on equity participation..      2,673         --
   Reserves and impairment on investments .............      4,978         --
   Partnership losses and low-income housing tax credit      7,113         --
   Other ..............................................      1,542        495
                                                          --------    -------
                                                            80,007     42,863
                                                          --------    -------

DEFERRED TAX LIABILITIES:
Net U.S. tax on undistributed foreign income ..........        784         --
Deferred interest income on discount loan portfolio ...      4,698      2,254
Partnership losses and low income housing tax credit ..         --      1,386
Other .................................................      1,094        763
                                                          --------    -------
                                                             6,576      4,403
                                                          --------    -------
                                                            73,431     38,460
                                                          --------    -------

Mark-to-market on certain mortgage-backed and related
securities available for sale .........................     (7,894)     6,688
Foreign currency translation adjustments ..............        912         --
Prior period adjustment on investments ................        526         --
                                                          --------    -------
                                                            66,975     45,148
                                                          --------    -------

Deferred tax asset valuation allowance ................         --         --
                                                          --------    -------
Net deferred tax assets ...............................   $ 66,975    $45,148
                                                          ========    =======

Deferred tax assets,  net of deferred fees,  include tax residuals  which result
from the ownership of Real Estate Mortgage Investment Conduits ("REMIC").  While
a tax  residual is  anticipated  to have little or no future cash flows from the
REMIC from which it has been issued,  the tax residual  does bear the income tax
liability and benefit resulting from the annual differences between the interest
paid on the debt  instruments  issued by the REMIC and the interest  received on
the  mortgage  loans  held by the REMIC.  Typically  this  difference  generates
taxable  income to the Company in the first several years of the REMIC and equal
amounts of tax losses thereafter, thus resulting in the deferred tax asset. As a
result of the manner in which  REMIC  residual  interests  are  treated  for tax
purposes, at December 31, 1998, 1997 and 1996, the Company had approximately $0,
$0 and  $10,228,  respectively,  of net  operating  loss  carryforwards  for tax
purposes.

International  Hotel Group ("IHG"), a wholly-owned  subsidiary of IMI, and IHG's
subsidiaries had at December 31, 1998,  approximately  $1,079 of Separate Return
Limitation  Year  ("SRLY")  net  operating  loss  carryforwards.  The  SRLY  net
operating loss  carryforward  can only offset IHG and its  subsidiaries'  future
taxable income.  The $1,079 operating loss  carryforward will expire, if unused,
in the year 2008.

As a result of the Company's earnings history,  current tax position and taxable
income  projections,  the  Company  believes  that it will  generate  sufficient
taxable income in future years to realize the net deferred tax asset position as
of December 31, 1998. In evaluating the expectation of sufficient future taxable
income,  the Company  considered  future reversals of temporary  differences and
available tax planning strategies that could be implemented, if required.

                                       83

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

A valuation  allowance  was not required as of December 31, 1998 and 1997, as it
was the Company's  assessment that, based on available  information,  it is more
likely than not that all of the deferred tax asset will be realized. A valuation
allowance  will be  established  in the  future to the extent of a change in the
Company's  assessment  of the  amount  of the net  deferred  tax  asset  that is
expected to be realized.

NOTE 23: EMPLOYEE BENEFIT AND COMPENSATION PLANS

The Company  maintains  a defined  contribution  plan to provide  postretirement
benefits  to  eligible   employees.   The  Company  also  adopted  a  number  of
compensation  plans  for  certain  employees.   These  plans  were  designed  to
facilitate a pay-for-performance policy, further align the interests of officers
and key employees with the interests of the Company's shareholders and assist in
the  attraction  and  retention of employees  vital to the  Company's  long-term
success. These plans are summarized below.

RETIREMENT PLAN

The Company  maintains a defined  contribution  401(k) plan. The Company matches
50%  of  each  employee's  contributions,   limited  to  2%  of  the  employee's
compensation.  The Company's contributions to the 401(k) plan in the years ended
December 31, 1998, 1997 and 1996, were $611, $368 and $258, respectively.

In connection  with its  acquisition  of Berkeley  Federal  Savings Bank in June
1993, the Bank assumed the obligations under a  noncontributory  defined benefit
pension  plan (the  "Plan")  covering  substantially  all  employees  upon their
eligibility  under the terms of the Plan.  The Plan was frozen for the plan year
ended December 31, 1993, and has been fully funded.

ANNUAL INCENTIVE PLAN

In May 1998, the Company's  shareholders approved the 1998 Annual Incentive Plan
(the "AIP") to replace the Company's former annual incentive plan. Participation
in the AIP is limited to  officers  and other key  employees  of the Company and
designated  subsidiaries  that are  selected by the AIP  Committee.  Performance
targets  are  established  based  on the  achievement  of  specified  levels  of
increases in net earnings,  return in equity,  average net equity used or growth
in assets, as well as individual participant  performance targets.  Awards under
the AIP are based on achieving the performance targets and are paid in cash or a
combination  of cash and  non-qualified  stock options to purchase  OCN's common
stock.  Such  non-qualified  stock  options  are  granted  pursuant to the Ocwen
Financial Corporation Non-Qualified Stock Option Plan.

Stock  options  awarded to key  employees  under the AIP (both the 1998 plan and
former plan) to purchase shares of OCN common stock are summarized as follows.


<TABLE>
<CAPTION>
                                     Options        Exercise      Options    Forfeited or   Options
                                     Granted         Price       Exercised   Repurchased    Vested
                                    ---------      ----------    ---------   -----------   --------
<S>                                   <C>          <C>             <C>          <C>          <C>   
1995...........................       594,760      $    2.880      223,919      281,841      89,000
1995...........................        14,220            .472        5,057        4,083       5,080
1996...........................     1,147,370          11.000      174,573      281,743     691,054
1997...........................     1,083,794          20.350           --      145,678     938,116
1998...........................        80,000          20.350           --       40,000      40,000
1998...........................       181,945          12.313           --           --          --
</TABLE>


Stock  options  awarded  under  the AIP prior to 1998  have a  one-year  vesting
period.  Stock  options  awarded  under  the AIP in  1998  vest  ratably  over a
three-year period. The difference,  if any, between the fair market value of the
stock at the date of grant and the  exercise  price is treated  as  compensation
expense. Included in compensation expense is $0, $5,514 and $2,725 for the years
ended  December  31,  1998,  1997 and 1996,  respectively,  related  to  options
granted.

                                       84

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

LONG-TERM INCENTIVE PLAN

In May 1998 the Company's  shareholders  approved the Long-Term  Incentive  Plan
(the  "LIP").  Participation  in the LIP is  limited to  officers  and other key
employees of the Company and  designated  subsidiaries  that are selected by the
LIP  Administrator.   The  LIP  provides  for  the  grant  of  Basis  Points  to
participants.   In  connection  with  this  grant,  the  LIP  Administrator  has
established three five-year performance cycles as well as Company and individual
participant performance targets for such periods. At the end of each performance
cycle,  the Company  will  determine  the value of the Basis Points held by each
participant  based on the extent to which the  related  performance  targets are
achieved,  and will pay each  participant  their  respective value in restricted
common stock of the Company.  The number of shares  received  will be determined
based on the fair market value, as defined,  of the common stock on the last day
of the performance  cycle. The restricted stock issued to participants will vest
over a ten-year period and, upon vesting,  certificates  representing the shares
will be held by the Company in a nonqualified  irrevocable  trust established by
the  Company  for  the  benefit  of  the  participant  and  will  be  issued  to
participants  in 20%  increments in each year over a five-year  pay-out  period.
While the  shares  are held by the  Company  the  participant  will have all the
rights  of a  shareholder,  including  the  right  to vote  except  that (i) the
participant  will not be  entitled  to receive a  certificate  representing  the
shares and (ii) the shares may not be transferred,  sold,  assigned,  pledged or
otherwise encumbered. Any cash dividends paid on common stock will be reinvested
to purchase additional shares of common stock,  subject to the same restrictions
that apply to restricted stock.  Compensation  expense of $2,369 was recorded in
1998 for future distributions under the Plan.

PRO FORMA EFFECT OF SFAS NO. 123

The Company  adopted SFAS No. 123 during 1996. In accordance with the provisions
of SFAS No. 123, the Company has retained its current  accounting method for its
stock-based employee compensation plans under the provisions of APB 25. However,
entities  continuing  to apply APB 25 are  required  to  disclose  pro forma net
income and  earnings  per share as if the fair value  method of  accounting  for
stock-based  employee  compensation plans as prescribed by SFAS No. 123 had been
utilized. The following is a summary of the Company's pro forma information:


<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                   -------------------------------------------
                                                                     1998              1997             1996
                                                                   --------          --------         --------
<S>                                                                <C>               <C>              <C>     
Net (loss) income, as reported............................         $ (1,200)         $ 78,932         $ 50,142
Pro forma net (loss) income...............................         $ (2,638)         $ 72,668         $ 47,777
Earnings per share, as reported:
   Basic..................................................         $  (0.02)         $   1.40         $   0.99
   Diluted................................................         $  (0.02)         $   1.39         $   0.94
Pro forma earnings per share:
   Basic..................................................         $  (0.04)         $   1.29         $   0.95
   Diluted................................................         $  (0.04)         $   1.28         $   0.90
</TABLE>


The fair value of the  option  grants  were  estimated  using the  Black-Scholes
option-pricing model with the following assumptions:


<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                   --------------------------
                                                                     1998              1997
                                                                   --------          --------
<S>                                                                    <C>               <C>  
Expected dividend yield...................................             0.00%             0.00%
Expected stock price volatility...........................            57.00%            48.00%
Risk-free interest rate...................................             4.54%             5.71%
Expected life of options..................................           5 years           5 years
</TABLE>


NOTE 24: STOCKHOLDERS' EQUITY

On July 12,  1996,  shareholders  of the Company  approved an  amendment  to the
Company's  articles of incorporation to increase the authorized number of common
shares from 20,000,000 to 200,000,000  shares, to increase the authorized number
of preferred  shares from 250,000 to  20,000,000  shares and to decrease the par
value of the authorized  preferred shares from $1.00 to $0.01 per share. On July
30, 1996, the Company's  Board of Directors  declared a 10-for-1 stock split for
each share of common  stock  then  outstanding  in the form of a stock  dividend
which was paid to holders of record on July 31, 1996.  On October 29, 1997,  the
Company's  Board of Directors  approved a 2-for-1  stock split of its issued and
outstanding  common stock. The stock split was effected through the distribution
of authorized  but unissued  shares of its common stock on November 20, 1997, to
holders of record of its common  stock at the close of business on November  12,
1997. All references in the consolidated  financial  statements to the number of
shares  and  per  share  amounts  have  been  adjusted   retroactively  for  the
recapitalization and the stock splits.

                                       85

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

During  September  1996,  5,857,660  shares  of  common  stock  were  issued  in
connection with the exercise of vested stock options by certain of the Company's
and the Bank's  current and former  officers and  directors.  The Company loaned
$6,654 to certain of such officers to fund their  exercise of the stock options.
Such notes,  which are presented as a reduction of  shareholders'  equity,  were
repaid during 1997.

On September 25, 1996, certain shareholders of Ocwen completed an initial public
offering of 4,600,000  shares of Ocwen common stock. At that time, the Company's
common stock began trading on the NASDAQ National Market System under the symbol
"OCWN." Prior to this offering,  there had been no public trading market for the
common  stock.  The Company did not receive any of the proceeds from this common
stock offering.

On August 12,  1997,  the Company  completed a secondary  stock  offering to the
public of 6,900,000 shares which resulted in net proceeds of $141,898. Effective
August 1, 1997,  shares of the  Company's  common stock began trading on the New
York Stock Exchange  ("NYSE") under the symbol "OCN." Upon  effectiveness of the
NYSE listing, the Company delisted its common stock from NASDAQ.

During 1995, the Company  repurchased from  shareholders and retired  17,630,120
shares of common stock for the aggregate price of $41,997.

NOTE 25: REGULATORY REQUIREMENTS

The  Financial  Institutions  Reform,  Recovery  and  Enforcement  Act  of  1989
("FIRREA")  and  the  regulations  promulgated  thereunder  established  certain
minimum  levels of regulatory  capital for savings  institutions  subject to OTS
supervision.  The Bank must follow specific capital guidelines stipulated by the
OTS which involve  quantitative  measures of the Bank's assets,  liabilities and
certain  off-balance  sheet items. An institution  that fails to comply with its
regulatory  capital  requirements must obtain OTS approval of a capital plan and
can  be  subject  to  a  capital  directive  and  certain  restrictions  on  its
operations.  At December 31, 1998, the minimum regulatory  capital  requirements
were:

         Tangible  and core  capital of 1.50  percent and 3.00  percent of total
adjusted assets,  respectively,  consisting principally of stockholders' equity,
but excluding most  intangible  assets,  such as goodwill and any net unrealized
gains or losses on debt securities available for sale.

         Risk-based capital consisting of core capital plus certain subordinated
debt and other capital instruments and, subject to certain limitations,  general
valuation allowances on loans receivable,  equal to 8.00 percent of the value of
risk-weighted assets.

         At December 31, 1998 and 1997,  the Bank was "well  capitalized"  under
the prompt corrective action ("PCA")  regulations adopted by the OTS pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To
be  categorized  as "well  capitalized,"  the Bank must  maintain  minimum  core
capital, Tier 1 risk-based capital and risk-based capital ratios as set forth in
the table below.  The Bank's capital amounts and  classification  are subject to
review  by  federal  regulators  about  components,  risk-weightings  and  other
factors.  There are no  conditions  or events  since  December  31,  1998,  that
management believes have changed the institution's category.

                                       86

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

The following tables summarize the Bank's actual and required regulatory capital
at December 31, 1998 and 1997.


<TABLE>
<CAPTION>
                                                                                           To Be Well         Agreed Upon
                                                                                           Capitalized         Capital
                                                                 Minimum For Capital   For Prompt Corrective Requirements
         December 31, 1998                        Actual          Adequacy Purposes     Action Provisions       Actual
- --------------------------------------       -----------------    ------------------    ------------------    ----------
                                             Ratio     Amount     Ratio     Amount      Ratio     Amount      Percentage
                                             -----   ---------    -----    ---------    -----    ---------    ----------
<S>                                          <C>     <C>           <C>     <C>           <C>     <C>             <C>  
Stockholders' equity, and ratio to           
   total assets.......................       9.30%   $ 241,419
Net  unrealized (gain) loss on certain
   available for sale securities......                    (303)
   Non includable subsidiary..........                  (6,030)
Excess mortgage servicing rights and                
   deferred tax assets................                    (411)
                                                     ---------
Tangible capital, and ratio to adjusted
   total assets.......................       9.07%   $ 234,675     1.50%   $  38,821
                                                     =========             =========
   Tier 1 (core) capital, and ratio to
     adjusted total assets............       9.07%   $ 234,675     3.00%   $  77,641     5.00%   $ 129,402       9.00%
                                                     =========             =========             =========

Tier 1 capital, and ratio to                
   risk-weighted assets...............      11.71%   $ 234,675                           6.00%   $ 120,027
                                                     =========                                   =========
Allowance for loan and lease losses...                  25,047
Subordinated debentures...............                 100,000
                                                     ---------
Tier 2 Capital........................                 125,047
                                                     ---------
Low-level recourse reduction..........                 (13,897)
                                                     ---------
Total risk-based capital, and ratio to
   risk-weighted assets...............      17.26%   $  345,825    8.00%    $ 160,295   10.00%    $ 200,368     13.00%  
                                                     ==========             =========             =========
Total regulatory assets...............               $2,594,792
                                                     ==========
Adjusted total assets.................               $2,588,048
                                                     ==========
Risk-weighted assets..................               $2,003,684
                                                     ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                                                            Agreed Upon
                                                                                           To Be Well         Agreed Upon
                                                                                           Capitalized         Capital
                                                                 Minimum For Capital   For Prompt Corrective Requirements
         December 31, 1997                        Actual          Adequacy Purposes     Action Provisions       Actual
- --------------------------------------       -----------------    ------------------    ------------------    ----------
                                             Ratio     Amount     Ratio     Amount      Ratio     Amount      Percentage
                                             -----   ---------    -----    ---------    -----    ---------    ----------
<S>                                          <C>     <C>           <C>     <C>           <C>     <C>             <C>  
Stockholders' equity, and ratio to          
   total assets.......................      10.62%   $ 276,277
Net unrealized loss on certain                     
   available for sale securities......                   2,378
   Excess mortgage servicing rights and             
     deferred tax assets..............                  (1,029)
                                                     ---------
Tangible capital, and ratio to adjusted
   total assets.......................      10.66%   $ 277,626     1.50%   $  39,060
                                                     =========             =========
   Tier 1 (core) capital, and ratio to
     adjusted total assets............      10.66%   $ 277,626     3.00%   $  78,120     5.00%   $ 130,200       9.00%
                                                     =========             =========             =========

Tier 1 capital, and ratio to                
   risk-weighted assets...............      10.17%   $ 277,626                           6.00%   $ 163,837
                                                     =========                                   =========
Allowance for loan and lease losses...                  27,436
Subordinated debentures...............                 100,000
                                                     ---------
Tier 2 Capital........................                 127,436
                                                     ---------
Total risk-based capital, and ratio to
   risk-weighted assets...............      14.83%   $  405,062    8.00%    $ 218,449   10.00%    $ 273,062     13.00%
                                                     ==========             =========             =========
Total regulatory assets...............               $2,602,642
                                                     ==========
Adjusted total assets.................               $2,603,991
                                                     ==========
Risk-weighted assets..................               $2,730,616
                                                     ==========
</TABLE>


The OTS has promulgated a regulation governing capital  distributions.  The Bank
is considered to be a Tier 1 association under this regulation because it met or
exceeded its fully phased-in capital requirements at December 31, 1996. A Tier 1
association  that  before and after a  proposed  capital  distribution  meets or
exceeds its fully phased-in capital requirements may make capital  distributions
during any calendar  year equal to the greater of (i) 100% of net income for the
calendar year to date plus 50% of its "surplus  capital  ratio" at the beginning
of the year or (ii) 75% of its net  income  over  the most  recent  four-quarter
period.  In order to make  these  capital  distributions,  the Bank must  submit
written notice to the OTS 30 days in advance of making the distribution.

                                       87

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

The OTS recently  published  amendments to its capital  distribution  regulation
which becomes  effective April 1, 1999. Under the revised  regulation,  the Bank
will be required to file either an application or a notice with the OTS at least
30 days  prior to making a  capital  distribution.  The OTS may deny the  Bank's
application  or disapprove  its notice if the OTS  determines  that (a) the Bank
will be  "undercapitalized,"  "significantly  undercapitalized"  or  "critically
under  capitalized,"  as defined in the OTS capital  regulations,  following the
capital  distribution,  (b) the proposed capital  distribution raises safety and
soundness  concerns  or  (c)  the  proposed  capital  distribution   violates  a
prohibition  contained in any statute,  regulation or agreement between the Bank
and the OTS or a  condition  imposed  on the Bank in an  application  or  notice
approved by the OTS.

In  addition  to these OTS  regulations  governing  capital  distributions,  the
indenture  governing the Bank's  debentures limits the declaration or payment of
dividends  and the purchase or  redemption  of common or preferred  stock in the
aggregate to the sum of 50% of  consolidated  net income and 100% of all capital
contributions  and  proceeds  from  the  issuance  or  sale  (other  than  to  a
subsidiary) of common stock, since the date the Debentures were issued (see Note
18).

Following  an  examination  by the OTS in late  1996 and  early  1997,  the Bank
committed  to the OTS to maintain a core  capital  (leverage)  ratio and a total
risk-based  capital  ratio  of at  least  9% and  13%,  respectively.  The  Bank
continues to be in compliance  with this  commitment  as well as the  regulatory
capital  requirements of general  applicability (as indicated  above).  Based on
discussions with the OTS, the Bank believes that this commitment does not affect
its status as a  "well-capitalized"  institution,  assuming the Bank's continued
compliance with the regulatory capital requirements required to be maintained by
it pursuant to such commitment.

                                       88

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 26: OTHER OPERATING EXPENSES

                                             Years Ended December 31,
                                           ---------------------------
                                            1998      1997       1996
                                           -------   -------   -------
Professional fees ......................   $14,647   $ 4,989   $ 2,293
Marketing ..............................     5,246       774       701
Travel, lodging, meals and entertainment     4,573     2,636     1,522
FDIC insurance .........................     1,867     1,593     3,098
Amortization of offering costs .........     1,381     1,302       622
Conferences and seminars ...............     1,117       666       295
Investment and treasury services .......       914       458       438
Corporate insurance ....................       608       611       441
Deposit related expenses ...............       420       255        91
OTS assessment .........................       400       375       293
Due diligence costs ....................       315     1,977       564
Other ..................................       912     3,645       458
SAIF recapitalization assessment (1) ...        --        --     7,140
                                           -------   -------   -------
                                           $32,400   $19,281   $17,956
                                           =======   =======   =======

(1)      Represents  a  non-recurring  expense of $7,140  related to the Federal
Deposit   Corporation's   ("FDIC")   assessment  to  recapitalize   the  Savings
Association  Insurance Fund ("SAIF") as a result of federal  legislation  passed
into law on September 30, 1996.

NOTE 27: BUSINESS SEGMENT REPORTING

The Company  adopted SFAS No. 131 which  requires  public  enterprises to report
financial and descriptive  information about its reportable  operating segments.
Operating  segments are defined as components of an enterprise  that (a) engages
in business  activities from which it may earn revenues and incur expenses,  (b)
whose  operating  results  are  regularly  reviewed  by the  enterprise's  chief
operating  decision maker to make decisions  about  resources to be allocated to
the segment and assess its  performance,  and (c) for which  discrete  financial
information is available. An operating segment may engage in business activities
for  which it has yet to earn  revenues.  The  Company  conducts  a  variety  of
business activities within the following segments.



<TABLE>
<CAPTION>
                                              Net Interest Non-Interest Non-Interest  Net (Loss)        Total
                                                 Income      Income       Expense       Income         Assets
                                               ---------    ---------    ---------    -----------    ----------
<S>                                            <C>          <C>          <C>          <C>            <C>       
December 31, 1998 Discount loans:
Single family residential loans ............   $  21,568    $  35,667    $  17,339    $    14,394    $  613,769
Large commercial real estate loans .........      35,220       31,254       13,723         28,103       591,612
Small commercial real estate loans .........      23,149        7,643        9,634          8,195       259,609
                                               ---------    ---------    ---------    -----------    ----------
                                                  79,937       74,564       40,696         50,692     1,464,990
                                               ---------    ---------    ---------    -----------    ----------
Mortgage loan servicing:
Domestic ...................................       6,604       46,732       39,945          8,066        56,302
Foreign (U.K.) .............................         147       12,989        6,222          4,771        11,974
                                               ---------    ---------    ---------    -----------    ----------
                                                   6,751       59,721       46,167         12,837        68,276
                                               ---------    ---------    ---------    -----------    ----------
Investment in low-income housing tax credits      (8,246)       8,286       11,498          9,119       220,234

Commercial real estate lending .............      16,066        8,542        2,624         13,588        74,439

OTX ........................................           5        1,711       11,335         (9,623)       21,659

Subprime single family residential lending:
Domestic ...................................      14,080        5,807       52,514        (20,524)      156,997
Foreign (U.K.) .............................      11,898       35,609       35,550          7,475       286,224
                                               ---------    ---------    ---------    -----------    ----------
                                                  25,978       41,416       88,064        (13,049)      443,221
                                               ---------    ---------    ---------    -----------    ----------
Investment securities ......................        (214)     (85,031)       5,143        (59,186)      382,201

Equity investment in OAC ...................          --       (8,701)          --         (8,701)       39,088

Other ......................................       7,493        7,790       17,557         (4,764)      593,971
                                               ---------    ---------    ---------    -----------    ----------
                                                 127,770      108,298      223,084         (9,087)    3,308,079
Unallocated amounts ........................      (4,969)       3,017        3,310          7,887            --
                                               ---------    ---------    ---------    -----------    ----------
                                               $ 122,801    $ 111,315    $ 226,394    $    (1,200)   $3,308,079
                                               =========    =========    =========    ===========    ==========
</TABLE>


                                       89

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                              Net Interest Non-Interest Non-Interest  Net (Loss)        Total
                                                 Income      Income       Expense       Income         Assets
                                               ---------    ---------    ---------    -----------    ----------
<S>                                            <C>          <C>          <C>          <C>            <C>       
December 31, 1997 
Discount loans:
Single family residential loans ............   $  24,870    $  45,195    $  17,695    $    23,349    $  844,146
Large commercial real estate loans .........      33,142       18,505       12,940         24,474       585,035
Small commercial real estate loans .........      19,257        1,966        8,555          5,349       308,543
                                               ---------    ---------    ---------    -----------    ----------
                                                  77,269       65,666       39,190         53,172     1,737,724
                                               ---------    ---------    ---------    -----------    ----------
Mortgage loan servicing:
Domestic ...................................       2,629       25,934       29,215          3,972        11,160
Foreign (U.K.) .............................          --           --           --             --            --
                                               ---------    ---------    ---------    -----------    ----------
                                                   2,629       25,934       29,215          3,972        11,160
                                               ---------    ---------    ---------    -----------    ----------
Investment in low income housing tax credits      (5,080)       6,121       10,052          9,087       168,748

Commercial real estate lending .............      25,794         (191)       6,520         12,405       230,682

OTX ........................................         (33)          (2)         419             --         5,116

Subprime single family residential lending:
Domestic ...................................       5,205       18,475       28,875         (2,166)      225,814
Foreign (U.K.) .............................          --           --           --             --            --
                                               ---------    ---------    ---------    -----------    ----------
                                                   5,205       18,475       28,875         (2,166)      225,814
                                               ---------    ---------    ---------    -----------    ----------
Investment securities ......................       2,698        5,227        3,784          3,587       344,231

Equity investment in OAC ...................          --           --           --             --            --

Other ......................................       7,960        2,737        9,241            944       345,690
                                               ---------    ---------    ---------    -----------    ----------
                                                 116,442      123,967      127,296         81,001     3,069,165
Unallocated amounts ........................        (200)         (18)        (422)        (2,069)           --
                                               ---------    ---------    ---------    -----------    ----------
                                               $ 116,242    $ 123,949    $ 126,874    $    78,932    $3,069,165
                                               =========    =========    =========    ===========    ==========
</TABLE>


<TABLE>
<CAPTION>
                                              Net Interest Non-Interest Non-Interest  Net (Loss)        Total
                                                 Income      Income       Expense       Income         Assets
                                               ---------    ---------    ---------    -----------    ----------
<S>                                            <C>          <C>          <C>          <C>            <C>       
December 31, 1996 
Discount loans:
Single family residential loans ............   $  12,122    $  (3,865)   $  10,163    $    16,827    $  650,261
Large commercial real estate loans .........      17,565       24,117       11,376         15,480       516,622
Small commercial real estate loans .........      14,851           (5)       7,525          1,398       283,466
                                               ---------    ---------    ---------    -----------    ----------
                                                  44,538       20,247       29,064         33,705     1,450,349
                                               ---------    ---------    ---------    -----------    ----------
Mortgage loan servicing:
Domestic ...................................       1,685        7,498       13,308         (2,558)        5,020
Foreign (U.K.) .............................          --           --           --             --            --
                                               ---------    ---------    ---------    -----------    ----------
                                                   1,685        7,498       13,308         (2,558)        5,020
                                               ---------    ---------    ---------    -----------    ----------
Investment in low-income housing tax credits      (4,962)       4,572        4,280         11,577        93,309

Commercial real estate lending .............      12,305          118        5,458          3,617       402,582

Subprime single family residential lending:
Domestic ...................................       4,486        6,504        5,346          3,131       128,878
Foreign (U.K.) .............................          --           --           --             --            --
                                               ---------    ---------    ---------    -----------    ----------
                                                   4,486        6,504        5,346          3,131       128,878
                                               ---------    ---------    ---------    -----------    ----------

Investment securities ......................       8,632       (1,777)       5,084            987       342,801

Other ......................................      11,030          (34)       7,553          2,591        60,746
                                               ---------    ---------    ---------    -----------    ----------
                                                  77,714       37,128       70,093         53,050     2,483,685
Unallocated amounts ........................          20          175         (487)        (2,908)           --
                                               ---------    ---------    ---------    -----------    ----------
                                               $  77,734    $  37,303    $  69,606    $    50,142    $2,483,685
                                               =========    =========    =========    ===========    ==========
</TABLE>


                                                      90

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

The Company's discount loan activities include asset acquisition,  servicing and
resolution of single family  residential,  large commercial and small commercial
loans and the related real estate owned.  Investment  in low-income  housing tax
credits   includes  the  Company's   investments,   primarily   through  limited
partnerships,  in  qualified  low-income  rental  housing  for  the  purpose  of
obtaining  Federal  income  tax  credits  pursuant  to  Section  42 of the Code.
Low-income housing tax credits and benefits of $17,667,  $14,881, and $9,330 are
included as credits  against income tax expense for the years ended December 31,
1998, 1997 and 1996,  respectively.  Commercial and real estate lending includes
the Company's  origination of multi-family and commercial real estate loans held
for  investment.   Subprime  single  residential  family  lending  includes  the
Company's  acquisition  and  origination of single family  residential  loans to
non-conforming  borrowers,  which are recorded as available  for sale.  Mortgage
loan  servicing  includes the Company's  fee-for-services  business of providing
loan  servicing,   including  asset  management  and  resolution  services,   to
third-party  owners  of  nonperforming,  underperforming  and  subprime  assets.
Investment securities includes the results of the securities portfolio,  whether
available for sale,  trading or  investment,  other than subprime  residuals and
subordinate interests related to the Company's  securitization  activities which
have been included in the related business activity. Other consists primarily of
individually   insignificant   business  activities,   including  the  Company's
historical loan portfolio of conventional single family residential loans, small
commercial loan originations, unsecured collections, and the operations of OCC.

Interest income and expense have been allocated to each business segment for the
investment  of funds raised or funding of  investments  made at an interest rate
based upon the Treasury  swap yield curve taking into  consideration  the actual
duration of such  liabilities  or assets.  Allocations of  non-interest  expense
generated by corporate support services were made to each business segment based
upon management's  estimate of time and effort spent in the respective activity.
Income  taxes are  allocated to each  business  segment  based on the  Company's
estimated  effective  tax rate,  exclusive  of  low-income  housing  tax  credit
interests.   As  such,  the  resulting  amounts   represent   estimates  of  the
contribution  of each  business  activity to the  Company.  Unallocated  amounts
represent  amounts not  allocated to the operating  segments,  and are primarily
comprised  of  distributions  on  the  Capital   Securities,   transfer  pricing
mismatches, unallocated income taxes, and other general corporate expenses.

                                       91

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 28: COMMITMENTS AND CONTINGENCIES

Certain premises are leased under various  noncancellable  operating leases with
terms  expiring at various  times  through  2007,  exclusive  of renewal  option
periods.  The annual aggregate minimum rental commitments under these leases are
summarized as follows:

1999......................................................         $     8,993
2000......................................................               9,240
2001......................................................               8,653
2002......................................................               8,485
2003......................................................               8,264
Thereafter................................................              32,812
                                                                   -----------
Minimum lease payments (1)................................         $    76,447
                                                                   ===========

(1)      Includes $50,875 ((pound)30,642) which relates to Ocwen UK.

Rent expense for the years ended  December  31, 1998,  1997 and 1996 was $6,410,
$2,877 and $1,563, respectively.

At  December  31,  1998,  the  Company  was  committed  to  purchase  $17,619 of
commercial  discount  loans.  The Company also had  commitments to originate (i)
$22,455 of loans secured by multi-family  residential buildings,  (ii) $2,484 of
mortgage loans secured by office buildings, (iii) $370 of loans secured by hotel
properties  and (iv)  $90,561  of loans  secured  by single  family  residential
buildings.  In connection with its 1993  acquisition of Berkeley Federal Savings
Bank,  the  Company  has a  recourse  obligation  of  $1,913  on  single  family
residential  loans  sold to the  Federal  Home Loan  Mortgage  Corporation.  The
Company,   through  its  investment  in  subordinated  securities  and  subprime
residuals, which had a carrying value of $230,157 at December 31, 1998, supports
senior classes of securities.

The Company is subject to various  pending legal  proceedings.  Management is of
the opinion that the resolution of these claims will not have a material  effect
on the consolidated financial statements.

NOTE 29: PARENT COMPANY ONLY FINANCIAL INFORMATION

Condensed Statements of Financial Condition

<TABLE>
<CAPTION>
                                                                   December 31,
                                                            -------------------------
                                                               1998           1997
                                                            -----------   -----------
<S>                                                         <C>           <C>        
Assets:
Cash and cash equivalents.................................  $    32,516   $    62,586
Securities available for sale, at market value............           --       116,943
Investment securities, net................................           --        11,115
Investment in bank subsidiary.............................      232,336       272,401
Investments in non-bank subsidiaries......................      314,215       120,059
Investment in unconsolidated entity.......................       46,586            --
Loan portfolio, net.......................................        2,484         7,285
Discount loan portfolio, net..............................        6,876        48,413
Investment in real estate.................................           --        10,675
Income taxes receivable...................................       35,321        13,739
Deferred tax asset........................................       19,780         6,636
Other assets..............................................        4,945        11,063
                                                            -----------   -----------
                                                            $   695,059   $   680,915
Liabilities and Stockholders' Equity:
Notes payable.............................................  $   250,000   $   250,000
Securities sold under agreements to repurchase............                      3,075
Other liabilities.........................................       21,031        15,008
                                                            -----------   -----------
Total liabilities.........................................      271,031       268,083
Stockholders' equity......................................      424,028       412,832
                                                            -----------   -----------
                                                            $   695,059   $   680,915
                                                            ===========   ===========
</TABLE>


                                       92

<PAGE>
                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
Condensed Statements of Operations
                                                                      Years Ended December 31,
                                                                -----------------------------------
                                                                  1998         1997          1996
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>      
Interest income ....................................            $  12,402    $  10,019    $   1,645
Interest expense ...................................              (33,178)     (20,367)      (6,656)
Non-interest income ................................                   --           --          266
Non-interest expense ...............................              (44,174)      (3,942)      (1,131)
                                                                ---------    ---------    ---------
Loss before income taxes ...........................              (64,950)     (14,290)      (5,876)
Income tax benefit .................................               42,942        5,083        2,925
                                                                ---------    ---------    ---------
Loss before equity in net income of subsidiaries ...              (22,008)      (9,207)      (2,951)
Equity in net income of bank subsidiary ............               55,747       88,598       48,486
Equity in net (loss) income of non-bank subsidiaries              (34,939)        (459)       4,607
                                                                ---------    ---------    ---------
Net (loss) income ..................................            $  (1,200)   $  78,932     $ 50,142
                                                                =========    =========    =========
</TABLE>


<TABLE>
<CAPTION>
Condensed Statements of Cash Flows

                                                                 For the Years Ended December 31,
                                                                -----------------------------------
                                                                  1998          1997         1996
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>      
Cash flows from operating activities:
Net (loss) income ...........................................   $  (1,200)   $  78,932    $  50,142
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Equity in income of bank subsidiary .........................     (56,124)     (88,598)     (49,186)
Equity in loss (income) of non-bank subsidiaries ............      38,107          459       (1,657)
Equity in income of unconsolidated entity, net ..............        (439)          --           --
Premium amortization, net ...................................      18,383       11,467           --
Provision for loan losses ...................................         162           --           --
Loss on interest-earning assets .............................      44,998           --           --
Gain on sale of real estate held for investment .............      (2,389)          --           --
Increase in deferred tax assets .............................     (13,144)      (6,830)          --
(Increase) decrease in other assets .........................      (3,333)      (5,662)       4,067
Increase in income taxes receivable .........................     (21,582)      (3,736)     (10,003)
Increase (decrease) in accrued expenses, payables and other
  liabilities ...............................................       6,023        9,970       (3,286)
                                                                ---------    ---------    ---------
Net cash provided (used) by operating activities ............       9,462       (3,998)      (9,923)
                                                                ---------    ---------    ---------
Cash flows from investing activities:
Purchase of securities available for sale ...................     (34,755)    (146,643)     (13,125)
Maturities of and principal payments received on securities
  available for sale ........................................           8          579           63
Net distributions from (investments in) bank subsidiary .....      96,189       37,291      (49,707)
Net (investments in) distributions from non-bank subsidiaries    (201,059)     (86,599)       5,410
Investment in unconsolidated entity .........................     (45,886)          --           --
Proceeds from sales of securities available for sale ........      70,080       15,574           --
Purchase of securities held for investment ..................          --      (11,115)          --
Proceeds from sales of securities held for investment .......      13,025           --           --
Purchase of discount loans ..................................      (2,557)     (48,413)          --
Proceeds from sales of loans held for investment ............      53,949        5,080           --
Proceeds from real estate held for investment ...............      13,064           --           --
Purchase of real estate held for investment .................          --         (995)      (9,680)
Purchase of loans held for investment .......................          --           --      (11,845)
                                                                ---------    ---------    ---------
Net cash used by investing activities .......................     (37,942)    (235,241)     (78,884)
                                                                ---------    ---------    ---------
Cash flows from financing activities:
Proceeds from issuance of notes and debentures ..............          --      120,738      125,000
Payment of debt issuance costs ..............................          --           --       (5,252)
Repayment of notes payable ..................................          --           --       (8,628)
(Decrease) increase in securities sold under agreements to
  repurchase ................................................      (3,075)       3,075           --
Repayments (originations) of loans to 
  executive officers, net ...................................          --        3,832       (3,832)
Exercise of common stock options ............................       7,931        3,037       12,993
Issuance of shares of communion stock .......................       7,828      142,003           --
Repurchase of common stock options ..........................      (6,502)      (3,208)        (177)
Repurchase of common stock ..................................      (7,772)          --           --
Other .......................................................          --           --           23
                                                                ---------    ---------    ---------
Net cash (used) provided by financing activities ............      (1,590)     269,477      120,127
                                                                ---------    ---------    ---------
Net (decrease) increase in cash and cash equivalents ........     (30,070)      30,238       31,320
Cash and cash equivalents at beginning of year ..............      62,586       32,348        1,028
                                                                ---------    ---------    ---------
Cash and cash equivalents at end of year ....................   $  32,516    $  62,586    $  32,348
                                                                =========    =========    =========
</TABLE>


                                                 93

<PAGE>

                  OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
          (DOLLARS AND BRITISH POUNDS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 30: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     Quarters Ended
                                                             ----------------------------------------------------------------
                                                             December 31,     September 30,       June 30,          March 31,
                                                             -----------       -----------      -----------       -----------
                                                                1998              1998             1998               1998
                                                             -----------       -----------      -----------       -----------
<S>                                                          <C>               <C>              <C>               <C>        
Interest income...........................................   $    66,237       $    88,542      $    90,891       $    62,024
Interest expense..........................................       (43,602)          (47,859)         (52,576)          (40,856)
Provision for loan losses.................................        (4,775)           (1,806)          (9,675)           (2,253)
                                                             -----------       -----------      -----------       -----------
Net interest income after provision
  for loan losses.........................................        17,860            38,877           28,640            18,915
Non-interest income.......................................        28,742            54,942          (13,750)           41,381
Non-interest expense......................................       (70,618)          (65,516)         (56,249)          (34,011)
Distributions on Capital Securities.......................        (3,399)           (3,398)          (3,398)           (3,399)
Equity in (losses) earnings of investments in
  unconsolidated entities.................................       (11,443)            2,915              513                30
                                                             -----------       -----------      -----------       -----------
(Loss) income before income taxes.........................       (38,858)           27,820          (44,244)           22,916
Income taxes (expense) benefit............................        27,811            (2,922)           6,383              (573)
Minority interest in net loss (earnings) of
  consolidated subsidiary.................................           469                33              (68)               33
                                                             -----------       -----------      -----------       -----------
Net (loss) income.........................................   $   (10,578)      $    24,931      $   (37,929)      $    22,376
                                                             ===========       ===========      ===========       ===========
Earnings per share:
Basic.....................................................   $     (0.17)      $      0.41      $     (0.62)      $      0.37
                                                             ===========       ===========      ===========       ===========
Diluted...................................................   $     (0.17)      $      0.41      $     (0.62)      $      0.36
                                                             ===========       ===========      ===========       ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                     Quarters Ended
                                                             ----------------------------------------------------------------
                                                             December 31,     September 30,       June 30,          March 31,
                                                             -----------       -----------      -----------       -----------
                                                                1997              1997             1997               1997
                                                             -----------       -----------      -----------       -----------
<S>                                                          <C>               <C>              <C>               <C>        
Interest income...........................................   $    73,736       $    77,326      $    66,942       $    54,527
Interest expense..........................................       (40,313)          (39,944)         (38,868)          (37,164)
Provision for loan losses.................................       (10,479)           (4,088)          (7,909)           (9,742)
                                                             -----------       -----------      -----------       -----------
Net interest income after provision for loan losses.......        22,944            33,294           20,165             7,621
Non-interest income.......................................        43,770            25,431           33,397            21,351
Non-interest expense......................................       (41,770)          (31,219)         (31,188)          (22,697)
Distributions on Capital Securities.......................        (3,399)           (1,850)              --                --
Equity in earnings of investment in
   unconsolidated entities................................         7,468               547            1,301            14,372
                                                             -----------       -----------      -----------       -----------
Income before income taxes................................        29,013            26,203           23,675            20,647
Income taxes (expense) benefit............................        (6,398)           (6,179)          (5,126)           (3,606)
Minority interest in net loss of
   consolidated subsidiary................................           319               141              243                --
                                                             -----------       -----------      -----------       -----------
Net income................................................   $    22,934       $    20,165      $    18,792       $    17,041
                                                             ===========       ===========      ===========       ===========
Earnings per share:
Basic.....................................................   $      0.38       $      0.35      $      0.35       $      0.32
                                                             ===========       ===========      ===========       ===========
Diluted...................................................   $      0.37       $      0.35      $      0.35       $      0.31
                                                             ===========       ===========      ===========       ===========
</TABLE>


                                                             94

<PAGE>


SHAREHOLDER INFORMATION

PRICE RANGE OF THE COMPANY'S COMMON STOCK

The  Company's  common  stock was traded on The NASDAQ Stock  Market's  National
Market ("NASDAQ") from September 25, 1996, until

July 31, 1997, under the symbol "OCWN" and has been traded on the New York Stock
Exchange  ("NYSE")  since August 1, 1997,  under the symbol  "OCN." There was no
established  market  for the common  stock  prior to  September  25,  1996.  The
following table sets forth for the indicated periods the high and low bid prices
(for the period  through  July 31,  1997) and high and low sales prices (for the
period  beginning August 1, 1997) for the common stock, as traded on such market
and exchange.  The share price information below has been retroactively adjusted
to reflect the 2-for-1 stock split effective  November 20, 1997, to stockholders
of record on November 12, 1997.

                                                       High          Low
                                                    ----------   ----------
1996:
Third quarter (from September 25)................   $  10.5000   $   9.5000
Fourth quarter...................................      15.2500      10.1250

1997:
First quarter....................................   $  17.3750   $  12.6250
Second quarter...................................      16.4375      12.7500
Third quarter....................................      22.6250      15.7500
Fourth quarter...................................      28.8125      21.0000

1998:
First quarter....................................   $  30.7500   $  22.2500
Second quarter...................................      28.3750      22.3125
Third quarter....................................      27.8750       8.5000
Fourth quarter...................................      16.1875       5.6875

At the close of business on March 9, 1999, the Company's  common stock price was
$8.8125.

The Company  does not  currently  pay cash  dividends on common stock and has no
current  plans to do so in the future.  In the future,  the timing and amount of
dividends,  if any,  will be determined by the Board of Directors of the Company
and will depend,  among other factors,  upon the Company's  earnings,  financial
condition,  cash  requirements,  the capital  requirements of the Bank and other
subsidiaries  and  investment  opportunities  at the time any  such  payment  is
considered.  In addition,  the  indentures  relating to the Notes and the Junior
Subordinated  Debentures contain certain limitations on the payment of dividends
by the Company.

As a holding  company,  the  payment of any  dividends  by the  Company  will be
significantly  dependent on dividends and other payments received by the Company
from its  subsidiaries,  including the Bank. For a description of limitations on
the  ability of the  Company  to pay  dividends  on the common  stock and on the
ability of the Bank to pay  dividends on its capital  stock to the Company,  see
Notes 18, 19 and 25 to the Consolidated  Financial  Statements.  The Company has
not paid any cash dividends on its common stock in recent years.

NUMBER OF HOLDERS OF COMMON STOCK

At March 9, 1999, 60,800,357 shares of Company common stock were outstanding and
held by approximately  1,310 holders of record. Such number of stockholders does
not reflect the number of individuals or institutional  investors  holding stock
in nominee name through banks, brokerage firms and others.

                                       95



               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement  on  Form  S-8 on  January  27,  1998  (Registration  No.  333-44999),
Registration  Statement on Form S-8 filed on August 25, 1998  (Registration  No.
333-62217)  and  Registration  Statement  on Form S-3 filed on  November 5, 1998
(Registration No. 333-64915) of Ocwen Financial  Corporation of our report dated
January 29, 1999 appearing on page 45 of the 1998 Annual Report of  Shareholders
which is incorporated in this Annual Report on Form 10-K.



/s/ PRICEWATERHOUSECOOPERS LLP
- ----------------------------------------------
    PRICEWATERHOUSECOOPERS LLP
    Ft. Lauderdale, Florida
    March 31, 1999






                                                                    EXHIBIT 99.1
RISK FACTORS

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

CHANGING NATURE OF RISKS; NO ASSURANCES AS TO CONSISTENCY OF EARNINGS

         CHANGING NATURE OF RISKS. The Company's  corporate strategy  emphasizes
the identification,  development and management of specialized  businesses which
the Company believes are not accurately  evaluated and priced by the marketplace
due to market, economic and competitive conditions.  This strategy can result in
the entry into or  development  of  businesses  and  investment  in assets which
produce substantial  initial returns,  which may be followed by an exit from any
of those  businesses  or the sale of  those  assets  if,  for  example,  results
decrease  because markets become more efficient in the evaluation and pricing of
such businesses and assets. For example,  in recent years, the Company's efforts
have focused on lending, the acquisition and resolution of discounted loans, and
investment in various types of mortgage-
 related securities. However, on October
26, 1998, the Company  announced that it would refocus its resources on its core
competencies,  namely the  acquisition  and  management  of  servicing-intensive
assets  and the  development  of  exportable  loan  serving  technology  for the
mortgage  and real estate  industries.  Given that this  strategy  involves  the
potential  of  entering  and  exiting  different   businesses,   past  financial
performance may not be considered a reliable indicator of future performance and
historical  trends may not be  reliable  indicators  of  anticipated  results or
trends in future  periods.  In  addition,  there  can be no  assurance  that the
Company  will be able to  accomplish  its  strategic  objectives  as a result of
changes in the nature of the Company?s operations over time or that such changes
will not have a material  adverse  effect from time to time or  generally on the
Company's business, financial condition or results of operations.

         INCONSISTENCY  OF RESULTS  AND  NON-RECURRING  ITEMS.  In  addition  to
inconsistency  in  results  caused  by the  entry or exit of  businesses  by the
Company,  the  consistency  of the operating  results of the Company has and may
continue to be significantly affected by inter-period  variations in its current
operations,  including  in  respect  of  (i)  the  amount  of  assets  acquired,
particularly  discounted  loans;  (ii) the amount of  resolutions  of discounted
loans,  particularly large  multi-family  residential and commercial real estate
loans;  (iii) the amount of multi-family  residential and commercial real estate
loans which mature or are  prepaid,  particularly  loans with terms  pursuant to
which the Company participates in the profits of the underlying real estate; and
(iv) sales by the Company of loans and/or securities acquired from the Company's
securitization of loans. In addition,  the Company's operating results have been
significantly  affected by certain non-recurring items. For example, the Company
has   earned   significant   non-interest   income   from   gains  on  sales  of
interest-earning   assets   and   real   estate   owned.   Gains   on  sales  of
interest-earning assets and real estate owned generally are dependent on various
factors  which are not within the control of the Company,  including  market and
economic conditions and accounting  regulations.  In addition,  during 1998, the
Company took charges related to its portfolio of AAA-rated agency  interest-only
("IO")  strips,   residual  and  subordinate   securities  available  for  sale,
curtailment of its domestic  operations and  investments in OAC and OPLP.  There
can be no assurance that the level of gains on sales of interest-earning  assets
and real estate owned  reported by the Company in prior periods will be repeated
in future periods or that there will not be substantial  inter-period variations
in the results from such activities or as a result of other non-recurring items.

RISKS RELATED TO NON-TRADITIONAL OPERATING ACTIVITIES

               As  discussed  below,  the  Company  is  engaged  in a variety of
         businesses which generally  involve more  uncertainties  and risks than
         the   single-family   residential   lending   activities   historically
         emphasized by savings institutions.  In addition, many of the Company's
         business activities, including its lending activities, are conducted on
         a  nationwide   basis,   which  reduces  the  risks   associated   with
         concentration  in any one  particular  market area but  involves  other
         risks because,  among other things,  the Company may not be as familiar
         with market conditions and other relevant factors as it would be in the
         case of activities which are conducted in the market areas in which its
         executive offices and branch office are located.

               DISCOUNTED  LOAN  ACQUISITION  AND  RESOLUTION  ACTIVITIES.   The
         Company's lending  activities include the acquisition and resolution of
         non-performing  or  underperforming  single-family  (one to four units)
         residential loans, multi-family (over four units) residential loans and
         commercial  real  estate  loans  which  are  purchased  at a  discount.
         Non-performing  and  subperforming  mortgage  loans may presently be in
         default or may have a greater  than normal risk of future  defaults and
         delinquencies,  as compared to newly-originated,  high-quality loans of
         comparable  type,  size and  geographic  concentration.  Returns  on an
         investment  of this  type  depend  on the  borrower's  ability  to make
         required  payments  or, in the event of  default,  the  ability  of the
         loan's servicer to foreclose and liquidate the mortgage loan. There can
         be no assurance  that the servicer can  liquidate a defaulted  mortgage
         loan successfully or in a timely fashion.

                                       1

<PAGE>


               The Company acquires discounted loans from governmental agencies,
         which in the early  years of the  program  consisted  primarily  of the
         Federal Deposit  Insurance  Corporation (the "FDIC") and the Resolution
         Trust  Corporation,  a federal  agency formed to resolve failed savings
         institutions which has since ceased operations, and in recent years has
         consisted  primarily  of the  U.S.  Department  of  Housing  and  Urban
         Development. In addition to governmental agencies, the Company acquires
         discounted  loans from various private sector  sellers,  such as banks,
         savings  institutions,  mortgage  companies  and  insurance  companies.
         Although  the  Company   believes  that  a  permanent  market  for  the
         acquisition of non-performing and  underperforming  mortgage loans at a
         discount has emerged in recent  years,  there can be no assurance  that
         the  Company  will be able to acquire  the  desired  amount and type of
         discounted   loans  in  future  periods  or  that  there  will  not  be
         significant inter-period variations in the amount of such acquisitions.
         There also can be no assurance that the discount on the  non-performing
         and  underperforming  loans  acquired  by the  Company  will enable the
         Company to resolve  discounted  loans in the future as profitably as in
         prior periods.  Adverse changes in national  economic  conditions or in
         the economic  conditions in regions in which the Company acquires pools
         of loans  could  impair its ability to resolve  successfully  loans and
         could have an  adverse  effect on the value of those  loan  pools.  The
         yield  on  the  Company's  discounted  portfolio  also  is  subject  to
         significant  inter-period  variations  as a  result  of the  timing  of
         resolutions of discounted loans,  particularly multi-family residential
         and  commercial  real  estate  loans and  non-performing  single-family
         residential loans, interest on which is recognized on a cash basis, and
         the mix of the overall portfolio between  performing and non-performing
         loans.  In addition,  the volume of  discounted  loans  acquired by the
         Company may vary over time,  thereby affecting results of operations in
         future periods as the quantity of loans resolved in any one time period
         may be affected.

               MULTI-FAMILY RESIDENTIAL, COMMERCIAL REAL ESTATE AND CONSTRUCTION
         LENDING ACTIVITIES.  The Company's lending activities currently include
         (though to a lesser  extent than in previous  years)  nationwide  loans
         secured by existing  commercial  real estate,  particularly  hotels and
         office buildings, and existing multi-family residential real estate. In
         addition,  from  time to time  the  Company  originates  loans  for the
         construction   of  multi-family   residential   real  estate  and  land
         acquisition  and development  loans (again,  to a lesser extent than in
         previous years).  Multi-family residential real estate, commercial real
         estate and construction  lending  generally are considered to involve a
         higher degree of risk than single-family  residential  lending due to a
         variety of  factors,  including  generally  larger loan  balances,  the
         dependency  on  successful  completion  or operation of the project for
         repayment,  the difficulties in estimating  construction costs and loan
         terms which often require  little or no  amortization  of the loan over
         its term  (typically  five years) and,  instead,  provide for a balloon
         payment at stated maturity.  Furthermore,  mezzanine  loans,  which are
         subordinate  to senior loans,  and  construction  loans  generally have
         higher  loan-to-value  ratios than  conventional  loans.  Although  the
         Company's  borrowers  generally have an equity investment of 10% to 15%
         of total  project  costs,  such equity may not be sufficient to protect
         the Company's investment in these  higher-yielding  loans. There can be
         no assurance that any multi-family residential,  commercial real estate
         and  construction  lending  activities  engaged in by the Company risks
         also related to loans  already  made will not be adversely  affected by
         these and the other risks related to such activities.

               SUB-PRIME FAMILY RESIDENTIAL  LENDING  ACTIVITIES.  The Company's
         lending activities also continue to include the origination or purchase
         on a  nationwide  basis  of  single-family  residential  loans  made to
         borrowers who have  significant  equity in the properties  which secure
         the loans but who, because of prior credit  problems,  the absence of a
         credit history or other factors,  are unable or unwilling to qualify as
         borrowers  under  federal  agency  guidelines.  These loans are offered
         pursuant to various  programs,  including  programs  which  provide for
         reduced or no  documentation  for  verifying  a  borrower's  income and
         employment.   Sub-prime  loans  present  a  higher  level  of  risk  of
         delinquency or default than loans made to more creditworthy  borrowers,
         and may not be as  saleable as loans  which  conform to the  guidelines
         established by various  federal  agencies.  While the Company  believes
         that the business practices it employs enable it to reduce higher risks
         inherent in these loans,  no assurance can be given that such practices
         will  afford   adequate   protection   against  higher   delinquencies,
         foreclosures or losses than anticipated, and as a result, the Company's
         financial   condition  or  results  of  operation  could  be  adversely
         affected.

                                       2

<PAGE>


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

               INVESTMENTS  IN  LOW-INCOME  HOUSING  TAX CREDIT  INTERESTS.  The
         Company invests in low-income  housing tax credit interests  (generally
         limited  partnerships)  in order to obtain  federal  income tax credits
         which are allocated pursuant to Section 42 of the Internal Revenue Code
         of 1986,  as amended (the  "Code").  There are many  uncertainties  and
         risks  associated  with an investment in low-income  housing tax credit
         interests,  including the risks involved in the construction,  lease-up
         and operation of multi-family  residential real estate,  the investor's
         ability to earn sufficient  income to utilize the tax credits resulting
         from such  investments in accordance with the  requirements of the Code
         and the  possibility  of required  recapture of  previously-earned  tax
         credits. In addition,  there are numerous tax risks associated with tax
         credits resulting from potential changes to the Code.

               INVESTMENTS IN MORTGAGE-RELATED SECURITIES. From time to time the
         Company invests in a variety of  mortgage-related  securities,  such as
         senior,  subordinate and residual interests in collateralized  mortgage
         obligations  ("CMOs"),  including  CMOs  which have  qualified  as Real
         Estate  Mortgage   Investment   Conduits.   These  investments  include
         so-called  stripped  mortgage-related  securities,  in  which  interest
         coupons  may  be  stripped  from  a  mortgage  security  to  create  an
         interest-only  strip,  where the investor  receives all of the interest
         cash  flows  and none of the  principal,  and a  principal-only  ("PO")
         strip,  where the investor receives all of the principal cash flows and
         none of the  interest.  Some  mortgage-related  securities,  such as IO
         strips,  PO strips and residual  interests,  exhibit  considerably more
         price  volatility  than  mortgages  or ordinary  mortgage  pass-through
         securities,  due in part to the  uncertain  cash flows that result from
         changes in the  prepayment  rates of the  underlying  mortgages.  Other
         mortgage-related   securities,  such  as  subordinate  interests,  also
         involve  substantially  more credit risk than the senior classes of the
         mortgage-related   securities  to  which  such  interests   relate  and
         generally  are  not as  liquid  as such  senior  classes.  The  Company
         generally  acquires  subordinate  and residual  interests  primarily in
         connection  with  the   securitization   of  its  loans,   particularly
         single-family   residential  loans  to  non-conforming   borrowers  and
         discounted  loans,  and under  circumstances  in which it  continues to
         service the loans which back the  related  securities.  The Company has
         sought to offset the risk of changing  interest rates on certain of its
         mortgage-related  securities by selling U.S. Treasury futures contracts
         and through other hedging  techniques,  and believes that the resulting
         interest-rate  sensitivity  profile  compliments the Company's  overall
         exposure  to changes in interest  rates.  See  "--Economic  Conditions"
         below.  Although  generally  intended to reduce the effects of changing
         interest rates on the Company,  investments in certain mortgage-related
         securities  and  hedging   transactions  could  cause  the  Company  to
         recognize  losses  depending  on the  terms of the  instrument  and the
         interest rate environment.

         RISK OF FUTURE ADJUSTMENTS TO ALLOWANCES FOR LOSSES

               The Company believes that it has established  adequate allowances
         for losses for each of its loan portfolio and discounted loan portfolio
         in accordance with generally  accepted  accounting  principles.  Future
         additions to these allowances,  in the form of provisions for losses on
         loans and discounted loans, may be necessary,  however,  due to changes
         in economic conditions, increases in loans and discounted loans and the
         performance of the Company's loan and discounted  loan  portfolios. 

                                       3

<PAGE>


         In addition, the OTS, as part of its examination process,  periodically
         reviews the Company's  allowances  for losses and the carrying value of
         its  assets.  As a result of OTS  reviews,  the Company in the past has
         increased its allowances  for losses on loans and discounted  loans and
         written  down the  carrying  value of  certain  loans.  There can be no
         assurance  that the Company will not  determine,  at the request of the
         OTS or  otherwise,  to further  increase its  allowances  for losses on
         loans and  discounted  loans or adjust the  carrying  value of its real
         estate owned or other assets. Increases in the Company's provisions for
         losses  on loans  would  adversely  affect  the  Company's  results  of
         operations.

         RISKS RELATED TO REAL ESTATE OWNED

               GENERAL. The Company's real estate owned consists almost entirely
         of single-family  residential real estate and multi-family  residential
         and commercial  real estate  acquired by  foreclosure  or  deed-in-lieu
         thereof on loans in the Company's discounted loan portfolio. Generally,
         real  estate  owned   properties  are  non-earning   assets,   although
         multi-family  residential  and commercial real estate owned may provide
         some operating  income to the Company  depending on the  circumstances.
         Such  operating  income may be  affected  by  problems  experienced  by
         lessees,  which may  weaken  their  financial  condition  and result in
         failure to make rental  payments when due. At any time, a lessee of the
         Company's  properties may seek the protection of bankruptcy laws, which
         could result in rejection  and  termination  of the lessee's  lease and
         thereby cause a reduction in cash flow  available for  distribution  to
         the Company.  Moreover,  the value of real estate can be  significantly
         affected by adverse  changes in national or local economic  conditions,
         competition  from  other  properties   offering  the  same  or  similar
         services,  changes in interest rates and in the availability,  cost and
         terms  of  mortgage  funds,  acts  of  nature,  including  earthquakes,
         hurricanes  and other  natural  disasters,  and other factors which are
         beyond the  control of the  Company.  These  factors  may  require  the
         establishment of provisions for losses to ensure that real estate owned
         properties  are  carried  at the  lower  of cost or  fair  value,  less
         estimated  costs to  dispose  of the  properties,  which may  adversely
         affect operations. Real estate owned also requires increased allocation
         of resources and expense to the  management  and work out of the asset,
         property taxes and compliance  with respect to  environmental  laws and
         the Americans with  Disabilities  Act of 1990, which can also adversely
         affect  operations.  There can be no  assurance  that the amount of the
         Company's real estate owned will not increase in the future as a result
         of the Company's discounted loan acquisition and resolution  activities
         and the Company's single-family residential,  multi-family residential,
         commercial real estate and construction lending activities.

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

         RISKS ASSOCIATED WITH ACQUISITIONS AND DIVESTITURES

               Acquiring  businesses  and assets has been and may continue to be
         an important focus of the Company's strategic efforts. Any acquisitions
         could vary in size and may include those that are large relative to the
         Company. There can be no assurance that suitable acquisition candidates
         can be  identified,  that  financing  for  such  acquisitions  would be
         available  on  satisfactory  terms,  that the Company  would be able to
         accomplish   its   strategic   objectives  as  a  result  of  any  such
         acquisitions, that any business or assets acquired by the Company would
         be integrated  successfully or that integration of acquired  businesses
         would not divert  management  resources  or  otherwise  have a material
         adverse  effect  on the  Company's  business,  financial  condition  or
         results of operations.  The Company is continually  evaluating possible
         acquisitions  and engages in discussions  with  acquisition  candidates
         from time to time.

                                       4

<PAGE>


               In addition,  in the event that the Company chooses to divest any
         business  or sell any asset in the  future,  there can be no  assurance
         that a suitable  purchaser could be identified,  that the Company would
         be able to accomplish its strategic  objectives as a result of any such
         sale,  that any proposed asset or business sold by the Company would be
         completed or that the separation of any such asset or business from the
         Company  would not diminish  management  resources or otherwise  have a
         material adverse effect on the Company's business,  financial condition
         or results of operations.

         ABILITY TO MANAGE GROWTH

               The  Company  has grown  rapidly in the past and may  continue to
         grow rapidly in the future.  If so, continued growth can be expected to
         place a  significant  strain on the  Company's  management  operations,
         employees and resources.  The Company's ability to support,  manage and
         control  continued  growth is dependent upon,  among other things,  its
         ability to hire,  train,  supervise  and manage  its  workforce  and to
         continue  to develop  the skills  necessary  for the Company to compete
         successfully.  There can be no assurance  that the Company will be able
         to manage  effectively  its expanding  operations or achieve  growth as
         planned on a timely or  profitable  basis.  If the Company is unable to
         manage  growth  effectively,  its  business,  results of  operations or
         financial condition could be materially adversely affected.

         RISKS ASSOCIATED WITH PARTNERING

               On July 28, 1998,  the Company  announced  that it has engaged an
         investment bank to identify  potential business partners who can enable
         the   Company   to  expand  its   franchise   both   domestically   and
         internationally. Any transaction resulting therefrom could take on many
         different forms, including a merger. No assurance can be given that the
         Company  will  identify a business  partner and  transaction  that will
         satisfy its objectives or, if so identified,  that such objectives will
         be achieved.

         INTERNATIONAL OPERATIONS

               The Company conducts business in the United States and the United
         Kingdom and may explore  opportunities  outside of these  markets.  The
         Company's  U.K.  operations  are  subject  to  most of the  same  risks
         associated with its U.S. operations,  as well as additional risks, such
         as  unexpected  changes in U.K. and European  regulatory  requirements,
         difficulties in managing international operations,  potentially adverse
         tax  consequences,  enhanced  accounting  and control  expenses and the
         burden of complying  with  foreign  laws.  Changes in foreign  currency
         exchange rates may also affect the value of the Company's  U.K.  assets
         and the  gains  realized  from the sale of such  assets.  Although  the
         Company  implements hedging strategies to limit the effects of currency
         exchange  rate  fluctuations  on the Company's  results of  operations,
         currency  hedging  strategies,  like those for interest rates,  may not
         perform their intended purpose. See "--Economic Conditions".  There can
         be no  assurance  that such  factors  will not have a material  adverse
         effect on the  Company's  business,  results of operations or financial
         condition.  In  addition,  the  Company's  management  has only limited
         international  experience  outside of the U.S. and the U.K, which could
         limit the Company's  ability to capitalize on investment  opportunities
         that may arise elsewhere.

         REGULATION AND REGULATORY CAPITAL REQUIREMENTS

               Both the Company, as a savings and loan holding company,  and the
         Bank,  as a  federally-chartered  savings  institution,  are subject to
         significant governmental supervision and regulation,  which is intended
         primarily for the  protection of depositors.  Statutes and  regulations
         affecting the Company and the Bank may be changed at any time,  and the
         interpretation   of  these   statutes  and   regulations  by  examining
         authorities  also is subject to change.  There can be no assurance that
         future  changes in  applicable  statutes  and  regulations  or in their
         interpretation  will not adversely  affect the business of the Company.
         The  applicable  regulatory  authorities  may,  as  a  result  of  such
         regulation  and  examination,  impose  regulatory  sanctions  upon  the
         Company or the Bank, as applicable,  as well as various requirements or
         restrictions which could adversely affect their business activities. 

                                       5

<PAGE>


         A substantial portion of the Bank's operations involves businesses that
         are not  traditionally  conducted  by savings  institutions  and,  as a
         result,  there can be no assurance  that future  actions by  applicable
         regulatory  authorities,  or future  changes in applicable  statutes or
         regulations,  will not limit or otherwise  adversely  affect the Bank's
         ability to engage in such activities.

               Following an examination of the Bank in late 1996 and early 1997,
         the staff of the Office of Thrift  Supervision  (the  "OTS")  expressed
         concern about many of the Bank's non-traditional  operations (which are
         discussed   under  "--Risks   Related  to   Non-Traditional   Operating
         Activities"  above) and the adequacy of the Bank's  capital in light of
         the  Bank's  lending  and  investment  strategies.  As a result of such
         examination,  the Bank committed to the OTS to maintain,  commencing on
         June 30, 1997, regulatory capital ratios which significantly exceed the
         requirements  which are  generally  applicable  to  federally-chartered
         savings  institutions  such as the  Bank.  Specifically,  the  Bank has
         committed to the OTS to maintain a core capital  (leverage) ratio and a
         total  risk-based  capital  ratio of at least 9% and 13%,  respectively
         (the   requirements   of   general   applicability   are  3%  and   8%,
         respectively).  At December 31, 1998,  the Bank's core capital,  Tier 1
         risk-based  capital and total  risk-based  capital  ratios  amounted to
         9.07%, 11.71% and 17.26%,  respectively.  Based on discussions with the
         OTS, the Bank believes that this  commitment does not affect its status
         as a  "well-capitalized"  institution,  assuming  the Bank's  continued
         compliance with the regulatory  capital  requirements that it committed
         to maintain.  Under applicable laws and regulations,  an institution is
         considered to be  "well-capitalized" if it maintains a total risk-based
         capital  ratio of 10.0% or more, a Tier 1 risk-based  capital  ratio of
         6.0% or more and a core capital (leverage) ratio of 5.0% or more and is
         not subject to a written  agreement,  order or  directive  issued by an
         appropriate  agency to meet and maintain a specific  capital  level for
         any capital measure.

               There can be no assurance  that in the future the OTS either will
         agree to a decrease in the 9% core capital (leverage) ratio and the 13%
         total  risk-based  capital ratio committed to be maintained by the Bank
         or will not seek an  increase  in such  requirements.  Unless and until
         these regulatory capital requirements are decreased, the Bank's ability
         to leverage its capital through future growth in assets  (including its
         ability to continue  growing at  historical  rates)  will be  adversely
         affected,  as will the Company's  ability to receive dividends from the
         Bank,   which  are  a  primary   source  of  payments  on   outstanding
         indebtedness  and other  expenses of the Company.  Although the Company
         and its non-banking subsidiaries will not be restricted in their growth
         by these capital  requirements,  because they do not have access to the
         Bank's funding sources,  their  profitability may be different from the
         Bank's for particular types of businesses. In addition, there can be no
         assurance  that the Bank will continue to meet the  regulatory  capital
         requirements that it has committed to maintain or that the OTS will not
         formally  impose such  requirements  pursuant  to a written  agreement,
         order  or  directive,  which  would  cause  the  Bank to  cease to be a
         "well-capitalized"  institution  under applicable laws and regulations.
         In  the  event  that  the  Bank  ceased  to  be  a   "well-capitalized"
         institution,  the Bank would be prohibited from accepting,  renewing or
         rolling over its brokered and other wholesale  deposits,  which are its
         principal  source of funding,  without the prior  approval of the FDIC,
         and the Bank could become subject to other  regulatory  restrictions on
         its operations.

         ECONOMIC CONDITIONS

               GENERAL.  The  success of the Company is  dependent  to a certain
         extent upon the general economic  conditions in the geographic areas in
         which it conducts substantial  business activities.  Adverse changes in
         national economic  conditions or in the economic  conditions of regions
         in which the Company conducts  substantial business likely would impair
         the ability of the Company to collect on  outstanding  loans or dispose
         of real estate owned and would  otherwise have an adverse effect on its
         business,  including the demand for new loans, the ability of customers
         to repay  loans and the  value of both the  collateral  pledged  to the
         Company  to  secure  its  loans and its real  estate  owned.  Moreover,
         earthquakes  and other natural  disasters  could have similar  effects.
         Although such disasters have not significantly  adversely  affected the
         Company to date,  the  availability  of insurance for such disasters in
         California,   in  which  the  Company  conducts   substantial  business
         activities,  is severely limited.  Moreover,  changes in building codes
         and  ordinances,  environmental  considerations  and other factors also
         might  render  infeasible  the use of  insurance  proceeds  to  replace
         damaged or destroyed property. Under such circumstances,  the insurance
         proceeds received by a borrower or the Company might not be adequate to
         restore the  Company's  economic  position with respect to the affected
         collateral or real estate.

                                       6

<PAGE>


               EFFECTS OF CHANGES IN INTEREST  RATES.  The  Company's  operating
         results depend to a large extent on its net interest  income,  which is
         the difference  between the interest income earned on  interest-earning
         assets  and the  interest  expense  incurred  in  connection  with  its
         interest-bearing liabilities.  Changes in the general level of interest
         rates can affect the  Company's  net interest  income by affecting  the
         spread between the Company's return on interest-earning  assets and the
         Company's cost of interest-bearing liabilities, as well as, among other
         things, the ability of the Company to originate loans; the value of the
         Company's interest-earning assets and its ability to realize gains from
         the  sale  of  such  assets;   the  average   life  of  the   Company's
         interest-earning  assets; the value of the Company's mortgage servicing
         rights;  and the Company's  ability to obtain  deposits in  competition
         with other available investment alternatives. Interest rates are highly
         sensitive to many factors,  including  governmental  monetary policies,
         domestic and international  economic and political conditions and other
         factors beyond the control of the Company. Although management believes
         that the  maturities  of the  Company's  assets  are well  balanced  in
         relation to its  liabilities  (which  involves  various  estimates  and
         assumptions,  including  as to how  changes  in the  general  level  of
         interest rates will impact its assets and liabilities), there can be no
         assurance that the  profitability of the Company would not be adversely
         affected during any period of changing interest rates.

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

         RISKS RELATED TO RELIANCE ON BROKERED AND OTHER WHOLESALE DEPOSITS

               The Company  currently  utilizes as its principal source of funds
         certificates of deposit obtained through  national  investment  banking
         firms which  obtain  funds from their  customers  for deposit  with the
         Company ("brokered deposits") and, to a lesser extent,  certificates of
         deposit  obtained  from  customers  of  regional  and local  investment
         banking  firms  and  direct  solicitation  efforts  by the  Company  of
         institutional  investors  and high net worth  individuals.  The Company
         believes  that the  effective  cost of  brokered  and  other  wholesale
         deposits,  as well as other non-branch dependent sources of funds, such
         as securities sold under agreements to repurchase  ("reverse repurchase
         agreements")  and advances from the Federal Home Loan Board ("FHLB") of
         New York,  generally is more  attractive  to the Company than  deposits
         obtained  through branch  offices after the general and  administrative
         costs  associated with operating a branch office network are taken into
         account.  However,  such  funding  sources,  when  compared  to  retail
         deposits  attracted  through  a  branch  network,  are  generally  more
         sensitive to changes in interest  rates and  volatility  in the capital
         markets and their  availability and terms are more likely to be subject
         to competitive pressures. In addition, such funding sources may be more
         sensitive  to  significant  changes in the  financial  condition of the
         Company.   There  are  also   regulatory   limitations  on  an  insured
         institution's  ability  to  solicit  and obtain  brokered  deposits  in
         certain  circumstances,  which currently are not applicable to the Bank
         because  of  its  status  as a  "well  capitalized"  institution  under
         applicable  laws and  regulations.  See  "--Regulation  and  Regulatory
         Capital  Requirements"  above. As a result of the Company's reliance on
         brokered  and  other  wholesale   deposits,   significant   changes  in
         prevailing   interest  rates,   in  the   availability  of  alternative
         investments  for  individual  and  institutional  investors  or in  the
         Company's financial condition,  among other factors,  could have a much
         more  significant  effect on the  Company's  liquidity  and  results of
         operations than might be the case with an institution  that attracted a
         greater  portion of its funds  from  retail or core  deposits  obtained
         through a branch network.

                                       7

<PAGE>


         RISKS  ASSOCIATED  WITH  CURRENT  SOURCES OF LIQUIDITY  AND  ADDITIONAL
         FINANCING FOR GROWTH

               CURRENT  SOURCES OF LIQUIDITY.  The Company's  primary sources of
         funds  for  liquidity  consist  of  deposits,  FHLB  advances,  reverse
         repurchase  agreements,  lines of credit and  maturities  and principal
         payments on loans and securities  and proceeds from sales  thereof.  An
         additional  significant  source  of  asset  liquidity  stems  from  the
         Company's  ability to  securitize  assets  such as  discount  loans and
         sub-prime  loans.  The Company  believes  that its existing  sources of
         liquidity  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 Company's ability to increase its liquidity position. The inability
         of the Company to maintain adequate sources of liquidity,  including as
         a result of the failure to extend or replace  existing  lines of credit
         or as a result of the  factors  described  under  "--Risks  Related  to
         Reliance on Brokered and Other  Wholesale  Deposits" above or "Risks of
         Securitization"  below,  could  have a material  adverse  effect on the
         Company's business, financial condition or results of operations.

               ADDITIONAL  FINANCING FOR GROWTH.  The Company's ability to enter
         into  certain  business  lines as  opportunities  emerge  depends  to a
         significant  degree on its ability to obtain  additional  indebtedness,
         obtain  additional  equity  capital or have access to other  sources of
         capital (e.g., through partnering, joint venturing or other economic or
         contractual   relationships).   The  Company  has  no  commitments  for
         borrowings in addition to those under its current debt  securities  and
         lines of credit,  no commitments for future sales of equity capital and
         no commitments to provide access to other sources of capital. There can
         be no assurance  that the Company will be  successful  in  consummating
         future  financing  transactions,  if any, on terms  satisfactory to the
         Company,  if at all. Factors which could affect the Company's access to
         the capital markets or other economic or contractual relationships,  or
         the  conditions  under  which  the  Company  could  obtain   additional
         financing,  involve  the  perception  in the  capital  markets  and the
         financial  services  industry  of the  Company's  business,  results of
         operations,  leverage, financial condition and business prospects. Each
         of these  factors is to a large extent  subject to economic,  financial
         and  competitive  factors  beyond the Company's  control.  In addition,
         covenants  under the  Company's  current debt  securities  and lines of
         credit do, and future ones may,  significantly  restrict the  Company's
         ability to incur additional indebtedness,  to issue Preferred Stock and
         to enter into certain other contractual relationships.

         RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE

               As  a  holding  company,  the  ability  of  the  Company  to  pay
         dividends,  to pay indebtedness and to conduct its financial  operating
         activities   directly  or  in  non-banking   subsidiaries  will  depend
         significantly on the receipt of dividends or other  distributions  from
         the Bank,  as well as any cash reserves and other liquid assets held by
         the Company, any proceeds from securities offerings or other borrowings
         and any dividends from  non-banking  subsidiaries  of the Company.  The
         ability of the Bank to pay dividends or make other distributions to the
         Company generally is dependent on the Bank's compliance with applicable
         regulatory capital requirements and regulatory restrictions.

               The Bank's  ability  to make  capital  distributions  as a Tier 1
         association  pursuant to the OTS capital  distribution  regulation  are
         limited by the regulatory  capital levels which it has committed to the
         OTS it would  maintain,  commencing on June 30, 1997. As a result of an
         agreement  between  the Bank and the OTS to  dividend  subordinate  and
         residual  mortgage-related  securities  resulting  from  securitization
         activities conducted by the Bank, which had an aggregate carrying value
         of $13.9  million at December 31, 1998,  the Bank may be limited in its
         ability to pay cash dividends to the Company.

                                       8

<PAGE>


               In  addition  to the  foregoing  limitations,  there are  certain
         contractual  restrictions  on the Bank's  ability to pay  dividends set
         forth in the Indenture, dated as of June 12, 1995, between the Bank and
         the Bank of New York,  as trustee,  relating to the Bank's  issuance in
         June 1995 of $100 million of 12% Subordinated  Debentures due 2005, and
         there  are  certain  contractual  restrictions  on the  ability  of the
         Company and the Bank to pay dividends set forth in the Indenture, dated
         as of September 30, 1996,  between the Company and Bank One,  Columbus,
         NA, as trustee, relating to the Company's issuance in September 1996 of
         $125 million of 11.875%  Notes due 2003,  as well as in the  Indenture,
         dated  as of  August  12,  1997,  between  the  Company  and The  Chase
         Manhattan  Bank,  as  trustee,  relating to the  Company's  issuance in
         August 1997 of $125 million of 10.875% Junior  Subordinated  Debentures
         due 2027. In addition,  the right of the Company to  participate in any
         distribution of assets of any subsidiary, including the Bank, upon such
         subsidiary's  liquidation  or  reorganization  or  otherwise,  will  be
         subject to the prior claims of creditors of that subsidiary,  except to
         the  extent  that any  claims  of the  Company  as a  creditor  of such
         subsidiary may be recognized as such.

         RISKS OF SECURITIZATION

               The Company has  historically  generated a significant  amount of
         revenues,  earnings and cash flows from its pooling and selling through
         securitizations of mortgages and other loans originated or purchased by
         the Company.  Adverse  changes in the  secondary  market for such loans
         could impair the Company's  ability to originate or sell  mortgages and
         other  loans  on  a  favorable  or  timely  basis.  Accordingly,   such
         impairments  could have an adverse  effect upon the Company's  business
         and results of operations.  Market and other considerations,  including
         rating  agency  requirements,  could  also  affect  the  timing of such
         transactions.  Any  delay  in the sale of loans  beyond  the  reporting
         period in which such sale is  anticipated to take place would delay any
         expected gains and adversely affect the Company's reported earnings for
         such reporting period. In addition,  the Company retains some degree of
         credit risk on substantially  all loans sold. During the period of time
         that  loans are held  pending  sale,  the  Company  is at risk for loan
         delinquencies  and  defaults  and the risk that the rapid  increase  in
         interest  rates  would  result  in a  decline  in the value of loans to
         potential   purchasers.   Following   the  sale  of  loans   through  a
         securitization,   the  Company's  direct  risk  with  respect  to  loan
         delinquency  or default on such loan is limited to those  circumstances
         in which it is  required to  repurchase  such loan due to a breach of a
         representation or warranty in connection with the securitization.

         COMPETITION

               The  businesses  in which the  Company is engaged  generally  are
         highly competitive. The acquisition of discounted loans is particularly
         competitive,   as  acquisitions  of  such  loans  are  often  based  on
         competitive   bidding.   The  Company   also   encounters   significant
         competition  in  connection  with its  other  lending  activities,  its
         investment  activities,   its  deposit-gathering   activities  and  its
         servicing   activities.   Many  of  the   Company's   competitors   are
         significantly  larger  than the  Company  and have  access  to  greater
         capital  and  other  resources.  In  addition,  many  of the  Company's
         competitors  are not subject to the same extensive  federal  regulation
         that govern  federally-insured  institutions such as the Bank and their
         holding companies.  As a result, many of the Company's competitors have
         advantages  over the  Company  in  conducting  certain  businesses  and
         providing certain services.

         POTENTIAL CONFLICTS OF INTEREST INVOLVING  OCWEN ASSET INVESTMENT CORP.

               The Company  will be subject to various  potential  conflicts  of
         interest arising from the  relationship  between Ocwen Asset Investment
         Corp.  ("OAC"),  a real estate  investment  trust that  specializes  in
         investments in real estate and real estate-related  assets in which the
         Company also may invest, directly or indirectly,  through the Bank, and
         the Company  and Ocwen  Capital  Corporation  ("OCC"),  a  wholly-owned
         subsidiary  of the Company  that  manages  OAC.  Historically,  OAC has
         invested  primarily  in  (i)  subordinate  and  residual  interests  in
         commercial and residential  mortgage-backed securities; (ii) distressed
         commercial  and  multi-family   residential   real  estate,   including
         properties   acquired  by  a  mortgage  lender  by  foreclosure  or  by
         deed-in-lieu  thereof and underperforming or otherwise  distressed real
         property   (collectively,   "Distressed   Real   Estate");   and  (iii)
         single-family  residential  loans,  multi-family  residential loans and
         commercial  real estate  loans,  including  in each case loans that are
         current  in  accordance  with  their  terms  or are  non-performing  or
         underperforming.  The Company does not intend to invest in  subordinate
         classes  of  mortgage-related  securities  which  are  not  created  in
         connection with its securitization activities or Distressed Real Estate
         and, as a result,  the Company,  the Bank and OCC generally have agreed
         to give OAC an exclusive right to purchase such subordinated classes of
         mortgage-related  securities  and  Distressed  Real  Estate.  Both  the
         Company  and  OAC may  engage  in the  acquisition  and  resolution  of
         mortgage loans, including  non-performing and underperforming  mortgage
         loans,  and from  time to time  each  such  entity  also may  invest in
         various  non-subordinated  classes of mortgage-related  securities.  In
         this regard,  OCC,  which,  in addition to managing  OAC,  conducts the
         large  multi-family  residential  and  commercial  real estate  lending
         activities of the Company,  has in the past acquired  loans for OAC (in
         order to enable OAC to leverage  the proceeds  from its initial  public
         offering ) rather than for the Company.  As a result of the  similarity
         of the  Company's  and OAC's  strategies  to invest in certain  assets,
         there  can  be  no  assurance  that  investment   opportunities   which
         previously  would have been taken by the Company  will not be allocated
         to OAC.  In  addition,  from time to time the  Company  may sell loans,
         securities  and real  estate  owned to OAC,  which also  would  involve
         potential  conflicts  of  interest.  Although  the Company and OAC have
         established  certain  policies and  procedures  in order to ensure that
         sales and other transactions  between the Company, the Bank and/or OCC,
         on the one  hand,  and  OAC,  on the  other  hand  (including,  without
         limitation, the base compensation to be paid to OCC by OAC for managing
         its day-to-day  operations),  are conducted on an arms'-length basis on
         substantially  the same terms as would be present in transactions  with
         unaffiliated  parties,  there can be no assurance that such  procedures
         will be sufficient in all  situations to solve  potential  conflicts of
         interest.

         IMPORTANCE OF THE CHIEF EXECUTIVE OFFICER

               William C. Erbey,  Chairman  and Chief  Executive  Officer of the
         Company,  has had, and will continue to have, a significant role in the
         development and management of the Company's  business.  The loss of his
         services could have an adverse  effect on the Company.  The Company and
         Mr. Erbey are not parties to an employment  agreement,  and the Company
         currently  does not  maintain  key man life  insurance  relating to Mr.
         Erbey or any of its other officers.

         CONTROL OF CURRENT STOCKHOLDERS

               As of March 15,  1999,  the  Company's  directors  and  executive
         officers and their  affiliates in the aggregate  beneficially  owned or
         controlled  51.9%  of the  outstanding  Common  Stock  of the  Company,
         including  32.0% owned or controlled by William C. Erbey,  Chairman and
         Chief Executive  Officer of the Company,  and 15.4% owned or controlled
         by Barry N. Wish, currently a director and formerly the Chairman of the
         Company.  As a result,  these shareholders,  acting together,  would be
         able effectively to control virtually all matters requiring approval by
         the shareholders of the Company,  including  amendment of the Company's
         Articles  of   Incorporation,   the  approval  of  mergers  or  similar
         transactions and the election of all directors.

         SOFTWARE PRODUCT DEVELOPMENT; TECHNOLOGICAL CHANGE

               The Company's wholly-owned subsidiary,  Ocwen Technology Xchange,
         Inc. ("OTX"), licenses the Company's mortgage loan servicing resolution
         and work flow  technology  to third  parties in the  mortgage  and real
         estate  industries.  The products offered by OTX have resulted from the
         enhancement  of  software   products  acquired  through  the  Company's
         purchases  of Amos,  Inc.,  a  developer  of  mortgage  loan  servicing
         software,  and  DTS  Communication,  Inc.,  a  real  estate  technology
         company,  with the  Company's  own  proprietary  technology.  While the
         Company believes it has developed  products  attractive to the mortgage
         and real estate  industries,  the computer software industry is subject
         to rapid technological change, changing customer requirements, frequent
         new product  introductions  and evolving  industry  standards  that may
         render  existing  products  and  services  obsolete.  

                                       9

<PAGE>


         There  can  be  no  assurance  that  OTX  will  not  experience  future
         difficulties  that could delay or prevent the  successful  development,
         introduction  and marketing of its  products,  or that its products and
         product  enhancements will meet the requirements of the marketplace and
         achieve  market  acceptance.  If OTX is unable to develop and introduce
         products  of  marketable  quality  in a timely  manner in  response  to
         changing  market  conditions  or customer  requirements,  the Company's
         business,  operating results and financial condition could be adversely
         affected.

         DEPENDENCE ON PROPRIETARY INFORMATION

               The Company's  success is in part dependent upon its  proprietary
         information  and  technology.  The Company  relies on a combination  of
         copyright,  trade  secret and  contract  protection  to  establish  and
         protect its  proprietary  rights in its  products and  technology.  The
         Company  generally  enters  into  confidentiality  agreements  with its
         management and technical staff and limits access to and distribution of
         its proprietary  information.  There can be no assurance that the steps
         taken  by the  Company  in  this  regard  will  be  adequate  to  deter
         misappropriation   of  its   proprietary   rights  or   information  or
         independent third party  development of substantially  similar products
         and  technology.  Although the Company  believes  that its products and
         technology  do not  infringe  any  proprietary  rights of  others,  the
         growing use of copyrights and patents to protect proprietary rights has
         increased the risk that third parties will  increasingly  assert claims
         of infringement in the future.

         YEAR 2000 DATE CONVERSION

               The Company is in the process of  establishing  the  readiness of
         its computer  systems and applications for the year 2000 with no effect
         on  customers or  disruption  to business  operations.  The Company has
         established  a  project  plan to  achieve  year 2000  readiness  of its
         mission critical and non-mission  critical systems,  including hardware
         infrastructure  and  software  applications.  To date,  the Company has
         substantially   completed  the  systems   identification,   evaluation,
         remediation  and  validation  phases of the  project.  The  Company has
         retained a business  continuity expert to prepare contingency plans and
         assist with the testing and validation of these plans. Until this phase
         is  completed,  the Company  will not know the full extent of the risks
         associated with year 2000 readiness,  including an analysis of the most
         reasonably likely worst case year 2000 scenario. In addition, while the
         Company  expects its year 2000 conversion will be completed on a timely
         basis and within the anticipated  budget of approximately $2.0 million,
         no assurance can be given in that regard or that  third-party  computer
         systems and applications will not experience  problems  associated with
         the  recognition  and  processing  of the year 2000 and beyond,  any of
         which could have a material  adverse effect on the Company's  business,
         results of operations or financial condition.

                                       10



<TABLE> <S> <C>


<ARTICLE>                         9
<LEGEND>
THIS  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL  INFORMATION  EXTRACTED  FROM OCWEN
FINANCIAL  CORPORATION'S  CONSOLIDATED  STATEMENT  OF  FINANCIAL  CONDITION  AND
STATEMENT  OF  OPERATIONS  AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL  STATEMENTS  FROM ITS  FILING ON FORM 10-K FOR THE  FISCAL  YEAR ENDED
DECEMBER 31, 1998.
</LEGEND>
<CIK>                                            0000873860
<NAME>                          OCWEN FINANCIAL CORPORATION
<MULTIPLIER>                                          1,000
<CURRENCY>                                              USD
       
<S>                                                     <C>
<PERIOD-TYPE>                                        12-MOS
<FISCAL-YEAR-END>                               DEC-31-1998
<PERIOD-START>                                  JAN-01-1998
<PERIOD-END>                                    DEC-31-1998
<EXCHANGE-RATE>                                           1
<CASH>                                              120,805
<INT-BEARING-DEPOSITS>                               49,374
<FED-FUNDS-SOLD>                                    275,000
<TRADING-ASSETS>                                          0 
<INVESTMENTS-HELD-FOR-SALE>                         593,347
<INVESTMENTS-CARRYING>                               10,825
<INVESTMENTS-MARKET>                                 10,825
<LOANS>                                           1,434,670
<ALLOWANCE>                                          26,330
<TOTAL-ASSETS>                                    3,308,079
<DEPOSITS>                                        2,175,016
<SHORT-TERM>                                        251,336
<LIABILITIES-OTHER>                                  94,759
<LONG-TERM>                                         225,000
<PREFERRED-MANDATORY>                                     0
<PREFERRED>                                               0
<COMMON>                                                608
<OTHER-SE>                                          435,768
<TOTAL-LIABILITIES-AND-EQUITY>                    3,308,079
<INTEREST-LOAN>                                     256,247
<INTEREST-INVEST>                                    43,517
<INTEREST-OTHER>                                      7,930
<INTEREST-TOTAL>                                    307,694
<INTEREST-DEPOSIT>                                  116,584
<INTEREST-EXPENSE>                                  184,893
<INTEREST-INCOME-NET>                               122,801
<LOAN-LOSSES>                                        18,509
<SECURITIES-GAINS>                                (121,589)
<EXPENSE-OTHER>                                     239,933
<INCOME-PRETAX>                                    (32,366)
<INCOME-PRE-EXTRAORDINARY>
                         (32,366)
<EXTRAORDINARY>                                           0
<CHANGES>                                                 0
<NET-INCOME>                                        (1,200)
<EPS-PRIMARY>                                         (.02)
<EPS-DILUTED>                                         (.02)
<YIELD-ACTUAL>                                        10.82
<LOANS-NON>                                         672,801
<LOANS-PAST>                                              0
<LOANS-TROUBLED>                                          0
<LOANS-PROBLEM>                                           0
<ALLOWANCE-OPEN>                                     27,188
<CHARGE-OFFS>                                        20,350
<RECOVERIES>                                            421
<ALLOWANCE-CLOSE>                                    26,330
<ALLOWANCE-DOMESTIC>                                 26,330
<ALLOWANCE-FOREIGN>                                       0
<ALLOWANCE-UNALLOCATED>                                   0
<FN>
<F1> Tag 9-03(7)  includes Loans Available for Sale of $177,847,  Loan Portfolio
     of $230,312, and Discount Loan Portfoio of $1,026,511.

<F2> Tag  9-03(7)(2)  includes  Allowance  for Loan Losses on Loan  Portfolio of
     $4,928 and on the Discount Loan Portfolio of $21,402.

<F3> Tag 9-03(13)  includes  Securities  sold under  agreements to repurchase of
     $72,051 and Obligations outstanding under lines of credit of $179,285.

<F4> Tag  9-04(1)  includes  Interest  Income  on  Loans  Available  for Sale of
     $56,791, Loan Portfolio of $38,609, and Discount Loans of $160,847.

<F5> Tag  9-04(13)(h)  includes  Gains on sale of  securities  of $8,125  and an
     impairment loss on AAA-rated agency IO's of $129,714.

<F6> Tag 9-04(14) includes Non-Interest expense of $226,394 and Distributions on
     Company obligated,  Mandatorily  Redeemable  Securities of Subsidiary Trust
     Holding Solely Junior Subordinated Debentures of the Company of $13,594.
</FN>
        

</TABLE>